NOTE 10

LONG-TERM DEBT

Long-term debt consists of the following at December 31, 2020 and December 31, 2019:

⁽¹⁾ Our revolving credit facility is collateralized by our accounts receivable and our term loan is collateralized by our property, plant, and equipment. Effective July 1, 2019, monthly installment principal payment on the Term Loan was amended to approximately $35,500 from approximately $101,600. See “Revolving Credit and Term Loan Agreement” below for terms of the Company’s credit facility prior to the New Loan Agreement dated May 8, 2020.

⁽²⁾ Net of debt issuance costs of ($105,000) and ($92,000) at December 31, 2020 and December 31, 2019, respectively.

⁽³⁾ Uncollateralized note.

⁽⁴⁾ Net of debt discount/debt issuance costs of ($0) and ($248,000) at December 31, 2020 and December 31, 2019, respectively. The Promissory Note provided for prepayment of principal over the term of the Note without penalty. In 2019, the Company made total prepayment of principal of $520,000 which was reflected in the current portion of the debt. In 2020, the outstanding principal balance of $1,980,000 was paid-in-full of which of which $416,000 was prepaid.

⁽⁵⁾ Entered into with the Company’s credit facility lender under the PPP under the CARES Act (see “PPP Loan” below for further information on this loan and its terms).

Revolving Credit and Term Loan Agreement

The Company entered into an Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated October 31, 2011 (“Amended Loan Agreement”), with PNC National Association (“PNC”), acting as agent and lender. The Amended Loan Agreement had been amended from time to time since the execution of the Amended Loan Agreement. The Amended Loan Agreement, as subsequently amended (“Revised Loan Agreement”), provided the Company with the following credit facility with a maturity date of March 24, 2021: (a) up to $12,000,000 revolving credit (“revolving credit”) and (b) a term loan (“term loan”) of approximately $6,100,000. The maximum that the Company can borrow under the revolving credit was based on a percentage of eligible receivables (as defined) at any one time reduced by outstanding standby letters of credit and borrowing reductions that our lender may impose from time to time.

Payment of annual rate of interest due on the revolving credit under the Revised Loan Agreement was at prime (3.25% at December 31, 2020) plus 2% and the term loan at prime plus 2.5%.

On May 8, 2020, the Company entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement (the “New Loan Agreement”) with PNC, replacing our previous Revised Loan Agreement with PNC. The New Loan Agreement provides the Company with the following credit facility:

The New Loan Agreement terminates as of May 15, 2024, unless sooner terminated.

Similar to our Revised Loan Agreement, the New Loan Agreement requires the Company to meet certain customary financial covenants, including, among other things, a minimum Tangible Adjusted Net Worth requirement of $27,000,000 at all times; maximum capital spending of $6,000,000 annually; and a minimum FCCR requirement of 1.15:1.

Under the New Loan Agreement, payment of annual rate of interest due on the credit facility is as follows:

Under the LIBOR option of interest payment noted above, a LIBOR floor of 0.75% shall apply in the event that LIBOR falls below 0.75% at any point in time.

Pursuant to the New Loan Agreement, the Company may terminate the New Loan Agreement upon 90 days’ prior written notice upon payment in full of our obligations under the New Loan Agreement. The Company has agreed to pay PNC 1.0% of the total financing in the event we pay off our obligations on or before May 7, 2021 and 0.5% of the total financing if we pay off our obligations after May 7, 2021 but prior to or on May 7, 2022. No early termination fee shall apply if we pay off our obligations under the New Loan Agreement after May 7, 2022.

In connection with New Loan Agreement, the Company paid its lender a fee of $50,000 and incurred other direct costs of approximately $35,000, which are being amortized over the term of the New Loan Agreement as interest expense-financing fees. As a result of the termination of the Revised Loan Agreement, the Company recorded approximately $27,000 in loss on extinguishment of debt in accordance with ASC 470-50, “Debt – Modifications and Extinguishment.”

At December 31, 2020, the borrowing availability under our revolving credit was approximately $14,220,000, based on our eligible receivables and includes a reduction in borrowing availability of approximately $3,026,000 from outstanding standby letters of credit.

The Company’s credit facility under its Revised and New Loan Agreement with PNC contains certain financial covenants, along with customary representations and warranties. A breach of any of these financial covenants, unless waived by PNC, could result in a default under our credit facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit. The Company met its financial covenant requirements in 2020, including its quarterly FCCR requirements.

