Debt

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Note 4. Debt

As of March 31, 2018 and December 31, 2017, the Company had the following outstanding debt balances:

	Issue	Maturity			Debt					Interest
	Date	Date	Principal		Discount			Balance		Payable
As of March 31, 2018:
February 2017 Note as amended	2/23/2017	12/31/2019	$	395,000	$	-		$	395,000	$	31,308
September 2016 Note as amended	9/9/2016	12/31/2019		700,000		-			700,000		79,836
As of December 31, 2017:
February 2017 Note as amended	2/23/2017	12/31/2019	$	395,000	$	(58,438	)	$	336,562	$	24,074
September 2016 Note as amended	9/9/2016	12/31/2019		700,000		-			700,000		66,604
			$	1,095,000	$	(58,438	)	$	1,036,562	$	90,678

February 2017 Convertible Promissory Notes

Between February 23, 2017 and March 9, 2017, the Company entered into three separate loan agreements containing identical terms (the “February 2017 Loan Agreements”) with Joseph Sierchio (“Sierchio”), an investor (the “Investor”) and Kalen Capital Corporation (“KCC”); KCC is wholly owned by Mr. Harmel S. Rayat, the Company's majority shareholder and Director (collectively, the “Holders”). Pursuant to the terms of the February 2017 Loan Agreements, Sierchio and the Investor each agreed to loan the Company $25,000 ($50,000 total) and KCC agreed to loan the Company $395,000 at an annual interest rate of 7% per year, compounded quarterly. Each loan was evidenced by a convertible promissory note (collectively, the “February 2017 Notes”). The February 2017 Notes, including any interest due thereon, may not be prepaid without the consent of the Holders. The February 2017 Notes were initially due on February 23, 2018, and, beginning on the one month anniversary, can be converted, at the Holders’ sole discretion, into shares of the Company’s common stock at conversion rate equal to the lesser of: (i) $3.45, the closing price of the Company’s common stock on the day prior to the issuance of the February 2017 Notes or (ii) a 20% discount to the average closing price of the Company’s common stock for the five days prior to the date on which the Holder(s) elect to convert the February 2017 Note(s), subject to a floor price of $2.76.

Per the February 2017 Loan Agreement, the Company issued Sierchio, the Investor and KCC a Series F Stock Purchase Warrant (the “Series F Warrant”) to purchase up to 7,246 shares, 7,246 shares and 114,493 shares, respectively, of the Company’s common stock at an exercise price per share equal to the lesser of: (i) $3.45, the closing price of the Company’s common stock on the day prior to issuance of the Series F Warrant; or (ii) a 20% discount to the average closing price of the Company’s common stock for the five days prior to the date on which the Holder elects to exercise their Series F Warrant. The Series F Warrant is exercisable for a period of five years from the date of issuance and may be exercised on a cashless basis.

The Company calculated the fair value of the Series F Warrants and intrinsic value of the beneficial conversion feature which resulted in a $443,286 discount to the February 2017 Notes which was fully accreted on March 31, 2018.

The February 2017 Loan Agreements provide the Holders with registration rights for all of the shares issuable upon conversion of the February 2017 Notes, including exercise of the Series F Warrants, beginning on the first anniversary of the February 2017 Loan Agreements.

During 2017, the Company repaid the Investor and Sierchio in full, including total note principal of $50,000 and total accrued interest of $1,825.

On January 29, 2018, KCC and the Company entered into an Amendment No. 1 to the February 2017 Note whereby the maturity date of the KCC February Note was extended from February 23, 2018 to December 31, 2019. Except for the extension of the maturity date, the February Note was not otherwise amended and continues in full force and effect.

During the three months ended March 31, 2018, the Company recognized $7,233 of interest expense and $58,438 of accretion related to the debt discount. During the three months ended March 31, 2017, the Company recognized $2,727 of interest expense and $38,959 of accretion related to the debt discount

September 9, 2016 Convertible Promissory Note

On September 9, 2016, the Company entered into a loan agreement (the “Loan Agreement”) with KCC. Pursuant to the terms of the Loan Agreement, KCC loaned the Company $700,000 at an annual interest rate of 7% per year, compounded quarterly, which was evidenced by a convertible promissory note (the “Note”). The Note, including any interest due thereon, may be prepaid at any time without penalty. The Note matured on December 31, 2017, but was extended to December 31, 2019 pursuant to the Amendment No. 1, dated as of January 29, 2018, to the Note. Except for the extension of the maturity date, the Note was not otherwise amended and continues in full force and effect. Beginning on September 9, 2017, the Note became convertible, at KCC’s sole discretion, into shares of our common stock at conversion rate equal to the lesser of: (i) $1.54, the closing price of our common stock on the day prior to the issuance of the Note or (ii) a 20% discount to the average closing price of our common stock for the five days prior to the date on which KCC elects to convert the Note, subject to a floor price of $1.23 per share.

Per the Loan Agreement, the Company issued KCC a Series E Stock Purchase Warrant (the “Series E Warrant”) to purchase up to 584,416 shares of the Company’s common stock at a purchase price of the lesser of: (i) $1.54, the closing price of the Company’s common stock on the day prior to issuance of the Series E Warrant; or (ii) a 20% discount to the average closing price of the Company’s common stock for the five days prior to the date on which KCC elects to exercise the Series E Warrant. The Series E Warrant is exercisable for a period of five years from the date of issuance and may be exercised on a cashless basis.

The Loan Agreement provides KCC with registration rights for all of the shares issuable upon conversion of the Note and exercise of the Series E Warrant, beginning on the first anniversary of the Loan Agreement.

The Company calculated the fair value of the Series E Warrant and intrinsic value of the beneficial conversion feature which resulted in a $700,000 discount to the Note which was fully accreted on December 31, 2017.

During the three months ended March 31, 2018 and 2017, the Company recognized $13,232 and $12,345, respectively, of interest expense and $0 and $131,799, respectively, of accretion related to the debt discount.