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Note 8 - Long Term Obligations

9 Months Ended

Sep. 30, 2013

Note 8— Long Term Obligations

Senior Loans Payable

On November 10, 2011, in conjunction with the acquisition of Insider Guides, the Company assumed loans payable consisting of a growth capital term loan and three equipment term loans. The loans payable are collateralized by substantially all the assets of the Company. Under the Loan and Security Agreement Number 2 (“LSA2”) growth term and equipment term loans, dated December 13, 2010, principal and interest are payable monthly at a fixed interest rate of 12.50% per annum, and the loans are due September 2014. Under the Supplemental Loan and Security Agreement (“SLSA”), dated November 21, 2008, principal and interest are payable monthly at a fixed interest rate of 12.60% per annum, and the loan was repaid by April 2012. Under the Supplement Number 2 Loan and Security Agreement (“S2LSA”) dated January 22, 2010, principal and interest are payable monthly at a fixed interest rate of 12.50% per annum, and the loan is due June 2013. On February 13, 2012, the loans payable and security agreements were amended and restated to include additional debt covenants. The amendment includes limitations of additional $6 million of bank borrowing and indebtedness for leased office equipment. The amendment requires that the Company’s unrestricted cash and accounts receivable be greater than or equal to 200% of the borrowers indebtedness and the Company’s unrestricted cash be greater than or equal to the aggregate amount of interest that will accrue and be payable through the maturity date of loans payable and security agreement. At September 30, 2013, the Company was in compliance with the amended loans payable and security agreements debt covenants.

On April 29, 2013, the Company entered into an $8.0 million loan and security agreement with Value Lending & Leasing VI, Inc. and Value Lending and Leasing VII, Inc., at 11% fixed interest rate, maturing in 36 months, and which may be drawn in three tranches (the “Loan”). On April 29, 2013, the Company drew $5.0 million on the facility. Interest is payable monthly for the first six months of the loan term, and monthly principal and interest payments are due thereafter through the maturity date. The Company issued warrants to each of the lenders in conjunction with the loan facility with an initial aggregate exercise price of $400,000, which increased by $100,000 with the first tranche and increases by $150,000 with the second and third tranche draw down of the Loan. The Loan payable is net of the discount of valuation on the related warrants (See Note 14). The discount is amortized on the straight-line basis over the 36 month debt term. The lenders will have a priority first security lien on substantially all assets of the Company. At September 30, 2013, the Company was in compliance with the debt covenants related to the Loan.

	September 30, 2013
Growth capital loan payable, face amount	$	5,000,000
Discount:
Valuation of warrants		(290,748	)
Accumulated amortization		33,228
Total discounts		(257,520	)
Growth capital loan payable, net	$	4,742,480

Subordinated Notes Payable

On January 25, 2008, the Company entered into a Note Purchase Agreement (the “MATT Agreement”) with Mexicans & American Trading Together, Inc. (“MATT”). Pursuant to the terms of the MATT Agreement: (i) MATT invested $5,000,000 in the Company and the Company issued MATT a subordinated promissory note due October 16, 2016 with 4.46% interest per annum (the “MATT Note”); (ii) the exercise price of MATT’s outstanding Series 1 Warrant to purchase 1,000,000 shares of our common stock was reduced from $12.50 per share to $2.75 per share; (iii) the exercise price of MATT’s outstanding Series 2 Warrant to purchase 1,000,000 shares of our common stock was reduced from $15.00 per share to $2.75 per share (see Note 14); and (iv) the Amended and Restated Support Agreement between the Company and MATT was terminated, which terminated MATT’s obligation to provide us with the use of a corporate jet for up to 25 hours per year through October 2016. Debt issuance costs of $24,580 related to this transaction have been capitalized within the other assets section of the balance sheet were amortized to interest expense over the life of the note. The balance of deferred debt issuance costs was approximately $11,000 at December 31, 2012 and was included in other assets.

On March 5, 2013, the Company, Altos Hornos de Mexico, S.A.B. de C.V. (“AHMSA”) and MATT entered into an agreement to offset the MATT Note with approximately $6.0 million of accounts receivable that MATT and AHMSA owed to the Company (the “Receivable”). As of March 5, 2013, $6,254,178 in principal and accrued interest was outstanding under the MATT Note, and the Receivable had a balance of $6,025,828 plus interest of $222,446 from the agreement. MATT exercised warrants dated October 17, 2006 at an exercise price of $2.75 per share (the “MATT Warrants”) to purchase 2,147 shares of common stock using the amount by which the outstanding principal and accrued interest under the Note exceeded the amount of the Receivable. As a result of these transactions, both the MATT Note and the Receivable have been deemed fully satisfied. In connection therewith, MATT has agreed to exercise or forfeit the MATT Warrants with an aggregate exercise price of $2,000,000 over an eleven-month period beginning in March 2013. The Company recorded a net loss on debt restructure of approximately $712,000 in connection with the debt offset and warrant, attributable to the write-off of unamortized discounts and debt issue costs at the date of the agreement.

