XML 50 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
STOCKHOLDERS' EQUITY
 3 Months Ended
Mar. 31, 2013
Stockholders' Deficit:  
STOCKHOLDERS' EQUITY

NOTE 9 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

At March 31, 2013, we had 250,000,000 shares of common stock, $0.001 par value per share authorized, with 129,196,747 shares issued and outstanding.

 

Public Offering

 

On March 14, 2013, we entered into an underwriting agreement, or the "Underwriting Agreement", with Jefferies LLC, as representative of the underwriters named therein, or the Underwriters, relating to the issuance and sale of 29,411,765 shares of our common stock. The price to the public in the offering was $1.70 per share and the Underwriters agreed to purchase the shares from us pursuant to the Underwriting Agreement at a price of $1.581 per share. The net proceeds to us from this offering was  approximately $45.4 million, after deducting underwriting discounts and commissions and other offering expenses payable by us.  In addition, under the terms of the Underwriting Agreement, we granted the Underwriters a 30-day option to purchase up to an additional 4,411,765 shares of common stock. The offering closed on March 20, 2013.

 

Warrants to Purchase Common Stock of the Company

 

As of March 31, 2013, we had common stock purchase warrants, or the Warrant(s), outstanding for an aggregate of 13,443,499 shares of our common stock with a weighted average contractual remaining life of 4.7 years and exercise prices ranging from $0.24 to $3.20 per share, resulting in a weighted average exercise price of $1.77 per share.

 

The valuation methodology used to determine the fair value of our Warrants is the Black-Scholes-Merton option-pricing model, or the Black-Scholes Model, an acceptable model in accordance with ASC 718-10, “Compensation – Stock Compensation”, or ASC 718-10.  The Black-Scholes Model requires the use of a number of assumptions, including volatility of the stock price, the risk-free interest rate and the term of the Warrant.

 

Warrants Issued in Conjunction with Debt

 

On January 31, 2013, we granted a common stock purchase warrant for the purchase of 1,250,000 shares of our common stock in connection with the issuance of the Note, or the Plato Warrant (see NOTE 8 – NOTES PAYABLE, Issuance and payment of Multiple Advance Revolving Credit Note).  The Plato Warrant has an exercise price of $3.20 per share. The Plato Warrant will vest and become exercisable on October 31, 2013 and may be exercised any time after that date prior to the January 31, 2019 expiration date of the Plato Warrant.  The Plato Warrant, with a fair value of approximately $1,711,956, was valued on the date of the grant using a term of six years; a volatility of 44.29%; risk free rate of 0.88%; and a dividend yield of 0%.  At March 31, 2013, $1,447,969 was reported as deferred financing costs included in other current assets in the accompanying condensed balance sheet and is being amortized over the life of the Note. For the three months ended March 31, 2013, $263,987 was recorded as financing costs on the accompanying condensed consolidated financial statements.

 

On June 19, 2012, we granted Warrants for the purchase of an aggregate of 7,000,000 shares of our common stock in connection with the issuance of the June 2012 Notes, or the June 2012 Warrant (see NOTE 8 – NOTES PAYABLE, Issuance and payment of June 2012 Notes). Of the June 2012 Warrants issued, 6,000,000 are exercisable at $2.00 per share and 1,000,000 are exercisable at $3.00 per share.  The fair value of the June 2012 Warrants of $9,424,982 was determined by using the Black-Scholes Model on the date of the grant using a term of 5 years; a volatility of 44.64%; risk free rate of 0.75%; and a dividend yield of 0%.  The relative fair value of the June 2012 Warrants of $1,649,890 was determined by using the relative fair value calculation method on the date of the grant.  As a result of the repayment of the associated debt on March 21, 2013, we expensed the remaining unamortized debt discount of $885,709 at the time of the repayment.

