NOTE 6 - NOTES PAYABLE AND LONG-TERM DEBT

The Company’s credit agreement, which was effective on April 9, 2015 with a commercial bank and subsequently amended on June 20, 2016 (“Credit Agreement”), provides for a $9.0 million line of credit facility, the proceeds of which may be utilized as follows: (i) $4.0 million for working capital, letters of credit (up to $1.0 million) and general corporate purposes and (ii) $5.0 million for acquisitions. Indebtedness under the Credit Agreement is secured by the Company’s accounts receivable and inventory with advances outstanding under the working capital portion of the credit facility at any time limited to a Borrowing Base (as defined in the Credit Agreement) equal to 80% of eligible accounts receivable plus 50% of eligible inventory. Advances under the acquisition portion of the credit facility are limited to 75% of the purchase price of an acquired company and convert to a five-year term note. Borrowings bear interest at WSJ Prime (for the working capital line) and WSJ Prime plus 0.25% (for the acquisition line) with a floor of 3.0%. The interest rates, which were the same as of September 30, 2016 and June 30, 2016 were approximately 3.5% (for the working capital line) and 3.75% (for the acquisition line). The Company pays a fee of 0.25% per annum on the unused amount of the line of credit.

At September 30, 2016, long-term debt consisted of the following (in thousands, unaudited):

Non-interest bearing, unsecured note payable assumed in acquisition (See Note 13), 27 monthly payments of $6,955; maturing September 2018.	$	166

Term loan, bearing interest at 3.75%, monthly payments of $50,000; maturing July 2021.		3,000

Total long-term debt		3,166
Less: current portion		783
Long-term debt, net of current portion	$	2,383

As of September 30, 2016, the Company also had $0.3 million in letters of credit. The Company’s availability under its credit facilities is currently approximately $5.7 million ($3.7 million for the working capital and $2.0 million for the acquisitions).

The Credit Agreement contains affirmative and negative covenants that, among other things, require the Company to maintain a minimum level of tangible net worth of $7.0 million, minimum liquidity of $6.0 million and a minimum debt service coverage ratio of not less than 1.15 to 1.00. The Credit Agreement, which expires on April 9, 2018, also contains customary events of default which, if uncured, may terminate the Credit Agreement and require immediate repayment of all indebtedness to the lenders. At September 30, 2016, the Company was in compliance with all the financial covenants under the Credit Agreement except the minimum debt service coverage ratio. A waiver was granted by the lender to the Company to cover the three months ended September 30, 2016. In addition the lender agreed to revise the calculation of the debt service coverage ratio via an amendment executed in November 2016. With this amendment, the Company expects to be in compliance with all amended covenants for at least one year from the balance sheet date in this quarterly report.

Payments due on long-term debt during each of the five years subsequent to September 30, 2016 are as follows (in thousands, unaudited):

Year Ending September 30,
2017	$	783
2018		683
2019		600
2020		600
2021		500
	$	3,166