Stockholders' Equity | 12 Months Ended |
Dec. 31, 2013 |
Equity [Abstract] | ' |
Stockholders' Equity | ' |
NOTE 6. STOCKHOLDERS’ EQUITY |
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Common Stock Issuances |
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On February 28, 2012, the Company increased the number of authorized shares of capital stock to 400,000,000, and the number of authorized shares of common stock to 395,000,000 and effected a one-for-eight reverse stock split. In connection with the Public Offering, after the effectiveness of the Registration Statement on February 7, 2013, the Company effected a one-for-five reverse stock split of its common stock and on February 8, 2013, the Company’s common stock began trading on The NASDAQ Capital Market on a split-adjusted basis. |
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The following is a summary of common stock and capital contribution transactions from inception through December 31, 2013: |
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In fiscal year 1998, the Company recorded capital contributions of $100,000 (the estimated fair value of the services contributed) in connection with services contributed by stockholders, which is recorded respectively in selling, general and administrative and research and development expenses in the accompanying consolidated statements of operations. |
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In fiscal year 1999, the Company recorded capital contributions of $200,000 (the estimated fair value of the services contributed) in connection with services contributed by stockholders, which is recorded respectively in selling, general and administrative and research and development expenses in the accompanying consolidated statements of operations. |
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In fiscal year 2000, the Company issued 23,437 shares of common stock at a price of $0.256 per share for proceeds of $6,000. Also, recorded capital contributions of $200,000 (the estimated fair value of the services contributed) in connection with services contributed by stockholders, which is recorded respectively in selling, general and administrative and research and development expenses in the accompanying consolidated statements of operations. |
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In fiscal year 2001, the Company recorded capital contributions of $200,000 (the estimated fair value of the services contributed) in connection with services contributed by stockholders, which is recorded respectively in selling, general and administrative and research and development expenses in the accompanying consolidated statements of operations. |
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In fiscal year 2002, the Company recorded capital contributions of $200,000 (the estimated fair value of the services contributed) in connection with services contributed by stockholders, which is recorded respectively in selling, general and administrative and research and development expenses in the accompanying consolidated statements of operations. |
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In fiscal year 2003, the Company recorded capital contributions of $200,000 (the estimated fair value of the services contributed) in connection with services contributed by stockholders, which is recorded respectively in selling, general and administrative and research and development expenses in the accompanying consolidated statements of operations. |
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In fiscal year 2004, the Company recorded capital contributions of $400,000 (the estimated fair value of the services contributed) in connection with services contributed by stockholders, which is recorded respectively in selling, general and administrative and research and development expenses in the accompanying consolidated statements of operations. |
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In fiscal year 2005, the Company issued 61,718 shares of common stock at a price of $0.256 per share for gross proceeds of $15,800 for common stock purchases and stock option exercises. The Company received additional capital contributions in cash of $14,200 from the Company’s stockholders and recorded capital contributions of $400,000 (the estimated fair value of the services contributed) in connection with services contributed by stockholders, which is recorded respectively in selling, general and administrative and research and development expenses in the accompanying consolidated statements of operations. |
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In fiscal year 2006, the Company issued 9,375 shares of common stock at a price of $0.256 per share for gross proceeds of $2,400. The Company received additional capital contributions in cash of $48,600 from the Company’s stockholders and recorded capital contributions of $400,000 (the estimated fair value of the services contributed) in connection with services contributed by stockholders, which is recorded respectively in selling, general and administrative and research and development expenses in the accompanying consolidated statements of operations. |
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Prior to the Merger during fiscal year 2007, the Company issued 100,585 shares of its common stock at a price of $0.256 per share for proceeds of $25,750, which includes the issuance of 781 shares upon the exercise of a warrant and 195 shares upon exercise of stock options. Also, prior to the Merger, the Company received capital contributions of $105,907 from the Company’s stockholders and recorded capital contributions of $175,000 (the estimated fair value of the services contributed) in connection with services contributed by stockholders, which is recorded respectively in selling, general and administrative and research and development expenses in the accompanying consolidated statements of operations. |
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Prior to the Merger during fiscal year 2007, the Company recorded additional paid-in capital of $241,701 related to the forgiveness of Stockholders’ Notes (see Note 5). |
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In August 2007, the Company issued a restricted stock grant to an executive of the Company for 4,882 shares of the Company’s common stock. |
