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NOTES PAYABLE (Tables)
 12 Months Ended
Dec. 31, 2018
Notes Payable [Abstract]  
Schedule of notes payable

Notes Payable at December 31, 2018 and 2017, are comprised of the following.

 

    2018     2017  
12% short-term promissory note (a)   $ 1,000,000     $ —  
Other short-term notes payable (b)     1,033,553       —  
Notes payable to Wells Fargo (c)     291,988       300,130  
Note payable to Dept. of Economic and Community Development (d)     260,169       292,509  
Power-Plus Credit Facilities (e)     —       170,473  
Note payable to Power-Plus Member (f)     13,250       130,125  
Note payable to People's United Bank (g)     18,589       19,489  
8% short-term promissory note (h)     1,272,600       —  
12% September 2018 short-term promissory note (i)     789,473       —  
October '18 short-term promissory note (j)     565,000          
Microphase December 2018 short-term promissory note (k)     200,000          
10% short-term promissory notes (l)     —       15,000  
Short term bank credit (m)     1,558,197       —  
Total notes payable     7,002,819       927,726  
Less:                
Unamortized debt discounts     (151,499 )     —  
Unamortized financing cost     (7,541 )     —  
Total notes payable, net of financing cost   $ 6,843,779     $ 927,726  
Less: current portion     (6,360,120 )     (402,234 )
Notes payable – long-term portion   $ 483,659     $ 525,492  

 

  (a) On March 23, 2018, the Company entered into a securities purchase agreement pursuant to which it issued a 12% promissory note and a warrant to purchase 22,500 shares of common stock to an accredited investor. The promissory note was issued with a 10% OID. The promissory note is in the principal amount of $1,000,000, was sold for $900,000, accrued simple interest at 12% and was due on June 22, 2018. The Company is in negotiations with the investor to amend the payment terms on this 12% promissory note, however, since payment was not made on the specified maturity date this unsecured 12% promissory note is currently in default. Interest only payments are due, in arrears, on a monthly basis commencing on April 23, 2018. The exercise price of the warrant is $23.00 per share. The Company recorded debt discount in the amount of $271,565 based on the estimated fair value of these warrants. The Company computed the fair value of these warrants using the Black-Scholes option pricing model. The debt discount was amortized as non-cash interest expense over the term of the debt. During the year ended December 31, 2018, non-cash interest expense of $271,565 was recorded from the amortization of debt discount and interest expense of $100,000 was recorded from the amortization of the OID on this 12% promissory note. The 12% promissory note is unsecured by any of the Company’s assets but is guaranteed by our Chief Executive Officer.

 

  (b) During the year ended December 31, 2018, the Company entered into the following short-term promissory notes:

 

  (i) On February 7, 2018, the Company issued demand promissory notes in the aggregate principal face amount of $440,000 to accredited investors. These promissory notes included an OID of $40,000 resulting in net proceeds to the Company of $400,000. The principal and OID on these notes were due and payable on demand after April 24, 2018. These loans were paid on April 27, 2018. During the year ended December 31, 2018, the Company recognized $40,000 from the amortization of OID on these demand promissory notes.

 

  (ii) On February 26, 2018, the Company issued a 10% promissory note in the principal amount of $330,000 to an accredited investor. This promissory note included an OID of $30,000 resulting in net proceeds to the Company of $300,000. The principal and accrued interest on this note was due and payable on April 12, 2018, subject to a 30-day extension available to the Company. This 10% promissory note was paid on April 27, 2018. During the year ended December 31, 2018, the Company recognized $35,991 from interest and the amortization of OID on this 10% promissory note.

 

  (iii) On March 27, 2018, the Company issued a 10% promissory note in the principal amount of $200,000 to an accredited investor. Between March 29, 2018 and April 24, 2018, the Company paid the outstanding principal amount of $200,000 on this 10% promissory note.

 

  (iv) On May 23, 2018, the Company issued a promissory note in the aggregate principal face amount of $81,000 to an accredited investor. The promissory note included an OID of $6,000 resulting in net proceeds to the Company of $75,000 and was due and payable on August 20, 2018. This promissory note was paid on July 25, 2018. During the year ended December 31, 2018, the Company recognized $6,000 from the amortization of OID on this promissory note.

