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Notes and Lines of Credit Payable | 6 Months Ended
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Sep. 30, 2015
Notes Payable [Abstract] |
Notes and Line of Credit Payable |
| 6. | Notes and Lines of Credit Payable
Notes and lines of credit payable consist of the following:
|  | September 30, |  | March 31, |
|  | 2015 |  | 2015 |
Term loan payable to NNA due March 28, 2019, net of debt discount of $217,316 (September 30, 2015) and $1,060,401 (March 31, 2015) |  | $ | 6,187,684 |  | $ | 5,467,098 |
Line of credit payable to NNA due March 28, 2019 |  |  | 1,000,000 |  |  | 1,000,000 |
Unsecured revolving line of credit due to financial institution due June 5, 2016 |  |  | 94,764 |  |  | 94,764 |
|  | $ | 7,282,448 |  | $ | 6,561,862 |
NNA Credit Agreements On October 15, 2013, the Company entered into a $2.0 million secured revolving credit facility (the “Revolving Credit Agreement”) with NNA, an affiliate of Fresenius Medical Care Holdings, Inc. On December 20, 2013 the Company entered into the First Amendment to the Credit Agreement (the “Amended Credit Agreement”), which increased the revolving credit facility from $2 million to $4 million. The proceeds of the Amended Credit Agreement were used by the Company to repay the $500,000 Note to SpaGus Apollo, LLC, and pay or repay certain of the Company’s 10% Notes (see Note 7 to the Notes to the Unaudited Condensed Consolidated Financial Statements), to refinance certain other indebtedness of the Company, and for working capital and general corporate purposes. The Amended Credit Agreement was refinanced on March 28, 2014 in connection with 2014 NNA financing, as described in more detail immediately below. Pursuant to the Amended Credit Agreement, NNA has the right to designate one director and one observer to the Board of Directors; however, as of September 30, 2015, NNA has not exercised this right. 2014 NNA Financing On March 28, 2014, the Company entered into a Credit Agreement (the “Credit Agreement”) pursuant to which NNA, extended to the Company (i) a $1,000,000 revolving line of credit (the “Revolving Loan”) and (ii) a $7,000,000 term loan (the “Term Loan”). The Company drew down the full amount of the Revolving Loan on October 23, 2014. The Term Loan and Revolving Loan was to mature on March 28, 2019, subject to NNA’s right to accelerate payment on the occurrence of certain events. The Term Loan may be prepaid at any time without penalty or premium. The loans made under the Credit Agreement are secured by substantially all of the Company’s assets, and are guaranteed by the Company’s subsidiaries and consolidated medical corporations. The guarantees of these subsidiaries and consolidated entities are in turn secured by substantially all of the assets of the subsidiaries and consolidated entities providing the guaranty. Concurrently with the Credit Agreement, the Company entered into a Pledge and Security Agreement with NNA (the “Pledge and Security Agreement”), whereby all of the issued and outstanding shares, interests or other equivalents of capital stock of a direct subsidiary of the Company (not including any entity that carries on the practice of medicine) are considered pledged interests. Pledged interests as of the date of the Pledge and Security Agreement include 100% of AMM, PCCM, VMM common stock and 72.77% of ApolloMed ACO common stock. Concurrently with the Credit Agreement, the Company entered into an Investment Agreement with NNA (the “Investment Agreement”), pursuant to which the Company issued to NNA an 8% Convertible Note in the original principal amount of $2,000,000 (the “Convertible Note”). The Company drew down the full principal amount of the Convertible Note on July 30, 2014 (see Note 7). The Convertible Note matures on March 28, 2019, subject to NNA’s right to accelerate payment on the occurrence of certain events. The Company may redeem amounts outstanding under the Convertible Note on 60 days’ prior notice to NNA. Amounts outstanding under the Convertible Note are convertible at NNA’s sole election into shares of the Company’s common stock at an initial conversion price of $10.00 per share. The Company’s obligations under the Convertible Note are guaranteed by its subsidiaries and consolidated medical corporations. On February 6, 2015, the Company entered into a First Amendment and Acknowledgement (the “Acknowledgement”) with NNA, Warren Hosseinion, M.D., and Adrian Vazquez, M.D. The Acknowledgement amended some provisions of, and/or provided waivers in connection with, each of (i) the Registration Rights Agreement between the Company and NNA, dated March 28, 2014 (the “Registration Rights Agreement”), (ii) the Investment Agreement, (iii) the NNA Convertible Note, and (iv) the NNA Warrants. The amendments to the Registration Rights Agreement included amendments with respect to the timing of the filing deadline for a resale registration statement covering the sale of NNA’s registrable securities. Under the Investment Agreement, the Company issued to NNA warrants to purchase up to 300,000 shares of the Company’s common stock at an initial exercise price of $10.00 per share and warrants to purchase up to 200,000 shares of the Company’s common stock at an initial exercise price of $20.00 per share (collectively, the “Warrants”). The Company determined the fair value of the proceeds of $9.0 million in part based on the following inputs for the warrant liability: term of 7 years, risk free rate of 2.31%, no dividends, volatility of 71.4%, share price of $4.50 per share and a 50% probability of down-round financing. The common stock issuance was recorded at $899,739 (a discount of $1,100,261 to the face amount), the Term Loan was recorded at $5,745,637 (a discount of $1,254,363 to the face amount), and a corresponding warrant liability of $2,354,624 was recorded. During the three months ended September 30, 2015, management determined that the valuation of certain derivative instruments entered into on March 28, 2014, was incorrect which resulted in certain amounts being incorrectly stated in prior periods. Accordingly, the Company recorded an out of period correction in the current period increasing debt issuance cost and