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In connection with the Merger in 2007, 46,249 shares of common stock remained outstanding (see Note 2). |
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Concurrent with the Merger in 2007, the Company sold 51,795 shares of common stock for net proceeds of $3,837,791 ($4,143,667 gross) through a private placement (the “Private Placement”). In addition, the investors received warrants to purchase 12,949 shares of common stock for a period of five years at a cash and cashless exercise price of $160.00 and $200.00 per share, respectively. In connection with the Private Placement, the Company incurred placement agent fees and other related expenses totaling $342,105 (of which $36,229 was paid in fiscal year 2008 and netted with the 2008 private placement discussed below) and issued warrants to purchase up to 844 shares of common stock for a period of three years at cash and cashless exercise price of $160.00 and $200.00 per share, respectively. |
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Concurrent with the Merger in 2007, the Company issued 38,254 shares of common stock related to the conversion of the 2007 Notes and accrued interest of $1,530,177. Also, the Company recorded a debt discount of $1,530,177 related to the 2007 Notes (see Note 5). |
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In September 2007, the Company entered into three, one-year consulting agreements with three separate firms to provide services related to investor communications. In the aggregate, 6,875 shares of common stock were issued in accordance with the terms of the agreements along with a warrant to purchase 469 shares of common stock for a period of five years at a cash and cashless exercise price of $160.00 and $200.00, respectively. The fair value of the stock and warrants were valued at $550,000. The estimated costs of the consulting agreements, including the stock, warrants and non-refundable fee were amortized over the one-year terms. |
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On May 12, 2008, the Company sold 45,454 shares of common stock for net proceeds of $3,941,301 ($4,000,000 gross) through a follow-on private placement (the “Follow-on Private Placement”) to accredited investors. In addition, the investors received warrants to purchase 5,682 shares of common stock for a period of five years at a cash and cashless exercise price of $176.00 and $220.00 per share, respectively. In connection with the Follow-On Private Placement, the Company incurred expenses of $22,470, which was recorded as a reduction of additional paid-in capital, and the gross proceeds were also netted with $36,229 related to the 2007 Private Placement that was paid in 2008. |
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In 2008, in connection with the termination of certain consulting agreements entered into in 2007 and 2008, 2,064 shares of common stock were forfeited at a value that was reversed of $135,136. The Company also decreased additional paid-in capital and consulting expense by $70,000 because of the remeasurement of certain consulting agreements. Additionally, during 2008, the Company entered into an agreement with an investor relations firm (“IR Firm”). Pursuant to the agreement with the IR Firm, the Company issued 1,717 shares of common stock during 2008 at a value of $85,833. In a separate agreement, the Company entered into a consulting agreement in which the Company issued a three-year warrant to purchase 125 shares of the Company’s common stock at a cash and cashless price of $80.00 per share. The net amount of shares forfeited during 2008 from consulting agreements and the IR Firm was (347) and the net expense reversed and charged to additional paid-in capital was ($117,993). |
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On November 21, 2008, the Company issued a restricted stock grant to a director of the Company for 625 shares of the Company’s common stock. The restricted stock grant vested over a one-year period. |
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During 2009, in connection with the agreement with the IR Firm, the Company issued 1,144 shares of common stock valued at $50,356. In a separate agreement, the Company entered into a consulting agreement in which the Company issued a stock option to purchase 1,250 shares of the Company’s common stock at an exercise price of $39.60 per share. The fair value of the option, determined based on the Black-Scholes-Merton pricing model, was recorded as $14,434. In another agreement, the Company entered into a consulting agreement in which the Company issued stock options to purchase 1,188 shares of the Company’s common stock at an exercise price of $64.00 per share. The fair value of the options, determined based on the Black-Scholes-Merton pricing model, was recorded at $56,665. The total value of common stock, warrants and options recorded during 2009 was $121,455. |
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In August 2009, the Company issued 1,250 shares of common stock at a price of $39.60 per share for gross proceeds of $49,500 for stock option exercises. |
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In June 2010, the Company entered into two separate agreements with an investor relations firm and a financial advisory services firm (collectively “the firms”) in order to provide certain investor relations and advisory services to the Company for a period of one year. In exchange for such services, the Company issued 5,000 shares, in the aggregate, of its unregistered common stock, of which all shares were nonforfeitable (valued at $208,000 and recorded as prepaid consulting fees upon issuance) to the firms as a prepayment of services to be received over a three-month period. The Company agreed to suspend the services related to these agreements, therefore, at this time no additional shares of common stock will be issued to the firms. For the year ended December 31, 2010, the Company recorded stock-based compensation related to the stock of $208,000. On August 13, 2010, the Company entered into a consulting agreement in which the Company issued stock options to purchase 5,030 shares of the Company’s common stock at an exercise price of $42.80 per share. The fair value of the options, determined based on the Black-Scholes-Merton pricing model, was recorded at $132,300. In September 2010, the Company entered an agreement with an investor relations firm in order to provide certain investor relations services to the Company for a period of six months. In exchange for such services, the Company issued 750 shares, in the aggregate, of its unregistered common stock, of which all shares were nonforfeitable (valued at $27,600 and recorded as prepaid consulting fees upon issuance) to the investor relations firm as a prepayment of services to be received for the initial three-month period of the agreement. The agreement was terminated by the Company during November 2010. For the year ended December 31, 2010, the Company recorded stock-based compensation related to the restricted stock of $27,600. The total number of shares of common stock issued to consultants during 2010 was 5,750 and the total value of common stock and options issued to consultants during 2010 was $367,900. |
