Note 4: Line of Credit
At September 30, 2012 the Company had a short-term line-of-credit with a bank with maximum borrowings available of $2,000,000 with a maturity date of May 15, 2013. Interest on the line-of-credit is indexed to the prime rate less three-fourth point and was 2.50% at September 30, 2012. The Company's line-of-credit outstanding balances as of September 30, 2012 and December 31, 2011 was $800,000 and zero, respectively. The Company borrowed from the line to pay expenses during the quarter mainly revolving around new product development within Powin Energy as well as funding the operating expenses for the new Powin Mexico factory.
The Company's line-of-credit is subject to negative and standard financial covenants. The negative covenants restrict the Company from incurring any indebtedness and liens except for trade debt incurred in the normal course of doing business; such as, borrow money including capital leases; sell, mortgage, assign, pledge, lease, grant security interest in, or encumber any of the Company's assets or accounts; engage in any business substantially different than in which the Company is currently engaged; loan, invest or advance money or assets to any other person, enterprise or entity. Other standard financial covenants consist of; current ratio of 1.25 to 1.00 tested at the end of each quarter; total senior liabilities to capital ratio of 2.50 to 1.00 tested at the end of each quarter; operating cash flow to fixed charge ratio of not less than 1.25 to 1.00 tested at the end of each year. As of December 31, 2011, the Company was in compliance with all covenants. However, based on the operating results through nine months ended September 30, 2012, the Company might not in compliance with the fixed charge ratio at the end of 2012 fiscal year.
In June 2011, the Company entered into a five-year equipment note payable with the same bank that holds the Company's operating line-of-credit facility, with maximum borrowings available of $500,000 and a maturity date of June 21, 2016. The interest rate on this equipment note payable is fixed at 3.05%. The proceeds of this equipment note payable will be used to upgrade old outdated equipment and to add new state-of-the-art metal manufacturing equipment to the Company's QBF and Mexico operations. At September 30, 2012 and December 31, 2011, the Company's equipment note payable balance was $400,000 and $475,000, respectively. The Company has no covenants with respect to this equipment note payable, however it is secured by equipment purchased using this facility.