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Item
3.02
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Unregistered
Sales of Equity Securities.
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On
November 17, 2017, the Company entered into a note purchase agreement (the “Purchase Agreement”) with certain accredited
investors (the “Investors”), pursuant to which it sold an aggregate principal amount of $885,000 in 8% Secured Convertible
Notes (“Notes”), convertible into shares of the Company’s common stock, par value $0.001 per share (“Common
Stock”) at a conversion price of $0.20 per share (the “Offering”). The Company used part of the net proceeds
of the Offering for repayment of the Ohio Loans, as discussed in Item 1.02 above, and intends to use the remaining net proceeds
for working capital and general corporate purposes.
The
Notes, together with any accrued and unpaid interest, become due and payable on November 30, 2019 (the “Maturity Date”).
Interest on the Notes will accrue at the rate of 8% per annum, payable quarterly in cash, beginning on July 1, 2018 and on the
Maturity Date. Any overdue principal and accrued and unpaid interest shall entail a late fee at an interest rate of 12% per annum.
The Notes will be convertible into Common Stock at a conversion price of $0.20 per share at the discretion of the holder, with
special provisions applying to any holder whose conversion would result in the holder beneficially owning more than 4.99% of the
Company’s Common Stock. The Notes are secured by a security interest in all assets of the Company, pursuant to a Security
Agreement by and between the Company and a collateral agent acting on behalf of the investors. Pursuant to a Registration Rights
Agreement, by and between the Company and the Investors, the Company will provide the Note holders with registration rights with
respect to the resale of the Common Stock into which the Notes may be converted.
The form
of the Notes, Registration Rights Agreement, and Security Agreement are incorporated as Exhibits 10.2, 10.3 and 10.4, respectively,
to this Report, and the summary description of the terms of the Notes, Registration Rights Agreement, and Security Agreement contained
herein is qualified in its entirety by reference to Exhibits 10.2, 10.3 and 10.4, respectively.
The
Company retained Taglich Brothers, Inc. (the “Placement Agent”) as the exclusive placement agent for the Offering.
In connection with the Offering, the Company paid the Placement Agent a cash payment of $70,800, which represented an 8% commission
of the gross proceeds. The Company has also committed to reimburse the Placement Agent for reasonable out of pocket expenses,
FINRA filing fees and related legal fees in an amount of up to $35,000. In addition, the Placement Agent earned warrants to purchase
354,000 shares of Common Stock, which represented 8% of the shares of Common Stock into which the Notes sold in the Offering are
convertible (the “Placement Agent Warrants”), which have an exercise price of $0.25 per share, will be exercisable
for a period of five years, contain customary cashless exercise and anti-dilution protection and are entitled to registration
rights under the Registration Rights Agreement. The Placement Agent has certain material relationships with the Company: Robert
Schroeder is a Director of the Company and also the Vice President of Investment Banking at the Placement Agent; Michael Taglich
is a beneficial owner of more than 10% of the Company’s Common Stock and also the Co-Founder, President & Chairman of
the Placement Agent; and Robert Taglich is a beneficial owner of more than 10% of the Company’s Common Stock and also the
Co-Founder and Managing Director of the Placement Agent.
The
Notes and Placement Agent Warrants sold in the Offering were not registered under the Securities Act of 1933, as amended (the
“Securities Act”), or the securities laws of any state, and were offered and sold in reliance on the exemption from
registration afforded by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws, which exempt transactions by an issuer not involving any public offering. The Investors are “accredited
investors” as such term is defined in Regulation D promulgated under the Securities Act. This Current Report shall not constitute
an offer to sell or the solicitation of an offer to buy, nor shall such securities be offered or sold in the United States absent
registration or an applicable exemption from the registration requirements and certificates evidencing such securities contain
a legend stating the same.
The
foregoing descriptions of the Purchase Agreement, Notes, Registration Rights Agreement, Security Agreement, and Placement Agent
Warrants are qualified in their entirety by reference to the full text of the Purchase Agreement, Notes, Registration Rights Agreement,
Security Agreement, and Placement Agent Warrants, which are incorporated by reference as exhibits 10.1-10.5, respectively, hereto.