Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
On November 27, 2017, the Company entered into a Securities Purchase Agreement (the “Original November Purchase Agreement”), with Bellridge Capital, L.P. (“Bellridge”) pursuant to which the Company agreed to sell to Bellridge an aggregate of $1,500,000 principal amount of Senior Secured Convertible Promissory Notes (the “Notes”) and a Common Stock purchase warrant (the “November Warrant”) to purchase up to 48,400,470 shares of the Company’s Common Stock, $0.0001 par value per share (the “Common Stock”). On April 5, 2018, the Company entered into an Amendment to Securities Purchase Agreement (the “Amendment”; and together with the “Original November Purchase Agreement”, the “November Purchase Agreement”), with Bellridge, whereby the schedule of tranche funding was amended. On November 27, 2017, the Company closed the first tranche under the November Purchase Agreement and issued a Note in the principal amount of $500,000 to Bellridge, as well as the November Warrant. On December 20, 2017, the Company received the second tranche under the November Purchase Agreement and issued a Note in the principal amount of $300,000 to Bellridge. The Note was issued in April, 2018 with an effective date of December 20, 2017 which is when we received the funds.
Bellridge is obligated to purchase from the Company a Note for the third tranche in the principal amount of $200,000 and a Note for the fourth tranche in the principal amount of $500,000 as follows: within five (5) after the Company receives the first set of comments from the U.S. Securities and Exchange Commission, so long as the comments are reasonable in the sole discretion of Bellridge; and within five (5) days after the Effectiveness Date (as defined in the November Registration Rights Agreement (as defined below)), respectively.
Bellridge is not required to purchase the third tranche and fourth tranches Notes in the event that: (i) the Company, any of its subsidiaries, or any of the officers or directors of the Company or its subsidiaries commit fraud; (ii) the Company or any of its subsidiaries breach any convents in any of the transaction documents related to the November Purchase Agreement and Notes; (ii) there is an Event of Default (as defined in the Notes) on any closing date with respect to any tranche; and (iv) there is any event of default under any other transaction documents related to the November Purchase Agreement or Notes.
As consideration for Bellridge entering into the November Purchase Agreement and agreeing to purchase the Notes and the November Warrant, the Company issued to Bellridge 2,793,296 shares of Common Stock as commitment shares (the “Commitment Shares”).
The Notes are senior secured obligations of the Company. The Notes rank senior to the Company’s existing and future indebtedness and are secured by all assets of the Company and its subsidiaries, pursuant to a Security Agreement (as defined below) and the IP Security Agreement (as defined below). Unless earlier converted or redeemed, the Notes will mature one (1) year from their issuance. The Notes bear interest at a rate of 5% per annum, which twelve (12) months’ interest amount is guaranteed.
At any time after issuance of the Notes, so long as there is no event of default under the Notes, the Company may deliver to Bellridge a notice of prepayment with respect to any portion of the principal amount of the Notes, any accrued and unpaid (including, without limitation, guaranteed interest on any outstanding principal), and any other amounts due under the Notes). If the Company exercises its right to prepay the Notes, the Company will pay to Bellridge an amount in cash equal to the sum of the then outstanding principal amount of the Notes and guaranteed interest as follows: (i) within ninety (90) days of initial issuance date of such Note, a 115% premium; (ii) from the ninety-first (91
st
) day after initial issuance date of such Note through the one hundred eightieth (180
th
) after the initial issuance date of such Note, a 110% premium; and (iii) from the one hundred eighty-first first (181
st
) day after initial issuance date of such Note through the day prior to the maturity date of such Note, a 125% premium. Bellridge may continue to convert such Note from the date of notice of prepay is given until the date of the prepayment.
The Notes are convertible at any time, in whole or in part, at the option of Bellridge into shares of Common Stock at a conversion price (the “Fixed Conversion Price) equal to the lesser of (i) ten cents ($0.10), and (ii) seventy percent (70%) of the lowest traded price in the twenty (20) consecutive Trading Days (as defined in the Notes) on the Trading Market (as defined in the Notes) prior to the Conversion Date (as defined in the Notes). The Fixed Conversion Price which is subject to adjustment for full anti-dilution protection, stock dividends, stock splits, combinations or similar events.
