Secured Lines of Credit, Long-term Debt, and Notes Due to Employees

3 Months Ended

Mar. 31, 2016

Debt Disclosure [Abstract]

Secured Lines of Credit, Long-term Debt, and Notes Due to Employees

The Company’s outstanding note payable indebtedness was as follows as of (in thousands):

	March 31,			December 31,
	2016 (Unaudited)		2015
Hannoversche Volksbank credit line #1	$	1,250	$	1,120
Hannoversche Volksbank credit line #2		350		383
Hannoversche Volksbank term loan #1		32		61
Hannoversche Volksbank term loan #2		25		24
Hannoversche Volksbank term loan #3		173		182
Secured Promissory Note		500		500
DZ Equity Partners Participation rights		852		818
Total		3,182		3,088
Discount on secured promissory notes and debt issuance costs		-		(110)
Less current portion of long-term debt		(3,072)		(2,857)
Long-term debt	$	110	$	121

In July 2006, MEDITE GmbH, Burgdorf, entered into a master line of credit agreement #1 with Hannoversche Volksbank. The line of credit was amended in 2012 and was later amended to increase the credit limit to Euro 1.8 million ($2.0 million as of March 31, 2016). In 2015, the credit line was reduced to Euro 1.1 million ($1.25 million as of March 31, 2016). Borrowings on the master line of credit agreement #1 bears interest at a variable rate based on Euribor (Euro Interbank Offered Rate) depending on the type of advance elected by the Company and defined in the agreement. Interest rates depending on the type of advance elected ranged from 3.77 – 8.00% during the period ended March 31, 2016 and the year ended December 31, 2015. The line of credit has no stated maturity date. The line of credit is collateralized by the accounts receivable and inventory of MEDITE GmbH, Burgdorf, and a mortgage on the buildings owned by the Company and is guaranteed by Michaela Ott and Michael Ott, stockholders of the Company.

In June 2012, CytoGlobe, GmbH, Burgdorf, entered into a line of credit agreement #2 with Hannoversche Volksbank. The line of credit granted a maximum borrowing authority of Euro 400,000 ($454,200 as of March 31, 2016). Borrowings on the master line of credit agreement #2 bears interest at a variable rate based on Euribor (Euro Interbank Offered Rate) depending on the type of advance elected by the Company and defined in the agreement. Interest rates ranged from 3.77 – 8.00% during the period ended March 31, 2016 and the year ended December 31, 2015. The line of credit has no stated maturity date. The line of credit is collateralized by the accounts receivable and inventory of CytoGlobe GmbH, Burgdorf and is guaranteed by Michaela Ott and Michael Ott, stockholders of the Company, and the state of Lower Saxony (Germany) to support high-tech companies in the area.

In December 2006, MEDITE GmbH, Burgdorf, entered into a Euro 500,000 ($567,750 as of March 31, 2016) term loan agreement #1 with Hannoversche Volksbank with an interest rate of 3.4% per annum. The term loan has a maturity of September 2016 and requires semi-annual principal payments of approximately Euro 27,780 ($31,544 as of March 31, 2016). The term loan is guaranteed by Michaela Ott and Michael Ott, stockholders of the Company, and a mortgage on the property of the Company. 

In June 2006, MEDITE GmbH, Burgdorf, entered into a Euro 400,000 ($454,200 as of March 31, 2016) term loan #2 with Hannoversche Volksbank with an interest rate of 3.6 % per annum. The term loan has a maturity of June 2016, requires 18 semi-annual principal repayments of approximately Euro 22,220 ($25,231 as of March 31, 2016). The term loan is guaranteed by Michaela Ott and Michael Ott, stockholders of the Company, and is collateralized by subordinated assignments of all of the receivables and inventories of MEDITE GmbH, Burgdorf and also has a subordinated pledge of share term life insurance policies.

 In November 2008, MEDITE GmbH, Burgdorf, entered into a Euro 400,000 ($454,200 as of March 31, 2016) term loan #3 with Hannoversche Volksbank with an interest rate of 4.7% per annum. The term loan has a maturity of December 31, 2018, and requires quarterly principal repayments of Euro 13,890 ($15,772 as of March 31, 2016). The term loan is guaranteed by Michaela Ott and Michael Ott, stockholders of the Company, and is collateralized by a partial subordinated pledge of the receivables and inventory of MEDITE GmbH, Burgdorf.

