NOTE 7 – COMMITMENTS AND CONTINGENCIES



Operating leases:  The Company leases land, buildings and equipment under operating leases with original terms from 1 to 5 years.  Total rent expense was $474,000 and $620,000 in 2017 and 2016, respectively.  At December 31, 2017, the Company was obligated under non-cancelable operating leases to make minimum annual future lease payments as follows:





Long-term debt:  The mortgage on the Company’s headquarters building was payable in monthly installments and carried an interest rate of 6.83%.  The mortgage matured on March 1, 2016 and the Company made payments totaling $104,000 in the first quarter of 2016 to fully settle the liability. The mortgage was secured by the building.



Line of credit:  The Company has a $15,000,000 credit facility from Wells Fargo Bank.  The Company had no outstanding borrowings against the credit facility at December 31, 2017 and 2016.  Due to the revolving nature of loans under our credit facility, additional borrowings and periodic repayments and re-borrowings may be made until the maturity date. The total amount available for borrowings under this credit facility at December 31, 2017 was $10,080,000, based on the borrowing base calculation. Interest on borrowings on the credit facility is at LIBOR plus 2.0% (3.6% at December 31, 2017). The credit agreement expires August 12, 2021 and is secured by assets of the Company. The credit agreement contains financial covenants including a minimum liquidity balance of $10,000,000. Liquidity is defined as the sum of unrestricted cash, marketable securities and the availability on the line of credit.

As of December 31, 2017, the Company had no other material commitments (either cancelable or non-cancelable) for capital expenditures or other purchase commitments related to ongoing operations.



Long-term compensation plans:  The Company has a long term incentive plan that provides long-term competitive compensation to enable the Company to attract and retain qualified executive talent and to reward employees for achieving goals and improving company performance. The plan provides grants of “performance units” made at the beginning of performance periods and paid at the end of the period if performance goals are met. Awards were previously made every other year and are paid following the end of the cycle with annual vesting.  Payment in the case of retirement, disability or death will be on a pro rata basis.  The Company recognized (income)/expense of  $(5,000) and $16,000 in 2017 and 2016, respectively.  Accrual balances for long-term compensation plans at December 31, 2017 and 2016 were $11,000 and $16,000, respectively. There were no award payouts in 2017 and 2016. Awards for 2015 to 2017 cycles will be paid out 100% in stock. Awards under the 2016 to 2018 and 2017 to 2019 plans will be paid out 50% in cash and 50% in stock. The stock portion of these awards are treated as equity plans and included within the Stock Compensation footnote within the Deferred Stock Outstanding section below.



Other contingencies:  In the ordinary course of business, the Company is exposed to legal actions and claims and incurs costs to defend against these actions and claims.  Company management is not aware of any outstanding or pending legal actions or claims that would materially affect the Company’s financial position, results of operations, or cash flows.