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 (4.75% at May 31, 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 May 31, 2018 and August 31, 2017 were $6,668,000 and $6,967,000, respectively. Availability under the line of credit was $3,332,000 and $3,033,000 at May 31, 2018 and August 31, 2017, respectively.

The line of credit agreement contains certain covenants, including the maintenance of certain financial ratios. As of May 31, 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 a variable interest rate that is 1.70% plus one year LIBOR updated based on one year LIBOR, no more than once in any 12 month period. At May 31, 2018 and August 31, 2017, the one year LIBOR was 1.79%. At May 31, 2018, the outstanding balance of this loan was $5,261,000.

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