| Short Term and Long Term Debt | 4. Short-Term and Long-Term Debt Revolving
Credit Lines Long-Term
Debt On May 24, 2013,
the Company entered into a promissory note in the principal sum of $850,000 to purchase three printing presses that were previously
leased by the Companys wholly-owned subsidiary, Secuprint Inc., and carries an interest rate of 9% per annum. Interest is
payable quarterly, in arrears. On February 23, 2015, the Company entered into Promissory Note Amendment No. 2 to extend the maturity
date to May 31, 2016 and to institute principal payments in the amount of $15,000 per month plus interest through the extended
maturity date, and a balloon payment of $610,000 due on the extended maturity date. On April 12, 2016, the Company entered into
Promissory Note Amendment No. 3 to extend the maturity date to May 31, 2017 and change the balloon payment to $430,000 due on the
extended maturity date. As of June 30, 2016, the balance of the term loan was $595,000 ($685,000 at December 31, 2015). Term Loan
Debt On July 19, 2013,
Premier Packaging entered into an equipment loan with Peoples Capital and Leasing Corp. (Peoples Capital)
for a printing press. The loan was for $1,303,900, repayable over a 60-month period which commenced when the equipment was placed
in service in January 2014. The loan bears interest at 4.84% and is payable in equal monthly installments of $24,511. As of June
30, 2016, the loan had a balance of $691,166 ($819,681 at December 31, 2015). On April 28, 2015,
Premier Packaging entered into a term note with Citizens Bank for $525,000, repayable over a 60-month period. The loan bears interest
at 3.61% and is payable in equal monthly installments of $9,591. Premier Packaging used the proceeds of the term note to acquire
a HP Indigo 7800 Digital press. As of June 30, 2016, the loan had a balance of $411,015 ($460,448 at December 31, 2015). Promissory
Notes On December 6, 2013,
Premier Packaging entered into a Construction to Permanent Loan with Citizens Bank for up to $450,000 that was converted into a
promissory note upon the completion and acceptance of building improvements to the Companys packaging plant in Victor, New
York. In May 2014, the Company converted the loan into a $450,000 note payable in monthly installments over a 5 year period of
$2,500 plus interest calculated at a variable rate of 1 Month Libor plus 3.15% (3.61% at June 30, 2016), which payments commenced
on July 1, 2014. The note matures in July 2019 at which time a balloon payment of the remaining principal balance of $300,000 is
due. As of June 30, 2016, the note had a balance of $390,247 ($405,247 December 31, 2015). Under the Citizens
Bank credit facilities, the Companys subsidiary, Premier Packaging, is subject to various covenants including fixed charge
coverage ratio, tangible net worth and current ratio covenants. For the quarters ended March 31, 2016 and June 30, 2016, Premier
Packaging was in compliance with the covenants. The Citizens Bank obligations are secured by all of the assets of Premier Packaging
and are also secured through cross guarantees by the Company and its other wholly-owned subsidiaries, Plastic Printing Professionals
and Secuprint. Other Debt On March 27, 2014,
DSSTM received an additional $1,000,000 under the Agreement comprised of a promissory note for $900,000 and fixed and contingent
equity interests of $100,000. On September 5, 2014, DSSTM received the remaining $1,500,000 under the Agreement comprised of a
promissory note for $1,350,000 and fixed and contingent return interests of $150,000. On May 23, 2016 DSSTM remitted $495,000 in
proceeds received from the sale of patent assets (Note 3) to Fortress under the terms of the Agreement. As of June 30, 2016, DSSTM
has made aggregate payments of $645,000 on the notes. As of June 30, 2016, total net advances equaled $3,705,000, which consisted
of $4,041,000 in notes and an aggregate of $459,000 of fixed and contingent equity interests, less aggregate payments of $645,000.
Aggregate accrued interest totaled $171,000 as of June 30, 2016 ($132,000 as of December 31, 2015). The Agreement defines
certain Events of Default, one of which is the failure by DSSTM, on or before the second anniversary of the Effective Date, which
was February 13, 2016, to make payments to the Investors equal to the outstanding Advances. On February 13, 2016, DSSTM failed
to make these payments. Under the Agreement,
upon an Event of Default, the Collateral Agent and the Investors have a number of remedies, including rights related to foreclosure
or direct monetization of the Patents. As a result of the Event of Default discussed above, the sole and exclusive recourse of
the Investors and the Collateral Agent is to form a special purpose entity to take possession of the Patents, subject to a perpetual,
non-transferable, non-exclusive worldwide royalty-free license back to DSSTM. The Agreement further provides that, in the case
of this default, the Collateral Agent and Investors will not, individually or collectively, seek to enforce any monetary judgment
with respect to or against any assets of DSSTM other than the Patents and any payments received in respect of the Patents, including
settlement payments, license fees and royalties on the Patents. In the event that the Collateral Agent or Investors foreclose on,
and take possession of the Patents, DSSTM will still be entitled to receive any payments received in respect of the Patents in
the event of a recovery by any substituted plaintiff in any related litigation proceedings, subject to payment of amounts owed
under the Agreement to the Investors and the Collateral Agent. In addition, as a result of the default, the interest rate on the
unpaid amounts due increased to 2% per year effective February 13, 2016. As a result of
the event of default, the Company has classified the remainder of the amounts due on the notes of approximately $3,567,000 as
short-term debt as of June 30, 2016. The balance on the condensed consolidated balance sheets is presented net of approximately
$30,000 of debt issuance costs. The Company has been in discussions with the investors to amend the Agreement or otherwise to
remedy the event of default; however, there can be no assurance as to the ultimate success of these discussions. |
