Quarterly report pursuant to Section 13 or 15(d)

Note 7 - Related Party Transactions

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Note 7 - Related Party Transactions
9 Months Ended
Sep. 30, 2018
Notes  
Note 7 - Related Party Transactions

NOTE 7 - RELATED PARTY TRANSACTIONS

 

During the nine months ended September 30, 2018, the Company incurred interest expense on notes to related parties in the aggregate amount of $126,619 (see Note 4 – Short term notes – related party & Note 5 – Convertible Notes).

 

Accounts payable related party

 

At September 30, 2018 and December 31, 2017, the Company had a balance in related party accounts payable of $56,649 and $68,060, respectively, which consisted of the following:

 

 

 

 

September 30,

 

December 31,

Party Name:

Relationship:

Nature of transactions:

 

2018

 

 

2017

John Hayes

Chief Technology Officer

Expense reimbursement

$

53,149

 

$

55,254

Robert Graham

Chairman and Chief Executive Officer

Expense reimbursement

 

-

 

 

6,806

Robert Graham

Chairman and Chief Executive Officer

Rent

 

3,500

 

 

6,000

 

 

 

$

56,649

 

$

68,060

 

Advances related party

 

During the nine months ended September 30, 2018, the Company received advances of $50,000 from Mag Ventures, a company controlled by Tom Bruderman, a director and shareholder.  These advances are included in Advances – related party on the Company’s balance sheet.

 

During the nine months ended September 30, 2018, the Company received advances of $25,000 from J. Allen Kosowsky, a director and shareholder.  These advances were converted into 78,125 shares of the Company’s common stock at a price of $0.32 per share on September 13, 2018.

 

At September 30, 2018 and December 31, 2017, the Company had a balance in related party advances of $115,000 and $65,000, respectively, which consisted of the following:

 

 

 

September 30,

 

December 31,

Party Name:

Relationship:

 

2018

 

 

2017

J Allen Kosowsky

Director

$

-

 

$

-

Thomas Bruderman

Director and significant shareholder

 

115,000

 

 

65,000

 

 

$

115,000

 

$

65,000

 

Related Party Notes

 

On January 31, 2018, the Company’s Chief Technology Officer and significant shareholder invested $500,000 via a one year note bearing interest at 8% annually.  In conjunction with this note, the Company issued 5 year detachable warrants to purchase 1,562,500 shares of the Company’s common stock at $0.50 per share.  These warrants were valued at $172,542 using the Black-Scholes pricing model and were recorded as a discount to the note.  The note carries a default rate of 18% for any principal not paid by the maturity date.  On September 30, 2018, the note along with interest of $29,712 was converted into 2,118,849 shares of the Company’s common stock at a rate of $0.25 per share.  Additionally, as part of the conversion, additional warrants to purchase 437,500 shares of common stock were issued and all warrants related to this note were repriced to reflect an exercise price of $0.25 per share.  The value of these additional warrants and the lowered conversion totaled $58,250 which the Company recorded as a loss on extinguishment of debt.

 

On November 30, 2015, John Hayes, the Company’s Chief Technology Officer, Director and significant shareholder invested $101,000 via a one year convertible note bearing interest at 12% annually and convertible into 112,223 shares of Series A convertible preferred stock at the rate of $0.90 per share.  On September 1, 2017, $237,000 owed to John Hayes was added to the note.  On September 30, 2018, the note along with interest of $89,366 was converted into 1,709,466 shares of the Company’s common stock at a rate of $0.25 per share.  Additionally, as further inducement to convert the note, the Company issued the note holder 5 year warrants to purchase 1,352,000 shares of the Company’s common stock. The Company recognized a loss on extinguishment of debt of $400,126 related to the decrease in conversion price and warrants granted.

 

On July 6, 2018, the Company issued $200,000 in convertible notes bearing interest at 9% per annum to John Hayes, the Company’s Chief Technology Officer, Director and significant shareholder.  This note matures on July 31, 2019 and is convertible into the Company’s Series B Preferred Stock at a price of $0.32 per share at the holder’s request.  The Company has determined the notes to contain a beneficial conversion feature valued at $61,290 based on the intrinsic per share value of the conversion feature.  This beneficial conversion feature is recorded as a discount to the note.  The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 800,000 shares of the company’s common stock at an exercise price of $0.25 per share.  The warrants were valued at $138,700 using the Black-Scholes pricing model and were recorded as a discount to the debt agreements.   On September 30, 2018, the note along with interest of $4,192 was converted into 816,767 shares of the Company’s common stock at a rate of $0.25 per share.  The Company recognized a loss on extinguishment of debt of  $43,750 related to the decrease in conversion price.

 

On July 10, 2018, the Company issued $32,000 in convertible notes bearing interest at 9% per annum to J Allen Kosowsky, a Director and related party.  This note matures on July 31, 2019 and is convertible into the Company’s Series B Preferred Stock at a price of $0.32 per share at the holder’s request.  The Company has determined the notes to contain a beneficial conversion feature valued at $9,764 based on the intrinsic per share value of the conversion feature.  This beneficial conversion feature is recorded as a discount to the note.  The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 128,000 shares of the company’s common stock at an exercise price of $0.25 per share.  The warrants were valued at $22,226 using the Black-Scholes pricing model and were recorded as a discount to the debt agreements.   On September 30, 2018, the note along with interest of $639 was converted into 130,556 shares of the Company’s common stock at a rate of $0.25 per share.  The Company recognized a loss on extinguishment of debt of  $8,960 related to the decrease in conversion price.