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Commitments and Contingencies | 9 Months Ended
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Mar. 31, 2014
Commitments and Contingencies Disclosure [Abstract] |
COMMITMENTS AND CONTINGENCIES | NOTE 8. COMMITMENTS AND CONTINGENCIES License Agreements On May 9, 2012, the Company entered into a licensing agreement with the Licensors (see Note 3 for further detail). During the term of the licensing agreement the Company has agreed to pay a guaranteed minimum royalty payment of $4,686,125 or $4,985,000 over the life of the agreement, depending on the launch date of various products in accordance with the following schedule and subject to annual minimum amounts. With regards to the license and the ongoing payments, the Company is in negotiations with re-scheduling the payment dates.
· | Contract period two: $925,000 or $1,000,000
| Contract period three: $1,188,625 or $1,285,000
· | Contract period four: $1,572,500 or $1,700,000
On July 11, 2012, the Company entered into the Second License (see Note 3). The Company agreed to pay a guaranteed minimum royalty payment of $600,000 over the life of the agreement, depending on the launch date of various products in accordance with the following schedule and subject to annual minimum amounts. With regards to the license and the ongoing payments, the Company is in negotiations with re-scheduling the payment dates.
· | Contract period two: $225,000
· | Contract period three: $275,000
On April 25, 2013, the Company entered into a licensing agreement with the Third Licensor (see Note 3). The Company agreed to pay a guaranteed minimum royalty payment of $100,000 over the life of the agreement, depending on the launch date of various products in accordance with the following schedule and subject to annual minimum amounts. With regards to the license and the ongoing payments, the Company is in negotiations with re-scheduling the payment dates.
· | Contract period two: $33,333
· | Contract period three: $33,334
The Company has recognized $815,370 in accrued expenses for the minimum royalty payments earned to date on the three licensing agreements. Operating Lease On May 8, 2012, the Company executed a one-year operating lease for its corporate office commencing on May 15, 2012 at a monthly rent payment of $1,785 per month. Total rent expense related to this operating lease was $14,280 and $16,065 for the nine months ended March 31, 2014 and March 31, 2013, respectively, and is included in general and administrative expenses in accompanying statement of operations. Total rent expense related to this operating lease was $3,570 and $5,355 for the three months ended March 31, 2014 and March 31, 2013. As of February 28, 2014, the Company terminated this operating lease. On January 7, 2013, the Company executed a five-month operating lease for storage commencing on January 1, 2013 at a monthly rent payment of $1,500 per month. Total rent expense related to this operating lease was $12,000 and $4,500 for the nine months ended March 31, 2014 and March 31, 2013, respectively, and is included in general and administrative expenses in accompanying statement of operations. Total rent expense related to this operating lease was $3,000 and $4,500 for the three months ended March 31, 2014 and March 31, 2013, respectively. As of February 28, 2014, the Company terminated this operating lease. On March 1, 2014, the Company executed a month-to-month operating lease for its new corporate office commencing on March 1, 2014 at a monthly rent payment of $3,100 per month. Total rent expense related to this operating lease was $3,100 and $0 for the nine months ended March 31, 2014 and March 31, 2013, respectively, and is included in general and administrative expenses in accompanying statement of operations. Total rent expense related to this operating lease was $3,100 and $0 for the three months ended March 31, 2014 and March 31, 2013, respectively. Litigation In the normal course of business, the Company may become involved in various legal proceedings. Except as described below, management knows of no pending or threatened legal proceeding to which they are or will be a party and which, if successful, might result in a material adverse change in our business, properties or financial condition. On November 19, 2012, an action entitled Chroma Makeup Studio, LLC. v. BOLDFACE Group, Inc. and BOLDFACE Licensing + Branding was filed in the United States District Court for the Central District of California, Western Division (the “Court”). Chroma Makeup Studio, LLC (“Chroma”) alleged that the Company’s use of the term Khroma, including the marks Khroma Beauty and Khroma Beauty By Kourtney, Kim and Khloe (the “Khroma Beauty Marks”), for cosmetics is infringing upon Chroma's rights in its Chroma mark. The Complaint included claims for trademark infringement under the Lanham Act and unfair competition under applicable California law. The Court set a tentative trial date of April 22, 2014. The parties also agreed to pursue private mediation in an attempt to resolve the disputed issues in this case. On November 7, 2013, following private mediation, the parties agreed to settle the action and are currently negotiating the terms of a written settlement agreement. On December 11, 2013, the Company entered into a settlement agreement and mutual general release (the “Settlement Agreement”) with Chroma to settle any and all claims between the