CEO Blog - January 4, 2013
Friday, January 04 2013 03:00
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Question: Please explain the two S-3 registration statements filed with the SEC on December 31, 2012. What do they mean and are any further actions planned?

Answer: The Company filed two S-3 registration statements on December 31, 2012. The first was a typical shelf registration statement covering up to $50 million of broad categories of securities, both debt and equity. The Board believes that it is prudent for a company to have the capability to access the capital markets on a timely basis, to be better prepared for any unforeseen contingencies that may arise as well as take advantage of opportunities that may become available. The Board believes that this is especially true for the Company, as it expands and enhances it production activities and uses capital resources in connection therewith. The Company does not have any present arrangement or understanding with respect to raising additional capital.

The second was a registration statement to register the resale of the common stock underlying the Series A-1 Convertible Preferred Shares held by the Winfield Group, which the Company was obligated to file pursuant to a previously disclosed agreement between the Company and its preferred shareholders (including the Winfield Group) signed in connection with the Company’s recapitalization in October 2010. While the registration of the common stock underlying the preferred shares held by other preferred shareholders was completed in 2011, the registration of the underlying common stock for the Winfield Group was deferred, with the Winfield Group’s consent, at the request of the Company, several times since then. The Winfield Group believes that, given the size of its holdings in the Company and the importance of those holdings to it, it is prudent to have the Company comply with its obligations under that agreement. While there is no current contractual restriction on the Winfield Group’s ability to convert their preferred shares into common stock and resell them, it has never done so and has advised the Company that it has no current plans to do so.

The registration of the resale of the common stock underlying the Series A-1 Convertible Preferred Shares held by the Winfield Group is not dilutive. The Company currently has 48.5 million common shares issued and outstanding and 109.9 million common shares on an if-converted basis, that is, if all preferred stock was converted to common stock (including the common stock underlying the Series A-1 Convertible Preferred Shares held by the Winfield Group). Investors should keep in mind that, when any preferred shareholder converts preferred shares into common stock, all rights to a liquidation preference and future dividends payable on the preferred shares are given up (reducing the Company’s obligation with respect thereto). In the Winfield Group’s case, they would also be giving up their super voting rights (5 votes for every 1 underlying common share). The registration of the underlying common shares does not mean that these preferred shares will be converted, or if converted, that they would be sold.  Again, the Winfield Group has advised the Company that it has no current plans to do so.

Best Regards from The Comstock,

Corrado De Gasperis

President & CEO