Related Party Transactions

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Related Party Transactions

12.   Related Party Transactions

Lalit Dhadphale, the Company’s President and Chief Executive Officer, and Cape Bear Partners LLC, the beneficial owner of greater than 10% of the Company’s Common Stock, guaranteed Old HW’s obligations under certain Old HW convertible promissory notes with an original principal value of approximately $1,200,000, which notes were assumed by the Company in connection with the Securities Exchange Agreement (see Note 1). The guarantees state that Mr. Dhadphale and Cape Bear Partners LLC each guarantee the full payment of principal and interest under the notes. On January 5, 2011, the remaining convertible note balance under these notes was satisfied by conversion to common stock, and the guarantee was terminated.

Between December 15, 2009 and May 3, 2010, Mr. Dhadphale personally guaranteed the Company’s payment and other obligations under notes payable aggregating $1,015,000.  Mr. Dhadphale also entered into a Lock-up Agreement with the note holder prohibiting Mr. Dhadphale from selling or transferring 625,000 shares of the Company’s common stock until the Loans are repaid in full, subject to certain exceptions, such as gifts.  The Company satisfied the Loans in full on November 8, 2010 (see Notes 6 and 7), and Mr. Dhadphale’s personal guaranty and the Lock-Up Agreement were terminated.

Jason Smith is a manager of Rock Castle, a stockholder of the Company through September 2, 2011. Jason Smith is also the son of Dennis Smith, the controlling stockholder of Masters Pharmaceutical, Inc., one of the Company’s former suppliers.  The Company purchased from Masters Pharmaceutical, Inc., $618,768 and $959,847 of inventory, representing approximately 11% and 29% of total purchases during the years ended December 31, 2011 and 2010, respectively. Accounts payable due to Masters Pharmaceutical, Inc. at December 31, 2011 and 2010 was $0 and $215,858, respectively. At December 31, 2010, the Company also had accrued interest due to Masters Pharmaceuticals, Inc. of $17,000.

For the years ended December 31, 2011 and 2010, sales to Masters Pharmaceuticals were approximately 1.56% and 8.76%, respectively, of net sales.

During the year ended December 31, 2011, a stockholder advanced the Company $200,000, of which, $50,000 has been repaid as of December 31, 2011.

On September 12, 2010, the Company entered into a Promissory Note Agreement for $300,000 with a stockholder, at an interest rate of 5% per annum which became payable on demand as of  November 12, 2011.

During the year ended December 31, 2010, a stockholder advanced the Company $521,000, and the Company re-paid an aggregate of $535,000 to the stockholder.

During the year ended December 31, 2011, an officer advanced $60,000 in short term financing to the Company, of which $56,188 was repaid as of December 31, 2011.

Between June 2009 and April 2012, an employee who is the son of the managing member of a limited liability company that beneficially owns approximately 12% of the Company’s common stock received advances from the Company in various forms, including the provision of fulfillment services at no charge to a business partly owned by a member of his household.  As of December 31, 2011, the balance of these advances totaled $298,707, and additional advances of approximately $70,000 were made in 2012.  The directors determined that not all of these advances were approved in accordance with the Company’s policy on related party transactions, documented appropriately or recorded correctly in the Company’s accounting system.  As a result, the Company was not able to monitor the outstanding amount of these advances on a continuous basis. This employee has voluntarily resigned from the Company, made principal repayments of $235,000 through the date of this report, and agreed to repay the remaining balance by September 30, 2012 with interest based on the prime rate on the business day of the calendar quarter, and provided security for his repayment obligation.