Annual report pursuant to Section 13 and 15(d)

Preferred Stock

v2.4.1.9
Preferred Stock
12 Months Ended
Dec. 31, 2014
Preferred Stock
8. Preferred Stock

The Company is authorized to issue up to 5,000,000 shares of preferred stock.

As a result of the Preferred Stock Exchange, all rights relating to the preferred stock were extinguished, and at December 31, 2014 the Company has no outstanding preferred stock.

Series A Preferred Stock—The Company has designated 3,000 shares of preferred stock as Series A Preferred Stock.

The Series A preferred stock has been eliminated and there were no shares of Series A preferred stock issued and outstanding during any of the years presented.

Series B Convertible Preferred Stock The Company has designated 1,000,000 shares of preferred stock as Series B Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”).

On September 25, 2012, the Company issued to RVL 600,000 shares of Series B Preferred Stock in exchange for $6 million. The net proceeds of $5,195,000 were used to retire debt, to fund a settlement of certain litigation, and for working capital purposes. The Series B Preferred Stock was convertible into shares of the Company’s common stock at a conversion price per share equal to $0.13, subject to certain anti-dilution adjustments. After giving effect to the conversion feature of the Series B Preferred Stock and the other transactions, RVL owned 46,153,846 as-converted shares of common stock, or approximately 73% of the Company, which represented a change in control of the Company. RVL was entitled to vote the Series B Preferred Stock on an as-converted basis with the Company’s common stock. During the fourth quarter of 2012, RVL converted 599,998 shares of Series B Preferred Stock into 46,153,692 shares of common stock. The remaining two shares were converted to common stock in the Preferred Stock Exchange.

A beneficial conversion feature (“BCF”) is recorded when the consideration allocated to a convertible security, divided by the number of common shares into which the security converts, is below the fair value of the common stock at the commitment date. The Series B conversion price on the date of its issuance was $0.13 per share, and the Company’s common stock price had increased to $0.59 per share. As a result, the Company recognized a BCF. The value of the BCF is limited to the basis that is initially allocated to the convertible security, accordingly the Company allocated the entire net proceeds of $5,195,000 to the BCF, which was initially recorded in additional paid-in capital. The BCF was treated as a deemed dividend on the Series B Preferred Stock and was accreted to the Series B Preferred Stock using the effective interest method through the date of earliest conversion. As the Series B Preferred Stock is immediately convertible, the Company included a deduction of $5,195,000 in determining loss per share for the year ended December 31, 2012. The aforementioned deemed dividend had no impact on the Company’s stockholders’ equity.

Series C Convertible Preferred Stock The Company has designated 25,000 shares of preferred stock as Series C Convertible Preferred Stock , par value $0.001 per share (the “Series C Preferred Stock”).

On December 20, 2012, the Company issued to RVL 10,000 shares of the Series C Preferred Stock, for cash of $10 million, which was used to fund the Seesmart acquisition (Note 2) and for working capital purposes.

The Series C Preferred Stock was initially non-voting and non-convertible. The Series C Preferred Stock became voting and convertible into shares of the Company’s common stock effective May 15, 2013, following the Company’s compliance with the requirements of Rule 14c-2 of the Securities Exchange Act of 1934, as amended. Additionally RVL was given the right to appoint four members to the Company’s board of directors (the “Board”), with the size of the Board not to exceed seven members. RVL’s right to appoint four directors will decline proportionately to take into account subsequent material reductions in RVL’s ownership position in the Company.

Each share of Series C Preferred Stock carried a liquidation preference and was entitled to receive cumulative dividends payable at a rate per annum of 10% of the Series C Stated Value on the date of issuance (i.e. $1,000). Such dividends were payable through the issuance of additional shares of Series C Preferred Stock on each anniversary of the date of issuance. Additionally, the Series C Preferred Stock shared ratably on an as-converted basis with the common stock in the payment of all other dividends and distributions. For the year ended December 31, 2013, the Company accrued dividends of approximately $1,014,000. On December 1, 2014, all outstanding shares of Series C Preferred were converted to common stock in the Preferred Stock Exchange.

Series D Convertible Preferred Stock The Company has designated 13,000 shares of preferred stock as Series D Convertible Preferred Stock, par value $0.001 per share (the “Series D Preferred Stock”).

 

On December 20, 2012, the Company issued 11,177 shares of Series D Preferred Stock, and in the first quarter of 2013, the Company issued 738 shares of Series D Preferred Stock, as partial consideration in the Seesmart acquisition (Note 2). The Series D Preferred Stock had a liquidation preference of $100 per share and shared ratably on an as-converted basis with the

Company’s common stock in the payment of dividends and distributions. The Series D Preferred Stock was non-voting and was initially non-convertible. On May 15, 2013, all 11,915 shares of Series D Preferred Stock were automatically converted into 1,712,167 shares of common stock at a conversion price per share equal to $0.6959 (the “Series D Conversion Price”).

Series E Redeemable Convertible Preferred Stock – The Company has designated 10,000 shares of preferred stock as Series E Convertible Redeemable Preferred Stock, par value $0.001 per share (the “Series E Preferred Stock”).

On February 21, 2013, the Company issued to RVL 5,000 shares of Series E Preferred Stock for cash of $5 million, which was used for working capital purposes. The Series E Preferred Stock was initially non-voting and non-convertible and became voting and convertible into shares of the Company’s common stock on May 15, 2013.

