NOTE 7 - BORROWINGS

The Company’s indebtedness as of June 30, 2018 was comprised primarily of bank loans including lines of credit and long term debt. Subsequent to June 30, 2018 the associated balances were paid in full. See further discussion in Note “12 Subsequent Events”.

Lines of Credit

In July 2016, the Company’s capital equipment line of credit matured and automatically converted into a $0.3 million term loan with a 48-month amortization schedule and a 3.95% interest rate.

In July 2017, the Company’s capital equipment line of credit matured and automatically converted into a $0.3 million term loan with a 36-month amortization schedule and a 4.25% interest rate.

On August 17, 2017, the Company completed the renewal process of its revolving line of credit with Bank of the West. The Company chose not to request a new equipment purchase line of credit note from the lender. In addition, the Company chose not to extend the maturity date of the foreign exchange note. The credit facility, which initially matured on July 31, 2018, consists of a revolving line of credit with a maximum commitment of $10.0 million which accrues interest at 2.25% above the London Interbank Offered Rate (“LIBOR”). In the fiscal year 2016, the credit facility also included (a) a capital equipment line with a maximum commitment of $0.5 million which carried an interest rate of 2.25% above floating One-Month LIBOR, and (b) a foreign exchange facility with a maximum commitment of $0.1 million which allowed the Company’s bank to enter into any spot or forward transaction to purchase or sell a foreign currency. The Company did not use the foreign exchange facility during the twelve months ended June 30, 2018.

The credit facility was secured by a pledge of substantially all of the Company’s assets and is supported by guaranties from certain LLC members with significant ownership positions. The bank borrowings contain usual and customary covenants, including, among others, limitations on incurrence of senior indebtedness, the making of loans and advances, investments, acquisitions, and capital expenditures, the incurrence of liens, and the consummation of mergers and asset sales. The credit facility maintains the minimum current assets to current liabilities ratio covenant (measured quarterly) and the maximum debt to effective tangible net worth ratio covenant (measured quarterly). When the line of credit was renewed on August 17, 2017, the previous debt service coverage ratio (measured quarterly on a trailing 12-month basis) was replaced with a minimum quarterly EBITDA covenant. The Company was out of compliance with the minimum EBITDA covenant on its revolving line of credit for the quarters ended September 30, 2017, December 31, 2017, and March 31, 2018, but received waivers in October 2017, February 2018 and May 2018, respectively, for those periods from the Company’s lender. If the Company was unable to obtain the necessary waivers and the debt was accelerated, it would have a material adverse effect on the financial condition and future operating performance, and the Company would be required to limit activities. The Company was in compliance with all other covenants at June 30, 2018.

In July 2016, the previous minimum EBITDA covenant was replaced with a minimum debt service coverage ratio (measured quarterly on a trailing 12-month basis). The Company was out of compliance with the debt service coverage ratio for the quarters ended December 31, 2016, March 31, 2017 and June 30, 2017, but received waivers for those periods from the Company’s lender. The Company was in compliance with all other covenants during those prior year periods.

Long Term Debt

Long term debt comprises:

			June 30, 2018		June 30, 2017
			(in thousands except payment information)
Long term debt:
Note 1	(1	)	$	2,581	$	2,716
Note 2	(2	)		—		45
Note 3	(3	)		69		158
Note 4	(4	)		143		270
Note 5	(5	)		209		304
Note 6	(6	)		233		—
Total notes payable				3,235		3,493
Less: current maturities				—		(491	)
Total long term debt			$	3,235	$	3,002

⁽¹⁾

Note payable to a bank, secured by a deed of trust on property, payable monthly with principal payments of $11,270 plus interest, matures May 31, 2022, variable interest of 2.25% above LIBOR.

⁽²⁾

Note payable to a bank, secured by equipment, payable monthly with principal and interest payments of $6,535, matures November 1, 2018 at 3.75% interest.

⁽³⁾

Note payable to a bank, secured by equipment, payable monthly with principal and interest payments of $7,783, matures March 15, 2019 at 3.75% interest.

⁽⁴⁾

Note payable to a bank, secured by equipment, payable monthly with principal and interest payments of $11,267, matures July 1, 2019; at 3.90% interest.

⁽⁵⁾

Note payable to a bank, secured by equipment, payable monthly with principal and interest payments of $8,729, matures July 1, 2020; at 3.95% interest.

⁽⁶⁾

Note payable to a bank, secured by equipment, payable monthly with principal and interest payments of $9,701, matures August 20, 2020; at 4.25% interest.

In connection with the sale of the Wholesale Business on August 13, 2018, the Company paid off all obligations pursuant to its bank borrowings, and terminated its obligations thereunder.

Covenants

The bank borrowings contain usual and customary covenants, including, among others, limitations on incurrence of senior indebtedness, the making of loans and advances, investments, acquisitions, and capital expenditures, the incurrence of liens, and the consummation of mergers and asset sales. The loan maintains the minimum current assets to current liabilities ratio covenant (measured quarterly) and the maximum debt to effective tangible net worth ratio covenant (measured quarterly). When the line of credit was renewed on August 17, 2017, the previous debt service coverage ratio (measured quarterly on a trailing twelve-month basis) was replaced with a minimum quarterly EBITDA covenant. The Company was out of compliance with the minimum quarterly EBITDA covenant for quarters ended September 30, 2017, December 31, 2017, March 31, 2018 and June 30, 2018, but received waivers for those periods from the lender, with the exception of June 30 due to the full payoff of the outstanding facilities in August. The Company was in compliance with all other covenants at June 30, 2017 and June 30, 2018.

Capital Lease

In June 2017, the Company entered into a 72-month capital lease related to wine production equipment. The future lease commitments are $0.02 million per year for fiscal years 2019 through 2023.