Quarterly report pursuant to Section 13 or 15(d)

Note 6 - Stockholders' Deficit

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Note 6 - Stockholders' Deficit
 3 Months Ended
Sep. 30, 2016
Notes to Financial Statements  
Stockholders' Equity Note Disclosure [Text Block]
NOTE
6
- STOCKHOLDERS’ DEFICIT
 
Common Stock and Warrants
We issued the following shares of common stock during the three months ended September 30, 2016
:
 
     
Value of Common Stoc
k
    
Shares of Common Stoc
k
  
                   
Shares issued in 2016 Private Placement as Loan Conversio
n
   $ 400,000       10,000,000  
Shares issued in 2016 Private Placement for Cas
h
     1,075,000       26,875,000  
Shares issued in 2016 Private Placement for Private Placement Subscription
     -       2,500,000  
Shares issued for Services Rendere
d
     3,000       75,000  
Shares issued in Warrant Exchang
e
     7,824       1,106,341  
Tota
l
   $ 1,485,824       40,556,341  
 
 
Private Placement
–2016
 
In April 2016, our Board of Directors approved the private placement of up to 77,500,000 shares of our common stock to select accredited investors for a total amount of $3,100,000, or $0.04 per share of common stock. On July 28, 2016, our Board of Directors increased the aggregate amount offered to up to $4,000,000 and extended the termination date to August 31, 2016 (the “Offering”). During the three months ended September 30, 2016, $1,475,000 was raised of which $1,075,000 was received in cash and $400,000 was
received via the settlement of outstanding debt. Esenjay, our controlling shareholder and primary credit line holder, participated in the Offering as an investor by purchasing 12,500,000 shares for cash proceeds of $500,000 and 10,000,000 shares in exchange for the settlement of $400,000 of debt owed to Esenjay by the Company. In addition, we sold 14,375,000 shares to unrelated accredited investors for $575,000 in cash and issued 2,500,000 shares to an unrelated accredited investor, for which we had received cash proceeds prior to June 30, 2016 of $100,000.  On April 15, 2016, we entered into an agreement with Esenjay, whereby Esenjay agreed to limit its right of conversion under the Unrestricted Line of Credit to such number of shares so that upon conversion, if any, it will not cause us to exceed our authorized number of shares of common stock.
Upon termination of the Offering on August 31, 2016, we had raised
a total of $3,900,000 of which $2,125,000 was received in cash and $1,775,000 was received via the settlement of outstanding debt and liabilities. 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 Rule 506 promulgated thereunder.
 
 
Advisory Agreements
 
Monarch Bay Securities.
On October 7, 2015, we signed an engagement letter (“Agreement”) with Monarch Bay Securities (“MBS”) to assist us 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 during the year ended June 30, 2016. In addition, upon a successful closing of financing during the period stated in the Agreement, we 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. We are currently in the process of renegotiating a new agreement with MBS.
 
Catalyst Global LLC.
Effective April 1, 2016, we entered into a renewal contract with Catalyst Global LLC (“CGL”) to provide investor relations services for 12 months in exchange for monthly fees of $2,000 per month and 540,000 shares of restricted common stock issued as follows: 315,000 shares on June 30, 2016 for services provided during the three months ended June 30, 2016 and the 75,000 shares issued upon each of the six-, nine-, and twelve-month anniversaries of the contract. The initial tranche was valued at $0.05 per share or approximately $14,500 when issued on June 30, 2016, the second tranche of 75,000 shares was issued on September 29, 2016 and was valued at $0.04 per share or $3,000. During the three months ended September 30, 2016, we recorded expense of approximately $3,000.
 
