4. Debt

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

4. Debt

Note 4 — Debt

Debt is comprised of the following:

Description	Note		September 30, 2016			December 31, 2015
Line of credit		A	$	47,000		$	47,000
Note payable to distribution partner		B		550,000			550,000
Investor debt		C		371,507			267,787
Related party debt		D		6,773,443			5,632,543
Other notes payable		E		84,230			66,786
Cash draw notes		F		164,054			204,423
Convertible promissory notes		G		71,637			154,437
Total				8,061,871			6,922,976
Less:  unamortized discount and debt issuance costs				(236,017	)		(173,668	)
Debt, net of unamortized discount and debt issuance costs				7,825,854			6,749,308
Less:  current portion				(7,255,538	)		(5,156,305	)
Debt, long-term portion			$	570,316		$	1,593,003

A – Line of Credit – We utilized this entire 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/CEO. Energie and our CEO (collectively, the “defendants”) 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. The parties to this action have entered into a settlement whereby the defendants agreed to pay to the bank the sum of $59,177 on or before April 30, 2016. This payment was not made and the bank requested and received a judgment against both defendants jointly and severally for $61,502 plus interest of 5.25% per annum plus 9.90% per annum on the default margin. Energie is currently making payments to resolve this obligation.

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 September 30, 2016 and December 31, 2015. These loans are not collateralized. The following summarizes the terms and balances of the investor debt:

September 30, 2016	December 31, 2015	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%
113,720	10,000	various
$ 371,507	$ 267,787

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

	September 30, 2016	December 31, 2015	Interest Rate
D1	$ 4,635,865	$ 4,120,465	various
D2	528,214	528,214	various
D3	34,888	34,888	12%
D4	316,800	280,800	various
D5	668,176	668,176	18%
D6	589,500	--	6%
Total	$ 6,773,443	$ 5,632,543

D1 – Notes payable to Symbiote, Inc. (“Symbiote”), entered into from December 2014 to June 2016, with monthly principal and interest payable through November 2017. Symbiote holds a large ownership percentage in Holdings, is the lessor of our manufacturing facility, and provides our payroll services.

D2 – Notes payable to an executive vice president, entered into from December 2014 through December 2015, with monthly principal and interest payable through November 2017.

D3 – Note payable to our chief executive officer (“CEO”), entered into in December 2014, with monthly principal and interest payable through December 2016.

D4 – Notes payable to the spouse of our CEO, entered into from September 2013 to April 2015, with principal and interest payments due upon a specific event or upon demand.

D5 – Notes payable to the consulting firm that employs our Chief Financial Officer, entered into in June 2015. These notes aggregated the previous accounts payable and accrued interest due to the consulting firm. Beginning January 1, 2016, the notes are convertible into shares of our common stock at a conversion rate of 75% of the volume weighted average market price of our stock over the 20 days preceding the notification of conversion. We determined that this conversion feature did not meet the requirements to be treated as a derivative; however, we did determine it was a beneficial conversion feature. Accordingly, we recorded a debt discount of $217,725, which was amortized through interest expense.

D6 – Notes payable to the principal shareholders of Symbiote, entered into from April to September 2016, with principal and interest payments due upon a specific event or upon demand.

E – Other Notes Payable – Represents the outstanding principal balance on four separate notes bearing interest at 6 - 18% annually. In the event we receive proceeds as the beneficiary of a life insurance policy covering our majority shareholder/CEO, 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 $205,563 as of September 30, 2016. The maturity dates of the agreements range from October to December 2016.

G – Convertible promissory notes – Represents the outstanding principal balance on two separate convertible promissory with interest of 8% annually, that were due in August 2016. During the third quarter of 2015, the current holder of the notes purchased all of our similar outstanding convertible notes from another entity and consolidated those notes into two new notes. At the option of the holder, 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. As we failed to pay the notes when they became due, the balance due under the notes is now incurring interest at the rate of 22% per annum. 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 nine months ended September 30, 2016, $82,800 of principal and $5,661 of accrued interest was converted into 135,532,715 shares of common stock. We also recorded a loss on conversion of debt of $114,793 related to these transactions.

Debt issuance costs of $236,017 are being amortized over the life of the respective notes.