Note 10 - Line of Credit and Due to Related Parties

In May 2017, the Company along with the majority owners serving as co-borrowers entered into a credit facility providing for up to $2 million of borrowings secured by the personal assets of the two majority owners. Through various amendments, the maximum borrowings under the credit facility increased to $4.6 million with a maturity of May 2019. Borrowings bear interest at LIBOR plus 3% and were repaid on May 6, 2019. At December 31, 2018, outstanding borrowings were $4.6 million.  Accrued interest recorded at December 31, 2018 was less than $0.1 million.

The credit facility was secured by personal assets of the co-borrowers, as noted above. Covenants under the credit facility required the Company to be within certain restrictions. As of December 31, 2018, the Company was in compliance with its covenants.

At December 31, 2018, due to related parties consisted of a $1.6 million unsecured note payable to the director of the Company bearing 26.6% interest with principal and interest due within 30 days after change of control, as described below.  On May 6, 2019, this loan was repaid.  There was no accrued interest recorded at December 31, 2018.   The unsecured note totaled $1.2 million during nine months ended September 30, 2018.

On May 6, 2019, the Better Choice Company refinanced the $4.6 million credit facility and the $1.6 million note payable to the director with a $6.2 million revolving line of credit agreement with a financial institution (the “revolving line of credit”). The $6.2 million revolving line of credit agreement (“revolving credit agreement”) is secured by $6.2 million in restricted cash held in a Money Market Account. All advances relating to this revolving credit agreement bear a fixed rate of interest equal to 3.7% per annum, which may be adjusted from time to time in the event that the interest payable on the Money Market Account increases where the interest rate on the revolving line of credit is 185 basis points higher than the rate payable on the Money Market Account. The Company paid an issuance fee of $8,856 upon closing, which was recorded as a contra liability and will be amortized over the life of the debt. . The Company is also required to pay a late charge equal to 5% of the aggregate amount of any payments of principal and/or interest that are paid more than 10 days after the due date.  This revolving credit agreement matures on May 6, 2020 and requires that the Company maintain the $6.2 million restricted deposits on account at the bank.  If withdrawals are made from the account, the amount available under the revolving credit agreement decreases by the amount of the withdrawal.

Management has determined that the fair value of debt approximates the carrying value of the revolving line of credit given its short-term nature.

The Company has granted the Lender a security interest in all assets of the Company owned or later acquired. The revolving credit agreement also contains certain events of default, representations, warranties and covenants of the Company and its subsidiaries. For example, the revolving credit agreement contains representations and covenants that, subject to exceptions, restrict the Company’s ability to do the following, among things: incur additional indebtedness, engage in certain asset sales, or undergo a change in ownership. As of September 30, 2019, the Company was in compliance with its covenants.

Interest expense of approximately $0.2 million was recorded in the consolidated statements of operations and comprehensive loss related to the lines of credit and the director note for the nine months ended September 30, 2019, and $0.1 million and less than $0.1 million for three and nine months ended September 30, 2018, respectively. Interest expense of approximately $0.1 million was recorded in the consolidated statements of operations and comprehensive loss related to the lines of credit for the three months ended September 30, 2019.