Warrant Activity
 
Warrant detail for the
three months ended September 30, 2016 is reflected below:
 
   
Number of Warrants
    
Weighted
Average
Exercise
Price Per
Warrant
    
Remaining
Contract
Term (#
years)
  
Warrants outstanding and exercisable
at June 30, 2016
     28,040,096     $ 0.20     0.39 - 2.50  
Warrants issued
     -     $ -       -    
Warrants
exchanged
    (1,837,777
)
   $ 0.14      
0.29
    
Warrants outstanding and exercisable at
September 30, 2016
     26,202,319     $ 0.20    
0.29
-
2.23
  
  
 
In 2012, we issued warrants to certain investors and a consultant (together, the "2012 Warrant Holders") to purchase a total of 2,970,347 shares of our common stock at $0.41 per share (the "2012 Warrants").
  On August 23, 2016 we offered our 2012 Warrant Holders the option to convert their 2012 Warrants for shares of our common stock at a conversion rate of 0.602 shares of common stock per warrant share (the "Warrant Exchange").  As of September 30, 2016, one (1) 2012 Warrant Holder has accepted this offer and accordingly, we have exchanged his warrant to purchase 1,837,777 shares of common stock at an exercise price of $0.14 per share into 1,106,341 shares of common stock valued at $0.04 per share, or approximately $44,000.  At September 30, 2016, warrants to purchase 1,069,570 shares of common stock remain available to convert into 643,881 shares of common stock (see Note 7).
 
The Warrant Exchange was accounted for in accordance with the Financial Accounting Standards Board, Accounting Standards Codification Topic No.480-35
Distinguishing Liabilities From Equities, Subsequent Measurement. 
As such, the fair value of the warrants was calculated on the settlement date and recorded as a change in fair value of derivative liabilities.  The common stock issued in exchange for the warrants was recorded at the fair value of the remaining warrant derivative liability.
 
Stock-based Compensation
 
 
On November 26, 2014, our board of directors approved our 2014 Equity Incentive Plan (the “2014 Plan”), which was approved by our shareholders on February 17, 2015. The 2014 Plan offers selected employees, directors, and consultants the opportunity to acquire our common stock, and serves to encourage such persons to remain employed by us and to attract new employees. The 2014 Plan allows for the award of stock and options, up to 10,000,000 shares of our common stock.
 
Activity in stock options during the
three months ended September 30, 2016 and related balances outstanding as of that date are reflected below:
 
   
Number of
Shares
    
Weighted
Average
Exercise Price
    
Weighted
Average
Remaining
Contract
Term (# years)
  
Outstanding at June 30,
2016
     9,004,020     $ 0.11          
Granted
     -                  
Exercised
     -                  
Forfeited and cancelled
     (801,320
)
   $ 0.25          
Outstanding at
September 30, 2016
     8,202,700     $ 0.10       7.42  
Exercisable at
September 30, 2016
     6,023,455     $ 0.12       6.40  
 
Activity in stock options during the
three months ended September 30, 2015 and related balances outstanding as of that date are reflected below:
 
   
Number of
Shares
    
Weighted
Average
Exercise Price
    
Weighted
Average
Remaining
Contract
Term (# years)
  
Outstanding at June 30,
2015
     6,101,357     $ 0.16          
Granted
     -                  
Exercised
     -                  
Forfeited and cancelled
     (389,774
)
     0.30          
Outstanding at
September 30, 2015
     5,711,583     $ 0.15       6.20  
Exercisable at
September 30, 2015
     4,849,251     $ 0.15       6.02  
 
Stock-based compensation expense recognized in our consolidated statements of operations for the
three months ended September 30, 2016 and 2015, 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.
 
Our average stock price during the three months ended September 30, 2016, was $0.05, and as a result the intrinsic value of the exercisable options at September 30, 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:
 
Three months
ended
September
30,
  
2016
    
2015
  
Research and development
   $ 7,000     $ 3,000  
General and administrative
     4,000       27,000  
Total stock-based compensation expense
   $ 11,000     $ 30,000  
 
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:
 
Three months ended September 30,
 
2016
    
2015
  
Expected volatility
     100%       100%
 
Risk free interest rate
     1.31%       0.96%
 
Forfeiture rate
     23.0%       17%
 
Dividend yield
     0%       0%
 
Expected term (years)
     3       3  
 
The remaining amount of unrecognized stock-based compensation expense at
September 30, 2016 relating to outstanding stock options, is approximately $70,000, which is expected to be recognized over the weighted average period of 1.83 years.