10. LINE OF CREDIT
On August 25, 2011, the Company entered into
a working capital credit facility agreement allowing the Company to borrow up to $1.5 million based upon qualified accounts receivable,
and export-related inventory. On May 29, 2012 the credit agreement was amended to increase the borrowing limit to $2.0 million.
On September 11, 2012 the Company entered into the Second Amendment to Loan and Security Agreement to increase the borrowing limit
under the credit facility from $2.0 million to $2.5 million. Each account receivable financed by the lender will bear an annual
interest rate or finance charge equal to the greater of the lender's prime rate less 0.5%, or 3.50%, when the Company meets certain
borrowing base requirements. If the Company does not meet the borrowing base requirements, each account receivable financed by
the lender will bear an annual interest rate or finance charge equal to the greater of the lender's prime rate plus 0.75%, or 4.75%.
The applicable interest is calculated based on the full amount of the account receivable and export-related inventory provided
as collateral for the actual amounts borrowed. Depending on the composition of the collateral items, whether or not the Company
meets certain borrowing base requirements and the relative cash position of the Company, the equivalent annual interest rate applied
to the actual loan balances may vary from 3.89% to 8.94%, assuming that the banks prime rate is 4.00% or less. At November
30, 2012 the weighted average interest rate on the outstanding loan balance was 3.95%. The average loan balance for the three and
six months of fiscal 2013 was $1,381,000 and $1,043,000, respectively. The line of credit is collateralized by all the Companys
assets except for intellectual property, and has a maturity date of August 23, 2013. At November 30, 2012 the Company had drawn
$1,685,000 against the credit facility. The balance available to borrow under the line at November 30, 2012 was $815,000. The Company
was in compliance with all covenants at November 30, 2012.