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5. Debt (Q2) | 15 Months Ended | 6 Months Ended
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Mar. 31, 2014 | Jun. 30, 2014 Quarter 2 [Member]
5. Debt | Note 5 Debt (A) Summary of Debt Transactions At December 31, 2013 and 2012, debt consists of the following:
|  | 2013 |  | 2012
Notes payable |  | $ | 503,203 |  |  | $ | 739,534 |
Notes payable - related party |  |  | 26,108 |  |  |  | 133,000 |
Convertible notes |  |  | 2,194,133 |  |  |  | — |
Convertible notes - related party |  |  | 50,000 |  |  |  | — |
Less: debt discount |  |  | (1,925,191 | ) |  |  | — |
Debt - net |  |  | 848,253 |  |  |  | 872,534 |
Amortization of debt discount |  |  | 92,304 |  |  |  | — |
Less: current portion - notes payable |  |  | (98,086 | ) |  |  | (236,325 | )
Less: current portion - notes payable - related party |  |  | (26,108 | ) |  |  | (133,000 | )
Long term debt - net |  | $ | 816,362 |  |  | $ | 503,209 |
Notes Payable
|  | Third Party |  | Related Party |  | Totals
Balance December 31, 2011 |  | $ | 849,640 |  |  | $ | 6,000 |  |  | $ | 855,640 |
Proceeds |  |  | 120,000 |  |  |  | 127,000 |  |  |  | 247,000 |
Repayments |  |  | (230,106 | ) |  |  | — |  |  |  | (230,106 | )
Balance December 31, 2012 |  |  | 739,534 |  |  |  | 133,000 |  |  |  | 872,534 |
Proceeds |  |  | 160,000 |  |  |  | 61,655 |  |  |  | 221,655 |
Repayments |  |  | (116,331 | ) |  |  | (35,547 | ) |  |  | (151,878 | )
Conversion of note payable to convertible debt |  |  | (180,000 | ) |  |  | (50,000 | ) |  |  | (230,000 | )
Debt forgiveness |  |  | (100,000 | ) |  |  | (83,000 | ) |  |  | (183,000 | )
Balance December 31, 2013 |  | $ | 503,203 |  |  | $ | 26,108 |  |  | $ | 529,311 |
Convertible Debt - Net The Company has recorded derivative liabilities associated with these convertible debt instruments, as more fully discussed at Notes 6 and 10 (C).
|  | Third Party |  | Related Party |  | Totals
Balance December 31, 2012 |  | $ | — |  |  | $ | — |  |  | $ | — |
Proceeds |  |  | 2,000,000 |  |  |  | — |  |  |  | 2,000,000 |
Repayments |  |  | — |  |  |  | — |  |  |  | — |
Conversion of note payable to convertible debt |  |  | 180,000 |  |  |  | 50,000 |  |  |  | 230,000 |
Conversion of accrued interest into convertible debt |  |  | 14,133 |  |  |  | — |  |  |  | 14,133 |
Less: gross debt discount recorded |  |  | (1,925,191 | ) |  |  | — |  |  |  | (1,925,191 | )
Add: amortization of debt discount |  |  | 92,304 |  |  |  | — |  |  |  | 92,304 |
Balance December 31, 2013 |  | $ | 361,245 |  |  | $ | 50,000 |  |  | $ | 411,245 |
In connection with the $2,000,000 convertible debt offering in November 2013, the Company issued 3,672,134 detachable warrants. The notes and warrants were treated as derivative liabilities, see Notes 6 and 10. The Company was required to register the underlying convertible debt shares and warrants within 60 days (January 2014), and for the registration statement to become effective 90 days after this date (April 2014). As of the date of the accompanying report, the registration statement has not yet been filed, which upon filing, must be declared and remain effective. As a result of not filing the registration statement timely, the Company began accruing liquidated damages equal to 2% of the gross proceeds which is equivalent to $40,000 per month each for May and June 2014. The liquidated damages clause is capped at 15% of gross proceeds raised. If the Company fails to pay the liquidated damages, an interest rate of 18% will be applied to the outstanding debt instruments. In the event any of these notes are prepaid prior to maturity, a penalty rate of 10% would apply for any payments occurring between