Annual report pursuant to Section 13 and 15(d)

Related Parties

v3.6.0.2
Related Parties
12 Months Ended
Dec. 31, 2016
Related Parties [Abstract]  
RELATED PARTIES
18. RELATED PARTIES

 

At December 31, 2016 and 2015, the Company had outstanding the following notes payable to related parties:

 

    December 31,  
    2016     2015  
             
Promissory note issued to CamaPlan FBO Mark Munro IRA, 3% interest, maturing on January 1, 2018, unsecured, net of debt discount of $38 and $72, respectively   $ 658     $ 525  
Promissory note issued to 1112 Third Avenue Corp, 3% interest, maturing on January 1, 2018, unsecured, net of debt discount of $36 and $68, respectively     339       307  
Promissory note issued to Mark Munro, 3% interest, maturing on January 1, 2018, unsecured, net of debt discount of $62 and $116, respectively (partially reclassified to term loans during 2016 - refer to the reclassification paragraphs later within this footnote and Note 11, Term Loans)     575       1,221  
Promissory note issued to Pascack Road, LLC, 3% interest, maturing on January 1, 2018, unsecured, net of debt discount of $152 and $286, respectively     2,398       2,364  
Promissory notes issued to Forward Investments, LLC, between 2% and 10% interest, matured on July 1, 2016, unsecured, net of debt discount of $0 and $749, respectively     4,235       5,727  
Promissory notes issued to Forward Investments, LLC, 3% interest, maturing on January 1, 2018, unsecured, net of debt discount of $861 and $1,528, respectively     3,513       2,844  
Promissory notes issued to Forward Investments, LLC, 6.5% interest, matured on July 1, 2016, unsecured, net of debt discount of $0 and $147, respectively     390       243  
Former owner of IPC, unsecured, 8% interest, matured on May 30, 2016, due on demand     5,755       5,755  
Former owner of IPC, unsecured, 15% interest, due on demand     75       75  
Former owner of Nottingham, unsecured, 8% interest, matured on May 30, 2016     225       225  
      18,163       19,286  
Less: current portion of debt     (9,531 )     (11,103 )
Long-term portion of notes payable, related parties   $ 8,632     $ 8,183  

 

Future maturities of related party debt are as follows:

 

Year ending December 31,      
2017   $ 10,680  
2018     8,632  
         
Total principal payments   $ 19,312  

 

Future annual amortization of debt discounts is as follows:

 

Year ending December 31,      
2017   $ 1,149  
         
Total debt discount amortization   $ 1,149  

 

The interest expense, including amortization of debt discounts, associated with the related-party notes payable in the years ended December 31, 2016 and 2015 amounted to $3,515 and $4,121, respectively.

 

All notes payable to related parties are subordinate to the JGB (Cayman) Waltham Ltd. and JGB (Cayman) Concord Ltd. term loan notes. 

 

Promissory Notes to the Mark Munro 1996 Charitable Remainder UniTrust

 

On January 1, 2014, the outstanding principal amount of the loans from a related party, MMD Genesis LLC, was restructured and, in lieu thereof, the Company issued a note to the Mark Munro 1996 Charitable Remainder UniTrust in the principal amount of $275 that bore interest at the rate of 12% per annum and was to mature on March 31, 2016.

 

On May 7, 2014, the Company issued a promissory note to the Mark Munro 1996 Charitable Remainder UniTrust in the principal amount of $300 that bore interest at the rate of 18% per annum and was to mature on March 31, 2016.

 

On February 10, 2015, the Mark Munro 1996 Charitable Remainder UniTrust converted $100 principal amount of its January 1, 2014 note into 42,553 shares of the Company’s common stock. Refer to Note 16, Stockholders’ Deficit, for further detail.

