(14) Convertible Preferred Stock and Common Stock Warrants

12 Months Ended

Jun. 30, 2018

Disclosure Text Block [Abstract]

(14) Convertible Preferred Stock and Common Stock Warrants

On December 16, 2016 the shareholders approved an increase to the aggregate number of shares of preferred stock that the Company is authorized to issue from 5,000,000 shares to 50,000,000 shares.

On December 28, 2016, the Company completed a private placement with affiliates of Prettybrook Partners, LLC (“Prettybrook”) and certain other purchasers (collectively with Prettybrook, the “Series A Preferred Investors”) for the offer and sale of the remaining designated 390,000 shares of the Company’s Series A 8% Convertible Preferred Stock (the “Series A Preferred”) for gross proceeds of approximately $975,000. Proceeds from the private placement were recorded net of offering costs incurred. The Series A Preferred is convertible to common stock on a 1:1 basis. A forced conversion can be initiated based on a formula related to share price and trading volumes as outlined in the Certificate Designating the Preferences, Rights and Limitations of the Series A Preferred (“Series A Designation”). The dividend is fixed at 8% and is payable in either cash or common stock subject to conditions contained in the Series A Designation. This dividend is payable quarterly and equates to an annual payment of $400,000 in cash or a value in common stock based on the trading price of the stock on the date the dividend is declared. Certain redemption rights are attached to the Series A Preferred, but none of the redemption rights for cash are deemed outside the control of the Company. The redemption rights deemed outside the control of the Company require common stock payments or an increase in the dividend rate. The Series A Preferred includes a liquidation preference under which Series A Preferred Investors would receive cash equal to the stated value of their stock plus unpaid dividends. The Company filed a registration statement to register the underlying common shares associated with the Series A Preferred and the Series A Warrants on Form S-3 on January 28, 2017 and amended on February 1, 2017. The registration statement became effective on February 10, 2017.

The Series A Preferred votes on an as-converted basis, one vote for each share of common stock issuable upon conversion of the Series A Preferred, provided the number of shares of potential common stock eligible for voting by the Preferred Investors is 390,000.

The Preferred Investors purchased a total of 390,000 shares of Series A Preferred and common stock purchase warrants (collectively, the “Series A Warrants”) as follows: (i) A-Warrants, exercisable by cash exercise only, to purchase 292,500 shares of common stock, and (ii) B-Warrants, exercisable by “cashless exercise”, to purchase 292,500 shares of common stock, but only after exercise of holder’s A-Warrants. The Series A Warrants are exercisable for 72 months from the date of issuance and carry a put feature in the event of a change in control. The put right is not subject to derivative accounting as all equity holders are treated the same in the event of a change in control.

The Company’s shareholders originally authorized the issuance of 2,000,000 shares of the Series A Preferred in June, 2015. The Company sold and issued 1,610,000 shares of Series A Preferred in June 2015, leaving 390,000 shares available for future issuance. The remaining 390,000 shares were sold and issued in December 2016 as described above. The only difference between the shares of Series A Preferred issued in June 2015 and those issued in December 2016 is that the formula determining voting rights for the shares issued in June 2015 indicated a cutback in the voting power of those shares as required by the Series A Designation. The shares of Series A Preferred issued in December 2016 were not subject to any cutback. For information regarding the original issuance of the Series A Preferred in June 2015, see the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016.

In April 2017, the Company closed the private placement in which it raised gross proceeds of $7,795,000 pursuant to the terms of a Securities Purchase Agreement dated March 21, 2017 (the “Securities Purchase Agreement”). Certain accredited investors, including institutional investors (the “Series B Preferred Investors”) participated in the private placement pursuant to which the Company issued a total of 1,559,000 units at $5.00 per unit, with each unit made up of one share of common stock at $2.50 per share, one share of Series B Convertible Preferred Stock (“Series B Preferred”) at $2.50 per share, and a warrant to purchase 1.5 shares of Common Stock, exercisable at $2.75 per share for six years. Ladenburg Thalmann & Co. Inc. (“Ladenburg”) acted as placement agent in connection with the private placement and the Company paid Ladenburg fees and expenses related to placing certain investors in the private placement. The Series B Preferred is convertible to common stock on a 1:1 basis. A forced conversion can be initiated based on a formula related to share price and trading volumes as outlined in the Certificate Designating the Preferences, Rights and Limitations of the Series B Preferred (“Series B Designation”). The dividend is fixed at 8% and is payable in either cash or common stock subject to conditions contained in the Series B Designation. This dividend is payable quarterly and equates to an annual payment of $311,800 in cash or a value in common stock based on the trading price of the stock on the date the dividend is declared. Certain redemption rights are attached to the Series B Preferred, but none of the redemption rights for cash are deemed outside the control of the Company. The redemption rights deemed outside the control of the Company require common stock payments or an increase in the dividend rate. The Series B Preferred includes a liquidation preference, subject to the liquidation preference of the Series A Preferred, under which Series B Preferred Investors would receive cash equal to the stated value of their stock plus unpaid dividends. On April 14, 2017, the Company filed a registration statement on Form S-3 with the Securities and Exchange Commission to register the shares of common stock issued in this offering and the shares underlying conversion of the Series B Preferred and the exercise of warrants issued to the Series B Investors. The registration statement became effective on April 24, 2017.

