Debt

Debt consisted of the following (in thousands):



	December 31,
	2017			2016
Main Street Term Loan	$	—		$	9,000
SRS Note	—			1,785
Western Alliance Bank A/R Revolver	800			—
Super G Loan	1,032			—
Unamortized debt discounts	(269		)	(125		)
Net carrying value	1,563			10,660
Less: current maturities, net of debt discount	(1,194		)	(10,660		)
Long-term obligations, net of debt discount	$	369		$	—

On July 31, 2017, the Company completed a recapitalization of its debt obligations as described further below (the “Debt Recapitalization”). In summary, the Debt Recapitalization resulted in: (i) the aggregate elimination of $11,562,000 of total debt and accrued interest obligations owed by the Company to Main Street Capital Corporation (“Main Street”) and Shareholder Representative Services LLC (“SRS”) and outstanding as of July 31, 2017, (ii) aggregate gross proceeds of $2,200,000 from new debt obligations of the Company with Western Alliance Bank and Super G Capital LLC (“Super G”) as of July 31, 2017, which proceeds were used to fund the Main Street Payoff (defined below), (iii) use of $350,000 of the Company’s cash and (iv) the reduction of outstanding shares of the Company’s common stock by a net amount of 404,587 shares. Therefore, as of July 31, 2017, there were no remaining obligations related to the Main Street Term Loan or SRS Note (each as defined below). The Company recorded a gain on debt extinguishment of $9,045,000 (which was net of the write off of $89,000 of unamortized debt discounts) during the year ended December 31, 2017 in connection with the Debt Recapitalization. The Company recorded the net 404,587 shares of common stock purchased to treasury stock in the net amount of $121,376 (equal to the stock price of $0.30 per share as of July 31, 2017).

Main Street Payoff Letter and Redemption Agreement

As of July 31, 2017, the Company had outstanding borrowings of $9,000,000 under a senior secured term loan facility (the “Main Street Term Loan”) with Main Street. Borrowings under the Main Street Term Loan were to mature on October 17, 2018 unless sooner terminated as provided in the loan agreement governing the Main Street Term Loan (the “Main Street Loan Agreement”). As of June 30, 2017, the Company was in default of certain covenants in the Main Street Loan Agreement. The interest rate on borrowings under the Main Street Term Loan was 12% per annum and interest payments were due monthly. As of July 31, 2017, Main Street owned 7,711,517 shares, or 21%, of the Company’s outstanding common stock. On July 31, 2017, the Company and Main Street entered into (i) a payoff letter (the “Main Street Payoff Letter”) that terminated the $9,000,000 Main Street Term Loan and (ii) a Redemption Agreement (“the Main Street Redemption Agreement”) whereby the Company purchased the 7,711,517 shares of the Company’s common stock held by Main Street, in exchange for total cash payments from the Company of $2,550,000 (together the “Main Street Payoff”). On July 31, 2017, the Company funded the Main Street Payoff using $350,000 of the Company’s existing cash plus cash proceeds of $2,200,000 borrowed under loan agreements with Western Alliance Bank and Super G. The Company recorded the purchase of 7,711,517 shares of the Company’s common stock to treasury stock in the amount of $2,313,000 (equal to the stock price of $0.30 per share as of July 31, 2017) and recorded the $237,000 remaining amount of the Main Street Payoff as a principal repayment.

SRS Note Exchange Agreement

As of July 31, 2017, the Company had outstanding total obligations of $2,562,000 (consisting of $1,785,000 of principal and $777,000 of accrued interest) under a promissory note (the “SRS Note”) that the Company issued to SRS in connection with the 2012 acquisition of Affinity VideoNet, Inc. (“Affinity”), which was amended in February 2015. The maturity date of the SRS Note was July 6, 2017 and the interest rate on the SRS Note was 15% per annum. Payment of all interest earned after March 1, 2015 was also due on July 6, 2017. In June 2017, SRS granted the Company a waiver of the final installment for 60 days. The SRS Note was subordinate to borrowings under the Main Street Loan Agreement, and was only permitted to be repaid if permitted by the terms of the Main Street Loan Agreement. On July 31, 2017, the Company and SRS entered into a Note Exchange Agreement (the “SRS Note Exchange Agreement’) to extinguish the $2,562,000 of obligations on the SRS Note in exchange for 7,306,930 shares of the Company’s common stock (the “SRS Note Exchange”). The Company recorded the issuance of 7,306,930 shares of the Company’s common stock from treasury stock in the amount of $2,192,000 (equal to the stock price of $0.30 per share as of July 31, 2017).

Western Alliance Bank Business Financing Agreement

On July 31, 2017, the Company and its subsidiary entered into a Business Financing Agreement with Western Alliance Bank, as lender (the “Western Alliance Bank Loan Agreement”). The Western Alliance Bank Loan Agreement provides the Company with up to a total of $1,500,000 of revolving loans (the “A/R Revolver”). The maximum amount available under the A/R Revolver is limited to the lesser of (x) $1,500,000 and (y) an amount equal to the borrowing base. The borrowing base includes 85% of the Company’s eligible accounts receivable plus a non-formula amount (which was $600,000 at closing, and which stepped down to $400,000 on October 1, 2017 and, to $200,000 on January 2, 2018, and steps down to $0 on April 1, 2018) (“the Non-Formula Amount”). On July 31, 2017, the Company received a loan in an amount equal to $1,100,000 under the Western Alliance Bank Loan Agreement, consisting of $500,000 based on 85% of eligible accounts receivable and $600,000 of Non-Formula Amount, the proceeds of which were used to fund the Main Street Payoff. During the year ended December 31, 2017, the Company made payments of $100,000 on the A/R Revolver and $200,000 on the Non-Formula Amount. All loans under the A/R Revolver mature on July 31, 2019 (unless such loans are not supported by the borrowing base, in which case any loans exceeding the borrowing base must be immediately repaid). Given the step-down of the Non-Formula Amount as described above, the Company made a principal payment of $200,000 on January 2, 2018 and will be required to make the final mandatory $200,000 prepayment on April 1, 2018. The Western Alliance Bank Loan Agreement provides that all borrowings bear interest at the prime rate (4.50% as of December 31, 2017) plus 1.75% (or a total of 6.25% as of December 31, 2017) per year. The prime rate is subject to a floor of 4.00%. Interest payments on the outstanding borrowings are due monthly. The Company may receive new borrowings on the A/R Revolver if supported by the borrowing base and may prepay borrowings under the Western Alliance Bank Loan Agreement at any time without premium or penalty, subject to certain notice requirements. As of December 31, 2017, the total borrowings on the A/R Revolver were $800,000 (including $400,000 on the Non-Formula Amount) and we had additional availability of $200,000.

