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DEBT | Note 5. DEBT
Total debt outstanding as of September 30, 2024 is $24,976,000 and was $23,310,000 at December 31, 2023.
Current credit facilities and finance lease obligations consist of the following:
Current Credit Facility
The Company has a credit facility (“Current Credit Facility”) with Webster Bank that expires on December 30, 2025. This facility, which was entered into on December 31, 2019, was amended several times (see summary of amendments below), and now provides for a $20,000,000 revolving loan (“Revolving Line of Credit”) and a $5,700,000 term loan (“Term Loan”). The loan is secured by a lien on substantially all of the assets of the Company.
As discussed in Note 1, the Company was in compliance with a required covenant as of September 30, 2024. However, there is no assurance that the Company will be able to meet its financial covenants in one of the upcoming fiscal quarters over the next twelve months, therefore, in accordance with the guidance in ASC 470-10-45, related to the classification of callable debt, the entire term loan has been classified as short term as of September 30, 2024.
The below table shows the timing of payments due under the Term Loan:
Interest expense related to the Current Credit Facility amounted to approximately $332,000 and $380,000 for the three months ended September 30, 2024 and 2023, respectively, and $980,000 and $1,084,000 for the nine months ended September 30, 2024 and 2023, respectively. Interest expense includes the amortization of deferred finance costs of $17,000 and $17,000 for the three months ending September 30, 2024 and 2023, respectively, and $51,000 and $51,000 for the nine months ending September 30, 2024 and 2023, respectively.
The below summarizes various terms of the Current Credit Facility (all of which are described in full in various SEC filings):
The below summarizes certain historical amendments to the Current Credit Facility
All amendment fees paid in connection with the Current Credit Facility that are for a future benefit of the Company are included in Deferred Financing Costs, Net, Deposits and Other Assets, in the accompanying consolidated balance sheets and are amortized over the term of the loan.
As of September 30, 2024, the amount outstanding under the Company’s Revolving Line of Credit was $11,437,000, leaving $8,563,000 of availability to support the Company’s growth, subject to having the requisite collateral and maintaining compliance with the terms of the Credit Facility.
Solar Credit Facility
On August 16, 2023, the Company entered into a financing agreement (“Solar Credit Facility”) with CT Green Bank, a quasi-public agency of the State of Connecticut, for the installation of solar energy systems including replacing the existing roof (“Project”) at its Sterling facility. Advances are made by CT Green Bank upon its approval of costs incurred on the Project up to $934,000. As of September 30, 2024, cumulative advances totaling $899,000 had been made including the payment of CT Green Bank’s closing costs of $25,000. Interest accrues at the rate of 5% on advances and is added to the loan upon conversion to a term loan.
On October 1, 2024, final disbursements were made on the financing arrangement in the amount of $35,000, bringing the cumulative advances to $934,000. The total cumulative advances along with the total accrued interest in the amount of $36,000 as of October 1, 2024 was converted by CT Green Bank, in accordance with the financing agreement, to a 20-year level payment term loan in the amount of $970,000 with interest accruing at the rate of 5.75%. Semi-annual payments in the amount of $42,000 are due commencing on July 1, 2025. The first semi-annual payment will be for interest only, subsequent semi-annual payments beginning with the payment due on January 1, 2026 will include both principal and interest. As of September 30, 2024, the amount classified as long term is $899,000 and the amount classified as current is $0.
Interest expense related to the Solar Credit Facility amounted to approximately $11,000 and $1,000 for the three months ended September 30, 2024 and 2023, respectively, and $30,000 and $1,000 for the nine months ended September 30, 2024 and 2023, respectively.
Finance Lease Obligations
The Company has entered into finance leases for the purchase of additional manufacturing equipment. The obligations for the finance leases totaled $1,061,000 and $884,000 as of September 30, 2024 and December 31, 2023, respectively. The leases have an average imputed interest rate of 7.44% per annum and are payable monthly with the final payments due between September of 2026 and May of 2030.
As of September 30, 2024, the aggregate future minimum , including imputed interest are as follows:
Loan Payable – Financed Asset
The Company financed the purchase of a delivery vehicle in July 2020. The loan obligation totaled $16,000 and $22,000 as of September 30, 2024 and December 31, 2023, respectively. The loan bears no interest and a final payment is due and payable for all unpaid principal on July 20, 2026.
The future minimum loan payments are as follows:
Related Party Subordinated Notes Payable
Taglich Brothers, Inc. is a corporation co-founded by two directors of the Company, Michael and Robert Taglich. Taglich Brothers, Inc. has acted as placement agent for various debt and equity financing transactions and has received cash and equity compensation for their services.
From 2016 through 2020, the Company entered into various subordinated notes payable and convertible subordinated notes payable (together referred to as “Related Party Notes”) with Michael and Robert Taglich which generated proceeds to the Company totaling $6,550,000. In connection with these notes, Michael and Robert were issued a total of 35,508 shares of common stock and Taglich Brothers Inc. was issued promissory notes totaling $554,000 for placement agency fees.
The Related Party Notes outstanding as of the notes of September 30, 2024 and December 31, 2023 consist of:
Of the $6,162,000, approximately $2,732,000 bears an annual rate of interest of 6%, $2,080,000 bears an annual rate of 7% and $1,350,000 bears an annual interest rate of 12%. Interest expense for the three months ended September 30, 2024 and 2023 on all related party subordinated notes payable was $118,000 and $118,000, respectively, and $354,000 and $354,000 for the nine months ended September 30, 2024 and 2023, respectively.
Approximately $2,732,000 of the convertible subordinated notes can be converted at the option of the holder into Common Stock of the Company at $15.00 per share, while the remaining $2,080,000 of the convertible subordinated notes can be converted at the option of the holder into common stock of the Company at $9.30 per share. The remaining $1,350,000 is not convertible. There are no principal payments due prior to July 1, 2026.
The Related Party Notes are subordinate to outstanding debt pursuant to the Current Credit Facility and mature on July 1, 2026. The Company is allowed, subject to certain limitation, to make principal payments of $250,000 to reduce the principal of the outstanding Related Party Subordinated Notes.
For the three and nine months ended September 30, 2024 and 2023, no principal payments have been made on these notes. |