 

On February 24, 2012, we issued Warrants for the purchase of an aggregate of 5,685,300 shares of our common stock in connection with the modification of certain existing promissory notes, or the Modification Warrants, and Warrants for the purchase of an aggregate of 3,314,700 shares of our common stock in connection with the issuance of the February 2012 Notes, or the February 2012 Warrants (see NOTE 8 – NOTES PAYABLE, Issuance and settlement of February 2012 Notes). Both the Modification Warrants and the February 2012 Warrants are exercisable at $0.38 per share. The Modification Warrants’ fair value of $10,505,247 and the February 2012 Warrants’ fair value of $6,124,873 was determined by using the Black-Scholes Model on the date of the grant using a term of 5 years; a volatility of 44.5%; risk free rate of 0.89%; and a dividend yield of 0%. We recorded the fair value of the Modification Warrants as part of the loss on extinguishment of debt in the accompanying condensed consolidated financial statements.  The relative fair value of the February 2012 Warrants of $859,647 was recorded as debt discount. As a result of the surrender of the February 2012 Notes on June 19, 2012, we expensed the remaining unamortized debt discount.

 

Warrants Issued for Services

 

In March 2012, we issued Warrants for the purchase of an aggregate of 31,000 shares of our common stock to five unaffiliated individuals for services rendered. The Warrants were valued on the date of the grant using a term of 5 years; a volatility of 44.81%; risk free rate of 1.04%; and a dividend yield of 0%; $29,736 was recorded as consulting expense in the accompanying consolidated financial statements.

 

A summary of our Warrant activity and related information for 2013 follows:

 

    Number of Shares Under Company Warrants     Weighted Average Exercise Price     Weighted Average Remaining Contractual Life in Years    

 

Aggregate Intrinsic Value

  
Balance at December 31, 2012     12,193,499     $ 1.63       4.8     $ 17,971,994  
   Granted     1,250,000     $ 3.20       5.8     $ —  
   Exercised     —                          
   Expired     —                          
   Cancelled     —                          
Balance at March 31, 2013     13,443,499     $ 1.77       4.7     $ 5,541,549  
Vested and Exercisable at March 31, 2013     13,075,317     $ 1.81       4.6     $ 1,539,539  

 

As of March 31, 2013, we had Warrants outstanding with exercise prices ranging from $0.24 to $3.20 per share. As of March 31, 2013, unamortized costs associated with Warrants totaled approximately $1,274,000.

 

Stock Options

 

In 2009, we adopted the 2009 Long Term Incentive Compensation Plan, or the LTIP, to provide financial incentives to our employees, members of the Board, and advisers and consultants of ours who are able to contribute towards the creation of or who have created stockholder value by providing them stock options and other stock and cash incentives, or the Awards.  The Awards available under the LTIP consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, EVA awards, and other stock or cash awards as described in the LTIP. There are 25,000,000 shares authorized for issuance under the LTIP. Under this plan, non-qualified stock options for the purchase of an aggregate of 11,688,597 shares of our common stock were outstanding at March 31, 2013.

 

On February 23, 2012, our Board of Directors adopted the 2012 Stock Incentive Plan, a non-qualified plan not requiring approval by our shareholders, or 2012 SOP.  The 2012 SOP was designed to serve as an incentive for retaining qualified and competent key employees, officers and directors, and certain consultants and advisors of ours. There are 10,000,000 shares authorized for issuance under the 2012 SOP.  Under this plan, non-qualified stock options for the purchase of an aggregate of 2,225,000 shares of our common stock were outstanding at March 31, 2013.

 

The valuation methodology used to determine the fair value of Options is the Black-Scholes Model.  The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the risk-free interest rate, and the expected life.

 

The assumptions used in the Black-Scholes Model during the three months ended March 31, 2013 are set forth in the table below.