In connection with the acquisition of Bird & Cronin on October 2, 2017, the Company issued 2,800,000 shares of Series C Convertible Preferred Stock (“Series C Preferred”) and warrants to purchase 1,400,000 shares of common stock (“Series C Warrants”), as well as 1,581,935 shares of its Series D Convertible Preferred Stock (the “Series D Preferred”). The Series C Warrants have an exercise price of $2.75 per share of common stock and a term of six years. The exercise of the Series C Warrants and the conversion of the Series C Preferred and Series D Preferred was subject to the prior approval of the Company’s shareholders as required under applicable Nasdaq Marketplace Rules. At the Company’s 2017 Annual Meeting of Shareholders, held on November 29, 2017, the Company sought and obtained that shareholder approval. Upon the receipt of the shareholder approval, each share of Series C Preferred and each share of Series D Preferred was automatically convertible into one share of common stock; provided, however, that the holders of the Series C Preferred were permitted to elect to retain the Series C Preferred and not convert, subject to future beneficial ownership limitations and forfeiture of preferential rights of their shares of Series C Preferred. On November 29, 2017, the Company issued 1,360,000 shares of common stock in conversion of 1,360,000 shares of Series C Preferred and 1,581,935 shares of common stock in conversion of all outstanding shares of the Series D Preferred.

During year ended June 30, 2018, the Company issued 100,000 shares of common stock upon conversion of 100,000 shares of Series B Preferred.

As of June 30, 2018, the Company currently had 2,000,000 shares of Series A Preferred and 1,459,000 shares of Series B Preferred outstanding, convertible into a total of 3,459,000 shares of common stock. Dividends payable on these shares accrue at the rate of 8% per year and are payable quarterly in stock or cash. The Company generally pays the dividends in stock. The formula for paying this dividend in common stock can change the effective yield on the dividend to more or less than 8% depending on the price of the stock at the time of issuance. As of June 30, 2018, the Company had 1,440,000 shares of Series C Preferred outstanding. The Series C Preferred shares are non-voting, do not receive dividends, and have no liquidation preferences or redemption rights.

In connection with each of the issuances of Series A Preferred, the Series B Preferred and the Series C Preferred, the Company recorded a deemed dividend related to a beneficial conversion feature, which reflects the difference between the underlying common share value of the Series A Preferred, the Series B Preferred, and the Series C Preferred shares as if converted, based on the closing price of the Company’s common stock on the date of the applicable transaction, less an amount of the purchase price assigned to the Series A Preferred, the Series B Preferred or the Series C Preferred, as applicable, in an allocation of purchase price between the preferred shares and common stock purchase warrants that were issued with the Series A Preferred, the Series B Preferred and the Series C Preferred. For the year ended June 30, 2018, the Company recorded deemed dividends of $1,023,786 associated with the Series C Preferred. For the year ended June 30, 2017, the Company recorded deemed dividends of $1,944,223 consisting of $375,858 associated with the Series A Preferred and $1,568,365 associated with the Series B Preferred. The deemed dividends are combined with net loss and payment of dividends on preferred stock to compute net loss applicable to common stockholders for purposes of calculating loss per share.

The Company chose to pay preferred stock dividends by issuing common shares valued at $772,719 in fiscal year 2018 and $370,672 in fiscal year 2017. At June 30, 2018, there was $189,869 in accrued dividends payable for the quarter ended June 30, 2018, which were paid by issuing 66,631 shares of common stock in July 2018. The Company also paid preferred stock dividends of $104,884 in cash in fiscal year 2018 and $16,241 in cash in fiscal year 2017.

In case of liquidation, dissolution or winding up of the Company, preferred stock has preferential treatment beginning with the Series A Preferred, then the Series B Preferred, followed by the Series C Preferred. After preferential amounts, if any, to which the holders of preferred stock may be entitled, the holders of all outstanding shares of common stock shall be entitled to share ratably in the remaining assets of the Company. Liquidation preference is as follows:

	Shares Designated		Shares Outstanding		Liquidation Value/ Preference
Series A Preferred		2,000,000		2,000,000	$	5,000,000
Series B Preferred		1,800,000		1,459,000		3,647,500
Series C Preferred		2,800,000		1,440,000		-