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Stockholders' Deficit
 12 Months Ended
Jan. 31, 2013
Stockholders' Equity Note [Abstract]  
Stockholders' Deficit

10. Stockholder’s Deficit

 

Equity Incentive Plan 

 

On March 4, 2010, the Company’s Board of Directors approved the 2010 Equity Incentive Plan (the “2010 Plan”). The Plan provides for the granting of the following types of awards to persons who are employees, officers, consultants, advisors, or directors of our Company or any of its affiliates:

 

Under the 2010 Plan, the Company may issue a variety of equity vehicles to provide flexibility in implementing equity awards, including incentive stock options, nonqualified stock options, restricted stock grants and stock appreciation rights.

 

Subject to the adjustment provisions of the 2010 Plan that are applicable in the event of a stock dividend, stock split, reverse stock split or similar transaction, up to 5,000,000 shares of common stock may be issued under the 2010 Plan. Options granted under the 2010 Plan generally vest over a three-year period and generally expire ten years from the date of grant. 

 

Stock options and warrants 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 warrant, whichever can be more clearly determined. The Company recognizes this expense over the period in which the services are provided.   

 

On August 31, 2012 the Company’s Board of Directors amended the 2010 Plan, which allowed the Board to grant an additional 7,000,000 shares up to 12,000,000 shares of the Company’s common stock. The 2010 Plan awards include incentive stock option, non-qualified options, restricted common stock, and stock appreciation rights. As of January 31, 2013, approximately 267,000 shares are available for future grants under the 2010 Plan. The Company issues new shares to satisfy stock option and warrant exercises.

 

Share Issuances  

 

The Company’s Board of Directors authorized the issuance 600,000 shares of common stock for compensation related to consulting and directors’ fees during the twelve months ended January 31, 2012. The shares were valued at $90,000 based on the fair values of the shares at the issuance dates. These shares were not issued as January 31, 2012 and were recorded as a liability at January 31, 2012. Included in the issuance of 600,000 shares were 400,000 restricted shares of common stock acquired by Mr. Suresh Nihalani for $0.001 per share in connection with Mr. Nihalani’s re-election to the Company’s Board of Directors. The fair value of the grant to Mr. Nihalani was $60,000 and was recorded as compensation expense during the year ended January 31, 2012.

 

During the three months ended April 30, 2012, the Company’s Board of Directors authorized: (i) the purchase of 400,000 restricted shares of the Company’s common stock by Mr. Gary Augusta at $0.001 per share by Mr. Augusta in connection with Mr. Augusta’s election to the Company’s Board. The fair value of the shares at grant date was $47,520 and will be accounted for as prepaid consulting and amortized to expense over the related service period, with the unamortized portion presented as a contra equity account on the balance sheet ; (ii) the issuance of 216,000 common shares to SpaGus Capital, LLC with a fair value of $25,661 related to the cost of placing the Senior Secured Note (see Note 8); and (iii) the issuance of 300,000 common shares with a fair value of $41,560 related to consulting services provided by Mr. Augusta during the three months ended April 30, 2012. The Company has the right, but not the obligation, to redeem the unearned service portion of the 400,000 restricted shares purchased by Mr. Nihalani and 400,000 restricted shares purchased by Mr. Augusta at par value.

 

The Company’s Board of Directors authorized the issuance of 200,000 shares to Mr. Augusta with a fair value of $26,000 during the three months ended July 31, 2012 related to consulting services provided by Mr. Augusta.

 

On September 15, 2012, the Company’s Board of Directors authorized the issuance of 3,350,000 shares of the Company’s common stock to certain employees and consultants as follows: (i)1,200,000 common shares purchased by Dr. Eli Hendel for $0.001 per share, pursuant to a consulting agreement dated August 1, 2012 in which if Dr. Hendel is terminated for “any or no reason”, the Company will have the right, but not the obligation, to repurchase at $0.001 per share 800,000 shares if the agreement is terminated within twelve months of the date of the VMM Purchase Agreement (see Note 3), and repurchase 400,000 shares if the agreement is terminated within 24 months. The fair value of the shares was estimated to be $480,000, and the share purchase will be accounted for as prepaid consulting and amortized over the life of the agreement; (ii) 1,000,000 common shares purchased by Dr. Warren Hosseinion, the Company’s Chief Executive Officer, for $0.001 per share with a fair value of $420,000 and expensed at grant date; (iii) 700,000 common shares purchased by Mr. Kyle Francis, the Company’s Chief Financial Officer, for $0.001 per share with a fair value of $269,500 and expensed at grant date; (iv) 316,667 common shares purchased by certain employees and consultants for $0.001 per share with a fair value of $133,317 and expensed at grant date.