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On October 20, 2010, the Company appointed John N. Bonfiglio, Ph.D. as Chief Executive Officer and President of the Company. Dr. Bonfiglio was also appointed as a director on the Company’s Board. The Board granted Dr. Bonfiglio a stock option for 10,000 shares of common stock and issued 1,250 shares of restricted common stock in accordance with the Company’s 2007 Incentive Stock and Awards Plan. The stock option and the restricted common stock vested as follows: 25% of the option shares and the restricted stock vested immediately upon grant, with the balance of the option shares and the restricted stock vesting in equal monthly installments over the next 36 months beginning 30 days after the grant date. The restricted stock was valued at $32.00 per share, the reported closing price of the Company’s common stock on October 20, 2010. For the year ended December 31, 2010, the Company recorded stock-based compensation expense related to the issuance and partial vesting of the restricted stock award of $12,083. |
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On May 13, 2011, the Board of Directors accepted the resignation of Dr. Bonfiglio, Ph.D. as Chief Executive Officer and President of the Company and as a director on the Board of Directors. As a result of Dr. Bonfiglio’s resignation, of the 1,250 shares of restricted stock awarded to him, 469 shares had vested and 781 shares were returned to treasury and cancelled effective his date of resignation. For the year ended December 31, 2011, the Company recorded stock-based compensation expense related to the issuance and partial vesting of the restricted stock award of $3,332. |
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On February 28, 2012, the Company issued 380,868 shares of common stock to Alexej Ladonnikov as payment in full for his 20% ownership of the Note ($200,000) and its related accrued interest ($28,521). See Note 5. |
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On February 28, 2012, the Company issued 1,454,962 shares of common stock to DermaStar as payment in full for its 80% ownership of the Note ($800,000), its related accrued interest ($114,082) and conversion of $56,087 in the Company’s accounts payable. See Note 5. |
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On April 20, 2012, the Company entered into a Securities Purchase Agreement with certain accredited investors relating to the sale and issuance of an aggregate of 2,011,691 shares of its common stock and warrants to purchase up to 502,928 shares of its common stock at an exercise price of $5.925 per share, for an aggregate purchase price of approximately $7,950,000 (the “April Private Placement”). The April Private Placement closed on April 25, 2012, and the Company received proceeds, net of offering costs, of approximately $7,930,000. |
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On April 25, 2012, the Company converted debt totaling $762,534 (including accrued interest of $12,534) owed to DermaStar, a related party, into 193,046 shares of the Company’s common stock and a related warrant to purchase 48,262 shares of the Company’s common stock at an exercise price of $5.925 per share (see Note 5). |
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On August 30, 2012, the Company entered into a License Agreement (the “PCCA License Agreement”) and a Stock Purchase Agreement (the “PCCA Purchase Agreement”) in a strategic transaction with Professional Compounding Centers of America, Inc. (“PCCA”) (the “PCCA Transaction”). Pursuant to the terms of the PCCA Purchase Agreement, on August 31, 2012, the Company issued and sold to PCCA 832,682 shares of its common stock at a per share purchase price of $4.8038, for aggregate proceeds, net of offering costs, of approximately $3,980,000. |
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On December 11, 2012, the Company issued 200 shares of common stock at a price of $4.00 per share for gross proceeds of $800 for stock option exercises. |
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In February 2013, the Company issued 219 shares of common stock to net settle common stock options to purchase 1,030 shares of common stock with an exercise price of $4.00 per share pursuant to a cashless exercise provision. |
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During February and March 2013, the Company made payments totaling $191 in connection with cancelled, fractional share amounts of common stock (35 common stock share equivalents) in connection with the one-for-five reverse stock split effected February 7, 2013. |
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On February 13, 2013, the Company closed the Public Offering and issued an aggregate of 1,840,000 shares of its common stock at a per share price to the public of $5.25, and received net proceeds of $8,140,435 after deducting underwriter fees and commissions and other offering expenses. The underwriters also exercised their option to purchase an additional 276,000 shares of common stock from the Company at $5.25 per share to cover over-allotments on March 14, 2013. Net cash proceeds from the exercise of the over-allotment option were $1,316,116. On February 7, 2013, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with MDB Capital Group, LLC in connection with the Public Offering. As contemplated by the Underwriting Agreement, at the closing of the Public Offering and the over-allotment exercise, the underwriters received warrants (the “Underwriter Warrants”) to purchase an aggregate of 179,860 shares, or 8.5% of the number of shares sold in the offering (including 8.5% of shares sold pursuant to their over-allotment option). The Underwriter Warrants are exercisable at $5.25 per share (100% of the price of the common stock sold in the offering), commencing on the effective date of the offering and expire five years from the effective date of the offering. |
