Liquidity

6 Months Ended

Sep. 30, 2019

Liquidity

Liquidity

NOTE 2 - LIQUIDITY

In August 2019, we received notification from a major customer that several containers of goods from multiple vessels purchased direct import by the customer had arrived severely water damaged. Upon inspection of the damaged goods by insurance surveyors it was their opinion that the source of the damage was due to moisture in the pallets provided by the factory which caused significant condensation and consequently water damage to the merchandise. Actual damage to the goods occurred while the goods were in transit. We have filed insurance claims on our cargo insurance policy which does provide for recovery of the sales value plus additional expenses associated with the damaged goods. As of November 14, 2019, the customer charged us back a total of approximately $1,643,000 for damaged goods consisting of sales value of approximately $1,534,000 which was recorded as a reduction in net sales and approximately $109,000 in freight costs which were expensed as a component of selling expenses on the accompanying condensed consolidated statements of operations for the three and six months ended September 30, 2019. In addition, we have incurred additional related expenses of approximately $219,000 that were included as a component of general and administrative expenses on the accompanying condensed consolidated statements of operations for the three and six months ended September 30, 2019. We continue to gather the relevant information required to complete the insurance claims, however due to the significant extent of the damage more time will be required to determine the final claim settlement. As such, we have recorded a refund due to the customer of approximately $1,643,000 and recognized an insurance claim receivable of approximately $1,248,000 (the approximate cost of the damaged goods returned that will be destroyed) on the accompanying condensed consolidated balance sheet at September 30, 2019. The time of the collection of this insurance claim receivable is uncertain at this time.

As of September 30, 2019 the Company was in default on the Revolving Credit Facility due to non-compliance with the fixed charge coverage ratio in part due to the loss of margin and expenses associated with the damaged goods discussed above. In November 2019, the Company entered into a Forbearance Agreement with PNC Bank National Association (“PNC”) whereby PNC “forbears” taking action it would be entitled to under a default through March 31, 2020 at which time we would renegotiate renewal of the Revolving Credit Facility or obtain alternative financing. The Forebearance Agreement requires, among other matters, the Company to comply with certain conditions and covenants including the following:

● PNC will implement a $1,000,000 loan availability block.

● PNC will require an EBITDA hurdles of greater than or equal to $400,000 for the third quarter ending December 31, 2019, of $0 for the six months ending March 31, 2020 and $(83,000) for the twelve months ending March 31, 2020.

● PNC will charge a loan pricing increase of .5% until March 31, 2020 which would continue until the Company achieves compliance with the original fixed charge coverage ratio test of 1.1:1

Despite the loan additional availability block and EBITDA hurdles summarized above, management remains confident that there is still adequate availability on the Revolving Credit Facility and that ultimately the collection of the insurance claim will satisfy these hurdles and the Company expects to cure these defaults prior to the expiration of the current Revolving Credit Facility on July 15, 2020. While management intends to negotiate renewal of the Revolving Credit Facility prior to expiration and is exploring alternate sources of financing, there can be no assurance that these efforts will be successful or that any new terms will be as favorable.