PRIVATE PLACEMENT MEMORANDUM

12 Months Ended

Dec. 31, 2018

Private Placement Memorandum Disclosure [Abstract]

(10) PRIVATE PLACEMENT MEMORANDUM

Commencing in November of 2016, the Company conducted a private placement on a “best efforts, minimum-maximum” basis of 12% unsecured subordinated promissory notes, for a minimum of $1,000,000 and a maximum of $1,500,000 pursuant to Sections 4(a) (2) and 4(a) (5) of the Securities Act of 1933, as amended (the “1933 Act”) and Rule 506(b) of the 1933 Act. The offering was conducted through a FINRA registered broker, Newbridge Securities Corporation (“Newbridge”). On February 28, 2017, the Company issued promissory notes totaling $1,035,000, with a maturity date of June 28, 2018. The Company was obligated to make monthly repayments commencing on July 1, 2017, until the senior lender had been paid in full, with a limitation on the funds available for repayment to the note holders to an amount equal to 5% of the Company’s collections received by the senior lender during that month. Newbridge was compensated in connection with sales made in the offering consisting of (i) a cash amount equaling 10% commissions; (ii) a 3% non-accountable expense allowance (iii) expense reimbursement of $155,000 (iv) 776,250 shares of our common stock and (v) fees totaling $255,000. In connection with the sale of the notes, the Company had an obligation to issue 776,250 shares of the common stock, six months after issuance of the notes to the noteholders which had initially been recorded as a liability totaling $255,000. The shares were issued to the note holders on August 28, 2017. In connection with the Offering, we also paid Triumph Bank, our senior secured lender, $342,000 as repayment of principal and interest on the outstanding obligations. The common stock issued to the note holders represents additional interest expense and was initially recorded as a liability and was adjusted each reporting period based upon the fair value of the underlying stock until issued on August 28, 2017. During the year ended December 31, 2018 and 2017, the Company recognized $

million and $

0.5

million, respectively in debt issuance costs and debt discount amortization expense included in interest expense, respectively. Also, included in interest expense is the increase in value of the common shares to be issued to the private placement noteholders from the date of issue of approximately $740,000 for the year ended December 31, 2017.

The table below summarizes the cash and non-cash components of the private placement memorandum (in thousands):

	December 31, 2018
Proceeds from unsecured subordinated promissory notes	$	1,035
Less debt issuance costs and discount
Payment of commission and placement agent fees and related expenses		(155	)
Principal payments on promissory notes		(1,035	)

Non-cash activity
Common stock issued to placement agent		(255	)
Obligation to issue common stock to private placement noteholders		(255	)
Amortization of issuance costs and debt discount		665
Unsecured subordinated promissory notes, net of issuance and debt discount		-

Current portion of unsecured subordinated promissory notes		-
Long-term portion of unsecured subordinated promissory notes	$	-