Notes Payable - Related Parties

12 Months Ended

Dec. 31, 2013

8. Notes Payable - Related Parties

On March 29, 2012, the Company issued an unsecured note payable to Ramon Shealy a then-director of the Company, who subsequently resigned from the Board of Directors on December 17, 2012, for personal reasons, in the amount of $238,000, bearing interest at a rate of 10% for the term of the note. All principal and interest was due and payable on September 27, 2012, but was later extended to November 24, 2012. On April 16, 2012, the Company issued a note payable to Mr. Shealy, in the amount of $12,000, bearing interest at a rate of 10% per quarter. All principal and interest was due on July 15, 2012, but was later extended to November 24, 2012. On November 24, 2012 the two notes were combined into a $250,000 promissory note, under the same terms, with a maturity date of January 1, 2014. On December 24, 2013 the $250,000 promissory note, was extended under the same terms, with a maturity date of January 1, 2015. On March 13, 2013, the Company paid $100,000 of the principal amount of the $250,000 promissory note to Mr. Shealy. As of December 31, 2013, the $250,000 promissory note issued to Mr. Shealy had a principal balance of $150,000 and accrued interest of $29,240.

On September 20, 2012, the Company issued an unsecured promissory note payable to Ms. Chretien, a relative of the Company’s Founders, in the amount of $14,000, due July 1, 2014 and bearing interest at 5% per annum, with the principal and interest to be paid at maturity. On March 5, 2013, the Company paid off in full, the entire principal balance of this note, and all accrued interest in the amount of $493.

On March 2, 2009, the Company issued an unsecured promissory note payable to Ms. Chretien, in the amount of $80,000 due January 1, 2014 and bearing interest at 5% per annum, with the principal and interest to be paid at maturity. On December 27, 2013 the $80,000 promissory note was extended under the same terms, with a maturity date of January 1, 2015.During the twelve months ended December 31, 2013, the Company paid $32,500 in principal and $9,014 in accrued interest to Ms. Chretien related to this note. As of December 31, 2013 the note had a principal balance of $32,500 and accrued interest of $2,528.

On December 29, 2001, the Company issued an unsecured promissory note payable to A. Michael Chretien, a Founder of the Company, in the amount of $55,167, with any unpaid principal and interest due on January 1, 2014. During 2013, the Company paid $11,250 in accrued interest to A. Michael Chretien. On December 27, 2013, note was extended, under the same terms, with a maturity of January 12, 2015. As of December 31, 2013, the note had a principal balance of $40,415 and accrued interest of $2,846.

On July 16, 2012, the Company issued an unsecured note payable to a shareholder, Mr. Haddix (who on December 13, 2012 became a member of the Board of Directors of the Company and subsequently resigned from the Board on April 2, 2013 for health reasons), in the amount of $95,000, due 45 days from the date of issuance (subsequently extended) and bearing interest at a rate of 10% per annum, with the principal and interest to be paid on maturity. On January 15, 2013, Mr. Haddix converted the entire principal and interest balance of the note to 311,434 restricted common shares, $.001 par value, at $0.32 per share (based on the closing price on the immediately preceding business day subject to the applicable holding period restrictions under Rule 144) in reliance upon exemptions from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D, as promulgated by the SEC.

The table below reflects Notes payable due to related parties at December 31, 2013 and December 31, 2012, respectively:

	December 31,		December 31,
	2013		2012
The $95,000 Haddix Note	$	-	$	95,000
The $14,000 Jackie Chretien Note		-		14,000
The $80,000 Jackie Chretien Note		32,500		65,000
The $55,167 A. Michael Chretien Note		40,415		40,415
The $250,000 Shealy Note		150,000		250,000
Total notes payable - related party	$	222,915	$	464,415
Less current portion		-		(95,000)
Long-term portion of notes payable-related party	$	222,915	$	369,415

Future minimum principal payments of these notes payable as described in this Note 8 are as follows:

For the Twelve Months Ended
December 31,	Amount
2014	$	-
2015		222,915
Total	$	222,915

As of December 31, 2013 and December 31, 2012, accrued interest for these notes payable to related parties amounted to $34,614 and $72,033, respectively.

For the twelve months ended December 31, 2013 and 2012, interest expense in connection with notes payable – related parties was $15,276 and $43,755, respectively.

- Definition

The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

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