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Notes Payable
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Notes Payable

8. Notes Payable

 

Rogers Note

 

In February 2015, the Company entered into an 18% Contingent Promissory Note in the amount of $250,000 with Louise H. Rogers (the "Rogers Note"), in connection with a proposed business combination with Lucas Energy Inc. Subsequent to the issuance of the Rogers Note, the Company and Louise H. Rogers entered into an agreement (the "Rogers Settlement Agreement") to terminate the Rogers Note with a lump sum payment of $258,125 to be made on or before July 15, 2015. The Company's failure to make the required payment resulted in default interest on the amount due accruing at a rate of $129 per day.

 

On October 17, 2018, the Company entered into a settlement agreement with Louise H. Rogers (the "New Rogers Settlement Agreement"), pursuant to which the amount owed by the Company under the Rogers Settlement Agreement was reduced to a $375,000 principal balance, which accrues interest at the rate of 5% per annum. A gain of $11,198, or $0.00 per share, was recorded in Other income on the Company's consolidated statements of operations for the twelve months ended December 31, 2018 in connection with the New Rogers Settlement Agreement.

 

The New Rogers Settlement Agreement is being repaid through 24 equal monthly installments of approximately $16,607 per month beginning January 2019. The Company also agreed to reimburse Louise H. Rogers for attorney fees in the amount of $7,686, to be paid on or before November 10, 2018, and to reimburse Louise H. Rogers for additional attorney fees incurred in connection with the New Rogers Settlement Agreement.

 

In connection with the New Rogers Settlement Agreement, the Company agreed to pay Sharon E. Conway, the attorney for Louise H. Rogers, a total of $26,616 in three equal installment payments of $8,872, the first of which was paid in November 2018 and the last of which was paid in February 2019.

 

The amount due pursuant to the Rogers Settlement Agreement, including accrued interest, was $257,987 at September 30, 2019. Of this amount, $199,288 is reported in Short term notes payable, net and $58,699 is reported in Long term notes payable, net on the Company's condensed consolidated balance sheets. At December 31, 2018, the amount due pursuant to the Rogers Settlement Agreement, including accrued interest, was $398,576. Of this amount, $199,288 is reported in Short term notes payable, net and $199,288 is reported in Long term notes payable, net on the Company's consolidated balance sheets.

 

The Company recorded interest expense of $3,919 and $0.00 related to the Rogers Settlement Agreement for the three months ended September 30, 2019 and 2018, respectively. The Company recorded interest expense of $10,555 and $35,234 related to the Rogers Settlement Agreement for the nine months ended September 30, 2019 and 2018, respectively. 

 

Kodak Note

 

On July 31, 2018, the Company entered into a loan agreement to fund the acquisition of Pro-Tech with Kodak Brothers Real Estate Cash Flow Fund, LLC, a Texas limited liability company ("Kodak"), pursuant to which the Company borrowed $375,000 from Kodak under a 10% secured convertible promissory note maturing March 31, 2019, with an option to extend maturity to June 30, 2019 (the "Kodak Note"). On April 1, 2019, the Company elected to extend the maturity date of the Kodak Note from March 31, 2019 to June 30, 2019, and paid an extension fee of $9,375 in connection with this extension. On July 10, 2019, the Company entered into an Extension and Modification Agreement with Kodak (the "Kodak Extension"), under which the terms of the Kodak Note were amended as follows: (i) the maturity date was extended to September 30, 2019, (ii) the interest rate was increased to 15% beginning July 1, 2019, with a prepayment of interest in the amount of $14,063 for the period from July through September 2019 made upon execution of the Kodak Extension, and (iii) an extension fee of $14,063 was paid to Kodak upon execution of the Kodak Extension. See Note 13, Subsequent Events, for further information.

 

Pursuant to the issuance of the Kodak Note, the Company issued to an affiliate of Kodak a five-year warrant to purchase 375,000 shares of the Company's common stock with an exercise price of $0.75 per share (the "Kodak Warrants"). The grant date fair value of the Kodak Warrants was recorded as a discount of approximately $37,000 on the Kodak Note and will be amortized into interest expense using a method consistent with the interest method. The Company amortized $0.00 and $9,277 related to the Kodak Note for the three months ended September 30, 2019 and 2018, respectively. The Company amortized $13,916 and $9,277 related to the Kodak Note for the nine months ended September 30, 2019 and 2018, respectively.

 

The amount due pursuant to the Kodak Note, including accrued interest, was $375,000 at September 30, 2019, all of which is reported in Short term notes payable, net on the Company's condensed consolidated balance sheets. At December 31, 2018, the amount due pursuant to the Kodak Note, including accrued interest, was $375,000, all of which is reported in Short term notes payable, net on the Company's consolidated balance sheets.

 

Matheson Note

 

In connection with the Purchase Agreement (see Note 3, Pro-Tech Acquisition, for further information), the Company is required to make a series of eight quarterly payments of $87,500 each beginning October 31, 2018 and ending July 31, 2020 to Stewart Matheson, the seller of Pro-Tech (the "Matheson Note"). The Company is treating this obligation as a 12% zero-coupon note, with amounts falling due in less than one year included in Short-term notes payables and the remainder included in Long-term notes payable on the Company's condensed consolidated balance sheets. The discount is being amortized into interest expense on a method consistent with the interest method.

 

The amount due pursuant to the Matheson Note was $350,000, at September 30, 2019. Of this amount, $87,500 is reported in Short term notes payable, net and $262,500 is reported in Long term notes payable, net on the Company's condensed consolidated balance sheets. At December 31, 2018, the amount due pursuant to the Matheson Note was $612,500. Of this amount, $375,000 is reported in Short term notes payable, net and $262,500 is reported in Long term notes payable, net on the Company's consolidated balance sheets.

 

The Company recorded interest expense of $10,722 and $32,166 related to the Matheson Note for the three and nine months ended September 30, 2019, respectively.

 

New VPEG Note

 

See Note 4, Related Party Transactions, for a description of the New VPEG Note. The outstanding balance on the New VPEG Note was $1,684,100 and $1,115,400 at September 30, 2019 and December 31, 2018, respectively.

 

The Company recorded interest expense of $8,100 and $51,700 related to the New VPEG Note for the three and nine months ended September 30, 2019, respectively.

 

The Company recorded interest expense of $23,500 and $122,200 related to the New VPEG Note for the three and nine months ended September 30, 2018, respectively.