v2.4.0.6
Equity
6 Months Ended
Jun. 30, 2013
Equity [Abstract]  
Equity
Note 6 – Equity
 
Consulting Agreement
 
On January 7, 2013, the Company entered into a twelve-month agreement for investor relations services. In consideration of the services to be rendered, the Company agreed to provide $75,000 of common stock upon completion of the initial 45-day test campaign. Pursuant to the agreement, upon receipt of the results of the test campaign, future services and payment terms are to be agreed upon by both parties. As of June 30, 2013, the services anticipated under the agreement have yet to have been performed and no shares have been issued.
 
Private Offerings
 
Third Private Offering
 
During the six months ended June 30, 2013, the Company had two additional closings in connection with a prior private offering that commenced on September 1, 2012 (the “Third Private Offering”), pursuant to which an aggregate of 3,334 investor units (“Third Units”) were sold at a price of $45.00 per Third Unit, resulting in $129,999 of aggregate net proceeds ($150,000 of gross proceeds less $20,001 of issuance costs). Each Third Unit consists of one share of common stock and a redeemable warrant to purchase one share of common stock. In addition, the placement agent was paid cash commissions of $15,000 (a component of issuance costs) and was issued five-year Third Broker Warrants to purchase 334 shares of the Company’s common stock at an exercise price of $45.00 per share. The closings resulted in warrants, which are classified within equity, to purchase 671 shares of common stock having their exercise price reduced to $90.00 per share, including warrants to purchase 338 and 333 shares whose original exercise price was $187.50 per share and $300.00 per share, respectively.
 
The Third Investor Warrants are exercisable for a period of five years at an exercise price of $90.00 per share of common stock, are subject to weighted average anti-dilution protection and possess piggy-back registration rights. The Third Investor Warrants are redeemable at a price of $0.003 per share upon the provision of adequate notice, if and only if (a) the common stock’s average closing bid price exceeds $300.00 for five of any ten consecutive trading days; and (b) the twenty-day average daily volume exceeds 67 shares and there is no more than one single day of no volume. The Third Broker Warrants are identical to the Third Investor Warrants in all material respects except that (i) the resale of the common stock underlying them is not covered by a registration statement; and (ii) they have an exercise price of $45.00 per share of common stock. The Company determined that all warrants issued in conjunction with the Third Private Offering were equity instruments.
 
Unissued Common Stock
 
On May 13, 2013, the Company issued 1,417 shares of common stock to a service provider and the fair value on the date of issuance of $10,583 was credited to equity. Previously, the value of the shares was included in accrued issuable equity in the condensed consolidated balance sheets.
 
As of June 30, 2013, the Company had not issued instructions to its transfer agent to issue 1,000 shares of common stock due to a service provider, therefore the value of the shares was included in accrued issuable equity in the condensed consolidated balance sheets.
 
Stock Warrants
 
A summary of the stock warrant activity during the six months ended June 30, 2013 is presented below:
 
 
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
 
Weighted
 
Average
 
 
 
 
 
 
 
 
 
Average
 
Remaining
 
 
 
 
 
 
Number of
 
Exercise
 
Life
 
Intrinsic
 
 
 
Warrants
 
Price
 
In Years
 
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2012
 
 
201,908
 
$
169.80
 
 
 
 
 
 
 
Issued
 
 
90,476
 
 
34.52
 
 
 
 
 
 
 
Exercised
 
 
-
 
 
-
 
 
 
 
 
 
 
Cancelled
 
 
-
 
 
-
 
 
 
 
 
 
 
Balance, June 30, 2013
 
 
292,384
 
$
126.57
[1]
 
3.99
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable, June 30, 2013
 
 
292,384
 
$
126.57
[1]
 
3.99
 
$
-
 
 
[1] - Investor warrants to purchase 501 shares of common stock had a variable exercise price as of June 30, 2013. These warrants are excluded from the weighted average exercise price.
 
The following table presents information related to stock warrants at June 30, 2013:
 
Warrants Outstanding
 
Warrants Exercisable
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
Outstanding
 
Average
 
Exercisable
 
Exercise
 
Number of
 
Remaining Life
 
Number of
 
Price
 
Warrants
 
In Years
 
Warrants
 
 
 
 
 
 
 
 
 
 
 
 
 
$
3.00
 
 
57,253
 
 
4.96
 
 
57,253
 
 
45.00
 
 
2,651
 
 
4.35
 
 
2,651
 
 
67.50
 
 
4,066
 
 
2.55
 
 
4,066
 
 
75.00
 
 
3,376
 
 
3.29
 
 
3,376
 
 
90.00
 
 
68,489
 
 
4.31
 
 
68,489
 
 
112.50
 
 
1,935
 
 
3.50
 
 
1,935
 
 
187.50
 
 
128,457
 
 
3.24
 
 
128,457
 
 
198.00
 
 
20,001
 
 
5.40
 
 
20,001
 
 
300.00
 
 
5,655
 
 
4.18
 
 
5,655
 
 
Variable
 
 
501
 
 
2.15
 
 
501
 
 
 
 
 
292,384
 
 
3.99
 
 
292,384
 
 
The warrants outstanding in the tables above do not include (1) warrants issuable to investors upon future conversion of their convertible notes; and (2) warrants issuable to the 8% bridge unit placement agent upon the investors’ future conversion of their convertible notes. See Note 5 – Notes Payable for additional details.
 
