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6. Stockholders' Deficiency
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9 Months Ended | ||
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Dec. 31, 2012
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| Stockholders Deficiency | |||
| Note 6. Stockholders' Equity |
Registered Direct Offering
On April 22, 2012, the Company entered into agreements with certain investors to issue up to: a) 2,360,001 shares of common stock; b) 1,000 shares of Series A Preferred Stock; and c) Warrants to purchase up to 3,471,112 shares of common stock. The Company also offered up to 1,111,111 shares of common stock issuable upon conversion of the Series A Preferred Stock. The Company received approximately $3,124,000 in gross proceeds from the sale of these securities. Net proceeds after deducting the placement agent commissions, legal expenses and other offering expenses, and assuming no exercise of the Warrants, was $2,797,000. The Company retained Rodman & Renshaw, LLC as the exclusive placement agent for this offering, and paid them $218,680 in placement agent commissions. Following the close of the transaction, one of the investors converted 1,000 shares of the Series A Preferred Stock purchased in the transaction into 1,111,111 shares of common stock.
In connection with the issuance of the Series A Preferred Stock, the Company determined the instrument contained a beneficial conversion feature at the date of issuance. This beneficial conversion feature amounted to $1,062,000 and was recorded as a deemed preferred dividend on the condensed consolidated statement of statement of operations for the nine months ended December 31, 2012.
The Warrants issued with the offering have an initial exercise price of $1.18 per share, were not exercisable for nine months from the date of issuance, and had an initial exercise term of 2.5 years from the date of issuance. Additionally, the Warrants initially contained a net-cash settlement feature which gave the warrant holder the right to net-cash settlement in the event certain transactions had occurred. Pursuant to the terms of the Warrants, if such a transaction had occurred the warrant holder would have been entitled to a net-cash settlement value calculated using the Black-Scholes valuation model using specific volatility, expected term and risk-free interest rate assumptions, as further detailed in the Warrants. On October 29, 2012, the Company entered into a side letter agreement with the holders of the Warrants to amend the terms of the Warrants. The holders of the Warrants agreed to eliminate certain net-cash settlement features contained in the Warrants in exchange for the Company’s agreement to a two-year extension of the expiration date of the Warrants. Accordingly, the expiration date of the Warrants was extended from October 25, 2014 to October 25, 2016 (See Note 5).
Common Stock Issued to Service Providers
On April 24, 2009, the Company entered into an agreement with Advocos LLC, a contract sales organization that serves as part of the Company’s sales force for the sale of wound care products in the United States. Pursuant to the agreement, the Company agreed to pay the contract sales organization a monthly fee and potential bonuses based upon the achievement of certain levels of sales. Additionally, the Company agreed to issue the contract sales organization shares of common stock as compensation for its services. The Company has determined that the fair value of the common stock was more readily determinable than the fair value of the services rendered. Accordingly, the Company recorded the fair market value of the stock as stock compensation expense. During the three months ended December 31, 2012 and 2011, the Company issued 75,000 and 46,970 shares of common stock, respectively, in connection with this agreement. During the three months ended December 31, 2012 and 2011, the Company recorded $67,000 and $76,000 of stock compensation expense related to this agreement, respectively. During the nine months ended December 31, 2012 and 2011, the Company issued 175,743 and 99,257 shares of common stock, respectively, in connection with this agreement. During the nine months ended December 31, 2012 and 2011, the Company recorded $182,000 and $168,000 of stock compensation expense related to this agreement, respectively. The expense was recorded as selling, general and administrative expense in the accompanying condensed consolidated statements of operations. On April 1, 2011, the Company entered into an agreement with NetGain Financial, Inc., for providing financial advisory services. Pursuant to the agreement, the Company agreed to pay NetGain Financial common stock as compensation for services provided. The Company determined that the fair value of the common stock was more readily determinable than the fair value of the services rendered. Accordingly, the Company recorded the fair market value of the stock as compensation expense. During the three months ended December 31, 2012 and 2011, the Company issued 150,000 and 15,000 shares of common stock, respectively, in connection with this agreement. During the three months ended December 31, 2012 and 2011, the Company recorded $102,000 and $23,000 of stock compensation expense related to this agreement, respectively. During the nine months ended December 31, 2012 and 2011, the Company issued 300,000 and 75,000 shares of common stock, respectively, in connection with this agreement. During the nine months ended December 31, 2012 and 2011, the Company recorded $248,000 and $133,000 of stock compensation expense related to this agreement, respectively. The expense was recorded as selling, general and administrative expense in the accompanying condensed consolidated statements of operations.
On September 4, 2012, the Company entered into an agreement with Worldwide Financial Marketing, Inc. for providing financial advisory services. Pursuant to the agreement, the Company agreed to pay Worldwide Financial Marketing, Inc. common stock as compensation for services provided. The Company determined that the fair value of the common stock was more readily determinable than the fair value of the services rendered. Accordingly, the Company recorded the fair market value of the stock as compensation expense. During the three months ended December 31, 2012, the Company issued 25,000 shares of common stock, in connection with this agreement. During the three months ended December 31, 2012, the Company recorded $17,000 of stock compensation expense related to this agreement. The expense was recorded as selling, general and administrative expense in the accompanying condensed consolidated statements of operations.
Anti-dilution Adjustments
Pursuant to anti-dilution provisions contained in the August 13, 2007 private placement and in the placement agent warrant agreement, for various financing transactions and common stock issuances, the Company is required to adjust the exercise price and the number of warrants held by each warrant holder under these agreements. Over-time, the exercise price for the warrants has been adjusted from the original exercise price of $9.50 to $3.75. At December 31, 2012 and March 31, 2012, there were 924,470 and 762,876 warrants outstanding that contain this anti-dilution provision, respectively. During the three months ended December 31, 2012, the Company reduced the exercise price from $3.75 to $3.40 and issued an additional aggregate of 86,298 warrants as a result of shares issued to service providers. During the nine months ended December 31, 2012, the Company reduced the exercise price from $4.32 to $3.40 and issued an additional aggregate of 161,594 warrants as a result of the dilutive effect of the April 22, 2012 registered direct offering and as a result of shares issued to service providers in a separate transaction. The warrants were classified as derivative liabilities in the December 31, 2012 and March 31, 2012 condensed consolidated balance sheets. |