Quarterly report pursuant to Section 13 or 15(d)

4. Notes Payable

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4. Notes Payable
3 Months Ended
Mar. 31, 2017
Debt Disclosure [Abstract]  
Notes Payable

The Company and its subsidiaries are party to a number of loans with affiliates and unrelated parties. At March 31, 2017 and December 31, 2016, notes payable consisted of the following:

 

Notes Payable – Third Parties

 

    March 31, 2017     December 31, 2016  
Loan payable under prepaid forward purchase contract   $ 5,000,000     $ 5,000,000  
                 
Loan payable to TCA Global Master Fund, LP ("TCA") in the original principal amount of $3 million at 16% interest (the "TCA Debenture").  Principal and interest payments due in various installments through September 17, 2017.     2,383,002       3,000,000  
                 
Notes payable to CommerceNet and Jay Tenenbaum in the original principal amount of $500,000, bearing interest at 6% per annum (the "Tegal Notes"). Prinicpal and interest payments are due annually from July 12, 2015 through July 12, 2017     341,612       341,612  
                 
Other convertible notes payable           440,000  
                 
Unamortized discount on other convertible notes           (179,889 )
Derivative liability associated with the TCA Debenture, at fair value           409,524  
      7,724,614       9,011,247  
Less current portion     (7,724,614 )     (9,011,247 )
Notes payable - third parties, net of current portion   $     $  

 

On March 31, 2016, the Company entered into an agreement to pledge certain of its accounts receivable as collateral against a prepaid forward purchase contract whereby the Company received consideration in the amount of $5.0 million. The receivables had an estimated collectable value of $8.7 million which had been adjusted down to approximately $4.3 million on the Company’s balance sheet as of March 31, 2016 and $0 as of March 31, 2017. In exchange for the consideration received, the counterparty received the right to: (i) a 20% per annum investment return from the Company on the consideration, with a minimum repayment term of six months and minimum return of $0.5 million, (ii) all payments recovered from the accounts receivable up to $5.25 million, if paid in full within six months, or $5.5 million, if not paid in full within six months, and (iii) 20% of all payments of the accounts receivable in excess of amounts received in (i) and (ii). On March 31, 2017, to the extent that the counterparty has not been paid $6.0 million, the Company was required to pay the difference. To date, the Company has not recovered any payments against the accounts receivable. As of March 31, 2017, the Company has accrued $1.0 million for the counterparty’s required investment return, which is reflected in accrued expenses in the accompanying consolidated balance sheet, and $6.0 million was due to the counterparty on March 31, 2017. The Company does not have the financial resources to repay this obligation.

 

The Company did not make the required monthly principal and interest payments due under the TCA Debenture for the period from October 2016 through March 2017. On February 2, 2017, the Company made a payment to TCA in the amount of $0.4 million which was applied to accrued and unpaid interest and fees, including default interest, as of the date of payment. On March 21, 2017, the Company made a payment to TCA in the amount of $0.75 million, of which approximately $0.1 million was applied to accrued and unpaid interest and fees in accordance with the terms of the TCA Debenture. Also on March 21, 2017, the Company entered into a letter agreement with TCA, which (i) waives any payment defaults through March 21, 2017; (ii) provides for the $0.75 million payment discussed above; (iii) sets forth a revised repayment schedule whereby the remaining principal plus interest aggregating to approximately $2.6 million is repaid in various monthly installments from April of 2017 through September of 2017; and (iv) provides for payment of an additional service fee in the amount of $150,000, which is due upon the earlier of September 20, 2017 or the date on which a previously filed registration statement filed by the Company is declared effective by the SEC, and is reflected in accrued expenses in the accompanying consolidated balance sheet at March 31, 2017. In addition, TCA entered into an intercreditor agreement with the purchasers of the convertible debentures (see note 5) which sets forth rights, preferences and priorities with respect to the security interests in the Company’s assets.

 

On September 15, 2016, the Company entered into an agreement with two investors whereby the Company sold to the investors convertible notes in the aggregate principal amount of $0.4 million (the “September 2016 Notes”). The September 2016 Notes were convertible into shares of the Company’s common stock at a conversion price of $7.50 per share. In conjunction with the sale of the September 2016 Notes, the Company issued warrants to purchase an aggregate of 66,667 shares of the Company’s common stock at an exercise price of $12.00 per share. Based on the allocation of the net proceeds from the September 2016 Notes to the fair value of the warrants, and the resulting beneficial conversion features, the Company recognized a discount for the entire face value of the September 2016 Notes, which was accreted through the notes’ maturity date of March 15, 2017. On March 13, 2017, the September 2016 Notes, along with the accompanying warrants, were exchanged for 400,000 shares of the Company’s common stock.

 

The Company did not make the principal payments under the Tegal Notes that were due on July 12, 2016. On November 3, 2016, the Company received a default notice from the holders of the Tegal Notes demanding immediate repayment of the outstanding principal and accrued interest aggregating to $0.4 million. On December 7, 2016 the Company received a breach of contract complaint with a request for entry of a default judgment (see note 13). To date, the Company has yet to repay this amount.

 

Notes Payable – Related Parties

 

    March 31, 2017     December 31, 2016  
Loan payable to Alcimede LLC, bearing interest at 6% per annum, with all principal and interest due on August 2, 2017   $ 168,500     $ 218,500  
                 
Other advances from related parties     75,000       110,000  
      243,500       328,500  
Less current portion     (243,500 )     (328,500 )
Total notes payable, related parties   $     $  

 

On February 3, 2015, the Company borrowed $3.0 million from Alcimede LLC (“Alcimede”). Seamus Lagan, the Company’s President and Chief Executive Officer, is the sole manager of Alcimede. The note has an interest rate of 6% and was originally due on February 2, 2016. Alcimede has since agreed to extend the maturity date of the loan to August 2, 2017. On June 29, 2015, Alcimede exercised options granted in October 2012 to purchase one million shares of the Company’s common stock at an exercise price of $2.50 per share, and the loan outstanding was reduced in satisfaction of the aggregate exercise price of $2.5 million. In August of 2016, $0.3 million was repaid by the Company through the issuance of shares of common stock. In March of 2017, the Company and Mr. Lagan agreed that a payment made to Mr. Lagan in the amount of $50,000 would be deducted from the outstanding balance of the note, and the remaining balance due on this loan as of March 31, 2017 was $0.2 million.

 

During the three months ended March 31, 2017, the Company repaid $0.1 million that was outstanding to a former principal stockholder, and borrowed an additional $75,000 from this same stockholder.