Quarterly report pursuant to sections 13 or 15(d)

8. Notes Payable-Related Parties

v2.4.0.8
8. Notes Payable-Related Parties
6 Months Ended
Jun. 30, 2013
Notes to Financial Statements  
8. Notes Payable-Related Parties

8. Notes Payable-Related Parties

At June 30, 2013 and December 31, 2012, components of notes payable – related parties are comprised of the following: 

 

      June 30, 2013   December 31, 2012
NBS Sellers Notes    $             342,857    $                   600,000
Notes payable to Marvin Rosen                4,161,422                      4,406,422
Other notes payable - related parties                   125,000                         125,000
Total notes payable - related parties                4,629,279                      5,131,422
Less:        
  Current portion of NBS Sellers Notes                 (342,857)                        (514,286)
  Current portion of notes payable to Marvin Rosen                 (100,000)                                   -   
  Current portion of other notes payable                 (125,000)                        (125,000)
Non-current portion notes payable - related parties    $          4,061,422    $                4,492,136

 

Sellers Notes

As part of the purchase price of NBS, FNAC issued promissory notes (the “Sellers Notes”) to Jonathan Kaufman and entities affiliated with Mr. Kaufman, (the “Sellers of NBS”) in the principal amount of $600,000. The Sellers Notes bear interest at 3% per annum, are payable in fourteen equal monthly installments commencing January 31, 2013 and are unsecured. The Sellers Notes are subject to the terms of a subordination agreement with the Lenders. Repayment of the Sellers Notes is guaranteed by the Company and NBS. Upon the closing of the acquisition of NBS, Mr. Kaufman became President of the Company’s Business Services division and an executive officer of the Company.

 

Notes Payable to Marvin Rosen

In conjunction with the Company’s sale of the Senior Notes to the Lenders in October of 2012, Marvin Rosen, the Company’s Chairman of the Board of Directors, entered into an Intercreditor and Subordination agreement with the Company and the Lenders (the “Subordination Agreement”), whereby Mr. Rosen agreed, among other things, that other than payments permitted by the Lenders, the amounts owed to him by the Company would be subordinate to the Senior Notes and the Company’s other obligations to the Lenders. In connection with this agreement, on October 25, 2012 Mr. Rosen agreed to consolidate the principal amount of all his then outstanding promissory notes aggregating to $3,922,364 into a new single note (the “New Rosen Note”). The New Rosen Note is not secured, pays interest monthly at a rate of 7% per annum, and matures 60 days after the Senior Notes are paid in full. Accrued interest on the outstanding promissory notes as of October 24, 2012 amounted to approximately $484,000, and this amount, together with 7% annual interest, is reflected in Notes payable – related parties on the Company’s consolidated balance sheet as of June 30, 2013 and December 31, 2012.

 

On March 1, 2013, the Company received a short-term unsecured advance from Mr. Rosen in the amount of $100,000, which remains outstanding as of June 30, 2013. The Lenders have approved the repayment of this advance from the proceeds from certain future sales of the Company’s equity securities. During the first six months of 2013, Mr. Rosen converted $345,000 of the New Rosen Note into 2,511,417 shares of common stock and warrants to purchase 1,255,708 shares of the Company’s common stock. The warrants are exercisable at 125% of the volume-weighted average price of the Company’s common stock for the 10 trading days prior to the date of conversion. In connection with these conversions, the Company recognized a loss on the extinguishment of debt for the three and six months ended June 30, 2013 in the amount of $92,376 and $150,579, respectively.