XML 36 R25.htm IDEA: XBRL DOCUMENT v3.5.0.2
SUBSEQUENT EVENTS
9 Months Ended
Sep. 30, 2016
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS

Amendment to Series F 7% Convertible Preferred Stock

On October 5, 2016, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Certificate of Designations of Preferences, Rights and Limitations of Series F 7% Convertible Preferred Stock with the Secretary of State of the State of Delaware. The Certificate of Amendment amends the conversion price at which the Series F Preferred Stock can be converted into shares of common stock. Shares of the Series F Preferred Stock (including the amount of any accrued and unpaid dividends thereon) were previously convertible at a price equal to 70% of (i) the lowest VWAP of our common stock for the ten consecutive trading day period prior to the conversion date or (ii) the lowest closing bid price of our common stock for the ten consecutive trading day period prior to the conversion date. As amended, the conversion price is equal to the lowest of (i) 50% of the lowest volume weighted average price of our common stock for the ten consecutive trading day period prior to the conversion date or (ii) 50% of the lowest closing bid price of our common stock for the ten consecutive trading day period prior to the conversion date.

Offering of Convertible Notes

On October 6, 2016, the Company entered into a securities purchase agreement with an investor for the private placement of $330,000 principal amount of the Company’s 6% Original Issue Discount Convertible Redeemable Promissory Notes (“October 2016 Convertible Notes”). On October 6, 2016, the Company sold and issued $330,000 principal amount of October 2016 Convertible Notes to the investor in exchange for $300,000 of gross proceeds.
Unless earlier converted or prepaid, (i) $110,000 principal amount of the October 2016 Convertible Notes will mature on December 5, 2016, (ii) $110,000 principal amount of the October 2016 Convertible Notes will mature on January 3, 2017, and (iii) $110,000 principal amount of the October 2016 Convertible Notes will mature on February 3, 2017. The October 2016 Convertible Notes bear interest at a rate of 6% per annum, subject to increase to 24% per annum upon the occurrence and continuance of an event of default (as described below).

All principal and accrued interest on the October 2016 Convertible Notes are convertible at any time, in whole or in part, at the option of the investor into shares of common stock at a variable conversion price equal to 80% of the lowest closing bid price of our common stock for the fifteen consecutive trading day period prior to the conversion date. After the six month anniversary of the issuance of any October 2016 Convertible Note, the conversion price for such October 2016 Convertible Note shall thereafter be equal to 50% of the lowest closing bid price of our common stock for the fifteen consecutive trading day period prior to the conversion date.

Principal on the October 2016 Convertible Notes is payable on the respective maturity dates. Principal on the October 2016 Convertible Notes is payable in cash. Interest on the October 2016 Convertible Notes is payable from time to time in the form of shares of common stock using the conversion price formula described above.

The October 2016 Convertible Notes contain standard and customary events of default including but not limited to: (i) failure to make payments when due under the Notes; and (ii) bankruptcy or insolvency of the Company.

There are no registration rights applicable to the October 2016 Convertible Notes. Accordingly, any shares of common stock issued upon conversion of the October 2016 Convertible Notes are restricted and can only be sold in compliance with Rule 144 or in accordance with another exemption from registration.

Exchange of Outstanding Series A Preferred Stock for October 2016 Convertible Notes

As described at Note 16, in 2013, the Company completed a private placement to an investor (the “Series A Holder”) of its Series A Convertible Preferred Stock. On October 6, 2016, the Series A Holder entered into an exchange agreement (the “Exchange Agreement”) with the investor described above. Pursuant to the Exchange Agreement, beginning December 5, 2016, the investor has the option to exchange, from time to time, all or any portion of the October 2016 Convertible Notes for outstanding shares of Series A Preferred Stock from the Series A Holder. At the closing date of the Exchange Agreement, the Company had 165,541 shares of Series A Preferred Stock outstanding.

The rate of exchange between the October 2016 Convertible Notes and the Series A Preferred Stock shall be calculated on an as-converted to common stock basis. The parties will first calculate the number of shares of common stock that the principal and accrued but unpaid interest of the October 2016 Convertible Notes to be exchanged are convertible into using the formula set described below (the “As-Converted Common Share Number”). The parties shall next calculate that number of shares of Series A Preferred Stock to be exchanged that (including accrued and unpaid dividends and make whole amounts) upon conversion in accordance with the terms of the Series A Preferred Stock would result in the issuance, as of the effective date of the exchange, of the As-Converted Common Share Number.

The principal and accrued but unpaid interest on the exchanged portion of the October 2016 Convertible Notes shall be calculated into the As-Converted Common Share Number by using the following formula. The As-Converted Common Share Number shall be equal to 80% of the lowest closing bid price of the Company Common Stock for the fifteen trading days immediately preceding the date on which a notice of exchange is delivered. Subsequent to any exchange, the parties shall have the rights to convert the securities received (October 2016 Convertible Notes or Series A Preferred Stock as applicable) upon the exchange in accordance with the terms of such securities.

Series J-1 Preferred Stock Financing

On October 14, 2016, the Company entered into a securities purchase agreement with one accredited investor for the private placement of $1,000,000 of the Company’s newly designated Series J-1 Convertible Preferred Stock (“Series J-1 Preferred Stock”). At closing, the Company issued a total of 100 shares of Series J-1 Preferred Stock to the investor in exchange for gross proceeds of $100,000. The Company will issue an additional 900 shares of Series J-1 Preferred Stock in exchange for gross proceeds of $900,000 in six subsequent closings scheduled to occur from November 2016 through February 2017.

Holders of the Series J-1 Preferred Stock will be entitled to dividends in the amount of 10% per annum. Shares of the Series J-1 Preferred Stock (including the amount of any accrued and unpaid dividends thereon) will be convertible at the option of the holder into common stock at a fixed conversion price of $0.0125 per share.

There are no registration rights applicable to the Series J-1 Preferred Stock. Accordingly, any shares of Common Stock issued upon conversion of the Series J-1 Preferred Stock are restricted and can only be sold in compliance with Rule 144 or in accordance with another exemption from registration.

One year after issuance, the Company is required to redeem for cash all or any portion of the outstanding shares of the Series J-1 Preferred Stock at a price per share equal to $1,000 plus any accrued but unpaid dividends thereon.