Unfortunately the $4 million Series C was the third round of death-spiral (AKA toxic, floorless) financing for the company. The first round, Series A, was issued in September 1997. All of the rounds of convertible preferred financings in addition to the shelf share and warrant conversion filings are why the current number of shares outstanding is over 155 million, with more on the way to satisfy the conversion needs of the Series D shares. All of the financings have been extremely dilutive.
From the last 10K (Dated 6/30/03):
14. REDEEMABLE PREFERRED STOCK
SERIES A
The Company is authorized to issue 5,000,000 shares of $.001 par value preferred
stock in one or more series from time to time by action of the Board of
Directors. During September 1997, the first series, consisting of up to 100,000
shares, was designated by the Board of Directors as Series A (the "Series A
stock"). During September and October 1997, the Company sold 99,500 shares of
Series A stock at $10 per share for gross proceeds of $995,000 and net proceeds
of $962,500. The Series A stock has voting rights equal to the number of shares
of common stock into which the Series A stock is convertible. Dividends of 8%
($0.4036 per share) per annum are cumulative and may be payable in cash or
shares of common stock, at the Company's election. The Series A stock has a
liquidation preference of $10 per share, plus accrued and unpaid dividends, with
no participation after the preference is paid.
During 1999, a total of 38,300 of Series A stock and accrued dividends were
converted into 8,466,565 shares of common stock.
Each share of Series A stock is convertible into shares of common stock computed
by dividing $10 plus accrued and unpaid dividends by the lesser of (i) $0.0875
or (ii) 80% of the average closing bid price for the common stock for the ten
trading days immediately following any and each distribution in shares,
subdivision, split-up, combination, reclassification or other change in common
stock. The Company is required to redeem the Series A stock on September 1, 2000
and upon the occurrence of certain other events. The Company may redeem the
Series A stock earlier only if there are sufficient shares available for
conversion of the Series A stock. The redemption price is $10 per share plus
accrued and unpaid dividends if there are sufficient shares available for the
conversion of the Series A stock, otherwise the redemption price is equal to the
greater of (i) $10 per share plus accrued interest and unpaid dividends or (ii)
an amount equal to a five day market price multiplied by the number of common
shares into which the Series A stock would be convertible if shares were
authorized, plus a 10% premium.
During the fiscal year ended March 31, 2001, the 1,900 shares of Series A stock
and accrued dividends were converted into 267,074 shares of Common Stock. During
the year ended March 31, 2000, 30,600 shares of Series A stock and accrued
dividends were converted into 4,066,695 shares of common stock.
SERIES B
On June 25, 1999, the Company issued 300, 7% Series B convertible preferred
stock (the "Series B stock"), par value $.001, for cash of $10,000 per share and
gross proceeds of $3,000,000. Dividends of 7% per annum are cumulative and are payable, with certain exceptions, either in cash or in shares of common
stock at the election of the Company. The dollar amount of Series B stock, is
convertible into fully paid and no assessable shares of common stock of the
Company at a conversion price which is the lower of (i) $2.00 per share or (ii)
a per share amount computed on each of two adjustment dates (30 and 60 days
after registration of the underlying shares), but not less than $1.50 per share
except as may be subsequently modified as a consequence of certain possible
penalties and other adjustments. The conversion price on the two adjustment
dates is computed at a premium to the average of the three lowest of the ten day
closing bid market prices prior to and including each adjustment date. On
September 8, 1999, the adjusted conversion price was determined to be $1.50 in
accordance with the terms of the agreement set out above. The adjusted
conversion price resulted in a beneficial conversion feature in the amount of
$1,200,000 because the adjusted conversion price was less then the fair market
value of the common stock when the preferred shares were issued. This has been
recorded as a beneficial conversion feature on the issuance of the Series B
stock and increases the loss attributable to common stockholders and the
resulting loss per share for the year ended March 31, 2000.
The Series B stock was redeemable in certain instances at the Company's option
and at the holder's election upon the occurrence of certain triggering events.
The Series B stock was subject to automatic conversion on June 24, 2002, subject
to certain conditions.
In connection with the Series B stock financing, the Company incurred placement
agent fees and legal and related costs of approximately $250,000 and issued
warrants to purchase 137,615 common shares of the Company with an exercise price
of $3.27 per share until June 24, 2004. The fair value of the warrants granted
was estimated at $275,000 on the date of the grant using the Black-Scholes
options price model with the following assumptions: no dividend yield; risk free
interest rate of 6%, expected volatility of 1.844 and an expected life of 5
years. This amount was been recorded as a cost of issuance by reducing Series B
stock capital and increasing common stock additional paid in capital.
In addition, in connection with the issuance of the Series B stock, the Company
issued to the Series B stockholders, warrants to purchase 195,000 shares of
Common Stock at $2.40 per share until June 24, 2004. The fair value of the
warrants granted was estimated at $390,000 on the date of the grant using the
Black-Scholes options pricing model with the following assumptions: no dividend
yield; risk free interest rate of 6%, expected volatility of 1.844 and an
expected life of 5 years. A portion of the proceeds received, allocated to the
warrants, has been recorded as an increase in common stock additional paid in
capital. During the year ended March 31, 2000, all 300 shares of Series B stock
and accrued dividends of $79,572 were converted, in accordance with the terms of
the Series B stock agreement, into 2,053,049 shares of common stock.