 

 

    Three Months Ended March 31, 2013     Year Ended December 31, 2012  
Risk-free interest rate     0.77-0.81 %     0.61-2.23 %
Volatility     43.01-44.94 %     40.77-46.01 %
Term (in years)     5.5-6.25       5-6.25  
Dividend yield     0.00 %     0.00 %

 

The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the expected life.  Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the term of the award. Our estimated volatility is an average of the historical volatility of the stock prices of our peer entities whose stock prices were publicly available. Our calculation of estimated volatility is based on historical stock prices over a period equal to the term of the awards.  We used the historical volatility of our peer entities due to the lack of sufficient historical data on our stock price.  The average expected life is based on the contractual term of the option using the simplified method.

 

On March 29, 2013, we issued ten-year Options to employees and consultants for the purchase of an aggregate of 180,109 shares with exercise prices ranging from $1.70 to $2.70.  An aggregate of 500 shares available under the Options vest over a four-year period on the anniversary of issuance, an aggregate of 12,500 shares vest monthly over a one-year period, an aggregate of 75,000 shares vest as follows (an aggregate of 31,250 vest immediately and an aggregate of 43,750 vest monthly over the subsequent seven months), and 92,109 shares vest monthly over a thirteen-month period from the date of issuance.

 

On March 30, 2012, we issued ten-year Options to employees and consultants for the purchase of an aggregate of 480,000 shares with an exercise price of $2.40.  An aggregate of 405,000 shares available under the Options vest over a four-year period on anniversary of issuance, an aggregate of 60,000 shares vest over a two-year period on the anniversary of issuance, and 15,000 shares vest monthly over a twelve-month period from the date of issuance.

 

On March 30, 2012, our Board of Directors approved a cashless exercise provision for use by holders of Options.  Also on March 30, 2012, an individual exercised his right to purchase 245,485 shares of our common stock. The aggregate purchase price of approximately $60,000 was paid pursuant to a cashless exercise provision wherein the individual surrendered his right to receive 25,000 shares thereunder. The 220,485 shares were issued in reliance upon an exemption from the registration provisions of the Securities Act of 1933 due to Section 4(1) of the Act and Rule 144 and are covered by a lock-up agreement.

 

On February 27, 2012, we issued Options to our officers and directors.  The ten-year Options are for the purchase of an aggregate of 600,000 shares and have an exercise price of $2.20 per share.  The Options vest in full on February 27, 2013.

 

In January 2012, certain individuals exercised their right to purchase an aggregate of 1,630,022 shares of our common stock for an aggregate purchase price of $166,000.  The shares were issued in reliance upon an exemption from the registration provisions of the Securities Act of 1933 due to Section 4(1) of the Act and Rule 144 and are covered by a lock- up agreement.

 

A summary of activity under the LTIP and SOP and related information follows:

 

    Number of Shares Under Company Option     Weighted Average Exercise Price     Weighted Average Remaining Contractual Life in Years    

 

Aggregate Intrinsic Value

  
Balance at December 31, 2012     13,733,488     $ 1.16       7.7     $ 26,804,117  
   Granted     180,109     $ 2.12       9.6          
   Exercised     —                          
   Expired     —                          
   Cancelled     —                          
Balance at March 31,2013     13,913,597     $ 1.16       7.9     $ 13,955,624  

Vested and Exercisable at March 31, 2013

     9,196,154     $ 0.53       6.7     $ 12,729,500  

 

The weighted-average issue date fair value of Options issued during the three months ended March 31, 2013 was $0.87.

 

As of March 31, 2013, we had Options outstanding with exercise prices ranging from $0.10 to $3.40 per share.

 

Share-based compensation expense for Options recognized in our results for the three months ended March 31, 2013 and 2012 ($599,960 and $88,585, respectively) is based on awards vested and we estimated no forfeitures.  ASC 718-10, requires forfeitures to be estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from the estimates.

 

At March 31, 2013, total unrecognized estimated compensation expense related to non-vested Options issued prior to that date was approximately $3,908,000 which is expected to be recognized over a weighted-average period of 1.7 years. No tax benefit was realized due to a continued pattern of operating losses.