|3 Months Ended|
Mar. 31, 2020
|Disclosure Text Block [Abstract]|
NOTE E –DEBT
Prior to 2016 the Company invested in and purchased various assets which were paid, in part, by the issuance of a promissory note having an initial principal balance of $1.3 million. The promissory note is due upon demand, and has an interest rate of 18% per annum.
Convertible Note Payable to Executive Officer
On October 16, 2018, Richard Palmer, the Company’s Chief Executive Officer and President, entered into a new employment agreement with the Company and concurrently agreed to defer $1 million of his accrued unpaid salary and bonus for two years. In order to evidence the foregoing deferral, the Company and Mr. Palmer entered into a $1 million convertible promissory note (the “Convertible Note”). The Convertible Note accrues simple interest on the outstanding principal balance at the annual rate of five percent (5%) and became due and payable on October 15, 2020, its maturity date. Under its existing credit agreements, the Company is restricted from repaying Mr. Palmer’s loan and, accordingly, the Company is currently in default under the Convertible Note. As of quarters ended March 31, 2020 and 2019, the Company had recorded accrued interest payable of approximately $73,000 and $23,000 under the Convertible Note. Under the Convertible Note, Mr. Palmer has the right, exercisable at any time until the Convertible Note is fully paid, to convert all or any portion of the outstanding principal balance and accrued and unpaid interest into shares of the Company’s Common Stock at an exercise price of $0.0154 per share.
Convertible Notes Payable
The Company has several outstanding unsecured promissory notes that are convertible into the Company or the Company’s subsidiaries shares at different prices ranging from $0.03 per share into the parent company’s stock and up to $1.48 per share into a subsidiary’s common stock. These notes have passed their original maturity date and they continue to accrue interest at varying rates, from 8% to 10%. On a combined basis, as of March 31, 2020 the principal amount of these notes is approximately $0.7 million.
Fixed Payment Obligation
As described in Note A, under “Fair Value Measurements and Fair Value of Financial Instruments”, the Company amended a derivative forward contract during the quarter ended March 31, 2020, with the counterparty. The amendment terminated the derivative forward contract and replaced it with a fixed payment obligation. This fixed payment obligation was subsequently amended in April 2020. Under the amended terms, the contract requires total payments of $24.8 million, including a payment of $4.5 million in June 2020, which was paid, and six equal monthly installment payments beginning in May 2022. For financial reporting purposes, the fixed payment obligation has been recorded at the present value of future payments, using a discount rate of 14.8%.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef