XML 34 R14.htm IDEA: XBRL DOCUMENT

Loan Payable

12 Months Ended

Dec. 31, 2016

8A. Line of Credit – Western Alliance Bank

On November 4, 2016, the Company entered into a business financing agreement (“Financing Agreement”) with Western Alliance Bank (“Western Alliance”), in order to establish a formula based revolving credit line pursuant to which the Company may borrow an aggregate principal amount of up to $5,000,000, subject to the terms and conditions of the Financing Agreement. Upon execution of the Financing Agreement, the Company paid a $25,000 facility fee and a $900 due diligence fee to Western Alliance. The Company also paid a consulting fee of $100,000 to Trump Securities LLC and Credo 180, LLC pursuant to an exclusive placement and advisory agreement by and among the Company. In addition, there was approximately $52,000 of due diligence and legal fees the Company incurred associated with the Financing Agreement. As of December 31, 2016, the Company did not have any outstanding loan payable from this line of credit arrangement.

The interest rate will be calculated at a floating rate per month equal to (a) the greater of (i) 3.50% per year or (ii) the Prime Rate published in the Money Rates section of the Western Edition of The Wall Street Journal, or such other rate of interest publicly announced by Lender as its Prime Rate, plus (b) 2.50 percentage points, plus an additional 5.00 percentage points during any period that an event of default has occurred and is continuing. The Company’s obligations under the Financing Agreement are secured by a security interest in substantially all of the Company’s current and future personal property assets, including intellectual property.

Any borrowings, interest or other fees or obligations that the Company owes Western Alliance pursuant to the Financing Agreement will be become due and payable on November 4, 2018. If the Financing Agreement is terminated prior to November 4, 2017, the Company will pay a termination fee of $50,000 to Western Alliance, provided that such termination fee will be waived in the event that the Company refinances with Western Alliance.

The Financing Agreement includes quick ratio, EBDAS and minimum revenue financial covenants. As of December 31, 2016, the Company failed to meet one of the covenants, which was to at least meet 50% of projections of EBDAS and was in default under the Financing Agreement (the “Existing Default.”). On March 12, 2017, the Company entered into Second Business Financing Modification Agreement with Western Alliance under which Western Alliance waived the Existing Default.

Debt Issuance Costs

The Company incurred debt issuance costs of approximately $177,000 in connection with this line of credit arrangement and had an unamortized balance of approximately $161,000 as of December 31, 2016. For the line of credit arrangement, the Company has elected a policy to keep the debt issuance costs as an asset, regardless of whether an amount is drawn. The remaining unamortized deferred asset will be amortized over the remaining life of the line of credit arrangement.

8B. Term Loan – Hercules Technology II, L.P.

On June 14, 2016, the Company repaid $4,851,542 owed to Hercules Funding II LLC (“Hercules”), under the Company’s loan and security agreement with Hercules dated as of September 29, 2014 (the “Loan Agreement”).

The payoff amount was comprised of the following:

	Payoff Amount

Principal		$	4,554,659
Accrued interest			15,790
End of term charge			187,500
Prepayment fee			91,093
Other fees			2,500

Total		$	4,851,542

Upon receipt of the payoff Amount, the Loan Agreement terminated.

The Loan Agreement initially provided the Company with access to a term loan of up to $5 million. The first $2.5 million of the term loan was funded at the closing of the Loan Agreement, and was repayable in installments over 30 months, following an initial interest-only period of twelve months after closing. The Company drew down the remaining $2.5 million of the term loan on June 17, 2015 and the interest-only period was extended to March 31, 2016. In connection with the loan, the Company paid an aggregate of $65,000 in facility charges to Hercules and granted Hercules first priority liens and a security interest in substantially all of its assets.

The Loan Agreement also provided (i) a borrower option to repay principal in common stock up to an aggregate amount of $500,000 at a conversion price of $3.879 per share and (ii) a lender option to receive principal repayments in common stock up to an aggregate amount of $500,000 at a conversion price of $3.879 per share, subject to certain conditions. However, no principal was repaid in common stock. On the commitment date, no separate accounting was required for the conversion feature.

