Note 7 - Line of Credit, Notes Payable and Liquidity

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

NOTE 7: LINE OF CREDIT, NOTES PAYABLE AND LIQUIDITY

On

March 18, 2013,

the Company entered into a

$2,000,000

revolving Line of Credit (“Line of Credit”) with The Northern Trust Company guaranteed by our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”). Mr. Wit receives

2.0%

interest (approximately

$9,500

per month) from the Company on the assets pledged for the Line of Credit. On

December 18, 2013

the Company renewed the Line of Credit and increased the available balance to

$4,000,000.

On

February 3, 2015

the Company renewed the Line of Credit and increased the available balance to

$5,000,000.

On

April 7, 2017

the Company renewed the Line of Credit. The Line of Credit currently matures on

April 7, 2020

and carries a variable interest rate based on the prime rate. At

September 30, 2018,

$3,200,000

was outstanding on the Line of Credit at an interest rate of

4.25%.

Our primary sources of working capital are funds from operations and borrowings under our revolving Line of Credit. In the event that the Line of Credit is called for any reason, Mr. Wit has pledged to replace the borrowing capacity under the Line of Credit with a promissory note that utilizes the same maturity date and interest rate as the Line of Credit.

To satisfy our capital requirements, we

may

seek additional financing. There can be

no

assurance that any such funding will be available to us on favorable terms or at all. If adequate funds are

not

available when needed, we

may

be required to delay, scale back or eliminate some or all of our research and product development and marketing programs. If we are successful in obtaining additional financings, the terms of such financings

may

have the effect of diluting or adversely affecting the holdings or the rights of the holders of our securities or result in increased interest expense in future periods.

The following table summarizes the notes payable outstanding as of

September 30, 2018.

			Ending		Non related party					Related party
Origination	Maturity	Interest	principal				Long						Long
date	date	rate	September 30, 2018		Current		term			Current			term
2/29/2016	4/1/2019	12%	$	400,000	$	-0-	$	-0-		$	400,000		$	-0-
6/30/2016	4/1/2020	10%		420,000		-0-		420,000			-0-			-0-
6/30/2016	4/1/2020	12%		282,500		-0-		282,500			-0-			-0-
Discount on notes payable						-0-		(186,268	)		(46,946	)		-0-
Total			$	1,102,500	$	-0-	$	516,232		$	353,054		$	-0-

The following table summarizes the notes payable outstanding as of

December 31, 2017.

			Ending		Non related party					Related party
Origination	Maturity	Interest	principal				Long					Long
date	date	rate	December 31, 2017		Current		term			Current		term
2/29/2016	4/1/2019	12%	$	400,000	$	-0-	$	-0-		$	-0-	$	400,000
6/30/2016	4/1/2020	10%		420,000		-0-		420,000			-0-		-0-
6/30/2016	4/1/2020	12%		282,500		-0-		282,500			-0-		-0-
Discount on notes payable						-0-		(279,402	)		-0-		(117,365	)
Total			$	1,102,500	$	-0-	$	423,098		$	-0-	$	282,635

On

February

29,

2016,

the Company issued a promissory note in the principal amount of

$450,000

and warrants to purchase

1,800,000

shares of common stock of the Company at an exercise price of

$0.25

per share with an expiration date of

April 1, 2019

to our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”), in exchange for accrued interest in the amount of

$450,000.

The note carries an interest rate of

12%

per annum and has a maturity date of

April 1, 2019. 

On

December 5, 2016,

Mr. Wit sold

1,000,000

of the warrants to an employee of the Company. On

August 31, 2017,

the Company repaid

$50,000

of the outstanding principal to Mr. Wit.

The issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of

$325,689

was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore

$124,311.

The warrant liability (discount) will be amortized over the

37

month duration of the note payable. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.

On

June 30, 2016,

the Company issued promissory notes in the principal amount of

$372,500

and warrants to purchase

1,490,000

shares of common stock of the Company at an exercise price of

$0.25

per share with an expiration date of

April 1, 2020

to

two

investors in exchange for existing promissory notes in the same amount. The notes carry an interest rate of

12%

per annum and have a maturity date of

April 1, 2020. 

On

August 31, 2017

a promissory note for

$90,000

was repaid in full.

The issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of

$246,921

was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore

$125,579.

The warrant liability (discount) will be amortized over the

45

month duration of the note payables. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.

On

June 30, 2016,

the Company issued promissory notes in the principal amount of

$420,000

and warrants to purchase

1,680,000

shares of common stock of the Company at an exercise price of

$0.25

per share with an expiration date of

April 1, 2020

to

two

investors, in exchange for existing promissory notes in the same amount. The notes carry an interest rate of

10%

per annum and have a maturity date of

April 1, 2020.

The issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of

$278,408

was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore

$141,592.

The warrant liability (discount) will be amortized over the

45

month duration of the note payables. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.