Quarterly report pursuant to Section 13 or 15(d)

Notes Payable - Related Parties

v3.5.0.2
Notes Payable - Related Parties
9 Months Ended
Sep. 30, 2016
Debt Disclosure [Abstract]  
Notes Payable - Related Parties

4. NOTES PAYABLE – RELATED PARTIES

 

The Company has the following related parties notes payable:

 

Note   Issuance Date   Maturity Date   Interest Rate     Original Borrowing     Balance at
September 30, 2016
    Balance at
December 31, 2015
 
                                 
Note 1   Year 2015   April 1,2017     12.0 %   $ 1,203,242     $ 1,198,883     $ 1,248,883  
Note 2   December 2015   April 1, 2017     12.0 %     200,000       -       200,000  
Note 4   December 1, 2015   April 1,2017     12.0 %     189,000       189,000       189,000  
Note 5   December 1, 2015   April 1, 2017     12.0 %     111,901       111,901       111,901  
                                         
Total                             1,499,784       1,749,784  
                                         
Debt discount                         (159,610 )     (398,593 )
                                         
Total notes payable – related parties, net                   $ 1,340,174     $ 1,351,192  

 

  On various dates during the year ended December 31, 2015, Rory J. Cutaia, the Company’s majority shareholder and Chief Executive Officer, loaned the Company total principal amounts of $1,203,242. The loans were unsecured and all due on demand, bearing interest at 12% per annum. On December 1, 2015, the Company entered into a Secured Convertible Note agreement with Mr. Cutaia whereby all outstanding principal and accrued interest owed to Mr. Cutaia from previous loans amounting to an aggregate total of $1,248,883 and due on demand, was consolidated under a note payable agreement, bearing interest at 12% per annum, and converted from due on demand to due in full on April 1, 2017. In consideration for Mr. Cutaia’s agreement to consolidate the loans and extend the maturity date, the Company granted Mr. Cutaia a senior security interest in substantially all current and future assets of the Company. Per the terms of the agreement, at Mr. Cutaia’s discretion, he may convert up to $374,665 of outstanding principal, plus accrued interest thereon, into shares of common stock at a conversion rate of $0.07 per share.
     
  On December 1, 2015, the Company entered into an Unsecured Convertible Note with Mr. Cutaia in the amount of $189,000, bearing interest at 12% per annum, representing a portion of Mr. Cutaia’s unpaid salary for 2015. The note extends the payment terms of Mr. Cutaia’s accrued salary from on-demand to due in full on April 1, 2017. The outstanding principal and accrued interest may be converted at Mr. Cutaia’s discretion into shares of common stock at a conversion rate of $0.07.
     
  On December 1, 2015, the Company entered into an Unsecured Note agreement with a consulting firm owned by Michael Psomas, a former member of the Company’s Board of Directors, in the amount of $111,901 representing unpaid fees earned for consulting services previously rendered but unpaid as of November 30, 2015. The outstanding amounts bear interest at 12% per annum, and are due in full on April 1, 2017.

 

On December 1, 2015, the Company granted 8,920,593 warrants to Mr. Cutaia and 799,286 warrants to Mr. Psomas as consideration for agreeing to extend the payment terms of their respective note payable balances to a maturity date of April 1, 2017. The warrants are immediately vested and have an exercise price of $0.07 and expire on November 30, 2018. The warrants have been valued using the Black-Scholes valuation model and have an aggregate value of $424,758. The value has been recorded as a discount to the outstanding notes payable - related parties on the accompanying consolidated balance sheet, and is being amortized into interest expense over the extended maturity periods of April 1, 2017. During the three months ended September 30, 2016, the Company recorded amortization of $80,242 of the discount into interest expense. The remaining discount balance as of September 30, 2016 amounted to $159,611.

 

Total interest expense for notes payable to related parties for the nine months ended September 30, 2016 and 2015 was $144,177 and $23,850, respectively. Total interest expense for notes payable to related parties for the three months ended September 30, 2016 and 2015 was $23,850 and $17,965, respectively.