| Note 6: Debt |
On April 3, 2012 (the “Closing Date”),
the Company entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) with Isaac Capital Group
LLC (“ICG”), pursuant to which ICG agreed to purchase for cash up to $2,000,000 in aggregate principal amount of the
Company’s unsecured Subordinated Convertible Notes (“Notes”). ICG is owned by Jon Isaac, the Company’s
President and Chief Executive Officer and a director on our Board, and prior to this transaction owned 403,225 shares, or 16.8%
of the Company’s outstanding common stock. The Purchase Agreement and the Notes, which are unsecured, provide that all amounts
payable by LiveDeal to ICG under the Notes will be due and payable on April 3, 2013 (the “Maturity Date”), provided
that LiveDeal has the option in its discretion to extend the Maturity Date by up to one year if no Event of Default (as defined
in the Purchase Agreement) has occurred and is continuing, and LiveDeal is in material compliance with its agreements and covenants
under the Purchase Agreement and the Notes, as of the Maturity Date.
The Purchase Agreement and the Notes provide
that:
| · | The Notes 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. |
| · | The Company has the option to prepay each
Note, in whole or in part, at any time without premium or penalty. |
| · | Either the Company or ICG may elect at
any time to convert all or any portion of any Note (including all principal and accrued interest) into a number of shares of the
Company’s common stock equal to the dollar amount being converted divided by the conversion price. Subject to adjustment
for stock splits and combinations, share reclassifications, certain fundamental transactions and share issuances, the conversion
price will be equal to 60% of the lesser of (i) $3.96, which was the closing bid price of the Company’s common stock on the
Closing Date and (ii) the 10-day weighted average closing bid price of the Company’s common stock for the 10 business days
immediately preceding the date of the applicable notice of conversion. |
| · | If ICG elects to convert all or any portion
of any Note, the Company must issue to ICG 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 stock issuances, certain fundamental
transactions, and the like. 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 120% of the conversion price of the applicable Note (with the exercise 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. |
| · | The Notes provide that, upon the occurrence
of any Event of Default, all amounts payable to ICG will become immediately due and payable without any demand or notice. |
| · | The Company may issue additional Notes
in an aggregate principal amount of up to $1,750,000 to ICG from time to time upon notice to ICG prior to April 3, 2013, provided
that each Note must be in a principal amount of at least $100,000. |
| · | The Company (i) is required to provide
certain financial and other information to ICG 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 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 Purchase Agreement, and (v) must not enter
into certain types of transactions, including dispositions of its assets or business. |
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.
The Company issued an initial Note in the
principal amount of $250,000 to ICG on the Closing Date. Because the conversion price is less than the stock price, this gave rise
to a beneficial conversion feature valued at $166,667. The Company recognized this beneficial conversion feature as a debt discount
and additional paid in capital. The discount to the Note is being amortized to interest expense until maturity or its earlier repayment
or conversion. During the three and nine months ended June 30, 2012, the Company recognized $41,667 of interest expense associated
with amortized debt discount.
As mentioned above, the Purchase Agreement
contains contingent provisions for the adjustment of the conversion ratio and conversion price, and the issuance of Contingent
Warrants upon conversion. These items are not accounted for until such contingencies are resolved.
The Company intends to use the proceeds
of the initial Note for working capital and other general corporate purposes.
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