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Derivative Liability
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Jun. 30, 2013
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| Derivative Liability [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DERIVATIVE LIABILITY | NOTE 7. DERIVATIVE LIABILITY
As of June 30, 2013, the Company had reserved 60,751,751 shares of common stock for issuance upon exercise of the Company’s outstanding warrants. The Company had reserved 24,705,882 shares of common stock for issuance upon exercise of the Company’s outstanding convertible debt as of June 30, 2013.
On March 28, 2013, the Company repurchased 499,840 shares of common stock and cancelled 499,840 warrants for $125,000. The repurchased shares are reflected under treasury stock in the accompanying balance sheet. On June 30, 2013, the Company had agreed to repurchase an additional 499,840 shares of common stock for $125,000. The commitment to repurchase these shares are represented under treasury stock and accrued expenses in the accompanying balance sheet.
July 2012 Merger
Upon the completion of the July 12, 2012 Merger, $1,925,030 of the Bridge Notes converted into PPO Units. The holders of the Bridge Notes received 7,700,120 five-year bridge warrants (the “Bridge Warrants”), each exercisable to purchase one share of the Company’s Common Stock. 3,850,060 of the Bridge Warrants are exercisable at $0.25 per share (the “Series A Warrants”) and 3,850,060 of the Bridge Warrants (the “Series B Warrants”) are exercisable at $0.50 per share. As of August 29, 2013, the Series A Warrants are exercisable at $0.01 per share and the Series B Warrants are exercisable at $0.015 per share, (See Note 14 for further detail). Except as to exercise price, the Bridge Warrants are identical, in all material respects to the Investor Warrants (as defined below).
Licensor Warrants
The Company also issued to the Licensors warrants exercisable for the purchase of an aggregate of 10,000,000 shares of the Company’s common stock for a term of ten years at an exercise price of $0.24 per share (the “Licensor Warrants”). The exercise price and number of shares of common stock issuable upon exercise of the Licensor Warrants may be adjusted in certain circumstances including stock splits and stock dividends (but excluding future issuances of our equity securities, regardless if for no consideration or for consideration per share less than $0.24). They are exercisable on a cashless basis at any time prior to their expiration. Except as otherwise described herein, the Licensor Warrants are identical in all material respects to the Investor Warrants. On May 8, 2013, the Company reduced the Licensor Warrant exercise price to $0.12 in consideration of value received.
Private Placement Offering
Concurrently with the closing of the Merger, the Company completed an initial closing of a private offering (the “Offering”) wherein 500,000 units (the “PPO Units”) were sold, at a price of $0.25 per PPO Unit, for a total cash consideration of $125,000. Each PPO Unit consists of one share of the Company’s common stock and a redeemable Investor Warrant to purchase one share of the Company’s common stock. The Investor Warrants are exercisable for a period of five years at a purchase price of $1.00 per share of the Company’s common stock. If at any time during the two year period following the closing date the Company issues additional shares of Common Stock for a consideration per share less than $0.25 (the “Reduced Price”), then the Company will issue to the purchasers in the Offering, concurrently with such issue and without any additional consideration from the purchasers, the number of additional shares of the Company’s common stock and Investor Warrants equal to the difference between (A) the purchase price of the PPO Units being subscribed for divided by the Reduced Price and (B) the number of shares of the Company’s common stock included in the units being subscribed for in the Offering. In addition, we effected the conversion of the $1,925,030 in Bridge Notes. The Bridge Notes were converted into 7,700,120 PPO Units and 7,700,120 five-year Investor Warrants each exercisable to purchase one share of the Company’s Common Stock. As of August 29, 2013, the Investor Warrants are exercisable at $0.03 per share (See Note 14 for further detail).
On July 20, 2012, the Company completed the second closing under the Offering through the sale of 124,000 PPO Units (for aggregate gross proceeds of $31,000) consisting of 124,000 shares of common stock and 124,000 five-year Investor Warrants with an exercise price of $1.00.
On July 31, 2012, the Company completed the third closing under the Offering through the sale of 1,639,920 PPO Units (for aggregate gross proceeds of $409,980) consisting of 1,639,920 shares of common stock and 1,639,920 five-year Investor Warrants with an exercise price of $1.00.
