NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
accompanying unaudited consolidated condensed financial statements
have been prepared by Visualant, Inc. (“the Company”,
“us,” “we,” or “our”) in
accordance with U.S. generally accepted accounting principles
(“GAAP”) for interim financial reporting and rules and
regulations of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures normally included in
financial statements prepared in accordance with GAAP have been
condensed or omitted. In the opinion of our management, all
adjustments, consisting of only normal recurring accruals,
necessary for a fair presentation of the financial position,
results of operations, and cash flows for the fiscal periods
presented have been included.
These
financial statements should be read in conjunction with the audited
financial statements and related notes included in our Annual
Report filed on Form 10-K/A for the year ended September 30, 2016,
filed with the Securities and Exchange Commission
(“SEC”) on June 5, 2017. The results of operations for
the three and nine months ended June 30, 2017 are not necessarily
indicative of the results expected for the full fiscal year, or for
any other fiscal period.
The
accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The
Company incurred net losses of $3,074,150 and $1,746,495 and
$2,631,037 for the nine months ended June 30, 2017 and the years
ended September 30, 2016 and 2015, respectively. Net cash used in
operating activities was $(806,649) and $(3,373,734) and $(239,877)
for the nine months ended June 30, 2017 and for the years ended
September 30, 2016 and 2015, respectively.
The
Company anticipates that it will record losses from operations for
the foreseeable future. As of June 30, 2017, the Company’s
accumulated deficit was $30,706,645. The Company has
limited capital resources, and operations to date have been funded
with the proceeds from private equity and debt financings and loans
from Ronald P. Erickson, our Chief Executive Officer, or entities
with which he is affiliated. These conditions raise substantial
doubt about our ability to continue as a going concern. The audit
report prepared by the Company’s independent registered
public accounting firm relating to our financial statements for the
year ended September 30, 2016 includes an explanatory paragraph
expressing the substantial doubt about the Company’s ability
to continue as a going concern.
We
believe that our cash on hand will be sufficient to fund our
operations until August 31, 2017.
We
need additional financing to implement our business plan and to
service our ongoing operations and pay our current debts. There can
be no assurance that we will be able to secure any needed funding,
or that if such funding is available, the terms or conditions would
be acceptable to us. If we are unable to obtain additional
financing when it is needed, we will need to restructure our
operations, and divest all or a portion of our business.
We may seek
additional capital through a combination of private and public
equity offerings, debt financings and strategic collaborations.
Debt financing, if obtained, may involve agreements that include
covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, and could increase our
expenses and require that our assets secure such debt. Equity
financing, if obtained, could result in dilution to our
then-existing stockholders and/or require such stockholders to
waive certain rights and preferences. If such financing is not
available on satisfactory terms, or is not available at all, we may
be required to delay, scale back, eliminate the development of
business opportunities or file for bankruptcy and our operations
and financial condition may be materially adversely
affected.
Visualant, Incorporated (the “Company,”
“Visualant, Inc.” or “Visualant”) was
incorporated under the laws of the State of Nevada in 1998.
The Company has authorized 105,000,000 shares of capital stock, of
which 100,000,000 are shares of voting common stock, par value
$0.001 per share, and 5,000,000 are shares preferred stock, par
value $0.001 per share.
Since 2007, the Company has been focused primarily on the
development of a proprietary technology, which is capable of
uniquely identifying and authenticating almost any substance using
light at the “photon” level to detect the unique
digital “signature” of the substance. The Company calls
this its “ChromaID™” technology.
In 2010, the Company acquired TransTech Systems, Inc. as an adjunct
to its business. TransTech is a distributor of products for
employee and personnel identification. TransTech currently provides
substantially all of the Company’s revenues.
The Company is in the process of commercializing its
ChromaID™ technology. To date, the Company has entered into
License Agreements with Sumitomo Precision Products Co., Ltd. and
Intellicheck, Inc. In addition, it has a technology license
agreement with
Xinova,
formerly
Invention Development Management Company, a subsidiary of
Intellectual Ventures.
The Company believes that its commercialization success is
dependent upon its ability to significantly increase the number of
customers that are purchasing and using its products. To date the
Company has generated minimal revenue from sales of its ChromaID
products. The Company is currently not profitable. Even if the
Company succeeds in introducing the ChromaID technology and related
products to its target markets, the Company may not be able to
generate sufficient revenue to achieve or sustain
profitability.
ChromaID was invented by scientists from the University of
Washington under contract with Visualant. The Company has pursued
an intellectual property strategy and have been granted eleven
patents. The Company also has 20 patents pending. The Company
possess all right, title and interest to the issued patents. Ten of
the pending patents are licensed exclusively to the Company in
perpetuity by the Company’s strategic partner,
Xinova
|
3.
|
SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING
STANDARDS
|
Basis of Presentation
–
The accompanying unaudited
consolidated financial statements include the accounts of the
Company. Intercompany accounts and transactions have been
eliminated. The preparation of these unaudited condensed
consolidated financial statements were prepared in conformity with
U.S. generally accepted accounting principles
(“GAAP”).
Principles of Consolidation
– The consolidated financial statements
include the accounts of the Company and its wholly owned and
majority-owned subsidiaries, TransTech Systems, Inc. Inter-Company
items and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents
– The Company classifies highly liquid
temporary investments with an original maturity of three months or
less when purchased as cash equivalents. The Company maintains cash
balances at various financial institutions. Balances at US banks
are insured by the Federal Deposit Insurance Corporation up to
$250,000. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant risk for
cash on deposit.
Accounts Receivable and Allowance for Doubtful Accounts
– Accounts receivable consist
primarily of amounts due to the Company from normal business
activities. The Company maintains an allowance for doubtful
accounts to reflect the expected non-collection of accounts
receivable based on past collection history and specific risks
identified within the portfolio. If the financial condition of the
customers were to deteriorate resulting in an impairment of their
ability to make payments, or if payments from customers are
significantly delayed, additional allowances might be
required.
Inventories
– Inventories
consist primarily of printers and consumable supplies, including
ribbons and cards, badge accessories, capture devices, and access
control components held for resale and are stated at the lower of
cost or market on the first-in, first-out (“FIFO”)
method. Inventories are considered available for resale
when drop shipped and invoiced directly to a customer from a
vendor, or when physically received by TransTech at a warehouse
location. The Company records a provision for excess and
obsolete inventory whenever an impairment has been identified.
