5. Debt

6 Months Ended

Jun. 30, 2015

Debt Disclosure [Abstract]

5. Debt

Note 5 — Debt

Debt is comprised of the following:

Description	Note		June 30, 2015			December 31, 2014
Line of credit		A	$	47,000		$	47,000
Note payable to distribution partner		B		550,000			580,000
Investor debt		C		267,787			267,787
Related party debt		D		5,104,276			3,840,749
Other notes payable		E		53,119			57,692
Cash draw notes		F		196,728			255,793
Convertible promissory notes		G		183,700			217,500
Total				6,402,610			5,266,521
Less:  current portion				(4,140,673	)		(2,373,307	)
Debt, long-term portion			$	2,261,937		$	2,893,214

A – Line of Credit – We utilized this bank line of credit for working capital purposes. The outstanding obligation is due on demand, has a stated initial interest rate of 10.5% that is subject to adjustment, and is guaranteed by our majority shareholder. Energie and our CEO were served with a summons and complaint, wherein the bank brought an action to collect the amount due, including interest, costs and attorney’s fees. We have filed a response to the complaint and are engaged in settlement discussions with the bank. Accordingly, the amounts due are classified as current liabilities in the accompanying condensed, consolidated balance sheets.

B – Note payable to distribution partner – Note payable to a significant European distribution partner, entered into in October 2014, bearing interest at 5% payable quarterly, with principal payable monthly through September 2019. The 2014 note payable aggregated the 2007 promissory note, accrued interest and accounts payable.

C – Investor Debt – Notes payable to lenders having an ownership interest in Holdings at June 30, 2015 and December 31, 2014. These loans are not collateralized. The following summarizes the terms and balances of the investor debt:

June 30, 2015		December 31, 2014		Interest Rate
$	87,787	$	87,787		24	%
	50,000		50,000		24	%
	50,000		50,000		24	%
	25,000		25,000		8	%
	25,000		25,000		8	%
	20,000		20,000		2	%
	10,000		10,000		24	%
$	267,787	$	267,787

D –Related Parties Debt – The following summarizes notes payable to related parties:

	June 30, 2015		December 31, 2014		Interest Rate
D1	$	3,719,831	$	3,152,231		6	%
D2		522,380		497,130		12	%
D3		34,888		34,888		12	%
D4		174,000		156,500		24	%
D5		653,177		—		18	%
Total	$	5,104,276	$	3,840,749

D1 – Notes payable to Symbiote, Inc. (“Symbiote”), entered into in December 2014, with monthly principal and interest payable through November 2017. The 2014 notes aggregated the previous notes payable, accrued interest and accounts payable. The 2014 notes are not convertible. The previous note agreement gave Symbiote, at its option at any time after default, the right to convert any remaining balance of the notes to equity at a rate equal to the proportion of the remaining balance of the note divided by $4,000,000 enterprise value. Symbiote holds the largest ownership percentage in Holdings, is the lessor of our manufacturing facility, and the provider of our payroll services.

We evaluated the agreement for derivatives and determined that it does not qualify for derivative treatment for financial reporting purposes, because the agreement relates to our own equity, and the debt and the equity are not closely related. We also determined this does not qualify as a beneficial conversion feature.

D2 – Note payable to an executive vice president, entered into in December 2014, with monthly principal and interest payable through November 2017. The 2014 note aggregated the previous note payable, accrued interest and accounts payable.

D3 – Note payable to our Chief Executive Officer (“CEO”), entered into in December 2014, with monthly principal and interest payable through November 2015.

D4 – Notes payable to the spouse of our CEO, due upon demand.

D5 – Note payable to the consulting firm that employs our Chief Financial Officer. This note aggregates the previous accounts payable and accrued interest due to the consulting firm. While we have agreed with the consulting firm to convert the amounts due to a note, we are still negotiating the final terms of the agreement.

E – Other Notes Payable – Represents the outstanding principal balance on two separate notes bearing interest at approximately 12% annually. In the event we receive proceeds as the beneficiary of a life insurance policy covering our majority shareholder, repayment of principal and interest is due on these notes prior to using the proceeds for any other purpose. 

F – Cash draw agreements – Under these agreements, the lender advances us the principal balance and then automatically withdraws a stated amount each business day. Accordingly, there is no stated interest rate. The total remaining daily payments due under these arrangements was $257,486 as of June 30, 2015. The maturity dates of the agreements range from July to November 2015.

G – Convertible promissory notes – Represents the outstanding principal balance on five separate convertible promissory notes payable to two entities with interest of 8% annually, due at various dates ranging from May through December 2015. At the option of the holders, the notes may be settled in cash or converted into shares of our common stock at any time beginning 180 days from the date of the notes at a price equal to 61% of the average closing bid price of our common stock during the 10 trading days immediately preceding the date of conversion. In the event we fail to pay the notes when they become due, the balance due under the notes incurs interest at the rate of 22% per annum. We are currently incurring interest at a rate of 22% per annum on two of the notes as we are past due on these obligations. The notes contain additional terms and conditions normally included in instruments of this kind, including a right of first refusal wherein we have granted the holders the right to match the terms of any future financing in which we engage on the same terms and contemplated in such future financing. We estimate that the fair value of the conversion feature is minimal, so no value has been assigned to the beneficial conversion feature. During the six months ended June 30, 2015, $33,800 of principal and $143 of interest was converted into 6,055,738 shares of common stock.

Debt issuance costs of $78,031 are included in Other assets as of June 30, 2015, and are being amortized over the life of the respective notes.