Annual report pursuant to Section 13 and 15(d) 12-31-2014

Debt and Line of Credit

v2.4.1.9
Debt and Line of Credit
12 Months Ended
Dec. 31, 2014
Debt Disclosure [Abstract]  
Debt and Line of Credit

7. Debt and Line of Credit

In December 2012, the Company closed on a $21.5 million senior secured credit facility with a bank consortium led by GE Capital (the “GE Secured Lending Facility”). The facility consisted of a term loan in the original principal amount of $18.0 million and an up to $3.5 million revolving line of credit secured by the Company’s accounts receivable, based on certain defined criteria, and was to mature in May 2016. The term loan included interest only payments for a period of 12 months, followed by monthly principal payments of approximately $600,000 for a period of 30 months, which the Company commenced paying in January 2014. The term loan bore interest at the fixed rate of 7.5% per annum. There was no amount outstanding under the revolving line of credit at December 31, 2013 and on June 30, 2014 when the GE Secured Lending Facility was extinguished. The facility required a non-refundable final payment fee of $720,000, as well as an annual management fee of $15,000 per year.

At the time of extinguishment on June 30, 2014, the total outstanding principal of the GE Secured Lending Facility was $14.4 million, although the financial statements reflected a carrying value of $14.3 million due to the bifurcated value of warrants issued in connection with the GE Secured Lending Facility, which was being amortized to interest expense over the life of the loan. The Company had been in covenant default with regards to the liquidity covenant of the GE Secured Lending Facility several times during 2013. The Company entered into four amendments to its agreement with GE Capital during 2013 to forego the liquidity covenant testing required under the facility. The fourth amendment to the agreement, which was entered into in December 2013, stipulated the liquidity covenant would not be tested by GE through January 31, 2014. In January 2014, the Company entered into a fifth amendment to the agreement that extended the time through which the liquidity covenant would not be tested to February 28, 2014. In connection with these amendments, the Company incurred amendment fees which were being amortized to interest expense over the remaining life of the loans. The unamortized deferred financing costs were $1.1 million at the time of extinguishment. The Company recorded a $1.6 million loss on extinguishment of debt during the year ended December 31, 2014.

On June 30, 2014, the Company entered into a Loan and Security Agreement with Hercules in connection with the Hercules Term Loan. The Hercules Term Loan provided the Company with a $20 million term loan, of which $15.3 million of the proceeds from the Hercules Term Loan were used to repay in full and terminate the GE Secured Lending Facility. The termination of the GE Secured Lending Facility was accounted for as an extinguishment of debt resulting in a $1.6 million loss on extinguishment of debt, which was calculated as the difference between the reacquisition price and the net carrying amount of the GE Secured Lending Facility. On June 30, 2014, the Company also entered into a Securities Purchase Agreement with MG Partners II Ltd. (“Magna”) pursuant to which the Company sold to Magna an initial convertible note (“Initial Convertible Note”) with an original principal amount of $2.9 million for a purchase price of $2.5 million. Additionally, on August 11, 2014, the Company sold to Magna an additional unsecured senior convertible note (“Additional Convertible Note”) with an original principal amount of $3.5 million for a purchase price of $3.5 million. The Initial Convertible Note and the Additional Convertible Note are collectively referred to as the Magna Convertible Notes.

Hercules Term Loan

The Hercules Term Loan matures on January 1, 2018. The Hercules Term Loan included a $200,000 closing fee, which was paid to Hercules Technology on the closing date of the loan. The closing fee has been recorded as a debt discount and is being amortized to interest expense over the life of the loan. The Hercules Term Loan also includes a non-refundable final payment fee of $1.5 million. The final payment fee is being accrued and recorded to interest expense over the life of the loan. In addition, the Company issued a warrant to Hercules Technology (“Hercules Warrant”) to purchase 516,129 shares of the Company’s common stock at an initial exercise price of $4.65, subject to adjustment. The Hercules Warrant was determined to be a derivative and the $900,000 estimated fair value of the Hercules Warrant was recorded as a debt discount and derivative liability. The debt discount is being amortized to interest expense over the life of the loan and the derivative liability will be marked to market at each reporting period. The Hercules Warrant expires on June 30, 2019. Financing costs were $1.1 million, which were recorded as deferred financing costs and are being amortized to interest expense over the life of the loan. The Hercules Term Loan also has an early termination fee of $1.2 million if the loan is paid prior to July 1, 2015.

