|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 Autilions 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 Companys 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 Companys 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 Companys 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 Companys business, in each case approved by a majority of the Companys Board of Directors, including Autilions 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 Companys restricted common stock (Unit Stock); and (iii) a three-year warrant to purchase 10,000 restricted shares of the Companys 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 Companys 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 Companys 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.
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 Platinums 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 Companys 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 Companys 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 Companys 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 Companys Series A Preferred Stock into shares of the Companys 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 Companys 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 Companys 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 Companys 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:
The market price per share is based on the quoted market price of the Companys 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 Companys Chief Executive Officer exercised an outstanding warrant to purchase 50,000 restricted shares of the Companys 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:
The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.
Reference 1: http://www.xbrl.org/2003/role/presentationRef