Quarterly report pursuant to Section 13 or 15(d)

Long-Term Debt and Notes Payable

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Long-Term Debt and Notes Payable
3 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Long-Term Debt and Notes Payable

7. LONG-TERM DEBT AND NOTES PAYABLE

 

Long-term debt and notes payable are summarized as follows:

 

    March 31, 2018     December 31, 2017  
             
Notes Payable, due December 31, 2018, net of discount of $880,043 and $1,173,390, respectively (a)   $ 5,119,957     $ 4,826,610  
                 
Notes Payable Paragon Bank (b)     506,405       572,276  
                 
Note Payable     75,000       75,000  
                 
Note Payable, due March 2019     9,580       -  
                 
Receivables financing facilities     39,385       76,109  
                 
Bank overdraft facilities, South Africa, annual renewal     185,953       164,619  
                 
Equipment financing arrangements, South Africa     20,982       27,297  
Total long-term debt   $ 5,957,262     $ 5,741,911  

 

For the three months ended March 31, 2018 and 2017 amortization of debt discount was $293,248 and $0, respectively.

 

a) On May 4, 2017, pursuant to a Securities Purchase Agreement, the Company issued 8% non-convertible secured debentures in the principal amount of $6,000,000 and warrants to purchase 1,200,000 shares of common stock (as adjusted for the Company’s subsequent one-for-ten reverse stock split) to accredited investors. The debentures bear interest at a rate of 8% per annum, payable in cash quarterly in arrears. The debentures mature on December 31, 2018 and contain customary financial and other covenants, including a requirement to maintain positive annual earnings before interest, taxes, depreciation and amortization. The debentures are secured by a second priority security interest on the Company’s assets and the obligation is guaranteed by the Company’s subsidiaries. The debentures contain a mandatory redemption provision that is triggered by an asset sale. Sale of greater than 33% of the Company’s assets will also trigger an event of default. Upon any event of default, in addition to other customary remedies, the holders have the right, at their sole option, to purchase Little Big Burger from the Company, for an aggregate purchase price of $6,500,000, or demand repayment at 108% of the outstanding principal balance and any outstanding accrued interest. The warrants have an exercise price of $3.50 (as adjusted for the reverse stock split on May 19, 2017) and a ten-year term. Warrants to purchase 800,000 shares include a beneficial ownership limit upon exercise of 4.99% of the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon exercise of the warrant; warrants to purchase the remaining 400,000 shares were amended to increase the beneficial ownership limit upon exercise to 19.99%. The shares of common stock underlying the warrants have registration rights, and, if the warrant shares were not registered, the holders would have the right to cashless exercise. The registration statement underlying the warrants was declared effective on October 30, 2017.

 

b) The Company has three term loans with Paragon Bank, all of which are collateralized by all assets of the Company and personally guaranteed by our Chief Executive Officer. The outstanding balance, interest rate and contractual maturity date of each loan is as follows:

 

    Maturity date   Interest rate     Principal balance     Monthly principal and interest payment  
Note 1   9/10/2018     5.50 %   $ 23,736     $ 4,406  
Note 2   5/10/2019     5.25 %     167,793       11,532  
Note 3   8/10/2021     5.25 %     314,876       8,500  
                $ 506,405     $ 24,438  

 

The Company’s various loan agreements contain financial and non-financial covenants and provisions providing for cross-default. The evaluation of compliance with these provisions is subject to interpretation and the exercise of judgement. The Company concluded that conditions could be interpreted as events of default under one or more of its loan obligations, which could also trigger cross default provisions across its various loan agreements. Management quantified the potential penalties and default interest that could be assessed in the event the loans were deemed to be in default. Accordingly, the Company recorded a liability for potential default interest and penalties of $1.0 million as accrued interest in the accompanying consolidated financial statements of March 31, 2018.