 

On February 25, 2015, the Company restructured the terms of the Mark Munro 1996 Charitable Remainder UniTrust in order to extend the maturity dates thereof and to reduce the interest rate accruing thereon (Refer to the restructuring paragraphs later within this footnote for further detail). The following notes were restructured as follows:

 

  notes issued to the Mark Munro 1996 Charitable Remainder UniTrust in the aggregate principal amount of $300 had the interest rates reduced from 18% to 3% per annum and the maturity dates extended from March 31, 2016 to January 1, 2018; and

 

  notes issued to the Mark Munro 1996 Charitable Remainder UniTrust in the aggregate principal amount of $175 had the interest rates reduced from 12% to 3% per annum and the maturity dates extended from March 31, 2016 to January 1, 2018.

 

In consideration for such restructuring, the Company issued to the Mark Munro 1996 Charitable Remainder UniTrust 89,900 shares of common stock which resulted in a loss on extinguishment of debt of $220 on the consolidated statement of operations.

 

During June 2015, the Mark Munro 1996 Charitable Remainder UniTrust converted $25 of principal amount of notes payable and related accrued interest into 8,306 shares of the Company’s common stock. Refer to Note 16, Stockholders’ Deficit, for further detail.

 

On July 21, 2015, the Mark Munro 1996 Charitable Remainder UniTrust converted the remaining $450 principal amount and related accrued interest of $5 of its promissory note into 219,820 shares of the Company’s common stock. Refer to Note 16, Stockholders’ Deficit, for further detail.

 

Related Party Promissory Note Payable

 

On July 5, 2011, the Company entered into a definitive master funding agreement with MMD Genesis LLC (“MMD Genesis”), a company the three principals of which are the Company’s Chairman of the Board and Chief Executive Officer, Mark Munro, one of the Company’s directors, Mark F. Durfee, and Douglas Shooker, the principal of Forward Investments LLC, the beneficial owner of more than 5% of the Company’s common stock. Pursuant to the master funding agreement, MMD Genesis has made loans to the Company from time to time to fund certain of the Company’s working capital requirements and a portion of the cash purchase prices of the Company’s business acquisitions. All such loans originally bore interest at the rate of 2.5% per month and matured on June 30, 2014. 

 

On January 1, 2014, the outstanding principal amount of the loans from MMD Genesis in the amount of $3,925, and accrued interest thereon in the amount of $964, was restructured and, in lieu thereof, the Company issued to the principals of MMD Genesis LLC or their designees the following notes:

 

  a note issued to CamaPlan FBO Mark Munro IRA in the principal amount of $347 that bore interest at the rate of 12% per annum and was to mature on March 31, 2016;
     
  a note issued to 1112 Third Avenue Corp., a company controlled by Mark Munro, in the principal amount of $375 that bore interest at the rate of 12% per annum and was to mature on March 31, 2016;
     
  a note issued to Mark Munro in the principal amount of $737 that bore interest at the rate of 12% per annum and was to mature on March 31, 2016;
     
  a note issued to Pascack Road, LLC, a company controlled by Mark Durfee, in the principal amount of $1,575 that bore interest at the rate of 12% per annum and was to mature on March 31, 2016;
     
  a note issued to Forward Investments, LLC in the principal amount of $650 that bears interest at the rate of 10% per annum, was to mature on June 30, 2015 and was originally convertible into shares of the Company’s common stock at an initial conversion price of $6.36 per share; and

 

  a note issued to Forward Investments, LLC in the principal amount of $2,825 that bore interest at the rate of 2% per annum, was to mature on June 30, 2015 and was convertible into shares of the Company’s common stock at an initial conversion price of $6.36 per share, and reflects certain penalties and consulting fees of $1,000 which were incurred and outstanding as of December 31, 2013.

 

On February 4, 2014 and March 28, 2014, Forward Investments, LLC made loans to the Company for working capital purposes in the amounts of $1,800 and $1,200, respectively. Such loans are evidenced by promissory notes that bear interest at the rate of 10% per annum, mature on June 30, 2015 and are convertible into shares of the Company’s common stock at an initial conversion price of $6.36 per share.

