STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2015

Equity [Abstract]

STOCKHOLDERS' EQUITY

11. STOCKHOLDERS’ EQUITY

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.10 per share with such designation, rights and preferences as may be determined from time to time by the Company’s Board of Directors. There were 10,279 shares and 11,787 shares of Series B preferred stock issued and outstanding on March 31, 2015 and December 31, 2014, respectively.

On July 24, 2014, in connection with the Offering (see Note 9 “DEBT”), the Company exchanged 12,300 shares of Series A convertible preferred stock issued on February 5, 2014 with 12,300 shares of Series B convertible preferred stock at a stated value of $1,000 per share convertible into common stock at an initial price of $2.565 per share. The preferred stock is immediately convertible into an aggregate of 4,795,321 shares of common stock. Holders of the Preferred Stock are entitled to dividends only in the event that dividends are paid on the common stock, and the preferred stock has no preferences over the common stock. In connection with the exchange, the Company issued the July 2014 Series B warrants to purchase up to an aggregate of 4,795,321 shares of common stock at an exercise price of $2.45 per share, expiring in January 2016. The July 2014 Series B warrants are immediately exercisable and are subject to certain ownership limitations.

For financial reporting purposes, the $12,300,000 preferred stock value was allocated first to the fair value of the July 2014 Series B warrants, which totaled $2,486,780, then to the intrinsic value of the beneficial conversion feature of $1,887,364. The amount of the beneficial conversion feature was considered to be a deemed dividend on the date of issuance to the Series B preferred stockholders. Pursuant to the terms of the Purchase Agreement, the Series A convertible preferred stock was redeemed from the proceeds of the Series B convertible preferred stock. In September 2014, the Company amended the registration statement related to the Series A preferred stock to deregister those shares that would have been issuable upon conversion of the Series A preferred stock had it not already been redeemed by the proceeds of the Series B preferred stock.

During the first quarter of 2015, 1,508 shares of Series B preferred stock was converted into 587, 915 shares of common stock.

On February 5, 2014, pursuant to a securities purchase agreement, dated as of January 31, 2014, the Company sold an aggregate of 12,300 shares of Series A convertible preferred stock, par value $0.10 and a stated value of $1,000 per share convertible into 1,464,287 shares of common stock at an initial conversion price of $8.40, and warrants to purchase up to 1,329,731 shares of common stock for net proceeds of $11,457,831. The warrants have an exercise price of $7.40 per share, are immediately exercisable and have a term of five years. These warrants have non-standard terms as they relate to a fundamental transaction and require a net-cash settlement upon a change in control of the Company and therefore are classified as a derivative liability and recorded at fair value on the inception date of February 5, 2014. They will be recorded at their respective fair value at each subsequent balance sheet date. The fair value of these warrants on March 31, 2015 was approximately $1,223,352. The change in fair value of these warrants for the three months ended March 31, 2015 was an expense of $957,406 (see footnote 12 “FAIR VALUE OF FINANCIAL INSTRUMENTS”).

In connection with this financing, the Company also granted resale registration rights with respect to the shares of common stock underlying the Series A preferred stock and the warrants pursuant to the terms of a Registration Rights Agreement. The purchasers were entitled to receive liquidated damages upon the occurrence of a number of events relating to filing, effectiveness and maintaining an effective registration statement covering the shares underlying the Series A Preferred Stock and the warrants. The Company was unable to meet certain filing and effectiveness requirements and as a result paid liquidated damages to the Purchasers in the aggregate amount of $3,419,698 of which $3,389,940 was incurred during the three months ended March 31, 2014. Under the terms of the Registration Rights Agreement, the Company filed a registration statement on March 18, 2014, which was declared effective by the SEC on April 3, 2014.

Common Stock and Warrants

The Company is authorized to issue 50,000,000 shares of common stock with a par value of $0.001 per share. There were 7,525,146 and 6,037,232 issued and outstanding at March 31, 2015 and December 31, 2014, respectively.

On October 29, 2013, the Company entered into a securities purchase agreement with certain accredited investors in connection with a $6,000,000 registered offering of 422,819 shares of the Company’s common stock, fully paid prefunded Series B Warrants to purchase up to 434,325 shares of its common stock and additional warrants (“October 2013 Series A Warrants”) to purchase up to 685,715 shares of its common stock. The October 2013 Series A Warrants are exercisable beginning on May 1, 2014 at a price of $8.50 per share and expire on May 1, 2019. The prefunded Series B Warrants are exercisable immediately for no additional consideration. The offering closed on October 31, 2013. The holders exercised all of the prefunded Series B warrants in March 2014.

The October 2013 Series A Warrants have non-standard terms as they relate to a fundamental transaction and require a net-cash settlement upon a change in control of the Company and therefore are classified as a derivative. Therefore, these warrants have been recorded at fair value at the inception date of October 31, 2013, and will be recorded at their respective fair values at each subsequent balance sheet date. The fair value of these warrants on March 31, 2015 was approximately $610,286. The change in fair value of these warrants for the three months ended March 31, 2015 and 2014, was an expense of $377,143 and a benefit of $137,142 , respectively (see footnote 12 “FAIR VALUE OF FINANCIAL INSTRUMENTS”).

 Outstanding common stock warrants consist of the following:

Issue Date	Expiration Date	Total Warrants		Ex. Price
4/26/2013	4/26/2018		69,321	$	11.18
10/31/2013	4/30/2019		685,715	$	8.50
2/5/2014	2/5/2019		1,329,731	$	7.40
7/24/2014	7/24/2019		6,198,832	$	2.45
7/24/2014	1/24/2016		4,795,321	$	2.45
			13,078,920