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During June 2013, the Company issued 40,000 shares of common stock to Mark Baum, the Company’s Chief Executive Officer and a director, related to vesting of RSUs. |
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During the year ended December 31, 2013, the Company issued 40,000 restricted shares of common stock to Dr. Robert Kammer, a director, valued at $282,997, in consideration for consulting services provided during the years ended December 31, 2013 and 2012. |
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During September 2013, the Company issued 2,114 restricted shares of common stock to a consultant, valued at $10,750, in consideration for consulting services provided during the year ended December 31, 2013. The fair value of the shares of common stock issued was recorded as stock-based compensation during the year ended December 31, 2013. |
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Preferred Stock |
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At December 31, 2013 and 2012, the Company had 5,000,000 shares of preferred stock, $0.001 par value, authorized and no shares issued and outstanding. |
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Series A Preferred Stock – Converted – Former Related Party |
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The Series A Preferred Stock had the rights and preferences identified in the Certificate of Designation to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 9, 2011. Among other things, the Certificate of Designation (i) authorizes 10 shares of the Company’s preferred stock to be designated as “Series A Convertible Preferred Stock”; (ii) grants the holders of the Series A Preferred Stock the right to convert into the Company’s common stock at a conversion price of approximately $0.06668, as adjusted; (iii) grants a liquidation preference of $10,000 per share of Series A Preferred Stock; (iv) provides that the holders of Series A Preferred Stock shall vote with the holders of the Company’s common stock on an “as converted basis”; and (v) provides that the affirmative vote of a majority of the outstanding shares of the Series A Preferred Stock is required to approve certain corporate matters including, among other things, changes to the rights of the holders of the Series A Preferred Stock, amendments to the Company’s Amended and Restated Certificate of Incorporation or Bylaws, issuance of priority or parity securities, issuance of debt securities, entry into certain fundamental transactions and increase or decrease in the size of the Company’s Board of Directors. |
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In partial consideration for and in connection with the Line of Credit Agreement described in Note 5, on November 21, 2011, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with DermaStar, a former related party, pursuant to which the Company agreed to issue ten (10) shares of newly-designated Series A Preferred Stock to DermaStar for an aggregate purchase price of $100,000. The Purchase Agreement, as amended, became effective on December 9, 2011. On December 12, 2011, the Company and DermaStar consummated the transactions contemplated by the Purchase Agreement. On December 31, 2011 and made effective November 21, 2011, the Company entered into a First Amendment to Securities Purchase Agreement (the “Amendment”). Pursuant to the terms of the Amendment, DermaStar agreed not to convert more than five (5) shares of Series A Preferred Stock into common stock until such time as the Company has a sufficient number of authorized shares of common stock to enable the conversion of all ten shares of Series A Preferred Stock held by DermaStar. The five shares of preferred stock could be converted into 749,850 shares of common stock, which represented approximately 65% of the capital stock of the Company on an as-converted basis at the time of issuance. |
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The Company recorded a BCF of $100,000 to the preferred stock purchase and recorded a preferred stock discount. As the preferred stock did not have a stated redemption date, the associated discount was amortized from the date of issuance to the earliest possible conversion date, which is the date of issuance and recognized as a deemed dividend to the preferred stockholders using the effective yield method. Accordingly, the Company recorded non-cash accretion of preferred stock deemed dividend totaling $100,000 in 2011, which represents an increase to reported net loss in arriving at net loss attributable to common stockholders and additional paid-in capital by a corresponding $100,000. The non-cash accretion of the preferred stock deemed dividend did not have an effect on cash flows for the year ended December 31, 2011. |
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On June 29, 2012, DermaStar converted the 10 shares of Series A Preferred Stock held by it into 1,499,700 shares of the Company’s common stock. In connection with the conversion, the Company paid to DermaStar $200,000 as partial consideration for the conversion pursuant to a conversion agreement. Immediately following the conversion of the Series A Preferred Stock, all 10 shares were retired to the Company’s treasury and cancelled. The Company recognized the $200,000 payment as additional consideration transferred in the transaction in excess of the fair value of the consideration issuable in accordance with the original conversion terms. As a result, the cash payment to DermaStar was recorded as a deemed preferred stock dividend. Accordingly, the Company recorded a deemed preferred stock dividend at the date of conversion, June 29, 2012, totaling $200,000, which represents an increase to reported net loss in arriving at net loss attributable to common stockholders. |