 

  (v) On May 23, 2018, the Company issued a promissory note in the aggregate principal face amount of $360,000 to an accredited investor. The promissory note included an OID of $60,000 resulting in net proceeds to the Company of $300,000 and was due and payable on June 22, 2018. The outstanding balance on this note was paid on July 2, 2018. During the year ended December 31, 2018, the Company recognized $60,000 from the amortization of OID on this promissory note.

 

  (vi) On June 5, 2018, the Company received loans in the aggregate amount of $75,000 from accredited investors. The principal and interest on these loans was paid on July 16, 2018.

 

  (vii) On June 8, 2018, the Company issued a promissory note in the aggregate principal face amount of $511,750 to an accredited investor. The promissory note included an OID of $66,750 resulting in net proceeds to the Company of $445,000 and was due and payable on July 9, 2018. At December 31, 2018, the outstanding principal balance on this note was $54,750. Since payment was not made on the specified maturity date this unsecured promissory note is currently in default. During the year ended December 31, 2018, the Company recognized $66,750 from the amortization of OID on this promissory note. On August 3, 2018, the Company and lender entered into an agreement to extend the maturity date from July 9, 2018 to August 31, 2018. The Company agreed to pay the lender an extension fee of 100,000 shares of common stock. The Company remains in default and continues to negotiate with the investor on extended payment terms.

 

  (viii) On July 13, 2018, the Company issued a 15% promissory note in the principal amount of $176,000 to an accredited investor. This promissory note included an OID of $16,000 and debt issuance costs of $5,000 resulting in net proceeds of $155,000. At December 31, 2018, the outstanding balance on this note was $124,303. The principal and accrued interest on this note was due and payable on October 11, 2018 and is currently in default. Mr. Ault personally guaranteed the repayment of this note.

 

  (ix) On August 10, 2018, DP Lending issued a 12% promissory note in the principal amount of $550,000 to an accredited investor. This promissory note included an OID of $50,000 resulting in net proceeds of $500,000. The principal and accrued interest on this note is due and payable on August 10, 2019.

 

  (x) On August 16, 2018, the Company issued an 8% promissory note in the principal amount of $225,000 to an accredited investor. This promissory note included an OID of $25,000 resulting in net proceeds of $200,000. At December 31, 2018, the outstanding balance on this note was $159,500. This note was due and payable on October 5, 2018 and is currently in default. Mr. Ault personally guaranteed the repayment of this note.

 

  (xi) On August 23, 2018, DP Lending issued a promissory note in the principal amount of $85,000 to an accredited investor. This promissory note included an OID of $10,000 resulting in net proceeds of $75,000. At December 31, 2018, the outstanding balance on this note was $85,000. This note was due and payable on September 24, 2018, subject to a 28-day extension available to DP Lending. However, since payment was not made on the specified maturity date this unsecured promissory note is currently in default.

 

  (xii) On August 28, 2018, DP Lending issued a promissory note in the principal amount of $115,000 to an accredited investor. This promissory note included an OID of $15,000 resulting in net proceeds of $100,000. The principal and accrued interest on this note was due and payable on September 14, 2018, subject to a 10-business day cure period available to DP Lending. This promissory note was paid on September 21, 2018.

 

  (xiii) On October 9, 2018, DP Lending issued a promissory note in the principal amount of $60,000 to an accredited investor. This promissory note included an OID of $10,000 resulting in net proceeds of $50,000. At December 31, 2018, the outstanding balance on this note was $60,000. This note was due and payable on October 23, 2018. However, since payment was not made on the specified maturity date this unsecured promissory note is currently in default.

 

  (c) At December 31, 2018, Microphase had guaranteed the repayment of two equity lines of credit in the aggregate amount of $291,988 with Wells Fargo Bank, NA (“Wells Fargo”) (collectively, the “Wells Fargo Notes”). These loans originated prior to the Company’s acquisition of Microphase and Microphase was the recipient of the actual proceeds from the loans. Microphase had previously guaranteed the payment under the first Wells Fargo equity line during 2008, the proceeds of which Microphase had received from a concurrent loan from Edson Realty Inc., a related party owned real estate holding company. As of December 31, 2018, the first line of credit, which is secured by residential real estate owned by a former officer, had an outstanding balance of $210,822, with an annual interest rate of 4.00%. Microphase had guaranteed the payment under the second Wells Fargo equity line in 2014. Microphase had received working capital loans from the former CEO from funds that were drawn against the second Wells Fargo equity line. As of December 31, 2018, the second line of credit, secured by the former CEO’s principal residence, had an outstanding balance of $81,166, with an annual interest rate of 3.00%. During the years ended December 31, 2018, Microphase incurred $17,629 of interest on the Wells Fargo Notes.

