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Stockholders' Deficiency
3 Months Ended
Mar. 31, 2014
Stockholders' Equity Note [Abstract]  
Stockholders' Deficiency
Note 7 – Stockholders’ Deficiency
 
2010 Equity Participation Plan
 
On February 18, 2014, the Board of Directors of the Company approved an increase in the number of shares of common stock authorized to be issued pursuant to the Plan from 6,000,000 to 12,000,000.
 
Common Stock Issuances
 
During the three months ended March 31, 2014, the Company issued an aggregate of 1,368,651 shares of common stock at prices ranging from $0.35 to $0.45 per unit to investors for aggregate gross proceeds of $545,000. In connection with the purchases, the Company issued warrants to purchase an aggregate of 329,861 shares of common stock at an exercise price of $0.75 per share. The warrants have terms ranging from two to five years.
 
See Note 5 – Notes Payable for details associated with common stock issued in conjunction with the exchange of notes payable.
 
Warrant and Option Valuation
 
The Company has computed the fair value of warrants and options granted using the Black-Scholes option pricing model. Option forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate will be adjusted periodically based on the extent to which actual option forfeitures differ, or are expected to differ, from the previous estimate, when it is material. The Company estimated forfeitures related to option grants at an annual rate of 0% for options granted during the three months ended March 31, 2014. The expected term used for warrants and options issued to non-employees is the contractual life and the expected term used for options issued to employees is the estimated period of time that options granted are expected to be outstanding. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” employee option grants. Since the Company’s stock has not been publicly traded for a sufficiently long period of time, the Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.
 
Warrant Exercise and Reload Program
 
On November 27, 2013, the Company initiated a limited time program (the “Warrant Exercise and Reload Program”) which, at the election of any warrant holder, would permit them to immediately exercise their outstanding exercisable warrants at an exercise price of $0.30 per share. In connection with the exercise of the warrant, in addition to having received the number of shares pursuant to such exercise, each holder would receive a new warrant for the same number of shares purchased with an exercise price of $0.75 per share and an expiration date of December 31, 2015. The terms of the newly issued warrant permit the Company to redeem 100% of the shares underlying the new warrant for a total of $1.00 if the common stock of the Company trades above $1.25 for five consecutive trading days. Under the Warrant Exercise and Reload Program, warrants to purchase an aggregate of 266,667 shares of common stock were exercised during the three months ended March 31, 2014 for aggregate gross proceeds of $80,000. The Company recognized a $30,128 warrant modification charge during the three months ended March 31, 2014, which represents the incremental value of the modified warrant and new warrant combined, as compared to the original warrant value, all valued as of the respective modification dates.
 
Stock Warrants
 
See Note 5 – Notes Payable for details associated with the issuance of warrants in connection with note issuances and the exchange of notes payable. See Note 6 – Commitments and Contingencies for details associated with the issuance of warrants as compensation. See Note 7 – Stockholders’ Deficiency – Common Stock Issuances for details associated with the issuance of warrants in connection with common stock issuances.
 
In applying the Black-Scholes option pricing model to warrants granted, the Company used the following weighted average assumptions:
 
 
 
For The Three Months Ended
 
 
 
March 31,
 
 
 
2014
 
 
2013
 
Risk free interest rate
 
 
1.46
%
 
 
0.79
%
Expected term (years)
 
 
4.37
 
 
 
4.98
 
Expected volatility
 
 
121
%
 
 
135
%
Expected dividends
 
 
0.00
%
 
 
0.00
%
 
The weighted average estimated fair value of the warrants granted during the three months ended March 31, 2014 and 2013 was $0.22 and $0.61  per share, respectively.
 
The Company recorded stock–based compensation expense of $53,726 and $24,200 during the three months ended March 31, 2014 and 2013, respectively, and $627,757 during the period from December 30, 2008 (inception) to March 31, 2014, related to stock warrants issued as compensation, which is reflected as consulting expense in the condensed consolidated statements of operations. As of March 31, 2014, there was no unrecognized stock-based compensation expense related to stock warrants.
 
