• Filing Date: 2015-04-09
  • Form Type: 10-K
  • Description: Annual report
v2.4.1.9
5. NOTES PAYABLE
12 Months Ended
Dec. 31, 2014
NotePayableAbstract  
NOTES PAYABLE

Notes Payable – Related Parties

 

Funds are advanced to the Company from various related parties, including from Mr. Robert Lutz. Other shareholders fund the Company as necessary to meet working capital requirements and expenses.

 

In September of 2014, Mr. Araldo Cossutta, holder of a note payable in the principal amount of $75,000, stepped down from his position on the board of directors. In October of 2014, the note payable to MAH Holding, LLC in the principal amount of $40,620 was acquired by an unrelated third party.  As a result, Mr. Cossutta’s $75,000 note and accrued interest of $32,200 and the MAH Holding note of $40,620 and accrued interest of $14,861 are presented as unrelated party notes payable in 2014.

 

The following is a summary of amounts due to related parties, including accrued interest separately recorded, as of December 31, 2013:

 

Related party   Nature of relationship   Terms of the agreement   Principal amount     Accrued Interest  
                         
Araldo A. Cossutta   Mr. Cossutta was a member of the Board of Directors from 1994 until his term ended on September 3, 2014.   See “Third Quarter Secured Promissory Notes” As of March 31, 2015 $75,000 of this note remains due.   $ 75,000     $ 18,512  
                         

MAH Holding, LLC

 

  MAH Holding, LLC provided previous lines of credit to affiliates of WMT.   Unsecured note with interest accrued at 10% per annum, due on demand.     40,620       10,743  
                         
Total           $ 115,620     $ 29,255  

 

During the year ended December 31, 2013, related parties converted an aggregate of $300,000 of related party debt and $48,600 of accrued interest into 4,980 shares of Series C convertible preferred stock. No such conversions took place in 2014.

 

Notes Payable

 

The following is a summary of amounts due to unrelated parties, including accrued interest separately recorded, as of December 31, 2014:

 

Note Payable   Terms of the agreement   Principal Amount     Discount     Principal Net of Discount     Accrued Interest  
                             
March 4, 2011 Note Payable   $223,500 note payable; (i) interest accrues at 13% per annum; (ii) maturity date of September 4, 2011; (iii) $20,000 fee due at maturity date with a $1,000 per day fee for each day the principal and interest is late.  This note is currently the subject of litigation  (see Note 12 "Legal Proceedings”)   $ 223,500       -     $ 223,500     $ 88,456  
                                     

MAH Holding, LLC

 

  Unsecured note with interest accrued at 10% per annum, due on demand. This note is currently the subject of litigation  (see Note 12 "Legal Proceedings”)     40,620               40,620       14,861  
                                     
Third Quarter 2012 Secured Subordinated Promissory Notes   Seventeen notes in the original aggregate principal amount of $1,055,000; (i) 5% interest due on maturity date; (ii) maturity date of October 12, 2012; (iii) after the maturity date interest shall accrue at 18% per annum and the company shall pay to the note holders on a pro rata basis, an amount equal to twenty percent of the sales proceeds received by the Company and its subsidiary, WCI, from the sale of surgical powders, until such time as the note amounts have been paid in full.  As of March 31, 2015 three of these notes remain due.     110,000       -       110,000       47,483  
                                     
September 28, 2012 Promissory Note   $51,300 note payable (i) interest accrues at 10% per annum; (ii) original maturity date of December 31, 2012; (iii) default interest rate of 15% per annum.  As of March 31, 2014 $11,300 of this note remains due.     11,300       -       11,300       10,379  
                                     
BMI Convertible Note #1   Note in the principal amount of $1,000,000 which accrues interest at 8% per annum.  The note is due April 15, 2015.  The note may be converted, at the option of BMI, into shares of the Company’s Series C Preferred Stock at a conversion price of $70.00 per share.     1,000,000       -       1,000,000       16,877  
                                     
Quest Capital Investors, LLC   Furniture purchase agreement in the original amount of $11,700 with $300 payments due each month.     7,500       -       7,500       -  
                                     
BMI Convertible Note #2   Note payable which accrues interest at 8% per annum and allows the Company to drawdown, as needed, an aggregate of $2,000,000, subject to an agreed upon schedule.  The note is due April 15, 2015.  The note may be converted, at the option of BMI, into shares of the Company’s Series C Preferred Stock at a conversion price of $70.00 per share.     200,000               200,000       3,375  
                                     
Total       $ 1,592,920     $ -     $ 1,592,920     $ 181,431  

  

In January of 2014, the Company paid $20,000 in principal on the September 28, 2012 Promissory Note in the original amount of $51,300 and the final $5,000 in principal and $5,000 in accrued interest due on the Second Quarter 2012 Convertible Note in the original amount of $25,000.