 

  (d)

In August 2016, Microphase received a $300,000 loan, of which $39,831 has been repaid, pursuant to the State of Connecticut Small Business Express Job Creation Incentive Program which is administered through the Department of Economic and Community Development (“DECD”) (the “DECD Note”). The DECD Note accrues interest at a rate of 3% per annum and is due in August 2026. Payment of principal and interest commenced in September 2017, payable in equal monthly installments over the remaining term. During the year ended December 31, 2018, Microphase incurred $9,286 of interest on the DECD Note.  

 

  (e) At December 31, 2017, Power-Plus had guaranteed the repayment of two lines of credit in the aggregate amount of $170,473 with Bank of America NA and Wells Fargo (collectively, the “Power-Plus Lines”). During 2018, the Power-Plus Lines had been paid.

 

  (f) Pursuant to the terms of the Purchase Agreement with Power-Plus, the Company entered into a two-year promissory note in the amount of $255,000 payable to the former owner as part of the purchase consideration. The $255,000 note is payable in 24 equal monthly installments. On October 18, 2017, for cancellation of debt, the Company entered into a subscription agreement with the former owner under which the Company sold 6,940 shares of common stock at $13.40 per share for an aggregate purchase price of $93,000. The outstanding balance on this note was $13,250 at December 31, 2018. During the year ended December 31, 2018, the Company paid $116,875 in principal payments.

 

  (g) In December 2016, Microphase utilized a $20,000 overdraft credit line at People’s United Bank with an annual interest rate of 15%. As of December 31, 2018, the balance of that overdraft credit line was $18,589.

 

  (h) On August 16, 2018, the Company entered into a securities purchase agreement with certain institutional investors providing for the issuance of (i) secured promissory notes in the aggregate principal face amount of $1,212,000 due February 15, 2019, at an interest rate of eight percent (8%) per annum for which the Company received an aggregate of $1,010,000, and (ii) issued an aggregate of 20,000 shares of common stock to the investors. On November 29, 2018, these 8% short-term promissory notes were amended and the Company incurred an additional OID of $60,600 resulting in an outstanding principal balance of $1,272,600 at December 31, 2018.

 

  (i) During September 2018, the Company issued to institutional investors 12% term promissory notes in the principal face amount of $789,473, with an interest rate of 12% for a purchase price of $750,000. The outstanding principal face amount, plus any accrued and unpaid interest, was due by December 31, 2018. During October 2018, in accordance with the notes, the Company issued 22,500 shares of its common stock to the investors. Since payment was not made on the specified maturity date these 12% term promissory notes are currently in default.

 

  (j) On October 11, 2018, the Company entered into a securities purchase agreement with an institutional investor providing for the issuance of (i) a secured promissory note in the aggregate principal face amount of $565,000 due December 8, 2018, for which the Company received an aggregate of $510,000, and (ii) issued an aggregate of 20,000 shares of common stock to the investor. Upon maturity, the Company was required to pay $27,500 of interest. The note was not paid on the maturity date and was in default at December 31, 2018.

 

  (k) On December 28, 2018, Microphase entered into a secured promissory note with an institutional investor providing for the issuance of (i) a secured promissory note in the aggregate principal face amount of $200,000, with an interest rate of 10% per annum and a maturity date of March 31, 2019. In connection with the Microphase Note, Mr. Ault entered into a personal guarantee agreement for the benefit of the investor.

