LONG-TERM OBLIGATIONS

12 Months Ended

Dec. 31, 2019

Long-term Debt, Unclassified [Abstract]

LONG-TERM OBLIGATIONS

Notes Payable - Other - Term notes payable - other consist of:

	December 31,
	2019		2018
2016 note payable, 6%, unsecured, due December 31, 2021 (A)	$	500,000	$	500,000
Convertible note payable, 6%, due January 1, 2020 (B)		264,000		264,000
Note payable, 10%, secured, due January 1, 2018 (C)		265,000		265,000
Convertible term note payable,12%, secured, due August 31, 2018 (D)		175,000		175,000
Term note payable - PBGC, 6%, secured (E)		246,000		246,000
		1,450,000		1,450,000
Less: deferred financing costs		13,110		19,665
		1,436,890		1,430,335
Less: current maturities		950,000		686,000
	$	486,890	$	744,335

(A) 2016 note payable, 6%, unsecured, due December 31, 2021 - On March 14, 2016, the Company entered into an unsecured financing agreement with a third-party lender. At December 31, 2016, the Company was obligated for $500,000. Borrowings bear interest at 6% with interest payments due quarterly. Principal is due on December 31, 2021. Principal and interest may become immediately due and payable upon the occurrence of customary events of default. In consideration for providing the financing, the Company paid the lender a fee of 2,500,000 shares of its common stock valued at $37,500 on the date of the agreement based upon the closing bid quotation of its common stock on the OTC Bulletin Board on that date. These deferred financing costs are recorded as a reduction of the principal owed and are amortized over the life of the debt. The balance of the note payable was $467,225 at December 31, 2016 consisting of principal due of $500,000 offset by deferred financing costs of $32,775. As of December 31, 2019, the balance was $486,890 (2018 - $480,335). The lender has piggy back registration rights for these shares. The Company’s Chief Executive Officer and President agreed to guarantee the loan obligations if he is no longer an “affiliate” of the Company as defined by Securities and Exchange Commission rules.

(B) Convertible note payable, 6%, due January 1, 2020 - This note has the same terms as item (C) of Note 6 except it matures on January 1, 2020 and has not been extended.

(C) Note payable, 10%, secured, due January 1, 2018 - During the years ended December 31, 2004 and 2003, the Company issued secured notes payable aggregating $265,000. These borrowings bear interest at 10% and were due, as modified on January 1, 2018. This note has not been further extended. The notes are secured by a first lien on accounts receivable that are not otherwise used by the Company as collateral for other borrowings and by a second lien on accounts receivable.

(D) Convertible term note payable, 12%, secured, due August 31, 2018 - The Company entered into a secured loan agreement during 2008 for working capital. The loan bears interest at 12%, which is payable monthly and was due, as modified on August 31, 2018 for an aggregate of $175,000. During 2009, the note was modified for its conversion into common shares at $.25 per share, which was the closing price of the Company’s common stock on the date of the modification. The note is secured by a subordinate lien on all assets of the Company.

(E) Term note payable - PBGC, 6%, secured - On October 17, 2011, in accordance with of the Settlement Agreement dated September 6, 2011 (the “Settlement Agreement”), the Company issued a secured promissory note in favor of the Pension Benefit Guaranty Corporation (the “PBGC”) for $300,000 bearing interest at 6% per annum due in scheduled quarterly payments over a seven-year period with a balloon payment of $219,000 due on September 15, 2018.

Notes Payable - Related Parties

Notes payable - related parties consist of:

	December 31,
	2019		2018
Note payable, up to $500,000, 7.5%, due August 31, 2026 (A)	$	200,000		0
Convertible notes payable, 6% (B)		155,300	$	155,300
Note payable, $400,000 line of credit, 8.35%, unsecured (C)		366,635		379,365
Convertible note payable, 7%, due March 31, 2021 (D)		25,000		25,000
Note payable, $100,000 line of credit, 6%, unsecured (E)		90,000		90,000
Note payable, $75,000 line of credit, 6%, unsecured (F)		70,000		70,000
		906,935		719,665
Less deferred financing costs		0		7,360
		906,935		712,305
Less current maturities		512,935		34,350
	$	394,000	$	677,955

(A) Note payable of up to $500,000, 7.5%, due August 31, 2026 - On May 7, 2019, the Company entered into a note payable agreement for up to $500,000 with a related party. The note has an interest rate of 7.5% and is due on August 31, 2026. The Company borrowed $200,000 during the year ended December 31, 2019, which remains outstanding as of December 31, 2019. As consideration for providing this financing, the Company granted a stock option to purchase a total of 2,500,000 common shares at an exercise price of $.02 and recorded interest expense of $14,250 using the Black-Scholes option pricing model to determine the estimated fair value of the option.

