3. STOCKHOLDERS' EQUITY
On January 15, 2014, the Company issued 3,401,360 shares of unregistered common stock in a private placement to Lone Star Value Investors, LP (Lone Star Value), an entity controlled by a former director and officer of the Company, for cash proceeds of $50,000
. The proceeds of this issuance were used to assist in funding the Company's operating expenses.
4. LOANS FROM SHAREHOLDER AND AFFILIATE
On June 6, 2014, a shareholder issued a promissory note to the Company in the amount of $50,000 (2014 Note). The proceeds of the 2014 Note are used for ongoing operating expenses. The 2014 Note bears interest at 10% per annum. Interest on the 2014 Note and the full amount of the principal is to be repaid on June 30, 2019.
On August 2, 2016, the Company issued a promissory note to an affiliate of a shareholder in the amount of $40,000 (2016 Note). The proceeds of the 2016 Note will be used for ongoing operating expenses. The 2016 Note bears interest at 10% per annum. Interest and principal on the 2016 Note is to be repaid on August 31, 2021, and all payments are subordinate to the payment of all outstanding amounts due under the 2014 Note.
During the three and nine months ended September 30, 2016, the Company recognized interest expense on the 2014 and 2016 Notes in the amount of $1,913 and $4,399, respectively. Total accrued interest on the loans is $12,262 as of September 30, 2016 and for this period is included as a long-term liability. Previously the interest was included a component of accounts payable and accrued expenses on the accompanying balance sheet.
5. SUBSEQUENT EVENTS
Effective November 11, 2016 Kyle Hartley resigned from his position as Chief Financial Officer, Secretary and Treasurer of the Company. Mr. Hartley's resignation was for personal reasons and not the result of any disagreementMs. Hannah Bible, a current director, was appointed, immediately following the effectiveness of Mr. Hartley's resignation, to the executive positions of Chief Financial Officer, Secretary and Treasurer of the Company, as well as Chairman of the Board of Directors.
Also effective November 11, 2016, Alexander Rosenbluth was appointed to the Company's board of directors to fill a vacancy on the board of directors.
On November 14, 2016, the Company submitted a Certificate of Amendment to the Restated Articles of Incorporation for filing with the Office of the Secretary of the State of Texas to identify the directors as Hannah Bible and Alexander Rosenbluth, each with an address c/o Reliability, Inc., 53 Forest Avenue, First Floor, Old Greenwich, Connecticut 06870. A copy of the Certificate of Amendment that was submitted to the Office of the Secretary of State of Texas is attached hereto as Exhibit 5.03
No other material subsequent events have occurred since September 30, 2016 that require recognition or disclosure in the financial statements.