Note 3. Pledged Assets, Line of Credit and Long-term Debt

12 Months Ended

Dec. 31, 2014

Notes

Note 3. Pledged Assets, Line of Credit and Long-term Debt

Note 3.               Pledged Assets, Line of Credit and Long-Term Debt

Until August 2013, the Company had a Commercial Line of Credit Agreement, or the Line, with Monroe Bank + Trust, or the Bank, up to $400,000 bearing interest at the Wall Street Journal Prime Rate plus 0.75%, but in no event less than 5.00%, and secured by a first lien on substantially all assets (except equipment) of the Company.  Two certificates of deposit totaling approximately $142,000 from the Bank were held as a condition of maintaining the Line.  In August 2013, the Line was renewed with a new maturity date of October 2013 and a borrowing limit of $233,067.  The Bank cashed in the two certificates of deposit held totaling approximately $142,000 and used them to pay down the Line, effectively reducing the borrowing capacity by $25,000.  In October 2013, the Line was renewed again with a new maturity date of December 2013 and a borrowing limit of $218,067, further reducing the borrowing capacity by $15,000.  In December 2013 the Company defaulted on the Line, and in April 2014 the Company signed a forbearance agreement with the Bank, temporarily restricting them from exercising certain rights and remedies available after the Company’s default.  In addition to retaining certain rights and remedies, the Bank agreed to allow the Company to repay the Line over six months, with an immediate payment of approximately $39,000 including accrued interest, and successive monthly payments of $36,784 plus accrued interest at 5%, up to and including September 7, 2014 until a total of $218,000 in principal was repaid.  On December 3, 2014, the Company paid the remaining balance owed the Bank on the Line, totaling nearly $99,000 with accrued interest.  All agreements with the Bank have been satisfied in full, and all existing liens and security held in accordance with the agreements were immediately released.

In August 2011, the Company borrowed $200,000 with a Promissory Note payable to David and Edna Kasmoch, the parents of Timothy Kasmoch, the Company’s President and Chief Executive Officer, at 12% interest and prepaid for a period of three months, renewable for an additional three months by the prepayment of additional interest and secured by certain equipment.  Timothy Kasmoch has personally guaranteed the repayment of this Note.  The Company extended the Note on all four due dates during 2012 and 2013, and the January and April due dates in 2014, and as of December 31, 2014 the Note was due July 30, 2014, and the Company is in default.  As of the date of this filing, the Company has made one additional payment of $6,000, moving the due date to October 30, 2014, but remaining in default.  The Company expects to extend the Note in the near future and pay it in full in 2015, although there can be no assurance the Company will have adequate cash flow to allow for any additional payments or that the maturity date will be extended.

In December 2013, the Company borrowed a total of $28,000, net of debt discount of $27,000, from two existing stockholders to provide operating capital.  Both notes payable were for a term of three months at an interest rate of 12%, and included warrants to purchase common stock of the Company.  In the second quarter of 2014, both stockholders converted their respective note to common stock of the Company at the fair market value of the stock at the time of conversion.

During 2014, the Company borrowed a total of $128,055 from three lenders to purchase insurance policies for equipment, Florida workers compensation and directors & officers’ insurance coverage during the year.  A total of three unsecured term notes were issued, ranging from 7% to 9.9% interest for terms ranging from six to ten months and monthly payments totaling $15,009.  The total amount owed on these notes as of December 31, 2014 was approximately $35,900 and all notes are expected to be paid in full on the applicable maturity date, ranging from February to August 2015.

From the beginning of 2006 through 2014, the Company borrowed a total of $1,677,100 from ten lenders to purchase processing and automotive equipment.  As of December 31, 2014, a total of two term notes are outstanding, ranging from 6.2% to 7.1% interest for terms ranging four to five years, monthly payments totaling approximately $5,100 and all secured by equipment.  The total amount owed on all equipment-secured notes as of December 31, 2014 was approximately $33,500 and all notes are expected to be paid in full on the applicable maturity date, ranging from January 2015 to March 2016.

In November 2012, the Company received a Notice and Demand of Payment Withdrawal Liability from Central States Southeast and Southwest Areas Pension Fund (the “Notice”), the pension trustee that was funded by the Company for the benefit of its former employees at its City of Toledo operation.  The Notice demanded a payment of $412,576, payable monthly over 20 years at $2,250 per month, or approximately $27,000 per year.  Payments at the end of the 20 year period would total $540,065.  In December 2013, the Company received a Notice of Default from Central States, and subsequently the Fund’s trustee served the Company with a summons in a civil matter, and together with the Notice demanded all amounts owed in withdrawal liability plus interest and penalties.  In September 30 2014, the Company agreed to pay Central States a total of $415,000 on a financed settlement over 19 months, with principal and interest payments of $6,000 per month for the first twelve months and principal and interest payments of $10,000 per month for the following six months, with a balloon payment of approximately $312,000 due on or before February 1, 2016.  Interest is charged at the PRIME rate plus 2% (effective rate of 5.25% at December 31, 2014).  Concurrently a separate security agreement was agreed on, effectively securing all of the Company’s assets and future rights to assets.  As of the date of this filing, the Company is in compliance with the new settlement agreement.

In 2009 the Company approved an offering of up to $1,000,000 of Convertible Debentures (the “Debentures”), convertible at any time into our unregistered common stock at $2.00 per share.  The Debentures were issuable in $5,000 denominations, are unsecured and have a stated interest rate of 8%, payable quarterly to holders of record.  The Company has timely paid all accrued interest due to all Debenture holders of record as of each quarter-end date starting in July 2009.  At any time, the Company may redeem all or a part of the Debentures at face value plus unpaid interest.

As of June 30, 2013, the Company held $455,000 of Debentures, but defaulted and did not pay the holders the principal amount due, all of which currently remain outstanding.  The Company continues to accrue interest on the principal amount at the rate set forth in the Debentures until the principal amount is paid in full.  The Company expects to pay all accrued interest due and the principal amount to all outstanding holders of the Debentures after completing substitute financial arrangements, though there can be no assurance of the timing of receipt of these funds and amounts available from these substitute arrangements.

For periods subsequent to the second quarter of 2011, the Company is required under GAAP to record a discount for certain Debentures replaced, which totaled $32,737 and was recorded as a gain on debt modification during the quarter ended June 30, 2011.  The discount was required to be amortized as a period expense over the next eight quarters the Debentures were scheduled to be outstanding.

  Amortization expense for the years ended December 31, 2014 and 2013 was $-0- and $8,184, respectively.

Approximate aggregate maturities of long-term debt for the years ending December 31 are as follows:  2015 - $831,600;  2016 - $326,600;  2017 - $-0-;  2018 - $-0-;  2019 - $-0-.

Long-term debt at December 31, 2014 and 2013 is as follows:

	2014	2013
Notes payable - banks	$     36,550	$     31,632
Notes payable - equipment vendors	32,818	93,435
Pension plan withdrawal liability	389,389	404,672
Notes payable - related parties and stockholders, net of discount (2013 - $27,000)	244,480	228,000
Convertible debentures	455,000	455,000
Total Long-Term Debt	1,158,237	1,212,739
Less current maturities	(831,583)	(1,179,921)
Totals	$   326,654	$     32,818