Quarterly report pursuant to Section 13 or 15(d)


6 Months Ended
Mar. 31, 2015
Notes to Financial Statements  

On March 31, 2014, the Company entered into a Securities Purchase Agreement (the “SPA”) with Aracle SPF I, LLC (“Aracle”) pursuant to which Aracle and or other subscribed investors had the right to acquire up to 12 units (the “Units”), for $50,000 per Unit, with each Unit consisting of 250,000 shares of common stock (the “Shares”) of the Company and 125,000 common stock purchase warrants (the “Warrants”). The Warrants were exercisable 6 months after issuance, had a term of 4 years, and had an exercise price of $0.25 per warrant share. The SPA contained standard representations, warranties, and covenants. In addition, the SPA contained a price adjustment mechanism that requires the Company, with certain exceptions, to issue additional shares of common stock to the investor in the event the Company, within 12 months of the initial closing under the SPA, issue certain equity securities at a price per share less than $0.20, provided, however, as long as the Company was listed on the NYSE MKT the total number of shares issuable under the foregoing adjustment provision may not exceed 19.9% of the Company’s outstanding shares of common stock on March 30, 2014. Further, in the event the Company was delisted from the NYSE MKT while Aracle owns at least 51% of the Shares issued to it under the SPA, the Company would be required to issue an additional 3,000,000 shares to Aracle, and the 12 month price adjustment period shall be extended to 36 months. The Company agreed to appoint two new members to the Company’s Board of Directors within 60 days of the initial closing, which new members are subject to the prior approval of Aracle. The Company granted Aracle piggyback registration rights with respect to the Shares and the shares of common stock underlying the Warrants.


Concurrently with entering into the SPA, the Company and Aracle conducted an initial closing thereunder, in which Aracle purchased 9.5 Units for $475,000. The Company incurred certain expenses related to the SPA of approximately $88,000, which were paid from the proceeds.


On April 16, 2014, the Company, Aracle and a second institutional investor (both companies referred to as “Investors”), entered into certain Securities Purchase Agreements (“SPA”) pursuant to which the Investors purchased 2.5 Units for $125,000. The Company incurred certain expenses related to the SPA of approximately $7,250, which were paid from the proceeds of this closing.


On January 8, 2015, the Company completed a Securities offering with 18 individuals who collectively have purchased a total of 200,000 shares of Preferred Stock from the Company for a total purchase price of $2,000,000. The Company netted approximately $1,960,000, with approximately $1,000,000 to be used as working capital and the remaining $1,000,000 for marketing, acquisitions, expansion and to further the operations of the Company. The Preferred Stock was designated by the Company on December 15, 2014 through the filing of a Certificate of Designation of Series A Convertible Preferred Stock with the Illinois Secretary of State. Each share of Preferred Stock is initially convertible, at the election of the holder, into 50 shares of the Company’s Common Stock. The foregoing conversion ratio is subject to standard adjustment mechanisms, as set forth in the Designation.


Holders of Series A convertible preferred stocks vote on a converted basis with the common stockholders on all matters to be brought to a vote of the stockholders. Each share of Series A convertible preferred stock can be converted into 10,000,000 shares of common stock. Dividends are payable in kind at the Company’s option at a rate of eight percent (8%) annually. Payments of annual dividends have not been declared by the Company’s Board of Directors on the outstanding Series A shares because of losses sustained by the Company. As of March 21, 2014, preferred dividends in arrears amounted to approximately $37,000 or approximately $0.185 per share.


During the second quarter ended March 31, 2015, a total of 4,331,839 shares of common stock were issued, however no cash was received for these issuances.


1,224,119 shares of common stock were issued related to several cashless warrant conversions.


344,021 shares of common stock were issued to the Board of Directors for services. A portion of these were issued by the Company to settle approximately $69,000 of accrued board fees from December 31, 2014.


263,669 shares of common stock were issued to employees of the Company who exercised their stock options on a cashless basis.


Brio converted $500,000 of its outstanding loan into 2,500,000 shares of the Company’s common stock. Based on the closing stock prices of $0.85 and $1.03 per common share, the 2,500,000 shares were valued at approximately $2,350,000


Stock Options


The Company has recognized compensation expense in the amount of approximately $83,000 during the quarter ended March 31, 2015, related to the issuance of stock options.