XML 29 R18.htm IDEA: XBRL DOCUMENT v3.7.0.1
Subsequent Events
3 Months Ended
Mar. 31, 2017
Subsequent Events [Abstract]  
Subsequent Events
Subsequent Events

As discussed in more detail in the Company’s Current Report on Form 8-K filed with the SEC on May 12, 2017, on May 11, 2017, the Company closed the merger agreement (the "Merger Agreement" or the "Merger") with Piper Merger Corp., Provant Health Solutions, LLC, and Wellness Holdings, LLC (collectively, "Provant") that had been previously signed on March 7, 2017. As a result of the Merger, Provant became a wholly-owned subsidiary of the Company. As Merger consideration, the Company issued 10,448,849 shares to the Provant equity holders (the “Former Provant Owners”). The Former Provant Owners now hold approximately 49% of the Company’s approximately 25.5 million outstanding shares of common stock at closing.

In order to fund the Merger, the Company entered into the A&R Credit Agreement with SWK which increases the Term Loan balance from $3.7 million to $6.5 million. The A&R Credit Agreement provides the Company a principal repayment holiday until February 2019.  Interest, fees, costs, and expenses are payable quarterly beginning in the third quarter of 2017.  All mandatory payments of principal, interest, fees, costs, and expenses are determined by a revenue-based formula that has been in effect since the original Credit Agreement.  Principal payments, once they begin, are capped at $500,000 per quarter. In addition, SWK is providing a $2.0 million seasonal revolving credit facility, which is guaranteed by the parent company of one of the Former Provant Owners. The Company also entered into the Third Amendment with SCM to expand the Company's revolving credit facility from $7.0 million to $10.0 million with an accordion to $15.0 million during high-volume months. The A&R Credit Agreement and the Third Amendment revised the previous covenants, and contain customary representations and warranties and various affirmative and negative covenants including minimum aggregate revenue, adjusted EBITDA, and consolidated unencumbered liquid assets requirements. Noncompliance with these covenants constitutes an event of default. Minimum aggregate revenue must not be less than $10.5 million for the three months ending June 30, 2017, $26.0 million for the six months ending September 30, 2017, $53.0 million for the nine months ending December 31, 2017, $69.0 million for the twelve months ending March 31, 2018, $70.0 million for the twelve months ending June 30, 2018, $71.0 million for the twelve months ending September 30, 2018, $74.0 million for the twelve months ending December 31, 2018, and $75.0 million for the twelve months ending each fiscal quarter thereafter. Adjusted EBITDA must not be less than $3.0 million for the twelve months ending December 31, 2017, $5.0 million for the twelve months ending March 31, 2018, $5.2 million for the twelve months ending June 30, 2018, $6.0 million for the twelve months ending September 30, 2018, $8.0 million for the twelve months ending December 31, 2018, and $9.0 million for the twelve months ending each fiscal quarter thereafter. In addition, consolidated unencumbered liquid assets must not be less than $0.5 million on the last day of the fiscal quarter ending June 30, 2017, $0.75 million on the last day of the fiscal quarter ending September 30, 2017, and $1.0 million any fiscal quarter thereafter.

In connection with the execution of the A&R Credit Agreement, the Company issued to SWK a Second Amended and Restated Closing Date Warrant (the “A&R Warrant”) to replace its existing warrant to purchase 543,479 shares of the Company’s common stock. Upon exercise of the A&R Warrant, the total number of shares of the Company’s common stock to be issued to SWK will be approximately 1.3 million at an approximate strike price of $0.84 per share.

To fulfill a condition of the A&R Credit Agreement, the Company has issued 4,025,000 shares of its common stock for an aggregate purchase price of $3.2 million between February 1, 2017 and May 11, 2017. These shares were sold at a purchase price of $0.80 per share plus one-half warrant per share with a strike price of $1.35 per share. The Company is required, and intends, to issue shares of its common stock for an additional $280,000 within 90 days following closing of the Merger.

The Company expects the Merger to increase the scale of the Company, improving gross margins due to combined revenues and operational synergies decreasing costs. While the Company expects its financial condition to improve after the Merger, Provant has a history of operating losses as well, and the Company will be incurring significant costs and additional debt for the transaction. See Part II, Item 1A, Risk Factors.

On May 2, 2017, the Company's common stock, par value $.04 per share, began trading on OTCQX Best Market, after voluntarily delisting from the NYSE MKT on May 1, 2017. The Company now trades under the symbol "HPHW" on OTCQX Best Market.