NOTES PAYABLE | 9 Months Ended |
Sep. 30, 2014 |
NOTES PAYABLE [Abstract] | |
NOTES PAYABLE | NOTE 6 – NOTES PAYABLE | | | | | | | | |
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The Company’s long-term borrowings consist of the following at September 30, 2014, and December 31, 2013, respectively (in thousands): |
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| | September 30, | | | December 31, | |
| | 2014 | | | 2013 | |
Notes payable to related party | | | 1,867 | | | | 1,567 | |
Notes payable to affiliate | | | 587 | | | | |
Notes payable to bank | | | | | | 900 | |
Revolving loan | | | | | | 250 | |
Total debt | | | 2,454 | | | | 2,717 | |
Less: current portion | | | (2,404 | ) | | | (1,150 | ) |
Total long-term debt | | $ | 50 | | | $ | 1,567 | |
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Following its acquisition by the Company, Pulse Systems was a party to that certain Loan and Security Agreement, as amended (the “Loan Agreement”), with Fifth Third Bank, which related to a revolving loan not to exceed $0.5 million and a term loan. Effective July 31, 2014, the Loan and Security Agreement between Fifth Third Bank and Pulse Systems was amended due to an event of default by the Company. The amended agreement required repayment of the revolving loanand the term loan balances on or before August 15, 2014. |
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On August 15, 2014, Tonaquint, Inc., a Utah corporation (“Tonaquint”), entered into a Non-Recourse Loan Sale Agreement with Fifth Third Bank. Tonquint is an affiliate of John Fife, CEO, President, and Chairman of the Board of Directors of United American Healthcare Corporation. Pursuant to the terms of the Non-Recourse Loan Sale Agreement, Tonaquint purchased the debt that the Company owed to Fifth Third Bank for approximately $753,000 (includes principal, accrued interest and fees). The principal balances of the term loan and revolving loan as of the date of the sale were $333,333 and $405,299, respectively. Term loan and revolving loan interest is payable to Tonaquint on a monthly basis. The term loan interest is calculated based on LIBOR plus 4.00% and principal payments of $167,667 are due quarterly through December 31, 2014. The term loan effective interest rate is 4.19% as of September 30, 2014. The revolving loan interest is calculated based on LIBOR plus 3.75% The Tonaquint revolving loan and Tonaquint term loan are both secured by a lien on all of the assets of Pulse Systems. The Loan Agreement contains financial covenants. At September 30, 2014, the Company was in default in certain financial covenants within the Loan Agreement. The Tonaquint revolving and term loans are in default. |
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At December 31, 2013, $0.3 million was outstanding under the Fifth Third Bank revolving loan and $0.9 million was outstanding under the Fifth Third Bank term loan. |
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On September 28, 2011, the Company issued a Promissory Note (the “Promissory Note”) to St. George, an affiliate of John M. Fife, who is the Company’s Chairman, President and Chief Executive Officer, in exchange for a loan in the amount of $400,000 made by St. George to the Company. The Company used the proceeds of the loan for working capital purposes. Interest on the Promissory Note accrued at an annual rate of 10%. Principal and interest payments were due at the maturity date of December 31, 2014, or if the Company were to sell substantially all of its assets before then. However, the Company can pay, without penalty, the Convertible Note before maturity. In the case of default, St. George can convert all or part of the principal amount and the unpaid interest into newly issued shares of the Company’s common stock. The initial conversion price was $0.0447 per share. |
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On December 9, 2011, the Company issued a Promissory Note (the “Second Promissory Note”) in favor of St. George, in exchange for a loan in the amount of $300,000 made by St. George to the Company. The Company used the proceeds of the loan for working capital purposes. Interest on the Second Promissory Note accrues at an annual rate of 10%. No payments of principal or interest on the Second Promissory Note are due until the Second Promissory Note matures, which is on the earlier of (a) December 31, 2014, or (b) the date of (i) the sale of all or substantially all of the assets of the Company or Pulse Systems, (ii) the merger of the Company or Pulse Systems, LLC, or (iii) the sale of all or substantially all of the equity of the Company or Pulse Systems, LLC. Only upon an event of default (as defined in the Second Promissory Note), the holder of the Second Promissory Note may elect to convert all or any part of the outstanding principal of, and the accrued but unpaid interest on, the Second Promissory Note into newly issued shares of common stock of the Company at an initial conversion price of $0.0226 per share. |
