13. Notes Payable-Related Parties
|12 Months Ended|
Dec. 31, 2013
|Notes to Financial Statements|
|13. Notes Payable-Related Parties||
At December 31, 2013 and 2012, components of notes payable related parties are comprised of the following:
As part of the purchase price of NBS, FNAC issued the Sellers Notes in the principal amount of $600,000 (see note 4). The Sellers Notes pay interest at 3% per annum. The Sellers Notes are payable in fourteen equal monthly installments commencing January 31, 2013 and are unsecured. During the year ended December 31, 2013, the Company made principal payments on the Sellers Notes aggregating to $514,286. Except for permitted payments, payment of the Sellers Notes has been subordinated to payment of the Senior Notes (see note 11), and the Senior Notes were paid in full subsequent to December 31, 2013.
Notes Payable to Marvin Rosen
During the year ended December 31, 2012, the Company received $236,000 of new loans from Marvin Rosen, the Companys Chairman of the Board of Directors, all of which were repaid during the year. During the first nine months of 2012, Mr. Rosen converted $125,000 of previously issued loans evidenced by promissory notes into 925,927 shares of the Companys common stock and five-year warrants to purchase 277,779 shares of common stock. The warrants are exercisable at approximately 112% of the average closing price of the Companys common stock for the five trading days prior to the conversion.
On October 22, 2012, Marvin Rosen converted $724,000 of loans evidenced by promissory notes into 724 shares of the Companys Series B-1 Cumulative Convertible preferred stock (the Series B-1 Preferred Stock, see note 14) and warrants to purchase 2,652,015 shares of the Companys common stock on the same terms as those investors who participated in the Companys offering of Series B-1 Preferred Stock. Also on October 22, 2012, Marvin Rosen transferred loans receivable from the Company evidenced by promissory notes in the amount of $26,000 to Matthew Rosen, the Companys Chief Executive Officer. On that same date, Matthew Rosen converted the $26,000 in promissory notes into 26 shares of Series B-1 Preferred Stock and warrants to purchase shares of the Companys common stock on the same terms as those who participated in the offering of Series B-1 Preferred Stock.
In conjunction with the Companys sale of the Senior Notes to the Lenders, Marvin Rosen entered into an Intercreditor and Subordination agreement with the Company and the Lenders (the Subordination Agreement), whereby Mr. Rosen agreed, among other things, that the amounts owed to him by the Company would be subordinate to the Senior Notes and the Companys other obligations to the Lenders. In connection with this agreement, on October 25, 2012 Mr. Rosen agreed to consolidate the principal amount all of 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, on which the Company also agreed to pay Mr. Rosen 7% annual interest, is reflected in Notes payable related parties on the Companys consolidated balance sheet as of 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 remained outstanding as of December 31, 2013. The Lenders have approved the repayment of this advance from the proceeds from certain future sales of the Companys equity securities. During the first nine months of 2013, Mr. Rosen converted $895,000 of the New Rosen Note into 10,443,772 shares of common stock and warrants to purchase 5,221,886 shares of the Companys common stock. The warrants are exercisable at 125% of the volume-weighted average price of the Companys common stock for the 10 trading days prior to the date of conversion.
On December 31, 2013, Mr. Rosen converted $2.0 million of the New Rosen Note into 2,000 shares of the Companys newly designated Series B-2 Cumulative Convertible Preferred Stock (see note 14) and warrants to purchase 6,400,000 shares of the Companys common stock with an exercise price of $0.125 per share.
Other Notes Payable Related Parties
On May 21, 2009, the Company borrowed $125,000 from Marose, LLC, of which Mr. Rosen is a member. This loan is evidenced by a promissory note, which initially matured on July 20, 2009, and bears an interest rate of 8% per annum. On the July 20, 2009 initial maturity date of the note, the note became a demand note pursuant to its terms, and the entire amount of this note remained outstanding at December 31, 2013 and December 31, 2012. To date the Company has not received a demand for payment.
On June 22, 2012, the Company received a loan of $300,000, bearing interest at a rate of 3.25% per annum, from a third party lending institution and guaranteed by Marvin Rosen. The outstanding balance of the loan plus all accrued interest was repaid in its entirety on October 22, 2012 (see note 14). The proceeds from the loan were used for general corporate purposes and to pay a portion of outstanding indebtedness to Mr. Rosen. On September 17, 2012 the Company received a new loan from Marvin Rosen and another member of the Companys Board of Directors in the principal amount of $250,000, the proceeds from which was used for general corporate purposes, and which was repaid on October 22, 2012 (see note 14).
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://www.xbrl.org/2003/role/presentationRef