Debt

6 Months Ended

Feb. 28, 2019

Long-term Debt, Unclassified [Abstract]

Note 3. Debt

The Company currently has a $10,000,000 line of credit agreement with Citizens Business Bank (the “Bank”). This line of credit was originally held with Community Bank, N.A., which bank was recently acquired by CVB Financial Corp., the parent company of Citizens Business Bank. On July 24, 2018, the Company entered into a Change in Terms Agreement dated July 12, 2018 with the Bank (the “Amendment”). The Amendment modifies the Company’s $10,000,000 line of credit between the Company and the Bank to: (i) extend the expiration date of the line of credit under the agreement from March 1, 2019 to August 20, 2020; (ii) reduce the default variable interest index rate by .500% (Wall Street Journal Prime Rate less .500%); and (iii) add the following two other interest rate options that the Company may select (subject to the requirements in the Amendment and provided that the Company is not in default under the line of credit agreement): (A) One Hundred Eighty (180) day Libor Rate plus a margin of 1.550%; or (B) the One (1) Year Libor plus a margin of 1.550%, as more fully described in the Amendment. The line of credit agreement contains financial and other covenants that have not been modified by the Amendment. The amounts outstanding under this line of credit as of February 28, 2019 is are currently under the default variable interest index rate, which bear interest at the bank’s reference rate, which is the Prime Rate (5.50% at February 28, 2019 and 5.00% at August 31, 2018) less .500%. Borrowings are secured by substantially all of the assets of the Company and its subsidiaries. The amounts outstanding under this line of credit as of February 28, 2019 and August 31, 2018 were $7,680,000 and $3,113,000, respectively. The line of credit agreement contains certain nonfinancial and financial covenants, including the maintenance of certain financial ratios. As of February 28, 2019 and August 31, 2018, the Company was in compliance with all such covenants.

On May 15, 2017, the Company entered into a $5,400,000 loan agreement with the Bank. 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, which is periodically reset based on one year LIBOR no more than once in any 12 month period at the election of the bank. At February 28, 2019 and August 31, 2018, the one year LIBOR was 2.7%. At February 28, 2019 and August 31, 2018, the outstanding balance of this loan was $5,191,000 and $5,237,000, respectively. The Company’s future principal loan payments for the Fiscal years ending August 31, 2019 and August 31, 2020 are approximately $74,000 and $5,117,000, respectively.