Notes Payable

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

NOTES PAYABLE

8. NOTES PAYABLE

During the quarter ended September 30, 2020, we received $4,324,000 in bridge funding pursuant to 10% Convertible Promissory Notes. Also, during the quarter, notes containing a principal balance of $410,000 with a maturity date of September 1, 2019 and a principal balance of $620,000 with a maturity date of December 1, 2019 were exchanged into this portfolio of notes payable. These notes are convertible into shares of our common stock at a conversion price of $0.30 per share, as negotiated with the holders based on the prevailing market price of the common stock leading up to the issuance of the notes. At any time after October 15, 2020 until July 15, 2021, the date of maturity, (i) each investor may elect to convert these notes into shares of our common stock, at a conversion price of $0.30 per share and (ii) the company may elect to prepay, either in cash or in shares of common stock at a price of $0.30 per share, at the option of the holder, the amount of principal and interest then outstanding under each note. In the event we elect to prepay the notes, we will notify the holders, each of whom will then have five business days to notify the company if they prefer to receive such prepayment in cash or stock. These notes are payable in full at maturity. In lieu of repayment of the principal and interest on the notes at maturity, the Company may elect to convert the amounts due into shares of Common Stock at a price of $0.15 per share.

During the quarter ended March 31, 2020, the company entered into a premium financing agreement to finance its director and officer insurance policy. The principal is approximately $108,000, with nine monthly payments of $12,498 and an interest rate of 9.7%. The balance at September 30, 2020 is $24,000 included in current notes payable.

On April 28, 2020, the Company entered into a loan agreement with Alliance Bank of Arizona, N.A. for a loan in the amount of $133,000 pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act enacted on March 27, 2020 (the “CARES Act”). This loan is evidenced by a promissory note dated April 27, 2020 and matures two years from the disbursement date. This loan bears interest at a rate of 1.00% per annum, with the first nine months of interest deferred. Principal and interest are payable monthly commencing nine months after the disbursement date and may be prepaid by the Company at any time prior to maturity with no prepayment penalties. This loan contains customary events of default relating to, among other things, payment defaults or breaches of the terms of the loan. Upon the occurrence of an event of default, the lender may require immediate repayment of all amounts outstanding under the note.

During the nine months ended September 30, 2019, the company received $1,150,000 from eight non-affiliated individuals based on 10% promissory notes. The notes mature September 1, 2019. The notes are accompanied by a Common Stock Purchase Warrant entitling the holder to purchase one share of the company’s common stock, par value $0.001 per share, for each $2.00 of Note principle, at an exercise price of $0.07 per share, for two years from the date of issuance. During the quarter ended September 30, 2020, a note with the principal balance of $230,000 plus accrued interest was paid off.

The following reconciles notes payable as of September 30, 2020 and December 31, 2019:

	September 30, 2020			December 31, 2019
Beginning balance	$	4,967,890		$	-
Notes payable		4,456,760			4,934,329
Transfer from prepaid		108,064			-
Accrued interest		237,229			119,218
Establish beneficial conversion feature		(708,034	)		-
Amortize beneficial conversion feature		114,684			-
Payments on notes payable		(528,251	)		(85,657	)
Total		8,648,342			4,967,890
Less-Notes payable - current		(7,515,018	)		(3,467,890	)
Notes payable - non-current	$	1,133,324		$	1,500,000

Of the notes payable at September 30, 2020, $830,000 were due September 1, 2019, $1,100,000 were due December 1, 2019, $4,574,000 were due July 15, 2021, $24,000, payable monthly over two monthly payments, is due December 12, 2020, $133,000 were due April 28, 2022 and $2,500,000 is payable in $500,000 semi-annual payments is due May 24, 2022. The notes due on September 1, 2019, December 31, 2019 and July 15, 2021 have an interest rate of 10%, the note due on December 12, 2020 has an interest rate of 9.7%, the note due on April 28, 2022 has an interest rate of 1.0% and the note due on May 24, 2022 has interest rate of 0%. All notes are unsecured.

The notes due September 1, 2019, December 1, 2019, December 12, 2020, April 28, 2022 and May 24, 2022 are not convertible. The notes due July 15, 2021 are convertible. Interest expense on these notes was $239,000 for the quarter ended September 30, 2020 and $47,000 for the quarter ended September 30, 2019. Interest expense on these notes was $409,000 for the nine months ended September 30, 2020 and $78,000 for the nine months ended September 30, 2019. Interest expense for the nine months ended September 30, 2020 includes a $50,000 penalty interest for not making the first $500,000 payment on the note payable for the AOS acquisition.