7. Notes Payable

2014 Convertible Senior Notes

On August 19, 2014, the Company completed a private offering of $17.5 million aggregate principal amount of Senior Notes with an initial conversion price of $7.30 per share, for total net proceeds to the Company of approximately $16.2 million after deducting placement agent fees and other offering costs. The Company capitalized these placement agent fees and other offering costs as deferred financing cost. Interest expense amounted to $0.3 million which included $0.2 million related to the 5% coupon and $0.12 million related to the deferred offering costs for the three months ended March 31, 2015.

The Senior Notes are due on August 15, 2017, and are not convertible during the first three months, unless the current stock price is greater than 150% of the conversion price. Thereafter, the Senior Notes are convertible at any time. Pursuant to a one-time potential price reset provision, the conversion price was reset from $7.30 per share to $6.60 per share, as described below. The initial investors had a 3-month right to purchase an additional 30% on the same terms and conditions as the initial purchase, but did not exercise it. The Company deposited approximately $2.6 million from the total proceeds in an escrow account. This funding is sufficient to fund, when due, the total aggregate amount of the six scheduled semi-annual interest payments during the term of the notes, excluding additional interest, if any.

Conversion Price

Pursuant to a one-time potential price reset provision, on February 15, 2015, the initial conversion price of $7.30 was reset (“Reset”) to the lower of (a) the initial conversion price or (b) 110% of the common stock price on the 10 trading days ending on February 15, 2015. The adjustment resulted in reduction of the conversion price from $7.30 to $6.60 per share (151.4142 shares per $1,000). The fair value of the common stock was $6.07 on the rest date.

Mortgage Loan

On November 17, 2014, the Company entered into a mortgage loan agreement (“the First Mortgage”) with Lancashire Mortgage Corporation Limited in UK for approximately $10 million (£6.25 million). The First Mortgage has a 2 year term with a 12% annual interest rate. The Company initially received the first tranche of approximately $7 million (£4.5 million), and this amount was netted by approximately $0.3 million of a related financing charge, which was capitalized as deferred financing cost that is being amortized over the term of the First Mortgage. Interest expense amounted to $0.2 million for the three months ended March 31, 2015, which included $0.2 million related to the 12% coupon and $0.05 million related to the amortization of deferred offering financing costs on the mortgage loan.

On February 13, 2015, the Company entered into a second mortgage loan agreement (“the Second Mortgage”) with Lancashire Mortgage Corporation Limited in UK to expand the facility to $12 million (£7.75 million). The Second Mortgage has a 1.5 year term with a 12% annual interest rate. The Company received gross proceeds of approximately $5 million (£3.25 million), and this amount was netted by approximately $0.1 million of a related financing charge, which was capitalized as deferred financing cost that is being amortized over the term of the Second Mortgage. Interest expense amounted to $0.09 million for the three months ended March 31, 2015, which included $0.07 million related to the 12% coupon and $0.02 million related to the amortization of deferred offering financing costs on the mortgage loan.

Other Notes Payable

Notes payable consist of the following at March 31, 2015 and December 31, 2014 (in thousands):

	March 31,		December 31,
	2015		2014
Notes payable - current
12% unsecured originally due July 2011 - in dispute (1)	$	934	$	934
		934		934
Convertible notes payable, net - current
6% unsecured (2)		135		135
8% unsecured note due 2014 (3)		53		53
		188		188
Note payable
6% due on demand (4)		50		50
		50		50

Total notes payable, net	$	1,172	$	1,172

(1) This $0.934 million note, which was originally due in July 2011 is currently under dispute with the creditor as to the validity of the note payable balance, which the Company believes has already been paid in full and is not outstanding.

(2) This $0.135 million note as of March 31, 2015 consists of two separate 6% notes in the amounts of $0.110 million and $0.025 million. In regard to the $0.110 million note, the Company has made ongoing attempts to locate the creditor to repay or convert this note, but has been unable to locate the creditor to date. In regard to the $0.025 million note, the holder has elected to convert these notes into equity, the Company has delivered the applicable conversion documents to the holder, and the Company is waiting for the holder to execute and return the documents.

(3) This $0.053 million note was due May 25, 2014, and is currently past due.

(4) This $0.050 million demand note as of March 31, 2015 is held by an officer of the Company. The holder has made no demand for payment, but reserves the right to make a demand at any time.