months 12 – 18 and a 5% rate for any payments occurring between 19-24 months. All convertible debt is secured by a 2nd priority lien on all assets of the Company. The Company is subordinate only to a third party bank loan, which is currently included as a component of notes payable ($503,203). (B) Terms of Debt In 2012, all outstanding debt had the following terms: • Unsecured • Due on demand • Interest ranging from 10% - 12% In 2013, all outstanding debt had the following terms: • Unsecured -$26,108 • Secured - $503,203 • Due: • On demand ($26,108 – related party); • Due August 29, 2018 ($503,203 – third party) • Due November 26, 2015 ($2,244,133 – all convertible debt – gross – secured by all assets of the Company) • Interest • Non-interest bearing on notes issued prior to 2013 (see 2012 notes above); or • Ranging from 12% - 15% All convertible debt and related warrants issued with the convertible notes in 2013 were convertible at $0.25 and $0.375/share, respectively; however, given the existence of a ratchet feature, these debt and warrant instruments could potentially carry a lower conversion price in the future in the event any future offering offered a lower per share amount for a conversion. (C) Future Commitments At December 31, 2013, the Company has outstanding debt of $816,362 (See Note 5 (A)). Future minimum repayment obligations are as follows:
Year Ended December 31 |  |
2014 |  | $ | 124,194 |
2015 |  |  | 2,649,250 |
Less: unamortized debt discount |  |  | (1,832,888 | )
Less: current maturities |  |  | (124,194 | )
Debt - long term |  | $ | 816,362 |
| Note 5 Debt (A) Summary of Debt Transactions At June 30, 2014 and December 31, 2013, debt consists of the following:
|  | 2014 |  | 2013
Notes payable |  | $ | 454,646 |  |  | $ | 503,203 |
Notes payable - related party |  |  | — |  |  |  | 26,108 |
Convertible notes |  |  | 4,464,233 |  |  |  | 2,194,132 |
Convertible notes - related party |  |  | 50,000 |  |  |  | 50,000 |
Less: debt discount |  |  | (4,174,650 | ) |  |  | (1,925,191 | )
Debt - net |  |  | 794,229 |  |  |  | 848,252 |
Amortization of debt discount |  |  | 671,683 |  |  |  | 92,304 |
Less: current portion - notes payable |  |  | (98,086 | ) |  |  | (98,086 | )
Less: current portion - notes payable - related party |  |  | (0 | ) |  |  | (26,108 | )
Long term debt - net |  | $ | 1,367,826 |  |  | $ | 816,362 |
Notes Payable
|  | Third Party |  | Related Party |  | Totals
Balance December 31, 2011 |  | $ | 849,640 |  |  |  | 6,000 |  |  | $ | 855,640 |
Proceeds |  |  | 120,000 |  |  |  | 127,000 |  |  |  | 247,000 |
Repayments |  |  | (230,106 | ) |  |  | — |  |  |  | (230,106 | )
Balance December 31, 2012 |  |  | 739,534 |  |  |  | 133,000 |  |  |  | 872,534 |
Proceeds |  |  | 160,000 |  |  |  | 61,655 |  |  |  | 221,655 |
Repayments |  |  | (116,331 | ) |  |  | (35,547 | ) |  |  | (151,878 | )
Conversion of note payable to convertible debt |  |  | (180,000 | ) |  |  | (50,000 | ) |  |  | (230,000 | )
Conversion of note payable to contributed capital |  |  | (100,000 | ) |  |  | (83,000 | ) |  |  | (183,000 | )
Balance December 31, 2013 |  |  | 503,203 |  |  |  | 26,108 |  |  |  | 529,311 |
Proceeds |  |  | — |  |  |  | — |  |  |  | — |
Repayments |  |  | (48,560 | ) |  |  | (26,108 | ) |  |  | (74,668 | )
Conversion of note payable to convertible debt |  |  | — |  |  |  | — |  |  |  | — |
Conversion of note payable to contributed capital |  |  | — |  |  |  | — |  |  |  | — |
Balance June 30, 2014 |  | $ | 454,643 |  |  | $ | — |  |  | $ | 454,643 |
Convertible Debt - Net The Company has recorded derivative liabilities associated with these convertible debt instruments, as more fully discussed at Notes 6 and 10 (C).
