Related Party Transactions | NOTE 10. RELATED PARTY TRANSACTIONS Related party transactions consist of the following: December 31, 2019 December 31, 2018 Related party payables Accrued compensation $ 796,175 $ 869,859 [1] Accrued benefits and cash advances 312,305 134,861 Total related party payables 1,108,480 1,004,720 Debentures, convertible 411,006 Notes payable, related party, convertible 491,100 491,100 Notes payable, related party 759,446 Total related party transactions $ 2,359,026 $ 1,906,826 [1] As of December 31, 2019 and 2018, respectively, related parties are due a total of $2,359,026 1,906,826 Related party convertible debt consists of the following: Note Holder Principal APR Accrued Interest Conversion Price Term/Due Convertible promissory notes: Huntington Chase, Beneficial Owner $ 491,100 7% $ 9,795 $0.08 12/31/2023 During the years ended December 31, 2019 and 2018, respectively, $1,586,724 and $1,371,446 in related party compensation was accrued, $802,500 and $510,500 was paid, $753,510 and $0 was converted to Common Stock; and $0 and $450,000 was converted to Preferred Stock. During the years ended December 31, 2019 and 2018, respectively, $399,249 and $104,151 in benefits were accrued and cash advances were made to the Company by related parties for overhead requirements, of which $221,805 and $97,587 was paid/repaid to related parties. In June 2019, $575,132 of related party debt was purchased by non-related-parties (the Proceeds). The Proceeds were collected from the non-related parties by the Company on behalf of the related parties. The Proceeds were subsequently loaned to the Company by the related parties for operating expenses, including accrued compensation owed. Promissory Notes On September 30, 2015, the Company issued a modified convertible promissory note in the principal sum of $631,100, representing cash loans and unpaid compensation to a related party, of which principal repayments in the aggregate of $100,000 were made in prior years, and $40,000 of which was converted into Common Stock in prior years. The note bears interest at a rate of 7% per annum, and contains a repayment provision to convert the debt into restricted shares of the Companys Common Stock at a price of $0.10 per share. On December 31, 2018, the note was modified to 1) reduce the principal balance to $491,100; and 2) mature December 31, 2023. During the year ended December 31, 2019, the note holder converted $437,000 in principal into 4,370,000 shares of the Companys Common Stock. Subsequently, the holder loaned the Company $437,000. As a result, the principal balance was not affected. However, on December 31, 2019, the promissory note was modified to change the conversion price to $0.08. Between April 26, 2018 and May 8, 2018, the Company issued senior secured convertible promissory notes (the Notes) to a related party in the aggregate principal sum of $337,750, along with 3,377,500 warrants (Note 14). Upon issuance, the Notes were discounted by a total of $337,750, representing $123,850 for beneficial conversion feature, and $213,900 for fair value of warrants. During the year ended December 31, 2018, a total of $6,409 in debt accretion was expensed. The Notes bore interest at rate of 12% per annum, contained a repayment provision to convert the Notes into restricted shares of the Companys Common Stock at a price of $0.10 per share, and included warrant coverage for a period of three (3) years to purchase shares of the Companys Common Stock at an exercise price of $0.10 per share. Effective November 14, 2018, the Notes and related accrued interest of $34,090 were exchanged into convertible debentures (Debentures) in the principal amount of $428,132, at which time $17,125 was reclassified as a derivative liability for embedded conversion option, $135,100 was reclassified to equity for the intrinsic value of warrants issued with the Notes, and $252,533 was recognized as a loss on extinguishment of the Notes. The Debentures bore interest at a rate of 10% per annum, matured February 28, 2019, and were convertible into shares of the Companys restricted Common Stock at a conversion rate of $0.12 per share. On July 25, 2019, the Debentures in the principal sum of $411,006, plus accrued interest of $42,778, were converted to non-convertible Senior Secured Promissory Notes (the Senior Notes) in the aggregate principal of $759,446. The Senior Notes bear interest at a rate of 8% per annum, with payments of $126,152 plus interest accrued thereon due December 31, 2019; $300,000 due December 31, 2020; and the remaining principal and accrued interest due December 31, 2021. In connection with the exchange, the Company issued the following in favor of the lender: 1,380,811 shares of the Companys restricted Common Stock, valued at $131,315; and warrants, valued at $92,150, to purchase 2,528,413 shares of the Companys Common Stock for a period of five (5) years at an exercise price of $0.10461. As a result, the Company recognized a net loss on the exchange in the amount of $434,837, net of $2,140 in derivative liability remaining from the warrants issued with the Debentures. As of December 31, 2019 and 2018, respectively, related party promissory notes in the amount of $1,250,546 and $491,100 are owed, of which $491,100 and $491,100 are convertible. During the years ended December 31, 2019 and 2018, respectively, interest in the amount of $105,111 and $66,840 was expensed, $0 and $798 was paid to the note holders in cash, $100,132 and $0 was converted to restricted shares of the Companys Common Stock, and $42,778 and $71,839 was converted to principal. As of December 31, 2019 and 2018, respectively, a total of $36,261 and $74,060 in accrued interest remains and is included as part of accrued expenses on the accompanying consolidated balance sheets. Stock Issuances On January 11, 2018, pursuant to a resolution of the board of directors, the Company issued 6,000,000 shares of its restricted Common Stock to certain officers and directors. The shares were purchased at par, or $0.001 per