Quarterly report pursuant to Section 13 or 15(d)

Notes Payable and Long-Term Debt

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Notes Payable and Long-Term Debt
9 Months Ended
Sep. 30, 2018
Debt Disclosure [Abstract]  
Notes Payable and Long-Term Debt

7 NOTES PAYABLE AND LONG-TERM DEBT

 

As of September 30, 2018 and December 31, 2017, notes payable and long-term debt consists of:

 

    September 30, 2018     December 31, 2017  
Note payable to former officer and director due in four equal annual installments of $26,875 beginning April 28, 2016; past due in 2016 and 2017; accruing interest at 6% per annum since April 28, 2016 on the past due portion   $ 107,500     $ -  
Note payable to former officer due in four equal annual installments of $25,313 on April 28 of each year; past due in 2016 and 2017; accruing interest at 6% per annum since April 28, 2016 on the past due portion     101,250       -  
Notes payable to seller of DigitizeIQ, LLC due as noted below 1     485,000       -  
Convertible note payable to River North Equity LLC dated July 13, 2016 with interest at 10% per annum; due April 13, 2017; convertible into common stock 2     27,500       -  
Unsecured demand notes to an unaffiliated third-party company bearing interest at 6.49% 3     -       435,000  
      721,250       435,000  
                 
Current portion of long-term debt     669,062       435,000  
Long-term debt   $ 52,188     $ -  

 

Notes due seller of DigitizeIQ, LLC includes a series of notes as follows:

 

  A second non-interest-bearing Promissory Note made payable to the Seller in the amount of $250,000, which was due on January 12, 2016; (Balance at September 30, 2018 - $235,000)
     
  A third non-interest-bearing Promissory Note made payable to the Seller in the amount of $250,000, which was due on March 12, 2016 and remains unpaid as of September 30, 2018.

 

The Company is renegotiating the terms of the notes. The notes bear interest at 5% per annum when in default (after the due date). The notes were non-interest bearing until due. Accordingly, a debt discount at 5% per annum was calculated for the notes and was amortized to interest expense until the due date of the notes.

 

2Convertible note payable to River North Equity, LLC (“RNE”) - The Company evaluated the embedded conversion for derivative treatment and recorded an initial derivative liability and debt discount of $23,190. The debt discount is fully amortized.

 

The Company has entered into a number of agreements with RNE wherein RNE has agreed to invest up to $3,000,000 in the common stock of the Company. These agreements require an effective Registration Statement to be on file by the Company and would allow the Company to require RNE to purchase the Company’s common stock at 90% of the lowest trading price of the Company’s common stock during the previous five trading days. The Company has not yet filed a Registration Statement with the SEC.

 

3Unsecured Demand Note – In August 2018, the Company reached a settlement with the debt holder and issued 2,175,000 common shares in full settlement of the outstanding debt.

 

Derivative liability

 

The Company has determined that the conversion feature embedded in the notes referred to above that contain a potential variable conversion amount constitutes a derivative which has been bifurcated from the note and recorded as a derivative liability, with a corresponding discount recorded to the associated debt. The excess of the derivative value over the face amount of the note, if any, is recorded immediately to interest expense at inception.

 

The estimated fair value of the derivative instruments was valued using the Black-Scholes option pricing model, using the following assumptions during the nine months ended September 30, 2018:

 

Estimated dividends   None  
Expected volatility     113.72 %
Risk free interest rate     3.13 %
Expected term     .01-36 months