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LONG-TERM OBLIGATIONS
 12 Months Ended
Dec. 31, 2014
Debt Disclosure [Abstract]  
LONG-TERM OBLIGATIONS

Notes Payable - Banks and Other

Term notes payable - banks and other consist of:

 

    December 31,  
    2014     2013  
Note payable, 10%, secured, due January 1, 2018   $ 265,000     $ 265,000  
Convertible term note payable,12%, secured, due January 1, 2016     175,000       175,000  
Convertible notes payable, 6%, due January 1, 2016     150,000       150,000  
Term note payable - PBGC, 6%, secured     261,000       273,000  
Obligation to PBGC based on free cash flow     569,999       569,999  
Convertible term note payable, 7%, secured, due October 3, 2016     100,000       100,000  
Term notes payable - banks, secured      2,407        11,593  
      1,523,406       1,544,592  
Less current maturities      14,388        21,186  
    $ 1,509,018     $ 1,523,406  

 

Note payable, 10%, secured, due January 1, 2018 - During the years ended December 31, 2004 and 2003, the Company issued secured notes payable aggregating $265,000.  All of these borrowings bear interest at 10% and are due, as modified during 2014, on January 1, 2018.  The notes are secured by a first lien on accounts receivable that are not otherwise used by the Company as collateral for other borrowings and by a second lien on accounts receivable.

  

Convertible term note payable, 12%, secured, due January 1, 2016 - The Company entered into a secured loan agreement during 2008 for working capital.  The loan bears interest at 12%, which is payable monthly and is due, as modified during 2012, on January 1, 2016 for an aggregate of $175,000.  During 2009, the note was modified for its conversion into common shares at $.25 per share, which was the closing price of the Company’s common stock on the date of the modification.  The note is secured by a subordinate lien on all assets of the Company.

 

Convertible notes payable, 6%, due January 1, 2016 - At December 31, 2014, the Company was obligated to unrelated third parties for $150,000 ($150,000 - 2013).  The principal is convertible at the option of the holder into shares of common stock at $.05 per share.  The notes bear interest at 6.0% at December 31, 2014 (6.0% - 2013).  The Notes are convertible into shares of common stock subject to the following limitations. The Notes are not convertible to the extent that shares of common stock issuable upon the proposed conversion would result in a change in control of the Company which would limit the use of its net operating loss carryforwards; provided, however if the Company closes a transaction with another third party or parties that results in a change of control which will limit the use of its net operating loss carryforwards, then the foregoing limitation shall lapse.  Prior to any conversion by a requesting note holder, each note holder holding a note which is then convertible into 5% or more of the Company’s common stock shall be entitled to participate on a pari passu basis with the requesting note holder and upon any such participation the requesting note holder shall proportionately adjust his conversion request such that, in the aggregate, a change of control, which will limit the use of the Company’s net operating loss carryforwards, does not occur.

 

Term note payable - PBGC, 6%, secured - On October 17, 2011, in accordance with of the Settlement Agreement dated September 6, 2011 (the “Settlement Agreement”), the Company issued a secured promissory note in favor of the Pension Benefit Guaranty Corporation (the “PBGC”) for $300,000 bearing interest at 6% per annum amortizing in quarterly payments over a seven year period with a balloon payment of $219,000 due on September 15, 2018.

 

Obligation to PBGC based on free cash flow - On October 17, 2011, in accordance with the Settlement Agreement, the Company became obligated to make annual future payments to the PBGC through December 31, 2017 equal to a portion of the Company’s “Free Cash Flow” as defined in the Settlement Agreement, not to exceed $569,999.  The annual obligation is contingent upon the Company earning free cash flow in excess of defined amounts which vary by year.  The annual amount is due fifteen days after the issuance of the Company’s audited financial statements relating to the previous year.  The Settlement Agreement contains specific events of default and provisions for remedies upon default.  No amounts have been owed or paid on this obligation as of December 31, 2014 or 2013.