The Hercules Term Loan bears interest at the rate of the greater of either (i) the prime rate plus 7.7%, and (ii) 10.95%. Interest accrues from the closing date of the loan and interest payments are due monthly. Principal payments are required commencing August 1, 2015 and are to be made in 30 equal installments of approximately $700,000, with the remainder due at maturity. If, however, the Company meets certain revenue conditions, the interest only period may be extended through February 1, 2016, reducing the number of required principal payments to 24 equal installments. Additionally, under certain circumstances the Company may, or Hercules Technology may, require that $1.5 million of the principal be paid in the form of shares of common stock at a fixed conversion price of $5.72 per share. The conversion feature was evaluated and determined to be conventional convertible debt with no beneficial conversion feature.  

The Hercules Term Loan contains certain covenants related to restrictions on payments to certain Company affiliates, financial reporting requirements and a minimum liquidity covenant that requires the Company to maintain cash and cash equivalents of not less than $9.0 million. Although the Company was in compliance with the liquidity covenant at December 31, 2014, the Company anticipates that it will be non-compliant with the liquidity covenant during the fourth quarter of 2015 if additional financing is not obtained, and has therefore classified the entire obligation as a current liability.

Magna Convertible Notes

The Initial Convertible Note and the Additional Convertible Note mature on June 30, 2016 and August 11, 2016, respectively, (subject to extension by the holder) and accrue interest at an annual rate of 6.0%. With respect to the Initial Convertible Note, $150,000 of the outstanding principal amount (together with any accrued and unpaid interest with respect to such portion of the principal amount) was automatically extinguished when the Company filed a registration statement registering the shares issued in connection with the Securities Purchase Agreement on July 17, 2014. In addition, $250,000 of the outstanding principal amount of the Initial Convertible Note (together with any accrued and unpaid interest with respect to such portion of the principal amount) was automatically extinguished when the registration statement was declared effective on August 6, 2014.

The Company issued 50,853 shares of its common stock to Magna as a commitment fee. The estimated fair value of the shares of common stock was $229,000 and was recorded as a debt discount and is being amortized to interest expense over the life of the loan.

The Magna Convertible Notes are convertible at any time after issuance, in whole or in part, at Magna’s option, into shares of common stock at a conversion price equal to the lesser of (i) $3.75 per share or (ii) a price equal to 80% of the lowest daily volume weighted average price (“VWAP”) of our common stock during the five trading days prior to conversion.

As of December 31, 2014, Magna had converted a total of $1.5 million of the principal amount of the Convertible Notes into 2,047,082 shares of common stock. The Company recorded a loss upon extinguishment of $598,000 during the year ended December 31, 2014. At December 31, 2014, the outstanding principal amounts of the Initial Convertible Note and the Additional Convertible Note were $1.0 million and $3.5 million, respectively. At December 31, 2014, the Convertible Notes if-converted value exceeded its principal amount by approximately $2.3 million using the closing stock price at December 31, 2014.

The conversion features embedded in the Initial Convertible Note and the Additional Convertible Note were determined to be derivatives and the estimated fair value of the conversion features of $848,000 and $1.1 million, respectively, were recorded as a debt discount and derivative liability. The debt discount is being amortized to interest expense over the life of the notes and the derivative liability is marked to market at each reporting period.

In addition, the Company issued a warrant to Magna (“Magna Warrant”) to purchase up to 568,889 shares of its common stock at an initial exercise price of $4.65 per share. The Magna Warrant was determined to be a derivative and the estimated fair value of the warrant associated with the Magna Convertible Notes was $290,000 and was recorded as a debt discount and derivative liability. The debt discount is being amortized to interest expense over the life of the loans and the derivative liability is marked to market at each reporting period.

