Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Jun. 30, 2017 | Jan. 30, 2018 | |
Document and Entity Information: | ||
Entity Registrant Name | ACTIVECARE, INC. | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2017 | |
Trading Symbol | acar | |
Amendment Flag | false | |
Entity Central Index Key | 1,429,896 | |
Current Fiscal Year End Date | --09-30 | |
Entity Common Stock, Shares Outstanding | 239,100 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Entity Well-known Seasoned Issuer | No | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q3 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | Jun. 30, 2017 | Sep. 30, 2016 |
Current assets: | ||
Cash | $ 114,440 | $ 167,737 |
Accounts receivable, net | 643,857 | 487,001 |
Inventory | 501,769 | 204,736 |
Note receivable | 500,000 | |
Prepaid expenses and other | 56,555 | 644,857 |
Total current assets | 1,816,621 | 1,504,331 |
Property and equipment, net | 56,445 | 86,734 |
Deposits and other assets | 12,970 | 17,846 |
Domain name, net | 8,759 | 9,295 |
Total assets | 1,894,795 | 1,618,206 |
Current liabilities: | ||
Accounts payable | 3,453,795 | 1,700,448 |
Accounts payable, related party | 242,568 | 291,753 |
Accrued expenses | 7,765,437 | 2,101,711 |
Contingent liabilities | 750,000 | |
Current portion of notes payable | 9,501,544 | 3,722,899 |
Notes payable, related party | 3,869,683 | 3,898,124 |
Dividends payable | 733,880 | 606,545 |
Derivatives liability | 4,231,983 | 2,054,071 |
Total current liabilities | 30,548,890 | 14,375,551 |
Notes payable, net of current portion | 5,889,170 | 7,353,856 |
Total liabilities | 36,438,060 | 21,729,407 |
Stockholders' deficit: | ||
Preferred stock, $.00001 par value: 10,000,000 shares authorized; 45,000 shares of Series D; 70,070 shares of Series E; and 43,220 and 0 shares of Series G issued and outstanding, respectively | 2 | 1 |
Common stock, $.00001 par value: 200,000,000 shares authorized; 239,100 and 232,100 shares outstanding, respectively | 2 | 2 |
Additional paid-in capital, common and preferred | 88,786,513 | 88,067,410 |
Accumulated deficit | (123,329,782) | (108,178,614) |
Total stockholders' deficit | (34,543,265) | (20,111,201) |
Total liabilities and stockholders' deficit | $ 1,894,795 | $ 1,618,206 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets Parenthetical - $ / shares | Jun. 30, 2017 | Sep. 30, 2016 |
Condensed Consolidated Balance Sheets Parenthetical | ||
Preferred stock par value | $ 0.00001 | $ 0.00001 |
Preferred stock shares authorized | 10,000,000 | 10,000,000 |
Preferred stock shares outstanding | 158,290 | 115,070 |
Common stock par value | $ 0.00001 | $ 0.00001 |
Common stock shares authorized | 200,000,000 | 200,000,000 |
Common stock shares outstanding | 239,100 | 232,100 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations - USD ($) | 3 Months Ended | 9 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Revenues: | ||||
Chronic illness monitoring supplies revenues | $ 1,037,179 | $ 1,858,926 | $ 4,311,955 | $ 4,972,196 |
Chronic illness monitoring fee revenues | 159,025 | 317,156 | 599,339 | 888,453 |
Total Chronic illness monitoring revenues | 1,196,204 | 2,176,082 | 4,911,294 | 5,860,649 |
Cost of revenues: | ||||
Chronic illness monitoring supplies cost of revenues | 733,143 | 1,269,828 | 3,054,086 | 3,878,972 |
Chronic illness monitoring fee cost of revenues | 114,954 | 112,486 | 319,184 | 358,436 |
Total Chronic illness monitoring cost of revenues | 848,097 | 1,382,314 | 3,373,270 | 4,237,408 |
Gross profit | 348,107 | 793,768 | 1,538,024 | 1,623,241 |
Operating expenses: | ||||
Selling, general and administrative (including $1,461,457, $1,004,211, $2,101,037 and $3,257,614, respectively, of stock-based compensation) | 3,225,054 | 2,169,603 | 6,382,027 | 6,944,098 |
Research and development | 56,191 | 57,611 | 307,137 | 139,023 |
Total operating expenses | 3,281,245 | 2,227,214 | 6,689,164 | 7,083,121 |
Loss from operations | (2,933,138) | (1,433,446) | (5,151,140) | (5,459,880) |
Other income (expense): | ||||
Interest expense, net | (2,198,631) | (813,517) | (6,856,258) | (1,935,486) |
Loss on settlement | (750,000) | (750,000) | ||
Gain on derivatives liability | 64,145 | 5,603,411 | 230,163 | 2,796,542 |
Loss on extinguishment of debt | (15,393) | (2,499,212) | (3,058,809) | |
Gain on disposal of property and equipment | 245 | |||
Gain on liability settlements | 8,859 | 295,099 | ||
Loss on induced conversions of debt | (379,132) | |||
Other income | 2,614 | 2,614 | ||
Total other income (expense) | (2,881,872) | 4,783,360 | (9,872,693) | (2,281,541) |
Net income (loss) | (5,815,010) | 3,349,914 | (15,023,833) | (7,741,421) |
Deemed dividends on redemption of preferred stock | (6,484,236) | |||
Dividends on preferred stock | (58,978) | (45,781) | (127,335) | (699,250) |
Net loss attributable to common stockholders | $ (5,873,988) | $ 3,304,133 | $ (15,151,168) | $ (14,924,907) |
Net loss per common share - basic | $ (24.77) | $ 15.18 | $ (64.81) | $ (81.57) |
Net loss per common share - diluted | $ (24.77) | $ (3.78) | $ (64.81) | $ (82.78) |
Weighted average common shares outstanding - basic | 237,100 | 217,595 | 233,767 | 182,979 |
Weighted average common shares outstanding - diluted | 237,100 | 260,266 | 233,767 | 201,928 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Operations Parenthetical - USD ($) | 3 Months Ended | 9 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Condensed Consolidated Statements of Operations Parenthetical | ||||
Compensation expense paid in stock or amortization of stock options and warrants | $ 1,461,457 | $ 1,004,211 | $ 2,101,037 | $ 3,257,614 |
Condensed Consolidated Stateme6
Condensed Consolidated Statements of Cash Flows - USD ($) | 9 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Cash flows from operating activities: | ||
Net loss | $ (15,023,833) | $ (7,741,421) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Amortization of debt discounts | 4,081,912 | 904,115 |
Loss on extinguishment of debt | 2,499,212 | 3,058,809 |
Stock-based compensation expense | 1,705,975 | 2,801,432 |
Loss on settlement | 750,000 | |
Stock and warrants issued and accrued for services | 395,062 | 456,182 |
Increase in note payable principal recorded as interest expense to convert accounts payable into notes payable | 482,500 | |
Stock accrued for interest expense | 144,000 | |
Depreciation and amortization | 33,643 | 39,353 |
Gain on derivatives liability | (230,163) | (2,796,542) |
Gain on disposal of property and equipment | (245) | |
Loss on induced conversions of debt | 379,132 | |
Gain on liability settlements | (295,099) | |
Changes in operating assets and liabilities: | ||
Change in accounts receivable | (241,844) | (44,459) |
Change in inventory | (297,033) | 414,110 |
Change in prepaid expenses and other | 815,799 | (178,053) |
Change in accounts payable | 2,470,310 | (732,265) |
Change in accrued liabilities | 1,796,360 | 931,492 |
Net cash used in operating activities | (618,100) | (2,803,459) |
Cash flows from investing activities: | ||
Proceeds from sale of property and equipment | 600 | |
Purchases of property and equipment | (2,818) | (5,004) |
Investment in contingent note receivable | (500,000) | |
Net cash used in investing activities | (502,818) | (4,404) |
Cash flows from financing activities: | ||
Proceeds from issuance of notes payable, net | 4,421,489 | 5,709,287 |
Proceeds from issuance of related-party notes payable, net | 250,000 | |
Proceeds from issuance of warrants in connection with notes payable | 2,967 | |
Principal payments on related-party notes payable | (28,441) | (7,795) |
Principal payments on notes payable | (3,325,427) | (3,175,603) |
Net cash provided by financing activities | 1,067,621 | 2,778,856 |
Net decrease in cash | (53,297) | (29,007) |
Cash, beginning of the period | 167,737 | 172,436 |
Cash, end of the period | 114,440 | 143,429 |
Supplemental Cash Flow Information: | ||
Cash paid for interest | 379,589 | 191,943 |
Non-Cash Investing and Financing Activities: | ||
Issuance of warrants to purchase shares of common stock for loan origination fees | 2,103,341 | 201,058 |
Accrual of a liability to issue warrants to purchase shares of common stock for loan forbearance fees | 148,677 | |
Accrual of a liability to issue shares of common stock for loan origination fees | 125,000 | |
Dividends on preferred stock | 127,335 | 699,250 |
Accrual of a liability to issue shares of common stock for loan forbearance fees | $ 60,000 | |
Deemed dividend on the redemption of preferred stock and accrued dividends for notes payable, common stock and exchange of warrants | 6,484,236 | |
Conversion of accounts payable and accrued liabilities to notes payable | 2,555,189 | |
Assignment of related-party notes payable to an unrelated third party | 263,082 | |
Issuance of shares of common stock for consulting services | 227,500 | |
Accrual of a liability to issue warrants to purchase shares of common stock for loan origination fees | 130,246 | |
Cancellation and reissuance of shares of common stock | 121,250 | |
Conversion of related-party accounts payable and accrued liabilities to related-party notes payable | 84,404 | |
Issuance of shares of common stock for related-party loan origination fee | 70,000 | |
Issuance of shares of common stock for loan extension fees | 31,250 | |
Accrual of a liability to issue shares of common stock for loan amendment fees | 28,500 | |
Issuance of shares of common stock for dividends | 12,434 | |
Accrual of a liability to issue shares of common stock for services | $ 7,600 |
1. Organization and Nature of O
1. Organization and Nature of Operations | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
1. Organization and Nature of Operations | 1. Basis of Presentation The unaudited interim condensed consolidated financial statements of ActiveCare, Inc. (the “Company” or “ActiveCare”) have been prepared in accordance with Article 8 of Regulation S-X, promulgated by the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with US generally accepted accounting principles (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying interim condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position as of June 30, 2017 and September 30, 2016, and the results of its operations for the three and nine months ended June 30, 2017 and 2016 and its cash flows for the nine months ended June 30, 2017 and 2016. These financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2016. The results of operations for the three and nine months ended June 30, 2017 may not be indicative of the results for the full fiscal year ending September 30, 2017. Going Concern The Company continues to incur negative cash flows from operating activities and net losses. The Company had minimal cash, negative working capital and negative total equity as of June 30, 2017 and September 30, 2016. In addition, the Company is in technical default on certain notes payable although the lenders in each case are working with the Company to resolve the defaults. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. In order for the Company to eliminate substantial doubt about its ability to continue as a going concern, it must achieve profitability, generate positive cash flows from operating activities and obtain the necessary debt or equity funding to meet its projected capital investment requirements. Management's plans with respect to this uncertainty consist of raising additional capital by issuing debt or equity securities and increasing the sales of the Company's services and products. There can be no assurance that the Company will be able to raise sufficient additional capital or that revenues will increase rapidly enough to achieve operating profits. If the Company is unable to increase revenues or obtain additional financing, it will be unable to continue the development of its products and services and may have to cease operations. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet dates and the reported amounts of revenues and expenses for the reporting periods. Actual results could differ from these estimates. Fair Value of Financial Instruments The Company measures the fair values of its assets and liabilities using the US GAAP hierarchy. The carrying amounts reported in the condensed consolidated balance sheets for cash, accounts receivable, accounts payable, and accrued liabilities approximate fair values due to the short-term nature of these financial instruments. Derivative financial instruments are recorded at fair value based on current market pricing models. The carrying amounts reported for notes payable approximate fair values because the underlying instruments are at interest rates which approximate current market rates. Reclassifications Certain prior year amounts have been reclassified to conform to the current period’s presentation. The reclassifications had no effect on the previously reported net loss. |
2. Net Loss per Common Share
2. Net Loss per Common Share | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
2. Net Loss per Common Share | 2. Net Loss per Common Share Basic net loss per common share ("Basic EPS") is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share ("Diluted EPS") is computed by dividing net loss available to common stockholders by the sum of the weighted average number of common shares outstanding and the weighted-average dilutive potential common shares outstanding. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect. Potential common shares consist of shares issuable upon the exercise of common stock warrants and options, shares issuable from restricted stock grants, and shares issuable pursuant to convertible notes and convertible Series D and Series E preferred stock. The following table reflects the calculation of basic and diluted net loss per common share for the periods indicated: Three Months Ended June 30, Nine Months Ended June 30, 2017 2016 2017 2016 Numerator: Net loss attributable to common stockholders $ (5,873,988) $ 3,304,133 $ (15,151,168) $ (14,924,907) Effect of dilutive securities on net loss: Common stock warrants - (2,427,640) - - Convertible debt - (1,860,373) - (1,790,407) Total net loss for purpose of calculating diluted net loss per common share $ (5,873,988) $ (983,880) $ (15,151,168) $ (16,715,314) Number of shares used in per common share calculations: Total shares for purposes of calculating basic net loss per common share 237,100 217,595 233,767 182,979 Weighted-average effect of dilutive securities: Common stock warrants - 3,337 - - Convertible debt - 39,334 - 18,949 Total shares for purpose of calculating diluted net loss per common share 237,100 260,266 233,767 201,928 Net loss per common share: Basic $ (24.77) $ 15.18 $ (64.81) $ (81.57) Diluted $ (24.77) $ (3.78) $ (64.81) $ (82.78) The effect of dilutive securities on the numerator for purposes of calculating diluted loss per common share is related to the convertible debt and related warrants due to the reduction of the gain on derivatives liability for warrants that were in the money. As of June 30, 2017 and 2016, there were certain outstanding potential common shares that were not included in the computation of Diluted EPS as their effect would be anti-dilutive for the three and nine months then ended. The potential common shares outstanding consist of the following: Three Months Ended June 30, Nine Months Ended June 30, 2017 2016 2017 2016 Common stock warrants 109,174 18,346 109,174 42,378 Series D convertible preferred stock 450 450 450 450 Series E convertible preferred stock 961 961 961 961 Convertible debt 158,798 95,799 158,798 95,799 Restricted shares of common stock 15 15 15 15 Liability to issue common stock and warrants 358,097 2,246 358,097 2,246 Total common stock equivalents 627,495 117,817 627,495 141,849 |
3. Recent Accounting Pronouncem
3. Recent Accounting Pronouncements | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
3. Recent Accounting Pronouncements | 3. Recent Accounting Pronouncements In May 2014, August 2015 and May 2016, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers Revenue from Contracts with Customers, Deferral of the Effective Date Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients Revenue Recognition, Revenue from Contracts with Customers, Leases, and Leases: Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments Income Statement—Reporting Comprehensive Income, Revenue Recognition, and Revenue from Contracts with Customers In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern In July 2015, the FASB issued ASU 2015-11, Inventory: Simplifying the Measurement of Inventory In February 2016, the FASB issued ASU 2016-02, Leases In March 2016, the FASB issued ASU 2016-09, Stock Compensation: Improvements to Employee Share-Based Payment Accounting In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments In May 2017, the FASB issued ASU 2017-09, Stock Compensation: Scope of Modification Accounting In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivative and Hedging (Topic 815) |
4. Accounts Receivable
4. Accounts Receivable | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
4. Accounts Receivable | 4. Accounts Receivable Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts. Specific reserves are estimated by management based on certain assumptions and variables, including the customerÂ’s financial condition, age of the customerÂ’s receivables and changes in payment histories. Accounts receivable are written off when management determines the likelihood of collection is remote. A receivable is considered to be past due if any portion of the receivable balance has not been received by the contractual payment date. Interest is not charged on accounts receivable that are past due. The Company recorded an allowance for doubtful accounts of $25,468 and $75,161 as of June 30, 2017 and September 30, 2016, respectively. During the three months ended June 30, 2017, the Company wrote off approximately $103,000 of accounts receivable that were previously allowed against. |
5. Inventory
5. Inventory | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
5. Inventory | 5. Inventory Inventory is recorded at the lower of cost or market value, cost being determined using the first-in, first-out ("FIFO") method. Inventory consists of diabetic supplies. Inventory held by distributors is reported as inventory until the supplies are shipped to the end user by the distributor. The Company estimates an inventory reserve for obsolescence and excessive quantities. Due to competitive pressures and technological innovation, it is possible that estimates of net realizable values could change in the near term. Inventory consists of the following as of: June 30, 2017 September 30, 2016 Finished goods $ 503,477 $ 206,444 Inventory reserve (1,708) (1,708) Net inventory $ 501,769 $ 204,736 |
6. Prepaid Expenses and Other C
6. Prepaid Expenses and Other Current Assets | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
6. Prepaid Expenses and Other Current Assets | 6. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following as of: June 30, 2017 September 30, 2016 Prepaid information technology services $ 38,081 $ 57,073 Other 12,249 112,117 Prepaid insurance 6,225 14,602 Prepaid legal and professional fees - 333,741 Research and development - 96,346 Line of credit acquisition fees - 30,978 Total prepaid expenses and other current assets $ 56,555 $ 644,857 |
7. Property and Equipment
7. Property and Equipment | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
7. Property and Equipment | 7. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are determined using the straight-line method over the estimated useful lives of the assets, which range between 3 and 7 years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the terms of the lease. Expenditures for maintenance and repairs are expensed as incurred. Upon the sale or disposal of property and equipment, any gains or losses are included in operations. Property and equipment consisted of the following as of: June 30, 2017 September 30, 2016 Software $ 47,974 $ 47,974 Leasehold improvements 98,023 98,023 Furniture 68,758 68,758 Equipment 47,191 49,772 Total property and equipment 261,946 264,527 Accumulated depreciation and amortization (205,501) (177,793) Property and equipment, net $ 56,445 $ 86,734 Assets to be disposed of are reported at the lower of the carrying amounts or fair values, less the estimated costs to sell or dispose. During the nine months ended June 30, 2016, the Company recorded a gain on the disposal of property and equipment of $245. Depreciation expense for the nine months ended June 30, 2017 and 2016, was $33,107 and $38,817, respectively. |
8. Accrued Expenses
8. Accrued Expenses | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
8. Accrued Expenses | 8. Accrued Expenses Accrued expenses consisted of the following as of: June 30, 2017 September 30, 2016 Interest $ 2,694,545 $ 1,206,387 Liability to issue warrants for the purchase shares of common stock 2,081,254 - Liability to issue common stock 2,000,933 240,000 Finance fees 333,000 - Payroll expense 329,615 207,052 Other 141,394 89,828 Deferred revenue 85,399 111,803 Warranty liability 58,300 134,330 Commissions and fees 40,997 52,311 Severance - 60,000 Total accrued expenses $ 7,765,437 $ 2,101,711 |
9. Notes Payable
9. Notes Payable | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
