10. DEBT:

On November 8, 2012, the Company entered into a credit agreement (“Credit Agreement”) with a commercial lender pursuant to which the Company established a committed line of credit of up to $6,000,000. This line of credit was used to pay off, in full, all of the Company’s obligations to its former primary lender and to provide for its general working capital needs. In June 2013, the Company’s Credit Agreement was amended whereby (i) the expiration date on its credit facility was extended to July 1, 2015 and (ii) the Company is permitted to purchase up to $400,000 of its common stock in each year beginning July 1 and ending June 30 during the term of the Credit Agreement. Payment of interest on the line of credit is due at a rate per annum as follows: either (i) variable at the lender’s prime lending rate (3.25% at December 31, 2013) and/or (ii) 2% over LIBOR for 30, 60 and 90 day LIBOR maturities, at the Company’s sole discretion. The line of credit is collateralized by a first priority security interest in all of the Company’s tangible and intangible assets. Outstanding borrowings under the line of credit were $2,100,000 at December 31, 2013 at an interest rate of 2.16% representing 2% plus the 30 day LIBOR rate. Outstanding borrowings under the line of credit were $3,324,000 at December 31, 2012 at an interest rate of 2.21% representing 2% plus the 30 day LIBOR rate.

The Credit Agreement contains customary affirmative and negative covenants and certain financial covenants. Additionally, available borrowings under the line of credit are subject to a borrowing base of eligible accounts receivable and inventory. All outstanding borrowings under the line of credit are accelerated and become immediately due and payable (and the line of credit terminates) in the event of a default, as defined, under the Credit Agreement. The Company was in compliance with the financial covenants contained in the Credit Agreement at December 31, 2013. Despite being in compliance at December 31, 2013, the Company is uncertain whether it will be in compliance with one of the financial covenants contained in its lending agreement at March 31, 2014. Accordingly, the Company has classified its line of credit as a current liability at December 31, 2013. The Company is currently negotiating with its primary lender to amend this covenant.

During March 2012, the Company entered into a two-year $65,000 installment loan agreement to finance the purchase of a leasehold improvement. The loan’s imputed interest rate was 3.25%, was payable in twenty-four (24) monthly payments of approximately $2,800, was collateralized by the related leasehold improvement, and was scheduled to mature March 2014. The installment loan agreement was fully paid during the year ending December 31, 2013.