| Notes Payable - Related Parties |
| 5. |
NOTES PAYABLE – RELATED PARTIES |
The Company has
the following related parties outstanding notes payable as of December 31, 2018 and 2017:
| Note |
|
Issuance Date |
|
Maturity Date |
|
Interest Rate |
|
|
Original Borrowing |
|
|
Balance at
December 31,
2018
|
|
|
Balance at
December 31,
2017
|
|
| Note 1 (A) |
|
December 1, 2015 |
|
February 8, 2021 |
|
|
12.0 |
% |
|
$ |
1,249,000 |
|
|
$ |
825,000 |
|
|
$ |
1,199,000 |
|
| Note 2 (B) |
|
December 1, 2015 |
|
February 8, 2021 |
|
|
12.0 |
% |
|
|
189,000 |
|
|
|
- |
|
|
|
189,000 |
|
| Note 3 (C) |
|
December 1, 2015 |
|
April 1, 2017 |
|
|
12.0 |
% |
|
|
112,000 |
|
|
|
112,000 |
|
|
|
112,000 |
|
| Note 4 (D) |
|
April 4, 2016 |
|
June 4, 2021 |
|
|
12.0 |
% |
|
|
343,000 |
|
|
|
240,000 |
|
|
|
343,000 |
|
| Note 5 (E) |
|
April 4, 2016 |
|
December 4, 2018 |
|
|
12.0 |
% |
|
|
122,000 |
|
|
|
- |
|
|
|
122,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total notes payable – related parties, net |
|
|
|
|
|
|
|
|
|
|
1,177,000 |
|
|
|
1,965,000 |
|
| Non-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,065,000 |
) |
|
|
- |
|
| Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
112,000 |
|
|
$ |
1,965,000 |
|
| |
(A) |
On December 1, 2015, the Company issued a convertible note payable to Mr. Rory J. Cutaia, the Company’s majority stockholder and Chief Executive Officer, to consolidate all loans and advances made by Mr. Cutaia to the Company as of that date. The note bore interest at a rate of 12% per annum, was secured by the Company’s assets, and matured on April 1, 2017. Pursuant to the terms of the agreement, at Mr. Cutaia’s discretion, he could convert up to 30%, or $375,000, of the outstanding principal, plus accrued interest thereon, into shares of Common Stock at a conversion rate of $1.05 per share. |
On May 4, 2017, the Company
entered into an extension agreement with Mr. Cutaia to extend the maturity date of the note from April 1, 2017 to August 1, 2018.
In consideration, the Company issued Mr. Cutaia a three-year warrant to purchase up to 117,013 shares of Common Stock at a price
of $5.33 per share with a fair value of $517,000. All other terms of the note remain unchanged. The Company determined that the
extension of the note’s maturity resulted in a debt extinguishment for accounting purposes since the fair value of the warrants
granted was more than 10% of the original value of the convertible note. As result, the Company recorded the fair value of the
new note, which approximated the original carrying value $1,199,000 and expensed the fair value of the warrants granted of $517,000
as debt extinguishment costs. As of December 31, 2017, total outstanding balance of the note amounted to $1,199,000.
On August 8, 2018, the Company
entered into an extension agreement with Mr. Cutaia to extend the maturity date of the note to February 8, 2021. In consideration
for extending the note the Company issued Mr. Cutaia warrants exercisable for up to 163,113 shares of Common Stock with a fair
market value of $1,075,000. The Company determined that the extension of the note’s maturity date resulted in a debt extinguishment
for accounting purposes since the fair value of the warrants granted was more than 10% of the original value of the convertible
note. As result, the Company recorded the fair value of the new note, which approximates the original carrying value $1,199,000
and expensed the entire fair value of the warrants granted, or $1,075,000 as a debt extinguishment cost.
On September 30, 2018, Mr.
Cutaia converted the convertible principal balance of $375,000 at $1.05 per share into 356,824 shares of restricted Common Stock.
