11 - Credit Facilities

9 Months Ended

Sep. 30, 2012

Schedule of Line of Credit Facilities [Table Text Block]

 11 — Credit Facilities

ATI Bank Lines of Credit – ATI had two $100,000 lines of credit.  The line of credit with Bank of America has an interest rate of 7.13% per annum.  The line of credit with Wells Fargo Bank had an interest rate of 6.75 % per annum.   The lines of credit had been personally guaranteed by the former stockholder of ATI. On March 31, 2011 the former stockholder of ATI filed a lawsuit against the Company.  On November 30, 2011, the parties arbitrated a settlement with precedent conditions to be performed by the Company in March 2012, which resulted in the payoff of one line for $99,000 and the refinance of the other (see Note 12). Borrowing under the remaining line of credit amounted to approximately $29,000 at September 30, 2012.

Revolving Credit Facility - The Company entered into agreements, including a Loan and Security Agreement (as subsequently amended, the “Agreement”), effective as of April 30, 2008 with Moriah Capital, L.P. (“Moriah”), pursuant to which the Company could borrow up to $2,400,000 which was subsequently increased to $2,575,000. The Agreement has been amended several times (the “Amendments”) as summarized below.

 In April 2008, the Company initially entered into a convertible revolving credit agreement pursuant to which the Company may access funds up to $1.5 million.  In September 2008, the Company entered into Amendment No. 1 to the agreement which increased the access to $2.0 million, in November 2008 the Company entered into Amendment No 2 to the agreement which increased the access to $2.4 million and in May 2009 the Company entered into Amendment No. 4 to the agreement which increased the access to $2.55 million.  The availability of loan amounts at December 31, 2009 under the revolving credit agreement was to expire on April 30, 2009. The Company entered into Amendment No. 5 to the agreement as of January 31, 2010 that extended the expiration to April 30, 2010.  The Company entered into Amendment No. 6 on September 29, 2010, effective April 30, 2010, that extended the expiration to March, 30, 2011and Amendment No. 7 as of December 31, 2010 that lowered the amount of the principal reduction payments required as of December, 31, 2010. The Company entered into Amendment No. 8 as of March 30, 2011 that extended the expiration to June 30, 2011, Amendment No.9 as of June 30, 2011 that extended the expiration to September 30, 2011, Amendment No.10 as of September 30, 2011 that extended the expiration to November 30, 2011, Amendment No. 11 that extended the expiration to March 30, 2012, Amendment No. 12 that extended the expiration to May 30, 2012 and Amendment No. 13 that extended the expiration to August 16, 2012.  The balance that remained unpaid at the August 16, 2012 expiration date and at September 30, 2012 was carried until October 12, 2012 when, as discussed below, the Company secured a new credit facility. As of September 30, 2012, the Company is permitted to borrow an amount not to exceed 85% of its eligible accounts receivable. As of September 30, 2012, the Company had borrowed $2.025 million. The Company's obligations are secured by all of the assets of the Company.  Annual interest on the loans is equal to the greater of (i) the sum of (A) the Prime Rate (B) 4% or (ii) 15%, payable in arrears prior to the maturity date, on the first business day of each calendar month, and, per Amendment No. 13, would have been payable in full on August 16, 2012. The Agreement includes covenants that the Company must maintain including financial covenants pertaining to cash flow coverage of interest and fixed charges, limitations on the ratio of debt to cash flow and a minimum ratio of current assets to current liabilities. The Company is not in compliance with the financial covenants as of September 30, 2012.

