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Notes Payable, Related Party Notes Payable and Finance Lease Obligations | 12 Months Ended
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Dec. 31, 2019
Notes and Loans Payable [Abstract] |
NOTES PAYABLE, RELATED PARTY NOTES PAYABLE AND FINANCE LEASE OBLIGATIONS | Note 9. NOTES PAYABLE, RELATED PARTY NOTES PAYABLE AND FINANCE LEASE OBLIGATIONS Notes payable, related party notes payable and finance lease obligations consist of the following:
|  | December 31, |  |  | December 31, |
|  | 2019 |  |  | 2018 |
Revolving credit note payable to Sterling National Bank ("SNB") |  | $ | 12,543,000 |  |  | $ | - |
Revolving credit note payable to PNC Bank N.A. ("PNC") |  |  | - |  |  |  | 14,043,000 |
Term loans, SNB |  |  | 3,800,000 |  |  |  | - |
Term loans, PNC |  |  | - |  |  |  | 1,572,000 |
Finance lease obligations |  |  | 22,000 |  |  |  | 1,786,000 |
Loan Payable - financed asset |  |  | 385,000 |  |  |  | - |
Related party notes payable, net of debt discount |  |  | 6,862,000 |  |  |  | 4,835,000 |
Convertible notes payable - third parties, net of debt discount |  |  | 2,338,000 |  |  |  | 2,830,000 |
Subtotal |  |  | 25,950,000 |  |  |  | 25,066,000 |
Less: Current portion of notes and capital obligations |  |  | (22,544,000 | ) |  |  | (19,345,000 | )
Notes payable, related party notes payable and finance lease obligations, net of current portion |  | $ | 3,406,000 |  |  | $ | 5,721,000 |
Sterling National Bank ("SNB") On December 31, 2019, the Company entered into a new loan facility ("SNB Facility") with Sterling National Bank, ("SNB"), and paid off our outstanding loan facility ("PNC Facility") with PNC Bank N.A. ("PNC"). The new Loan Facility provides for a $16,000,000 revolving loan ("SNB revolving line of credit") and a term loan ("SNB term loan") with a balance of $3,800,000 at December 31, 2019. The repayment terms of the SNB Term Loan provide for monthly principal installments in the amount of $45,238, payable on the first business day of each month, beginning on February 1, 2020, with a final payment of any unpaid balance of principal and interest payable on the scheduled maturity date. The terms of the SNB Facility require that, among other things, the Company maintain a specified Fixed Charge Coverage Ratio of 1.25 to 1.00 at the end of each Fiscal Quarter beginning with the Fiscal Quarter ending March 31, 2020. In addition, the Company is limited in the amount of Capital Expenditures we can make. The SNB Facility also restricts the amount of dividends we may pay to our stockholders. Substantially all of the Company's assets are pledged as collateral under the SNB Facility. As of December 31, 2019 the future minimum principal payments for the term loan are as follows:
For the year ending |  | Amount |
December 31, 2020 |  | $ | 498,000 |
December 31, 2021 |  |  | 543,000 |
December 31, 2022 |  |  | 2,759,000 |
SNB Term Loans payable |  |  | 3,800,000 |
Less: Current portion |  |  | (498,000 | )
Long-term portion |  | $ | 3,302,000 |
Under the terms of the SNB Facility, both the SNB revolving line of credit and the SNB term loan will bear an interest rate equal to 30-day LIBOR, plus 2.5% (with a floor of 3.5%). As of December 31, 2019, our debt to SNB in the amount of $16,343,000 consisted of the SNB revolving line of credit note in the amount of $12,543,000 and the SNB term loan in the amount of $3,800,000. No interest expense was incurred on the SNB Facility during 2019. PNC Bank N.A. ("PNC") Under the PNC Facility, substantially all of the Company's assets were pledged as collateral. The Company was required to maintain a lockbox account with PNC, into which substantially all of its cash receipts were paid. The PNC Facility provided for a $15,000,000 revolving line of credit ("PNC revolving line of credit") and a term loan ("PNC term loan"). The repayment terms of the PNC term loan provided for monthly principal installments in the amount of $123,133, payable on the first business day of each month, with a final payment of any unpaid balance of principal and interest payable on the scheduled maturity date. On December 31, 2019, both the PNC revolving line of credit and PNC term loan were paid in full and all assets that were previously pledged as collateral were released. The terms of the PNC Facility require, among other