Note 8 - Bank Loan

12 Months Ended

Sep. 30, 2019

Debt Disclosure [Text Block]

NOTE

–

BANK L

OAN

November 2012,

the Company obtained a

$250,000

line of credit from a bank. On

August 26, 2014,

the bank increased the Company’s existing bank line of credit from

$250,000

$750,000

and extended the term of the line of credit. The line of credit was secured by a priority security interest in the Company’s inventory and accounts receivable and matured on

November 7, 2015.

December 3, 2015,

the Company entered into a new loan agreement with the Bank under which it obtained a term loan in the amount of

$711,376.

The Company utilized proceeds of the new loan to repay its line of credit. The loan is for a term of

five

years and matures on

December 3, 2020.

As of

September 30, 2019,

the loan balance was

$494,370.

During the term of the loan, the Company has agreed to make equal

monthly

repayments of principal and interest of

$6,967

commencing

January 3, 2016

and to make a final payment on

December 3, 2020

of the outstanding balance of the interest and principal then due, estimated to be approximately

$425,539.

Early repayment of amounts due under the loan will

not

affect the monthly repayment amount, unless otherwise agreed to by the bank.

An event of default under the loan will occur upon the occurrence of any of the following events:

●

the Company fails to make any payment when due under the loan;

●

the Company fails to comply with any term, obligation, covenant or condition in the loan documents or any other agreement between the bank and the Company:

●

the Company defaults under any loan, extension of credit, security agreement, purchase or sales agreement or other agreement with any creditor that materially affects the Company’s property or its ability to repay the note or perform its obligation under the note or related documents;

●

a warranty, representation or statement made to the bank under the loan document is or becomes materially false or misleading;

●

the dissolution or termination of the Company’s existence, or its insolvency, the appointment of a receiver for any part of its property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding

●

the commencement of foreclosure or forfeiture proceedings by any creditor or any governmental agency against any collateral securing the loan;

●

any of the preceding events occurs with respect to any loan guarantor;

●

25%

or more change in the ownership of the Company’s common stock;

●

a material adverse change in the Company’s financial condition, or the bank believes the prospect of payment or performance of the loan is impaired; or

●

the bank in good faith believes itself insecure.

The loan agreements contain certain affirmative covenants, including an obligation to: notify the bank of a material adverse change in the Company’s financial condition and of any threatened litigation or claim or other proceeding which could materially affect the Company’s financial condition; maintain certain liability insurance in amounts acceptable to the bank; maintain qualified executive and management personnel; comply with applicable environmental laws and perform environmental studies required by the bank; and certify annually to the bank compliance with the representations and warranties in the bank loan documents. The loan agreements contain certain other customary covenants and conditions.

In addition, the loan agreements contain certain negative covenants, including that the Company will

not,

without the bank’s consent:

●

incur any indebtedness other than to the bank or for trade debt incurred in the ordinary course;

●

sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of its assets, except for permitted liens;

●

sell its accounts receivable, except to the bank;

●

engage in business activities substantially different from the Company’s current activities;

●

cease operations, liquidate, merge, transfer, acquire or consolidate with another entity, change the Company’s name, dissolve, or sell the inventory or accounts receivable secured under the loan;

●

pay any dividend other than in stock;

●

lend money, invest or advance money or assets to another person or entity;

●

purchase, create or acquire an interest in any other entity;

●

incur any obligation as a surety or guarantor other than in the ordinary course; or

●

enter into any agreement containing any provision which would be violated or breached by the performance of the Company’s obligations under the loan agreements.

Interest under the loan is variable and is based upon the Wall Street Journal Prime rate, currently

5.25%

per annum. In the event of a default, interest under the loan

may

be increased by

2%.

The loan is for a term of

five

years and matures on

December 3,

2020.The

term loan is secured by a priority security interest in the Company’s inventory and accounts receivable and has been guaranteed by our CEO. Also, all claims due from the Company to Mr. Shrewsbury are subordinate to the bank’s indebtedness, including under the Consolidated Note and any advances due to Mr. Shrewsbury. Interest paid on the loan for the years ended

September 30, 2019

and

2018

were

$28,928

and

$27,262,

respectively.

TX Holdings, Inc. 10-K