9. Accounts Receivable Financing Arrangement

12 Months Ended

Dec. 31, 2014

Accounts Receivable Financing Arrangement

Accounts Receivable Financing Arrangement

On January 28, 2011, Infusion entered into an accounts receivable sales and financing arrangement that provides for the assignment and sale of certain qualified accounts receivable to a financial institution. The facility had an initial term of one year and provides for cash advances in amounts of 75% of qualified accounts receivable balances assigned up to an amount of $1,000,000. The initial term may be extended in one year periods upon the mutual agreement of the Company and the lender. The lender receives an initial discount of 1.75% of the net realizable value of the qualified receivables for purchased receivables outstanding from 1-30 days.

Subsequently, the lender receives an additional 1.0% discount for each 15 day period that the qualified receivable has not been collected. Further, the lender has a secured priority interest in the accounts receivable that they finance.

This arrangement does not qualify for sales accounting under current accounting standards because of the recourse nature of the financed receivables and is, therefore, subject to accounting as a financing arrangement wherein we will carry the assigned receivables in our accounts until they are settled and advances that we receive from the lender will be reflected as liabilities. The discounts are classified as interest expense.

On October 10, 2012, Infusion amended our accounts receivable and purchase order financing agreement to raise the cash advance rate from 75% to 80% of qualified accounts receivable balances assigned up to an amount of $4,000,000 (up from $1,000,000 previously). The initial discount rate was lowered from 1.75% to 1.65% for the first 1 – 30 days and from 1% to 0.80% for each subsequent 15 day period.

There was approximately $270,000 and $474,000 outstanding under this arrangement as of December 31, 2014 and December 31, 2013, respectively. Accounts receivable assigned as of December 31, 2014 and December 31, 2013 was approximately $409,000 and $920,000, respectively.

Revolving Loan

On or about October 10, 2014, Ronco entered into a Loan and Security Agreement (“Revolving Loan”). The Revolving Loan is based upon a borrowing base comprising of eligible accounts receivable and inventory balances. The maximum amount that can be outstanding is $4,000,000. The loan’s interest rate is Prime plus 4%, which is accrued daily and is payable monthly. As of December 31, 2014, the Revolving Loan’s balance was approximately $1,710,000. The Revolving Loan matured on or about October 10, 2015.

The following are the major provisions of the Revolving Loan:

Fees

A monthly collateral monitoring fee equal to 1.25% of the accounts receivable submitted on the borrowing base submitted on the borrowing base certificates.

A collateral monitoring fee equal to 1.50% of the eligible inventory submitted on the borrowing base certificates.

Security interest

To secure the payment and performance of all of the obligations when due, Ronco granted to the lender a security interest in all of the following: all right, title and interest of Ronco in and to all of the following, whether now owned or hereafter arising or acquired and wherever located: all accounts receivable; all inventory; all equipment; all deposit accounts; all general intangibles (including without limitation all payment intangibles and intellectual property); all investment property; all other property; and any and all claims, rights and interests in any of the above, and all guaranties and security for any of the above, and all substitutions and replacements for, additions, accessions, attachments, accessories, and improvements to, and proceeds (including proceeds of any insurance policies, proceeds of proceeds and claims against third parties) of, any and all of the above, and all Ronco’s books relating to any and all of the above.

Financial covenants

Ronco shall comply with each of the following covenants. Compliance shall be determined as of the end of each fiscal quarter, except as otherwise specifically provided below:

As of the last day of each fiscal quarter, a ratio of net income plus depreciation and amortization expenses plus interest plus lease expenses (to the extent included in debt service), in each case for the four (4) consecutive fiscal quarters then-ended, to debt service and non-financed capital expenditures calculated for the four (4) consecutive fiscal quarters then-ended of at least 1.0 to 1.0.

Ronco shall not make capital expenditures exceeding $100,000, in the aggregate in any fiscal year, without the prior written consent of Lender.

The Company does not believe it was in compliance with these covenants as of December 31, 2014. No notice of noncompliance was ever received by the Company. However, on or about June 3, 2015, the Company paid off the outstanding balance of approximately $207,000 and terminated the agreement.