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Stockholders' Deficit
 2 Months Ended
Mar. 31, 2014
Stockholders' Equity Note [Abstract]  
Stockholders' Deficit
7. 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 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 March 31, 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 March 31, 2014 there were 2,707,000 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 
 
On March 28, 2014, the Company issued 2,000,000 shares of common stock to NNA in connection with the 2014 NNA Financing (see Note 4).
 
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 two months ended March 31, 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 - January 31, 2014
 
 
1,012,963
 
 
1.5
 
$
-
 
$
0.41
 
Granted
 
 
-
 
 
-
 
 
-
 
 
-
 
Vested / lapsed
 
 
(105,556)
 
 
-
 
 
-
 
 
-
 
Forfeited
 
 
-
 
 
-
 
 
-
 
 
-
 
Unvested or unlapsed shares - March 31, 2014
 
 
907,407
 
 
1.3
 
$
-
 
$
0.41
 
 
Options
 
Stock option activity for the two months ended March 31, 2014 is summarized below:
 
 
 
 
 
 
Weighted
 
Weighted
 
Weighted
 
 
 
 
 
 
Average
 
Average
 
Average
 
 
 
 
 
 
Per Share
 
Remaining
 
Per Share
 
 
 
 
 
 
Exercise
 
Life
 
Intrinsic
 
 
 
Shares
 
Price
 
(Years)
 
Value
 
Balance, January 31, 2014
 
 
7,358,000
 
$
0.17
 
 
9.0
 
$
0.16
 
Granted
 
 
-
 
 
 
 
 
 
 
 
 
 
Cancelled
 
 
(887,667)
 
 
0.23
 
 
7.9
 
 
-
 
Exercised
 
 
-
 
 
 
 
 
 
 
 
-
 
Expired
 
 
-
 
 
 
 
 
 
 
 
-
 
Forfeited
 
 
(183,333)
 
 
0.21
 
 
8.5
 
 
-
 
Balance, March 31, 2014
 
 
6,287,000
 
$
0.20
 
 
8.7
 
$
0.11
 
Vested and exercisable - March 31, 2014
 
 
5,260,889
 
$
0.19
 
 
7.3
 
$
0.12
 
 
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 two months ended March 31, 2014:
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
 
 
Average
 
Weighted
 
 
 
 
 
 
 
 
Remaining
 
Average
 
Weighted
 
 
 
 
 
 
Vesting
 
Per Share
 
Average
 
 
 
 
 
 
Life
 
Intrinsic
 
Per Share
 
 
 
Shares
 
(Years)
 
Value
 
Fair Value
 
Balance, January 31, 2014
 
 
3,752,000
 
 
1.0
 
$
0.02
 
$
0.03
 
Granted
 
 
-
 
 
-
 
 
-
 
 
-
 
Released
 
 
-
 
 
-
 
 
-
 
 
-
 
Balance, March 31, 2014
 
 
3,752,000
 
 
0.8
 
$
0.02
 
$
0.03
 
Vested and exercisable - March 31, 2014
 
 
2,480,042
 
 
 
 
 
 
 
 
 
 
 
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 March 31, 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
 
$
99,732
 
Restricted stock
 
$
201,380
 
ACO Plan restricted stock
 
$
10,525
 
 
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:
 
 
 
Two months ended March 31,
 
 
 
2014
 
2013
 
Stock-based compensation expense:
 
 
 
 
 
 
 
Cost of services
 
$
15,703
 
$
14,077
 
General and administrative
 
 
44,484
 
 
31,209
 
 
 
$
60,187
 
$
45,286
 
 
Warrants
 
Warrants consisted of the following as of and for the two months ended March 31, 2014:
 
 
 
Weighted
 
 
 
 
 
 
Average
 
 
 
 
 
 
Per Share
 
 
 
 
 
 
Intrinsic
 
Number of
 
 
 
Value
 
warrants
 
Outstanding at February 1, 2014
 
$
0.04
 
 
3,145,000
 
Granted
 
 
-
 
 
4,000,000
 
Exercised
 
 
-
 
 
-
 
Cancelled
 
 
-
 
 
-
 
Outstanding at March 31, 2014
 
$
0.02
 
 
7,145,000
 
 
Exercise Price Per
Share
 
Warrants
outstanding
 
Weighted
average
remaining
contractual life
 
Warrants
exercisable
 
Warrants average
exercise price per
share
 
$
0.11485
 
 
1,250,000
 
 
2.50
 
 
1,250,000
 
$
0.1149
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
0.11485
 
 
250,000
 
 
2.50
 
 
250,000
 
$
0.1149
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
0.45000
 
 
500,000
 
 
2.50
 
 
500,000
 
$
0.4500
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
0.50000
 
 
100,000
 
 
3.74
 
 
100,000
 
$
0.5000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
0.45000
 
 
825,000
 
 
4.00
 
 
825,000
 
$
0.4500
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
0.40000
 
 
220,000
 
 
4.00
 
 
220,000
 
$
0.4000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1.00000
 
 
2,000,000
 
 
7.00
 
 
2,000,000
 
$
1.0000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
2.00000
 
 
2,000,000
 
 
7.00
 
 
2,000,000
 
$
2.0000
 
 
 
 
 
7,145,000
 
 
5.26
 
 
7,145,000
 
 
0.9600
 
 
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 4).
 
Authorized stock
 
At March 31, 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 March 31, 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
 
 
2,707,000
 
 
 
 
68,023,549