4. Debt

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

4. Debt

Note 4 — Debt

Debt is comprised of the following:

Description	Note		March 31, 2017			December 31, 2016
Line of credit		A	$	47,000		$	47,000
Note payable to distribution partner		B		550,000			550,000
Investor debt		C		371,507			371,507
Related party debt		D		7,352,979			6,719,979
Other notes payable		E		980,837			981,137
Cash draw notes		F		297,628			211,076
Convertible promissory notes		G		58,937			71,637
Total				9,658,888			8,952,336
Less:  unamortized discount and debt issuance costs				(350,916	)		(280,555	)
Debt, net of unamortized discount and debt issuance costs				9,307,972			8,671,781
Less:  current portion				(9,117,972	)		(8,451,781	)
Debt, long-term portion			$	190,000		$	220,000

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. Énergie 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. On April 4, 2016, the parties to this action entered into a settlement agreement 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 (the “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. On May 10, 2017, the bank agreed to stay further execution on the judgment so long as the defendants pay the balance of the judgment in monthly payments of $5,000 per month on the fifteenth of each month, commencing on May 15, 2017. Under this agreement, interest will continue to accrue at the judgment interest rate.

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.

C – Investor Debt – Notes payable to lenders having an ownership interest in Holdings at March 31, 2017 and December 31, 2016. These loans are not collateralized. The following summarizes the terms and balances of the investor debt:

March 31, 2017		December 31, 2016		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		113,720		various
$	371,507	$	371,507

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

	March 31, 2017		December 31, 2016		Interest Rate
D1	$	4,635,865	$	4,635,865		various
D3		34,888		34,888		12	%
D4		365,550		365,550		various
D5		668,176		668,176		18	%
D6		1,648,500		1,024,500		6	%
Total	$	7,352,979	$	6,719,979

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 is an owner of the common stock of Holdings, is the lessor of our manufacturing facility, and the provider of our payroll services. We also owe Symbiote $351,900 in accounts payable.

D3 – Note payable to our Chief Executive Officer (“CEO”), entered into in December 2014, with monthly principal and interest payable through December 2016. We also owe Hal $718,941 in accrued compensation and expenses incurred on behalf of the Company.

D4 – Notes payable to the spouse of our CEO, entered into from September 2013 to March 2017, 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 from June 2015 to December 2015. These notes aggregated the previous accounts payable and accrued interest due to the consulting firm at the time the notes were made. As of 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 does 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 over the life of the notes. We also owe NOW CFO $462,099 in accounts payable.

D6 – Notes payable to the principal shareholders of Symbiote, entered into from April to March 2017, 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 between 6% and 24% 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 one of 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 $424,341 as of March 31, 2017. The maturity dates of the agreements range from June to September 2017.

G – Convertible promissory notes – Represents the outstanding principal balance on a convertible promissory note payable to an entity with interest of 8% annually, that were due in August 2016. 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 have failed to pay the note when it became due, the balance due incurs interest at the rate of 22% per annum. The note contains 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.

Debt issuance costs of $350,916 are being amortized over the life of the respective notes.