| NOTES PAYABLE |
NOTE 7 — NOTES PAYABLE Notes payable included the following as of June 30, 2023 and December 31, 2022: | | | | | | | | | June 30, | | December 31, | | | 2023 | | 2022 | Secured notes payable: | | | | | | | | | | | | | | Secured note payable issued December 7, 2018 to a shareholder, bearing interest of 10% per year, due one year after issuance. On March 6, 2020, the maturity date of the note was extended to June 30, 2020. On September 9, 2022, the maturity date of the note was extended to December 31, 2022. In January 2023 the maturity date of the note was extended to June 30, 2023. This note was paid in full subsequent to June 30, 2023. | | $ | 100,000 | | $ | 100,000 | | | | | | | | Secured note payable issued December 7, 2018 to a shareholder, bearing interest of 10% per year, due one year after issuance. On March 6, 2020, the maturity date of the note was extended to June 30, 2020. On September 9, 2022, the maturity date of the note was extended to December 31, 2022. In January 2023 the maturity date of the note was extended to June 30, 2023. This note was paid in full subsequent to June 30, 2023. | | | 100,000 | | | 100,000 | | | | | | | | Secured note payable issued December 7, 2018, bearing interest of 10% per year, due one year after issuance. On September 9, 2022, the maturity date of the note was extended to December 31, 2022. In January 2023 the maturity date of the note was extended to June 30, 2023. This note was settled by issuance of common stock subsequent to June 30, 2023. | | | 100,000 | | | 100,000 | | | | | | | | Secured note payable issued on December 7, 2018 related to the acquisition of Momentum Water Transfer Services LLC, bearing interest of 6% per year and due in monthly installments of $7,500, with a maturity date of December 8, 2023. On September 29, 2022, the Company entered into a settlement of debt agreement and release. Per the agreement, the Company converted approximately $467,000 of debt into shares of common stock. The Company will pay six remaining quarterly payments of approximately $45,833 per month from December 2022 through March 31, 2024, the amended maturity date. | | | 137,500 | | | 275,000 | | | | | | | | Secured note payable issued May 1, 2019 to a shareholder, bearing interest of 10% per year, due July 1, 2019, with a principal balance of $100,000. Note was extended to March 30, 2020. On September 9, 2022, the maturity date of the note was extended to December 31, 2022. In January 2023 the maturity date of the note was extended to June 30, 2023. This note was settled by issuance of common stock subsequent to June 30, 2023. | | | 100,000 | | | 100,000 | | | | | | | | Secured note payable issued June 17, 2019 to a shareholder, bearing interest of 10% per year, due June 30, 2020. On September 9, 2022, the maturity date of this note was extended to December 31, 2022. In January 2023 the maturity date of the note was extended to June 30, 2023. This note was settled by issuance of common stock subsequent to June 30, 2023. | | | 80,000 | | | 80,000 | | | | | | | | Secured note payable with a related party issued February 27, 2020 in connection with the 5J acquisition, bearing interest of 10% per year, and which matured on February 1, 2023 This note was settled by issuance of common stock subsequent to June 30, 2023. | | | 2,000,000 | | | 2,000,000 | | | | | | | | Various notes payable secured by equipment of 5J Trucking, LLC, bearing interest ranging from 5.32% to 5.5% maturing from January 2023 through March 2023. These notes are currently past due. If a default notice is received the interest rate will range from 10.32% to 10.5% | | | — | | | 64,521 | | | | | | | | Secured note payable with a related party issued on February 27, 2020, bearing interest of 10.0% per year, which matured on March 1, 2023. | | | — | | | 77,856 | | | | | | | | Secured promissory notes for Jake, SMG Industries, Inc, and 5J Trucking LLC, with Small Business Administration Economic Injury Disaster Loans, bearing interest 3.75% annually and maturing in June, August, and September 2050. | | | 386,263 | | | 389,339 | | | | | | | | Secured promissory note issued on June 20, 2020 in connection with an equipment purchase. The note is due and payable in thirty-six monthly installments of $45,585 commencing on July 20, 2020 and the final installment is due on July 1, 2023. This note was repaid in full subsequent to June 30, 2023. | | | 133,754 | | | 347,045 | | | | | | | | Secured promissory note issued on January 27, 2022. The note is due on May 1, 2026 and secured by machinery and equipment owned by the Company. The Company paid an initial installment of $95,025, with monthly payments of approximately $15,275 per month beginning in June 2022 through maturity. This note was repaid in full subsequent to June 30, 2023. | | | 483,820 | | | 538,613 | | | | | | | | Secured promissory note issued on July 11, 2022. The