Quarterly report pursuant to Section 13 or 15(d)

STOCKHOLDERS' DEFICIT

v3.4.0.3
STOCKHOLDERS' DEFICIT
 9 Months Ended
Mar. 31, 2016
Stockholders' Equity Note [Abstract]  
STOCKHOLDERS' EQUITY
NOTE 6 - STOCKHOLDERS’ DEFICIT
 
At March 31, 2016, we had 300,000,000 shares of common stock, par value of $ 0.001 authorized for issuance, of which 150,935,137 shares were issued and outstanding. During the nine months ended March 31, 2016, we issued 51,171,025 shares of our common stock, valued at $2,046,840, as conversion of debt and accrued interest (see Note 5) and 300,000 shares of our common stock, valued at $14,250 as payment for investor relations services (See Catalyst Global LLC below).
 
In addition, at March 31, 2016, we are authorized to issue up to 5,000,000 shares of preferred stock, par value of $0.001, in one or more classes or series within a class pursuant to the Company’s Amended and Restated Articles of Incorporation. As of March 31, 2016 and June 30, 2015 there are no shares of preferred stock issued and outstanding.
 
Holders of common stock are entitled to receive dividends, when, as, and if declared by the Board of Directors, out of any assets legally available to the Company. Dividends are declared and paid in an equal per-share amount on the outstanding shares of each series of common stock. To date the Board of Directors has neither declared nor paid common stock dividends to shareholders.
   
Common Stock and Warrants
 
Private Placements - Fiscal 2015
 
On July 31, 2014, the board of directors approved a private placement equity financing that was intended to raise up to a total of $990,000. In connection with this private placement, the Company offered accredited investors units, consisting of 1,000,000 shares of common stock and 500,000 warrants at a purchase price of $90,000 per unit. During our fiscal year ended June 30, 2015, we sold 5.95 units to 14 investors for total gross proceeds of $536,000, pursuant to which we issued 5,949,999 shares of common stock and warrants to purchase up to 2,974,999 shares of common stock. The warrants are exercisable for three years and each warrant entitles the holder to purchase one share of common stock at $0.25 per share. SRA served as our placement agent. SRA earned a cash commission of approximately $35,000 based on 9% of gross proceeds and have earned warrants to purchase 385,500 shares of our common stock at an exercise price of $0.09 for its services. The cash commission of approximately $35,000 was recorded as a cost of equity financing. The securities offered and sold in the Offering have not been registered under the Securities Act. The Securities were offered and sold to accredited investors in reliance upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act, thereunder.
 
Private Placement – Fiscal 2016
 
In May 2016, the Company completed an initial closing under a new private placement authorized by the Company’s Board of Directors in April 2016. (See Note 12).
 
Advisory Agreements
 
Monarch Bay Securities. On October 7, 2015, the Company signed an engagement letter (“Agreement”) with Monarch Bay Securities (“MBS”) to assist the Company in raising capital. The arrangement is on a non-exclusive basis and has an initial term of six months. Pursuant to the arrangement, we have paid to MBS a non-refundable cash retainer of $20,000. The $20,000 retainer was fully expensed and is included in selling and administrative expenses during the three and nine months ended March 31, 2016 in the accompanying condensed consolidated statement of operations. In addition, upon a successful closing of financing during the period stated in the Agreement, the Company will pay MBS a fee of 8% of gross proceeds raised in cash and warrants to purchase 8% of total number of shares issued and issuable by the Company to investors under each successful financing.
 
Catalyst Global LLC. On February 11, 2015, we entered into a contract with Catalyst Global LLC (“CGL), pursuant to which CGL agreed to provide investor relations services for 12 months in exchange for monthly fees of $2,000 per month and 450,000 shares of restricted common stock issued as follows: 150,000 shares upon signing and the balance vesting pro rata upon each of the three-, six-, nine-, and twelve-month anniversaries of the contract. The initial tranche was valued at $0.07 per share or $10,500 when issued on February 17, 2015, the second tranche of 75,000 shares was granted and valued at $0.06 per share, or $4,500, on May 12, 2015 and issued on July 28, 2015, the third tranche of 75,000 shares was issued on August 11, 2015 and was valued at $0.04 per share, or $3,000, the fourth tranche of 75,000 shares was issued on November 12, 2015 and was valued at $0.05 per share, or $3,750 and the fifth and final tranche of 75,000 shares was issued on February 11, 2016 and was valued at $0.04 per share or $3,000. During the three and nine months ended March 31, 2016, we recorded expense of approximately $7,000 and $20,000, respectively.
 
Security Research Associates, Inc. On June 26, 2013, we entered into an agreement with SRA pursuant to which SRA agreed to provide business and advisory services. SRA served as our placement agent in connection with the Company’s Fiscal 2015 private placement offerings described above. In connection with these private placements, SRA was paid aggregate cash compensation in the amount of $142,155 and warrants to purchase a total of 2,176,500 shares of our common stock at exercise prices ranging from $0.06 - $0.09 per share. Compensation under the SRA agreement was based on 9% of the gross proceeds raised and a warrant to purchase the number of shares of our common stock equal to 9% of the aggregate gross proceeds from the offerings received from all investors (excluding Esenjay) placed by SRA divided by $0.06 per share.
 
