6. Debt

The following table sets forth the items which comprise debt for the Company:




	December 31,		December 31,
	2019		2018
Revolving line of credit	$	1,274,299	$	2,025,592

Total term notes payable, net of issuance costs	$	3,557,458	$	3,946,878
Less current portion, net		3,557,458		389,420
Term notes payable, non-current, net		—		3,557,458

Subordinated notes payable, non-current, net		470,152		—
Total long term debt, net		3,636,819		3,557,458

Total short and long term debt, net	$	5,301,909	$	5,972,470

Bank Debt

On December 29, 2017, the Company entered into a three-year $9,500,000 Credit and Security Agreement (the “credit agreement”) with a Massachusetts trust company, replacing the credit facility and forbearance agreement with the Company’s previous lender. The credit agreement also provided funds with which to discharge existing subordinated promissory notes.

The credit agreement includes a revolving line of credit of up to $5.0 million (“Revolver”), a machinery and equipment term note of $2.5 million (“Equipment Loan”) and a real estate term note of $2.0 million (“Real Estate Loan” and together with the “Equipment Loan” the “Term Loans”).

Revolver

The Revolver allows for interest only payments during the term of the facility with the full principal outstanding balance to be paid upon maturity on December 29, 2020. Interest on all borrowings from the Revolver shall be equal to the Wall Street Journal prime rate (“Prime Rate”) plus 0.5%. In lieu of having interest charged at the Prime Rate, the Company shall have the option, on the last day of each month, (the “LIBOR Option”) to have interest charged at a rate of interest equal to the daily one-month LIBOR plus 3.25% for the following month. The interest rate will automatically convert back to the Prime Rate at the beginning of the next month unless the Company elects the LIBOR Option for the next month. The interest rate was 4.94% and 5.59% at December 31, 2019 and at December 31, 2018, respectively.

The Revolver carries a provision for a quarterly unused facility fee equal to 0.25% per annum of the average daily undisbursed face amount of the Revolver during the three months immediately preceding the applicable due date and has no prepayment penalty. The credit agreement provides for a daily sweep of cash balances against the balance of the Revolver. Availability to borrow under the Revolver is based on conditions defined in the credit agreement and amounts to approximately $810,000 at December 31, 2019.

Term Loans

The Equipment Loan requires monthly principal payments of approximately $29,762, payable on the first day of each month commencing February 1, 2018. The Equipment Loan is based upon an 84 month amortization with a balloon payment of approximately $1,458,333 due and payable in full upon maturity on December 29, 2020.

The Real Estate Loan requires monthly principal payments of approximately $8,333, payable on the first day of each month commencing February 1, 2018. The Real Estate Loan is based upon a 240 month amortization with a balloon payment of approximately $1,708,333 due and payable in full upon maturity on December 29, 2020.

Interest on the Term Loans shall be at such Wall Street Journal prime rate plus 0.75%. In lieu of having interest charged at the Prime Rate, the Company shall have a LIBOR Option, as described above, to have interest charged at a rate of interest equal to the daily one-month LIBOR plus 3.5% for the following month. The interest rate was 5.19% and 5.84% at December 31, 2019 and at December 31, 2018, respectively.

All interest will be calculated based upon a year of 360 days for actual days elapsed. All interest will accrue from the Closing Date and will be payable monthly in arrears. Upon the occurrence and during the continuation of an Event of Default, all interest will be increased by 2% above the per annum rate otherwise applicable thereto. The Term Loans carry a prepayment penalty with respect to the prepayment of any portion of either Term Loan.

This credit agreement contains covenants related to various matters including certain financial covenants, prohibitions on further borrowings and security interests, merger or consolidation, acquisitions, guarantees, sales of assets other than in the normal course of business, leasing, and payment of dividends. The lender has a security interest in all assets and a mortgage encumbering certain real property.

On March 7, 2019, the Company entered into the First Amendment to the Credit and Security Agreement in which the quarterly debt service coverage ratio measurement requirements for 2019 were amended. On August 6, 2019 the Company entered into the Second Amendment to the Credit and Security Agreement which consented to the sale of property (see Note 5) and to private placement loans in the form of subordinated promissory notes (see below). On August 19, 2019 the Company entered into the Third Amendment to the Credit and Security Agreement in which the debt service coverage ratio requirements for Q219 and Q319 were removed. On March 12, 2020 the Company entered into the Fourth Amendment to the Credit and Security Agreement in which the debt service coverage ratio requirement for Q419 was removed, the debt service coverage ratio for the first three quarters of 2020 was amended, and any noncompliance with the debt service coverage ratio for Q419 was waived.

Other debt

Subordinated promissory notes

In June 2019, the Company initiated a private offering to raise up to $500,000 through the sale of subordinated promissory notes (the “Notes”). The subscription for $500,000 was completed on July 5, 2019. The Notes bear interest on the unpaid principal at a simple annual interest rate equal to 10% per annum from the date of issuance. Interest only is payable in cash on a quarterly basis. The Notes mature on July 5, 2022. Each investor entered into a Subordination Agreement providing that the indebtedness pursuant to the Notes shall be subordinated to all indebtedness of the Company pursuant to its existing credit agreement.

For every $50,000 in principal invested in the notes, each investor received a warrant to purchase 10,000 shares of common stock (collectively, the “Warrants”, see Note 10). The Warrants are exercisable at an exercise price equal to $2.90 per share, namely, the average closing market price of the Company’s common stock on the fifteen days prior to the date of the Warrant, plus 12%. The Warrants contain standard provisions relating to anti-dilution adjustments for stock splits and recapitalizations. The Warrants also provide the investors with standard piggy-back registration rights in the event the Company files a registration statement (other than a registration statement on Form S-4 or S-8) to register the shares of common stock subject to standard limitations in the discretion of any underwriter.

In order to account for the subordinated notes payable and warrants, the Company allocated the proceeds between the notes and warrants on a relative fair value basis. As a result, the Company allocated $464,182 to the notes and $35,818 to the warrants. The total discount on the notes is being recognized as non-cash interest expense over the term of the notes. As of December 31, 2019, there was $5,970 in non-cash interest expense recorded related to the amortization of the discount.

Related parties participated in the private offering as follows:


Jason Chambers, Director	$	50,000
Rodd Friedman, Director	$	100,000
Andrei Soran. Director	$	50,000

Future maturities of term debt

Future maturities of term debt for the years ending December 31 are as follows:



	2020		2021		2022		2023		2024		Thereafter	Total
Term loans		3,623,809		—		—		—		—	—		3,623,809
Subordinated promissory notes		—		—		500,000		—		—	—		500,000