Debt

As of June 30, 2017, the following table summarizes the Company's outstanding debt:



(in thousands)	June 30, 2017			December 31, 2016

2016 Credit and Security Agreement	$	4,473		$	3,603
Term Loan	6,500			3,676
Discount on Term Loan	(586		)	(1,122		)
Unamortized debt issuance costs related to Term Loan	(175		)	(336		)
Seasonal Facility	2,000			—
Subordinated Promissory Note	2,092			—
Capital Leases	281			—
Total debt	14,585			5,821
Short-term portion	(6,754		)	(5,821		)
Total long-term debt	$	7,831		$	—

The following table summarizes the components of interest expense for the three and six month periods ended June 30, 2017 and 2016:



(in thousands)	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Interest expense on Term Loan (effective interest rate at June 30, 2017 and 2016 was 13.5% and 15%, respectively)	$	179	$	161	$	317	$	341
Interest expense on 2013 Loan and Security Agreement	—		16		—		49
Interest expense on 2016 Credit and Security Agreement	117		48		198		48
Interest expense on Seasonal Facility	23		—		23		—
Interest expense on Subordinated Promissory Note	23		—		23		—
Interest expense on Capital Leases	2		—		2		—
Interest expense, other	2		—		2		—
Accretion of termination fees (over term of Term Loan at rate of 8%)	98		45		140		91
Amortization of debt issuance costs	79		62		219		123
Write-off of debt issuance costs related to 2013 Loan and Security Agreement	—		282		—		282
Amortization of debt discount associated with SWK Warrants #1 and #2 (defined below)	170		397		537		807
Mark to market of SWK Warrant #2 (defined below)	—		—		—		59
Total	$	693	$	1,011	$	1,461	$	1,800

2016 Credit and Security Agreement

On April 29, 2016, the Company entered into the 2016 Credit and Security Agreement with SCM, as amended on August 15, 2016, November 15, 2016, and May 11, 2017. The 2016 Credit and Security Agreement provides the Company with a revolving credit facility, the proceeds of which are to be used for general working capital purposes and capital expenditures. The 2016 Credit and Security Agreement replaced the 2013 Loan and Security Agreement, eliminating the requirement of the Company to issue SWK Warrant #2 (as defined below) for the purchase of common stock valued at $1.25 million to SWK, the holder of the Company’s Credit Agreement.

In connection with the Merger, the Company entered into the Third Amendment, which expands the Company's revolving credit facility from $7.0 million to $10.0 million with an accordion to $15.0 million during high-volume months. The Company evaluated the application of ASC 470-50 and ASC 470-60 for the Third Amendment and concluded that the revised terms did not constitute a troubled debt restructuring ("TDR"), and the amendment was accounted for as debt modification rather than debt extinguishment. SCM makes cash advances to the Company in an aggregate principal amount outstanding at any one time not to exceed the maximum borrowing capacity, subject to certain loan balance limits based on the value of the Company’s eligible collateral (the “Revolving Loan Commitment Amount”). The 2016 Credit and Security Agreement has a term of three years, expiring on April 29, 2019.

As of June 30, 2017, the Company had $4.5 million of outstanding borrowings under the 2016 Credit and Security Agreement, borrowing the maximum available amount under the borrowing capacity. As of August 10, 2017, the Company had $3.4 million of outstanding borrowings and $0.9 million of unused borrowing capacity. Any borrowings on the unused borrowing capacity are at the discretion of SCM. Immediately following the Merger, the Company paid off Provant's outstanding line of credit balance, noted in the preliminary purchase price allocation in Note 3 to the condensed consolidated financial statements, of $4.7 million.

