NOTE 7. – ACCRUED EXPENSES.
Accrued expenses represent obligations that apply to the reported period and have not been billed by the provider or paid by the Company.
At December 31, 2012 and June 30, 2012, accrued expenses consisted of the following:
|
|
December 31,
2012
|
|
|
June 30,
2012
|
|
Accrued interest
|
|
$
|
-
|
|
|
$
|
29,753
|
|
Wages and vacation
|
|
|
81,279
|
|
|
|
66,914
|
|
Commission
|
|
|
3,154
|
|
|
|
11,945
|
|
Professional fees
|
|
|
8,500
|
|
|
|
40,000
|
|
Other
|
|
|
27,779
|
|
|
|
340
|
|
|
|
$
|
120,712
|
|
|
$
|
148,952
|
|
NOTE 8. – LONG TERM DEBT.
Loan Payable – TD Banknorth
On July 2, 2001 the Company entered into a loan agreement for the principal amount of $100,000,
maturing in October 2018 payable with varying monthly installments including interest at approximately 5.25% per annum, secured by all assets of the Company. At December 31, 2012 and June 30, 2012, the balance is $31,857 and $33,498, respectively.
Line of Credit Payable – American Express
The Company obtained a business capital line from American Express in the amount of $63,200. The line is payable in varying monthly installments including interest at approximately 9.49% per annum. The line is secured by all assets of the Company. At
December 31
, 2012 and June 30, 2012, the balance is $33,361 and $35,177, respectively.
12% Convertible Promissory Notes
In January 2011 and February 2011 the Company issued and sold $550,000 principal amount 12% convertible promissory notes in a private offering resulting in net proceeds of $495,000 after $55,000 fee paid to placement agent. The notes are unsecured and pay interest at 12% per annum, in arrears, in shares of our common stock valued at $0.30 per share. The notes mature on
December 31
, 2013,
provided, however
, that in our sole option we may extend the maturity date until December 31, 2014 if the note is not converted by December 31, 2013. The notes are convertible at any time at the option of the holder into shares of our common stock at a conversion price of $0.30 per share. At any time that the closing price of our common stock on any exchange on which it might be listed or in the over the counter market equals or exceeds $0.60 per share for 20 consecutive trading days, we have the right to convert the notes into shares of our common stock at a conversion price of $0.30 per share. The conversion price of the notes is subject to proportional adjustment in the event of
stock splits
, dividends, recapitalizations and similar corporate events. Presently, these notes are convertible into an aggregate of 1,666,668 shares of our common stock. At
December 31
, 2012 and June 30, 2012, the Company had $0 and $29,753, respectively in accrued interest on the notes. On December 31, 2011 $60,937 of accrued interest was converted to 203,125 shares of common stock at $0.30. On January 17, 2012, one of the noteholders of the 12% convertible promissory notes converted $50,000 plus accrued interest of $263 into 167,544 shares of common stock. On December 31, 2012 $60,000 of accrued interest was converted to 200,000 shares of common stock at $0.30.
Debt Discount
In connection with the 12% convertible promissory notes offering, we issued the purchasers Series C Warrants to purchase an aggregate of 733,335 shares of our common stock at an exercise price of $0.45 per share. The exercise price of the Series C warrant is subject to adjustment in the event of stock splits, dividends, recapitalizations and similar corporate events.
In accordance with ASC 470, the Company has analyzed the beneficial nature of the conversion terms and determined that a beneficial conversion feature (BCF) existed as of February 10, 2011. The Company calculated the value of the BCF using the intrinsic method as stipulated in ASC 470. Based on the stock price on the day of commitment, the discount as agreed to in the note, and the number of convertible shares, and the value of the warrants included in the units, the total discount was valued at $165,579.
The Company used the Black-Scholes option pricing model to value the warrants included in the convertible units. Included in the assumptions of this calculation, the Company used a risk-free rate of 0.85% (based on the US Treasury note yield), three year maturity, volatility of 84.0% (based on the daily historical performance of a comparable Company’s stock over two years from the commitment date), and a strike price of $0.45.