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Stock Option Plan |
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On September 17, 2007, the Company’s Board of Directors and stockholders adopted the Company’s 2007 Incentive Stock and Awards Plan, which was subsequently amended on November 5, 2008, February 26, 2012, July 18, 2012, May 2, 2013 and September 27, 2013 (as amended, the “Plan”). As of December 31, 2013, the Plan provides for the issuance of a maximum of an aggregate of 5,000,000 shares of the Company’s common stock. The purpose of the Plan is to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons in the Company’s development and financial success. Under the Plan, the Company is authorized to issue incentive stock options intended to qualify under Section 422 of the Internal Revenue Code, non-qualified stock options and restricted stock. The Plan is administered by the Compensation Committee of the Company’s Board of Directors. The Company had 2,276,688 shares available for future issuances under the Plan at December 31, 2013. |
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A summary of the Plan activity with respect to options to purchase common stock for the year ended December 31, 2013 is as follows: |
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| | Number of shares | | | Weighted Avg. | | | Weighted Avg. | | | Aggregate | | | | | | |
Exercise Price | Remaining Contractual Life | Intrinsic Value | | | | | |
Options outstanding - January 1, 2013 | | | 905,806 | | | $ | 5.26 | | | | | | | | | | | | | | |
Options granted | | | 697,453 | | | $ | 6.41 | | | | | | | | | | | | | | |
Options exercised | | | (1,030 | ) | | $ | 4 | | | | | | | | | | | | | | |
Options cancelled/forfeited | | | (273,439 | ) | | $ | 7.95 | | | | | | | | | | | | | | |
Options outstanding - December 31, 2013 | | | 1,328,790 | | | $ | 5.31 | | | | 5.91 | | | $ | 140,000 | | | | | | |
Options exercisable | | | 878,891 | | | $ | 4.53 | | | | 4.3 | | | $ | 140,000 | | | | | | |
Options vested and expected to vest | | | 1,283,800 | | | $ | 5.26 | | | | 5.8 | | | $ | 140,000 | | | | | | |
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The aggregate intrinsic value in the table above represents the total pre-tax amount of the proceeds, net of exercise price, which would have been received by option holders if all option holders had exercised and immediately sold all options with an exercise price lower than the market price on December 31, 2013, based on the closing price of the Company’s common stock of $3.36 on that date. |
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During fiscal years 2013 and 2012, the Company granted stock options to certain employees, directors and consultants. The stock options were granted with an exercise price equal to the current market price of the Company’s common stock, as reported by the applicable quotation system of securities exchange on which the common stock was then quoted or listed, at the grant date and have contractual terms ranging from 3 to 10 years. Vesting terms for options granted in fiscal year 2012 to employees, directors and consultants typically included monthly vesting over periods ranging from 12-36 months or quarterly vesting over 12 months. Vesting terms for options granted in fiscal year 2013 to employees, directors and consultants typically included one of the following vesting schedules: 25% or 33% of the shares subject to the option vest and become exercisable on the first anniversary of the grant date and the remaining 67% or 75%, respectively, of the shares subject to the option vest and become exercisable quarterly in equal installments thereafter over two or three years, respectively; quarterly vesting over a three year period; or monthly, quarterly or 100% vesting associated with the provision or completion of services provided under contracts with consultants. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plan) and in the event of certain modifications to the option award agreement. |
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The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model. Prior to April 1, 2013, expected volatilities were based on historical volatility of the Company’s common stock and other factors. Following April 1, 2013, the expected volatility is based on the historical volatilities of the common stock of comparable publicly traded companies based on the Company’s belief that it has significantly changed its business operations and focus, and as a result, it currently has limited relevant historical data regarding the volatility of its stock price on which to base a meaningful estimate of expected volatility. The expected term of options granted was determined in accordance with the “simplified approach” as the Company has limited, relevant, historical data on employee exercises and post-vesting employment termination behavior. The expected risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The financial statement effect of forfeitures is estimated at the time of grant and revised, if necessary, if the actual effect differs from those estimates. For option grants to employees and directors, the Company assigns a forfeiture factor of 10%. These factors could change in the future, affecting the determination of stock-based compensation expense in future periods. Utilizing these assumptions, the fair value is determined at the date of grant. |
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The table below illustrates the fair value per share determined using the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted to employees and directors: |
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| | Year Ended | | | Year Ended | | | | | | | | | | | | | | |
| | 31-Dec-13 | | | 31-Dec-12 | | | | | | | | | | | | | | |
Weighted-average fair value of options granted | | $ | 6.04 | | | $ | 3.2 | | | | | | | | | | | | | | |
Expected terms (in years) | | | 5.8 - 7 | | | | 2.5 - 5.5 | | | | | | | | | | | | | | |
Expected volatility | | | 102 - 123% | | | | 219 - 360% | | | | | | | | | | | | | | |
Risk-free interest rate | | | 0.86 - 2.05% | | | | 0.31 - 1.03% | | | | | | | | | | | | | | |
Dividend yield | | | - | | | | - | | | | | | | | | | | | | | |