There is a $30,000 and $25,000 reserve for impaired inventory as of
June 30, 2017 and September 30, 2016,
respectively.
Equipment
– Equipment
consists of machinery, leasehold improvements, furniture and
fixtures and software, which are stated at cost less accumulated
depreciation and amortization. Depreciation is computed by the
straight-line method over the estimated useful lives or lease
period of the relevant asset, generally 2-10 years, except for
leasehold improvements which are depreciated over 5-20
years.
Goodwill
– Goodwill is
the excess of cost of an acquired entity over the fair value of
amounts assigned to assets acquired and liabilities assumed in a
business combination. With the adoption of ASC 350, goodwill is not
amortized, rather it is tested for impairment annually, and will be
tested for impairment between annual tests if an event occurs or
circumstances change that would indicate the carrying amount may be
impaired. Impairment testing for goodwill is done at a reporting
unit level. Reporting units are one level below the business
segment level, but are combined when reporting units within the
same segment have similar economic characteristics. Under the
criteria set forth by ASC 350, the Company has one reporting unit
based on the current structure. An impairment loss generally
would be recognized when the carrying amount of the reporting
unit’s net assets exceeds the estimated fair value of the
reporting unit. The Company determined that its goodwill
related to the 2010 acquisition of TransTech Systems was impaired
and recorded an impairment of $983,645 as selling, general and
administrative expenses during the nine months ended June 30,
2016.
Long-Lived Assets
– The
Company reviews its long-lived assets for impairment annually or
when changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Long-lived assets under certain
circumstances are reported at the lower of carrying amount or fair
value. Assets to be disposed of and assets not expected to provide
any future service potential to the Company are recorded at the
lower of carrying amount or fair value (less the projected cost
associated with selling the asset). To the extent carrying values
exceed fair values, an impairment loss is recognized in operating
results.
Fair Value Measurements and Financial Instruments
–
ASC Topic 820,
Fair Value Measurement and Disclosures
,
defines fair value as the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the
measurement date. This topic also establishes a fair
value hierarchy, which requires classification based on observable
and unobservable inputs when measuring fair value. The
fair value hierarchy distinguishes between assumptions based on
market data (observable inputs) and an entity’s own
assumptions (unobservable inputs). The hierarchy
consists of three levels:
|
Level 1
– Quoted prices in active markets for identical assets and
liabilities;
|
|
Level 2
– Inputs other than level one inputs that are either directly
or indirectly observable; and.
Level 3
- Inputs to the valuation methodology are unobservable and
significant to the fair value measurement.
|
The
recorded value of other financial assets and liabilities, which
consist primarily of cash and cash equivalents, accounts
receivable, other current assets, and accounts payable and accrued
expenses approximate the fair value of the respective assets and
liabilities as of June 30, 2017 and 2016 based upon the short-term
nature of the assets and liabilities.
Derivative financial instruments -
The Company evaluates all
of its financial instruments to determine if such instruments are
derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are
accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the
consolidated statements of operations. For stock-based derivative
financial instruments, the Company uses a Black-Scholes-Merton
option pricing model to value the derivative instruments at
inception and on subsequent valuation dates. The classification of
derivative instruments, including whether such instruments should
be recorded as liabilities or as equity, is evaluated at the end of
each reporting period. Derivative instrument liabilities are
classified in the balance sheet as current or non-current based on
whether or not net-cash settlement of the derivative instrument
could be required within twelve months of the balance sheet
date.
Revenue Recognition
–
Visualant and TransTech revenue are derived from products and
services. Revenue is considered realized when the products or
services have been provided to the customer, the work has been
accepted by the customer and collectability is reasonably
assured. Furthermore, if an actual measurement of revenue cannot be
determined, the Company defers all revenue recognition until such
time that an actual measurement can be determined. If during the
course of a contract management determines that losses are expected
to be incurred, such costs are charged to operations in the period
such losses are determined. Revenues are deferred when cash has
been received from the customer but the revenue has not been
earned.
Stock Based Compensation
– The Company has share-based compensation
plans under which employees, consultants, suppliers and directors
may be granted restricted stock, as well as options to purchase
shares of Company common stock at the fair market value at the time
of grant. Stock-based compensation cost is measured by the Company
at the grant date, based on the fair value of the award, over the
requisite service period. For options issued to employees, the
Company recognizes stock compensation costs utilizing the fair
value methodology over the related period of
benefit. Grants of stock options and stock to
non-employees and other parties are accounted for in accordance
with the ASC 505.
Convertible Securities
–
Based upon ASC 815-15, we have
adopted a sequencing approach regarding the application of ASC
815-40 to convertible securities issued subsequent to September 30,
2015. We will evaluate our contracts based upon the earliest
issuance date. In the event partial reclassification of contracts
subject to ASC 815-40-25 is necessary, due to our inability to
demonstrate we have sufficient shares authorized and unissued,
shares will be allocated on the basis of issuance date, with the
earliest issuance date receiving first allocation of shares. If a
reclassification of an instrument were required, it would result in
the instrument issued latest being reclassified first.
Net Loss per Share
–
Under the provisions of ASC 260, “Earnings Per Share,”
basic loss per common share is computed by dividing net loss
available to common stockholders by the weighted average number of
shares of common stock outstanding for the periods presented.
Diluted net loss per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the
issuance of common stock that would then share in the income of the
Company, subject to anti-dilution limitations. The common stock
equivalents have not been included as they are anti-dilutive. As of
June 30, 2017, there were options outstanding for the purchase of
50,908 common shares, warrants for the purchase of 5,127,416 common
shares, 2,825,053 shares of our common stock issuable upon the
conversion of Series A, Series C and Series D Convertible Preferred
Stock and up to 332,940 shares of our common stock issuable upon
the exercise of placement agent warrants, all of which could
potentially dilute future earnings per share. T
otal
outstanding common stock equivalents at June 30, 2017 were
6,527,268.
As of June 30, 2016, there were options outstanding for the
purchase of 56,610 common shares, warrants for the purchase of
758,403 common shares, an unknown number of shares issuable upon
the conversion of Series A, Series C and Series D Convertible
Preferred Stock and up to 41,538 shares of our common stock
issuable upon the exercise of placement agent warrants, all of
which could potentially dilute future earnings per share.
T
otal outstanding common stock equivalents at June 30, 2016
were 772,833.