note is due on June 8, 2027 and secured by equipment owned by the Company. The Company will pay monthly payments of approximately $2,372 per month beginning in July 2022 through maturity. | | | 97,851 | | | 109,833 | | | | | | | | Secured promissory note issued on November 30, 2022. The note is due and payable in thirty-six monthly installments of $3,304 commencing on December 30, 2022 and the final installment is due on November 30, 2025. | | | 85,855 | | | 104,103 | | | | | | | | Various notes payable secured by equipment of 5J Trucking, LLC, bearing interest ranging from 9.54% to 9.89% and maturing on various dates from March 2027 through February 2028. | | | 311,240 | | | — | | | | | | | | Secured promissory note with Amerisource, a related party, issued on September 7, 2021 in the amount of $12,740,000, bearing interest at 12%, maturing September 7, 2026. The Company is required to make monthly payments of interest only beginning October 1, 2021, with payments of principal and interest beginning in October 2022. On March 15, 2022, the Company entered into an agreement with Amerisource, to amend the Loan Agreement dated September 7, 2021, pursuant to which Amerisource agreed to increase the loan commitment to the Company from $12,740,000 to $16,740,000. In January 2023, the Company received $1,000,000 in additional proceeds under this facility, which has a maturity date of June 30, 2023. Subsequent to June 30, 2023, approximately $7,665,000 of principal was settled with common stock, approximately $6,935,000 was paid in cash, and with the remaining $606,000 still outstanding. | | | 15,206,292 | | | 15,911,485 | | | | 19,322,575 | | | 20,297,795 | Less current maturities | | | (7,853,334) | | | (6,990,486) | | | | | | | | Long term secured notes payable, net of current maturities | | $ | 11,469,241 | | $ | 13,307,309 |
Effective January 1, 2023, the Company issued 720,000 shares of common stock to holders of $480,000 in secured notes payable. During the six months ended June 30, 2023, the Company entered into five new secured notes payable. The notes are due from April 2027 through March 2029 and secured by equipment owned by the Company. The Company will pay monthly payments ranging from $1,136 to $1,723 per month beginning in March 2023 through maturity. Notes Payable – Unsecured | | | | | | | | | June 30, | | December 31, | | | 2023 | | 2022 | Insurance premium financing note with original principal of $1,677,968, monthly payments of $174,154, with stated interest of 8.0%, and maturing on May 1, 2023. On February 1, 2023, the policy was extended with principal amount of $645,195, monthly payments of $164,543, stated interest of 9.6% and matured on June 1, 2023. | | $ | — | | $ | 640,083 | | | | | | | | Insurance premium financing note with original principal of $485,830, monthly payments of $49,809, with stated interest of 5.470%, and which matured on February 14, 2023. | | | — | | | 98,780 | | | | | | | | Unsecured note payable with a shareholder. Note issued on August 10, 2018 for $40,000, due December 30, 2018 (extended to June 30, 2020) with 10% interest per year, and balance of payable is due on demand. An additional $25,000 was advanced and is due on demand. On September 9, 2022, the maturity date of the note was extended to December 31, 2022. In January 2023, the maturity date of the note was extended to June 30, 2023. This note was paid in full subsequent to June 30, 2023. | | | 44,559 | | | 44,559 | | | | | | | | Unsecured payable for settlement of lawsuit with an original settlement on April 13, 2021 for $196,188, monthly payments of $6,822 for 24 months, an interest rate of 6% and a default interest rate of 18%. | | | — | | | 2,925 | | | | | | | | Unsecured note payable with a shareholder, a related party. Note issued on December 22, 2021 for $150,000, due January 31, 2022 with 12% interest per year. During the year ended December 31, 2022, an additional $895,025 was loaned by the shareholder, related party. On August 3, 2022, the maturity date of the note was extended to December 31, 2022. In January 2023, the maturity date of the note was extended to June 30, 2023. This note was settled by issuance of common stock subsequent to June 30, 2023. | | | 1,045,025 | | | 1,045,025 | | | | | | | | Unsecured note payable with a shareholder, a related party. Note issued on December 22, 2021 for $150,000, due January 31, 2022 with 12% interest per year. On January 6, 2022, the shareholder, related party, loaned the Company an additional $100,000. On August 3, 2022, the maturity date of note was extended to December 31, 2022. In January 2023, the maturity date of the note was extended to June 30, 2023. This note was settled by issuance of common stock subsequent to June 30, 2023. | | | 250,000 | | | 250,000 | | | | | | | | Unsecured note payable with a shareholder. Note issued on December 22, 2021 for $150,000, due January 