9. Notes Payable | 9. Notes Payable The Company had the following notes payable outstanding as of: June 30, September 30, 2017 2016 Unsecured notes payable with interest at 10% per annum, due November 2018. The notes may go into default in the event other notes payable go into default subsequent to the effective date of the note. Some of the notes are currently in technical default. However, as of the time of this report, the lenders have informally agreed to work with the Company until such time as the note can be repaid. In February 2016, the Company redeemed all 5,361 shares of its Series F Convertible Preferred Stock ("Series F preferred") plus accrued dividends of $673,948 for 20,005 shares of common stock with a fair value of $1,600,000 containing certain temporary restrictions, and $5,900,000 of notes payable. Payments on the notes are partially or fully convertible at the Company's option at the lesser of (i) 80% of the per share price of the common stock to be offered in the proposed offering that is described in the Form S-1 filed on July 19, 2016 (the "Offering"), (ii) $25 per share, (iii) 80% of the unit price in the Offering (if applicable), or (iv) the exercise price of any warrants issued in the Offering to a maximum of 39,334 shares of common stock. The conversion rate is adjustable to any lower rates granted through equity sales or other conversion rates provided by issuances of other debt, warrants, options or other instruments, with the exception of certain other raises. A note may only be converted if the holder owns less than 4.99% of the Company's common stock after conversion. The Company recorded a derivative liability of $2,461,899 related to the conversion feature of the notes. In connection with the redemption of the Series F preferred stock, the Company issued new warrants in exchange for warrants held by the Series F preferred stockholders for the purchase of 11,070 shares of common stock at an exercise price of the lesser of (i) 80% of the per share price of the common stock of the Offering, (ii) $25 per share, (iii) 80% of the unit price in the Offering (if applicable), or (iv) the exercise price of any warrants issued in the Offering, adjustable to any lower rates granted through equity sales or other conversion rates provided by issuances of other debt, warrants, options or other instruments, with the exception of certain other raises. The Company is also required to issue additional warrants for the purchase of up to 16,000 shares of common stock exercisable at $0.50 per share, also adjustable, that vest upon certain events of default. On December 11, 2017, the Company entered into Securities Purchase Agreements that adjusted the conversion rate to exercise price per share equal to the lesser of (i) 80% of the per share price of common stock in a contemplated private placement of securities of up to $5,000,000, contemplated to take place within six months of the effective date (the “Private Placement”) (ii) $3.00 per share, (iii) 80% of the offering price in the Private Placement (if applicable), or (iv) 80% of the exercise price of any warrants issued in the Private Placement, in each case subject to adjustment (see Note 18). The fair value of $1,344,608 related to the new warrants was recorded as a derivative (see Notes 12 and 15). The fair value of the stock, conversion feature, warrants and $25,000 of fees, in excess of the carrying value of the Series F preferred stock were recorded as a deemed dividend of $6,484,236. During the three months ended March 31, 2017, the Company entered into letter agreements related to the note to convert the outstanding principal and interest into shares of common stock contingent upon the Offering, which also removes the maximum share limitation conversion, which have expired (see Note 17). Subsequent to June 30, 2017, the Company received letters related to the notes wherein the lenders waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017 (see Note 18). In December 2017, the Company entered into those certain forbearance and lock up letter agreements with four of the eight debtors, with principal balances in the aggregate amount of $1,134,658, whereby the debtors agreed that, without prior written consent of the Company, the debtors will not, directly or indirectly, (i) offer for sale, sell, pledge, or otherwise transfer or dispose of (or enter into any transaction that is designed to, or could be expected to, result in the transfer or disposition by any person at any time in the future of) any shares of Common Stock (including, without limitation, shares of common stock that may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission and shares of common stock that may be issued upon exercise of any options or warrants) or securities convertible into or exercisable or exchangeable for common stock, (ii) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of common stock, whether any such transaction is to be settled by delivery of common stock or other securities, in cash or otherwise, (iii) except as provided for, make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of common stock or securities convertible into or exercisable or exchangeable for common stock or any other securities of the Company, or (iv) publicly disclose the intention to do any of the foregoing for a period of the earlier of (a) June 5, 2018 or (2) the consummation of a qualified offering, herein deemed as an offering by the Company of $3,000,000 or more. Additionally, the Debt Holders agreed that they will forbear from enforcing their rights and remedies against any defaults which may exist historically, currently or in the future through June 5, 2018 under the existing loan documents. The agreements automatically terminate upon the earlier of (i) inability to raise a minimum of $550,000 in capital on or before December 31, 2017; (ii) June 5, 2018; or (iii) the consummation of a qualified offering of at least $3,000,000 by the Company. In addition, two of the five debtor agreements waive their rights to default litigation only through December 31, 2017 and any new financing must receive their prior consent unless it is common equity (see Note 18). On January 12, 2018, the Company received letters from four of the debtors where the debtors forbear against any historical and future events of default and remedies through February 15, 2018. Further, the maturity date was extended through February 15, 2018. As part of the letters, the Company agreed not to initiate any new financing arrangements without the consent of the debtors. (see Note 18). On December 11, 2017, the Company borrowed an aggregate additional $300,000 from two of the lenders under new note payable agreements (see Note 18). $ 5,900,000 $ 5,900,000 Secured borrowings from a third party that purchased $3,257,600 of customer receivables for $2,100,000, with due dates ranging from January 2018 to October 2018, and payable in daily payments ranging from $5,000 to $13,000. The $1,157,600 difference between the customer receivables and cash received is being amortized to interest expense over the term of the respective notes. The secured borrowings are guaranteed by a former chief executive officer of the Company and are subordinated to other notes payable. On April 17, 2017, the Company entered into a factoring agreement which provides for an advance of $1,794,000, comprised of $1,000,000 in cash and the consolidation of $794,000 from four prior factoring agreements into the amounts owed under the factoring agreement (collectively, the "Funds"). In consideration for the Funds, the Company sold to the lender all future receipts until the total amount of $2,511,601 has been paid. The factoring agreement requires payment of the minimum daily amount of $12,999.99 for 193 days. The $2,511,601 can be reduced if repayment occurs more quickly. Repayment of the amounts owing is with recourse and secured by all accounts, chattel paper, documents, equipment, general intangibles, instruments, and inventory of the Company and subordinated to other notes payable. In June 2017, the lender verbally agreed to reduce the minimum daily amount to $5,000 and, in November 2017, verbally agreed to further reduce the minimum daily amount to $2,600 through January 7, 2018, after which the daily amount would return to $13,000. Subsequent to June 30, 2017, the Company entered into similar secured borrowings and related verbal or written reductions in the daily amounts. On January 5, 2018, the Company further modified each agreement to keep the amount of the daily payments at approximately the same level as the agreement on November 7, 2017 through mid-March 2018, except one where the lower payments are only through February 5, 2018 (see Note 18). 1,974,602 689,318 Unsecured note payable with a vendor with interest at 0.65% per annum payable at the end of each calendar year, due January 2018, issued in March 2016 upon the conversion of $2,523,937 in accounts payable to the vendor. The note requires payments of $50,000 per month in April 2016 through December 2016, $100,000 per month in January 2017 through December 2017 and the remaining balance due in January 2018. In September 2017, the Company entered into agreements with the vendor which supersedes the unsecured note payable agreement and provides new terms (see Note 18). 1,773,937 2,223,937 Unsecured note payable with a third party with no interest, was due the earlier of November 2016 or the third business day after the closing of a proposed Offering. The note is currently in technical default. However, as of the time of this report, the lender has provided bridge capital since going in default and has informally agreed to work with the Company until such time as the note can be repaid. Pursuant to the note, the Company may borrow up to $1,500,000 upon meeting certain milestones and may be converted into shares of common stock upon default. The note required a payment of common stock on the 5th trading day after the pricing of the proposed Offering, but no later than December 15, 2016. The number of common shares will equal $200,000 divided by the lowest of (i) the lowest daily closing price of the common stock during the ten days prior to delivery of the common shares or during the ten days prior to the date of the Purchase Agreement, (ii) 80% of the common stock Offering price of the Offering, (iii) 80% of the unit price Offering price of the Offering, or (iv) the exercise price of any warrants issued in the Offering. The estimated fair value of $240,000 of the stock is included in accrued liabilities and is being amortized to interest expense over the life of the note. In connection with the issuance of the note, the Company also issued 20,000 warrants to purchase shares of common stock at an exercise price per share equal to the lesser of (i) 80% of the per share price of the common stock in the Offering, (ii) $25 per share, (iii) 80% of the unit price in the Offering, or (iv) the exercise price of any warrants issued in the Offering and the number of shares will reset upon the closing of the Offering. The warrants may only be exercised to the extent the holder would own a maximum of 9.99% of the Company's common stock after exercise. The fair value of $493,590 related to the replacement warrants was recorded as a derivative (see Notes 12 and 15). Of this fair value amount, $220,000 was recorded as a debt discount and is being amortized over the life of the note and the remaining $273,590 was recorded as a loss on derivative liability. In the event of borrowing in excess of an initial $500,000, the Company will be required to issue additional warrants with an aggregate exercise amount equal to 100% of the additional amount borrowed with similar terms to the initial warrants issued. In November 2016, the Company borrowed an addition $250,000 on the note and issued an additional warrant for the purchase of 10,000 shares of common stock with similar terms to the original warrants. The fair value of $286,171 related to the November 2016 warrants was recorded as a derivative (see Notes 12 and 15). The fair value was recorded as a debt discount and is being amortized over the remaining life of the note. In November 2016, the Company amended the note to extend the maturity date to the earlier of January 31, 2017 or the third business day after the closing of the Offering. In addition, the amendment adjusted the origination shares to equal 20% of the note divided by the lowest of (i) the lowest daily closing price of the common stock during the ten days prior to delivery of the shares or during the ten days prior to the date of the agreement, (ii) 80% of the common stock Offering price of the Offering, (iii) 80% of the unit price Offering price (if applicable), or (iv) 80% of the exercise price of any warrants issued in the Offering. In December 2016, the Company borrowed an addition $250,000 on the note and issued an additional warrant for the purchase of 10,000 shares of common stock with similar terms to the original warrants. The fair value of $349,819 related to the December 2016 warrants was recorded as a derivative (see Notes 12 and 15). The fair value was recorded as a debt discount and is being amortized over the remaining life of the note. On January 3, 2017, the Company borrowed an additional $200,000 on the note and issued an additional warrant for the purchase of 8,000 shares of common stock with similar terms to the original warrants. The fair value of $567,753 related to the January 3, 2017 warrants was recorded as a derivative (see Notes 12 and 15). The fair value was recorded as a debt discount and is being amortized over the remaining life of the note. On January 30, 2017, the Company amended the note to extend the maturity date to the earlier of March 15, 2017 or the third business day after the closing of the Offering. Also on January 30, 2017. the Company borrowed the remaining $300,000 on the note and issued an additional warrant for the purchase of 12,000 shares of common stock with similar terms to the original warrants. The fair value of $899,598 related to the January 30, 2017 warrants was recorded as a derivative (see Notes 12 and 15). The fair value was recorded as a debt discount and is being amortized over the remaining life of the note. On March 3, 2017, the Company amended the note to increase the maximum sum from $1,500,000 to $2,000,000. Also on March 3, 2017, the Company borrowed an additional $200,000 on the note and issued an additional warrant for the purchase of 8,000 shares of common stock with similar terms to the original warrants. The fair value of $407,947 related to the March 3, 2017 warrants was recorded as a derivative (see Notes 12 and 15). The Company recorded a loss on extinguishment of debt of $501,969 related to the March 3, 2017 amendment and additional borrowing. Effective March 27, 2017, the Company amended the note to extend the maturity date to the earlier of April 15, 2017 or the third business day after the closing of the Offering. Additionally, the lender agreed to enter into a lock up prohibiting the sale or other transfer of all securities of the Company owned by them for a period of 6 months. In consideration for entering into the lock-up agreement the Company has agreed to pay a $340,000 fee, payable in shares of common stock at a rate of the lowest of (i) 80% of the common stock Offering price of the Offering, (ii) 80% of the unit price Offering price of the Offering (if applicable), or (iii) 80% of the exercise price of any warrants issued in the Offering. The lock-up agreement was signed during April 2017, which has expired. Effective April 19, 2017, the Company amended the note to extend the maturity date to the earlier of May 20, 2017 or the third business day after the closing of the Offering. On December 11, 2017, the Company borrowed an additional $250,000 from the lender under a new note payable agreement (see Note 18). 1,700,000 500,000 Secured note payable to a third party with interest at 12.75% per annum, due February 2019, in default. The note is secured by the assets of the Company and may go into default in the event other notes payable go into default subsequent to the effective date of the note. The Company entered into the note payable agreement in conjunction with a line of credit. The Company initially borrowed $1,500,000 and may borrow additional amounts under the note payable agreement up to a total balance of $3,000,000 as the Company meets certain milestones. The interest rate may also reduce to 11.25% per annum as the Company meets certain milestones. In conjunction with the note and related line of credit, the Company issued warrants to the lender to purchase 24,032 shares of common stock at $32.50 per share with a fair market value of $3,732,100 (see Notes 12 and 15), which resulted in a loss on derivative of $2,309,461. The Company has recorded discounts of $1,500,000, which are being amortized to interest expense over the term of the note. In April 2016, the Company borrowed an additional $500,000 on the note and incurred additional fees of $25,000, which are being amortized to interest expense over the remaining term of the note. In September 2016, the Company entered into a forbearance agreement where the lender will forbear from exercising remedies with regard to certain breaches through October 31, 2016 and consented to the Company entering into a purchase agreement with another party and issue the note and the warrant thereunder. Effective November 1, 2016, the Company and a lender entered into a forbearance and consent under a loan and security agreement (the "November Forbearance Agreement"). Pursuant to the terms of the November Forbearance Agreement, the lender will forbear from exercising remedies (the "November Forbearance") with regard to certain breaches of agreements between the Company and the lender, including the existing agreements as well as the previous forbearance agreement. Additionally, pursuant to the November Forbearance Agreement, the lender has provided the Company with the consent required under the existing agreements and previous forbearance agreement to make certain payments from the proceeds of the Offering. These payments include, but are not limited to (i) payments to holders of the Company's Series E Preferred, (ii) third party note and receivable payments and (iii) repayment of an unsecured note payable issued in September 2016. The lender also consented to the issuance of the Company's Series G Preferred Stock to certain affiliates of the Company. In consideration for the November Forbearance, the Company has agreed to issue the lender warrants to purchase 130,000 shares of common stock at an exercise price equal to the per share price of the common stock in the Offering, which shall be subject to a 12-month lock-up agreement. The Company has included the $1,932,577 estimated fair value of the warrants in accrued expenses as of June 30, 2017. The Forbearance set forth in the November Forbearance Agreement was in effect through December 31, 2016. The Company recorded a loss on extinguishment of debt of $2,043,715 on the note and its related line of credit in relation to the forbearance agreement. Effective December 31, 2016, the Company and the lender entered into a forbearance and consent under loan and security agreement (the "December Forbearance"). Pursuant to the terms of the December Forbearance, the lender will forbear from exercising remedies with regard to certain breaches of agreements between the Company and the lender, including the existing agreements as well as the previous two forbearances. Additionally, pursuant to the December Forbearance, the lender has provided the Company with the consent required under the Existing Agreements and prior two forbearances to make certain payments from the proceeds of the Offering. In consideration for the December Forbearance, the Company has agreed to issue the lender warrants to purchase 10,000 shares of common stock at an exercise price equal to the per share price of the common stock in the Offering and $50,000 of common stock at 80% of the at the same issue price in of the Offering, which shall be subject to a lock-up agreement. The $148,677 estimated fair value of the warrants and $60,000 fair value of the stock has been included in accrued expenses as of June 30, 2017. $104,824 of the fair value of the warrants and common stock associated with the note is recorded as a discount and is being amortized to interest expense over the remaining life of the note. The forbearance set forth in the December Forbearance was in effect through February 15, 2017. On February 15, 2017, the lender extended the December Forbearance period through March 31, 2017. On March 28, 2017, the lender extended the December Forbearance period through April 10, 2017. In March 2017, the Company modified the line of credit to include an additional secured borrowing of a maximum of $300,000. The Company recorded a loss on extinguishment of debt of $56,741 related to the modification. The Company has accrued default interest of $15,470 on the note payable. 1,152,778 1,652,778 Secured line of credit with a third party with interest at 12.25% per annum, due February 2018, in default. The note is secured by the assets of the Company and may go into default in the event other notes payable go into default subsequent to the effective date of the note. The Company entered into the line of credit agreement in conjunction with a note payable. The Company may draw up to the lesser of 80% of certain accounts receivable or $1,500,000 and increase the maximum it may borrow under the agreement up to a total balance of $3,000,000 at $500,000 per increase as the Company meets certain milestones. The interest rate may also reduce to 10.75% per annum as the Company meets certain milestones. In conjunction with the line of credit and related note, the Company issued warrants to purchase 24,032 shares of common stock at $32.50 per share with a fair market value of $3,732,100 (see Notes 12 and 15), which resulted in a loss on derivative of $2,309,461. The Company has recorded prepaid expenses of $44,665, which are being amortized to interest expense over the term of the line of credit. In September 2016, the Company entered into a forbearance agreement where the lender will forbear from exercising remedies with regard to certain breaches through October 31, 2016 and consented to the Company entering into a purchase agreement with another party and issuance of the note and the warrant thereunder. Effective November 1, 2016, the Company and a lender entered into a forbearance and consent under a loan and security agreement (the "November Forbearance Agreement"). Pursuant to the terms of the November Forbearance Agreement, the lender will forbear from exercising remedies (the "November Forbearance") with regard to certain breaches of agreements between the Company and the lender, including the existing agreements as well as the previous forbearance agreement. Additionally, pursuant to the November Forbearance Agreement, the lender has provided the Company with the consent required under the existing agreements and previous forbearance agreement to make certain payments from the proceeds of the Offering. These payments include, but are not limited to (i) payments to holders of the Company's Series E Preferred, (ii) third party note and receivable payments and (iii) repayment of an unsecured note payable issued in September 2016. The lender also consented to the issuance of the Company's Series G Preferred Stock to certain affiliates of the Company. In consideration for the November Forbearance, the Company has agreed to issue the lender warrants to purchase 130,000 shares of common stock at an exercise price equal to the per share price of the common stock in the Offering, which shall be subject to a 12-month lock-up agreement. The Company has included the $1,932,577 estimated fair value of the warrants in accrued expenses as of June 30, 2017. The Forbearance set forth in the November Forbearance Agreement was in effect through December 31, 2016. The Company recorded a loss on extinguishment of debt of $2,043,715 on the note and its related line of credit in relation to the forbearance agreement. Effective December 31, 2016, the Company and the lender entered into a forbearance and consent under loan and security agreement (the "December Forbearance"). Pursuant to the terms of the December Forbearance, the lender will forbear from exercising remedies with regard to certain breaches of agreements between the Company and the lender, including the existing agreements as well as the previous two forbearances. Additionally, pursuant to the December Forbearance, the lender has provided the Company with the consent required under the Existing Agreements and prior two forbearances to make certain payments from the proceeds of the Offering. In consideration for the December Forbearance, the Company has agreed to issue the lender warrants to purchase 10,000 shares of common stock at an exercise price equal to the per share price of the common stock in the Offering and $50,000 of common stock at 80% of the at the same issue price in of the Offering, which shall be subject to a lock-up agreement. The $148,677 estimated fair value of the warrants and $60,000 fair value of the stock has been included in accrued expenses as of June 30, 2017. $104,824 of the fair value of the warrants and common stock associated with the note is recorded as a discount and is being amortized to interest expense over the remaining life of the note. The forbearance set forth in the December Forbearance was in effect through February 15, 2017. On February 15, 2017, the lender extended the December Forbearance period through March 31, 2017. On March 28, 2017, the lender extended the December Forbearance period through April 10, 2017. In March 2017, the Company modified the line of credit to include an additional secured borrowing of a maximum of $300,000. The Company recorded a loss on extinguishment of debt of $56,741 related to the modification. The Company has accrued default interest of $16,997 on the note payable. 1,259,007 929,518 Unsecured note payable with interest at 18% per annum, with no maturity date. The note payable is from a verbal agreement with the lender which converted $617,500 of advances into $1,100,000 of principal on the note payable. The additional $482,500 of principal plus agreed upon fees of $95,226 have been included in accrued liabilities and were booked to interest expense immediately. During November 2017, the Company amended the note to be callable at any time, due May 30, 2018, and to become convertible into shares of the Company’s common stock at the most favorable rate available as of the date of the agreement. The conversion rate may adjusted for any more favorable conversion terms provided to any other note holder at a future date (see Note 18). 1,100,000 - Unsecured note payable with interest at 2.8% of total revenue per annum, with no maturity date. The note payable is from a verbal agreement with the lender which converted a $350,000 advance into the note payable. Agreed upon fees of $143,987 and a future payoff fee of 20%, or $70,000, have been included in accrued liabilities and were booked to interest expense immediately. During November 2017, the Company amended the note to where the Company is required to pay any outstanding interest at the end of the first month following a quarter end, the lender may call all amounts due under the note payable as due and payable after February 28, 2018, given 15 calendar days notice, and to become convertible into shares of the Company’s common stock at the most favorable rate available as of the date of the agreement. The conversion rate may adjusted for any more favorable conversion terms provided to any other note holder at a future date (see Note 18). 350,000 - Note payable previously secured by CareServices customer contracts. In January 2015, the note was amended to reduce the outstanding principal to $375,000, interest at 9% per annum, and payable in 15 monthly installments beginning in February 2015. The amendment released the collateralized customer contracts and the note payable is guaranteed by both a former Executive Chairman of the Board of Directors and a member of the Board of Directors. A gain on the extinguishment of the old note of $769,449 was recorded in other income. In December 2015, the note was amended to extend maturity to January 2018 payable in monthly installments beginning in July 2016, convert $31,252 from accrued interest into principal, interest at 10% per annum, and provide that the note is convertible into common stock at its fair value per share. The Company recorded a derivative in connection with the convertible feature of the note (see Note 12) and is amortizing the initial $302,690 fair value of the derivative liability over the life of the note. In February 2016, the note was amended to subordinate to other notes payable also issued during February 2016. In July 2016, the note was amended to extend the maturity date to the earlier of an equity raise in excess of $10,000,000 or November 2016 and included additional default penalties and payment terms. In October 2016, the note was amended to extend the maturity date to the earlier of an equity raise in excess of $10,000,000 or December 31, 2016 and included additional default penalties and payment terms. In December 2016, February 2017 and March 2017, the note was further amended to extend the maturity date to the earlier of an equity raise in excess of $10,000,000 or February 15, 2017, March 31, 2017, and April 30, 2017, respectively. Subsequent to June 30, 2017, the Company received a letter related to the note wherein the lender waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017 and later sent an additional letter where the lender waived any historical and future events of default through February 28, 2018 and extended the maturity date through February 28, 2018 (see Note 18). 334,464 334,464 Unsecured note payable with interest at 12% per annum, due February 2016, convertible into common stock at $150 per share. In connection with the issuance of the note, the Company repriced previously issued warrants to purchase shares of common stock. The $22,397 increase in relative fair value of the warrants was included as a loss on the extinguishment of the old note in other expense in fiscal 2015. The note also required a payment of 6,000 shares of common stock. The fair value of $780,000 was included as a loss on the extinguishment of the old note in other expense in fiscal 2015. The maturity date was subsequently extended on two occasions for a total of 500 shares of common stock and the note was due May 2016. The $31,250 fair value of these shares was being amortized over the extension period. In February 2016, the note was amended to subordinate to other notes payable also issued during February 2016, and the conversion price was reduced to $30 per share, which was below the fair value of the Company's common stock on the date of the amendment. The note may only be converted if the holder owns less than 9.99% of the Company's common stock after conversion. The Company recorded the value of the beneficial conversion feature of $381,299 to loss on termination of debt as a result of the modification. In May 2016, the note was amended to extend the maturity date to the earlier of an equity raise of $10,000,000 or October 2016 which required a payment of 600 shares of common stock. The $28,500 fair value of these shares has been included in accrued liabilities and was amortized over the extension period. In October 2016, the Company extended the maturity date of the note month-by-month through no later than April 30, 2017 for a fee of $5,000 per month extended. During September 2017, the Board of Directors granted 200 shares of Series H Preferred Stock for extension fees. In October 2017, the Company entered into a settlement agreement related to the note where the Company borrowed an additional $200,000 and |
10. Related Party Notes Payable
10. Related Party Notes Payable | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
10. Related Party Notes Payable | 10. Related-Party Notes Payable The Company had the following related-party notes payable outstanding as of: June 30, September 30, 2017 2016 Secured borrowings from entities controlled by an officer who purchased a $2,813,175 customer receivable for $1,710,500. The note is currently in technical default. However, as of the time of this report, the lender has informally agreed to work with the Company until such time as the note can be repaid. The Company repurchased the receivable for $1,950,000 less cash received by the entities through March 2015. The $239,500 difference between the buyback and cash received plus $253,500 of loan origination fees was amortized to interest expense through March 2015. In September 2015, the note was modified to extend the maturity date to January 2017, with interest at 18% per annum. The Company added $81,600 of extension fees and issued 6,000 shares of common stock to a lender as part of the modification. The note is convertible into common stock at $150 per share. The $540,000 fair value of the common stock was recognized as a loss on extinguishment of debt in fiscal 2015. In February 2016, the note was amended to subordinate to other notes payable also issued during February 2016, and the conversion price was reduced to $30 per share, which was below the fair value of the Company's stock on the date of the amendment. The conversion of the note is now limited to a maximum of 40,000 common shares in combination with other convertible notes payable held by the lenders. The note has a default penalty of 8,407 shares of common stock, in combination with other convertible notes held by the lenders, if not paid by maturity. The Company recorded the value of the combined beneficial conversion features of $1,400,000 to loss on termination of debt as a result of the amendment. During the three months ended March 31, 2017, the Company entered into a letter agreement related to the remainder of the note to convert the outstanding principal and interest into shares of common stock contingent upon the completion of the Offering, which has expired (see Note 17). Subsequent to June 30, 2017, the Company received a letter related to the note wherein the lenders waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017 and later sent an additional letter where the lenders waived any historical and future events of default through January 12, 2018 and extended the maturity date through January 12, 2018 (see Note 18). In November 2017, the officer assigned $2,000,000 of principal all of the notes payable held by the related-party entities to a third party who the Company owed aggregate principal of $1,200,000 as of June 30, 2017. Interest accrued on the $2,000,000 assigned principal will continue to be payable to the related-party entities (see Note 18). $ 1,721,100 $ 1,721,100 Unsecured note payable to an entity controlled by an officer with interest at 18% per annum, due January 2017, convertible into common stock at $150 per share. The note is currently in technical default. However, as of the time of this report, the lender has informally agreed to work with the Company until such time as the note can be repaid. The Company issued 6,000 shares of common stock to a lender as loan origination fees. The $540,000 fair value of the common stock was recognized as a loss on extinguishment of debt in fiscal 2015. In February 2016, the note was amended to subordinate to other notes payable also issued during February 2016, and reduced the conversion price to $30 per share, which was below the fair value of the Company's stock on the date of the amendment. The conversion of the note is now limited to a maximum of 40,000 common shares in combination with other convertible notes payable held by the lender. The note has a default penalty of 8,407 shares of common stock, in combination with other convertible notes held by the lender, if not paid by maturity. The Company recorded the value of the combined beneficial conversion features of $1,400,000 to loss on termination of debt as a result of the amendment. During the three months ended March 31, 2017, the Company entered into a letter agreement related to the remainder of the note to convert the outstanding principal and interest into shares of common stock contingent upon the completion of the Offering, which has expired (see Note 17). Subsequent to June 30, 2017, the Company received a letter related to the note wherein the lender waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017 and later sent an additional letter where the lenders waived any historical and future events of default through January 12, 2018 and extended the maturity date through January 12, 2018 (see Note 18). In November 2017, the officer assigned $2,000,000 of principal all of the notes payable held by the related-party entities to a third party who the Company owed aggregate principal of $1,200,000 as of June 30, 2017. Interest accrued on the $2,000,000 assigned principal will continue to be payable to the related-party entities (see Note 18). 1,303,135 1,303,135 Unsecured note payable to an entity controlled by a former Executive Chairman of the Board of Directors with interest at 18% per annum, due January 2017. The note is currently in technical default. However, as of the time of this report, the lender has informally agreed to work with the Company until such time as the note can be repaid. In February 2016, notes payable to the same entity, with outstanding balances of $511,005 plus accrued interest of $30,999 combined into this note. The note is subordinated to notes payable to unrelated parties and is convertible into shares of common stock at $30 per share, which was below the fair value of the Company's stock on the date of the agreement. The conversion of the note is limited to a maximum of 18,500 common shares. The Company recorded the value of the beneficial conversion feature of $632,339 to loss on termination of debt. The note has a default penalty of 1,469 shares of common stock if not paid by maturity. The note may only be converted if the holder owns less than 4.99% of the Company's common stock after conversion. During the three months ended March 31, 2017, the Company entered into a letter agreement related to the remainder of the note to convert the outstanding principal and interest into shares of common stock contingent upon the completion of the Offering, which has expired (see Note 17). Subsequent to June 30, 2017, the Company received a letter related to the note wherein the lender waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017 and later sent an additional letter where the lenders waived any historical and future events of default through January 12, 2018 and extended the maturity date through January 12, 2018 (see Note 18). 542,004 542,004 Unsecured note payable to an entity controlled by an officer with interest at 12% per annum, due September 2016, subordinated to other third party notes payable. The note is currently in technical default. However, as of the time of this report, the lender has informally agreed to work with the Company until such time as the note can be repaid. In connection with the issuance of the note, the Company issued 2,000 shares of common stock. The $70,000 fair value of the stock is being amortized to interest expense over the term of the note. During the three months ended March 31, 2017, the Company entered into a letter agreement related to the remainder of the note to convert the outstanding principal and interest into shares of common stock contingent upon the completion of the Offering, which has expired (see Note 17). Subsequent to June 30, 2017, the Company received a letter related to the note wherein the lender waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017 and later sent an additional letter where the lenders waived any historical and future events of default through January 12, 2018 and extended the maturity date through January 12, 2018 (see Note 18). In November 2017, the officer assigned $2,000,000 of principal all of the notes payable held by the related-party entities to a third party who the Company owed aggregate principal of $1,200,000 as of June 30, 2017. Interest accrued on the $2,000,000 assigned principal will continue to be payable to the related-party entities (see Note 18). 250,000 250,000 Unsecured note payable to a former officer with interest at 12% per annum, due September 2013. This note is in default and is convertible into common stock at $375 per share. 26,721 26,721 Unsecured note payable to an entity controlled by an officer with interest at 18% per annum, due on demand. The note is currently in technical default. However, as of the time of this report, the lender has informally agreed to work with the Company until such time as the note can be repaid. In February 2016, the note was amended to subordinate the note to other notes payable also issued during February 2016. The note is convertible into shares of common stock at $30 per share, which was below the fair value of the Company's stock on the date of the amendment. The conversion of the note is now limited to a maximum of 40,000 common shares in combination with other convertible notes payable held by the entity. The note has a default penalty of 8,407 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity. The Company recorded the value of the combined beneficial conversion features of $1,400,000 to loss on termination of debt as a result of the amendment. In January 2017 and February 2017, the note was amended to extend the maturity date to February 15, 2017 and April 30, 2017, respectively. Subsequent to June 30, 2017, the Company received a letter related to the note wherein the lender waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017 and later sent an additional letter where the lenders waived any historical and future events of default through January 12, 2018 and extended the maturity date through January 12, 2018 (see Note 18). In November 2017, the officer assigned $2,000,000 of principal all of the notes payable held by the related-party entities to a third party who the Company owed aggregate principal of $1,200,000 as of June 30, 2017. Interest accrued on the $2,000,000 assigned principal will continue to be payable to the related-party entities (see Note 18). 25,463 25,463 Unsecured note payable to a former officer with interest at 15% per annum, due June 2012, in default. The note included a $3,000 loan origination fee added to the principal and is convertible into common stock at $250 per share. 1,260 17,227 Unsecured note payable to a former officer with interest at 12% per annum, due on demand. - 12,474 Total notes payable, related-party 3,869,683 3,898,124 Less current portion (3,869,683) (3,898,124) Notes payable, related-party, net of current portion $ - $ - |
11. Fair Value Measurements
11. Fair Value Measurements | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
11. Fair Value Measurements | 11. Fair Value Measurements The Company measures the fair values of its assets and liabilities using the US GAAP hierarchy levels as follows: Level 1 The Company does not have any Level 1 inputs available to measure its assets. Level 2 Certain of the CompanyÂ’s embedded derivative liabilities are measured on a recurring basis using Level 2 inputs. Level 3 Certain of the CompanyÂ’s embedded derivative liabilities are measured on a recurring basis using Level 3 inputs. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Items measured at fair value on a recurring basis include embedded derivatives related to the CompanyÂ’s warrants and notes payable. During the nine months ended June 30, 2017, the Company has not changed the manner in which it values liabilities that are measured at fair value using Level 3 inputs. The following fair value hierarchy table presents information about the Company's financial liabilities measured at fair value on a recurring basis: Quoted Prices in Active Markets for Identical Items (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total June 30, 2017 Derivatives liability $ - $ 269,427 $ 3,962,556 $ 4,231,983 September 30, 2016 Derivatives liability - 281,613 1,772,458 2,054,071 The following is a reconciliation of the opening and closing balances for the derivatives liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended June 30, 2017: Derivatives Liability Balance, September 30, 2016 $ 1,772,458 Issuance of warrants recorded as derivatives 2,511,288 Gain on termination of debt resulting from payments on notes payable (103,213) Loss on derivatives liability resulting from changes in fair value (217,997) Balance, June 30, 2017 $ 3,962,556 The CompanyÂ’s embedded derivative liabilities are re-measured to fair value as of each reporting date. See Note 12 for more information about the valuation methods of derivatives and the inputs used for calculating fair value. |
12. Derivatives Liability
12. Derivatives Liability | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
12. Derivatives Liability | 12. Derivatives Liability The derivatives liability as of June 30, 2017 and September 30, 2016, was During the nine months ended June 30, 2017, the Company estimated the fair value of some of the embedded derivatives upon issuance at the end of each reporting period using a binomial option-pricing model with the following assumptions, according to the instrument: exercise price of $8 to $15 per share; risk free interest rate of 0.85% to 1.14%; expected life of 0.53 to 1.03 years; expected dividends of 0%; volatility factor of 260.57% to 282.07%; and stock price of $8 to $15. During the nine months ended June 30, 2017, the Company estimated the fair value of the remaining embedded derivatives upon issuance and at the end of each reporting period using a Monte Carlo valuation model with the following assumptions: exercise prices ranging from $2.50 to $25.00 per share; risk free interest rates ranging from 0.44% to 1.99%; expected lives ranging from 0.09 to 4.93 years; expected dividends of 0%; volatility factors of 128% - 194%; and stock prices ranging from $2.50 to $25.00. During fiscal year 2016, the Company estimated the fair value of some of the embedded derivatives upon issuance, at the end of each reporting period and prior to their conversion and elimination using a binomial option-pricing model with the following assumptions, according to the instrument: exercise prices ranging from $14.50 to $46.75 per share; risk free interest rates ranging from 0.16% to 1.06%; expected lives ranging from 0.05 to 2.09 years; expected dividends of 0%; volatility factors ranging from 125.33% to 510.03%; and stock prices ranging from $15 to $70. During fiscal 2016, the Company estimated the fair value of the remaining embedded derivatives upon issuance and at the end of each reporting period using a Monte Carlo valuation model with the following assumptions: exercise prices ranging from $20 to $125 per share; risk free interest rates ranging from 0.18% to 1.44%; expected lives ranging from 0.04 to 6.40 years; expected dividends of 0%; volatility factors of 129% to 140%; and stock prices ranging from $20 to $475 per share. The expected lives of the instruments were equal to the average term of the conversion option or expected exercise period of the warrants. The expected volatility is based on the historical price volatility of the Company's common stock. The risk-free interest rate represents the US Treasury constant maturities rate for the expected life of the related conversion option. The dividend yield represents anticipated cash dividends to be paid over the expected life of the conversion option. The Company recognized a gain on derivatives liability for the three months ended June 30, 2017 of $64,145 and a gain on derivatives liability for the three months ended June 30, 2016 of $5,603,411. The Company recognized a gain on derivatives liability for the nine months ended June 30, 2017 of $230,163 and a gain on derivatives liability for the nine months ended June 30, 2016 of $2,796,542. |
13. Preferred Stock
13. Preferred Stock | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
13. Preferred Stock | 13. Preferred Stock The Company is authorized to issue 10,000,000 shares of preferred stock, with a par value of $0.00001 per share. Pursuant to the Company's Certificate of Incorporation, the Board of Directors has the authority to amend the Company's Certificate of Incorporation, without further stockholder approval, to designate and determine the preferences, limitations and relative rights of the preferred stock before any issuance of the preferred stock and to create one or more series of preferred stock, fix the number of shares of each such series, and determine the preferences, limitations and relative rights of each series of preferred stock, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, and liquidation preferences. Series D Convertible Preferred Stock The Board of Directors has designated 1,000,000 shares of preferred stock as Series D Convertible Preferred Stock ("Series D Preferred "). The Series D Preferred votes on an as-converted basis. The Series D Preferred has a dividend rate of 8%, payable quarterly. The Company may redeem the Series D Preferred at a redemption price equal to 120% of the original purchase price with 15 days' notice. During the nine months ended June 30, 2017 and 2016, the Company accrued $24,800 and $18,617 of dividends on Series D preferred stock, respectively, and settled $0 and $12,434 of accrued dividends, respectively, by issuing 0 and 455 shares of common stock, respectively. Series E Convertible Preferred Stock During fiscal year 2013, the Board of Directors designated shares of preferred stock as Series E Convertible Preferred Stock ("Series E Preferred"), convertible into common stock at $500 per share, adjustable if there are distributions of common stock or stock splits by the Company. The Series E Preferred is non-voting and receives a monthly dividend of 3.322% for 25 to 32 months. In addition, the convertibility and the redemption price of the Series E Preferred is gradually reduced by dividend payments over 25 to 32 months. After the dividend payment term, the redemption price of Series E Preferred is $0, the Series E Preferred has no convertibility to common stock and the holders are entitled to receive a pro-rata share of cumulative royalties totaling 4% of the Company's gross profits payable quarterly for a two-year period. During the three months ended June 30, 2017 and 2016, the Company accrued dividends of $34,178 and $39,598, respectively, payable to Series E Preferred. During the nine months ended June 30, 2017 and 2016, the Company accrued dividends of $102,535 and $185,485, respectively, payable to Series E Preferred. As of June 30, 2017 and September 30, 2016, the aggregate redemption price for the Series E Preferred was $477,829. Series F Convertible Preferred Stock During fiscal year 2014, the Board of Directors designated 7,803 shares of preferred stock as Series F Convertible Preferred Stock ("Series F Preferred"). In April 2014, the Company increased the authorized shares of Series F Preferred to 10,000. Series F Preferred is non-voting, has a stated value of $1,000 per share and is convertible into common stock at $166.85 per share (see Note 12). Series F Preferred has a dividend rate, payable quarterly, of 8% until April 30, 2015, 16% from May 1, 2015 to July 31, 2015, 20% from August 1, 2015 to October 31, 2015, and 25% thereafter. In February 2016, the Company redeemed all 5,361 outstanding shares and $673,848 of accrued dividends for 20,005 shares of common stock, $5,900,000 of notes payable and exchanged warrants for the purchase of 11,070 shares of common stock held by Series F Preferred stockholders for new warrants with new terms for the purchase of the same number of shares (see Note 15). The Company recorded a deemed dividend of $6,484,236 as a result of the transactions. During the three and nine months ended June 30, 2016, the Company accrued dividends of $0 and $495,148, respectively, payable to Series F Preferred stockholders. Series G Convertible Preferred Stock During January 2017, the Board of Directors designated 43,220 shares of preferred stock as Series G Convertible Preferred Stock ("Series F Preferred"). Series G Preferred votes on an as-converted basis, has a stated value of $500 per share. The Series G Preferred will automatically convert the stated value of such shares into fully paid and non-assessable shares of common stock (Series G Conversion Shares”) of the Company upon (i) the Company’s receipt of $50,000,000 or more in gross revenue in a single fiscal year, (ii) the sale of the Company via asset purchase, stock sale, merger or other business combination in which the Company and/or its stockholders receive aggregate gross proceeds of $25,000,000 or more, or (iii) the closing of an underwritten offering by the Company pursuant to which the Company receives aggregate gross proceeds of at least $10,000,000 in consideration of the purchase of shares of common stock and/or which results in the listing of the Company’s common stock on the Nasdaq National Market, the Nasdaq Capital Market, the New York Stock Exchange, or the NYSE MKT. The number of Series G Conversion Shares issuable upon conversion shall equal the stated value divided by the conversion price then in effect. The conversion price of the Series G Preferred is $22.50. Upon the trigger of an automatic conversion, all of the shares of Series G Preferred owned by such holders will convert into common stock at the conversion price then in effect. On January 31, 2017, the Company issued 32,415 shares of Series G Preferred to an entity affiliated with one of the Company’s former Chief Executive Officers and 10,805 shares of Series G Preferred to a different former Chief Executive Officer and consultant to the Company. The consideration for such issuance relates to services rendered to the Company. Each of the two recipients of the Series G Preferred stock have entered into lock-up agreements, as amended, prohibiting the sale or other transfer of the Common Shares issued pursuant to the conversion of the Series G Preferred securities of the Company owned by each of them for the longer of (i) 18 months or (ii) the date the Company first has annual gross revenues in an amount of at least $20,000,000. The lock-up agreements initially expired if the Offering was not completed by February 15, 2017, whose expirations were extended to March 31, 2017 with new agreements signed during February 2017. As of June 30, 2017, the agreements have expired. On September 5, 2017, the Board of Directors of the Company agreed to modify the terms of the Series G Convertible Preferred stock to remove the 18-month lock-up period, however, no such amendment to the Series G Preferred has not been filed with the State of Delaware as of the date of this filing. Liquidation Preference Upon any liquidation, dissolution or winding up of the Company, before any distribution or payment may be made to the holders of the common stock, the holders of the Series D Preferred, Series E Preferred, and Series F Preferred are entitled to be paid out of the assets an amount equal to $1.00 per share plus all accrued but unpaid dividends. If the assets of the Company are insufficient to make payment in full to all holders of preferred stock, then the assets shall be distributed among the holders of preferred stock ratably in proportion to the full amounts to which they would otherwise be entitled. |
14. Common Stock
14. Common Stock | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
14. Common Stock | 14. Common Stock In April 2014, the Company amended its Certificate of Incorporation increasing the total number of authorized shares of common stock from 50,000,000 shares to 200,000,000 shares. On January 27, 2017, the Company effected a 1-for-500 reverse stock split of its outstanding common stock, which caused the then outstanding common stock to decrease from 115,112,802 to 232,100 while keeping the authorized capitalization unchanged. During the nine months ended June 30, 2017, the Company issued 7,000 shares of common stock (post reverse stock split) for services provided by an independent consultant; the value on the date of grant was $70,000. |
15. Common Stock Options and Wa
15. Common Stock Options and Warrants | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
15. Common Stock Options and Warrants | 15. Common Stock Options and Warrants The fair value of each stock option or warrant is estimated on the date of grant using a binomial option-pricing model or the Monte Carlo valuation model. The expected life of stock options or warrants represents the period of time that the stock options or warrants are expected to be outstanding, based on the simplified method. Expected volatilities are based on historical volatility of the Company's common stock, among other factors. The Company uses the simplified method within the binomial option-pricing valuation model due to the Company's short trading history. The risk-free rate related to the expected term of the stock options or warrants is based on the US Treasury yield curve in effect at the time of grant. The dividend yield is zero. During fiscal 2016, the Company granted warrants to purchase 24,032 common shares with an exercise price of $32.50 per share in connection with the acquisition of a note payable and line of credit; warrants for the purchase of 14,786 shares vested immediately, 3,696 vested upon the disbursement of the second tranche of the related note payable, and 5,550 vest evenly in the event of three available increases on the related line of credit (see Note 9). The warrants expire in February 2023, may be exercised via cashless exercise and are puttable upon expiration or liquidation for the greater of $500,000 or up to 6.5% of the equity value of the Company, depending on the number of warrants vested. The fair value of the warrants upon grant of $3,731,969 was recorded as a derivative and the Company received cash of $2,967 upon issuance of the warrants. The Company recognized $1,419,541 as debt discount for the portion allocated to the note payable and the debt discount is being amortized over the life of the note payable to interest expense. During September 2016, the Company entered into a conditionally effective warrant cancellation agreement with the warrant holders, which has expired (see Note 17). During February 2016, the Company exchanged warrants held by the holders of its Series F Preferred for the purchase of 11,070 shares of common stock in connection with the redemption of Series F Preferred for new warrants for the purchase of the same number of shares on different terms. The new warrants were initially exercisable for $150 per share, adjustable to any lower rates granted through equity sales or other conversion rates provided by issuances of other debt, warrants, options or other instruments, with the exception of certain other raises. During September 2016, the Company issued warrants for the purchase of common stock that adjusted the warrants to have an exercise price per share equal to the lesser of (i) 80% of the per share price of the common stock of the Offering, (ii) $25 per share, (iii) 80% of the unit price in the Offering (if applicable), or (iv) the exercise price of any warrants issued in the Offering. On December 11, 2017, the Company entered into Securities Purchase Agreements that adjusted the conversion rate to exercise price per share equal to the lesser of (i) 80% of the per share price of common stock in a contemplated private placement of securities of up to $5,000,000, contemplated to take place within six months of the effective date (the “Private Placement”) (ii) $3.00 per share, (iii) 80% of the offering price in the Private Placement (if applicable), or (iv) 80% of the exercise price of any warrants issued in the Private Placement, in each case subject to adjustment (see Note 18). The new warrants expire in February 2021, and may be exercised via cashless exercise. Additional warrants for the purchase of 16,000 shares of common stock may be issued in the event of default on the related notes payable, exercisable at $0.50 per share, with 25% issuable upon the first event of default, 37.5% upon the second event, and 37.5% upon the third event. The warrants issuable upon default expire in February 2026 (if issued), may be exercised via cashless exercise, and are puttable upon expiration or liquidation with the primary warrants. The new warrants may only be exercised to the extent the respective holder would own a maximum of 4.99% of the Company’s common stock after exercise, but the holders may elect to increase the maximum to 9.99%. The Company recognized a deemed dividend of $6,484,236 as a result of the exchange and related redemption of Series F Preferred. During September 2016, the Company granted warrants to purchase 20,000 shares in connection with the acquisition of a note payable at an exercise price per share equal to the lesser of (i) 80% of the per share price of the common stock of the Offering, (ii) $25 per share, (iii) 80% of the unit price in the Offering (if applicable), or (iv) the exercise price of any warrants issued in the Offering. Upon the closing of the Offering, the number of shares issuable under the warrant will reset to an amount of shares equal to the aggregate exercise amount of the warrants (as defined therein) divided by the exercise price then in effect. The warrants expire in September 2021, and may be exercised via cashless exercise. The warrants may only be exercised to the extent the holder would own a maximum of 9.99% of the Company’s common stock after exercise. The Company recognized $220,000 of the $493,590 fair value of the warrants as a debt discount, which is being amortized over the life of the borrowing, and recognized the remaining $273,590 as a loss on derivatives liability. In the event the Company borrows additional amounts above the initial $500,000 under the note payable, the Company will be required to issue additional warrants with an aggregate exercise amount equal to 100% of the additional amount borrowed with similar terms to warrants issued as part of the initial borrowing. During the nine months ended June 30, 2017, the Company borrowed an additional $1,000,000 on the note and issued warrants for the purchase of 40,000 shares of common stock with the same terms as the initial warrants. The Company recognized the $2,103,341 fair value of the warrants as debt discounts, which are being amortized over the remaining life of the borrowing. Effective March 3, 2017, the note was amended to increase the maximum principal sum from $1,500,000 to $2,000,000 under which the Company borrowed an additional $200,000 in consideration and issued the lender a warrant to purchase up to 8,000 shares of common stock with the same terms as the warrants previously issued under the previous terms of the note. The Company recognized the $407,947 fair value of the warrants as part of the total on extinguishment of debt of $501,969. During the nine months ended June 30, 2017, the Company measured the fair value of warrants classified as liabilities on the date of issuance and on each re-measurement date using the Monte Carlo valuation model. For this liability, the Company and specialist developed their own assumptions that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of the Company’s common stock, stock price volatility, the contractual term of the warrants, risk–free interest rates and dividend yields. Due to the nature of these inputs, the valuation of the warrants uses Level 3 measurements. The following assumptions were used: Exercise price $2.50 - $25.00 Expected term (years) 0.21 - 4.93 Volatility 128% - 194% Risk-free rate 0.49% - 1.99% Dividend rate 0% Common stock price $2.50 - $25.00 The following table summarizes information about stock options and warrants outstanding as of June 30, 2017: Options and Warrants Number of Options and Warrants Weighted- Average Exercise Price Outstanding as of October 1, 2016 65,045 $ 35.06 Granted 48,000 25.00 Forfeited (3,871) 357.84 Outstanding as of June 30, 2017 109,174 37.12 Exercisable as of June 30, 2017 102,225 34.46 As of June 30, 2017, the outstanding warrants have an aggregate intrinsic value of $0 and the weighted average remaining term of the warrants was 4.52 years. The total compensation cost related to unvested awards not yet recognized (warrants and shares) was $38,468. |
16. Related-party Transactions
16. Related-party Transactions Not Otherwise Disclosed | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
16. Related-party Transactions Not Otherwise Disclosed | 16. Related-Party Transactions Not Otherwise Disclosed In February 2016, the Company amended a consulting agreement dated September 2015, with an entity controlled by a former Executive Chairman of the Board of Directors, effective January 2016. The amendment extended the agreement through December 2016, which automatically renews on a monthly basis until otherwise cancelled in accordance with the terms therein, changing the monthly compensation of $6,000 to an hourly rate of $250 per hour, and eliminated the previously included bonus structure. During May 2017, the Company granted 1,719 shares of common stock, with a value of $17,207 on the date of grant, to the consultant as a bonus for services performed. As of June 30, 2017, the shares have not been issued and the value has been included in accrued expenses. On September 5, 2017, the Company granted 1,500 shares of the CompanyÂ’s Series H Preferred stock to an entity controlled by a former Executive Chairman of the Board of Directors for past services rendered in addition to amounts earned under an existing consulting agreement. The shares of Series H Preferred stock have not yet been issued. The terms of the Series H Preferred stock have been approved by the Board of Directors of the Company, but no Certificate of Designation has been filed with the appropriate authoritative body. On November 13, 2017, the former Executive Chairman of the Board of Directors terminated the consulting agreement. In July 2016, the Company entered into a Consulting Agreement with a former Executive Chairman and Chief Executive Officer of the Company. This Consulting Agreement is for an initial period of one year, and shall automatically renew for consecutive one month periods unless terminated by the Company or the former Executive Chairman and Chief Executive Officer. As consideration for the services to be performed thereunder, the Company shall pay the former Executive Chairman and Chief Executive Officer at the rate of $250 per hour, but such compensation may not exceed $20,000 during any calendar month. During May 2017, the Company granted 10,324 shares of common stock, with a value of $103,343 on the date of grant, to the consultant as a bonus for services performed. As of June 30, 2017, the shares have not been issued and the value has been included in accrued expenses. On September 5, 2017, the agreement was replaced with a new agreement for an initial period of one year, and shall automatically renew for consecutive one month periods unless terminated by the Company or the former Executive Chairman and Chief Executive Officer. As consideration for the services, the Company shall pay the former Executive Chairman and Chief Executive Officer at the rate of $250 per hour, but such compensation may not exceed $20,000 during any calendar month, plus 1,500 shares of the CompanyÂ’s Series H Preferred stock. The shares of Series H Preferred stock have not yet been issued. The terms of the Series H Preferred stock have been approved by the Board of Directors of the Company, but no Certificate of Designation has been filed with the appropriate authoritative body. In August 2016, the Company received a cash advance for $135,000 from a former Executive Chairman and Chief Executive Officer of the Company. During the nine months ended June 30, 2017, the Company repaid the advance. During May 2017, the Company granted 96,275 shares of common stock, with a value of $963,713 on the date of grant, to a former Executive Chairman and Chief Executive Officer of the Company, who was in office at the time, as a bonus for services performed. As of June 30, 2017, the shares have not been issued and the value has been included in accrued expenses. On September 5, 2017, the Board of Directors of the Company granted 963 shares of Series H Preferred stock to the former Executive Chairman and Chief Executive Officer of the Company in lieu of the 96,275 shares of previously granted common stock. The terms of the Series H Preferred stock have been approved by the Board of Directors of the Company, but no Certificate of Designation has been filed with the appropriate authoritative body. The Series H Preferred shares have not yet been issued. In September 2017, the Company entered into an employment agreement with the former Executive Chairman and Chief Executive Officer of the Company, who was in office at the time, for a period of two years for services as the Executive Chairman and Chief Executive Officer of the Company. The initial term of the agreement is for two years and shall automatically renew on a year to year basis, unless terminated sooner. The base compensation is $360,000 per year plus 1,500 shares of the CompanyÂ’s Series H Preferred stock. The shares of Series H Preferred stock have not yet been issued. The terms of the Series H Preferred stock have been approved by the Board of Directors of the Company, but no Certificate of Designation has been filed with the appropriate authoritative body. An additional cash or stock bonus may be awarded, subject to the attainment of such individual of certain objectives as the Board of Directors of the Company shall establish from time to time. Upon certain termination conditions contained in the agreement, the Company may be required to pay severance of twice the base compensation at its highest point during the five-year period prior to termination. Effective October 12, 2017, the former Executive Chairman and Chief Executive Officer has waived any constructive termination in relation to changes in title, working conditions or duties such that his powers are diminished, reduced or otherwise changed to include powers, duties, or working conditions which are note materially consistent with title, continuing after written notice and 10 days to cure. |
17. Commitments and Contingenci
17. Commitments and Contingencies | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
17. Commitments and Contingencies | 17. Commitments and Contingencies During the nine months ended June 30, 2017, the Company leased office space under a non-cancelable operating lease. In February 2015, the Company entered into a sublease agreement for part of the office space under the non-cancelable operating lease through the end of the original lease period. Payments under the sublease were made by the sublessee directly to the Company's landlord. The non-cancelable operating lease was terminated during June 2015. During June 2015, the Company entered into a new non-cancelable operating lease for its existing office space, excluding the previously subleased space, with payments beginning in July 2015. Future minimum rental payments under the non-cancelable operating lease as of June 30, 2017, were as follows: Years Ending September 30, 2017 $ 32,908 2018 111,340 $ 144,248 The Company's rent expense under the new non-cancelable operating lease for nine months ended June 30, 2017 and 2016, was approximately $97,000 and $94,000, respectively. During February 2016, the Company entered into an agreement with one if its vendors to purchase a minimum of $200,000 of inventory per quarter through January 2018. The agreement was cancelled subsequent to June 30, 2017. During February 2016, the Company redeemed all of its Series F preferred stock in exchange for 20,005 shares of common stock and $5,900,000 of notes payable (see Note 9). As part of the redemption, the Company exchanged warrants held by the Series F Preferred stockholders for the purchase of 11,070 shares of common stock for new warrants to purchase the same number of shares with different terms. As part of the redemption, the Company may be required to issue additional warrants for the purchase of up to 16,000 shares of common stock upon three events of default on the notes payable (see Note 15). During February 2016, the Company converted notes payable and accrued interest payable to an entity controlled by a former Executive Chairman of the Board of Directors into a convertible note payable (see Note 10). The Company may be required to issue 1,469 shares of common stock if the note is not paid by maturity. During February 2016, the Company amended notes payable to an entity controlled by an officer of the Company to subordinate to notes payable also issued during February 2016, reduced the conversion price per share to $30 per share and limited the shares into which it is convertible (see Note 10). The Company may be required to issue 8,407 shares of common stock if the note is not paid by maturity. During September 2016, the Company issued a note payable to a third party for up to $1,500,000. The Company initially borrowed $500,000 under the note and may borrow up to $1,500,000 upon meeting certain milestones. The Company subsequently drew an additional $1,000,000 under the note and issued additional warrants for the purchase of 40,000 shares of common stock at similar terms to warrants issued as part of the initial borrowing. During March 2017, the note was amended to increase the maximum principal sum from $1,500,000 to $2,000,000 under which the Company borrowed an additional $200,000 in consideration and issued the lender a warrant to purchase up to 8,000 shares of common stock with the same terms as the warrants previously issued under the previous terms of the note. In the event the Company borrows any part of the remaining $300,000 available, the Company will be required to issue additional warrants with an aggregate exercise amount equal to 100% of the additional amount borrowed with similar terms to warrants issued as part of the initial borrowing. During September 2016, the Company entered into a conditionally effective warrant cancellation agreement (the "Warrant Cancellation Agreement") with certain warrant holders who were issued the warrants in connection with a secured note payable and line of credit. Pursuant to the terms of the Warrant Cancellation Agreement, upon the Company's consummation of an equity financing of at least $15,000,000, the warrant holders agree to terminate and cancel the warrants they currently hold. As an inducement to enter into the Warrant Cancellation Agreement, the warrant holders will receive upon termination and cancelation of the warrants an aggregate of 10,800 shares of the Company's common stock, which will be subject to a 6-month lock-up agreement. Additionally, if the warrant holders terminate and cancel the warrants, the Company will issue the related note holder a new unsecured promissory note with an initial principal amount of $180,000, no cash interest, and a three-year term. In lieu of cash interest, the principal of the note will increase in the amount $3,333 each month not to exceed a maximum of $300,000. Effective November 1, 2016, the Board approved the 2016 Incentive Stock Option plan providing for the issuance of options to purchase up to 377,250 shares. No shares have been approved under the Plan as of June 30, 2017. On April 17, 2017 the Company entered into a Joint Venture Agreement, effective March 31, 2017 (the "JV Agreement") with Colorado Choice Health Plans ("CCHP"), a customer. Under the JV Agreement: (i) CCHP is providing various services to the Company to improve the Company's diabetes programs, (ii) the Company loaned CCHP $500,000 under a debenture note (recorded as a note receivable in the accompanying consolidated condensed balance sheets), and (iii) the JV Agreement will terminate upon the later of (a) repayment of the debenture note or (b) the one year anniversary of the JV Agreement. The debenture note: (i) bears interest at the rate of five percent per annum, (ii) is subordinated to the rights of CCHP policyholders, claimants and beneficiary claims and all other classes of CCHP creditors other than subordinated debenture holders, (iii) does not become a liability of CCHP until and unless the Commissioner of the Colorado Department of Regulatory Agencies, Division of Insurance ("Division of Insurance") authorizes repayment of the debenture agreement, and shall be treated by CCHP as surplus until the time of such approval, (iv) is only repayable from available funds in excess of CCHP's minimum net surplus required to be maintained by the Division of Insurance, and (v) is otherwise repayable on March 31, 2018, assuming approval by the Division of Insurance. On May 28, 2015, an investor of the Company filed a lawsuit claiming damages of $1,000,000 exclusive of interest and costs against the Company, a former Executive Chairman, an entity controlled by another former Executive Chairman, and 4G Biometrics, a wholly owned subsidiary of the Company, for breach of contract. The Company has engaged legal counsel regarding the matter. The Company has assessed a high probability of settling the matter for $750,000 in cash, equity, or a combination thereof. The Company has accrued a contingent liability of $750,000 and loss on settlement as of June 30, 2017. On November 4, 2015, the Company received a demand for payment of $275,000 from a former employee of the Company and former principal of 4G Biometrics whose employment was terminated for cause. On December 4, 2015, the Company filed a complaint against the former owners of 4G Biometrics, including this former employee, seeking damages in excess of $300,000 related to alleged misrepresentations made to induce the Company to acquire 4G Biometrics. Between February 4, 2016 and February 8, 2016, the Company settled the complaint with each of the former owners of 4G Biometrics and all parties released each other from all outstanding claims, including any current monetary obligations to each party, excluding one former owner of 4G Biometrics who continues to be employed by the Company. A Stipulation for Order of Dismissal with Prejudice of all Claims and Counterclaims has been filed and is in the process of being approved. The settlement resulted in the termination of $39,863 of related-party accounts payable. |