In the event of an Event of Default (as defined in the Notes) under the Notes, one hundred thirty-five percent (135%) of the outstanding principal amount of the Notes, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration shall become, at Bellridge’s election, immediately due and payable at its option, in cash or in shares of Common Stock (subject to the Equity Conditions (as defined in the Notes)), at an alternate conversion price of sixty percent (60%) of the lowest traded price in the twenty (20) consecutive Trading Days (as defined in the Notes) prior to the Conversion Date (as defined in the Notes). Additionally, the interest rate of the Notes shall then accrue at an additional interest rate equal to the lesser of two percent (2%) per month (twenty-four percent (24%) per annum) or the maximum rate permitted under applicable law.
Bellridge has no right to convert the Notes to the extent that such conversion would result in Bellridge being the beneficial owner in excess of 4.99% (or, upon election of Bellridge, 9.99%), which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until sixty-one (61) days following notice to the Company.
So long as the Notes are outstanding or Bellridge holds any shares of Common Stock issued upon conversion of the Notes, the Company is prohibited from entering into any Variable Rate Transactions (as defined in the Notes). So long as the Notes are outstanding, the Company is prohibited from entering into any Exchange Transaction (as defined in the Notes).
November Warrant
The November Warrant entitles Bellridge to purchase up to 7,894,737 shares of Common Stock. The November Warrant is exercisable beginning on May 27, 2018, through the fourth (4
th
) anniversary of such initial exercisability date. The November Warrant has an initial exercise price equal to the Fixed Conversion Price of the Notes (the “November Exercise Price”). The November Exercise Price is subject to adjustment for full anti-dilution protection, stock dividends, stock splits, combinations or similar events.
Bellridge has no right to exercise the November Warrant to the extent that such exercise would result in Bellridge being the beneficial owner in excess of 4.99% (or, upon election of Bellridge, 9.99%), which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until sixty-one (61) days following notice to the Company.
So long as the November Warrant is outstanding or Bellridge holds any shares of Common Stock issued upon exercise of the November Warrant, the Company is prohibited from entering into any Variable Rate Transactions (as defined in the November Warrant). So long as the November Warrant is outstanding, the Company is prohibited from entering into any Exchange Transaction (as defined in the November Warrant).
FA Warrant
The FA Warrant was issued to Aegis Capital Corp. (“Aegis”), the exclusive financial advisor to the Company, pursuant to that certain Financial Advisory Agreement, dated November 8, 2017 (the “FA Agreement), between the Company and Aegis, as partial compensation of Aegis’ advisory fees. The FA Agreement contains certain terms related to Aegis’ engagement as the Company’s exclusive financial advisor for a period of thee (3) months after November 8, 2017, including, without limitation, Aegis’ advisory fees. The FA Warrant entitles Aegis to purchase up to 560,717 shares of Common Stock. The FA Warrant is exercisable beginning on the date of its issuance through the sixty (60)-month anniversary of such initial exercisability date. The FA Warrant has an initial exercise price of $0.10 (the “FA Exercise Price”). The FA Exercise Price is subject to adjustment for full anti-dilution protection, stock dividends, stock splits, combinations or similar events. Aegis may exercise the FA Warrant on a cashless basis at any time, regardless of whether the shares of Common Stock underlying the FA Warrant are registered on this prospectus.
Aegis has no right to exercise the FA Warrant to the extent that such exercise would result in Aegis being the beneficial owner in excess of 9.99%.
Aegis has certain piggy-back registration rights to demand that the Company register on this prospectus the shares of Common Stock underlying the FA Warrant. Aegis may also assign some or all of the FA Warrant or the shares of Common stock underlying the FA Warrant to its permitted assigns.