The obligations of the Company under the Western Alliance Bank Loan Agreement are secured by substantially all of the assets of the Company and its subsidiary, including accounts receivable, intellectual property, equipment and other personal property. The Western Alliance Bank Loan Agreement contains certain restrictions and covenants, which, among other things, subject to certain exceptions, restrict the Company’s ability to incur additional debt, guarantee debt, sell assets, make certain investments in, or loans to, third parties, make distributions or grant or permit the creation of any liens or other encumbrances on collateral. The Western Alliance Bank Loan Agreement also requires that we comply with certain financial covenants, including maintaining a specified asset coverage ratio, minimum levels of adjusted EBITDA, maximum levels of capital expenditures, minimum revenues, and minimum amounts of unrestricted cash held with Western Alliance Bank. As of December 31, 2017, the Company was in compliance with all required covenants. On March 5, 2018, the Western Alliance Bank Loan Agreement was amended to, among other things, (i) remove financial covenants related to minimum levels of adjusted EBITDA and asset coverage ratios, (ii) increase maximum levels of capital expenditures, and (iii) add a covenant related to maintaining a minimum level of liquidity. This amendment also provides that, effective March 5, 2018, all borrowings bear interest at the prime rate (4.50% as of March 5, 2018) plus 2.25% (or a total of 6.75% as of March 5, 2018) per year. The Western Alliance Bank Loan Agreement contains customary events of default, including failure to pay any principal or interest when due, failure to perform or observe covenants, breaches of representations and warranties, certain cross defaults, certain bankruptcy related events, monetary judgments defaults and a change in control. Upon the occurrence of an event of default, the outstanding obligations may be accelerated and become immediately due and payable.

Super G Loan Agreement and Warrant

On July 31, 2017, the Company and its subsidiary entered into a Business Loan and Security Agreement with Super G, as lender (the “Super G Loan Agreement”), and received a term loan from Super G in an amount equal to $1,100,000, the proceeds of which were used to fund the Main Street Payoff (the “Super G Loan”). Borrowings under the Super G Loan Agreement were to be repaid in installments (including interest) of $33,000 per month in the first 3 months following closing and $68,600 per month in months four through twenty-four following closing, for total payments of $1,540,000. The effective interest rate of the Super G Loan is approximately 33%. During the year ended December 31, 2017, the Company made total principal and interest payments of $68,000 and $134,000, respectively, on the Super G Loan. The remaining principal balance as of December 31, 2017 was $1,032,000.

On July 31, 2017, the Company also issued a warrant that entitled Super G to purchase 550,000 shares of the Company’s common stock at an exercise price of $0.30 per share (the “Super G Warrant”). The Super G Warrant had a three year term and provided that if the profit on such warrants was not equal to at least $165,000 over the term of the warrants, then at the end of the three year term, the Company would pay an exit fee equal to the difference between $165,000 and the amount of profit recognized. As of December 31, 2017, no warrants were exercised. The $165,000 fair value of this warrant has been recorded as a derivative liability in “Accrued Expenses and Other Liabilities” on our Consolidated Balance Sheet as of December 31, 2017. The derivative was originally recorded as a discount to the carrying amount of the debt as of December 31, 2017. The warrant liability is revalued on each balance sheet date until such instrument is exercised or expires, with any changes in the fair value between reporting periods recorded as other income or expense. The Company estimates the fair value of this liability using an option pricing model. During 2017 there was no change to the fair value of the warrant liability.

On January 26, 2018, the Company and Super G entered into a payoff letter that terminated the Super G Loan Agreement and the Super G Warrant, dated July 31, 2017, by and between the Company and the lender, in exchange for total cash payments from the Company of $1,269,000 (the “Super G Payoff”). The Company funded the Super G Payoff with the net proceeds of its Series C Offering (described further below in Note 19). In connection with the Super G Payoff, the related warrant liability and corresponding debt discount were eliminated in January 2018.

The total debt discount on the Western Alliance Bank A/R Revolver and Super G Loan was for $339,000. This debt discount is being amortized to interest expense using the effective interest method over the term of the debt. During the year ended December 31, 2017 the Company amortized $70,000 of the debt discount to interest expense. The unamortized debt discount as of December 31, 2017 is $269,000.

During the year ended December 31, 2017 total amortization of the debt discounts related to the Main Street Term Loan and SRS Note were $36,000, respectively, which is recorded in “Interest and Other Expense, Net” on our Consolidated Statements of Operations.

Future maturities of debt were estimated as follows as of December 31, 2017 (not considering the Super G Payoff described above) (in thousands):



	Western Alliance Bank		Super G Loan		Total
2018	$	800	$	570	$	1,370
2019	—		462		462
	$	800	$	1,032	$	1,832