18. Subsequent Events
18. Subsequent Events | 9 Months Ended |
Jun. 30, 2017 | |
Notes | |
18. Subsequent Events | 18. Subsequent Events Subsequent to June 30, 2017, the Company entered into the following agreements and transactions: (1) On August 2, 2017, the Company received a cash advance from a third party in the amount of $100,000, which incurs fees of $1,500 per day until repaid. During November 2017, the Company amended the advance to be callable at any time, due May 30, 2018, and to become convertible into shares of the Company’s common stock at the most favorable rate available as of the date of the agreement. The conversion rate may adjusted for any more favorable conversion terms provided to any other note holder at a future date. (2) On August 7, 2017, the Company received a cash advance from a third party in the amount of $50,000, which incurs fees of $750 per day until repaid. During November 2017, the Company amended the advance to be callable at any time, due May 30, 2018, and to become convertible into shares of the Company’s common stock at the most favorable rate available as of the date of the agreement. The conversion rate may adjusted for any more favorable conversion terms provided to any other note holder at a future date. (3) During August 2017, the Company received letters related to unsecured notes payable with third parties with principal balances totaling $5,900,000 as of June 30, 2017 where the lenders waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017. (4) During August 2017, the Company received a letter related to an unsecured note payable with a third party with a principal balance of $334,464 as of June 30, 2017 wherein the lender waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017. On December 18, 2017, another letter was received wherein the lender waived any historical and future events of default through February 28, 2018 and extended the maturity date through February 28, 2018. (5) During August 2017, the Company received a letter related to secured and unsecured notes payable with entities controlled by the Company’s former chief executive officer and Executive Chairman of the Board of Directors, who was in office at the time, with principal balances of $1,721,100, $1,303,135, $250,000 and $25,463 as of June 30, 2017, wherein the lenders waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017. On December 18, 2017, another letter was received wherein the lender waived any historical and future events of default through January 12, 2018 and extended maturity date was extended through January 12, 2018. (6) During August 2017, the Company received a letter related to an unsecured note payable with a former Executive Chairman of the Board of Directors with a principal balance of $542,004 as of June 30, 2017 wherein the lender waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017. On December 18, 2017, another letter was received wherein the lender waived any historical and future events of default through January 12, 2018 and extended maturity date was extended through January 12, 2018. (7) During July 2017, the Company granted 1,562 shares of common stock, with a value of $12,496 on the date of grant, to the former Executive Chairman and Chief Executive Officer of the Company, who was in office at the time, as a bonus for services performed during the three months ended June 30, 2017. The value of the shares has been included in accrued expenses as of June 30, 2017. (8) On August 16, 2017, the Company sold $248,500 of future customer receipts to a third party for $175,000 in cash. The $73,500 difference between the future customer receipts and cash received by the Company is being amortized to interest expense over the term of the note. The note is subordinated to another note and is guaranteed by the Company’s former Executive Chairman and Chief Executive Officer, who was in office at the time. (9) During July 2017, the Company granted 50,000 shares of common stock, with a value of $400,000 on the date of grant, to a third party as part of a one-year consulting agreement. The value of the shares will be amortized to selling, general and administrative expenses evenly over the service period. On September 5, 2017, the Board of Directors granted the issuance of 500 shares of Series H Preferred stock in lieu of the 50,000 shares of common stock, to which the third party has verbally agreed. The Series H Preferred shares have not yet been issued. (10) During July 2017, the Company granted 3,937 shares of common stock to employees for bonuses. The $31,500 fair value of the shares has been included in accrued expenses as of June 30, 2017. (11) On August 28, 2017, the Company sold $224,850 of future customer receipts to a third party for $150,000 in cash. The $74,850 difference between the future customer receipts and cash received by the Company is being amortized to interest expense over the term of the note. The note is subordinated to another note and is guaranteed by the Company’s former Executive Chairman and Chief Executive Officer, who was in office at the time. (12) On August 31, 2017, the Company sold $119,920 of future customer receipts to a third party for $80,000 in cash. The $39,920 difference between the future customer receipts and cash received by the Company is being amortized to interest expense over the term of the note. The note is subordinated to another note and is guaranteed by the Company’s former Executive Chairman and Chief Executive Officer, who was in office at the time. (13) On September 5, 2017, the Board of Directors of the Company modified the terms of the Series G Convertible Preferred stock to remove the 18-month lock-up period. The amendment has not been filed with the State of Delaware as of the date of this filing. (14) On September 5, 2017, the Board of Directors of the Company ratified a change to the Series H Preferred stock, previously contemplated and approved by the Board of Directors, to where each share of the Series H Preferred stock is convertible into 100 shares of the Company’s common stock, is limited to a total ownership of 4.99% of the outstanding common stock at the time of conversion, is to be non-voting stock, does not bear interest or dividends, and is transferable with the same terms. The Certificate of Designation for the Series H Preferred stock has not been filed with the State of Delaware as of the time of this filing and no shares had been issued prior to September 5, 2017. (15) On September 5, 2017, the Company entered into a consulting agreement with a former Executive Chairman and Chief Executive Officer of the Company, which replaced and existing consulting agreement, for certain consulting services to the Company including, but not limited to (i) developing business plans, (ii) making introductions to potential customers and/or suppliers, (iii) identifying qualified employees and other service providers, (iv) sales, marketing, manufacturing and other operating activities, and (v) meeting with the Company's and its affiliates' respective managers, officers, employees, agents, and other service providers regarding the business, prospects and affairs of the Company and its affiliates. The former officer may not engage in and shall not be entitled to any fees or consideration for (i) negotiating the purchase and/or sale of Company securities, (ii) making recommendations regarding transactions involving Company securities, (iii) or any other matters involving transactions of Company securities. The agreement is for one year and includes compensation of $250.00 per hour, but such compensation may not exceed $20,000 during any calendar month, plus 1,500 shares of the Company’s Series H Preferred stock. The shares of Series H Preferred stock have not been issued at the time of this filing. (16) On September 5, 2017, the Company renewed an existing license and royalty agreement with an entity controlled by a former Executive Chairman and Chief Executive Officer of the Company (the “licensee”). Under the agreement, the licensee receives the right to make, sell and use products related to the Company’s intellectual property regarding diabetics, cellular, GPS and CareCenter arena and generally characterized as the CareCenter Technology in a certain region. The Company shall receive a royalty of 15% of the licensee’s gross sales price for the product. The initial term is for three years whereby the licensee must achieve a minimum royalty of $10,000 per month to maintain the agreement, whereby the agreement will be extended for one addition year unless terminated. If the minimum monthly royalty is not maintained, the licensee may pay a sum to bring the total payment up to $360,000 within 60 days of the end of the three-year term to extend the agreement for one additional year. The Company may terminate the agreement if the licensee does not commence to manufacture, distribute and sell product within a 6-month period after the execution of the agreement. (17) On September 5, 2017, the Company granted 1,500 shares of the Company’s Series H Preferred stock to an entity controlled by a former Executive Chairman of the Board of Directors for past services rendered in addition to amounts earned under an existing consulting agreement. The shares of Series H Preferred stock have not been issued at the time of this filing. (18) On September 5, 2017, the Company entered into an employment agreement with the former Executive Chairman and Chief Executive Officer of the Company, who was in office at the time, for a period of two years for services as the Executive Chairman and Chief Executive Officer of the Company. The initial term of the agreement is for two years and shall automatically renew on a year to year basis, unless terminated sooner. The base compensation is $360,000 per year plus 1,500 shares of the Company’s Series H Preferred stock. The shares of Series H Preferred stock have not yet been issued. The terms of the Series H Preferred stock have been approved by the Board of Directors of the Company, but no Certificate of Designation has been filed with the appropriate authoritative body. An additional cash or stock bonus may be awarded, subject to the attainment of such individual and ActiveCare objectives as the Board of Directors of the Company shall establish from time to time as determined by the Board of Directors of the Company. Upon certain termination conditions upon termination of the agreement, the Company may be required to pay severance of twice the base compensation of the former Executive Chairman and Chief Executive Officer at its highest point during the five-year period prior to termination. In addition, the Board of Directors approved compensation at a level of $360,000 per year retroactive from July 2017, when the former Executive Chairman and Chief Executive Officer was appointed, until the employment agreement was signed. Effective October 12, 2017, the agreement was amended to waive any constructive termination in relation to changes in title, working conditions or duties such that his powers are diminished, reduced or otherwise changed to include powers, duties, or working conditions which are note materially consistent with title, continuing after written notice and 10 days to cure. (19) On September 5, 2017, the Board of Directors granted 963 shares of Series H Preferred stock to the former Executive Chairman and Chief Executive Officer of the Company, who was in office at the time, in lieu of 96,275 shares of previously granted common stock as a bonus for services performed. The Series H Preferred shares have not yet been issued. (20) On September 5, 2017, the Board of Directors granted 200 shares of Series H Preferred stock to the holder of an unsecured note payable with a balance of $300,000 as of June 30, 2017 for the extension of the note payable. The Series H Preferred shares have not yet been issued. (21) From September 21, 2017 through December 1, 2017, the Company received cash advances totaling $230,000 from an entity controlled by the Company’s former Executive Chairman and Chief Executive Officer, who was in office at the time, and repaid $10,000 plus the reimbursement of bank fees of $200. (22) On September 25, 2017, the Company entered into agreements with its primary product vendor that supersedes all prior agreements with the vendor. Under the agreements, the vendor will provide all products and services to the Company’s service members as they are assigned to the vendor. In return, the vendor will pay the Company a fee for services rendered to the vendor and to the members for monitoring and reporting. The Company also earns commissions on all members assigned under the agreement to be paid upon completion of certain milestones met with each individual member. The agreements also modify the terms of an existing note payable to the vendor. The note accrues interest at 0.65% per annum, is reduced by the amount of commissions earned by the Company under the agreements and matures on September 25, 2019. The agreements also add interest fees on existing accounts payable at 0.65% per annum and the accounts payable are reduced by the amount of commissions earned by the Company under the agreements for a minimum of 24 months. (23) On September 27, 2017, the Company received a cash advance from a third party in the amount of $40,000, which incurs fees of $600 per day until repaid. (24) In October 2017, the Company entered into a settlement agreement related to an unsecured note payable with a principal balance of $300,000 as of June 30, 2017. As part of the agreement, the lender lent the Company an additional $200,000 which has been added to the principal balance of the note payable. The agreement modified the terms of the note payable to become secured by inventory owned by the Company, requires issuance of 3,000 shares of Series H Preferred Stock, which were granted by the Board of Directors on September 5, 2017 and are required to be able to convert the lender’s shares into 300,000 shares of the Company’s common stock, and requires payments of $8,600 for 72 consecutive weeks. If any payment is late, the Company is required to issue the lender an additional 86 shares of Series H Preferred Stock per late payment and an additional 172 shares of Series H Preferred stock if late payments are not cured within 30 days and for each subsequent 30-day period the note is in default. The amended note also requires payment of a key man life insurance policy on a former Executive Chairman of the Board of Directors naming the lender as the benefactor. The fair value of the shares will be amortized over the life of the amended note. The note terms are adjustable for any terms subsequently provided to other investors. (25) On November 7, 2017, the Company entered into individual agreements related to secured borrowings from four different parties that each previously purchased customer receivables that require daily payments. The agreements modified each agreement to reduce the amount of the respective daily payment to approximately half of the amount previously drawn through January 7, 2018, whereafter the amount of the payment returns to the payment required under the respective agreement plus an additional amount equal to the amount shorted during the period of lower payments divided by the number of remaining payments remaining on the original term of the respective note payable. Three of the four agreements are verbal. On January 5, 2018, the Company further modified each agreement to keep the amount of the daily payments at approximately the same level as the agreement on November 7, 2017 through mid-March 2018, except one where the lower payments are only through February 5, 2018. Three of the four agreements are verbal. (26) On November 13, 2017, an entity controlled by a former Executive Chairman of the Board of Directors, with whom we contracted for consulting, terminated the existing consulting arrangement. (27) On November 13, 2017, the Company entered into a sales broker agreement with an entity controlled by a former Executive Chairman of the Board (the “Sales Broker”). Under the Sales Broker agreement, the Company will provide services to certain customers referred to the Company and the Sales Broker will receive administration fees in the amount of 15% of gross revenues, as defined by the Sales Broker agreement, as long as the Company services the respective customer even in the event the Sales Broker agreement is terminated. The Sales Broker will promote the Company, its services and products, and introduce potential customers to the Company as a sales representative. The initial term of the Sales Broker agreement is one year, which automatically renews for additional one-year periods until cancelled by either party. (28) On November 30, 2017, the Company signed a letter of understanding with a former consultant where the Company agreed to convert $100,000 of past consulting fees owed into an equivalent value of equity in the Company upon a qualifying capital raise. (29) On November 10, 2017, the Company signed a formal agreement replacing a former verbal agreement with an unsecured note holder, with principal due of $350,000 as of June 30, 2017. The new agreement memorialized previously agreed upon terms whereby the lender converted a $350,000 advance into an unsecured note payable, with interest at 2.8% of revenues, for $143,987 in fees and a future payoff fee of 20% of the principal, or $70,000, which are included in accrued liabilities and interest expense as of June 30, 2017. The written agreement adjusted the verbal agreement to where the Company is required to pay any outstanding interest at the end of the first month following a quarter end. The lender may call all amounts due under the note payable as due and payable after February 28, 2018, given 15 calendar days notice, and the written agreement includes a most favored nations clause in relation to conversion features. (30) On November 27, 2017, the Company signed a formal agreement memorializing previous agreements with the holder of an unsecured note and cash advance, with aggregate principal due of $1,200,000 as of June 30, 2017, as well as additional advances with aggregate principal of $190,000 that were received subsequent to June 30, 2017. The new agreement memorialized the terms of the note payable whereby the lender converted $617,500 in advances into a $1,100,000 unsecured note payable, with interest at 18% per annum for $95,226 in fees, which have been included in accrued liabilities and interest expense as of June 30, 2017. In addition, the new agreement allows for advances to incur fees at 1.5% of the advance principal per calendar day until paid in full. The written agreement adjusted the verbal agreements to where the note payable and advance balances and fees may be called by the lender at any time and are due by May 30, 2018, and the new agreement includes a most favored nations clause in relation to conversion features on the note payable and advances. The new agreement also assigned $2,000,000 of note payable principal held by an entity controlled by an officer of the Company to the lender. All interest accrued on the assigned balance is payable to the officer. (31) On December 6, 2017 the Company entered into those certain forbearance and lock up letter agreements with three (3) debtors which held convertible debentures in the aggregate principal amount of $1,109,345 at the time of the agreements, whereby the debtors agreed that, without prior written consent of the Company, the debtors will not, directly or indirectly, (i) offer for sale, sell, pledge, or otherwise transfer or dispose of (or enter into any transaction that is designed to, or could be expected to, result in the transfer or disposition by any person at any time in the future of) any shares of common stock (including, without limitation, shares of common stock that may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission and shares of common stock that may be issued upon exercise of any options or warrants) or securities convertible into or exercisable or exchangeable for common stock, (ii) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of common stock, whether any such transaction is to be settled by delivery of common stock or other securities, in cash or otherwise, (iii) except as provided for, make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of common stock or securities convertible into or exercisable or exchangeable for common stock or any other securities of the Company, or (iv) publicly disclose the intention to do any of the foregoing for a period of the earlier of (a) June 5, 2018 or (2) the consummation of a qualified offering, herein deemed as an offering by the Company of $3,000,000 or more. Additionally, the Debt Holders agreed that they will forbear from enforcing their rights and remedies against any defaults which may exist historically, currently or in the future through June 5, 2018 under the existing loan documents. The agreements automatically terminate upon the earlier of (i) inability to raise a minimum of $550,000 in capital on or before December 31, 2017; (ii) June 5, 2018; or (iii) the consummation of a qualified offering of at least $3,000,000 by the Company. In addition, two (2) of the debtor agreements waive their rights to default litigation only through December 31, 2017 and any new financing must receive their prior consent unless it is common equity. (32) Effective December 11, 2017, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with four accredited investors, including the Company’s new Chief Executive Officer in connection with the closing of a bridge financing (the “Bridge Financing”) in the gross amount of $600,000. The three remaining accredited investors hold notes payable with an aggregate principal balance of $3,865,865 as of June 30, 2017. Pursuant to the Purchase Agreements, the Investors purchased from the Company (i) Promissory Notes in the aggregate principal amount of $631,578.06 (the “Notes”) due and payable six months from the Effective Date and (ii) Common Stock Purchase Warrants (the “Warrant”), exercisable for five years from the date of issuance, to purchase up that certain amount of shares with an aggregate exercise amount equal to $600,000 at an exercise price per share equal to the lesser of (i) 80% of the per share price of common stock in the companies contemplated private placement of securities of up to $5,000,000, contemplated to take place within six months of the effective date (the “Private Placement”) (ii) $3.00 per share, (iii) 80% of the offering price in the Private Placement (if applicable), or (iv) 80% of the exercise price of any warrants issued in the Private Placement, in each case subject to adjustment hereunder (the “Exercise Price”). The Notes were issued in favor of the Investors with an original issue discount equal to five percent (5%). Additionally, pursuant to the Purchase Agreement, the Company will issue the investors common stock (the “Origination Shares”) worth 30% of the purchase price paid by each investor (the “Origination Dollar Amount”) on the 5th trading day after the pricing of the Private Placement, but in no event later than six months from the Effective Date. The Origination Dollar amount will divided by the lowest of (i) $3.00 (subject to adjustment for stock splits), (ii) 80% of the common stock offering price in the Private Placement, (iii) 80% of the offering price of the Private Placement (if applicable), or (iv) 80% of the exercise price of any warrants issued in the Private Placement. At the closing of the Private Placement the Note shall automatically convert into a subscription into the Private Placement in an amount equal to 125% of the Note balance, subject to certain conditions as outlined therein. If the Company fails to repay the balance due under the Note on its Maturity the Investors have the right, at any time, at their election, to convert all or part of the outstanding and unpaid principal sum and accrued interest (and any other fees) into shares of fully paid and non-assessable shares of common stock of the Company pursuant to the following conversion formula: number of