Notes Payable, Related Parties | 10. Notes Payable, Related Parties The following summarizes our related party notes payable as of June 30, 2017 and September 30, 2016. Notes payable consists of the following at: June 30, 2017 September 30, 2016 Term note payable, Trident Resources, LLC, secured by liens on equipment with an interest rate of 6.0% and requiring 48 monthly payments. Payment start date is tied to production goals. $ 1,716,500 $ 1,716,500 Term note payable, WPU Leasing LLC, secured by liens on equipment with an interest rate of 15.0% with due dates of August 31, 2019 and October 31, 2019. 1,758,484 1,758,484 10% Contingent convertible notes payable, due October 27, 2017 3,000,000 — Officer’s 10% promissory note, due September 30, 2017 — 50,000 6,474,984 3,524,984 Less current portion (3,000,000 ) (744,614 ) Less unamortized discount and deferred financing fees, net of current (293,051 ) (39,002 ) Notes payable, non-current portion $ 3,181,933 $ 2,741,368 Notes Payable-Related Party-Trident Resources, LLC On August 12, 2015, we purchased two processing systems from Trident Resources, LLC for $1,716,500. We issued Trident a promissory note for $832,000, which was payable in 12 equal monthly installments of principal and interest at 6.75% commencing September 20, 2015 and a second secured promissory note for $884,500, which was payable in 36 equal monthly installments of principal and interest at 6% commencing September 20, 2016. These notes are secured by liens on the purchased equipment. As of December 1, 2015, we amended and restated these two secured promissory notes and combined the obligations of the original notes into a new note for $1,716,500 which bears interest at 6% per year with 48 monthly payments of principal and interest estimated to initially begin on August 31, 2016 assuming the Trident NGL Services division meets specified production goals in the preceding month. If these production goals are not met, the new note provides that we may defer payments otherwise due in any month following a month in which the production goals are not met to the maturity date, without incurring any additional interest. The amended and restated note also permits us, at our discretion, to offset against amounts otherwise due under such note in the event of any default by Trident under its promissory note to the Company. As of June 30, 2017, no principal or interest payments have been made on this note and we have accrued interest of $198,446 associated with this note, which is included in accrued expenses. Financing Agreement –WPU Leasing, LLC In January 2016, WPU Leasing agreed to defer cash payments on approximately 70% of the $1.9 million of debt outstanding. The deferral of payments reduced our cash outflow commitments by approximately $500,000 during fiscal 2016 and as noted below, WPU has agreed to defer subsequent payments due after fiscal 2016. WPU Leasing had the option, starting June 30, 2016, of taking deferred and current payments in shares of our Common Stock (based on the 20 day volume weighted average price prior to conversion) which would positively impact our cash flow position going forward. At June 30, 2016, a member of WPU Leasing, LLC which is affiliated with one of our Directors agreed to accept 1,209,857 shares of Common Stock (valued at $.14 per share) in lieu of cash for deferred principal and interest payments due as of June 30, 2016 of $169,379. No other payments have been made since June 30, 2016. As of June 30, 2017 and September 30, 2016, we have accrued interest associated with this note of $464,143 and $238,953, respectively. These amounts are included in accrued expenses. In consideration of WPU Leasing’s commitment under our financing agreement, we issued to WPU Leasing’s members warrants to purchase up to the lesser of (i) an aggregate of 3,250,000 shares of our Common Stock or (ii) one share of Common Stock for each dollar borrowed by us under the agreement. During the fiscal year ended September 30, 2016, we terminated warrants to purchase 1,325,000 shares of Common Stock due to the fact WPU Leasing had not provided the remaining $1.325 million of its commitment. The warrants are exercisable at a price of $.20 per share for a period of four years from the date of issue and may be exercised on a cashless basis. We determined the value of these warrants using the Black-Scholes option pricing model and recorded deferred financing costs of $86,923, which are being amortized over the term of the finance agreement. In connection with the January 2017 private placement, WPU Leasing agreed to defer all current and future cash interest and principal payments due under approximately $1.8 million of notes until such time as our Board of Directors determines we are in a position to resume normal payments but no later than such time as we are EBITDA positive at a Corporate level for two consecutive quarters. In addition, WPU amended its notes, effective as of December 1, 2016, to reduce the current normal interest rate from 22.2% to 15% and eliminate the penalty interest provision. On January 27, 2017, in consideration of WPU Leasing’s agreements and waivers, we issued WPU’s members ten year warrants to purchase an aggregate of 3,538,172 shares of our Common Stock at an exercise price of $.10 per share. Using the Black-Scholes model, we determined the fair value of the warrants to be $371,961. We evaluated the debt amendment according to ASC 470 guidance, and determined the difference between the original and new debt instruments to not be substantially different under the 10% test; therefore, the fair value of the warrants was recorded as a reduction against the WPU notes and an increase in Additional Paid in Capital. As a result of the warrant issuance, we recorded a $400,024 debt discount during the quarter ended March 31, 2017. This discount is being accreted to interest expense over the term of the facility using the effective interest method, and includes $28,063 of the remaining debt issuance costs expensed at the time of the refinancing, and $371,961 in warrants issued in consideration of the interest rate reduction. The warrants were valued using the Black-Scholes pricing model with the following assumptions; dividend yield 0%; risk-free interest rate of 2.49%; volatility of approximately 73%, and expected term of 10 years. See Note 13, “Fair Value Measurements,” for further discussion regarding the recorded value of the Note Payable to WPU Leasing. 10% Subordinated Contingent Convertible Promissory Notes During the nine months ended June 30, 2017, we issued $3.0 million of 10% Subordinated Contingent Convertible Promissory Notes to several existing shareholders, members of management and investors affiliated with members of our Board of Directors. Under their original terms, these notes are automatically convertible into shares of a new proposed Series E 12.5% Convertible Preferred Stock at a conversion price of $100,000 per share, subject to shareholder approval of an increase in the number of authorized shares of our Common Stock from 350 million to a minimum of 600 million and the filing of a Certificate of Designation for the Series E Convertible Preferred Stock,. Each share of Series E Convertible Preferred Stock would be convertible into shares of our Common Stock at a conversion price of $0.10 per share. Upon the conversion of the notes into shares of Series E Preferred Stock, we will issue to each investor a ten-year warrant to purchase a number of shares of Common Stock equal to ten times the number of shares issuable upon conversion of the Series E Preferred Stock, exercisable at $0.10 per share. On May 26, 2017, the holders agreed to defer the automatic conversion of the notes into the Series E Convertible Preferred Stock until such time as written notice is received from the holders requesting us to file the Certificate of Designation for the Series E Convertible Preferred Stock. In addition, on July 26, 2017, the holders also agreed to extend the maturity of the notes from July 27, 2017 until October 27, 2017. Officer’s Promissory Note In 2010, an officer loaned us $50,000 under an unsecured promissory note, the maturity of which has been extended several times. In September 2016, the officer agreed to extend the maturity of the outstanding $50,000 balance to September 30, 2017 and agreed to convert the outstanding balance into the 10% Subordinated Contingent Convertible Promissory Notes . |