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Subsequent Events
6 Months Ended
Jun. 30, 2013
Subsequent Events  
Note 11 - Subsequent Events

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements, except as disclosed below.

 

Warrant Exercises

 

Subsequent to June 30, 2013, the Company issued an aggregate of 608,184 shares of common stock to holders of warrants who elected to exercise warrants to purchase an aggregate of 756,000 shares of common stock on a "cashless" basis under the terms of the warrants. The warrants had exercise prices of $0.25 per share.

 

Related Party Advances

 

Subsequent to June 30, 2013, an officer advanced approximately $2,000 to the Company and he was repaid approximately $46,000. As of June 30, 2013, the outstanding payable to the officer was approximately $112,000.

 

Notes Payable

 

On August 15, 2013, the Company issued a note payable to a related party with a principal balance of $49,000, bearing interest at a rate of 10% per annum.  The note has a maturity date of November 7, 2013 and will be repaid in weekly payments of principal and interest beginning in September 2013.

 

Effective September 30, 2013, the Company entered into an Amended and Restated Promissory Note (the “September Note”) which supersedes the March Note (see Note 6 – Notes Payable) with the same Lender.  The Company borrowed an additional $100,000 from the Lender, which brought the face value of the September Note to $600,000.  The September Note contains financial covenants which require the Company to meet certain minimum targets for earnings before interest, taxes and non-cash expenses, including depreciation, amortization and stock-based compensation (“EBITDAS”) for the calendar quarters and years ended between December 31, 2013 and 2014, inclusive. In addition, the September Note extended the deadline for providing the March 31, 2013 and June 30, 2013 quarterly financial statements and financial covenant certifications from 45 days after quarter end to October 31, 2013. The remainder of the material September Note terms are unchanged from the March Note.  In consideration of the Lender providing additional funds and entering into the September Note, the Company granted the Lender a five-year warrant to purchase 150,000 shares of common stock at an exercise price of $0.35 per share. The warrant contains customary anti-dilution provisions. The warrant had a relative fair value of $51,200 which was set up as debt discount and will be amortized using the effective interest method over the term of the September Note.  Including the value of warrants issued in connection with the March Note and September Note, the September Note had an effective interest rate of 41% per annum.

 

Sublease Agreement

 

On October 10, 2013, the Company entered into a sublease agreement for 15,000 square feet of warehouse space at the Company’s corporate headquarters in Florence, Kentucky. The initial term of the sublease expires on January 31, 2014 with rent of $4,688 per month. After the expiration of the initial term, the tenant may extend the term of the sublease agreement on a month to month basis.