10. Debt

Debt consists of the following (in thousands):

	December 31, 2015			December 31, 2014
Line of credit with FGI	$	3,513		$	2,841
$1.5 million, 8% shareholder note due 2018(1)		1,623			1,598
$3.0 million, 8% subordinated convertible shareholder notes due 2018(1)		2,972			2,947
$3.0 million, 8% shareholder note due 2018(1)		2,964			2,931

		11,072			10,317
Less current portion		(3,513	)		(2,841	)

	$	7,559		$	7,476


(1)	Debt discounts relate to warrants issued with shareholder notes and amendments. The aggregate amount of unamortized debt discount was $0.1 million and $0.2 million at December 31, 2015 and 2014, respectively. For additional information, refer to the respective discussions below.

Line of Credit with FGI

On February 14, 2011, the Company and certain of its subsidiaries (the "Credit Subsidiaries") entered into Sale and Security Agreements with FGI to provide for a $7.5 million secured demand facility backed by its receivables and inventory. The Company and the Credit Subsidiaries also entered into guarantees to guarantee the performance of their obligations under the Sale and Security Agreements. The Company also granted FGI a first lien collateral interest in substantially all of its assets. On August 15, 2012, the Company and FGI agreed to amend the FGI facility. As amended, the initial term was extended from February 14, 2013 to August 15, 2015, and the term may be extended at the Company's option for additional one-year terms. The current termination date is August 15, 2016. However, FGI can cancel the facility at any time.

In connection with the sale of the Reno Business, the Company's Reno, Nevada subsidiary and FGI entered into an agreement, dated October 15, 2014 (the "Termination Agreement"), to terminate the Sale of Accounts and Security Agreement, dated February 14, 2011, between the Company subsidiary and FGI, as amended (the "Reno-FGI Financing Agreement"). Pursuant to the Termination Agreement, the Company was required to make a final payment of $0.4 million and FGI agreed to release all encumbrances on the Reno Business' personal property under the Reno-FGI Financing Agreement.

Under the FGI facility, FGI can elect to purchase eligible accounts receivable from the Company and the Credit Subsidiaries at up to 80% of the value of such receivables (retaining a 20% reserve). Purchased receivables are subject to full recourse to the Company in the event of nonpayment by the customer. FGI becomes responsible for the servicing and administration of the accounts receivable purchased. The Company is not obligated to offer accounts in any month and FGI has the right to decline to purchase any accounts. At FGI's election, FGI may advance the Company up to 80% of the value of any purchased accounts receivable, subject to the $7.5 million limit. Reserves retained by FGI on any purchased receivable are expected to be refunded to the Company net of interest and fees on advances once the receivables are collected from customers. The Company may also borrow against eligible inventory up to the inventory sublimit, as determined by FGI, subject to the aggregate $7.5 million limit under the FGI facility and certain other conditions. At December 31, 2015, the inventory sublimit amount was the lesser of $1.5 million or 50% of the aggregate purchase price paid for accounts receivable purchased under the FGI facility. While the overall credit limit and the inventory sublimit were not changed, borrowing against the Company's significant OEM customer's inventory has been limited to $0.2 million by FGI due to their concerns about customer concentration as of December 31, 2015.

The interest rate on advances or borrowings under the FGI facility is the greater of (i) 6.50% per annum and (ii) 2.50% per annum above the prime rate, as defined in the FGI facility and was 6.50% at December 31, 2015 and 2014. Any advances or borrowings under the FGI facility are due on demand. The Company also agreed to pay FGI collateral management fees of 0.30% per month on the face amount of eligible receivables as to which advances have been made and 0.38% per month on borrowings against inventory, if any. At any time outstanding advances or borrowings under the FGI facility are less than $2.4 million, the Company agreed to pay FGI standby fees of (i) the interest rate on the difference between $2.4 million and the average outstanding amounts and (ii) 0.44% per month on 80% of the amount by which advances or borrowings are less than the agreed $2.4 million minimum.

The Company paid FGI a one-time facility fee of $75,000 upon entry into the FGI facility and $75,000 upon amending the FGI facility. If the Company terminates the FGI facility prior to the last day of the initial term, as extended, or any additional term, it must pay a termination fee of 2% of the facility limit then in effect. No termination fee will be due if the Company notifies FGI of its intent to terminate within 10 days of FGI increasing the reserve percentage for accounts to greater than 40% for more than 30 consecutive days. FGI may terminate the facility at any time. The termination fee is not payable upon a termination by FGI or upon non-renewal.

At December 31, 2015, the Company had $3.2 million of gross accounts receivable pledged to FGI as collateral for short-term debt in the amount of $2.0 million. At December 31, 2015, the Company also had $1.5 million in borrowings outstanding against eligible inventory. The Company was in compliance with the terms of the FGI facility at December 31, 2015. However, there is no guarantee that the Company will be able to borrow to the full limit of $7.5 million if FGI chooses not to finance a portion of its receivables or inventory.

