Note 6 - Debt

The components of our debt are summarized as follows:

	Due	March 31, 2015		December 31, 2014
8% convertible promissory notes (2012)	Beginning in August 2017	$	16,628,188	$	16,628,188
12% revolving credit facility	December 31, 2015		2,000,000		2,000,000
3% promissory note	February 1, 2018		258,104		279,843
4.25% bank term loans	November 15, 2018		4,400,000		4,400,000
8% convertible promissory notes (2014)	June 11, 2019		2,000,000		2,000,000
12% convertible promissory notes	June 30, 2015		1,000,000		1,000,000
5% bank term loan	September 18, 2017		4,000,000		4,000,000
12% secured notes	June 30, 2015		6,394,664		1,950,000
Subtotal			36,680,956		32,258,031
Less debt discount			(3,617,665)		(4,360,647)
Subtotal – net of debt discount			33,063,291		27,897,384
Less current portion			(9,532,488)		(5,011,738)
Total – long term debt		$	23,530,803	$	22,885,646

8% Convertible Promissory Notes (2012)

Through March 31, 2015, pursuant to the terms of our 8% convertible promissory notes (the “2012 Notes”), we issued and sold to Melvin Lenkin, Samuel Rose and Allen Kronstadt collectively the “Investors”, (see Note 13 regarding related party transactions) and several unaffiliated investors (i) an aggregate principal amount of $15,628,188 of 2012 Notes convertible into shares of our common stock at $0.40 per share and an aggregate principal amount of $1,000,000 of 2012 Notes, convertible into shares of our common stock at a conversion price equal to $0.74 per share, respectively subject to adjustment as provided on the terms of the 2012 Notes, and (ii) associated warrants to purchase, in the aggregate, 37.8 million shares of common stock, subject to adjustment as provided on the terms of the warrants. During the three months ended June 30, 2014, we offered all warrant holders the right to exchange their warrants for their fair value, as calculated using the Black-Scholes option pricing model, for shares of common stock. All warrants associated with the 2012 Notes were exchanged for shares of common stock.

The 2012 Notes, including all outstanding principal and accrued and unpaid interest, are due and payable on the earlier of five years from date of issuance or upon the occurrence of an Event of Default (as defined in the 2012 Notes). We may prepay the 2012 Notes, in whole or in part, upon 60 calendar-days prior written notice to the holders thereof. Interest accrues on the 2012 Notes at a rate of 8.0% per annum, payable during the first three years that the 2012 Notes are outstanding in shares of common stock, valued at the weighted average price of a share of common stock for the twenty consecutive trading days prior to the interest payment date, pursuant to the terms of the 2012 Notes. During the fourth and fifth years that the 2012 Notes are outstanding, interest that accrues under the 2012 Notes shall be payable in cash.

In connection with the sale of our 2012 Notes, we entered into a Note Purchase Agreement, (i) we granted to the Investors certain demand and piggyback registration rights with respect to the registration of certain Company securities under the Securities Act and the rules and regulations promulgated thereunder, and (ii) we granted a security interest and lien in all of our assets and rights to the Investors to secure our obligations under the 2012 Notes.

Interest expense for the three months ended March 31, 2015 and 2014 was $347,589 and $265,882, respectively. Accrued interest at March 31, 2015 of $347,589 was paid with 1,121,256 shares of common stock, in lieu of cash, and issued subsequent to March 31, 2015.

The issuance costs of approximately $146,700, plus the fair values at issuances of the conversion option derivative liability and the warrants derivative liability were recorded as a discount to the 2012 Notes. This debt discount is amortized to other expenses in our statement of operations over the initial term of the 2012 Notes. During the three months ended March 31, 2015, and 2014 we amortized $386,317 and $379,795, respectively of the discount to other expenses in our statement of operations. At March 31, 2015, the unamortized discount was $2.1 million. See Note 7 for further discussion of these derivative liabilities.

12% Revolving Credit Agreement

During the year ended December 31, 2013, we entered into a Revolving Credit and Letter of Credit Support Agreement (the “Revolving Loan Agreement”) with MLTM Lending, LLC, a Maryland limited liability company (“MLTM”), and Samuel G. Rose (“Rose” and together with MLTM, the “Lenders”), pursuant to which the Lenders have agreed to lend us up to $2,000,000 on a revolving basis. In addition, the Revolving Loan Agreement provides that MLTM will provide letter of credit support to us of up to $500,000 (the “LC Sublimit”). Each revolving loan made under the Revolving Loan Agreement bears interest at 12% per annum, of which 4% is payable by us in cash on the first business day of each month, and 8% is payable by us in shares of our common stock on the first business day of each calendar quarter, valued at a price equal to the average of the Weighted Average Price (as such term is defined in the Revolving Loan Agreement) of a share of our common stock for 20 consecutive trading days prior to the interest payment date. Under the terms of the Revolving Loan Agreement, we may prepay the revolving loans at any time, in whole or in part, together with all accrued and unpaid interest, without premium or penalty. The Lenders may accelerate all amounts due under the Revolving Loan Agreement, together with accrued and unpaid interest, upon the occurrence of an Event of Default, as defined in the Revolving Loan Agreement. The maturity date of the Revolving Loan Agreement is December 31, 2015 (the “Maturity Date”). During the year ended December 31, 2013, we borrowed $2,000,000 less fees, under the Revolving Loan Agreement which remained outstanding through March 31, 2015.

