Quarterly report pursuant to Section 13 or 15(d)

Capital Stock

v2.4.0.8
Capital Stock
6 Months Ended
Sep. 30, 2013
Notes to Financial Statements  
NOTE 9 - Capital Stock

Autilion AG Securities Purchase Agreement

 

On April 8, 2013, the Company entered into a Securities Purchase Agreement (as amended, the “Securities Purchase Agreement”) with Autilion AG, a company organized and existing under the laws of Switzerland (“Autilion”).  On April 12, 2013, Autilion assigned the Purchase Agreement to its affiliate, Bergamo Acquisition Corp. PTE LTD, a corporation organized and existing under the laws of Singapore (“Bergamo Singapore”). On April 30, 2013, the Company and Bergamo Singapore amended the Securities Purchase Agreement to modify the investment dates.  On June 27, 2013, the Company, Autilion and Bergamo Singapore further amended the Securities Purchase Agreement to vacate Autilion’s April 2013 assignment of the Securities Purchase Agreement to Bergamo Singapore, provide for an initial closing under the Securities Purchase Agreement, and amend certain of the investment dates under the Securities Purchase Agreement. Under the terms of the Securities Purchase Agreement, Autilion is contractually obligated to purchase an aggregate of 72.0 million restricted shares of the Company’s common stock at a purchase price of $0.50 per share for aggregate cash consideration of $36.0 million, in a series of closings scheduled to have occurred on or before September 30, 2013 (“Autilion Financing”). At September 30, 2013, the Company had completed a nominal initial closing of the Autilion Financing in the amount of $25,000 and issued 50,000 restricted shares of common stock.  Autilion has informed the Company that the delayed closing of the Autilion Financing in full is due to administrative matters and financial transactions involving Autilion, its international affiliates, investment partners and counterparties, including financial transactions intended to increase substantially the aggregate amount of investment capital available to Autilion and its affiliates.  Although Autilion remains in default under the Securities Purchase Agreement, subsequent to September 30, 2013, Autilion has informed the Company that the Company will receive the full $36 million of proceeds contemplated by the Securities Purchase Agreement. As a result of the delay in closing the Autilion Financing prior to the date of this report, however, the Company cannot give any assurances as to whether it will receive any additional funding from Autilion in connection with the Autilion Financing in a timely manner, or at all. The Securities Purchase Agreement also provides for the election to the Company’s Board of Directors of a designee of Autilion upon completion of the Autilion Financing.

 

The Company and Autilion also entered into a Voting Agreement, pursuant to which Autilion has agreed to vote all shares of capital stock of the Company held by Autilion consistent with the recommendation of a majority of the members of the Company’s Board of Directors.  In addition, in the event of a Change in Control of the Company, as defined in the Voting Agreement, or an extraordinary transaction outside of the ordinary course of the Company’s business, in each case approved by a majority of the Company’s Board of Directors, including Autilion’s designee, as well as by the holders of a majority of the outstanding shares of Common Stock held by stockholders unaffiliated with Autilion (an “Approved Transaction”), Autilion is required to vote all shares of capital stock of the Company held by it for such Approved Transaction.

 

2013 Unit Private Placement

 

During August and September 2013, the Company entered into securities purchase agreements with accredited investors pursuant to which it sold to such investors 41 Units, each Unit consisting of (i) a 10% convertible note in the face amount of $5,000 maturing on July 30, 2014 (“Unit Note”); (ii) 10,000 shares of the Company’s restricted common stock (“Unit Stock”); and (iii) a three-year warrant to purchase 10,000 restricted shares of the Company’s common stock at an exercise price of $1.00 per share (“Unit Warrant”).  Accordingly, the Company issued Unit Notes in the aggregate face amount of $205,000; an aggregate of 410,000 shares of Unit Stock, and warrants to purchase an aggregate of 410,000 shares of the Company’s restricted common stock pursuant to the Unit Warrants, and received cash proceeds of $205,000. The Unit Note and related accrued interest is convertible into shares of the Company’s common stock at a conversion price of $0.50 per share at or prior to maturity at the option of the investor. The Units represent the Exchange Securities into which Platinum may convert the July 2013 Note.

