Document_and_Entity_Informatio
Document and Entity Information | 3 Months Ended | |
Dec. 31, 2014 | Feb. 09, 2015 | |
OptionsToPurchaseSharesOfCommonStockMember | ||
Entity Registrant Name | LIVEDEAL INC | |
Entity Central Index Key | 1045742 | |
Document Type | 10-Q | |
Document Period End Date | 31-Dec-14 | |
Amendment Flag | FALSE | |
Current Fiscal Year End Date | -21 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 15,993,477 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2015 |
CONDENSED_CONSOLIDATED_BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) | Dec. 31, 2014 | Sep. 30, 2014 |
Assets | ||
Cash and cash equivalents | $6,516,211 | $8,114,682 |
Accounts receivable, net | 1,408,474 | 854,583 |
Inventory | 3,603,288 | 4,277,145 |
Prepaid expenses and other current assets | 508,101 | 583,647 |
Total current assets | 12,036,074 | 13,830,057 |
Property and equipment, net | 166,390 | 153,114 |
Deposits and other assets | 64,896 | 65,161 |
Intangible assets, net | 4,442,924 | 3,071,210 |
Goodwill | 1,169,904 | 1,169,904 |
Total assets | 17,880,188 | 18,289,446 |
Liabilities and Stockholders' Equity | ||
Accounts payable | 1,164,090 | 2,282,887 |
Accrued liabilities | 2,737,966 | 1,046,030 |
Derivative liability | 0 | 83,580 |
Note payable, net of debt discount | 277,252 | 920,360 |
Total current liabilities | 4,179,308 | 4,332,857 |
Long-term loans | 634,229 | 638,969 |
Commitments and contingencies | 243,000 | 251,000 |
Total Liabilities | 5,056,537 | 5,222,826 |
Stockholders' equity: | ||
Series E convertible preferred stock, $0.001 par value, 200,000 shares authorized, 127,840 shares issued and outstanding at December 31, 2014 and September 30, 2014, liquidation preference $38,203 | 10,866 | 10,866 |
Common stock, $0.001 par value, 30,000,000 shares authorized, 15,984,378 and 14,525,248 shares issued and outstanding at December 31, 2014 and September 30, 2014, respectively | 15,990 | 14,531 |
Paid in capital | 49,741,665 | 45,038,176 |
Accumulated deficit | -36,944,870 | -31,996,953 |
Total stockholders' equity | 12,823,651 | 13,066,620 |
Total liabilities and stockholders' equity | $17,880,188 | $18,289,446 |
CONDENSED_CONSOLIDATED_BALANCE1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Dec. 31, 2014 | Sep. 30, 2014 |
Stockholders' equity: | ||
Series E convertible preferred stock, par value | $0.00 | $0.00 |
Series E convertible preferred stock, shares authorized | 200,000 | 200,000 |
Series E convertible preferred stock, issued | 127,840 | 127,840 |
Series E convertible preferred stock, outstanding | 127,840 | 127,840 |
Series E convertible preferred stock, liquidation preference | $38,203 | $38,203 |
Common stock, par value | $0.00 | $0.00 |
Common stock, shares authorized | 30,000,000 | 30,000,000 |
Common stock, shares issued | 15,984,378 | 14,525,248 |
Common stock, shares outstanding | 15,984,378 | 14,525,248 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | 3 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Income Statement [Abstract] | ||
Revenues | $8,007,052 | $593,458 |
Cost of revenues | 4,770,096 | 121,329 |
Gross profit | 3,236,956 | 472,129 |
Operating expenses: | ||
General and administrative expenses | 1,917,368 | 870,699 |
Sales and marketing expenses | 2,187,477 | 27,072 |
Total operating expenses | 4,104,845 | 897,771 |
Operating loss | -867,889 | -425,642 |
Other expense: | ||
Interest expense, net | -4,191,630 | -516 |
Other income | 28,505 | 18,000 |
Gain on deriative liability | 83,580 | 0 |
Total other expense, net | -4,079,545 | 17,484 |
Net loss | ($4,947,434) | ($408,158) |
Loss per share - basic and diluted | ($0.33) | ($0.04) |
Weighted average common shares outstanding - Basic and diluted | 15,111,162 | 10,735,676 |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 3 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
OPERATING ACTIVITIES: | ||
Net loss | ($4,947,434) | ($408,158) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 164,522 | 104,710 |
Non-cash interest expense associated with convertible debt and warrants | 2,187,563 | 0 |
Non-cash interest expense associated with loan fees | 2,004,202 | 0 |
Non-cash change in fair value of derivative liability | -83,580 | 0 |
Stock based compensation expense | 29,390 | 65,875 |
Non-cash issuance of common stock for services | 82,127 | 22,506 |
Provision for uncollectible accounts | 1,700 | -24,072 |
Changes in assets and liabilities: | ||
Accounts receivable | -555,591 | 58,426 |
Prepaid expenses and other current assets | 75,546 | -14,041 |
Inventory | 673,857 | 0 |
Deposits and other assets | 265 | 0 |
Accounts payable | -1,118,797 | -8,947 |
Accrued liabilities | 183,453 | -39,462 |
Net cash used in operating activities | -1,302,777 | -243,163 |
INVESTING ACTIVITIES: | ||
Expenditures for intangible assets | -20,714 | -563 |
Purchases of property and equipment | -28,798 | -6,167 |
Net cash used in investing activities | -49,512 | -6,730 |
FINANCING ACTIVITIES: | ||
Payments on notes payable | -346,182 | 0 |
Proceeds from issuance of convertible debt | 100,000 | 0 |
Net cash used in financing activities | -246,182 | 0 |
DECREASE IN CASH AND CASH EQUIVALENTS | -1,598,471 | -249,893 |
CASH AND CASH EQUIVALENTS, beginning of period | 8,114,682 | 761,458 |
CASH AND CASH EQUIVALENTS, end of period | 6,516,211 | 511,565 |
Supplemental cash flow disclosures: | ||
Interest paid | 16,612 | 686 |
Income taxes paid | 0 | 0 |
Noncash financing and investing activities: | ||
Recognition of contingent beneficial conversion feature | 100,000 | 0 |
Conversion of notes payable and accrued interest into common stock | 635,756 | 0 |
Accrued and unpaid dividends | $483 | $480 |
1_Organization_and_Basis_of_Pr
1. Organization and Basis of Presentation | 3 Months Ended |
Dec. 31, 2014 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Basis of Presentation | The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of LiveDeal, Inc. (formerly, “YP Corp.”), a Nevada corporation, and its wholly owned subsidiaries (collectively the “Company”). The Company provides specialized online marketing solutions to small-to-medium sized local businesses, or SMBs, that boost customer awareness and merchant visibility. The Company offers affordable tools for SMBs to extend their marketing reach to relevant prospective customers via the internet. The Company also provides SMBs promotional marketing with the ability to offer special deals and activities through LiveDeal.com, mobile applications for iOS and Android users and our online publishing partners. |
The accompanying unaudited Condensed Consolidated Balance Sheet as of December 31, 2014, which has been derived from our audited Consolidated Financial Statements, and the accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for audited financial statements. In the opinion of the Company’s management, this interim information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results of operations for the three months ended December 31, 2014 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2015. The accompanying note disclosures related to the interim financial information included herein are also unaudited. This financial information should be read in conjunction with the consolidated financial statements and related notes thereto as of September 30, 2014 and for the fiscal year then ended included in the Company’s Annual Report on Form 10-K filed with the SEC on December 29, 2014. | |
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Significant estimates and assumptions have been made by management throughout the preparation of the condensed consolidated financial statements, including in conjunction with establishing allowances for customer refunds, non-paying customers, dilution and fees, analyzing the recoverability of the carrying amount of intangible assets, evaluating the merits of pending litigation, estimating forfeitures of stock-based compensation, valuing beneficial conversion features in convertible debt, and evaluating the recoverability of deferred tax assets. Actual results could differ from these estimates. | |
The Company incurred a net loss of $4.9 million for the three months ended December 31, 2014. The Company had an operating cash outflow of approximately $(1.3) million for the three months ended December 31, 2014. The Company was sold shares of its common stock during the year ended September 30, 2014 for $13.7 million. The Company had cash of $6.5 million as of December 31, 2014. Management believes the Company’s cash on hand and additional cash generated from operations together with potential sources of cash such through the issuance of debt or equity will provide the Company with sufficient liquidity for the next 12 months. | |
While the Company believes that its existing cash on hand is sufficient to finance its operations for the next twelve months, there can be no assurance that the Company will be profitable or generate positive operating cash flows in the near future. To the extent that the Company cannot achieve profitability or positive operating cash flows, its business will be materially and adversely affected. Further, the Company’s business is likely to experience significant volatility in its revenues, operating losses, personnel involved, products or services for sale, and other business parameters, as management implements and revises its strategies and responds to operating results and market conditions. | |
All data for common stock, options and warrants have been adjusted to reflect the 3-for-1 forward stock split (which took effect on February 11, 2014) for all periods presented. In addition, all common stock prices, and per share data for all periods presented have been adjusted to reflect the 3-for-1 forward stock split. |
2_Summary_of_Significant_Accou
2. Summary of Significant Accounting Policies | 3 Months Ended | ||
Dec. 31, 2014 | |||
Accounting Policies [Abstract] | |||
Summary of Significant Accounting Policies | Principles of Consolidation | ||
The accompanying consolidated financial statements represent the consolidated financial position and results of operations of the Company and include the accounts and results of operations of the Company, Local Marketing Experts, Inc., Velocity Marketing Concepts, Inc., 247 Marketing Inc., Telco Billing, Inc., Telco of Canada, Inc., Velocity Local Inc., Modern Everyday, Inc. and its wholly owned subsidiaries, Modern Everyday, LLC and Super Nova, LLC, Live Goods, LLC and its wholly owned subsidiary, DealTicker, Inc.. The results of operations for Live Goods, LLC DealTicker, Inc. and Modern Everyday, Inc. have only been included since the date of acquisition of March 7, 2014, May 5, 2014 and August 24, 2014, respectively. All intercompany transactions and balances have been eliminated in consolidation. | |||
Revenue Recognition | |||
Directory Services | |||
Revenue is billed and recognized monthly for services subscribed in that specific month. The Company has historically utilized outside billing companies to perform billing services through two primary channels: | |||
· | direct ACH withdrawals; and | ||
· | inclusion on the customer’s local telephone bill provided by their Local Exchange Carriers, or LECs. | ||
For billings via ACH withdrawals, revenue is recognized when such billings are accepted. For billings via LECs, the Company recognizes revenue based on net billings accepted by the LECs. Due to the periods of time for which adjustments may be reported by the LECs and the billing companies, the Company estimates and accrues for dilution and fees reported subsequent to year-end for initial billings related to services provided for periods within the fiscal year. Such dilution and fees are reported in cost of services in the accompanying consolidated statements of operations. Customer refunds are recorded as an offset to gross revenue. | |||
Revenue for billings to certain customers that are billed directly by the Company and not through the outside billing companies is recognized based on estimated future collections. The Company continuously reviews this estimate for reasonableness based on its collection experience. | |||
