Line of Credit and Long Term Debt

Commercial Loan Agreement Facility

On April 28, 2016, the Company entered into a Business Loan Agreement with Cardinal Bank (the “Loan Agreement”). On November 4, 2016, the Company entered into a modification of its Loan Agreement that: 1) decreased the Company’s borrowing base as a percentage of qualified government and commercial receivables from 75% to 65% and 2) decreased the minimum after-tax net income requirement from $200,000 to $1.00 for the fourth quarter of 2016.

The Loan Agreement is for $6.0 million and extended the maturity date of the credit facility is April 30, 2017. The available amount under the revolving line of credit is subject to a borrowing base, which is equal to the lesser of (i) $6.0 million or (ii) 65% of qualified government and commercial accounts receivables, less any amounts outstanding on the Company’s $4.0 million term loan with Cardinal Bank. The interest rate for the revolving line of credit is the Wall Street Journal prime rate plus 0.75%, with a floor of 4.25%.

The Loan Agreement requires that the Company (i) maintain a minimum tangible net worth of at least $6.5 million at December 31, 2016; (ii) generate a minimum after-tax net income of at least $1.00 for the third and fourth quarter of 2016 and (iii) maintain a current ratio of 1.1:1 tested quarterly.

Under the credit facility the Company was advanced and repaid approximately $18.2 million during year ended December 31, 2016. There was no balance outstanding against the Company’s credit facility at December 31, 2016. As of December 31, 2016, the Company was not in compliance with its minimum after tax net income requirement of at least $1.00 or its minimum tangible net worth requirement of $6.5 million. The Company is working with Cardinal Bank to obtain a waiver for non-compliance. As of December 31, 2016, the Company was eligible to borrow up to $3.5 million under the borrowing base formula.

Long-Term Debt

Long-term debt consisted of the following:

	DECEMBER 31,
	2016		2015

Cardinal Bank mortgage dated December 17, 2010 (1)	$	432,367	$	450,770
Cardinal Bank term note dated December 31, 2011 (2)		74,681		874,692

Total		507,048		1,325,462
Less: current portion		94,868		893,706

Long-term debt, net of current portion	$	412,180	$	431,756
Long-term debt related to assets held for sale, net of current portion	$	412,180	$	-

(1) On December 17, 2010, the Company entered into a real estate purchase agreement to acquire the Lewis Center Facility 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. This mortgage obligation was classified separately as a liability held for sale on the consolidated balance sheets. See Note 3 for additional information regarding the planned sale of the Lewis Center Facility.

(2) 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 AGS dated December 30, 2011. The term note bears interest at 4.50% with monthly principal and interest payments of approximately $74,694, and matured on December 30, 2016. The Company paid the last scheduled installment payment on January 6, 2017.

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

	Long-Term Debt Related to Assets Held for Sale		Other Long-Term Debt		Total Long-Term Debt
2017	$	20,187	$	74,681	$	94,868
2018		21,431		-		21,431
2019		22,753		-		22,753
2020		367,996		-		367,996

Total	$	432,367	$	74,681	$	507,048

Capital Lease Obligations

The Company has leased certain equipment and automobiles under capital lease arrangements that expire in 2017 and require final payments totaling approximately $4,100 in 2017. There were no changes to existing lease arrangements during the year ended December 31, 2016. For the year ended December 31, 2016, the Company did not enter into any capital lease agreements. For the years ended December 31, 2016 and 2015 there were no disposals of equipment leases.