 

The Company allocated the proceeds from the sale of the Units to the various securities based on their relative fair values on the dates of the sales. The Company determined the fair value of the Unit Stock based on the quoted market price of its stock on the date of the Unit sale.  The Company calculated the fair value of the Unit Warrants using the Black Scholes Option Pricing Model and the assumptions indicated in the table below. The table below also presents the allocation of the Unit sales proceeds based on the relative fair values of the Unit Stock, Unit Warrant and Unit Note at the Unit sale date.

 

Unit Sale

Date

 

Warrant

Shares

Issued

  Issuance Date Valuation Assumptions    

Per Share

Fair

Value of

Warrant

 

Fair

Value of Unit

Warrant

 

Proceeds

of Unit

Sales

 

Allocation of Proceeds Based on

Relative Fair Value of:

 
   

Market

Price

 

Exercise

Price

 

Term

(Years)

 

Risk free

Interest

Rate

  Volatility  

Dividend

Rate

          Unit Stock  

Unit

Warrant

  Unit Note  
                                                           
                                                           
8/6/2013     400,000   $ 0.62   $ 1.00   2.98   0.61 %   75.50 %   0.0 %   $ 0.23   $ 91,300   $ 200,000   $ 92,000   $ 33,800   $ 74,200  
9/30/2013     10,000   $ 0.61   $ 1.00   2.83   0.58 %   77.37 %   0.0 %   $ 0.22     2,200     5,000     2,300     800     1,900  
      410,000                                           $ 93,500   $ 205,000   $ 94,300   $ 34,600   $ 76,100  

 

 

Modification of Warrants held by Platinum

 

Effective on May 24, 2013, the Company and Platinum entered into an Amendment and Waiver pursuant to which the Company agreed to reduce the exercise price of the Exchange Warrant and the Investment Warrants issued to Platinum in October 2012 and February 2013 and March 2013 (collectively, the “Warrants”) from $1.50 per share to $0.50 per share in consideration for Platinum’s agreement to waive its rights for any increase in the number of shares of common stock issuable under the adjustment provisions of the Exchange Warrant and the Investment Warrants that would otherwise occur from (i) the Company’s sale of shares of its common stock at a price of $0.50 per share in connection with the Autilion Financing; (ii) the March 2013 grant of warrants to certain of the Company’s officers and independent directors to purchase an aggregate of 3.0 million restricted shares of common stock at an exercise price of $0.64 per share; and (iii) the Company’s issuance of restricted shares of its common stock resulting in gross proceeds not to exceed $1.5 million in connection with the exercise by warrant holders, by no later than June 30, 2013, subsequently extended to July 30, 2013, of previously outstanding warrants for which the Company may reduce the exercise price to not less than $0.50 per share. (See “Warrant Modifications and Exercises” below.)

 

As described in Note 4, Fair Value Measurements and in Note 7, Convertible Promissory Notes and Other Notes Payable, the Company re-measures the fair value of the Exchange Warrant and the Investment Warrants at the end of each quarterly reporting period.  The fair value re-measurement at June 30, 2013 incorporated the modification of the exercise price resulting from the Amendment and Waiver and the corresponding adjustment was reflected as a component of the Warrant Liability at that date.  At September 30, 2013, the Company determined the fair values of the Exchange Warrant, the Investment Warrants and the July 2013 Warrant to be a weighted average of $0.40 per share, or an aggregate of $1,401,300, recorded as a component of Warrant Liability in the accompanying Condensed Consolidated Balance Sheets at September 30, 2013, using the Black Scholes Option Pricing Model and the following assumptions: market price per share: $0.61; exercise price per share: $0.50; risk-free interest rate: 1.02% to 1.32%; remaining contractual term: 4.03 years to 4.82 years; volatility: 80.5% to 92.3%; and expected dividend rate: 0%. At September 30, 2013, the Company also re-measured the fair value of the Series A Exchange Warrant which is contingently issuable to Platinum upon the exchange of its shares of the Company’s Series A Preferred Stock into shares of the Company’s restricted common stock.  The Company determined the fair value of the Series A Exchange Warrant, also recorded as a component of Warrant Liability in the accompanying Condensed Consolidated Balance Sheets at September 30, 2013, to be $0.46 per share, or $3,256,000, using the Black Scholes Option Pricing Model and the following assumptions: market price per share: $0.61; exercise price per share: $0.50; risk-free interest rate: 1.39%; contractual term: 5.00 years; volatility: 95.0%; expected dividend rate: 0%; and assumed probability of issuance of 95%.