shares receivable upon conversion equals the dollar amount being converted divided by the Conversion Price. The Conversion Price is the lesser of $3.00 (subject to adjustment for stock splits) or 60% of the lowest trade price in the 25 trading days. Further, in the event of any default, the outstanding principal amount of the Notes, plus accrued but unpaid interest, liquidated damages, fees and other amounts owing in respect thereof through the date of acceleration (the “Note Balance”), shall become, at the Investor’s election, immediately due and payable in cash at the Mandatory Default Amount. The Mandatory Default Amount means the investor’s choice of (this choice may be made at any time without presentment, demand, or notice of any kind): (i) the Note Balance divided by the Conversion Price on the date of the default multiplied by the closing price on the date of the default; or (ii) the Note Balance divided by the Conversion Price on the date the Mandatory Default Amount is either (a) demanded or (b) paid in full, whichever has a lower Conversion Price, multiplied by the closing price on the date the Mandatory Default Amount is either (a) demanded or (b) paid in full, whichever has a higher closing price; or (iii) 150% of the Note Balance. If, at any time the Note is outstanding, the Company issues a Variable Security (as defined therein), then in such event the Investors shall have the right to convert all or any portion of the outstanding balance of the Notes into shares of Common Stock on the same terms as granted in any applicable Variable Security issued by the Company. (33) On November 17, 2017, the Company received cash advances from third parties totaling $60,000. On January 5, 2018, the advances converted into agreements with the same terms as the Bridge Financing entered into on December 11, 2017. (34) On December 11, 2017, Eric Robinson voluntarily resigned as Chief Financial Officer, Secretary and In-House Counsel, and all other positions with the Company to which he has been assigned regardless of whether he served in such capacity, effective immediately. On the same date, Jeffrey S. Peterson voluntarily resigned as Chairman of the Board of Directors, while acknowledging that he will continue to serve the Company as a Director and Executive Vice President. On the same date, Robert J. Welgos and Bradley Robinson voluntarily resigned as members of the Board of Directors and all other positions with the Company to which they may have been assigned, regardless of whether they served in such capacity, effective immediately. These resignations were not as a result of any disagreements with the Company. (35) On December 11, 2017, Isaac Onn was appointed as a member of the Company’s board of Directors and Mark J. Rosenblum was appointed as the Company’s Chairman of the Board of Directors and Chief Executive Officer in connection with the Bridge Financing. In connection with Mr. Rosenblum’s appointment as the Company’s Chief Executive Officer, on December 11, 2017, the Company and Mr. Rosenblum finalized the terms of his employment and entered into an employment agreement (the “Rosenblum Employment Agreement”). Mr. Rosenblum shall have such duties, responsibilities and authority which shall include, but not be limited to the responsibility for the overall management, direction and strategy of the Company. The Company shall pay Mr. Rosenblum a salary at a rate of Three Hundred Thousand and 00/100 Dollars ($300,000) per year (the “Initial Base Salary”). The Initial Base Salary shall increase to an annual rate of Three Hundred and Sixty Thousand Dollars ($360,000) (the “Base Salary”) upon the Company closing a financing of at least Five Million Dollars ($5,000,000). Mr. Rosenblum shall be eligible for an annual performance-based cash bonus of up to 100% of the Base Salary (as further defined in the Rosenblum Employment Agreement”). The Rosenblum Employment Agreement is for a term of three (3) years and will be automatically renewed for one year periods, unless otherwise terminated by the Company or Mr. Rosenblum. Upon execution of the Rosenblum Employment Agreement the Company agreed to issue restricted shares equal to $300,000 valued at the offering price of the next equity offering of the Company (“RSU”) and an option to purchase an aggregate $600,000 valued at the offering price of the next equity offering of the Company at an exercise price equal to the market price for the next equity offering of the Company (the “Options”). One-third of these Options shall vest immediately, another third on the first anniversary of the Rosenblum Employment Agreement, and the final third on the second anniversary of the Rosenblum Employment Agreement. The RSUs shall vest 50% immediately upon issuance and 25% on each of the first and second anniversaries of the Rosenblum Employment Agreement. If the Company terminates Mr. Rosenblum’s employment without just cause or if Mr. Rosenblum’s employment is terminated due to Disability (as defined therein), Mr. Rosenblum shall be entitled to receive, in addition to any accrued and unpaid Base Salary, plus any accrued but unused vacation time and unpaid expenses that have been earned as of the date of such termination, the following severance payments (the “Severance Payments”): (i) equal monthly installments at the applicable Base Salary rate then in effect, as determined on the first day of the calendar month immediately preceding the day of termination, to be paid beginning on the first day of the month following such termination and continuing until the later of (A) the expiration of the Term or (B) the expiration of (i) six (6) months following the effective termination date; provided, however, that if the Company terminates the Agreement without Just Cause (as defined in the Rosenblum Employment Agreement) within six (6) months of the effective date, then Mr. Rosenblum will only be entitled to three (3) months of severance instead of six (6) months; and (ii) during the Severance Period (as defined in the Rosenblum Employment Agreement), health and life insurance benefits substantially similar to those which Mr. Rosenblum was receiving or entitled to receive immediately prior to termination; provided, however, such insurance benefits shall be reduced to the extent comparable benefits during such period following Mr. Rosenblum’s termination, and any benefits actually received shall be reported by Mr. Rosenblum to the Company. The Company will reimburse Mr. Rosenblum for any reasonably travel and relocation expenses. (36) During December 2017, the Company entered into those certain forbearance and lock up letter agreements with a debtor which holds convertible debentures in the principal amount of $25,312 as of December 5, 2017, whereby the debtor agreed that, without prior written consent of the Company, the debtor will not, directly or indirectly, (i) offer for sale, sell, pledge, or otherwise transfer or dispose of (or enter into any transaction that is designed to, or could be expected to, result in the transfer or disposition by any person at any time in the future of) any shares of common stock (including, without limitation, shares of common stock that may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission and shares of common stock that may be issued upon exercise of any options or warrants) or securities convertible into or exercisable or exchangeable for common stock, (ii) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of common stock, whether any such transaction is to be settled by delivery of common stock or other securities, in cash or otherwise, (iii) except as provided for, make any demand |
1. Organization and Nature of25
1. Organization and Nature of Operations: Going Concern (Policies) | 9 Months Ended |
Jun. 30, 2017 | |
Policies | |
Going Concern | Going Concern The Company continues to incur negative cash flows from operating activities and net losses. The Company had minimal cash, negative working capital and negative total equity as of June 30, 2017 and September 30, 2016. In addition, the Company is in technical default on certain notes payable although the lenders in each case are working with the Company to resolve the defaults. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. In order for the Company to eliminate substantial doubt about its ability to continue as a going concern, it must achieve profitability, generate positive cash flows from operating activities and obtain the necessary debt or equity funding to meet its projected capital investment requirements. Management's plans with respect to this uncertainty consist of raising additional capital by issuing debt or equity securities and increasing the sales of the Company's services and products. There can be no assurance that the Company will be able to raise sufficient additional capital or that revenues will increase rapidly enough to achieve operating profits. If the Company is unable to increase revenues or obtain additional financing, it will be unable to continue the development of its products and services and may have to cease operations. |
1. Organization and Nature of26
1. Organization and Nature of Operations: Use of Estimates in The Preparation of Financial Statements (Policies) | 9 Months Ended |
Jun. 30, 2017 | |
Policies | |
Use of Estimates in The Preparation of Financial Statements | Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet dates and the reported amounts of revenues and expenses for the reporting periods. Actual results could differ from these estimates. |
1. Organization and Nature of27
1. Organization and Nature of Operations: Fair Value of Financial Instruments (Policies) | 9 Months Ended |
Jun. 30, 2017 | |
Policies | |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company measures the fair values of its assets and liabilities using the US GAAP hierarchy. The carrying amounts reported in the condensed consolidated balance sheets for cash, accounts receivable, accounts payable, and accrued liabilities approximate fair values due to the short-term nature of these financial instruments. Derivative financial instruments are recorded at fair value based on current market pricing models. The carrying amounts reported for notes payable approximate fair values because the underlying instruments are at interest rates which approximate current market rates. |
1. Organization and Nature of28
1. Organization and Nature of Operations: Reclassifications (Policies) | 9 Months Ended |
Jun. 30, 2017 | |
Policies | |
Reclassifications | Reclassifications Certain prior year amounts have been reclassified to conform to the current periodÂ’s presentation. The reclassifications had no effect on the previously reported net loss. |
3. Recent Accounting Pronounc29
3. Recent Accounting Pronouncements: New Accounting Pronouncements (Policies) | 9 Months Ended |
Jun. 30, 2017 | |
Policies | |
New Accounting Pronouncements | In May 2014, August 2015 and May 2016, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers Revenue from Contracts with Customers, Deferral of the Effective Date Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients Revenue Recognition, Revenue from Contracts with Customers, Leases, and Leases: Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments Income Statement—Reporting Comprehensive Income, Revenue Recognition, and Revenue from Contracts with Customers In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern In July 2015, the FASB issued ASU 2015-11, Inventory: Simplifying the Measurement of Inventory In February 2016, the FASB issued ASU 2016-02, Leases In March 2016, the FASB issued ASU 2016-09, Stock Compensation: Improvements to Employee Share-Based Payment Accounting In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments In May 2017, the FASB issued ASU 2017-09, Stock Compensation: Scope of Modification Accounting In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivative and Hedging (Topic 815) |
2. Net Loss per Common Share_ S
2. Net Loss per Common Share: Schedule of Earnings Per Share, Basic and Diluted (Tables) | 9 Months Ended |
Jun. 30, 2017 | |
Tables/Schedules | |
Schedule of Earnings Per Share, Basic and Diluted | Three Months Ended June 30, Nine Months Ended June 30, 2017 2016 2017 2016 Numerator: Net loss attributable to common stockholders $ (5,873,988) $ 3,304,133 $ (15,151,168) $ (14,924,907) Effect of dilutive securities on net loss: Common stock warrants - (2,427,640) - - Convertible debt - (1,860,373) - (1,790,407) Total net loss for purpose of calculating diluted net loss per common share $ (5,873,988) $ (983,880) $ (15,151,168) $ (16,715,314) Number of shares used in per common share calculations: Total shares for purposes of calculating basic net loss per common share 237,100 217,595 233,767 182,979 Weighted-average effect of dilutive securities: Common stock warrants - 3,337 - - Convertible debt - 39,334 - 18,949 Total shares for purpose of calculating diluted net loss per common share 237,100 260,266 233,767 201,928 Net loss per common share: Basic $ (24.77) $ 15.18 $ (64.81) $ (81.57) Diluted $ (24.77) $ (3.78) $ (64.81) $ (82.78) |
2. Net Loss per Common Share_31
2. Net Loss per Common Share: Schedule of Common Stock Equivalents (Tables) | 9 Months Ended |
Jun. 30, 2017 | |
Tables/Schedules | |
Schedule of Common Stock Equivalents | Three Months Ended June 30, Nine Months Ended June 30, 2017 2016 2017 2016 Common stock warrants 109,174 18,346 109,174 42,378 Series D convertible preferred stock 450 450 450 450 Series E convertible preferred stock 961 961 961 961 Convertible debt 158,798 95,799 158,798 95,799 Restricted shares of common stock 15 15 15 15 Liability to issue common stock and warrants 358,097 2,246 358,097 2,246 Total common stock equivalents 627,495 117,817 627,495 141,849 |
5. Inventory_ Schedule of Inven
5. Inventory: Schedule of Inventory (Tables) | 9 Months Ended |
Jun. 30, 2017 | |
Tables/Schedules | |
Schedule of Inventory | June 30, 2017 September 30, 2016 Finished goods $ 503,477 $ 206,444 Inventory reserve (1,708) (1,708) Net inventory $ 501,769 $ 204,736 |
6. Prepaid Expenses and Other33
6. Prepaid Expenses and Other Current Assets: Schedule of Other Current Assets (Tables) | 9 Months Ended |
Jun. 30, 2017 | |
Tables/Schedules | |
Schedule of Other Current Assets | June 30, 2017 September 30, 2016 Prepaid information technology services $ 38,081 $ 57,073 Other 12,249 112,117 Prepaid insurance 6,225 14,602 Prepaid legal and professional fees - 333,741 Research and development - 96,346 Line of credit acquisition fees - 30,978 Total prepaid expenses and other current assets $ 56,555 $ 644,857 |
7. Property and Equipment_ Prop
7. Property and Equipment: Property, Plant and Equipment (Tables) | 9 Months Ended |
Jun. 30, 2017 | |
Tables/Schedules | |
Property, Plant and Equipment | June 30, 2017 September 30, 2016 Software $ 47,974 $ 47,974 Leasehold improvements 98,023 98,023 Furniture 68,758 68,758 Equipment 47,191 49,772 Total property and equipment 261,946 264,527 Accumulated depreciation and amortization (205,501) (177,793) Property and equipment, net $ 56,445 $ 86,734 |
8. Accrued Expenses_ Schedule o
8. Accrued Expenses: Schedule of Accrued Liabilities (Tables) | 9 Months Ended |
Jun. 30, 2017 | |
Tables/Schedules | |
Schedule of Accrued Liabilities | June 30, 2017 September 30, 2016 Interest $ 2,694,545 $ 1,206,387 Liability to issue warrants for the purchase shares of common stock 2,081,254 - Liability to issue common stock 2,000,933 240,000 Finance fees 333,000 - Payroll expense 329,615 207,052 Other 141,394 89,828 Deferred revenue 85,399 111,803 Warranty liability 58,300 134,330 Commissions and fees 40,997 52,311 Severance - 60,000 Total accrued expenses $ 7,765,437 $ 2,101,711 |
9. Notes Payable_ Schedule of D
9. Notes Payable: Schedule of Debt - Other (Tables) | 9 Months Ended |
Jun. 30, 2017 | |
Tables/Schedules | |
Schedule of Debt - Other | June 30, September 30, 2017 2016 Unsecured notes payable with interest at 10% per annum, due November 2018. The notes may go into default in the event other notes payable go into default subsequent to the effective date of the note. Some of the notes are currently in technical default. However, as of the time of this report, the lenders have informally agreed to work with the Company until such time as the note can be repaid. In February 2016, the Company redeemed all 5,361 shares of its Series F Convertible Preferred Stock ("Series F preferred") plus accrued dividends of $673,948 for 20,005 shares of common stock with a fair value of $1,600,000 containing certain temporary restrictions, and $5,900,000 of notes payable. Payments on the notes are partially or fully convertible at the Company's option at the lesser of (i) 80% of the per share price of the common stock to be offered in the proposed offering that is described in the Form S-1 filed on July 19, 2016 (the "Offering"), (ii) $25 per share, (iii) 80% of the unit price in the Offering (if applicable), or (iv) the exercise price of any warrants issued in the Offering to a maximum of 39,334 shares of common stock. The conversion rate is adjustable to any lower rates granted through equity sales or other conversion rates provided by issuances of other debt, warrants, options or other instruments, with the exception of certain other raises. A note may only be converted if the holder owns less than 4.99% of the Company's common stock after conversion. The Company recorded a derivative liability of $2,461,899 related to the conversion feature of the notes. In connection with the redemption of the Series F preferred stock, the Company issued new warrants in exchange for warrants held by the Series F preferred stockholders for the purchase of 11,070 shares of common stock at an exercise price of the lesser of (i) 80% of the per share price of the common stock of the Offering, (ii) $25 per share, (iii) 80% of the unit price in the Offering (if applicable), or (iv) the exercise price of any warrants issued in the Offering, adjustable to any lower rates granted through equity sales or other conversion rates provided by issuances of other debt, warrants, options or other instruments, with the exception of certain other raises. The Company is also required to issue additional warrants for the purchase of up to 16,000 shares of common stock exercisable at $0.50 per share, also adjustable, that vest upon certain events of default. On December 11, 2017, the Company entered into Securities Purchase Agreements that adjusted the conversion rate to exercise price per share equal to the lesser of (i) 80% of the per share price of common stock in a contemplated private placement of securities of up to $5,000,000, contemplated to take place within six months of the effective date (the “Private Placement”) (ii) $3.00 per share, (iii) 80% of the offering price in the Private Placement (if applicable), or (iv) 80% of the exercise price of any warrants issued in the Private Placement, in each case subject to adjustment (see Note 18). The fair value of $1,344,608 related to the new warrants was recorded as a derivative (see Notes 12 and 15). The fair value of the stock, conversion feature, warrants and $25,000 of fees, in excess of the carrying value of the Series F preferred stock were recorded as a deemed dividend of $6,484,236. During the three months ended March 31, 2017, the Company entered into letter agreements related to the note to convert the outstanding principal and interest into shares of common stock contingent upon the Offering, which also removes the maximum share limitation conversion, which have expired (see Note 17). Subsequent to June 30, 2017, the Company received letters related to the notes wherein the lenders waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017 (see Note 18). In December 2017, the Company entered into those certain forbearance and lock up letter agreements with four of the eight debtors, with principal balances in the aggregate amount of $1,134,658, whereby the debtors agreed that, without prior written consent of the Company, the debtors will not, directly or indirectly, (i) offer for sale, sell, pledge, or otherwise transfer or dispose of (or enter into any transaction that is designed to, or could be expected to, result in the transfer or disposition by any person at any time in the future of) any shares of Common Stock (including, without limitation, shares of common stock that may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission and shares of common stock that may be issued upon exercise of any options or warrants) or securities convertible into or exercisable or exchangeable for common stock, (ii) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of common stock, whether any such transaction is to be settled by delivery of common stock or other securities, in cash or otherwise, (iii) except as provided for, make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of common stock or securities convertible into or exercisable or exchangeable for common stock or any other securities of the Company, or (iv) publicly disclose the intention to do any of the foregoing for a period of the earlier of (a) June 5, 2018 or (2) the consummation of a qualified offering, herein deemed as an offering by the Company of $3,000,000 or more. Additionally, the Debt Holders agreed that they will forbear from enforcing their rights and remedies against any defaults which may exist historically, currently or in the future through June 5, 2018 under the existing loan documents. The agreements automatically terminate upon the earlier of (i) inability to raise a minimum of $550,000 in capital on or before December 31, 2017; (ii) June 5, 2018; or (iii) the consummation of a qualified offering of at least $3,000,000 by the Company. In addition, two of the five debtor agreements waive their rights to default litigation only through December 31, 2017 and any new financing must receive their prior consent unless it is common equity (see Note 18). On January 12, 2018, the Company received letters from four of the debtors where the debtors forbear against any historical and future events of default and remedies through February 15, 2018. Further, the maturity date was extended through February 15, 2018. As part of the letters, the Company agreed not to initiate any new financing arrangements without the consent of the debtors. (see Note 18). On December 11, 2017, the Company borrowed an aggregate additional $300,000 from two of the lenders under new note payable agreements (see Note 18). $ 5,900,000 $ 5,900,000 Secured borrowings from a third party that purchased $3,257,600 of customer receivables for $2,100,000, with due dates ranging from January 2018 to October 2018, and payable in daily payments ranging from $5,000 to $13,000. The $1,157,600 difference between the customer receivables and cash received is being amortized to interest expense over the term of the respective notes. The secured borrowings are guaranteed by a former chief executive officer of the Company and are subordinated to other notes payable. On April 17, 2017, the Company entered into a factoring agreement which provides for an advance of $1,794,000, comprised of $1,000,000 in cash and the consolidation of $794,000 from four prior factoring agreements into the amounts owed under the factoring agreement (collectively, the "Funds"). In consideration for the Funds, the Company sold to the lender all future receipts until the total amount of $2,511,601 has been paid. The factoring agreement requires payment of the minimum daily amount of $12,999.99 for 193 days. The $2,511,601 can be reduced if repayment occurs more quickly. Repayment of the amounts owing is with recourse and secured by all accounts, chattel paper, documents, equipment, general intangibles, instruments, and inventory of the Company and subordinated to other notes payable. In June 2017, the lender verbally agreed to reduce the minimum daily amount to $5,000 and, in November 2017, verbally agreed to further reduce the minimum daily amount to $2,600 through January 7, 2018, after which the daily amount would return to $13,000. Subsequent to June 30, 2017, the Company entered into similar secured borrowings and related verbal or written reductions in the daily amounts. On January 5, 2018, the Company further modified each agreement to keep the amount of the daily payments at approximately the same level as the agreement on November 7, 2017 through mid-March 2018, except one where the lower payments are only through February 5, 2018 (see Note 18). 1,974,602 689,318 Unsecured note payable with a vendor with interest at 0.65% per annum payable at the end of each calendar year, due January 2018, issued in March 2016 upon the conversion of $2,523,937 in accounts payable to the vendor. The note requires payments of $50,000 per month in April 2016 through December 2016, $100,000 per month in January 2017 through December 2017 and the remaining balance due in January 2018. In September 2017, the Company entered into agreements with the vendor which supersedes the unsecured note payable agreement and provides new terms (see Note 18). 