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On February 9, 2012, the Company issued a Promissory Note (the “Third Promissory Note”) in favor of St. George, in exchange for a loan in the amount of $350,000 made by St. George to the Company. The Company used the proceeds of the loan for working capital purposes. Interest on the Third Promissory Note accrues at an annual rate of 10%. No payments of principal or interest on the Third Promissory Note are due until the Third Promissory Note matures, which is on the earlier of (a) December 31, 2014, or (b) the date of (i) the sale of all or substantially all of the assets of the Company or Pulse Systems, (ii) the merger of the Company or Pulse Systems, LLC, or (iii) the sale of all or substantially all of the equity of the Company or Pulse Systems, LLC. Only upon an event of default (as defined in the Third Promissory Note), the holder of the Third Promissory Note may elect to convert all or any part of the outstanding principal of, and the accrued but unpaid interest on, the Third Promissory Note into newly issued shares of common stock of the Company at an initial conversion price of $0.01903 per share. |
On May 16, 2012, the Company issued a Promissory Note (the “Fourth Promissory Note”) in favor of St. George, in exchange for a loan in the amount of $75,000 made by St. George to the Company. The Company used the proceeds of the loan for working capital purposes. Interest on the Fourth Promissory Note accrues at an annual rate of 10%. No payments of principal or interest on the Fourth Promissory Note are due until the Fourth Promissory Note matures, which is on the earlier of (a) December 31, 2014, or (b) the date of (i) the sale of all or substantially all of the assets of the Company or Pulse Systems, (ii) the merger of the Company or Pulse Systems, LLC, or (iii) the sale of all or substantially all of the equity of the Company or Pulse Systems, LLC. Only upon an event of default (as defined in the Fourth Promissory Note), the holder of the Fourth Promissory Note may elect to convert all or any part of the outstanding principal of, and the accrued but unpaid interest on, the Fourth Promissory Note into newly issued shares of common stock of the Company at an initial conversion price of $0.01793 per share. |
On August 14, 2012, The First, Second, Third and Fourth Promissory Notes were amended to make the indebtedness evidenced by each Promissory Note secured by a) all the assets of the Company, and b) all of the Company's ownership interest in Pulse pursuant to the terms of the St. George Pledge Agreement. |
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On August 14, 2012, the Company issued a Promissory Note (the "Fifth Promissory Note") in favor of St. George, in exchange for a loan in the amount of $370,000 made by St. George to the Company. Loan proceeds from the Fifth Promissory Note were transferred by the Company to Pulse. The initial conversion price of the Fifth Promissory Note is $0.010277667. As required by the Purchase Agreement, Pulse entered into that certain Security Agreement by and between Pulse and St George dated August 14, 2012 ("Pulse Security Agreement'), thereby securing the Fifth Promissory Note and the Prior Promissory Notes with all of the assets of Pulse. Pulse also unconditionally guaranteed repayment of and the Fifth Promissory Note Prior Notes by executing that certain Guaranty dated August 14, 2012, in favor of St George ("Pulse Guaranty"). |
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On October 10, 2012, the Company issued a Promissory Note (the "Sixth Promissory Note") in favor of St. George, a related party, in exchange for a loan in the amount of $50,000 made by St. George to the Company. The Company used the proceeds of the loan for working capital purposes. Interest on the Sixth Promissory Note accrues at an annual rate of 10%. No payments of principal or interest on the Sixth Promissory Note are due until the Sixth Promissory Note matures, which is on the earlier of (a) December 31, 2014, or (b) the date of (i) the sale of all or substantially all of the assets of the Company or Pulse Systems, (ii) the merger of the Company or Pulse Systems, LLC, or (iii) the sale of all or substantially all of the equity of the Company or Pulse Systems, LLC. Only upon an event of default (as defined in the Sixth Promissory Note), the holder of the Sixth Promissory Note may elect to convert all or any part of the outstanding principal of, and the accrued but unpaid interest on, the Sixth Promissory Note into newly issued shares of common stock of the Company. The conversion price is $0.004323 per share. On May 31, 2013, this note was assigned to The Dove Foundation, a charitable trust organized under the laws of Illinois (“Dove Foundation”), which is a principal shareholder of the Company. |
