Note 6. Debt

Working Capital Line of Credit

The Company entered into a $14,000,000 revolving line of credit with ACF Finco I, LP (“ACF”) on August 31, 2016, the proceeds of which were used to pay off the prior line of credit, pay new loan costs of approximately $309,000, and provide additional working capital to the Company, this facility is secured by all assets of John Keeler & Co., Inc. This facility was amended on November 18, 2016, June 19, 2017, October 16, 2017, September 19, 2018, November 8, 2018, July 29, 2019, and November 26, 2019.

The line of credit bears an interest rate equal to the greater of 3 Month LIBOR rate plus 9.25%, the Prime rate plus 6.0% or a fixed rate of 6.5%.

The ACF line of credit agreement is subject to the following terms:

On November 26, 2019, Inc. the Company entered into the seventh amendment to the loan and security agreement with ACF. This amendment memorialized the acquisition of Coastal Pride Seafood, LLC, made Coastal Pride Seafood, LLC a co-borrower to the facility. Additionally, the seventh amendment waived and reset the covenant default that occurred during 2019, and extended the term of the facility to 5 years and is subject to early termination by the lender upon defined events of default. During the year ended December 31, 2019 the Company was in violation of its minimum EBITDA covenant as well as exceeding the covenant related to monies advanced to Bacolod Blue Star by approximately $85,000.

The Company analyzed the Line of Credit modification under ASC 470-50-40-21 and determined that the modification did not trigger any additional accounting due to the revolving line of credit remain unchanged

As of December 31, 2019, the line of credit bears interest rate of 11.164%.

As of December 31, 2019 and 2018, the line of credit had an outstanding balance of approximately $6,918,000 and $8,204,000, respectively.

The Company amortizes loan costs on a straight-line basis, which approximates the interest method, over the term of the credit facility. The Company added loan costs associated with the working capital lines of credit of approximately $25,000 and $70.000 for the twelve months ending December 31, 2019 and 2018, leaving balances in the asset of $5,470 and $109,200, net of approximately $513,171 and $384,500 of accumulated amortization as of December 31, 2019 and 2018, respectively. The Company recorded amortization expense of approximately $129,000 and $155,500 during the years ended December 31, 2019 and 2018, respectively.

John Keeler Promissory Notes - Subordinated

The Company had unsecured promissory notes outstanding to its stockholder of approximately $2,910,000 as of December 31, 2019 and 2018. These notes are payable on demand and bear an annual interest rate of 6%. These notes are subordinated to AFS Finco I LP (“Ares”) as a stipulation to the working capital line of credit. Principle payments are not allowed under this subordination agreement that was effective August 31, 2016. No Principal payments were made by the Company during 2019 or 2018.

Interest expense for the John Keeler Promissory notes totaled approximately $174,600 the years ending December 31, 2019 and 2018.

Kenar Note

On March 26, 2019, the Company issued a four-month promissory note in the principal amount of $1,000,000 (the “Kenar Note”) to Kenar Overseas Corp., a company registered in Panama (the “Lender”) the term of which was previously extended to March 31, 2020 after which time, on May 21, 2020, the Kenar Note was amended to (i) set the maturity date at March 31, 2021 (unless extended to September 30, 2021 at the Lender’s sole option), (ii) provide that the Company use one-third of any capital raise from the sale of its equity to reduce the outstanding principal under the Kenar Note, (iii) set the interest rate at 18% per annum, payable monthly commencing October 1, 2020, and (iv) to reduce the number of pledged shares by Mr. Keeler to 4,000,000. As consideration therefor, the Company has agreed to issue 1,021,266 shares of its Common Stock to Kenar. The outstanding principal amount of the note at December 31, 2019 was $872,500.

Interest expense for the Kenar note totaled approximately $160,400 during the year ending December 31, 2019.

Lobo Note

On April 2, 2019, the Company issued a four-month unsecured promissory note in the principal amount of $100,000 (the “Lobo Note”) to Lobo Holdings, LLC, a stockholder in the Company (“Lobo”). The Lobo Note bears interest at the rate of 18% per annum. The Lobo Note may be prepaid in whole or in part without penalty. John Keeler, the Company’s Executive Chairman and Chief Executive Officer, pledged 1,000,000 shares of common stock of the Company to secure the Company’s obligations under the Lobo Note. The Lobo Note matured on August 2, 2019 and was extended through December 2, 2019 on the same terms and conditions. On November 15, 2019, the Company paid off the Lobo Note with the issuance to Lobo of an unsecured promissory note in the principal amount of $100,000 which bears interest at the rate of 15%, which may be prepaid in whole or in part without penalty, and matures on March 31, 2020. On April 1, 2020 the Company paid off the November 15 2019 Lobo Note with the issuance of a 6 month unsecured promissory note with a principal amount of $100,000, bearing an interest rate of 10%. This note may be prepaid in whole or in part without penalty.

