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Notes Payable
 12 Months Ended
Dec. 31, 2022
Debt Disclosure [Abstract]  
Notes Payable

9. Notes Payable

 

Long term debt consists of:

 

   2022   2021 
   December 31, 
   2022   2021 
Subordinated notes (officer) due December 2023  $1,267,000   $1,193,000 
Other Note   172,000    167,000 
Term Loan (2022 and 2021 are net of deferred finance costs of $0.1 million and $0.2 million, respectively)   543,000    559,000 
Line of Credit   2,878,000    5,003,000 
           
Total long-term debt   4,860,000    6,922,000 
           
Less current portion   (3,166,000)   (6,922,000)
Total Long-term debt, net of current portion  $1,694,000   $- 

 

 

Line of Credit and Term Loan

 

During December 2017, we entered in new financing agreements with PNC Bank, National Association (“PNC”). The financing agreements with PNC (the “PNC Agreements”) included a $6 million term loan and an $18 million revolving credit facility (the “Revolving Credit Facility”), with a credit facility termination date of December 2022. Available credit under the Revolving Credit facility was determined by eligible receivables and inventory at CTI Industries (U.S.) and Flexo Universal (Mexico). We notified PNC of our failure to meet certain financial covenants and conditions during multiple occasions between 2018 and 2021, resulting in amendments to the loan documents, and in some cases forbearance agreements, along with related fees, penalties and conditions.

 

On September 30, 2021 (the “Closing Date”), the Company entered into a loan and security agreement (the “Agreement”) with Line Financial (the “Lender”), which provides for a senior secured financing consisting of a revolving credit facility (the “Revolving Credit Facility) in an aggregate principal amount of up to $6 million (the “Maximum Revolver Amount”) and term loan facility (the “Term Loan Facility”) in an aggregate principal amount of $731,250 (“Term Loan Amount” and, together with the Revolving Credit Facility, the “Senior Facilities”). Proceeds of loans borrowed under the Senior Facilities were used to repay all amounts outstanding under the Company’s PNC Agreements and for the Company’s working capital. The Senior Facilities are secured by substantially all assets of the Company.

 

Interest on the Senior Facilities shall be the prime rate published from time to time published in the Wall Street Journal (7.5% as of December 16, 2022), plus 1.95% per annum, accruing daily and payable monthly. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. The Term Loan Facility shall be repaid by the Company to Lender in 48 equal monthly installments of principal and interest, each in the amount of $15,234, commencing on November 1, 2021, and continuing on the first day of each month thereafter until the Term Loan Maturity Date (as defined in the Agreement). Also, the Company would pay the Lender collateral monitoring fees of 4.62% of the eligible accounts receivable, inventory, and equipment supporting the Revolving Credit Facility and the Term Loan. During August 2022 the terms above were modified to reduce the collateral monitoring fee to 2.77%, and added a provision that barred the Company from repaying the facility prior to September 2023. In addition, the Company paid the Lender a loan fee of 1.25% of the Maximum Revolver Amount and the Term Loan Amount upon the execution of the Agreement.

 

The Senior Facilities mature on September 30, 2023 and shall automatically be extended for successive periods of one year each, unless the Company or the Lender gives the other party written notice of termination not less than 90 days prior to the end of such term or renewal term, as applicable. If the Senior Facilities are renewed, the Company shall pay the Lender a renewal fee of 1.25% of the Maximum Revolver Amount and the Term Loan Amount upon each renewal on the anniversary of the Closing Date. The Company has the option to prepay the Term Loan Facility (together with all accrued but unpaid interest and a Term Loan Prepayment Fee (as defined the Agreement) in whole, but not in part, upon not less than 60 days prior written notice to the Lender.

 

The Senior Facilities require that the Company shall, commencing December 31, 2021, maintain Tangible Net Worth of at least $4,000,000 or greater (“Minimum Tangible Net Worth”). Minimum Tangible Net Worth may be adjusted downward by the Lender, from time to time, in its sole and absolute discretion, based on the effect of non-cash charges and other factors on the calculation of Tangible Net Worth. Other debt subordinated to Lender is not considered as a reduction of this calculation. The Company believes it was in compliance with this covenant as of December 31, 2022 and 2021, respectively.

 

The Senior Facilities contain certain affirmative and negative covenants that limit the ability of the Company, among other things and subject to certain significant exceptions, to incur debt or liens, make investments, enter into certain mergers, consolidations, and acquisitions, pay dividends and make other restricted payments, or make capital expenditures exceeding $1,000,000 in the aggregate in any fiscal year.

 

As of December 31, 2022 and 2021, the term loan balance amounted to $0.5 million and $0.6 million, respectively, which consisted of the principal and interest payable balance and deferred financing costs. The balance of the Revolving Line of Credit as of December 31, 2022 and 2021 amounted to $2.9 million and $5.0 million, respectively.

 

Subordniated (Officer) Note

 

As of January 1, 2019, the Company had a note payable to John H. Schwan, former Director and former Chairman of the Board, for $1.6 million, including accrued interest. This loan accrues interest, is due December 31, 2023, and is subordinate to the Senior Facilities. 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 $1.0 million. The loan and interest payable to Mr. Schwan amounted to $1.3 million and $1.2 million as of December 31, 2022 and 2021, respectively. No payments were made to Mr. Schwan during 2022 or 2021. Interest expense related to this loan amounted to $18,000 and $17,000 for the three months ended December 31, 2022 and 2021, respectively, and $74,000 and $70,000 for the twelve months ended December 31, 2022 and 2021, respectively.

 

Other Note

 

As of December 31, 2021, the Company had a note payable to Alex Feng  for $166,667. This loan accrues interest at 3% and is subordinate to the Senior Facilities. The subordination agreement signed September 30, 2021 changes the term of the maturity date from November 2023 to March 2024 and payment date starting April 2022.