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Debt | 12 Months Ended
--- | ---
Dec. 31, 2022
Debt [Abstract] |
DEBT | Note 8. Debt Debt consists of the following:
|  | December 31, |  |  | December 31, |
|  | 2022 |  |  | 2021 |
Revolving loan to Webster Bank (“Webster”) |  | $ | 13,352,000 |  |  | $ | 12,456,000 |
Term loan, Webster |  |  | 5,396,000 |  |  |  | 4,192,000 |
Finance lease obligations |  |  | 328,000 |  |  |  | 263,000 |
Loans payable - financed assets |  |  | 30,000 |  |  |  | 39,000 |
Related party notes payable |  |  | 6,162,000 |  |  |  | 6,412,000 |
Subtotal |  |  | 25,268,000 |  |  |  | 23,362,000 |
Less: Current portion |  |  | (14,477,000 | ) |  |  | (14,112,000 | )
Long Term Portion |  | $ | 10,791,000 |  |  | $ | 9,250,000 |
Webster Bank (F/K/A Sterling National Bank) (“Webster”) The Company has a loan facility (“Webster Facility”) with Webster Bank that expires on December 30, 2025. The Webster Facility, which was entered into on December 31, 2019, was amended several times, and now provides for a $20,000,000 revolving loan (“Revolving Line of Credit”), a $5,000,000 term loan (“Term Loan”) and a $2,000,000 Equipment Line of Credit, which as it is drawn upon is added to the balance of the Term Loan. As of December 31, 2022, there was $1,122,000 remaining available under the equipment line of credit. The below table shows the timing of payments due under the Term Loan:
For the year ending |  | Amount |
December 31, 2023 |  | $ | 1,037,000 |
December 31, 2024 |  |  | 840,000 |
December 31, 2025 |  |  | 3,584,000 |
Webster Term Loan payable |  |  | 5,461,000 |
Less: debt issuance costs |  |  | (65,000 | )
Total Webster Term Loan payable, net of debt issuance costs |  |  | 5,396,000 |
Less: Current portion of Webster Term Loan payable |  |  | (1,037,000 | )
Total long-term portion of Webster Term Loan payable |  | $ | 4,359,000 |
As of December 31, 2022, our debt to Webster in the amount of $18,748,000 consisted of the Webster Revolving Loan in the amount of $13,352,000 and the Webster term loan in the amount of $5,396,000 which includes $878,000 of what was drawn on the equipment line of credit. Interest expense related to the Webster Facility amounted to approximately $780,000 and $704,000 for the years ended December 31, 2022 and 2021, respectively. The below summarizes historical amendments to the Webster Facility and various terms: In 2020, the Company entered into the First Amendment to the Webster Facility which increased the Term Loan to $5,685,000 and required the Company to make monthly principal installments in the amount of $67,679 beginning on December 1, 2020. Other minor modifications were made and the Company paid an amendment fee of $20,000. In June 2021, the Company entered into the Second Amendment to the Webster Facility, which clarified the definition and calculation of Excess Cash Flow, and to confirm the due date of the required payment of the Excess Cash Flow. For so long as the Webster term loan remains outstanding, if Excess Cash Flow (as defined) is a positive number for any fiscal year the Company shall pay to Webster an amount equal to the lesser of (i) twenty-five percent (25%) of the Excess Cash Flow for such fiscal year and (ii) the outstanding principal balance of the term loan. Such payment shall be made to Webster and applied to the outstanding principal balance of the term loan, on or prior to the April 15 immediately following such fiscal year. In connection with these changes, the Company paid an amendment fee of $10,000. The Company made Excess Cash Flow payments of $558,750 in 2021 (for the fiscal year ended December 31, 2020) and $854,000 in April 2022 (for fiscal year ended December 31, 2021). As required, the Company provided the calculation for the Excess Cash Flow payment of $208,000 for fiscal year ended December 31, 2022 to Webster prior to the April 15, 2023 deadline for such payment. Additionally, the Company authorized such payment to be made from the Revolving Loan. As of the date of this filing such payment has not been processed by Webster. On December 7, 2021, the Company entered into the Third Amendment to the Webster Facility (“Third Amendment”). The purpose of the amendment was to provide a maturity date for the Webster Facility of