  In March 2009, the Company entered into a participation rights agreement with DZ Equity Partners in the form of a debenture with a mezzanine lender who advanced the Company up to Euro 1.5 million, ($1.7 million as of March 31, 2016) in two tranches of Euro 750,000 each, ($851,625 as of March 31, 2016). The first tranche was paid to the Company at closing with the second tranche being conditioned on MEDITE GmbH, Burgdorf and its subsidiaries hitting certain performance targets. Those targets were not met and the second tranche was never called. The debenture pays interest at the rate of 12.15% per annum and matures at December 31, 2016.

  On February 23, 2015, the Company reached an agreement with Ventana Medical Systems, Inc. whereby both parties agreed that Ventana Medical Systems, Inc. will accept $38,281 as payment in full for all outstanding principal and accrued interest. As part of this agreement, Ventana Medical Systems, Inc. converted $1.75 million stated value of Series D Preferred stock and $525,000 of book value and all outstanding accrued dividends of $656,250 for 12,100 shares of the Company’s common stock.

On December 31, 2015, the Company entered into a Securities Purchase Agreement (the “2015 Purchase Agreement”) with seven (7) individual accredited investors  (collectively the “Purchasers”), pursuant to which the Company agreed to issue to the Purchasers secured promissory notes in the aggregate principal amount of $500,000 with interest accruing at an annual rate of 15% (the “Note(s)”) and warrants to purchase up to an aggregate amount of 250,000 shares of the common stock, par value $0.001) per share, of the Company (the “Warrant(s)”).  The Notes matured on the earlier of the third (3rd) month anniversary date following the Closing Date, as defined in the Note, or the third (3rd) business day following the Company’s receipt of funds exceeding one million dollars ($1,000,000) from an equity or debt financing, not including the financing contemplated under the 2015 Purchase Agreement. The Notes are secured by the Company’s accounts receivable and inventories held in the United States. The Warrants had an initial exercise price of $1.60 per share, which were subject to adjustment, and are exercisable for a period of five (5) years.  If the Notes were not redeemed by the Company on maturity, the Purchasers were entitled to receive 10% of the principal balance of the Notes outstanding in warrants for every month that the Notes were not redeemed.  On March 31, 2016, these Notes matured and were not repaid.  Therefore the Notes were in default on April 1, 2016.  The Company agreed to pay the Purchasers 10% of the principal balance of the Notes in warrants for the months of April 2016 and May 2016 (See Note 10).   Further, on March 15, 2016, the Board of Directors agreed to renegotiated terms with the warrant holders to remove the anti-dilution and down round price protection features in the warrant agreement and fixed the exercise price at $.80. The warrants issued with the Notes were increased from 250,000 to 500,000.

On December 31, 2015, the Company recognized the fair value of the Warrants issued with the secured promissory notes of $90,000.  On March 31, 2016, the Company recorded an additional discount of $90,000 for the additional Warrants issued in connection with the renegotiated terms as discussed above. As of March 31, 2016, the discounts have been fully amortized into interest expense as the related Notes matured on March 31, 2016. There were no such arrangements during the same period in 2015.  See Note 8 for further disclosure of the Warrants. 

One of the Purchasers of a $100,000 secured promissory note (see above) was elected to the Board of Directors to serve as Director and Chairman of the Company’s audit committee.

  In November 2015 and February 2016, the Company entered into promissory notes totaling $927,000 with certain employees to repay wages earned prior to December 31, 2014 not paid (“Notes Due to Employees").  The Notes Due to Employees are to be paid monthly through September 2019, with no interest due on the outstanding balances.  The monthly amounts increase over the payment term.  The amounts due become immediately due and payable if payments are more than ten days late either one or two consecutive months as defined in the agreement with the employee. As of May 13, 2016, payments on the Notes Due to Employees had not been accelerated.  The Notes Due to Employees have been presented separately on the consolidated balance sheet at March 31, 2016 and December 31, 2015, respectively.  Certain employees may convert any of the amounts owed during the duration of the notes due to employees to equity at a discounted priced defined in the agreement.