 

On October 15, 2012 the Company’s Board of Directors authorized the issuance of 100,000 shares of the Company’s common stock to SpaGus Capital Partners, LLC in connection with the amendment of the Company’s Senior Secured Promissory Note with a fair value of $50,000 (see Note 5).

 

On October 18, 2012 the Company’s Board of Directors authorized the issuance of 400,000 restricted shares of the Company’s common stock with a fair value of $168,000 to Mr. Mark Meyers, pursuant to Mr. Meyers’ appointment to the Company’s Board of Directors. On October 22, 2012 the Company’s Board of Directors authorized the issuance of 500,000 restricted shares of the Company’s common stock with a fair value of $210,000 to Mr. Creem pursuant to Mr. Creem’s appointment to the Company’s Board of Directors. Mr. Meyers and Mr. Creem’s restricted share grants each vest on a monthly basis over 36 months and will be accounted for as prepaid consulting and amortized over the life of their respective agreements.

 

On October 29, 2012 the Board of Directors authorized the issuance of 20,000 shares of the Company’s common stock with a fair value of $12,600 to the 10% Notes placement agent (see Note 6).

 

Option Issuances

 

During the year ended January 31, 2011, the Company’s Board of Directors granted 1,150,000 options to employees and directors. The fair value of the options was $0.11 per share, or $126,500 aggregate fair value. The fair value of each option award was estimated using the Black-Scholes option pricing model. The calculation was based on the exercise price of $0.15, an expected term of 10.0 years using the simplified method, interest rate of 1.98%, volatility of 80% and no dividends.

  

On February 1, 2012 the Board of Directors approved the grant of 1,000,000 stock options to Mr. Ted Schreck in pursuant to Mr. Schreck’s agreement to join the Company’s Board as director. The options vest in three equal installments on each of February 1, 2012, 2013, and 2014 subject to Mr. Schreck’s continued role as a director. The options expire on the tenth anniversary of issuance. The fair value of the stock options of $120,000 was determined under the Black-Scholes option pricing model. The calculation was based on the exercise price of $0.15, an expected term of 10.0 years using the simplified method, interest rate of 1.97%, volatility of 80.0% and no dividends.

 

On September 15, 2012 the Company’s Board of Directors authorized the issuance of stock options to acquire 3,075,000 shares of the Company’s common stock to certain of the Company’s physicians and medical professionals. The options substantially vest in three equal installments on each September 15, 2012, July 31, 2013 and July 31, 2014, subject to the recipients continued role with the Company, and expire on the tenth anniversary of issuance. The fair value of the options was estimated to be $907,796 determined using the Black-Scholes option pricing model based on the following inputs: exercise price of $0.21, expected term of 3.7 years using the simplified method, interest rate of 0.42%, volatility of 80.0% and no dividends.

 

During the 4th quarter ended January 31, 2013 the Company’s Board of Directors authorized the issuance of 150,000 stock options to Mr. Mark Meyers pursuant to Mr. Meyer’s consulting agreement (Note 11). The options vest immediately and expire on the tenth anniversary of issuance.

The fair value of the stock options of $55,617 was determined under the Black-Scholes option pricing model. The calculation was based on the Company’s closing stock price on the date of grant and the following weighted-average inputs: exercise price of $0.21, an expected term of 6.0 years using the simplified method, interest rate of 0.70%, volatility of 36.7% and no dividends.

 

Stock option activity for the year ended January 31, 2013 is summarized below:  

 

          Weighted     Weighted     Aggregate  
          Average     Average     Intrinsic  
    Shares     Per Share     Remaining     Value  
          Exercise     Life        
          Price     (Years)        
Balance, January 31, 2011     -     $ -       -     $ -  
Granted     1,150,000       0.15       -       -  
Exercised     -       -       -       -  
Expired     -       -       -       -  
Forfeited     -       -       -       -  
Balance, January 31, 2012     1,150,000     0.15       8.9     -  
Granted     4,225,000       0.19       9.2       -  
Exercised     (75,000 )     0.21       -       -  
Expired     -       -       -       -  
Forfeited     -       -       -       -  
Balance, January 31, 2013     5,300,000     $ 0.18       9.1     $ -  
                                 
Vested and expected to vest     2,733,336     $ 0.18       8.9     $ -  
Exercisable, January 31, 2013     2,733,336     $ 0.18       8.9     $ -  

 

The total intrinsic value of stock options exercised during the year ended January 31, 2013 was $15,750.

 

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 purposes of the ACO Plan are 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.

 

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.

 

In the 4th quarter ended January 31, 2013, ApolloMed ACO issued restricted common stock under the ACO Plan totaling 3,690,000 shares to participating physicians. One-third of the total share grant, or 1,230,000 shares, vested upon grant and the remainder is subject to the ACO Plan vesting schedule. ApolloMed ACO’s Board of Directors determined the fair value of the shares at grant date was $0.01 per share.

