Private Placement Investment (Tables)

12 Months Ended

Jan. 31, 2015

The proceeds were allocated among the instruments based on their relative fair values as follows:



	Adjusted Fair Value at August 16, 2012		Proceeds Allocation at August 16, 2012
Instruments:
Series A Preferred Stock	$	9,907,820	$	6,546,146	(1)
Convertible subordinated notes payable	5,699,577		3,765,738		(2)
Warrants	2,856,000		1,688,116		(3)
Total investment	$	18,463,397	$	12,000,000

_______________

(1)

The Series A Preferred Stock convert on a 1:1 basis into common stock, but differ in value from common stock due to the downside protection relative to common stock in the event the Company liquidates, and the downside protection, if, after four years, the holder has not converted and the stock is below $3.00. The fair value of Series A Preferred Stock was determined using a Monte-Carlo simulation following a Geometric Brownian Motion, using the following assumptions: annual volatility of 75%, risk-free rate of 0.9% and dividend yield of 0.0%. The model also utilized the following assumptions to account for the conditions within the agreement: after four years, if the simulated common stock price fell below a price of $3.00 per share, the convertible preferred stock would automatically convert to common stock on a 1:1 basis moving forward at a price of exactly $3.00 per share and a forced conversion if the simulated stock price exceeded $8.00 per share.

(2)

The fair value of convertible subordinated notes payable was determined based on its current yield as compared to that of those currently outstanding in the marketplace. Management reviewed the convertible note agreement and determined that the note's interest rate is a reasonable representative of a market rate; therefore the face or principal amount of the loan is a reasonable estimate of its fair value.

(3)

The fair value of the common stock warrants was determined using a Monte-Carlo simulation following a Geometric Brownian motion, using the following assumptions: annual volatility of 75%, risk-free rate of 0.9%, dividend yield of 0.0% and expected life of 5 years. Because the dilutive down-round financing was subject to approval by shareholder vote which had not happened at the time of the valuation, the model utilized the assumption that the down-round financing would not occur within the simulation.

Series A Preferred Stock Activity

The following table sets forth the activity of the Series A Preferred Stock, classified as temporary equity, during the periods presented:



	Number of Shares		Series A Preferred Stock
Series A Preferred Stock, January 31, 2012	—		$	—
Issuance from private placement, at redemption value	2,416,785		7,250,355
Discount related to warrants (1)	—		(704,209		)
Discount related to beneficial conversion feature	—		(2,685,973		)
Discount related to issuance cost	—		(1,020,135		)
Issuance of shares at redemption value for conversion of notes payable	1,583,210		4,749,630
Accretion of Preferred Stock discount	—		176,048
Series A Preferred Stock, January 31, 2013	3,999,995		7,765,716
Conversion of Preferred Stock to Common Stock	(1,050,000	)	(3,150,000		)
Accretion of Preferred Stock discount	—		1,180,904
Valuation adjustment (Note 4)	—		(196,952		)
Series A Preferred Stock, January 31, 2014	2,949,995		5,599,668
Accretion of Preferred Stock discount	—		1,038,310
Series A Preferred Stock, January 31, 2015	2,949,995		$	6,637,978

______________

(1) The discount related to warrants represents the difference between the redemption value of the Series A Preferred Stock, issued in conjunction with the private placement, and its allocated proceeds.

Schedule of Warrants Issued and Outstanding

The following table sets forth the warrants issued and outstanding as of January 31, 2015:



	Number of Shares Issuable	Weighted Average Exercise Price
Warrants - private placement	1,200,000	$	3.99
Warrants - placement agent	200,000	4.06
Total	1,400,000	$	4.00

- Definition

Tabular disclosure of warrants or rights issued. Warrants and rights outstanding are derivative securities that give the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue to entice investors by a higher return potential. The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months. Disclose the title of issue of securities called for by warrants and rights outstanding, the aggregate amount of securities called for by warrants and rights outstanding, the date from which the warrants or rights are exercisable, and the price at which the warrant or right is exercisable.

+ References+ Details

- Definition

Tabular disclosure of temporary equity. Temporary equity is a security with redemption features that are outside the control of the issuer, is not classified as an asset or liability in conformity with GAAP, and is not mandatorily redeemable. Includes any type of security that is redeemable at a fixed or determinable price or on a fixed or determinable date or dates, is redeemable at the option of the holder, or has conditions for redemption which are not solely within the control of the issuer. If convertible, the issuer does not control the actions or events necessary to issue the maximum number of shares that could be required to be delivered under the conversion option if the holder exercises the option to convert the stock to another class of equity. If the security is a warrant or a rights issue, the warrant or rights issue is considered to be temporary equity if the issuer cannot demonstrate that it would be able to deliver upon the exercise of the option by the holder in all cases. Includes stock with put option held by ESOP and stock redeemable by holder only in the event of a change in control of the issuer.

+ References+ Details