Annual report pursuant to Section 13 and 15(d)

Debt

v3.19.1
Debt
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]
Note 10 — Debt
 
As of December 31, 2018 and 2017, debt consisted of the following:
 
 
 
December 31,
 
 
December 31,
 
 
 
2018
 
 
2017
 
Line of credit:
 
 
 
 
 
 
 
 
Asset backed line of credit
 
$ 561,804
 
 
$ -
 
Debt issuance costs
 
 
(30,000 )
 
 
-
 
Total line of credit
 
 
531,804
 
 
 
-
 
 
 
 
 
 
 
 
 
 
Long-term senior convertible debt:
 
 
 
 
 
 
 
 
Senior convertible notes payable
 
 
1,428,161
 
 
 
-
 
Debt issuance costs
 
 
(466,667 )
 
 
-
 
Total long-term senior convertible debt
 
 
961,494
 
 
 
-
 
 
 
 
 
 
 
 
 
 
Long-term debt:
 
 
 
 
 
 
 
 
Notes payable
 
 
370,250
 
 
 
-
 
Less: current portion of long-term debt
 
 
(313,572 )
 
 
-
 
Noncurrent portion of long-term debt
 
 
56,688
 
 
 
-
 
 
 
 
 
 
 
 
 
 
Long-term debt – related parties:
 
 
 
 
 
 
 
 
Notes payable
 
 
3,464,191
 
 
 
2,996,500
 
Less: current portion of long-term debt – related parties
 
 
(932,701 )
 
 
(225,553 )
Noncurrent portion of long-term debt – related parties
 
$ 2,531,490
 
 
$ 2,770,947
 
 
Line of Credit
 
On December 27, 2018, the Company entered into credit agreement providing for an asset backed line of credit of $1,000,000. The credit agreement contains a revolving maturity date which is subject to an annual review by the lender, The credit agreement is collateralized by substantially all of the assets of Ferguson Containers, Inc. The interest rate was 8.5% as of December 31, 2018. The agreement contains certain covenants and definition. The Company was in compliance with all covenants as of December 31, 2018.
 
Long-term Convertible Notes Payable – Related Parties
 
On September 4, 2018, in connection with the acquisition of EN, the Company issued five senior convertible notes payable aggregating $1,428,161. The notes have an effective interest rate of four percent (4%) per annum. The Company is required to make semi-annual interest payments on June 30th and December 31st of each year. The notes have an option to convert at a conversion price of $5.00. Prepayments are not allowed under the notes without the prior written consent of applicable holders of a note until the second anniversary of the effective date of the note, after which time the notes may be prepaid without penalty at any time upon sixty (60) days’ written notice to the holders. The holders have piggyback registration rights. If the conversion option is not elected by the holder, all outstanding principal and interest is due on September 4, 2023. The Company recorded a debt discount of $500,000 related to the beneficial conversion feature that will be amortized over five (5) years to interest expense.
 
Notes Payable
 
The Company borrowed funds under two separate notes, aggregating $645,000, in February 2018 and March 2018. As of December 31, 2018, both holders of the notes were paid in full.
In addition, the Company issued the 
20,000 and 13,500
shares to the holders of the notes payable, respectively. The fair value of the shares
issued was $167,500 which was recorded as a debt discount and fully amortized through interest expense.
 
On September 7, 2018, the Company borrowed $73,559 related to the purchase of a commercial delivery vehicle. The note bears interest at a rate of 4.5% per annum. The monthly payments under the note are $1,371 commencing on October 6, 2018 and maturing on September 6, 2023. The loan is collaterized by the commercial delivery vehicle having the approximate value of $75,000.
 
On December 1, 2016, Cloud B, Inc. entered into a Loan Agreement with an outside associate of CEO Linda Suh. The loan was in the amount of $300,000. This loan was for a period of six (6) months and bears no interest and therefore no monthly interest payments. A Loan Amendment and Extension Agreement was entered into on June 1, 2017, extending the maturity of the loan until December 31, 2017. This loan remains outstanding. No collateral was provided by the Company for any of the above-referenced loans.
 
Notes Payable – Related Parties
 
On September 30, 2018, in connection with the acquisition of SRM and Fergco, the Company issued two notes payable aggregating $2,996,500. One note was issued to NL Penn Capital, L.P, in relation to the acquisition of SRM in the amount of $2,120,000 and the other note was issued to the stockholders of Fergco in the amount of $876,500. The notes bear interest at a rate of six percent (6%) per annum and have an effective interest rate of six percent (6%) per annum. The Company is required to make monthly payments comprised of principal and interest beginning in January 2018 that are amortized over ten (10​​​​​​​) years, with a balloon payment of all outstanding principal and interest due at the respective maturity dates ($677,698 due on December 1, 2020 and $1,249,043 due on December 1, 2022).
 
On April 24, 2014, Cloud B, Inc. entered into two Shareholder Loan Agreements. One shareholder loan was from former shareholder, Board Member, and CEO of Cloud B, Inc. prior to the acquisition on October 29, 2018, Linda Suh in the amount of $100,000. This loan bears interest at a rate of 7.0% per annum for the first twelve (12) months and 8.0% per annum thereafter. The Company is required to make monthly interest only payments. Interest payments on this loan have been paid through November 2018. The other shareholder loan was from former shareholder and Board Member of Cloud B, Inc. prior to the acquisition on October 29, 2018, John Royan in the amount of $500,000. This loan bears interest at a rate of 7.0% per annum for the first six (6) months and 8.0% per annum for the next six (6) months. The Company was required to make monthly interest only payments through May 2015, with the loan becoming due and payable on May 28, 2015. This loan remains outstanding with the last interest payment made in July 2015.
 
The scheduled maturities of the debt for the next five years as of December 31, 2018, are as follows:
 
 
For the Years Ended December 31,
 
Amount
 
2018
 
$ 1,778,077
 
2019
 
 
239,461
 
2020
 
 
254,230
 
2021
 
 
704,296
 
2022
 
 
1,420,190
 
Thereafter
 
 
1,428,162
 
 
 
 
5,824,416
 
Less: debt discount
 
 
(496,667 )
 
 
$ 5,327,749
 
 
For the year ended December 31, 2018, interest expense was $501,221 of which $239,885 was related party interest expense. For the year ended December 31, 2017 interest income was $4,000.