Deals Revenue | |||
The Company recognizes revenue from its sales through its strategic publishing partners of discounted goods and services offered by its merchant clients (“Deals”) when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured. These criteria are met when the number of customers who purchase the daily deal exceeds the predetermined threshold, where, if applicable, the Deal has been electronically delivered to the purchaser and a listing of Deals sold has been made available to the merchant. At that time, the Company's obligations to the merchant, for which it is serving as an agent, are substantially complete. The Company's remaining obligations, which are limited to remitting payment to the merchant, are inconsequential or perfunctory. The Company records as revenue an amount equal to the net amount it retains from the sale of Deals after paying an agreed upon percentage of the purchase price to the featured merchant excluding any applicable taxes. Revenue is recorded on a net basis because the Company is acting as an agent of the merchant in the transaction. | |||
Deferred Revenue | |||
In some instances, the Company receives payments in advance of rendering services, whereupon such revenues are deferred until the related services are rendered. | |||
Product Revenue | |||
The Company derives product revenue primarily from direct revenue and fulfillment partner revenue from product sales Product revenue is recognized when the following revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or the service has been provided; (3) the selling price or fee revenue earned is fixed or determinable; and (4) collection of the resulting receivable is reasonably assured. Revenue related to product sales is recognized when the above four criteria are met. | |||
The Company evaluates the criteria outlined in ASC Topic 605-45, Principal Agent Considerations, in determining whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. When the Company is the primary obligor in a transaction, is subject to inventory risk, has latitude in establishing prices and selects suppliers, or has several but not all of these indicators, revenue is recorded gross. If the Company is not the primary obligor in the transaction and amounts earned are determined using a fixed percentage, revenue is recorded on a net basis. Currently, all direct revenue and fulfillment partner revenue is recorded on a gross basis, as the Company is the primary obligor. The Company presents revenue net of sales taxes. | |||
Inventory | |||
Inventory is valued at the lower of the inventory’s cost (first in, first out basis) or the current market price of the inventory. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower. All inventory at December 31, 2014 consists of finished goods inventory. At December 31, 2014 and September 30, 2014, the allowance for obsolete inventory was $347,196 and $252,569, respectively. | |||
Segment Reporting | |||
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company determined it has two reportable segments. | |||
Derivative Financial Instruments | |||
The Company evaluates all of its agreements to determine if such instruments have 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 weighted average 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 12 months of the balance sheet date. | |||
Recently Issued Accounting Pronouncements | |||
FASB Accounting Standards Update No. 2014-08 | |||
In April 2014, the FASB issued ASU 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360)." ASU 2014-08 amends the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations or that have a major effect on the Company's operations and financial results should be presented as discontinued operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014. The Company is currently evaluating the impact of adopting ASU 2014-08 on the Company's results of consolidated operations or consolidated financial condition. | |||
FASB Accounting Standards Update No. 2014-09 | |||
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is not permitted. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard beginning January 1, 2017. | |||
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements. |
3_Balance_Sheet_Information
3. Balance Sheet Information | 3 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||
Balance Sheet Information | Balance sheet information is as follows: | ||||||||
December 31, | September 30, | ||||||||
2014 | 2014 | ||||||||
(unaudited) | |||||||||
Receivables, current, net: | |||||||||
Accounts receivable, current | $ | 2,166,541 | $ | 1,611,269 | |||||
Less: Allowance for doubtful accounts | (758,067 | ) | (756,686 | ) | |||||
$ | 1,408,474 | $ | 854,583 | ||||||
Receivables, long term, net: | |||||||||
Accounts receivable, long term | $ | 344,572 | $ | 344,572 | |||||
Less: Allowance for doubtful accounts | (344,572 | ) | (344,572 | ) | |||||
$ | – | $ | – | ||||||
Total receivables, net: | |||||||||
Gross receivables | $ | 2,511,113 | $ | 1,955,841 | |||||
Less: Allowance for doubtful accounts | (1,102,639 | ) | (1,101,258 | ) | |||||
$ | 1,408,474 | $ | 854,583 | ||||||
Components of allowance for doubtful accounts are as follows: | |||||||||
Allowance for dilution and fees on amounts due from billing aggregators | $ | 1,063,617 | $ | 1,063,633 | |||||
Allowance for customer refunds | 2,126 | 2,107 | |||||||
Allowance for other trade receivables | 36,896 | 35,518 | |||||||
$ | 1,102,639 | $ | 1,101,258 | ||||||
Property and equipment, net: | |||||||||
Furnishings and fixtures | $ | 169,013 | $ | 162,642 | |||||
Office, computer equipment and other | 213,346 | 192,063 | |||||||
382,359 | 354,705 | ||||||||
Less: Accumulated depreciation | (215,969 | ) | (201,591 | ) | |||||
$ | 166,390 | $ | 153,114 | ||||||
Intangible assets, net: | |||||||||
Domain name and marketing related intangibles | $ | 1,521,015 | $ | 1,521,015 | |||||
Website and technology related intangibles | 2,859,803 | 2,863,509 | |||||||
Software | 1,500,000 | – | |||||||
Covenant not to compete | 120,000 | 120,000 | |||||||
6,000,818 | 4,504,524 | ||||||||
Less: Accumulated amortization | (1,557,894 | ) | (1,433,314 | ) | |||||
$ | 4,442,924 | $ | 3,071,210 | ||||||
Accrued liabilities: | |||||||||
Accrued payroll and bonuses | $ | 104,623 | $ | 107,224 | |||||
Accruals under revenue sharing agreements | 688 | 688 | |||||||
Deferred revenue | 641,915 | 548,004 | |||||||
Accrued software costs | 1,500,000 | – | |||||||
Accrued expenses - other | 490,740 | 390,114 | |||||||
$ | 2,737,966 | $ | 1,046,030 | ||||||
4_Intangible_Assets
4. Intangible Assets | 3 Months Ended | |||||
Dec. 31, 2014 | ||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ||||||
Intangible Assets | The Company’s intangible assets consist of licenses for the use of Internet domain names, Universal Resource Locators, or URLs, capitalized website development costs, other information technology licenses, software, a covenant not to compete, and marketing and technology related intangibles acquired through the acquisition of LiveDeal, Inc. In addition as a result of the acquisition of MEI, the Company recorded goodwill of $1,169,904. All such assets are capitalized at their original cost and amortized over their estimated useful lives as follows: domain name and marketing - 3 to 20 years; website and technology - 3 to 5 years; software -- 5 years, and covenant not to compete – 4 years. Goodwill is not amortized, but evaluated for impairment on at least an annual basis. | |||||
During the three months ended December 31, 2014, the Company purchased software for $1,500,000. The Company has the option to pay for the software in cash or in shares of the Company’s common stock during the six month period after acquiring the software. At December 31, 2014, the Company had not made any payments towards the purchase of this software and has reflected the $1,500,000 purchase price for the software in accrued liabilities in the accompanying condensed consolidated balance sheet. | ||||||
The following summarizes estimated future amortization expense related to intangible assets that have net balances as of December 31, 2014: | ||||||
2015 | $ | 629,354 | ||||
2016 | 796,100 | |||||
2017 | 731,280 | |||||
2018 | 560,830 | |||||
2019 | 522,465 | |||||
Thereafter | 1,202,895 | |||||
$ | 4,442,924 | |||||
Total amortization expense related to intangible assets was $149,000 and $95,867 for the three months ended December 31, 2014 and 2013, respectively. | ||||||
5_Debt
5. Debt | 3 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Debt Disclosure [Abstract] | |||||||||
Debt | ICG Convertible Note Transaction | ||||||||
On April 3, 2012 (“Closing Date”), the Company entered into a Note Purchase Agreement (the “ ICG Purchase Agreement”) with Isaac Capital Group, LLC (“ICG”), a related party, pursuant to which ICG agreed to purchase for cash up to $2,000,000 in aggregate principal amount of the Company’s unsecured Subordinated Convertible Notes (“Notes”). ICG is owned by Jon Isaac, the Company’s President and Chief Executive Officer and a director on the Company’s Board. Prior to this transaction, Mr. Isaac owned 1,209,675 shares, or 16.8% of the Company’s outstanding common stock. The ICG Purchase Agreement and the Notes, which are unsecured, provide that all amounts payable by the Company to ICG under the Notes were due and payable on April 3, 2013 (“Maturity Date”), provided that the Company had the option in its discretion to extend the Maturity Date by up to one (1) year if no Event of Default (as defined in the ICG Purchase Agreement) had occurred and was continuing, and the Company is in material compliance with its agreements and covenants under the Purchase Agreement and the Notes, as of the Maturity Date. The Company exercised such option prior to the Maturity Date. | |||||||||
Effective as of April 3, 2012, the Company and ICG amended the ICG Purchase Agreement to clarify ambiguities related to the warrant issuance timing and the conversion price of a Note, and to amend various anti-dilution features. These changes were consistent with the intent of the parties at the time they entered into the ICG Purchase Agreement and are consistent with the Company’s past practices related to the Notes and warrants. In particular, the amendment clarifies that the warrants will be issued upon conversion (rather than upon issuance) of the Notes and provides that the conversion price of a Note shall be based upon a floor price of $0.33 per share, regardless if the Company’s stock is trading below that amount at the time ICG elects to convert a Note. | |||||||||
The ICG Purchase Agreement and the Notes, as amended, provided that: | |||||||||
· | The Notes accrued interest at an annual interest rate equal to 8%. All interest was payable on the Maturity Date or upon the conversion of the applicable Note. | ||||||||
· | The Company had the option to prepay each Note, in whole or in part, at any time without premium or penalty. | ||||||||
· | If ICG elected to convert all or any portion of any Note, the Company must issue to ICG on the date of the conversion a warrant (“Contingent Warrant”) to purchase a number of shares of the Company’s common stock equal to the number of shares issuable upon conversion. This number of shares was subject to adjustment in the event of stock splits or combinations, stock dividends, certain pro rata distributions, and certain fundamental transactions. Each Contingent Warrant was exercisable for a period of five (5) years following the date of its issuance at an exercise price equal to 120% of the conversion price of the applicable Note (with the exercise price being subject to adjustment under the same conditions as the number of shares for which the warrant is exercisable.) The Contingent Warrants provided that they would be exercised in whole or in part and include a cashless exercise feature. | ||||||||