things, that the Company maintain a specified Fixed Charge Coverage Ratio and maintain a minimum EBITDA (as defined in the Loan Facility) for specified periods. In addition, it limited the amount of Capital Expenditures the Company could make. The Company was also limited in the amount of dividends it could pay. The PNC Loan Facility was amended many times during its term, most recently on January 2, 2019 (the "Seventeenth Amendment") and February 8, 2019 (the "Eighteenth Amendment"). The Seventeenth Amendment extended the term of the PNC Loan Facility from December 31, 2018 to December 31, 2019. Under the terms of the Seventeenth Amendment, the revolving loan and the Term Loan bear interest at a rate equal to the sum of the Alternate Base Rate (as defined in the Loan Agreement) plus four percent (4%). In addition to the amounts available as revolving loans secured by inventory and receivables pursuant to the formula set forth in the Loan Agreement, PNC agreed to permit the revolving advances to exceed the formula amount by $1,000,000 as of December 31, 2018, provided that the Company reduced the "Out-of-Formula Loan" by $25,000 per week commencing April 1, 2019, with the unpaid balance payable in full on December 31, 2019. The indebtedness under the revolving loan and the Term Loan are classified with the current portion of notes and finance lease obligations. As a condition to PNC's agreement to extend the maturity of the obligations due under the Loan Agreement (the "Obligations"), the Company was obligated to pay PNC an extension fee of (i) $250,000 on the earlier of (a) the date the Obligations were indefeasibly paid in full or (b) June 30, 2019, (ii) $125,000 on the earlier of (a) the date the Obligations were indefeasibly paid in full or (b) December 31, 2019, which amount was deemed earned in full if the Obligations have not been satisfied as of July 1, 2019, (iii) $125,000 on the earlier of (a) the date the Obligations were indefeasibly paid in full or (b) December 31, 2019, which amount was deemed earned in full if the Obligations had not been satisfied as of October 1, 2019 (iv) $500,000 on December 31, 2019, which amount was deemed earned in full if the Obligations had not been satisfied as of December 31, 2019. The Obligations were fully satisfied on December 31, 2019 and the Company did not have to pay the final $500,000. As a further condition to PNC's agreement to extend the maturity of the Obligations, Michael and Robert Taglich purchased $2,000,000 principal amount of our Senior Subordinated Convertible Notes and arranged a financing giving purchasers a right to receive a pro rata portion of the AMK Revenue Stream Payments resulting in gross proceeds of $800,000, including $275,000 from Michael and Robert Taglich. The Eighteenth Amendment required the Company to maintain a minimum EBITDA of not less than (i) $1,500,000 for the twelve-month period ending December 31, 2018, (ii) $655,000 for the three-month period ending March 31, 2019, (iii) $1,860,000 for the six-month period ending June 30, 2019 and (iv) $3,110,000 for the nine-month period ending September 30, 2019. At December 31, 2018 we were in compliance with the minimum EBIDA covenant. As of December 31, 2019, our debt to PNC was paid in full. As of December 31, 2018, our debt to PNC in the amount of $15,615,000 consisted of the revolving credit note due to PNC in the amount of $14,043,000 and the term loan due to PNC in the amount of $1,572,000. Interest expense related to these credit facilities amounted to approximately $1,860,000 and $1,775,000 for the years ended December 31, 2019 and 2018, respectively. Finance Lease Obligations – Equipment The Company is committed under several financing leases for manufacturing and computer equipment. All leases have bargain purchase options exercisable at the termination of each lease. Financing lease obligations totaled $22,000 and $1,786,000 as of December 31, 2019 and 2018, respectively, with various interest rates ranging from approximately 4% to 9%. The aggregate future minimum lease payments on the finance lease obligations, including imputed interest, with remaining terms of greater than one year are as follows:
For the year ending |  | Amount |
December 31, 2020 |  | $ | 15,000 |
December 31, 2021 |  |  | 5,000 |
December 31, 2022 |  |  | 2,000 |
Thereafter |  |  | - |