31, 2022 with 12% interest per year. On January 6, 2022, the shareholder, loaned the Company an additional $100,000. On August 3, 2022, the maturity date of the note was extended to December 31, 2022. In January 2023, the maturity date of the note was extended to June 30, 2023. This note was settled by issuance of common stock subsequent to June 30, 2023. | | | 250,000 | | | 250,000 | | | | | | | | Unsecured note payable with a shareholder, a related party. Note issued on February 14, 2022 for $134,073, due March 31, 2022 with 12% interest per year. On August 3, 2022, the maturity date of the note was extended to December 31, 2022. In January 2023, the maturity date of the note was extended to June 30, 2023. This note was settled by issuance of common stock subsequent to June 30, 2023. | | | 134,073 | | | 134,073 | | | | | | | | Unsecured note payable with a shareholder, a related party. Note issued on January 18, 2023 for $250,000, due June 30, 2023 with 12% interest per year. This note was settled by issuance of common stock subsequent to June 30, 2023. | | | 250,000 | | | — | | | | | | | | Unsecured note payable with a shareholder, a related party. Note issued on January 18, 2023 for $350,000, due June 30, 2023 with 12% interest per year. This note was settled by issuance of common stock subsequent to June 30, 2023. | | | 350,000 | | | — | | | | | | | | Unsecured note payable with a shareholder, a related party. Note issued on January 18, 2023 for $350,000, due June 30, 2023 with 12% interest per year. This note was settled by issuance of common stock subsequent to June 30, 2023. | | | 350,000 | | | — | | | | | | | | Unsecured notes payable with a shareholder, a related party. Note issued on January 18, 2023 for $50,000, due June 30, 2023 with 12% interest per year. This note was settled by issuance of common stock subsequent to June 30, 2023. | | | 50,000 | | | — | | | | | | | | Notes payable - unsecured | | | 2,723,657 | | | 2,465,445 | Less current portion | | | (2,723,657) | | | (2,465,445) | | | | | | | | Notes payable - unsecured, net of current portion | | $ | — | | $ | — |
Effective January 1, 2023, the Company issued 2,585,487 shares of common stock to holders of $1,723,657 of unsecured notes payable. On January 27, 2023, the Company issued an aggregate of 2,000,000 shares of its common stock to four purchasers of new promissory notes in the principal amount of $1,000,000. The Company recorded deferred financing cost of $360,000 based on the fair value of the shares issued to the lenders, which was recognized as a discount. The Company amortized total debt discount of $360,000 related to secured notes payable during the six months ended June 30, 2023. The new promissory notes matured on June 30, 2023 and bear interest at 12%. Subsequent to June 30, 2023, the notes were settled by issuance of common stock. Accounts Receivable Financing Facility (Secured Line of Credit) On February 27, 2020, the 5J Oilfield Services LLC and 5J Trucking LLC (the “5J Entities”) entered into a Revolving Accounts Receivable Assignment and Term Loan Financing and Security Agreement (the “Financing Agreement”) with Amerisource Funding Inc. (“Amerisource”) in the aggregate amount of $10,000,000 (the “Amerisource Financing”).The Amerisource Financing provides for: (i) an equipment loan in the principal amount of $1,401,559 (“Amerisource Equipment Loan”), (ii) a bridge term facility in the amount of $550,690, and (iii) an accounts receivable revolving line of credit up to $10,000,000 (the “AR Facility”). The Company recorded deferred financing costs of $223,558 recognized on the date of incurrence as a discount. During the six months ended June 30, 2023 and 2022, $28,428 and $28,428 of debt discount was amortized to interest expense, and the unamortized discount was $0 and $28,428 as of June 30, 2023 and December 31, 2022, respectively. Amerisource is a related party of the Company due to its holdings of common stock and convertible debt of the Company and has an officer on the Board of Directors of the Company (the “Board”). The AR Facility has been issued in an amount not to exceed $10,000,000, with the maximum availability limited to 90% of the eligible accounts receivable (as defined in the financing agreement). The AR Facility is paid for by the assignment of the accounts receivable of each of the 5J Entities and is secured by all instruments and proceeds related thereto. The AR Facility has an interest rate of 4.5% in excess of the prime rate per annum, an initial collateral management fee of 0.75% of the maximum account limit per annum, a non-usage fee of 0.35% assessed on a quarterly basis on the difference between the maximum availability under the AR Facility and the average daily revolving loan balance outstanding, and a one time commitment fee equal to $100,000 paid at closing. The AR Facility can be terminated by the 5J Entities with 60 