As consideration for the revolving loans extended under the Revolving Loan Agreement, with respect to the year ending December 31, 2013, and prior to each of December 31, 2014 and 2015, we are required to issue to the Lenders an aggregate of 200,000 shares of our common stock during each such calendar year, up to a total of 600,000 shares of our common stock. The fair value of this common stock on the date of issue is recorded as a discount to the revolving loan debt and is amortized to other expenses in our statement of operations over the annual period. Pursuant to the terms of the Revolving Loan Agreement, through March 31, 2015 we have issued 400,000 shares of common stock. As consideration for MLTM providing letter of credit support, we are required to pay a letter of credit commission fee on the date of the Revolving Loan Agreement, and on each one year anniversary of the date of the Revolving Loan Agreement prior to the Maturity Date, in the amount equal to (i) 2% of the LC Sublimit in cash and (ii) shares of our common stock, with an aggregate value of 4% of the LC Sublimit, with each such share of our common stock valued at a price equal to the average of the Weighted Average Price of a share of our common stock for the 20 consecutive trading days prior to the date of payment. The issuance of the shares of common stock results in additional interest expense.

In connection with the entry into the Revolving Loan Agreement, pursuant to the terms thereof, we and the Lenders entered into a Security Agreement pursuant to which the Borrowers were granted a security interest and lien in all of our accounts receivable and inventory to secure the Borrowers’ obligations under the Revolving Loan Agreement.

Interest expense for the three months ended March 31, 2015 and 2014 was $61,807 and $67,058. Of the $61,087 of interest expense for the three months ended March 31, 2015, $20,000 was paid in cash or is to be paid in cash and the balance of $41,807 was or will be paid in shares of common stock.

The issuance costs plus the fair values of the shares of our common stock issued annually as consideration for the revolving loans and the letter of credit support, are recorded as a discount to the revolving loans. This debt discount is amortized to other expenses in our statement of operations over the annual period ending November 30. During the three months ended March 31, 2015 and 2014, we amortized $41,263 and $56,613, respectively of the discount to other expenses in our statement of operations.

3% Promissory Note

On November 15, 2013, our subsidiary, Axion Recycled Plastics Incorporated (“Axion Recycling”), entered into an Asset Purchase Agreement (the “Purchase Agreement”). See Notes 3 and 4 for further discussion. Pursuant to the terms of the Purchase Agreement, Axion Recycling acquired certain assets relating to the operation of a recycled plastics facility located in Zanesville, Ohio (the “Facility”). As a component of the consideration paid by Axion Recycling for these asset was the assumption of a 3% promissory note (the “Promissory Note”) with a remaining principal balance of $258,104 as of March 31, 2015. The principal and interest at 3% per annum, is payable in eighty-four monthly installments with the last installment due on February 1, 2018.

The payment of the Promissory Note and all interest thereon is secured by a first interest in certain equipment owned by Axion Recycling. We may prepay the Promissory Note at any time, in whole or in part, together with all accrued and unpaid interest, without premium or penalty.

Interest expense for the three months ended March 31, 2015 and 2014 of $2,045 and $2,904, respectively was paid in cash.

4.25% Bank Term Loans

During the year ended December 31, 2013, we purchased certain tangible and intangible assets including property and equipment of a plastics recycling company (see Note 3 for further discussion), which were funded, in part, by term loans (the “Bank Term Loans”) made by The Community Bank in the aggregate principal amounts of $1,000,000 and $3,500,000. Each of the Bank Term Loans bears interest at 4.25% per annum and matures on November 15, 2018. With respect to principal payments under the Bank Loans, $100,000 is due on each of November 15, 2014 and 2015, $250,000 is due on each of November 15, 2016 and 2017, and the balance of the principal amounts outstanding under the Bank Term Loans is due on November 15, 2018. The Bank Term Loans may be prepaid in full or in part at any time without premium or penalty. The Community Bank may accelerate all amounts due under the Bank Term Loans, together with accrued and unpaid interest, upon the occurrence of an Event of Default, as defined in the documents. We were in compliance with the term of the Bank Term Loans at March 31, 2015.

The Bank Term Loans are secured by a security interested in all of the equipment we purchased pursuant to this transaction and in certain of our equipment located at our Waco, Texas facility.

Interest expense for the three months ended March 31, 2015 and 2014 of $46,761 and $47,812, respectively was paid in cash.

