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Credit Facility
 9 Months Ended
Sep. 30, 2012
Credit Facility [Abstract]  
Credit Facility

Note 5 — Credit Facility

In the third quarter of 2012, the Company entered into a five-year, $40.0 million credit facility (“Credit Facility”). The Credit Facility consists of a $40.0 million revolving credit facility which includes a $10.0 million sub-facility for Letters of Credit. Until the later of June 30, 2014 or when the Company achieves certain financial covenants, credit available under the Credit Facility is based upon:

 

  a) 80% of the face amount of the Company’s eligible accounts receivables, generally less than 60 days past due, and

 

  b) 50% of the lower of cost or market value of the Company’s eligible inventory, generally inventory expected to be sold within 18 months or $20.0 million, whichever is less.

The applicable interest rate margins for borrowings under the Credit Facility are at the Prime rate or the LIBOR rate plus 2.75% for the first year and LIBOR plus 2.50% for the second year of the agreement. Following the second year, the interest rate will be based on the Company’s debt to EBITDA ratio and range from LIBOR plus 1.25 to 1.85 percent or Prime minus 1.00 to 0.40 percent.

The Credit Facility is secured by a first priority perfected security interest in substantially all existing assets of the Company. Dividends are restricted to $0 to $1,100,000 per quarter based on EBITDA achieved in the previous quarter compared to specified target amounts.

 

In addition to other customary representations, warranties and covenants, the Credit Facility requires the Company to comply with certain financial covenants. A minimum Consolidated EBITDA level, as defined in the Credit Facility, must be achieved on a quarterly basis as detailed in the following table:

 

         
Quarter Ended   Minimum EBITDA  

September 30, 2012

   $ (1,000,000 ) 

December 31, 2012

     (1,500,000 ) 

March 31, 2013

     0  

June 30, 2013

     2,000,000  

September 30, 2013

     3,500,000  

December 31, 2013

     3,000,000  

March 31, 2014

     3,500,000  

June 30, 2014

     3,500,000  

Upon meeting certain financial covenants, but not prior to June 30, 2014, the availability under the Credit Facility will be based upon the following covenants with a maximum borrowing level of $40.0 million:

 

  a) Minimum Debt Service Coverage Ratio of 1.20:1.00 measured quarterly beginning June 30, 2014 and building cumulatively to a rolling four quarters.

 

  b) Minimum Tangible Net Worth of not less than 90% of the value of shareholders’ equity less intangible assets established as of June 30, 2014, tested quarterly.

 

  c) Minimum cash, accounts receivable and inventory to debt ratio of 2.0 to 1.0.

For the period ended September 30, 2012, EBITDA, as defined in the Credit Facility, was $0.7 million which was in compliance with the minimum EBITDA covenant of $(1.0) million for the quarter.

At September 30, 2012, the Company had an outstanding balance of $19.6 million under the revolving line of credit of its Credit Facility and additional borrowing availability of $16.8 million. The weighted average interest rate was 2.0% through the first nine months of 2012 and the outstanding balance approximates fair value.