Debt

12 Months Ended

Dec. 31, 2017

Debt Disclosure [Abstract]

Debt

Note 3 – Debt

Debt consists of the following:

			December 31,
Description	Note		2017			2016
Line of credit		A	$	31,588		$	47,000
Note payable to distribution partner		B		550,000			550,000
Investor debt		C		371,507			371,507
Related party debt		D		10,038,037			6,719,979
Other notes payable		E		1,021,937			981,137
Cash draw agreements		F		338,083			211,076
Convertible promissory notes		G		58,937			71,637
Total				12,410,089			8,952,336
Less:  unamortized discount and debt issuance costs				(484,948	)		(280,555	)
Debt, net of unamortized discount and debt issuance costs				11,925,141			8,671,781
Less:  current portion				(11,249,083	)		(8,451,781	)
Debt, long-term portion			$	676,058		$	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. 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 current principal balance is $31,588.

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 December 31, 2017 and 2016. These loans are not collateralized. The following summarizes the terms and balances of the investor debt:

December 31,
2017		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 Party Debt – The following summarizes notes payable to related parties.

	December 31,
	2017		2016		Interest Rate
D1	$	4,635,865	$	4,635,865		various
D2		34,888		34,888		12	%
D3		362,550		356,550		various
D4		1,205,234		668,176		18	%
D5		3,799,500		1,024,500		6	%
Total	$	10,038,037	$	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 $1,285,325 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 payable through December 2016. We also owe Hal $879,404 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 March 2017, with principal and interest payments due upon a specific event or upon demand. We also owe her $199,740 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 the previous accounts payable and accrued interest due to the consulting firm at the time the notes were made. As of January 1, 2016, three of 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 this firm $294,412 in accrued interest.

D5 – Notes payable to the principal shareholders of Symbiote, entered into from April to December 2017, with principal and interest payments due upon a specific event or upon demand. We also owe them $106,154 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 due under these arrangements was $437,529 as of December 31, 2017. The maturity dates of the agreements range from January to April 2018.

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 $484,948 are being amortized over the life of their respective notes.

The future maturities of debt are as follows:

Year ending December 31,
	2018	$	11,249,083
	2019		670,058
	2020		6,000
		$	11,925,141