Annual report pursuant to Section 13 and 15(d)

Term Loans

v3.6.0.2
Term Loans
12 Months Ended
Dec. 31, 2016
Bank Debt / Term Loans [Abstract]  
TERM LOANS
11. TERM LOANS

 

At December 31, 2016 and 2015, term loans consisted of the following:

 

    December 31,  
    2016     2015  
Former owners of RM Leasing, unsecured, non-interest bearing, due on demand   $ 2     $ 3  
                 
Promissory note with company under common ownership by former owner of Tropical, 9.75% interest, monthly payments of interest only of $1, unsecured and personally guaranteed by officer, matured in November 2016     106       106  
                 
Term loan, White Oak Global Advisors, LLC, originally maturing in February 2019 and paid during February of 2016, interest of 12% with 2% paid-in-kind interest, net of debt discount of $366     -       10,938  
                 
8% convertible promissory note, London Bay - VL Holding Company, LLC, unsecured, maturing October 2017     7,408       7,408  
                 
8% convertible promissory note, WV VL Holding Corp., unsecured, maturing October 2017     7,003       7,003  
                 
8% convertible promissory note, Tim Hannibal, unsecured, maturing October 2017     1,215       1,215  
                 
Promissory note, 12% interest, unsecured, Dominion Capital, matured in May 2016, net of debt discount of $9     -       748  
                 
12% senior convertible note, unsecured, Dominion Capital, matured in January 2017, net of debt discount of $29 and $507, respectively     1,170       1,599  
                 
12% senior convertible note, unsecured, Dominion Capital, matured in November 2016, net of debt discount of $173     -       352  
                 
12% senior convertible note tranche 1, unsecured, Dominion Capital, matured in January 2016, net of debt discount of $15     -       235  
                 
12% senior convertible note tranche 2, unsecured, Dominion Capital, matured in February 2016, net of debt discount of $80     -       253  
                 
12% senior convertible note tranche 3, unsecured, Dominion Capital, matured in March 2016, net of debt discount of $55     -       445  
                 
12% convertible note, Richard Smithline, unsecured, matured in January 2017, net of debt discount of $2 and $107, respectively     360       419  
                 
Senior secured convertible debenture, JGB (Cayman) Waltham Ltd., bearing interest of 4.67%, maturing in May 2019, net of debt discount of $3,136 and $4,179, respectively     1,900       3,321  
                 
Senior secured convertible note, JGB (Cayman) Concord Ltd., bearing interest at 4.67%, maturing in May 2019, net of debt discount of $1,668     2,080       -  
                 
Senior secured note, JGB (Cayman) Waltham Ltd., bearing interest at 4.67%, maturing in May 2019, net of debt discount of $234     358       -  
                 
12% senior convertible note, unsecured, Dominion Capital, maturing in November 2017, net of debt discount of $65     475       -  
                 
Receivables Purchase Agreement with Dominion Capital, net of debt discount of $44     430       -  
                 
Promissory note issued to Trinity Hall, 3% interest, unsecured, maturing in January 2018 (reclassified from related party notes during 2016 - refer to the assignment paragraphs later within this footnote and Note 18, Related Parties)     500       -  
      23,007       34,045  
Less: Current portion of term loans     (21,147 )     (3,787 )
                 
Long-term portion term loans, net of debt discount   $ 1,860     $ 30,258  

 

Future annual principal payments are as follows:

 

Year ending December 31,      
2017   $ 24,684  
2018     2,533  
2019     968  
         
Total principal payments   $ 28,185  

 

Future annual amortization of debt discounts is as follows:

 

Year ending December 31,      
2017   $ 3,537  
2018     1,641  
         
Total debt discount amortization   $ 5,178  

 

The interest expense, including amortization of debt discounts, associated with the term loans payable in the years ended December 31, 2016 and 2015 amounted to $10,182 and $5,230, respectively.

 

With the exception of the notes outstanding to RM Leasing and Tropical, all term loans are subordinate to the JGB (Cayman) Waltham Ltd. and JGB (Cayman) Concord Ltd. notes. 

  

Revolving Line of Credit

 

On July 3, 2014, the Company obtained an unsecured $3,000 interim revolving line of credit from the Mark Munro 1996 Charitable Remainder UniTrust to provide working capital as well as cash to make the Company’s upcoming amortization payments pursuant to the Company’s Convertible Debentures. The line bore interest at the rate of 1.5% per month on funds drawn and expired on March 31, 2016.

 

As of March 31, 2016 and December 31, 2015, there was no amount outstanding under the related party revolving line of credit.

 

Term Loan - White Oak Global Advisors, LLC

 

On October 9, 2014, the Company’s former wholly-owned subsidiary, VaultLogix, entered into a loan and security agreement with the lenders party thereto, White Oak Global Advisors, LLC, as Administrative Agent, Data Protection Services, LLC (“DPS”), U.S. Data Security Acquisition, LLC (“USDSA”) and U.S. Data Security Corporation (“USDSC”) as guarantors, pursuant to which, VaultLogix received a term loan in an aggregate principal amount of $13,261. Interest on the term loan accrued at a rate per annum equal to the sum of (a) the greater of (i) the LIBOR Index Rate (as defined), as adjusted as of each Libor Index Adjustment Date (as defined) and (ii) 1.00% per annum; plus (b) 1100 basis points per annum. The LIBOR Index Rate was 1.0896 as of December 31, 2015; however, this did not exceed the 12% stated rate as defined in item (ii) above. 

 

The proceeds of the term loan were used to finance the Company’s acquisition of VaultLogix, DPS and USDSA, to repay certain outstanding indebtedness (including all indebtedness owed by VaultLogix to Hercules Technology II, L.P.) and to pay fees, costs and expenses.

  

In connection with the term loan, the Company entered into (i) a continuing guaranty in favor of the administrative agent, (ii) a pledge agreement, and (iii) a security agreement, pursuant to which the obligations of the Company in respect of the term loan were secured by a security interest in substantially all of the assets of VaultLogix, subject to certain customary exceptions.

 

The term loan was subject to certain affirmative and negative covenants that were tested at the end of each fiscal quarter. The Company was in compliance with all covenants as of December 31, 2015.

 

Principal of $11,304 remained outstanding as of December 31, 2015.

 

On February 17, 2016, the Company entered into a securities exchange agreement whereby the Company and VaultLogix exchanged the White Oak Global Advisors term loan and assigned the term loan to JGB (Cayman) Concord Ltd. Refer to the JGB (Cayman) Concord Ltd. Senior Secured Convertible Note section of this note for further explanation. As a result of this assignment, the Company and VaultLogix’s obligations to White Oak Global Advisors, LLC was satisfied as of December 31, 2016. The Company recorded an $843 loss on extinguishment of debt in the consolidated statement of operations for the year ended December 31, 2016.

 

Term Loan – 8% Convertible Promissory Notes

 

Effective as of October 9, 2014, the Company consummated the acquisition of all of the outstanding membership interests of VaultLogix and its affiliated entities for an aggregate purchase price of $36,796. The purchase price for the acquisition was payable to the sellers as follows: (i) $16,385 in cash, (ii) 1,008,690 shares of the Company’s common stock and (iii) $15,626 in unsecured convertible promissory notes, as further described below. The closing payments are subject to customary working capital adjustments.

 

The promissory notes accrue interest at a rate of 8% per annum, and all principal and interest accrued under the promissory notes is payable on October 9, 2017. The promissory notes are convertible into shares of the Company’s common stock at a conversion price equal to $6.37 per share. A portion of the principal amount of the promissory notes equal to 20% of the principal amount on the closing date were not convertible until January 9, 2016.

