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Bank Financing | 6 Months Ended
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Sep. 30, 2020
Debt Disclosure [Abstract] |
Bank Financing | NOTE 6 – BANK FINANCING Intercreditor Revolving Credit Facility Crestmark Bank and Iron Horse Credit On June 16, 2020, the Company executed an Intercreditor Revolving Credit Facility on eligible accounts receivable and inventory which replaced the Company’s previous revolving credit facility with PNC Bank which was terminated on June 16, 2020. The Company signed a two-year Loan and Security Agreement for a $10.0 million financing facility with Crestmark Bank (“Crestmark Facility”) on eligible accounts receivable. The outstanding loan balance cannot exceed $10.0 million during peak selling season between July 1 and December 31and is reduced to a maximum of $5.0 million between January 1 and July 31. Costs associated with closing of the Intercreditor Revolving Credit Facility of approximately $74,000 are deferred and will be amortized over one year. During the three and six months ended September 30, 2020 the Company incurred amortization expense of approximately $18,000 and $21,000, respectively associated with the amortization of deferred financing costs from the Intercreditor Revolving Credit Facility. Under the Crestmark Facility:
| ● | Advance rate shall not exceed 70% of Eligible Accounts Receivable aged less than 90 days from invoice date.
| ● | Crestmark shall maintain a base dilution reserve of 1% for each 1% of dilution over 15%.
| ● | Crestmark will implement an availability block of 20% of amounts due on Iron Horse Credit (“IHC”) Intercreditor Revolving Credit Facility.
| ● | Mandatory pay-down of the loan to zero in January and February each year.
The Crestmark Facility is secured by a perfected security interest in all assets including a first security interest in Accounts Receivable and Inventory. Notwithstanding the foregoing, Crestmark shall subordinate its first security interest in inventory to IHC as agreed between all parties. The Crestmark Facility bears interest at the Wall Street Journal Prime Rate plus 5.50% with a floor of 8.75%. Interest and Maintenance Fees shall be calculated on the higher of the actual average monthly loan balance from the prior month or a minimum average loan balance of $2,000,000. For the three and six months ended September 30, 2020 the Company recorded interest expense of approximately $51,000. The Crestmark Facility expires on June 15, 2022. As of September 30, 2020, the Company had an outstanding balance of approximately $134,000 on the Crestmark Facility. In addition, the Company executed a two-year Loan and Security Agreement with Iron Horse Credit (“IHC Facility”) for up to $2,500,000 in inventory financing. Under the IHC Facility:
| ● | Advance rate shall not exceed the lower of (a) 70% of the inventory cost or (b) 85% of Net Orderly Liquidation Value (NOLV) as determined by an independent third-party appraiser engaged by IHC.
| ● | The Company must maintain a fixed charge coverage ratio test of 1:1 times measured on a rolling 12-month basis, defined as earnings before interest, taxes, depreciation and amortization (“EBITDA”) less non-financed capital expenditures, cash dividends and distributions paid and cash taxes paid divided by the sum of interest and principal on all indebtedness. This financial covenant has been waived for the first six months of the IHC Facility.
