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12. NOTES PAYABLE, CAPITALIZED LEASES AND LONG TERM DEBT
 9 Months Ended 12 Months Ended
Jun. 30, 2012
Sep. 30, 2011
Notes to Financial Statements    
12. NOTES PAYABLE, CAPITALIZED LEASES AND LONG TERM DEBT

Notes payable, capitalized leases and long term debt as of June 30, 2012 and September 30, 2011 consisted of the following:

 

BFI Finance Corp Secured Credit Facility

 

On December 9, 2008 TransTech entered into a $1,000,000 secured credit facility with BFI Finance Corp to fund its operations.  The rate is prime interest + 2.5%, with a floor for prime interest of 5.5%.  On June 12, 2012, the secured credit facility was renewed for 6 months, with a floor for Prime of 4.5%. The eligible borrowing is based on 80% of eligible trade accounts receivable, not to exceed $700,000, and 35% of inventory value, not to exceed $300,000, for a total cap of $1,000,000. As of June 30, 2012, the outstanding balance under this facility was $504,643. The secured credit facility is guaranteed by James Gingo, the President of TransTech.

 
Capitalized Leases

 

TransTech has capitalized leases for equipment. The leases have a remaining lease term of 12-37 months. The aggregate future minimum lease payments under capital leases, to the extent the leases have early cancellation options and excluding escalation charges, are as follows: 

 

Years Ended June 30,   Total  
2012   $ 15,490  
2013     5,289  
2014     3,312  
2015     276  
2016     0  
Total     24,367  
Less current portion of capitalized leases     (3,237 )
                          Long term capital leases   $ 21,130  

 

The imputed interest rate in the capitalized leases is approximately 10.5%.

 

Related Party Notes Payable

 

The Company acquired its 100% interest in TransTech by issuing a Promissory Note (“Note”) to James Gingo, the President of TransTech, in the amount of $2,300,000, plus interest at the rate of three and one-half percent (3.5%) per annum from the date of the Note. The Note is secured by a security interest in the stock and assets of TransTech, and is payable over a period of three (3) years as follows:

 

(i)        The sum of $650,000, the amount of any accrued interest due on the Bonderson debt of $600,000 owed by James Gingo to the Bonderson Family Living Trust (“Bonderson Debt”) and interest on the unpaid balance, shall be paid to Seller on the earlier of: (A) the one (1) year anniversary of the closing date; or (B) on the closing of $2,500,000 or more in aggregate financing (whether debt, equity or some combination thereof) after the closing date.  On June 8, 2011, the Company paid $650,000 and accrued interest of $80,500 to Mr. Gingo. 

 

(ii)       The sum of $650,000, the amount of any accrued interest due on the Bonderson debt owed by James Gingo and interest on the unpaid balance shall be paid to Seller on the earlier of: (A) the two (2) year anniversary of the closing date; or (B) on the closing of $5,000,000 or more in aggregate financing (whether debt, equity or some combination thereof) after the closing date. On July 31, 2012, the Company paid the $650,000 and accrued interest of $66,136 due to Mr. Gingo.

 

(iii)      The remaining balance of the Note and interest thereon shall be paid to Seller on the earlier of: (A) the three year anniversary of the closing date; or (B) on the closing of $7,500,000 or more in aggregate financing (whether debt, equity or some combination thereof) after the closing date.

 

On February 27, 2007, the Company entered into a demand note with former CEO and President, Bradley E. Sparks totaling $50,000 plus loan fees of $750.  As of June 30, 2012, the outstanding note payable totaled $50,750 consisting of the note payable to Mr. Sparks.  Interest expense accrues on the note at a rate of 18% per annum.  Accrued interest of $49,004 as of June 30, 2012 on the note payable is recorded in the balance sheet in accrued expenses and other liabilities.

 

Under the terms of the demand note, arrears in payment of the principal amount or any interest shall bear interest at the rate of 30% per annum. Mr. Sparks has not demanded repayment of the demand note and it continues to bear interest at the original rate of 18% per annum. The unpaid interest at the penalty rate through June 30, 2012 was $15,397.

 

On September 30, 2009, the Company entered into a second demand note with former CEO and President, Bradley E. Sparks totaling $22,478.  As of June 30, 2012, the outstanding note payable totaled $22,478 consisting of the note payable to Mr. Sparks.  Interest expense accrues on the note at a rate of 8% per annum, with a default interest rate of 12%.  Accrued interest of $4,946 as of June 30, 2012 on the notes payable is recorded in the balance sheet in accrued expenses and other liabilities.

 

On April 30, 2009, accounts payable owed to Lynn Felsinger, a consultant, totaling $82,000 were converted into a demand note. As of June 30, 2012, the outstanding note payable totaled $79,500.

 

An affiliate of Mr. Erickson, our Chief Executive Officer, Juliz I Limited Partnership, loaned the Company operating funds during fiscal 2009.  The balance outstanding at June 30, 2012 is $34,630 plus interest of $9,708.  On July 25, 2012, the Company paid $22,630.

 

Additionally, Mr. Erickson incurred expenses on behalf of the Company for a total of $24,322 during the 2009 fiscal year.  This balance was converted into a loan as of September 30, 2009. On June 19, 2012, the Company paid $24,322. Unpaid accrued interest was $5,294 as of June 30, 2012.

