Annual report pursuant to section 13 and 15(d)

13. Notes Payable-Related Parties

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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: 

 

    December 31, 2013     December 31, 2012  
NBS Sellers Notes   $ 85,714     $ 600,000  
Notes payable to Marvin Rosen     1,578,081       4,406,422  
Other notes payable - related parties     125,000       125,000  
Total notes payable - related parties     1,788,795       5,131,422  
Less:                
Current portion of NBS Sellers Notes     (85,714 )     (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   $ 1,478,081     $ 4,492,136  

 

Sellers Notes

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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s common stock on the same terms as those investors who participated in the Company’s 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 Company’s 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 Company’s common stock on the same terms as those who participated in the offering of Series B-1 Preferred Stock.

 

In conjunction with the Company’s 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 Company’s 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 Company’s 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 Company’s 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 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.

 

On December 31, 2013, Mr. Rosen converted $2.0 million of the New Rosen Note into 2,000 shares of the Company’s newly designated Series B-2 Cumulative Convertible Preferred Stock (see note 14) and warrants to purchase 6,400,000 shares of the Company’s 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 Company’s 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).