3. Debt, net

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Debt, net

Note 3 — Debt, net

Debt is comprised of the following:

Description	Note	September 30, 2018			December 31, 2017
Line of credit	A	$	6,531		$	31,588
Note payable to distribution partner	B		550,000			550,000
Investor debt	C		371,507			371,507
Related party debt	D		12,659,270			10,038,037
Other notes payable	E		642,444			1,021,937
Cash draw notes	F		717,590			338,083
Convertible promissory notes	G		58,937			58,937
Total			15,006,279			12,410,089
Less: unamortized discount and debt issuance costs			(530,979	)		(484,948	)
Debt, net of unamortized discount and debt issuance costs			14,475,300			11,925,141
Less: current portion			(13,902,742	)		(11,249,083	)
Debt, long-term portion		$	572,558		$	676,058

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. On April 4, 2016, the parties to this action entered into a settlement agreement whereby the defendants agreed to pay to Vectra 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. 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 continues to accrue at the judgment interest rate. The principal balance at September 30, 2018 was $6,531.

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 September 30, 2018 and December 31, 2017. These loans are not collateralized. The following summarizes the terms and balances of the investor debt:

September 30, 2018		December 31, 2017		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:

	September 30, 2018		December 31, 2017		Interest Rate
D1	$	4,635,865	$	4,635,865	various
D2		34,888		34,888	12%
D3		366,550		362,550	various
D4		1,205,234		1,205,234	18%
D5		6,416,733		3,799,500	6%
Total	$	12,659,270	$	10,038,037

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 a shareholder, is the lessor of our manufacturing facility, and the provider of our payroll services. We also owe Symbiote $1,565,207 in accounts payable and accrued interest.

D2 – Note payable to our Chief Executive Officer (“CEO”), entered into in December 2014, with monthly principal and interest originally payable through December 2016. We are still continuing to accrue interest on this note payable. We also owe our CEO $939,681 in accrued compensation, accrued interest, and expenses incurred on behalf of the Company.

D3 – Notes payable to the spouse of our CEO, entered into from September 2013 to January 2018, with principal and interest payments due upon a specific event or upon demand. We also owe her $245,444 in accrued interest.

D4 – Notes payable to the consulting firm that employs our Chief Financial Officer, entered into from June 2015 to December 2017. These notes aggregated previous accounts payable and accrued interest due to the consulting firm at the time the notes were made. These notes mature at various dates through December 2019. We also owe this firm $456,673 in accrued interest.

D5 – Notes payable to the principal shareholders of Symbiote, entered into from April 2016 to September 2018, with principal and interest payments due upon a specific event or upon demand. We also owe them $264,492 in accrued interest.

E – Other Notes Payable – Represents the outstanding principal balance on six 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. During November 2017, one of these noteholders requested a summary judgment for a note that is in default as principal and interest payments were not made in accordance with the note. The note had consolidated past due rent amounts and interest to one of our former landlords. In January 2018, a summary judgment in the amount of $475,832, which represents the total principal and interest outstanding on the note as of October 31, 2017 was granted by the court.

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 of principal and interest due under these arrangements was $717,590 as of September 30, 2018. The maturity dates of the agreements range from November 2018 to January 2019. During 2018, judgment was entered against us and in favor of ML Factors Funding, Green Capital Funding, and Queen Funding, whereby we are required to pay the outstanding principal and interest balance on the agreements. In addition, ML Factors Funding, Green Capital Funding, and Queen Funding also claim that they are to be paid additional interest, attorney’s fees, and other ancillary expenses. While we are vigorously defending ourselves in these matters and believe that we will not be required to pay more than the total principal and interest outstanding on the agreements, we have recorded the entire amount of all judgments into our financial statements as of September 30, 2018. We recorded the entire requested amount from ML Factors Funding of $240,480, the entire requested amount from Green Capital Funding of $312,056, and the entire requested amount from Queen Funding of $304,826. In addition, we have reclassified these amounts to accrued liabilities.

G – Convertible promissory notes – Represents the outstanding principal balance related to a convertible promissory note entered into during October 2014. In May 2017, LG Capital Funding LLC (“LG”), filed a complaint against us in the U.S. District Court for the Southern District of New York, Civil Action No. 17-cv-4006-(RJS), alleging that we owed LG the principal balance of $75,000 plus interest, costs and attorneys’ fees, arising out of two convertible notes issued to LG. LG amended its complaint in July 2017 and we filed our answer a week later denying any liability and affirmatively stating that LG had been repaid many times over. LG then immediately filed a pre-discovery motion for summary judgment. We submitted our opposition to the motion on September 25, 2017. LG filed reply papers in further support on October 5, 2017. LG asserts that no factual issues exist and that summary judgment is therefore appropriate. Our opposition asserts that summary judgment, as to both liability and damages, is woefully premature and unwarranted given the many factual issues that exist regarding, among other things, LG’s failure to disclose material facts, potential short selling and fraudulent concealment, usury, and fraud on the market. The motion remains pending before the Court.

Our defense in this matter is based in part on a separate action filed by the Securities and Exchange Commission against unrelated defendants in the U.S. District Court for the Southern District of Florida alleging that the defendant there, which follows the same business model as LG, has violated federal securities laws by not registering as a dealer. We understand that LG also was not and is not registered as a dealer even though it too should be given it too trades securities for its own account as part of its business. The SEC asserts that all gains reaped by defendants in the attached complaint should be disgorged due to the ill-gotten gains received. LG has, admittedly, likewise received substantial profits trading our stock for its own account.

As a result, we have filed an amended answer, alleging that LG is entitled to no recovery, and that it should disgorge to us all gains unlawfully received from selling our shares of common stock.

Debt issuance costs of $530,979 are being amortized over the life of the respective notes.