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. Xsovt Brands, Inc. (1405350) 10-Q published on Aug 15, 2011 at 5:14 pm
Reporting Period: Jun 29, 2011
As part of the transaction contemplated by the SPA, the Company assumed $20,000 of debt owed to Mack Bradley (“Bradley”), one of the Sellers and the principal of the RxBids business. As contemplated by the SPA, on June 30, 2011, the Company entered into an asset assignment agreement with Bradley to implement the business purchase option of the SPA, which gave Bradley the right to acquire the assets of the Company associated with the RxBids business in exchange for forgiveness of the $20,000 of debt owed by the Company to Bradley. In consideration of his receipt of such assets, Bradley forgave the $20,000 of debt owed by the Company to Bradley. As a result of these two transactions the Company recognized equal charges against and for additional-paid-in-capital of $20,000 each.
On May 26, 2011, the Company entered into a convertible promissory note with Asher Enterprises, Inc. for $63,000 with interest accruing at a rate of 8% per annum due nine months after issuance. The note holder has the right to convert such note at any time after 180 days at a conversion rate equal to a 43% discount of the market price of the stock as determined by the agreement; provided, that that in no event shall the holder be entitled to convert any portion of the note in excess of that portion of the note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the note or the unexercised or unconverted portion of any other security of the Company subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of the note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. As a result of the beneficial conversion feature of this note which entitles the note holder to convert at a discount to market,we recorded and recognized a discount to the note of $47,526 derived as the difference between the conversion price and the market price on the date of issuance. Straight line amortization approximates the effective interest method due to the short term nature of the note. Amortization expense, recorded as interest expense, for the six and three months ended June 30, 2011 were $6,154 and $6,154 respectively and accrued interest on the loan was $497 as of June 30, 2011.
Prior to and subsequent to the end of the quarter ended June 30, 2011, we have been in active pursuit of third party funding for our business. However, other than the two notes described below, we have been unable to secure such funding. As such, we presently have no cash resources and have been unable to meet current obligations or progress our business in the manner we had planned as described above. For example, we had hoped to launch our initial products in August of 2011, but the timeframe for such launch has now been pushed back, and we can not predict at this time exactly when such launch will occur. In addition, due to a lack of funding, we have lost certain of our employees and accrued significant expenses. If and when we are able to secure outside funding in sufficient amounts, of which no assurances can be given, we will seek to quickly accelerate operations, rehire employees, satisfy our obligations and further our business as described under “Plan of Operation” above.
On August 3, 2011, the Company entered into Amendment No. 1 to the May Note and the Amendment No. 1 to the July Note, both of which are in substantially the same form (collectively, the “Amendments”). Pursuant to the Amendments, certain anti-dilution protection provisions in both notes were eliminated. In return, the 180-day holding period set forth in both notes is eliminated and the note holders are allowed to elect to convert the outstanding principal and accrued interest on the notes into shares of the Common Stock immediately.
On July 19, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. providing for the sale by the Company to such investor of an 8% Convertible Promissory Note in the principal amount of $53,000, substantially in the same form as the $63,000 convertible note previously issued by the Company on May 25, 2011. Both notes were subsequently amended on August 3, 2011. Please refer to the section of “Recent Development” in Item 2 “Management’s Discussion and Analysis of Financial Conditions of Operations” for further details.