A summary of the stock warrant activity during the three months ended March 31, 2014 is presented below:
 
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
Weighted
 
 
Average
 
 
 
 
 
 
 
Average
 
 
Remaining
 
 
 
 
 
Number of
 
Exercise
 
 
Life
 
Intrinsic
 
 
 
Warrants
 
Price
 
 
In Years
 
Value
 
Outstanding, December 31, 2013
 
4,795,890
 
$
1.39
 
 
 
 
 
 
 
 
Granted
 
796,528
 
 
0.72
 
 
 
 
 
 
 
 
Exercised
 
(266,667)
 
 
0.30
[1]
 
 
 
 
 
 
 
Forfeited
 
-
 
 
-
 
 
 
 
 
 
 
 
Outstanding, March 31, 2014
 
5,325,751
 
$
1.24
 
 
 
3.0
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable, March 31, 2014
 
4,625,751
 
$
1.20
 
 
 
2.8
 
$
-
 
 
The following table presents information related to stock warrants at March 31, 2014:
 
Warrants Outstanding
 
Warrants Exercisable
 
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
 
 
 
Average
 
Exercisable
 
Exercise
 
 
Number of
 
Remaining Life
 
Number of
 
Price
 
 
Warrants
 
In Years
 
Warrants
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
0.50
 
 
 
40,000
 
 
0.3
 
 
40,000
 
 
0.53
 
 
 
100,000
 
 
1.8
 
 
100,000
 
 
0.75
 
 
 
2,382,557
 
 
2.3
 
 
2,382,557
 
 
0.94
 
 
 
50,000
 
 
4.7
 
 
50,000
 
 
1.00
 
 
 
90,000
 
 
3.7
 
 
90,000
 
 
1.50
 
 
 
1,502,800
 
 
3.2
 
 
1,502,800
 
 
1.75
 
 
 
70,000
 
 
3.8
 
 
70,000
 
 
2.00
 
 
 
123,530
 
 
4.6
 
 
123,530
 
 
2.50
 
 
 
60,000
 
 
3.2
 
 
60,000
 
 
3.00
 
 
 
36,864
 
 
4.1
 
 
36,864
 
$
4.00
 
 
 
170,000
 
 
3.8
 
 
170,000
 
 
Variable
[2]
 
 
700,000
 
 
-
 
 
-
 
 
 
 
 
 
5,325,751
 
 
2.8
 
 
4,625,751
 
 
[1]
Warrants to purchase an aggregate of 266,667 shares of common stock had their exercise prices reduced to $0.30 per share pursuant to the Warrant Exercise and Reload Program. The warrants previously had exercise prices that ranged from $1.50 to $4.00 per share. See Note 7 – Stockholders’ Deficiency – Warrant Exercise and Reload Program.
 
                  
[2]
Warrants to purchase 700,000 shares of common stock have an exercise price which is the greater of $1.50 per share or the fair market value of the common stock on the date certain performance criteria are met. Exercisability of warrants is subject to satisfaction of certain performance criteria which did not occur during the quarter ended March 31, 2014.
 
Stock Options
 
See Note 6 – Commitments and Contingencies for details associated with the issuance of options in connection with consulting agreements.
 
In applying the Black-Scholes option pricing model to stock options granted, the Company used the following weighted average assumptions:
 
 
 
For the Three Months Ended
 
 
 
March 31,
 
 
 
2014
 
 
2013
 
Risk free interest rate
 
 
1.50
%
 
 
1.87
%
Expected term (years)
 
 
5.43
 
 
 
10.00
 
Expected volatility
 
 
121
%
 
 
135
%
Expected dividends
 
 
0.00
%
 
 
0.00
%
 
The weighted average estimated fair value of the options granted during the three months ended March 31, 2014 and 2013 was $0.23 and $0.77  per share, respectively.
 
Between February 18, 2014 and March 12, 2014, the Company granted ten-year options to employees and directors to purchase an aggregate of 2,415,000 shares of common stock at exercise prices ranging from $0.53 to $0.65 per share, pursuant to the Plan. The shares vest as follows: (i) 831,669 shares immediately and (ii) 1,589,331 shares ratably over two years on the grant date anniversaries. The aggregate grant date value of $566,483 will be recognized proportionate to the vesting period.
 