 

On February 25, 2015 and March 2, 2015, such notes were restructured. Refer to the restructuring paragraphs later within this footnote for further details. 

 

Related Party Promissory Notes to CamaPlan FBO Mark Munro IRA

 

On July 8, 2014, the Company issued a promissory note to the CamaPlan FBO Mark Munro IRA in the principal amount of $200 that bore interest at the rate of 18% per annum and was to mature on March 31, 2016. This note was restructured as part of the February 25, 2015 promissory note restructuring agreement. Refer to the restructuring paragraphs noted within this footnote for further details.

 

Related Party Promissory Notes to Mark Munro

 

On September 2, 2014, the Company issued a promissory note to Mark Munro in the principal amount of $100 that bore interest at the rate of 18% per annum and was to mature on March 31, 2016.

 

On September 9, 2014, the Company issued a promissory note to Mark Munro in the principal amount of $150 that bore interest at the rate of 18% per annum and was to mature on March 31, 2016.

 

On September 24, 2014, the Company issued a promissory note to Mark Munro in the principal amount of $250 that bore interest at the rate of 18% per annum and was to mature on March 31, 2016.

 

These notes were restructured as part of the February 25, 2015 promissory note restructuring agreement. Refer to the restructuring paragraphs later within this footnote for further details.

 

Related Party Promissory Notes to Pascack Road, LLC

 

On June 20, 2014, the Company issued a promissory note to Pascack Road, LLC in the principal amount of $300 that bore interest at the rate of 18% per annum and was to mature on March 31, 2016.

 

On July 11, 2014, the Company issued a promissory note to Pascack Road, LLC in the principal amount of $200 that bore interest at the rate of 18% per annum and was to mature on March 31, 2016.

 

On September 2, 2014, the Company issued a promissory note to Pascack Road, LLC in the principal amount of $100 that bore interest at the rate of 18% per annum and was to mature on March 31, 2016.

 

On September 8, 2014, the Company issued a promissory note to Pascack Road, LLC in the principal amount of $150 that bore interest at the rate of 18% per annum and was to mature on March 31, 2016.

 

On September 29, 2014, the Company issued a promissory note to Pascack Road, LLC in the principal amount of $575 that bore interest at the rate of 18% per annum and was to mature on March 31, 2016.

 

These notes were restructured as part of the February 25, 2015 promissory note restructuring agreement. Refer to the restructuring paragraphs later within this footnote for further details.

 

Related Party Promissory Notes to Forward Investments, LLC

 

On June 19, 2014, the Company issued a promissory note to Forward Investments, LLC in the principal amount of $500 that bore interest at the rate of 18% per annum and was to mature on June 30, 2015.

 

On July 11, 2014, the Company issued a promissory note to Forward Investments, LLC in the principal amount of $200 that bore interest at the rate of 18% per annum and was to mature on June 30, 2015.

 

On August 12, 2014, the Company issued a promissory note to Forward Investments, LLC in the principal amount of $600 that bore interest at the rate of 18% per annum and was to mature on June 30, 2015.

 

On September 2, 2014, the Company issued a promissory note to Forward Investments, LLC in the principal amount of $100 that bore interest at the rate of 18% per annum and was to mature on June 30, 2015.

 

On September 8, 2014, the Company issued a promissory note to Forward Investments, LLC in the principal amount of $150 that bore interest at the rate of 18% per annum and was to mature on June 30, 2015.

 

On September 26, 2014, the Company issued a promissory note to Forward Investments, LLC in the principal amount of $250 that bore interest at the rate of 18% per annum and was to mature on June 30, 2015.

 

On September 29, 2014, the Company issued a promissory note to Forward Investments, LLC in the principal amount of $395 that bore interest at the rate of 18% per annum and was to mature on June 30, 2015.