On August 24, 2012, the Company completed the fourth closing under the Offering through the sale of 500,000 PPO Units (for aggregate gross proceeds of $125,000) consisting of 500,000 shares of common stock and 500,000 five-year Investor Warrants with an exercise price of $1.00.
On September 10, 2012, the Company completed the fifth closing under the Offering through the sale of 80,000 PPO Units (for aggregate gross proceeds of $20,000) consisting of 80,000 shares of common stock and 80,000 five-year Investor Warrants with an exercise price of $1.00.
On December 6, 2012, the Company completed the sixth closing under the Offering through the sale of 600,000 PPO Units (for aggregate gross proceeds of $150,000) consisting of 600,000 shares of common stock and 600,000 five-year Investor Warrants with an exercise price of $1.00.
On December 10, 2012, the Company completed the seventh closing under the Offering through the sale of 200,000 PPO Units (for aggregate gross proceeds of $50,000) consisting of 200,000 shares of common stock and 200,000 five-year Investor Warrants with an exercise price of $1.00.
On December 12, 2012, the Company completed the eighth closing under the Offering through the sale of 100,000 PPO Units (for aggregate gross proceeds of $25,000) consisting of 100,000 shares of common stock and 100,000 five-year Investor Warrants with an exercise price of $1.00.
On February 8, 2013, the Company completed the ninth closing under the Offering through the sale of 200,000 PPO Units (for aggregate gross proceeds of $50,000) consisting of 200,000 shares of common stock and 200,000 five-year Investor Warrants with an exercise price of $1.00.
As of August 29, 2013, the Investor Warrants are exercisable at $0.03 per share (See Note 14 for further detail).
In connection with the July 12, 2012 PPO closing, the Company issued an aggregate of 656,010 five year broker warrants with an exercise price of $0.25 per share. Effective as of June 30, 2013, 79,975 broker warrants have been cancelled with the repurchase of 999,680 shares. In connection with the July 20, 2012, July 31, 2012, August 24, 2012, and September 10, 2012 closings, the Company issued an aggregate of 187,514 five-year broker warrants with an exercise price of $0.25 per share. In connection with the December 6, 2012, December 10, 2012, and December 12, 2012 closings, the Company issued an aggregate of 72,000 five-year broker warrants with an exercise price of $0.25 per share. In connection with the February 8, 2013 closing, the Company issued 16,000 five-year broker warrants with an exercise price of $0.25 per share. As of August 29, 2013, the broker warrants are exercisable at $0.01 per share (See Note 14 for further detail).
Short Term Loan
In connection with two short-term notes that were issued on September 7, 2012 and an additional short-term note that the Company issued on September 24, 2012, for an aggregate principal amount of $300,000, the Company issued 1,200,000 warrants to holders of these notes (the “Series D Warrants”). These warrants are exercisable for a period of five years at a purchase price of $0.25 per share of the Company’s common stock. These warrants contain certain anti-dilution and other customary terms.
On March 28, 2013, in connection with a repayment of a short-term shareholder note, the Company issued an additional 150,000 five-year warrants to the holder to compensate the holder as the shareholder note was past due. The fair value of the warrants was $9,482. These warrants are exercisable for a period of five years at a purchase price of $0.25 per share of the Company’s common stock. These warrants contain certain anti-dilution and other customary terms.
As of August 29, 2013, the Series D warrants are exercisable at $0.01 per share (See Note 14 for further detail).
Convertible Note Warrants, April Convertible Note Warrants, June Convertible Note Warrants
In connection with the Convertible Note offering on December 21, 2012, the Company issued 8,000,000 Convertible Note Warrants. 4,000,000 Convertible Note Warrants are exercisable at $0.50 and 4,000,000 Convertible Note Warrants are exercisable at $1.00. In connection with the second closing of the offering which occurred on March 28, 2013, the Company and Aegis agreed to modify the exercise price of these Convertible Note Warrants and the placement agent warrants issued by the Company as part of the first closing. As a result of such modification, 4,000,000 of such Convertible Note Warrants are exercisable at $0.25 per share and 4,000,000 of such Convertible Note Warrants are exercisable at $0.50 per share, and all of the placement agent warrants are exercisable at $0.25 per share.