In accordance with ASC 470, the Company is amortizing the BCF and relative fair value of the warrants over the two year term of the note. The notes have a prepayment option for the Company, after January 1, 2013, with a 20 day notice to the holders. As such, the Company is amortizing the discount over the two year period. For the three months ended December 31, 2012 and 2011 the Company recognized $20,697 and $20,697, respectively of amortization expense. For the six months ended December 31, 2012 and 2011 the Company recognized $41,395 and $41,394, respectively of amortization expense. As of December 31, 2012 and June 30, 2012 the discount had a carrying value of $6,899 and $48,294, respectively.
|
|
December 31,
2012
|
|
|
June 30,
2012
|
|
|
|
|
|
|
|
|
Loan payable to TD Banknorth maturing in October 2018 payable with varing monthly installments including interest at approximately 5.25% per annum, secured by all assets of the Company
|
|
$
|
31,857
|
|
|
$
|
33,498
|
|
|
|
|
|
|
|
|
|
|
Line payable to American Express payable with varying monthly installments including interest at approximately 9.49% per annum, secured by all assets of the Company
|
|
|
33,361
|
|
|
|
35,177
|
|
|
|
|
|
|
|
|
|
|
12% Convertible Promisory notes $500,000 principal net of debt discount of $6,899 and $48,294 at December 31, 2012 and June 30, 2012, respectively
|
|
|
493,101
|
|
|
|
451,706
|
|
|
|
|
558,319
|
|
|
|
520,381
|
|
Less : Current portion
|
|
|
37,225
|
|
|
|
40,031
|
|
|
|
$
|
521,094
|
|
|
$
|
480,350
|
|
NOTE 9. – STOCKHOLDERS’ EQUITY.
Our authorized capital stock consists of 200,000,000 shares of common stock, $0.01 par value per share, and 5,000,000 shares of preferred stock, par value $0.01 per share. As of December 31, 2012 and June 30, 2012, there are 36,450,238 and 36,190,238 shares of common stock issued and outstanding, respectively. There are no shares of preferred stock issued and outstanding.
Common stock
Holders of common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of common stock do not have cumulative voting rights. Holders of common stock are entitled to share in all dividends that the Board of Directors, in its discretion, declares from legally available funds. In the event of our liquidation, dissolution or winding up, subject to the preferences of any shares of our preferred stock which may then be outstanding, each outstanding share entitles its holder to participate in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock.
Holders of common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions for the common stock. The rights of the holders of common stock are subject to any rights that may be fixed for holders of preferred stock, when and if any preferred stock is authorized and issued. All outstanding shares of common stock are duly authorized, validly issued, fully paid and non-assessable.
In March 2011 the Company sold 125,000 units of our securities to an accredited investor in a private placement which resulted in gross proceeds to us of $12,500. The securities included 41,667 shares of our common stock and Series D Warrants and Series E Warrants. Forge Financial Group, Inc., a broker-dealer and member of FINRA (“Forge”) acted as placement agent for us in this offering. As compensation for its services, we paid Forge a cash commission of $1,250 and issued its designees five year warrants to purchase 4,169 shares of our common stock with an exercise price of $0.30 share, which are exercisable on a cashless basis. We used the net proceeds for general working capital.
On December 22, 2011, the Company entered into an employment agreement with its Chief Financial Officer. As part of the agreement the Company issued 333,334 shares of the Company’s restricted common stock, granted under the 2010 Equity Compensation Plan. The shares were valued at $120,000, the fair market value at the date of grant for the Company’s common stock as reported on the OTC Bulletin Board. As of December 31, 2012, all 333,334 of the shares vested and the Company recognized $30,000 in compensation expense related to these shares during the three months ended December 31, 2012 and $60,000 in compensation expense related to these shares during the six months ended December 31, 2012.
On December 31, 2011, the Company issued 203,125 shares of our common stock to satisfy accrued interest of $60,937 to the three noteholders of the 12% convertible promissory notes (Note 7).