(B) Convertible notes payable, 6% - The Company has various notes payable to related parties totaling $155,300 of which $146,300 matured on January 1, 2020 and $9,000 matures on January 1, 2021. The notes that matured on January 1, 2020 were not extended and are past due. Principal and accrued interest are convertible at the option of the holder into shares of common stock at $.05 per share. The notes bear interest at 6.75% at December 31, 2019. The rate is adjusted annually, on January 1st of each year, to the prime rate in effect on December 31st of the immediately preceding year, plus one and one quarter percent, and in no event, shall the interest rate be less than 6% per annum. The rate effective as of January 1, 2020 was 6.00%.

The Company executed collateral security agreements with the note holders providing for a subordinate security interest in all the Company’s assets. Generally, upon notice, prior to the note maturity date, the Company can prepay all or a portion of the outstanding notes.

The Notes are convertible into shares of common stock subject to the following limitations: The Notes are not convertible to the extent that shares of common stock issuable upon the proposed conversion would result in a change in control of the Company which would limit the use of its net operating loss carryforwards; provided, however, if the Company closes a transaction with another third party or parties that results in a change of control which will limit the use of its net operating loss carryforwards, then the foregoing limitation shall lapse. Prior to any conversion by a requesting note holder, each note holder holding a note which is then convertible into 5% or more of the Company’s common stock shall be entitled to participate on a pari passu basis with the requesting note holder and upon any such participation the requesting note holder shall proportionately adjust his conversion request such that, in the aggregate, a change of control, which will limit the use of the Company’s net operating loss carryforwards, does not occur.

(C) Note payable, $400,000 line of credit, 8.35%, unsecured - On December 1, 2014, the Company entered into an unsecured line of credit financing agreement with a member of its Board. The LOC Agreement provides for working capital of up to $400,000 through January 1, 2020. This agreement was not extended and is past due. The Company is required to provide the lender with a report stating the use of proceeds for each pending draw under the line of credit. Borrowings of $100,000 or more bear interest at the prime rate plus 2.85% (effective rate of 7.60% at December 31, 2019). Principal and interest are due monthly using an amortization schedule that requires payments of $8,000 annually and a balloon payment of the remaining balance at maturity. The balance of the note payable was $366,635 at December 31, 2019 ($372,005 - 2018) consisting of principal due of $366,635 ($379,365 - 2018) offset by deferred financing costs of $0 ($7,360 – 2018).

(D) Convertible note payable, 7%, due March 31, 2021 - On February 12, 2015, the Company borrowed $25,000 from a Company officer. The note is unsecured and matured on March 31, 2018 with principal convertible at the option of the holder into shares of common stock at $.10 per share. In 2019, the Company officer extended the due date to March 31, 2021.

(E) Note payable, $100,000 line of credit, 6%, unsecured - On July 18, 2017, the Company entered into an unsecured line of credit financing agreement with an officer and member of its Board. The LOC Agreement provides for working capital of up to $100,000 with interest at 6% due quarterly through July 1, 2022. In consideration for providing the financing, the lender was granted an option to purchase 400,000 shares of common stock at $.04 per share. The option expires on July 17, 2022.

(F) Note payable, $75,000 line of credit, 6%, unsecured - On September 21, 2017, the Company entered into an unsecured line of credit financing agreement with a related party. The LOC Agreement provides for working capital of up to $75,000 with interest at 6% due quarterly through January 2, 2023. In consideration for providing the financing, the lender was granted an option to purchase 400,000 shares of common stock at $.04 per share. The option expires on January 2, 2023.

Long-Term Obligations

As of December 31, 2019, minimum future annual payments of long-term obligations and amortization of deferred financing costs are as follows:

	Annual		Annual
	Payments		Amortization		Net
Due Prior to 2020	$	698,020	$	0	$	698,020
2020		764,915		0		764,915
2021		624,000		13,110		610,890
2022		0		0		0
2023		70,000		0		70,000
2024		0		0		0
2025		0		0		0
2026		200,000		0		200,000
Total long-term obligations	$	2,356,935	$	13,110	$	2,343,825