As of June 30, 2013, the warrants to purchase an aggregate of 501 shares of common stock with a variable exercise price (equal to 65% of the conversion date twenty-day volume weighted average price of the common stock) were exercisable at approximately $2.90 per share.
 
In addition, all of the warrants are subject to weighted average anti-dilution protection upon the issuance of common stock, or securities convertible into common stock, at prices below specified trigger prices. The Third Private Offering and the Units Offering appear to result in dilutive issuances pursuant to the original terms of the warrants. While the Units Offering is not yet complete, the Company has performed a preliminary analysis of the impact of the weighted average anti-dilution adjustment provisions as of June 30, 2013 and estimates that the weighted average exercise prices may have declined by approximately 75%, whereas the quantity of shares attributable to each warrant may have increased by a multiple of approximately 3.85 on a weighted average basis.
 
Stock Options
 
In applying the Black-Scholes option pricing model to options granted, the Company used the following assumptions:
 
 
 
For The Three Months Ended
 
For The Six Months Ended
 
 
 
June 30,
 
June 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
Risk free interest rate
 
 
n/a
 
 
n/a
 
 
n/a
 
 
0.96 - 1.11
%
Expected term (years)
 
 
n/a
 
 
n/a
 
 
n/a
 
 
5.40 - 6.00
 
Expected volatility
 
 
n/a
 
 
n/a
 
 
n/a
 
 
75
%
Expected dividends
 
 
n/a
 
 
n/a
 
 
n/a
 
 
0
%
 
The risk-free interest rate was based on rates of treasury securities with the same expected term as the options. Since the Company’s stock has not been publicly traded for a 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 Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” employee option grants. The expected dividend yield was based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.
 
There were no stock options granted during the three and six months ended June 30, 2013 or during the three months ended June 30, 2012. The weighted average estimated fair value of the stock options granted during the six months ended June 30, 2012 was $66.00 per share. The Company used forfeiture assumptions of 10% to 20% per annum.
 
During the three months ended June 30, 2013 and 2012, the overall stock-based compensation (credit) expense recorded by the Company associated with options was $(819)  (which included a credit of $(97,862) related to the forfeiture of stock options) and $462,183, respectively. During the six months ended June 30, 2013 and 2012, the overall stock-based compensation expense recorded by the Company associated with options was $161,117 and $893,145, respectively. These amounts have been included in operating expenses in the accompanying condensed consolidated statements of operations. As of June 30, 2013, there was approximately $454,014 of unrecognized stock-based compensation expense that will be amortized over a weighted average period of 1.4 years.
 
A summary of the option activity during the six months ended June 30, 2013 is presented below:
 
 
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
 
Weighted
 
Average
 
 
 
 
 
 
 
 
 
Average
 
Remaining
 
 
 
 
 
 
Number of
 
Exercise
 
Life
 
Intrinsic
 
 
 
Options
 
Price
 
In Years
 
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding, December 31, 2012
 
 
82,272
 
$
103.34
 
 
 
 
 
 
 
Granted
 
 
-
 
 
-
 
 
 
 
 
 
 
Exercised
 
 
-
 
 
-
 
 
 
 
 
 
 
Forfeited
 
 
(12,792)
 
 
103.61
 
 
 
 
 
 
 
Outstanding, June 30, 2013
 
 
69,480
 
$
103.29
 
 
8.1
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable, June 30, 2013
 
 
48,015
 
$
103.62
 
 
8.4
 
$
-
 
  
The following table presents information related to stock options at June 30, 2013:
 
Options Outstanding
 
Options Exercisable
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
Outstanding
 
Average
 
Exercisable
 
Exercise
 
Number of
 
Remaining Life
 
Number of
 
Price
 
Options
 
In Years
 
Options
 
 
 
 
 
 
 
 
 
 
 
 
 
$
54.00
 
 
167
 
 
-
 
 
-
 
 
60.00
 
 
167
 
 
-
 
 
-
 
 
66.00
 
 
250
 
 
-
 
 
-
 
 
103.50
 
 
57,513
 
 
8.5
 
 
41,785
 
 
104.40
 
 
11,383
 
 
7.4
 
 
6,230
 
 
 
 
 
69,480
 
 
8.4
 
 
48,015