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Note 8 - Debt

9 Months Ended

Sep. 30, 2014

NOTE 8. DEBT

Credit facilities

On December 22, 2011, we entered into a $4.5 million revolving line of credit (“credit facility”) with Rosenthal & Rosenthal. The total loan amount available to us under the line of credit is equal to 85 percent of our net, eligible receivables, plus available inventory (50 percent of the lower of cost or market value of eligible inventory, or $250 thousand, whichever is less). The credit facility is secured by a lien on our domestic assets. The interest rate for borrowing on accounts receivable is 8.5 percent, on inventories 10 percent, and on overdrafts 13 percent. Additionally, there is an annual 1 percent facility fee on the entire $4.5 million amount of the credit facility 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 of 1 percent if the credit facility is terminated prior to December 31, 2014. We are 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. We were in compliance with the financial covenants as of September 30, 2014. Borrowings under the revolving line of credit were $599 thousand at September 30, 2014, and are recorded in the Condensed Consolidated Balance Sheets as a current liability under the caption “Credit line borrowings.” At December 31, 2013, there was a debit/negative balance on the line of credit of $218 thousand, which is included in the Condensed Consolidated Balance Sheets under the caption “Cash and cash equivalents.” At September 30, 2014, there was approximately $1.2 million available for us to borrow under this line of credit.

Additionally, our subsidiary in the United Kingdom has an invoice discounting arrangement whereby the amount available for borrowing is based at 80 percent of their eligible sales ledger. The interest rate for borrowing under this arrangement is 3.02 percent. Borrowings under this arrangement were $137 thousand at September 30, 2014, and are recorded in the Condensed Consolidated Balance Sheets as a current liability under the caption “Credit line borrowings.” There was nothing outstanding under this arrangement at December 31, 2013.

Borrowings

The components of our debt at September 30, 2014 and December 31, 2013 were as follows (in thousands):

	September 30,			December 31,
	2014			2013

Unsecured convertible cotes	$	-		$	6,145
Cognovit note - Keystone Ruby, LLC		179			223
Unsecured promissory note - Quercus Trust		70			70
Discounts on long-term debt		-			(2,368	)
Subtotal		249			4,070

Less: Current maturies of long-term debt		(64	)		(59	)

Long-term debt	$	185		$	4,011

Effective March 31, 2014, the holders of the unsecured convertible notes converted the outstanding principal amount of $6.15 million into 2,671,739 shares of our common stock. As consideration for entering into agreements to convert their notes, the note holders received additional interest payments at the stated rate of the notes of 5 percent through September 30, 2014. At September 30, 2014, all of the additional interest had been paid. In relation to the conversion of the outstanding notes, we incurred a one-time charge of $2.7 million, including a non-cash charge of $2.3 million to write-off the remaining unamortized discount associated with the notes, $154 thousand for the additional six months interest described above, and $293 thousand to write-off the remaining loan origination costs incurred in connection with the convertible notes. For a full description of our debt financing, see Note 9, Debt, in our 2013 Annual Report.

Future maturities of remaining borrowings are as follows (in thousands):

	Long-Term
Year ending December 31,	Debt

2014 October through December	$	15
2015		66
2016		72
2017		26
2018		-
2019 and thereafter		70
Total commitment		249

Less: Current maturies of long-term debt		(64	)

Long-term debt	$	185

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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