 

On a date when (i) the shares are freely tradeable without restriction or volume limitations under Rule 144, and (ii) the average closing price of the Company’s common stock is 105% or higher of the conversion price on the three (3) trading days immediately prior to such date, the Company may deliver notice to the holders of the promissory notes electing to convert some or all of the outstanding amounts owed under the promissory notes into common stock at the applicable conversion price. Additionally, if on or after the maturity date, (i) the Company is restricted or otherwise unable to pay in cash all outstanding amounts under the promissory notes, (ii) the promissory notes have not otherwise been paid in full within ten business days following the maturity date, or (iii) the Company is not at such time entitled to effect a forced conversion, then, in the event that both (i) and (iii) above apply, the Company, and in the event that both (ii) and (iii) above apply, the holders of the promissory notes, shall have the right to convert all outstanding amounts owing under the promissory notes into shares of the Company’s common stock at a conversion price equal to the average closing price of the Company’s common stock on the three trading days immediately preceding the date of such conversion.

 

As of December 31, 2016, the Company had not forced any conversions.

 

12% Convertible Debentures

 

In December 2013, the Company entered into a securities purchase agreement with various institutional investors pursuant to which the Company issued to such investors convertible debentures in the original aggregate principal amount of $11,625 (the "Convertible Debentures") and an aggregate of 36,567 shares of its common stock for an aggregate purchase amount of $11,625. The Convertible Debentures matured on June 13, 2015 and bore interest at the rate of 12% per annum and were payable in accordance with an amortization schedule, with monthly payments that began on July 13, 2014 and ended on the final maturity date of June 13, 2015. At the Company’s election, subject to compliance with certain terms and conditions in the purchase agreement, the monthly amortization payments were payable by the issuance of shares of the Company’s common stock at a price per share equal to the lesser of (i) the conversion price of the Convertible Debentures and (ii) 75% of the average of the VWAP (the daily volume weighted average price) of the Company’s common stock for the five-trading-day period ending on, and including, the trading day immediately preceding the trading day that is five days prior to the applicable monthly amortization date.

 

The Convertible Debentures were convertible into shares of the Company’s common stock at the election of the holder thereof at a conversion price equal to the lesser of (i) $6.36, or (ii) 85% of the price per share of the Company’s common stock in the first underwritten public offering of not less than $10,000 of the Company’s equity securities (a “Qualified Offering”). The conversion price was subject to customary anti-dilution provisions. Notwithstanding the foregoing, the Convertible Debenture of a particular holder was not convertible if such conversion would have resulted in such holder owning more than 4.99% of the issued and outstanding shares of the Company’s common stock after such conversion.

 

The Company recorded a debt discount in the amount of $382 in connection with the 36,567 shares of the Company's common stock issued pursuant to the purchase agreement, which amount was amortized over the life of the Convertible Debentures. The Company also recorded a debt discount and a related derivative liability in the amount of $6,620 in connection with the embedded features of the Convertible Debentures, which amount was amortized over the life of the Convertible Debentures. Refer to Note 12, Derivative Instruments, for further detail on the derivative liability.

 

During June 2015, the Company issued shares of common stock for the required amortization payments of the Convertible Debentures. The final amortization payment was made in shares of common stock in June 2015, which repaid the final amount due under the Convertible Debentures. The Company then amortized the remaining debt discount and deferred loan costs of $84 related to the convertible feature to interest expense on the consolidated statement of operations as of December 31, 2015.

 

Term Loan – Dominion Capital LLC 12% Promissory Note

 

The Company entered into a securities purchase agreement with an investor whereby the Company issued to the investor a demand promissory note, dated November 17, 2014, in the original principal amount of $1,000, with interest accruing at the rate of 12% per annum. The note matured on the earlier of: (x) November 10, 2015 or (y) upon demand by the investor, which such demand could be made any time 150 days following the issuance of the note upon 30 days’ written notice to the Company; provided, that $60 of interest was guaranteed by the Company regardless of when the note was repaid. The Company could have redeemed the note at any time prior to the maturity date for an amount equal to (i) 100% of the outstanding principal amount, plus (ii) a redemption premium equal to an additional 10% of the outstanding principal amount, plus (iii) any accrued and unpaid interest on the note. The redemption premium could be paid in cash or common stock at the option of the Company. The holder demanded repayment of the demand promissory note by May 16, 2015 and such note was converted on May 14, 2015 into 348,164 shares of the Company’s common stock. The Company recorded the conversion as a loss on conversion of debt of $264 on the consolidated statement of operations during the year ended December 31, 2015.

 

On May 14, 2015, the Company entered into a securities purchase agreement with the investor whereby the Company issued a term promissory note in the original principal amount of $1,000, with interest accruing at the rate of 12% per annum. The note matured at the earlier of: (x) May 14, 2016 or (y) upon demand by the investor, which such demand could have been made any time after 170 days following the issuance of the note upon 10 days’ written notice to the Company; provided, that $60 of interest was guaranteed by the Company regardless of when the note was repaid. The Company could have redeemed the note at any time prior to the maturity date for an amount equal to (i) 100% of the outstanding principal amount, plus (ii) a redemption premium equal to an additional 10% of the outstanding principal amount, plus (iii) any accrued and unpaid interest on the note. The redemption premium was payable in cash or common stock at the option of the Company. If common stock of the Company was used to pay the redemption premium, then such shares had to be delivered by the third business day following the maturity date, or date of demand, as applicable, at a mutually agreed upon conversion price by both parties.

 

On August 6, 2015, the Company amended the May 14, 2015 term promissory note to increase the principal amount of the note to $1,060 and modify the terms of the promissory note to allow for the investor to convert the note into shares of the Company’s common stock. The term promissory note is convertible into shares of the Company’s common stock at the election of the investor at a conversion price equal to $2.00 per share, subject to certain adjustments.

 

During March 2016, the Company paid $151 in cash related to the principal amount of note outstanding related to the 12% promissory note.

 

During the year ended December 31, 2016, the investor who holds the 12% promissory note converted $606 of principal into shares of the Company’s common stock. Refer to Note 16, Stockholders’ Deficit, for further information. As a result of these conversions, the Company recorded a gain on conversion of debt of $238 in the consolidated statement of operations for the year ended December 31, 2016.

 

Term Loan – Dominion Capital LLC Convertible Notes

 

On August 6, 2015, the Company entered into a senior convertible note agreement with the investor whereby the Company issued a promissory note in the original principal amount of $2,105, with interest accruing at the rate of 12% per annum, which matured on January 6, 2017. At the election of the investor, the note is convertible into shares of the Company’s common stock at a conversion price equal to $2.00 per share, subject to adjustment as set forth in the agreement. The investor may elect to have the Company redeem the senior convertible note upon the occurrence of certain events, including the Company’s completion of a $10,000 underwritten offering of the Company’s common stock. Refer to Note 12, Derivative Instruments, for further detail on the derivative features associated with the August 6, 2015 convertible note.

 

During April 2016, the Company paid $117 in cash related to the principal amount of the outstanding note related to the August 6, 2015 senior convertible note.

 

During the year ended December 31, 2016, the investor who holds the August 6, 2015 senior convertible note converted $1,053 of principal and accrued interest into shares of the Company’s common stock. Refer to Note 16, Stockholders’ Deficit, for further information. As a result of these conversions, the Company recorded a gain on conversion of debt of $197 in the consolidated statement of operations for the year ended December 31, 2016.

