Notes Payable

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Note 6 - Notes Payable

The following table summarizes our notes payable balance as of December 31, 2011 and 2010:

Lender	Due Date	Interest Rate	2011			2010
Bridge Bank – term note	February 2013	Prime + 2 percentage points	$	475,000		$	-
Bridge Bank – credit facility	February 2013	Prime + 2 percentage points		2,431,303			-
Wachovia Bank – credit note	March 2011	LIBOR + 7%		-			1,850,000
Totals				2,906,303			1,850,000
Less: Term and credit facility payable – current portion				(452,000	)		(1,850,000	)
Term and credit facility – long-term			$	2,454,303		$	-

Principal Payments Due

Principal payments due are as follows as of December 31, 2011:

2012	$	452,000
2013		1,333,333
2014		1,120,970
Total	$	2,906,303

Bridge Bank Credit and Term note Payable

On February 15, 2011, we entered into a two-year Business Financing Agreement (the “Agreement”) with Bridge Bank, N.A. (“Bridge Bank”). This Agreement provides for a revolving credit facility of up to $8.0 million and replaces the $5.0 million credit facility with Wachovia Bank, N.A. (“Wachovia”) that was scheduled to expire in March 2011.  The Bridge Bank credit facility allows us to borrow against 80% of eligible accounts receivable balances, which are generally those balances owed by U.S. based customers that are less than 90 days from the date of invoice.  In addition, the Bridge Bank facility provides an additional term note payable of $475,000 to collateralize a stand-by letter of credit required by our corporate headquarters lease.  The $475,000 of proceeds from the term note payable is included in restricted cash as of December 31, 2011. Under the terms of the Agreement, we must maintain certain depository, operating and investment accounts at Bridge Bank; provide Bridge Bank a first priority perfected security interest in all of our accounts and personal property; provide various monthly, quarterly and annual reports; limit additional indebtedness to $500,000 of purchase money including capital leases and an additional $500,000 of all other indebtedness; and maintain “operating profit” of net income plus interest and taxes plus non-cash expenses for amortization, depreciation, stock based compensation, discontinued operations and non-recurring items of not less than $100,000 for the immediate proceeding three month period.  At the closing of the Agreement several fees were paid including a facility fee of $20,000 (0.25% of the maximum credit limit), a due diligence fee of $800, a fee-in-lieu-of-warrant of $21,250 and a non-formula facility fee of $4,750.  The facility fee is due annually.  A maintenance fee of .125% of the average daily balance and the finance charge (Prime Rate plus 2 percentage points) are due monthly (5.25% at December 31, 2011).  The Prime Rate was 3.25% at December 31, 2011.  As of December 31, 2011, there was approximately $2,431,000 outstanding under the revolving credit facility and there was no additional availability under the Agreement.

On June 2, 2011, we entered into a Business Financing Modification Agreement with Bridge Bank effective May 25, 2011 pursuant to which $1.0 million of the revolving line of credit was converted to a nonformula sublimit of availability that would mature in 240 days.  In order to secure this additional availability, a member of our board of directors, provided a backup letter of credit to Bridge Bank in the amount of $1.0 million.  In connection therewith, we entered into a Reimbursement and Security Agreement with the same board member pursuant to which we granted him a second position security interest in and to our assets and agreed to reimburse him should Bridge Bank be required to draw against the backup letter of credit provided by him.  We drew down on this additional availability and used it for our working capital needs. It was fully repaid on June 23, 2011.

At June 30, 2011, we were not in compliance with the covenant to maintain an operating profit of not less than $100,000 (see above) required by the Bridge Bank credit facility primarily due to a one-time payment of $340,000 to exit our outsourcing call center contract (see Note 1).  We received a waiver from Bridge Bank for non-compliance with the covenant for the months ending June 30, 2011, July 31, 2011 and August 31, 2011.  