On January 3, 2012 the Company entered into a consulting agreement with Wall Street Grand, LLC (“WSG”) to provide financial marketing consulting services for a period of three months starting January 15, 2012. The Company paid WSG $50,000 and issued 666,667 shares of common stock valued at $260,000, the fair market value on the date of issuance.
On January 17, 2012, one of the noteholders of the 12% convertible promissory notes converted $50,000 plus accrued interest of $263 into 167,544 shares of common stock (Note 8).
On November 15, 2012 the Company entered into a consulting agreement with Investor Awareness, Inc. (“InvA”) to provide financial public relations services for a period of twelve months starting November 15, 2012. The compensation to InvA is $4,000 per month for the first three months and $5,000 per month thereafter plus 60,000 restricted shares of our common stock for each 3 month period, beginning November 15, 2012. We issued 60,000 shares of our common stock on November 15, 2012 valued at $2,400, the fair market value, based on quoted trading price on the date of issuance and is being accounted for in accordance with ASC 505-50. This agreement can be terminated with a 30 day notice after six months.
On December 31, 2012, the Company issued 200,000 shares of our common stock to satisfy accrued interest of $60,000 to the three noteholders of the 12% convertible promissory notes (Note 7).
Preferred stock
Our Board of Directors, without further stockholder approval, may issue preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series. The rights, preferences, limitations and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and other matters. Our Board of Directors may authorize the issuance of preferred stock, which ranks senior to our common stock for the payment of dividends and the distribution of assets on liquidation. In addition, our Board of Directors can fix limitations and restrictions, if any, upon the payment of dividends on our common stock to be effective while any shares of preferred stock are outstanding. The rights granted to the holders of any series of preferred stock could adversely affect the voting power of the holders of common stock and issuance of preferred stock may delay, defer or prevent a change in our control.
Common Stock Purchase Warrants
Warrants Included in the 2010 Unit Offering
In October 2010, we closed the sale of 5,250,000 units of our securities which resulted in gross proceeds to us of $525,000. The securities issued in this 2010 unit offering included Series A Warrants to purchase 1,750,010 shares of our common stock and Series B Warrants to purchase 1,750,010 shares of our common stock. Each Series A Warrant is exercisable into one share of common stock for three years from issuance at an exercise price of $0.45 per share. Each Series B Warrant is exercisable into one share of common stock for three years from issuance at an exercise price of $0.75 per share. The Series B Warrant is not exercisable by the holder unless the Series A Warrant has previously been exercised. Upon 30 days’ notice, we have the right to call any series of warrants at $0.01 per warrant at any time that the average 20-day last sale price exceeds 200% of the respective warrant exercise price. Other than the exercise price and call provisions of each series of warrant, and the restriction on the exercisability of the Series B Warrant, all other terms and conditions of the warrants are the same. As partial compensation for the placement agent services in this offering, we issued to the designees of Forge 175,003 Series A Warrants and 175,003 Series B Warrants to purchase shares of our common stock at an exercise price of $0.45 and $0.75 per share, respectively, exercisable on a cashless basis. The exercise price of the warrants and the number of shares of our common stock issuable upon the exercise of the warrants, sold to investor or provided to designees of Forge, are subject to proportional adjustment for stock splits, dividends and similar corporate events.
Warrants Included in the 2011 Note Offering
In connection with the 12% convertible promissory notes offering, we issued the purchasers Series C Warrants to purchase an aggregate of 733,335 shares of our common stock at an exercise price of $0.45 per share for three years from the date of issuance. The exercise price of the Series C warrant is subject to adjustment in the event of stock splits, dividends, recapitalizations and similar corporate events. As partial compensation for the placement agent services, we issued its designees of Forge Series C warrants exercisable at $0.45 per share into 73,335 shares of our common stock, exercisable on a cashless basis. The exercise price of the warrants and the number of shares of our common stock issuable upon the exercise of the warrants, sold to investor or provided to designees of Forge, are subject to proportional adjustment for stock splits, dividends and similar corporate events.
