Debt

9 Months Ended

Sep. 30, 2019

5. Debt

The following table sets forth the items which comprise debt for the Company:



	September 30,		December 31,
	2019		2018
Revolving line of credit	$	1,162,145	$	2,025,592

Total term notes payable, net of issuance costs	$	3,654,813	$	3,946,878
Less current portion, net		389,420		389,420
Term notes payable, non-current, net		3,265,393		3,557,458

Subordinated notes payable, non-current, net		467,167		—
Total long term debt, net		3,732,560		3,557,458

Total short and long term debt, net	$	5,284,125	$	5,972,470

Availability to borrow under the Revolver is based on conditions defined in the credit agreement and amounts to $1,013,270, at September 30, 2019. The interest rate at September 30, 2019 was 5.36%.

The interest rate on the Term Notes at September 30, 2019 was 5.61%.

Subordinated promissory notes

In June 2019, the Company initiated a private offering to raise up to $500,000 through the sale of subordinated promissory notes (the “Notes”). The subscription for $500,000 was completed on July 5, 2019. The Notes bear interest on the unpaid principal at a simple annual interest rate equal to 10% per annum from the date of issuance. Interest only is payable in cash on a quarterly basis. The Notes mature on June 28, 2022. Each investor entered into a Subordination Agreement providing that the indebtedness pursuant to the Notes shall be subordinated to all indebtedness of the Company pursuant to its existing credit agreement with Rockland Trust Company.

For every $50,000 in principal invested in the notes, each investor received a warrant to purchase 10,000 shares of common stock (collectively, the “Warrants”, see Note 8). The Warrants are exercisable at an exercise price equal to $2.90 per share, namely, the average closing market price of the Company’s common stock on the fifteen days prior to the date of the Warrant, plus 12%. The Warrants contain standard provisions relating to anti-dilution adjustments for stock splits and recapitalizations. The Warrants also provide the investors with standard piggy-back registration rights in the event the Company files a registration statement (other than a registration statement on Form S-4 or S-8) to register the shares of common stock subject to standard limitations in the discretion of any underwriter.

In order to account for the subordinated notes payable and warrants, the Company allocated the proceeds between the notes and warrants on a relative fair value basis. As a result, the Company allocated $464,182 to the notes and $35,818 to the warrants. The total discount on the notes is being recognized as non-cash interest expense over the term of the notes. As of September 30, 2019, non-cash interest expense in the amount of $2,985 was recorded as amortization of the discount.

Related parties participated in the private offering as follows:

Jason Chambers, Director	$50,000
Rodd Friedman, Director	$100,000
Andrei Soran, Director	$50,000

MICRON SOLUTIONS INC /DE/ 10-Q