Diluted
common shares outstanding were calculated using the Treasury Stock
Method for the three months ended June 30, 2017 and 2016 were as
follows:
|
|
|
|
|
Weighted
average number of common shares used in basic net income per common
share
|
3,844,840
|
1,339,484
|
|
Dilutive
effects of outstanding stock options and warrants
|
125,482
|
440,166
|
|
Weighted
average number of common shares used in diluted net income per
common share
|
3,970,322
|
1,779,650
|
Dividend Policy
– The
Company has never paid any cash dividends and intends, for the
foreseeable future, to retain any future earnings for the
development of our business. Our future dividend policy will be
determined by the board of directors on the basis of various
factors, including our results of operations, financial condition,
capital requirements and investment
opportunities.
Use of Estimates
– The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Recent Accounting Pronouncements
A variety of proposed or otherwise potential accounting standards
are currently under study by standard setting organizations and
various regulatory agencies. Due to the tentative and preliminary
nature of those proposed standards, management has not determined
whether implementation of such proposed standards would be material
to the Company’s consolidated financial
statements.
ACCOUNTS RECEIVABLE/CUSTOMER
CONCENTRATION
Accounts receivable were $423,363 and $808,955, net of allowance,
as of June 30, 2017 and September 30, 2016, respectively. The
Company had no customers in excess of 10% of the Company’s
consolidated revenues for the nine months ended June 30, 2017. The
Company had two customers (17.6% and 10.8%) with accounts
receivable in excess of 10% as of June 30, 2017. The Company has a
total allowance for bad debt in the amount of $60,000 as of June
30, 2017.
Inventories were $283,861 and $295,218 as of June 30, 2017 and
September 30, 2016, respectively. Inventories consist primarily of
printers and consumable supplies, including ribbons and cards,
badge accessories, capture devices, and access control components
held for resale. There was a $30,000 and $25,000 reserve for
impaired inventory as of June 30, 2017 and September 30, 2016,
respectively.
6.
NOTES RECEIVABLE FROM BIOMEDX, INC
On
November 1, 2016, the Company purchased an Original Issue Discount
Convertible Promissory Note from BioMedx, Inc. The Company paid
$260,000 for the Note with a principal amount of $286,000. The Note
matured one year from issuance and bears interest at 5%. The
principal and interest was convertible into BioMedx common stock at
the option of the Company. The Company received 150,000 shares of
BioMedx common stock as partial consideration for purchasing the
Note. In addition, if BioMedx does not repay the Promissory Note,
the Company would have the right to convert the Promissory Note
into 51% of the ownership of BioMedx.
In
addition, the Company and BioMedx agreed to negotiate in good faith
to enter into a joint development agreement and subsequent merger
transaction prior to December 31, 2017.
Due to
the uncertainty involved with a start-up company, The
Company’s management determined that the value of the
Promissory Note and BioMedx common stock was zero at December 31,
2016 and recorded an impairment reserve for the full value as of
December 31, 2016. During the three months ended March 31, 2017,
BioMedx paid the Company $290,608 in full satisfaction of the Note.
The Company recorded the gain as a reduction in SG&A expense
during the three months ended March 31, 2017. In addition, the
Company has not valued the 150,000 shares of BioMedx common
stock.
Fixed assets, net of accumulated depreciation, was $257,127 and
$285,415 as of June 30, 2017 and September 30, 2016, respectively.
Accumulated depreciation was $823,835 and $796,481 as of June 30,
2017 and September 30, 2016, respectively. Total depreciation
expense, was $28,788 and $55,100 for the nine months ended June 30,
2017 and 2016, respectively. All equipment is used for selling,
general and administrative purposes and accordingly all
depreciation is classified in selling, general and administrative
expenses.
Property and equipment as of June 30, 2017 was comprised of the
following:
|
|
Estimated
|
|
|
|
Useful Lives
|
|
|
|
|
Machinery
and equipment
|
2-10
years
|
$
251,699
|
$
69,581
|
$
321,280
|
|
Leasehold
improvements
|
5-20
years
|
548,612
|
-
|
548,612
|
|
Furniture
and fixtures
|
3-10
years
|
73,977
|
101,260
|
175,237
|
|
Software
and websites
|
3-
7 years
|
35,830
|
-
|
35,830
|
|
Less:
accumulated depreciation
|
|
(652,994
)
|
(170,841
)
|
(823,835
)
|
|
|
$
257,124
|
$
-
|
$
257,124
|
The Company’s TransTech business is very capital intensive.
The Company reviewed TransTech’s operations based on its
overall financial constraints and determined the value has been
impaired. The company recorded an impairment of goodwill associated
with TransTech of $983,645 during the nine months ended June 30,
2017.
9.
DERIVATIVE INSTRUMENTS
In
April 2008, the FASB issued a pronouncement that provides guidance
on determining what types of instruments or embedded features in an
instrument held by a reporting entity can be considered indexed to
its own stock for the purpose of evaluating the first criteria of
the scope exception in the pronouncement on accounting for
derivatives. This pronouncement was effective for financial
statements issued for fiscal years beginning after December 15,
2008. The adoption of these requirements can affect the accounting
for warrants and many convertible instruments with provisions that
protect holders from a decline in the stock price (or
“down-round” provisions). For example, warrants or
conversion features with such provisions are no longer recorded in
equity. Down-round provisions reduce the exercise price of a
warrant or convertible instrument if a company either issues equity
shares for a price that is lower than the exercise price of those
instruments or issues new warrants or convertible instruments that
have a lower exercise price.