The following table presents information related to stock option expense:
 
 
 
 
 
 
 
 
 
Period From
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
 
December 30,
 
 
 
 
 
Average
 
 
 
For The Three Months Ended
 
2008 (Inception)
 
Unrecognized
 
 
Amortization
 
 
 
March 31,
 
to March 31,
 
at March 31,
 
 
Period
 
 
 
2014
 
2013
 
2014
 
2014
 
 
(Years)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consulting
 
$
100,613
 
$
45,125
 
$
912,599
 
$
172,444
 
 
 
1.7
 
Research and development
 
 
121,390
 
 
83,732
 
 
583,284
 
 
127,533
[1]
 
 
1.6
 
General and administrative
 
 
83,699
 
 
53,750
 
 
1,228,483
 
 
181,993
 
 
 
2.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
305,702
 
$
182,607
 
$
2,724,366
 
$
481,970
 
 
 
1.8
 
 
[1]
Contains $11,867 of unrecognized expense that is subject to non-employee mark-to-market adjustments.
  
A summary of the stock option activity during the three months ended March 31, 2014 is presented below:
 
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
Weighted
 
Average
 
 
 
 
 
 
 
 
Average
 
Remaining
 
 
 
 
 
Number of
 
Exercise
 
Life
 
Intrinsic
 
 
 
Options
 
Price
 
In Years
 
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding, December 31, 2013
 
 
5,043,000
 
$
1.03
 
 
 
 
 
 
 
Granted
 
 
2,740,000
 
 
0.65
 
 
 
 
 
 
 
Exercised
 
 
-
 
 
-
 
 
 
 
 
 
 
Forfeited
 
 
-
 
 
-
 
 
 
 
 
 
 
Outstanding, March 31, 2014
 
 
7,783,000
 
$
0.90
 
 
8.4
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable, March 31, 2014
 
 
5,147,167
 
$
0.89
 
 
6.7
 
$
-
 
 
The following table presents information related to stock options at March 31, 2014:
 
Options Outstanding
 
Options Exercisable
 
 
 
 
 
Weighted
 
 
 
 
 
Outstanding
 
Average
 
Exercisable
 
Exercise
 
Number of
 
Remaining Life
 
Number of
 
Price
 
Options
 
In Years
 
Options
 
 
 
 
 
 
 
 
 
 
 
 
 
$
0.50
 
 
345,000
 
 
5.6
 
 
332,500
 
 
0.53
 
 
40,000
 
 
9.9
 
 
40,000
 
 
0.60
 
 
980,000
 
 
9.5
 
 
490,000
 
 
0.65
 
 
2,675,000
 
 
5.7
 
 
791,667
 
 
1.00
 
 
135,000
 
 
8.3
 
 
85,000
 
 
1.05
 
 
2,280,000
 
 
7.9
 
 
2,280,000
 
 
1.10
 
 
5,000
 
 
3.2
 
 
5,000
 
 
1.20
 
 
10,000
 
 
2.2
 
 
10,000
 
 
1.25
 
 
43,000
 
 
2.6
 
 
43,000
 
 
1.40
 
 
350,000
 
 
5.6
 
 
150,000
 
$
1.50
 
 
920,000
 
 
8.7
 
 
920,000
 
 
 
 
 
7,783,000
 
 
6.7
 
 
5,147,167
 
 
Common Stock Awards
 
The following table presents information related to common stock award expense:
 
 
 
 
 
 
 
 
 
Period From
 
 
 
 
 
 
 
 
 
 
 
December 30,
 
 
 
 
 
For The Three Months
 
2008 (Inception)
 
Unrecognized
 
 
 
March 31,
 
to March 31,
 
at March 31,
 
 
 
2014
 
2013
 
2014
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consulting
 
$
10,000
 
$
48,000
 
$
1,809,746
 
$
-
 
Research and development
 
 
4,071
 
 
723
 
 
30,775
 
 
-
 
General and administrative
 
 
-
 
 
-
 
 
123,900
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
14,071
 
$
48,723
 
$
1,964,421
 
$
-
 
 
A summary of common stock award activity for the three months ended March 31, 2014 is presented below:
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
Average
 
Total
 
 
 
Number of
 
Grant Date
 
Grant Date
 
 
 
Shares
 
Fair Value
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
 
Non-vested, December 31, 2013
 
 
-
 
$
-
 
$
-
 
Granted
 
 
21,691
 
 
0.65
 
 
14,071
 
Vested
 
 
(21,691)
 
 
0.65
 
 
(14,071)
 
Forfeited
 
 
-
 
 
-
 
 
-
 
Non-vested, March 31, 2014
 
 
-
 
$
-
 
$
-