8% Convertible Promissory Notes (2014)

During the year ended December 31, 2014 pursuant to the terms of our 8% convertible promissory notes (the “2014 Notes”), we issued and sold to MLTM Lending, LLC, Samuel Rose and Allen Kronstadt collectively the “Investors”, (see Note 13 regarding related party transactions) an aggregate principal amount of $2,000,000 of our 2014 Notes which are initially convertible into 7.5 million shares of our common stock, subject to adjustment as provided on the terms of the 2014 Notes, (i) at any time prescribed by the Investors or (ii) upon any date prior to June 11, 2019 (the “Maturity Date”) which the Company’s common shares are listed on a U.S. based stock exchange.

The fair value of the conversion option derivative liability at issuance, was recorded as a discount to the 2014 Notes. This debt discount is amortized to other expenses in our statement of operations over the term of the 2014 Notes. During the three months ended March 31, 2015, we amortized $281,240 of the discount to other expenses in our statement of operations. At March 31, 2015, the unamortized discount was $1.5 million. See Note 7 for further discussion of this derivative liability.

The 2014 Notes, including all outstanding principal and accrued and unpaid interest, are due and payable on the Maturity Date or upon the occurrence of an Event of Default (as defined in the 2014 Notes). We may prepay the 2014 Notes, in whole or in part, upon notice to the holders thereof. Interest accrues on the 2014 Notes at a rate of 8.0% per annum, payable quarterly starting with September 30, 2014. For the quarter ended December 31, 2014 and for each subsequent quarter that the 2014 Notes are outstanding, the Investors shall have the right to have the interest paid in shares of common stock, valued at the weighted average price of a share of common stock for the twenty consecutive trading days ending with the end of the quarter, pursuant to the terms of the 2014 Notes.

Interest expense for the three months ended March 31, 2015 was $40,000 and was paid in cash prior to or subsequent to March 31, 2015.

12% Convertible Promissory Notes

During the year ended December 31, 2014 pursuant to the terms of our 12% convertible promissory notes (the “12% Notes”), we issued and sold to MLTM Lending, LLC, Samuel Rose and Allen Kronstadt collectively the “Investors”, (see Note 13 regarding related party transactions) an aggregate principal amount of $1,000,000 of our 12% Notes. Upon sixty days’ notice, the principal due under the 12% Notes is convertible into shares of our common stock based on a Conversion Price which is 85% of the weighted average volume price per day of our common stock for the ten consecutive trading days preceding the day upon which the notice of conversion is received by us, pursuant to the 12% Notes.

The 12% Notes, including all outstanding principal and accrued and unpaid interest, are due and payable on June 30, 2015 or upon the occurrence of an Event of Default (as defined in the 12% Notes). We may prepay the 12% Notes, in whole or in part, upon notice to the holders thereof. Interest accrues on the 12% Notes at a rate of 12% per annum, payable monthly.

Interest expense for the three months ended March 31, 2015 was $30,000 and was paid in cash prior to or subsequent to March 31, 2015.

5% Bank Promissory Note

During the year ended December 31, 2014, we borrowed $4.0 million from a commercial bank (the “Bank”) pursuant to the terms of a promissory note and loan agreement (the “5% Bank Note”). Interest accrues on the outstanding principal at a fixed interest rate of 5% per annum and is payable monthly. All outstanding principal and accrued but unpaid interest is due on September 18, 2017. The 5% Bank Note may be prepaid in full or in part at any time without premium or penalty. The Bank may accelerate all amounts due under the Bank Term Loans, together with accrued and unpaid interest, upon the occurrence of an Event of Default, as defined in the documents. We were in compliance with the terms of the 5% Bank Note at March 31, 2015.

The Bank was induced to enter into the 5% Bank Note with the guarantee of Melvin Lenkin, Samuel Rose and Allen Kronstadt, collectively the “Investors”, (see Note 15 regarding related party transactions). In a separate agreement between the Bank and the Investors, the Investors agreed, among other terms, to guarantee to the Bank the full and punctual payment of all obligations which we have with the Bank in connection with the 5% Bank Note.

Interest expense for the three months ended March 31, 2015 of $50,000 was paid in cash prior to or subsequent to March 31, 2015.

12% Secured Notes

Through March 31, 2015 pursuant to the terms of our 12% secured notes (the “12% Secured Notes”), we issued and sold to MLTM Lending, LLC, Samuel Rose and Allen Kronstadt collectively the “Investors”, (see Note 13 regarding related party transactions) an aggregate principal amount of $6,394,664 of our 12% Secured Notes. Pursuant to the terms of the Pledge Agreement entered into contemporaneous with the 12% Secured Notes, we provided a security interest in favor of the Investors in all of our rights, title and interest in the pledged shares of common stock of certain wholly-owned subsidiaries of the Company.

The 12% Secured Notes, including all outstanding principal and accrued and unpaid interest, are due and payable on June 30, 2015 or upon the occurrence of an Event of Default (as defined in the 12% Secured Notes). We may prepay the 12% Secured Notes, in whole or in part, upon notice to the holders thereof. Interest accrues on the 12% Secured Notes at a rate of 12% per annum.

Interest expense for the three months ended March 31, 2015 was $137,403 and will be paid in cash on June 30, 2015, at maturity.