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The table below illustrates the fair value per share determined using the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted to consultants: |
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| | Year Ended | | | Year Ended | | | | | | | | | | | | | | |
| | 31-Dec-13 | | | 31-Dec-12 | | | | | | | | | | | | | | |
Weighted-average fair value of options granted | | $ | 5.63 | | | $ | 7.48 | | | | | | | | | | | | | | |
Expected terms (in years) | | | 2.33 - 10 | | | | 4.25 - 5 | | | | | | | | | | | | | | |
Expected volatility | | | 80 - 366% | | | | 306 - 361% | | | | | | | | | | | | | | |
Risk-free interest rate | | | 0.30 - 2.45% | | | | 0.48 - 1.03% | | | | | | | | | | | | | | |
Dividend yield | | | - | | | | - | | | | | | | | | | | | | | |
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The following table summarizes information about stock options outstanding and exercisable at December 31, 2013: |
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| | | Options Outstanding | | | Options Exercisable | |
| | | | | | Weighted | | | | | | | | | | |
| | | | | | Average | | | Weighted | | | | | | Weighted | |
| | | | | | Remaining | | | Average | | | | | | Average | |
| | | Number | | | Contractual | | | Exercise | | | Number | | | Exercise | |
Range of Exercise Prices | | | Outstanding | | | Life in Years | | | Price | | | Exercisable | | | Price | |
$2.40-3.20 | | | | 250,000 | | | | 5.57 | | | $ | 2.8 | | | | 250,000 | | | $ | 2.8 | |
$3.60 - $4.51 | | | | 662,116 | | | | 4.47 | | | $ | 4.13 | | | | 518,335 | | | $ | 4.13 | |
$6.00 - $9.00 | | | | 402,271 | | | | 8.49 | | | $ | 8.11 | | | | 96,153 | | | $ | 8.17 | |
$10.75 | | | | 7,603 | | | | 3.96 | | | $ | 10.75 | | | | 7,603 | | | $ | 10.75 | |
28.00 - $80.00 | | | | 6,800 | | | | 6.13 | | | $ | 40.86 | | | | 6,800 | | | $ | 40.86 | |
| | | | 1,328,790 | | | | 5.91 | | | $ | 5.31 | | | | 878,891 | | | $ | 4.53 | |
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As of December 31, 2013, there was approximately $1,680,000 of total unrecognized compensation expense related to unvested stock options granted under the Plan. That expense is expected to be recognized over the weighted-average remaining vesting period of 2.6 years. The stock-based compensation for all stock options was $1,689,756 and $1,792,993 during the years ended December 31, 2013 and 2012, respectively. |
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Restricted Stock Units |
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RSU awards are granted subject to certain vesting requirements and other restrictions, including performance and market based vesting criteria. The grant-date fair value of the RSUs, which has been determined based upon the market value of the Company’s shares on the grant date, is expensed over the vesting period. Unvested portions of RSUs issued to consultants are remeasured on an interim basis until vesting criteria is met. On May 2, 2013, the Board of Directors of the Company amended and restated the Plan to provide for the issuance of RSUs under the Plan. |
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On May 2, 2013, the Company entered into an amended and restated employment agreement with its CEO, Mark Baum. Among other things, the amended and restated employment agreement provides for the issuance of 1,250,000 RSUs to Mr. Baum, pursuant to the Plan. Of these RSUs, 200,000 vest on the third anniversary of the RSU grant based on continued service to the Company and the remaining 1,050,000 RSUs will vest based on the satisfaction of certain market-based and continued service conditions (the “Baum Performance Equity Award”). The Baum Performance Equity Award vests three years from the date of grant contingent upon the satisfaction of certain market-based vesting criteria during the three year period. The market-based vesting criteria are separated into five equal tranches and require that the Company achieve and maintain certain stock price targets ranging from $10 per share to $30 per share during the three year period following the grant date. With certain limited exceptions, Mr. Baum must be employed with the Company on the third anniversary of the grant date in order for the Baum Performance Equity Award to vest. These market-based vesting conditions are further described below: |
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Tranche | | Number of Shares | | Target Share Price | | | | | | | | | | | | | | | | | |
Tranche 1 | | 19.05% of the Baum Performance Equity Award granted | | $10.00 or greater | | | | | | | | | | | | | | | | | |
Tranche 2 | | 19.05% of the Baum Performance Equity Award granted | | $15.00 or greater | | | | | | | | | | | | | | | | | |
Tranche 3 | | 19.05% of the Baum Performance Equity Award granted | | $20.00 or greater | | | | | | | | | | | | | | | | | |
Tranche 4 | | 19.05% of the Baum Performance Equity Award granted | | $25.00 or greater | | | | | | | | | | | | | | | | | |
Tranche 5 | | 23.80% of the Baum Performance Equity Award granted | | $30.00 or greater | | | | | | | | | | | | | | | | | |
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For each respective tranche to vest the following conditions must be met: (i) the Company’s common stock must have an official closing price at or above the Target Share Price for the respective tranche (each such date, a “Trigger Date”); (ii) during the period that includes the Trigger Date and the immediately following 19 trading days (the “Measurement Period”), the arithmetic mean of the 20 closing prices of the Company’s common stock during the Measurement Period must be at or above the Target Share Price for such tranche; and (iii) with certain limited exceptions, Mr. Baum must be in continuous service with the Company through the third anniversary of the grant date. Any unvested RSUs under the Baum Performance Equity Award will be forfeited on the third anniversary of the grant date. |