Derivative
liability as of June 30, 2017 is as follows:
|
|
|
|
|
|
|
|
Fair
Value Measurements Using Inputs
|
|
|
Financial
Instruments
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Derivative
Instruments
|
$
-
|
$
410,524
|
$
-
|
$
410,524
|
|
|
|
|
|
|
|
Total
|
$
-
|
$
410,524
|
$
-
|
$
410,524
|
Derivative
liability as of September 30, 2016 is as follows:
|
|
|
|
|
|
|
|
Fair
Value Measurements Using Inputs
|
|
|
Financial
Instruments
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Derivative
Instruments
|
$
-
|
$
145,282
|
$
-
|
$
145,282
|
|
|
|
|
|
|
|
Total
|
$
-
|
$
145,282
|
$
-
|
$
145,282
|
|
The
risk-free rate of return reflects the interest rate for the United
States Treasury Note with similar time-to-maturity to that of the
warrants, historical volatility was 113.0% and the stock price was
$0.25 as of June 30, 2017.
|
|
|
Derivative Instruments – Warrants with the June 2013 Private
Placement
The
Company issued warrants to purchase 697,370 shares of common stock
in connection with our June 2013 private placement of 348,685
shares of common stock. The per share price is subject
to adjustment. In August 2016, the exercise price was reset to
$0.70 per share. These warrants were not issued with the
intent of effectively hedging any future cash flow, fair value of
any asset, liability or any net investment in a foreign
operation. These warrants were issued with a down-round
provision whereby the exercise price would be adjusted downward in
the event that additional shares of our common stock or securities
exercisable, convertible or exchangeable for the Company’s
common stock were issued at a price less than the exercise
price. Therefore, the fair value of these warrants were
recorded as a liability in the consolidated balance sheet and are
marked to market each reporting period until they are exercised or
expire or otherwise extinguished.
The
proceeds from the private placement were allocated between the
shares of common stock and the warrants issued in connection with
the private placement based upon their estimated fair values as of
the closing date at June 14, 2013, resulting in the aggregate
amount of $2,494,710 allocated to stockholders’ equity and
$2,735,290 allocated to the warrant derivative. The
Company recognized $1,448,710 of other expense resulting from the
increase in the fair value of the warrant liability at September
30, 2013. During the year ended September 30, 2014, the Company
recognized $2,092,000 of other income resulting from the decrease
in the fair value of the warrant liability at September 30, 2014.
During the year ended September 30, 2015, the Company recognized
$104,716 of other expense resulting from the decrease in the fair
value of the warrant liability at September 30, 2015. During the
year ended September 30, 2016, the Company recognized $2,085,536 of
other income resulting from the decrease in the fair value of the
warrant liability at September 30, 2016.
As of
June 30, 2017
, the Company had
outstanding 524,559 warrants to purchase shares of common stock in
connection with our June 2013 private placement that the Company
determined had an embedded derivative liability due to the
“reset” clause associated with the note’s
conversion price. The Company valued the derivative liability of
these notes at $22,556 using the Black-Scholes-Merton option
pricing model, which approximates the Monte Carlo and other
binomial valuation techniques, with the following
assumptions (i) dividend yield of 0%; (ii) expected volatility
of 113.0%; (iii) risk free rate of .007%, (iv) stock price of
$0.25, (v) per share conversion price of $0.70, and (vi) expected
term of 1.0 year. During the nine months June 30, 2017, the Company
recognized $88,624 of income resulting from the decrease in the
fair value of the warrant liability as of June 30,
2017.
|
Derivative Instruments – Warrant with the November 2013
Xinova
Services and License
Agreement
|
The
Company issued a warrant to purchase 97,169 shares of common stock
in connection with the November 2013 Xinova Services and
License Agreement. The warrant price of $30.00 per share expires
November 10, 2018 and the per share price is subject to
adjustment. In August 2016, the exercise price was reset to
$0.70 per share. This warrant was not issued with the intent
of effectively hedging any future cash flow, fair value of any
asset, liability or any net investment in a foreign
operation. This warrant was issued with a down-round
provision whereby the exercise price would be adjusted downward in
the event that additional shares of our common stock or securities
exercisable, convertible or exchangeable for our common stock were
issued at a price less than the exercise
price. Therefore, the fair value of these warrants was
recorded as a liability in the consolidated balance sheet and are
marked to market each reporting period until they are exercised or
expire or otherwise extinguished. During the year ended September
30, 2014, the Company recognized $320,657 of other expense related
to the Xinova warrant. During the year ended September 30, 2015,
the Company recognized $14,574 of other income related to the
Xinova warrant. During the year ended September 30, 2016, the
Company recognized $
286,260
of
other income from the decrease in the fair value of the warrant
liability at September 30, 2016.
As of
June 30, 2017
, the Company had
outstanding 97,169 warrants to purchase shares of common stock in
connection with the November 2013 Xinova Services and License
Agreement that the Company determined had an embedded derivative
liability due to the “reset” clause associated with the
note’s conversion price. The Company valued the derivative
liability of these notes at $4,178 using the Black-Scholes-Merton
option pricing model, which approximates the Monte Carlo and other
binomial valuation techniques, with the following
assumptions (i) dividend yield of 0%; (ii) expected volatility
of 113.0%; (iii) risk free rate of .007%, (iv) stock price of
$0.25, (v) per share conversion price of $0.70, and (vi) expected
term of 1.0 year. During the nine months June 30, 2017, the Company
recognized $15,644 of income resulting from the decrease in the
fair value of the warrant liability as of June 30,
2017.
Derivative Instrument – Series A Convertible Preferred
Stock
The
Company issued 11,667
shares of Series
A Convertible Preferred Stock with attached warrants during the
year ended September 30, 2015. The Company allocated $233,322 to
stockholder’s equity and $116,678 to the derivative warrant
liability.
The warrants were
issued with a down round provision. The warrants have a term of
five years, 23,334 are exercisable at $30 per common share and
23,334 are exercisable at $45 per common share. On August 4, 2016,
the exercise price was adjusted to $0.70 per share.
During
the year ended September 30, 2015, the Company recognized $30,338
of other expense related to the warrant liability. During the year
ended September 30, 2016, the Company recognized $
132,724
of other income resulting from the
decrease in the fair value of the warrant liability at September
30, 2016.
As of
June 30, 2017
, the Company had
outstanding 11,667
shares of Series A
Convertible Preferred Stock with attached warrants
that the
Company determined had an embedded derivative liability due to the
“reset” clause associated with the note’s
conversion price. The Company valued the derivative liability of
these notes at $3,010 using the Black-Scholes-Merton option pricing
model, which approximates the Monte Carlo and other binomial
valuation techniques, with the following assumptions (i)
dividend yield of 0%; (ii) expected volatility of 113.0%; (iii)
risk free rate of .007%, (iv) stock price of $0.25, (v) per share
conversion price of $0.70, and (vi) expected term of 1.0 year.
During the nine months June 30, 2017, the Company recognized
$11,270 of income resulting from the increase in the fair value of
the warrant liability as of June 30, 2017.