 

On October 24, 2014, the Company issued a promissory note to Forward Investments, LLC in the principal amount of $400 that bore interest at the rate of 18% per annum and was to mature on June 30, 2015.

 

These notes were restructured as part of the March 4, 2015 Forward Investments, LLC note restructuring agreement. Refer to the restructuring paragraphs later within this footnote for further details.

  

Restructuring of Related Party Promissory Notes Issued in 2014

 

On February 25, 2015, the Company restructured the terms of certain related-party promissory notes and term loans issued to Mark Munro, CamaPlan FBO Mark Munro IRA, 1112 Third Ave. Corp., the Mark Munro 1996 Charitable Remainder Trust and Pascack Road, LLC in order to extend the maturity dates thereof and to reduce the interest rate accruing thereon. The following notes were restructured as follows:

 

  notes issued to Mark Munro in the aggregate principal amount of $637 had the interest rates reduced from 12% to 3% per annum and the maturity dates extended from March 31, 2016 to January 1, 2018;

 

  notes issued to CamaPlan FBO Mark Munro IRA in the aggregate principal amount of $397 had the interest rates reduced from 12% to 3% per annum and the maturity dates extended from March 31, 2016 to January 1, 2018;

  

  a note issued to 1112 Third Avenue Corp. in the principal amount of $375 had the interest rate reduced from 12% to 3% per annum and the maturity date extended from March 31, 2016 to January 1, 2018;
     
  notes issued to Pascack Road, LLC in the aggregate principal amount of $1,575 had the interest rate reduced from 12% to 3% per annum and the maturity dates extended from March 31, 2016 to January 1, 2018.

 

In consideration for such restructuring, the Company issued to Mark Munro 63,700 shares of unregistered common stock, the CamaPlan FBO Mark Munro IRA 39,690 shares of unregistered common stock, 1112 Third Avenue Corp. 87,500 shares of unregistered common stock, the Mark Munro 1996 Charitable Remainder UniTrust 27,500 shares of unregistered common stock and Pascack Road, LLC 157,500 shares of unregistered common stock. For the year ended December 31, 2015, the Company recorded a loss on modification of debt of $731 on the consolidated statement of operations as of March 31, 2015 related to the consideration given to the debt holders.

  

Restructuring of Related Party Promissory Notes Issued in 2014

 

On February 25, 2015, the Company restructured the terms of certain related-party promissory notes and term loans issued to Mark Munro, Cama Plan FBO Mark Munro IRA, 1112 Third Ave. Corp., the Mark Munro 1996 Charitable Remainder Trust and Pascack Road, LLC in order to extend the maturity dates thereof and to reduce the interest rate accruing thereon. The following notes were restructured as follows:

 

  notes issued to Mark Munro in the aggregate principal amount of $700 had the interest rates reduced from 18% to 3% per annum and the maturity dates extended from March 31, 2016 to January 1, 2018;

 

  notes issued to CamaPlan FBO Mark Munro IRA in the aggregate principal amount of $200 had the interest rates reduced from 12% to 3% per annum and the maturity dates extended from March 31, 2016 to January 1, 2018;
     
  notes issued to Pascack Road, LLC in the aggregate principal amount of $1,075 had the interest rate reduced from 18% to 3% per annum and the maturity dates extended from March 31, 2016 to January 1, 2018.

 

In consideration for such restructuring, the Company issued to Mark Munro 95,600 shares of unregistered common stock, the CamaPlan FBO Mark Munro IRA 41,600 shares of unregistered common stock, the Mark Munro 1996 Charitable Remainder UniTrust 62,400 shares of unregistered common stock and Pascack Road, LLC 223,600 shares of unregistered common stock. The Company recorded a loss on extinguishment of debt of $1,159 on the unaudited condensed consolidated statement of operations as of March 31, 2015 related to the consideration given to the debt holders.

 

On December 30, 2016, Mark Munro assigned $500 of his outstanding balance to Trinity Hall, a third party (see Note 11, Term Loans).

