Note 2

3 Months Ended

May 31, 2016

Note 2 – Debt consists of the following:

	2016
	May 31,			February 29,

Line of credit	$	5,918,700		$	3,331,800

Long-term debt	$	18,153,200		$	18,302,800
Less current maturities		(615,400	)		(615,400	)
LONG-TERM DEBT-NET OF CURRENT MATURITIES	$	17,537,800		$	17,687,400

We have a Loan Agreement with MidFirst Bank (“the Bank”) including Term Loan #1 comprised of Tranche A of $13.4 million and Tranche B of $5.0 million both with the maturity date of December 1, 2025. The Loan Agreement also provided a $4.0 million revolving loan (“line of credit’) through December 1, 2016. Effective March 10, 2016, we signed a First Amendment Loan Agreement with the Bank which provides an increase to $6.0 million from our original $4.0 million line of credit through December 1, 2016. Tranche A has a fixed interest rate of 4.23% and interest is payable monthly. For Tranche B and the line of credit, interest is payable monthly at the bank adjusted LIBOR Index plus 2.75% (3.207% at May 31, 2016). Term Loan #1 is secured by the primary office, warehouse and land.

We had $5,918,700 in borrowings outstanding on our revolving credit agreement at May 31, 2016 and $3,331,800 in borrowings at February 29, 2016. Available credit under the revolving credit agreement was $81,300 at May 31, 2016.

Effective June 15, 2016, we signed a Second Amendment Loan Agreement with the Bank which provides a further increase to $7.0 million from our previous $6.0 million line of credit and extends it through June 15, 2017. Under the amendment, interest is payable monthly at a tiered rate based on our funded debt to EBITDA ratio (“ratio”), whereby pricing tier one is effective for a ratio greater than 4.00 and has a bank adjusted LIBOR Index plus 3.25% and pricing tier two applies for a ratio less than or equal to 4.00, with a bank adjusted LIBOR Index plus 2.75%. EBITDA is defined as earnings before interest expense, income tax expense (benefit) and depreciation and amortization expenses.

Effective June 28, 2016, we signed a Third Amendment Loan Agreement with the Bank which includes Term Loan #2 in the amount of $4.0 million with the maturity date of June 28, 2021, and interest payable monthly at the bank adjusted LIBOR Index plus 2.75%. Term Loan #2 is secured by a warehouse and land.

The Loan Agreement also contains a provision for our use of the Bank’s letters of credit. The Bank agrees to issue, or obtain issuance of commercial or stand-by letters of credit provided that no letters of credit will have an expiry date later than December 1, 2016, and that the sum of the line of credit plus the letters of credit would not exceed the borrowing base in effect at the time. The agreement contains provisions that require us to maintain specified financial ratios, restrict transactions with related parties, prohibit mergers or consolidation, disallow additional debt, and limit the amount of compensation, salaries, investments, capital expenditures and leasing transactions. For the quarter ended May 31, 2016, we had no letters of credit outstanding. At May 31, 2016, we were in violation of a certain covenant for which we received a waiver from the Bank through August 31, 2016.