The Company used the Black-Scholes option pricing model to value the warrants included in the note offering. Included in the assumptions of this calculation, the Company used a risk-free rate of 0.85% (based on the US Treasury note yield), five year maturity, volatility of 84.0% (based on the daily historical performance of a comparable Company’s stock over two years from the commitment date), and a strike price of $0.30 and $0.45, respectively.
Warrants Included in 2011 Unit Offering
In March 2011, we closed the sale of 125,000 units of our securities which resulted in gross proceeds to us of $12,500. The securities issued in this 2011 unit offering included Series D Warrants to purchase 41,667 shares of our common stock and Series E Warrants to purchase 41,667 shares of our common stock. Each Series D Warrant is exercisable into one share of common stock for three years from issuance at an exercise price of $0.45 per share. Each Series E Warrant is exercisable into one share of common stock for three years from issuance at an exercise price of $0.75 per share. The Series E Warrant is not exercisable by the holder unless the Series D Warrant has previously been exercised. Upon 30 days’ notice, we have the right to call any series of warrants at $0.01 per warrant at any time that the average 20-day last sale price exceeds 200% of the respective warrant exercise price. Other than the exercise price and call provisions of each series of warrant, and the restriction on the exercisability of the Series E Warrant, all other terms and conditions of the warrants are the same. As partial compensation for the placement agent services in this offering, we issued to the designees of Forge 4,169 Series D Warrants with an exercise price of $0.45 per share and 4,169 Series E Warrants with an exercise price of $0.75 per share, which are exercisable on a cashless basis. The exercise price of the warrants and the number of shares of our common stock issuable upon the exercise of the warrants, sold to investor or provided to designees of Forge, are subject to proportional adjustment for stock splits, dividends and similar corporate events.
The Company currently has 5,110,876 warrants that can be exercised for shares of our common stock outstanding.
|
|
|
|
|
Range of
|
|
|
Weighted Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Exercise Price
|
|
Outstanding at June 30, 2012
|
|
|
5,110,876
|
|
|
$
|
.30 to $.75
|
|
|
$
|
0.56
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
5,110,876
|
|
|
$
|
.30 to $.75
|
|
|
$
|
0.56
|
|
In accordance with ASC 470, the Company is amortizing the deferred financing costs over the two year term of the note. For the six months ending December 31, 2012 and 2011, the Company had recognized $26,053 and $26,056 of interest expense, respectively, resulting in a carrying value of $1,933 and $27,986 at December 31, 2012 and June 30, 2012, respectively.
NOTE 10. STOCK OPTIONS AND WARRANTS.
Stock Option Plans
2010 Equity Compensation Plan
On June 28, 2010, our Board of Directors authorized our 2010 Equity Compensation Plan covering 12,000,000 shares of common stock. The plan was approved by our stockholders on June 28, 2010.
The purpose of the plan is to enable us to offer to our employees, officers, directors and consultants whose past, present and/or potential contributions to our company have been or will be important to our success, an opportunity to acquire a proprietary interest in our company. The 2010 Equity Compensation Plan is administered by our Board of Directors.
Plan options may either be (i) incentive stock options (ISOs), (ii) non-qualified options (NSOs), (iii) awards of our common stock or (iv) rights to make direct purchases of our common stock which may be subject to certain restrictions. Any option granted under the 2010 Equity Compensation Plan must provide for an exercise price of not less than 100% of the fair market value of the underlying shares on the date of grant, but the exercise price of any ISO granted to an eligible employee owning more than 10% of our outstanding common stock must not be less than 110% of fair market value on the date of the grant. The plan further provides that with respect to ISOs the aggregate fair market value of the common stock underlying the options which are exercisable by any option holder during any calendar year cannot exceed $100,000. The term of each plan option and the manner in which it
may be exercised is determined by the Board of Directors or the compensation committee, provided that no option may be exercisable more than 10 years after the date of its grant and, in the case of an incentive option granted to an eligible employee owning more than 10% of the common stock, no more than five years after the date of the grant. In the event of any stock split of our outstanding common stock, the Board of Directors in its discretion may elect to maintain the stated amount of shares reserved under the plan without giving effect to such stock split. Subject to the limitation on the aggregate number of shares issuable under the plan, there is no maximum or minimum number of shares as to which a stock grant or plan option may be granted.
