XML 20 R10.htm IDEA: XBRL DOCUMENT v3.21.2
Note 4 - Debt
 6 Months Ended
Jun. 30, 2021
Notes to Financial Statements  
Debt Disclosure [Text Block]

Note 4 - Debt

 

During December 2017, we terminated a prior credit arrangement and entered in new financing agreements (as amended to date, the “PNC Agreements”) with PNC Bank, National Association (“PNC”). The PNC Agreements, included a $6 million term loan and a $9 million revolving credit facility, with a termination date of December 2021.

 

Available credit under the Revolving Credit facility is determined by eligible receivables and inventory at CTI Industries (U.S.) and Flexo Universal (Mexico).

 

 

Certain terms of the PNC Agreements include:

 

 

●

Negative Covenants: Negative covenants under which we are prohibited from, or restricted in our ability to:

 

o

Borrow money;

 

o

Pay dividends and make distributions;

 

o

Make certain investments;

 

o

Use assets as security in other transactions;

 

o

Create liens;

 

o

Enter into affiliate transactions;

 

o

Merge or consolidate; or

 

o

Transfer and sell assets.

 

 

●

Financial Covenants: Financial covenants we are required to meet including:

 

o

We are required to maintain a "Fixed Charge Coverage Ratio", which is defined as the ratio of (a) EBITDA for such fiscal period, minus Unfinanced Capital Expenditures made during such period, minus distributions (including tax distributions) and dividends made during such period, minus cash taxes paid during such period to (b) all Debt Payments made during such period. The highest values allowed for each quarterly calculation are as follow:

 

Fiscal Quarter Ratio

      
       

June 30, 2020

  0.85to1.00 

September 30, 2020

  0.95to1.00 

December 31, 2020

  1.05to1.00 

March 31, 2021 

  1.15to1.00 
June 30, 2021 and thereafter  1.15to1.00 

 

The PNC Agreements provides for interest at varying rates in excess of the prime rate, depending on the level of senior debt to EBITDA over time.

 

Failure to comply with these covenants has caused us to pay a higher rate of interest (increased by 4% pursuant to the PNC Agreements), and other potential penalties may impact the availability of the credit facility itself, and thus might negatively impact our ability to remain a going concern. As described above in this Note as well as in Note 3, we remain out of compliance with the terms of this facility.

 

As of January 1, 2019, the Company had a note payable to John H. Schwan, Director and former Chairman of the Board, for $1.6 million, including accrued interest. This loan accrues interest at 6%, is due on demand, and is subordinate to the PNC Agreements. During January 2019, Mr. Schwan converted $600,000 of the note into approximately 181,000 shares of our common stock at the then market rate of $3.32 per share. As a result of the conversion, the loan balance decreased to $997,019 and Company and Mr. Schwan agreed to increase the interest rate to 6%.

 

The loan and interest payable to Mr. Schwan amounted to $1,157,906 and $1,123,769 as of June 30, 2021 and December 31, 2020, respectively.

 

No payments were made to Mr. Schwan since 2019. Interest expense related to this loan amounted to $17,000 and $16,000 for the three months ended June 30, 2021 and 2020, respectively, and $34,000 and $32,000 for the six months ended June 30, 2021 and 2020, respectively.

 

During 2020, Flexo replaced a $260,000 line of credit with three lines of credit totaling $260,000.  Flexo’s total debt instruments as of June 30, 2021 amounted to $2.3 million.