Borrowings under the 2016 Credit and Security Agreement bear interest at a fluctuating rate that when annualized is equal to the Prime Rate plus 5.5%, subject to increase in the event of a default. The Company paid SCM a $0.1 million facility fee, and monthly, SCM will receive an unused line fee equal to one-half of one percent (0.5%) per annum of the difference derived by subtracting (i) the greater of (x) the average daily outstanding balance under the Revolving Facility during the preceding month and (y) the Minimum Balance, from (ii) the Revolving Loan Commitment Amount and also a collateral management fee equal to one-half of one percent (0.5%) per annum of the Revolving Loan Commitment Amount. In connection with the Third Amendment, the Company paid fees of $0.1 million to SCM that were capitalized in Other Assets. As of June 30, 2017, the remaining balance in debt issuance costs recorded in Other Assets on the condensed consolidated balance sheet was $0.3 million.

Borrowings under the 2016 Credit and Security Agreement are secured by a security interest in all existing and after-acquired property of the Company, including, but not limited to, its receivables (which are subject to a lockbox account arrangement), inventory, and equipment.

The Third Amendment revised the previous covenants, and contains customary representations and warranties and various affirmative and negative covenants including minimum aggregate revenue, adjusted EBITDA, and consolidated unencumbered liquid assets requirements. Noncompliance with these covenants constitutes an event of default. The covenants are summarized in the tables below and are on a pro forma basis as if the Merger with Provant happened at the beginning of the quarter ended June 30, 2017:



(in thousands)	Minimum Aggregate Revenue (LTM) as of the end of:
Three months ended June 30, 2017	Six months ending September 30, 2017	Nine months ending December 31, 2017	Twelve months ending March 31, 2018	Twelve months ending June 30, 2018	Twelve months ending September 30, 2018	Twelve months ending December 31, 2018	Twelve months ending each fiscal quarter thereafter
$10,500	$26,000	$53,000	$69,000	$70,000	$71,000	$74,000	$75,000

	Minimum Adjusted EBITDA as of the end of:
		Twelve months ending December 31, 2017	Twelve months ending March 31, 2018	Twelve months ending June 30, 2018	Twelve months ending September 30, 2018	Twelve months ending December 31, 2018	Twelve months ending each fiscal quarter thereafter
		$3,000	$5,000	$5,200	$6,000	$8,000	$9,000

	Minimum Consolidated Unencumbered Liquid Assets as of:
June 30, 2017	September 30, 2017	The end of each fiscal quarter thereafter
$500	$750	$1,000

The Company was in compliance with the covenants under the Third Amendment as of June 30, 2017. If the Company is unable to comply with financial covenants in the future and in the event that the Company was unable to modify the covenants, find new or additional lenders, or raise additional equity, it would be considered in default, which would then enable the lenders to accelerate the repayment of all amounts outstanding and exercise remedies with respect to collateral, which would have a material adverse impact on the Company's business.

A&R Credit Agreement

In order to fund the acquisition of Accountable Health Solutions in 2015, the Company entered into the Credit Agreement with SWK on April 17, 2015, as amended on February 25, 2016, March 28, 2016, August 15, 2016, and November 15, 2016. The Credit Agreement provided the Company with a $5.0 million Term Loan. In order to provide additional working capital for the consolidated Company after the Merger, the Company entered into the A&R Credit Agreement with SWK which increases the Term Loan balance as of June 30, 2017, from $3.7 million to $6.5 million. The A&R Credit Agreement provides the Company a principal repayment holiday until February 2019. Interest, fees, costs, and expenses are payable quarterly beginning in the third quarter of 2017. All mandatory payments of principal, interest, fees, costs, and expenses are determined by the revenue-based formula that has been in effect since the original Credit Agreement. Principal payments, once they begin, are capped at $0.5 million per quarter. The Company will be required to make the quarterly revenue-based payments in an amount equal to fifteen percent (15.0%) of yearly aggregate revenue up to and including $20 million plus ten percent (10%) of yearly aggregate revenue greater than $20 million less any revenue-based payments made in prior quarters in the same fiscal year. The Company evaluated the application of ASC 470-50 and ASC 470-60 for the A&R Credit Agreement and concluded that the revised terms did constitute a TDR, and thus has expensed all direct costs in the period in which they were incurred, discussed further below.

