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Subsequent Events
9 Months Ended
Sep. 30, 2013
Subsequent Events  
Note 11 - Subsequent Events

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements, except as disclosed below.

 

Related Party Advances

 

Subsequent to September 30, 2013, the Company repaid an officer approximately $9,000. As of September 30, 2013, the outstanding payable to the officer was approximately $92,000.

 

Notes Payable

 

On October 15, 2013, the Company received an additional $100,000 from a lender, which brought the face value of the September Note to $600,000 pursuant to an Amended and Restated Promissory Note (the “September Note”), effective September 30, 2013, which supersedes the March Note with the same Lender. The September Note contains financial covenants which require the Company to meet certain minimum targets for earnings before interest, taxes and non-cash expenses, including depreciation, amortization and stock-based compensation (“EBITDAS”) for the calendar quarters and years ended between December 31, 2013 and 2014, inclusive. In addition, the September Note extended the deadline for providing the March 31, 2013 and June 30, 2013 quarterly financial statements and financial covenant certifications from 45 days after quarter end to October 31, 2013. The remainder of the material September Note terms are unchanged from the March Note, including the March 1, 2015 maturity date.  In consideration of the Lender providing additional funds and entering into the September Note, the Company granted the Lender a five-year warrant to purchase 150,000 shares of common stock at an exercise price of $0.35 per share. The warrant contains customary anti-dilution provisions. The warrant had a relative fair value of $51,200 which was set up as debt discount and will be amortized using the effective interest method over the term of the September Note.  Including the value of warrants issued in connection with the March Note and September Note, the September Note had an effective interest rate of 41% per annum. On November 25, 2013, the lender executed a document waiving the Company's non-compliance with the deadline to deliver September 30, 2013 financial statements.

 

On October 30, 2013, the Company issued a note payable with a principal amount of $100,000 to a lender. The note bears interest on the unpaid principal balance until the full amount of principal has been paid at a floating rate equal to the Prime Rate plus four and one-quarter percent (4.25%) per annum (as of September 30, 2013, the Prime Rate was 3.25% per annum). Under the terms of the note, the Company has agreed to make monthly payments of accrued interest on the first day of every month, beginning on December 1, 2013. The principal amount and all unpaid accrued interest is payable on November 1, 2015 but the Company’s obligations are unsecured and are subordinate to its obligations pursuant to the September Note described above. The Loan may be prepaid in whole or in part at any time by the Company without penalty. In consideration of the note payable, the Company issued to the lender a five-year warrant to purchase 150,000 shares of common stock at an exercise price of $0.35 per share. The warrant contains customary anti-dilution provisions. The warrant had a relative fair value of $36,800. Including the value of the warrant, the note had an effective interest rate of 26% per annum.