 

As noted in Note 16, Stockholders’ Deficit, related party lenders converted principal into shares of common stock.

 

Forward Investments Working Capital Loan

 

On February 4, 2014 and March 28, 2014, Forward Investments, LLC made loans to the Company for working capital purposes in the amounts of $1,800 and $1,200, respectively. Such loans are evidenced by promissory notes that bear interest at the rate of 10% per annum, mature on June 30, 2015 and are convertible into shares of the Company’s common stock at an initial conversion price of $6.36 per share.

 

Due to the embedded conversion feature of the Forward Investments, LLC loans, the Company deemed this feature to be a derivative and recorded a debt discount in the amount of $8,860, which is being amortized over the life of the loans using the effective interest method. Refer to Note 12, Derivative Instruments, for further detail on the Forward Investments derivative.

 

These working capital loans were restructured as part of the March 4, 2015 Forward Investments, LLC note restructuring agreement. Refer to the restructuring paragraphs noted later within this footnote.

 

Restructuring of Forward Investments, LLC Promissory Notes and Working Capital Loan

 

On March 4, 2015, the Company restructured the terms of certain promissory notes issued by it to a related party investor, Forward Investments, LLC, in order to extend the maturity dates thereof, reduce the seniority and reduce the interest rate accruing thereon. The following notes were restructured as follows:

 

  notes issued to Forward Investments, LLC in the aggregate principal amount of $3,650 that bear interest at the rate of 10% per annum, had the maturity date extended from June 30, 2015 to July 1, 2016. These notes matured on July 1, 2016;

 

  notes issued to Forward Investments, LLC in the principal amount of $2,825 that bear interest at the rate of 2% per annum, had the maturity date extended from June 30, 2015 to July 1, 2016. These notes matured on July 1, 2016; and
     
  notes issued to Forward Investments, LLC in the aggregate principal amount of $2,645 were converted from senior notes to junior notes, had the interest rate reduced from 18% to 3% per annum, had the maturity date extended by approximately three years to January 1, 2018, and originally were convertible at a conversion price of $6.36 per share until the Convertible Debentures were repaid in full and thereafter $2.35 per share, subject to further adjustment as set forth therein.

 

In connection with such restructuring, Forward Investments, LLC agreed to lend to the Company an amount substantially similar to the accrued interest the Company owed to Forward Investments, LLC on the restructured notes. In consideration for such restructuring and additional payments made by Forward Investments, LLC to the Company, the Company issued to Forward Investments, LLC an additional convertible note in the original principal amount of $1,730 with an interest rate of 3% per annum, a maturity date of January 1, 2018, and an initial conversion price of $6.36 per share until the Convertible Debentures were repaid in full and thereafter $2.35 per share, subject to further adjustment as set forth therein, and provided Forward Investments, LLC the option to lend the Company an additional $8,000 in the form of convertible notes similar to the existing convertible notes of the Company issued to Forward Investments, LLC. The convertible note was issued to Forward Investments, LLC as an incentive to restructure the above-mentioned notes and resulted in the Company recording a loss on modification of debt of $1,508 on the unaudited condensed consolidated statement of operations as of March 31, 2015.

 

As part of the restructuring, Forward Investments, LLC agreed to convert $390 of accrued interest on the above-mentioned loans to a new note bearing interest at the rate of 6.5% per annum that matured on July 1, 2016.

 

In conjunction with the extension of the 2% and 10% convertible notes issued to Forward Investments, LLC, the Company recorded an additional $1,916 of debt discount at the date of the restructuring.

 

The Company has entered into an agreement with Forward Investments, LLC permitting Forward Investments, LLC to convert its debt into the Company’s common stock at a 5% discount to the daily market price. During the period from July 7, 2016 to December 31, 2016, Forward Investments, LLC converted $2,240 aggregate principal amount of promissory notes into an aggregate of 24,649,918 shares of the Company’s common stock. Refer to Note 16, Stockholders’ Deficit, for further information. As a result of these conversions, the Company recorded a loss on conversion of debt of $19 in the consolidated statement of operations for the year ended December 31, 2016.

