Note 8 - Notes Payable and Line of Credit

6 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

8

– Notes Payable and Line of Credit

Loan Agreement

On

March 10, 2020,

the Company entered into a loan agreement with its primary financial lender for

$3.5

million, bearing interest at

6%

per annum.  The loan is payable in

seven

semi-annual installments of principal and interest with the

first

payment due

June 30, 2020,

and the final payment due

June 30, 2023.   

Payment of the loan

may

be accelerated in the event of a default.  The principal and interest payments correlate to the promissory note with Leveling

8

(see Note

4

). The loan is secured by substantially all of the assets of the Company, including, without limitation, the promissory note that the Company received in connection with the sale of its cable segment in

2019

to Leveling

8,

Inc. (see Note

4

).

Credit Agreement

The Company has a

$4.0

million revolving line of credit agreement with its primary financial lender, which matures on

December 17, 2020. 

The line of credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime Rate (

4.25%

at

March 31, 2020),

and the interest rate is reset monthly.  At

March 31, 2020,

there was

$3.5

million outstanding under the line of credit. Future borrowings under the line of credit are limited to the lesser of

$4.0

million or the sum of

80%

of eligible accounts receivable and

25%

of eligible Telco segment inventory. Under these limitations, the Company’s total line of credit borrowing capacity was

$3.6

million at

March 31, 2020.

Loan Covenant with Primary Financial Lender

Both the

March 10, 2020

loan agreement and line of credit agreement provide that the Company maintain a fixed charge coverage ratio (net cash flow to total fixed charge) of

not

less than

1.25

to

1.0

measured annually.  The Company believes that it is probable that it will

not

be in compliance with this covenant as of the measurement date of

September 30, 2020.

The noncompliance with this covenant would result in an event of default, which if

not

cured or waived, could result in the lender accelerating the maturity of the Company’s indebtedness or preventing access to additional funds under the line of credit agreement, or requiring prepayment of outstanding indebtedness under the loan agreement or the line of credit agreement.

Paycheck Protection Program Loan

Subsequent to

March 31, 2020,

the Company applied and received a SBA Payroll Protection Program (“PPP”) loan with its primary lender for

$2.9

million, bearing interest at

1%

per annum, with monthly payments of principal and interest in the amount of

$164,045

commencing on

November 10, 2020. 

The loan matures on

April 10, 2022. 

In the event certain conditions of the PPP loan, which are still being finalized by the SBA and Congress, are satisfied by the Company, the loan, or a portion thereof, will be forgiven.

Fair Value of Debt

The carrying value of the Company’s variable-rate line of credit approximates its fair value since the interest rate fluctuates periodically based on a floating interest rate.  The carrying value of the Company’s term debt approximates fair value.