| Notes Payable - Related Parties |
| 5. |
NOTES PAYABLE – RELATED PARTIES |
The Company has the following
related parties notes payable:
| Note |
|
Issuance Date |
|
Maturity Date |
|
Interest Rate |
|
|
Original Borrowing |
|
|
Balance at
December 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 3 |
|
December 1, 2015 |
|
April 1,2017 |
|
|
12.0 |
% |
|
|
189,000 |
|
|
|
189,000 |
|
|
|
189,000 |
|
| Note 4 |
|
December 1, 2015 |
|
April 1, 2017 |
|
|
12.0 |
% |
|
|
111,901 |
|
|
|
111,901 |
|
|
|
111,901 |
|
| Note 5 |
|
August 4, 2016 |
|
April 4, 2017 |
|
|
12.0 |
% |
|
|
343,326 |
|
|
|
343,326 |
|
|
|
- |
|
| Note 7 |
|
August 4, 2016 |
|
April 4, 2017 |
|
|
12.0 |
% |
|
|
121,875 |
|
|
|
121,875 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,964,985 |
|
|
|
1,749,784 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Debt discount |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
(398,592 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total notes payable – related parties, net |
|
|
|
|
|
|
|
|
|
$ |
1,964,985 |
|
|
$ |
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 April 4, 2016 $50,000 of this note was converted into another note (see below). |
| |
|
|
| |
● |
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 accrued salary for 2015. The note extends the payment terms 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 April 4, 2016 the Company issued a secured convertible note to the Chief Executive Officer (“CEO”) and a director of the Company, in the amount of $343,325, which represents additional sums of $93,326 that the CEO advanced to the Company during the period from December 2015 through March 2016, and the conversion of $250,000 other pre-existing notes including the $200,000 December note bearing 12% interest. This note bears interest at the rate of 12% per annum, compounded annually. In consideration for this agreement to extend the repayment date to August 4, 2017, the Company granted to the CEO the right to convert up to 30% of the amount of the such note into shares of the Company’s common stock at $0.07 per share and issued 2,452,325 share purchase warrants, exercisable at $0.07 per share until April 4, 2019, which warrants represent 50% of the amount of such note. |
| |
|
|
| |
● |
The Company calculated the effect of the issuance of the warrants and the conversion that arose as part of issuances of the $343,325 convertible amounted to $132,140. As the change in the fair value of the note constituted a change in excess of 10% of the present value of the note, the Company considered this to be a “debt extinguishment” in accordance with ASC 470-50-40 and recorded the fair value of the grant as a debt extinguishment cost. |
| |
|
|
| |
● |
April 4, 2016 the Company issued an unsecured convertible note payable to the CEO in the amount of $121,875, which represents the amount of the accrued but unpaid salary owed to the CEO for the period from December 2015 through March 2016. In consideration for this agreement to extend the payment date to August 4, 2017, the Company granted to the CEO the right to convert the amount of the such note into shares of the Company’s common stock at $0.07 per share, which approximated the trading price or the Company’s common stock on the date of the agreement. This note bears interest at the rate of 12% per annum, compounded annually. |
| |
|
|
| |
● |
In 2015, the Company granted 8,920,593 warrants to Mr. Cutaia and 799,286 warrants to Mr. Psomas as consideration for their respective notes 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 was being amortized into interest expense over the extended maturity periods of April 1, 2017. |
Total interest expense for notes payable
to related parties for the years ended December 31, 2016 and 2015 was $232,076 and $61,781, respectively.
|