Notes Payable	12 Months Ended
Dec. 31, 2013
Notes to Financial Statements
7. Notes Payable	On January 15, 2013, the Company failed to make required payments aggregating $2,000,000 in principal and approximately $193,000 of accrued interest due on certain note agreements dated September 2, 2011. Accordingly, the Company was in default of its obligations under the loan documents. On February 1, 2013, the Company repaid the notes with an outstanding principal balance of $2,000,000 plus outstanding accrued interest of $199,260. The Company recorded amortization of debt discount associated with the notes payable of $44,363 and $532,378 for the years ended December 31, 2013 and 2012, respectively, using the effective interest method. As of December 31, 2012, $44,363 of the debt discount associated with the notes was unamortized. On March 28, 2013, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with a lender (the "Lender"). Under the terms of the Loan Agreement, the Company borrowed $500,000 from the Lender (the “Loan”). The Loan is evidenced by a promissory note (the “March Note”). On October 15, 2013, the Company received an additional $100,000 from the Lender and executed an Amended and Restated Promissory Note (the “September Note”) with a face value of $600,000, effective September 30, 2013, which supersedes the March Note. The September note bears interest on the unpaid principal balance of the September Note 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 December 31, 2013, the Prime Rate was 3.25% per annum). Under the terms of the Loan Agreement, the Company has agreed to make monthly payments of accrued interest on the first day of every month, beginning on May 1, 2013. The principal amount and all unpaid accrued interest on the September Note is payable on March 1, 2015, or earlier in the event of default or a sale or liquidation of the Company. The Loan may be prepaid in whole or in part at any time by the Company without penalty. See Note 14 for subsequent events. The Company granted the Lender a first, priority security interest in all of the Company’s assets, in order to secure the Company’s obligation to repay the Loan. The Loan Agreement contains customary negative covenants restricting the Company’s ability to take certain actions without the Lender’s consent, including incurring additional indebtedness, transferring or encumbering assets, paying dividends or making certain other payments, and acquiring other businesses. Upon the occurrence of an event of default, the Lender has the right to impose interest at a rate equal to five percent (5.0%) per annum above the otherwise applicable interest rate (the “Default Rate”). The repayment of the Loan may be accelerated prior to the maturity date upon certain specified events of default, including failure to pay, bankruptcy, breach of covenant, and breach of representations and warranties. 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. On March 30, 2014, the Lender executed documents waiving violations of certain historical EBITDAS debt covenants as of December 31, 2013. 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. In addition, the Lender did not exercise the Default Rate provision. In consideration of the Loan and entering into the March Note, the Company granted the Lender a five-year warrant to purchase 750,000 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 $315,300 which was setup as debt discount and is being amortized using the effective interest method over the term of the Loan. The Company amortized $121,200 of the debt discount as interest expense during the year ended December 31, 2013 and $194,100 remained unamortized as of December 31, 2013. Including the value of the warrant, the March Note had an effective interest rate of 40% per annum. 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. The Company amortized $9,035 of the debt discount as interest expense during the year ended December 31, 2013 and $42,165 remained unamortized as of December 31, 2013. 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 March 13, 2013, the Company converted an advance from a related party of $40,000 to a notes payable with a maturity date of December 31, 2013. The principal balance of the note is due at maturity, with no interest. The Company is in discussions with the related party to extend the maturity date. Imputed interest expense on this note was de minimis. On August 15, 2013, a related party advanced $56,000 to the Company. Subsequently, $7,000 of that advance was repaid to the related party and the Company issued a promissory note for the principal balance of $49,000 (the “Original Note”). The Original Note bears interest at a rate of 10% per annum. The Original Note had a maturity date of November 7, 2013. Through November 21, 2013, the Company repaid $6,905 of the principal of the Original Note and a replacement note was issued for the remaining principal balance of $42,095 (the “Replacement Note”). The Replacement Note waives any existing default under the Original Note and has a maturity date of May 31, 2014. All other terms of the Replacement Note and Original Note are the same. Interest expense on this note was $1,366 during the year ended December 31, 2013. 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 December 31, 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 that the Company has set up as debt discount which will be amortized using the effective interest method over the term of the October Note. The Company amortized $3,067 of the debt discount as interest expense during the year ended December 31, 2013 and $33,733 remained unamortized as of December 31, 2013. Including the value of the warrant, the note had an effective interest rate of 26% per annum The Company recorded amortization of debt discount associated with notes payable of $177,665 and $807,766 for the years ended December 31, 2013 and 2012, respectively, using the effective interest method. See Note 9 – Stockholders’ Deficiency – Common Stock for details regarding the conversion of outstanding notes payable – related parties into Common Stock and warrants.

