Page 29 - Apple Supply Chain Co-op Inc. 2016 Annual Report.

APPLE SUPPLY CHAIN CO-OP, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015

NOTE 4 – MEMBER NOTES RECEIVABLE

During 2015, the Co-op’s Board of Directors authorized a Co-op Member Equipment Financing Program
relative to a system wide rollout of wood assist broiler equipment. The financing program provides that a
member of the Co-op may elect to finance the purchase of the specified equipment under the terms of an
Equipment Obligation Agreement. The Co-op funds each participating member’s equipment purchases.
The Co-op is repaid for the cost of the equipment plus interest at a rate of LIBOR plus 2.85%. The cost of
the financed equipment plus interest will be repaid to the Co-op via per case surcharge on all cases of
products purchased through a distributor. If a distributor cannot accommodate the surcharge, the member
must repay the Co-op via monthly Automated Clearing House payments. Under terms of the Equipment
Obligation Agreement, the balances are due in full on December 31, 2017. The current portion of member
notes receivable is determined in accordance with repayment terms.

Member notes receivable consists of the following:

2016 2015

Member notes receivable $ 1,680,571 $ 825,475

Less current portion of member notes receivable (1,654,956) (404,467)
Less loan loss reserve (25,615) (8,273)

Long-term member notes receivable $ - $ 412,735

Interest income was $96,585 and $10,697 for the years ended December 31, 2016 and 2015, respectively.

NOTE 5 – LONG-TERM DEBT

On December 11, 2015 the Co-op entered into a $4,400,000 multiple advance term loan credit agreement
with its primary bank which expires on December 11, 2018. Advances under the credit agreement were
used to fund the Co-op Member Equipment Financing Program mentioned in Note 4. Outstanding
borrowings under the credit agreement bear interest at LIBOR plus 2.85%, paid monthly. The principal of
each advance under the credit agreement shall be repaid monthly over a twenty-four month period. The
credit agreement contains restrictive financial covenants related to tangible net worth and debt service
coverage ratio. At December 31, 2016 the Co-op was in compliance with these loan covenants. The line of
credit is secured by substantially all assets of the Co-op and is partially guaranteed by the franchisor.

Long-term debt consists of the following:

2016 2015

Outstanding borrowings $ 1,937,565 $ 1,500,000

Less current maturities of long-term debt (1,662,565) (750,000)

Long-term debt $ 275,000 $ 750,000

Interest expense was $94,032 and $1,988 for the years ended December 31, 2016 and 2015, respectively.

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