 

Warrant Modifications and Exercises

 

During the months of June and July 2013, the Company offered certain long-term warrant holders the opportunity to exercise warrants having an exercise price of $1.50 per share to purchase shares of the Company’s restricted common stock at a reduced exercise price of $0.50 per share through July 30, 2013.  Warrant holders exercised warrants to purchase an aggregate of 528,370 restricted shares of the Company’s common stock and the Company received cash proceeds of $264,200.  In addition, certain warrant holders exercised modified warrants to purchase 16,646 shares of the Company’s restricted common stock in lieu of payment by the Company in satisfaction of amounts due for professional services in the aggregate amount of $8,300.

 

 

The Company calculated the fair value of the warrants exercised immediately before and after the modifications and determined that the fair value of the warrants exercised decreased by $32,900, which is reflected in general and administrative expense in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.  The warrants subject to the exercise price modifications were valued using the Black-Scholes Option Pricing Model and the following assumptions:

 

Assumption:   Pre-modification     Post-modification  
Market price per share (weighted average)   $ 0.74     $ 0.74  
Exercise price per share (weighted average)   $ 1.50     $ 0.50  
Risk-free interest rate (weighted average)     0.82%       0.03%  
Expected term in years (weighted average)     3.47       0.06  
Volatility (weighted average)     84.6%       73.3%  
Dividend rate     0.0%       0.0%  
                 
Weighted Average Fair Value per share   $ 0.30     $ 0.24  

 

The market price per share is based on the quoted market price of the Company’s common stock on the Over-the-Counter Bulletin Board on the date of the modification.  Because of its short history as a public company, the Company has estimated volatility based on the historical volatilities of a peer group of public companies over the expected term of the option.  The expected term of the modified warrant is determined based on the offer and exercise date and July 30, 2013, the expiration date for the modification offer. The risk-free rate of interest is based on the quoted constant maturity rate for U.S Treasury Bills on the date of the modification for the term corresponding with the expected term of the warrant.  The expected dividend rate is zero as the Company has not paid and does not expect to pay dividends in the near future.

 

On June 27, 2013, the Company’s Chief Executive Officer exercised an outstanding warrant to purchase 50,000 restricted shares of the Company’s common stock at an exercise price of $0.64 per share and the Company received cash proceeds of $32,000 from his exercise.

 

Following the warrant issuances, modifications and exercises described above, at September 30, 2013, the Company had outstanding warrants to purchase shares of its restricted common stock at a weighted average exercise price of $1.00 per share as follows:

 

        Shares Subject to  
Exercise       Purchase at  
Price   Expiration   September 30,  
per Share   Date   2013  
           
$ 0.50   10/11/2017 to 7/26/2018     3,522,577  
$ 0.64   3/3/2023     2,950,000  
$ 0.88   5/11/2014     15,428  
$ 1.00   9/15/2017 to 9/30/2017     3,590,482  
$ 1.25   5/11/2014 to 12/31/2014     120,280  
$ 1.50   12/31/2013 to 3/14/2018     3,465,723  
$ 1.75   12/31/2013     349,235  
$ 2.00   9/15/2017     425,000  
$ 2.50   5/11/2014     42,443  
$ 2.625   12/31/2013     68,560  
$ 3.00   2/13/2016     125,000  
            14,674,728