| Notes Payable - Related Parties |
| 5. |
NOTES PAYABLE – RELATED PARTIES |
The Company has the following
related parties notes payable as of June 30, 2017 and December 31, 2016:
| Note |
|
Issuance Date |
|
Maturity Date |
|
Interest Rate |
|
|
Original Borrowing |
|
|
Balance at
June 30, 2017
|
|
|
Balance at
December 31, 2016
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
| Note 1 |
|
Year 2015 |
|
August 8, 2018 |
|
|
12.0 |
% |
|
$ |
1,203,242 |
|
|
$ |
1,198,883 |
|
|
$ |
1,198,883 |
|
| Note 2 |
|
December 1, 2015 |
|
August 8, 2018 |
|
|
12.0 |
% |
|
|
189,000 |
|
|
|
189,000 |
|
|
|
189,000 |
|
| Note 3 |
|
December 1, 2015 |
|
April 1, 2017 |
|
|
12.0 |
% |
|
|
111,901 |
|
|
|
111,901 |
|
|
|
111,901 |
|
| Note 4 |
|
August 4, 2016 |
|
August 4, 2017 |
|
|
12.0 |
% |
|
|
343,326 |
|
|
|
343,326 |
|
|
|
343,326 |
|
| Note 5 |
|
August 4, 2016 |
|
August 4, 2017 |
|
|
12.0 |
% |
|
|
121,875 |
|
|
|
121,875 |
|
|
|
121,875 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total notes payable – related parties, net |
|
|
|
|
|
|
|
|
|
$ |
1,964,985 |
|
|
$ |
1,964,985 |
|
| |
● |
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 May 4, 2017, the Company entered into an extension agreement (the “Extension Agreement”) with Rory J. Cutaia to extend the maturity date of the $1,198,883 Secured Note due on April 1, 2017 to and including August 1, 2018. In consideration for extending the Note the Company issued Mr. Cutaia 1,755,192 warrants at a price of $0.355. 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, Company recorded the fair value of the new note which approximates the original carrying value $1,198,883 and expensed the entire fair value of the warrants granted of $517,291 as part of loss on debt extinguishment. As of June 30, 2017, and December 31, 2016, the principal amount of the notes payable was $1,198,883. |
| |
|
|
| |
● |
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 May 4, 2017, the Company entered into an extension agreement (the “Extension Agreement”) with Rory J. Cutaia to extend the maturity date of the $189,000 Unsecured Note due on April 1, 2017 to and including August 1, 2018. All other terms of the Note remain unchanged. |
| |
|
|
| |
● |
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, and is currently past due. |
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|
|
| |
● |
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 $343,326, 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. This note bears interest at the rate of 12% per annum, compounded annually and matures on August 4, 2017. The note is also convertible up to 30% of the principal balance into shares of the Company’s common stock at $0.07 per share. In addition, the Company also 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. |
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|
|
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● |
On 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. The note bears interest at the rate of 12% per annum, compounded annually and matures on August 4, 2017. The note is also convertible 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. |
Total interest expense for
notes payable to related parties for the six months ended June 30, 2017 and 2016 was $116,930 and $122,978, respectively. Total
interest expense for notes payable to related parties for the three months ended June 30, 2017 and 2016 was $58,788 and $69,034,
respectively.
|