The outstanding principal balance under the A&R Credit Agreement bears interest at an adjustable rate per annum equal to the LIBOR Rate (subject to a minimum amount of one percent (1.0%)) plus twelve-and-a-half percent (12.5%) and is due and payable quarterly, in arrears, commencing in the third quarter of 2017. Upon the earlier of (a) the maturity date on May 11, 2021, or (b) full repayment of the Term Loan, whether by acceleration or otherwise, the Company is required to pay an exit fee equal to eight percent (8%) of the aggregate principal amount of all term loans advanced under the A&R Credit Agreement. The Company is recognizing the exit fee over the term of the Term Loan through an accretion accrual to interest expense using the effective interest method. In connection with the A&R Credit Agreement, the Company paid a $97,500 origination fee to SWK and $150,000 of legal fees, which per the TDR guidance noted above were recorded as transaction costs in the quarter ended June 30, 2017. The Company was also required to pay the $0.4 million exit fee from the original Credit Agreement to SWK, which the Company had been accreting to interest expense, recording the remaining balance of $75,000 in interest expense in the quarter ended June 30, 2017. The Company will also pay an unused line fee going forward.

In addition, SWK is providing a $2.0 million seasonal revolving credit facility (the "Seasonal Facility"), which is guaranteed by the parent company of one of the Former Provant Owners, Century Focused Fund III, LP (“Century”). In exchange for Century’s guarantee of the Seasonal Facility pursuant to a Limited Guaranty Agreement dated May 11, 2017, among Century, SWK and the Company (the “Century Guaranty”), the Company issued to WH-HH Blocker, Inc., a subsidiary of Century (“WH-HH Blocker”), a Common Stock Purchase Warrant to purchase 326,052 shares of Common Stock, with a strike price of $0.6134 per share (the “10% Warrant”). If the guarantee is called, the Company would issue to WH-HH Blocker an additional Common Stock Purchase Warrant to purchase 2,934,468 shares of Common Stock, with a strike price of $0.6134 per share (the “90% Contingent Warrant”) (together with the 10% Warrant, the "Century Warrants"). The Century Warrants will be exercisable for seven years and will each have a strike price equal to the average trading price used to determine the number of shares subject to such warrant. The 10% Warrant will not be exercisable during the first year after closing of the Merger. The 10% Warrant was issued by the Company in reliance on an exemption from registration pursuant to Section 4(a)(2) of the Securities Act, and Rule 506 thereunder. Pursuant to a Credit Agreement Side Letter between the Company and Century executed on May 11, 2017 (the “Side Letter”), the Company is also obligated, if it fails to pay the amount outstanding under the Seasonal Facility by November 30 each year to SWK, regardless if the Century Guaranty is called by SWK, to pay interest to Century at an annual rate of 25% on the outstanding balance from November 30 until the outstanding balance under the Seasonal Facility is paid in full to SWK. As noted above, as the modification of the Term Loan was treated as a TDR, the Century Warrants issued as part of the TDR were treated similarly to the cash transaction costs discussed above and thus the fair value of the Century Warrants was recorded as transaction costs in the quarter ended June 30, 2017. The Century Warrants are being accounted for as derivatives and thus will be re-measured at fair value at each reporting date with the change in fair value reflected in earnings. The Company valued the Century Warrants using the Black-Scholes pricing model, which utilizes Level 3 Inputs. The Company utilized volatility of 80.6%, a risk-free rate of 2.22%, dividend rate of zero, and term of 7 years, which is consistent with the exercise period of the Century Warrants.

To fulfill a condition of the A&R Credit Agreement, the Company issued 4,375,000 shares of its common stock to various investors in a private offering for an aggregate purchase price of $3.4 million, net of issuance costs, between February 1, 2017 and May 11, 2017 (the "2017 Private Offering"). These shares were sold at a purchase price of $0.80 per share plus one-half warrant per share with a strike price of $1.35 per share. Warrants to purchase up to an additional 2,187,500 shares of common stock were issued (the "2017 Private Offering Warrants"). The 2017 Private Offering Warrants are exercisable for a period of four years from the date of issuance but are not exercisable during the first six months after closing of the 2017 Private Offering.

