Notes Payable

12 Months Ended

Dec. 31, 2018

Notes Payable [Abstract]

Notes Payable

NOTE 8 – Notes Payable

Notes payable consist of the following:

	December 31, 2018			December 31, 2017
2018 Related Party 10% Unsecured Notes, net of debt discount of $83,743	$	2,016,257		$	—
2018 Secured Note		68,431			—
2017 Secured Note		81,659			104,990
2018 and 2017 Unsecured Note		—			188,060
2016 Secured Notes		47,468			68,343
2016 WEBA Seller Notes		2,650,000			2,650,000
Total notes payable		4,863,815			3,011,393
Less current portion		(2,080,071	)		(232,267	)
Long-term portion of notes payable	$	2,783,744		$	2,779,126

2018 Related Party 10% Unsecured Notes

On April 6, 2018, the Company commenced a private placement (“Private Placement”) of 10% Senior Unsecured Promissory Notes (the “10% Notes”) and (ii) warrants (the “Warrants”) to purchase up to 100,000 shares of common stock of the Company, that were issued pursuant to a subscription agreement. The 10% Notes bear interest at a rate of 10% per annum, and is due on the maturity date or as otherwise specified by the 10% Notes. The Warrants have an exercise price per share of $6.25, are immediately exercisable and expire on April 6, 2021.

The Company closed the first tranche of the Private Placement on April 6, 2018, with Wynnefield Partners Small Cap Value I, L.P. and Wynnefield Partners Small Cap Value, L.P., (“Wynnefield Funds”), which are under the management of Wynnefield Capital, Inc. (“Wynnefield Capital”), with respect to 10% Notes with an aggregate principal amount of $1,000,000, and Warrants to purchase an aggregate of 40,000 shares of common stock. This tranche of the Private Placement is scheduled to mature on May 4, 2019.

The Company closed the second tranche of the Private Placement on April 10, 2018, with one of its directors, Charles F. Trapp, with respect to a 10% Note with a principal amount of $50,000, and a Warrant to purchase 2,000 shares of common stock. This tranche of the Private Placement is scheduled to mature on May 9, 2019. 

The Company closed a third tranche of the Private Placement on May 1, 2018 with Ian Rhodes, the Company’s former Chief Executive Officer and a former director, with respect to a 10% Note with a principal amount of $50,000 and a Warrant to purchase 2,000 shares of common stock. This tranche of the Private Placement is scheduled to mature on June 1, 2019. 

The Company closed a fourth tranche of the Private Placement on May 4, 2018 with the Wynnefield Funds managed by Wynnefield Capital, for an aggregate principal amount of $1,000,000 of 10% Notes, and Warrants to purchase an aggregate of 40,000 shares of common stock. This tranche of the Private Placement is scheduled to mature on May 6, 2019.

The Company allocated the proceeds received from the 10% Notes and the Warrants on a relative fair value basis at the time of issuance. The total debt discount of $300,297, including the relative fair value of the Warrants and the debt issuance costs will be amortized over the life of the 10% Notes to interest expense using the effective interest method. Amortization expense during the year ended December 31, 2018 was $216,554.

We estimated the fair value of the Warrants on the issuance date using a BSM option pricing model with the following assumptions:

	Warrants
Expected term		3 years
Volatility		143.81	%
Risk Free Rate		2.39	%

The proceeds of the Notes were allocated to the components as follows: 

	Proceeds allocated at issuance date
Notes	$	1,820,946
Warrants		279,054
Total	$	2,100,000

2018 Secured Note

In September 2018, the Company entered into a secured promissory note with MHC Financial (the “2018 Secured Note”). The 2018 Secured Note is collateralized by a vehicle. The key terms of the 2018 Secured Note includes: (i) an original principal balance of $74,600, (ii) interest rate of 8.74%, and (iii) term of 3.5 years.

2018 and 2017 Unsecured Note

In October 2017, and later amended in January 2018, the Company entered into an unsecured note with Bank Direct to finance its insurance premiums (the “2018 and 2017 Unsecured Note”). The key terms of the 2018 and 2017 Unsecured Note include: (i) an original principal balance of $242,866, (ii) an interest rate of 5.4%, and (iii) a term of ten months. This loan has been paid in full.

2017 Secured Note

In July 2017, the Company entered into a secured promissory note with PACCAR Financial (the “2017 Secured Note”). The 2017 Secured Note is collateralized by vehicles. The key terms of the 2017 Secured Note includes: (i) an original principal balance of $116,655, (ii) interest rate of 7.95%, and (iii) a term of 5 years.

2016 Secured Notes

In January and April 2016, the Company entered into secured promissory notes with Ascentium Capital. In July and September 2016, the Company entered into secured promissory notes with PACCAR Financial. In November 2016, the Company entered into secured promissory notes with MHC Financial Services, Inc. (collectively, the “2016 Secured Notes”). The key terms of the 2016 Secured Notes include: (i) an aggregate original principal balance of $437,000, (ii) interest rates ranging from 4.0% to 9.0%, and (iii) terms of 4-5 years. The 2016 Secured Notes are collateralized by vehicles and equipment.

WEBA Seller Notes

In connection with the WEBA acquisition, the Company issued $2.65 million in 8% promissory notes (“Seller Notes”). The Seller Notes mature on December 27, 2021. The Seller Notes bear interest at a rate of 8% per annum payable on a quarterly basis in arrears. The Seller Notes contain standard default provisions, including: (i) failure to repay the Seller Note when it is due at maturity; (ii) failure to pay any interest payment when due; (iii) failure to deliver financial statements on time; and (iv) other standard events of default.