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LINES OF CREDIT WITH RELATED PARTIES

9 Months Ended

Sep. 30, 2016

Outstanding lines of credit consist of the following:

($ in thousands)	September 30, 2016			December 31, 2015
Lines of Credit
8% convertible lines of credit. Face value of advances under lines of credit $2,150 at September 30, 2016 and $0 at December 31, 2015. Discount on advances under lines of credit is $124 at September 30, 2016 and $0 at December 31, 2015. Maturity date is June 30, 2017.	$	2,026		$	—

Total lines of credit to related parties		2,026			—
Less current portion		(2,026	)		—
Long-term lines of credit to related parties	$	—		$	—

In March 2013, the Company entered into the Goldman LOC with available borrowings of up to $2.5 million. In March 2014, borrowings under the Goldman LOC were increased to an aggregate total of $3.5 million (the “Amendment”). Pursuant to the terms and conditions of the Amendment, Goldman had the right to convert up to $2.5 million of the outstanding balance of the Goldman LOC into shares of the Company's Common Stock for $0.95 per share. Any remaining outstanding balance was convertible into shares of the Company's Common Stock for $2.25 per share.

As consideration for the initial Goldman LOC, the Company issued a warrant to Goldman, exercisable for 1,052,632 shares of the Company’s Common Stock (the "LOC Warrant"). The LOC Warrant had a term of two years from the date of issuance and an exercise price of $0.95 per share. As consideration for entering into the Amendment, the Company issued a second warrant to Goldman, exercisable for 177,778 shares of the Company’s Common Stock (the “Amendment Warrant”). The Amendment Warrant expired on March 27, 2015 and had an exercise price of $2.25 per share.

The Company estimated the fair value of the LOC Warrant using the Black-Scholes option pricing model using the following assumptions: term of two years, a risk free interest rate of 2.58%, a dividend yield of 0%, and volatility of 79%. The Company recorded the fair value of the LOC Warrant as a deferred financing fee of approximately $580,000 to be amortized over the life of the Goldman LOC. The Company estimated the fair value of the Amendment Warrant using the Black-Scholes option pricing model using the following assumptions: term on one year, a risk free interest rate of 2.58%, a dividend yield of 0% and volatility of 74%. The Company recorded the fair value of the Amendment Warrant as an additional deferred financing fee of approximately $127,000 to be amortized over the life of the Goldman LOC.

During the three and nine months ended September 30, 2016, the Company recorded approximately $9,000 and 33,000, respectively. During the three and nine months ended September 30, 2015, the Company recorded approximately $0 and $41,000, respectively in deferred financing fee amortization expense which is recorded as a component of interest expense in the Company’s condensed consolidated statements of operations.

In April 2014, the Company and Goldman entered into a further amendment to the Goldman LOC to decrease the available borrowings to $3.0 million (the “Second Amendment”). Contemporaneous with the execution of the Second Amendment, the Company entered into a new unsecured line of credit with available borrowings of up to $500,000 (the “Crocker LOC”) with Crocker, which amount was convertible into shares of the Company’s Common Stock for $2.25 per share. As a result of these amendments, total available borrowings under aggregate lines of credit available to the Company remained unchanged at a total of $3.5 million. In connection with the Second Amendment, Goldman assigned and transferred to Crocker one-half of the Amendment Warrant.

In December 2014, the Company and Goldman entered into a further amendment to the Goldman LOC to increase the available borrowing to $5.0 million and extended the maturity date of the Goldman LOC to March 27, 2017 (the “Third Amendment”). Also, as a result of the Third Amendment, Goldman had the right to convert up to $2.5 million of the Outstanding Balance into shares of the Company’s Common Stock for $0.95 per share, the next $500,000 Outstanding Balance into shares of Common Stock for $2.25 per share and any remaining Outstanding Balance thereafter into shares of Common Stock for $2.30 per share. The Third Amendment also modified the definition of a “Qualified Financing” to mean a debt or equity financing resulting in gross proceeds to the Company of at least $5.0 million.

In February 2015, as a result of the Series E Financing discussed under Note 6, “Equity”, below, the Company issued 1,978 shares of Series E Convertible Redeemable Preferred Stock (“Series E Preferred”) to Goldman to satisfy $1.95 million in principal borrowings under the Goldman LOC plus approximately $28,000 in accrued interest. As a result of the Series E Financing, the Company’s borrowing capacity under the Goldman LOC was reduced to $3.05 million with the maturity date unchanged and the Crocker LOC was terminated in accordance with its terms.

On March 9, 2016, the Company and Goldman entered into the Fourth Amendment, that (i) provides the Company with the ability to borrow up to $5.0 million under the terms of the Goldman LOC; (ii) permits Goldman to convert the Outstanding Balance into shares of the Company's for $1.25 per share; and (iii) extends the maturity date of the Goldman LOC to June 30, 2017.

In addition, on March 9, 2016, the Company and Crocker entered into the New Crocker LOC in the principal amount of $500,000. The New Crocker LOC shall accrue interest at a rate of 8% per annum, and matures on the earlier to occur of June 30, 2017 or such date that the Company consummates a debt and/or equity financing resulting in net proceeds to the Company of at least $3.5 million. All outstanding amounts due under the terms of the New Crocker LOC shall be convertible into the Company's at $1.25 per share.

As of September 30, 2016, $2,150,000 was outstanding under the terms of the Lines of Credit and approximately $3,350,000 remains available under the Lines of Credit for additional borrowings.

The Company evaluated the Lines of Credit and determined that the instruments contain a contingent beneficial conversion feature, i.e. an embedded conversion right that enables the holder to obtain the underlying Common Stock at a price below market value. The beneficial conversion feature is contingent as the terms of the conversion do not permit the Company to compute the number of shares that the holder would receive if the contingent event occurs (i.e. future borrowings under the Line of Credit). The Company has considered the accounting for this contingent beneficial conversion feature using the guidance in ASC 470, Debt. The guidance in ASC 470 states that a contingent beneficial conversion feature in an instrument shall not be recognized in earnings until the contingency is resolved. The beneficial conversion features of future borrowings under the Line of Credit will be measured using the intrinsic value calculated at the date the contingency is resolved using the conversion price and trading value of the Company’s Common Stock at the date the Lines of Credit were issued (commitment date). Pursuant to borrowings made during the 2015 year, the Company recognized approximately $146,000 in beneficial conversion feature as debt discount. As a result of the retirement of all amounts outstanding under the Lines of Credit in 2015, the Company recognized all remaining unamortized debt discount of approximately $385,000 as a component of interest expense during the three months ended March 31, 2015. As there was $2,150,000 in borrowings under the Lines of Credit during the nine months ended September 30, 2016, the Company recorded approximately $176,000 in debt discount attributable to the beneficial conversion feature during the nine months ended September 30, 2016. During the three and nine months ended September 30, 2016, the Company accreted approximately $39,000 and $52,000, respectively, of debt discount as a component of interest expense.