  

Convertible Promissory Note to Frank Jadevaia

 

On January 1, 2014, the Company acquired all of the outstanding capital stock of IPC. As part of the purchase price for the acquisition, the Company issued a convertible promissory note to Frank Jadevaia, then President of the Company, in the original principal amount of $6,255. The convertible promissory note accrues interest at the rate of 8% per annum, and all principal and interest accruing thereunder was originally due and payable on December 31, 2014. At the election of Mr. Jadevaia, the convertible promissory note is convertible into shares of the Company's common stock at a conversion price of $16.99 per share (subject to equitable adjustments for stock dividends, stock splits, recapitalizations and other similar events). The Company can elect to force the conversion of the convertible promissory note if the Company’s common stock is trading at a price greater than or equal to $16.99 for ten consecutive trading days. This note is subordinated until the Senior Secured Convertible Notes issued to the JGB entities are paid in full.

 

On December 31, 2014, the Company and Mr. Jadevaia agreed to a modification of the convertible promissory note. The term of the convertible promissory note was extended to May 30, 2016 and, in consideration for this modification, the Company issued to Mr. Jadevaia 100,000 shares of common stock.

 

On May 19, 2015, Mr. Jadevaia assigned $500 of principal related to the convertible promissory note and the assignees converted all $500 principal amount of such note into 232,182 shares of the Company’s common stock with a fair value of $3.38 per common share. Refer to Note 16, Stockholders’ Debt, for further detail on this transaction.

 

On May 30, 2016, the note matured and is now due on demand.

 

On November 4, 2016, Mr. Jadevaia resigned from his role as the Company’s President.

 

Convertible Promissory Note to Scott Davis

 

On July 1, 2014, the Company issued an unsecured $250 convertible promissory note to Scott Davis, who is a related party. The note bears interest at the rate of 8% per annum, matures on January 1, 2015 and is convertible into shares of the Company’s common stock at an initial conversion price of $6.59. The note is currently outstanding and payable on demand. The Company evaluated the convertible feature and determined that the value was de minimis and as such, the Company did not bifurcate the convertible feature.

 

On March 25, 2015, the Company and Mr. Davis agreed to a modification of the convertible promissory note. The term of the note was extended to May 30, 2016, the initial conversion price was amended to $2.22 per share of the Company’s common stock and, in consideration for this modification, the Company issued to Mr. Davis 22,222 shares of common stock with a fair value of $2.16 per share.

 

On May 31, 2015, Mr. Davis converted $25 of principal amount due into 11,261 shares of common stock, with a fair value of $3.53 per share and recorded a loss on debt conversion of $13 on the consolidated statement of operations.

 

On May 30, 2016, the note matured and is now due on demand.

 

Payments to Owners of NGNWare

 

The Company was a minority owner of 13.7% of NGNWare, LLC from December 17, 2015 to December 31, 2016, when the Company wrote off the note from NGNWare as it was deemed uncollectible.

 

During the years ended December 31, 2016 and 2015, the Company paid the owners of 86.3% of NGNWare a salary of $6 and $14, respectively, and paid health insurance premiums on their behalf of $16, and $5, respectively. The owners of NGNWare could not procure health insurance on their own, so the Company added them to its health insurance plan. The amounts paid for salary and health insurance were included in the amount the Company invested in NGNWare.

 

Loans to Employees

 

During the year ended December 31, 2016, the Company issued loans to employees totaling $928. As of December 31, 2016, the Company had outstanding loans to four employees with total principal of $928. These loans are collateralized by shares of the Company’s common stock held by the employees. As of December 31, the value of the collateral was below the principal value. As a result, the Company recorded a reserve for the balance of $891 on the consolidated balance sheet as of December 31, 2016.