XML 38 R15.htm IDEA: XBRL DOCUMENT

Mandatorily Redeemable Convertible Preferred Stock

9 Months Ended

Sep. 30, 2012

Convertible Preferred Stock [Abstract]

Mandatorily Redeemable Convertible Preferred Stock

10.

Mandatorily Redeemable Convertible Preferred Stock

On April 13, 2012, the Company signed a securities purchase agreement (the “Securities Purchase Agreement”) with a private investor for the sale (the “Preferred Stock Financing”) of $5,000 of the Company’s Series A Convertible Preferred Stock (1,000,000 Shares) (the “Series A Convertible Preferred Stock”), which are initially convertible into 1,000,000 shares of the Company’s common stock at a conversion price of $5.00 per share, and Common Stock Purchase Warrants exercisable for 325,000 shares of common stock, 125,000 of such warrants at an initial exercise price of $6.00 per share and 200,000 of such warrants at an initial exercise price of $7.00 per share. On May 2, 2012 the Company completed the issuance of the $5,000 of Series A Convertible Preferred Stock and the Common Stock Purchase Warrants.

On April 30, 2012, the Company filed an Articles of Amendment to our Articles of Incorporation designating 1,000,000 shares of the Company’s authorized preferred stock as Series A Convertible Preferred Stock. The Company also entered into the Registration Rights Agreement and Investor Rights Agreement with the Investor on May 2, 2012.

The Series A Convertible Preferred Stock rank senior to all other equity instruments of the Company, including the Company’s common stock. The Series A Preferred Stock accrue cumulative dividends at a rate of 6% per annum, whether or not dividends have been declared by the Board of Directors and whether or not there are profits, surplus or other funds available for the payment of such dividends. The Company may pay such dividends in shares of the Company’s common stock based on the then current market price of the common stock. At any time following a material default by the Company, as defined in the Securities Purchase Agreement, or April 30, 2017, the holders of a majority of the outstanding Series A Preferred Stock may require the Company to redeem the Series A Preferred Stock at a redemption price equal to the lessor of (i) the liquidation preference per share (initially $5.00 per share, subject to adjustments for certain future equity transactions defined in the Securities Purchase Agreement) and (ii) the fair market value of the Series A Preferred Stock per share, as determined in good faith by the Company’s Board of Directors. The redemption price, plus any accrued and unpaid dividends, shall be payable in 36 equal monthly installments plus interest at an annual rate of 6% per annum.

On May 1, 2012 the Company and Chase executed a consent and amendment to our revolving credit agreement, whereby Chase as lender agreed to consent to: the Securities Purchase Agreement; the issuance and sale of the Preferred Stock and Warrants; the payment of the preferred dividends required; and the redemption of the Preferred Stock, all subject to the terms and conditions set forth in the agreements and the associated Amended Articles of Incorporation.

The preferred stock and warrants were issued for a combined consideration of $5,000 This amount was allocated to the preferred stock and warrants based on their related fair values. The fair value of the warrants was calculated using the Black Scholes-Merton pricing model using the following assumptions:


Number of warrants		125,000			200,000
Exercise price	$	6.00		$	7.00
Expected volatility of underlying stock		74	%		74	%
Risk-free interest rate		1.50	%		1.70	%
Dividend yield		0.00	%		0.00	%
Expected life of warrants		8 years			8 years
Weighted-average fair value of warrants	$	3.17		$	3.07
Expiration date		May 2, 2020			May 2, 2020

Based on these calculations and the actual consideration the warrants were valued at $840 and the preferred stock was valued at $4,160.

The initial values allocated to the warrants represented the discount on the preferred stock with a corresponding charge to additional paid-in capital. The discount related to the warrants is accreted to retained earnings through the scheduled redemption date of the mandatorily redeemable preferred stock. Since the issuance on May 2, 2012, the accretion amounted to $10 and $24 for the three and nine months ended September 30, 2012.