2. Stock-Based Compensation
The Company recognizes stock-based compensation expense in its statement
of operations based on estimates of the fair value of employee stock option and stock grant awards as measured on the grant date.
For stock options, the Company uses the Black-Scholes option pricing model to determine the value of the awards granted. The Company
amortizes the estimated value of the options as of the grant date over the stock options vesting period, which is generally
During the six months ended September 30, 2012, the Company did
not enter into any agreements under which it agreed to grant stock-based compensation to any employees or any others. During the
year ended March 31, 2012, the Company entered into employment agreements under which it agreed to grant options to purchase 2,550,000
shares of common stock to its officers. Pursuant to the terms of each of the employment agreements, the options will vest over
approximately four years from the date each of the officers commenced employment and will have an exercise price of $0.10 per share.
The Company granted options to these officers at the $0.10 per share exercise price, in part, because the employment agreements
do not provide for the officers to receive any cash compensation until the Company secures at least $5 million in financing.
The Company has estimated the value of common stock into which the
options are exercisable at $4 per share for financial reporting purposes. This amount was determined based on the minimum stock
price required for listing on any Nasdaq market, and the amount also approximates a $100 million valuation for the entire Company,
which is considered micro-cap by most equity analysts. The stock based compensation expense is an estimate and significant
judgment was involved in attempting to determine the value of common stock. Virolab common stock has never traded publicly, and
no stock has traded in private markets either, except for privately negotiated sales to the founder of the company and the founder
of the technology from which the company subsequently licensed rights. No common stock has been sold in any transactions since
Virolab emerged from its shell-company status. The Company does not have any offers for purchase of its common stock in any stage,
and no stock is registered for resale with the Securities and Exchange Commission.
The Company believes the only material estimate used in estimating
the value stock options was the estimated fair value of the common stock, and that assumed volatility, term, interest rate and
dividend yield changes would be not result in material differences in stock option valuations. Based on the assumed value of common
stock, the grant-date fair value of options granted during the year ended March 31, 2012 was $9,945,000. The Company recognized
stock-based compensation expense of $2,149,000 for the year ended March 31, 2012, respectively, and $750,699 for the six months
ended September 30, 2012 which was all included in general and administrative expenses. As of September 30, 2012, there was $6,009,364
of total unrecognized compensation cost related to unvested stock-based compensation awards and takes in to consideration the 400,000
options that expired March 31, 2012, which is expected to be recognized over the weighted average remaining vesting period of approximately
The Company has reserved a total of 5,962,500 shares of common stock
for issuance under its stock award plan, and issued 2,550,000 as of December 31, 2011 and per our Companys Stock Plan the
plan re-triggers to 25% of the total outstanding shares on January 1, 2012, therefore as of September 30, 2012 the Company has
a reserve of 5,962,500 shares of common stock for issuance under its stock award plan.
The accompanying financial statements have been prepared on a going
concern basis, which assumes the Company will realize its assets and discharge its liabilities in the normal course of business.
As reflected in the accompanying financial statements, the Company has a deficit accumulated during the development stage of $3,006,221,
accrued expenses to its founder of $100,295 and cash of only $8 as of September 30, 2012. The Companys ability to continue
as a going concern is dependent upon its ability to obtain financing necessary for it to meet its obligations, develop the products
that it has licensed, and ultimately generate revenues from the sale of these products. The Companys founder has agreed
to fund certain administrative operating expenses of the Company until the Company succeeds in raising additional funds. Managements
plans include raising additional funds through an equity financing or licensing transaction in order to meet the Companys
obligations and develop its product candidates, but funding may not be available and the Company may be unsuccessful in raising
additional capital of any type. These conditions raise substantial doubt about the Companys ability to continue as a going
concern. The accompanying financial statements do not include any adjustments that might arise as a result of this uncertainty.