We entered into a renewal agreement with SRA on March 18, 2015 pursuant to which we retained SRA through July 2015 as our exclusive placement agent on a “best-efforts” basis in connection with private placement of stock or convertible securities by the Company. No additional funding was received by the Company, and no additional fees were paid to SRA, during the renewal period. On July 31, 2015, the Agency Agreement with SRA reached its termination date, and was not renewed.
 
Warrant Activity
 
During the nine months ended March 31, 2016 there were no warrants issued, exercised or cancelled. Information relating to warrants outstanding at March 31, 2016 is shown below:
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
Average
 
Remaining
 
 
 
 
 
Exercise Price
 
Contract
 
 
 
Number
 
Per Share
 
Term (# years)
 
Shares purchasable under outstanding warrants at March 31, 2016
 
 
28,040,096
 
$
0.21
 
 
1.2-4.0
 
 
Stock-based Compensation
 
During the nine months ended March 31, 2016, pursuant to the 2014 Equity Incentive Plan, we issued 4,385,000 incentive stock options of the Company’s common stock, with an aggregated estimated grant-date fair value of $113,000, to seventeen Company employees. During the nine months ended March 31, 2015, the Company issued 400,000 non-qualified stock options of the Company’s common stock to a consultant, pursuant to a consulting agreement entered into in December 2013. These options were valued using the Black-Scholes model on the day they were originally due to be issued per agreement, and the Company recorded an accrual in the amount of $76,000 during the year ended June 30, 2014. Such options were issued in July 2014 when the current fair value of $64,000 was determined using the Black-Scholes model. The change in fair value of $12,000 was recorded as a reduction to stock based compensation expense during the nine months ended March 31, 2015. We have not registered the shares of common stock underlying stock options outstanding as of March 31, 2016.
 
Activity in stock options during the nine months ended March 31, 2016, and related balances outstanding as of that date are reflected below:
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
Weighted
 
Average
 
 
 
 
 
Average
 
Remaining
 
 
 
Number of
 
Exercise Price
 
Contract
 
 
 
Shares
 
Per Share
 
Term (# years)
 
Outstanding at June 30, 2015
 
 
6,101,357
 
$
0.15
 
 
 
 
 
Granted
 
 
4,385,000
 
$
0.05
 
 
 
 
 
Exercised
 
 
-
 
 
 
 
 
 
 
 
Forfeited and cancelled
 
 
(1,239,837)
 
$
0.13
 
 
 
 
 
Outstanding at March 31, 2016
 
 
9,246,520
 
$
0.11
 
 
 
6.70
 
Exercisable at March 31, 2016
 
 
6,467,999
 
$
0.13
 
 
 
5.55
 
 
Activity in stock options during the nine months ended March 31, 2015, and related balances outstanding as of that date are reflected below:
 
 
 
 
 
 
Weighted
 
 
 
 
 
Weighted
Average
 
 
 
 
 
Average
Remaining
 
 
 
Number of
 
Exercise Price
Contract
 
 
 
Shares
 
Per Share
Term (# years)
 
Outstanding at June 30, 2014
 
 
6,335,695
 
$
0.19
 
 
 
 
Granted
 
 
400,000
 
$
0.06
 
 
 
 
Exercised
 
 
-
 
 
 
 
 
 
 
Forfeited and cancelled
 
 
(634,338)
 
$
0.41
 
 
 
 
Outstanding at March 31, 2015
 
 
6,101,357
 
$
0.16
 
 
7.73
 
Exercisable at March 31, 2015
 
 
4,394,399
 
$
0.15
 
 
7.40
 
 
Stock-based compensation expense recognized in our condensed consolidated statements of operations for the nine months ended March 31, 2016 and 2015, as shown below, includes compensation expense for stock-based options and awards granted based on the grant date fair value. For options and awards granted, expenses are amortized under the straight-line method over the expected vesting period. Stock-based compensation expense recognized in the condensed consolidated statements of operations has been reduced for estimated forfeitures of options that are subject to vesting. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
 
The closing price of our stock at March 31, 2016, was $0.04, and as a result the intrinsic value of the exercisable options at March 31, 2016, was $4,000.
 
We allocated stock-based compensation expense included in the condensed consolidated statements of operations for employee option grants and non-employee option grants as follows:
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
 
March 31,
 
March 31,
 
March 31,
 
March 31,
 
 
 
2016
 
2015
 
2016
 
2015
 
Research and development
 
$
4,000
 
$
3,000
 
$
18,000
 
$
9,000
 
General and administration
 
 
17,000
 
 
58,000
 
 
81,000
 
 
165,000
 
Total stock-based compensation expense
 
$
21,000
 
$
61,000
 
$
99,000
 
$
174,000
 
 
The Company uses the Black-Scholes valuation model to calculate the fair value of stock options. The fair value of stock options was measured at the grant date using the assumptions (annualized percentages) in the table below:
 
Nine months ended March 31,
 
2016
 
2015
 
Expected volatility
 
 
100
%
 
100
%
Risk free interest rate
 
 
1.31
%
 
0.96
%
Forfeiture rate
 
 
17.00
%
 
0
%
Dividend yield
 
 
0
%
 
0
%
 
The remaining amount of unrecognized stock-based compensation expense at March 31, 2016, is approximately $90,000, which is expected to be recognized over the weighted average period of 2.21 years.