Notes Payable to Stockholders and Capital Leases

12 Months Ended

Dec. 31, 2017

Notes Payable To Stockholders And Capital Leases

Notes Payable to Stockholders and Capital Leases

11. Notes Payable to Stockholders and Capital Leases

Beginning on March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the Chairman of the Board and an Executive officer, to fund up to $6.1 million. Under the terms of the agreements, the Company can draw amounts as needed to fund operations. Amounts drawn bear interest at the BBA LIBOR Daily Floating Rate plus 1.4 percentage points (3.62% and 2.5865% per annum at December 31, 2017 and 2016, respectively), payable monthly and were to become due and payable on December 31, 2005 or upon a change in control of the Company or consummation of any other financing over $7.0 million. Beginning in March 2006, annually, through February 2012, the maturity date for the agreement was extended annually from December 31, 2007, to December 31, 2017. On November 16, 2017, our Chairman and Chief Executive Officer extended the due date of the funding commitment to December 31, 2018. Refer to Note 17.

During the year ended December 31, 2017 we borrowed an additional $875,000 from him and repaid $0, and at December 31, 2017 we owed him $7,963,349 which represented approximately 78% of our total liabilities. Subsequent to December 31, 2017, he has advanced an additional $200,000 in working capital funding. On November 11, 2016 $6.1 million of principal and interest was converted into 20,333,333 shares of our common stock at a conversion price of $0.30 per share. This conversion was above the market price of our common stock.  The balance of this loan, which is unsecured, matures on December 31, 2018.  While he has continued to fund our working capital needs at reduced levels and extend the due date of the obligation for an additional year, he is under no contractual obligation to do so.  During 2017 he advised us he does not expect to continue to provide working capital advances to us at historic amounts. If we are unable to meet our obligation to our Chairman and Chief Executive Officer prior to maturity, he has advised us that he may forgive all, or substantially all, of this obligation.

Additionally, the Company had unsecured loans outstanding from a former member of the board of directors who is also a significant stockholder, totaling $100,000 at December 31, 2016.  The notes bear interest at a rate of 5% per annum and are due upon demand.  During the year ended December 31, 2017, we repaid him $50,000 and in addition, he forgave $50,000 and accrued interest of $2,664. The forgiveness was treated as a capital contribution. In November 2017, the Company received an additional loan in the amount of $25,000 from this same former member of the Board of Directors. The loan bears interest at a rate of 5% per annum and is due December 31, 2018. Refer to Note 17.

During the years ended December 31, 2017 and 2016, the Company incurred interest expense of $271,311 and $345,734, respectively, on its loans from this stockholder, which is included in interest expense in the accompanying statements of operations. Also included in interest expense at December 31, 2017 and 2016 were $2,205 and $980 of interest related to capital lease obligations, financing, late fees and loans from a stockholder.

Notes payable and capital leases consisted of the following at December 31, 2017 and December 31, 2016:

	2017			2016
Notes payable to stockholders	$	7,988,349		$	7,188,349
Capital lease obligation		3,443			7,198
		7,991,792			7,195,547
Less: current maturities		(7,991,792	)		(3,443	)
	$	—		$	7,192,140

Maturities of Long-Term Obligations for Five Years and Beyond

The minimum annual principal payments of notes payable and capital lease obligations at December 31, 2017 were:

2018	$	7,991,792
	$	7,991,792