Debt

3 Months Ended

Dec. 31, 2020

Debt Disclosure [Abstract]

Debt

Debt

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 was payable in seven semi-annual installments of principal and interest with the first payment occurring June 30, 2020. In connection with the $1.5 million payment received in the first fiscal quarter of 2021 from the promissory note receivable, the Company fully repaid the remaining $1.2 million of principal outstanding under this loan.

Credit Agreement

The Company has a $4.0 million revolving line of credit agreement with its primary financial lender, which matures on December 17, 2021. The line of credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime Rate, floating (3.25% at December 31, 2020), with the addition of a 4% floor rate and a fixed charge coverage ratio of 1.25 to be tested quarterly beginning June 30, 2021. At December 31, 2020, there was $2.8 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 60% of eligible Telco segment inventory. Under these limitations, the Company’s total line of credit borrowing capacity was $4.0 million at December 31, 2020.

Loan Covenant with Primary Financial Lender

The credit agreement provides 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 to be tested quarterly beginning June 30, 2021. The Company believes that it is probable that it will not be in compliance with this covenant as of the measurement date at June 30, 2021. 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

On April 14, 2020, the Company received a SBA Payroll Protection Program (“PPP”) loan pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), with its primary lender for $2.9 million. The PPP loan bears interest at 1% per annum, with monthly payments of principal and interest in the amount of $164,045 commencing on November 10, 2020, and matures on April 10, 2022. However, the Company has applied for forgiveness in accordance with the terms in the CARES Act, and our lender has not required repayments while under consideration for forgiveness. The Paycheck Protection Program provides that the PPP loan may be partially or fully forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company has applied for forgiveness of the PPP loan in accordance with the requirements and limitations under the CARES Act, the PPP Flexibility Act and SBA regulations and requirements.

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.