· | The Notes provided that, upon the occurrence of any Event of Default, all amounts payable to ICG would become immediately due and payable without any demand or notice. | ||||||||
· | The Company would issue additional Notes in an aggregate principal amount of up to $1,750,000 to ICG from time to time upon notice to ICG prior to April 3, 2013, provided that each Note must be in a principal amount of at least $100,000. | ||||||||
· | The Company: (i) was required to provide certain financial and other information to ICG from time to time; (ii) must maintain its corporate existence, business, assets, properties, insurance and records in accordance with the requirements set forth in the ICG Purchase Agreement; (iii) with certain exceptions, must not incur or suffer to exist any liens or other encumbrances with respect to the Company’s property or assets; (iv) must not make certain loans or investments, except in compliance with the terms of the ICG Purchase Agreement; and (v) must not enter into certain types of transactions, including dispositions of its assets or business. | ||||||||
The events of default (“Events of Default”) which trigger the acceleration of the Notes include (among other things): (i) the Company’s failure to make any payment required under the Notes when due (subject to a three-day cure period), (ii) the Company’s failure to comply with its covenants and agreements under the ICG Purchase Agreement, the Notes and any other transaction documents, and (iii) the occurrence of a change of control with respect to the Company. | |||||||||
The Company issued an initial Note in the principal amount of $250,000 to ICG (“Note No. 1”) on the Closing Date. Because the conversion price of $0.84 was less than the stock price, this gave rise to a beneficial conversion feature valued at $166,667. The Company recognized this beneficial conversion feature as a debt discount and additional paid in capital on the Closing Date. The discount to Note No. 1 is being amortized to interest expense until maturity or its earlier repayment or conversion. | |||||||||
As mentioned above, the ICG Purchase Agreement, as amended, contained contingent provisions for the adjustment of the conversion ratio and conversion price, and the issuance of Contingent Warrants upon conversion. | |||||||||
On September 10, 2012, ICG elected to convert Note No. 1 with a conversion price of $0.79 per share, resulting in the issuance of 327,417 shares. In accordance with the terms of the agreement, warrants to acquire 327,417 shares were issued upon conversion with an exercise price of ($0.79 x 120%) $0.95 per share. Upon conversion of Note No. 1, the remaining debt discount of $97,222 was immediately recognized as interest expense. The fair value of the warrants issued in connection with the debt conversion of Note No. 1 was $322,927 and was immediately recognized as interest expense. | |||||||||
On December 11, 2012, the Company issued a second Note to ICG in the principal amount of $250,000 (“Note No. 2”), pursuant to the ICG Purchase Agreement. Because the conversion price of $0.67 was less than the stock price, this gave rise to a beneficial conversion feature valued at $200,738. The Company recognized this beneficial conversion feature as a debt discount and additional paid in capital on December 11, 2012. On December 17, 2012, ICG elected to convert Note No. 2, resulting in the issuance of 371,487 shares of the Company’s common stock and a warrant to acquire 371,487 additional shares of the Company’s common stock at an exercise price of $0.81 per share. Upon conversion of the Note No. 2, the remaining debt discount of $196,556 was immediately recognized as interest expense. The fair value of the warrants issued in connection with the conversion of Note No. 2 was $550,016 and was immediately recognized as interest expense. | |||||||||
On March 22, 2013 and March 25, 2013, the Company issued a third and fourth Note to ICG in the principal amount of $500,000 (“Note No. 3”) and $250,000 (“Note No. 4”), respectively, pursuant to the ICG Purchase Agreement. Because the conversion price of $0.46 was less than the stock price, this gave rise to beneficial conversion features valued at $401,386. The Company recognized this beneficial conversion feature as a debt discount and additional paid in capital on March 25, 2013. On March 27, 2013, ICG elected to convert Note Nos. 3 and 4, resulting in the issuance of 1,631,886 shares of the Company’s common stock and a warrant to acquire 1,631,886 additional shares of the Company’s common stock at an exercise price of $0.55 per share. Upon conversion of Note Nos. 3 and 4, the remaining debt discount of $396,977 was immediately recognized as interest expense. The fair value of the warrants issued in connection with the conversion of Note Nos. 3 and 4 was $1,299,884 and was immediately recognized as interest expense. | |||||||||
On March 28, 2013, the Company issued a fifth Note to ICG in the principal amount of $250,000 (“Note No. 5”), pursuant to the ICG Purchase Agreement. Because the conversion price of $0.47 was less than the stock price, this gave rise to a beneficial conversion feature valued at $250,000. The Company recognized this beneficial conversion feature as a debt discount and additional paid in capital on March 28, 2013. On March 28, 2013, ICG elected to convert Note No. 5, resulting in the issuance of 535,716 additional shares of the Company’s common stock and a warrant to acquire 535,716 shares at an exercise price of $0.56 per share. Upon conversion of Note No. 5, the debt discount of 250,000 was immediately recognized as interest expense. The fair value of the warrants issued in connection with the conversion of Note No. 5 was $589,442 and was immediately recognized as interest expense. | |||||||||
On January 23, 2014, the Company issued a Note to ICG in the principal amount of $500,000 (“Note No. 6”). Because the conversion price of $2.29 was less than the stock price, this gave rise to a beneficial conversion feature valued at $500,000. The Company recognized this beneficial conversion feature as a debt discount and additional paid in capital. The debt discount is being amortized over the one year term. On December 3, 2014, ICG converted Note No. 6 into 674,370 shares of common stock, therefore the remaining debt discount of $158,219 was written off and recognized as interest expense. In addition, upon the conversion of Note No. 6, the Company issued to ICG a warrant to acquire 674,370 additional shares of the Company’s common stock at an exercise price of $0.95 per share. The fair value of the warrants issued in connection with the conversion of note was $1,853,473 and was immediately recognized as interest expense. | |||||||||
Kingston Convertible Note Transaction ($10 Million Line of Credit) | |||||||||
On January 7, 2014, the Company entered into a Note Purchase Agreement (the “Kingston Purchase Agreement”) with Kingston Diversified Holdings LLC (“Kingston”), pursuant to which the Investor agreed to purchase for cash up to $5,000,000 in aggregate principal amount of the Company’s Convertible Notes (“Notes”). The Kingston Purchase Agreement and the Notes, which are unsecured, provide that all amounts payable by the Company to Kingston under the Notes will be due and payable on the second (2nd) anniversary of the date of the Kingston Purchase Agreement (the “Maturity Date”). | |||||||||
The Kingston Purchase Agreement and the Notes provide that: | |||||||||
— | Either the Company or Kingston will have the right to cause the sale and issuance of Notes pursuant to the Kingston Purchase Agreement, provided that NASDAQ’s approval of the Kingston Purchase Agreement and transactions contemplated thereby is a condition precedent to each party’s right to cause any borrowings to occur under the Kingston Purchase Agreement. | ||||||||
— | Each Note must be in a principal amount of at least $100,000. | ||||||||
— | The Notes are issuable at a 5% discount and will accrue interest at an annual interest rate equal to 8%. All interest will be payable on the Maturity Date or upon the conversion of the applicable Note. | ||||||||
— | The Company has the option to prepay each Note, in whole or in part, at any time without premium or penalty. | ||||||||
— | The Company or Kingston may elect at any time on or before the Maturity Date to convert the principal and accrued but unpaid interest due under any Note into shares of the Company’s common stock. The conversion price applicable to any such conversion will be an amount equal to 70% of the lesser of: (i) the closing bid price of the common stock on the date of the Kingston Purchase Agreement (i.e., $3.12 per share); or (ii) the 10-day volume weighted average closing bid price for the common stock, as listed on NASDAQ for the 10 business days immediately preceding the date of conversion (the “Average Price”); provided, however, that in no event will the Average Price per share be less than $0.33. For example, if the Average Price is $0.17 per share, then for purposes of calculating the conversion price, the Average Price per share would be $0.33 per share instead of $0.17 per share. | ||||||||
— | If either party elects to convert all or any portion of any Note, the Company must issue to Kingston on the date of the conversion a warrant (“Contingent Warrant”) to purchase a number of shares of the Company’s common stock equal to the number of shares issuable upon conversion. This number of shares is subject to adjustment in the event of stock splits or combinations, stock dividends, certain pro rata distributions, and certain fundamental transactions. Each Contingent Warrant will be exercisable for a period of five (5) years following the date of its issuance at an exercise price equal to 110% of the conversion price of the applicable Note (with the exercise price being subject to adjustment under the same conditions as the number of shares for which the warrant is exercisable.) The Contingent Warrants provide that they may be exercised in whole or in part and include a cashless exercise feature. | ||||||||
— | The Notes provide that, upon the occurrence of any Event of Default, all amounts payable to Kingston will become immediately due and payable without any demand or notice. The events of default (“Events of Default”) which trigger the acceleration of the Notes include (among other things): (i) the Company’s failure to make any payment required under the Notes when due (subject to a three-day cure period), (ii) the Company’s failure to comply with its covenants and agreements under the Purchase Agreement, the Notes and any other transaction documents, and (iii) the occurrence of a change of control with respect to the Company. | ||||||||
— | The Company (i) is required to provide certain financial and other information to Kingston from time to time, (ii) must maintain its corporate existence, business, assets, properties, insurance and records in accordance with the requirements set forth in the Kingston Purchase Agreement, (iii) with certain exceptions, must not incur or suffer to exist any liens or other encumbrances with respect to the Company’s property or assets, (iv) must not make certain loans or investments except in compliance with the terms of the Kingston Purchase Agreement, and (v) must not enter into certain types of transactions, including dispositions of its assets or business. | ||||||||
— | The Company agreed to use commercially reasonable efforts to obtain, as promptly as practicable, any approvals of the Company’s stockholders required under applicable law or NASDAQ Listing Rules in connection with the transactions contemplated by the Kingston Purchase Agreement. Unless and until any such stockholder approvals are obtained, in no event will Kingston be entitled to convert any Notes and/or exercise any Contingent Warrants to the extent that any such conversion or exercise would result in Kingston acquiring in such transactions a number of shares of the Company’s common stock exceeding 19.99% of the number of shares of common stock issued and outstanding immediately prior to the Company’s entry into the Kingston Purchase Agreement. | ||||||||