At December 31, 2011, we were not in compliance with the covenant to maintain operating profit of not less than $100,000 due to the costs we incurred with respect to the merger with Vertro.  We were not in compliance with our debt covenants at December 31, 2011 due to the inclusion of our merger costs in our operating expenses.  We renegotiated a new agreement with Bridge Bank (Note 17) on March 1, 2012 which negated a final waiver requirement from Bridge Bank on the non-compliance with the covenant as of December 31, 2011.

Wachovia Credit and Term Notes Payable

In December 2009, we entered into the Second Amended and Restated Loan Agreements with Wachovia pursuant to which we restructured our obligations with Wachovia to reallocate the amounts owed to the bank between the term note and the credit note and to extend the due date of the remaining portion of the obligations. Under the terms of the Second Amended and Restated Loan Agreements ("Amended Loan Agreement"), which superseded all prior loan agreements with Wachovia, we issued Wachovia the Second Amended and Restated Revolving Credit Promissory Note in the principal amount of $5.3 million (the “Credit Note”) and the Second Amended and Restated Term Promissory Note in the principal amount of approximately $4.1 million (the “Term Note”).  Both the Credit Note and Term Note bore interest at the rate of LIBOR plus 7%, with a floor of 7%, (7.26% at December 31, 2010 and were due on March 31, 2011.  Prior to the restructure, we owed Wachovia approximately $6.4 million under the previous credit note, with a maximum borrowing of $8,000,000.  As described below, the maximum borrowing was reduced by $2.7 million and reallocated to the balance of the Term Note. We were permitted to have aggregate principal advances outstanding under this Credit Note of the lesser of (i) $5.3 million or (ii) 80% of eligible accounts receivable less reserves plus an “over-advance” of $2.1 million through May 31, 2010, after which the “over advance” was reduced to $700,000 at January 1, 2011, and remained at that level through the cancellation in February 2011.  Prior to the restructure, we owed Wachovia approximately $1.4 million under the previous term note. As part of the restructure, this amount was increased by $2.7 million.  Our obligations under the loan agreement and the notes were secured by a first priority lien, in favor of Wachovia, on all of our assets, including the stock of each of the operating subsidiaries, were subject to certain financial covenants.

We further agreed to reduce the amounts owed Wachovia by approximately $100,000 at closing, $400,000 on or before December 31, 2009 and $500,000 split between March 31, 2010 and July 31, 2010. In addition, 25% of all net proceeds from equity sales made by us after July 31, 2010 and 100% of the net proceeds from the sale of any collateral or subsidiary were used to further reduce our obligations to Wachovia. Under the terms of the loan agreement, we used funds from the exercise of warrants as previously disclosed and from the sale of our stock for these reductions, The amounts due under the notes could have been accelerated if an event of default had occurred as described in the notes, and our outstanding letter of credit of $475,000 would have been terminated or replaced by the maturity date of the notes.  The availability under the Credit Note was reduced by the outstanding balance of any letters of credit.

Per the Amended Loan Agreement, we were required to calculate our borrowing base monthly based on eligible accounts receivable. Our outstanding balance on the Credit Note as of December 31, 2010 was approximately $1.9 million.  In addition, we had $475,000 under a letter of credit with our landlord as of December 31, 2010.  The Credit Note availability is calculated as principal less the outstanding balance less the outstanding letters of credit. As of December 31, 2010, our availability under our Credit Note was approximately $2,575,000.  As of December 31, 2010, our outstanding balance on the Term Loan was $0.

In March 2010, we entered into a First Amendment to the Amended  Loan Agreement and the Credit Note with Wachovia Bank, which modified certain terms including i) the acceleration of  a scheduled principal payment of $250,000 due on July 31, 2010  to March 29, 2010, ii) reducing the $5.3 million Credit Note to $5.0 million over the term of the agreement, iii) reducing the over-advance provided in the Credit Note from $2.1 million to $700,000 over the term of the agreement ($1.3 million at December 31, 2010) and iv) changing to the covenants as reflected below.

In September 2010, we entered into a Second Amendment to the Amended Loan Agreement with Wachovia to add back any loss or closing expenses or deduct any gain, related to the sale of various discontinued operations, in the calculation of the financial covenants as defined below.