Line of Credit

6 Months Ended

Sep. 30, 2016

Line of Credit Facility [Abstract]

Line of Credit

NOTE 7 – LINE OF CREDIT

On July 14, 2014, the Company executed a three-year revolving credit facility (the “Revolving Credit Facility”) with PNC Bank, National Association (“PNC”) that replaced an existing line of credit agreement. The Revolving Credit Facility has a three year term expiring on July 14, 2017. The outstanding loan balance cannot exceed $15,000,000 during peak selling season between August 1 and December 31 and is reduced to a maximum of $7,500,000 between January 1 and July 31. Usage under the Revolving Credit Facility shall not exceed the sum of the following (the “Borrowing Base”):

● Up to 85% of the company’s eligible domestic and Canadian accounts receivable aged less than 60 days past due (not to exceed 90 days from invoice date, cross aged on the basis of 50% or more past due with certain specific accounts qualifying for up to 120 days from invoice date not to exceed 30 days from the due date; plus

● Up to the lesser of (a) 50% of the cost of eligible inventory or (b) 75% of net orderly liquidation value percentage of eligible inventory (annual inventory appraisals required); minus

● An all-time $500,000 block; minus

● Applicable reserves including a dilution reserve equal to 125% of the Company’s advertising and return accrual reserves. Dilution reserve not to exceed availability generated from eligible accounts receivable.

The Revolving Line of Credit includes the following sub-limits:

● Letters of Credit to be issued limited to $3,000,000.

● Inventory availability limited to $4,000,000.

● Mandatory pay-down to $1,000,000 (excluding letters of credit) for any 30 consecutive days between February 1 and April 30.

The Revolving Line of Credit must comply with the following quarterly financial covenants to avoid default:

● Fixed charge coverage ratio test of 1.1:1 times measured on a rolling four quarter basis, defined as EBITDA less non-financed capital expenditures, cash dividends and distributions paid and cash taxes paid divided by the sum of interest and principal on all indebtedness.

● Capital expenditures limited to $150,000 per year.

Interest on the Revolving Credit Facility is accrued at 2% per annum over PNC’s announced prime rate with an option for the Company to elect the 1, 2 or 3 month fully absorbed PNC LIBOR Rate plus 3.5% per annum with a default rate of 2% over the applicable rate. There is an unused facility fee equal to .375% per annum on the unused portion of the Revolving Credit Facility which will be calculated on the basis of a 360 day year for the actual number of days elapsed and will be payable quarterly in arrears. During the three month periods ended September 30, 2016 and 2015, the Company incurred interest expense of $52,076 and $42,748, respectively on amounts borrowed against the Revolving Credit Facility. During the six month periods ended September 30, 2016 and 2015, the Company incurred interest expense of $52,076 and $52,143, respectively on amounts borrowed against the Revolving Credit Facility. During the three month periods ended September 30, 2016 and 2015, the Company incurred an unused facility fee of $8,233 and $8,132, respectively on the unused portion of the Revolving Credit Facility. During the six month periods ended September 30, 2016 and 2015, the Company incurred an unused facility fee of $15,264 and $14,274, respectively on the unused portion of the Revolving Credit Facility.

The Revolving Credit Facility is secured by first priority security interests in all of the named borrowers’ tangible and intangible assets as well as first priority security interests of 100% of member or ownership interests of any of its domestic existing or newly formed subsidiaries and first priority lien on up to 65% of the borrowers’ domestic subsidiary’s existing or subsequently formed or acquired foreign subsidiaries. The Revolving Credit Facility is also secured by a related-party debt subordination agreement with Starlight Marketing Development, Ltd. in the amount of $2,500,000. Costs associated with securing the Revolving Credit Facility of approximately $222,000 were deferred and amortized over the term of the agreement. During the three month periods ended September 30, 2016 and 2015, the Company incurred amortization expense of $18,520. During the six month periods ended September 30, 2016 and 2015, the Company incurred amortization expense of $37,039.

As a condition of the Revolving Credit Facility, a portion of the Company’s related-party debt with Ram Light Management, Ltd. in the amount of $1,100,000 was converted to a note payable with Ram Light Management, Ltd. (“Ram Light Note”). The Ram Light Note bears interest at 6% per annum with quarterly payments of $150,000 (including principal and interest) payable which commenced on December 31, 2014. The scheduled principal and interest payments of $150,000 were only permitted upon receipt of the Company’s quarterly compliance certificate; the Company having met the mandatory pay-down of the Revolving Credit Facility to $1,000,000 and average excess availability for the prior 30 days (after subtraction of third party trade payables 30 days or more past due) of no less than $1,000,000 after giving effect to the payment. While the Company did meet the mandatory pay-down requirement, the Company did not meet the prior 30 day average excess availability requirement permitting the Company to make all scheduled payments on the note, and as a result, the first three scheduled payments due December 31, 2014, March 31, 2015 and June 30, 2015 were not made. As part of the Conditions to Installment Payment in the note, payments not made under this note that cannot be made as a result of the foregoing prohibition shall not be deemed an Event of Default and will not cumulate with the next payment that can be made, but rather will be payable on the maturity date together with any additional interest that has accrued thereon. The Company has made all payments as scheduled since June 30, 2015. In September 2016 the Revolving Credit Facility was modified which allowed the modification of the Ram Light Note such that the remaining amount due on the note is to be paid off in increments of $100,000 (inclusive of principal and interest) due at the end of each month which extended the maturity of the note to March 31, 2017. For the three months ended September 30, 2016 and 2015 the Company recognized interest expense on the Ram Light Note in the amount of $9,375 and $17,544, respectively. For the six months ended September 30, 2016 and 2015 the Company recognized interest expense on the Ram Light Note in the amount of $20,838 and $34,828, respectively. As of September 30, 2016 and March 31, 2016 the company accrued interest expense on the Ram Light Note in the amount of $63,778. These amounts were a component of accrued expenses in the condensed consolidated balance sheets.