— | Kingston will be entitled to certain anti-dilution adjustments if the Company issues shares of its common stock at a lower price per share than the applicable conversion price for any Note(s) issued pursuant to the Kingston Purchase Agreement. If any such dilutive issuance occurs prior to the conversion of one or more Notes, the conversion price for such Note(s) will be adjusted downward pursuant to its terms (subject to a floor of $0.23 per share). If any such dilutive issuance occurs after the conversion of one or more Notes, Kingston will be entitled to be issued additional shares of common stock for no consideration, and to an adjustment of the exercise price payable under the applicable Contingent Warrant(s). With respect to each Note actually issued pursuant to the Kingston Purchase Agreement, Kinston’s anti-dilution rights will expire two (2) years following the date of issuance. | ||||||||
On October 29, 2014, the Company entered into an amended convertible note purchase agreement with Kingston whereby the Company and Kinston agreed to (i) increase the maximum principal amount of the notes from $5 million to $10 million in principal amount, (ii) eliminate the original issue discount provision of the Agreement and replaces it with an execution payment equal to 5% of the maximum loan amount, and (iii) provides certain additional adjustments to the note conversion price and to the warrant exercise price. | |||||||||
On October 16, 2014, the Company issued a Note to Kingston in the principal amount of $100,000. Because the conversion price of $0.79 was less than the stock price on the date of issuance, this gave rise to a beneficial conversion feature valued at $100,000. The Company recognized this beneficial conversion feature as a debt discount and additional paid in capital. The debt discount is being amortized over the one year term. On November 17, 2014, Kingston converted the note into 127,008 shares of common stock, therefore the debt discount of $100,000 was written off and recognized as interest expense. | |||||||||
In addition, as a result of the October 29, 2014 amendment, the Company was required to issue to Kingston, the original issue discount payment equal to 5% of the maximum loan in shares of the Company’s common stock based upon the conversion price of the first conversion which was $0.79 per shares. The issued 630,252 shares of common stock that had a fair value of $2,004,202 which was immediately recognized as interest expense. | |||||||||
February 2014 Convertible Note Transaction | |||||||||
On February 27, 2014, the Company issued a one year convertible note to an otherwise unaffiliated, non-institutional third party in the principal amount of $323,595. The note (i) is unsecured, (ii) bears interest at the rate of six percent per annum, and (iii) was issued without any original issue discount. | |||||||||
The principal is convertible into shares of the Company’s common stock at any time and from time-to-time at the instance of either the Company or the holder. The per-share conversion price is an amount equal to ninety percent (90%) of the 10-day volume weighted average closing bid price for the Company’s common stock, as reported by The NASDAQ Stock Market, Inc. for the ten (10) trading days immediately preceding the date of the notice of conversion, subject to downward adjustment in the event that the Company issues any securities at a price per share lower than the then-current conversion price; provided, however, that in no event shall the conversion price per share be less than $1.00. The Company provided the holder with certain negative covenants and events of default, each standard for transactions of this nature. | |||||||||
Due to the “reset” and “dilutive issuance” clause in this note relating to the conversion price from dilutive share issuance, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 6. | |||||||||
The Company determined an initial derivative liability value of $139,852, which is recorded as a derivative liability as of the date of issuance while also recording an $139,852 debt discount on its balance sheet in relation to the bifurcation of the embedded conversion options of the note. The debt discount is being amortized over the one year term. The note was repaid during the three months ended December 31, 2014, therefore the remaining unamortized debt discount of $57,665 was written off to interest expense. Also, as a result of the note being repaid, the derivative liability associated with this convertible note was reduced to $0. The Company recorded $83,580 of non-cash “change in fair value of derivative” income during the three months ended December 31, 2014. | |||||||||
Credit line | |||||||||
In connection with the purchase of Modern Everyday, Inc., the Company assumed a credit line from a bank. The credit line is collateralized by all the assets of Modern Everyday, Inc., accrues interest at prime plus 2% and is due on September 28, 2019. | |||||||||
Notes payable of Modern Everyday, Inc. | |||||||||
In connection with the purchase of Modern Everyday, Inc., the Company assumed certain notes payable. Subsequent to the closing of the acquisition, the Company repaid $582,348 of these notes payable. | |||||||||
Outstanding debt at December 31, 2014 consisted of the following: | |||||||||
December 31, | September 30, | ||||||||
2014 | 2014 | ||||||||
Note payable to individual, payable on demand, interest at 10.0% per annum, unsecured | $ | 91,361 | $ | 90,168 | |||||
Convertible note payable to individual, due February 27, 2015, interest at 6.0% per annum, unsecured | – | 335,245 | |||||||
Convertible note payable to ICG, due January 23, 2015, interest at 8.0% per annum, unsecured | – | 527,889 | |||||||
Acquisition note payable (See Note 17), $200,000 due February 28, 2015 and $400,000 due February 28, 2016, non-interest bearing with interest imputed at 2.87% per annum | 585,891 | 581,707 | |||||||
Credit line due 1/1/2024, with interest rate of 2.75% - Current Portion | 234,229 | 240,204 | |||||||
Less Debt Discount | – | (215,884 | ) | ||||||
Total Debt | 911,481 | 1,559,329 | |||||||
Current portion | 277,252 | 920,360 | |||||||
Long-term portion | $ | 634,229 | $ | 638,969 | |||||
6_Derivative_Liability
6. Derivative Liability | 3 Months Ended | ||||
Dec. 31, 2014 | |||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||
Derivative Liability | The February 2014 Convertible Note discussed in Note 5 has a reset provision and a dilutive issuance clause that gave rise to a derivative liability. | ||||
The fair value of the derivative liability is recorded and shown separately under current liabilities. Changes in the fair value of the derivative liability are recorded in the condensed consolidated statement of income under other income (expense). | |||||
The Company evaluates all of its agreements to determine if such instruments have 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 weighted average 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 12 months of the balance sheet date. | |||||
The following table represents the Company’s derivative liability activity for both the embedded conversion features for the three months ended December 31, 2014: | |||||
Derivative liability balance, September 30, 2014 | $ | 83,580 | |||
Issuance of derivative liability during the three months ended December 31, 2014 | – | ||||
Change in derivative liability during the three months ended December 31, 2014 | (83,580 | ) | |||
Derivative liability balance, December 31, 2014 | $ | – | |||
7_Equity
7. Equity | 3 Months Ended | ||
Dec. 31, 2014 | |||
Equity [Abstract] | |||
Equity | During the three months ended December 31, 2014, the Company issued: | ||
· | 27,500 shares of common stock for services rendered valued at $82,127. The value was based on the market value of the Company’s common stock on the date of issuance; | ||
· | 801,378 share of common stock for the conversion of convertible notes and accrued interest of $635,756; | ||
· | 630,252 shares of common stock as payment for the original issue discount fees associated with the Kingston agreement. The value of the shares of $2,004,202 was based on the market value of the Company’s common stock at the date of issuance. | ||
At-The-Market Offerings of Common Stock (Chardan Capital Markets LLC) | |||
On January 7, 2014, the Company entered into an Engagement Agreement (the “January 2014 Engagement Agreement”) with Chardan Capital Markets LLC (“Chardan”) pursuant to which the Company agreed to issue and sell up to a maximum aggregate amount of 1,980,000 shares of its common stock from time to time through Chardan as its sales agent, under its shelf Registration Statement on Form S-3 (File No. 333-187397) (the “First Registration Statement”) previously filed with the SEC. During the quarter that ended on March 31, 2014, the Company sold 2,214,612 shares of its common stock under the First Registration Statement, resulting in gross proceeds of $10,000,000, in an at-the-market offering, in which Chardan was its agent. The Company received net proceeds of $9,696,013. The Company paid Chardan a total commission of $299,882 pursuant to the January 2014 Engagement Agreement. | |||
On May 16, 2014, the Company entered into an Engagement Agreement (the “May 2014 Engagement Agreement”) with Chardan pursuant to which the Company may issue and sell up to a maximum aggregate amount of 10,000,000 shares of its common stock from time to time through Chardan as its sales agent, under its shelf Registration Statement on Form S-3 (File No. 333-193971) (the “Second Registration Statement”) previously filed with the SEC, pursuant to which any shares that are issued under the May 2014 Engagement Agreement will be sold. | |||
Upon delivery of a placement notice by the Company, and subject to the terms and conditions of the May 2014 Engagement Agreement, Chardan may sell the common stock by any method that is deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), including by means of ordinary brokers’ transactions at market prices on the NASDAQ Capital Market, in block transactions, through privately negotiated transactions, or as otherwise agreed by Chardan and the Company. Chardan will act as sales agent on a commercially reasonable efforts basis consistent with its normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of NASDAQ. | |||
The offering pursuant to the May 2014 Engagement Agreement will terminate upon the earlier of (i) the sale of all shares of common stock subject to the May 2014 Engagement Agreement, or (ii) termination of the May 2014 Engagement Agreement as permitted therein. The Engagement Agreement may be terminated by Chardan or us at any time upon 15 days’ written notice to the other party. | |||
The Company will pay Chardan a commission equal to up to 3% of the gross proceeds from the sale of the common stock sold through Chardan pursuant to the May 2014 Engagement Agreement and reimburse Chardan up to $15,000 in expenses. No assurance can be given that the Company will sell any shares under the May 2014 Engagement Agreement, or, if the Company does, as to the price or amount of shares that we will sell, or the dates on which any such sales will take place. | |||
For the quarter ended June 30, 2014, the Company sold 790,236 shares of its common stock under the Second Registration Statement, resulting in gross proceeds of $3,599,774, in an at-the-market offering, in which Chardan was its agent. The Company received net proceeds of $3,491,702. The Company paid Chardan a total commission of $107,993 pursuant to the May 2014 Engagement Agreement. | |||