 

The August 6, 2015 senior convertible note matured on January 6, 2017 and was due on demand. Subsequent to December 31, 2016, the note was paid off through conversions. Refer to Note 21, Subsequent Events, for additional detail. 

 

On November 12, 2015, the Company entered into a securities purchase agreement with the investor whereby the Company issued a senior convertible note, for cash proceeds of $500, in the original principal amount of $525. The note had a term of one year, bore interest at the rate of 12% per annum and, at the election of the investor, the note was convertible into shares of the Company’s common stock at a conversion price equal to $1.75 per share, subject to adjustment as set forth in the note. The note amortized in twelve bi-weekly installments beginning on the six month anniversary of the note’s issuance. Amortization payments were made, at the Company’s option, either in (i) cash, in which case the Company would also have to issue to the investor a number of shares of the Company’s common stock equal to 5% of such amortization payment or (ii) subject to the Company satisfying certain equity conditions, shares of the Company’s common stock, pursuant to the amortization conversion rate, which was equal to the lower of (x) $1.75 and (y) a 25% discount to lowest volume weighted average price of the Company’s common stock in the prior three trading days.

 

During the year ended December 31, 2016, the investor who held the November 12, 2015 senior convertible note converted $590 of principal and accrued interest into shares of the Company’s common stock. Refer to Note 16, Stockholders’ Deficit, for further information.

 

On November 12, 2015, the Company entered into an exchange agreement with the investor whereby the Company exchanged a portion of the senior secured note originally issued by the Company to GPB Life Science Holdings, LLC on December 3, 2014 and subsequently assigned to the investor, for new senior convertible notes, in three tranches of $500 for a total principal amount of $1,500. The notes had a term of one year, bore interest at the rate of 12% per annum, and were convertible into shares of the Company’s common stock at a conversion price equal to $1.25 per share, subject to adjustment as set forth in the notes. Starting on the first week anniversary of the issuance of the new senior convertible notes and continuing thereafter, the investor, on a bi-weekly basis, redeemed one-sixth of the face amount of the senior convertible notes and guaranteed interest. The redemptions were made, at the Company’s option, either in (i) cash, in which case the Company would also have to issue to the investor a number of shares of the Company’s common stock equal to 5% of such redemption payment or (ii) subject to the Company satisfying certain equity conditions, shares of the Company’s common stock, pursuant to the redemption conversion rate, which was equal to the lower of (x) $1.25 and (y) a 25% discount to lowest volume weighted average price of the Company’s common stock in the prior three trading days. 

 

The Company issued the three tranches of new senior convertible notes on the following dates:

 

  $500 issued on November 13, 2015 which matured on January 28, 2016 (“Tranche 1”),
     
  $500 issued on November 27, 2015 which matured on February 19, 2016 (“Tranche 2”) and
     
  $500 issued on December 11, 2015 which matured on March 4, 2016 (“Tranche 3”).

  

The investor who held the promissory note tranches issued on November 13, 2015, November 27, 2015, and December 11, 2015 converted the debt into shares of the Company’s common stock. Below is a summary of the transactions:

 

Tranche 1:

 

  During November 2015, the investor converted $83 principal amount of debt into 66,667 shares of the Company’s common stock.

 

  During December 2015, the investor converted $167 principal amount of debt into 133,334 shares of the Company’s common stock.
     
  During January 2016, the investor converted $167 principal amount of debt into 133,334 shares of the Company’s common stock.
     
  On February 3, 2016, the investor converted the remaining $83 principal amount of debt into 66,667 shares of the Company’s common stock. Tranche 1 of the promissory note debt was fully amortized as of this date.

 

Tranche 2:

 

  During December 2015, the investor converted $166 principal amount of debt into 133,334 shares of the Company’s common stock.
     
  During January 2016, the investor converted $167 principal amount of debt into 133,334 shares of the Company’s common stock.
     
  During February 2016, the investor converted $167 principal amount of debt into 133,334 shares of the Company’s common stock. Tranche 2 of the promissory note debt was fully amortized as of February 22, 2016.

  

Tranche 3:

 

  During January 2016, the investor converted $250 principal amount of debt into 200,001 shares of the Company’s common stock.
     
  During February 2016, the investor converted $167 principal amount of debt into 133,334 shares of the Company’s common stock.

 

  On March 2, 2016, the investor converted the remaining $83 principal amount into 66,667 shares of the Company’s common stock.

 

On September 15, 2016, the Company received cash proceeds of $500, from the sale of a term promissory note. The term promissory note originally had a maturity date of November 4, 2016 and can be paid in either cash or common stock at the option of the lender. If common stock of the Company is used to make such payment, then the shares shall be delivered by the third business day following the maturity date and shall equal the total amount including principal and interest, at a conversion price mutually agreed to by both parties at conversion. Interest at a rate of 12% per annum, is to be accrued until the maturity day. The Company will pay a minimum of guaranteed interest of $30 and lender legal fees of $5 out of proceeds of the note. The note may be redeemed at any time prior to maturity at an amount equal to 110% of the outstanding principal amount plus any accrued and unpaid interest on the note. The redemption premium (10%) can be paid in cash or common stock at the option of the Company. If the Company’s common stock is used to make such payment, then such shares shall be delivered by the third business day following the maturity date, or date of demand, as applicable, at a mutually agreed upon conversion price by both parties.

 

On November 4, 2016, the Company entered into an exchange agreement with the holder of the September 15, 2016 term promissory note. The principal amount was increased by $40 to $540, which included a debt discount of $101, and the note became convertible into shares of the Company’s common stock. The maturity date of the note was extended from November 4, 2016 to November 4, 2017. Interest at a rate of 12% per annum is to be accrued until the maturity day. The new note has monthly amortization payments of $86 beginning on May 4, 2017 and ending on the maturity date. These monthly amortization payments can be offset by monthly conversions. The note is convertible at the lower of (i) $0.10, or (ii) 75% of the lowest VWAP day for the 15 days prior to the conversion date. In accordance with ASC Topic 470-50, the Company recorded a loss on extinguishment of $146 in the consolidated statement of operations for the year ended December 31, 2016. Refer to Note 12, Derivative Instruments, for further detail on the derivative features associated with the November 4, 2016 convertible note.

 

During the year ended December 31, 2016, the holder of the November 4, 2016 promissory note did not convert any principal or accrued interest into shares of the Company’s common stock.

 

On November 18, 2016, the Company entered into a receivables purchase agreement whereby the Company sold approximately $1,000 of receivables in exchange for $950. The principal amount of the loan was $1,000, which included a debt discount of $50. The proceeds were used to make amortization payments to the Company’s senior lender and for general working capital purchases.

 

During November and December 2016, the Company received and remitted $1,000 of the receivables sold in payment of the loan.

 

On December 30, 2016, the Company entered into a receivables purchase agreement whereby the Company sold approximately $474 of receivables in exchange for $430. The principal amount of the loan is $474, which includes a debt discount of $44.

 

During the year ended December 31, 2016, the Company did not remit any receivables for this loan.

 

Principal of $2,213 and $4,473 on the notes held by Dominion Capital LLC remained outstanding as of December 31, 2016 and 2015, respectively. 