Total future minimum lease payments |  |  | 22,000 |
Less: imputed interest |  |  | (1,000 | )
Less: current portion |  |  | (15,000 | )
Total Long Term Portion |  | $ | 6,000 |
Related Party Notes Payable Taglich Brothers, Inc. is a corporation co-founded by two directors of the Company, Michael and Robert Taglich. In addition, a third director of the Company is a vice president of Taglich Brothers, Inc. Taglich Brothers, Inc. has acted as placement agent for various debt and equity financing transactions and has received cash and equity compensation for their services. In addition, Michael and Robert Taglich have also invested as individuals in the Company a total of $ 12,440,000 through December 31, 2019 via various debt and equity financings. On January 15, 2019, the Company issued its 7% senior subordinated convertible promissory notes due December 31, 2020, each in the principal amount of $1,000,000 (together, the "7% Notes"), to Michael Taglich and Robert Taglich, each for a purchase price of $1,000,000. The 7% Notes bear interest at the rate of 7% per annum, are convertible into shares of the Company's common stock at a conversion price of $0.93 per share, subject to the anti-dilution adjustments set forth in the 7% Notes, were subordinate to the Company's indebtedness under its credit facility with PNC Bank, National Association, and are now subordinate to the Company's indebtedness under its credit facility with Sterling National Bank and mature at December 31, 2020, or earlier upon an Event of Default. In connection with the 7% Notes, the Company paid Taglich Brothers, Inc. a fee of $80,000 (4% of the purchase price of the 7% Notes), paid in the form of a promissory note having terms substantially identical to the 7% Notes. On June 26, 2019, the Company was advanced $250,000 from each of Michael and Robert Taglich. These notes bear interest at a rate of 12% per annum. In connection with these notes the Company issued 37,500 shares of stock to each of Michael and Robert Taglich. The maturity date of these notes was June 30, 2020 but have been extended to December 31, 2020. On October 21, 2019, the Company was advanced $1,000,000 from Michael Taglich. This advance was repaid on January 2, 2020. The interest rate on this advance was 12% per annum. From November 23, 2016 through March 21, 2017, the Company received gross proceeds of $1,950,000 from Robert and Michael Taglich, from the sale of an equal principal amount of its 8% Subordinated Convertible Notes (the "8% Notes"). See "Private Placements of 8% Subordinated Convertible Notes" below. Private Placement of Subordinated Notes due May 31, 2019, together with Shares of Common Stock On March 29, 2018 and April 4, 2018, Michael Taglich and Robert Taglich advanced $1,000,000 and $100,000, respectively, to the Company for use as working capital. The Company subsequently issued its Subordinated Notes originally due May 31, 2019 to Michael Taglich and Robert Taglich, together with shares of common stock, in the financing described below, to evidence its obligation to repay the foregoing advances. In May 2018, the Company issued $1,200,000 of Subordinated Notes due May 31, 2019 (the "2019 Notes"), together with a total of 214,762 shares of common stock (the "Shares"), to Michael Taglich, Robert Taglich and another accredited investor. As part of the financing, the Company issued to Michael Taglich $1,000,000 principal amount of 2019 Notes and 178,571 shares of common stock for a purchase price of $1,000,000 and the Company issued to Robert Taglich $100,000 principal amount of 2019 Notes and 17,857 shares of common stock. The Company issued and sold a 2019 Note in the principal amount of $100,000, plus 18,334 shares of common stock, to the other accredited investor for a purchase price of $100,000. This additional note was paid in full on January 2, 2020. Seventy percent (70%) of the total purchase price for the 2019 Notes and Shares purchased by each investor has been allocated to the 2019 Notes with the remaining thirty percent (30%) allocated to the Shares purchased with the 2019 Notes. The number of Shares purchased by Michael Taglich and Robert Taglich was calculated based upon $1.68, the closing price of the common stock on May 20, 2018, the trading day immediately preceding the date they purchased the 2019 Notes and shares of common stock. Interest