Each share of Series E Preferred Stock was entitled to receive cumulative dividends payable at a rate per annum of 5% of the Series E Stated Value then in effect. Additionally, the Series E Preferred Stock shared ratably on an as-converted basis with the common stock in the payment of all other dividends and distributions. For the year ended December 31, 2013, the Company accrued dividends of $218,000.

In accordance with Accounting Standards Codification 480 (ASC 480), the Company classified the Series E Preferred Stock as temporary equity in the financial statements as it was subject to mandatory redemption at the option of the holder. The Company concluded that the Series E Preferred Stock is more akin to a debt-type instrument than an equity-type instrument. Accordingly the Series E Preferred Stock was accreted to the redemption amount in effect on the balance sheet date.

The embedded conversion feature was not deemed to be closely and clearly related to the debt-type host instrument and before the modification described below did not meet the requirements for classification as equity. Accordingly, it was accounted as a liability at fair value with subsequent changes in fair value included in earnings. The change in fair value of the embedded derivative included in the statement of earnings was $ 7.0 million were for the year ended December 31, 2013. On May 14, 2013, the host instrument was modified by eliminating certain provisions that prevented the embedded conversion feature from meeting the criteria for classification as equity. Accordingly, the fair value of the embedded conversion liability of $8.6 million as of May 14, 2013 was reclassified to paid in capital. The following gives pro forma effect to the results of operations for the year ended December 31, 2013 had the modification been effective on February 21, 2013:

 

(in thousands)

                    
     As Reported      Series E Adjustments      Proforma  

Revenue

   $ 26,060       $ —         $ 26,060   
  

 

 

    

 

 

    

 

 

 

Gross profit

  9,952      —        9,952   
  

 

 

    

 

 

    

 

 

 

Operating loss

  (10,522   —        (10,522

Other income (expenses)

  (6,299   6,990      691   
  

 

 

    

 

 

    

 

 

 

Net loss

$ (16,821 $ 6,990    $ (9,831

Dividends and accretion to redemption value of Series E and F

  (3,650 )   1,636     (2,014
  

 

 

    

 

 

    

 

 

 

Net loss attributable to common stockholders

$ (20,471 $ 8,626    $ (11,845
  

 

 

    

 

 

    

 

 

 

Basic and diluted loss per common share:

Loss from continuing operations attributable to common stockholders

$ (0.26 $ (0.15
  

 

 

       

 

 

 

Net loss attributable to common stockholders

$ (0.26 $ (0.15
  

 

 

       

 

 

 

On December 1, 2014, all outstanding shares of Series E Preferred were converted to common stock in the Preferred Stock Exchange described above.

Series F Redeemable Convertible Preferred Stock – The Company has designated 10,000 shares of preferred stock as Series F Senior Convertible Redeemable Preferred Stock, par value $0.001 per share (the “Series F Preferred Stock”).

On August 22, 2013, the Company issued to RVL 5,000 shares of Series F Preferred Stock for cash of $5 million, which was used for working capital purposes.

Each share of Series F Preferred Stock was voting and carried a liquidation preference. It was redeemable for cash at the option of the Company, and convertible to either common stock or cash at the option of the holder. Additionally, it was entitled to receive dividends at a rate per annum equal to 7% of the Series F Stated Value then in effect. For the year ended December 31, 2013, the Company accrued Series F Dividends of $129,000.

 

All outstanding shares of Series F preferred stock were redeemed in connection with the exchange of Series F preferred stock for Series G preferred stock described below. Following the redemption, the Series F preferred stock was cancelled in June 2014.

In accordance with Accounting Standards Codification 489 (“ASC 480”), the Company classified the Series F Preferred Stock as temporary equity in the financial statements as it was subject to mandatory redemption at the option of the holder. The Company concluded that the Series F Preferred Stock is more akin to a debt-type instrument than an equity-type instrument. Accordingly the preferred stock was accreted to the redemption amount in effect on the balance sheet date.

Series G Redeemable Convertible Preferred stock – The Company designated 18,000 shares of preferred stock as Series G Convertible Redeemable Preferred Stock, par value $0.001 per share (the “Series G Preferred Stock”).

On June 30, 2014, the Company issued to RVL and its affiliate an aggregate of 18,000 shares Series G Preferred Stock as follows. The Company issued 10,956,000 shares in exchange for cancellation of the outstanding balance on the RVL Note (see Note 16), which aggregated $10,956,000 including accrued and unpaid interest thereon. An additional 5,404 shares were issued in exchange for the 5,000 shares (including accrued and unpaid dividends thereon) of the Company’s outstanding Series F Preferred Stock, and 1,640 shares were issued to Aston in exchange for $1,640,085, a portion of the outstanding balance on the February Note (see Note 15).

The Series G Preferred Stock carried a liquidation preference, and was voting and convertible into shares of the Company’s common stock at any time at the option of the holder at a conversion price equal to $2.30. In accordance with ASC 480, the Company classified the Series G Preferred Stock as temporary equity in the financial statements as it was subject to mandatory redemption at the option of the holder.

Additionally, the Company had the option to redeem all or any part of the Series G Preferred Stock for cash at any time subject to the holder’s right to convert and require delivery of shares of common stock. For so long as shares of Series G Preferred Stock were outstanding, the Company was prohibited from taking certain actions specified in the Series G certificate of designations without the consent of a majority of the holders.

Each share of Series G Preferred Stock was entitled to receive cumulative dividends payable at a rate per annum of nine percent (9%) of the Series G Stated Value.

On December 1, 2014, all outstanding shares of Series G Preferred were converted to common stock in the Preferred Stock Exchange.