 

The following table summarizes the issuances, exchanges and amortization payments made related to the Dominion Capital LLC promissory notes from January 1, 2015 through December 31, 2016:

 

Date of Issuance   November 17, 2014     May 14,
2015
    August 6, 2015     November 12, 2015     November 13, 2015     November 27, 2015     December 11, 2015     September 15, 2016     November 4, 2016     November 18, 2016     December 30, 2016     Total Principal  
                                                                         
Principal Amount   $ 1,000     $ 1,000     $ 2,105     $ 525     $ 500     $ 500     $ 500     $ 500     $ 540     $ 1,000     $ 430          
                                                                                                 
Principal balance at January 1, 2015     1,000       -       -       -       -       -       -                                       1,000  
                                                                                                 
May 14, 2015 - Conversion to common stock     (1,000 )     -       -       -       -       -       -       -       -       -       -       (1,000 )
May 14, 2015 - Issuance     -       1,000       -       -       -       -       -       -       -       -       -       1,000  
August 6, 2015 - Amendment     -       60       -       -       -       -       -       -       -       -       -       60  
August 6, 2015 - Issuance     -       -       2,105       -       -       -       -       -       -       -       -       2,105  
November 12, 2015 - Issuance     -       -       -       525       -       -       -       -       -       -       -       525  
November 13, 2015 - Exchange of GPB Life Science Holdings, LLC note     -       -       -       -       500       -       -       -       -       -       -       500  
November 20, 2015 - Amortization payment     -       (151 )     -       -       -       -       -       -       -       -       -       (151 )
November 23, 2015 - Amortization payment     -       -       -       -       (83 )     -       -       -       -       -       -       (83 )
November 27, 2015 - Exchange of GPB Life Science Holdings, LLC note     -       -       -       -       -       500       -       -       -       -       -       500  
December 1, 2015 - Amortization payment     -       (151 )     -       -       -       -       -       -       -       -       -       (151 )
December 7, 2015 - Amortization payment     -       -       -       -       (83 )     -       -       -       -       -       -       (83 )
December 11, 2015 - Exchange of GPB Life Science Holdings, LLC note     -       -       -       -       -       -       500       -       -       -       -       500  
December 14, 2015 - Amortization payment     -       -       -       -       -       (83 )     -       -       -       -       -       (83 )
December 21, 2015 - Amortization payment     -       -       -       -       (83 )     -       -       -       -       -       -       (83 )
December 28, 2015 - Amortization payment     -       -       -       -       -       (83 )     -       -       -       -       -       (83 )
                                                                                                 
Principal balance at December 31, 2015   $ -     $ 758     $ 2,105     $ 525     $ 251     $ 334     $ 500     $ -     $ -     $ -     $ -     $ 4,473  
                                                                                                 
January 2016 - Amortization payments     -       -       -       -       (167 )     (167 )     (250 )     -       -       -       -       (584 )
February 2016 - Amortization payments     -       (151 )     (117 )     -       (84 )     (167 )     (167 )     -       -       -       -       (686 )
March 2016 - Amortization payments     -       (455 )     (117 )     -       -       -       (83 )     -       -       -       -       (655 )
April 2016 - Amortization payments     -               (117 )     -       -       -       -       -       -       -       -       (117 )
June 2016 - Amortization payments     -       (152 )     -       -       -       -       -       -       -       -       -       (152 )
July 2016 - Amortization payments     -       -       (117 )     (88 )     -       -       -       -       -       -       -       (205 )
August 2016 - Amortization payments     -       -       -       (131 )     -       -       -       -       -       -       -       (131 )
September 15, 2016 - Issuance     -       -       -       -       -       -       -       500       -       -       -       500  
September 2016 - Amortization payments     -       -       (117 )     -       -       -       -       -       -       -       -       (117 )
October 2016 - Amortization payments     -       -       (175 )     -       -       -       -       -       -       -       -       (175 )
November 4, 2016 - Issuance (exchange agreement)     -       -       -       -       -       -       -       (500 )     540       -       -       40  
November 15, 2016 - Issuance (receivables purchase agreement #1)     -       -       -       -       -       -       -       -       -       1,000       -       1,000  
November 2016 - Receivables collected and remitted (receivables purchase agreement #1)     -       -       -       -       -       -       -       -       -       (536 )     -       (536 )
November 2016 - Amortization payments     -       -       (117 )     (88 )     -       -       -       -       -       -       -       (205 )
December 2016 - Receivables collected and remitted (receivables purchase agreement #1)     -       -       -       -       -       -       -       -       -       (464 )     -       (464 )
December 30, 2016 - Issuance (receivables purchase agreement #2)     -       -       -       -       -       -       -       -       -       -       474       474  
December 2016 - Amortization payments     -       -       (30 )     (218 )     -       -       -       -       -       -       -       (247 )
                                                                                                 
Principal balance at December 31, 2016   $ -     $ -     $ 1,198     $ -     $ -     $ -     $ -     $ -     $ 540     $ -     $ 474     $ 2,213  

 

Bridge Financing - GPB Life Science Holdings, LLC

 

The Company entered into a bridge financing agreement, effective as of December 3, 2014, with GPB Life Science Holdings, LLC, whereby the Company issued to the investor for gross proceeds of $2,375 (i) a senior secured note, dated December 3, 2014, in the principal amount of $2,500 with interest accruing at the rate of 12% per annum and (ii) a four-year warrant, dated December 3, 2014, exercisable for up to 250,000 shares of the Company’s common stock at an exercise price of $5.00 per share, subject to adjustment as set forth therein. The note matured upon the earlier of: June 1, 2015 or (y) the date of a Major Transaction (as defined in the purchase agreement). In addition, upon maturity of the note, the Company was required to pay the investor additional interest in cash, which interest was to accrue over the term of the note at the rate of 4% per annum. The note was secured by (i) a first priority security interest in and to all Accounts Receivable (as defined in the purchase agreement) of the Company and its subsidiaries, except those of VaultLogix, and (ii) a first priority security interest and lien on all Collateral (as defined in the purchase agreement) of the Company and its subsidiaries, which lien and security interest was to go into effect at such time as White Oak Global Advisors, LLC (“White Oak”) released (or was deemed to have released pursuant to the applicable documents between it and the Company), its liens and security interest on any collateral of the Company and the Company’s obligation to grant, pledge or otherwise assign a lien in favor of White Oak was terminated (pursuant to the applicable documents between White Oak and the Company). Refer to Note 12, Derivative Instruments, for further detail on the warrant to purchase 250,000 shares of common stock.

 

On December 31, 2014, pursuant to the bridge financing agreement, the Company issued to the investor an additional note in the principal amount of $1,500 for a purchase price of $1,425 with interest accruing at the rate of 12% per annum. The Company used the proceeds of this additional financing to repay the convertible note payable to 31 Group, LLC. Pursuant to the second agreement, the Company issued a warrant entitling the lender to purchase 150,000 shares of common stock. The warrant was exercisable at a fixed price of $5.00 and expired 180 days from the original issue date. Refer to Note 12, Derivative Instruments, for further detail on the warrant to purchase 150,000 shares of common stock.