For the quarter ended September 30, 2014, the Company sold 110,300 shares of its common stock under the Second Registration Statement, resulting in gross proceeds of $508,598, in an at-the-market offering, in which Chardan was its agent. The Company received net proceeds of $493,340. The Company paid Chardan a total commission of $15,258 pursuant to the May 2014 Engagement Agreement. | |||
2014 Omnibus Equity Incentive Plan | |||
On January 7, 2014, our Board of Directors adopted the 2014 Omnibus Equity Incentive Plan (the “2014 Plan”), which authorizes the issuance of distribution equivalent rights, incentive stock options, non-qualified stock options, performance stock, performance units, restricted ordinary shares, restricted stock units, stock appreciation rights, tandem stock appreciation rights and unrestricted ordinary shares to our officers, employees, directors, consultants and advisors. The Company has reserved up to 1,800,000 shares of common stock for issuance under the 2014 Plan. As required under Nasdaq Listing Rule 5635(c), the Company included a proposal at its 2014 Annual Meeting of Stockholders, which was held on July 11, 2014, to obtain approval of the 2014 Plan. The 2014 Plan was approved. | |||
3-for-1 Forward Stock Split | |||
On January 16, 2014, our Board of Directors approved a 3-for-1 forward stock split with respect to the Company’s common stock. Stockholders received three shares of common stock for every one share of common stock owned on the record date of February 3, 2014. The forward stock split was effective as of the close of trading on February 11, 2014. The additional shares were distributed as of the close of business on February 11, 2014. In connection with the forward stock split, the Company’s authorized shares of common stock also increased from 10,000,000 shares to 30,000,000 shares. All data for common stock, options and warrants have been adjusted to reflect the 3-for-1 forward stock split for all periods presented. In addition, all common stock prices, and per share data for all periods presented have been adjusted to reflect the 3-for-1 forward stock split. | |||
Series E Convertible Preferred Stock | |||
During the year ended September 30, 2002, pursuant to an existing tender offer, holders of 13,184 shares of the Company’s common stock exchanged said shares for 131,840 shares of Series E Convertible Preferred Stock, at the then $0.85 market value of the common stock. The shares carry a $0.30 per share liquidation preference and accrue dividends at the rate of 5% per annum on the liquidation preference per share, payable quarterly from legally available funds. If such funds are not available, dividends shall continue to accumulate until they can be paid from legally available funds. Holders of the preferred shares are entitled, after two years from issuance, to convert them into common shares on a hundred-to-one basis together with payment of $0.45 per converted share. | |||
Dividends | |||
During each of the three months ended December 31, 2014 and 2013, the Company accrued dividends of $483 and $480, respectively, payable to holders of Series E preferred stock. |
8_Warrants
8. Warrants | 3 Months Ended | ||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||
Warrants and Rights Note Disclosure [Abstract] | |||||||||||||||||
Warrants | The Company issued several Notes in prior periods and converted them resulting in the issuance of warrants. The following table summarizes information about the Company’s warrants at December 31, 2014: | ||||||||||||||||
Weighted Average | Weighted Average Remaining Contractual | ||||||||||||||||
Number of Units | Exercise Price | Term (in years) | Intrinsic Value | ||||||||||||||
Outstanding at September 30, 2014 | 2,866,506 | $ | 0.63 | 3.39 | |||||||||||||
Granted | 674,370 | 0.95 | |||||||||||||||
Exercised | – | ||||||||||||||||
Outstanding at December 31, 2014 | 3,540,876 | 0.69 | 3.48 | $ | 8,668,210 | ||||||||||||
Exercisable at December 31, 2014 | 3,540,876 | 0.69 | 3.48 | $ | 8,668,210 | ||||||||||||
Most of the above warrants were issued in connection with conversion of convertible notes (See Note 5). When the debt is converted and warrants are issued, the Company determines the fair value of the warrants using the Black-Scholes model and takes a charge to interest expense at the date of issuance. |
9_Stock_Options
9. Stock Options | 3 Months Ended | ||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||
Share-based Compensation [Abstract] | |||||||||||||||||
Stock Options | From time to time, the Company grants stock options and restricted stock awards to officers, directors, employees and consultants. These awards are valued based on the grant date fair value of the instruments, net of estimated forfeitures. The value of each award is amortized on a straight-line basis over the requisite service period. | ||||||||||||||||
Stock Options | |||||||||||||||||
The following table summarizes stock option activity for the three months ended December 31, 2014: | |||||||||||||||||
Weighted | Weighted | ||||||||||||||||
Average | Average | ||||||||||||||||
Number of | Exercise | Remaining | |||||||||||||||
Shares | Price | Contractual Life | Intrinsic Value | ||||||||||||||
Outstanding at September 30, 2014 | 600,000 | $ | 2.76 | $ | – | ||||||||||||
Granted | – | ||||||||||||||||
Exercised | – | ||||||||||||||||
Forfeited | – | ||||||||||||||||
Outstanding at December 31, 2014 | 600,000 | $ | 2.76 | 4.51 | 372,250 | ||||||||||||
Exercisable at December 31, 2014 | 187,500 | $ | 1.67 | 4.11 | 276,250 | ||||||||||||
The Company recognized compensation expense of $29,390 and $65,875 during the three months ended December 31, 2014 and 2013, respectively, related to stock option awards granted to certain employees and executives based on the grant date fair value of the awards, net of estimated forfeitures. | |||||||||||||||||
At December 31, 2014, the Company had $70,694 of unrecognized compensation expense (net of estimated forfeitures) associated with stock option awards which the Company expects will be recognized through June 2017. | |||||||||||||||||
The following table summarizes information about the Company’s non-vested shares as of December 31, 2014: | |||||||||||||||||
Weighted-Average | |||||||||||||||||
Number of | Grant-Date | ||||||||||||||||
Non-vested Shares | Shares | Fair Value | |||||||||||||||
Nonvested at September 30, 2014 | 450,000 | $ | 0.73 | ||||||||||||||
Granted | – | ||||||||||||||||
Vested | (37,500 | ) | |||||||||||||||
Nonvested at December 31, 2014 | 412,500 | $ | 0.73 | ||||||||||||||
10_Net_Loss_Per_Share
10. Net Loss Per Share | 3 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Earnings Per Share [Abstract] | |||||||||
Net Loss Per Share | Net loss per share is calculated using the weighted average number of shares of common stock outstanding during the applicable period. Basic weighted average common shares outstanding do not include shares of restricted stock that have not yet vested, although such shares are included as outstanding shares in the Company’s unaudited Condensed Consolidated Balance Sheet. Diluted net loss per share is computed using the weighted average number of common shares outstanding and if dilutive, potential common shares outstanding during the period. Potential common shares consist of the additional common shares issuable in respect of restricted share awards, stock options and convertible preferred stock. Preferred stock dividends are subtracted from net loss to determine the amount available to common stockholders. | ||||||||
The following table presents the computation of basic and diluted net loss per share: | |||||||||
Three Months Ended December 31, | |||||||||
2014 | 2013 | ||||||||
Net loss applicable to common stock | $ | (4,947,434 | ) | $ | (408,158 | ) | |||
Less: preferred stock dividends | (483 | ) | (480 | ) | |||||
Net loss applicable to common stock | $ | (4,947,917 | ) | $ | (408,638 | ) | |||
Weighted average common shares outstanding -basic and diluted | 15,111,162 | 10,735,676 | |||||||
Loss per share - basic and diluted: | $ | (0.33 | ) | $ | (0.04 | ) | |||
The following potentially dilutive securities were excluded from the calculation of diluted net loss per share because the effects were anti-dilutive based on the application of the treasury stock method and because the Company incurred net losses during the period: | |||||||||
Three Months Ended December 31, | |||||||||
2014 | 2013 | ||||||||
Options to purchase shares of common stock | 600,000 | 675,000 | |||||||
Warrants to purchase shares of common stock | 3,540,876 | 2,866,506 | |||||||
Series E convertible preferred stock | 127,840 | 127,840 | |||||||
Total potentially dilutive shares | 4,268,716 | 3,669,346 | |||||||
11_Income_Taxes
11. Income Taxes | 3 Months Ended |
Dec. 31, 2014 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | At December 31, 2014, the Company maintained a valuation allowance against its deferred tax assets. The Company determined this valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to the Company’s ability to generate sufficient profits from its new business model. |
During the three months ended December 31, 2014, the Company did not incur any income tax benefit associated with its net loss due to the establishment of a valuation allowance against deferred tax assets generated during the period. |
12_Related_Party_Transactions
12. Related Party Transactions | 3 Months Ended |
Dec. 31, 2014 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | Convertible Notes with ICG |
As described in Note 5, during 2012 and 2013 the Company entered into a Note Purchase Agreement with ICG, an entity owned by Jon Isaac, the Company’s President and Chief Executive Officer and a director of the Company, and subsequently issued a series of Subordinated Convertible Notes thereunder to ICG. In connection with these transactions, the Company received gross proceeds of $500,000 and $1,250,000 during the year ended September 30, 2014 and 2013, respectively. | |
Under the terms of the Note Purchase Agreement and the Subordinated Convertible Notes, ICG executed its conversion option on all then-outstanding notes during the quarter ended December 31, 2012. In exchange for the conversion of $250,000 of convertible notes during the quarter ended December 31, 2012, ICG received an aggregate of 371,487 of shares of common stock and, upon conversion ICG also received warrants to acquire an additional 371,487 shares of common stock. | |
Because the conversion price under ICG’s notes was less than the fair market value of the stock on the date of issuance, the Company recognized a beneficial conversion feature which was treated as a debt discount and amortized on a straight line basis as interest expense until the date of conversion, at which time all remaining debt discount was recognized as interest expense. Additionally, the fair value of the warrants that were contingently issuable to ICG upon conversion were recognized as additional interest expense. | |
On January 23, 2014, the Company issued a Note to ICG in the principal amount of $500,000. | |
During the three months ended December 31, 2014 and 2013, the Company recognized total interest expense of $2,018,803 and $0, respectively, associated with the ICG notes. |
13_Commitments_and_Contingenci
13. Commitments and Contingencies | 3 Months Ended |
Dec. 31, 2014 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Purchase price contingency |
In connection with acquisition of Modern Everyday, Inc., the Company issued 50,000 shares of the Company’s common stock as part of the consideration for the acquisition. The Company has guaranteed the holder of the 50,000 shares that the value of those shares will be at least $8.00 per shares 30 months after the acquisition date. The Company has agreed to compensate the holder, if the share price is less than $8.00 at the 30 months anniversary of the acquisition, the difference between $8.00 and the share price at the 30 month anniversary times the number of shares still owned by the holder. As of December 31, 2014, the Company as recorded a liability of $243,000 related to this guarantee. The value of these shares was included as part of the purchase price consideration. The Company will adjust this guarantee at the end of each balance sheet date based on the current price of the Company’s common stock. | |
