| Debt |
ICG Convertible Note Transaction
On January 23,
2014, the Company issued a Note to ICG in the principal amount of $500,000 (“Note No. 6”). Because the conversion
price of $2.29 was less than the stock price, this gave rise to a beneficial conversion feature valued at $500,000. The Company
recognized this beneficial conversion feature as a debt discount and additional paid in capital. The debt discount is being amortized
over the one year term. On December 3, 2014, ICG converted Note No. 6 into 674,370 shares of common stock, therefore the remaining
debt discount of $158,219 was written off and recognized as interest expense. In addition, upon the conversion of Note No. 6,
the Company issued to ICG a warrant to acquire 674,370 additional shares of the Company’s common stock at an exercise price
of $0.95 per share. The fair value of the warrants issued in connection with the conversion of note was $1,853,473 and was immediately
recognized as interest expense.
Kingston Convertible
Note Transaction ($10 Million Line of Credit)
On January 7,
2014, the Company entered into a Note Purchase Agreement (the “Kingston Purchase Agreement”) with Kingston Diversified
Holdings LLC (“Kingston”), pursuant to which the Investor agreed to purchase for cash up to $5,000,000 in aggregate
principal amount of the Company’s Convertible Notes (“Notes”). The Kingston Purchase Agreement and the Notes,
which are unsecured, provide that all amounts payable by the Company to Kingston under the Notes will be due and payable on the
second (2nd) anniversary of the date of the Kingston Purchase Agreement (the “Maturity Date”).
The Kingston
Purchase Agreement and the Notes provide that:
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Either the Company or Kingston will
have the right to cause the sale and issuance of Notes pursuant to the Kingston Purchase Agreement, provided that NASDAQ’s
approval of the Kingston Purchase Agreement and transactions contemplated thereby is a condition precedent to each party’s
right to cause any borrowings to occur under the Kingston Purchase Agreement. |
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Each Note must be in a principal amount
of at least $100,000. |
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The Notes are issuable at a 5% discount
and will accrue interest at an annual interest rate equal to 8%. All interest will be payable on the Maturity Date or upon
the conversion of the applicable Note. |
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The Company has the option to prepay
each Note, in whole or in part, at any time without premium or penalty. |
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The Company or Kingston may elect at
any time on or before the Maturity Date to convert the principal and accrued but unpaid interest due under any Note into shares
of the Company’s common stock. The conversion price applicable to any such conversion will be an amount equal to 70%
of the lesser of: (i) the closing bid price of the common stock on the date of the Kingston Purchase Agreement (i.e., $3.12
per share); or (ii) the 10-day volume weighted average closing bid price for the common stock, as listed on NASDAQ for the
10 business days immediately preceding the date of conversion (the “Average Price”); provided, however, that in
no event will the Average Price per share be less than $0.33. For example, if the Average Price is $0.17 per share, then for
purposes of calculating the conversion price, the Average Price per share would be $0.33 per share instead of $0.17 per share. |
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If either party elects to convert all
or any portion of any Note, the Company must issue to Kingston on the date of the conversion a warrant (“Contingent
Warrant”) to purchase a number of shares of the Company’s common stock equal to the number of shares issuable
upon conversion. This number of shares is subject to adjustment in the event of stock splits or combinations, stock dividends,
certain pro rata distributions, and certain fundamental transactions. Each Contingent Warrant will be exercisable for
a period of five (5) years following the date of its issuance at an exercise price equal to 110% of the conversion price of
the applicable Note (with the exercise price being subject to adjustment under the same conditions as the number of shares
for which the warrant is exercisable.) The Contingent Warrants provide that they may be exercised in whole or in part and
include a cashless exercise feature. |
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The Notes provide that, upon the occurrence
of any Event of Default, all amounts payable to Kingston will become immediately due and payable without any demand or notice.
The events of default (“Events of Default”) which trigger the acceleration of the Notes include (among other things):
(i) the Company’s failure to make any payment required under the Notes when due (subject to a three-day cure period),
(ii) the Company’s failure to comply with its covenants and agreements under the Purchase Agreement, the Notes and any
other transaction documents, and (iii) the occurrence of a change of control with respect to the Company. |
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The Company (i) is required to provide
certain financial and other information to Kingston from time to time, (ii) must maintain its corporate existence, business,
assets, properties, insurance and records in accordance with the requirements set forth in the Kingston Purchase Agreement,
(iii) with certain exceptions, must not incur or suffer to exist any liens or other encumbrances with respect to the Company’s
property or assets, (iv) must not make certain loans or investments except in compliance with the terms of the Kingston Purchase
Agreement, and (v) must not enter into certain types of transactions, including dispositions of its assets or business. |
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The Company agreed to use commercially
reasonable efforts to obtain, as promptly as practicable, any approvals of the Company’s stockholders required under
applicable law or NASDAQ Listing Rules in connection with the transactions contemplated by the Kingston Purchase Agreement.