 

  (l) In December 2016, Microphase issued $705,000 in 10% short-term promissory notes to nineteen accredited investors which, after deducting $70,500 of placement fees to its selling agent, Spartan Capital Securities, LLC (“Spartan”), resulted in $634,500 in net proceeds to Microphase (the “10% Short-Term Notes”). The 10% Short-Term Notes were due one year from the date of issuance. The amount due pursuant to the 10% Short-Term Notes was equal to the entire original principal amount multiplied by 125% (the “Loan Premium”) plus accrued interest. On December 5, 2017, in exchange for the cancellation of $690,000 of outstanding principal and $250,323 of accrued interest owed to the investors by Microphase Corporation, the Company entered into an Exchange Agreement pursuant to which the Company issued an aggregate of 76,193 shares of common stock and warrants to purchase 19,023 shares of common stock with an exercise price of $22.00 per share of common stock. During 2018, the Company paid the remaining balance of principal and accrued interest of $15,000 and $5,615, respectively.

 

  (m) At December 31, 2018, Enertec had short term bank credit of $1,558,197 that bears interest at prime plus 0.7% through 3.85% paid either on a monthly or weekly basis. Further, the Company has undertaken to comply with certain covenants under its bank loan. During the period May 22 to December 31, 2018, the Company incurred $47,076 of interest from Enertec’s short term bank credit.

  

Other Notes Payable

 

  (n) Between May 5, 2017 and December 31, 2017, the Company received additional short-term loans of $297,000 from five accredited investors, of which $75,000 was from the Company’s corporate counsel, a related party. As additional consideration, the investors received five-year warrants to purchase 11,219 shares of common stock at a weighted average exercise price of $15.40 per share. The warrants are exercisable commencing six months after the issuance date and are subject to certain beneficial ownership limitations. The exercise price of these warrants is subject to adjustment for customary stock splits, stock dividends, combinations and other standard anti-dilution events. The warrants may be exercised for cash or on a cashless basis. During the quarter ended June 30, 2017, the Company recorded debt discount in the amount of $95,000 based on the estimated fair value of these warrants. The Company computed the fair value of these warrants using the Black-Scholes option pricing model. As a result of the short-term feature of these loans and advances, the debt discount was amortized as non-cash interest expense upon issuance of the warrants using the effective interest method.

 

During June 2017, the holders of $55,000 of these short-term loans agreed to cancel their notes for the purchase of 5,000 shares of the Company’s common stock at a price of $11.00 per share. An additional $75,000 in short-term loans from the Company’s corporate counsel was converted into the Company’s equity securities; $52,000 was converted into one of the Series C Units and $23,000 was converted into the Company’s common stock. The Company did not record any additional interest expense as a result of the extinguishment of $130,000 in short-term loans since the carrying amount of the short-term loans was equivalent to the fair value of the consideration transferred, which was determined from the closing price of the Company’s equity securities on the date of extinguishment. During the year ended December 31, 2017, the Company also repaid $157,000 in short-term loans.

 

  (o) In February 2017, the Company issued to eight accredited investors $400,000 in demand promissory notes bearing interest at a rate of 6% per annum. Of the eight accredited investors, one investor was deemed a related party. As additional consideration, the investors received five-year warrants to purchase 16,667 shares of common stock at an exercise price of $14.00 per share (the “Feb. 2017 Warrants”). The Feb. 2017 Warrants are exercisable commencing six months after the issuance date. The exercise price of the Feb. 2017 Warrants is subject to adjustment for customary stock splits, stock dividends, combinations and other standard anti-dilution events. The Feb. 2017 Warrants may be exercised for cash or on a cashless basis. During the quarter ended March 31, 2017, the Company recorded debt discount in the amount of $151,000 based on the estimated fair value of the Feb. 2017 Warrants. The Company computed the fair value of these warrants using the Black-Scholes option pricing model. As a result of the due on demand feature of the promissory notes, the debt discount was amortized as non-cash interest expense upon issuance of the Feb. 2017 Warrants using the effective interest method.

 

Between February 16, 2017 and February 23, 2017, the holders of the $400,000 in demand promissory notes agreed to cancel their demand promissory notes for the purchase of 33,333 shares of the Company’s common stock, an extinguishment price of $12.00 per share. During the quarter ended March 31, 2017, the Company recorded additional interest expense of $13,333 as a result of the extinguishment of the $400,000 in demand promissory notes based on the difference of the carrying amount of the demand promissory notes and the fair value of the consideration transferred, which was determined from the closing price of the Company’s common stock on the date of extinguishment. 

