
(13)	Temporary Equity

On May 13, 2011 and August 5, 2011, the Company issued 280 shares of Series A Preferred Stock and 120 shares of Series A-2 Preferred Stock, respectively, in private placements pursuant to securities purchase agreements, for aggregate gross proceeds of $400,000. The Preferred Stock (i) is redeemable for cash (or, if a holder does not elect cash, automatically converted into common stock) on May 13, 2018, (ii) is convertible into the Company’s common stock at an initial conversion price of $6.50 per share for the Series A and $7.00 per share for the Series A-2, both subject to anti-dilution adjustments, (iii) has a liquidation preference of the greater of 150% of the purchase price or the value that would be received if it were converted into common stock, (iv) accrues a cumulative quarterly cash dividend at an annualized rate of 8% and (v) has a quarterly non-cash principal accretion at an annualized rate of 4% that will be reduced to 2% or 0% if the Company achieves specified rates of growth measured by increases in its net asset value. The Preferred Stock is entitled to vote, subject to certain regulatory limitations, and to receive cash dividends and in-kind distributions on an as-converted basis with the common stock.

If the Company were to issue certain equity securities at a price lower than the conversion price of the respective series of Preferred Stock, the conversion price would be adjusted downward to reflect the dilutive effect of the newly issued equity securities (a “down round” provision). Therefore, in accordance with the guidance in ASC 815, Derivatives and Hedging, the conversion feature requires bifurcation and must be separately accounted for as derivative liabilities at fair value with any changes in fair value reported in current earnings (see Note 6). The Company valued the conversion feature using the Monte Carlo simulation approach, which utilizes various inputs including the Company’s stock price, volatility, risk-free rate and discount yield.

As of the respective issuance dates, the Company determined the fair values of the bifurcated conversion feature were approximately $85,700 for the Series A and approximately $17,560 for the Series A-2. The residual $296,740 aggregate value of the host contracts, less $14,027 of issuance costs, has been classified as temporary equity, as the securities are redeemable at the option of the holder and upon the occurrence of an event that is not solely within the control of the issuer. The resulting $117,287 difference between the issuance price and initial carrying value of $282,713 is being accreted to “Preferred stock dividends and accretion” in the accompanying Consolidated Statements of Operations using the effective interest method over the Preferred Stock’s contractual/expected life of approximately seven years through May 13, 2018.

The carrying value of Preferred Stock reflects the following components as of September 30, 2011:


	Series A			Series A-2
	(280 Shares)			(120 Shares)			Total

Initial issuance price	$	280,000		$	120,000		$	400,000
Principal accretion		4,308			747			5,055

Redemption value		284,308			120,747			405,055
Bifurcation of embedded conversion feature on issuance		(85,700	)		(17,560	)		(103,260	)
Issuance costs		(11,058	)		(2,969	)		(14,027	)
Accretion		4,210			459			4,669

	$	191,760		$	100,677		$	292,437