Annual report pursuant to Section 13 and 15(d)

Convertible Notes Payable

v3.20.1
Convertible Notes Payable
12 Months Ended
Dec. 31, 2019
Convertible Notes Payable  
Note 7 - Convertible Notes Payable

The Company has the following convertible notes payable outstanding as of December 31, 2019 and 2018:

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

Secured convertible promissory notes which mature upon the retirement of the New AC Midwest Secured Debt, bear interest at 10% per annum, and are convertible into one share of common stock, par value $0.001 per share.

 

$ 990,000

 

 

$ 990,000

 

 

 

 

 

 

 

 

 

 

Unsecured convertible promissory notes which mature beginning on June 15, 2023, bear interest at 12% per annum, and are convertible into one share of common stock, par value $0.001 per share.

 

 

860,000

 

 

 

860,000

 

 

 

 

 

 

 

 

 

 

Unsecured convertible promissory notes which mature beginning on June 18, 2024, bear interest at 12% per annum, and are convertible into one share of common stock, par value $0.001 per share.

 

 

2,600,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total convertible notes payable before discount

 

 

4,450,000

 

 

 

1,850,000

 

 

 

 

 

 

 

 

 

 

Less discounts and debt issuance costs

 

 

(508,863 )

 

 

(89,430 )

 

 

 

 

 

 

 

 

 

Total convertible notes payable

 

 

3,941,137

 

 

 

1,760,570

 

 

 

 

 

 

 

 

 

 

Less current portion

 

 

(990,000 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Convertible notes payable, net of current portion

 

$ 2,951,137

 

 

$ 1,760,570

 

 

As of December 31, 2019, remaining scheduled principal payments due on convertible notes payable are as follows: 

 

Twelve months ended December 31,

 

 

 

2020

 

$ 990,000

 

2021

 

 

-

 

2022

 

 

-

 

2023

 

 

860,000

 

2024

 

 

2,600,000

 

thereafter

 

 

-

 

 

 

$ 4,450,000

 

 

As of December 31, 2019, the remaining future amortization of discounts are as follows:

 

Twelve months ended December 31,

 

Discounts

 

2020

 

$ 114,647

 

2021

 

 

114,334

 

2022

 

 

114,334

 

2023

 

 

105,477

 

2024

 

 

60,071

 

thereafter

 

 

-

 

 

 

$ 508,863

 

 

From July 30, 2013 through December 24, 2013, the Company sold convertible notes and warrants to unaffiliated accredited investors totaling $1,902,500. The notes bear interest at 10% per annum, are secured by the Company’s assets, and are convertible into one share of common stock, par value $0.001 per share, with the initial conversion ratio equal to $0.50 per share. The notes had an initial term of three years, but the maturity of the notes was extended during 2014 to match the retirement of the New AC Midwest Secured Debt. These securities were sold in reliance upon the exemption provided by Section 4(2) of the Securities Act and the safe harbor of Rule 506 under Regulation D promulgated under the Securities Act. Interest expense for the years ended December 31, 2019 and 2018, was $99,000 and $124,967, respectively. A discount on the notes payable of $841,342 was recorded based on the value of the warrants issued using a Black-Scholes options pricing model and was amortized over the initial five year life of the notes. Amortized interest expense for the years ended December 31, 2019 and 2018 on this discount was $0 and $74,447, respectively. As of December 31, 2019 and 2018, total principal of $990,000 and $990,000, respectively, was outstanding on these notes.

 

On June 15, 2018, the Company issued 2018 Unsecured Notes totaling $560,000 and warrants to certain holders of the 2013 Notes in exchange for their secured 2013 Notes (see description above of the private placement offering commenced during the second quarter of 2018). The 2018 Unsecured Notes have a term of five years, bear interest at 12% per annum, and are convertible into one share of common stock, par value $0.001 per share, with the initial conversion ratio equal to $0.50 per share. For each dollar exchanged, the investor received a warrant to purchase one share of common stock of the Company at an exercise price of $0.70 per share. The 2018 Unsecured Notes may be converted at any time and from time to time in whole or in part prior to the maturity date thereof. Loss on this debt exchange was $44,036. A discount on the notes payable of $89,500 was recorded based on the value of the fair value of the note and warrants exchanged. The included warrants were valued using a Black-Scholes options pricing model. From August 31, 2018 through October 30, 2018, the Company issued additional 2018 Notes totaling $300,000 and warrants to unaffiliated accredited investors. A discount on the notes payable of $40,350 was recorded based on the fair value of the warrants issued with this note using a Black-Scholes options pricing model. Amortized interest expense for the years ended December 31, 2019 and 2018 on these discounts was $24,323 and $8,700, respectively. Interest expense for the years ended December 31, 2019 and 2018, was $202,200 and $46,587, respectively. As of December 31, 2019 and 2018, total principal of $860,000 and $860,000 was outstanding on the 2018 Unsecured Notes. The significant assumptions utilized for these Black-Scholes calculations consist of an expected life of equal to the expiration term of the option, historical volatility of 100% respectively, and a risk free interest rate of 3%.

 

From June 18, 2019 through October 23, 2019, the Company sold convertible notes and warrants to unaffiliated accredited investors totaling $2,600,000. The notes bear interest at 12% per annum, are secured by the Company’s assets, and are convertible into one share of common stock, par value $0.001 per share, with the initial conversion ratio equal to $0.50 per share. The notes have a term of five years. Interest expense for the year ended December 31, 2019 was $124,600. A discount on the notes payable of $488,245 was recorded based on the relative fair value of the warrants issued using a Black-Scholes options pricing model and was amortized over the initial five year life of the notes. Amortized interest expense for the year ended December 31, 2019 on this discount was $37,737. As of December 31, 2019, total principal of $2,600,000 was outstanding on these notes.