 

  (p) On March 28, 2017, the Company issued $270,000 in demand promissory notes to several investors. These demand promissory notes accrued interest at the rate of 6% per annum. On April 5, 2017, the Company canceled these promissory notes by issuing to the investors 18,000 shares of common stock, at $15.00 per share, and warrants to purchase 9,000 shares of common stock at $18.00 per share. During the quarter ended June 30, 2017, the Company recorded additional interest expense of $109,000 as a result of the extinguishment of the $270,000 in demand promissory notes based on the difference of the carrying amount of the demand promissory notes and the fair value of the consideration transferred, which was determined from the closing price of the Company’s common stock on the date of extinguishment.

 

  (q) On June 2, 2017, pursuant to the terms of the Share Exchange Agreement and in consideration of legal services, Microphase issued a $450,000 8% promissory note with a maturity date of November 25, 2017 to Lucosky Brookman, LLP (the “Lucosky Note”). In conjunction with the issuance of the Lucosky Note, the Company issued Lucosky Brookman 10,000 shares of redeemable convertible Series E preferred stock (the “Series E Preferred Stock”) with a stated value of $45 per share as an alternative to providing a guarantee for the amount of the Lucosky Note. The Company, at its option, had the right to redeem for cash the outstanding shares of Series E Preferred Stock, upon written notice to the holder of the shares, at a cash redemption price equal to $45 multiplied by the number of shares being redeemed. Any such optional redemption by the Company would have resulted in a credit against the Lucosky Note. During the period June 3, 2017 to December 29, 2017, Microphase incurred $21,000 of interest on the Lucosky Note. On December 29, 2017, the Lucosky Note was satisfied through the conversion of the 10,000 shares of Series E Preferred Stock into 30,000 shares of the Company’s common stock (See Note 24).

 

  (r) On January 25, 2018, the Company issued two 5% promissory notes, each in the principal face amount of $2,500,000 for an aggregate debt of $5,000,000 to two institutional investors.  The entire unpaid balance of the principal and accrued interest on each of the 5% promissory notes was due and payable on February 23, 2018, subject to a 30-day extension available to the Company. The proceeds from these two 5% promissory notes were used to purchase 1,000 Antminer S9s manufactured by Bitmain Technologies, Inc. in connection with our crypto mining operations. The Company repaid the entire outstanding principal and accrued interest on the 5% promissory notes of $5,101,127 during 2018.

 

  (s) On February 20, 2018, the Company issued a promissory note in the principal face amount of $900,000 to an accredited investor. This promissory note included an original issue discount (“OID”) of $150,000 resulting in net proceeds of $750,000. The principal and OID on this note was due and payable on March 22, 2018. On March 23, 2018, the Company entered into a new promissory note in the principal amount of $2,100,000 for a term of two months, subject to the Company’ ability to prepay within one month. The new promissory note included an OID of $350,000, resulting in net proceeds of $1,750,000. The Company also issued to the lender a warrant to purchase 62,500 shares of the Company’s common stock at an exercise price of $23.00 per share. The principal amount of the new promissory note consisted of cash of $1,000,000 and the cancellation of principal of $750,000 from the February 20, 2018 promissory note. The interest on the February 20, 2018 note in the amount of $150,000 was paid to the lender prior to entering into the new promissory note. The warrants are exercisable commencing on the issuance date for a term of three years. The exercise price of these warrants is subject to adjustment for customary stock splits, stock dividends, combinations and other standard anti-dilution events. The warrants may be exercised for cash or on a cashless basis. The Company recorded debt discount in the amount of $604,227 based on the estimated fair value of these warrants. The Company computed the fair value of these warrants using the Black-Scholes option pricing model. The debt discount was amortized as non-cash interest expense over the term of the debt. During the year ended December 31, 2018, non-cash interest expense of $604,227 was recorded from the amortization of debt discount and interest expense of $350,000 was recorded from the amortization of the OID on the new promissory note. On April 23, 2018, the Company paid the entire outstanding principal on the new promissory note of $2,100,000. The new promissory note had been guaranteed by our Chief Executive Officer and had also been guaranteed by Philou.