Note 7 - Debt

3 Months Ended

Mar. 31, 2013

Debt Disclosure [Text Block]

NOTE 7.   DEBT

Credit Facilities

On December 22, 2011, the Company entered into a $4.5 million revolving line of credit (“credit facility”) with Rosenthal & Rosenthal.  The total loan amount available to the Company under the line of credit is equal to 85% of its net amount of eligible receivables, plus available inventory (the lesser of 50% of the lower of cost or market value of eligible inventory, or $250 thousand).  The credit facility is secured by a lien on the domestic assets of the Company.  The interest rate for borrowing on accounts receivable is 8.5%, on inventories 10.0% and on overdrafts 13.0%.  Additionally, there is an annual 1% facility fee on the entire amount of the credit facility, $4.5 million, payable at the beginning of the year.  The credit facility is a three year agreement, expiring on December 31, 2014, unless terminated sooner.  There are liquidated damages if the credit facility is terminated prior to December 31, 2014, which are based on the maximum credit facility amount then in effect.  The damages are:  3% if terminated prior to the first anniversary of the closing date, 2% if terminated prior to the second anniversary of the closing date, and 1% if terminated prior to the third anniversary of the closing date.  The Company is required to comply with certain financial covenants, measured quarterly, including, as defined in the agreement:  a tangible net worth amount and a working capital amount.  The Company was in compliance with the financial covenants at March 31, 2013.  Borrowings under the revolving line of credit were $1.2 million at March 31, 2013, and $1.6 million at December 31, 2012, and are recorded in the Company’s Condensed Consolidated Balance Sheets as a current liability under the caption “Credit line borrowings.”

Borrowings

The components of the Company’s debt at March 31, 2013 and December 31, 2012 were as follows (in thousands):

	March 31, 2013			December 31, 2012
Unsecured Convertible Notes	$	3,250		$	1,500
Convertible Promissory Note - TLC Investments LLC		500			500
Cognovit Note - Keystone Ruby, LLC		263			277
Letter of Credit Agreement - Mark Plush		250			250
Unsecured Promissory Note - Quercus Trust		70			70
Discounts on long-term borrowings		(25	)		(48	)
Subtotal		4,308			2,549
Less:  Current maturies of long-term debt		(780	)		(756	)
Long-term debt	$	3,528		$	1,793

In March 2013, the Company disclosed that it had embarked on a program to raise up to $3.8 million in unsecured convertible debt.  This is in addition to the $1.5 million in unsecured convertible debt raised during the fourth quarter of 2012.  During the first quarter of 2013, $1.75 million of unsecured convertible debt has been raised toward the additional $3.8 million.  This debt matures on December 31, 2016, has a five percent annual interest rate, and is convertible into common stock of the Company at the rate of $0.23 per share beginning July 31, 2013. During the second quarter, the Company expects to receive an additional $2 million.

For a full description of the Company’s debt financing, reference is made to Note 8, Debt, of the Company’s 2012 Annual Report on Form 10-K.

Future maturities of remaining borrowings are (in thousands):

Year ending December 31,	Long-Term Debt
2013 April through December	$	791
2014		59
2015		1,565
2016		1,822
2017		26
2018 and thereafter		70
Gross long-term borrowings		4,333
Less: discounts on long-term borrowings		(25	)
Total commitment, net		4,308
Less: portion classified as current		(780	)
Long-term borrowings, net	$	3,528