Litigation | |
The Company is party to certain legal proceedings from time to time incidental to the conduct of its business. These proceedings could result in fines, penalties, compensatory or treble damages or non-monetary relief. The nature of legal proceedings is such that the Company cannot assure the outcome of any particular matter, and an unfavorable ruling or development could have a materially adverse effect on our consolidated financial position, results of operations and cash flows in the period in which a ruling or settlement occurs. However, based on information available to the Company’s management to date and other than as noted below, the Company’s management does not expect that the outcome of any matter pending against us is likely to have a materially adverse effect on the Company’s consolidated financial position as of December 31, 2014, results of operations, cash flows or liquidity of the Company. | |
J3 Harmon LLC v. LiveDeal, Inc. | |
On February 9, 2012, J3 Harmon LLC, which we refer to as J3, filed a lawsuit against us in the Superior Court for Maricopa County in the State of Arizona, alleging breach of a commercial lease agreement. J3 sought damages for alleged unpaid rents during the lease term as well as alleged damages for storage costs after the expiration of the lease term. We denied the allegations and asserted various affirmative defenses. In September 2012, the Maricopa County Superior Court entered a judgment in favor of J3 in the sum of $62,886. The Company appealed this judgment. | |
On October 1, 2013, the Arizona Court of Appeals affirmed in part and reversed in part on the principal damages and remanded the matter for judgment. Subsequently, the Maricopa County Superior Court entered Judgment on Mandate against the Company in the principal sum of $46,636 and attorneys’ fees of $5,624, with post-judgment interest from October 3, 2012. There is no further basis for appeal by the Company. As of December 31, 2014, the payment of this judgment has not been paid and the Company recorded an accrual of $52,261 related to this matter. |
14_Concentration_of_Credit_Ris
14. Concentration of Credit Risk | 3 Months Ended |
Dec. 31, 2014 | |
Risks and Uncertainties [Abstract] | |
Concentration of Credit Risk | The Company maintains cash balances at banks in California and Nevada. Accounts are insured by the Federal Deposit Insurance Corporation up to $250,000 per institution as of December 31, 2014. At times, balances may exceed federally insured limits. |
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily trade accounts receivable. The trade accounts receivable are due primarily from business customers over widespread geographical locations within the Local Exchange Carrier (“LEC”) billing areas across the United States. The Company historically has experienced significant dilution and customer credits due to billing difficulties and uncollectible trade accounts receivable. The Company estimates and provides an allowance for uncollectible accounts receivable. The handling and processing of cash receipts pertaining to trade accounts receivable is maintained primarily by three third-party billing companies. The Company is dependent upon these billing companies for collection of its accounts receivable. The billing companies and LEC’s charge fees for their services, which are netted against the gross accounts receivable balance. The billing companies also apply holdbacks to the remittances for potentially uncollectible accounts. These amounts will vary due to numerous factors and the Company may not be certain as to the actual amounts on any specific billing submittal until several months after that submittal. The Company estimates the amount of these charges and holdbacks based on historical experience and subsequent information received from the billing companies. The Company also estimates uncollectible account balances and provides an allowance for such estimates. The billing companies retain certain holdbacks that may not be collected by the Company for a period extending beyond one year. Additionally, certain other billings’ channels consisting of billings submitted to LEC Processors through third parties were discontinued. As such, a significant portion of the receivables at December 31, 2014 and September 30, 2014 pertaining to LEC service providers represent the holdbacks described above. | |
The Company has concentrations of receivables with respect to certain wholesale accounts and remaining holdbacks with LEC service providers. Three such entities accounted for 21%, 13% and 9% of gross receivables at December 31, 2014 and 23%, 14%, and 10% of gross receivables at September 30, 2014, respectively. |
15_Segment_Reporting
15. Segment Reporting | 3 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Segment Reporting [Abstract] | |||||||||
Segment Reporting | The Company operates in two segments which are characterized as: (1) legacy and merchants’ services and (2) online marketplace platform. The legacy and merchants’ services consists of LEC business and Velocity Local and the online marketplace platform consists of livedeal.com and the recent acquisitions of consumer products entities. | ||||||||
The following tables summarize segment information for the three months ended December 31, 2014 and 2013: | |||||||||
Three Months Ended | |||||||||
December 31, | |||||||||
2014 | 2013 | ||||||||
Net revenues | |||||||||
Marketplace platform | $ | 7,597,068 | $ | 1,392 | |||||
Services | 409,984 | 592,066 | |||||||
$ | 8,007,052 | $ | 593,458 | ||||||
Gross profit | |||||||||
Marketplace platform | $ | 2,879,923 | $ | (191 | ) | ||||
Services | 357,033 | 472,320 | |||||||
$ | 3,236,956 | $ | 472,129 | ||||||
Operating income (loss) | |||||||||
Marketplace platform | $ | (1,158,430 | ) | $ | (667,488 | ) | |||
Services | 290,541 | 241,846 | |||||||
$ | (867,889 | ) | $ | (425,642 | ) | ||||
Depreciation and amortization | |||||||||
Marketplace platform | $ | 164,522 | $ | 104,710 | |||||
Services | – | – | |||||||
$ | 164,522 | $ | 104,710 | ||||||
Interest Expenses | |||||||||
Marketplace platform | $ | 4,191,630 | $ | – | |||||
Services | – | 516 | |||||||
$ | 4,191,630 | $ | 516 | ||||||
Net income (loss) | |||||||||
Marketplace platform | $ | (5,237,975 | ) | $ | (646,152 | ) | |||
Services | 290,541 | 237,994 | |||||||
$ | (4,947,434 | ) | $ | (408,158 | ) | ||||
As of | As of | ||||||||
December 31, | September 30, | ||||||||
2014 | 2014 | ||||||||
Total Assets | |||||||||
Marketplace platform | $ | 17,677,558 | $ | 18,118,425 | |||||
Services | 202,630 | 171,021 | |||||||
$ | 17,880,188 | $ | 18,289,446 | ||||||
Intangible assets | |||||||||
Marketplace platform | $ | 5,607,012 | $ | 4,234,692 | |||||
Services | 5,816 | 6,422 | |||||||
$ | 5,612,828 | $ | 4,241,114 | ||||||
2_Summary_of_Significant_Accou1
2. Summary of Significant Accounting Policies (Policies) | 3 Months Ended | ||
Dec. 31, 2014 | |||
Accounting Policies [Abstract] | |||
Principles of Consolidation | Principles of Consolidation | ||
The accompanying consolidated financial statements represent the consolidated financial position and results of operations of the Company and include the accounts and results of operations of the Company, Local Marketing Experts, Inc., Velocity Marketing Concepts, Inc., 247 Marketing Inc., Telco Billing, Inc., Telco of Canada, Inc., Velocity Local Inc., Modern Everyday, Inc. and its wholly owned subsidiaries, Modern Everyday, LLC and Super Nova, LLC, Live Goods, LLC and its wholly owned subsidiary, DealTicker, Inc.. The results of operations for Live Goods, LLC DealTicker, Inc. and Modern Everyday, Inc. have only been included since the date of acquisition of March 7, 2014, May 5, 2014 and August 24, 2014, respectively. All intercompany transactions and balances have been eliminated in consolidation. | |||
Revenue Recognition | Revenue Recognition | ||
Directory Services | |||
Revenue is billed and recognized monthly for services subscribed in that specific month. The Company has historically utilized outside billing companies to perform billing services through two primary channels: | |||
· | direct ACH withdrawals; and | ||
· | inclusion on the customer’s local telephone bill provided by their Local Exchange Carriers, or LECs. | ||
For billings via ACH withdrawals, revenue is recognized when such billings are accepted. For billings via LECs, the Company recognizes revenue based on net billings accepted by the LECs. Due to the periods of time for which adjustments may be reported by the LECs and the billing companies, the Company estimates and accrues for dilution and fees reported subsequent to year-end for initial billings related to services provided for periods within the fiscal year. Such dilution and fees are reported in cost of services in the accompanying consolidated statements of operations. Customer refunds are recorded as an offset to gross revenue. | |||
Revenue for billings to certain customers that are billed directly by the Company and not through the outside billing companies is recognized based on estimated future collections. The Company continuously reviews this estimate for reasonableness based on its collection experience. | |||
Deals Revenue | |||
The Company recognizes revenue from its sales through its strategic publishing partners of discounted goods and services offered by its merchant clients (“Deals”) when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured. These criteria are met when the number of customers who purchase the daily deal exceeds the predetermined threshold, where, if applicable, the Deal has been electronically delivered to the purchaser and a listing of Deals sold has been made available to the merchant. At that time, the Company's obligations to the merchant, for which it is serving as an agent, are substantially complete. The Company's remaining obligations, which are limited to remitting payment to the merchant, are inconsequential or perfunctory. The Company records as revenue an amount equal to the net amount it retains from the sale of Deals after paying an agreed upon percentage of the purchase price to the featured merchant excluding any applicable taxes. Revenue is recorded on a net basis because the Company is acting as an agent of the merchant in the transaction. | |||
Deferred Revenue | |||
In some instances, the Company receives payments in advance of rendering services, whereupon such revenues are deferred until the related services are rendered. | |||
Product Revenue | |||
The Company derives product revenue primarily from direct revenue and fulfillment partner revenue from product sales Product revenue is recognized when the following revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or the service has been provided; (3) the selling price or fee revenue earned is fixed or determinable; and (4) collection of the resulting receivable is reasonably assured. Revenue related to product sales is recognized when the above four criteria are met. | |||
The Company evaluates the criteria outlined in ASC Topic 605-45, Principal Agent Considerations, in determining whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. When the Company is the primary obligor in a transaction, is subject to inventory risk, has latitude in establishing prices and selects suppliers, or has several but not all of these indicators, revenue is recorded gross. If the Company is not the primary obligor in the transaction and amounts earned are determined using a fixed percentage, revenue is recorded on a net basis. Currently, all direct revenue and fulfillment partner revenue is recorded on a gross basis, as the Company is the primary obligor. The Company presents revenue net of sales taxes. | |||