Notes Payable

12 Months Ended

Dec. 31, 2013

On January 15, 2013, the Company failed to make required payments aggregating $2,000,000 in principal and approximately $193,000 of accrued interest due on certain note agreements dated September 2, 2011. Accordingly, the Company was in default of its obligations under the loan documents. On February 1, 2013, the Company repaid the notes with an outstanding principal balance of $2,000,000 plus outstanding accrued interest of $199,260. The Company recorded amortization of debt discount associated with the notes payable of $44,363 and $532,378 for the years ended December 31, 2013 and 2012, respectively, using the effective interest method. As of December 31, 2012, $44,363 of the debt discount associated with the notes was unamortized.

On March 28, 2013, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with a lender (the "Lender"). Under the terms of the Loan Agreement, the Company borrowed $500,000 from the Lender (the “Loan”). The Loan is evidenced by a promissory note (the “March Note”). On October 15, 2013, the Company received an additional $100,000 from the Lender and executed an Amended and Restated Promissory Note (the “September Note”) with a face value of $600,000, effective September 30, 2013, which supersedes the March Note. The September note bears interest on the unpaid principal balance of the September Note 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 December 31, 2013, the Prime Rate was 3.25% per annum). Under the terms of the Loan Agreement, the Company has agreed to make monthly payments of accrued interest on the first day of every month, beginning on May 1, 2013. The principal amount and all unpaid accrued interest on the September Note is payable on March 1, 2015, or earlier in the event of default or a sale or liquidation of the Company. The Loan may be prepaid in whole or in part at any time by the Company without penalty. See Note 14 for subsequent events.

The Company granted the Lender a first, priority security interest in all of the Company’s assets, in order to secure the Company’s obligation to repay the Loan. The Loan Agreement contains customary negative covenants restricting the Company’s ability to take certain actions without the Lender’s consent, including incurring additional indebtedness, transferring or encumbering assets, paying dividends or making certain other payments, and acquiring other businesses. Upon the occurrence of an event of default, the Lender has the right to impose interest at a rate equal to five percent (5.0%) per annum above the otherwise applicable interest rate (the “Default Rate”). The repayment of the Loan may be accelerated prior to the maturity date upon certain specified events of default, including failure to pay, bankruptcy, breach of covenant, and breach of representations and warranties.

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. On March 30, 2014, the Lender executed documents waiving violations of certain historical EBITDAS debt covenants as of December 31, 2013. 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. In addition, the Lender did not exercise the Default Rate provision.

In consideration of the Loan and entering into the March Note, the Company granted the Lender a five-year warrant to purchase 750,000 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 $315,300 which was setup as debt discount and is being amortized using the effective interest method over the term of the Loan. The Company amortized $121,200 of the debt discount as interest expense during the year ended December 31, 2013 and $194,100 remained unamortized as of December 31, 2013. Including the value of the warrant, the March Note had an effective interest rate of 40% per annum.

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. The Company amortized $9,035 of the debt discount as interest expense during the year ended December 31, 2013 and $42,165 remained unamortized as of December 31, 2013. 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 March 13, 2013, the Company converted an advance from a related party of $40,000 to a notes payable with a maturity date of December 31, 2013. The principal balance of the note is due at maturity, with no interest. The Company is in discussions with the related party to extend the maturity date. Imputed interest expense on this note was de minimis.

On August 15, 2013, a related party advanced $56,000 to the Company. Subsequently, $7,000 of that advance was repaid to the related party and the Company issued a promissory note for the principal balance of $49,000 (the “Original Note”). The Original Note bears interest at a rate of 10% per annum. The Original Note had a maturity date of November 7, 2013. Through November 21, 2013, the Company repaid $6,905 of the principal of the Original Note and a replacement note was issued for the remaining principal balance of $42,095 (the “Replacement Note”). The Replacement Note waives any existing default under the Original Note and has a maturity date of May 31, 2014. All other terms of the Replacement Note and Original Note are the same. Interest expense on this note was $1,366 during the year ended December 31, 2013.

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 December 31, 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 that the Company has set up as debt discount which will be amortized using the effective interest method over the term of the October Note. The Company amortized $3,067 of the debt discount as interest expense during the year ended December 31, 2013 and $33,733 remained unamortized as of December 31, 2013. Including the value of the warrant, the note had an effective interest rate of 26% per annum

The Company recorded amortization of debt discount associated with notes payable of $177,665 and $807,766 for the years ended December 31, 2013 and 2012, respectively, using the effective interest method.

See Note 9 – Stockholders’ Deficiency – Common Stock for details regarding the conversion of outstanding notes payable – related parties into Common Stock and warrants.