 

The following table summarizes the restricted stock award in the ACO Plan during the year ended January 31, 2013:

 

          Weighted     Aggregate     Weighted  
          Average     Intrinsic     Average  
    Shares     Remaining     Value     Fair Value  
          Life              
          (Years)              
                         
Balance, January 31, 2012     -       -     $ -     $ -  
Granted     3,690,000       1.9       36,900       0.01  
Released     -                          
Balance, January 31, 2013     3,690,000       1.9     $ 36,900     $ 0.01  

 

 

 

Stock-based compensation expense related to restricted stock and option awards is recognized over their respective vesting periods, and is as follows for the year ended January 31:  

 

    2013     2012  
Stock-based compensation expense:                
Cost of services   $ 550,710     $ 29,333  
General and administrative     1,511,017       152,400  
    $ 2,061,728     $ 181,733  

 

As of January 31, 2013, total unrecognized compensation costs related to non-vested stock-based compensation arrangements granted under our 2010, 2012 and ACO Plan’s and the weighted-average period of years expected to recognize those costs are as follows:

 

          Weighted  
    Unrecognized     Average  
    Compensation     Remaining  
    Cost     Life  
          (Years)  
             
Common stock options   $ 521,611       0.9  
                 
ACO Plan restricted stock   $ 24,600       1.9  

 

Warrants 

 

Warrants consisted of the following:

 

    Aggregate     Number of  
    intrinsic value     warrants  
Outstanding at January 31, 2011   $ -       1,655,333  
Lapsed     -       (155,333 )
Outstanding at January 31, 2012   -       1,500,000  
Granted     -       2,936,000  
Exercised     -       -  
Cancelled     -       (1,500,000 )
Outstanding at January 31, 2013   $ -       2,936,000  

 

      Warrants     Weighted     Warrants     Weighted  
      outstanding     average     exercisable     average  
Exercise Price           remaining           exercise price  
            contractual life              
$ 0.11485       1,250,000       3.76       1,250,000     $ 0.11485  
$ 0.11485       250,000       3.76       250,000     $ 0.11485  
$ 0.45000       500,000       3.76       500,000     $ 0.45000  
$ 0.50000       100,000       5.00       100,000     $ 0.50000  
$ 0.45000       660,000       5.00       660,000     $ 0.45000  
$ 0.40000       176,000       5.00       176,000     $ 0.40000  
          2,936,000       4.15       2,936,000     $ 0.27748  

 

In conjunction with the completion of the private placement on October 16, 2009, the Company issued a total of 1,500,000 warrants (“Warrants”). Of this amount, 1,250,000 warrants were issued to the holders of the Convertible Notes and 250,000 warrants were granted to the placement agent. The warrants are exercisable into shares of Common Stock at an exercise price of $0.11485. The warrants had a five-year term and expire on October 31, 2014. On October 29, 2012 the Company, in connection with amendment of its 10% Senior Subordinated Convertible Notes amended the Warrants in which the exercise price was fixed at $0.11485 per share and in which the term was extended to July 31, 2016. In addition, the Company issued to the 10% Note holders warrants to acquire 500,000 shares of the Company’s common stock at $0.45 per share, which have a term that extends to July 31, 2016. The Company issued to the placement agent in the 10% Notes amendment warrants to acquire 100,000 shares of the Company’s common stock at $0.50 per share (see Note 6).

 

In connection with the placement of the 9% Notes (see Note 6), the holders of the 9% Notes received warrants to purchase 660,000 shares of the Company’s common stock at an exercise price of $0.45 per share, subject to adjustment for stock splits, reverse stock splits and stock dividends, and the placement agent warrants to purchase 176,000 shares of the Company’s common at a conversion price of $0.40 per share, subject to adjustment for stock splits, stock dividends and reverse stock splits, and which are exercisable at any date prior to January 31, 2018. The fair value of the 9% Notes warrants was as follows:

 

Fair value of 9% Notes warrants   $ 186,897  
         
Fair value of placement agent warrants   $ 54,468  

 

Authorized stock

 

At January 31, 2013 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 10% Senior Subordinated Callable Convertible Notes, the 8% Senior Subordinated Convertible Promissory Notes, the 9% Senior Subordinated Callable Notes, he exercise of all outstanding warrants exercisable into shares of common stock, and shares granted and available for grant under the Company’s stock option grants. The amount of shares of common stock reserved for these purposes is as follows at January 31, 2013:

 

 

Common stock issued and outstanding     34,843,441  
Conversion of 10% Notes     10,883,761  
Conversion of 8% Notes     600,000  
Conversion of 9% Notes     2,200,000  
Warrants     2,936,000  
Stock options outstanding     5,300,000  
      56,763,202