FINANCING ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS

12 Months Ended

Feb. 28, 2012

Financing Arrangements Including Other Noncurrent Liabilities [Text Block]

NOTE 5 – FINANCING ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS

Bank Credit Facility

On August 15, 2011, the Company and Square 1 Bank entered into the Fourth Amendment (the “Fourth Amendment”) to the Loan and Security Agreement dated as of December 22, 2009 (as amended, the "Amended Loan Agreement"), which provides for borrowings of up to $12 million. Effective with the Fourth Amendment, the credit facility is now comprised of a $3 million term loan, which was fully funded on the date of the Fourth Amendment, and a revolver of up to $12 million. The maturity date of the Amended Loan Agreement is August 15, 2014. The revolver borrowing limit is equal to the lesser of (a) $12 million minus the term loan principal outstanding at any point in time, or (b) 85% of eligible accounts receivable. The term loan principal is repayable at the rate of $100,000 per month beginning April 2012. All borrowings under the Amended Loan Agreement bear interest at Square 1 Bank's prime rate plus 1.0% per annum. Interest is payable on the last day of each calendar month. The Company paid a loan fee of $60,000 to Square 1 Bank in connection with the Fourth Amendment.

At February 28, 2011, the Company had no outstanding borrowings under the revolver, and the amount available to borrow at that date amounted to $9,000,000. At February 28, 2012, the effective interest rate on the revolver and bank term loan was 4.25%. At February 28, 2011, the effective interest rate on the revolver was 6.0%.

The Amended Loan Agreement contains a financial covenant that requires the Company to maintain minimum levels of earnings before interest, income taxes, depreciation, amortization and other noncash charges ("EBITDA") on a rolling six-month basis and a minimum debt coverage ratio. The Amended Loan Agreement also provides for a number of customary events of default, including a provision that a material adverse change constitutes an event of default that permits the lender, at its option, to accelerate the loan. Among other provisions, the Amended Loan Agreement requires a lock-box and cash collateral account whereby cash remittances from the Company's customers are directed to the cash collateral account and which amounts are applied to reduce the revolving loan principal balance. Borrowings under the Amended Loan Agreement are secured by substantially all of the assets of the Company and its domestic subsidiaries.

Subordinated Promissory Notes

On December 22, 2009 and January 15, 2010, the Company raised an aggregate amount of $5,000,000 from the issuance of subordinated promissory notes (the "Subordinated Notes") that bore interest at 12% per annum and had a maturity date of December 22, 2012. On August 15, 2011, in conjunction with entering into the Fourth Amendment with Square 1 Bank, the Company paid in full the $5,000,000 outstanding principal balance of the Subordinated Notes plus accrued interest of approximately $76,000, which included Subordinated Notes totaling $325,000 that were held by two officers and one director of the Company. The 500,000 common stock purchase warrants that were issued to the subordinated note holders at the time the notes were issued have an expiration date of December 22, 2012, and are exercisable at $4.02 per share.

Long-Term Debt

Long-term debt is comprised of the following (in thousands):

	February 28,
	2012			2011
Bank term loan	$	3,000		$	-
Subordinated promissory notes		-			5,000
Less unamortized discount on subordinated notes		-			(540	)
		3,000			4,460
Less portion due within one year		(1,100	)		-
Long-term debt	$	1,900		$	4,460

Other Non-Current Liabilities

Other non-current liabilities consist of the following (in thousands):

	February 28,
	2012		2011
Deferred rent	$	279	$	4
Deferred revenue		724		550
	$	1,003	$	554

Contractual Cash Obligations

Following is a summary of the Company's contractual cash obligations as of February 28, 2012 (in thousands):

	Future Cash Payments Due by Fiscal Year
Contractual Obligations	2013		2014		2015		2016		2017		Thereafter		Total
Bank line of credit principal	$	1,100	$	1,200	$	700	$	-	$	-	$	-	$	3,000
Operating leases		1,209		986		802		789		288				4,074
Purchase obligations		33,570		-		-		-		-		-		33,570
Total contractual obligations	$	35,879	$	2,186	$	1,502	$	789	$	288	$	-	$	40,644

Purchase obligations consist primarily of inventory purchase commitments. Rent expense under operating leases was $1,566,000, $1,918,000 and $1,962,000 in fiscal years 2012, 2011 and 2010, respectively.