RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2020

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

23. RELATED PARTY TRANSACTIONS

a. The Company and AVLP entered into a Loan and Security Agreement (“AVLP Loan Agreement”) with an effective date of August 21, 2017, pursuant to which the Company will provide AVLP a non-revolving credit facility of up to $10,000,000 for a period ending on August 21, 2021, subject to the terms and conditions stated in the Loan Agreement, including that the Company having available funds to grant such credit. At September 30, 2020, the Company has provided loans to AVLP in the principal amount $10,153,661 and, in addition to the 12% convertible promissory notes, AVLP has issued to the Company warrants to purchase 20,306,921 shares of AVLP common stock. Under the terms of the AVLP Loan Agreement, any notes issued by AVLP are secured by the assets of AVLP. As of September 30, 2020, the Company recorded contractual interest receivable attributed to the AVLP Loan Agreement of $2,025,475 and a provision for loan losses of $5,159,910.

During the nine months ended September 30, 2020 and the year ended December 31, 2019, the Company also acquired in the open market 5,000 shares of AVLP common stock for $1,274 and 91,000 shares of AVLP common stock for $53,032, respectively. At September 30, 2020, the Company’s investment in AVLP common stock had an unrealized loss of $488,049.

Philou is AVLP’s controlling shareholder. Mr. Ault is Chairman of AVLP’s Board of Directors and the Chairman of the Board. Mr. William B. Horne is the Chief Financial Officer and a director of AVLP and the Company.

In March 2017, the Company was awarded a $50 million purchase order by MTIX to manufacture, install and service the Multiplex Laser Surface Enhancement (“MLSE”) plasma-laser systems. On April 12, 2019, the Company received payment of $2,676,219 for manufacturing services performed during the year ended December 31, 2018 on the first MLSE system. At September 30, 2020, the Company had recorded a receivable from MTIX of $1,238,856.

b. At September 30, 2020, the Company has provided a loan to Alzamend in the principal amount $50,000 and, in addition to the 8% convertible promissory notes, Alzamend has issued to the Company warrants to purchase 16,667 shares of Alzamend common stock at an exercise price of $3.00 per share for a period of five years. The warrants were determined by the issuer to be derivative financial instruments. At September 30, 2020, the Company recorded a cumulative unrealized loss on its investment in warrants of Alzamend of $111, representing the difference between the cost basis and the estimated fair value of the warrants in the Company’s accumulated other comprehensive income in the stockholder's equity section of the Company’s consolidated balance sheet. The Company recorded interest on an accrual basis and recognized it as earned in accordance with the contractual terms of the convertible promissory notes, to the extent that such amounts are expected to be collected. During the three and nine months ended September 30, 2019, the Company recorded $1,968 of interest income for the discount accretion and $329 of interest income from the contractual 8% rate provided for by the convertible promissory notes.

During the nine months ended September 30, 2020 and year ended December 31, 2019, the Company also acquired 11,325 shares of Alzamend common stock for $9,060 and 372,625 shares of Alzamend common stock for $208,100, respectively. At September 30, 2020, the estimated fair value of Alzamend’s common stock was $1.50. The Company has determined that its investment in Alzamend marketable equity securities should be accounted for in accordance with ASC No. 820, Fair Value Measurements and Disclosures and based upon the estimated fair value of Alzamend common stock at September 30, 2020, the Company’s investment in AVLP common stock had an unrealized gain of $358,765.

Mr. Ault is Executive Chairman of Alzamend’s Board of Directors and the Chairman of the Board. Mr. William B. Horne and Mr. Henry Nisser are directors of Alzamend and the Company. Mr. Kenneth S. Cragun is Chief Financial Officer of Alzamend and the Company.

c. During the nine months ended September 30, 2020, Ault & Company, Inc. (“Ault & Company”) has provided $422,758 in short-term advances, net of repayments. Ault and Company is the Manager of Philou which presently owns 125,000 shares of the Company’s Series B Preferred Stock. Mr. Ault and Mr. Horne serve as the Chief Executive Officer and Chief Financial Officer, respectively, of Ault & Company.

d. On December 22, 2019, the Company entered into a securities purchase agreement with Ault & Company. Pursuant to the terms of the agreement, Ault & Company purchased an aggregate of 660,667 shares of the Company’s common stock for a total purchase price of $739,948, at a purchase price per share of $1.12, subject to the approval of the NYSE American. The NYSE American approved the purchase on January 15, 2020.

e. On February 5, 2020, the Company issued an 8% convertible promissory note in the principal amount of $1,000,000 and a maturity date of August 5, 2020 to Ault & Company (see Note 20). On August 20, 2020, the Company issued 413,793 shares of its common stock upon the conversion of $600,000 in principal on the Ault & Company Convertible Note.

f. Ault & Company guaranteed the prompt and complete payment and performance of the Dominion Short-Term Promissory Note, which was purchased by Esousa, with a principal face amount of $2,900,000.

g. Milton C. Ault, III, the Company’s Chairman and Chief Executive Officer and MCKEA guaranteed the Company’s obligation to repay a 12% January 2020 short-term promissory note in the principal amount of $235,796. MCKEA is the majority member of Philou and Kristine L. Ault, a former director and the wife of Mr. Ault III, is the manager and owner of MCKEA.