Inventory | Inventory | ||
Inventory is valued at the lower of the inventory’s cost (first in, first out basis) or the current market price of the inventory. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower. All inventory at December 31, 2014 consists of finished goods inventory. At December 31, 2014 and September 30, 2014, the allowance for obsolete inventory was $347,196 and $252,569, respectively. | |||
Segment Reporting | Segment Reporting | ||
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company determined it has two reportable segments. | |||
Derivative Financial Instruments | Derivative Financial Instruments | ||
The Company evaluates all of its agreements to determine if such instruments have 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 weighted average 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 12 months of the balance sheet date. | |||
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements | ||
FASB Accounting Standards Update No. 2014-08 | |||
In April 2014, the FASB issued ASU 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360)." ASU 2014-08 amends the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations or that have a major effect on the Company's operations and financial results should be presented as discontinued operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014. The Company is currently evaluating the impact of adopting ASU 2014-08 on the Company's results of consolidated operations or consolidated financial condition. | |||
FASB Accounting Standards Update No. 2014-09 | |||
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is not permitted. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard beginning January 1, 2017. | |||
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements. |
3_Balance_Sheet_Information_Ta
3. Balance Sheet Information (Tables) | 3 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||
Balance sheet information | December 31, | September 30, | |||||||
2014 | 2014 | ||||||||
(unaudited) | |||||||||
Receivables, current, net: | |||||||||
Accounts receivable, current | $ | 2,166,541 | $ | 1,611,269 | |||||
Less: Allowance for doubtful accounts | (758,067 | ) | (756,686 | ) | |||||
$ | 1,408,474 | $ | 854,583 | ||||||
Receivables, long term, net: | |||||||||
Accounts receivable, long term | $ | 344,572 | $ | 344,572 | |||||
Less: Allowance for doubtful accounts | (344,572 | ) | (344,572 | ) | |||||
$ | – | $ | – | ||||||
Total receivables, net: | |||||||||
Gross receivables | $ | 2,511,113 | $ | 1,955,841 | |||||
Less: Allowance for doubtful accounts | (1,102,639 | ) | (1,101,258 | ) | |||||
$ | 1,408,474 | $ | 854,583 | ||||||
Components of allowance for doubtful accounts | |||||||||
Components of allowance for doubtful accounts are as follows: | |||||||||
Allowance for dilution and fees on amounts due from billing aggregators | $ | 1,063,617 | $ | 1,063,633 | |||||
Allowance for customer refunds | 2,126 | 2,107 | |||||||
Allowance for other trade receivables | 36,896 | 35,518 | |||||||
$ | 1,102,639 | $ | 1,101,258 | ||||||
Property and equipment, net | |||||||||
Property and equipment, net: | |||||||||
Furnishings and fixtures | $ | 169,013 | $ | 162,642 | |||||
Office, computer equipment and other | 213,346 | 192,063 | |||||||
382,359 | 354,705 | ||||||||
Less: Accumulated depreciation | (215,969 | ) | (201,591 | ) | |||||
$ | 166,390 | $ | 153,114 | ||||||
Intangible assets, net | |||||||||
Intangible assets, net: | |||||||||
Domain name and marketing related intangibles | $ | 1,521,015 | $ | 1,521,015 | |||||
Website and technology related intangibles | 2,859,803 | 2,863,509 | |||||||
Software | 1,500,000 | – | |||||||
Covenant not to compete | 120,000 | 120,000 | |||||||
6,000,818 | 4,504,524 | ||||||||
Less: Accumulated amortization | (1,557,894 | ) | (1,433,314 | ) | |||||
$ | 4,442,924 | $ | 3,071,210 | ||||||
Accrued liabilities | |||||||||
Accrued liabilities: | |||||||||
Accrued payroll and bonuses | $ | 104,623 | $ | 107,224 | |||||
Accruals under revenue sharing agreements | 688 | 688 | |||||||
Deferred revenue | 641,915 | 548,004 | |||||||
Accrued software costs | 1,500,000 | – | |||||||
Accrued expenses - other | 490,740 | 390,114 | |||||||
$ | 2,737,966 | $ | 1,046,030 |
4_Intangible_Assets_Tables
4. Intangible Assets (Tables) | 3 Months Ended | |||||
Dec. 31, 2014 | ||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ||||||
Future amortization expense related to intangible assets | 2015 | $ | 629,354 | |||
2016 | 796,100 | |||||
2017 | 731,280 | |||||
2018 | 560,830 | |||||
2019 | 522,465 | |||||
Thereafter | 1,202,895 | |||||
$ | 4,442,924 |
5_Debt_Tables
5. Debt (Tables) | 3 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Debt Disclosure [Abstract] | |||||||||
Notes payable of Modern Everyday, Inc. | December 31, | September 30, | |||||||
2014 | 2014 | ||||||||
Note payable to individual, payable on demand, interest at 10.0% per annum, unsecured | $ | 91,361 | $ | 90,168 | |||||
Convertible note payable to individual, due February 27, 2015, interest at 6.0% per annum, unsecured | – | 335,245 | |||||||
Convertible note payable to ICG, due January 23, 2015, interest at 8.0% per annum, unsecured | – | 527,889 | |||||||
Acquisition note payable (See Note 17), $200,000 due February 28, 2015 and $400,000 due February 28, 2016, non-interest bearing with interest imputed at 2.87% per annum | 585,891 | 581,707 | |||||||
Credit line due 1/1/2024, with interest rate of 2.75% - Current Portion | 234,229 | 240,204 | |||||||
Less Debt Discount | – | (215,884 | ) | ||||||
Total Debt | 911,481 | 1,559,329 | |||||||
Current portion | 277,252 | 920,360 | |||||||
Long-term portion | $ | 634,229 | $ | 638,969 |
6_Derivative_Liability_Tables
6. Derivative Liability (Tables) | 3 Months Ended | ||||
Dec. 31, 2014 | |||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||
Schedule of derivative liability activity | Derivative liability balance, September 30, 2014 | $ | 83,580 | ||
Issuance of derivative liability during the three months ended December 31, 2014 | – | ||||
Change in derivative liability during the three months ended December 31, 2014 | (83,580 | ) | |||
Derivative liability balance, December 31, 2014 | $ | – |
8_Warrants_Tables
8. Warrants (Tables) | 3 Months Ended | ||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||
Warrants and Rights Note Disclosure [Abstract] | |||||||||||||||||
Warrant activity | Weighted Average | Weighted Average Remaining Contractual | |||||||||||||||
Number of Units | Exercise Price | Term (in years) | Intrinsic Value | ||||||||||||||
Outstanding at September 30, 2014 | 2,866,506 | $ | 0.63 | 3.39 | |||||||||||||
Granted | 674,370 | 0.95 | |||||||||||||||
Exercised | – | ||||||||||||||||
Outstanding at December 31, 2014 | 3,540,876 | 0.69 | 3.48 | $ | 8,668,210 | ||||||||||||
Exercisable at December 31, 2014 | 3,540,876 | 0.69 | 3.48 | $ | 8,668,210 |
9_Stock_Options_Tables
9. Stock Options (Tables) | 3 Months Ended | ||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||
Share-based Compensation [Abstract] | |||||||||||||||||
Stock option activity | Weighted | Weighted | |||||||||||||||
Average | Average | ||||||||||||||||
Number of | Exercise | Remaining | |||||||||||||||
Shares | Price | Contractual Life | Intrinsic Value | ||||||||||||||
Outstanding at September 30, 2014 | 600,000 | $ | 2.76 | $ | – | ||||||||||||
Granted | – | ||||||||||||||||
Exercised | – | ||||||||||||||||
Forfeited | – | ||||||||||||||||
Outstanding at December 31, 2014 | 600,000 | $ | 2.76 | 4.51 | 372,250 | ||||||||||||
Exercisable at December 31, 2014 | 187,500 | $ | 1.67 | 4.11 | 276,250 | ||||||||||||
Non-vested share activity | Weighted-Average | ||||||||||||||||
Number of | Grant-Date | ||||||||||||||||
Non-vested Shares | Shares | Fair Value | |||||||||||||||
Nonvested at September 30, 2014 | 450,000 | $ | 0.73 | ||||||||||||||
Granted | – | ||||||||||||||||
Vested | (37,500 | ) | |||||||||||||||
Nonvested at December 31, 2014 | 412,500 | $ | 0.73 |
10_Net_Loss_Per_Share_Tables
10. Net Loss Per Share (Tables) | 3 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Earnings Per Share [Abstract] | |||||||||
Basic and diluted net loss per share | Three Months Ended December 31, | ||||||||
2014 | 2013 | ||||||||
Net loss applicable to common stock | $ | (4,947,434 | ) | $ | (408,158 | ) | |||
Less: preferred stock dividends | (483 | ) | (480 | ) | |||||
Net loss applicable to common stock | $ | (4,947,917 | ) | $ | (408,638 | ) | |||
Weighted average common shares outstanding -basic and diluted | 15,111,162 | 10,735,676 | |||||||
Loss per share - basic and diluted: | $ | (0.33 | ) | $ | (0.04 | ) | |||
Potentially dilutive securities | Three Months Ended December 31, | ||||||||
2014 | 2013 | ||||||||
Options to purchase shares of common stock | 600,000 | 675,000 | |||||||
Warrants to purchase shares of common stock | 3,540,876 | 2,866,506 | |||||||
Series E convertible preferred stock | 127,840 | 127,840 | |||||||
Total potentially dilutive shares | 4,268,716 | 3,669,346 |
15_Segment_Reporting_Tables
15. Segment Reporting (Tables) | 3 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Segment Reporting [Abstract] | |||||||||
Segment reporting | Three Months Ended | ||||||||
December 31, | |||||||||
2014 | 2013 | ||||||||
Net revenues | |||||||||
Marketplace platform | $ | 7,597,068 | $ | 1,392 | |||||
Services | 409,984 | 592,066 | |||||||
$ | 8,007,052 | $ | 593,458 | ||||||
Gross profit | |||||||||
Marketplace platform | $ | 2,879,923 | $ | (191 | ) | ||||
Services | 357,033 | 472,320 | |||||||
$ | 3,236,956 | $ | 472,129 | ||||||
Operating income (loss) | |||||||||
Marketplace platform | $ | (1,158,430 | ) | $ | (667,488 | ) | |||
Services | 290,541 | 241,846 | |||||||
$ | (867,889 | ) | $ | (425,642 | ) | ||||
Depreciation and amortization | |||||||||
Marketplace platform | $ | 164,522 | $ | 104,710 | |||||
Services | – | – | |||||||
$ | 164,522 | $ | 104,710 | ||||||
Interest Expenses | |||||||||
Marketplace platform | $ | 4,191,630 | $ | – | |||||
Services | – | 516 | |||||||
$ | 4,191,630 | $ | 516 | ||||||
Net income (loss) | |||||||||
Marketplace platform | $ | (5,237,975 | ) | $ | (646,152 | ) | |||
Services | 290,541 | 237,994 | |||||||
$ | (4,947,434 | ) | $ | (408,158 | ) | ||||
As of | As of | ||||||||
December 31, | September 30, | ||||||||
2014 | 2014 | ||||||||
Total Assets | |||||||||
Marketplace platform | $ | 17,677,558 | $ | 18,118,425 | |||||
Services | 202,630 | 171,021 | |||||||
$ | 17,880,188 | $ | 18,289,446 | ||||||
Intangible assets | |||||||||
Marketplace platform | $ | 5,607,012 | $ | 4,234,692 | |||||
Services | 5,816 | 6,422 | |||||||
$ | 5,612,828 | $ | 4,241,114 | ||||||
1_Organization_and_Basis_of_Pr1
1. Organization and Basis of Presentation (Details Narrative) (USD $) | 3 Months Ended | 12 Months Ended | ||
Dec. 31, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
Net loss | ($4,947,434) | ($408,158) | ||
Net cash used in operations | -1,302,777 | -243,163 | ||
Proceeds from sale of common stock | 13,700,000 | |||
Cash and cash equivalents | $6,516,211 | $511,565 | $8,114,682 | $761,458 |
2_Summary_of_Significant_Accou2
2. Summary of Significant Accounting Policies (Details Narrative) (USD $) | Dec. 31, 2014 | Sep. 30, 2014 |
Accounting Policies [Abstract] | ||
Allowance for obsolete inventory | $347,196 | $252,569 |
3_Balance_Sheet_Information_De
3. Balance Sheet Information (Details) (USD $) | Dec. 31, 2014 | Sep. 30, 2014 |
Receivables, current, net: | ||
Accounts receivable, current | $2,166,541 | $1,611,269 |
Less: Allowance for doubtful accounts | -758,067 | -756,686 |
Receivables, current, net | 1,408,474 | 854,583 |
Receivables, long term, net: | ||
Accounts receivable, long term | 344,572 | 344,572 |
Less: Allowance for doubtful accounts | -344,572 | -344,572 |
Receivables, long term, net | 0 | 0 |
Total receivables, net: | ||
Gross receivables | 2,511,113 | 1,955,841 |
Less: Allowance for doubtful accounts | -1,102,639 | -1,101,258 |