Derivative Instrument – Series C Convertible Preferred
Stock
The
Company issued 1,785,715
shares of
Series C Convertible Preferred Stock with attached warrants during
the year ended September 30, 2016. In February 2017, the Company
modified the term of the warrants to provide a down round
provision.
As of
June 30, 2017
, the Company had
outstanding 1,785,715
shares of Series
C Convertible Preferred Stock with attached warrants
that
the Company determined had an embedded derivative liability due to
the “reset” clause associated with the note’s
conversion price. The Company valued the derivative liability of
these notes at $266,071 using the Black-Scholes-Merton option
pricing model, which approximates the Monte Carlo and other
binomial valuation techniques, with the following
assumptions (i) dividend yield of 0%; (ii) expected volatility
of 113.0%; (iii) risk free rate of .007%, (iv) stock price of
$0.25, (v) per share conversion price of $0.70, and (vi) expected
term of 4.0 years. During the nine months June 30, 2017, the
Company recognized $266,071 of other expense resulting from the
modification of the warrant, net of the decrease in the fair value
of the warrant liability as of June 30, 2017.
Derivative Instrument – Placement Agent Warrants
During
the nine months ended June 30, 2017, the Company revised five year
placement agent warrants to purchase 312,500 shares of common
stock. In February 2017, the Company reduced the price from $1.00
to $0.70 per share and the exercise price is now subject to
adjustment.
As of
June 30, 2017
, the Company had
placement agent warrants to purchase 312,500 shares of common stock
that the Company determined had an embedded derivative liability
due to the “reset” clause associated with the
note’s conversion price. The Company valued the derivative
liability of these notes at $13,438 using the Black-Scholes-Merton
option pricing model, which approximates the Monte Carlo and other
binomial valuation techniques, with the following
assumptions (i) dividend yield of 0%; (ii) expected volatility
of 113.0%; (iii) risk free rate of .007%, (iv) stock price of
$0.25, (v) per share conversion price of $0.70, and (vi) expected
term of 1.0 year. During the nine months June 30, 2017, the Company
recognized $13,428 of other expense resulting from the modification
of the warrant, net of the decrease in the fair value of the
warrant liability as of June 30, 2017.
Derivative Instrument – Series D Convertible Preferred
Stock
The
Company issued 1,016,014
shares of
Series C Convertible Preferred Stock with attached warrants during
the nine months ended June 30, 2017. In February 2017, the Company
modified the term of the warrants to provide a down round
provision.
As of
June 30, 2017
, the Company had
outstanding 1,016,014
shares of Series
D Convertible Preferred Stock with attached warrants
that
the Company determined had an embedded derivative liability due to
the “reset” clause associated with the note’s
conversion price. The Company valued the derivative liability of
these notes at $101,271 using the Black-Scholes-Merton option
pricing model, which approximates the Monte Carlo and other
binomial valuation techniques, with the following
assumptions (i) dividend yield of 0%; (ii) expected volatility
of 113.0%; (iii) risk free rate of .007%, (iv) stock price of
$0.25, (v) per share conversion price of $0.70, and (vi) expected
term of 4.35 years. During the nine months June 30, 2017, the
Company recognized $101,171 of other expense resulting from the
modification of the warrant, net of the decrease in the fair value
of the warrant liability as of June 30, 2017.
10.
CONVERTIBLE NOTES PAYABLE
Convertible notes payable as of June 30, 2017 and September 30,
2016 consisted of the following:
The Company entered into Convertible Promissory Notes totaling
$710,000 with accredited investors during September 2015 to
February 2016 to fund short-term working capital. The Notes accrue
interest at a rate of 8% per annum and become due September 2016 to
February 2017 and are convertible into common stock at the same
price of our next financing. On November 31, 2016, holders of
$695,000 of the Convertible Promissory Notes converted to 944,948
shares of common stock and five year warrants to purchase common
stock at a price of $1.00 per share.
The
Company recorded accrued interest of $14,687
during the six months ended March 31, 2017. On February 15, 2017,
the Company repaid the remaining $15,000 Promissory Note and
accrued interest in cash.
On September 30, 2016, the Company entered into a $210,000
Convertible Promissory Note with Clayton A. Struve, an accredited
investor and affiliate of the Company, to fund short-term working
capital. The Convertible Promissory Note accrues interest at a rate
of 10% per annum and becomes due on March 30, 2017. The Note holder
can convert to common stock at $0.70 per share. During the nine
months ended June 30, 2017, the Company recorded interest of $
15,707 related to the convertible note.
The Company entered into two Convertible Promissory Notes totaling
$330,000 with accredited investors during on November 1, 2016. The
Notes accrue interest at a rate of 10% per annum and become due May
1, 2017 and are convertible into Preferred stock at a conversion
price of $0.80 per share and a five-year warrant to purchase a
share of common stock at $1.00 per share. The company first
allocated the value received to the warrants based on the Black
Scholes value assuming a 1 year life, 130% volatility and .7% risk
free interest rate. The remaining value was below the fair market
value on the date of issuance and as a result the company recorded
and beneficial conversion dividend of $326,687 at the time
issuance.
The
Company recorded
interest of $10,633 as of February 24, 2017.
On February 24,
2016, The Company paid $113,544 in full payment of an Original
Issue Discount Convertible Promissory Note issued to an accredited
investor on November 1, 2016. On February 24, 2017, the holder of
an Original Issue Discount Convertible Promissory Note issued on
November 1, 2016 converted the principal and outstanding interest
of $227,088 into 283,861 shares of the Company’s Series D
Preferred Stock and a five-year warrant to purchase 283,861 shares
of common stock.
|
11.
|
NOTES PAYABLE, CAPITALIZED LEASES AND LONG TERM DEBT
|
Notes payable, capitalized leases and long-term debt as of June 30,
2017 and September 30, 2016 consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Source Business Finance Group
|
$
213,277
|
$
370,404
|
|
Note
payable to Umpqua Bank
|
199,935
|
199,935
|
|
Secured
note payable to J3E2A2Z LP - related party
|
600,000
|
600,000
|
|
Total
debt
|
1,013,212
|
1,170,339
|
|
Less
current portion of long term debt
|
(1,013,212
)
|
(1,170,339
)
|
|
Long
term debt
|
$
-
|
$
-
|
Capital Source Business Finance Group
The
Company finances its TransTech operations from operations and a
Secured Credit Facility with Capital Source
Business
Finance
Group. On December 9, 2008,
TransTech entered into a $1,000,000 secured credit facility with
Capital Source
to fund
its operations. On June 6, 2017, TransTech entered into the
Fourth Modification to the Loan and Security Agreement. This
secured credit facility was renewed until June 12, 2018 with a
floor for prime interest of 4.5% (currently 4.5%) plus 2.5%. The
eligible borrowing is based on 80% of eligible trade accounts
receivable, not to exceed $500,000. The secured credit facility is
collateralized by the assets of TransTech, with a guarantee by
Visualant, including a security interest in all assets of
Visualant. The remaining balance on the accounts receivable line of
$213,277 as of June 30, 2017 must be repaid by the time the secured
credit facility expires on June 12, 2018, or the Company renews by
automatic extension for the next successive one year
term.