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On October 10, 2013, the Company issued a Promissory Note (the "Seventh Promissory Note") in favor of St. George in exchange for a loan in the amount of $50,000 made by St. George to the Company. The Company used the proceeds of the loan for working capital purposes. Interest on the Seventh Promissory Note accrues at an annual rate of 10%. No payments of principal or interest on the Seventh Promissory Note are due until the Seventh Promissory Note matures, which is on the earlier of (a) December 31, 2015, or (b) the date of (i) the sale of all or substantially all of the assets of the Company or Pulse Systems, (ii) the merger of the Company or Pulse Systems, LLC, or (iii) the sale of all or substantially all of the equity of the Company or Pulse Systems, LLC. Only upon an event of default (as defined in the Seventh Promissory Note), the holder of the Seventh Promissory Note may elect to convert all or any part of the outstanding principal of, and the accrued but unpaid interest on, the Seventh Promissory Note into newly issued shares of common stock of the Company. The initial conversion price is $0.09614 per share. |
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If the Company issues any convertible security with a conversion price lower than that of the promissory notes issued by the Company to St. George, discussed above, the conversion prices for those promissory notes automatically reduces to the lower conversion price. Accordingly, the current conversion price for the Promissory Note, the Second Promissory Note, the Third Promissory Note, the Fourth Promissory Note, the Fifth Promissory Note and the Sixth Promissory Note is $0.004323 per share of the Company’s common stock. If the Company were to default on the promissory notes, and if St. George and Dove Foundation were then to elect to convert the $1,595,000 initial aggregate principal amount of the promissory notes, the Company would be obligated to issue to St. George 346,344,734 shares of common stock and Dove Foundation 11,566,042 shares of common stock. These share issuances would exceed the number of the Company’s authorized shares of common stock that are available to be issued. An issuance of all of the Company’s remaining authorized but unissued shares of common stock to St. George would be highly dilutive to the other holders of the Company’s common stock. |
The Company and St George entered into that certain Pledge and Security Agreement dated August 14, 2012 ("St George Pledge Agreement"), thereby providing that the Fifth Promissory Note is secured by all of the Company's ownership interests in its subsidiary, Pulse. The Fifth Promissory Note is also secured by all of the assets of the Company pursuant to that certain Security Agreement between the Company and St George dated August 14, 2012 ("St George Security Agreement"). St George required Pulse to guarantee repayment of the Fifth promissory Note and the Prior Notes, and to secure all such indebtedness by all of the assets of Pulse. As such, Fifth Third Bank and St George entered into that certain Subordination Agreement dated August 17, 2012 ("Subordination Agreement"), thereby indicating that Fifth Third Bank was in a first lien position, and St George was in a subordinate lien position. St George was also required to execute that certain Membership Interest Pledge Agreement dated August 17, 2012, in favor of Fifth Third, thereby pledging to Fifth Third all of its preferred units in Pulse ("Preferred Unit Pledge Agreement"). Subsequent to Tonaquint’s August 15, 2014 purchase of the Company debt owed to Fifth Third Bank, Tonaquint became the first lien holder. |
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On June 25, 2013, the Company issued 5,600,000 to St. George, at a price of $0.004323 per share, representing $24,208.80 of the outstanding balance of the Fifth Promissory Note. In addition, the Company issued 875,000 shares of its common shares to Dove Foundation, a related party, in lieu of cash, at a price of $0.004323 per share, representing $3,782.63 of the outstanding balance of the Sixth Promissory Note. |
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On July 7, 2014, Pulse Systems issued a Promissory Note in favor of Wacker Services Corp, an entity owned by Karl Fife, a board member of the Company, in exchange for a loan in the amount of $300,000. The loan was payable on September 30, 2014 with interest of 8% per annum. The loan was not paid by its maturity date and is in default. |
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Interest expense was approximately $0.1 million and $0.4 million for nine months ended September 30, 2014 and 2013, respectively. There was no accrued interest as of September 30, 2014 and December 31, 2013. |