Long-Term Debt | Note 5 - Long-Term Debt Long-term debt consists of: March 31, December 31, 2018 2017 $1,300,000 SBA note payable issued December 31, 2014, with interest at 5.50% for the first five years, then adjusted to the SBA LIBOR base rate, plus 2.35% for the remaining five years. The note required interest only payments for the first twelve months and commencing during January 2016 calls for monthly principle and interest payments of $15,288. The note matures March 2024, is secured by substantially all of the Company’s assets and is personally guaranteed by certain members. The note is a co-borrower arrangement between Titan and El Toro with the proceeds received by El Toro. The Company issued to members 35,491 units (equivalent to 31,203 common shares) in Titan as compensation for the guarantee. The Company was in violation of the note’s covenants as of March 31, 2018 and December 31, 2017. $ 1,063,212 $ 1,093,691 Six subordinated senior notes payable to stockholders (“Senior Bridge Notes”) with interest at 12%. In connection with the notes payable, the note holders were issued 25,541 Class A Membership Units (equivalent to 22,455 common shares). In the event of a default the Company is required to pay the holder a stated number of Class A Membership Units on the date of default and each 90-day interval thereafter until all amounts due have been paid in full. Effective July 2016, the maturity date of the Senior Bridge Notes was extended to September 30, 2016 and allowed for an interest rate increase from 12% to 16% effective March 14, 2016. The default interest rate was increased from 15% to 18%. As part of the first amendment, the note holders received 3,359 Class A Membership Units (equivalent to 2,953 common shares) in Titan. In September 2016, the Senior Bridge Notes were amended to extend the due date to April 30, 2017 and the Company paid a fee for the extension of 1% of the outstanding principal balance to the note holders. The Company subsequently extended the maturity date of the notes to October 31, 2017. The Company paid a fee of 1% of the outstanding principal balance on the notes on or around each of January 31, 2017, April 30, 2017, and July 31, 2017 to extend the maturity date of the notes. The notes are secured by a subordinate security interest on substantially all of the Company’s assets and are personally guaranteed by two members. The Senior Bridge Notes were not extended at the maturity. During April 2018, $621,556 of the Senior Bridge Notes and related interest of $67,444 were converted into 275,583 shares of common stock, with a write-off of interest of $73,741. 1,421,556 1,421,556 Nine subordinated notes payable to stockholders (“Junior Bridge Notes”) with interest at 12%, with maturity at December 2020, secured by a subordinate security interest on substantially all assets of the Company. During April 2018, $1,166,373 of the Junior Bridge Notes and related interest of $197,485 were converted into 272,777 shares of common stock, with a write-off of interest of $83,589 1,166,373 1,166,373 Three convertible promissory notes to stockholders (“Minn Shares Notes”) with interest at 12%, with maturity on or after November 2019. At the next equity financing the holder at their discretion may elect to convert the principal and interest at a conversion price equal to the price per security issued in such offering. These notes are also subject to mandatory conversion in the event that the Senior Bridge Notes and Junior Bridge Notes discussed above convert to equity, and any mandatory conversion will be on the same terms as those received by the holders of the Senior Bridge Notes and Junior Bridge Notes. The promissory notes are unsecured. 450,451 437,505 A promissory note to a former EAF member with interest at 7.5%, with maturity during December 2017, ten days after the initial closing of a private offering of capital stock of the Company in an amount not less than $10 million or at discretion of the member. During April 2018 the promissory note’s maturity date was extended to July 2019. 3,800,000 3,800,000 A promissory note to a former EAF member with interest at 7.5%, with maturity during February 2020, the note is guaranteed by substantially all the assets of the Company. 4,000,000 4,000,000 Four promissory notes to former EAF members with interest at 6%, with maturity upon the earlier of July 2017 or the date of closing a private offering of at least $2 million. During April 2018, the notes were paid in full. 250,000 250,000 Four promissory notes to former EAF members with interest at 1.5%, with maturity during February 2026. The promissory notes are convertible into 1,400,000 shares. These convertible promissory notes are secured by substantially all of the assets of EAF. The Company imputed an interest rate of 5.1% on the promissory notes. The discount is accreted over the period from the date of issuance to the date the promissory notes are due using the effective interest rate method. See note 2 above for additional discussion regarding the conversion mechanics of these convertible notes. 9,500,000 9,500,000 21,651,592 21,669,125 Debt discount* (4,140,183 ) (4,257,358 ) 17,511,409 17,411,767 Less current portion (2,734,768 ) (2,765,247 ) $ 14,776,641 $ 14,646,520 * Of our total indebtedness of approximately $21,652,000 as of March 31, 2018, approximately $2,700,000 is classified as current debt with $850,000 either paid in full or converted to common stock during April 2018. We are in violation of the covenants related to the SBA loan. We have not received a waiver for current violations of these covenants as of March 31, 2018 and through the date of filing of this Form 10-Q. On February 1, 2017, pursuant to the EAF Exchange Agreement, EVO Inc. acquired all of the membership interests of EAF. As consideration for the membership interests, EVO Inc. issued convertible promissory notes to the former members of EAF in the aggregate principal amount of $9.5 million (the “Convertible Notes”). The Convertible Notes bear interest at 1.5% per year and have a maturity date of February 1, 2026. The Convertible Notes are convertible into 1,400,000 shares (the “Transaction Shares”) of EVO Inc. common stock, subject to adjustment for stock splits, combinations or similar transactions, which represents approximately 81.1% of EVO Inc.’s total outstanding shares of common stock on a post-transaction basis. Accordingly, the conversion of the Convertible Notes would result in a change in control of the Company. The number of Transaction Shares will be increased to equal 70% of the issued and outstanding shares of EVO Inc. common stock if the issuance of common stock pursuant to a private offering of common stock of up to $2 million and the conversion into common stock of EVO Inc.’s subordinated notes payable to members, Senior Bridge Notes, convertible promissory notes, and certain accounts payable would otherwise cause the Transaction Shares to represent less than 70% of the issued and outstanding common stock The Company engaged a third-party financial advisory firm to assist in the determination of the purchase price allocation under the guidance of ASC Topic 805. A third-party advisory firm calculated, with assistance and collaboration of management, the value of the $9.5 million-dollar debt to be $4,813,000, generating a debt discount $4,687,000; with accretion at March 31, 2018 the remaining discount is $4,140,183. Maturities of long-term obligations are as follows: Year Ending December 31, Related Party Notes Other Notes Total At March 31, 2018 2018 $ 1,671,556 $ 1,063,212 $ 2,734,768 2019 4,250,451 - 4,250,451 2020 5,166,373 - 5,166,373 2021 - - - 2022 - - - 2023 9,500,000 - 9,500,000 $ 20,588,380 $ 1,063,212 $ 21,651,592 |