Annual report pursuant to Section 13 and 15(d)

Notes Payable and Long Term Loan

v3.19.1
Notes Payable and Long Term Loan
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Notes Payable and Long Term Loan

Note 5 - Notes payable and Long Term Loan

 

Notes Payable

 

In October 2013, the Company initiated a private placement for up to $500,000 of financing by the issuance of notes payable at a minimum of $25,000, one unit. The notes bear interest at 10% per annum and were due and payable with accrued interest one year from issuance. Also, the Company agreed to issue 125,000 shares of its common stock for each unit. In July 2014, the Company initiated a private placement for up to $500,000 of financing by the issuance of notes payable at a minimum of $25,000, one unit. The notes bear interest at 10% per annum and were due and payable with accrued interest one year from issuance. Also, the Company agreed to issue 50,000 shares of its common stock for each unit. In October 2014, the Company initiated a private placement for up to $500,000 of financing by the issuance of notes payable at a minimum of $25,000, one unit. The notes bear interest at 10% per annum and were due and payable with accrued interest one year from issuance. Also, the Company agreed to issue 50,000 shares of its common stock for each unit. In August 2015, the Company initiated a private placement for up to $500,000 of financing by the issuance of notes payable at a minimum of $25,000, one unit. The notes bear interest at 10% per annum and were due and payable with accrued interest one year from issuance. Also, the Company agreed to issue 100,000 shares of its common stock for each unit. During the years ended December 31, 2018 and 2017, the Company did not issue notes in connection with these private placements. As of December 31, 2018 and 2017, notes payable outstanding under these private placements are $692,403 and $919,903, respectively, all of which are past maturity at December 31, 2018 and 2017.

 

During the year ended December 31, 2018, the Company issued a six-month fixed rate note with an interest rate of 12% for initially $275,000, subsequently increased to $300,000, for cash of $250,000. As of December 31, 2018, the balance on this note is $100,000. The loan is past maturity as of December 31, 2018.

 

During the year ended December 31, 2018, the Company issued two six-month fixed rate notes with annual interest rates of 10% and accumulated principal balances of $1,650,000 for cash of $1,500,000. The first note for $1,100,000 matures on March 26, 2019 and the second note for $550,000 matures on June 17, 2019. The terms of the notes included additional interest payments of 2% on the fourth, fifth and sixth month anniversaries of the notes and, if not paid at maturity, a conversion to common stock feature at a rate of 68% of the lowest closing bid price during the 15 days previous to conversion.

 

During the years ended December 31, 2018 and 2017, the Company issued Convertible Debentures (“Variable Debentures”) in amounts of $2,545,870 and $4,137,070 for cash of $836,000 and $3,947,000 with original terms of 6 to 12 months and interest rates ranging from 10% to 12% which contain variable conversion rates with a discount of 65% of the Company’s common stock based on the terms included in the Variable Debentures. One variable Debenture was repaid in cash in amount of $283,000 Certain of the Variable

 

Debentures contain prepayment options which enable the Company to prepay the notes for periods of 0-180 days subsequent to issuance at a premium of 125-135%. The Company recorded a derivative liability as a result of the conversion feature. The derivative liability was allocated between a note discount, up to the value of the Variable Debenture, and interest expense for the excess, and the note discount is being amortized over the life of the Variable Debenture. During the years ended December 31, 2018 and 2017, the Company recorded $2,282,707 and $4,087,500, respectively, in discounts on these Variable Debentures. As of December 31, 2018 and 2017, the Variable Debentures outstanding had balances due of $5,315,795 and $4,566,241, respectively. Of these amounts outstanding, $2,891,925 and $202,500 of the Variable Debentures were past maturity at December 31, 2018 and 2017, respectively.

 

During the year ended December 31, 2017, the Company entered into a $1,500,000 note payable with an unrelated party in connection with the acquisition of patents. The note bore interest at 8% per year payable quarterly in cash and had a maturity date of November 2018. With agreement of the Company, in November 2018, the principal amount of the note was assigned to another unrelated party which owns several variable rate notes as a one-year variable rate note. This note is secured by the assets acquired from RGN.

 

During the year ended December 31, 2017, the Company entered into a $100,000 note payable with an unrelated party and issued a warrant for up to 500,000 shares of common stock at a value of $21,204 in connection with this note. The note bears interest at 10% per year and matured in February 2018. At December 31, 2018, $100,000 remained outstanding on this note and the maturity date was extended to June 20, 2019.

 

As of December 31, 2018, the Company had notes payable to related parties amounting to $270,000. Refer to Note 7– Related Party Transactions.

 

    As of December 31,  
    2018     2017  
             
Notes payable at beginning of period   $ 7,356,144     $ 3,193,956  
Notes payable issued     3,131,870       5,837,070  
Loan fees added to note payable     147,000       -  
Settlements on note payable     (47,500 )     (95,597 )
Repayments of notes payable in cash     (555,500 )     (96,000 )
Less amounts converted to redeemable notes     (212,500 )     -  
Less amounts converted to stock     (1,661,316 )     (1,483,285 )
Notes payable at end of period     8,158,198       7,356,144  
Less debt discount     (1,833,795 )     (2,624,984 )
    $ 6,324,403     $ 4,731,160  
                 
Notes payable issued to related parties   $ 270,000     $ 270,000  
Notes payable issued to non-related party   $ 6,054,403     $ 4,461,160  

 

The maturity dates on the notes payable are as follows:

 

Twelve months ending,   Non-related parties     Related parties     Total  
Past due   $ 3,814,328     $ -     $ 3,814,328  
December 31, 2019     4,073,870       270,000       4,343,870  
Total   $ 7,888,198     $ 270,000     $ 8,158,198  

 

Acquisition Payable

 

In connection with the Company’s acquisition of IPR in 2012, IPR recorded a $155,000 long-term acquisition payable for costs that were not paid at closing. This payable is non-interest bearing and IPR agreed to make payments up to 25% of the proceeds from any private placement or gross profits earned by IPR until the obligation is satisfied. The percentage of the proceeds to be paid is at the sole discretion of IPR’s Chief Executive Officer and the ex-Chief Executive Officer of the Company based on the liquidity of the Company.

 

Effective Interest Rate

 

During the year ended December 31, 2018 and 2017, the Company’s effective interest rate was 104% and 222%, respectively.