Note 3. Debt

The Company has a $10,000,000 line of credit agreement with Community Bank, N.A. Borrowings under this agreement bear interest at the bank’s reference rate (4.5% at February 28, 2018 and 4.25% at August 31, 2017). Borrowings are secured by substantially all assets of the Company and its subsidiaries. The credit agreement, expires in March 2019. The amounts outstanding under this line of credit as of February 28, 2018 and August 31, 2017 were $8,485,000 and $6,967,000, respectively. Availability under the line of credit was $1,515,000 and $3,033,000 at February 28, 2018 and August 31, 2017, respectively.

The line of credit agreement contains certain covenants, including the maintenance of certain financial ratios. As of February 28, 2018 and August 31, 2017, the Company was in compliance with all such financial covenants.

On May 15, 2017, the Company entered into a $5,400,000 loan agreement with Community Bank, N.A. The proceeds of the loan were used to purchase the building that houses the Company’s corporate headquarters and distribution center located in Anaheim, California (“Lakeview Property”). This loan is payable in 35 regular monthly payments of $27,142 and one last payment of $5,001,607 due on the maturity date of the loan on May 16, 2020. The loan is secured by a deed of trust to the Lakeview Property and bears interest at the bank’s reference rate (1.79% at February 28, 2018 and August 31, 2017) plus 1.70%, which is a variable rate and will be updated based on one year LIBOR, no more than once every 12 months. At February 28, 2018, the outstanding balance of this loan was $5,297,000.

The Company has also entered into a business loan agreement (and related $100,000 promissory note) with Community Bank in order to obtain a $100,000 of credit as security for the Company’s worker’s compensation requirements.