Debt

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Debt

10. Debt

The Company’s debt consists of the following (in thousands):

	September 30, 2018			December 31, 2017
Short-term debt:
Strong/MDI installment loan	$	2,607		$	-
Revolving line of credit		-			500
Current portion of long-term debt		983			65
Total short-term debt		3,590			565
Long-term debt:
Sale-leaseback financing		6,827			-
Equipment term loans		3,897			-
$2 million term loan		-			1,968
Total principal balance of long-term debt		10,724			1,968
Less: current portion		(983	)		(65	)
Less: unamortized debt issuance costs		(20	)		(33	)
Total long-term debt		9,721			1,870
Total short-term and long-term debt	$	13,311		$	2,435

On May 22, 2018, the Company’s subsidiary, Convergent, entered into an installment payment agreement with an equipment financing company in order to purchase media players and related equipment in an aggregate amount of up to approximately $4.4 million. Installment payments under each contract for purchase of the equipment are due monthly for a period of 60 months. The financing provided in the agreement is secured by the equipment. The borrowings under the agreement are recorded as long-term debt on the Company’s condensed consolidated balance sheet and bear interest at a fixed rate based on the three-year U.S. Treasury Note yield plus a spread at the time of funding. The obligations under the agreement are guaranteed by the Company. At September 30, 2018, the Company had $3.9 million of outstanding borrowings under the agreement, which bear interest at a weighted-average fixed rate of 5.8%.

On June 29, 2018, the Company and Convergent completed a sale-leaseback of Convergent’s Alpharetta, Georgia office facility. Convergent sold the Alpharetta facility for $7.0 million in cash and the Company simultaneously entered into a 10-year leaseback of the facility for rent in the amount of $600,000 per year, escalating at the rate of 2% per year. Due to the Company’s continuing involvement in the building, the transaction was accounted for as a financing rather than a normal leaseback. The net proceeds from the transaction were recorded as a financing liability in long-term debt on the Company’s condensed consolidated balance sheet. Upon closing, the Company’s term loan and revolving line of credit that previously were secured by the Alpharetta facility were repaid, and the related debt agreement was terminated. In addition, the Company issued warrants to the buyer to purchase up to 100,000 shares of Company stock, consisting of warrants to purchase 25,000 shares at each of $10, $12, $14, and $16 purchase prices per share. The warrants have a 10-year maturity. The Company recorded the aggregate $81 thousand fair value of the warrants as additional paid-in capital. The warrants are recorded at grant date fair value, which was calculated based on a Black-Scholes valuation model using the following assumptions:

Expected dividend yield at date of grant	0.00	%
Risk-free interest rate	2.81	%
Expected stock price volatility	37.01	%
Expected life of warrants (in years)	7.0

The risk-free interest rate assumption was based on the U.S. Treasury yield curve in effect at the warrant issuance date. The expected volatility was based on historical daily price changes of the Company’s stock for the seven years prior to the warrant issuance date. The expected life of the warrants is the Company’s estimate of the number of years the warrants will be outstanding.

On September 5, 2017, the Company’s Canadian subsidiary, Strong/MDI, entered into a demand credit agreement with a bank consisting of a revolving line of credit for up to CDN$3.5 million subject to a borrowing base requirement, a 20-year installment loan for up to CDN$6.0 million and a 5-year installment loan for up to CDN$500,000. Amounts outstanding under the line of credit are payable on demand and will bear interest at the prime rate established by the lender. Amounts outstanding under the installment loans will bear interest at the lender’s prime rate plus 0.5% and are payable in monthly installments, including interest, over their respective borrowing periods. The lender may also demand repayment of the installment loans at any time. The Strong/MDI credit facilities are secured by a lien on Strong/MDI’s Quebec, Canada facility and substantially all of Strong/MDI’s assets. The credit agreement requires Strong/MDI to maintain a ratio of liabilities to “effective equity” (tangible stockholders’ equity, less amounts receivable from affiliates and equity method investments) not exceeding 2 to 1, a current ratio (excluding amounts due from related parties) of at least 1.5 to 1 and minimum “effective equity” of CDN$8.0 million. On April 24, 2018, the Company borrowed CDN$3.5 million on the 20-year installment loan. There was CDN$3.38 million of principal outstanding on the 20-year installment loan as of September 30, 2018, which bears variable interest at 4.28%. Strong/MDI was in compliance with its debt covenants as of September 30, 2018.

Scheduled repayments are as follows for the Company’s long-term debt outstanding as of September 30, 2018 (in thousands):

Remainder of 2018	$	172
2019		996
2020		1,066
2021		1,141
2022		1,221
Thereafter		6,128
Total	$	10,724