Note 6 - Long-term Debt and Notes Payable to Bank

3 Months Ended

Jan. 31, 2020

Notes to Financial Statements

Long-term Debt [Text Block]

(6) Long-term Debt and Notes Payable to Bank

The Company has credit facilities consisting of a real estate term loan, as amended and restated (the “Virginia Real Estate Loan”), a supplemental real estate term loan, as amended and restated (the “North Carolina Real Estate Loan”) and a Revolving Credit Note and related agreements (collectively, the “Revolver”).

Both the Virginia Real Estate Loan and the North Carolina Real Estate Loan are with Pinnacle Bank (“Pinnacle”), have a fixed interest rate of 3.95% and are secured by a first priority lien on all of the Company’s personal property and assets, all money, goods, machinery, equipment, fixtures, inventory, accounts, chattel paper, letter of credit rights, deposit accounts, commercial tort claims, documents, instruments, investment property and general intangibles now owned or hereafter acquired by the Company and wherever located, as well as a first lien deed of trust on the Company’s real property.

Long-term debt as of January 31, 2020 and October 31, 2019 consists of the following:

	January 31,		October 31,
	2020		2019
Virginia Real Estate Loan ($6.5 million original principal) payable in monthly installments of $31,812, including interest (at 3.95%), with final payment of $3,644,211 due May 1, 2024	$	4,279,596	$	4,580,173
North Carolina Real Estate Loan ($2.24 million original principal) payable in monthly installments of $10,963, including interest (at 3.95%), with final payment of $1,255,850 due May 1, 2024		1,309,568		1,328,450
Total long-term debt		5,589,164		5,908,623
Less current installments		500,357		738,955
Long-term debt, excluding current installments	$	5,088,807	$	5,169,668

The Revolver with Pinnacle provides the Company with a $6.5 million revolving line of credit for its working capital needs. Under the Revolver, Pinnacle provides the Company with one or more revolving loans in a collective maximum principal amount of $6.5 million. The Company may borrow, repay, and reborrow at any time or from time to time while the Revolver is in effect. Through January 22, 2020, the Revolver had an interest rate on advances of prime lending rate plus 0.25%.

On January 22, 2020, OCC entered into an Eighth Loan Modification Agreement with Pinnacle to modify the Credit Agreement dated April 26, 2016 entered into between the Company and Pinnacle and the term loans dated April 26, 2016. The purpose of the Eighth Loan Modification Agreement was to (i) reduce the aggregate outstanding balance under the Credit Agreement by $200,000 on or before April 15, 2020 by reducing the outstanding principal balances on the term loans; (ii) provide that all outstanding and future advances under the Revolver accrue interest at an interest rate of prime lending rate plus 0.50%, effective January 22, 2020, (iii) remove the current ratio financial covenant for the fiscal quarter ended October 31, 2019, (iv) remove the fixed charge coverage ratio for the fiscal year ended October 31, 2019, and (v) provide that OCC engage in good faith to negotiate a letter of intent or similar expression of interest to refinance the Revolver by March 31, 2020 and enter into a financing commitment letter, similar equity commitment or combination thereof relating to the financing by May 1, 2020 with closing planned on or before June 30, 2020.

As of January 31, 2020, the Revolver accrued interest of prime lending rate plus 0.50% (resulting in a 5.25% rate at January 31, 2020). The Revolver is payable in monthly payments of interest only with principal and any outstanding interest due and payable at maturity.

On March 10, 2020, subsequent to its fiscal quarter end, OCC entered into a Ninth Loan Modification Agreement (the “Ninth Amendment”) with Pinnacle to modify the Credit Agreement dated April 26, 2016 entered into between the Company and Pinnacle and the term loans dated April 26, 2016. The purpose of the Ninth Amendment was to (i) remove the current ratio financial covenant for the fiscal quarters ended January 31, 2020 and ending April 30, 2020 and (ii) remove the total liabilities to tangible net worth ratio for the fiscal quarters ended January 31, 2020 and ending April 30, 2020. OCC also reaffirmed it would reduce the aggregate outstanding balance under the Credit Agreement by $200,000 on or before April 15, 2020 by reducing the outstanding principal balances on the term loans. OCC also affirmed that it would continue to engage in good faith to negotiate a letter of intent or similar expression of interest to refinance the Revolver by March 31, 2020 and enter into a financing commitment letter, similar equity commitment or combination thereof relating to the financing by May 1, 2020 with a closing planned on or before June 30, 2020.

All other terms and conditions of the Credit Agreement, as amended, remain unaltered and in effect.

The Revolver is secured by a perfected first lien security interest on all assets, including but not limited to, accounts, as-extracted collateral, chattel paper, commodity accounts, commodity contracts, deposit accounts, documents, equipment, fixtures, furniture, general intangibles, goods, instruments, inventory, investment property, letter of credit rights, payment intangibles, promissory notes, software and general tangible and intangible assets owned now or later acquired. The Revolver is also cross-collateralized with the Company’s real property.

The terms of OCC’s credit facilities with Pinnacle require the Company to comply, on a quarterly basis, with two financial covenants including a current ratio and a total liabilities to tangible net worth ratio. Except as modified relative to the quarter ended January 31, 2020, the Company is required to maintain a current ratio of not less than 3.0 to 1.0, measured at the end of each quarter. The ratio is calculated by dividing current assets by current liabilities. The Company’s Revolver is scheduled to mature on June 30, 2020, and therefore the $5.7 million of outstanding borrowings on the Revolver has been classified as a current liability as of January 31, 2020. As of January 31, 2020, the Company had a current ratio of 2.1 to 1.0 and was, therefore, not in compliance with the current ratio covenant. Had the maturity date of the Revolver been greater than one year from January 31, 2020, the $5.7 million of outstanding borrowings on the Revolver would have been classified as note payable to bank – noncurrent, and the Company would have been in compliance with the current ratio.

The Company is required to have a total liabilities to tangible net worth ratio of not more than 0.95 to 1.0, measured at the end of each quarter. The ratio is calculated by dividing total liabilities, as defined in the loan agreement, by tangible net worth, as defined in the loan agreements. As of January 31, 2020, the Company had a total liabilities to tangible net worth ratio of 1.0 to 1.0 and was, therefore, not in compliance with the total liabilities to tangible net worth ratio covenant.

As of January 31, 2020 and October 31, 2019, the Company had $5.7 million of outstanding borrowings on its Revolver and $850,000 in available credit.