Stock Warrants

3 Months Ended

Sep. 30, 2011

10. Stock Warrants

On June 11, 2010, the Company issued to Pat and Ann Burke (collectively, the "Burkes") a common stock purchase warrant pursuant to which the Burkes may purchase up to 1,250,000 shares of the Company's common stock at $.01 per share. The warrant is exercisable for five years and may be exercised on a cashless basis.

On August 12, 2010, upon approval by the Company board of directors, Phillip Tonge was elected as a director (the "Tonge Appointment"). In connection with the Tonge Appointment, the Company issued Mr. Tonge a warrant (the "Tonge Warrant") to purchase 200,000 shares of common stock at $0.02 per share. The shares underlying the Tonge Warrant will vest equally over five consecutive quarters commencing on September 30, 2010 with full vesting occurring on September 30, 2011. As of September 30, 2011, 200,000 shares had vested and the value of these vested shares was estimated at $1,614 using the Black-Scholes option-pricing model. It was recorded as an increase to additional paid in capital.

On August 24, 2010, upon approval by the Company board of directors, Dr. Hossein Eslambolchi was elected as a director (the "Eslambolchi Appointment"). In connection with the Eslambolchi Appointment, the Company issued to Dr. Eslambolchi a warrant (the "Eslambolchi Warrant") to purchase 600,000 shares of the Company's common stock, at $0.07 per share. As consideration for Dr. Eslambolchi's prior advisory service to the Company over a two-year period commencing January 29, 2009, 450,000 of the shares underlying the Eslambolchi Warrant vested as of August 24, 2010. As of September 30, 2011, 600,000 shares had vested and the value of these vested shares was estimated at $9,682 using the Black-Scholes option-pricing model. It was recorded as an increase to additional paid in capital.

On March 31, 2011 and in connection with the Consuting Agreement discussed in Note 6, the Company also entered into a warrant purchase agreement (the "Purchase Agreement") with TMG. Pursuant to the Purchase Agreement, the Company issued TMG a common stock purchase warrant (the "Warrant"), pursuant to which TMG may purchase up to 10,000,000 shares of the Company's common stock for $.01 per share. The Warrant is exercisable for three years and may be exercised on a cashless basis. The Purchase Agreement also provided for customary representations and warranties regarding the accredited investor status of TMG under Rule 501 of Regulation D, promulgated pursuant to the Securities Act of 1933, as amended. On the date of the grant, Verecloud’s common stock closed at $0.30 per share. Under generally accepted accounting principles, the trading price of the shares was used as the calculated fair market value on the date of issuance. Using the Black-Scholes model, the value of the warrant issued to TMG was calculated as $2,827,928. Since the First Amendment did not result in additional services being performed by TMG, this entire amount has been booked to expense and classified as stock based compensation in the year ended June 30, 2011.

On January 26, 2010, the board of directors adopted the Verecloud, Inc. Unit Bonus Plan (the "Unit Bonus Plan") and granted unit awards ("Unit Awards") to certain current key employees of the Company pursuant to the terms of the Unit Bonus Plan. The Unit Bonus Plan provides that a participant’s Unit Award will vest and become payable only upon one of the following events: (i) a change in control of the Company; (ii) a valuation of the Company equal to or greater than $30 million that is sustained for a period of 15 consecutive days (a "Market Valuation Event"); or (iii) the participant’s involuntary separation from service by the Company without cause or by reason of the participant’s death or disability. On September 16, 2010, the Company’s board of directors voted to eliminate a Market Evaluation Event as a trigger to pay a Unit Award. On June 29, 2011, the Board approved the termination of the Unit Bonus Plan effective June 30, 2011 and authorized the Company's officers to obtain written consent of the Unit Bonus Plan termination from each individual who participated in the Unit Bonus Plan. In connection with the termination of the Unit Bonus Plan, the Board granted each individual who participated in the Unit Bonus Plan a fully vested Common Stock Purchase Warrant (each, a "Common Stock Purchase Warrant") with an exercise price of $0.20, which was the closing price of the Company's common stock on June 30, 2011, the date of grant. Using the Black-Scholes model, the value of the warrants issued to participants below was calculated as $1,201,260. Each Common Stock Purchase Warrant has a 10 year term and provides for a cashless exercise. The Common Stock Purchase Warrants entitle the holder thereof to purchase the following number of shares of the Company's common stock for a period of 10 years following the date of grant:

Participant	Common Stock Purchase Warrants
Mark Faris, Chairman of the Board		3,480,000
Mike Cookson, Chief Operating Officer		1,740,000
William Perkins, Chief Technology Officer		1,740,000
David Loomis, Vice President, Technical Solutions		1,395,000
Total		8,355,000

Verecloud, Inc. 10-Q