on the 2019 Notes is payable on the outstanding principal amount thereof at the rate of one percent (1%) per month, payable monthly commencing June 30, 2018. Upon the occurrence and continuation of a failure to pay accrued interest, interest shall accrue and be payable on such amount at the rate of 1.25% per month; provided that upon the occurrence and continuation of a failure to timely pay the principal amount of the 2019 Note, interest shall accrue and be payable on such principal amount at the rate of 1.25% per month and shall no longer be payable on interest accrued but unpaid. The 2019 Notes are subordinate to the Company's obligations to SNB. Taglich Brothers acted as placement agent for the offering and received a commission in the aggregate amount of 4% of the amount invested which was paid in kind. The gross proceeds of $1,200,000 was completed in the following closings:
|  |  |  |  |  |  |  |  |  |  | Common |  |  |  |
Date |  | Gross Proceeds |  |  | Promissory Note |  |  | $ |  |  | Stock Price |  |  | Shares |
3/29/2018 |  | $ | 1,000,000 |  |  | $ | 700,000 |  |  | $ | 300,000 |  |  |  | 1.68 |  |  | $ | 178,571 |
4/4/2018 |  |  | 100,000 |  |  |  | 70,000 |  |  |  | 30,000 |  |  |  | 1.68 |  |  |  | 17,857 |
5/21/2018 |  |  | 100,000 |  |  |  | 70,000 |  |  |  | 30,000 |  |  |  | 1.64 |  |  |  | 18,334 |
Total |  | $ | 1,200,000 |  |  | $ | 840,000 |  |  | $ | 360,000 |  |  |  |  |  |  | $ | 214,762 |
During the second quarter of 2019, the maturity date of the 2019 Notes was extended to June 30, 2020. The interest rate of the notes remains at 12% per annum. In connection with the extension, 180,000 shares of common stock were issued on a pro-rata basis to each of the note holders, including 150,000 shares to Michael Taglich and 15,000 shares to Robert Taglich at $1.01 per share or $182,000. The costs have been recorded as a debt discount, and are being accreted over the revised term. In connection with the SNB Loan facility, Michael and Robert Taglich agreed to extend the maturity date of the 2019 Notes to December 31, 2020. Private Placements of 8% Subordinated Convertible Notes and Amendments Thereto From November 23, 2016 through March 21, 2017, the Company received gross proceeds of $4,775,000, of which $1,950,000 were received from Robert and Michael Taglich, from the sale of an equal principal amount of our 8% Subordinated Convertible Notes (the "8% Notes"), together with warrants to purchase a total of 383,080 shares of our common stock, in private placement transactions with accredited investors (the "8% Note Offerings"). In connection with the offering of the 8% Notes, the Company issued 8% Notes in the aggregate principal amount of $382,000 to Taglich Brothers, Inc., placement agent for the 8% Note Offerings, in lieu of payment of cash compensation for sales commissions, together with warrants to purchase a total of 180,977 shares of our common stock. Payment of the principal and accrued interest on the 8% Notes are junior and subordinate in right of payment to our indebtedness under the Loan Facility. Interest on the 2018 Notes is payable on the outstanding principal amount thereof at the annual rate of 8%, payable quarterly commencing February 28, 2017, in cash, or at our option, in additional 2018 Notes, provided that if accrued interest payable on $1,269,000 principal amount of the 2018 Notes issued in December 2016 is paid in additional 2018 Notes, interest for that quarterly interest payment shall be calculated at the rate of 12% per annum. Upon the occurrence and continuation of an event of default, interest shall accrue at the rate of 12% per annum. During the year ended December 31 2018, we issued $297,000 principal amount of 8% Notes in lieu of cash payment of accrued interest. As of September 30, 2018, we had outstanding $4,775,000 principal amount of 8% Notes, of which $2,575,000 principal amount was due on November 30, 2018 and $2,200,000 principal amount was due on February 28, 2019. In September 2018, holders of a majority of the outstanding principal amount of the 8% Notes consented to an amendment to the terms of the 8% Notes to extend the maturity date to December 31, 2020 and to provide that interest on the 8% Notes, as amended (the "Amended Notes"), shall accrue and be paid on the due date of the Amended Notes or, if earlier, upon conversion of the