The Company recorded $144,000 in interest expense as per the stated interest on the Convertible Notes during the year ended December 31, 2014.  The Company accreted $384,000 in interest expense related to the debt discounts on the Convertible Notes during the year ended December 31, 2014. The effective interest rate for the Initial Convertible Note and the Additional Convertible Note was 50% and 29%, respectively.

Bridge Loan

On November 6, 2014, the Company entered into a Loan and Security Agreement with Hampshire MedTech Partners II, LP (“Bridge Lender”), in connection with a $1.0 million loan to us (“Bridge Loan”), which matured on the earlier of (a) the third business day following the closing of a qualified secondary offering and (b) December 17, 2014. The Bridge Loan bore interest at the rate of 15% per annum and was due on payable upon maturity. Furthermore, the Company was obligated to pay the Bridge Lender a $75,000 commitment upon maturity. The Company closed on a qualified secondary offering on November 26, 2014 and paid the Bridge Loan and associated accrued interest and fees on December 1, 2014.

In addition, the Company issued a warrant to the Bridge Lender (“Closing Bridge Warrant”), to purchase up to 267,380 shares of our common stock, with an initial exercise price of $1.87 per share. The Closing Bridge Warrant was determined to be a derivative and the $107,000 estimated fair value of the Closing Bridge Warrant was recorded as a debt discount and derivative liability. The debt discount was amortized to interest expense over the life of the loan and derivative liability is marked to market at each reporting period. Because we closed a public offering at a price per share of common stock less than the initial exercise price of the Closing Bridge Warrant, the number of warrants increased to 438,596 and the exercise price was reduced to $1.14. The Closing Bridge Warrant was exercisable upon issuance and expires on November 5, 2019. Furthermore, a warrant to purchase up to 25,000 shares of our common stock at an exercise price of $1.48 was granted to an investment advisor.  This warrant was determined to be a derivative and the $20,000 estimated fair value of this warrant was recorded as a debt discount and derivative liability. The debt discount was amortized to interest expense over the life of the loan.

Outstanding long-term debt consisted of the following (in thousands):

 

 

 

December 31, 2014

 

 

December 31, 2013

 

 

 

Outstanding Principal

 

 

Unamortized Discount

 

 

Net Carrying Amount

 

 

Outstanding Principal

 

 

Unamortized Discount

 

 

Net Carrying Amount

 

GE Secured Lending Facility

 

$

-

 

 

$

-

 

 

$

-

 

 

$

18,000

 

 

$

(75

)

 

$

17,925

 

Hercules Term Loan

 

 

20,000

 

 

 

(930

)

 

 

19,070

 

 

 

-

 

 

 

-

 

 

 

-

 

Convertible Note

 

 

4,500

 

 

 

(1,439

)

 

 

3,061

 

 

 

-

 

 

 

-

 

 

 

-

 

Total debt

 

 

24,500

 

 

 

(2,369

)

 

 

22,131

 

 

 

18,000

 

 

 

(75

)

 

 

17,925

 

Less: Current portion

 

 

(20,000

)

 

 

930

 

 

 

(19,070

)

 

 

(18,000

)

 

 

75

 

 

 

(17,925

)

Long-term debt

 

$

4,500

 

 

$

(1,439

)

 

$

3,061

 

 

$

-

 

 

$

-

 

 

$

-

 

The following summarizes by year the future principal payments as of December 31, 2014 (in thousands):

 

Years Ending December 31,

 

Hercules Term

Loan

 

 

Magna

Convertible Notes

 

 

Total

 

2014

 

$

-

 

 

$

-

 

 

$

-

 

2015

 

 

2,949

 

 

 

-

 

 

 

2,949

 

2016

 

 

7,666

 

 

 

4,500

 

 

 

12,166

 

2017

 

 

8,567

 

 

 

-

 

 

 

8,567

 

2018

 

 

818

 

 

 

-

 

 

 

818

 

Total future principal payments

 

$

20,000

 

 

$

4,500

 

 

$

24,500