 

In January of 2014, the Company converted $90,000 of principal and $3,728 of accrued interest payable related to the two July 16, 2013 promissory notes into 1,087,762 shares of common stock.

 

In March of 2014, the Company paid the final $39,900 in principal and $1,995 in accrued interest due on the May 30, 2012 Convertible note.

 

During the year ended December 31, 2014, the Company paid a total of $3,600 to Quest Capital as part of the furniture purchase agreement in the original amount of $11,700.

 

During the year ended December 31, 2014, aggregate amortization of debt discounts and deferred financing costs was $140,837 and $1,032, respectively.

 

The following is a summary of amounts due to unrelated parties, including accrued interest separately recorded, as of December 31, 2013:

 

Note Payable   Terms of the agreement   Principal Amount     Discount     Principal Net of Discount     Accrued Interest  
March 4, 2011 Note Payable   $223,500 note payable; (i) interest accrues at 13% per annum; (ii) maturity date of September 4, 2011; (iii) $20,000 fee due at maturity date with a $1,000 per day fee for each day the principal and interest is late.  This note is currently the subject of litigation  (see Note 12 "Legal Proceedings”)   $ 223,500       -     $ 223,500     $ 58,998  
Third Quarter 2012 Secured Subordinated Promissory Notes   Seventeen notes in the original aggregate principal amount of $1,055,000; (i) 5% interest due on maturity date; (ii) maturity date of October 12, 2012; (iii) after the maturity date interest shall accrue at 18% per annum and the company shall pay to the note holders on a pro rata basis, an amount equal to twenty percent of the sales proceeds received by the Company and its subsidiary, WCI, from the sale of surgical powders, until such time as the note amounts have been paid in full.  As of March 31, 2014 three of these notes remain due, of which two are with unrelated parties in the aggregate principal amount of $110,000.     35,000       -       35,000       9,013  
September 28, 2012 Promissory Note   $51,300 note payable (i) interest accrues at 10% per annum; (ii) maturity date of December 31, 2012; (iii) default interest rate of 15% per annum.  As of March 31, 2014 $11,300 of this note is was past due.     31,300       -       31,300       8,763  
Second Quarter 2012 Convertible Notes   Two $25,000 notes; (i) issued on April 3 and April 23, respectively; (ii) convertible at $0.19 per share; (iii) interest accrues at 5% per annum; (iv) interest accrues at 9% per annum after the due dates of April 30 and June 30, 2012, respectively. On September 20, 2012, 222,420 shares of Common Stock were issued in conversion of the April 23 note. As of the date of this filing these notes and all related interest are paid in full.     5,000       -       5,000       4,340  
May 30,  2012 Convertible Note   Note in the principal amount of up to $275,000 including an approximate original issue discount of 10%; (i) maturity date one year from the effective date (ii) convertible at the lesser of $0.19 or a 30% discount on the fair market value of the Company's common stock; (iv) one time interest charge of 5% will be applied if the note is not repaid within the first 90 days.  As of the date of this filing, this note at all related accrued interest has been paid in full.     39,900       (29,406 )     10,494       1,995  
July 16, 2013 Convertible Notes   Two $45,000 notes; (i) issued July 16, 2013 as part of two settlement agreements; (ii) interest accrues at 8%; (iii) due April 14, 2014; (iv) convertible 180 days after the issue date at 80% of the fair market value of the Company’s common stock.  In the first quarter of 2014, the entire principal and accrued interest balance of these notes was converted into common stock.     90,000       -       90,000       3,629  
BMI Convertible Note #1   Note in the principal amount of $1,000,000 which accrues interest at 8% per annum.  The note is due October 10, 2014.  The note may be converted, at the option of BMI, into shares of the Company’s Series C Preferred Stock at a conversion price of $70.00 per share.     1,000,000       -       1,000,000       18,192  
Quest Capital Investors, LLC   Furniture purchase agreement in the original amount of $11,700 with $300 payments due each month.     11,100       -       11,100       -  
BMI Convertible Note #2   Note payable which accrues interest at 8% per annum and allows the Company to drawdown, as needed, an aggregate of $2,000,000, subject to an agreed upon schedule.  The note is due October 15, 2014.  The note may be converted, at the option of BMI, into shares of the Company’s Series C Preferred Stock at a conversion price of $70.00 per share.     200,000       (21,431 )     178,569       2,652  
Total       $ 1,635,800     $ (50,837 )   $ 1,584,963     $ 107,582  

  

During the year ended December 31, 2013, the Company borrowed an aggregate of $290,244 and $1,817,400 under notes payable and convertible notes payable, respectively and repaid an aggregate of $662,169 and $331,500 on notes payable and convertible notes payable, respectively.

