|
NOTE K - LONG TERM DEBT
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Dec. 31, 2011
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term Debt [Text Block] |
NOTE K
– LONG TERM DEBT
Senior
Convertible Debentures
A
summary of convertible debentures payable at December 31,
2011 and 2010 is as follows:
On
May 30, 2008, the Company entered into a Securities Purchase
Agreement with YA Global Investments, L.P. (the
“Buyer”) pursuant to which the Company agreed to
issue and sell to the Buyer up to $3,500,000 of secured
convertible debentures (the “Debentures”) and
warrants to purchase (the “Warrants”) up to
2,500,000 shares of the Company’s Common Stock, par
value $0.001 per share (the “Common
Stock”). The sale of the Debentures and
Warrants was effectuated in three separate closings, the
first of which occurred on May 30, 2008, and the remainder of
which occurred in June 2008. At the May 30, 2008
closing, the Company sold Debentures having an aggregate
principal value of $1,500,000 and Warrants to purchase
2,100,000 shares of Common Stock. In July 2008,
the Company sold the remaining Debentures having an aggregate
principal value of $2,000,000 and Warrants to purchase
400,000 shares of Common Stock.
During
the year ended December 31, 2009, $722,514 of the principal
value of the debentures was converted into 8,174,943 shares
of common stock. Accordingly, as of December 31,
2010, the Company had $1,606,023 in aggregate principal
amount of Debentures outstanding.
The
Debentures accrued interest at a rate of 13% per annum and
had a stated maturity of May 29, 2011.
In
November 2009, the Company re-priced all of the outstanding
warrants issued to YA Global Investments LP to $0.33 per
share and issued additional warrants pursuant to
anti-dilution provisions in the YA Global warrant agreements
which were triggered by the completion of the Series A
preferred stock private placement on November 19,
2009. The warrants entitled the holders to
purchase up to 2,121,212 shares of the Company’s common
stock at a price per share of $0.33. The Company valued
the warrants at $510,151 using the Black-Scholes pricing
model and the following assumptions: contractual term of 5
years, an average risk-free interest rate of 2.2% a dividend
yield of 0% and volatility of 123%.
The
Debentures met the definition of a hybrid instrument, as
defined in ASC Topic 815 “Derivatives and
Hedging”. The hybrid instrument is comprised of
a i) a debt instrument, as the host contract and ii) an
option to convert the debentures into common stock of the
Company, as an embedded derivative. The embedded derivative
derives its value based on the underlying fair value of the
Company’s common stock. The embedded derivative is not
clearly and closely related to the underlying host debt
instrument since the economic characteristics and risk
associated with this derivative are based on the common stock
fair value.
The
embedded derivative does not qualify as a fair value or cash
flow hedge under ASC 815. Accordingly, changes in the fair
value of the embedded derivative are immediately recognized
in earnings and classified as a gain or loss on the embedded
derivative financial instrument in the accompanying
statements of operations. There was a gain of $172,476
recognized for the year ended December 31, 2011 and a loss of
$20,476 for the year ended December 31, 2010.
The
Company determined the fair value of the embedded derivatives
and recorded them as a discount to the debt and a derivative
liability on the date of issue. The Company recognizes an
immediate financing expense for any excess in the fair value
of the derivatives over the debt amount
The
Company amortized the beneficial conversion feature and the
value of the attached warrants, and recorded non-cash
interest expense in the amount of $322,980 for the year ended
December 31, 2010.
At
December 31, 2010, the Debentures had an estimated fair value
of approximately $1.6 million.
On
March 4, 2011, the Company sold its Series 5 Power Line
Carrier product line and related business assets to Dynamic
Ratings. The sales price was $1,000,000 in
cash. In connection with the sale, the Company
obtained a $700,000 loan from Dynamic Ratings pursuant to an
unsecured 6% promissory note dated March 4, 2011. 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.
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%.
Payment of interest and principal is to be made in the
following manner: (a) payment of any and all
interest that accrued from the date of disbursement commences
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 credit facility is
secured by 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 December 31, 2011 was $252,454.
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 will 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. As of the
year ended December 31, 2011, the non cash reduction of
principal calculated under these provisions and classified as
notes payable-current is $50,152. 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
third party 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, (b) attains one
million ($1,000,000) dollars in Earnings Before Interest,
Taxes, Depreciation and Amortization (“EBITDA”)
for any reporting quarter or (c) becomes
insolvent. Note #2 may be
prepaid in whole or in part, without penalty at any
time. Payments are applied first to accrued but
unpaid interest and then to
principal. The outstanding principal balance as of December
31, 2011 is $12,746 and the note was paid subsequent to year
end.
Aggregate
maturities of long-term debt as of December 31, 2011 are as
follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||