(

)

Debt

Long-term obligations consists of the following (in thousands):

	December 31,
	2016			2015
Current:
Revolving Credit facility	$	0		$	2,132
Current portion of long term debt		0			1,714
Current portion of capital lease obligation		208			0
Current debt and capital lease obligation	$	208		$	3,846

Long Term:
Term loan	$	0		$	10,000
Note payable – related party		6,500			5,500
Capital lease obligation		2,950			0
Less unamortized debt issuance and modification costs		(125	)		(1,220	)
Long term debt and capital lease obligations, net of unamortized debt costs	$	9,325		$	14,280

The weighted average interest rate for outstanding borrowings at

December

31,

2016

was

8.0%.

The weighted average interest rates for borrowings during the years ended

December

31,

2016

and

2015

were

10.4%

and

7.2%,

respectively. The Company had

capitalized interest in

2016

2015.

Interest paid during the years ended

December

31,

2016

and

2015

totaled approximately

$3,579,000

and

$1,436,000,

respectively.

Note Payable – Related Party

During

2015,

the Company received the proceeds of subordinated indebtedness from GFCM in an amount of

$5,500,000.

February

26,

2016,

the Company further amended the GFCM note to increase the amount by

$1,000,000

$6,500,000.

GFCM is an entity controlled by the Company’s chairman, president and chief executive officer, Jeffrey T. Gill and

one

of our directors, R. Scott Gill. GFCM, Jeffrey T. Gill and R. Scott Gill are significant beneficial stockholders of the Company. The promissory note bears interest at a rate of

8.0%

per year and the principal is due on

January

30,

2019.

September

30,

2016,

the Note was amended to begin paying interest on a quarterly basis.

Obligations under the Note Payable are guaranteed by all of the U.S. subsidiaries and are secured by a

first

priority lien on substantially all assets of the Company.

Revolving Credit Facility and Term Loan

October

30,

2015,

the Company secured debt financing consisting of a

$12,000,000

term loan (“Term Loan”) and a

$15,000,000

revolving credit facility (“Revolving Credit Facility”). Proceeds from the

two

new financing arrangements (collectively the “Loan Agreements”) were used in part to repay the senior secured debt with a prior lender and the Meritor Note.

February

25,

2016,

the Company entered into an amendment (the “Term Loan Amendment”) to the Term Loan and an amendment (the “Revolving Credit Amendment”) to the Revolving Credit Facility (together, the “Amendments”). The Amendments increased the Company’s borrowing capability under its Revolving Credit Facility and provided for an agreement on the use of proceeds from the sale of its Toluca, Mexico property and buildings, as described below.

As a result of the Term Loan Amendment, the Company deposited

$6,000,000

of the proceeds of the sale-leaseback of its Toluca, Mexico property and buildings (the “Toluca Sale-Leaseback”) into a Cash Collateral Account, to be held as additional collateral for the Term Loan. The Term Loan Amendment also permitted the Company to retain the remaining balance of the proceeds from Toluca Sale-Leaseback, and increased the interest rate of the Term Loan by

1.0%.

August

16,

2016,

the Company repaid the Term Loan in full and paid down the outstanding balance under the Revolving Credit Facility with proceeds generated from the CSS Sale (see Note

4).

In connection with the repayment of the Term Loan, the

$6,000,000

held in the Cash Collateral Account was released. Additionally, on

September

2016,

the Company terminated and paid all remaining obligations due under the Revolving Credit Facility. As a result of the early extinguishment of debt, the Company was required to pay

$1,521,000

in penalties, which is included in loss on extinguishment of debt in the accompanying statements of operations, and wrote off the remaining amount of deferred loan costs associated with the Term Loan and Revolving Credit Facility, which is included in interest expense, net in the accompanying statements of operations.

The classification of debt as of

December

31,

2015

considers debt outstanding under the Loan Agreements on a long-term basis. However, the Revolving Credit Facility allowed the lender to establish certain reserves against the borrowing base which could, under certain circumstances, cause a potential event of default. Because such an event is not objectively measureable in advance and because the Company was required to maintain a lock-box arrangement, ASC

470

requires the otherwise long-term revolving advances to be classified as a current liability. As a result, all borrowings under the Revolving Credit Facility were classified in the accompanying consolidated balance sheets as a current liability.

Capital Lease Obligation

March

2016,

the Company completed the sale of its

-acre Toluca property pursuant to an agreement with Promotora y Desarrolladora Pulso Inmobiliario, S.C. (together with its affiliates and assignees, “Buyer”) for

215,000,000

Mexican Pesos, or approximately

$12,182,000

in U.S. currency. Simultaneously, the Company entered into a long-term lease of the

acres and buildings currently occupied by the Company and needed for its ongoing business in Toluca (see Note

5).

The Company incurred transaction related expenses of

$1,116,000.

The Company recorded an initial gain on the sale of

$2,370,000

during the year ended

December

31,

2016,

which is included in other income, net in the consolidated income statement, and recorded a deferred gain of

$4,368,000

as of

December

31,

2016,

which will be recognized over the

ten

year lease term. The Company’s base rent, which is denominated in U.S. currency, is

$936,000

annually, adjusted based on U.S. CPI with certain cap conditions. As a result of the Toluca Sale-Leaseback, the Company has a capital lease obligation of

$3,158,000

for the building.

The future minimum payments for the capital lease as of

December

31,

2016

are as follows (in thousands):

2017	$	503
2018		549
2019		549
2020		503
2021		548
Thereafter		2,242
Total future payments		4,894
Less: Amount representing interest		(1,736	)
Present value of future minimum payments		3,158
Less: Current portion		(208	)
Long term portion	$	2,950

Note Payable – Meritor

July

2015,

the Company entered into a secured promissory note (the “Meritor Note”) in the principal amount of

$3,047,000,

with Meritor, in exchange for the release of certain outstanding net trade payables owed to Meritor for ongoing purchases of raw materials and the guarantee of certain inventory values related to Meritor’s business as collateral under the Credit Facility. The Meritor Note was secured by substantially all of the collateral for the Credit Facility, was senior to the promissory note previously issued to GFCM and was subordinate to the rights under the Credit Facility. The Meritor Note bore interest at a rate of

10.0%

per year and all principal and interest on the Meritor Note was due and payable on the maturity date.

July

2015,

the Company entered an asset purchase agreement to sell certain assets and related liabilities used in the Company’s manufacturing facility in Morganton, North Carolina, to Meritor for

$12,500,000.

Meritor also agreed to purchase the Morganton plan facility and real estate for

$3,200,000.

At closing, the parties also entered into a Meritor Note Amendment, whereby the Company issued an additional secured obligation to Meritor of

$412,000

July

2015

for the release of certain outstanding net trade payables and other accrued liabilities and further agreed to increase the Meritor Note by an additional

$321,000

September

to reflect certain potential roof repairs required at the Morganton facility.

October

30,

2015,

the Meritor Note and interest were repaid in full in conjunction with the Company’s new financing agreements.