SERIES C
On October 5, 2000, the Company issued 400 shares of Series C stock with a
stated value of $10,000 per share and warrants to purchase 230,946 shares of
Common Stock, at $5.20 per share until October 5, 2005, for gross proceeds of
$4,000,000. Dividends of 7% per annum are payable, with certain exceptions,
either in cash or in shares of Common Stock at the Company's election. The
conversion price for each share of Series C stock is subject to adjustment on
the 90th day following the original issue date from a fixed conversion price of
$4.33 to the lower of (i) $4.33 or (ii) 90% of the average of the five lowest
per share market values during the 20 consecutive trading days immediately
preceding the conversion date ("Adjusted Conversion Price").
The gross proceeds of $4,000,000 have been allocated to the redeemable Series C
stock and the warrants based on the relative fair value of each security at the
time of issuance. Accordingly, $3,417,094 was allocated to the redeemable Series
C stock and $582,905 was allocated to the warrants. The fair value of the
warrants granted was estimated using the Black-Scholes options price model with
the following assumptions: no dividend yield; risk free interest rate of 6%,
expected volatility of 1.6602 and an expected life of 2.5 years. The minimum
redemption premium of $400,000 on the redeemable Series C stock and the $582,905
discount from their stated value resulting from the warrants, have been accrued
and recorded as an immediate charge to losses attributable to common
stockholders to reflect the preferred stock at fair value. The warrant holders
have the option to receive shares of Common Stock equal to the number of
warrants multiplied by the difference between the average of the closing sale
prices of the Common Stock for the five trading days immediately prior to the
date of exercise and the exercise price of the warrants, divided by the exercise
price of the warrants.
The terms of the Series C stock provide the holders with an "in-the-money"
variable conversion rate. A beneficial conversion feature on the Series C stock
was calculated at issuance based on the difference between the effective
conversion price of the allocated proceeds and the market price of the Company's
common stock on the date of issuance. The original amount of the beneficial
conversion feature was $335,792 at inception, however, because of the
variability of the conversion ratio, it is remeasured each reporting period
until conversion, extinguishment or maturity, subject to the maximum proceeds
allocated to the Series C stock. As at March 31, 2001, the beneficial conversion
feature amounted to $3,417,095 and has been presented as a charge to losses
attributable to common stockholders over the term, amortized over the period to
the earliest conversion date.
In connection with the Series C stock financing, the Company incurred placement
agent fees and legal and related costs of approximately $300,000 and issued
warrants to purchase 138,568 shares of Common Stock at $5.20 per share until
October 5, 2005 as a placement agent fee. The fair value of the warrants granted
was estimated at $450,346 on the date of the grant using the Black-Scholes
options price model with the following assumptions: no dividend yield; risk free
interest rate of 6%, expected volatility of 1.6602 and an expected life of 2.5
years. The amount was recorded as a financing fee within Additional Paid-in
Capital. The warrant holders have the option to receive shares of Common Stock
equal to the number of warrants multiplied by the difference between the average
of the closing sale prices of the Common Stock for the five trading days
immediately prior to the date of exercise and the exercise price of the
warrants, divided by the exercise price of the warrants. If the Company at any
time, while the warrants are outstanding, issues shares of common stock or
rights, warrants, options or other securities or debt that are convertible into
or exchangeable for shares of common stock, entitling any person to acquire
shares of common stock at a price less than the exercise price of the warrants,
then at the sole option of the holder, the exercise price shall be adjusted to
mirror the conversion, exchange or purchase price for such common stock
equivalents.
During the year ended March 31, 2001, 326 shares of Series C stock and accrued
dividends were converted into 2,469,334 shares of Common Stock. During the year
ended March 31, 2002, the remaining 74 shares of the Series C stock and accrued
dividends were converted into 912,612 shares of Common Stock.
15. PREFERRED STOCK
SERIES D
On December 30, 2002, the Company issued 205,000 shares of 12% Series D
non-redeemable convertible preferred stock (the "Series D stock") with a stated
value of $10 per share. The Series D stock was issued pursuant to a conversion
agreement with all of the noteholders of the Company's $1,000,000 SP Notes and
$1,050,000 Unsecured Notes. Dividends of 12% per annum are payable, with certain
exceptions, either in cash or in shares of Common Stock at the Company's
election. The conversion price for each share of Series D stock is $0.20 subject
to certain adjustments if the Company issues shares at prices lower than $0.20.
The Company has agreed to use its best efforts to file a registration statement
for the shares underlying the Series D stock by June 30, 2003. The conversion
price was reduced to $0.19 pursuant to anti-dilution protection given to the
preferred stockholders triggered by the sale of $129,000 of shares of Common
Stock in January 2003.
AI
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