8. NOTES PAYABLE

JMJ PROMISSORY NOTE AND JMJ AGREEMENT

The Company entered into a securities purchase agreement, dated October 7, 2016 (the “Purchase Agreement”) with JMJ Financial (“JMJ”), the terms of which were amended most recently in connection with the JMJ Agreement (defined below). Pursuant to the Purchase Agreement, JMJ purchased from the Company (i) a promissory note (the “Promissory Note”) in the aggregate principal amount of up to $3,725,000, due and payable on the earlier of February 15, 2018 or the third business day after the closing of the public offering, and (ii) five-year warrants to purchase up 100,001 shares of the Company’s common stock at an exercise price per share equal to the lesser of (a) 80% of the per share price of the common stock in the Company’s contemplated public offering, (b) $35.00 per share, (c) 80% of the unit price in the public offering (if applicable), (d) the exercise price of any warrants issued in the public offering, or (e) the lowest conversion price, exercise price, or exchange price, of any security issued by the Company that is outstanding on October 13, 2016. As of December 31, 2017, an aggregate of $3,500,000 had been advanced to the Company by JMJ, such that $3,725,000 was due pursuant to the Promissory Note. The difference between the principal amount and the cash received was recorded as debt discount and is being accreted to interest expense over the term of the Promissory Note. As of December 31, 2017, ten (10) warrants to purchase a total of 100,001 shares of the Company’s common stock with an aggregate exercise price of $3,500,000 have been issued. During the years ended December 31, 2017 and 2016, the Company issued warrants with an aggregate issuance date fair value of an of $147,569 and $185,468, respectively, which was recorded as a derivative liability. As of December 31, 2017, the Company had not issued the Origination Shares (as defined in the Purchase Agreement) associated with the advances and, as a result, accrued for the $1,680,000 fair value of the obligation. See Note 6 – Accrued Expenses. The conversion option of the Promissory Note was determined to be a derivative liability. The aggregate issuance date fair value of the warrants, Origination Shares, conversion option, placement agent fees and other issuance costs in connection with the advances during the years ended December 31, 2017 and 2016 was $2,610,568 and $1,290,446, respectively which was recorded as a debt discount against the principal amount of the Promissory Note and is amortized over the term of the note using the effective interest method. The original issue discount was $499,435 and $501,982, respectively. Amortization expense for the JMJ note was $2,133,865 and $757,946 for the years ended December 31, 2017 and 2016 respectively.

Pursuant to the default provisions of the Promissory Note, the Company accrued a $12 million default penalty as of December 31, 2017, which was included within accrued expenses on the consolidated balance sheet.

On October 23, 2017, as amended on November 29, 2017, January 4, 2018, and February 1, 2018, the Company entered into a Lockup, Conversion, and Additional Investment Agreement (the “JMJ Agreement”) with JMJ whereby the Company and JMJ agreed to settle the current defaults under the Promissory Note. Pursuant to the JMJ Agreement, the parties agreed to two different scenarios under which the defaults under the Promissory Note would be settled, provided that (i) the Company completes its public offering by February 15, 2018, and (ii) no additional event of default or breach occurs between the date of the JMJ Agreement and the close of the public offering. Pursuant to the JMJ Agreement, the following options are available to the Company:

Option A

Option B

Furthermore, at JMJ’s election at any time prior to the closing of the public offering, the Company shall create, within five (5) business days after such election, a series of convertible preferred stock to address the Beneficial Ownership Limitation on Investor Shares. JMJ shall have the right to invest up to $5 million in the public offering and up to $5 million in each of the Company’s subsequent financings during the two-year period after the public offering, on the same terms as the best terms, as determined by JMJ, provided to any investor in the public offering or in any such subsequent financing.

On the fifth (5^th) trading day after the closing of the public offering, but in no event later than February 15, 2018, the Company will deliver to JMJ shares of common stock (“Origination Shares”) equal to 48% of the consideration paid by JMJ under the Promissory Note divided by the lowest of (i) $35.00 per share, or (ii) the lowest daily closing price of the Company’s common stock during the ten days prior to delivery of the Origination Shares (subject to adjustment for stock splits), or (iii) 80% of the common stock offering price of the public offering, or (iv) 80% of the unit offering price of the public offering (if applicable), or (v) the exercise price of any warrants issued in the public offering. The number of shares to be issued will be determined based on the offering price in the public offering. If the public offering does not occur prior to February 15, 2018 and JMJ owns Origination Shares at the time of a subsequent public offering where the pricing terms above would result in a lower Origination Share pricing, the Origination Shares pricing shall be subject to a reset based on the same pricing terms as described above.