Company and Chroma. Pursuant to the terms of the Settlement Agreement, the parties have agreed that the terms of the Settlement Agreement are to remain confidential. Pursuant to the terms of the Settlement Agreement, and with no admission of any liability, the Company has agreed to pay Chroma a cash amount over a period of one year commencing on December 31, 2013 and ending on December 31, 2014. The total cash amount that the Company has agreed to pay Chroma is lower than the amount the Company reserved for any payments to be made in connection the dispute. On November 30, 2012, BLB filed a complaint for a declaratory judgment in the United States District Court for the Central District of California, Western Division entitled BOLDFACE Licensing + Branding v. By Lee Tillett, Inc. (“Tillett”). BLB’s complaint requests a declaration from the Court that (1) BLB’s use of the Khroma term, including the Khroma Beauty marks does not infringe on Tillett’s rights in its Kroma trademark, and (2) BLB’s two pending trademark applications for Khroma Beauty marks should be allowed to register with the USPTO. On January 9, 2013 Tillet filed an answer and counterclaims for (1) trademark infringement, (2) false designation of origin, (3) trademark infringement, and (4) unfair competition pursuant. In addition to BLB, Tillett's Counterclaims are made against the following additional parties: Kims a princess Inc., 2Die4Kourt Inc., Khlomoney Inc., and individuals Kim Kardashian, Kourtney Kardashian, and Khloe Kardashian (collectively, the "Kardashian Parties"). In March 2013, Tillet obtained a preliminary injunction enjoining BLB’s use of the Khroma Beauty mark. In response to the injunction issued by the court, the Company filed a notice of appeal with the Ninth Circuit Court of Appeals (the “9th Circuit”) on March 15, 2013 to overturn the district court’s March 11, 2013 decision. On March 18, 2013, the Company also filed a motion to stay with the 9th Circuit, requesting a stay of the injunction during the pendency of the Company’s appellate case. The 9th Circuit ruled on the Company’s motion on June 7, 2013 granting Tillett’s application and ruling that the preliminary injunction would be effective as of June 7, 2013. In early May 2013, however, after further unsuccessful settlement negotiations with Tillett, Boldface decided to change the name of its brand to KARDASHIAN BEAUTY. In August, Boldface filed a withdrawal of the appeal and agreed to stipulate to a permanent injunction that it would not use the KHROMA BEAUTY Marks. All parties, as of June 2, 2014, entered into a Settlement Agreement and Mutual General Release to settle all disputes. On June 4, 2014, in connection with the entering of the Settlement Agreement and Mutual General Release, Judge Audrey B. Collins dismissed the Action without prejudice. Based on the expressed willingness of BLB to settle the cases and the likely cost to continuing litigation, the Company has accrued for total settlement costs of less than $800,000 for any potential settlement offers and related costs. Registration Agreement The Company had approximately 3,000,000, shares of common stock authorized. As of March 31, 2014, the Company had 1,576,976 shares issued and 1,566,979 shares outstanding. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company's stockholders. Common stockholders are not entitled to receive dividends unless declared by the Company's Board of Directors. PPO Offering Registration Rights In connection with the Merger and Offering (as defined in Notes 1 and 6), the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with each of the investors participating in the Offering. Under the Registration Rights Agreement, as amended, the Company committed to file a registration statement on Form S-1, or other applicable form (the “Registration Statement”), covering the resale of (i) the Company’s common stock underlying the Bridge Warrants (as defined in Note 6), (ii) common stock underlying the PPO Units (as defined in Note 6) sold or to be sold in the Offering, and (iii) common stock underlying the Investor Warrants (as defined in Note 6) (including securities issued in the Offering as a result of the conversion of the 2012 Bridge Notes (as defined in Note 6), but not common stock that is issuable upon exercise of the broker warrants issued to the placement agent for the Offering) (collectively, the “Registrable Securities”) no later than October 29, 2012 (the “Filing Date”), and to use commercially reasonable efforts to cause the Registration Statement to become effective no later than 150 days after it is filed (the “Effectiveness Date”). As of the date of this Quarterly Report the Company has not filed the Registration Statement with the SEC. The Company agreed to use its commercially reasonable efforts to maintain the effectiveness of the Registration Statement for at least one year from the date the Registration Statement is declared effective by the SEC or for such shorter period ending on the earlier to occur of (i) until Rule 144 of the Securities Act is available to investors with respect to all of their Registrable Securities or (ii) the date when all of the Registrable Securities registered thereunder shall have been sold. The Company will be liable for liquidated damages at the rate of 1% of the purchase price per PPO Unit paid by each investor for the Registrable Securities then held by such investor for each full period of 30 days for which