Subsequent Events

3 Months Ended

Mar. 31, 2016

Subsequent Events [Abstract]

Subsequent Events

16. Subsequent Events

On April 1, 2016, the Company’s 5% convertible note with Crystal Falls Investments, LLC was further amended to extend the maturity date thereunder to May 31, 2016 and to provide for installment payments on the principal amount on such note as follows: $25,000 on April 5, 2016; $35,000 on April 29, 2016; $40,000 on May 16, 2016 and $50,000 on May 31, 2016. Failure to make the installment payments on the prescribed due dates will constitute an event of default under such note. Effective April 29, 2016, the Company received a limited waiver regarding the April 29, 2016 and May 16, 2016 installment payments so long as such payments are received by May 31, 2016.

From April 4, 2016 to April 20, 2016, the Company conducted closings for 930 units (“Units”) to 14 accredited investors at a price of $1,000 per Unit for an aggregate purchase price of $930,000, of which (i) 457 Units were purchased for $457,000 in cash (ii) 423 Units were purchased by certain of its officers in consideration of $423,000 accrued and unpaid salary and (iii) 50 Units were purchased in consideration of cancellation of $50,000 of outstanding indebtedness. Each Unit consists of (i) 1 share of our Series A Convertible Preferred Stock convertible into shares of our common stock, $0.0001 par value per share at a rate of $0.15 per share, and (ii) one Warrant, exercisable for 3-years, to purchase six thousand six hundred sixty six (6,666) shares of Common Stock at an exercise price of $0.18 per whole share.  The Company received gross proceeds of $457,000 from the sale of the 457 Units for cash. The Company used $32,560 of these proceeds as payment for non-exclusive placement agent fees to FINRA registered broker-dealers.   In addition, approximately $25,000 was used to repay outstanding indebtedness under 5% promissory notes.  The remaining proceeds will be used for working capital and general corporate purposes and to fund growth opportunities. In addition, the Company issued 5-year warrants to purchase 81,400 shares of common stock with an exercise price of $0.15 to broker-dealers in connection with the initial closing of this private placement. Steven Earles, the Company’s president and chief executive officer, purchased 185 Units in the Offering in consideration of $185,000 in accrued and unpaid salary. Steven Shum the Company’s chief financial officer purchased 97 Units in the Offering in consideration of $97,000 in accrued and unpaid salary. Martin Kunkel the Company’s chief marketing officer and secretary purchased 58 Units in the Offering in consideration of $58,000 in accrued and unpaid salary. Carrie Earles the Company’s chief branding officer and wife of Steven Earles purchased 83 Units in the Offering in consideration of $83,000 in accrued and unpaid salary.

On April 14, 2016, the Company entered into an Amendment Agreement with WWOD Holdings, LLC (“WWOD”) and MR Group I, LLC (“Investor”). The Amendment Agreement amends that certain securities purchase agreement on September 10, 2015 (the “Existing SPA”), with WWOD pursuant to which the Company issued and sold to WWOD that certain 14% convertible promissory note in the principal amount of $275,000 with a maturity date of May 10, 2016 and an original issue discount of $33,500 (the “Initial Note”).

The Amendment Agreement amended the Existing SPA to reflect an additional closing under the Existing SPA (as amended by the Amendment Agreement the “Amended SPA”) pursuant to which the Company issued and sold to Investor a convertible promissory note dated April 18, 2016, bearing interest at 14% per annum in the principal amount of $300,000 (the “Additional Note”, together with the Initial Note, the “Notes”). The Additional Note was issued on April 18, 2016 and has a maturity date of January 18, 2017 and an original issue discount of $100,000; provided, however, that in the event that the Company consummates the additional proposed $2 million financing with Investor for which the Company executed a non-binding term sheet (the “Subsequent Placement”), $200,000 of aggregate principal of the Additional Note, together with any accrued, and unpaid, interest then outstanding under the Additional Note, shall be applied, on a dollar-for-dollar basis, to reduce the purchase price of the Investor in such Subsequent Placement and upon the closing of such Subsequent Placement and such application, the remainder of the Additional Note then outstanding shall be deemed cancelled for no additional consideration. Accordingly, the Company received gross proceeds from the Investor of $200,000. After paying $15,000 of the Investor’s expenses in connection with the Amended SPA (with payment of the remaining expenses deferred), the Company received net proceeds of $185,000, which is to be used for working capital and general corporate purposes. Concurrent with the SPA, WWOD contributed the Initial Note to Investor. Following issuance of the Additional Note, the aggregate principal amount of Notes issued under the Amended SPA is $575,000, both of which are now held by the Investor. In connection with the issuance of the Additional Note, the Company entered into an Amended and Restated Security and Pledge Agreement dated April 18, 2016 pursuant to which the Notes are secured by all of the Company’s assets.

