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Borrowings

9 Months Ended

Sep. 30, 2012

Note 6 – Borrowings

The Company’s long-term debt as of September 30, 2012 and December 31, 2011 are as follows:


	Rate (1)			Maturity Date	September 30, 2012			December 31, 2011
Bank line of credit		6	%	Jun. 2014 – Aug. 2015	$	12,890,843		$	14,114,145
Senior bank debt		6	%	May 2014		4,097,446			4,708,984
Note payable to shareholder		8	%	Mar. 2013		1,184,808			—
Notes payable on equipment		6	%	Dec. 2013		172,962			282,872
Sleep center notes payable		6	%	Jan. 2015		63,279			90,247
Seller financing		7.65	%	Sept. 2012		—			40,317
Notes payable on vehicles		2.9 - 3.9	%	Nov. 2012 – Dec. 2013		20,057			38,723
Equipment capital lease		10.65	%	Feb. 2015		152,810			—

Total borrowings						18,582,205			19,275,288
Less: Current portion of long-term debt						(18,423,280	)		(2,071,597	)

Long-term debt					$	158,925		$	17,203,691

(1)	Effective rate as of September 30, 2012

At September 30, 2012, future maturities of long-term debt were as follows:


Twelve months ended September 30,
2013	$	18,423,280
2014		125,591
2015		33,334
2016		—
2017		—
Thereafter		—

In May 2008 and as amended in May 2009 and July 2010, the Company entered into a loan agreement with Arvest Bank consisting of a $30 million term loan (the “Term Loan”) and a $15 million line of credit to be used for future acquisitions (the “Acquisition Line”); collectively referred to as the “Credit Facility.” In December 2010 and as amended in April 2012, August 2012 and October 2012, the Company entered into an Amended and Restated Loan Agreement covering the Credit Facility. The Term Loan was used by the Company to consolidate certain prior loans to the Company’s subsidiaries SDC Holdings LLC (“SDC Holdings”) and ApothecaryRx LLC. The Term Loan and the Acquisition Line bear interest at the greater of the prime rate as reported in the Wall Street Journal or the floor rate of 6%. The rate on the Term Loan is adjusted annually on May 21. The rate on the Acquisition Line is adjusted on the anniversary date of each advance or tranche. The Term Loan matures on May 21, 2014 and requires quarterly payments of interest only. Commencing on September 1, 2011, the Company is obligated to make quarterly payments of principal and interest calculated on a seven-year amortization based on the unpaid principal balance on the Term Loan as of June 1, 2011. Each advance or tranche of the Acquisition Line will become due on the sixth anniversary of the first day of the month following the date of the advance or tranche. Each advance or tranche is repaid in quarterly payments of interest only for three years and thereafter, quarterly principal and interest payments based on a seven-year amortization until the balloon payment on the maturity date of the advance or tranche. The Credit Facility is collateralized by substantially all of the Company’s assets and is personally guaranteed by various individual shareholders of the Company. The Company has also agreed to maintain certain financial covenants including a Debt Service Coverage Ratio of not less than 1.25 to 1, as defined.

As of September 30, 2012, the Company’s Debt Service Coverage Ratio is less than 1.25 to 1 which will be the required ratio under the Company’s loan agreement with Arvest Bank for each quarterly period beginning after March 31, 2013. In addition, beginning on March 31, 2013, the Company must have Positive EBITDA (“earnings before interest, taxes, depreciation and amortization”), as defined by Arvest Bank, for the previous three month period. Since the Debt Service Coverage Ratio becomes effective in less than 12 months and it is unlikely that we will initially meet the requirement, the associated debt with Arvest Bank has been classified as current in the accompanying condensed consolidated balance sheets as of September 30, 2012. Historically, the Company has been successful in obtaining default waivers from Arvest Bank, but there is no assurance that Arvest Bank will waive any future defaults.

On August 31, 2012, the Company paid all principal and interest due to Arvest Bank through December 31, 2012 in the total amount of $1,184,808. The principal amount of $754,161 was immediately applied to the indebtedness. The interest amount is being held by Arvest Bank and is being applied to interest in accordance with the terms of the loan agreement. As of September 30, 2012, the prepaid interest amount held by Arvest Bank is $271,530 and is included in other current assets in the accompanying condensed consolidated balance sheets.

On August 31, 2012, the Company executed a promissory note with Mr. Roy T. Oliver in the amount of $1,184,808. The interest rate on the note is 8% and maturity date of the note is March 31, 2013. All principal and interest outstanding are due on the maturity date. Mr. Oliver is one of the Company’s greater than 5% shareholders and affiliates. The promissory note is subordinate to the Company’s credit facility with Arvest Bank. The Company used the proceeds from the note to fund its payment obligation to Arvest Bank.

- 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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