Long-Term Debt, Notes Payable and Capital Lease Obligations

9 Months Ended

Sep. 30, 2011

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

13.  Long-Term Debt, Notes Payable and Capital Lease Obligations

At September 30, 2011, the Company had borrowings, including capital lease obligations, and borrowings related to discontinued operations, of approximately $2.1 million, including $1.1 million of long-term debt included in liabilities related to assets held for sale, which is reported as current as it is due or expected to be repaid in less than twelve months from September 30, 2011.

We had two letters of credit outstanding at September 30, 2011 totaling $149,392 as collateral relating to workers’ compensation insurance policies. We maintain a $500,000 revolving credit facility to provide financing for additional electronic surveillance product inventory purchases and for commercial letters of credit.  There was one commercial letter of credit outstanding for inventory purchases under the revolving credit facility at September 30, 2011 for $30,501.

Our most significant borrowings at September 30, 2011 included secured notes payable to JP Morgan Chase Bank, N.A. (“Chase”) and a $1.4 million debenture note with Merlin. The $1.4 million debenture note with Merlin, which is classified as a current liability and recorded at $821,000 at September 30, 2011, exclude a conversion option and the value of warrants related to the debenture, which are both classified in stockholders’ equity. The debenture note is secured by a security interest in the “Mace” name, a pledge of the stock of Mace CSSS, Inc. and a security interest in the assets of Mace CSSS, Inc. See Note 12. Related Party Transactions for additional information and terms regarding the debt instruments with Merlin.  The secured notes payable to Chase, in the amount of $1.1 million, the majority of which is classified as current liabilities in current portion of long-term debt or liabilities related to assets held for sale at September 30, 2011, are secured by an Arlington, Texas car wash site and the Company’s Farmers Branch, Texas warehouse building.  The Chase agreements contain affirmative and negative covenants, including covenants relating to the maintenance of certain levels of tangible net worth, the maintenance of certain levels of unencumbered cash and marketable securities, limitations on capital spending and certain financial reporting requirements. The Chase agreements are our only debt agreements that contain an expressed prohibition on incurring additional debt for borrowed money without the approval of the lender.  As of September 30, 2011, our warehouse and office facility in Farmers Branch, Texas and a car wash were encumbered by mortgages.

The Chase term loan agreement also limits capital expenditures annually to $1.0 million, requires the Company to provide Chase with an Annual Report on Form 10-K and audited financial statements within 120 days of the Company’s fiscal year end and a Quarterly Report on Form 10-Q within 60 days after the end of each fiscal quarter, and requires the maintenance of a minimum total unencumbered cash and marketable securities balance of $1.5 million. We were in compliance with these covenants as of September 30, 2011.

If we default on any of the Chase covenants and are not able to obtain amendments or waivers, Chase debt totaling $1.1 million at September 30, 2011 could become due and payable on demand and Chase could foreclose on the assets pledged in support of the relevant indebtedness.