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Note F - Debt
 3 Months Ended
Sep. 30, 2025
Notes to Financial Statements  
Debt Disclosure [Text Block]

F. Debt

 

We have had a credit line with Wells Fargo Bank, N.A (“Wells Fargo”) for many years. The credit line has been amended, modified, and extended several times, most recently on June 20, 2025, when we entered into a Sixth Amendment to Credit Agreement.  The Sixth Amendment waived all prior instances of non-compliance and preemptively waived anticipated non-compliance with covenants in the quarter ending June 30, 2025. The amended Credit Agreement extended the credit line to December 31, 2026, decreased the maximum principal amount that can be borrowed from $12.5 million to $10.0 million, increased the interest rate on borrowing under the line of credit to 3.25% above the applicable Secured Overnight Financing Rate ("SOFR") base rate, increased the unused commitment fee to 0.375%, and added the Company’s powder processing facility in Carlsbad, California as security for the amended Credit Agreement. Our obligations under the Credit Agreement are also secured by our accounts receivable and other rights to payment, general intangibles, inventory, equipment, and fixtures.

 

The Sixth Amendment also included modifications to our covenants under the Credit Agreement, including (i) net loss not greater than $250,000 for the first quarter of fiscal 2026, a net loss not greater than $750,000 for the first half of fiscal 2026, and net income of at least $1.00 on a year to date basis starting with the third quarter of fiscal 2026 and each fiscal quarter thereafter; (ii) fixed charge coverage ratio calculated on a rolling 4-quarter basis of not less than 1.0 to 1.0 for the first quarter of fiscal 2026 and not less than 1.25 to 1.0 for the second fiscal quarter of 2026 and all quarters thereafter. We also paid an extension fee of $20,000 upon execution of the Sixth Amendment.

 

Amounts outstanding are subject to a fluctuating interest rate and may be prepaid at any time.

 

We have a Term Note with Wells Fargo we entered into on August 16, 2021 to borrow part of the purchase price of our powder processing and warehouse property in Carlsbad, California.  The Term Note is secured by a first mortgage on that property.  The Term Note was in the original principal amount of $10.0 million and is a seven-year note with payments fully amortized based on a twenty-five year assumed term. Installment payments under this term loan commenced October 1, 2021 and continue through August 1, 2028 with a final installment due September 1, 2028, consisting of all remaining amounts due. Amounts outstanding on this note during the term of the agreement bear interest at the rate of 1.8% above the SOFR rolling 30-day average.

 

We also have credit approval with Wells Fargo Bank, which allows us to hedge foreign currency exposures up to 12 months in the future, and we have credit approval with Bank of America which allows us to hedge foreign currency exposures up to 24 months in the future.

 

As of September 30, 2025, we had $8.9 million outstanding under the Term Note used in August 2021 for the purchase of our Carlsbad, California powder processing and warehouse property.

 

For the quarter ended September 30, 2025, we were not in compliance with the maximum net loss and fixed charge coverage ratio covenants of our credit agreement. We also anticipate we will not be able to comply with all of the covenants required under the modified Credit Agreement in the second quarter of fiscal 2026, primarily related to the impact on the fixed charge coverage ratio calculation due to the unexpected recognition of litigation expense and valuation allowance on our net deferred tax assets during the fourth quarter of fiscal 2025. We have advised our lender and are currently negotiating a potential revision to our credit agreement. There can be no assurance we will be able to successfully complete the negotiation of a revised credit facility, or what the differences in amount, cost and other factors may be.

 

As of  September 30, 2025, we had $10.0 million of maximum borrowing capacity available on our credit facility and outstanding borrowings were $2.5 million.