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Under the terms of the employment agreement with Mr. Baum, the earning and issuance of any shares under the Baum Performance Equity Award that would exceed the number of shares available for grant and/or the applicable annual per person grant limit for performance-based restricted stock units under the Plan are subject to approval by the Board of Directors and the Company’s stockholders of an increase in the number of shares available for grant and the applicable annual per person grant limit for performance-based restricted stock units under the Plan. At the time of grant in May 2013, the per person grant limit under the Plan for grants of performance-based restricted stock units was 600,000 shares. The Board approved an amendment to the Plan to increase to the number of shares available for grant from 2,400,000 to 5,000,000 shares and the applicable annual per person grant limit from 600,000 to 1,250,000 shares on May 2, 2013. The amendment to the Plan was required to be approved by the Company’s stockholders. On September 27, 2013, a majority of the Company’s stockholders approved the Plan amendment and the remaining 450,000 RSUs were granted on that date pursuant to the Baum Performance Equity Award. |
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Concurrent with the issuance of the 450,000 RSUs, Mr. Baum agreed to cancel 120,000 unvested RSUs previously granted to Mr. Baum in July 2012. As a result, the Company has treated the issuance of the 450,000 RSUs as a modification of the RSU grant made to Mr. Baum in July 2012. The total compensation cost to be recognized by the Company is equal to the original grant date fair value of the canceled RSUs plus any incremental cost calculated as the excess of the fair value of the 450,000 RSUs over the fair value of the canceled 120,000 RSUs on the modification date, which is September 27, 2013. The initial fair value of the 450,000 RSUs pursuant to the Baum Performance Equity Award granted to Mr. Baum was $189,000. No incremental cost was associated with the exchange of RSUs as the fair value prior to modification was more than after the modification. As of December 31, 2013, the amount of unamortized stock based compensation that has not been expensed related to the unvested 450,000 RSUs grant is $156,508. The 450,000 RSUs pursuant to the Baum Performance Equity Award were valued using a Monte Carlo Simulation with a three year life, 75% volatility and a risk free interest rate of 0.64%. |
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The initial fair value of the 200,000 RSUs and 600,000 RSUs pursuant to the Baum Performance Equity Award granted to Mr. Baum was $3,515,090 and as of December 31, 2013, the amount of unamortized stock based compensation that has not been expensed related to the unvested RSUs grants is $2,773,914. The 600,000 RSUs pursuant to the Baum Performance Equity Award were valued using a Monte Carlo Simulation with a three year life, 75% volatility and a risk free interest rate of 0.30%. |
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F-20 | | | | | | | | | | | | | | | | | | | | | |
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On May 24, 2013, the Company granted 100,000 RSUs to a consultant that will vest based on the satisfaction of certain market-based conditions subject to the consultant’s continued service, among other things. These market-based vesting conditions are further described below: |
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Tranche | | Number of Shares | | Target Share Price | | | | | | | | | | | | | | | | | |
Tranche 1 | | 20,000 shares | | $10.00 or greater | | | | | | | | | | | | | | | | | |
Tranche 2 | | 20,000 shares | | $15.00 or greater | | | | | | | | | | | | | | | | | |
Tranche 3 | | 20,000 shares | | $20.00 or greater | | | | | | | | | | | | | | | | | |
Tranche 4 | | 20,000 shares | | $25.00 or greater | | | | | | | | | | | | | | | | | |
Tranche 5 | | 20,000 shares | | $30.00 or greater | | | | | | | | | | | | | | | | | |
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For each respective tranche to vest the following conditions must be met: (i) the Company’s common stock must have an official closing price at or above the Target Share Price for the respective tranche (each such date a “Trigger Date”); (ii) during the period that includes the Trigger Date and the immediately following 19 trading days (the “Measurement Period”), the arithmetic mean of the 20 closing prices during the Measurement Period must be at or above the Target Share Price for such tranche ((i) and (ii), the “Stock Price Conditions”); and (iii) with certain limited exceptions, 50% of the RSUs subject to a tranche will vest on the quarterly anniversary of the grant date following the satisfaction of the Stock Price Conditions with respect to that tranche, subject to the consultant being in continuous service with the Company on such quarterly anniversary and the remaining 50% shall vest on the second anniversary of the grant date if (a) the Stock Price Conditions have been satisfied with respect to that tranche prior to the second anniversary of the grant date and (b) the consultant is and has been in continuous service with the Company on the second anniversary of the grant date. All unvested RSUs will be forfeited on the second anniversary of the grant date. |
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The initial value of the 100,000 RSUs with market-based vesting conditions granted to the consultant was $288,000, and as of December 31, 2013 the remeasured fair value of those RSUs was $10,080. The amount of unamortized stock-based compensation that has not been expensed related to the unvested RSU grant is $7,140. The 100,000 RSUs are valued using a Monte Carlo Simulation with a 2 year life (based on the grant date), 75%-85% volatility and risk free interest rates of 0.13%-0.36%. |
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In June 2013, the Board of Directors approved a one-time grant of 6,865 RSUs (or an aggregate of 34,325 RSUs) to non-employee directors with an aggregate fair value of $271,854. The RSUs vest in full 13 months from the date of grant subject to the director being in continuous service with the Company and have certain deferral features intended to be compliant with Internal Revenue Code Section 409A. Once vesting conditions have been achieved, receipt of the shares underlying the RSUs will be deferred until the directors resign. |
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In September and October 2013, two directors resigned and forfeited all 6,865 (13,730 RSUs total) unvested RSUs previously held. |