 

On May 15, 2015, the Company and GPB Life Science Holdings, LLC entered into a securities purchase agreement and Amendment No. 1 to the bridge financing agreement whereby the Company (i) issued and sold to the investor a senior secured convertible note in the principal amount of $2,000, having substantially the same terms and conditions as the outstanding notes, (ii) issued to the investor a four-year warrant, exercisable for up to 200,000 shares of the Company’s common stock, with an exercise price of $3.75, subject to adjustment as set forth therein, (iii) issued to the investor a four-year warrant, exercisable for up to 50,000 shares of the common stock, with an exercise price of $3.93, subject to adjustment as set forth therein, (iv) amended the exercise price of the outstanding warrants held by the investor to $3.75, subject to adjustment as set forth in such warrants, (v) extended the maturity date of the outstanding notes held by such investor, such that the maturity date of all three notes, subject to certain exceptions as provided in the Agreement, was May 15, 2016, (vi) amended the outstanding notes held by such investor to make them convertible into shares of the Company’s common stock at an exercise price of $3.75 per share, and (vii) added the same amortization provision to the outstanding notes held by such investor as is in the new note requiring the Company to make three amortization payments to the investor of $1,125 each on each of September 1, 2015, December 1, 2015 and March 1, 2016, so that each of the three notes received its pro-rata portion of each $1,250 amortization payment. In addition, the Company and the investor agreed that all or any portion of the $6,000 aggregate principal amount of the Notes may, by mutual agreement of the Company and the investor, be paid by the Company at any time and from time to time by the issuance to the investor of no more than 1,600,000 shares of the Company’s common stock.

 

In conjunction with Amendment No. 1 to the bridge financing agreement, the Company incurred legal and placement fees of $209 and recorded this amount as a debt discount that will be amortized to interest expense on the consolidated statement of operations.

 

The Company accounted for Amendment No. 1 to the bridge financing agreement in accordance with ASC 470-50, Debt – Modifications and Extinguishments (“ASC Topic 470-50”). In accordance with ASC Topic 470-50, the Company extinguished the December 3, 2014 and December 31, 2014 bridge financing senior secured convertible notes in the amounts of $2,500 and $1,500, respectively, and recorded a new bridge financing senior secured convertible note in the amount of $6,020 on the balance sheet as of May 15, 2015. The fair value of the Amendment No. 1 senior secured convertible note was $6,020, which was an amount in excess of the face value of the $6,000 senior secured convertible note and as such, the Company recorded the fair value of the lender’s conversion feature of the note of $827 to additional paid-in capital on the balance sheet and a related loss on debt extinguishment of $847 on the consolidated statement of operations. In addition, the Company used a Monte-Carlo simulation to fair-value the lender’s default premium option and recorded a derivative liability of $22 to debt discount on the consolidated balance sheet as of May 15, 2015.

 

On August 12, 2015, the Company and GPB Life Science Holdings, LLC entered into Amendment No. 2 to the original bridge financing agreement, dated December 3, 2014, whereby the Company and GPB Life Science Holdings, LLC agreed to (i) reduce the conversion price of the notes from $3.75 to $2.00 per common share, (ii) amend and restate the prior warrants and additional warrants to reduce the exercise price from $3.75 to $2.00 per warrant share, (iii) increase the number of amortization payment dates and reduce the amortization payments to $563, and (iv) permit the Company to make the amortization payments in shares of the Company common stock converted from any of the prior notes or the new notes. The conversion price for the shares of the Company’s common stock used to make an amortization payment shall be the lesser of (i) $2.00 and (ii) 75% of the average of the volume weighted average price for the five consecutive trading days ending on, and including, the trading day immediately preceding the date of the amortization payment. Refer to Note 12, Derivative Instruments, for further detail on the reduction of the conversion price and the amendment and restatement of the warrants.

 

The Company accounted for Amendment No. 2 in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company modified the May 15, 2015 Amendment No. 1 bridge financing senior secured convertible note in the amount $6,020. In conjunction with this transaction, the Company modified the terms of the equity warrants to reduce the exercise price from $3.75 to $2.00 per share of the Company’s common stock. Refer to Note 12, Derivative Instruments, for further detail on the reduction of the conversion price of the warrants.

 

On November 12, 2015, the Company entered into an exchange agreement with the investor (as noted above in the Promissory Notes section of this footnote) whereby the Company exchanged a portion of the senior secured note originally issued by the Company to GPB Life Science Holdings, LLC on December 3, 2014 and subsequently assigned to the investor, for new senior convertible notes, in three tranches of $500 for a total principal amount of $1,500.

 

GPB Life Science Holdings, LLC exchanged the following senior secured notes to the investor in the following three tranches:

 

  $500 exchanged on November 13, 2015 which matured on January 28, 2016 (Tranche 1),
     
  $500 exchanged on November 27, 2015 which matured on February 19, 2016 (Tranche 2), and
     
  $500 exchanged on December 11, 2015 which matured on March 4, 2016 (Tranche 3).

 

The Company accounted for the exchange in accordance with ASC 470-50. In accordance with ASC Topic 470-50, the Company extinguished each tranche exchanged and recorded a new note to the investor. For Tranche 1, the Company fair valued the investors’ conversion features and removed the existing debt discount on Tranche 1 and recorded a loss on extinguishment of $8 on the consolidated statement of operations as of November 13, 2015. For Tranche 2, the Company fair valued the investors’ conversion features and removed the existing debt discount on Tranche 2 and recorded a gain on debt extinguishment of $92 on the consolidated statement of operations as of November 27, 2015. For Tranche 3, the Company fair valued the investors’ conversion features and removed the existing debt discount on Tranche 3 and recorded a gain on debt extinguishment of $237 on the consolidated statement of operations as of December 11, 2015.

 

On December 29, 2015, the Company entered into a conversion agreement with GPB Life Science Holdings, LLC pursuant to which, among other things, (i) the Company used $2,300 of the proceeds of the JGB (Cayman) Waltham Ltd. senior secured convertible debentures (as described later within this footnote) to reduce the total amount owed by the Company to GPB Life Science Holdings, LLC to $1,500, (ii) the Company agreed that, if the closing price per share of the Company’s common stock 90 days after December 29, 2015 was less than the remaining balance conversion price, as adjusted, then the Company would issue to GPB Life Science Holdings, LLC additional unregistered shares of the Company’s common stock in an aggregate amount equal to the amount set forth in the conversion agreement, (iii) GPB Life Science Holdings, LLC and the Company will convert the remaining balance of $1,500 into shares of the Company’s common stock at a conversion price per share equal to 75% multiplied by the lower of (x) the average volume weighted average price per share of the Company’s common stock for the five prior trading days and (y) the one day volume weighted price for a share of the Company’s common stock on December 29, 2015, (iv) GPB Life Science Holdings, LLC will reduce the exercise price of those certain outstanding warrants originally issued by the Company on May 14, 2015 to $1.75, and (v) GPB Life Science Holdings, LLC released all of its remaining security interest in the assets of the Company. On January 22, 2016, the Company issued 500,000 shares of common stock in full settlement of this provision and GPB Life Science Holdings, LLC released its remaining security interest in the assets of the Company (refer to Note 16, Stockholders’ Deficit, for additional detail).

 

The Company accounted for the payment of $2,300 principal amount outstanding (as noted in item (i) above) to GPB Life Science Holdings, LLC in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company extinguished $2,300 of the note payable to GPB Life Science Holdings, LLC, removed the existing derivative liability related to the maturity date feature of $31, reduced the beneficial conversion feature of $139, which was recorded in additional paid in capital, reduced accrued interest on the notes of $199, paid $25 in legal fees, and paid interest of $419. In addition, the Company amended the warrants attached to the GPB Life Science Holdings, LLC convertible debentures (refer to Note 12, Derivative Instruments, for additional detail). The Company recorded a gain on debt extinguishment of $131 on the consolidated statement of operations as of December 31, 2015. 

 

On December 29, 2015, GPB Life Science Holdings, LLC converted $1,500 of principal amount outstanding into 1,918,649 shares of the Company’s common stock. Refer to Note 16, Stockholders’ Deficit, for additional detail on this transaction. 

