Quarterly report pursuant to Section 13 or 15(d)

7. Notes Payable-Related Parties

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7. Notes Payable-Related Parties
6 Months Ended
Jun. 30, 2014
Notes to Financial Statements  
7. Notes Payable-Related Parties

At June 30, 2014 and December 31, 2013, notes payable – related parties are comprised of the following:

 

      June 30, 2014   December 31, 2013
NBS Sellers Notes    $                               -       $                       85,714
Notes payable to Marvin Rosen                         1,478,081                        1,578,081
Discount on notes payable to Marvin Rosen                          (210,967)    
Other notes payable - related parties                            125,000                           125,000
Total notes payable - related parties                         1,392,114                        1,788,795
Less:        
  Current portion of NBS Sellers Notes                                     -                               (85,714)
  Current portion of notes payable to Marvin Rosen                                     -                             (100,000)
  Current portion of other notes payable - related parties                          (125,000)                          (125,000)
Non-current portion notes payable - related parties    $                   1,267,114    $                  1,478,081

 

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 aggregate principal amount of $600,000. 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. The Sellers Notes were paid in full as of June 30, 2014.

 

Notes Payable to Marvin Rosen

In conjunction with the Company’s sale of the Series A Notes and Series B Notes to the Lenders, Marvin Rosen, the Company’s Chairman of the Board of Directors, entered into an Intercreditor and Subordination Agreement with the Company and the Lenders, as amended, 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 Senior 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 $3.9 million 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 $0.5 million, and the Company also agreed to pay Mr. Rosen 7% annual interest on this amount (collectively, with the New Rosen Note, the “Subordinated Obligations”). The Company has since determined that the 7% interest rate on the Subordinated Obligations requires the Company to impute additional interest expense. As a result, during the six months ended June 30, 2014, the Company recognized a discount on the Subordinated Obligations in the approximate amount of $0.4 million, which reflects a 12% effective interest rate, and gives effect to the pro rata reductions to the discount resulting from Mr. Rosen’s partial exchanges of the New Rosen Note into shares of the Company’s common stock during the year ended December 31, 2013. During the three and six months ended June 30, 2014, the Company recognized interest expense of approximately $0.2 million to amortize the discount on the Subordinated Obligations, and the net unamortized discount as of June 30, 2014 is $0.2 million. The Company has determined that the forgoing items are not material to the Company’s consolidated financial statements as of and for the years ended December 31, 2013 and 2012.

 

On March 1, 2013, the Company received a short-term unsecured advance from Mr. Rosen in the amount of $100,000. The Senior Lenders had approved the repayment of this advance from the proceeds from certain future sales of the Company’s equity securities. The advance was repaid during the six months ended June 30, 2014.