December 30, 2025 as compared to the original maturity date of December 30, 2022. Such amendment also increased the Revolving Line of Credit to its current limit of $20,000,000 (up from the original $16,000,000) and also provided for a similar increase in the inventory sublimit to $14,000,000 (up from the original $11,000,000). The Third Amendment, also allows the Company, subject to certain limitations, to begin amortizing $250,000 of its related party subordinated notes payable each quarter as long as certain conditions are met. In connection with these changes, the Company paid an amendment fee of $75,000. On May 17, 2022, the Company entered into the Fourth Amendment to the Webster Facility (“Fourth Amendment”). The purpose of the amendment was to increase the Term Loan to $5,000,000, generating proceeds of $1,945,000, reduce the monthly principal installments to be made in respect to the term loan, and establish a capital expenditure line of credit in the amount of $2,000,000 which the Company can draw upon from time to time to finance purchases of machinery and equipment, thereby increasing the amount of capital expenditures that the Company may make each year. The principal payments are $59,524 per month commencing in June 2022 with a balloon payment due on December 30, 2025. In connection with these changes, the Company paid an amendment fee of $20,000. On December 15, 2022, the Company made a draw against the capital expenditure line of credit in the amount of $877,913. The principal payments are $10,451 per month commencing in February 2023 with a balloon payment due on December 30, 2025. On January 4, 2023, the Company made an additional draw against the capital expenditure line of credit in the amount of $739,500. The principal payments are $8,804 per month commencing in March 2023 with a balloon payment due on December 30, 2025. Under the terms of the Webster Facility, both the Webster revolving line of credit and the Webster term loan will bear an interest rate equal to the greater of (i) 3.50% and (ii) a rate per annum equal to the rate per annum published from time to time in the “Money Rates” table of the Wall Street Journal (or such other presentation within The Wall Street Journal as may be adopted hereafter for such information) as the base or prime rate for corporate loans at the nation’s largest commercial bank, less sixty-five hundredths (-0.65%) of one percent per annum. The average interest rate charged was 4.50% and 3.50% for the years ended December 31, 2022 and 2021, respectively. Amendment fees paid in connection with the Webster Facility are included in Deferred Financing Costs, Net, Deposits and Other Assets, in the accompanying Condensed Consolidated Balance Sheets and are amortized over the term of the loan. In connection with the Webster Facility, the Company is required to maintain a defined Fixed Charge Coverage Ratio of 1.25 to 1.00 at the end of each Fiscal Quarter. The Webster Facility limits the amount of Capital Expenditures and dividends the Company can pay to its stockholders. Substantially all of the Company’s assets are pledged as collateral under the Webster Facility. As of December 31, 2022, the Company was in compliance with all financial loan covenants. However, the Company was in default of its covenant to provide its audited financial statements to Webster bank within ninety (90) days of its fiscal year end. The Company has subsequently received a waiver from the bank for this default. Finance Lease Obligations The Company entered into a finance lease in November of 2022 for the purchase of new manufacturing equipment. The obligation for the finance lease totaled $328,000 as of December 31, 2022. The lease has an imputed interest rate of 7.48% per annum and is payable monthly with the final payment due in September of 2026. The Company entered into a finance lease in December of 2021 for the purchase of new manufacturing equipment. The obligation for the finance lease totaled $0 and $263,000 as of December 31, 2022 and 2021, respectively. The lease had an imputed interest rate of 4.2% per annum and was payable monthly with the final payment due on December 17, 2026. In connection with the Fourth Amendment to the Webster Facility, this finance lease was paid in full.