 

Smithline Senior Convertible Note

 

On August 6, 2015, the Company issued to Smithline a senior convertible note in the principal amount of $526, with interest accruing at the rate of 12% per annum, which matures on January 11, 2017. The note is convertible into shares of the Company’s common stock at a conversion price equal to $2.00 per share, subject to adjustment as set forth in the agreement. Refer to Note 12, Derivative Instruments, for further detail on the derivative features associated with the Smithline Senior Convertible Note.

 

Pursuant to the Smithline senior convertible note, the Company was required to meet current public information requirements under Rule 144 of the Securities Act of 1933, which it had failed to do prior to June 30, 2016. Thus, on July 20, 2016, the Company agreed to add $55 to the principal amount of the Smithline senior convertible note as of July 1, 2016 and the investor waived its right to call an event of default under the note with respect to the Company’s failure to meet the public information requirement for the period ending June 30, 2016. On September 1, 2016, the Company agreed to add $97 to the principal amount of the Smithline senior convertible note as of the date of its last monthly amortization to compensate the investor for certain damages relating to noncompliance with certain provisions of the senior convertible note. In accordance with ASC Topic 470-50, the Company recorded a loss on extinguishment of debt of $167 during the year ended December 31, 2016.

 

The Smithline senior convertible note matured on January 11, 2017 and is now due on demand.

  

During the year ended December 31, 2016, the investor who holds the Smithline senior convertible note converted $372 of principal and accrued interest into shares of the Company’s common stock. Refer to Note 16, Stockholders’ Deficit, for further information.

  

Principal of $363 and $526 remained outstanding as of December 31, 2016 and 2015, respectively.

 

JGB (Cayman) Waltham Ltd. Senior Secured Convertible Debenture

 

On December 29, 2015, the Company entered into a securities purchase agreement with JGB (Cayman) Waltham Ltd. (“JGB Waltham”) whereby the Company issued to JGB Waltham, for gross proceeds of $7,500, a $500 original issue discount senior secured convertible debenture in the principal amount of $7,500. The debenture had a maturity date of June 30, 2017, bore interest at 10% per annum, and was convertible into shares of the Company’s common stock at a conversion price equal to $1.33 per share, subject to adjustment as set forth in the debenture. The Company was to pay interest to JGB Waltham on the aggregate unconverted and then outstanding principal amount of the debenture in arrears each calendar month and on the maturity date in cash, or, at the Company’s option and subject to the Company satisfying certain equity conditions, in shares of the Company’s common stock. In addition, December 29, 2016 was an interest payment date on which the Company was to pay to JGB Waltham a fixed amount, as additional interest under the debenture an amount equal to $350 in cash, shares of the Company’s common stock or a combination thereof. Commencing on February 29, 2016, JGB Waltham had the right, at its option, to require the Company to redeem up to $350 of the outstanding principal amount of the debenture per calendar month, which redemption could have been made in cash or, at the Company’s option and subject to satisfying certain equity conditions, in shares of the Company’s common stock. The debenture was guaranteed by the Company and certain of its subsidiaries and was secured by all assets of the Company. The total cash received by the Company as a result of this agreement was $3,730.

  

The Company used a portion of the proceeds from the debenture to pay $2,300 remaining under the senior secured notes the Company originally issued to GPB Life Science Holdings, LLC. Refer to the Bridge Financing – GPB Life Science Holdings, LLC section of this note for further detail.

 

On May 17, 2016, the Company entered into a Forbearance and Amendment Agreement (the “Debenture Forbearance Agreement”) with JGB Waltham pursuant to which JGB Waltham agreed to forbear action with respect to certain existing defaults in accordance with the terms of the Debenture Forbearance Agreement. The defaults, which were not monetary in nature, related to the Company’s inability to timely file its Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

 

In connection with the execution of the Debenture Forbearance Agreement, the Company issued to JGB Waltham an amended and restated senior secured convertible debenture (the “Amended and Restated Debenture”), which amended the original 10% senior secured convertible debenture issued to JGB Waltham on December 29, 2015 by: (i) reducing the conversion price at which the original debenture converts into shares of the Company’s common stock; and (ii) eliminating the provisions that provided for (A) the issuance of common stock at a discount to the market price of the common stock and (B) certain anti-dilution protections.

 

The Amended and Restated Debenture was issued in the principal amount of $7,500, has a maturity date of May 31, 2019, bears interest at 0.67% per annum, and is convertible into shares of the Company’s common stock at a fixed conversion price equal to $0.80 per share, subject to equitable adjustments as set forth in the Amended and Restated Debenture. The Company shall pay interest to JGB Waltham on the aggregate unconverted and then outstanding principal amount of the Amended and Restated Debenture, payable monthly in arrears as of the last trading day of each calendar month and on May 31, 2019, in cash. In addition, the Company shall pay JGB Waltham an additional amount equal to 7.5% of the outstanding principal amount on the Amended and Restated Debenture on each of May 31, 2017, May 31, 2018 and May 31, 2019, subject to certain exceptions set forth in the Amended and Restated Debenture. JGB Waltham has the right, at its option, to require the Company to redeem up to $169 of the outstanding principal amount of the Amended and Restated Debenture plus the then-accrued and unpaid interest thereon each calendar month, in cash. The Amended and Restated Debenture contains standard events of default.

 

In connection with the execution of the Debenture Forbearance Agreement, the Company issued to JGB Waltham a senior secured note (the “2.7 Note”), dated May 17, 2016, in the principal amount of $2,745 that matures on May 31, 2019, bears interest at 0.67% per annum and contains standard events of default.

 

The Company accounted for the Debenture Forbearance Agreement in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company extinguished the December 29, 2015 senior secured convertible debenture in the then-current principal amount of $6,100 and recorded a new senior secured convertible debenture at its new fair value of $3,529 on the balance sheet as of May 17, 2016. As a result of the extinguishment, the Company recorded a loss on extinguishment of debt of $1,457 on the consolidated statement of operations as of May 17, 2016. In addition, the Company re-valued the derivative features associated with the December 29, 2015 senior secured convertible debenture. Refer to Note 8, Derivative Instruments, for additional information on this transaction.

  

On May 23, 2016, the Company entered into an amended agreement with JGB Concord, JGB Waltham, White Oak Global Advisors, LLC, VaultLogix, and the Guarantors thereto (the “Amended Agreement”) pursuant to which (i) JGB Concord permitted the Company to withdraw $172 from the Blocked Account (as defined in the original debenture), and (ii) JGB Concord permitted the Company to withdraw $328 from the Deposit Account (as defined in the original note) and, in exchange for the foregoing, (i) VaultLogix guaranteed the obligations of, and provide security for, the Amended and Restated Debenture and the 2.7 Note, (ii) the Company’s subsidiaries guaranteed all indebtedness due to JGB Concord under the Amended and Restated Note and 5.2 Note, and (iii) the Company and its subsidiaries pledged their assets as security for all obligations owed to JGB Concord under the Amended and Restated Note and the 5.2 Note in accordance with the terms of an Additional Debtor Joinder, dated May 23, 2016, pursuant to which the Company and each additional party thereto agreed to be bound by the terms of that certain Security Agreement, dated as of February 18, 2016, made by VaultLogix in favor of the secured party thereto (the “February Security Agreement”). In addition, the interest rates on the Amended and Restated Note and the 5.2 Note were amended from 0.67% per annum to 1.67% per annum.

 

The Company accounted for this Amended Agreement in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company accounted for the Amended Agreement as a debt modification and adjusted the fair value of the associated derivative liabilities to its fair value as of May 23, 2016. Refer to Note 12, Derivative Instruments, for additional information on this transaction.