Warrants to purchase 14,233,503 shares of the Company’s common stock at an exercise price of $0.01 to $0.05 per share were granted in connection with securing and amending this credit facility.  The expense recognized by the Company in the three months ended September 30, 2012 and 2011 from the amortization of the debt discount related to the Moriah warrants was $0 and $30,000, respectively. The expense recognized by the Company in the nine months ended September 30, 2012 and 2011 from the amortization of the debt discount related to the warrants was $7,000 and $36,000, respectively.   The Company calculated the fair value of the warrants using the following assumptions:

	March 31, 2012			December 31, 2011
Risk-free interest rate		0.42	%	0.4% to 2.7 %
Expected lives (in years)	4.5 years			3.2 to 4.5 years
Dividend yield		0	%		0	%
Expected volatility		82.0	%		82.0	%
Forfeiture rate		0	%		0	%

Pursuant to the Agreement and Amendments Moriah may sell certain warrants back to the Company for $437,500 at any time during the 30 day period commencing on the earlier of the prepayment in full of all loans or January 31, 2010. As noted above, as part of Amendment No. 6, the Company granted Moriah an additional option pursuant to which Moriah can sell warrants back to the Company for $280,000, subsequently increased to $400,000 by Amendment No. 10.  The Company has determined that the put options associated with the warrants causes the instrument to contain a net cash settlement feature. In accordance with FASB ASC 480 “Distinguishing Liabilities from Equity,” the put option requires liability treatment.  As a result, the put warrant liability was recorded at the warrant purchase price of $737,500 as of September 30, 2012 and December 31, 2011.  The debt discount associated with the put liability for the warrant put feature was amortized over the extended terms of the agreement.  An amount of $0 was amortized during the three and nine months ended September 30, 2012 and $70,000 and $146,000 for the three and nine months ended September 30, 2011, respectively.

The Company recognized interest expense in connection with the Agreement and Amendments of $77,000 for the three months ended September 30, 2012 and 2011 and $253,000 and $228,000 for the nine months ended September 30, 2012 and 2011 respectively. The Company recognized amortization of loan costs of $72,000 and $36,000 for the three months ended September 30, 2012 and 2011, respectively and $216,000 and $96,000 for the nine months ended September 30, 2012 and 2011, respectively.  At September 30, 2012 and December 31, 2011, the Company recorded deferred loan costs of $0 and $72,000, respectively.

Effective October 12, 2012, the Company secured a new credit facility with Transportation Alliance Bank, Inc. (“TAB Bank”) and entered into agreements with Moriah to pay off its debt. The Company has secured a $3,000,000 senior credit facility with TAB Bank pursuant to which the Company is permitted to borrow $3,000,000 or up to 85% of its eligible accounts, at any time until the maturity date of September 29, 2014. This facility generally accrues interest at the greater of (i) 9.50% per annum, or (ii) the sum of the lender’s stipulated prime rate plus 6.25%.  The Company initially borrowed $1,338,000 from this facility.  The loan provides for interest-only monthly payments, is generally secured by all the Company’s assets but subject to certain prior liens, and includes financial covenants pertaining to cash flow coverage of interest and fixed charges and a requirement for a minimum level of tangible net worth.

The Company entered into agreements with Moriah retiring the Company’s existing credit facility by paying Moriah $1,845,000 and issuing a promissory note in favor of Moriah in the principal amount of $987,500, $250,000 of which is due September 30, 2013. The balance, issued in consideration for the cancellation of Moriah’s put option to purchase 6,008,500 shares of the Company’s common stock, becomes due on September 30, 2014. The note accrues interest at the rate of 9% per annum and Moriah may convert the balance owed into shares of common stock with unpaid principal amounts converted at the rate of $0.25 per share and any unpaid accrued interest at the rate of $0.30 per share. Any warrants that were not previously priced at $0.01 per share of common stock were re-priced to $0.01 per share and the expiration date for all warrants will be September 30, 2019.  The value associated with the re-pricing and expiration date extension of the Moriah warrants is $190,000 and will be recorded as an offset to the principal balance of the note payable to Moriah and, beginning in October 2012, will be amortized into interest expenses over the term of the note using the effective interest method.  The warrants are valued using the Black-Scholes formula.  The Company will also make 26 bi-monthly fee payments of $11,000 pursuant to the agreements.