|  | Year Ended |  |  | Year Ended |
|  | December 31, |  |  | December 31, |
|  | 2022 |  |  | 2021 |
Finance Lease cost: |  |  |  |  |  |
Amortization of ROU assets |  | $ | - |  |  | $ | 36,000 |
Interest on lease liabilities |  |  | 2,182 |  |  |  | - |
Total Lease Costs |  | $ | 2,182 |  |  | $ | 36,000 |
Other Information: |  |  |  |  |  |  |  |
Cash Paid for amounts included in the measurement lease liabilities: |  |  |  |  |  |  |  |
Financing cash flow from finance lease obligations |  | $ | 284,000 |  |  | $ | 5,000 |
Supplemental disclosure of non-cash activity |  |  |  |  |  |  |  |
Acquisition of finance lease ROU asset |  | $ | 350,000 |  |  | $ | - |
|  | December 31, |  |  | December 31, |
|  | 2022 |  |  | 2021 |
Weighted Average Remaining Lease Term - in years |  |  | 3.9 |  |  |  | 5.0 |
Weighted Average Discount rate - % |  |  | 7.48 | % |  |  | 4.20 | %
As of December 31, 2022, the aggregate future minimum Finance lease payment, including imputed interest are as follows:
For the year ending |  | Amount |
December 31, 2023 |  | $ | 100,000 |
December 31, 2024 |  |  | 100,000 |
December 31, 2025 |  |  | 100,000 |
December 31, 2026 |  |  | 77,000 |
Total future minimum finance lease payments |  |  | 377,000 |
Less: imputed interest |  |  | (49,000 | )
Less: Current portion |  |  | (79,000 | )
Long-term portion |  | $ | 249,000 |
Loans Payable – Financed Assets The Company financed the purchase a delivery vehicle in July 2020. The loan obligation totaled $30,000 and $39,000 as of December 31, 2022 and 2021, respectively. The loan bears no interest and a final payment is due and payable for all unpaid principal on July 20, 2026. Annual maturities of this loan are as follows:
For the year ending |  | Amount |
December 31, 2023 |  | $ | 9,000 |
December 31, 2024 |  |  | 9,000 |
December 31, 2025 |  |  | 9,000 |
December 31, 2026 |  |  | 3,000 |
Loans Payable - financed assets |  |  | 30,000 |
Less: Current portion |  |  | (9,000 | )
Long-term portion |  | $ | 21,000 |
Related Party Notes Payable Taglich Brothers, Inc. is a corporation co-founded by two directors of the Company, Michael and Robert Taglich. 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. From 2016 through 2020, the Company entered into various subordinated notes payable and convertible subordinated notes payable with Michael and Robert Taglich. These notes resulted in proceeds to the Company totaling $6,550,000. In connection with these notes, Michael and Robert were issued a total of 35,508 shares of common stock and Taglich Brothers, Inc. was issued promissory notes totaling $554,000 for placement agency fees. At December 31, 2020, related party notes payable totaled $6,012,000 and accrued interest totaled $400,000. On January 1, 2021, the related party subordinated notes due to Michael and Robert Taglich and Taglich Brothers, Inc., were amended to include all accrued interest through December 31, 2020 in the principal balance of the notes. Per the terms of the Webster Facility, these notes remain subordinate to the Webster Facility and are due on July 1, 2026. Approximately $2,732,000 of the related party convertible subordinated notes can be converted at the option of the holder into Common Stock of the Company at $15.00 per share, while the remaining $2,080,000 of the related party convertible subordinated notes can be converted at the option of the holder into common stock of the Company at $9.30 per share. There are no principal payments due on these notes. Under the terms of the Third Amendment to the Webster Facility, the Company is now allowed, subject to certain limitations, to make principal payments of $250,000 per quarter of this subordinated debt. During the year ended December 31, 2022, a principal payment of $250,000 was made against the Subordinated Notes due to Michael Taglich. This payment was made pursuant to the conditions set forth in the Third Amendment to the Webster Facility. The note holders and the principal balance of the notes of December 31, 2022 are shown below:
|  | Michael Taglich, |  |  | Robert Taglich, |  |  | Taglich Brothers, |  |  |  |
|  | Chairman |  |  | Director |  |  | Inc. |  |  | Total |
Convertible Subordinated Notes |  | $ | 2,666,000 |  |  | $ | 1,905,000 |  |  | $ | 241,000 |  |  | $ | 4,812,000 |
Subordinated Notes |  |  | 1,000,000 |  |  |  | 350,000 |  |  |  | - |  |  |  | 1,350,000 |
Total |  | $ | 3,666,000 |  |  | $ | 2,255,000 |  |  | $ | 241,000 |  |  | $ | 6,162,000 |
Interest expense for the years ended December 31, 2022 and 2021 on all related party notes payable was $487,000 and $460,000, respectively. Approximately $2,732,000 of these notes have an annual rate of interest of 6%, $2,080,000 have an annual interest rate of 7% and $1,600,000 have an annual interest rate of 12%.

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- Definition The entire disclosure for 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI https://asc.fasb.org/topic&trid=2208564 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1B -Subparagraph (h) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1C -Subparagraph (c) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1I -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1I -Subparagraph (d) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(c)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1B -Subparagraph (g) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1C -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1C -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1E -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495348-112611 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1B -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1I -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611 Reference 13: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1B -Subparagraph (i) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611 + Details
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