Debt

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Debt

Note 5. Debt

Working Capital Line of Credit

The Company entered into a $14,000,000 revolving line of credit with ACF Finco I, LP (“ACF”) on August 31, 2016, the proceeds of which were used to pay off the prior line of credit, pay new loan costs of approximately $309,000, and provide additional working capital to the Company. This facility was amended on November 18, 2016, June 19, 2017, October 16, 2017, September 19, 2018, November 8, 2018 and July 29, 2019. In the fourth amendment the term of this facility was extended to a term of 5 years and is subject to early termination by the lender upon defined events of default. The Company continues to be obligated to meet certain financial covenants.

The line of credit bears an interest rate equal to the greater of 3 Month LIBOR rate plus 6.25%, the Prime rate plus 3.0% or a fixed rate of 6.5% and is subject to the following terms:

● Borrowing is based on up to 85% of eligible accounts receivable plus the net orderly liquidation value of eligible inventory at the same rate, subject to certain defined limitations.

● The line is collateralized by substantially all the assets and property of the Company and is personally guaranteed by the stockholder of the Company.

● The Company is restricted to specified distribution payments, use of funds, and is required to comply with certain other covenants including certain financial ratios.

●  All cash received by the Company is applied against the outstanding loan balance.

●  A subjective acceleration clause allows ACF to call the note upon a material adverse change.

During the year ended December 31, 2018, the Company failed to meet certain financial covenants under the line of credit and as of June 30, 2019 was in violation of its fixed charge coverage ratio. The loan and security agreement dated September 19, 2018 was amended on July 29, 2019 (the “Fourth Amendment”). The Fourth Amendment waived the Company’s defaults of the financial covenants, revised certain financial covenants, confirmed the secured lender’s rights and resulted in a default interest rate of an additional 3%, effective August 1, 2019 until the default is cured.

The Company analyzed the line of credit modification under ASC 470-50-40-21 and determined that the modification did not trigger any additional accounting due to the revolving line of credit remaining unchanged

As of June 30, 2019, the line of credit bears interest rate of 8.77%.

As of June 30, 2019 and December 31, 2018, the line of credit had an outstanding balance of approximately $5,636,500 and $8,204,000, respectively.

John Keeler Promissory Notes

From January 2006 through May 2017, Keeler & Co issued an aggregate of $2,910,000 6% demand promissory notes to John Keeler, our Executive Chairman and Chief Executive Officer. As of June 30, 2019, $2,910,000 of principal remains outstanding and approximately $87,300 of interest was paid under the notes. These notes have been subordinated to the provider of the working capital line of credit and payment of these loans are restricted under this subordination agreement. After satisfaction of the terms of the subordination, the Company can prepay the notes at any time first against interest due thereunder. If an event of default occurs under the notes, interest will accrue at 18% per annum and if not paid within 10 days of payment becoming due, the holder of the note is entitled to a late fee of 5% of the amount of payment not timely made.

Current Portion of Long-Term Debt

As of June 30, 2019 and December 31, 2018, the current portion of long-term debt consisted of a note payable outstanding with Mercedes-Benz Financial Services (“MB Financial”). The Company entered into a loan agreement with MB Financial on November 30, 2014 to finance the purchase of an automobile. The loan bears interest at 5.56% per annum and requires monthly installments of approximately $3,000, inclusive of interest. The loan balance as of June 30, 2019 was $15,964 and matures on November 30, 2019.

Kenar Note

On March 26, 2019, the Company issued a four-month promissory note in the principal amount of $1,000,000 (the “Kenar Note”) to Kenar Overseas Corp., a company registered in Panama (the “Lender”) and controlled by a related party. The term of the note may be extended for an additional two months at the Lender’s discretion. The note bears interest at the rate of 18% per annum during the initial four months which rate will increase to 24% during any extension thereof. The note may be prepaid in whole or in part without penalty. John Keeler, the Company’s Executive Chairman and Chief Executive Officer pledged 5,000,000 shares of common stock to secure the Company’s obligations under the note.

Lobo Note

On April 2, 2019, the Company issued a four-month promissory note in the principal amount of $100,000 (the “Lobo Note”) to Lobo Holdings, LLC., a stockholder in the Company. The note bears interest at the rate of 18% per annum. The note may be prepaid in whole or in part without penalty. John Keeler, the Company’s Executive Chairman and Chief Executive Officer pledged 1,000,000 shares of common stock to secure the Company’s obligations under the note.