days written notice. There is an early termination fee equal to two percent (2.0)% of the then maximum account limit if there are more than twelve (12) months remaining in term of the AR Facility, or one percent (1.0)% of the then maximum account limit if there are twelve months or less remaining in the term of the AR Facility. The Company is a guarantor of the Amerisource Financing. The AR Facility originally matured on February 27, 2023, but automatically extended for an additional 12 months per the terms of the Financing Agreement. On January 19, 2023, the Company and Amerisource entered into an agreement to provide the Company with an additional $1,000,000 advance amount on the existing AR Facility (the “Overadvance”). The Overadvance will have monthly payments of principal and interest beginning February 1, 2023, bear interest at 12% per year, and mature on September 7, 2026. On June 1, 2023, the Company and Amerisource entered into an amendment to the AR Facility to increase the maximum borrowing amount to $13,000,000. The balances under the above lines of credit were $11,079,731 and $10,623,887 as of June 30, 2023 and December 31, 2022, respectively. Convertible Notes Payable On February 27, 2020, the Company entered into a loan agreement with Amerisource Leasing Corporation, which has an equity ownership of 12.2% and is considered a related party, for the sale of a 10% convertible promissory note in the principal amount of $1,600,000 (“Amerisource Stretch Note”). The Amerisource Stretch Note originally matured on March 31, 2023, which was extended to June 30, 2023, and is convertible into shares of the Company’s common stock at a conversion price of $0.25 per share. The interest rate on the Amerisource Stretch Note increases to 11% per annum on February 27, 2021 and to 12% per annum on February 27, 2022. Interest shall be paid on a quarterly basis. In addition, 2,498,736 shares of the Company’s common stock with a fair value of $419,788 were issued to the noteholder in connection with the issuance of the Amerisource Stretch Note. The Company recorded deferred financing costs of $419,788 recognized on the date of incurrence as a discount, which will be amortized over the life of the loan. During the year ended December 31, 2022, $151,589 of debt discount was amortized to interest expense, and there was $0 of unamortized discount as of December 31, 2022. The Amerisource Stretch Note may be prepaid at any time by the Company on 10 days-notice to the noteholder without penalty. As of June 30, 2023 and December 31, 2022, the outstanding principal balance was $1,600,000. Subsequent to June 30, 2023, the note was settled by issuance of common stock. During the six months ended June 30, 2023, the Company entered into secured note purchase agreements with Steven Madden for the purchase and sale of convertible promissory notes in the principal amount of $422,164. The notes pay a 10% per annum interest rate, convertible into shares of the Company’s common stock at a fixed conversion price of $0.10 per share with a two year term. These convertible notes are secured by all of the assets of the Company, subject to prior liens and security interests. Mr. Madden was issued 633,246 shares of common stock related to the convertible notes payable which were recognized as a deferred finance cost. On March 31, 2023, Mr. Madden was issued a $250,000 secured convertible note, paid in kind for services as Chief Transition Officer, that matures after two years, pays a 10% per annum interest rate, paid quarterly, and has a fixed conversion rate at $0.10 per share. The convertible note was recorded as a prepaid expense to be amortized over a one year period. Mr. Madden was issued 375,000 shares of common stock related to the convertible note payable which were recognized as a deferred finance cost. Effective January 1, 2023, the Company issued 3,253,500 shares of common stock to holders of $2,169,000 of convertible promissory notes. As of June 30, 2023, the convertible notes, net balance was $9,420,142 with long term convertible notes payable of $513,401 and a current portion of convertible notes of $8,906,741. As of December 31, 2022, the convertible notes, net balance was $7,327,288 with long term convertible notes payable of $0 and a current portion of convertible notes of $7,327,288. During the six months ended June 30, 2023 and 2022, $396,268 and $1,687,804 of debt discount and deferred financing cost was amortized to interest expense, and there was $158,762 and $3,871,373 of unamortized discount as of June 30, 2023 and December 31, 2022, respectively. Future maturities of all Company debt as of June 30, 2023 are as follows: | | | | 2024 | | $ | 30,563,463 | 2025 | | | 5,246,796 | 2026 | | | 5,107,795 | 2027 | | | 1,428,768 | 2028 | | | 23,205 | Thereafter | | | 334,840 | Total | | $ | 42,704,867 |
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