Quarterly report pursuant to Section 13 or 15(d)

Note 6 - Stockholders' Deficit

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Note 6 - Stockholders' Deficit
 6 Months Ended
Dec. 31, 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
six
months ended
December
31,
2016:
 
   
Value of
Common Stock
    
Shares of
Common Stock
  
                 
Shares issued in 2016 Private Placement as Loan Conversion
   $
400,000
      
10,000,000
  
Shares issued in 2016 Private Placement for Cash
    
1,075,000
      
26,875,000
  
Shares issued in 2016 Private Placement for Private Placement Subscription
    
-
      
2,500,000
  
Shares issued for Services Rendered
    
3,000
      
75,000
  
Shares issued in Warrant Exchange
    
7,824
      
1,106,341
  
Total
   $
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 up to
$4,000,000
and extended the termination date to
August
31,
2016
(the “Offering”). During the period from
July
1,
2016
through
August
31,
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. 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. 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.
  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
 
Boustead Securities.
On
December
2,
2016,
we renewed our agreement with Boustead Securities, formerly known as Monarch Bay Securities, (“Boustead”) 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 Boustead a non-refundable cash retainer of
$10,000.
In addition, upon a successful closing of financing during the
six
-month period ending
June
2,
2017,
we will pay Boustead 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.
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,
and the
third
tranche of
75,000
shares was issued on
January
23,
2017
and was valued at
$0.04
per share or
$3,000.
During the
three
and
six
months ended
December
31,
2016,
we recorded expense of approximately
$3,000
and
$6,000,
respectively. 
 
  
Warrant Activity
 
Warrant detail for the
six
months ended
December
31,
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
    
 
-
 
  
Warrants outstanding and exercisable at December 31, 2016
    
26,202,319
     $
0.20
    
 0.20
-
1.96 
  
 
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
December
31,
2016,
one
(1)
2012
Warrant Holder had 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.
  Subsequent to
December
31,
2016,
nineteen
(19)
2012
Warrant Holders agreed to exchange their warrants for common stock (see Note
12).
 
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
six
months ended
December
31,
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 December 31, 2016
    
8,202,700
     $
0.10
      
7.17
  
Exercisable at December 31, 2016
    
6,322,325
     $
0.11
      
6.55
  
 
Activity in stock options during the
six
months ended
December
31,
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
     $
0.15
      
 
  
Granted
    
4,385,000
      
0.05
      
 
  
Exercised
    
-
      
 
      
 
  
Forfeited and cancelled
    
(389,774
)
    
0.10
      
 
  
Outstanding at December 31, 2015
    
10,096,583
     $
0.11
      
7.72
  
Exercisable at December 31, 2015
    
6,056,827
     $
0.14
      
6.49
  
 
 
Stock-based compensation expense recognized in our consolidated statements of operations for the
three
and
six
months ended
December
31,
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
six
months ended
December
31,
2016,
was
$0.04,
and as a result the intrinsic value of the exercisable options at
December
31,
2016,
was
$1,000.
 
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 Six Months Ended
  
   
December 31,
    
December 31,
    
December 31,
    
December 31,
  
   
2016
    
2015
    
2016
    
2015
  
Research and development
   $
3,000
     $
11,000
     $
7,000
     $
14,000
  
General and administration
    
7,000
      
37,000
      
13,000
      
64,000
  
Total stock-based compensation expense
   $
10,000
     $
48,000
     $
20,000
     $
78,000
  
 
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:
 
Six months ended December 31,
 
2016
 
 
2015
 
Expected volatility
 
 
100%
 
 
 
100%
 
Risk free interest rate
 
 
1.31%
 
 
 
1.31%
 
Forfeiture rate
 
 
23.0%
 
 
 
17%
 
Dividend yield
 
 
0%
 
 
 
0%
 
Expected term (years)
 
 
3
 
 
 
3
 
 
The remaining amount of unrecognized stock-based compensation expense at
December
31,
2016
relating to outstanding stock options, is approximately
$60,000,
which is expected to be recognized over the weighted average period of
1.84
years.