Quarterly report pursuant to Section 13 or 15(d)

Financing Agreements

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Financing Agreements
3 Months Ended
Oct. 31, 2011
Notes to Financial Statements  
Financing Agreements

(9) Financing Agreements

 

On February 24, 2010, the Company entered into a Note and Security Agreement with Mr. Sheerr. Under the agreement, the Company borrowed the principal sum of $1,000,000 for a period of six months, which the Company could extend for an additional three months without penalty. The interest rate on the loan was 5.25%, payable monthly. The loan was paid in full on August 13, 2010. No further financing is available to the Company under this agreement.

 

On July 27, 2010, the Company entered into a secured credit facility with a bank, which provides for up to a $5,000,000 revolving credit line. Advances under the facility are limited to 80% of eligible receivables, as defined in the agreement. The agreement does not have a fixed term. The bank may demand immediate repayment of all loans at any time, provided that if the Company is not in default under the agreement it has ninety days to repay the amounts demanded. The agreement provides for Prime Rate loans at an interest rate equal to the Prime Rate plus two percent, subject to a minimum interest rate of five and one quarter percent. The Company is required to pay a monthly maintenance fee equal to six-tenths of one percent (0.6%) of the monthly average principal balance of any borrowings under the facility in the prior month. The agreement contains certain restrictive covenants, specifically a minimum tangible net worth covenant and certain other covenants, as defined in the agreement. At October 31, 2011, the Company was in compliance with all covenants. At October 31, 2011, the Company had approximately $557,000 of additional financing available to it under the terms of the agreement.

 

On July 27, 2010, the Company entered into an agreement with Sheerr Memory to consign a formula-based amount of up to $3,000,000 of certain inventory into the Company’s manufacturing facilities. The agreement was amended on December 5, 2011. The amendment changed the term of the agreement from twenty four months to twenty nine months. The Company is obligated to pay monthly a fee equal to 0.833% of the average daily balance of the purchase cost of the consigned products held by Sheerr Memory under the agreement. At October 31, 2011, the Company has received financing totaling $1,500,000 under the agreement and no further financing was available to the Company under the terms of the agreement, although the agreement provides for additional possible financing in the future.

 

As a subsequent event, on December 14, 2011, the Company entered into Note and Security Agreement with David Sheerr, an employee and executive officer of the Company. The agreement provides for secured financing of up to $2,000,000. The Company is obligated to pay monthly, interest equal to 0.833% of the outstanding average daily loan balance. Principal is payable in sixty equal monthly installments, beginning on July 15, 2012. The Company may prepay any or all sums due under this agreement at any time without penalty. On closing, the Company borrowed $1,500,000 under the agreement and repaid in full the $1,500,000 due under the previously described agreement that the Company entered into with Sheerr Memory on July 27, 2010.