Pursuant to the JMJ Agreement, on January 29, 2018, JMJ informed the Company that it had elected to convert all of the principal and interest due and owing to them in connection with the Promissory Note and all other advances made to the Company into a series of preferred stock with the designations, rights, preferences and privileges as mutually agreed upon between the Company and JMJ. Accordingly, the Company filed a Certificate of Designation for its Series D Convertible Preferred Stock. See Note 15 – Subsequent Events for additional details.

Upon closing of the Public Offering, the Company chose Option B of the JMJ Agreement and did not pay cash to JMJ.

CONVERTIBLE AND OTHER NOTES – RELATED PARTY

Farkas Group Inc. (“FGI”) Notes

During the year ended December 31, 2016, the Company issued convertibles notes payable in the aggregate principal amount of $600,000 to FGI. FGI is wholly-owned by the Company’s Executive Chairman of the Board of Directors. Notes payable with an aggregate principal amount of $495,000 are to be repaid upon the earlier of (i) the sixty (60) day anniversary of the date of issuance or (ii) the date on which the Company has received at least $1,000,000 in financing from third parties. A note payable with a principal amount of $105,000 was repaid in 2016 upon the date at which the Company has received payment under an existing grant with the Pennsylvania Turnpike. Interest on the notes accrues at a rate of 18% annually and is payable at maturity. The unpaid principal and accrued interest are convertible at the election of the holder into shares of Common Stock at $35.00 per share. These notes are secured by substantially all of the assets of the Company. In connection with the notes issuances, the Company issued five-year immediately vested warrants to purchase an aggregate of 3,100,000 shares of Common Stock not subject to split at an exercise price of $0.70 per share with an aggregate issuance date fair value of $204,465, which was recorded as a debt discount. In connection with the Company’s sequencing policy, the warrants were determined to be derivative liabilities and the conversion options were also determined to be a derivative liability, however, their fair value was de minimis.

During the year ended December 31, 2017, the Company issued a convertible note payable in the principal amount of $50,000 to FGI. Interest on the note accrues at a rate of 15% annually and is payable at maturity. The unpaid principal and accrued interest are convertible at the election of the holder into shares of common stock at $35.00 per share. The note is secured by substantially all of the assets of the Company.

During the years ended December 31, 2017 and 2016, the Company made aggregate principal repayments of $0 and $125,000, respectively, associated with convertible notes payable to FGI.

Subsequent to December 31, 2017 and pursuant to the closing of the Public Offering, the Company paid $688,238 of principal and interest in satisfaction of the debt. 

BLNK Holdings, LLC (“BLNK Holdings”) Notes

During the year ended December 31, 2017, the Company issued promissory notes in the aggregate principal amount of $207,645 to BLNK Holdings. The Company’s Executive Chairman has a controlling interest in BLNK Holdings. The notes bear interest at a rate of 10% per annum, which is payable upon maturity.

Effective August 23, 2017, the Company entered into an agreement with BLNK Holdings (the “BLNK Conversion Agreement”) where the parties agreed to, upon the closing of the public offering, convert an aggregate of $209,442 of principal and interest into common stock, determined by the following formula: (i) the debt amount multiplied by a factor of 1.15 and (ii) then divided by 80% of the per share price of common stock sold in the public offering. If the Company converts securities at more favorable terms than those provided in the BLNK Conversion Agreement, then the conversion price herein shall be automatically modified to equal such more favorable terms. On January 4, 2018, the parties agreed to extend the expiration date of the BLNK Conversion Agreement from December 29, 2017 to February 14, 2018. On March 16, 2018, the Company issued 74,753 shares of common stock to BLNK Holdings.

During the year ended December 31, 2017, the Company made aggregate principal repayments of $5,078 associated with notes payable to BLNK Holdings.

OTHER NOTES

During the year ended December 31, 2017, the Company issued notes payable in the aggregate principal amount of $260,000 to certain lenders. Interest on the notes accrues at a rate of 12% annually and is payable at maturity. The notes matured on the earlier of December 29, 2017 or the Company receiving $5,000,000 from equity investors or through debt financings. In connection with the issuances of these notes, the Company issued five-year warrants to purchase an aggregate of 15,600 shares of common stock at an exercise price equal to the lower of $35.00 per share or a price equal to a 20% discount to the price per share sold in any equity financing transaction within the next twelve months whereby the Company cumulatively receives at least $1,000,000. The aggregate issuance date fair value of the warrants of $52,260 was recorded as a debt discount and is being amortized over the terms of the respective notes. Subsequent to December 31, 2017, the Company repaid the principal and interest related to the note.

During the year ended December 31, 2017, the Company made aggregate principal repayments of $4,815 associated with other notes payable.

INTEREST EXPENSE

Interest expense on notes payable for the years ended December 31, 2017 and 2016 was $946,131 and $256,098, respectively.