As of December 31, 2018, the
outstanding balance of the note amounted to $825,000.
| |
(B) |
On December 1, 2015, the Company issued a convertible note with Mr. Cutaia in the amount of $189,000 representing a portion of Mr. Cutaia’s accrued salary for 2015. The note was unsecured, bore interest at a rate of 12% per annum, and matured in April 2017. The note was convertible into shares of Common Stock at a conversion price of $1.05 per share. |
| |
|
|
| |
|
On May 4, 2017, the Company entered
into an extension agreement with Mr. Cutaia to extend the maturity date of the note from April 1, 2017 to August 1, 2018. All other
terms of the note remain unchanged and there were no additional compensation or incentive given. As of December 31, 2017, the outstanding
balance of the note amounted to $189,000.
On September 30, 2018, Mr. Cutaia converted
the entire outstanding principal amount of $189,000 into 180,000 shares of restricted Common Stock.
|
| |
(C) |
On December 1, 2015, the Company issued a note payable to a former member of the Company’s board of directors, in the amount of $112,000 representing unpaid consulting fees as of November 30, 2015. The note is unsecured, bears interest rate of 12% per annum, and matured in April 2017. As of December 31, 2017 and 2018, the outstanding principal balance of the note was equal to $112,000. As of December 31, 2018, the note was past due. The Company is currently in negotiations with the noteholder to settle the past due note. |
| |
|
|
| |
(D) |
On April 4, 2016, the Company issued
a convertible note to Mr. Cutaia, in the amount of $343,000, to consolidate all advances made by Mr. Cutaia to the Company during
the period December 2015 through March 2016. The note bore interest at a rate of 12% per annum, was secured by the Company’s
assets, and matured on August 4, 2017. Pursuant to the terms of the note, a total of 30%, or $103,000, of the note principal can
be converted to shares of Common Stock at a conversion price $1.05 per share.
On August 4, 2017, the Company entered
into an extension agreement with Mr. Cutaia to extend the maturity date of the note from August 4, 2017 to December 4, 2018. In
consideration for extending the note’s maturity, the Company issued Mr. Cutaia warrants to purchase up to 88,610 shares of
Common Stock at a price of $2.25 per share with a fair value of $172,000. All other terms of the note remain unchanged. The Company
determined that the extension of the note’s maturity resulted in a debt extinguishment for accounting purposes since the
fair value of the warrants granted was more than 10% of the recorded value of the original convertible note. As a result, the Company
recorded the fair value of the new note, which approximated the original carrying value $343,000, and expensed the entire fair
value of the warrants granted of $172,000 as part of loss on debt extinguishment. As of December 31, 2017, the outstanding balance
of the note amounted to $343,000.
On September 30, 2018, Mr. Cutaia converted
the 30% principal amount of the note, or $103,000, into 98,093 shares of restricted Common Stock.
On December 4, 2018, the Company entered
into an extension agreement with Mr. Cutaia to extend the maturity date of the note to June 4, 2021. In consideration for extending
the note, the Company issued Mr. Cutaia warrants to purchase up to 23,562 shares of Common Stock, with a fair market value of the
warrants totaling $111,000. The Company determined that the extension of the note’s maturity resulted in a debt extinguishment
for accounting purposes since the fair value of the warrants granted was more than 10% of the original value of the convertible
note. As result, the Company recorded the fair value of the new note, which approximates the original carrying value of $240,000
and expensed the entire fair value of the warrants granted of $111,000 as part of loss on debt extinguishment.
As of December 31, 2018, the outstanding
balance of the note amounted to $240,000.
|
| |
|
|
| |
(E) |
On April 4, 2016, the Company issued
a convertible note payable to Mr. Cutaia in the amount of $122,000, representing his unpaid salary from December 2015 through March
2016. The note was unsecured, bore interest at a rate of 12% per annum, compounded annually, and matured on August 4, 2017. The
note was also convertible into shares of the Company’s Common Stock at $1.05 per share.
On August 4, 2017, the Company entered
into an extension agreement with Mr. Cutaia to extend the maturity date of the note from August 4, 2017 to December 4, 2018. All
other terms of the note remain unchanged and there were no additional compensation or incentive given. As of December 31, 2017,
the outstanding balance of the note amounted to $122,000.
On September 30, 2018, Mr. Cutaia converted
$122,000 of outstanding principal amount into 116,701 shares of restricted Common Stock.
|
During the year ended December 31, 2018, the
Company recorded total interest expense totaling $211,000 pursuant to the terms of the notes and paid $269,000 in interest.
|