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5. Notes Payable | 9 Months Ended
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Jun. 30, 2016
Debt Disclosure [Abstract] |
Notes Payable | Notes payable as of June 30, 2016 and September 30, 2015 consisted of the following:
|  | June 30, |  |  | September 30, |
|  | 2016 |  |  | 2015 |
Base Rate Revolver Loan- interest rate based on prime rate adjusted for fixed coverage ratio (table below), maturity date July 6, 2020 |  | $ | 4,955,962 |  |  | $ | 7,225,745 |
Base Rate Term Loan- interest rate based on prime rate adjusted for fixed coverage ratio (table below) fixed coverage ratio, maturity date July 6, 2020 |  |  | 3,580,617 |  |  |  | 7,628,438 |
Note payable to individual, payable on demand, interest at 10.0% per annum, unsecured |  |  | 90,148 |  |  |  | 92,441 |
Acquisition note payable, due September 6, 2016, as amended, non-interest bearing |  |  | 50,000 |  |  |  | 395,251 |
Note payable to Store Capital Acquisitions, LLC, due June 13, 2056, monthly principal and interest payments of $73,970, interest at 9.25% per annum, secured by land and buildings |  |  | 9,355,521 |  |  |  | – |
Note payable to individual, payable within 90 days of a written demand notice, interest at 10.0% per annum, unsecured |  |  | 495,000 |  |  |  | – |
Note payable to individual, payable within 90 days of a written demand notice, interest at 10.0% per annum, unsecured |  |  | 200,000 |  |  |  | – |
Credit line due January 1, 2024, with interest rate of 2.75% |  |  | 453,588 |  |  |  | 669,351 |
Total debt |  |  | 19,180,836 |  |  |  | 16,011,226 |
Less debt discount |  |  | (415,757 | ) |  |  | – |
Net amount |  |  | 18,765,079 |  |  |  | 16,011,226 |
Current portion |  |  | 1,811,701 |  |  |  | 1,443,036 |
Long-term portion |  | $ | 16,953,378 |  |  | $ | 14,568,190 |
Real Estate Transaction On June 14, 2016, the Company entered into a transaction with Store Capital Acquisitions, LLC. The transaction included a sale-leaseback of land owned by Marquis Industries and a loan secured by the improvements on such land. The total aggregate proceeds received from the sale of the land and the loan was $10,000,000, which consisted of $644,479 from the sale of the land and a note payable of $9,355,521. The Company recognized a loss of $43,520 on the sale of the land. In connection with the transaction, the Company entered into a lease with a 15 year term commencing on the closing of the transaction, which provides the Company an option to extend the lease upon the expiration of its term. The initial annual lease rate is $59,614. The proceeds from this transaction were used to pay down the revolver and terms loans, and related party loan, as well as purchasing a building from the previous owners of Marquis Industries that was not purchased in the July 2015 transaction. In connection with the note payable, the Company incurred $415,757 in transaction costs that are recognized as a debt discount that will be amortized to interest expense over the term of the note payable. Revolver Loan and Term Loan In connection with the purchase of Marquis Industries Inc., the Company entered into an agreement with Bank of America for a Term and Revolving Loan for approximately $7.8 million for the term component and approximately $15 million for the revolving component. As part of the Bank of America Revolving Loan, Marquis Industries may borrow up to $15 million (based on eligibility). The Bank of America term loan bears interest at a variable rate based on a base rate plus a margin. The current base rate is the greater of (a) Bank of America prime rate, (b) the current federal funds rate plus 0.50%, or (c) 30-day LIBOR plus 1.00% plus the margin, which varies, depending on the fixed coverage ratio table below. Levels I – IV which determine the interest rate to be charge is based on the fixed charge coverage ratio. Fixed Coverage Ratio Table
Level | Fixed Charge Coverage Ratio | Base Rate Revolver Loan | LIBOR Revolver Loans | Base Rate Term Loans | LIBOR Term Loans
I | greater than 2.0 to 1 | 0.50% | 1.50% | 0.75% | 1.75%
II | less than or equal to 2.0 to 1 but greater than 1.5 to 1 | 0.75% | 1.75% | 1.00% | 2.00%
III | less than or equal to 1.5 to 1 but greater than 1.2 to 1 | 1.00% | 2.00% | 1.25% | 2.25%
IV | less than or equal to 1.2 to 1 | 1.25% | 2.25% | 1.50% | 2.5%