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November Registration Rights Agreement
In connection with the sale of the Notes and November Warrant, the Company entered into a Registration Rights Agreement, dated November 27, 2017, as amended by that certain Amendment to Registration Rights Agreement, dated April 13, 2018 (collectively, the “November Registration Rights Agreement”), with Bellridge, pursuant to which the Company agreed to register the shares of Common Stock underlying the Notes and the November Warrant on a Form S-1 registration statement (the “November Registration Statement”) to be filed with the Securities and Exchange Commission within thirty (30) days after the date of the initial closing under the Purchase Agreement (the “November Filing Date”) and to cause the November Registration Statement to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”) within one hundred twenty (120) days following the November Filing Date (the “November Effectiveness Date”). If certain of its obligations under the November Registration Rights Agreement are not met, the Company is required to pay partial liquidated damages to Bellridge. The Company did not file the November Registration Statement by the November Filing Date and it will not be declared effective by the November Effectiveness Date.
Security Documents
In connection with the sale of the Notes and November Warrant, the Company entered into a security agreement, dated November 27, 2017 (the “Security Agreement”), between the Company and Bellridge. Pursuant to the Security Agreement, Bellridge was granted a security interest in all assets of the Company to secure the payment and performance of all obligations of the Company under the Notes, November Warrant, November Purchase Agreement, November Registration Rights Agreement, Security Agreement, IP Security Agreement (as defined below), and the Subsidiary Guarantee (as defined below).
In
addition, in connection with the Security Agreement, the Company entered into an Intellectual Property Security Agreement, dated November 27, 2017 (the “IP Security Agreement”), with Bellridge. Pursuant to the IP Security Agreement, Bellridge was granted a security interest in all intellectual property of the Company to secure the payment and performance of all obligations of the Company under the Notes, November Warrant, November Purchase Agreement, November Registration Rights Agreement, Security Agreement, the IP Security Agreement, and the Subsidiary Guarantee (as defined below). Further, the Company entered into a Subsidiary Guarantee, dated November 27, 2017 (the “Subsidiary Guarantee”), pursuant to which it agreed that any current or future subsidiaries must guarantee and act as surety for payment of the Notes and other obligations of the Company under the November Warrant, November Purchase Agreement, November Registration Rights Agreement, Security Agreement, IP Security Agreement, and the Subsidiary Guarantee.
APRIL PRIVATE PLACEMENT
April Purchase Agreement
The Company entered into a Securities Purchase Agreement, dated April 5, 2018, as amended by that certain Amendment to Securities Purchase Agreement, dated April 13, 2018 (collectively, the “April Purchase Agreement”), with Bellridge Capital, L.P. (“Bellridge”) pursuant to which the Company sold to Bellridge for $0.003 three (3) common stock purchase warrants to purchase up to 85,000,000 shares of Common Stock as follows: (i) 28,339,000 shares of Common Stock underlying that certain common stock purchase warrant (the “First April Warrant”); (ii) 28,330,500 shares of common stock underlying that certain common stock purchase warrant (the “Second April Warrant”); and (iii) 28,330,500 shares of common stock underlying that certain Common Stock purchase warrant (the “Third April Warrant”; together with the First April Warrant and the second April Warrant, the “April Warrants”).
The April Warrants are exercisable beginning on the date of their issuance through the sixty (60)-month anniversary of such initial exercisability date. The April Warrants have an initial exercise price of $0.10 (the “April Exercise Price”). The April Exercise Price is subject to adjustment for full anti-dilution protection, stock dividends, stock splits, combinations or similar events.
Bellridge has no right to exercise any of the April Warrants to the extent that such exercise would result in Bellridge being the beneficial owner in excess of 9.99%.
April Registration Rights Agreement
In connection with the sale of the April Warrants, the Company entered into a Registration Rights Agreement, dated April 13, 2018, effective as of April 5, 2018, with Bellridge, pursuant to which the Company agreed to register the shares of Common Stock underlying the April Warrants on a Form S-1 registration statement (the “April Registration Statement”) to be filed with the Securities and Exchange Commission on or prior to April 16, 2018 (the “April Filing Date”) and to cause the April Registration Statement to be declared effective under the Securities Act within one hundred twenty (120) days following the April Filing Date. If certain of its obligations under the April Registration Rights Agreement are not met, the Company is required to pay partial liquidated damages to Bellridge.
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