With the expected Q4'14 net loss that was disclosed in the NT filing yesterday, an important metric to look for when the 10K comes out is the Cash Flow Statement, in particular the disclosures re: how much of the expenses were cash expenses vs non-cash expenses, and how much of the cash expenses was actually paid vs accruing as A/P.
Point being, with approved orders and revenues dropping significantly, it logically follows that A/R will also nosedive.
Why is this important?
Because of the terms of the LOC.
Remember, although the maximum amount SCRC is theoretically able to drawdown is $4M, the actual amount available to SCRC is much much less.
The terms of the LOC stipulate that SCRC is only permitted to draw down an amount equal to 85% of Main Ave's A/R balance.
We do not know what and how much SCRC has drawn down on this LOC, but we do know that for sure they drew down on it to paydown some higher interest debt.
Bottom line is that if SCRC had drawn down an amount that -- although within the 85% of A/R theshhold at the time -- now falls OUTSIDE (i.e. in excess of) the new threshhold (because A/R has fallen so much), SCRC will need to pay the excess back immediately in order to fall under this max threshhold.
So this then begs the question: If SCRC lost money during Q4'14 and we know that revenues nosedived during Q1'15, where is this cash going to come from to pay back the LOC in order to remain in compliance with the terms and covenants of the LOC?
Hence, my comments above re: paying attention to the cash flow disclosures in the 10K to see the extent of cash vs non-cash expenses and whether A/P is growing or not, as these will give an indication as to whether SCRC may have been able to hold onto some cash.
The worst case scenario is SCRC violating the terms of the LOC by being unable to pay back any excess drawdowns and then having Triumph enforce their rights a la Ironridge.