The loans are cross-collateralized with substantially all real and personal property of Marquis Industries, Inc. As of June 30, 2016, the Company was at Level II with the fixed coverage ratio. Monthly payments to Bank of America are approximately $79,000 plus accrued interest. The term component is due and payable in July 2020, which is when the revolving component terminates. The loans contain certain covenants that require, among other things, for the Company to maintain a fixed charge coverage ratio of at least 1.05 to 1. Since the loan was obtained on July 6, 2015, the Company still has until July 5, 2016 to be in compliance with this ratio. ICG Convertible Note Transaction On January 23, 2014, the Company issued a note to Isaac Capital Group (“ICG”), a related party, in the principal amount of $500,000. Because the conversion price of $2.29 was less than the stock price, this gave rise to a beneficial conversion feature valued at $500,000. The Company recognized this beneficial conversion feature as a debt discount and additional paid in capital. The debt discount is being amortized over the one year term. On December 3, 2014, ICG converted the note into 674,370 shares of common stock, therefore the remaining debt discount of $158,219 was written off and recognized as interest expense. In addition, upon the conversion of note, the Company issued to ICG a warrant to acquire 674,370 additional shares of the Company’s common stock at an exercise price of $0.95 per share. The fair value of the warrants issued in connection with the conversion of note was $1,853,473 and was immediately recognized as interest expense. Kingston Convertible Note Transaction ($10 Million Line of Credit) On January 7, 2014, the Company entered into a Note Purchase Agreement (the “Kingston Purchase Agreement”) with Kingston Diversified Holdings LLC (“Kingston”), pursuant to which the Investor agreed to purchase for cash up to $5,000,000 in aggregate principal amount of the Company’s Convertible Notes (“Notes”). The Kingston Purchase Agreement and the Notes, which are unsecured, provide that all amounts payable by the Company to Kingston under the Notes will be due and payable on the second (2nd) anniversary of the date of the Kingston Purchase Agreement (the “Maturity Date”). The Kingston Purchase Agreement provides for a 5% discount to the note amount, interest at 8% per annum and convertible into shares of the Company’s common stock equal to 70% of the lesser of: (i) the closing bid price of the common stock on the date of the Kingston Purchase Agreement (i.e., $3.12 per share); or (ii) the 10-day volume weighted average closing bid price for the common stock, as listed on NASDAQ for the 10 business days immediately preceding the date of conversion (the “Average Price”); provided, however, that in no event will the Average Price per share be less than $0.33. On October 29, 2014, the Company entered into an amended convertible note purchase agreement with Kingston whereby the Company and Kinston agreed to (i) increase the maximum principal amount of the notes from $5 million to $10 million in principal amount, (ii) eliminate the original issue discount provision of the agreement and replaces it with an execution payment equal to 5% of the maximum loan amount, and (iii) provides certain additional adjustments to the note conversion price. On October 16, 2014, the Company issued a Note to Kingston in the principal amount of $100,000. Because the conversion price of $0.79 was less than the stock price on the date of issuance, this gave rise to a beneficial conversion feature valued at $100,000. The Company recognized this beneficial conversion feature as a debt discount and additional paid in capital. The debt discount is being amortized over the one year term. On November 17, 2014, Kingston converted the note into 127,008 shares of common stock, therefore the debt discount of $100,000 was written off and recognized as interest expense. In addition, as a result of the October 29, 2014 amendment, the Company was required to issue to Kingston, the original issue discount payment equal to 5% of the maximum loan in shares of the Company’s common stock based upon the conversion price of the first conversion which was $0.79 per shares. The Company issued 630,252 shares of common stock that had a fair value of $2,004,202 which was immediately recognized as interest expense. Credit line In connection with the purchase of Modern Everyday, Inc., the Company assumed a credit line from a bank. The credit line is collateralized by all the assets of Modern Everyday, Inc., accrues interest at prime plus 2% and is due on December 31, 2017.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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