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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 3, 2006
Digital Recorders, Inc.
(Exact Name of Registrant as Specified in Charter)
North Carolina 1-13408 56-1362926
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
5949 Sherry Lane, Suite 1050 75225
Dallas, Texas (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (214) 378-8992
Not applicable.
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Item 1.01. Entry Into a Material Definitive Agreement.
Since mid-2005, Digital Recorders, Inc. (the "Company") has been evaluating its
balance sheet and its working capital needs for 2006 and beyond, which included
re-evaluating the relationship with its current lender, LaSalle Business Credit,
LLC ("LaSalle"). The Company recognized in 2005 its expanding working capital
needs in 2006 and beyond and also recognized that the then current banking
relationship might not meet the Company's needs going forward. As a result, the
Company has been investigating and evaluating various alternatives to
appropriately address its working capital needs
The Company entered into a loan agreement with LaSalle dated November 6, 2003,
as amended (the "LaSalle Agreement") that included typical financial covenants.
In the process of closing its books as of and for the quarter and year ended
December 31, 2005, the Company concluded it had failed to meet the EBITDA to
Fixed Charge covenant for the quarter ended December 31, 2005. The Company's
failure to meet this financial covenant would have, if not waived by LaSalle,
constituted an Event of Default under the terms of the LaSalle Agreement and
caused the full outstanding amount of $3.2 million to be immediately due and
payable.
Already wanting to change lenders, on March 6, 2006, the Company and LaSalle
amended the LaSalle Agreement with a Waiver, Consent and Amendment (the "Waiver,
Consent and Amendment"). In addition to waiving the Company's failure to meet
the financial covenant, the terms of the Waiver, Consent and Amendment provide
for the following: an obligation to raise up to $2 million of additional equity
on or before March 21, 2006 (which would be available to the Company for general
corporate purposes); a reduction of the loan limit from $6 million to $5
million, with an underlying availability not to exceed $3.8 million; minimally
increasing general reserves under the loan, currently at $1.2 million; an
increase in the interest rate from prime plus 1.75% to prime plus 3.75%; reset
of the maturity of the credit facility from November 6, 2006, to June 30, 2006;
and initiation of a monthly loan management fee of $10,000 per month.
The Company agreed to the above while noting that it was and is finalizing
arrangements with a new lender on terms which the Company believes will be more
reflective of its needs and which will better support its current and future
operations. Although the company believes it will soon replace the current
LaSalle Agreement and/or meet the new conditions to the LaSalle Agreement, there
is always risk that these transactions might not be concluded in the time and
manner contemplated. Failure in that regard would have a material adverse effect
on the Company's liquidity.
Item 2.04. Triggering Events That Accelerate or Increase a Direct Financial
Obligation or an Obligation Under an Off Balance Sheet Arrangement.
See Item 1.01, above.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, we
have duly caused this report to be signed on our behalf by the undersigned
hereunto duly authorized.
DIGITAL RECORDERS, INC.
Date: March 9, 2006 By: /S/ DAVID N. PILOTTE
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David N. Pilotte
Chief Financial Officer