$1.5 Million, 8% Shareholder Note Due 2018

On December 30, 2010, the Company executed a Loan Commitment Letter with Kanis S.A., a shareholder of the Company, pursuant to which Kanis S.A. loaned the Company $1.5 million. The loan is unsecured and bears interest on the unpaid principal at a rate of 6%, with interest only payable quarterly in arrears, commencing March 31, 2011. In addition to principal and accrued interest, the Company was obligated to pay Kanis S.A. at maturity a "Payment Premium" ranging from $100,000 to $200,000 based proportionally on the number of days that the loan remains outstanding. There is no prepayment penalty. The loan originally matured on June 30, 2013. On January 30, 2013, the Company and Kanis S.A. agreed to amend certain terms of the loan to change the maturity date from June 30, 2013 to June 30, 2015 and to increase the interest rate from 6% to 8% beginning on June 30, 2013. In addition, the payment premium due under this note was changed to a fixed amount of $250,000 with $100,000 payable on June 30, 2013 and the remaining amount payable at maturity on June 30, 2015. On November 11, 2014, the Company entered into a letter agreement with Kanis S.A., whereby Kanis S.A. agreed to amend the terms of this loan, such that the maturity date and payment premium due on June 30, 2015 were extended to October 1, 2016. On October 7, 2015, the Company entered into a letter agreement with Kanis S.A., whereby Kanis S.A. agree to amend the terms of this loan, such that the maturity date was extended to October 1, 2018.

On June 28, 2013, the Company and Kanis S.A. entered into a letter agreement pursuant to which Kanis S.A. agreed that the $100,000 payment premium due June 30, 2013 and $135,000 in accrued interest on the shareholder notes payable to Kanis S.A. as of June 30, 2013 could be paid, at the option of the Company, in cash or by issuance of equity securities of the Company. On July 3, 2013, concurrent with the closing of its public offering, the Company issued to Kanis S.A. 188,000 shares of common stock and warrants to purchase up to 94,000 shares of common stock at $1.25 per share, in satisfaction of the payment premium and accrued interest, as described above.

In connection with the original loan, the Company issued Kanis S.A. warrants to acquire 25,000 shares of its common stock at $10.40 per share. In connection with a letter agreement, dated November 11, 2014, the Company issued Kanis S.A. warrants to acquire 80,000 shares of its common stock at $1.75 per share. The relative estimated fair value of these warrant issuances represent a discount from the face amount of the loan which has been recorded as of the respective issuance dates. The discount is being amortized using the effective interest method over the remaining term of the loan. In connection with a letter agreement, dated October 7, 2015, the Company agreed to amend the terms of certain outstanding warrants issued to Kanis S.A. in order to (i) extend the expiration date until November 11, 2019 and, (ii) with respect to warrants to purchase up to 75,000 shares, in total, of the Company's common stock, reduce the exercise price to $1.75 per share. The impact of the warrant modifications, dated October 7, 2015, was not significant.

$3.0 Million, 8% Subordinated Convertible Shareholder Notes Due 2018

On April 11, 2011, the Company entered into a Subordinated Convertible Notes Commitment Letter with Kanis S.A. that provides for the sale and issuance by the Company of 8% subordinated convertible notes (the "Convertible Notes"). As provided in this commitment letter, on May 6, 2011 Kanis S.A. purchased from the Company at par $3.0 million aggregate principal amount of the Convertible Notes, which bear interest at a rate of 8% per annum, payable quarterly in arrears.

The Convertible Notes have a stated maturity of five years from the date of issuance. The original agreement allowed for the acceleration of the maturity of the Convertible Notes if: (i) the Company was in breach of the Convertible Notes or other agreements with Kanis S.A., or (ii) Kanis S.A. provided written notice, not less than 30 days prior to such date, that it elected to accelerate the maturity to a date not earlier than November 11, 2012. On February 16, 2012, the Company and Kanis S.A. agreed to amend the terms of the Convertible Notes to modify the early redemption date from November 11, 2012 to May 12, 2013. On January 30, 2013, the Company and Kanis S.A. entered into a letter agreement regarding the Convertible Notes whereby Kanis S.A. agreed not to accelerate the maturity of these notes during the 2013 calendar year and on March 21, 2014, the Company and Kanis S.A. entered into another letter agreement whereby Kanis S.A. agreed not to accelerate the maturity of these notes prior to July 1, 2015. On November 11, 2014, the Company entered into a letter agreement with Kanis S.A., whereby Kanis S.A. agreed to amend the terms of this loan, such that the maturity date was extended to October 1, 2016 and the early redemption feature was removed. On October 7, 2015, the Company entered into a letter agreement with Kanis S.A., whereby Kanis S.A. agree to amend the terms of this loan, such that the maturity date was extended to October 1, 2018.