Total receivables, net | 1,408,474 | 854,583 |
Allowance for dilution and fees on amounts due from billing aggregators | 1,063,617 | 1,063,633 |
Allowance for customer refunds | 2,126 | 2,107 |
Allowance for other trade receivables | 36,896 | 35,518 |
Total allowances | 1,102,639 | 1,101,258 |
Property and equipment, net: | ||
Furnishings and fixtures | 169,013 | 162,642 |
Office, computer equipment and other | 213,346 | 192,063 |
Plant Property and Equipment,Gross | 382,359 | 354,705 |
Less: Accumulated depreciation | -215,969 | -201,591 |
Property and equipment, net | 166,390 | 153,114 |
Intangible assets, net: | ||
Domain name and marketing related intangibles | 1,521,015 | 1,521,015 |
Website and technology related intangibles | 2,859,803 | 2,863,509 |
Software | 1,500,000 | 0 |
Covenant not to compete | 120,000 | 120,000 |
Intangible assets, gross | 6,000,818 | 4,504,524 |
Less: Accumulated amortization | -1,557,894 | -1,433,314 |
Intangible assets, net | 4,442,924 | 3,071,210 |
Accrued liabilities: | ||
Accrued payroll and bonuses | 104,623 | 107,224 |
Accruals under revenue sharing agreements | 688 | 688 |
Deferred revenue | 641,915 | 548,004 |
Accrued software costs | 1,500,000 | 0 |
Accrued expenses - other | 490,740 | 390,114 |
Total accrued liabilities | $2,737,966 | $1,046,030 |
4_Intangible_Assets_Details
4. Intangible Assets (Details) (USD $) | Dec. 31, 2014 | Sep. 30, 2014 |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Amortization expense, 2015 | $629,354 | |
Amortization expense, 2016 | 796,100 | |
Amortization expense, 2017 | 731,280 | |
Amortization expense, 2018 | 560,830 | |
Amortization expense, 2019 | 522,465 | |
Amortization expense, thereafter | 1,202,895 | |
Total future amortization expense | $4,442,924 | $3,071,210 |
4_Intangible_Assets_Details_Na
4. Intangible Assets (Details Narrative) (USD $) | 3 Months Ended | ||
Dec. 31, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | |
Accrued software payable | $1,500,000 | $0 | |
Amortization expense | $149,000 | $95,867 | |
Domain Name and Marketing [Member] | |||
Useful lifes of intangible assets | 3-20 years | ||
Website and Technology [Member] | |||
Useful lifes of intangible assets | 3-5 years | ||
Covenant Not To Compete [Member] | |||
Useful lifes of intangible assets | 4 years |
5_Debt_Details_Debt_from_MEI
5. Debt (Details - Debt from MEI) (USD $) | 3 Months Ended | ||
Dec. 31, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | |
Current portion | $277,252 | $920,360 | |
Long-term portion | 634,229 | 638,969 | |
Payments on notes payable | 346,182 | 0 | |
Modern Everyday, Inc. [Member] | |||
Note payable to individual, payable on demand, interest at 10.0% per annum, unsecured | 91,361 | 90,168 | |
Convertible note payable to individual, due February 27, 2015, interest at 6.0% per annum, unsecured | 0 | 335,245 | |
Convertible note payable to ICG, due January 23, 2015, interest at 8.0% per annum, unsecured | 0 | 527,889 | |
Acquisition note payable (See Note 17), $200,000 due February 28, 2015 and $400,000 due February 28, 2016, non-interest bearing with interest imputed at 2.87% per annum | 585,891 | 581,707 | |
Credit line due September 28, 2019, with interest rate at prime plus 2% | 234,229 | 240,204 | |
Less Debt Discount | 0 | -215,884 | |
Total Debt | 911,481 | 1,559,329 | |
Current portion | 277,252 | 920,360 | |
Long-term portion | $634,229 | $638,969 |
5_Debt_Details_Narrative
5. Debt (Details Narrative) (USD $) | 3 Months Ended | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | |
Note converted into stock, shares issued | 801,378 | ||
Change in fair value of derivative | $83,580 | $0 | |
Kingston [Member] | |||
Note issued | 100,000 | ||
Note converted into stock, amount converted | 100,000 | ||
Note converted into stock, shares issued | 127,008 | ||
Debt discount, interest expense | 100,000 | ||
Line of credit maximum amount | 10,000,000 | ||
Kingston [Member] | OID [Member] | |||
Note converted into stock, shares issued | 630,252 | ||
Debt discount, interest expense | 2,004,202 | ||
ICG Note 6 [Member] | |||
Note issued | 500,000 | ||
Note converted into stock, amount converted | 500,000 | ||
Note converted into stock, shares issued | 674,370 | ||
Debt discount, interest expense | 158,219 | ||
Fair value of warrants recognized as interest expense | 1,853,473 | ||
Convertible Note [Member] | |||
Convertible note issued | 323,595 | ||
Change in fair value of derivative | $83,580 |
6_Derivative_Liability_Details
6. Derivative Liability (Details - Rollfoward) (USD $) | 3 Months Ended |
Dec. 31, 2014 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivative liability, beginning balance | $83,580 |
Issuance of derivative liability | 0 |
Change in derivative liability | -83,580 |
Derivative liability, ending balance | $0 |
7_Equity_Details_Narrative
7. Equity (Details Narrative) (USD $) | 3 Months Ended | 12 Months Ended | 3 Months Ended | ||
Dec. 31, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Sep. 30, 2014 | Jun. 30, 2014 | |
Stock issued for services, shares issued | 27,500 | ||||
Stock issued for services, value | $82,127 | ||||
Stock issued for conversion of notes and accrued interest, shares issued | 801,378 | ||||
Stock issued for conversion of notes and accrued interest, value | 635,756 | ||||
Proceeds from sale of stock | 13,700,000 | ||||
Stock reserved for future issuance | 1,800,000 | 1,800,000 | |||
Stock split information | 3-for-1 forward stock split effective on February 11, 2014 | ||||
Accrued dividends | 483 | 480 | |||
January 2014 Engagement Agreement [Member] | |||||
Proceeds from sale of stock | 9,696,013 | ||||
Commission paid on sale of stock | 299,882 | ||||
May 2014 Engagement Agreement [Member] | |||||
Proceeds from sale of stock | 508,598 | 3,599,774 | |||
Commission paid on sale of stock | 15,258 | 107,993 | |||
Stock issued for cash, shares issued | 110,300 | 790,236 | |||
Kingston [Member] | |||||
Stock issued for conversion of notes and accrued interest, shares issued | 127,008 | ||||
Kingston [Member] | OID [Member] | |||||
Stock issued for conversion of notes and accrued interest, shares issued | 630,252 | ||||
Stock issued for conversion of notes and accrued interest, value | $2,004,202 |
8_Warrants_Details_Warrants_Ou
8. Warrants (Details - Warrants Outstanding) (Warrants [Member], USD $) | 3 Months Ended |
Dec. 31, 2014 | |
Warrants [Member] | |
Number of units | |
Outstanding, beginning of period | 2,866,506 |
Granted | 674,370 |
Exercised | 0 |
Outstanding, end of period | 3,540,876 |
Exercisable, end of period | 3,540,876 |
Outstanding, beginning of period | $0.63 |
Granted | $0.95 |
Outstanding, end of period | $0.69 |
Exercisable, end of period | $0.69 |
Weighted Average Remaining Contractual Term (in years) | |
Outstanding, beginning of period | 3 years 4 months 20 days |
Outstanding, end of period | 3 years 5 months 23 days |
Exercisable, end of period | 3 years 5 months 23 days |
Outstanding, end of period | $8,668,210 |
Exercisable, end of period | 8,668,210 |
9_Stock_Options_Details_Option
9. Stock Options (Details - Option activity) (Stock Options [Member], USD $) | 3 Months Ended |
Dec. 31, 2014 | |
Stock Options [Member] | |
Number of Shares | |
Outstanding, beginning balance | 600,000 |
Granted | 0 |
Exercised | 0 |
Forfeited | 0 |
Outstanding, ending balance | 600,000 |
Exercisable | 187,500 |
Weighted Average Exercise Price | |
Outstanding, beginning balance | $2.76 |
Outstanding, ending balance | $2.76 |
Exercisable | $1.67 |
Weighed Average Remaining Contractual Life | |
Outstanding, ending balance | 4 years 6 months 4 days |
Exercisable | 4 years 1 month 10 days |
Outstanding, ending balance | $372,250 |
Exercisable | $276,250 |
9_Stock_Options_Details_Non_ve
9. Stock Options (Details - Non vested) (Stock Options [Member], USD $) | 3 Months Ended | |
Dec. 31, 2014 | Sep. 30, 2014 | |
Stock Options [Member] | ||
Number of shares | ||
Outstanding, beginning balance | 450,000 | |
Granted | 0 | |
Vested | -37,500 | -150,000 |
Outstanding, ending balance | 412,500 | |
Weighted-Average Grant-Date Fair Value | ||
Outstanding, end of period | $0.73 |
9_Stock_Options_Details_Narrat
9. Stock Options (Details Narrative) (USD $) | 3 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Share-based Compensation [Abstract] | ||
Stock-based compensation | $29,390 | $65,875 |
Unrecognized compensation expense | $70,694 |
10_Net_Loss_Per_Share_Details_
10. Net Loss Per Share (Details - Computation of loss per share) (USD $) | 3 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Net Loss Per Share | ||
Net loss applicable to common stock | ($4,947,434) | ($408,158) |
Less: preferred stock dividends | -483 | -480 |
Net loss applicable to common stock | ($4,947,917) | ($408,638) |
Weighted average common shares outstanding - basic and diluted | 15,111,162 | 10,735,676 |
Loss per share - basic and diluted | ($0.33) | ($0.04) |
10_Net_Loss_Per_Share_Details_1
10. Net Loss Per Share (Details - Antidilutive securities) | 3 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Antidilutive Securities Excluded From Computation Of Earnings Per Share Amount | 4,268,716 | 3,669,346 |
Options [Member] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Antidilutive Securities Excluded From Computation Of Earnings Per Share Amount | 600,000 | 675,000 |
Warrants [Member] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Antidilutive Securities Excluded From Computation Of Earnings Per Share Amount | 3,540,876 | 2,866,506 |
Series E Convertible Preferred Stock [Member] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Antidilutive Securities Excluded From Computation Of Earnings Per Share Amount | 127,840 | 127,840 |
12_Related_Party_Transactions_
12. Related Party Transactions (Details Narrative) (USD $) | 3 Months Ended | 12 Months Ended | ||
Dec. 31, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Related Party Transactions [Abstract] | ||||
Gross proceeds from related party debt | $500,000 | $1,250,000 | ||
Interest expense associated with ICG Notes | $2,018,803 | $0 |
13_Commitments_and_Contingenci1
13. Commitments and Contingencies (Details Narrative) (USD $) | Dec. 31, 2014 | Sep. 30, 2014 |
Commitments and Contingencies Disclosure [Abstract] | ||
Guarantee liability | $243,000 | $251,000 |
14_Concentration_of_Credit_Ris1
14. Concentration of Credit Risk (Details Narrative) (Accounts Receivable [Member]) | 3 Months Ended | 12 Months Ended |
Dec. 31, 2014 | Sep. 30, 2014 | |
LEC 1 [Member] | ||
Concentration Risk [Line Items] | ||
Concentration percentage | 21.00% | 23.00% |
LEC 2 [Member] | ||
Concentration Risk [Line Items] | ||
Concentration percentage | 13.00% | 14.00% |
LEC 3 [Member] | ||
Concentration Risk [Line Items] | ||
Concentration percentage | 9.00% | 10.00% |
15_Segment_Reporting_Details
15. Segment Reporting (Details) (USD $) | 3 Months Ended | ||
Dec. 31, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | |
Net revenues | $8,007,052 | $593,458 | |
Gross profit | 3,236,956 | 472,129 | |
Operating income (loss) | -867,889 | -425,642 | |
Depreciation and amortization | 164,522 | 104,710 | |
Interest expenses | 4,191,630 | 516 | |
Net income (loss) | -4,947,434 | -408,158 | |
Total Assets | 17,880,188 | 18,289,446 | |
Intangible assets | 5,612,828 | 4,241,114 | |
Online Marketplace Platform [Member] | |||
Net revenues | 597,068 | 1,392 | |
Gross profit | 2,879,923 | -191 | |
Operating income (loss) | -1,158,430 | -667,488 | |
Depreciation and amortization | 164,522 | 104,710 | |
Interest expenses | 4,191,630 | 0 | |
Net income (loss) | -5,237,975 | -646,152 | |
Total Assets | 18,118,425 | 17,677,558 | |
Intangible assets | 4,234,692 | 5,607,012 | |
Legacy Merchant Services [Member] | |||
Net revenues | 409,984 | 592,066 | |
Gross profit | 357,033 | 472,320 | |
Operating income (loss) | 290,541 | 241,846 | |
Depreciation and amortization | 0 | 0 | |
Interest expenses | 0 | 516 | |
Net income (loss) | 290,541 | 237,994 | |
Total Assets | 171,021 | 202,630 | |
Intangible assets | $6,422 | $5,816 |