MATT Note payable consisted of the following:

	September 30, 2013		December 31, 2012
Notes payable, face amount	$	-	$	5,000,000
Discounts on notes:
Revaluation of warrants		-		(1,341,692	)
Termination of jet rights		-		(878,942	)
Accumulated amortization		-		1,255,596
Total discounts		-		(965,038	)
Accrued interest		-		1,204,980
MATT Note payable, net	$	-	$	5,239,942

On January 25, 2008, the Company entered into a Note Purchase Agreement (the “RSI Agreement”) with Richard L. Scott Investments, LLC (“RSI”). Pursuant to the terms of the RSI Agreement: (i) RSI invested $2,000,000 in the Company and the Company issued RSI a subordinated promissory note due March 21, 2016 with 4.46% interest per annum (the “RSI Note”); (ii) the exercise price of RSI’s outstanding Series 2 Warrant to purchase 500,000 shares of our common stock was reduced from $4.00 per share to $2.75 per share, (See Note 14); and (iii) the exercise price of RSI’s outstanding Series 3 Warrant to purchase 500,000 shares of our common stock was reduced from $7.00 per share to $2.75 per share. Debt issuance costs of $15,901 related to this transaction have been capitalized within the Other Assets section of the balance sheet and were amortized to interest expense over the life of the RSI Note. The balance of deferred debt issuance costs was approximately $6,300 at December 31, 2012 and was included in other assets.

On March 5, 2013, the Company and RSI entered into an agreement pursuant to which RSI exercised warrants dated as of March 21, 2006 to purchase one million shares of common stock at an exercise price of $2.75 per share (the “RSI Warrants”). RSI paid the exercise price of the RSI Warrants by offsetting that same amount under the RSI Note. The Company paid RSI $107,504 in cash, which represented the difference between the aggregate exercise price of the RSI Warrants of $2,750,000, and the total amount of principal and interest under the RSI Note that would have accrued through the 2016 due date of $2,857,504. As a result of these transactions, the RSI Warrants have been fully exercised and are of no further force or effect and the RSI Note has been deemed fully satisfied. The Company recorded a net loss on debt restructure of approximately $463,000 in connection with the warrant exercise and debt cancellation, attributable to the write-off of unamortized discounts and debt issue costs, and accelerated interest at the date of the agreement.

RSI note payable consisted of the following:

	September 30, 2013		December 31, 2012
Notes payable, face amount	$	-	$	2,000,000
Discounts on notes:
Revaluation of warrants		-		(263,690	)
Accumulated amortization		-		159,560
Total discounts		-		(104,130	)
Accrued interest		-		481,993
RSI Notes payable, net	$	-	$	2,377,863

Convertible Note Payable

On March 21, 2013, the Company issued a non-interest bearing $600,000 note payable to a third party, maturing six months from the origination date, in settlement of a trademark dispute. The note payable is convertible solely at the option of the Company into shares of its common stock. The Company had the option to convert as a whole or in part up to the entire amount outstanding under the note payable into Company’s common stock at a conversion price equal to the volume weighted average trading price of the Company’s stock for the five trading days immediately prior to the date of conversion notice. During the third quarter of 2013, the Company executed its option to convert in whole the entire amount outstanding under the note payable into the Company’s common stock at $1.96 per share resulting in the issuance of 306,122 shares of common stock of the Company. Therefore the Company is no longer under any obligation pursuant to the convertible note agreement.

Capital Leases

During the first quarter 2012, the Company executed two non-cancelable master lease agreements one for $1.5 million with Dell Financial Services, and one for $500,000 with HP Financial Services. Both are for the purchase or lease of equipment for our data centers. The HP Financial Services master lease agreement increased to approximately $1.7 million in the second quarter 2013 with approximately $330,000 new leases offset by payments. The Company and HP Financial Services periodically evaluate the master lease borrowing limits and increase amount as necessary. Principal and interest are payable monthly at interest rates of ranging from 4.5% to 7.99% per annum, rates varying based on the type of equipment purchased. The capital leases are secured by the leased equipment, and outstanding principal and interest are due through September 2016.

The following is a schedule of debt:

	Borrowings		Interest Rates			September 30, 2013		December 31, 2012
Growth term loans:
LSA2	$	97,500		12.50%		$	-	$	125,679
Equipment term loans:
SLSA		2,500,000		12.60%			-		-
S2LSA		2,500,000		12.50%			26,259		496,381
LSA2		8,607		12.50%			831,060		1,762,061
Growth capital loan		5,000,000		11.00%			4,952,896		-
Less: unamortized discount		-					(257,520)		-
		10,106,107					5,552,695		2,384,121

Capital leases			6.46%	-	7.99%		1,662,436		1,397,970
			4.50%	-	7.40%		197,396		308,833
							1,859,832		1,706,803

Loans payable - current portion							2,517,856		1,903,368
Capital lease - current portion							911,602		648,573
Long term debt - current portion						$	3,429,458	$	2,551,941

Loans payable - long term portion						$	3,034,837	$	480,753
MATT note payable		$5,000,000		4.46%			-		5,000,000
RSI note payable		2,000,000		4.46%			-		2,000,000
							3,034,837		7,480,753
Add: accrued interest							-		1,686,973
Less: unamortized discounts							-		(1,069,168	)
Total notes payable - long term portion							3,034,837		8,098,558
Capital lease - long term portion							948,230		1,058,230
Long term debt, net of discounts						$	3,983,067	$	9,156,788

- 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.

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