The IHC Facility is secured by a perfected security interest in the Company’s inventory. The IHC Facility bears interest at 1.292% per month or 15.51% annually. Interest shall be calculated on the higher of the actual average monthly loan balance from the prior month or a minimum average loan balance of $1,000,000. Interest expense for the three and six months ended September 30, 2020 was approximately $54,000 and $62,000, respectively. The IHC Facility expires on June 15, 2022. As of September 30, 2020, there was an outstanding balance of $1,022,000. Revolving Credit Facility PNC Bank On June 22, 2017, the Company renewed the existing revolving credit facility (the “PNC Revolving Credit Facility”) with PNC Bank, National Association (“PNC”) for an additional three years which was terminated on June 16, 2020 and replaced by the Intercreditor Revolving Credit Facility with Crestmark and IHC. In September 2019, the Company defaulted on the PNC Revolving Credit Facility due to non-compliance with the fixed charge coverage ratio requirement. In November 2019, the Company entered into a Forbearance Agreement with PNC whereby PNC delayed taking action they would have been be entitled to under a default through March 31, 2020. The Company remained in default of the Forbearance Agreement up until termination of the Revolving Credit Facility on June 16, 2020 at which time the Company executed the Intercreditor Revolving Credit Facility with Crestmark and IHC. As of September 30, 2020, and March 31, 2020 there were no amounts due on the PNC Revolving Credit Facility. During the three months ended September 30, 2020 and 2019 the Company incurred interest expense of approximately $0 and $32,000, respectively, on amounts borrowed against the PNC Revolving Credit Facility. During the six months ended September 30, 2020 and 2019 the Company incurred interest expense of approximately $0 and $33,000, respectively on amounts borrowed against the PNC Revolving Credit Facility. Note Payable Payroll Protection Plan On May 5, 2020, the Company received loan proceeds from Crestmark in the amount of approximately $444,000 under the Paycheck Protection Program (“PPP”). The PPP was established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest may be forgivable to the extent the Company uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness may be reduced if the borrower terminates employees or reduces salaries during the eligible period. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments until a forgiveness application has been accepted and reviewed by the SBA, and the SBA has provided Crestmark with the loan forgiveness amount. For the three months ended September 30, 2020 and 2019 the Company incurred interest expense of approximately $1,000 and $0, respectively. For the six months ended September 30, 2020 and 2019 the Company incurred interest expense of approximately $2,000 and $0, respectively. As of September 30, 2020 there was an outstanding balance on the PPP note payable of approximately $444,000. The Company currently expects to apply for forgiveness of the entire loan balance. Installment Notes Payable On June 18, 2019, the Company entered into a financing arrangement with Dimension Funding, LLC (“Dimension”) to finance an entire ERP System project over a term of 60 months at a cost of approximately $365,000. As of September 30, 2020, the Company executed three installment notes totaling approximately $365,000 for payments issued to the project vendor. The installment notes have 60-month terms with interest rates of 7.58%, 8.55% and 9.25%, respectively. The installment notes are payable in monthly installments of $7,459 which include principal and interest. As of September 30, 2020, and March 31, 2020 there was an outstanding balance on the installment notes of approximately $312,000 and $346,000, respectively. For the three months ended September 30, 2020 and 2019 the Company incurred interest expense of approximately $7,000. For the six months ended September 30, 2020 and 2019 the Company incurred interest expense of approximately $14,000 and $7,000, respectively. Subordinated Debt/Note Payable to Related Party In conjunction with the Crestmark Facility and IHC Facility there is a subordination agreement on related party debt due to Starlight Marketing Development, Ltd. of approximately $803,000. On June 1, 2020 the remaining amount due on the subordinated debt of approximately $803,000 was converted to a note payable (“subordinated note payable”) which bears interest at 6%. As part of the agreement to convert the subordinated debt to a note payable it was agreed that interest expense would be accrued at the same 6% interest rate on the unpaid principal retroactively from the date that previously scheduled payments had been missed. During the three months ended September 30, 2020 and 2019 interest expense was approximately $12,000 and $0, respectively on the subordinated note payable and the related party subordinated debt. During the six months ended September 30, 2020 and 2019 interest expense was approximately $24,000 and $2,000, respectively on the subordinated note payable and the related party subordinated debt. In connection with the Intercreditor Revolving Credit Facility the Company was required to subordinate the subordinated note payable. Both the Crestmark Facility and IHC Facility agreements allow for the repayment of the subordinated note payable provided any amounts borrowed against these credit facilities are paid in full, the Company maintains a 1 : 1 debt coverage ratio and exhibits sufficient cash liquidity to support on-going operations. There is no set schedule with regards to repayment of the note and as such the subordinated note payable has been classified as a non-current liability as of September 30, 2020 and March 31, 2020 on the consolidated balance sheets. As of September 30, 2020 and March 31, 2020 the remaining amount due on the subordinated debt was approximately $803,000.

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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 http://asc.fasb.org/topic&trid=2208564 + Details
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