On December 20, 2011, the Company issued 1,941,670 non-qualified five year options, and 401,668 five year incentive stock options under the 2010 equity compensation plan. The options were issued at $0.30 the fair market value at the date of grant. The Company used the Black-Scholes option pricing model to value the stock options. Included in the assumptions of this calculation, the Company used a risk-free rate of 0.88% (based on the US Treasury note yield), five year maturity, volatility of 84.0% (based on the daily historical performance of a comparable Company’s stock), and a strike price of $0.30.
On December 22, 2011, the Company hired its Chief Financial Officer. As part of the agreement the Company granted to her under its 2010 Equity Compensation Plan incentive stock options to purchase an aggregate of 550,000 shares of the Company’s common stock at an exercise price of $0.36, vesting as follows: options to purchase 183,334 shares vested on December 22, 2011, options to purchase an additional 183,333 shares vest on December 22, 2012; and options to purchase the remaining 183,333 shares vest on December 22, 2013. The Company used the Black-Scholes option pricing model to value the stock options. Included in the assumptions of this calculation, the Company used a risk-free rate of 0.91%, (based on the US Treasury note yield), five year maturity, volatility of 84.0% (based on the daily historical performance of a comparable Company’s stock), and a strike price of $0.36.
On March 7, 2012, the Company entered into an employment agreement with its Chief Financial Officer. As part of the agreement the Company granted to her under its 2010 Equity Compensation Plan incentive stock options to purchase an aggregate of 666,667 shares of the Company’s common stock at an exercise price of $0.15 , vesting as follows: options to purchase 166,667 shares vested on March 7, 2013, options to purchase an additional 166,667 shares vest on March 7, 2014; options to purchase an additional 166,667 shares vest on March 7, 2015; and options to purchase the remaining 166,666 shares vest on March 7, 2016. The Company used the Black-Scholes option pricing model to value the stock options. Included in the assumptions of this calculation, the Company used a risk-free rate of 0.85%, (based on the US Treasury note yield), five year maturity, volatility of 84.0% (based on the daily historical performance of a comparable Company’s stock), and a strike price of $0.15.
|
|
|
|
|
Range of
|
|
|
Weighted Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Exercise Price
|
|
Outstanding at June 30, 2012
|
|
|
3,503,339
|
|
|
$
|
.15 to $.36
|
|
|
$
|
0.28
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
(16,666
|
)
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
Outstanding at December 31, 2012
|
|
|
3,486,673
|
|
|
$
|
.15 to $.36
|
|
|
$
|
0.28
|
|
For the three months ending December 31, 2012 and 2011, total stock-based compensation was $80,472 and $259,020, respectively. For the six months ending December 31, 2012 and 2011, total stock-based compensation was $161,274 and $259,020, respectively. The stock based compensation represents both options and common stock issuances issued under the plan, as described above.
NOTE 11. SUBSEQUENT EVENTS.
On January 24, 2013, the Company took possession of a new warehouse facility. In December, 2012, the Company entered into a lease with an unrelated third party for our new facility in Tampa, Florida which is approximately 30,050 square feet of warehouse space. Under the terms of this 38 month lease, our annual base rental ranges from $101,000 to $107,000, and we are responsible for our proportional share of common area maintenance costs, taxes and insurance estimated to be approximately $3,500 per month. The lease expires on March 31, 2016 and we have the right upon notice to renew the lease. We paid the $60,000 security deposit through a letter of credit. Providing there have been no defaults under the lease, the security deposit will be reduced by $20,000 on the last day of the first and second years of the lease term.