Unless and until any such stockholder approvals are obtained, in no event will Kingston be entitled to convert any Notes and/or
exercise any Contingent Warrants to the extent that any such conversion or exercise would result in Kingston acquiring in
such transactions a number of shares of the Company’s common stock exceeding 19.99% of the number of shares of common
stock issued and outstanding immediately prior to the Company’s entry into the Kingston Purchase Agreement. |
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Kingston will be entitled to certain
anti-dilution adjustments if the Company issues shares of its common stock at a lower price per share than the applicable
conversion price for any Note(s) issued pursuant to the Kingston Purchase Agreement. If any such dilutive issuance occurs
prior to the conversion of one or more Notes, the conversion price for such Note(s) will be adjusted downward pursuant to
its terms (subject to a floor of $0.23 per share). If any such dilutive issuance occurs after the conversion of one or more
Notes, Kingston will be entitled to be issued additional shares of common stock for no consideration, and to an adjustment
of the exercise price payable under the applicable Contingent Warrant(s). With respect to each Note actually issued pursuant
to the Kingston Purchase Agreement, Kinston’s anti-dilution rights will expire two (2) years following the date of issuance. |
On October 29,
2014, the Company entered into an amended convertible note purchase agreement with Kingston whereby the Company and Kinston agreed
to (i) increase the maximum principal amount of the notes from $5 million to $10 million in principal
amount, (ii) eliminate the original issue discount provision of the Agreement and replaces it with an execution payment equal
to 5% of the maximum loan amount, and (iii) provides certain additional adjustments to the note conversion price and to the warrant
exercise price.
On October 16,
2014, the Company issued a Note to Kingston in the principal amount of $100,000. Because the conversion price of $0.79 was less
than the stock price on the date of issuance, this gave rise to a beneficial conversion feature valued at $100,000. The Company
recognized this beneficial conversion feature as a debt discount and additional paid in capital. The debt discount is being amortized
over the one year term. On November 17, 2014, Kingston converted the note into 127,008 shares of common stock, therefore the debt
discount of $100,000 was written off and recognized as interest expense.
In addition,
as a result of the October 29, 2014 amendment, the Company was required to issue to Kingston, the original
issue discount payment equal to 5% of the maximum loan in shares of the Company’s common stock based upon the conversion
price of the first conversion which was $0.79 per shares. The issued 630,252 shares of common stock that had a fair value of $2,004,202
which was immediately recognized as interest expense.
February 2014
Convertible Note Transaction
On February 27,
2014, the Company issued a one year convertible note to an otherwise unaffiliated, non-institutional third party in the principal
amount of $323,595. The note (i) is unsecured, (ii) bears interest at the rate of six percent per annum, and (iii) was issued
without any original issue discount.
The principal
is convertible into shares of the Company’s common stock at any time and from time-to-time at the instance of either the
Company or the holder. The per-share conversion price is an amount equal to ninety percent (90%) of the 10-day volume weighted
average closing bid price for the Company’s common stock, as reported by The NASDAQ Stock Market, Inc. for the ten (10)
trading days immediately preceding the date of the notice of conversion, subject to downward adjustment in the event that the
Company issues any securities at a price per share lower than the then-current conversion price; provided, however, that in no
event shall the conversion price per share be less than $1.00. The Company provided the holder with certain negative covenants
and events of default, each standard for transactions of this nature.
Due to the “reset”
and “dilutive issuance” clause in this note relating to the conversion price from dilutive share issuance, the Company
has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 6.
The Company determined
an initial derivative liability value of $139,852, which is recorded as a derivative liability as of the date of issuance while
also recording an $139,852 debt discount on its balance sheet in relation to the bifurcation of the embedded conversion options
of the note. The debt discount is being amortized over the one year term. The note was repaid during the nine months ended June
30, 2015, therefore the remaining unamortized debt discount of $57,665 was written off to interest expense. Also, as a result
of the note being repaid, the derivative liability associated with this convertible note was reduced to $0. The Company recorded
$83,580 of non-cash “change in fair value of derivative” income during the nine months ended June 30, 2015.
Credit
line
In connection
with the purchase of Modern Everyday, Inc., the Company assumed a credit line from a bank. The credit line is collateralized by
all the assets of Modern Everyday, Inc., accrues interest at prime plus 2% and is due on September 28, 2019.
Notes payable
of Modern Everyday, Inc.
Outstanding debt
at June 30, 2015 and September 30, 2014 consisted of the following:
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June 30, |
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September 30, |
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2015 |
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2014 |
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| Note payable
to individual, payable on demand, interest at 10.0% per annum, unsecured |
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$ |
91,274 |
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$ |
90,168 |
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| Convertible note payable
to individual, due February 27, 2015, interest at 6.0% per annum, unsecured |
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335,245 |
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| Convertible note payable
to ICG, due January 23, 2015, interest at 8.0% per annum, unsecured |
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527,889 |
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| Acquisition note payable,
$200,000 due February 28, 2015 and $400,000 due February 28, 2016, non-interest bearing with interest imputed at 2.87%
per annum |
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392,428 |
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581,707 |
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| Credit line due 1/1/2024,
with interest rate of 2.75% |
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224,364 |
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240,204 |
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| Less
Debt Discount |
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(215,884 |
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| Total Debt |
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708,066 |
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1,559,329 |
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| Current
portion |
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483,702 |
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920,360 |
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| Long-term portion |
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$ |
224,364 |
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$ |
638,969 |
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