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Note 6 - Long-term Debt and Notes Payable to Bank

6 Months Ended

Apr. 30, 2019

(6)

Long-term Debt and Notes Payable to Bank

The Company has credit facilities consisting of a real estate term loan, as amended and restated (the “Virginia Real Estate Loan”), a supplemental real estate term loan, as amended and restated (the “North Carolina Real Estate Loan”) and a Revolving Credit Note and related agreements (collectively, the “Revolver”).

Both the Virginia Real Estate Loan and the North Carolina Real Estate Loan are with Pinnacle Bank (“Pinnacle”), have a fixed interest rate of 3.95% and are secured by a first priority lien on all of the Company’s personal property and assets, all money, goods, machinery, equipment, fixtures, inventory, accounts, chattel paper, letter of credit rights, deposit accounts, commercial tort claims, documents, instruments, investment property and general intangibles now owned or hereafter acquired by the Company and wherever located, as well as a first lien deed of trust on the Company’s real property.

Long-term debt as of April 30, 2019 and October 31, 2018 consists of the following:

	April 30,		October 31,
	2019		2018
Virginia Real Estate Loan ($6.5 million original principal) payable in monthly installments of $31,812, including interest (at 3.95%), with final payment of $3,644,211 due May 1, 2024	$	4,677,934	$	4,774,252
North Carolina Real Estate Loan ($2.24 million original principal) payable in monthly installments of $10,963, including interest (at 3.95%), with final payment of $1,255,850 due May 1, 2024		1,612,140		1,645,332
Total long-term debt		6,290,074		6,419,584
Less current installments		265,541		260,954
Long-term debt, excluding current installments	$	6,024,533	$	6,158,630

The Revolver with Pinnacle provides the Company with a $7.0 million revolving line of credit for the working capital needs of the Company. Under the Revolver, Pinnacle provides the Company with one or more revolving loans in a collective maximum principal amount of $7.0 million. The Company may borrow, repay, and reborrow at any time or from time to time while the Revolver is in effect.

The applicable margin in the Revolver has a floor on the interest rate such that the rate will never be less than 2.50% per annum. The Revolver accrues interest at LIBOR plus 2.50% (resulting in a 5.0% rate at April 30, 2019). The Revolver is payable in monthly payments of interest only with principal and any outstanding interest due and payable at maturity.

On April 30, 2019, the Company entered into a Sixth Loan Modification Agreement with Pinnacle to modify the Credit Agreement dated April 26, 2016 entered into between the Company and Pinnacle and the term loans dated April 26, 2016. The Sixth Loan Modification Agreement extends the maturity date of the Revolver to June 30, 2020. Except as modified by the temporary waiver (as discussed below), all other terms of the Revolver remain unaltered and in effect.

The Revolver is secured by a perfected first lien security interest on all assets, including but not limited to, accounts, as-extracted collateral, chattel paper, commodity accounts, commodity contracts, deposit accounts, documents, equipment, fixtures, furniture, general intangibles, goods, instruments, inventory, investment property, letter of credit rights, payment intangibles, promissory notes, software and general tangible and intangible assets owned now or later acquired. The Revolver is also cross-collateralized with the Company’s real property.

The terms of OCC’s credit facilities with Pinnacle requires the Company to comply, on a quarterly basis, with specific financial covenants including a total liabilities to tangible net worth ratio. The Company is required to maintain a total liabilities to tangible net worth ratio of not more than 0.95 to 1.0. The ratio is calculated by dividing total liabilities, as defined in the loan agreements, by tangible net worth, as defined in the loan agreements. As of April 30, 2019, the Company had a total liabilities to tangible net worth ratio of 0.96 to 1.0 and, therefore, was not in compliance with the total liabilities to tangible net worth ratio covenant under its credit facilities.

Subsequent to the Company’s quarter end, Pinnacle provided a waiver of non-compliance of the total liabilities to tangible net worth ratio covenant for the quarter ended April 30, 2019.

As of April 30, 2019, the Company had $5.2 million of outstanding borrowings on its Revolver and $1.8 million in available credit. As of October 31, 2018, the Company had outstanding borrowings of $3.0 million on its Revolver and $4.0 million in available credit.