10. Equity

12 Months Ended

Dec. 31, 2014

Stockholders' Equity Note [Abstract]

10. Equity

During 2014, the Company issued common stock and over-allotment rights.  At issuance the proceeds were allocated based upon the fair value of the warrants.  As of and for the year ended December 31, 2014, amounts related to these transactions are as follows:

					December 31, 2014
					Fair Value of
	Common		Equity		Warrants and Over-
	Stock		Proceeds		Allotment Rights
April 30, 2014		32,205	$	2,431,561	$	1,152,054
June 19, 2014		9,361		734,129		336,267
July 16, 2014		211,890		6,477,036		324,678
July 16, 2014		12,367		1,044,892		455,342
Total		265,823	$	10,687,618	$	2,268,341

The Units Offerings

On April 30, 2014, June 19, 2014 and July 16, 2014, the Company completed “best efforts” private offerings of 53,933 units, each unit consisting of (i) one share of our common stock and (ii) a warrant to purchase 1/4 share of our common stock, or a total of 53,933 shares of our common stock and warrants to purchase 13,483 shares of our common stock, at a price of $97.50 per unit to accredited investors for total net proceeds to the Company of $4,732,623 after deducting placement agent fees and other expenses.

Warrants. The warrants issued in these offerings are exercisable for a period of five years from their issue dates. The exercise price with respect to the warrants is $97.50 per full share. The exercise price for the warrants is subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances. Additionally, the exercise price of the warrants will be adjusted should the Company issue any equity or convertible debt at a purchase price that is less than their current exercise price for two years following the respective issuance date, with certain limited exceptions. Pursuant to the adjustment provision contained in the warrants, as a result of the subsequent issuances of our convertible notes, warrants and shares of our common, as of December 31, 2014, the exercise price of the warrants adjusted to $0.75 per share and the number of shares issuable upon exercise of the warrants increased to 1,752,781 shares of common stock. The fair value of the warrants was based on a binomial model with the following assumptions: risk free interest rate - 1.72%, volatility - 36%, expected term - 5 years, expected dividends- N/A. The Company accounts for the warrants to purchase 3,092 shares of common stock as a liability remeasured at fair value and adjusts the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statements of operations.

The Equity Offering

Overview. On July 15, 2014, the Company completed a private offering of shares of our common stock with Man FinCo Limited, a company incorporated as an offshore company under the regulations of the Jebel Ali Free Zone Authority (“Man FinCo”), for total net proceeds to the Company of $20,000,000. In the offering, the Company issued 197,531 shares of our common stock at a purchase price of $101.25 per share or $20,000,000 in the aggregate. The Company paid placement agent fees and other expenses in the form of 14,359 shares of Common Stock and warrants to acquire 7,901 shares of Common Stock at an exercise price of $101.25 per share. Pursuant to our agreement with Man FinCo, the Company agreed that if the Company sold shares of Common Stock in a public offering at a price of less than $119.10, then the Company would issue to Man FinCo such additional number of shares of Common Stock equal to (i) $20,000,000 divided by the public offering price multiplied by 0.85 (the “Reset Price”) (ii) less any shares initially issued to Man FinCo. Additionally, the Company granted to Man FinCo an option to purchase an additional number of shares of Common Stock as is derived by dividing $40,000,000 by the lower of $101.25 and the Reset Price. Man FinCo may exercise the option in whole or in part at any time prior to the first anniversary of the closing date of the initial purchase. In the event that Man FinCo does not exercise the option in whole or in part prior to such first anniversary, the option shall remain exercisable in whole or in part until the second anniversary of the closing date of the initial purchase, but only for half the number of additional shares. The fair value of the option was based on a binomial model with the following assumptions: risk free interest rate - 1.74%, volatility - 37%, expected term - 5 years, expected dividends- N/A. The Company recorded a $13.5 million derivative liability in connection with this option. The Company accounts for the option as a liability measured at fair value based on its nature as a free-standing instrument with variability in both the exercise price and shares to be issued. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statements of operations.

Voting Agreement. Man FinCo has the ability to designate a director to the Company’s board of directors either within six months from July 15, 2014 or within six months of the date Man FinCo exercises its option to purchase additional shares. If Man FinCo does not designate a director or if there is a vacancy in such director position, then Man FinCo may appoint a board observer whom the Company shall invite to attend all board meeting in a non-voting capacity. Brent Willis, Marc Hardgrove and William Fields have agreed to vote any and all of their shares for the election of any director designated by Man FinCo. The voting agreement will remain in effect until Man FinCo holds fewer than 19,753 shares. Man FinCo did not designate a director in the initial six month period ending January 15, 2015.