Interest expense for the Lobo note totaled approximately $13,100 during the year ending December 31, 2019.

Walter Lubkin Jr. Note - Subordinated

On November 26, 2019, the Company issued a five year unsecured promissory note in the principal amount of $500,000 to Walter Lubkin Jr. as part of the purchase price for the acquisition of Coastal Pride Co. Inc. The note bears and interest rate of 4% per annum. The note is payable quarterly based on an amount equal to the lesser of (i) $25,000 or (ii) 25% of the EBITDA of Coastal Pride Seafood, LLC, as determined on the first day of each quarter. The first payment was scheduled for February 26, 2020, however, the EBITDA generated for Coastal during the 3 months did not warrant a principal payment. This note is subordinated to ACF as a stipulation to the working capital line of credit. Principal payments are allowed under this subordination agreement that was effective November 26, 2019 so long as the borrower is not in default of its lending agreement. No principal payments were made by the Company during 2019.

Interest expense for the Walter Lubkin Jr. note totaled approximately $2,000 during the year ending December 31, 2019.

Walter Lubkin III Convertible Note - Subordinated

On November 26, 2019, the Company issued a thirty-nine month unsecured promissory note in the principal amount of $87,842 to Walter Lubkin III as part the purchase price for the acquisition of Coastal Pride Co. Inc. The note bears and interest rate of 4% per annum. The note is payable in equal quarterly payments over six quarters beginning August 26, 2021. At the election of the holder, at any time after the first anniversary date and prior to the end of the 39 month term of this note and prior to payment in full of this note, the principal amount, together with accrued interest may be converted into the Company’s common stock at a rate of $2.00 of principal and/or interest per common share. This note is subordinated to ACF as a stipulation to the working capital line of credit. Principle payments are allowed under this subordination agreement that was effective November 26, 2019 so long as the borrower is not in default of its lending agreement. No Principal payments were made by the Company during 2019.

Interest expense for the Walter Lubkin III note totaled approximately $400 during the year ending December 31, 2019.

Tracy Greco Convertible Note - Subordinated

On November 26, 2019, the Company issued a thirty-nine month unsecured promissory note in the principal amount of $71,372 to Tracy Greco as part of the purchase price for the acquisition of Coastal Pride Co. Inc. The note bears and interest rate of 4% per annum. The note is payable in equal quarterly payments over six quarters beginning August 26, 2021. At the election of the holder, at any time after the first anniversary date and prior to the end of the 39 month term of this note and prior to payment in full of this note, the principal amount, together with accrued interest may be converted into the Company’s common stock at a rate of $2.00 of principal and/or interest per common share. This note is subordinated to ACF as a stipulation to the working capital line of credit. Principle payments are allowed under this subordination agreement that was effective November 26, 2019 so long as the borrower is not in default of its lending agreement. No Principal payments were made by the Company during 2019.

Interest expense for the Tracy Greco note totaled approximately $300 during the year ending December 31, 2019.

John Lubkin Convertible Note – Subordinated

On November 26, 2019, the Company issued a thirty-nine month unsecured promissory note in the principal amount of $50,786 to John Lubkin. as part the purchase price of Coastal Pride Co. Inc. The note bears and interest rate of 4% per annum. The note is payable in equal quarterly payments over six quarters beginning August 26, 2021. At the election of the holder, at any time after the first anniversary date and prior to the end of the 39 month term of this note and prior to payment in full of this note, the principal amount, together with accrued interest may be converted into the Company’s common stock at a rate of $2.00 of principal and/or interest per common share. This note is subordinated to ACF as a stipulation to the working capital line of credit. Principle payments are allowed under this subordination agreement that was effective November 26, 2019 so long as the borrower is not in default of its lending agreement. No Principal payments were made by the Company during 2019.

Interest expense for the John Lubkin note totaled approximately $200 during the year ending December 31, 2019.