Quarterly report pursuant to Section 13 or 15(d)

NOTE F - LONG TERM DEBT

v2.3.0.15
NOTE F - LONG TERM DEBT
9 Months Ended
Sep. 30, 2011
Debt Disclosure [Text Block]
NOTE F – LONG TERM DEBT

Senior Convertible Debenture

A summary of convertible debentures payable at September 30, 2011 and December 31, 2010 is as follows:

   
September 30,
2011
   
December 31,
2010
 
Senior Convertible Debentures, accrue interest at 13% per annum and mature on May 29, 2011
 
$
-
   
$
1,606,023
 
Debt Discount - beneficial conversion feature, net of accumulated amortization of $733,756 at December 31, 2010.
   
-
     
(73,208
)
Debt Discount - value attributable to warrants attached to notes, net of accumulated amortization of $616,593 at December 31, 2010.
   
-
     
(61,417
 )
                 
Total
   
-
     
1,471,398
 
Less: current portion
           
(1,471,398
)
Total Long Term Portion
 
$
-
   
$
-
 

On March 4, 2011, the Company sold its Series 5 Power Line Carrier product line and related business assets to Dynamic Ratings, Inc. (“Dynamic Ratings”).  The sales price was $1,000,000 in cash.  In connection with the sale, Dynamic Ratings lent the Company an additional $700,000 in the form of a 6% promissory note dated March 4, 2011. The Company used the proceeds to retire substantially all of its obligations under its $1.6 million senior convertible debenture due May 29, 2011 and to cancel the related warrants covering 11.7 million shares of the Company’s common stock.

Business Loan

On September 11, 2009, the Company entered into a Loan Agreement in the aggregate principal amount of $300,000 with the Wisconsin Department of Commerce (the “Department”).  The outstanding principal balance bears interest at the annual rate of 2% percent. Payment of interest and principal is to be made in the following manner: (a) payment of any and all interest that accrues from the date of disbursement commenced on January 1, 2010 and continued on the first day of each consecutive month thereafter through and including December 31, 2010; (b) commencing on January 1, 2011 and continuing on the first day of each consecutive month thereafter through and including November 1, 2016, the Company shall pay equal monthly installments of $4,426 each; followed by a final installment on December 1, 2016 which shall include all remaining principal, accrued interest and other amounts owed by the Company to the Department under the Loan Agreement.  The Company may prepay amounts outstanding under the credit facility in whole or in part at any time without penalty. The Loan Agreement is secured by substantially all of the Company’s assets and the proceeds from this loan were used for the working capital requirements of the Company.  The outstanding borrowing under the agreement at September 30, 2011 was $264,430.

Promissory Note #1

On March 4, 2011, the Company sold all its Series 5 PLC product line assets to Wisconsin-based Dynamic Ratings, Inc. (“Purchaser”) under an Asset Purchase Agreement (“APA”).  Per the APA, the Company signed an unsecured Promissory Note (“Note #1”) due to Purchaser in the aggregate principal amount of $700,000.  The outstanding principal balance bears interest at the annual rate of 6% and is due on March 31, 2014.  Note #1 may be prepaid in whole or in part, without penalty at any time, however scheduled payments are due on June 30, 2012 and June 30, 2013.  Payments shall be applied first to accrued but unpaid interest and then to principal.  Note #1 contains certain earn-out provisions that encompass both the Company’s and Purchaser’s revenue volumes.  Provided these provisions are met, the Company could potentially retire Note #1 prior to its expiration date.  Payments not made when due, by maturity acceleration or otherwise, shall bear interest at the rate of 12% per annum from the date due until fully paid.

Promissory Note #2

From the sale of its Series 5 PLC product line assets, the Company used the proceeds received to retire substantially all of its obligations under its $1.6 million senior convertible debenture due May 29, 2011 and to cancel the related warrants covering 11.7 million shares of the Company’s common stock.  In exchange for the early retirement of debt and cancellation of warrants, the Company provided the lender with an unsecured one-year promissory note (“Note #2”) for $50,000. The outstanding principal balance bears interest at the annual rate of 5.25% and is due on March 4, 2012. The monthly payment of principal and interest is $4,385.  However Note #2 is due immediately if the Company (a) receives three million ($3,000,000) dollars in aggregate in new debt or equity financing, (c) attains one million ($1,000,000) dollars in EBITDA for any reporting quarter or (3) becomes insolvent.  The Note may be prepaid in whole or in part, without penalty at any time.  Payments shall be applied first to accrued but unpaid interest and then to principal. The outstanding principal balance as of  September 30, 2011 is $25,327.

Aggregate maturities of long-term debt as of September 30, 2011 are as follows:

As of September 30,
 
Amount
 
2011 (Remainder of)
 
$
24,556
 
2012
   
61,253
 
2013
   
49,485
 
2014
   
750,484
 
2015 and thereafter
   
103,979
 
     
989,757
 
Less: Current portion
   
(73,592
Total Long term portion
 
$
916,165