In connection with the execution of the Credit Agreement in 2015, the Company issued SWK a warrant (the "SWK Warrant #1") to purchase 543,479 shares of the Company’s common stock. As part of the conditions in the Third Amendment to Credit Agreement and Limited Waiver and Forbearance (the “Third SWK Amendment”) dated August 15, 2016, the Company modified the exercise price of the SWK Warrant #1 to $1.30 per share, recording the change in fair value of the SWK Warrant #1 of $0.3 million in accumulated paid-in capital in the condensed consolidated balance sheet. The warrant was considered equity classified, and as such, the Company allocated the proceeds from the Term Loan to the warrant using the relative fair value method. Further, pursuant to the Credit Agreement, if the 2013 Loan and Security Agreement was not repaid in full and terminated, and all liens securing the 2013 Loan and Security Agreement were not released, on or prior to April 30, 2016, as amended in the First Amendment to the Credit Agreement dated February 25, 2016, the Company agreed to issue an additional warrant (“SWK Warrant #2”) to SWK to purchase common stock valued at $1.25 million, with an exercise price of the closing price on April 30, 2016. In accordance with the relevant accounting guidance, SWK Warrant #2 was determined to be an embedded derivative. The fair value of both of the SWK warrants at the inception of the Credit Agreement of approximately $3.6 million was recorded as a debt discount, and has been amortized through interest expense over the term of the Credit Agreement using the effective interest method. In accordance with the relevant accounting guidance for a TDR, the debt discount is now being amortized through expense over the revised term of the A&R Credit Agreement. The Company valued both warrants using the Black-Scholes pricing model, which utilizes Level 3 Inputs. For SWK Warrant #1, the Company utilized volatility of 85.0%, a risk-free rate of 1.4%, dividend rate of zero, and term of 7 years, which is consistent with the exercise period of the Warrant. For the SWK Warrant #2, the Company utilized volatility of 80.0%, a risk-free rate of 2.1%, dividend rate of zero, and term of 7 years, which is consistent with the exercise period of the warrant. The requirement of the Company to issue the SWK Warrant #2 was eliminated when the Company entered into the 2016 Credit and Security Agreement with SCM, which is discussed further above.

In connection with the execution of the A&R Credit Agreement, the Company issued to SWK a Second Amended and Restated Closing Date Warrant (the “A&R Warrant”) to replace SWK Warrant #1 to purchase 543,479 shares of the Company’s common stock. The A&R Warrant is exercisable on a cashless basis. The exercise price of the warrant is subject to customary adjustment provisions for stock splits, stock dividends, recapitalizations and the like. The warrant grants the holder certain piggyback registration rights. The A&R Warrant will be exercisable for seven years, and upon exercise, the total number of shares of the Company’s common stock to be issued to SWK will be approximately 1.3 million at a strike price of $0.84 per share. The A&R Warrant is being issued by the Company in reliance on an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 thereunder. As noted above, as the modification of the Term Loan was treated as a TDR, the A&R Warrant issued as part of the TDR was treated similarly to the cash transaction costs discussed above and thus the change in the fair value of SWK Warrant #1 and the A&R Warrant was recorded as a transaction cost in the quarter ended June 30, 2017. The Company valued the A&R Warrant using the Black-Scholes pricing model, which utilizes Level 3 Inputs. The Company utilized volatility of 80.6%, a risk-free rate of 2.22%, dividend rate of zero, and term of 7 years, which is consistent with the exercise period of the A&R Warrant.

