Item 2.02.
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Results of Operations and Financial Condition
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Hillair Capital Management LLC Litigation
As previously reported by Content Checked Holdings, Inc, (the “Company”) in its Current Report on Form 8-K filed with the Securities and Exchange Commission on May 26, 2017, on September 3, 2015, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Hillair Capital Investments LP (“Hillair Investments”) and its assignee Hillair Capital Management LLC (“Hillair Management”) (Hillair Investments and Hillair Management are hereinafter collectively referred to as “Hillair”) pursuant to which the Company agreed to sell and Hillair agreed to buy an 8% Senior Secured Convertible Debenture in the aggregate principal amount of $5,040,000 (the “Debenture”).
Pursuant to the terms of the Securities Purchase Agreement, the Company, on September 3, 2015, issued to Hillair the Debenture in exchange for $5,040,000. Further pursuant to the terms of the Securities Purchase Agreement and the Debenture, the Company agreed to pay Hillair the principal sum of $5,040,000.00 (the “Principal Sum”) on or before July 1, 2017 (the “Maturity Date”).
Prior to the Maturity Date, the Company was required under the terms of the Securities Purchase Agreement and the Debenture to make periodic redemption payments of principal and accrued interest to Hillair (the “Periodic Redemption Payments”). In addition to the Principal Sum, the Company agreed to pay Hillair interest on the Principal Sum at the rate of 8% per annum, which interest was payable to Hillair quarterly beginning July 1, 2016 and on January 1, April 1, July 1 and October 1 of each year thereafter (the “Quarterly Interest Payments”) as well as on the date a Periodic Redemption Payment, as defined in the Debenture, was due.
In connection with the Debenture, and to secure repayment of the Debenture and all other and further obligations of the Company to Hillair, on September 3, 2015, the Company and Hillair executed a Security Agreement (the “Security Agreement”) pursuant to which Hillair was granted a security interest in essentially all of the assets of the Company, including but not limited to the Company’s intellectual property, to secure payment and performance of the respective obligations and liabilities of the Company to Hillair, and which Security Agreement provided, among other things, that upon a breach of the terms of the Debenture, Hillair was entitled to take possession of the assets of the Company.
On or about October 1, 2016, the Company committed one or more defaults under the terms of the Debenture and Securities Purchase Agreement due to its inability to timely pay required Periodic Redemption Payments and Quarterly Interest Payments.
As a result of the Company’s defaults under the terms of the Debenture and Securities Purchase Agreement, Hillair, on or about December 27, 2016, declared the entire unpaid balance of the Debenture immediately due and payable, and made demand upon the Company for payment of the sums due and owing under the terms of the Debenture. Because of the Company’s compromised financial condition, the Company was not capable of meeting Hillair’s December 27, 2016 demand for payment.
On or about January 23, 2017, Hillair filed an action against the Company in the Los Angeles County Superior Court-West District (the “Court”) for the purpose of securing payment of the sums due and owing Hillair under the terms of the Debenture (the “Action”). In the Action, Hillair sought and obtained an order appointing a receiver over the assets of the Company in which Hillair had a security interest (the “Assets”), and the Court appointed receiver (the “Receiver”) took possession of the Assets.
On April 18, 2017, the Company and Hillair entered into a settlement agreement (the “Settlement Agreement”) pursuant to which, among other matters, the Assets that were taken into possession by the Court appointed receiver would be sold, assigned and transferred to a newly formed corporation that would continue the original business plan of the Company (such newly formed corporation is hereinafter referred to as “Newco”). Contingent upon the Company paying Hillair $1.2 million on or before June 2, 2017 (the “Settlement Payment”), the Company would own thirty percent (30%) of Newco’s equity and Hillair would own seventy percent (70%) of Newco’s equity.
The Company failed to make the Settlement Payment as required under the terms of the Settlement Agreement. As a result, on June 26, 2017, all of the Assets were transferred by the Receiver to Hillair, and the Company has not, and will not, receive any equity interest in Newco.
Concurrently with the transfer of the Assets to Hillair, the Court entered an order granting Hillair a judgment against the Company in the amount of $7,114,625.43. As a result of this judgment, the Company will record $7,114,625.43 as a current liability in its financial statements for the quarter ended June 30, 2017.