the Company fails to file the registration statement by the Filing Date or if the Company fails to have the Registration Statement declared effective by the Effectiveness Date (each, a “Registration Event”), until such failure is cured. The payment amount shall be prorated for partial 30-day periods. The aggregate penalty accrued with respect to each investor may not exceed 10% of the original purchase price paid by such investor. However, if a Registration Event occurs (or is continuing) on a date more than one year after July 12, 2012 or the final closing of the Offering, liquidated damages shall be paid only with respect to that portion of the Registrable Securities that cannot then be immediately resold in reliance on Rule 144. If the Company fails to pay any partial liquidated damages or refund pursuant in full within seven days after the date payable, the Company will pay interest thereon at a rate of 8% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the holder of the PPO Unit. In December 2006, the FASB issued guidance on accounting for registration payment arrangements. This guidance specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB guidance on accounting for contingencies. This guidance further clarifies that a financial instrument subject to a registration payment arrangement should be accounted for in accordance with GAAP without regard to the contingent obligation to transfer consideration pursuant to the registration payment arrangement. The Company applied the recognition and measurement provisions of the FASB guidance to the registration rights associated with the Registration Rights Agreement. The Amendment Agreements also provided for a waiver of all penalties incurred by the Company under the terms of the PPO registration rights agreement as a result of the Company’s failure to timely file and effect the registration for resale of the private placement securities. Aegis Convertible Note Offering Registration Rights In connection with two closings of convertible note offerings in December 2012 and March 2013, the Company also entered into a registration rights agreement with the Investors (the “Convertible Note Registration Rights Agreement”). Under the terms of the Convertible Note Registration Rights Agreement, the Company committed to file a registration statement on Form S-1, or other applicable form, covering the resale of (i) the Common Stock underlying the Warrants and (ii) the Common Stock underlying the Notes (collectively, the “Convertible Note Registrable Securities”) within 45 days from the final closing of the Offering (the “Filing Date”), and to use its commercially reasonable efforts to cause the registration statement to become effective no later than 90 days after it is filed (the “Effectiveness Date”). The Company agreed to use its commercially reasonable efforts to maintain the effectiveness of the registration statement for at least one year from the date the registration statement is declared effective by the SEC or for such shorter period ending on the earlier to occur of (i) until Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), is available to Investors with respect to all of their Convertible Note Registrable Securities or (ii) the date when all of the Convertible Note Registrable Securities registered thereunder shall have been sold. The Company will be liable for monetary penalties equal to 0.5% of the purchase price per Unit paid by such Investor for the Convertible Note Registrable Securities then held by each investor for each full period of period of 30 days if the Company fails to file the registration statement by the Filing Date or if the Company fails to use its reasonable efforts to have the registration statement declared effective by the Effectiveness Date until such failure is cured. The payment amount shall be prorated for partial 30-day periods. The maximum aggregate amount of payments to be made by the Company as the result of such failures, whether by reason of a filing deadline failure, effectiveness deadline failure or any combination thereof, shall be an amount equal to 6% of the purchase price per Unit paid by such Investor for the Convertible Note Registrable Securities held by such Investor at the time of the first occurrence of such failure to file with, or to have the registration statement be declared effective by, the United States Securities and Exchange Commission (the “SEC”). Moreover, no such payments shall be due and payable with respect to any Convertible Note Registrable Securities that the Company is unable to register due to limits imposed by the SEC’s interpretation of Rule 415 under the Securities Act. The holders of any Convertible Note Registrable Securities removed from the registration statement as the result of a Rule 415 comment or other comment from the SEC shall have “piggyback” registration rights for the shares of Common Stock underlying the Convertible Note Registrable Securities, until such shares can be sold without limitation under Rule 144, with respect to any registration statement filed by the Company following the effectiveness of the registration statement which would permit the inclusion of these shares. During the period ended March 31, 2014, the Company has recorded total liabilities of $206,381 in accrued expenses on the accompanying condensed consolidated balance sheet associated with the above registration rights.

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