 

In connection with $140,000 of the 2013 borrowings, the Company issued an aggregate of 875,000 common stock warrants to the lenders (see Note 9). The fair value of the warrants was determined to be $51,643 and it was recorded as a discount to the notes that is being amortized to interest expense over the life of the notes using the effective interest rate method. During the year ended December 31, 2013, these discounts were fully amortized to interest expense.

 

During the year ended December 31, 2013, unrelated parties converted an aggregate of $1,360,822 of debt and $226,778 of accrued interest into 22,680 shares of Series C convertible preferred stock.

 

During the year ended December 31, 2013, unrelated parties converted an aggregate of $401,145 of debt and $5,500 of accrued interest into 11,239,999 shares of common stock.

 

$1,200,000 of the 2013 borrowings is convertible at the holder’s option into Series C convertible preferred stock at $70 per share. The $1,200,000 was drawn by the company on multiple dates. The Company evaluated each borrowing under FASB ASC 470-30 to determine if a beneficial conversion feature existed. The company determined beneficial conversion features existed on $200,000 of the borrowings. The intrinsic value of the beneficial conversion features was determined to be $25,000. The beneficial conversion features were recorded as discounts to the notes that are being amortized to interest expense. Amortization of these discounts totaled $3,569 for the year ended December 31, 2013.

 

In July of 2013, the Company established two notes payable in the amount of $45,000 each according to the terms of a settlement agreement. The company recognized settlement expense of $90,000 during 2013 associated with these notes. The notes are unsecured, bear interest at 8% per annum and are due April 14, 2014. The notes become convertible 180 days after the issue date at 80% of the fair market value of the Company’s common stock.

 

The convertible notes associated with $628,900 of the 2013 borrowings qualified as derivative liabilities under FASB ASC 815 resulting in discounts to the notes of $617,399 (see Note 10). Also, in connection with these borrowings, the Company incurred original issue discounts totaling $11,500 which are being amortized to interest expense over the life of the notes.

 

During 2013, the company paid third party debt issuance costs totaling $9,200. These costs are being amortized to interest expense over the life of the associated debt using the effective interest rate method. During 2013, aggregate amortization of deferred financing costs totaled $20,694. During the year ended December 31, 2013, aggregate amortization of debt discounts totaled $833,455.

 

Debentures

 

2012 Debentures

 

On March 27, 2012, the Company entered into a Securities Purchase Agreement and sold $400,000 of convertible debentures with a maturity date of March 27, 2015, to an unrelated party for $360,000.  The Debentures may be converted into Common Stock at a conversion price equal to seventy percent (70%) of the lowest closing bid price per share for the twenty (20) trading days immediately preceding the date of conversion; provided that no holder may convert Debentures into, nor shall the Company issue to such holder, shares of common stock to the extent that the conversion would result in a holder and its affiliates together beneficially owning more than 4.99% of the then issued and outstanding shares of Common Stock.   Additionally, the Securities Purchase Agreement entitled the purchaser to 200,000 shares of Common Stock

 

In accordance with ASC Topic No. 470-20-25-4, a discount in the amount of $171,429 was calculated as the total value of the beneficial conversion feature, which was amortized over the term of the debt.  Additionally, a discount of $35,676 was allocated to 200,000 shares of Common Stock based on the relative fair market value of the stock and convertible debt at the time of the agreement.

 

In 2012, the debenture holder elected to convert $50,000 in principal into 1,387,754 shares of Common Stock.  In 2013, the debenture holder elected to convert $300,000 in principal into 8,351,368 shares of Common Stock.  A pro rata share of the discount associated with the debentures was expensed with each issuance of Common Stock. The balance of accrued interest payable related to the debentures was $18,238 at December 31, 2012. In 2013, the debenture holder also elected to receive a cash principal payment of $50,000 and accrued interest payable, accrued at 6% per annum, of $30,659.  As of December 31, 2013, the debentures were paid in full and all related discounts and debt issuance costs were fully amortized. The balance of accrued interest payable at December 31, 2013 was $0.