In connection with the termination of the Loan Agreement, Hercules’s commitments to extend further credit to the Company terminated, all obligations, covenants, debts and liabilities of the Company under the Loan Agreement were satisfied and discharged in full, all documents entered into in connection with the Loan Agreement, other than a warrant issued pursuant to the Loan Agreement, were terminated, all liens or security interests granted to secure the obligations under the Loan Agreement terminated and all guaranties of the Company’s obligations under the Loan Agreement terminated.

The payoff amount, excluding the accrued interest to date, was $4,835,752 and the net carrying amount of the debt on the extinguishment date was $4,522,653. The difference of $313,099 was recognized as a non-operating loss in the statement of operations during the year ended December 31, 2016.

		Net Carrying Amount			Payoff Amount (Excluding Interest)

Principal	$	4,554,659		Principal	$	4,554,659
Accrued end of term charge		103,909		End of term charge		187,500
Deferred financing cost		(45,606	)	Prepayment fee		91,093
Warrant discount		(90,309	)	Other fees		2,500

Total	$	4,522,653		Total	$	4,835,752
		(A)				(B)

Loss on debt extinguishment	$	(313,099	)
		(A) - (B)

The term loan bore interest at the rate per year equal to 9.35% from September 29, 2014 to December 16, 2015 and 9.60% from December 17, 2015 to June 14, 2016. The total interest expenses related the term loan, including cash interest payments, the amortizations of debt issuance costs and debt discount, and the accrual of end of term charge were approximately $324,000, $554,000 and $112,000 for the years ended December 31, 2016, January 2, 2016 and January 3, 2015, respectively.

Warrant Issued to Lender

Pursuant to the Loan Agreement, the Company issued Lender a warrant (the “Warrant”) to purchase 139,674 shares of our common stock at an exercise price of $3.186 per share, subject to customary anti-dilution provisions. The Warrant is exercisable and expires five years from the date of issuance.

The Company determined the Warrant issued to Lender during the year ended January 3, 2015 to be equity classified. The Company estimated the fair value of this Warrant as of the issuance date using a Black-Scholes option pricing model with the following assumptions:

	September 29, 2014
Fair value of common stock	$	3.24
Volatility		72.40	%
Expected dividends		0.00	%
Contractual term		5.0 years
Risk-free rate		1.76	%

The Company utilized this fair value in its allocation of the loan proceeds between loan payable and the Warrant which was performed on a relative fair value basis. The fair value of the Warrant to purchase 139,674 shares of our common stock was approximately $273,000. Ultimately, the Company allocated $246,000 to the Warrant and recognized this amount in additional paid in capital. Accordingly, this amount was recognized as a debt discount and was being amortized as interest expense using the effective interest method over the term of the loan. Amortizations of this debt discount were $39,000, $90,000 and $28,000 for the years ended December 31, 2016, January 2, 2016 and January 3, 2015, respectively.

Debt Issuance Costs and End of Term Charge

The Company incurred debt issuance costs of approximately $118,000 in connection with this term loan. The debt issuance costs were being amortized as interest expense using the effective interest method over the term of the loan. In addition, the Company was obligated to pay an end of term charge of $188,000, which is 3.75% of the $5.0 million drawn under the loan. The end of term charge was being accrued as additional interest expense using the effective interest rate method over the term of the loan. When the Company paid off the debt on June 14, 2016, there were approximately $46,000 debt issuance costs that had not been amortized and $84,000 end of term charge remaining to be accrued. These unamortized debt issuance costs and the end of term charge remaining to be accrued were part of the loss on debt extinguishment recognized in 2016. Interest expense recorded in relation to amortization of debt issuance costs and the accrual of the end of term charge prior to the payoff was $55,000, $99,000 and $22,000 for the years ended December 31, 2016, January 2, 2016 and January 3, 2015, respectively.