Long-term debt, net.

9 Months Ended

Sep. 30, 2024

Long-term debt, net.

Long-term debt, net.

9. Long-term debt, net.

The components of debt consisted of the following at:

	September 30, 2024
Credit Agreement - term loan	$	17,550,000
Notes payable		12,750,000
Credit Agreement - revolving credit facility		5,991,000
Paid in kind interest (PIK)		928,000
Machinery financing loan (1)		156,000
	$	37,375,000
Less: unamortized debt issuance costs		(334,000	)
Total debt	$	37,041,000
PIK included in accrued expenses and other current liabilities		(160,000	)
Less current maturities		(2,271,000	)
Long term debt, net of current maturities	$	34,610,000

(1) In the three months ended September 30, 2024, the Company entered into a financing arrangement to finance the purchase of machinery. This transaction represented a failed sale leaseback with the associated equipment recorded in property and equipment, net and the proceeds received recorded as debt on the Company’s condensed consolidated balance sheet.

To finance the Bloomia acquisition, the Company entered into a revolving credit and term loan agreement (the “Credit Agreement”), with Tulp 24.1 as the borrower (the “Borrower”) for a $18,000,000 term loan and a $6,000,000 revolving credit facility. On October 16, 2024, the Company amended the credit agreement (Amended Credit Agreement) to, among other things, temporarily increase the borrowing capacity under the revolving credit facility to $8,000,000. The revolving credit facility may be used by the Company for general business purposes and working capital, subject to availability under a borrowing base consisting of 80% of eligible accounts receivable and generally 50% of eligible inventory. Borrowings under the Amended Credit Agreement bear interest at a rate per annum equal to Term (Secured Overnight Financing Rate) SOFR for an interest period of one month plus 3.0%. In addition to paying interest on the outstanding principal under the Amended Credit Agreement, the Borrower is required to pay a commitment fee of 0.50% on the unutilized commitments under the revolving credit facility. The obligations under the Amended Credit Agreement are secured by substantially all of the personal property of the Borrower and its subsidiaries. The Company provided an unsecured guaranty of the obligations of the Borrower under the Amended Credit Agreement. The Amended Credit Agreement requires the Borrower and its subsidiaries to maintain (a) a minimum fixed charge coverage ratio of not less than 1.25 to 1.00 and (b) a maximum senior cash flow leverage ratio of 3.75 to 1.0 until September 30, 2024, stepping down to 2.00 to 1.00 on December 31, 2027, until the maturity date of the Amended Credit Agreement. As of September 30, 2024, the Company was in compliance with these financial covenants. The Amended Credit Agreement contains other customary affirmative and negative covenants, including covenants that restrict the ability of the Borrower and its subsidiaries to incur additional indebtedness, dispose of significant assets, make distributions or pay dividends, make certain investments, including any acquisitions other than permitted acquisitions, make certain payments, enter into sale and leaseback transactions or grant liens on its assets, subject to certain limitations. The Amended Credit Agreement also contains customary events of default, the occurrence of which would permit the lenders to terminate their commitments and accelerate loans under the Amended Credit Agreement, including failure to make payments under the credit facility, failure to comply with covenants in the Amended Credit Agreement and other loan documents, cross default to other material indebtedness of the Borrower or any of its subsidiaries, failure of the Borrower or any of its subsidiaries to pay or discharge material judgments, bankruptcy of the Borrower or any of its subsidiaries, and change of control of the Company. The term loan is scheduled to be repaid in quarterly installments of $450,000, commencing on June 30, 2024 with a scheduled maturity date of February 20, 2029. The term loan is subject to additional principal payments under the annual 50% of excess cash flow provision (waived if total net cash flow leverage is less than 2.0x as of fiscal year-end). The scheduled maturity date of the revolving credit facility is February 20, 2029.

As part of the financing of the Bloomia acquisition, the Company entered into notes payable with the sellers. Notes payable for $12,750,000 have a term of five years with a scheduled maturity date of March 24, 2029. The notes payable are subject to additional principal payments based on “excess cash flow” (“excess cash flow” has the same definition as “excess cash flow” used to determine additional principal payments for the term loan under the Credit Agreement). The notes payable initially bear interest at 8% per annum for the first year that increase annually by 2 percentage points. Interest on loans made under the notes payable is payable “in kind” (“PIK”). Interest that is payable “in-kind” is added to the aggregate principal amount on the applicable interest payment date. Additionally, the Company entered into short-term notes payable with the sellers. The short-term notes payable of $2,700,000 was paid in full as of June 30, 2024.

As of September 30, 2024, there was $334,000 of debt issuance costs related to the term loan, net of amortization of $51,000 which has been presented as a direct deduction from long-term debt in the accompanying condensed consolidated balance sheet. As of September 30, 2024, there was $113,000 of deferred financing costs related to the revolving credit facility, net of amortization of $15,000, which has been presented within prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet.

The Company incurred $419,000 and $883,000 of interest expense on the term loans and revolving facility in the three and nine months ended September 30, 2024, respectively. The Company incurred non-cash paid-in-kind interest of $392,000 and $928,000 on the seller notes facility in the three and nine months ended September 30, 2024, respectively. Term loan, revolving credit facility and paid-in-kind interest  are included in interest expense (income), net on the condensed consolidated statements of operations and comprehensive income (loss).

The combined aggregate maturities for each of the five years following September 30, 2024 are as follows:

Remainder of 2024 (1)	$	905,000
2025		1,981,000
2026		1,823,000
2027		1,824,000
2028		1,826,000
2029		29,016,000
	$	37,375,000

(2) The September 2024 installment of the term loan was paid in October 2024 and is included in the current portion of long-term debt on the condensed consolidated balance sheet.