share, for cash in the amount of $6,000. On August 13, 2018, in connection with the exercise of certain employee stock options, the Company issued 1,071,430 shares of its restricted Common Stock at a conversion rate of $0.05 per share. The shares were issued on a cashless basis, resulting in a net value of $187,500. On September 30, 2018, in connection with the Series C convertible Preferred Stock equity offering (Note 11), three officers of the Company were issued an aggregate of 90,000 Series C preferred shares at a price of $5.00 per share in exchange for accrued compensation in the aggregate of $450,000. Upon issuance, a beneficial conversion feature of $100,578 was recorded as a deemed dividend. In connection with the Series C preferred shares, the officers were also issued an aggregate of 1,250,000 warrants, valued at an aggregate of $75,000, and exercisable for a period of three (3) years at an exercise price of $0.25 per share. On May 15, 2019, in connection with a certain employment agreement with Mr. David Appell, the Company issued 3,000,000 shares of its restricted Common Stock, valued at $201,300, of which 25% vest immediately, and the remainder vest when certain earnings goals are met. On July 31, 2019, in connection with the settlement of certain related party convertible debentures, the Company issued 1,380,811 shares of its restricted Common Stock, valued at $131,315. In connection with the settlement, the related parties were also issued an aggregate of 2,528,413 warrants, valued at an aggregate of $92,150, and exercisable for a period of five (5) years at an exercise price of $0.10 per share On September 18, 2019, in connection with the conversion of certain convertible debt in the amount of $437,000, the, Company issued 4,370,000 shares of its restricted Common Stock, to Huntington Chase, LLC, a beneficial owner. On September 30, 2019, in connection with a Simple Agreement Future Equity (SAFE) offering, the Company issued 6,000,000 shares of its restricted Common Stock to certain officers and directors in exchange for the reduction in accrued compensation in the aggregate of $375,000. In connection with the SAFE offering, the officers and directors were also issued an aggregate of 6,000,000 warrants, valued at an aggregate of $45,600, and exercisable for a period of three (3) years at an exercise price of $0.25 per share. On December 31, 2019, in connection with debt settlement agreements, the Company issued 8,000,000 shares of its restricted Common Stock to certain officers and directors in exchange for the reduction in accrued compensation in the aggregate of $400,000. Agreements On January 1, 2018, the Company entered into an Executive Agreement with its Chief Financial Officer. The agreement replaces any other written agreement with the Company, is for a term of one (1) year, with the option to extend, and includes annual compensation of $216,000 in year 1, as well as a bonus plan and customary executive benefits. In addition, the agreement provides for a non-refundable, fully-vested signing bonus of $100,000, as well as a grant of stock options to purchase 1,000,000 shares of the Company's Common Stock at an exercise price of $0.25 per share. The options are for a period of five (5) years, and vest quarterly over a one (1) year period. On January 1, 2018, the Company entered into a Consulting Agreement with Huntington Chase, LLC, whose managing member is a related party. The agreement replaces any other written agreement with the Company, is for a term of three (3) years, and includes monthly compensation of $25,000 in year 1; $30,000 in year 2, and $35,000 in year 3, of which the year 2 and 3 increases are deferred until completion of certain development projects, as well as customary expense allowances. In addition, the agreement provides for a grant of stock options to purchase 4,000,000 shares of the Company's Common Stock at an exercise price of $0.25 per share. The options are for a period of five (5) years, of which 25% vest immediately, and the remainder vest when certain market share prices of the Companys Common Stock are met. On January 1, 2019, the Company entered into a Consulting Agreement with JL Ogden & Company LLC, for the services of John L. Ogden, a member of the Companys board of directors, and Chair of the Audit Committee. The agreement is for a term of one (1) year, with the option to extend, and includes annual compensation in the amount of $60,000. In addition, the agreement provides for a non-refundable, fully-vested signing bonus of $50,000, a convertible promissory note in the amount of $20,000 maturing in one (1) year with an annual interest rate of ten percent (10%), a restricted stock award equal to $70,000 worth of Units in the Companys 2019 private placement offering, as well as a grant of stock options to purchase 1,000,000 shares of the Company's Common Stock at an exercise price of $0.25 per share. The options are for a period of five (5) years, and vest quarterly over a one (1) year period. On May 15, 2019, the Company entered into an employment agreement with Mr. David Appell to serve as the Companys Chief Operating Officer. The agreement is for an initial term of two (2) years, and provides a base compensation of $250,000 year one, and $275,000 in year two, as well as various performance bonuses, and customary employee benefits. In addition, the agreement includes a grant to purchase 3,000,000 restricted common shares, valued at $201,300, for cash in the amount of $3,000, of which 25% vest immediately, and the remainder vest when certain earnings goals are met; as well as options granted to purchase 3,000,000 shares of the Company's Common Stock at an exercise price of $0.25 per share. The options valued at $195,600 using the Black-Scholes method, are for a period of five (5) years, and vest annually over the term of the agreement, with an initial vesting of 25%. The assumptions used in valuing the options were: expected term 4.75 years, expected volatility 2.21, risk free interest rate 2.15%, and dividend yield 0%. |