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Line of Credit and Long Term Debt
 12 Months Ended
Dec. 31, 2011
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]
7. Line of Credit and Long Term Debt

 

Commercial Loan Agreement Facility

 

On August 26, 2010, the Company entered into a new Debt Modification Agreement with Cardinal Bank (the “2010 Debt Modification Agreement”) to replace the 2009 Commercial Loan Agreement and to extend the repayment date of the Company’s revolving credit facility with Cardinal Bank from September 1, 2010 to September 30, 2011. Under this modification there were no changes in the amounts available under the credit facility.

 

On December 30, 2011, the Company and its subsidiaries entered into a new Commercial Loan Agreement to obtain a $4.0 million term loan and an $8 million revolving line of credit for net working capital (the “Cardinal Loans”). The $4.0 million commercial loan agreement with Cardinal Bank (the “$4.0 Million Term Loan”) for the specific purpose of acquiring the assets of AGS. Advances made under the $4.0 Million Term Loan bear interest at 4.5% with monthly principal and interest payments of $74,694 and matures on December 30, 2016. This term loan was recorded at $4.0 million at December 31, 2011 on the consolidated balance sheets.

  

On December 30, 2011, the Company modified its existing revolving line of credit by increasing the borrowing facility from $5 million to $8 million (the “$8.0 Million Revolver”). The $8.0 Million Revolver bears interest at a variable rate equal to the prime rate plus 0.5% and mature on June 30, 2013. There were no advances against the $8.0 Million Revolver.

 

The Cardinal Loans require the Company to maintain certain financial covenants, including maintaining (i) a funded debt to EBITDA ratio not to exceed 4.5:1.0 at December 31, 2011 and declining to 2.5:1.0 at December 31, 2012, (ii) a debt service ratio of at least 1.2:1.0, (iii) a tangible net worth of at least $2,500,000 and increasing to $4,000,000 at December 31, 2012 and (iv) a current ratio of at least 1.1:1.0. As of December 31, 2011, the Company was in full compliance with these financial covenants on December 31, 2011. 

 

Long-Term Debt

 

Long-term debt consisted of the following at December 31:

 

    DECEMBER 31,  
    2011     2010  
             
Cardinal Bank Term Note Dated January 2, 2008 (1)   $ 50,909     $ 608,241  
Cardinal Bank Mortgage Dated December 17, 2010 (2)     515,553       529,192  
Cardinal Bank Term Note Dated December 31, 2011 (3)     4,001,000       -  
Seller Financed Subordinated Notes Dated                
December 31, 2011 (4)     4,000,000       -  
                 
Total     8,567,462       1,137,433  
Less: current portion     (798,319 )     (572,943 )
                 
Long-term debt, net of current portion   $ 7,769,143     $ 564,490  

 

(1) On January 2, 2008, the Company entered into a $2 million four-year term note with Cardinal Bank to fund the unpaid portion of the iSYS purchase price. The term note bears interest at 7.5% with monthly principal and interest payments of approximately $48,000, and matures on January 1, 2012. The term note is secured under a corporate security agreement. This term note was repaid on January 1, 2012.

 

(2) On December 17, 2010, the Company entered into a real estate purchase agreement to acquire iSYS’s call center facility in Columbus, Ohio for approximately $677,000. In connection with the real estate purchase agreement the Company entered into a $528,000 ten-year mortgage with Cardinal Bank to fund the unpaid portion of the purchase price. The mortgage loan bears interest at 6.0% with monthly principal and interest payments of approximately $3,800, and matures on December 17, 2020. The mortgage loan principal and interest payments are based on a twenty-year amortization with the unpaid balance due at maturity. The mortgage loan is secured by the real estate.

  

(3) On December 31, 2011, the Company entered into a $4 million 5-year term note with Cardinal Bank to fund a portion of the purchase price paid in connection with the asset purchase agreement with Avalon Global Solutions, Inc. dated December 30, 2011. The term note bears interest at 4.50% with monthly principal and interest payments of approximately $74,694, and matures on December 30, 2016. The term note is secured under a corporate security agreement.

 

(4) On December 31, 2011, the Company entered into a $1 million and $3 million subordinated 3-year term note with Avalon Global Solutions, Inc. to fund a portion of the purchase price paid in connection with the asset purchase agreement with Avalon Global Solutions, Inc. dated December 30, 2011. Under the terms of the asset purchase agreement, $3 million of this subordinated note is subject to certain claw-back provisions. The term note bears interest at 3.0% with annual principal and interest payments of $1,488,183, $1,413,333 and $1,373,333 in 2013, 2014 and 2015, respectively, and matures on April 15, 2015. The term notes are subordinated to the senior bank financing.

 

Future repayments on long-term debt are as follows for fiscal years ended December 31:

 

2012   $ 798,319  
2013     2,112,544  
2014     2,148,591  
2015     2,186,309  
2015     1,321,699  
Total   $ 8,567,462  

 

Capital Lease Obligations

 

The Company has leased certain equipment under capital lease arrangements which expire in 2012. Amounts payable under capital lease arrangements totals $23,579 for fiscal year 2012, of which $671 represents interest. The current portion of capital lease obligations on the consolidated balance sheet for fiscal 2011 represents the final expected payment for assets under capital lease during fiscal 2012.

 

Total net book value of assets under capital leases at December 31, 2011 and 2010 was $17,805 and $61,344, respectively. Depreciation expense for leased equipment for the year ended December 31, 2011 and 2010 was $40,051 and $96,738, respectively, and accumulated depreciation at December 31, 2011 and 2010 was $414,184 and $378,877, respectively.