7. CONVERTIBLE NOTES PAYABLE

In June 2014, the Company received an aggregate total of $1,500,000, less commission of $140,000, from a series of investors in the form of the Convertible Notes referenced in the LOI. The outstanding balances from the Convertible Notes had a maturity date of December 9, 2015, and earned interest at a rate of 10% per annum, which was payable on the earlier of the maturity date or the date of Conversion. The Convertible Notes were automatically convertible upon a reverse merger transaction into Company stock at a conversion price of $1,260 (pre stock split) per share. If the Company did not complete a reverse merger transaction by November 9, 2015, the holders of the Convertible Notes could have converted the Convertible Notes into Company stock at a conversion price of $1,000 (pre stock split) per share.

In connection with the Convertible Notes, the series of investors also entered into a General Security Agreement and an Agency and Intercreditor Agreement with the Company, in which all outstanding borrowings under the Convertible Notes were secured by substantially all assets of the Company. In the event of a default by the Company, as defined in the agreements, a majority of the debtors could have compelled the Company to make available all or any part of the secured assets in order to pay the outstanding obligations under the Convertible Notes.

The Company also issued an additional convertible note payable of $112,000 with the same terms as the Convertible Notes to the other investors, as a finder’s fee in connection with the issuance of the convertible notes. As a result, the total outstanding balance of the debt amounted to $1,612,000.

Immediately prior to the closing of the Exchange Agreement on October 16, 2014, bBooth converted outstanding principal and interest in the aggregate of $1,669,316, including the $1,612,000 in outstanding principal and $57,316 in accrued interest, into an aggregate of 4,769,473 shares of bBooth’s common stock, at a conversion price of $0.35 per share. All of such bBooth shares were then converted into shares of our common stock on a one for one basis in connection with the closing of the Exchange Agreement. The remaining balance outstanding under these Convertible Notes as of December 31, 2014 amounted to $0.

The conversion feature was evaluated for any beneficial aspect and it was determined that no portion of the proceeds from the convertible debt instruments should be accounted for as attributable to the conversion feature. The determination was based on factors which include (1) the Convertible Notes were issued at an amount equal to their face value, and (2) the conversion price was greater than the fair value of the common stock at the time of issuance.

The Company incurred total aggregate debt issuance costs of $252,000 representing the above $140,000 of commissions and $112,000 for finder’s fees in connection with the issuance of the convertible notes. Upon the conversion of the Convertible Notes into stock upon the closing of the reverse merger transaction with GSD in October 2014, these amounts were expensed and are included as a component of interest expense in the accompanying financial statements.