Note 7 - Bank Lines of Credit

9 Months Ended

Sep. 30, 2011

7.	Bank Lines of Credit

Factoring Agreement

On December 7, 2009 the Company entered into a factoring agreement with FCC, LLC, dba First Capital Western Region, LLC (“FCC”), whereby it assigns certain of its accounts receivables without recourse and other accounts receivable with recourse. FCC, based on its internal credit policies, determines which accounts receivable it will accept without recourse. This facility allows the Company to borrow the lesser of (a) $3,000,000 or (b) the sum of (i) the threshold for the net amount of total eligible accounts receivable set forth in the agreement, with and without recourse, and (ii) the threshold for the value of eligible inventory set forth in the agreement, which amount shall not exceed the lesser of $1,500,000, 50% of the value of eligible inventory or the net amount of eligible accounts receivable. The Company’s factoring agreement with FCC does not contain any financial covenants. The credit facility contains a number of other affirmative and negative covenants customarily found in factoring agreements for similar transactions, including, but not limited to, restrictions on the following transactions: the merger or sale of assets, creation of new debt or liens, distribution of dividends or equity interest, ERISA liabilities, transactions with affiliates, extending credit, advances, or loans to any person, and capital expenditures exceeding $100,000 within any fiscal year. At September 30, 2011 and December 31, 2010 the Company had available, but unused credit under this facility of approximately $408,000 and $618,000, respectively. All of the Company’s assets secure amounts borrowed under the terms of this agreement. Interest on outstanding balances based on accounts receivable currently accrues at LIBOR plus 5.5% and interest on outstanding balances based on inventory accrues at LIBOR plus 6.5%. This agreement has an initial term of thirty-six (36) months.

As of September 30, 2011, the total amount due to FCC via the line of credit was $2,094,643 offset by $1,425,062 due from factor. As of December 31, 2010, the total amount due to FCC via the line of credit was $1,776,388 offset by $1,968,764 due from factor.