v3.4.0.3
12. Notes Payable
 9 Months Ended
Sep. 30, 2014
Notes Payable [Abstract]  
Notes Payable

December 31,  Participation    Assumption             September 30, 
  2013  Agreement  Merger  Agreement  Issuances  Accretion  Payments  Re-Class  2014 
Current notes payable related party                                    
16% Promissory Note, maturing on January 14, 2014 - related party $–  $3,016,227  $–  $–  $–  $–  $(16,083) $–  $3,000,144 
Current notes payable - third party  –                                 
14% Senior Secured Promissory Note, maturing April 3, 2015  –   –   –   –   10,180,000   –   –   –   10,180,000 
Less: discount on Senior Secured Promissory Note  –   –   –   –   (3,800,847)  1,639,973   –   –   (2,160,874)
1.5% Secured Promissory Note, maturing on June 14, 2012  –   8,620,000   –   –   –   –   –   –   8,620,000 
18% Promissory Note, matured on June 30, 2014  –   1,100,000   –   –   –   –   –   –   1,100,000 
18% Promissory Note, matured on March 14, 2014  –   445,040   –   –   –   –   –   –   445,040 
3.68% to 8.39% Premium financing agreements  –   –   18,426   –   138,140   –   (104,035)  –   52,531 
0% Promissory note, maturing October 15, 2014  –   –   –   –   102,500   –   (22,500)  –   80,000 
10% Promissory note, matured June 30, 2013  –   –   100,000   –   –   –   –   –   100,000 
0% Promissory note, maturing September 15, 2015  –   –   102,060   –   –   –   –   17,011   119,070 
0% Promissory note, maturing April 1, 2015  –   –   10,000   –   –   –   –   –   10,000 
Total third party current notes payable  –   10,165,040   230,486   –   6,619,793   1,639,973   (126,535)  –   18,545,767 
     Total current notes payable  –   13,181,267   230,486   –   6,619,793   1,639,973   (142,618)  –   21,545,911 
Non current notes payable - related party                                    
6% Senior Secured Debenture, maturing June 30, 2016 - related party  –   –   –   11,000,000   211,562   –   –   –   11,211,562 
Non current notes payable - third party                                    
0% contingent promissory note, maturing on December 5, 2017  –   3,770,000   –   –   –   –   –   –   3,770,000 
Less: discount on Contingent Promissory Note  –   (1,847,628)  –   –   –   218,702   –   –   (1,628,925)
0% Promissory note, maturing September 15, 2015  –   –   25,443   –   –   –   (8,432)  (17,011)  – 
0% Promissory note, maturing April 1, 2016  –   –   10,000   –   –   –   –   –   10,000 
Total non current third party notes payable  –   1,922,372   35,443   –   –   218,702   (8,432)  –   2,151,075 
Total non current notes payable  –   1,922,372   35,443   11,000,000   211,562   218,702   (8,432)  –   13,362,637 
     Total notes payable $–  $15,103,639  $265,929  $11,000,000  $6,831,355  $1,858,675  $(151,050)  –  $34,908,547 

 

The following is a consolidated schedule of the future payments, based on a period end of September 30, required under notes payable.

 

2015   $ 23,706,784  
2016     11,221,562  
2017     –  
2018     3,770,000  
Thereafter     –  
    $ 38,698,346  

 

16% Promissory Note – Related Party

 

On January 14, 2011, Ronco issued a promissory note to CD3 (“CD3 Note”), Ronco’s 100% shareholder and major creditor, in the amount of $3,000,000. The CD3 Note’s interest rate is 16% per annum and is payable quarterly in arrears. The note initially matured on January 14, 2014. On December 31, 2012, the CD3 Note was modified so that beginning January 1, 2012 no interest shall accrue and any accrued and unpaid interest shall be added to principal. The original maturity date of January 14, 2014 was extended to January 14, 2015. At the date of modification, $16,228 of accrued and unpaid interest was added to the principal balance. This modification was considered a troubled debt restructuring. In accordance with ASC 470, Debt, no gain was recognized and no future interest expense will be recognized as the total of the future payments required under the modified terms is equal to the carrying value of the CD3 Note. Subsequent to January 14, 2015, the Company is in default and the note is still outstanding.

 

14% Senior Secured Promissory Note

 

On April 3, 2014, Infusion and ASTV entered into a Senior Note Purchase Agreement to obtain debt financing in the amount of $10,180,000. In connection with the senior note, ASTV and Infusion granted a security interest in their respective assets by means of executing a Security Agreement. The senior note's interest rate is 14% per annum and was paid in advance at the transaction closing. The senior note matures on April 3, 2015, and all outstanding principal becomes payable unless extended for six months subject to approval of both parties. In connection with the senior note sale, warrants constituting 4.99% of the Company’s common stock on a fully diluted basis was issued, which at April 2, 2014 represented approximately 30 million warrants with an exercise price of $0.0001 and with a fair value of approximately $2,408,000. The fair value of these warrants was recorded as a discount on the debt and a warrant liability. Due to the provision requiring the warrants to be maintained at a 4.99% of fully diluted shares this constitutes a variable share settlement provision which requires liability accounting. In addition, the senior note was issued with an original issue discount of approximately $1,393,000. The issuance of the warrants and recognition of the original issuance discount resulted in an overall residual discount on the senior note in the amount of approximately $3,800,000 which is being accreted to interest expense using the effective interest method over the term of the loan. Debt issuance costs of approximately $441,000 were incurred and paid and are being amortized to interest expense over the term of the loan using the effective interest method. Approximately, $226,262 of these costs are unamortized and are included in prepaid expenses and other current assets. See discussion on the amendment of this note within the Financial Instrument Transaction section of Note 18.