The Convertible Notes also provide that the Company has the option to redeem the Convertible Notes at any time at a price equal to 100% of the face amount plus accrued and unpaid interest through the date of redemption. There is no prepayment penalty. The Convertible Notes are unsecured obligations of the Company and subordinated to existing and future secured indebtedness of the Company.

The outstanding principal balance of the Convertible Notes plus accrued and unpaid interest were convertible into shares of the Company's common stock at an initial conversion price equal to $7.044 per share, which was 120% of the closing bid price per share of the Company's common stock on April 8, 2011, into no more than 369,853 shares. The Company evaluated the Convertible Notes and determined that there were no embedded derivatives contained in the Convertible Notes that require separate accounting. Additionally, there was no beneficial conversion feature associated with the Convertible Notes since the conversion price was not lower than the estimated fair market value of the Company's common stock on the issuance date. As such, the entire proceeds from the Convertible Notes are recorded as debt in the consolidated balance sheets.

On July 27, 2012, the Company and Kanis S.A. further amended the terms of the Convertible Notes to modify the conversion feature. As amended, the outstanding principal balance of the Convertible Notes, and accrued and unpaid interest are convertible, at the option of Kanis S.A., at any time upon written notice given not less than 75 calendar days prior to the date of conversion, into no more than 250,000 shares of the Company's common stock at a conversion price of $4.00 per share. The Company evaluated the modification and determined that the modification was not substantial and did not qualify as a debt extinguishment. Accordingly, no gain or loss was recognized from the modification.

In connection with the February 16, 2012 amendment, the Company issued to Kanis S.A. warrants to acquire 5,000 shares of its common stock at $3.80 per share. The warrants are exercisable on or after August 16, 2014 and expire on the earlier of (i) August 16, 2017 or (ii) that date that is 30 days after the Company gives notice to the warrant holder that the market value of one share of its common stock has exceeded 130% of the exercise price of the warrant for 10 consecutive days on or after August 16, 2014. The Company did not receive any cash consideration for the issuance of the warrants. The Company relied on the private placement exemption provided by Regulation S.

In connection with a letter agreement, dated November 11, 2014, the Company issued Kanis S.A. warrants to acquire 80,000 shares of its common stock at $1.75 per share. The relative estimated fair value of this warrant issuance represents a discount from the face amount of the loan and has been recorded as a discount from the loan amount as of the issuance date. The discount is being amortized using the effective interest method over the remaining term of the loan. In connection with a letter agreement, dated October 7, 2015, the Company agreed to amend the terms of certain outstanding warrants issued to Kanis S.A. in order to (i) extend the expiration date until November 11, 2019 and, (ii) with respect to warrants to purchase up to 75,000 shares, in total, of the Company's common stock, reduce the exercise price to $1.75 per share. The impact of the warrant modifications, dated October 7, 2015, was not significant.

$3.0 Million, 8% Shareholder Note Due 2018

On July 27, 2012, the Company executed a Loan Commitment Letter with Kanis S.A., pursuant to which the Company issued a promissory note in the principal amount of $3.0 million, which bears interest at 8% per annum, payable quarterly in arrears. The promissory note was due on July 27, 2015. There is no prepayment penalty or premium, and the promissory note is unsecured. On November 11, 2014, the Company entered into a letter agreement with Kanis S.A., whereby Kanis S.A. agreed to amend the terms of this loan, such that the maturity date was extended to October 1, 2016. On October 7, 2015, the Company entered into a letter agreement with Kanis S.A., whereby Kanis S.A. agree to amend the terms of this loan, such that the maturity date was extended to October 1, 2018.

In connection with the promissory note, dated July 27, 2012, the Company issued Kanis S.A. a warrant to acquire 45,000 shares of its common stock at $2.09 per share, a third of which becomes exercisable on the issuance date and each of the first and second anniversaries of the issuance date. This warrant expires on July 27, 2018. The Company did not receive any cash consideration for the issuance of this warrant, which was issued in reliance upon the private placement exemption provided by Regulation S. In connection with a letter agreement, dated November 11, 2014, the Company issued Kanis S.A. warrants to acquire 80,000 shares of its common stock at $1.75 per share. The relative estimated fair values of these warrant issuances represent a discount from the face amount of the loan which has been recorded as of the respective issuance dates. The discount is being amortized using the effective interest method over the remaining term of the loan. In connection with a letter agreement, dated October 7, 2015, the Company agreed to amend the terms of certain outstanding warrants issued to Kanis S.A. in order to (i) extend the expiration date until November 11, 2019 and, (ii) with respect to warrants to purchase up to 75,000 shares, in total, of the Company's common stock, reduce the exercise price to $1.75 per share. The impact of the warrant modifications, dated October 7, 2015, was not significant.

For additional information on the warrants discussed within this Note, refer to Note 11, "Stockholders' Equity" and Note 12 "Warrants", respectively.

Annual scheduled principal payments of debt based on earliest redemption date as of December 31, 2015 are (in thousands):


Years ending December 31:
2016	$	3,663
2018		7,500

Total	$	11,163