Convertible Preference Shares of Subsidiary

9 Months Ended

Sep. 30, 2013

Convertible Preference Shares Of Subsidiary [Abstract]

Convertible Preference Shares Of Subsidiary [Text Block]

NOTE 5.  Convertible Preference Shares of Subsidiary

In 2008, the Company’s Malaysian subsidiary, WGBM, issued Series A convertible preference shares (“CPS”) to Malaysian Technology Development Corporation Sdn. Bhd. (“MTDC”), a venture capital and development firm in Malaysia, in a private placement under a Share Subscription and Shareholders’ Agreement dated May 8, 2008, at the U.S. dollar equivalent of $2.25 per share. In 2009 and 2010, WGBM issued Series B CPS to Expedient Equity Ventures Sdn. Bhd. (“EEV”) and Prima Mahawangsa Sdn. Bhd. (“PMSB”), both venture capital and development firms in Malaysia, in a private placement under a Share Subscription Agreement dated April 3, 2009, (“Series B SSA”) at the U.S. dollar equivalent of $2.25 per share. In 2009, WGBM issued Series B CPS to Kumpulan Modal Perdana Sdn. Bhd. (“KMP”), a venture capital and development firm in Malaysia, in a private placement under a Share Subscription Agreement dated July 1, 2009, at the U.S. dollar equivalent of $2.25 per share.

In 2010, both EEV and KMP exercised their option (see Paragraph (b) below) to sell to the Company their holdings of 222,222 and 188,057 Series B CPS, respectively, in exchange for shares of the Company’s common stock.

These transactions, along with the issuance of Series C CPS in 2011 (see below), are summarized as follows:

Class	Number	Initial	Issuance	Gross		Issuance			Exchange			Net Cash		Date if	CPS
of CPS	of CPS	Investor	Date	Proceeds		(Costs)			Gain (loss)			Proceeds		Exchanged	Outstanding
Series A	444,444	MTDC	07/18/2008	$	1,000,000	$	(30,000	)	$	—		$	970,000	—	444,444
Series A	444,444	MTDC	11/27/2008		1,000,000		(30,000	)		—			970,000	—	444,444
Series B	111,111	EEV	06/08/2009		250,000		(19,393	)		(18,029	)		212,578	08/17/2010	—
Series B	111,111	EEV	03/09/2010		250,000		(8,929	)		(3,005	)		238,066	08/17/2010	—
Series B	222,222	PMSB	09/23/2009		500,000		(7,500	)		—			492,500	—	222,222
Series B	222,222	PMSB	05/13/2010		500,000		(5,000	)		—			495,000	—	222,222
Series B	188,057	KMP	09/18/2009		423,128		(11,319	)		—			411,809	09/29/2010	—
Subtotal	1,743,611				3,923,128		(112,141	)		(21,034	)		3,789,953		1,333,332
Series C	3,233,734	MTDC	03/10/2011		5,000,000		(6,272	)		58,575			5,052,303	—	3,233,734
	4,977,345			$	8,923,128	$	(118,413	)	$	37,541		$	8,842,256		4,567,066

Under the terms of a Deed of Adherence dated April 3, 2009 (and under the Series C SSA, as defined below), certain rights of the holders of the Series A CPS were modified. In addition, under the terms of the Series B SSA, the use of funds raised through the issuance of both Series A and Series B CPS was restricted, requiring at least 60% of the total to be utilized for the Company’s operations in Malaysia.

Following these modifications, the rights of the holders of Series A and B CPS included, but were not limited to, the right:

(a) to put to the Company their CPS (or ordinary shares in WGBM received on conversion of those CPS under paragraph (c) below) at any time during the year 2011 that the share price of the Company’s common stock is below $223.63 in order to redeem for cash (or, at the holder’s option, shares of Company common stock of equivalent value) the amount originally invested in USD plus a premium of 8%, compounded annually, with yearly rests (each year’s accrued interest would be forfeited in the event of redemption prior to the anniversary of the initial investment) (the “Redemption Option,” since amended for Series A and expired for Series B, see below);

(b) to cause the Company to exchange their CPS for common stock of the Company at an exchange rate of US$223.63 per share of common stock, provided, in the case of Series B CPS, that commencing on August 1, 2010, if during the 10-day trading period immediately prior to the holder’s exercise notice the average closing price of the Company’s common stock is less than US$263.09, then the holder may exchange CPS at an exchange rate equal to 85% of such 10-day average closing price. This option, previously exercised by EEV and KMP, has expired for MTDC’s Series A CPS and expires on April 3, 2014, for PMSB’s Series B CPS (the “Conversion Option);

(c) to convert their CPS into ordinary shares of the subsidiary, WGBM, at any time, at a conversion rate of three ordinary shares per $100 invested in CPS;

(d) to cause the subsidiary, WGBM, to redeem the CPS in whole or in part at any time after December 31, 2011, for the principal paid plus a premium of 20% per annum, not compounding, from funds legally available for distribution (which is determined based on stock par value, premiums paid and retained earnings) (the “WGBM Redemption Right”);

(e) of first offer on any transfers or new issuance of subsidiary shares; and

(f) for each of Series A and Series B CPS, to appoint one of the seven directors of the subsidiary (see below also).

Since the Conversion Option affords holders of Series B CPS the right to receive a variable number of shares of the Company’s common stock, this feature is not indexed to the Company’s equity and is therefore accounted for as a derivative liability, with the estimated fair value being calculated at each reporting date using a Monte Carlo Simulation approach, using key input variables provided by management, with changes in fair value recorded as gains or losses on revaluation in non-operating income (expense).