Loan and Securities Purchase Agreement, Promissory Note and Subordination Agreement

On April 1, 2019, the Company completed a lending transaction with Robert Ferguson (the “Lender”), whereby the Company borrowed from the Lender the sum of $2,500,000 pursuant to the terms of a Loan and Security Purchase Agreement and promissory note (the “Loan”). The Lender is a shareholder of the Company and also serves as a consultant to the Company in connection with the Company’s TBI at its PFNWR subsidiary. Proceeds from the Loan were used for general working capital purposes. The Loan is unsecured, with a term of two years with interest payable at a fixed interest rate of 4.00% per annum. The Loan provides for monthly payments of accrued interest only during the first year of the Loan, with the first interest payment due May 1, 2019 and monthly payments of approximately $208,333 in principal plus accrued interest starting in the second year of the Loan. The Loan also allows for prepayment of principal payments over the term of the Loan without penalty with such prepayment of principal payments to be applied to the second year of the loan payments at the Company’s discretion. In December 2020, the Loan was paid-in-full. In connection with this capital raise transaction described above and consideration for us receiving the Loan, the Company issued a Warrant (the “Warrant”) to the Lender to purchase up to 60,000 shares of our Common Stock at an exercise price of $3.51 per share, which was the closing bid price for a share of our Common Stock on NASDAQ.com immediately preceding the execution of the Loan and Warrant. The Warrant expires on April 1, 2024 and remains outstanding at December 31, 2020. As further consideration for this capital raise transaction relating to the Loan, the Company also issued 75,000 shares of its Common Stock to the Lender. The fair value of the Warrant and Common Stock and the related closing fees incurred from the transaction totaled approximately $398,000 and was recorded as debt discount/debt issuance costs which has been fully amortized as interest expense – financing fees. The 75,000 shares of Common Stock, the Warrant and the 60,000 shares of Common Stock that may be purchased under the Warrant were and will be issued in a private placement that was and will be exempt from registration under Rule 506 and/or Sections 4(a)(2) and 4(a)(5) of the Securities Act of 1933, as amended (the “Act”) and bear a restrictive legend against resale except in a transaction registered under the Act or in a transaction exempt from registration thereunder.

PPP Loan

On April 14, 2020, the Company entered into a promissory note with PNC, our credit facility lender, in the amount of approximately $5,666,000 (“PPP Loan”) under the PPP. The PPP was established under the CARES Act and is administered by the SBA. On June 5, 2020, the Flexibility Act was signed into law which amended the CARES Act. The note evidencing the PPP Loan contains events of default relating to, among other things, payment defaults, breach of representations and warranties, and provisions of the promissory note. During the third quarter of 2020, the Company repaid approximately $348,000 of the PPP Loan to PNC resulting from clarification made in the loan calculation at the time of the loan origination.

Under the terms of the Flexibility Act, the Company can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds by the Company for eligible payroll costs, mortgage interest, rent and utility costs and the maintenance of employee and compensation levels for the covered period (which is defined as a 24 week period, beginning April 14, 2020, the date in which proceeds from the PPP Loan was disbursed to the Company by PNC). At least 60% of such forgiven amount must be used for eligible payroll costs. On October 5, 2020, the Company applied for forgiveness on repayment of the loan balance as permitted under the program, which is subject to the review and approval of our lender and the SBA. If all or a portion of the PPP Loan is not forgiven, all or the remaining portion of the loan will be for a term of two years but can be prepaid at any time prior to maturity without any prepayment penalties. The annual interest rate on the PPP Loan is 1.0% and no payments of principal or interest are due until SBA remits the loan forgiveness amount to our lender. While the Company’s PPP Loan currently has a two year maturity, the Flexibility Act permits the Company to request a five year maturity with our lender. At December 31, 2020, the Company has not received a determination on potential forgiveness on any portion of the PPP Loan balance; therefore, the Company has classified approximately $3,191,000 of the PPP Loan balance as “Current portion of long-term debt,” on its Consolidated Balance Sheets, which was based on payment of the PPP Loan starting in July 2021 (10 months from end of our covered period) in accordance with the terms of our PPP Loan agreement.

The following table details the amount of the maturities of long-term debt maturing in future years at December 31, 2020 (excludes debt issuance costs of $105,000).