 

On June 23, 2016, the Company entered into an amendment agreement with JGB Concord and JGB Waltham pursuant to which, (i) JGB Waltham and JGB Concord released to the Company an aggregate of $1,500 from the Deposit Account (as defined in the original note). Upon the release of the funds (i) the JGB Waltham senior secured convertible debenture (the “December Debenture”) was amended to increase the Applicable Interest Rate (as defined in the original note) by 3.0% to take effect on July 1, 2016; (ii) the December Debenture was amended to increase the annual rate of interest by 3.0% to take effect on July 1, 2016; (iii) the JGB Concord senior secured convertible note (the “February Convertible Note”) was amended to increase the Applicable Interest Rate (as defined in the original February Convertible Note) by 3.0%, to take effect on July 1, 2016; and (iv) the February Note was amended to increase the annual rate of interest by 3.0%, to take effect on July 1, 2016. After giving effect to the foregoing annual rate of interest on each December Debenture and February Convertible Note as of July 1, 2016, was 4.67%. As additional consideration for the release of the funds, the Company issued 900,000 shares of the Company’s common stock on June 23, 2016 to JGB Concord.

 

The Company accounted for the June 23, 2016 amendment agreement in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company extinguished the May 17, 2016 Debenture Forbearance Agreement in the principal amount of $6,100 and recorded on the balance sheet as of June 23, 2016 a new senior secured convertible debenture at its new fair value of $4,094. As a result of the extinguishment, the Company recorded a loss on extinguishment of debt of $483 on the consolidated statement of operations as of June 23, 2016. In addition, the Company re-valued the derivative features associated with the May 17, 2016 Debenture Forbearance Agreement. Refer to Note 12, Derivative Instruments, for additional information on this transaction.

 

On September 1, 2016, the Company entered into an Amendment Agreement with JGB Concord and JGB Waltham pursuant to which, JGB Waltham and JGB Concord (i) waived certain covenant violations and defaults, (ii) agreed to a specified application of the Cash Collateral (as defined in the Amendment Agreement) in partial satisfaction of the obligations owed under the December Debenture, the 2.7 Note, and the February Convertible Note, and in full satisfaction of the 5.2 Note, and (iii) certain provisions of the December Debenture, the 2.7 Note, and the February Convertible Note be amended.

 

The Company also (i) issued warrants, with an expiration date of December 31, 2017, to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.01 per share, (ii) issued warrants, with an expiration date of December 31, 2017, to purchase 3,500,000 shares of common stock at an exercise price of $0.10 per share ((i) and (ii), the “JGB Warrants”). The Company determined that the fair value of the JGB Warrants was $972, which is included in common stock warrants within the stockholders’ deficit section on the consolidated balance sheet as of December 31, 2016.

 

In connection with the execution of the September 1, 2016 Amendment Agreement, the Company issued to JGB Waltham the Third Amended and Restated Senior Secured Convertible Debenture (the “Amended and Restated Debenture”), in order to, among other things, amend the December Debenture to (i) provide that the Company may prepay such debenture upon prior notice at a 10% premium, (ii) modify the conversion price at which such debenture converts into common stock from a fixed price of $0.80 to the lowest of (a) $0.2043 per share, (b) 80% of the average VWAPs (as defined in the Amended and Restated Debenture) for each of the five consecutive trading days immediately prior to the applicable conversion, and (c) 85% of the VWAP (as defined in the Amended and Restated Debenture) for the trading day immediately preceding the applicable conversion (the “Conversion Price”), and (iii) eliminate three additional 7.5% payments due to JGB Waltham in 2017, 2018 and 2019, as per such debenture. Further, in connection with the execution of the Amendment Agreement, the Company executed the Amended and Restated Senior Secured Note (the “Amended and Restated 2.7 Note”), in order to, among other things, amend the 2.7 Note to provide that JGB Waltham may convert such note into shares of common stock at the applicable Conversion Price at any time and from time to time. Refer to Note 12, Derivative Instruments, for further detail on the Company’s accounting for the Amended and Restated 2.7 Note.

 

The Company accounted for the September 1, 2016 amendment agreement in accordance with ASC Topic 470-50. Because of the extinguishment, the Company recorded a loss on extinguishment of debt of $274 on the consolidated statement of operations as of September 1, 2016. In addition, the Company re-valued the derivative features. Refer to Note 12, Derivative Instruments, for additional information on this transaction.

 

During the year ended December 31, 2016, JGB Waltham converted $384 of principal and accrued interest into shares of the Company’s common stock. Refer to Note 16, Stockholders’ Deficit, for further information

 

During the year ended December 31, 2016, the Company made the following cash payments on the JGB Waltham note:

 

 

$24 of cash was used to pay interest during September 2016;

 

  $339 of cash received from the November 18, 2016 Receivables Purchase Agreement was used to pay principal during November 2016; and
     
  $197 of cash received from the December 30, 2016 Receivables Purchase Agreement was used to pay principal during December 2016.

 

During the year ended December 31, 2016, the Company made the following cash payments on the 2.7 Note:

 

 

$10 of cash was used to pay interest during September 2016;

 

  $2,000 of restricted cash was applied in payment of principal owed during October 2016;
     
  $10 of cash was used to pay interest during October 2016; and
     
  $5 of cash received from the November 18, 2016 Receivables Purchase Agreement was used to pay interest during November 2016.

 

JGB (Cayman) Concord Ltd. Senior Secured Convertible Note

 

On February 17, 2016, the Company entered into a securities exchange agreement with VaultLogix and JGB (Cayman) Concord Ltd. (“JGB Concord”), whereby the Company exchanged the White Oak Global Advisors, LLC promissory note and subsequently assigned to JGB Concord a new 8.25% senior secured convertible note dated February 18, 2016 in the principal amount of $11,601. As a result of the assignment, the obligations of the Company and VaultLogix to White Oak Global Advisors, LLC were satisfied.

 

The note issued to JGB Concord had a maturity date of February 18, 2019, bore interest at 8.25% per annum, and was convertible into shares of the Company’s common stock at a conversion price equal to the lowest of: (a) $2.00 per share, (b) 80% of the average of the volume weighted average prices for each of the five consecutive trading days immediately prior to the applicable conversion date, and (c) 85% of the volume weighted average price for the trading day immediately preceding the applicable conversion date, subject to adjustment as set forth in the note. Interest on the senior secured convertible note was due in arrears each calendar month in cash, or, at the Company’s option and subject to stockholder approval, in shares of the Company’s common stock. Commencing on the stockholder approval date, JGB Concord had the right, at its option, to convert the senior secured convertible note, in whole or in part, into shares of the Company’s common stock, subject to certain beneficial ownership limitations. The senior secured convertible note was secured by all assets of VaultLogix as well as a cash collateral blocked deposit account.

 

On May 17, 2016, the Company entered into a forbearance and amendment agreement (the “Note Forbearance Agreement”) with VaultLogix and JGB Concord, pursuant to which JGB Concord agreed to forbear action with respect to certain existing defaults in accordance with the terms of the Note Forbearance Agreement. The defaults, which were not monetary in nature, related to the Company’s inability to timely file its Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

 

In connection with the execution of the Note Forbearance Agreement, the Company issued to JGB Concord an amended and restated senior secured convertible note (the “Amended and Restated Note”) in order to amend the original note to JGB Concord by: (i) reducing the conversion price at which the note converts into shares of the Company’s common; and (ii) eliminating provisions that provided for (A) the issuance of common stock at a discount to the market price of the common stock and (B) certain anti-dilution protections.