On December 31, 2011, the Series B CPS Redemption Option lapsed. The value of the derivative liability for the conversion element increased significantly as a result. Subsequently, the Company has recorded adjustments to accrete the Series B CPS to their maximum redemption amount under the WGBM Redemption Right at the balance sheet date, net of the related derivatives, and recorded this amount in temporary equity with a related deemed dividend which was charged against additional paid-in capital.

Series B CPS derivative liability fair values at September 30, 2013 and 2012, were estimated to be $1,300,923 and $1,334,545, respectively, using a closing stock price of $1.96 and $7.95, respectively, and based on the following assumptions:

	September 30, 2013	September 30, 2012
Risk-free interest rate	0.04%	0.18%
Expected remaining term	0.51 Years	1.21 Years
Expected volatility	102.38%	119.55%
Dividend yield	0%	0%

Series B CPS derivative liability fair values at December 31, 2012 and 2011, were estimated to be $1,210,909 and $1,245,101, respectively. The net increase in the fair value of this derivative liability of $90,014 and $89,444 during the nine months ended September 30, 2013 and 2012, respectively, was recorded as a revaluation loss (see Note 9).

Pursuant to a notice dated March 14, 2013, PMSB sought to exercise such redemption rights with respect to its Series B CPS. WGBM responded in a letter dated April 3, 2013 that under the Malaysian Company Act 1965, WGBM did not have funds legally available for distribution and accordingly could not legally redeem PMSB’s Series B CPS. As of September 30, 2013, PMSB’s Series B CPS had not yet been redeemed and PMSB retained ownership of such CPS, along with the WGBM Redemption Right and other rights associated with such CPS. In October 2013 the Company purchased PMSB’s 444,444 Series B CPS for $70,000 (see Note 13).

Based on the average closing price of the Company’s common stock of $1.99 in the 10-day trading period immediately prior to September 30, 2013, PMSB could have converted their Series B CPS into 591,191 shares of such stock had they exercised the Conversion Option on that date.

On December 9, 2011, the terms of the Series A CPS were amended by a Letter Agreement with MTDC (the “MTDCLA”) to extend the period during which MTDC could exercise the Redemption Option from December 31, 2011 to April 3, 2014. In addition, the holder’s option to elect to receive shares of Company common stock of equivalent value (see above) was amended to give the Company the option, upon the exercise of the Redemption Option, to pay in shares of its common stock at an Applicable Stock Price (“ASP”), calculated as 85% of the average closing price of that stock during the 10-day trading period immediately prior to MTDC’s exercise notice. Further, the ASP is subject to a ceiling of $154.05 and a floor of $9.94. The amendment that allows the Company to settle the Redemption Option in a variable number of shares causes the Redemption Option to no longer be considered indexed to the Company’s equity. As a result, the Company recognizes the Redemption Option as an embedded derivative requiring bifurcation and the host instrument (the Series A CPS absent the Redemption Option) as part of temporary equity. The Company has recorded an adjustment to accrete the Series A CPS to their maximum redemption amount under the WGBM Redemption Right at the balance sheet date, net of the related derivatives, and recorded this amount in temporary equity with a related deemed dividend which was charged against additional paid-in capital.

The Series A CPS derivative liability fair values at September 30, 2013 and 2012, were estimated to be $424,794 and $1,563,664, respectively, using a closing stock price of $1.96 and $7.95, respectively, and based on the following assumptions:

	September 30, 2013		September  30, 2012
Risk-free interest rate	0.02% - 0.03%	0	0.16% - 0.18%
Expected remaining term	0.10 - 0.16 Years		0.80 - 1.16 Years
Expected volatility	77.99 - 78.79%		120.84 - 125.60%
Dividend yield	0%		0%

Series A CPS derivative liability fair values at December 31, 2012 and 2011, were estimated to be $619,652 and $2,135,715, respectively. The net decrease in the fair value of this derivative liability of $194,858 and $572,051 during the nine months ended September 30, 2013 and 2012, respectively, was recorded as a revaluation gain (see Note 9).

On September 30, 2013, the cash value of the Redemption Option was $2,829,817. Since 85% of the average closing price of the Company’s common stock of $1.99 in the 10-day trading period immediately prior to September 30, 2013, was less than the ASP floor of $9.94, the Company could have settled this liability by issuing 284,718 shares of its common stock if MTDC had exercised the Conversion Option on that date.

On March 10, 2011, WGBM issued 3,233,734 Series C CPS to MTDC in a private placement at the U.S. dollar equivalent of $1.5462 per share, representing the first subscription under a Share Subscription Agreement dated December 14, 2010, (“Series C SSA”) to sell 3,233,734 Series C CPS at an initial closing and, should MTDC so elect within 36 months of the initial closing, to sell 1,077,911 shares of Series C CPS at a subsequent closing at the U.S. dollar equivalent of US$2.3193 per share (see Note 8). Each 99.39 Series C CPS issued at the initial closing can convert into one share of the Company on April 3, 2014 (this was extended from December 20, 2011, by the MTDCLA), and each 99.39 Series C CPS issued at the subsequent closing will convert into one share of the Company on the anniversary of that closing, but the Series C may convert at any earlier date following each closing at MTDC’s option. MTDC may also elect to convert their Series C CPS into ordinary shares of the subsidiary, WGBM, at any time, at a conversion rate of one ordinary share per 100 CPS. MTDC may appoint one of the seven directors of the subsidiary (in addition to the director they may appoint as the holder of Series A CPS), and an additional independent director may be jointly appointed by MTDC and the Company.

WGBM is authorized to issue 200,000,000 preference shares with a par value of RM0.01. There were 4,977,345 preference shares (including 410,279 Series B CPS held by the Company upon exercise by EEV and KMP of their options) issued and outstanding at September 30, 2013, and December 31, 2012. See also Note 13.