Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. BOLDFACE GROUP, INC. (1423107) 10-Q published on Jun 20, 2014 at 5:29 pm
Reporting Period: Mar 30, 2014
On March 31, 2014, the Company effected the conversion of the principal of the June and August Convertible Notes of $1,953,143 and June and August Convertible Note Warrants into convertible preferred stock (the “Series A Preferred Stock”). As a result of such conversion, the Company issued 3,906 Series A Preferred Stock shares. The Series A Preferred Stock has a stated value of $1,000 per share converts into Common Stock at the lower of a) $6.80 per share or b) the Common Stock share price at the next round of financing greater than $3.0 million (“Preferred Conversion Price”) and contains an annual dividend of 8% payable quarterly in cash or in Common Stock at the Preferred Conversion Price. The 8% dividend expires upon the next round of financing greater than $3.0 million. The Series A Preferred limits the ability of the Company to incur additional indebtedness, buy-back shares, pay cash dividends or distributions to Common Stock holders.
In addition, the Company accelerated the amortization of debt discount and deferred financing costs related to the conversion of the June and August Convertible Notes and wrote down the value of the associated June and August Convertible Warrants and Beneficial Conversion Features. Accordingly, the Company has recognized a net charge related to the debt discount and deferred financing costs of $807,780, which is recorded under Loss from Extinguishment of Debt in the accompanying statement of operations for the three and nine months ended March 31, 2014.
In evaluating the accounting for the debt exchange and the fair value of the preferred securities, Management was required to evaluate the difference between the carrying value of the exchanged June and August Convertible Notes and the fair value of the Series A Preferred Stock. In accordance with ASC Topic 820, Fair Value Measurements, guidance related to Level 3 fair value measures, Management performed various analyses with regard to the valuation of the Series A Preferred Stock. Level 3 fair value measures are valuations that are derived primarily from unobservable inputs and rely heavily on management assessments, assumptions, and judgments. In determining the fair value of the newly issued instruments, the Company performed an internal analysis using the Company’s enterprise valuation as a public company, waterfall analysis and private equity valuations to test the face value of the Series A Preferred Stock. Furthermore, the Company recognized a loss to record the difference in the fair value of all securities and other consideration transferred to the June and August Convertible Note Holders in excess of the fair value of the consideration issuable in accordance with the original conversion terms. Applying extinguishment accounting guidance, the Company recognized a non-cash loss of $1,952,861, which is recorded under Loss from Extinguishment of Debt, at the time of the exchange for the difference between the carrying value of the exchanged notes and the fair value of the newly issued securities.
On June 5, 2014, the Company entered into an Original Issue Discount Promissory Note for eighty thousand dollars ($80,000) with a maturity date of July 6, 2014 (the “OID Note”). If any Event of Default (as defined in the OID Note) occurs, the full principal amount shall become, at the lender’s election, immediately due and payable in cash. Commencing two (2) days after the occurrence of any Event of Default that results in the acceleration of the OID Note, the interest rate on the OID Note shall accrue at the rate of eighteen (18) percent per annum, or such lower maximum amount of interest permitted to be charged under applicable law.
On June 18, 2014, the Company entered into an Original Issue Discount Promissory Note for sixty thousand dollars ($60,000) with a maturity date of July 18, 2014 (the “Second OID Note”). If any Event of Default (as defined in the Second OID Note) occurs, the full principal amount shall become, at the lender’s election, immediately due and payable in cash. Commencing two (2) days after the occurrence of any Event of Default that results in the acceleration of the OID Note, the interest rate on the OID Note shall accrue at the rate of eighteen (18) percent per annum, or such lower maximum amount of interest permitted to be charged under applicable law.
We may have difficulty obtaining additional financing when needed or on acceptable terms and there can be no assurances that our operations will generate cash flows in an amount sufficient to enable us to pay our indebtedness. We rely on banks and capital markets as a source of liquidity for capital requirements not satisfied by cash flows from operations. There can be no assurances that our operations will generate sufficient cash flows to enable us to pay our remaining indebtedness or to fund our other liquidity needs. If we cannot make scheduled payments on our debt, we will be in default and, as a result, among other things, our debt holders could declare all outstanding principal and interest to be due and payable which could force us to liquidate certain assets or alter our business operations or debt obligations. Moreover, if we are unable to obtain additional capital or if our current sources of financing are reduced or unavailable, we will likely be required to delay, reduce the scope of, or eliminate our plans for expansion and this could affect our overall operations.
We may experience liquidity and solvency problems, which could impair our operations or force us out of business. We have no long-term or contractual obligations with clients to provide for guaranteed future revenues. Additionally, future expenditures may be higher than our management may anticipate and budget for, which could materially harm our business. As such, we may experience liquidity and solvency problems. Such liquidity and solvency problems may force us to go out of business if additional financing is not available. We have no intention of liquidating. In the event our cash resources are insufficient to continue operations, we intend to raise additional capital through offerings and sales of equity or debt securities. In the event we are unable to raise sufficient funds, we will be forced to go out of business and will be forced to liquidate. A possibility of such outcome presents a risk of complete loss of investment in our common stock.