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In October 2013, the Company issued 8,947 RSUs to Peter C. Kenny, for his service to the Company as a director, with an aggregate fair value of $39,814. The RSUs vest in full 13 months from the date of grant subject to the director being in continuous service with the Company and have certain deferral features intended to be compliant with Internal Revenue Code Section 409A. |
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In November 2013, the Company issued 10,418 RSUs to certain employees with an aggregate fair value of $42,498. The RSUs have a three year vesting term, whereby they vest in equal installments on an annual basis. |
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A summary of the Company’s RSU activity and related information for the year ended December 31, 2013 is as follows: |
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| | Number of RSUs | | | Weighted Average Grant Date Fair Value | | | | | | | | | | | | | | |
RSUs outstanding - January 1, 2013 | | | 200,000 | | | $ | 3.25 | | | | | | | | | | | | | | |
RSUs granted | | | 1,403,690 | | | $ | 3.24 | | | | | | | | | | | | | | |
RSUs vested | | | (40,000 | ) | | $ | 3.25 | | | | | | | | | | | | | | |
RSUs cancelled/forfeit | | | (173,730 | ) | | $ | 3.62 | | | | | | | | | | | | | | |
Balance at December 31, 2013 | | | 1,389,960 | | | $ | 3.19 | | | | | | | | | | | | | | |
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On July 18, 2012, a consultant was issued 40,000 RSUs valued at $130,000, and on September 30, 2013, these RSUs were cancelled. |
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As of December 31, 2013, the total unrecognized compensation expense related to unvested RSUs was approximately $3,105,000 (including recognized and unrecognized expenses of the remeasured fair value of consultant RSUs) which are expected to be recognized over a weighted-average period of 2.23 years, based on estimated vesting schedules. The stock-based compensation for RSU’s was $822,137 and $363,619 during the years ended December 31, 2013 and 2012, respectively. |
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Warrants |
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From time to time, the Company issues warrants to purchase shares of the Company’s common stock to investors, note holders, underwriters and to non-employees for services rendered or to be rendered in the future. |
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In February 2013, the Company issued a warrant to purchase 30,000 shares of the Company’s common stock to a consultant with an exercise price of $5.25 per share. The warrants expire three years following the issuance date, and vest as follows: 10,000 shares vested immediately upon execution of the consulting agreement, and the remaining shares will vest in 4,000 share installments on each of the five monthly periods following the date of the consulting agreement provided the consultant continues to provide services to the Company as of the applicable vesting date. |
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In July 2013, the Company issued a warrant to purchase 60,000 shares of the Company’s common stock to a consultant with an exercise price of $8.50 per share, in consideration for services to be provided over a six month term. The warrants expire five years following the issuance date, vest immediately, are non-forfeitable, and become exercisable in January 2014. The Company recorded an initial stock-based prepaid consulting expense for the fair value of the warrants totaling $319,786, which is being amortized over the length of the consulting service term. |
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A summary of the activity of the warrants for the year ended December 31, 2013 is as follows: |
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| | Number of Shares Subject to Warrants Outstanding | | | Weighted Avg. Exercise Price | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Warrants outstanding - January 1, 2013 | | | 556,872 | | | $ | 7.66 | | | | | | | | | | | | | | |
Granted | | | 269,860 | | | $ | 5.97 | | | | | | | | | | | | | | |
Exercised | | | - | | | | | | | | | | | | | | | | | | |
Expired | | | (5,682 | ) | | $ | 176 | | | | | | | | | | | | | | |
Warrants outstanding and exercisable - December 31, 2013 | | | 821,050 | | | $ | 5.94 | | | | | | | | | | | | | | |
Weighted average remaining contractual life of the outstanding warrants in years - December 31, 2013 | | | 2.19 | | | | | | | | | | | | | | | | | | |
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The fair value of each warrant is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The table below illustrates the fair value per share determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing the warrants issued to consultants: |
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| | Year Ended | | | | | | | | | | | | | | | | | | |
| | 31-Dec-13 | | | | | | | | | | | | | | | | | | |
Weighted-average fair value of warrants granted | | $ | 5.12 | | | | | | | | | | | | | | | | | | |
Expected terms (in years) | | | 2.6-5 | | | | | | | | | | | | | | | | | | |
Expected volatility | | | 85%-346% | | | | | | | | | | | | | | | | | | |
Risk-free interest rate | | | 0.32%-1.31% | | | | | | | | | | | | | | | | | | |
Dividend yield | | | - | | | | | | | | | | | | | | | | | | |
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A list of the warrants outstanding as of December 31, 2013 is included in the table below: |
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| | Warrants Outstanding | | Warrants Exercisable | | | | |
| | | | Warrants | | | Exercise | | | Warrants | | | Expiration | | | | |
Warrant Series | | Issue Date | | Outstanding | | | Price | | | Exercisable | | | Date | | | | |
DermaStar | | 4/25/12 | | | 48,262 | | | $ | 5.93 | | | | 48,262 | | | | 4/25/15 | | | | |
April PPM | | 4/25/12 | | | 502,928 | | | $ | 5.93 | | | | 502,928 | | | | 4/25/15 | | | | |
Underwriter Warrants | | 2/7/13 | | | 179,860 | | | $ | 5.25 | | | | 179,860 | | | | 2/7/18 | | | | |
IR Consultant | | 2/28/13 | | | 30,000 | | | $ | 5.25 | | | | 30,000 | | | | 2/28/16 | | | | |
IR Consultant | | 7/19/13 | | | 60,000 | | | $ | 8.5 | | | | - | | | | 7/19/18 | | | | |
| | | | | 821,050 | | | $ | 5.94 | | | | 761,050 | | | | | | | | |
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The stock-based compensation for warrants was $468,777 and $0 during the years ended December 31, 2013 and 2012. |