 

The Amended and Restated Note was issued in the aggregate principal amount of $11,601, has a maturity date of May 31, 2019, bears interest at 0.67% per annum, and is convertible into shares of the Company’s common stock at a fixed conversion price of $0.80 per share, subject to equitable adjustments as set forth in the Amended and Restated Note. The Company and VaultLogix shall pay interest to JGB Concord on the aggregate unconverted and then outstanding principal amount of the Amended and Restated Note, payable monthly in arrears as of the last trading day of each calendar month and on May 31, 2019, in cash. In addition, the Company shall pay to JGB Concord an additional amount equal to 7.5% of the outstanding principal amount on the Amended and Restated Note on each of May 31, 2017, May 31, 2018, and May 31, 2019, subject to certain exceptions set forth in the Amended and Restated Note. JGB Concord has the right, at its option, to require the Company to redeem up to $322 of the outstanding principal amount of the Amended and Restated Note plus the then accrued and unpaid interest thereon each calendar month in cash. The Amended and Restated Note contains standard events of default.

 

The Company accounted for the Note Forbearance Agreement in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company extinguished the February 17, 2016 senior secured convertible note in the principal amount of $11,601 and recorded a new senior secured convertible debenture at its new fair value of $6,711 on the balance sheet as of May 17, 2016. As a result of the extinguishment, the Company recorded a loss on extinguishment of debt of $2,772 on the consolidated statement of operations as of May 17, 2016. In addition, the Company re-valued the derivative features associated with the February 17, 2016 senior secured convertible note. Refer to Note 12, Derivative Instruments, for additional information on this transaction.

 

In connection with the execution of the Note Forbearance Agreement, the Company issued to JGB Concord a senior secured note (the “5.2 Note”), dated May 17, 2016, in the principal amount of $5,220 that matures on May 31, 2019, bears interest at 0.67% per annum, and contains standard events of default.

 

On May 23, 2016, the Company entered into an amended agreement with JGB Concord, JGB Waltham, White Oak Global Advisors, LLC, VaultLogix, and the Guarantors thereto (the “Amended Agreement”) pursuant to which (i) JGB Concord permitted the Company to withdraw $172 from the Blocked Account (as defined in the original debenture), and (ii) JGB Concord permitted the Company to withdraw $328 from the Deposit Account (as defined in the original note) and, in exchange for the foregoing, (i) VaultLogix guaranteed the obligations of, and provide security for, the Amended and Restated Debenture and the 2.7 Note, (ii) the Company’s subsidiaries guaranteed all indebtedness due to JGB Concord under the Amended and Restated Note and 5.2 Note, and (iii) the Company and its subsidiaries pledged their assets as security for all obligations owed to JGB Concord under the Amended and Restated Note and the 5.2 Note in accordance with the terms of an Additional Debtor Joinder, dated May 23, 2016, pursuant to which the Company and each additional party thereto agreed to be bound by the terms of that certain Security Agreement, dated as of February 18, 2016, made by VaultLogix in favor of the secured party thereto (the “February Security Agreement”). In addition, the interest rates on the Amended and Restated Note and the 5.2 Note were amended from 0.67% to 1.67%.

 

The Company accounted for this Amended Agreement in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company accounted for the Amended Agreement as a debt modification and adjusted the fair value of the associated derivative liabilities to its fair value as of May 23, 2016. Refer to Note 12, Derivative Instruments, for additional information on this transaction.

 

On June 23, 2016, the Company entered into an amendment agreement with JGB Concord and JGB Waltham pursuant to which, (i) JGB Waltham and JGB Concord released to the Company an aggregate of $1,500 from the Deposit Account (as defined in the original note). Upon the release of the funds (i) the JGB Waltham senior secured convertible debenture (the “December Debenture”) was amended to increase the Applicable Interest Rate (as defined in the original note) by 3.0% to take effect on July 1, 2016; (ii) the December Debenture was amended to increase the annual rate of interest by 3.0% to take effect on July 1, 2016; (iii) the JGB Concord senior secured convertible note (the “February Convertible Note”) was amended to increase the Applicable Interest Rate (as defined in the original February Convertible Note) by 3.0%, to take effect on July 1, 2016; and (iv) the February Note was amended to increase the annual rate of interest by 3.0%, to take effect on July 1, 2016. After giving effect to the foregoing annual rate of interest on each December Debenture and February Convertible Note as of July 1, 2016, was 4.67%. As additional consideration for the release of the funds, the Company issued 900,000 shares of the Company’s common stock on June 23, 2016 to JGB Concord, and agreed to a make-whole provision whereby the Company will pay JGB Concord in cash the difference between $0.94 per share of the Company’s common stock and the average volume weighted average price of the Company’s common stock sixty days after the shares of the Company’s common stock are freely tradable. Refer to Note 12, Derivative Instruments, for further detail on the Company’s accounting for the JGB Concord make-whole provision.

 

The Company accounted for the June 23, 2016 amendment agreement in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company extinguished the May 17, 2016 Debenture Forbearance Note in the principal amount of $11,601 and recorded a new senior secured convertible note at its new fair value of $7,786 on the balance sheet as of June 23, 2016. As a result of the extinguishment, the Company recorded a loss on extinguishment of debt of $1,150 on the consolidated statement of operations as of June 23, 2016. In addition, the Company re-valued the derivative features associated with the May 17, 2016 Debenture Forbearance Note. Refer to Note 12, Derivative Instruments, for additional information on this transaction.

 

In connection with the execution of the September 1, 2016 Amendment Agreement, the Company executed the Second Amended and Restated Senior Secured Convertible Note (the “Amended and Restated Convertible Note”), in order to, among other things, amend the Convertible Note to (i) increase the interest rate payable thereon from 0.67% to 4.67%, (ii) provide that the Company may prepay the Amended and Restated Convertible Note upon prior notice at a 10% premium, (iii) provide that the Holder Affiliate may convert its interest in the Amended and Restated Convertible Note into shares of Common Stock at the applicable Conversion Price, and (iv) eliminate three additional 7.5% payments due to the Holder Affiliate in 2017, 2018, and 2019, as per the Convertible Note.

 

The Company accounted for the September 1, 2016 amendment agreement in accordance with ASC Topic 470-50. Because of the extinguishment, the Company recorded a loss on extinguishment of debt of $1,187 on the consolidated statement of operations as of September 1, 2016. In addition, the Company re-valued the derivative features. Refer to Note 8, Derivative Instruments, for additional information on this transaction.

 

During the year ended December 31, 2016, JGB Concord converted $921 of principal and accrued interest into shares of the Company’s common stock. Refer to Note 16, Stockholders’ Deficit, for further information.

 

During the year ended December 31, 2016, the Company made the following cash payments on the JGB Concord note:

 

 

$42 of cash was used to pay interest during September 2016;

 

  $391 of cash received from the November 18, 2016 Receivables Purchase Agreement was used to pay principal during November 2016; and
     
  $31 of cash received from the December 30, 2016 Receivables Purchase Agreement was used to pay interest during December 2016.

 

Principal of $3,748 related to the September 1, 2016 Second Amended and Restated Senior Secured Convertible Note remained outstanding as of December 31, 2016. Principal of $0 related to the 5.2 Note remained outstanding as of December 31, 2016.

  

Trinity Hall Promissory Note

 

On December 30, 2016, the Company issued to Trinity Hall a promissory note in the principal amount of $500, with interest accruing at the rate of 3% per annum, which matures on January 1, 2018. This note was assigned from certain related party notes payable to Mark Munro (see Note 18, Related Parties, for further detail).