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12. Certain Relationships and Related Transactions
12 Months Ended
Dec. 31, 2017
Related Party Transactions [Abstract]  
Certain Relationships and Related Transactions

The following is a summary of transactions to which the Company and certain officers and directors of the Company are a party or have a financial interest. The Board of Directors of the Company has adopted a policy that all transactions between the Company and its officers, directors, principal shareholders and other affiliates must be approved by a majority of the Company’s disinterested directors, and be conducted on terms no less favorable to the Company than could be obtained from unaffiliated third parties.

 

In December 2015, the Company borrowed $100,000 from Paul W. Mobley and $75,000 from A. Scott Mobley, two officers of the Company, which were evidenced by promissory notes that were originally to mature in January 2017. In January 2016, $25,000 of the previous borrowing from A. Scott Mobley was repaid. In February 2016, A. Scott Mobley loaned the Company another $10,000, evidenced by a promissory note. In April 2016, the Company borrowed an additional $150,000 from Paul W. Mobley, evidenced by a promissory note. Proceeds were used for working capital. In conjunction with the loan from Super G, as described below, Paul W. Mobley subordinated his $250,000 note and A. Scott Mobley subordinated his $60,000 note to the Super G loan and agreed to extend the maturity of those notes to June 10, 2018. Interest on the notes were payable at the rate of 10% per annum paid quarterly in arrears and the loans are unsecured. In January 2017, the Company borrowed $600,000 from Paul W. Mobley at an interest rate of 7% per annum payable quarterly in arrears. The loan was to mature in March 2018. These loans were all repaid in conjunction with the refinancing of the Company's debt in September 2017.

 

Of the 48 units sold in the private placement which began in October 2016, three units were purchased by Paul W. Mobley, Executive Chairman, and four units were purchased by Marcel Herbst, Director. Each unit consists of a Note in the principal amount of $50,000 and a Warrant to purchase 50,000 shares of the Company’s common stock. These transactions were all done on the same terms and conditions as all of the independent investors who purchased the other 41 units.

 

The Company executed a franchise agreement for three stand-alone take-n-bake retail outlets during 2012 in which the franchisee was partially owned by certain officers of the Company, however, these individuals were not involved in the management of the franchisee’s operations, which had been used primarily to support research and development by the Company in those three franchised locations. The Company was supporting that franchise because it was using those franchised locations for testing and development in an attempt to improve the stand-alone take-n-bake concept for future franchising before the Company made the decision in the third quarter of 2016 to discontinue that concept, resulting in a loss after-tax benefit related to that entity of $505,000. The Company has no exposure to loss related to this entity in the future. Neither the Company, nor any officers of the Company, have guaranteed any obligations of the franchisee. While the franchisee was determined to be a variable interest entity, as defined by accounting principles generally accepted in the United States, management determined that the Company had a significant variable interest but did not have the power to direct the activities of the variable interest entity that most significantly impact its economic performance. Therefore, the Company was not the primary beneficiary of the franchisee, and as such, was not required to present consolidated financial statements with the franchisee.