Amended Notes into shares of common stock. At September 30, 2018, Michael Taglich, Robert Taglich and Taglich Brothers (collectively, the "Taglich Parties") owned $1,300,000, $650,000 and $382,000, respectively, principal amount of 8% Notes, with accrued interest thereon from the date of issuance through September 30, 2018 of $203,613, $120,097 and $68,294, respectively. In consideration for waiving all defaults in payment of principal and accrued interest on the 8% Notes through the date of the amendment, the conversion price of the Amended Notes owned by the Taglich Parties and the other holders of the Amended Notes has been reduced to $1.50 per share, subject to the anti-dilution adjustments set forth in the Amended Notes and the 8% Notes, and the Company issued to the Taglich Parties and the other holders of the 8% Notes such number of shares of common stock calculated based upon a value of $1.39 per share, the closing market price of common stock on the NYSE American on September 28, 2018, the date immediately prior to the date the holders of a majority of the outstanding principal amount of the 8% Notes approved the amendment as is equal to the interest accrued on their 8% Notes from the date of issuance through September 30, 2018. As a result the Company issued to Michael Taglich, Robert Taglich and Taglich Brothers 146,484 shares, 86,401 shares and 49,132 shares, respectively of common stock. Based on the amended conversion price, if these notes were to be converted additional shares of common stock would be issued of common stock, and therefore further reducing the Company's earnings per share. From and after September 30, 2018, interest on the unpaid principal amount of the Amended Notes shall accrue and be paid at the rate of six (6%) percent per annum, if paid in cash, or at the rate of eight (8%) percent per annum if converted into common stock. For soliciting noteholders in connection with the adoption of the amendments, the Company agreed to pay Taglich Brothers $95,550, representing a fee equal to 2% of the outstanding principal amount of Notes whose registered holders (other than Taglich Brothers) received shares of common stock in lieu of cash payment of accrued interest on the 8% Notes as of September 30, 2018. In December 2019, the third party holders of $580,000 of notes with accrued interest thereon of $59,000 converted their notes into approximately 426,000 shares at a per share price of $1.50. Additionally in January 2020, the third party holders of an additional $705,000 of notes with accrued interest thereon of $75,143 converted their notes into approximately 520,000 shares at a per share price of $1.50. Related party advances and notes payable, net of debt discounts to Michael and Robert Taglich, and their affiliated entities, totaled $6,862,000 and $4,835,000, as of December 31, 2019 and 2018, respectively. Unamortized debt discounts related to these notes amounted to $226,000 and $162,000 as of December 31, 2019 and 2018, respectively. Interest incurred on these related party notes amounted to approximately $446,000 and $526,000 for the years ended December 31, 2019 and 2018, respectively. Amortization of debt discount incurred on these related party notes amounted to approximately $375,000 and $456,000 for the year ended December 31, 2019 and 2018. These costs are included in interest and financing costs in the Consolidated Statement of Operations. All related party notes are due on December 31, 2020. There are no principal payments due on these notes until such time.

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- Definition The entire disclosure for debt and capital lease obligations can be reported. Information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. Also includes descriptions and amounts of capital leasing arrangements that consist of direct financing, sales type and leveraged leases. Disclosure may include the effect on the balance sheet and the income statement resulting from a change in lease classification for leases that at inception would have been classified differently had guidance been in effect at the inception of the original lease. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 840 -URI http://asc.fasb.org/topic&trid=2208923 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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