I am not an expert in finance, but I believe in good leverage versus bad leverage. I realize the amount is low, but they may only need a little bit because the rest of cash needed for working capital is being generated from operations. They may also want to avoid tapping into the cash that is on their books (although they still may on occasion - probably a better sign to the market than increasing their line of credit), because they are getting a good return on that cash simply sitting in a bank and it may be their goal to add cash to their balance sheet every quarter. If you go to their annual report at their website and search by the word "credit", you can see how they have used their line of credit over the years, how it used to be very large and they have decreased it to $2M, and that the previous line of credit agreement ended 6/30/07, so it needed to be renegotiated if they were going to access it. I suspect they might have decided to do that the day after the Fed meeting when Ben dropped the Fed funds rate by 50 basis points. In their earnings report, they mention that increases in rates can actually create a hit on earnings, so I would imagine the decrease in rates and subsequent renegotiated agreement with their bank will actually help with EPS (albeit by a very small amount). Again, I am not an expert but that is one way to look at it. I also don't see them being restricted too much by the $2M line of credit. I believe they cannot pay dividends, but I am happy that they have actively restricted themselves from doing so.
Here is a blurb from their Feb filing that shows that the $2M line of credit is standard practice for them:
On February 7, 2007, Heeling Sports Limited (the "Company"), a wholly owned subsidiary of Heelys, Inc., entered into an Amendment to Credit Agreement (the "Amendment") with JPMorgan Chase Bank, N.A. (the "Bank"), thereby amending the Credit Agreement dated August 20, 2004, as previously amended through August 28, 2006 (the "Original Agreement") between the Company and the Bank. The Original Agreement, which provided the Company with a $25 million revolving line of credit, has been modified effective February 7, 2007 to (a) provide the Company with a $2 million revolving line of credit, (b) eliminate the 0.25% non-usage fee on the average daily unused portion of the line of credit and (c) eliminate other terms, including terms requiring the Company to provide to the Bank monthly reports regarding the Company's inventory and accounts receivable.
Good luck with your investments. Have a good weekend.