If you look at the terms of the preferred you will realize that the whole reason they increased the AS and issued the preferred in such a manner was at the insistence of Cornell. Had it not been for butthole Cornell, non of the preferred would have been issued at all nor would the float have been increased.
So to say that there is intent here to dilute is a misnomer in my opinion since the AS and preferred issuance should be looked at in terms of why. If they wanted or needed to sell shares, they had plenty to sell available under the 500 million cap already.
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"The letter of intent also required the Company to increase its authorization of common shares from 500 million to two billion shares and to do so no later than November 1, 2007. The debenture holders also agreed to extend the maturity dates of each debenture by one year in exchange for warrants to purchase three million shares of the Company’s common stock at a price per share of $0.004, on a cashless basis, for a term of five years. (See Notes 10D and 12C).
Most of the transactions specified by the debenture holders’ letter of consent did not occur as contemplated. The Company had originally intended to include a security provision in the new securities, as the letter of consent from the existing debenture holders specifying the various restrictions on the new preferred did not preclude such a provision. The security provision would have been liens on the Company’s assets, but such liens would have been junior to all existing liens. However, the Company shortly determined that the issuance of secured convertible preferred stock, even though permissible under a “blank check” umbrella, was not advisable.
Accordingly, the Company then determined to offer non-interest bearing secured convertible debt, with the terms of such debt being sufficiently similar to the preferred stock described in the letter of intent that the debenture holders would still consent. In particular, the conversion terms would be virtually identical to those contemplated in the letter of intent and any funds raised in excess of $1,000,000 would still be applied against the 2006 and 2007 debentures as required. In September 2007, $600,000 was received from two accredited investors, including the rollover of a $100,000 bridge loan from a shareholder of the Company. As then contemplated, the new debt was to automatically convert into common shares of the Company on the earlier of (i) five days following the full and complete conversion by the holders of the 2006 and 2007 debentures; or (ii) October 31, 2010. The conversion price in effect on the conversion date was to equal the volume weighted average conversion price per share of all conversions of those debentures.
During October and November 2007, the Company received another $625,000 from accredited investors, with such monies initially designated as being for the new non-interest bearing convertible secured debentures. However the November deadline for completing the financings contemplated by the August 7, 2007 consent letter had not been met. In addition, during this period the Company determined it might be able to raise sufficient funds to completely repay all amounts outstanding under the 2006 and 2007 debentures, and accordingly had begun negotiations with the debenture holders to reach an agreement providing for such repayment.
On December 6, 2007, the debenture holders issued a substantially revised letter of consent authorizing the issuance of the new preferred, conditioned upon the repayment of the debentures. This letter stipulated that if sufficient funds were not raised to allow the Company to repay all amounts due under the 2006 and 2007 debentures by December 31, 2007, the Company would have to return all monies subscribed for the new preferred. As the Company had not obtained the debenture holders’ written consent to issue new convertible secured debt, it followed that the issuance of such instruments had been contractually prohibited, and accordingly, such instruments were void “ab initio.” However, since the now necessarily void securities had been non-interest bearing, the Company anticipated that substituting preferred stock with senior liquidation rights was likely to be acceptable to the investors.
As the Company had concluded that the non-interest bearing secured convertible debentures had not been validly issued, the Company sought rescission letters from each of the subscribers. The rescission letters were obtained and each subscriber rolled the previously paid amounts into the Series A Preferred, which now resulted in a transaction for which the debenture holders’ consent had been obtained. In retrospect, the Company determined that the monies paid for the non-interest bearing debentures were deposits or subscriptions for the Series A Preferred that were now validly issuable. "
AI