Note Payable to Umpqua Bank
The Company has a $199,935 Business Loan Agreement with Umpqua Bank
(the “Umpqua Loan”), which matures on December 31, 2017
and provides for interest at 3.25% per year.
Related to this
Umpqua Loan, the Company entered into a demand promissory note for
$200,000 on January 10, 2014 with an entity affiliated with Ronald
P. Erickson, our Chief Executive Officer. This demand promissory
note will be effective in case of a default by the Company under
the Umpqua Loan.
The Company recorded
accrued interest of $20,827 as of June 30,
2017.
Note Payables to Ronald P. Erickson or J3E2A2Z LP
The Company also has two other demand promissory notes payable to
entities affiliated with Mr. Erickson, totaling $600,000. Each of
these notes were issued between January and July 2014, provide for
interest of 3% per year and now mature on September 30, 2017. The
notes payable also provide for a second lien on our assets if not
repaid by September 30, 2017 or converted into convertible
debentures or equity on terms acceptable to the Mr. Erickson. We
recorded accrued interest of $53,630 as of June 30,
2017.
Authorized Capital Stock
Series C and D Preferred Stock and Warrants
On
August 5, 2016, the Company closed a Series C Preferred Stock and
Warrant Purchase Agreement with Clayton A. Struve, an accredited
investor for the purchase of $1,250,000 of preferred stock with a
conversion price of $0.70 per share. The preferred stock has a
yield of 8% and an ownership blocker of 4.99%. In addition, Mr.
Struve received a five year warrant to acquire 1,785,714 shares of
common stock at $0.70 per share.
To
determine the effective conversion price, a portion of the proceeds
received by the Company upon issuance of the Series C Preferred
Stock was first allocated to the freestanding warrants issued as
part of this transaction. Given that the warrants will not
subsequently be measured at fair value, the Company determined that
the warrants should receive an allocation of the proceeds based on
their relative fair value. This is based on the understanding that
the FASB staff and the SEC staff believe that a freestanding
instrument issued in a basket transaction should be initially
measured at fair value if it is required to be subsequently
measured at fair value pursuant to US generally accepted accounting
principles (“GAAP”), with the residual proceeds from
the transaction allocated to any remaining instruments based on
their relative fair values. As such, the warrants were allocated a
fair value of approximately $514,706 upon issuance, with the
remaining $735,294 of proceeds allocated to the Series C Preferred
Stock.
Proportionately,
this allocation resulted in approximately 59% of the face amount of
the Series C Preferred Stock issuance remaining, which applied to
the stated conversion price of $0.70 resulted in an effective
conversion price of approximately $0.41.
Having
determined the effective conversion price, the Company then
compared this to the fair value of the underlying Common Stock as
of the commitment date, which was approximately $1.06 per share,
and concluded that the conversion feature did have an intrinsic
value of $0.65 per share. As such, the Company concluded that the
Series C Preferred Stock did contain a beneficial conversion
feature and an accounting entry and additional financial statement
disclosure was required.
Because
our preferred stock is perpetual, with no stated maturity date, and
the conversions may occur any time from inception, the dividend is
recognized immediately when a beneficial conversion exists at
issuance. During the year ending September 30, 2016, the Company.
recognized preferred stock dividends of $1.16 million on Series C
preferred stock related to the beneficial conversion feature
arising from a common stock effective conversion rate of $0.41
versus a current market price of $1.06 per common
share.
On
November 14, 2016, the Company issued 187,500 shares of Series D
Convertible Preferred Stock and a warrant to purchase 187,500
shares of common stock in a private placement to certain accredited
investors for gross proceeds of $150,000 pursuant to a Series D
Preferred Stock and Warrant Purchase Agreement dated November 10,
2016.
The
warrants associated with the November 14, 2016 issuance were
allocated a fair value of approximately $56,539 upon issuance, with
the remaining $63,539 of net proceeds allocated to the Series D
Preferred Stock. Proportionately, this allocation resulted in
approximately 53% of the amount of the Series D Preferred Stock
issuance remaining, which applied to the stated conversion price of
$0.80 resulted in an effective conversion price of approximately
$0.34. Having determined the effective conversion price, the
Company then compared this to the fair value of the underlying
Common Stock as of the commitment date, which was approximately
$1.14 per share, and concluded that the conversion feature did have
an intrinsic value of $0.80 per share. As such, the Company
concluded that the Series D Preferred Stock did contain a
beneficial conversion feature of $150,211 which was recorded as a
beneficial conversion in stockholders’ equity.
On
December 19, 2016, the Company issued 187,500 shares of Series D
Convertible Preferred Stock and a warrant to purchase 187,500
shares of common stock in a private placement to an accredited
investor for gross proceeds of $150,000 pursuant to a Series D
Preferred Stock and Warrant Purchase Agreement dated December 14,
2016.
The
warrants associated with the December 19, 2016 issuance were
allocated a fair value of approximately $60,357 upon issuance, with
the remaining $69,643 of net proceeds allocated to the Series D
Preferred Stock. Proportionately, this allocation resulted in
approximately 54% of the amount of the Series D Preferred Stock
issuance remaining, which applied to the stated conversion price of
$0.80 resulted in an effective conversion price of approximately
$0.37. Having determined the effective conversion price, the
Company then compared this to the fair value of the underlying
Common Stock as of the commitment date, which was approximately
$0.81 per share, and concluded that the conversion feature did have
an intrinsic value of $0.44 per share. As such, the Company
concluded that the Series C Preferred Stock did contain a
beneficial conversion feature of $82,232 which was recorded as a
beneficial conversion in stockholders’ equity.