The Company has agreed to repay the Additional Note in six installments at set forth in the Amortization Schedule attached to the Note beginning 30th day after issuance and each 30-days thereafter. However, failure to make any Amortization Payment will not be deemed an event of default under the Additional Note. In addition, the Additional Note can be prepaid at any time until the date immediately preceding the Maturity Date. The Additional Note is convertible into common stock at a conversion price equal to the lesser of (i) the Fixed Conversion Price (currently $0.40) or (ii) 65% of the lowest trading price of our common stock during the 5-trading days prior to conversion. The total amount of principal outstanding under the Additional Note at April 27, 2016 was approximately $300,000.

The Notes contains certain covenants and restrictions including, restrictions on the Company’s ability to not incur indebtedness, permit liens, pay dividends or dispose of certain assets. Events of default under the note include, among others, failure to pay principal or interest on the note or comply with certain covenants under the note. The Noted are secured by our assets pursuant to the terms and conditions of an Amended and Restated Pledge and Security Agreement.

From April 20, 2016 to May 11, 2016, the Company issued 2,743,591 shares of our common stock upon conversion of a 14% convertible promissory note. The aggregate principal amount of this note that was converted was $75,500.

On May 13, 2016, the Company entered into Exchange Agreement (the “Exchange Agreement”) with MR Group I, LLC, an accredited investor (“Investor”) pursuant to which the Company (i) issued Investor a 14% secured convertible promissory note dated May 13, 2016 in the aggregate principal amount of $219,200.65 with an August 31, 2016 maturity date (the “Note”) in exchange for a previously issued 14% secured convertible promissory note dated September 10, 2015 in the original principal amount of $275,000 (with current outstanding principal and interest of $197,208.233 and $21,9992.32, respectively) with a May 10 2016 maturity date held by Investor and (ii) issued Investor a 14% secured convertible promissory note dated May 13, 2016 in the aggregate principal amount of $302,646.58 with an April 30, 2017 maturity date (the “Second Note”, together with the Note, the “Exchange Notes”) in exchange for a previously issued 14% secured convertible promissory note dated April 18, 2016 in the original principal amount of $300,000 (with current outstanding principal and interest of $300,000 and $2,646.58, respectively) with a May 10 2016 maturity date held by Investor. In the event that the Company consummates the additional proposed $2 million financing with Investor for which we have executed a non-binding term sheet (the “Subsequent Placement”), $200,000 of aggregate principal of the Second Note, together with any accrued, and unpaid, interest then outstanding or any additional amounts due and payable as a result of an event of default under the Second Note, shall be applied, on a dollar-for-dollar basis, to reduce the purchase price of the Investor in such Subsequent Placement and upon the closing of such Subsequent Placement and such application, the remainder of the Second Note then outstanding shall be deemed cancelled for no additional consideration.

In connection with the issuance of the Exchange Notes, the Company entered into a Security and Pledge Agreement dated May 13, 2016 pursuant to which the Exchange Notes are secured by all of the Company’s assets. The Exchange Notes can be prepaid at any time until the date immediately preceding their respective Maturity Dates. The Exchange Notes are convertible into common stock at a conversion price equal to the lesser of (i) the Fixed Conversion Price (currently $0.15 for the Note and $0.40 for the Second Note) or (ii) 65% of the lowest trading price of our common stock during the (i) 5-trading days prior to conversion (for conversions on or before May 22, 2016 or (ii) 10-trading days prior to conversion (for conversions after May 22, 2016). The Exchange Notes contain certain covenants and restrictions including, restrictions on our ability to incur indebtedness, permit liens, pay dividends or dispose of certain assets. Events of default under the Exchange Notes include, among others, failure to pay principal or interest on the note or comply with certain covenants under the note. The Company will be required to repay the Exchange Notes at 133% upon an event of default.