  

Aggregate maturities for notes payable, capitalized leases and long term debt by year are as follows:

 

Years Ended June 30,   Total  
2012   $ 2,507,491  
2013     4,586  
2014     1,054  
2015     0  
2016     0  
Total   $ 2,513,131  

 

Notes payable, capitalized leases and long term debt as of September 30, 2011 and 2010 consisted of the following:

 

    September 30,     September 30,  
    2011     2010  
             
BFI Finance Corp Secured Credit Facility   $ 506,377     $ 643,334  
TransTech capitalized leases, net of capitalized interest     31,216       54,437  
Related party notes payable-                
James Gingo Promissory Note     1,650,000       2,300,000  
RATLAB     150,000       -  
Bradley E. Sparks     73,228       50,750  
Lynn Felsinger     82,000       82,000  
Ronald P. Erickson and affiliated parties     58,952       58,952  
Total debt     2,551,773       3,189,473  
Less current portion of long term debt     (1,537,191 )     (1,513,495 )
Long term debt   $ 1,014,582     $ 1,675,978  

  

BFI Finance Corp Secured Credit Facility

 

On December 9, 2008 TransTech entered into a $1,000,000 secured credit facility with BFI Finance Corp to fund its operations.  The rate is prime interest + 2.5%, with a floor for prime interest of 5.5%.  On June 12, 2011, the secured credit facility was renewed for 6 months, with a floor for Prime of 4.5%. The eligible borrowing is based on 80% of eligible trade accounts receivable, not to exceed $700,000, and 35% of inventory value, not to exceed $300,000, for a total cap of $1,000,000. As of September 30, 2011, the outstanding balance under this facility was $506.377. The secured credit facility is guaranteed by James Gingo, the President of TransTech.

 

Capitalized Leases

 

TransTech has capitalized leases for equipment. The leases have a remaining lease term of 6-46 months. The aggregate future minimum lease payments under capital leases, to the extent the leases have early cancellation options and excluding escalation charges, are as follows: 

 

Years Ended September 30,   Total  
2012   $ 16,634  
2013     13,928  
2014     3,806  
2015     2,760  
2016     0  
Total     37,128  
Less current portion of capitalized leases     (5,912 )
                          Long term capital leases   $ 31,216  

 

The imputed interest rate in the capitalized leases is approximately 10.5%.

 

Related Party Notes Payable

 

The Company acquired its 100% interest in TransTech by issuing a Promissory Note (“Note”) to James Gingo, the President of TransTech, in the amount of $2,300,000, plus interest at the rate of three and one-half percent (3.5%) per annum from the date of the Note. The Note is secured by a security interest in the stock and assets of TransTech, and is payable over a period of three (3) years as follows:

 

(i)        The sum of $650,000, the amount of any accrued interest due on the Bonderson debt of $600,000 owed by James Gingo to the Bonderson Family Living Trust (“Bonderson Debt”) and interest on the unpaid balance, shall be paid to Seller on the earlier of: (A) the one (1) year anniversary of the closing date; or (B) on the closing of $2,500,000 or more in aggregate financing (whether debt, equity or some combination thereof) after the closing date.  On June 8, 2011, we paid $650,000 and accrued interest of $80,500 to Mr. Gingo. 

 

(ii)       The sum of $650,000, the amount of any accrued interest due on the Bonderson debt owed by James Gingo and interest on the unpaid balance shall be paid to Seller on the earlier of: (A) the two (2) year anniversary of the closing date; or (B) on the closing of $5,000,000 or more in aggregate financing (whether debt, equity or some combination thereof) after the closing date; and

 

(iii)      The remaining balance of the Note and interest thereon shall be paid to Seller on the earlier of: (A) the three year anniversary of the closing date; or (B) on the closing of $7,500,000 or more in aggregate financing (whether debt, equity or some combination thereof) after the closing date.

 

On February 27, 2007, the Company entered into a demand note with former CEO and President, Bradley E. Sparks totaling $50,000 plus loan fees of $750.  As of September 30, 2011, the outstanding note payable totaled $50,750 consisting of the note payable to Mr. Sparks.  Interest expense accrues on the note at a rate of 18% per annum.  Accrued interest of $42,146 as of September 30, 2011 on the note payable is recorded in the balance sheet in accrued expenses and other liabilities.

 

Any delays in repayment of the principal and accrued interest on the note payable upon demand result in a penalty interest rate of 30% per annum.  The interest due to Mr. Sparks became in arrears on February 16, 2008 and has not been paid as of the date of this filing.  Mr. Sparks has not demanded repayment of the note as of the date of this filing.

 

On September 30, 2009, the Company entered into a second demand note with former CEO and President, Bradley E. Sparks totaling $22,478.  As of September 30, 2011, the outstanding note payable totaled $22,478 consisting of the note payable to Mr. Sparks.  Interest expense accrues on the note at a rate of 8% per annum, with a default interest rate of 12%.  Accrued interest of $3,597 as of September 30, 2011 on the notes payable is recorded in the balance sheet in accrued expenses and other liabilities.

  

On April 30, 2009, accounts payable owed to Lynn Felsinger, a consultant, totaling $82,000 was converted into a demand note. Ms. Felsinger has not demanded repayment of the note as of the date of this filing.

 

Mr. Ronald Erickson, our Chief Executive Officer, converted outstanding debt with accrued interest in the amount of $152,971 into 1,019,806 shares of common stock of the Company valued at $0.15 per share on March 27, 2009. In addition, an affiliate of Mr. Erickson’s, Juliz I Limited Partnership, loaned the Company operating funds during fiscal 2009.  The balance outstanding at September 30, 2011 is $34,630 plus interest of $7,628.  Additionally, Mr. Erickson incurred expenses on behalf of the Company for a total of $24,322 during the 2009 fiscal year.  This balance was converted into a loan as of September 30, 2009 which bears interest at 8%.  Accrued interest was $3,892 as of September 30, 2011.

 

Aggregate maturities for notes payable, capitalized leases and long term debt by year are as follows:

 

Years Ended September 30,   Total  
2012   $ 1,537,191  
2013     1,011,710  
2014     551  
2015     2,321  
2016     0  
Total   $ 2,551,773