Because
our preferred stock is perpetual, with no stated maturity date, and
the conversions may occur any time from inception, the dividend is
recognized immediately when a beneficial conversion exists at
issuance. During the nine months ending June 30, 2017, the Company.
recognized preferred stock dividends of $234,443 million on Series
D preferred stock related to the beneficial conversion feature
arising from a common stock effective conversion rate of $0.34 and
$0.37 versus the original market price of $1.14 and $1.06 per
common share, respectively.
On May 1, 2017, the Company issued 357,143 shares of Series D
Convertible Preferred Stock (the “Series D Shares”) and
a warrant to purchase 357,143 shares of common stock in a private
placement to an accredited investor for gross proceeds of $250,000
pursuant to a Series D Preferred Stock and Warrant Purchase
Agreement dated May 1, 2016.
The initial conversion price of the Series D Shares is $0.70 per
share, subject to certain adjustments. The initial exercise price
of the warrant is $0.70 per share, also subject to certain
adjustments. The Company also amended and restated the Certificate
of Designation for the Series D Shares, resulting in an adjustment
to the conversion price of all currently outstanding Series D
Shares to $0.70 per share.
Having determined the effective conversion price, the Company then
compared this to the fair value of the underlying Common Stock as
of the commitment date, which was approximately $0.48 per share,
and concluded that the conversion feature did not have an intrinsic
value. As such, the Company concluded that the Series D Preferred
Stock did not contain a beneficial conversion feature and an
accounting entry and additional financial statement disclosure was
not required
Common Stock
All of the offerings and sales described below were deemed to be
exempt under Rule 506 of Regulation D and/or Section 4(a)(2) of the
Securities Act. No advertising or general solicitation was employed
in offering the securities, the offerings and sales were made to a
limited number of persons, all of whom were accredited investors
and transfer was restricted by the company in accordance with the
requirements of Regulation D and the Securities Act. All issuances
to accredited and non-accredited investors were structured to
comply with the requirements of the safe harbor afforded by Rule
506 of Regulation D, including limiting the number of
non-accredited investors to no more than 35 investors who have
sufficient knowledge and experience in financial and business
matters to make them capable of evaluating the merits and risks of
an investment in our securities.
The following equity issuances occurred during the nine months
ended June 30, 2017:
On October 21, 2015, the Company entered into a Public Relations
Agreement with Financial Genetics LLC for public relation services.
On October 18, 2016, the Company entered into an Amendment to
Public Relations Agreement with Financial Genetics LLC. Under the
Agreements, Financial Genetics was issued 359,386 shares of our
common stock during the nine months ended June 30, 2017. The
Company expensed $271,309 during the nine months ended June 30,
2017.
On October 6, 2016, the Company entered into a Services Agreement
with Redwood Investment Group LLC for financial services. Under the
Agreement, Redwood was issued 200,000 shares of our common stock.
The Company expensed $140,000 during the nine months ended June 30,
2017.
The Company entered into Convertible Promissory Notes totaling
$710,000 with accredited investors during September 2015 to
February 2016 to fund short-term working capital. The Notes accrued
interest at a rate of 8% per annum and became due September 2016 to
February 2017 and were convertible into common stock as part of our
next financing. On November 30, 2016, the Company converted
$695,000 of the /Convertible Promissory Notes and interest of
$54,078 into 936,348 shares of comment stock. The Company also
issued warrants to purchase 936,348 shares of the Company’s
common stock. The five-year warrants are exercisable at $1.00 per
share, subject to adjustment.
On December 22, 2016, a supplier converted accounts payable
totaling $6,880 into 8,600 shares of common stock.
Warrants to Purchase Common Stock
The following warrants were issued during the nine months ended
June 30, 2017:
The Company entered into Convertible Promissory Notes totaling
$710,000 with accredited investors during September 2015 to
February 2016 to fund short-term working capital. The Notes accrued
interest at a rate of 8% per annum and became due September 2016 to
February 2017 and were convertible into common stock as part of our
next financing. On November 30, 2016, the Company converted
$695,000 of the /Convertible Promissory Notes and interest of
$54,078 into 936,348 shares of comment stock. The Company also
issued warrants to purchase 936,348 shares of the Company’s
common stock. The five-year warrants are exercisable at $1.00 per
share, subject to adjustment.
On
November 14, 2016, the Company issued 187,500 shares of Series D
Convertible Preferred Stock and a warrant to purchase 187,500
shares of common stock in a private placement to certain accredited
investors for gross proceeds of $150,000 pursuant to a Series D
Preferred Stock and Warrant Purchase Agreement dated November 10,
2016. The warrant was valued at $131,250.
On
December 19, 2016, the Company issued 187,500 shares of Series D
Convertible Preferred Stock and a warrant to purchase 187,500
shares of common stock in a private placement to an accredited
investor for gross proceeds of $150,000 pursuant to a Series D
Preferred Stock and Warrant Purchase Agreement dated December 14,
2016. The warrant was valued at $131,250.
On
February 24, 2017, the Company issued 283,861 shares of Series D
Convertible Preferred Stock and a warrant to purchase 283,861
shares of common stock in a private placement to an accredited
investor for conversion of a $220,000 Promissory Note and accrued
interest of $7,089 pursuant to a Series D Preferred Stock and
Warrant Purchase Agreement dated February 28, 2017. The warrant was
valued at $198,703.
During
the nine months ended June 30, 2017, the Company revised five year
placement agent warrants to purchase 312,500 shares of common
stock. The price was reduced from $1.00 to $0.70 per share and the
exercise price is now subject to adjustment. The Company recorded
250,000 shares during the year ended September 30, 2016 the fair
value of these warrants is $218,751 as of June 30,
2017.
On May 1, 2017, the Company issued 357,143 shares of Series D
Convertible Preferred Stock and a warrant to purchase 357,143
shares of common stock in a private placement to an accredited
investor for gross proceeds of $250,000 pursuant to a Series D
Preferred Stock and Warrant Purchase Agreement dated May 1,
2017.
The warrant was valued at $5,357.
The
conversion price of the Series D Shares and related warrants is
currently $0.70 per share, subject to certain
adjustments.