|  |  | Third Party |  |  |  | Related Party |  |  |  | Totals |
Balance December 31, 2012 |  | $ | — |  |  | $ | — |  |  | $ | — |
Proceeds |  |  | 2,000,000 |  |  |  | — |  |  |  | 2,000,000 |
Repayments |  |  | — |  |  |  | — |  |  |  | — |
Conversion of note payable to convertible debt |  |  | 180,000 |  |  |  | 50,000 |  |  |  | 230,000 |
Conversion of accrued interest into convertible debt |  |  | 14,133 |  |  |  | — |  |  |  | 14,133 |
Less: gross debt discount recorded - Day 1 |  |  | (1,925,191 | ) |  |  | — |  |  |  | (1,925,191 | )
Add: amortization of debt discount |  |  | 92,304 |  |  |  | — |  |  |  | 92,304 |
Balance December 31, 2013 |  |  | 361,246 |  |  |  | 50,000 |  |  |  | 411,246 |
Proceeds |  |  | 2,270,100 |  |  |  | — |  |  |  | 2,270,100 |
Less: gross debt discount recorded - Day 1 |  |  | (2,249,459 | ) |  |  | — |  |  |  | (2,249,459 | )
Add: amortization of debt discount |  |  | 579,382 |  |  |  | — |  |  |  | 579,382 |
Balance June 30, 2014 |  | $ | 961,269 |  |  | $ | 50,000 |  |  | $ | 1,011,269 |
In connection with the $2,000,000 convertible debt offering in November 2013, the Company issued 3,672,134 detachable warrants. The notes and warrants were treated as derivative liabilities, see Notes 6 and 9. The Company was required to register the underlying convertible debt shares and warrants within 60 days (January 2014), and for the registration statement to become effective 90 days after this date (April 2014). The registration statement has not yet been filed, which upon filing, must be declared and remain effective. As a result of not filing the registration statement timely, the Company began accruing liquidated damages equal to 2% of the gross proceeds which is equivalent to $40,000 per month each for May and June 2014. The liquidated damages clause is capped at 15% of gross proceeds raised. If the Company fails to pay the liquidated damages, an interest rate of 18% will be applied to the outstanding debt instruments. In connection with the $2,270,100 convertible debt offering during the three months ended June 30, 2014, the Company issued 5,390,100 detachable warrants. The notes and warrants were treated as derivative liabilities, see Notes 6 and 9. In the event any of these notes are prepaid prior to maturity, a penalty rate of 10% would apply for any payments occurring between months 12 – 18 and a 5% rate for any payments occurring between 19-24 months. All convertible debt is secured by a 2nd priority lien on all assets of the Company. The Company is subordinate only to a third party bank loan, which is currently included as a component of notes payable ($454,643). (B)Terms of Debt In 2012, all outstanding debt had the following terms:
• |  | Unsecured
• |  | Due on demand
• |  | Interest ranging from 10% - 12%
In 2014 and 2013, all outstanding debt had the following terms:
• |  | Unsecured -$26,108
• |  | Secured - $454,643
• |  | Due:
• |  | On demand ($26,108 – related party);
• |  | Due August 29, 2018 ($454,653 – third party)
• |  | Due November 26, 2015 ($2,244,133 –convertible debt – gross – secured by all assets of the Company)
• |  | Due May 8, 2016 ($2,270,100 –convertible debt – gross – secured by all assets of the Company)
• |  | Interest
• |  | Non-interest bearing on notes issued prior to 2013 (see 2012 notes above); or
• |  | Ranging from 12% - 15%
All convertible debt and related warrants issued with the convertible notes were convertible at $0.25 and $0.375/share, respectively; however, given the existence of a ratchet feature, these debt and warrant instruments could potentially carry a lower conversion price in the future in the event any future offering offered a lower per share amount for a conversion. In connection with the secured loan of $454,643, the lender required for the Company to hold in escrow $50,000 for required payments through April 2014. As of June 30, 2014, the escrow balance was $0. In connection with the Notes Offering, the Company entered into Registration Rights Agreements, dated November 26, 2013, May 8, 2014 and June 25, 2014 (the “Registration Rights Agreements”) whereby the Company agreed to prepare and file a registration statement with the SEC within sixty (60) days after execution of the applicable Registration Rights Agreement and to have the registration statement declared effective by the SEC within ninety (90) days thereafter (on day 150). Because the Company was unable to timely file a registration statement pursuant to the terms of each Registration Rights Agreement noted above, the Company is in default under such Registration Rights Agreements (the “Filing Default Damages”). Pursuant to the Registration Rights Agreement, the Filing Default Damages mandate that the Company shall pay to the Investors, for each thirty (30) day period of such failure and until the filing date of the registration statement and/or the common stock may be sold pursuant to Rule 144, an amount in cash, as partial liquidated damages and not as a penalty, equal to 2% of the aggregate gross proceeds paid by the Investors for these Notes. The maximum liquidated damages shall be equal to 15% of the aggregate gross proceeds received by the Company in connection with the issuance of the Notes and Warrants. If the Company fails to pay any partial liquidated damages in full within five (5) days of the date payable, the Company shall pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Investors, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. As of June 30, 2014, as a component of accounts payable and accrued expenses, the Company has accrued penalties totaling $218,143 pertaining to the registration rights agreement. (C) Future Commitments At June 30, 2014, the Company has outstanding debt of $1,367,826, net of debt discount (See Note 5 (A)). Future minimum repayment obligations are as follows:
Year Ended December 31 |  |
2014 |  | $ | 98,086 |
2015 |  |  | 4,870,793 |
Less: unamortized debt discount |  |  | (3,502,967 | )
Less: current maturities |  |  | (98,086 | )
Debt - long term |  | $ | 1,367,826 |

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20, 22 -Article 5 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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