DEBT

9 Months Ended

Sep. 30, 2017

Debt

DEBT

Line-of-Credit Facility

The Company entered into a line-of-credit agreement with a financial institution on June 30, 2014. The terms of the agreement allow the Company to borrow up to the lesser of $1.5 million or 85% of the sum of eligible accounts receivables. At September 30, 2017, the total outstanding on the line-of-credit was $40,919 and the Company did not have any availability to borrow. The line-of-credit bears interest at Prime rate (5.42% as of September 30, 2017) plus 4.5% per annum, as well as a monthly fee of 0.50% on the average amount outstanding on the line, and is secured by the accounts receivables that are funded against.

A summary of the line-of-credit as of September 30, 2017 and December 31, 2016 is as follows:

	Amount
Outstanding, December 31, 2016	$	109,682
Net Borrowings		(68,763	)
Outstanding September 30, 2017	$	40,919

Note Payable

In April 2017, the Company converted approximately $1,050,000 of accounts payable into a secured note payable agreement with Niagara (the “Niagara Note”). At September 30, 2017, the total principal amount outstanding under the Niagara Note was approximately $841,000. The Niagara Note calls for monthly payments of principal and interest totaling $25,000 through December 2017, and monthly payments of approximately $52,000 through maturity. The note bears interest at 8% per annum, matures in April 2019 and is secured by the personal guarantee which secures the Niagara Agreement.

Secured Note Financing 

As disclosed in Note 3 above, on July 26, 2017, the Company commenced an offering of Secured Notes in the aggregate principal amount of up to $1.5 million to certain accredited investors. Between July 26, 2017 and September 30, 2017, the Company offered and sold Secured Notes in the aggregate principal amount of $1,350,000 and issued warrants to purchase up to 4,500,001 shares of Common Stock to participating accredited investors. The warrants were valued at $164,411 and were recorded as a discount to notes payable. During the three months ended September 30, 2017, a total of $17,846 of the debt discount was amortized and recorded as interest expense.

The Secured Notes (i) bear interest at a rate of 8% per annum, (ii) have a maturity date of 1.5 years from the date of issuance, and (iii) are subject to a pre-payment and change in control premium of 125% of the principal amount of the Secured Notes at the time of pre-payment or change in control, as the case may be. To secure the Company’s obligations under the Secured Notes, the Company granted to participating investors a continuing security interest in substantially all of the Company’s assets pursuant to the terms and conditions of a Security Agreement (the “Security Agreement”).

A summary of the note payable as of September 30, 2017 and December 31, 2016 is as follows:

	Amount
Outstanding, December 31, 2016	$	-
Conversion of accounts payable into note payable		1,049,564
Borrowings on secured notes		1,350,000
Recording of debt discount on secured notes		(164,411	)
Amortization of debt discount to interest expense		17,846
Repayments		(208,602	)
Outstanding September 30, 2017	$	2,044,397