Stockholders' Deficit

3 Months Ended

Jun. 30, 2014

Stockholders' Equity Note [Abstract]

Stockholders' Deficit

8. Stockholders’ Deficit

Common Stock Placement

On March 28, 2014, the Company entered into an equity and debt investment for up to $12.0 million with NNA of Nevada, Inc. (“NNA”). As part of the investment, the Company entered into an Investment Agreement with NNA, dated March 28, 2014 (the “Investment Agreement”), pursuant to which the Company sold NNA 2,000,000 shares of the Company’s common stock (the “Purchased Shares”) at a purchase price of $1.00 per share. In addition with the issuance of common shares, the Company issued to NNA 1,000,000 warrants to purchase the Company’s common stock for $1.00 per share. The Company used the Monte Carlo Method to value the warrants, which used the following inputs: term of 7 years, risk free rate of 2.31%, no dividends, volatility of 71.4%, share price of $0.45 per share and a 50% probability of down-round financing. The Company determined that the fair value of the shares issued was approximately $900,000, or approximately $0.45 per share. The Company also entered into a registration rights agreement (“RRA”) with NNA which requires the Company to file a registration statement to register its shares with the Securities and Exchange Commission no later than March 28, 2015. The RRA requires the Company to use commercially reasonable efforts to complete these actions. If the Initial Registration Statement is not filed with the Commission on or prior to the filing deadline the Company must pay to NNA an amount in Common Stock based upon its then fair market value, as liquidated damages equal to 1.50% of the aggregate purchase price paid by NNA.

Equity Incentive Plans  

The Company’s amended 2010 Equity Incentive Plan (the “2010 Plan”) allowed the Board to grant up to 12,000,000 shares of the Company’s common stock, and provided for awards including incentive stock options, non-qualified options, restricted common stock, and stock appreciation rights. As of June 30, 2014 there were no shares available for grant.

On April 29, 2013 the Company’s Board of Directors approved the Company’s 2013 Equity Incentive Plan (the “2013 Plan”), pursuant to which 5,000,000 shares of the Company’s common stock have been reserved for issuance thereunder. The Company received approval of the 2013 Plan from the Company’s stockholders on May 19, 2013. The Company issues new shares to satisfy stock option and warrant exercises under the 2013 Plan. As of June 30, 2014 there were approximately 2,400,000 shares available for future grants under the 2013 Plan.

Stock options and restricted common stock issued to non-employees as compensation for services to be provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair value of the option or share, whichever can be more clearly determined. The Company recognizes this expense over the period in which the services are provided.   

Share Issuances  

A summary of the Company’s restricted stock sold to employees, directors and consultants with a right of repurchase of unlapsed or unvested shares is as follows for the three months ended June 30, 2014:

			Weighted Average Remaining Vesting		Weighted Average Per Share		Weighted- average Per Share
			Life		Intrinsic		Grant Date
	Shares		(In years)		Value		Fair Value
Unvested or unlapsed shares, beginning of period		907,407		1.3	$	-	$	0.41
Granted		-		-		-		-
Vested / lapsed		(105,555)		-		-		-
Forfeited		-		-		-		-
Unvested or unlapsed shares, end of period		801,852		1.1	$	-	$	0.41

Options

Stock option activity for the three months ended June 30, 2014 is summarized below:

	Shares		Weighted Average Per Share Exercise Price		Weighted Average Remaining Life (Years)		Weighted Average Per Share Intrinsic Value
Balance, beginning of period		6,287,000	$	0.20		8.7	$	0.11
Granted		-		-		-		-
Cancelled		-		-		-		-
Exercised		-		-		-		-
Expired		-		-		-		-
Forfeited		-		-		-		-
Balance, end of period		6,287,000	$	0.20		8.5	$	0.15
Vested and exercisable, end of period		5,309,223	$	0.19		7.1	$	0.13

ApolloMed ACO 2012 Equity Incentive Plan

On October 18, 2012 ApolloMed ACO’s Board of Directors adopted the ApolloMed Accountable Care Organization, Inc. 2012 Equity Incentive Plan (the “ACO Plan”) and reserved 9,000,000 shares of ApolloMed ACO’s common stock for issuance thereunder. The purpose of the ACO Plan is to encourage selected employees, directors, consultants and advisers to improve operations and increase the profitability of ApolloMed ACO and encourage selected employees, directors, consultants and advisers to accept or continue employment or association with ApolloMed ACO.

