Related Party Transactions

9 Months Ended

Sep. 30, 2013

Note 2

Related Party Transactions

The Company had a note payable to a related party, TGE, in the amount of $-0- and $44,121 as of September 30, 2013 and December 31, 2012, respectively, bearing interest at a rate of 8.25%. All outstanding principal and interest was originally due and payable on December 15, 2010 and such date was extended several times to January 15, 2014. Effective May 31, 2013, the Company sold all of its assets relating to its vibration isolation products to TGE for a price of $62,161, which was the outstanding principal balance and accrued interest on the note due as of May 31, 2013. The assets included the existing product inventory and other assets, which was $1,155 and $474, respectively, at May 31, 2013, assembly devices, drawings, trade name and related intellectual property. The note payable to TGE has been satisfied by the exchange of the note for the assets, which extinguished the Company’s obligation to TGE. AVT had granted the Company a non-exclusive world-wide license to sell its products under the patents AVT held (“AVT License”). The AVT License terminated on December 31, 2012 because AVT sold its business to a third party that is a competitor with the products of Aurios. As a result, earlier this year the Company indicated that it intended to sell its remaining inventory and this transaction helped the Company achieve this goal, as well as reduce its debt. Given the related party nature of the debt, the debt extinguished in excess of the carrying value of the assets was recorded as a contribution to capital.

On March 26, 2010, TGE, the Company’s affiliate and former parent, assigned the Company its federally registered trademark “Aurios” in consideration for a payment of $100. On April 1, 2010, TGE assumed ownership from the Company of all parts and raw materials maintained in the inventory. At which point, the Company maintained only a finished goods inventory. Total purchases from TGE for the nine months ended September 30, 2013 and 2012 were $0 and $6,090, respectively.

On December 15, 2010, the Company issued convertible promissory notes in the amount of $10,000 each to Ira J. Gaines, Paul Attaway, and Christian J. Hoffmann, III, all of whom are principal shareholders of the Company, for a total of $30,000 that they loaned to the Company. Each note bears interest at a rate of 6.0% per annum with principal and interest due on December 14, 2011. In December 2011, the maturity dates of the notes, along with accrued interest, were extended to December 14, 2012, which were subsequently extended to December 15, 2013. The notes and any accrued interest are convertible into common stock of the Company at a rate of $0.30 per share. As of September 30, 2013 and December 31, 2012, there was accrued interest on the notes of $4,482 and $3,721, respectively. In addition, each note holder was issued 33,333 common stock warrants for a total of 99,999 warrants. The warrants vested immediately, have an exercise price of $0.30 per share and have a ten-year term expiring December 14, 2020. As a result of the warrants and the conversion feature, a discount was recorded on the debt in the amount of $15,000. The discount was amortized over the one-year term of the debt. During the nine months ended September 30, 2013 and 2012, the Company recorded interest expense related to the discount of nil. As of September 30, 2013 and December 31, 2012, there was no unamortized discount netted against the carrying amount of the debt.

During the nine months ended September 30, 2013 and 2012, the Company paid nil and $13,583, respectively, in legal services to a law firm in which Christian J. Hoffmann, III, a principal stockholder of Aurios is a partner. He also performed or supervised the legal services rendered by his law firm. Such firm has ceased to represent the Company. As of September 30, 2013 and December 31, 2012, the Company owed the law firm $70,897 and $58,760, respectively. In addition, on December 31, 2010, the Company issued a note to such firm representing $44,248 in outstanding invoices that the Company owed. The note bears interest at a rate of 3.0% per annum, with all outstanding principal and interest due on January 15, 2012, or earlier upon the occurrence of certain events. The maturity date of the note was subsequently extended to January 15, 2014. The note is convertible into shares of the Company’s common stock at a rate of $0.30 per share. As of September 30, 2013 and December 31, 2012, there was accrued interest on the note of $3,702 and $2,695, respectively. The law firm was also issued 147,490 common stock warrants, which vested immediately, have an exercise price of $0.30 per share, and have a ten-year term expiring December 30, 2020. As a result of the warrants and the conversion feature, a discount was recorded on the debt in the amount of $22,124. The discount was amortized over the one-year term of the debt. During the nine months ended September 30, 2013 and 2012, the Company recorded interest expense related to the discount of $0 and $1,702, respectively. As of September 30, 2013 and December 31, 2012, there was no unamortized discount netted against the carrying amount of the debt.

On August 14, 2012, Ira J. Gaines, Paul Attaway and Christian J. Hoffmann III, all of whom are principal shareholders of the Company, advanced a total of $6,820 to the Company. Each advance bears interest at a rate of 6.0% per annum, with principal and interest due on September 14, 2013, which was subsequently extended to January 15, 2014. The notes and accrued interest on the notes are convertible into common stock of the Company at a price of $0.30 per share.

On November 26, 2012, Ira J. Gaines, Paul Attaway and Christian J. Hoffmann, III, all of whom are principal shareholders of the Company, advanced a total of $7,000 to the Company. Each advance bears interest at a rate of 6% per annum, with principal and interest due on November 26, 2014. The notes and accrued interest on the notes are convertible into common stock of the Company at a rate of $0.30 per share. As of September 30, 2013 and December 31, 2012, there was combined accrued interest on the August and November loans in 2012 from Gaines, Attaway and Hoffmann of $622 and nil.

On April 12, 2013, Ira J. Gaines, Paul Attaway and Christian J. Hoffmann, all of whom are principal shareholders of the Company, each advanced $1,500 to the Company, for a total of $4,500. Each advance bore interest at the rate of 6% per annum with principal and interest due December 31, 2013. The Company repaid these advances plus accrued interest in full in September 2013.

A schedule of minimum future principal payments on the above notes payable is as follows:

Period Ending September 30,	Principal Amount
2014	$	81,068
2015		7,000
	$	88,068

- Definition

The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References+ Details

Aurios Inc. 10-Q