The relative fair value of the warrants at issuance was estimated at $686,192 using a Black-Scholes model with the following assumptions: expected volatility of 60%, risk free interest rate of 0.95%, expected life of five years and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry. The relative fair value of the warrants was recorded in the long-term liability and debt discount on the balance sheet.
In connection with the Convertible Note offering on March 28, 2013, the Company issued 4,520,000 Convertible Note Warrants. 2,260,000 Convertible Note Warrants are exercisable at $0.50 and 2,260,000 Convertible Note Warrants are exercisable at $0.25.
The relative fair value of the warrants at issuance was estimated at $222,457 using a Black-Scholes model with the following assumptions: expected volatility of 55%, risk free interest rate of 1.005%, expected life of five years and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry. The relative fair value of the warrants was recorded in the long-term liability and debt discount on the balance sheet.
In connection with the April Convertible Note offering on April 8, 2013, the Company issued 1,000,000 April Convertible Note Warrants. 500,000 April Convertible Note Warrants are exercisable at $0.25 and 500,000 April Convertible Note Warrants are exercisable at $0.50.
The relative fair value of the warrants at issuance was estimated at $35,434 using a Black-Scholes model with the following assumptions: expected volatility of 55%, risk free interest rate of 1.685%, expected life of five years and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry. The relative fair value of the warrants was recorded in the long-term liability and debt discount on the balance sheet.
In connection with the June Convertible Note offering on June 20, 2013, the Company issued 24,705,882 June Convertible Note Warrants, which are exercisable at $0.082 and contain weighted average anti-dilution protections.
The relative fair value of the warrants at issuance was estimated at $752,126 using a Black-Scholes model with the following assumptions: expected volatility of 55%, risk free interest rate of 1.685%, expected life of five years and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry. The relative fair value of the warrants was recorded in the long-term liability and debt discount on the balance sheet.
Convertible Note Broker Warrants, April Convertible Note Broker Warrants, June Convertible Note Broker Warrants
In connection with the Convertible Note offering on December 21, 2012, the Company issued 1,600,000 Convertible Note Broker Warrants. The Convertible Note Broker Warrants are exercisable at $0.25.
The relative fair value of the warrants at issuance was estimated at $137,238 using a Black-Scholes model with the following assumptions: expected volatility of 60%, risk free interest rate of 0.95%, expected life of five years and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry. The relative fair value of the warrants was recorded in the long-term liability and deferred financing cost on the balance sheet.
In connection with the Convertible Note offering on March 28, 2013, the Company issued 904,000 Convertible Note Broker Warrants. The Convertible Note Broker Warrants are exercisable at $0.25.
The relative fair value of the warrants at issuance was estimated at $57,143 using a Black-Scholes model with the following assumptions: expected volatility of 55%, risk free interest rate of 1.005%, expected life of five years and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry. The relative fair value of the warrants was recorded in the long-term liability and debt discount on the balance sheet.
In connection with the April Convertible Note offering on April 8, 2013, the Company issued 200,000 April Convertible Note Broker Warrants. The April Convertible Note Broker Warrants are exercisable at $0.25.
The relative fair value of the warrants at issuance was estimated at $9,253 using a Black-Scholes model with the following assumptions: expected volatility of 55%, risk free interest rate of 1.685%, expected life of five years and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry. The relative fair value of the warrants was recorded in the long-term liability and debt discount on the balance sheet.
In connection with the June Convertible Note offering on June 20, 2013, the Company issued 2,000,000 Convertible Note Broker Warrants. The Convertible Note Broker Warrants are exercisable at $0.082.
The relative fair value of the warrants at issuance was estimated at $60,886 using a Black-Scholes model with the following assumptions: expected volatility of 55%, risk free interest rate of 1.685%, expected life of five years and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry. The relative fair value of the warrants was recorded in the long-term liability and deferred financing cost on the balance sheet.
Founder Warrants
In connection with the acquisition of the Third License on April 17, 2013, the Company issued 2,500,000 warrants. The warrants are exercisable at $0.13.
The relative fair value of the warrants at issuance was estimated at $210,349 using a Black-Scholes model with the following assumptions: expected volatility of 55%, risk free interest rate of 1.685%, expected life of five years and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry. The relative fair value of the warrants was recorded in the long-term liability and deferred financing cost on the balance sheet.
