Debt

9 Months Ended

Sep. 30, 2017

Note 4 — Debt

Debt is comprised of the following:

Description	Note		September 30, 2017			December 31, 2016
Line of credit		A	$	41,588		$	47,000
Note payable to distribution partner		B		550,000			550,000
Investor debt		C		371,507			371,507
Related party debt		D		8,777,979			6,719,979
Other notes payable		E		981,137			981,137
Cash draw notes		F		260,767			211,076
Convertible promissory notes		G		58,937			71,637
Total				11,041,915			8,952,336
Less: unamortized discount and debt issuance costs				(465,074	)		(280,555	)
Debt, net of unamortized discount and debt issuance costs				10,576,841			8,671,781
Less: current portion				(10,446,841	)		(8,451,781	)
Debt, long-term portion			$	130,000		$	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 September 30, 2017 and December 31, 2016. These loans are not collateralized. The following summarizes the terms and balances of the investor debt:


September 30, 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:

	September 30, 2017		December 31, 2016		Interest Rate
D1	$	4,635,865	$	4,635,865		various
D3		34,888		34,888		12	%
D4		362,550		356,550		various
D5		668,176		668,176		18	%
D6		3,076,500		1,024,500		6	%
Total	$	8,777,979	$	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 $438,217 in accounts payable.

D3 – 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 $775,342 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 $511,382 in accounts payable.

D6 – Notes payable to the principal shareholders of Symbiote, entered into from April to September 2017, with principal and interest payments due upon a specific event or upon demand.

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.

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 $341,225 as of September 30, 2017. The maturity dates of the agreements range from October 2017 to January 2018.

G – Convertible promissory notes – Represents the outstanding principal balance related to a convertible promissory note entered into during October 2014. During February 2017, the Company and LG Capital Funding, LLC (“LG”) entered into an agreement to settle all principal and interest related to an outstanding note with a face amount of $58,937 for $75,000, with payment being due in March 2017. The Company did not make the payment, and LG has brought an action against the Company in the Southern District of New York to collect damages for the breach, including consequential damages. The Company is disputing this matter and is vigorously defending itself against the matter.

Debt issuance costs of $465,074 are being amortized over the life of the respective notes.

ExeLED Holdings Inc. 10-Q