 

Convertible term note payable, 7%, secured - In accordance with the Settlement Agreement, the Company repurchased 500,000 shares of its common stock from the previously terminated defined benefit retirement plan for $130,000 which was funded from the proceeds of a convertible note in the principal amount of $100,000 to a non-affiliated accredited investor on October 4, 2011 and $30,000 of the Company's working capital.  The note bears interest at the rate of 7% per annum, payable monthly, matures on October 3, 2016 and is secured by a subordinate lien on all of the Company’s assets.  The note's principal is convertible at the option of the holder into shares of the Company’s common stock at $.10 per share, which was the price of the Company's common stock on the closing date of the agreement.

  

Term notes payable - banks, secured - The Company renewed a loan agreement during 2010 for the secured financing of a vehicle.   The loan was paid off during 2014 and had a balance of $5,993 at December 31, 2013.  The Company entered into capital lease agreements during 2012 and 2010 for the secured financing of office and technology equipment.  The remaining capital lease bears interest at 14.9% and is due in monthly installments of $318 through August 2015.

 

Notes Payable - Related Parties

 

Notes payable – related parties consist of:

 

    December 31,  
    2014     2013  
Convertible notes payable, 6%, due January 1, 2016   $ 473,000     $ 501,324  
Note payable, line of credit, 6.1%, unsecured     200,000        0  
      673,000       501,324  
Less current maturities     8,172        0  
    $ 664,828     $ 501,324  

 

Convertible notes payable, 6%, due January 1, 2016 - The Company has various notes payable to related parties totaling $473,000 at December 31, 2014 ($501,324 – 2013) which mature on January 1, 2016 with principal and accrued interest convertible at the option of the holder into shares of common stock at $.05 per share.  The notes bear interest at 6.0% at December 31, 2014 (6.0% - 2013).  The interest rate is adjusted annually, on January 1st of each year, to a rate equal to the prime rate in effect on December 31st of the immediately preceding year, plus one and one quarter percent, and in no event, shall the interest rate be less than 6% per annum.

 

 The Company executed collateral security agreements with the note holders providing for a subordinate security interest in all of the Company’s assets.  Generally, upon notice, prior to the note maturity date, the Company can prepay all or a portion of the outstanding notes.

 

The Notes are convertible into shares of common stock subject to the following limitations.  The Notes are not convertible to the extent that shares of common stock issuable upon the proposed conversion would result in a change in control of the Company which would limit the use of its net operating loss carryforwards; provided, however, if the Company closes a transaction with another third party or parties that results in a change of control which will limit the use of its net operating loss carryforwards, then the foregoing limitation shall lapse.   Prior to any conversion by a requesting note holder, each note holder holding a note which is then convertible into 5% or more of the Company’s common stock shall be entitled to participate on a pari passu basis with the requesting note holder and upon any such participation the requesting note holder shall proportionately adjust his conversion request such that, in the aggregate, a change of control, which will limit the use of the Company’s net operating loss carryforwards, does not occur.

 

Note payable, line of credit, 6.1%, unsecured - On December 1, 2014, the Company entered into an unsecured line of credit financing agreement with a member of its board of directors.  The LOC Agreement provides for working capital of up to $400,000 through December 31, 2017. The Company is required to provide the lender with a report stating the use of proceeds for each pending draw under the line of credit.  Borrowings of $100,000 or more bear interest at the prime rate plus 2.85% (effective rate of 6.10% at December 31, 2014).   Principal and interest are paid monthly using an amortization schedule for a fifteen year fully amortizing loan with all outstanding amounts due on December 31, 2017.

 

Long-Term Obligations

 

Minimum future annual payments of long-term obligations as of December 31, 2014 are as follows:

 

2015   $ 22,560  
2016     918,632  
2017     765,214  
2018     490,000  
Total long-term obligations   $ 2,196,406