Debt Conversion Feature
The Convertible Note, April Convertible Note, and June Convertible Note offerings included a Debt Conversion Feature (see Note 5 and 6).
The relative fair value of the Debt Conversion Feature of the December 21, 2012 closing was estimated, using Level 2 inputs, at $663,528 using a Black-Scholes model with the following assumptions: expected volatility of 60%, risk free interest rate of 0.95%, expected life of right months and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry.
The relative fair value of the Debt Conversion Feature of the March 28, 2013 closing was estimated, using Level 2 inputs, at $50,240 using a Black-Scholes model with the following assumptions: expected volatility of 55%, risk free interest rate of 1.005%, expected life of eight months and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry.
The relative fair value of the Debt Conversion Feature of the April 8, 2013 closing was estimated, using Level
2 inputs, at $4,361 using a Black-Scholes model with the following assumptions: expected volatility of 55%, risk free interest rate of 1.685%, expected life of eight months and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry.
The relative fair value of the Debt Conversion Feature of the June 20, 2013 closing was estimated, using Level 2 inputs, at $491,051 using a Black-Scholes model with the following assumptions: expected volatility of 55%, risk free interest rate of 1.685%, expected life of eighteen months and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry.
Fair Value Measurement of Warrants
The relative fair value at issuance of those warrants granted during the quarter ended September 30, 2012 was estimated at $3,788,687 using a Black-Scholes model with the following assumptions: expected volatility of 70%, risk free interest rate of 0.83%, expected life of 5.0 – 10.0 years, based upon the term of the warrant, and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry. The relative fair value of the warrants was recorded in the long-term liability and equity sections of the balance sheet.
The relative fair value at issuance of those warrants granted during the quarter ended December 31, 2012 was $888,596 using a Black-Scholes model with the following assumptions: expected volatility of 60%, risk free interest rate of 0.95%, expected life of 0.8 - 5.0 years, based upon the term of the warrant, and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry. The relative fair value of the warrants was recorded in the long-term liability and equity sections of the balance sheet.
The relative fair value at issuance of those warrants granted during the quarter ended March 31, 2013 was estimated at $297,716 using a Black-Scholes model with the following assumptions: expected volatility of 55%, risk free interest rate of 1.005%, expected life of 5.0 years, based upon the term of the warrant, and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care industry. The relative fair value of the warrants was recorded in the long-term liability and equity sections of the balance sheet.
The relative fair value at issuance of those warrants granted during the quarter ended June 30, 2013 was estimated at $1,067,196 using a Black-Scholes model with the following assumptions: expected volatility of 55%, risk free interest rate of 1.685%, expected life of eighteen months to 10 years, based upon the term of the warrant, and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty and personal care
industry. The relative fair value of the warrants was recorded in the long-term liability and equity sections of the balance sheet.
The Company’s warrant liability was valued at June 30, 2013 using a Black-Scholes model with the following assumptions: expected volatility of 55%, risk free interest rate of 1.005%, expected life of eighteen months – 10 years, based upon the term of the warrant or convertible note, and no dividends. Expected volatility was based on the volatility of similar public entities in the beauty industry. The following table is a rollforward of the fair value of the warrant liability:
During the quarter ended June 30, 2013, the Company changed the exercise price of the 13,520,000 Convertible Note Warrants and April Convertible Note Warrants issued as of December 21, 2012, March 28, 2013 and April 8, 2013 from $0.50 to $0.015 and from $0.25 to $0.01 and changed the exercise price of 2,704,000 Convertible Note Broker Warrants and April Convertible Note Broker Warrants from $0.25 to $0.01. At the same time, the 13,520,000 Convertible Note Warrants and April Convertible Note Warrants and 2,704,000 Convertible Note Broker Warrants and April Convertible Note Broker Warrants were exercised into 11,830,000 and 2,433,600 shares, respectively, (see Note 8).
The relative fair value of the Company’s outstanding warrants and derivative instruments was estimated at $0 and $1,660,440 as of June 30, 2012 and June 30, 2013. The gain / (loss) in the fair value of the warrants of $0 and $5,411,959 for the period ended June 30, 2012 and the year ended June 30, 2013, respectively, was recognized as a gain in the derivative liability section on the accompanying statement of operations.
A summary of the Company’s warrant activity is as follows:
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