1,773,937 2,223,937 Unsecured note payable with a third party with no interest, was due the earlier of November 2016 or the third business day after the closing of a proposed Offering. The note is currently in technical default. However, as of the time of this report, the lender has provided bridge capital since going in default and has informally agreed to work with the Company until such time as the note can be repaid. Pursuant to the note, the Company may borrow up to $1,500,000 upon meeting certain milestones and may be converted into shares of common stock upon default. The note required a payment of common stock on the 5th trading day after the pricing of the proposed Offering, but no later than December 15, 2016. The number of common shares will equal $200,000 divided by the lowest of (i) the lowest daily closing price of the common stock during the ten days prior to delivery of the common shares or during the ten days prior to the date of the Purchase Agreement, (ii) 80% of the common stock Offering price of the Offering, (iii) 80% of the unit price Offering price of the Offering, or (iv) the exercise price of any warrants issued in the Offering. The estimated fair value of $240,000 of the stock is included in accrued liabilities and is being amortized to interest expense over the life of the note. In connection with the issuance of the note, the Company also issued 20,000 warrants to purchase shares of common stock at an exercise price per share equal to the lesser of (i) 80% of the per share price of the common stock in the Offering, (ii) $25 per share, (iii) 80% of the unit price in the Offering, or (iv) the exercise price of any warrants issued in the Offering and the number of shares will reset upon the closing of the Offering. The warrants may only be exercised to the extent the holder would own a maximum of 9.99% of the Company's common stock after exercise. The fair value of $493,590 related to the replacement warrants was recorded as a derivative (see Notes 12 and 15). Of this fair value amount, $220,000 was recorded as a debt discount and is being amortized over the life of the note and the remaining $273,590 was recorded as a loss on derivative liability. In the event of borrowing in excess of an initial $500,000, the Company will be required to issue additional warrants with an aggregate exercise amount equal to 100% of the additional amount borrowed with similar terms to the initial warrants issued. In November 2016, the Company borrowed an addition $250,000 on the note and issued an additional warrant for the purchase of 10,000 shares of common stock with similar terms to the original warrants. The fair value of $286,171 related to the November 2016 warrants was recorded as a derivative (see Notes 12 and 15). The fair value was recorded as a debt discount and is being amortized over the remaining life of the note. In November 2016, the Company amended the note to extend the maturity date to the earlier of January 31, 2017 or the third business day after the closing of the Offering. In addition, the amendment adjusted the origination shares to equal 20% of the note divided by the lowest of (i) the lowest daily closing price of the common stock during the ten days prior to delivery of the shares or during the ten days prior to the date of the agreement, (ii) 80% of the common stock Offering price of the Offering, (iii) 80% of the unit price Offering price (if applicable), or (iv) 80% of the exercise price of any warrants issued in the Offering. In December 2016, the Company borrowed an addition $250,000 on the note and issued an additional warrant for the purchase of 10,000 shares of common stock with similar terms to the original warrants. The fair value of $349,819 related to the December 2016 warrants was recorded as a derivative (see Notes 12 and 15). The fair value was recorded as a debt discount and is being amortized over the remaining life of the note. On January 3, 2017, the Company borrowed an additional $200,000 on the note and issued an additional warrant for the purchase of 8,000 shares of common stock with similar terms to the original warrants. The fair value of $567,753 related to the January 3, 2017 warrants was recorded as a derivative (see Notes 12 and 15). The fair value was recorded as a debt discount and is being amortized over the remaining life of the note. On January 30, 2017, the Company amended the note to extend the maturity date to the earlier of March 15, 2017 or the third business day after the closing of the Offering. Also on January 30, 2017. the Company borrowed the remaining $300,000 on the note and issued an additional warrant for the purchase of 12,000 shares of common stock with similar terms to the original warrants. The fair value of $899,598 related to the January 30, 2017 warrants was recorded as a derivative (see Notes 12 and 15). The fair value was recorded as a debt discount and is being amortized over the remaining life of the note. On March 3, 2017, the Company amended the note to increase the maximum sum from $1,500,000 to $2,000,000. Also on March 3, 2017, the Company borrowed an additional $200,000 on the note and issued an additional warrant for the purchase of 8,000 shares of common stock with similar terms to the original warrants. The fair value of $407,947 related to the March 3, 2017 warrants was recorded as a derivative (see Notes 12 and 15). The Company recorded a loss on extinguishment of debt of $501,969 related to the March 3, 2017 amendment and additional borrowing. Effective March 27, 2017, the Company amended the note to extend the maturity date to the earlier of April 15, 2017 or the third business day after the closing of the Offering. Additionally, the lender agreed to enter into a lock up prohibiting the sale or other transfer of all securities of the Company owned by them for a period of 6 months. In consideration for entering into the lock-up agreement the Company has agreed to pay a $340,000 fee, payable in shares of common stock at a rate of the lowest of (i) 80% of the common stock Offering price of the Offering, (ii) 80% of the unit price Offering price of the Offering (if applicable), or (iii) 80% of the exercise price of any warrants issued in the Offering. The lock-up agreement was signed during April 2017, which has expired. Effective April 19, 2017, the Company amended the note to extend the maturity date to the earlier of May 20, 2017 or the third business day after the closing of the Offering. On December 11, 2017, the Company borrowed an additional $250,000 from the lender under a new note payable agreement (see Note 18). 1,700,000 500,000 Secured note payable to a third party with interest at 12.75% per annum, due February 2019, in default. The note is secured by the assets of the Company and may go into default in the event other notes payable go into default subsequent to the effective date of the note. The Company entered into the note payable agreement in conjunction with a line of credit. The Company initially borrowed $1,500,000 and may borrow additional amounts under the note payable agreement up to a total balance of $3,000,000 as the Company meets certain milestones. The interest rate may also reduce to 11.25% per annum as the Company meets certain milestones. In conjunction with the note and related line of credit, the Company issued warrants to the lender to purchase 24,032 shares of common stock at $32.50 per share with a fair market value of $3,732,100 (see Notes 12 and 15), which resulted in a loss on derivative of $2,309,461. The Company has recorded discounts of $1,500,000, which are being amortized to interest expense over the term of the note. In April 2016, the Company borrowed an additional $500,000 on the note and incurred additional fees of $25,000, which are being amortized to interest expense over the remaining term of the note. In September 2016, the Company entered into a forbearance agreement where the lender will forbear from exercising remedies with regard to certain breaches through October 31, 2016 and consented to the Company entering into a purchase agreement with another party and issue the note and the warrant thereunder. Effective November 1, 2016, the Company and a lender entered into a forbearance and consent under a loan and security agreement (the "November Forbearance Agreement"). Pursuant to the terms of the November Forbearance Agreement, the lender will forbear from exercising remedies (the "November Forbearance") with regard to certain breaches of agreements between the Company and the lender, including the existing agreements as well as the previous forbearance agreement. Additionally, pursuant to the November Forbearance Agreement, the lender has provided the Company with the consent required under the existing agreements and previous forbearance agreement to make certain payments from the proceeds of the Offering. These payments include, but are not limited to (i) payments to holders of the Company's Series E Preferred, (ii) third party note and receivable payments and (iii) repayment of an unsecured note payable issued in September 2016. The lender also consented to the issuance of the Company's Series G Preferred Stock to certain affiliates of the Company. In consideration for the November Forbearance, the Company has agreed to issue the lender warrants to purchase 130,000 shares of common stock at an exercise price equal to the per share price of the common stock in the Offering, which shall be subject to a 12-month lock-up agreement. The Company has included the $1,932,577 estimated fair value of the warrants in accrued expenses as of June 30, 2017. The Forbearance set forth in the November Forbearance Agreement was in effect through December 31, 2016. The Company recorded a loss on extinguishment of debt of $2,043,715 on the note and its related line of credit in relation to the forbearance agreement. Effective December 31, 2016, the Company and the lender entered into a forbearance and consent under loan and security agreement (the "December Forbearance"). Pursuant to the terms of the December Forbearance, the lender will forbear from exercising remedies with regard to certain breaches of agreements between the Company and the lender, including the existing agreements as well as the previous two forbearances. Additionally, pursuant to the December Forbearance, the lender has provided the Company with the consent required under the Existing Agreements and prior two forbearances to make certain payments from the proceeds of the Offering. In consideration for the December Forbearance, the Company has agreed to issue the lender warrants to purchase 10,000 shares of common stock at an exercise price equal to the per share price of the common stock in the Offering and $50,000 of common stock at 80% of the at the same issue price in of the Offering, which shall be subject to a lock-up agreement. The $148,677 estimated fair value of the warrants and $60,000 fair value of the stock has been included in accrued expenses as of June 30, 2017. $104,824 of the fair value of the warrants and common stock associated with the note is recorded as a discount and is being amortized to interest expense over the remaining life of the note. The forbearance set forth in the December Forbearance was in effect through February 15, 2017. On February 15, 2017, the lender extended the December Forbearance period through March 31, 2017. On March 28, 2017, the lender extended the December Forbearance period through April 10, 2017. In March 2017, the Company modified the line of credit to include an additional secured borrowing of a maximum of $300,000. The Company recorded a loss on extinguishment of debt of $56,741 related to the modification. The Company has accrued default interest of $15,470 on the note payable. 1,152,778 1,652,778 Secured line of credit with a third party with interest at 12.25% per annum, due February 2018, in default. The note is secured by the assets of the Company and may go into default in the event other notes payable go into default subsequent to the effective date of the note. The Company entered into the line of credit agreement in conjunction with a note payable. The Company may draw up to the lesser of 80% of certain accounts receivable or $1,500,000 and increase the maximum it may borrow under the agreement up to a total balance of $3,000,000 at $500,000 per increase as the Company meets certain milestones. The interest rate may also reduce to 10.75% per annum as the Company meets certain milestones. In conjunction with the line of credit and related note, the Company issued warrants to purchase 24,032 shares of common stock at $32.50 per share with a fair market value of $3,732,100 (see Notes 12 and 15), which resulted in a loss on derivative of $2,309,461. The Company has recorded prepaid expenses of $44,665, which are being amortized to interest expense over the term of the line of credit. In September 2016, the Company entered into a forbearance agreement where the lender will forbear from exercising remedies with regard to certain breaches through October 31, 2016 and consented to the Company entering into a purchase agreement with another party and issuance of the note and the warrant thereunder. Effective November 1, 2016, the Company and a lender entered into a forbearance and consent under a loan and security agreement (the "November Forbearance Agreement"). Pursuant to the terms of the November Forbearance Agreement, the lender will forbear from exercising remedies (the "November Forbearance") with regard to certain breaches of agreements between the Company and the lender, including the existing agreements as well as the previous forbearance agreement. Additionally, pursuant to the November Forbearance Agreement, the lender has provided the Company with the consent required under the existing agreements and previous forbearance agreement to make certain payments from the proceeds of the Offering. These payments include, but are not limited to (i) payments to holders of the Company's Series E Preferred, (ii) third party note and receivable payments and (iii) repayment of an unsecured note payable issued in September 2016. The lender also consented to the issuance of the Company's Series G Preferred Stock to certain affiliates of the Company. In consideration for the November Forbearance, the Company has agreed to issue the lender warrants to purchase 130,000 shares of common stock at an exercise price equal to the per share price of the common stock in the Offering, which shall be subject to a 12-month lock-up agreement. The Company has included the $1,932,577 estimated fair value of the warrants in accrued expenses as of June 30, 2017. The Forbearance set forth in the November Forbearance Agreement was in effect through December 31, 2016. The Company recorded a loss on extinguishment of debt of $2,043,715 on the note and its related line of credit in relation to the forbearance agreement. Effective December 31, 2016, the Company and the lender entered into a forbearance and consent under loan and security agreement (the "December Forbearance"). Pursuant to the terms of the December Forbearance, the lender will forbear from exercising remedies with regard to certain breaches of agreements between the Company and the lender, including the existing agreements as well as the previous two forbearances. Additionally, pursuant to the December Forbearance, the lender has provided the Company with the consent required under the Existing Agreements and prior two forbearances to make certain payments from the proceeds of the Offering. In consideration for the December Forbearance, the Company has agreed to issue the lender warrants to purchase 10,000 shares of common stock at an exercise price equal to the per share price of the common stock in the Offering and $50,000 of common stock at 80% of the at the same issue price in of the Offering, which shall be subject to a lock-up agreement. The $148,677 estimated fair value of the warrants and $60,000 fair value of the stock has been included in accrued expenses as of June 30, 2017. $104,824 of the fair value of the warrants and common stock associated with the note is recorded as a discount and is being amortized to interest expense over the remaining life of the note. The forbearance set forth in the December Forbearance was in effect through February 15, 2017. On February 15, 2017, the lender extended the December Forbearance period through March 31, 2017. On March 28, 2017, the lender extended the December Forbearance period through April 10, 2017. In March 2017, the Company modified the line of credit to include an additional secured borrowing of a maximum of $300,000. The Company recorded a loss on extinguishment of debt of $56,741 related to the modification. The Company has accrued default interest of $16,997 on the note payable. 1,259,007 929,518 Unsecured note payable with interest at 18% per annum, with no maturity date. The note payable is from a verbal agreement with the lender which converted $617,500 of advances into $1,100,000 of principal on the note payable. The additional $482,500 of principal plus agreed upon fees of $95,226 have been included in accrued liabilities and were booked to interest expense immediately. During November 2017, the Company amended the note to be callable at any time, due May 30, 2018, and to become convertible into shares of the Company’s common stock at the most favorable rate available as of the date of the agreement. The conversion rate may adjusted for any more favorable conversion terms provided to any other note holder at a future date (see Note 18). 1,100,000 - Unsecured note payable with interest at 2.8% of total revenue per annum, with no maturity date. The note payable is from a verbal agreement with the lender which converted a $350,000 advance into the note payable. Agreed upon fees of $143,987 and a future payoff fee of 20%, or $70,000, have been included in accrued liabilities and were booked to interest expense immediately. During November 2017, the Company amended the note to where the Company is required to pay any outstanding interest at the end of the first month following a quarter end, the lender may call all amounts due under the note payable as due and payable after February 28, 2018, given 15 calendar days notice, and to become convertible into shares of the Company’s common stock at the most favorable rate available as of the date of the agreement. The conversion rate may adjusted for any more favorable conversion terms provided to any other note holder at a future date (see Note 18). 350,000 - Note payable previously secured by CareServices customer contracts. In January 2015, the note was amended to reduce the outstanding principal to $375,000, interest at 9% per annum, and payable in 15 monthly installments beginning in February 2015. The amendment released the collateralized customer contracts and the note payable is guaranteed by both a former Executive Chairman of the Board of Directors and a member of the Board of Directors. A gain on the extinguishment of the old note of $769,449 was recorded in other income. In December 2015, the note was amended to extend maturity to January 2018 payable in monthly installments beginning in July 2016, convert $31,252 from accrued interest into principal, interest at 10% per annum, and provide that the note is convertible into common stock at its fair value per share. The Company recorded a derivative in connection with the convertible feature of the note (see Note 12) and is amortizing the initial $302,690 fair value of the derivative liability over the life of the note. In February 2016, the note was amended to subordinate to other notes payable also issued during February 2016. In July 2016, the note was amended to extend the maturity date to the earlier of an equity raise in excess of $10,000,000 or November 2016 and included additional default penalties and payment terms. In October 2016, the note was amended to extend the maturity date to the earlier of an equity raise in excess of $10,000,000 or December 31, 2016 and included additional default penalties and payment terms. In December 2016, February 2017 and March 2017, the note was further amended to extend the maturity date to the earlier of an equity raise in excess of $10,000,000 or February 15, 2017, March 31, 2017, and April 30, 2017, respectively. Subsequent to June 30, 2017, the Company received a letter related to the note wherein the lender waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017 and later sent an additional letter where the lender waived any historical and future events of default through February 28, 2018 and extended the maturity date through February 28, 2018 (see Note 18). 334,464 334,464 Unsecured note payable with interest at 12% per annum, due February 2016, convertible into common stock at $150 per share. In connection with the issuance of the note, the Company repriced previously issued warrants to purchase shares of common stock. The $22,397 increase in relative fair value of the warrants was included as a loss on the extinguishment of the old note in other expense in fiscal 2015. The note also required a payment of 6,000 shares of common stock. The fair value of $780,000 was included as a loss on the extinguishment of the old note in other expense in fiscal 2015. The maturity date was subsequently extended on two occasions for a total of 500 shares of common stock and the note was due May 2016. The $31,250 fair value of these shares was being amortized over the extension period. In February 2016, the note was amended to subordinate to other notes payable also issued during February 2016, and the conversion price was reduced to $30 per share, which was below the fair value of the Company's common stock on the date of the amendment. The note may only be converted if the holder owns less than 9.99% of the Company's common stock after conversion. The Company recorded the value of the beneficial conversion feature of $381,299 to loss on termination of debt as a result of the modification. In May 2016, the note was amended to extend the maturity date to the earlier of an equity raise of $10,000,000 or October 2016 which required a payment of 600 shares of common stock. The $28,500 fair value of these shares has been included in accrued liabilities and was amortized over the extension period. In October 2016, the Company extended the maturity date of the note month-by-month through no later than April 30, 2017 for a fee of $5,000 per month extended. During September 2017, the Board of Directors granted 200 shares of Series H Preferred Stock for extension fees. In October 2017, the Company entered into a settlement agreement related to the note where the Company borrowed an additional $200,000 and modified the terms of the note payable to become secured by inventory owned by |
10. Related Party Notes Payab37
10. Related Party Notes Payable: Schedule of Related Party Transactions (Tables) | 9 Months Ended |
Jun. 30, 2017 | |
Tables/Schedules | |