The A&R Credit Agreement revised the previous covenants, and contains customary representations and warranties and various affirmative and negative covenants including minimum aggregate revenue, adjusted EBITDA, and consolidated unencumbered liquid assets requirements. Noncompliance with these covenants constitutes an event of default. The covenants are summarized in the tables below and are on a pro forma basis as if the Merger with Provant happened at the beginning of the quarter ended June 30, 2017:



(in thousands)	Minimum Aggregate Revenue (LTM) as of the end of:
Three months ended June 30, 2017	Six months ending September 30, 2017	Nine months ending December 31, 2017	Twelve months ending March 31, 2018	Twelve months ending June 30, 2018	Twelve months ending September 30, 2018	Twelve months ending December 31, 2018	Twelve months ending each fiscal quarter thereafter
$10,500	$26,000	$53,000	$69,000	$70,000	$71,000	$74,000	$75,000

	Minimum Adjusted EBITDA as of the end of:
		Twelve months ending December 31, 2017	Twelve months ending March 31, 2018	Twelve months ending June 30, 2018	Twelve months ending September 30, 2018	Twelve months ending December 31, 2018	Twelve months ending each fiscal quarter thereafter
		$3,000	$5,000	$5,200	$6,000	$8,000	$9,000

	Minimum Consolidated Unencumbered Liquid Assets as of:
June 30, 2017	September 30, 2017	The end of each fiscal quarter thereafter
$500	$750	$1,000

The Company was in compliance with the covenants under the A&R Credit Agreement as of June 30, 2017. If the Company is unable to comply with financial covenants in the future and in the event that the Company was unable to modify the covenants, find new or additional lenders, or raise additional equity, it would be considered in default, which would then enable the lenders to accelerate the repayment of all amounts outstanding and exercise remedies with respect to collateral, which would have a material adverse impact on the Company's business.

Borrowings under the A&R Credit Agreement are secured by a security interest in all existing and after acquired property of the Company and its subsidiaries, including Provant, including, but not limited to, its receivables (which are subject to a lockbox account arrangement), inventory and equipment.

The A&R Credit Agreement contains a cross-default provision that can be triggered if the Company has more than $0.25 million in debt outstanding under the 2016 Credit and Security Agreement and the Company fails to make payments to SCM when due or if SCM is entitled to accelerate the maturity of debt in response to a default situation under the 2016 Credit and Security Agreement, which may include violation of any financial covenants.

On August 8, 2017, the Company entered into a First Amendment to the A&R Credit Agreement (the “First Amendment”) that provides for an additional $2.0 million term loan (the “August 2017 Term Loan”). Refer to Note 12 to the condensed consolidated financial statements Part II, Item 5 of this Report for further discussion.

Subordinated Promissory Note

Century invested $2.5 million in Provant prior to the Merger in the form of subordinated, convertible debt bearing interest at 8.25%. Immediately prior to closing of the Merger, approximately $0.4 million of the balance of the note converted to equity in Provant. Subject to a net debt calculation in the Merger Agreement, which included a postclosing true-up, the remaining approximately $2.1 million remained outstanding as subordinated debt (not convertible anymore) of Provant to Century pursuant to the Subordinated Promissory Note dated May 11, 2017 (the “Subordinated Promissory Note”). As noted in Note 3 to the condensed consolidated financial statements, the Subordinated Promissory Note was part of the Provant purchase price allocation and is recorded in long-term liabilities on the condensed consolidated balance sheet as of June 30, 2017.

The unpaid principal balance of the Subordinated Promissory Note is due on May 11, 2022, or if earlier, the date on which the Term Loan to SWK and the 2016 Credit and Security Agreement with SCM is discharged, repaid, refinanced or otherwise satisfied (the "Maturity Date"). The Subordinated Promissory Note bears interest at annual rate of 8.25%. Interest shall accrue daily and be paid in full on the Maturity Date; provided that a minimum amount of interest equal to the “Tax Distribution” shall be paid on or before March 31 of each year. “Tax Distribution” means 40% of the accrued interest for the most recently completed calendar year. The Subordinated Promissory Note is subordinated to the Term Loan with SWK and the 2016 Credit and Security Agreement with SCM, pursuant to the terms outlined in the Subordinated Promissory Note.

Capital Leases

As a result of the Merger with Provant, the Company acquired two leases accounted for as capital leases, which related to a phone system, which expires in October 2017, and a data center, which expires in June 2018. The underlying assets and accumulated depreciation are recorded in property, plant and equipment, with the corresponding liability of $0.3 million recorded in short-term debt in the condensed consolidated balance sheet as of June 30, 2017.