 

6% Senior Secured Debenture - Related Party

 

Pursuant to a Contribution and Assumption Agreement entered into between IBI and Infusion on March 31, 2014, Infusion assumed a Senior Secured Debenture dated March 6, 2014 totaling $11,000,000. The debenture is secured with the assets of Infusion and matures on June 30, 2016. From March 31, 2014 until June 30, 2014 the interest rate is 6% per annum, from July 1, 2014 until June 30, 2015 the interest rate is 9% per annum, and from July 1, 2015 until June 30, 2016 the interest rate is 12% per annum. Interest accrued on the outstanding principal balance is to be paid on the maturity date, provided that on June 30, 2014 and June 30, 2015 accrued interest is capitalized and added to the outstanding principal of the debenture. At September 30, 2014, accrued interest of approximately $212,000 has been added to the debenture’s outstanding principal.

 

1.5% Secured Promissory Note

 

On January 14, 2011, Ronco issued a secured promissory note in the amount of $11,000,000 and issued a $10,000,000 promissory note (“Contingent Promissory Note”) to finance the acquisition of certain of Ronco Acquisition, LLC’s assets pursuant to an asset purchase agreement. The note required interest at 1.5% per annum paid quarterly in arrears and matured on June 14, 2012. Ronco defaulted on the secured note on June 14, 2012 due to non payment. As a result of the default, the interest rate increased to 8%. The collateral for the secured note is substantially all of Ronco’s assets. The outstanding principal balance as of September 30, 2014 is $8,620,000. The contingent promissory note is further discussed below.

 

Contingent Promissory Note

 

The contingent promissory note is non-interest bearing and was issued in a conditional amount not to exceed $10,000,000 with contingent payments. On December 5, 2013, Ronco amended and restated the contingent promissory note’s contingent principal amount from $10,000,000 to $3,770,000 and modified the payment timing to the earlier of December 5, 2017 or the 3 year anniversary of the purchase of the secured note by any third party approved by Ronco from the holder of the secured note. As of December 5, 2013, this obligation became probable and estimable and, therefore, Ronco recorded the contingent promissory note as additional purchase price consideration as it was originally issued in connection with the acquisition of certain of Ronco Acquisition, LLC’s assets. Since the contingent promissory note is a zero interest loan, Ronco imputed interest at the Company’s borrowing rate of 18% and calculated a discount in the amount of approximately $1,925,000. Ronco accretes this discount to interest expense using the effective interest method.

 

18% Promissory Notes

 

On March 15, 2013, Ronco entered into a promissory note for $200,000. The promissory note's interest rate is 18% per annum and is payable monthly in arrears. On September 26, 2013, this promissory note was amended to provide for additional loan proceeds of $250,000. The note's principal amount was amended to $450,000 and all other terms and conditions remained unchanged. The note matured on March 14, 2014 with an outstanding principal balance of approximately $445,000 and is currently in default due to non payment.

 

On June 30, 2013, Ronco entered into a promissory note for $1,100,000. The promissory note's interest rate is 18% per annum and is payable monthly in arrears. The note matured on June 30, 2014 and is currently in default due to non payment.

 

Forbearance Agreement

 

On March 7, 2014, Ronco and certain creditors (“Creditor Parties”) entered into a Forbearance Agreement whereby each creditor will forbear from exercising its rights and remedies under the 1.5% Secured Promissory Note for up to 1 year provided Ronco does not default on the forbearance agreement. The occurrence of any one or more of the following events during the forbearance shall constitute a forbearance default: (1) Any representation or warranty of any company under the forbearance agreement shall be false, misleading or incorrect in any material respect; (2) Any person, other than the Creditor Parties, shall at any time exercise for any reason any of its rights or remedies against Ronco or any of Ronco’s assets to the extent that the exercise of such rights or remedies by such person could be reasonably be expected to result in a material adverse effect on Ronco or on the property or assets of Ronco, or on any of the Creditor Parties interests; (3) Failure to comply with convenants of the agreement.

 

Material covenants of the agreement are as follows:

 

·Ronco shall use its reasonable best efforts to preserve intact its business organization and business relationships, and to operate its business in the ordinary course and to maintain its books, and records and accounts in accordance with generally accepted accounting principles, consistently applied.

 

·Ronco shall not take any of the following actions without the prior written consent of Creditor Parties’ agent:

 

a)Sell, exchange, lease, transfer, assign or otherwise dispose of any assets, properties or rights of Ronco, except (i) sales of inventory in arm’s length transactions, (ii) the grant of licenses of any intellectual property, (iii) the sale of obsolete and worn-out equipment, in each case in the ordinary course of Ronco’s business and consistent with past practice;

 

b)Assume, incur or guarantee any indebtedness or modify the terms of any existing indebtedness;

 

c)Mortgage, pledge or subject to liens any assets, properties or rights of Ronco or related to the Ronco business;

 

d)Be party to any merger, acquisition, consolidation, recapitalization, liquidation, dissolution, reorganization or similar transaction involving Ronco.

 

See Financial Instrument Transactions and Extinguishment of Debt sections of Note 18 for discussion on the Company’s subsequent period acquisition of this note and the resulting gain on extinguishment.