NOTES PAYABLE AND LONG-TERM DEBT

9 Months Ended

Mar. 31, 2015

NOTES PAYABLE AND LONG-TERM DEBT [Abstract]

NOTES PAYABLE AND LONG-TERM DEBT

NOTE 6 - NOTES PAYABLE AND LONG-TERM DEBT

On April 9, 2015, the Company entered into a credit agreement with a commercial bank (“Credit Agreement”).  The Credit Agreement, which replaces, in its entirety, the Company’s prior credit agreement, which was executed effective January 28, 2014 with the same commercial bank (“Prior Credit Agreement”), provides for a two-year, $9.0 million line of credit facility, the proceeds of which may be utilized as follows:  (i) $4.0 million for working capital, letters of credit (up to $500,000) and general corporate purposes and (ii) $5.0 million for acquisitions.  Indebtedness under the Credit Agreement is secured by the Company’s accounts receivable and inventory with advances outstanding under the working capital portion of the credit facility at any time limited to a Borrowing Base (as defined in the Credit Agreement) equal to 80% of eligible accounts receivable plus 50% of eligible inventory.  Advances under the acquisition portion of the credit facility are limited to 75% of the purchase price of an acquired company and convert to a five-year term note.  Borrowings bear interest at WSJ Prime (for the working capital line) and WSJ Prime plus 0.25% (for the acquisition line), which we estimate to be approximately 3.25% and 3.50%, respectively, as of March 31, 2015.  The Company pays a fee of 0.25% per annum on the unused amount of the line of credit.

The Prior Credit Agreement, which was effective through April 9, 2015, provided for a two-year, $3.0 million line of credit facility, the proceeds of which could be utilized for working capital, letters of credit (up to $500,000) and general corporate purposes.  As of March 31, 2015, the Company had no outstanding borrowings, other than $335 thousand in letters of credit, which left $2.7 million of credit available under the Prior Credit Agreement.

The Credit Agreement contains affirmative and negative covenants that, among other things, require the Company to maintain a minimum level of tangible net worth of $12.5 million, minimum liquidity of $7.0 million, and a minimum debt service coverage ratio of not less than 1.15 to 1.00.  The Credit Agreement, which expires on April 9, 2017, also contains customary events of default which, if uncured, may terminate the Credit Agreement and require immediate repayment of all indebtedness to the lenders.    The Prior Credit Agreement contained affirmative and negative covenants, among other things, that required the Company to maintain a minimum tangible net worth of $10.5 million and minimum liquidity of $5.0 million.  The Company is required to be and is in compliance with all the financial covenants under the Credit Agreement and Prior Credit Agreement as of March 31, 2015.