debt discount by $26,117 and $990,838, respectively, and decreasing warrant liability and financing expense by $999,724 and $35,004, respectively, as of and for the two month period ended March 31, 2014. These out of period corrections reflect the correct balances of the debt issuance costs, note (net of discount) and warrant liability of NNA of $176,218, $6,685,402 and $1,354,900, respectively, as of March 31, 2014 (see Note 2 to the Notes to the Unaudited Condensed Consolidated Financial Statements). The Term Loan accrues interest at a rate of 8.0% per annum. A portion of the principal amount of the Term Loan is repaid on the last business day of each calendar quarter, which provides for quarterly payments of $87,500 in the first year, $122,500 in the second year, $122,500 in the third year, $175,000 in the fourth year, and $210,000 in the fifth year. The Term Loan reflected an original issue discount of $1,305,435 associated with the issuance of 300,000 warrants to acquire the Company’s common stock (see Note 9 to the Notes to the Unaudited Condensed Consolidated Financial Statements) and payment of a fee to NNA of $80,000 of which $51,072 was considered a debt discount, $7,998 was recorded to equity, and $20,930 allocated to warrant liability was immediately recorded as interest expense. The discount will be amortized to interest expense over the expected term of the loan using the effective interest method. The Revolving Loan bears interest at the rate of three month LIBOR plus 6.0% per annum. The Company had borrowed $1,000,000 under the Revolving Loan at September 30, 2015 and March 31, 2015. As of September 30, 2015, there are no remaining amounts available to be borrowed under the Revolving Loan. The Term Loan and Revolving Loan were to mature on March 28, 2019. The Company incurred $235,119 in third party costs related to the 2014 NNA financing, which were allocated to the related debt and equity instruments based on their relative fair values, of which $176,218, as adjusted, after out-of-period correction as discussed in Note 2, was classified as deferred financing costs which will be deferred and amortized over the life of the loan using the effective interest method. The Credit Agreement and the Convertible Note provide for certain financial covenants. On February 16, 2015, the Company and NNA agreed to amend the tangible net worth covenant computation. In addition, the Credit Agreement and the Convertible Note include: (1) certain negative covenants that, subject to exceptions, limit the Company’s ability to, among other things, incur additional indebtedness, engage in future mergers, consolidations, liquidations and dissolutions, sell assets, pay dividends and distributions on or repurchase capital stock, and enter into or amend other material agreements; and (2) certain customary representations and warranties, affirmative covenants and events of default, which are set forth in more detail in the 2014 NNA financing credit agreement and Convertible Note. On July 7, 2015, the Company entered into an Amendment to First Amendment and Acknowledgement (the “New Amendment”) with NNA. The New Amendment amended the Acknowledgement and included an extension until October 15, 2015 of a deadline previously contemplated by the Acknowledgement, for the Company to file a registration statement covering the sale of NNA’s registrable securities. On August 18, 2015, the Company entered into a Waiver and Consent (“Waiver”) with NNA, pursuant to which NNA waived and consented to certain provisions of the Credit Agreement, and the Convertible Note. The Waiver was granted by NNA until October 15, 2015. The company failed to comply with certain financial covenants as of September 30, 2015 and did not seek a further waiver from NNA. NNA did not declare a default and the loan was repaid from the proceeds of the financing with NMM on October 15, 2015. Since non-compliance with the financial covenants provided for therein existed for the quarter ending September 30, 2015, all debt has been classified as current as of September 30, 2015. On October 14, 2015, the Company entered into an Agreement with NMM pursuant to which the Company sold to NMM 1,111,111 units, each unit consisting of one share of Series A Convertible Preferred Stock (the “Preferred Stock”) and one stock purchase warrant, for a total purchase price of $10,000,000, the proceeds of which were used by the Company primarily to repay certain outstanding indebtedness owed by the Company to NNA. (See Note 11 to the Notes to the Unaudited Condensed Consolidated Financial Statements). Unsecured revolving line of credit Included in “Notes and lines of credit payable” in the accompanying consolidated balance sheet is a $100,000 revolving line of credit with MUFG Union Bank, N.A., of which $94,764 was outstanding at September 30, 2015 and March 31, 2015. Borrowings under the line of credit bear interest at the prime rate (as defined) plus 4.50% (7.75% per annum at September 30, 2015 and at March 31, 2015), interest only is payable monthly, and the line of credit matures June 5, 2016. The line of credit is unsecured. Other lines of credit LALC has a line of credit of $230,000 with JPMorgan Chase Bank, N.A. as of September 30, 2015. The Company has not borrowed any amount under this line of credit as of September 30, 2015 and March 31, 2015. BAHA has a line of credit of $150,000 with First Republic Bank as of September 30, 2015. The Company has not borrowed any amount under this line of credit as of September 30, 2015 and March 31, 2015. The line of credit is subject to renewal on April 27, 2016. Interest expense associated with the notes and lines of credit payable consisted of the following:
|  | Three Months Ended |  | Six Months Ended |
|  | September 30, |  | September 30, |
|  | 2015 |  | 2014 |  | 2015 |  | 2014 |
Interest expense |  | $ | 149,070 |  | $ | 143,845 |  | $ | 298,779 |  | $ | 287,998 |
Amortization of loan fees and discount |  |  | 30,531 |  |  | 71,673 |  |  | 105,104 |  |  | 142,924 |
Out of period adjustment |  |  | (250,453) |  |  | - |  |  | (250,453) |  |  | - |
|  | $ | (70,852) |  | $ | 215,518 |  | $ | 153,430 |  | $ | 430,922 |

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