Roger, OCOM, a convertible is what they got! From the latest S-3, a brand new convertible completed in August:
In August 1998, the Company completed a private
placement of 209,091 shares of 5% Cumulative Convertible Series B Preferred
Stock, par value $.01 per share (the "Series B Preferred Stock"), at a price of $5.50 per share, and
warrants to purchase 52,273 shares of Common Stock at an exercise price of $6.00
per share (the "Series B Warrants"). The Company received $1.15 million in gross
proceeds from such offering. See "Description of Securities."
This appears to be in addition to the July convertible:
To date, the Company has financed operations principally
through public and private sales of debt and equity, including the private
placement in July 1998 of the 5% Convertible Debentures . . .
And the company is floundering financially (which we already knew):
LACK OF LIQUIDITY; NEED FOR ADDITIONAL FINANCING
The Company anticipates that its existing financial resources will be
sufficient to continue to fund its operating and capital requirements through
October 1998. The Company does not expect to generate substantial cash from
operations during this period. Cash flows from operations are not currently
expected to be substantial until at least the fourth quarter of 1998, and are
not expected to be sufficient to fund the Company's operations until at least
the latter half of 1999. Management anticipates that the Company will continue
to experience negative cash flows from operations for the foreseeable future
until its products achieve commercial acceptance. As reflected in the financial
statements of the Company for the year ended December 31, 1997, and the report
of the Company's independent auditors thereon, the Company has suffered
recurring losses from operations and has a working capital and an accumulated
deficit that raise doubt about its ability to continue as a going concern. As a
result of the Company's recurring losses and current cash position, the Company
is currently pursuing additional sources of debt and equity financing. The
Company has required substantial funding through debt and equity financings
since its inception and, historically, has been successful in obtaining debt and
equity financing from unaffiliated third parties. However, the Company does not
currently have any commitments for debt or equity financing and accordingly,
there can be no assurance
that it will be successful in its efforts to secure additional financing on
terms acceptable to the Company, or at all.
LOSSES SINCE INCEPTION; ACCUMULATED DEFICIT; EXPECTATION OF CONTINUING LOSSES
To date, the Company has incurred substantial losses from operations and
had an accumulated deficit of approximately $29.1 million through June 30, 1998.
As a result of recurring losses from operations, negative cash flows from
operations and the accumulated deficit, the report of the Independent
Accountants on the Financial Statements of the Company contains an explanatory
paragraph related to the Company's ability to continue as a going concern. The
Company is currently pursuing additional debt and equity financing alternatives.
The Company has required substantial funding through debt and equity financings
since its inception and, historically, has been successful in obtaining debt and
equity financing from unaffiliated third parties. However, the Company does not
currently have any commitments for debt or equity financing and accordingly,
there can be no assurance that it will be successful in its efforts to secure
additional financing on terms acceptable to the Company, or at all.
The Company expects to continue to incur operating losses until the
Company's products achieve commercial acceptance. Most of the revenues earned by
the Company from its inception through December 31, 1997 were generated by
consulting services provided by the Company, not by its primary business. The
Company has not generated substantial revenues to date from sales of its
products, including the VidPhone(R) system and did not recognize any revenues
during the year ended December 31, 1997. The Company recognized only $110,505 in
revenues from the sale of products during the first half of 1998. The Company's
ability to recognize operating revenues in the future will depend on a number of
factors, including customer acceptance of products shipped and installed to
date, the Company's ability to generate new sales of products and secure
customer acceptance, and the timing of customer payments, certain of which are
beyond the control of the Company.
Convertible looks floorless (can anyone comment, I'm not an expert at these statements, but I think the variable nature of the convertible price makes it floorless):
EFFECT OF CONVERSION OF THE 5% CONVERTIBLE DEBENTURES
Potential Dilution. The exact number of shares of Common Stock issuable
upon conversion of the 5% Convertible Debentures depends on the conversion price
in effect at the time of the conversion. Because the conversion price is equal
to the lesser of (i) a fixed conversion price of $10.87 per share (the "Fixed
Conversion Price"), or (ii) a floating conversion price equal to the average of
the three lowest closing prices of the Common Stock over the twelve trading days
preceding the date of conversion (the "Floating Conversion Price"), the number
of shares issuable upon such conversion will vary inversely with the market
price of the Common Stock. Holders of the Common Stock will be diluted by any
issuances of Common Stock upon conversion of the 5% Convertible Debentures and
may be substantially diluted depending upon the market price of the Common
Stock. See "Description of Securities -- 5% Cumulative Convertible Debentures
due 2003."
$2.5 million aggregate principal amount of 5% Convertible Debentures first
become convertible on October 6, 1998, and the remaining $625,000 aggregate
principal amount of 5% Convertible Debentures first become convertible on
January 5, 1999. Subject to certain conditions, the Company has the right to
redeem 6<PAGE> 9
the 5% Convertible Debentures during the period preceding the first date upon
which such debentures can be converted, at a redemption price equal to 110% of
the face value. If the Company exercises its right to redeem the 5% Convertible
Debentures, then it is obligated to issue to the holders thereof the Debenture
Warrants. As noted above, the exact number of shares of Common Stock issuable
upon conversion of the 5% Convertible Debentures cannot currently be determined
and will vary inversely with the market price of the Common Stock. The extent to
which the current holders of the Common Stock will be diluted by issuances of
Common Stock upon conversion of the 5% Convertible Debentures will depend on a
number of factors, including without limitation the future market price of the
Common Stock and the timing of conversion of the 5% Convertible Debentures. The
potential effects of any such dilution on the existing stockholders of the
Company include the significant diminution of the current stockholders' economic
and voting interests in the Company. In addition, pursuant to the terms of the
Subscription Agreements relating to the 5% Convertible Debentures and depending
upon the conversion price, the Company may be required to register additional
shares of Common Stock to cover conversion of the 5% Convertible Debentures. The
registration and sale of such additional shares of Common Stock of the Company
or the prospect thereof could have a material adverse effect on the market price
of the Common Stock. |
