Quarterly report pursuant to Section 13 or 15(d)

Notes Payable

v3.7.0.1
Notes Payable
6 Months Ended
May 31, 2017
Debt Disclosure [Abstract]  
Notes Payable

Note 5 – Notes Payable

On June 30, 2015, the Company entered into a note payable in the amount of $1,300,000 in connection with the APA (Note 2). The note was payable in 48 monthly installments of $29,938 including principal and interest at the rate of 5% per annum, commencing on July 31, 2015, and ending on June 30, 2019. Pursuant to the APA, the note was secured by all assets, inventory, molds and tools sold and transferred to the Company, tangible personal property held for sale or lease, accounts, contract rights, and other rights to payment and general intangibles.

On April 22, 2016 the Company paid $778,287 which constituted payment in full of the Company’s payment obligations to CMDG pursuant to the terms of the original APA and Promissory Note, as well as pursuant to the terms of the Loan/Promissory Note Sale Agreement and Mutual Release executed by the Company and CMDG on April 22, 2016. Prior to making the payment in full, the Company made payments totaling $269,443 pursuant to the terms of the original APA and Promissory Note. The difference between the remaining principal balance and the final payment made on April 22, 2016 was $300,593 which was recorded as gain on extinguishment of debt for the three and six months ended May 31, 2016 on the accompanying consolidated statements of comprehensive income. As of the three months ended May 31, 2016, the Company recognized $7,874 of interest expense related to the note payable. As of the six months ended May 31, 2016, the Company recognized $22,265 of interest expense related to the note payable.

On May 20, 2016, the Company entered into a Credit Agreement (“Agreement”) with Texas Capital Bank, National Association (“TCB”) for a term loan of $8.0 million in senior credit facilities. The proceeds of the term loan were used by the Company to fund repurchases of the Company’s common stock. Subject to the terms of the Agreement, on May 20, 2016, TCB advanced the Company $100.00. On July 1, 2016, TCB advanced the remaining principal amount of $7,999,900 per a promissory note dated May 20, 2016 between the Company and TCB, at a rate of 3.75% per annum plus LIBOR, payable monthly with a maturity date of July 2021. On August 26, 2016, the Company entered into a First Amendment to Credit Agreement with TCB. Pursuant to terms of the First Amendment to Credit Agreement, on August 26, 2016, TCB made an additional advance to the Company in principal amount of $2,133,433 per an Amended and Restated Promissory Note dated August 26, 2016 between the Company and TCB. The additional proceeds of the term loan were used by the Company to fund a portion of the Settlement Agreement and Release of All Claims with Charles D. Nyberg and Mary J. Nyberg, individually and as Trustees of the CDMJ Nyberg Family. As of May 31, 2017 and November 30, 2016, principal paid to date is $1,633,000 and $633,000, respectively, at a rate of 3.75% per annum plus LIBOR. As of the three month and six months ended May 31, 2017, the Company paid interest of $104,030 and $206,518, respectively, which is reflected in interest expense on the accompanying consolidated statements of comprehensive income. As of the three and six months ended May 31, 2016, the Company paid interest of $0 and $0, respectively.

On May 20, 2016, the Company also entered into a Subordination Agreement with TCB and CrowdOut Capital LLC (“CrowdOut”) for a subordinated loan of the principal amount of $650,000, which amount CrowdOut advanced to the Company on May 20, 2016. The proceeds of the subordinated loan were to be used by the Company to fund continued repurchases of the Company’s common stock. Per a promissory note dated May 20, 2016 between the Company and CrowdOut, interest at 12% per annum on the principal sum of $650,000 was payable monthly with a maturity date of July 2021, at which time, the principal amount of $650,000 was payable. On June 5, 2017, the principal sum of $650,000 plus interest of $867 was paid to CrowdOut and the subordinated loan was paid in full. As of the three and six months ended May 31, 2017, the Company paid interest of $19,933 and $39,433, respectively which is reflected in interest expense on the accompanying consolidated statements of comprehensive income. As of the three and six months ended May 31, 2016, the Company paid interest of $0 and $0, respectively.

Collateral of the term and subordinated loans includes all money, securities and property of the Company.

The Company incurred debt issuance costs related to the term loan in the amount of $378,785 which is recorded as a direct reduction of the carrying amount of the note payable and amortized over the life of the loan. As of the three and six months ended May 31, 2017, $32,289 and $66,442, respectively, of the debt issuance costs were amortized and are reflected in interest expense on the accompanying consolidated statements of comprehensive income. As of the three and six months ended May 31, 2016, $0 and $0, respectively, of the debt issuance costs were amortized.

 

As of May 31, 2017 and November 30, 2016, the note payable obligation was as follows:

 

     May 31, 2017      November 30, 2016  

Note payable

   $ 9,150,100      $ 10,150,100  

Unamortized debt issuance costs

     (263,908      (330,350
  

 

 

    

 

 

 

Net note payable

   $ 8,886,192      $ 9,819,750  
  

 

 

    

 

 

 

Current portion of note payable

   $ 2,000,000      $ 2,000,000  

Long-term note payable, net of debt issuance costs

     6,886,192        7,819,750  
  

 

 

    

 

 

 

Total

   $ 8,886,192      $ 9,819,750  
  

 

 

    

 

 

 

Interest expense on the note payable for the three and six months ended May 31, 2017 was as follows:

 

     For the three
months ended
May 31, 2017
     For the six
months ended
May 31, 2017
 

Interest expense on notes payable

   $ 123,963      $ 245,951  

Debt issuance costs

     32,289        66,442  
  

 

 

    

 

 

 

Total interest expense

   $ 156,252      $ 312,393  
  

 

 

    

 

 

 

There was $0 interest expense related to the note payable for the three and six months ended May 31, 2016.