The following table summarizes the restricted stock award in the ACO Plan during the three months ended June 30, 2014:

	Shares		Weighted Average Remaining Vesting Life (Years)		Weighted Average Per Share Intrinsic Value		Weighted Average Per Share Fair Value
Balance, beginning of period		3,752,000		0.8	$	0.02	$	0.03
Granted		-		-		-		-
Released		-		-		-		-
Balance, end of period		3,752,000		0.6	$	0.02	$	0.03
Vested and exercisable, end of period		2,484,667

Awards of restricted stock under the Plan vest (i) one-third on the date of grant; (ii) one-third on the first anniversary of the date of grant, if the grantee has remained in service continuously until that date; and (iii) one-third on the second anniversary of the date of grant if the grantee has remained in service continuously until that date. 

As of June 30, 2014, total unrecognized compensation costs related to non-vested stock-based compensation arrangements granted under the Company’s 2010 and 2013 Equity Plans, and the ACO Plan’s and the weighted-average period of years expected to recognize those costs are as follows:

Common stock options	$	86,469
Restricted stock	$	182,860
ACO Plan restricted stock	$	17,069

Stock-based compensation expense related to common stock and common stock option awards is recognized over their respective vesting periods and was included in the accompanying condensed consolidated statement of operations as follows:

	Three Months Ended June 30,
	2014		2013
Stock-based compensation expense:
Cost of services	$	28,743	$	488,879
General and administrative		90,396		1,063,425
	$	119,139	$	1,552,304

Warrants

Warrants consisted of the following for the three months ended June 30, 2014:

	Weighted Average Per Share
	Intrinsic		Number of
	Value		warrants
Outstanding, beginning of period	$	0.02		7,145,000
Granted		-		-
Exercised		-		-
Cancelled		-		-
Outstanding, end of period	$	-		7,145,000

				Weighted
				average				Weighted
Exercise Price Per		Warrants		remaining		Warrants		average
Share		outstanding		contractual life		exercisable		exercise price per share
$	0.11485		1,250,000		2.1		1,250,000	$	0.1149
$	0.11485		250,000		2.1		250,000	$	0.1149
$	0.45000		500,000		2.1		500,000	$	0.4500
$	0.50000		100,000		3.3		100,000	$	0.5000
$	0.45000		825,000		3.6		825,000	$	0.4500
$	0.40000		220,000		3.6		220,000	$	0.4000
$	1.00000		2,000,000		7.0		2,000,000	$	1.0000
$	2.00000		2,000,000		7.0		2,000,000	$	2.0000
			7,145,000		5.1		7,145,000		0.9700

In connection with the 2014 NNA Financing debt and equity investment, NNA received warrants to purchase up to 2,000,000 shares of the Company’s common stock at an exercise price of $1.00 per share and up to 2,000,000 shares at an exercise price of $2.00 per share, subject to adjustment for stock splits, reverse stock splits and stock dividends, and which are exercisable at any date prior to March 28, 2021. The warrants also contained down-round protection under which the exercise price of the warrants is subject to adjustment in the event the Company issues future common shares at a price below $0.90 per share. The Company determined that the warrants should be classified as liabilities under ASC 815-40, which requires the Company to determine the fair value of the warrants at the transaction date and at each subsequent reporting period (see Notes 2 and 5). Following the funding of the Convertible Note on July 30, 2014, additional warrants to purchase up to 1,000,000 shares of the Company’s common stock at an exercise price of $1.00 per share that had been issued in connection with the 2014 NNA Financing became exercisable.

Authorized stock

At June 30, 2014 the Company was authorized to issue up to 100,000,000 shares of common stock. The Company is required to reserve and keep available out of the authorized but unissued shares of common stock such number of shares sufficient to effect the conversion of all outstanding shares of the 9% Senior Subordinated Callable Notes, the exercise of all outstanding warrants exercisable into shares of common stock, and shares granted and available for grant under the Company’s 2013 Plan. The amount of shares of common stock reserved for these purposes is as follows at June 30, 2014: 

Common stock issued and outstanding	49,134,549
Conversion of 9% Notes	2,750,000
Warrants outstanding	7,145,000
Stock options outstanding	6,287,000
Remaining shares issuable under 2013 Equity Incentive Plan	2,400,000
	67,716,549