A
summary of the warrants outstanding as of
June 30, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of period
|
3,453,171
|
$
0.840
|
|
Issued
|
2,014,854
|
0.802
|
|
Exercised
|
-
|
-
|
|
Forfeited
|
-
|
-
|
|
Expired
|
(7,669
)
|
(30.000
)
|
|
Outstanding
at end of period
|
5,460,356
|
$
0.787
|
|
Exerciseable
at end of period
|
5,460,356
|
|
A
summary of the status of the warrants outstanding as of
June 30, 2017
is presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,517,341
|
3.76
|
$
0.700
|
4,517,341
|
$
0.700
|
|
936,348
|
4.42
|
1.000
|
936,348
|
1.000
|
|
6,667
|
1.75
|
30.000
|
6,667
|
30.000
|
|
5,460,356
|
3.81
|
$
0.787
|
5,460,356
|
$
0.787
|
The
significant weighted average assumptions relating to the valuation
of the Company’s warrants for the period ended
June 30, 2017
were as follows:
Assumptions
|
Dividend yield
|
0%
|
|
Expected life
|
.25-3
|
|
Expected volatility
|
130%
|
|
Risk free interest rate
|
.01-.07%
|
There were vested warrants of 5,460,356 as of June 30, 2017 with an
aggregate intrinsic value of $0.
Description of Stock Option Plan
On March 21, 2013, an amendment to the Stock Option Plan was
approved by the stockholders of the Company, increasing the number
of shares reserved for issuance under the Plan to 93,333
shares.
Determining Fair Value under ASC 505
The Company records compensation expense associated with stock
options and other equity-based compensation using the
Black-Scholes-Merton option valuation model for estimating fair
value of stock options granted under our plan. The Company
amortizes the fair value of stock options on a ratable basis over
the requisite service periods, which are generally the vesting
periods. The expected life of awards granted represents the period
of time that they are expected to be outstanding. The
Company estimates the volatility of our common stock based on the
historical volatility of its own common stock over the most recent
period corresponding with the estimated expected life of the award.
The Company bases the risk-free interest rate used in the Black
Scholes-Merton option valuation model on the implied yield
currently available on U.S. Treasury zero-coupon issues with an
equivalent remaining term equal to the expected life of the award.
The Company has not paid any cash dividends on our common stock and
does not anticipate paying any cash dividends in the foreseeable
future. Consequently, the Company uses an expected dividend yield
of zero in the Black-Scholes-Merton option valuation model and
adjusts share-based compensation for changes to the estimate of
expected equity award forfeitures based on actual forfeiture
experience. The effect of adjusting the forfeiture rate is
recognized in the period the forfeiture estimate is
changed.
Stock Option Activity
The Company had no stock option transactions during the nine months
ended June 30, 2017.
There are currently 50,908 options to purchase common stock at an
average exercise price of $18.05 per share outstanding as of June
30, 2017 under the 2011 Stock Incentive Plan. The Company recorded
$32,661 and $35,511 of compensation expense, net of related tax
effects, relative to stock options for the nine months ended June
30, 2017 and 2016 in accordance with ASC 505. Net loss per share
(basic and diluted) associated with this expense was approximately
($0.00) and ($0.03) per share, respectively. As of June 30, 2017,
there is approximately $80,502 of total unrecognized costs related
to employee granted stock options that are not vested. These costs
are expected to be recognized over a period of approximately 2.42
years.
Stock option activity for the nine months ended June 30, 2017 and
the years ended September 30, 2016 and 2015 was as
follows:
|
|
|
|
|
|
|
|
|
Outstanding
as of September 30, 2014
|
87,333
|
$
18.804
|
1,642,200
|
|
Granted
|
11,335
|
15.000
|
170,025
|
|
Exercised
|
-
|
-
|
-
|
|
Forfeitures
|
(41,261
)
|
(18.286
)
|
(754,500
)
|
|
Outstanding
as of September 30, 2015
|
57,407
|
18.425
|
1,057,725
|
|
Granted
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
|
Forfeitures
|
(6,499
)
|
(21.403
)
|
(139,098
)
|
|
Outstanding
as of September 30, 2016
|
50,908
|
18.045
|
918,627
|
|
Granted
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
|
Forfeitures
|
-
|
-
|
-
|
|
Outstanding
as of June 30, 2017
|
50,908
|
$
18.045
|
$
918,627
|
The following table summarizes information about stock options
outstanding and exercisable as of June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.500
|
3,334
|
1.50
|
$
13.500
|
3,334
|
$
13.50
|
|
15.000
|
20,906
|
2.08
|
15.000
|
9,570
|
15.00
|
|
19.500
|
13,334
|
2.33
|
19.500
|
13,334
|
19.50
|
|
22.500
|
13,334
|
2.88
|
22.500
|
13,334
|
22.50
|
|
|
50,908
|
2.42
|
$
18.045
|
39,572
|
$
18.92
|
There were exercisable options of 39,572 as of June 30, 2017 with
an aggregate intrinsic value of $0.
|
14.
|
OTHER SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES
|
Related Party Transactions with Ronald P. Erickson
See Note 10 for Notes Payable to Ronald P. Erickson, our Chief
Executive Officer Chief and/or entities in which Mr. Erickson has a
beneficial interest.
Note Payable to Umpqua Bank
The Company has a $199,935 Business Loan Agreement with Umpqua Bank
(the “Umpqua Loan”), which matures on December 31, 2017
and provides for interest at 3.25% per year.
Related to this
Umpqua Loan, the Company entered into a demand promissory note for
$200,000 on January 10, 2014 with an entity affiliated with Ronald
P. Erickson, our Chief Executive Officer. This demand promissory
note will be effective in case of a default by the Company under
the Umpqua Loan.
The Company recorded
accrued interest of $20,827 as of June 30,
2017.
Note Payables to Ronald P. Erickson or J3E2A2Z LP
The Company also has two other demand promissory notes payable to
entities affiliated with Mr. Erickson, totaling $600,000. Each of
these notes were issued between January and July 2014, provide for
interest of 3% per year and now mature on September 30, 2017. The
notes payable also provide for a second lien on our assets if not
repaid by September 30, 2017 or converted into convertible
debentures or equity on terms acceptable to the Mr. Erickson. We
recorded accrued interest of $ 53,630 as of June 30,
2017.
Other Amounts Due to Mr. Erickson
Mr. Erickson and/or entities with which he is affiliated also have
advanced $522,332 and have unreimbursed expenses and compensation
of approximately $380,000. In total, the Company owes Mr. Erickson,
or entities with which he is affiliated, $1,576,790 as of June 30,
2017.