Schedule of Related Party Transactions | June 30, September 30, 2017 2016 Secured borrowings from entities controlled by an officer who purchased a $2,813,175 customer receivable for $1,710,500. The note is currently in technical default. However, as of the time of this report, the lender has informally agreed to work with the Company until such time as the note can be repaid. The Company repurchased the receivable for $1,950,000 less cash received by the entities through March 2015. The $239,500 difference between the buyback and cash received plus $253,500 of loan origination fees was amortized to interest expense through March 2015. In September 2015, the note was modified to extend the maturity date to January 2017, with interest at 18% per annum. The Company added $81,600 of extension fees and issued 6,000 shares of common stock to a lender as part of the modification. The note is convertible into common stock at $150 per share. The $540,000 fair value of the common stock was recognized as a loss on extinguishment of debt in fiscal 2015. In February 2016, the note was amended to subordinate to other notes payable also issued during February 2016, and the conversion price was reduced to $30 per share, which was below the fair value of the Company's stock on the date of the amendment. The conversion of the note is now limited to a maximum of 40,000 common shares in combination with other convertible notes payable held by the lenders. The note has a default penalty of 8,407 shares of common stock, in combination with other convertible notes held by the lenders, if not paid by maturity. The Company recorded the value of the combined beneficial conversion features of $1,400,000 to loss on termination of debt as a result of the amendment. During the three months ended March 31, 2017, the Company entered into a letter agreement related to the remainder of the note to convert the outstanding principal and interest into shares of common stock contingent upon the completion of the Offering, which has expired (see Note 17). Subsequent to June 30, 2017, the Company received a letter related to the note wherein the lenders waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017 and later sent an additional letter where the lenders waived any historical and future events of default through January 12, 2018 and extended the maturity date through January 12, 2018 (see Note 18). In November 2017, the officer assigned $2,000,000 of principal all of the notes payable held by the related-party entities to a third party who the Company owed aggregate principal of $1,200,000 as of June 30, 2017. Interest accrued on the $2,000,000 assigned principal will continue to be payable to the related-party entities (see Note 18). $ 1,721,100 $ 1,721,100 Unsecured note payable to an entity controlled by an officer with interest at 18% per annum, due January 2017, convertible into common stock at $150 per share. The note is currently in technical default. However, as of the time of this report, the lender has informally agreed to work with the Company until such time as the note can be repaid. The Company issued 6,000 shares of common stock to a lender as loan origination fees. The $540,000 fair value of the common stock was recognized as a loss on extinguishment of debt in fiscal 2015. In February 2016, the note was amended to subordinate to other notes payable also issued during February 2016, and reduced the conversion price to $30 per share, which was below the fair value of the Company's stock on the date of the amendment. The conversion of the note is now limited to a maximum of 40,000 common shares in combination with other convertible notes payable held by the lender. The note has a default penalty of 8,407 shares of common stock, in combination with other convertible notes held by the lender, if not paid by maturity. The Company recorded the value of the combined beneficial conversion features of $1,400,000 to loss on termination of debt as a result of the amendment. During the three months ended March 31, 2017, the Company entered into a letter agreement related to the remainder of the note to convert the outstanding principal and interest into shares of common stock contingent upon the completion of the Offering, which has expired (see Note 17). Subsequent to June 30, 2017, the Company received a letter related to the note wherein the lender waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017 and later sent an additional letter where the lenders waived any historical and future events of default through January 12, 2018 and extended the maturity date through January 12, 2018 (see Note 18). In November 2017, the officer assigned $2,000,000 of principal all of the notes payable held by the related-party entities to a third party who the Company owed aggregate principal of $1,200,000 as of June 30, 2017. Interest accrued on the $2,000,000 assigned principal will continue to be payable to the related-party entities (see Note 18). 1,303,135 1,303,135 Unsecured note payable to an entity controlled by a former Executive Chairman of the Board of Directors with interest at 18% per annum, due January 2017. The note is currently in technical default. However, as of the time of this report, the lender has informally agreed to work with the Company until such time as the note can be repaid. In February 2016, notes payable to the same entity, with outstanding balances of $511,005 plus accrued interest of $30,999 combined into this note. The note is subordinated to notes payable to unrelated parties and is convertible into shares of common stock at $30 per share, which was below the fair value of the Company's stock on the date of the agreement. The conversion of the note is limited to a maximum of 18,500 common shares. The Company recorded the value of the beneficial conversion feature of $632,339 to loss on termination of debt. The note has a default penalty of 1,469 shares of common stock if not paid by maturity. The note may only be converted if the holder owns less than 4.99% of the Company's common stock after conversion. During the three months ended March 31, 2017, the Company entered into a letter agreement related to the remainder of the note to convert the outstanding principal and interest into shares of common stock contingent upon the completion of the Offering, which has expired (see Note 17). Subsequent to June 30, 2017, the Company received a letter related to the note wherein the lender waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017 and later sent an additional letter where the lenders waived any historical and future events of default through January 12, 2018 and extended the maturity date through January 12, 2018 (see Note 18). 542,004 542,004 Unsecured note payable to an entity controlled by an officer with interest at 12% per annum, due September 2016, subordinated to other third party notes payable. The note is currently in technical default. However, as of the time of this report, the lender has informally agreed to work with the Company until such time as the note can be repaid. In connection with the issuance of the note, the Company issued 2,000 shares of common stock. The $70,000 fair value of the stock is being amortized to interest expense over the term of the note. During the three months ended March 31, 2017, the Company entered into a letter agreement related to the remainder of the note to convert the outstanding principal and interest into shares of common stock contingent upon the completion of the Offering, which has expired (see Note 17). Subsequent to June 30, 2017, the Company received a letter related to the note wherein the lender waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017 and later sent an additional letter where the lenders waived any historical and future events of default through January 12, 2018 and extended the maturity date through January 12, 2018 (see Note 18). In November 2017, the officer assigned $2,000,000 of principal all of the notes payable held by the related-party entities to a third party who the Company owed aggregate principal of $1,200,000 as of June 30, 2017. Interest accrued on the $2,000,000 assigned principal will continue to be payable to the related-party entities (see Note 18). 250,000 250,000 Unsecured note payable to a former officer with interest at 12% per annum, due September 2013. This note is in default and is convertible into common stock at $375 per share. 26,721 26,721 Unsecured note payable to an entity controlled by an officer with interest at 18% per annum, due on demand. The note is currently in technical default. However, as of the time of this report, the lender has informally agreed to work with the Company until such time as the note can be repaid. In February 2016, the note was amended to subordinate the note to other notes payable also issued during February 2016. The note is convertible into shares of common stock at $30 per share, which was below the fair value of the Company's stock on the date of the amendment. The conversion of the note is now limited to a maximum of 40,000 common shares in combination with other convertible notes payable held by the entity. The note has a default penalty of 8,407 shares of common stock, in combination with other convertible notes held by the entity, if not paid by maturity. The Company recorded the value of the combined beneficial conversion features of $1,400,000 to loss on termination of debt as a result of the amendment. In January 2017 and February 2017, the note was amended to extend the maturity date to February 15, 2017 and April 30, 2017, respectively. Subsequent to June 30, 2017, the Company received a letter related to the note wherein the lender waived any historical and future events of default through August 24, 2017 and extended the maturity date through August 24, 2017 and later sent an additional letter where the lenders waived any historical and future events of default through January 12, 2018 and extended the maturity date through January 12, 2018 (see Note 18). In November 2017, the officer assigned $2,000,000 of principal all of the notes payable held by the related-party entities to a third party who the Company owed aggregate principal of $1,200,000 as of June 30, 2017. Interest accrued on the $2,000,000 assigned principal will continue to be payable to the related-party entities (see Note 18). 25,463 25,463 Unsecured note payable to a former officer with interest at 15% per annum, due June 2012, in default. The note included a $3,000 loan origination fee added to the principal and is convertible into common stock at $250 per share. 1,260 17,227 Unsecured note payable to a former officer with interest at 12% per annum, due on demand. - 12,474 Total notes payable, related-party 3,869,683 3,898,124 Less current portion (3,869,683) (3,898,124) Notes payable, related-party, net of current portion $ - $ - |
11. Fair Value Measurements_ Fa
11. Fair Value Measurements: Fair Value, Liabilities Measured on Recurring Basis (Tables) | 9 Months Ended |
Jun. 30, 2017 | |
Tables/Schedules | |
Fair Value, Liabilities Measured on Recurring Basis | Quoted Prices in Active Markets for Identical Items (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total June 30, 2017 Derivatives liability $ - $ 269,427 $ 3,962,556 $ 4,231,983 September 30, 2016 Derivatives liability - 281,613 1,772,458 2,054,071 |
11. Fair Value Measurements_ 39
11. Fair Value Measurements: Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation (Tables) | 9 Months Ended |
Jun. 30, 2017 | |
Tables/Schedules | |
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation | Derivatives Liability Balance, September 30, 2016 $ 1,772,458 Issuance of warrants recorded as derivatives 2,511,288 Gain on termination of debt resulting from payments on notes payable (103,213) Loss on derivatives liability resulting from changes in fair value (217,997) Balance, June 30, 2017 $ 3,962,556 |
15. Common Stock Options and 40
15. Common Stock Options and Warrants: Schedule of Share Based Payment Award Stock Options Valuation Assumptions, Level 3 (Tables) | 9 Months Ended |
Jun. 30, 2017 | |
Tables/Schedules | |
Schedule of Share Based Payment Award Stock Options Valuation Assumptions, Level 3 | Exercise price $2.50 - $25.00 Expected term (years) 0.21 - 4.93 Volatility 128% - 194% Risk-free rate 0.49% - 1.99% Dividend rate 0% Common stock price $2.50 - $25.00 |
15. Common Stock Options and 41
15. Common Stock Options and Warrants: Schedule of Share-based Compensation, Activity (Tables) | 9 Months Ended |
Jun. 30, 2017 | |
Tables/Schedules | |
Schedule of Share-based Compensation, Activity | Options and Warrants Number of Options and Warrants Weighted- Average Exercise Price Outstanding as of October 1, 2016 65,045 $ 35.06 Granted 48,000 25.00 Forfeited (3,871) 357.84 Outstanding as of June 30, 2017 109,174 37.12 Exercisable as of June 30, 2017 102,225 34.46 |
17. Commitments and Contingen42
17. Commitments and Contingencies: Schedule of Future Minimum Rental Payments for Operating Leases (Tables) | 9 Months Ended |
Jun. 30, 2017 | |
Tables/Schedules | |
Schedule of Future Minimum Rental Payments for Operating Leases | Years Ending September 30, 2017 $ 32,908 2018 111,340 $ 144,248 |
2. Net Loss per Common Share_43
2. Net Loss per Common Share: Schedule of Earnings Per Share, Basic and Diluted (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Net income (loss), excluding discontinued operations | $ (5,873,988) | $ 3,304,133 | $ (15,151,168) | $ (14,924,907) |
Dilutive Securities, Effect on Basic Earnings Per Share, Dilutive Convertible Securities | $ (5,873,988) | $ (983,880) | $ (15,151,168) | $ (16,715,314) |
Weighted average common shares outstanding - basic | 237,100 | 217,595 | 233,767 | 182,979 |
Weighted average common shares outstanding - diluted | 237,100 | 260,266 | 233,767 | 201,928 |
Income (Loss) from Continuing Operations, Per Basic Share | $ (24.77) | $ 15.18 | $ (64.81) | $ (81.57) |
Income (Loss) from Continuing Operations, Per Diluted Share | $ (24.77) | $ (3.78) | $ (64.81) | $ (82.78) |
CommonStockOptionsAndWarrantsMember | ||||
Dilutive Securities, Effect on Basic Earnings Per Share, Dilutive Convertible Securities | $ (2,427,640) | |||
Antidilutive Securities Excluded from Computation of Net Income, Per Outstanding Unit, Amount | $ 3,337 | |||
Convertible debt | ||||
Dilutive Securities, Effect on Basic Earnings Per Share, Dilutive Convertible Securities | $ (1,860,373) | $ (1,790,407) | ||
Antidilutive Securities Excluded from Computation of Net Income, Per Outstanding Unit, Amount | $ 39,334 | $ 18,949 |
2. Net Loss per Common Share_44
2. Net Loss per Common Share: Schedule of Common Stock Equivalents (Details) - shares | 3 Months Ended | 9 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Details | ||||
Exercise of outstanding common stock warrants | 109,174 | 18,346 | 109,174 | 42,378 |
Conversion of Series D preferred stock | 450 | 450 | 450 | 450 |
Conversion of Series E preferred stock | 961 | 961 | 961 | 961 |
Conversion of debt | 158,798 | 95,799 | 158,798 | 95,799 |
Issuance of employee restricted shares | 15 | 15 | 15 | 15 |
Liability to issue common stock | 358,097 | 2,246 | 358,097 | 2,246 |
Common stock equivalents | 627,495 | 117,817 | 627,495 | 141,849 |
4. Accounts Receivable (Details
4. Accounts Receivable (Details) - USD ($) | Jun. 30, 2017 | Sep. 30, 2016 |
Details | ||
Allowance for Doubtful Accounts Receivable | $ 25,468 | $ 75,161 |
5. Inventory_ Schedule of Inv46
5. Inventory: Schedule of Inventory (Details) - USD ($) | Jun. 30, 2017 | Sep. 30, 2016 |
Details | ||
Inventory, Finished Goods, Gross | $ 503,477 | $ 206,444 |
Inventory Valuation Reserves | (1,708) | (1,708) |
Inventory | $ 501,769 | $ 204,736 |
6. Prepaid Expenses and Other47
6. Prepaid Expenses and Other Current Assets: Schedule of Other Current Assets (Details) - USD ($) | Jun. 30, 2017 | Sep. 30, 2016 |
Prepaid expenses and other | $ 56,555 | $ 644,857 |
Prepaid information technology services | ||
Prepaid expenses and other | 38,081 | 57,073 |
Other | ||
Prepaid expenses and other | 12,249 | 112,117 |
Prepaid insurance | ||
Prepaid expenses and other | $ 6,225 | 14,602 |
Prepaid professional fees | ||
Prepaid expenses and other | 333,741 | |
Research and Development | ||
Prepaid expenses and other | 96,346 | |
Line of credit acquisition fees | ||
Prepaid expenses and other | $ 30,978 |
7. Property and Equipment_ Pr48
7. Property and Equipment: Property, Plant and Equipment (Details) - USD ($) | Jun. 30, 2017 | Sep. 30, 2016 |
Property and equipment, net | $ 56,445 | $ 86,734 |
Property, Plant and Equipment, Gross | 261,946 | 264,527 |
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment | (205,501) | (177,793) |
Computer Software, Intangible Asset | ||
Property and equipment, net | 47,974 | 47,974 |
Leaseholds and Leasehold Improvements | ||
Property and equipment, net | 98,023 | 98,023 |
Furniture and Fixtures | ||
Property and equipment, net | 68,758 | 68,758 |
Equipment | ||
Property and equipment, net | $ 47,191 | $ 49,772 |
7. Property and Equipment (Deta
7. Property and Equipment (Details) - USD ($) | 9 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Details | ||
Gain on disposal of property and equipment | $ 245 | |
Depreciation, Amortization and Accretion, Net | $ 33,107 | $ 38,817 |
8. Accrued Expenses_ Schedule50
8. Accrued Expenses: Schedule of Accrued Liabilities (Details) - USD ($) | Jun. 30, 2017 | Sep. 30, 2016 |
Accrued expenses | $ 7,765,437 | $ 2,101,711 |
Interest Expense | ||
Accrued expenses | 2,694,545 | 1,206,387 |
LiabilityToIssueWarrantsMember | ||
Accrued expenses | 2,081,254 | |
Liability To Issue Common Stock | ||
Accrued expenses | 2,000,933 | 240,000 |
Finance Fees | ||
Accrued expenses | 333,000 | |
Payroll Expense | ||
Accrued expenses | 329,615 | 207,052 |
Other | ||
Accrued expenses | 141,394 | 89,828 |
DeferredRevenueMember | ||
Accrued expenses | 85,399 | 111,803 |
Warranty Liability | ||
Accrued expenses | 58,300 | 134,330 |
CommissionsAndFeesMember | ||
Accrued expenses | $ 40,997 | 52,311 |
Severance | ||
Accrued expenses | $ 60,000 |
9. Notes Payable_ Schedule of51
9. Notes Payable: Schedule of Debt - Other (Details) - USD ($) | Jun. 30, 2017 | Sep. 30, 2016 |
Gross notes payable before discount | $ 16,859,049 | $ 13,006,815 |
Discount on notes payable | (1,468,335) | (1,930,060) |
Notes payable current and noncurrent | 15,390,714 | 11,076,755 |
Current portion of notes payable | (9,501,544) | (3,722,899) |
Notes payable, net of current portion | 5,889,170 | 7,353,856 |
Note 1 | ||
Gross notes payable before discount | 5,900,000 | 5,900,000 |
Note 2 | ||
Gross notes payable before discount | 1,974,602 | 689,318 |
Note 3 | ||
Gross notes payable before discount | 1,773,937 | 2,223,937 |
Note 4 | ||
Gross notes payable before discount | 1,700,000 | 500,000 |
Note 5 | ||
Gross notes payable before discount | 1,152,778 | 1,652,778 |
Note 6 | ||
Gross notes payable before discount | 1,259,007 | 929,518 |
Note 7 | ||
Gross notes payable before discount | 1,100,000 | |
Note 8 | ||
Gross notes payable before discount | 350,000 | |
Note 9 | ||
Gross notes payable before discount | 334,464 | 334,464 |
Note 10 | ||
Gross notes payable before discount | 300,000 | 300,000 |
Note 11 | ||
Gross notes payable before discount | 300,000 | |
Note12Member | ||
Gross notes payable before discount | 300,000 | |
Note13Member | ||
Gross notes payable before discount | 250,000 | 250,000 |
Note14Member | ||
Gross notes payable before discount | 100,000 | |
Note15Member | ||
Gross notes payable before discount | $ 64,261 | 64,261 |
Note16Member | ||
Gross notes payable before discount | $ 162,539 |
10. Related Party Notes Payab52
10. Related Party Notes Payable: Schedule of Related Party Transactions (Details) - USD ($) | Jun. 30, 2017 | Sep. 30, 2016 |
Notes Payable, Related Parties | $ 3,869,683 | $ 3,898,124 |
Notes payable, related party | (3,869,683) | (3,898,124) |
RelatedPartyNote1Member | ||
Notes Payable, Related Parties | 1,721,100 | 1,721,100 |
RelatedPartyNote2Member | ||
Notes Payable, Related Parties | 1,303,135 | 1,303,135 |
RelatedPartyNote3Member | ||
Notes Payable, Related Parties | 542,004 | 542,004 |
RelatedPartyNote4Member | ||
Notes Payable, Related Parties | 250,000 | 250,000 |
RelatedPartyNote5Member | ||
Notes Payable, Related Parties | 26,721 | 26,721 |
RelatedPartyNote6Member | ||
Notes Payable, Related Parties | 25,463 | 25,463 |
RelatedPartyNote7Member | ||
Notes Payable, Related Parties | $ 1,260 | 17,227 |
RelatedPartyNote8Member | ||
Notes Payable, Related Parties | $ 12,474 |
11. Fair Value Measurements_ 53
11. Fair Value Measurements: Fair Value, Liabilities Measured on Recurring Basis (Details) - USD ($) | Jun. 30, 2017 | Sep. 30, 2016 |
Derivatives liability | $ 4,231,983 | $ 2,054,071 |
Fair Value, Inputs, Level 2 | ||
Derivatives liability | 269,427 | 281,613 |
Fair Value, Inputs, Level 3 | ||
Derivatives liability | $ 3,962,556 | $ 1,772,458 |
11. Fair Value Measurements_ 54
11. Fair Value Measurements: Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation (Details) - USD ($) | 3 Months Ended | |
Jun. 30, 2017 | Sep. 30, 2016 | |
Derivatives liability | $ 4,231,983 | $ 2,054,071 |
Fair Value, Inputs, Level 3 | ||
Derivatives liability | 3,962,556 | $ 1,772,458 |
Issuance of warrants recorded as derivative | 2,511,288 | |
Issuance of embedded derivatives related to notes payable | (103,213) | |
Loss (gain) on derivative liability resulting from changes in fair value | $ (217,997) |
12. Derivatives Liability (Deta
12. Derivatives Liability (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | Sep. 30, 2016 | |
Details | |||||
Derivatives liability | $ 4,231,983 | $ 4,231,983 | $ 2,054,071 | ||
Gain on derivatives liability | $ 64,145 | $ 5,603,411 | $ 230,163 | $ 2,796,542 |
13. Preferred Stock (Details)
13. Preferred Stock (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | Sep. 30, 2014 | Sep. 30, 2016 | |
Preferred stock shares authorized | 10,000,000 | 10,000,000 | 10,000,000 | |||
Preferred stock par value | $ 0.00001 | $ 0.00001 | $ 0.00001 | |||
Series D Preferred Stock | ||||||
Convertible Preferred Stock Shares Designated | 1,000,000 | |||||
IncreaseDecreaseInDividendsPayable | $ 24,800 | $ 18,617 | ||||
Series E Preferred Stock | ||||||
IncreaseDecreaseInDividendsPayable | $ 34,178 | $ 39,598 | 102,535 | 185,485 | ||
Redemption Price of Series E preferred stock | $ 477,829 | $ 477,829 | $ 477,829 | |||
Series F Preferred Stock | ||||||
Convertible Preferred Stock Shares Designated | 7,803 | |||||
IncreaseDecreaseInDividendsPayable | $ 0 | $ 495,148 | ||||
Series G Preferred Stock | ||||||
Convertible Preferred Stock Shares Designated | 43,220 |
14. Common Stock (Details)
14. Common Stock (Details) - USD ($) | 9 Months Ended | |
Jun. 30, 2017 | Sep. 30, 2016 | |
Details | ||
Common stock shares authorized | 200,000,000 | 200,000,000 |
Stockholders' Equity, Reverse Stock Split | On January 27, 2017, the Company effected a 1-for-500 reverse stock split of its outstanding common stock, which caused the then outstanding common stock to decrease from 115,112,802 to 232,100 while keeping the authorized capitalization unchanged. | |
Stock Issued During Period, Shares, Issued for Services | 7,000 | |
Stock Issued During Period, Value, Issued for Services | $ 70,000 |
15. Common Stock Options and 58
15. Common Stock Options and Warrants (Details) | 9 Months Ended | |
Jun. 30, 2017USD ($) | Jun. 30, 2016USD ($) | |
Details | ||
Deemed dividends on redemption of preferred stock | $ 6,484,236 | |
Aggregate Intrinsic Value | $ 0 | |
Weighted average remaining term of the warrants | 4.52 | |
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost | $ 38,468 |
15. Common Stock Options and 59
15. Common Stock Options and Warrants: Schedule of Share Based Payment Award Stock Options Valuation Assumptions, Level 3 (Details) - Fair Value, Inputs, Level 3 | 3 Months Ended |
Jun. 30, 2017$ / shares | |
Minimum | |
Fair Value Assumptions, Exercise Price | $ 2.50 |
Fair Value Assumptions, Expected Term | 2 months 16 days |
Fair Value Assumptions, Expected Volatility Rate | 128.00% |
Fair Value Assumptions, Risk Free Interest Rate | 0.49% |
Fair Value Assumptions Common Stock Price | $ 2.50 |
Maximum | |
Fair Value Assumptions, Exercise Price | $ 25 |
Fair Value Assumptions, Expected Term | 4 years 11 months 5 days |
Fair Value Assumptions, Expected Volatility Rate | 194.00% |
Fair Value Assumptions, Risk Free Interest Rate | 1.99% |
Fair Value Assumptions Common Stock Price | $ 25 |
15. Common Stock Options and 60
15. Common Stock Options and Warrants: Schedule of Share-based Compensation, Activity (Details) - $ / shares | 3 Months Ended | |
Jun. 30, 2017 | Sep. 30, 2016 | |
Details | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number | 109,174 | 65,045 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price | $ 37.12 | $ 35.06 |
Share-based compensation arrangement by share-based payment award, Options, Grants in period | 48,000 | |
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price | $ 25 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period | (3,871) | |
Share-based Compensation Arrangements by Share-based Payment Award, Options, Forfeitures in Period, Weighted Average Exercise Price | $ 357.84 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number | 102,225 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price | $ 34.46 |
16. Related-party Transaction61
16. Related-party Transactions Not Otherwise Disclosed (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2017 | Jun. 30, 2016 | |
Principal payments on notes payable | $ 3,325,427 | $ 3,175,603 | |
FormerExecutiveChairmanOfTheBoardOfDirectorsMember | |||
Related Party Compensation, Hourly Rate | $ 250 | ||
FormerExecutiveChairmanAndChiefExecutiveOfficerMember | |||
Related Party Compensation, Hourly Rate | $ 250 | ||
Principal payments on notes payable | $ 135,000 |
17. Commitments and Contingen62
17. Commitments and Contingencies: Schedule of Future Minimum Rental Payments for Operating Leases (Details) | Jun. 30, 2017USD ($) |
Details | |
Operating Leases, Future Minimum Payments, Next Rolling Twelve Months | $ 32,908 |
Operating Leases, Future Minimum Payments, Due in Two Years | 111,340 |
Operating Leases, Future Minimum Payments Due | $ 144,248 |
17. Commitments and Contingen63
17. Commitments and Contingencies (Details) - USD ($) | 9 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Details | ||
Operating Leases, Rent Expense, Net | $ 97,000 | $ 94,000 |