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 either the 30, 60 or 90 day London Inter-Bank Offered Rate (“LIBOR”) (1.19% and 0.81% for the 90 day LIBOR at May 31, 2017 and August 31, 2016, respectively) plus 1.75% and/or the bank’s reference rate (4% and 3.5% at May 31, 2017 and August 31, 2016, respectively). Borrowings are secured by substantially all of the assets of theCompany. . The line of credit agreement expires on March 1, 2019.

The amounts outstanding under this line of credit as of May 31, 2017 and August 31, 2016 were $6,515,000 and $0, respectively. Availability under the line of credit was $3,485,000 and $10,000,000 at May 31, 2017 and August 31, 2016, respectively.

The line of credit agreement contains certain covenants, including the maintenance of certain financial ratios. As of May 31, 2017 and August 31, 2016, 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. 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 (Note 5). The loan is for three years and bears interest at the bank’s reference rate (1.79% at May 31, 2017) plus 1.70%. At May 31, 2017, the outstanding balance of this loan was $5,400,000.