Annual report pursuant to Section 13 and 15(d)

NOTE 9 - Long-Term Debt

v2.4.0.6
NOTE 9 - Long-Term Debt
12 Months Ended
Mar. 31, 2012
Debt Disclosure [Text Block]
NOTE 9 — Long-Term Debt

On August 29, 2009, the Company entered into a note agreement for principal amounting to $100,000 with an interest rate of 2.90% per annum. This instrument was issued in connection with financing an automobile. The note is payable in monthly installments of $1,800 through August 29, 2014.  During the year ended March 31, 2012 and 2011, the Company made principal payments on this note in the amount of $20,000 and $19,000, respectively.  During the years ended March 31, 2012 and 2011, the Company made interest payments related to this note in the amounts of $2,000. The remaining balance of this note amounted to $50,000 at March 31, 2012, of which $20,000 is included in the current portion of long-term debt in the accompanying consolidated balance sheet.

On October 7, 2009, the Company entered into a note agreement for principal amounting to $57,000 with an interest rate of 1.0% per annum. This instrument was issued in connection with financing an automobile. The note is payable in monthly installments of $900 through October 26, 2014.  During the years ended March 31, 2012 and 2011, the Company made principal payments on this note in the amount $11,000, respectively.  During the years ended March 31, 2012 and 2011, the Company made interest payments related to this note in the amounts of $300 and $400, respectively. The remaining balance of this note amounted to $29,000 at March 31, 2012, of which $11,000 is included in the current portion of long-term debt in the accompanying consolidated balance sheet.

On May 1, 2010, the Company entered into a Loan and Security Agreement and a Supplement to the Loan and Security Agreement with Venture Lending & Leasing V, Inc. to borrow up to an aggregate of $3,000,000 (collectively, the “Agreements”).  The Agreements provide for a first tranche of $2,000,000 and, upon meeting certain financial milestones, a second tranche of $1,000,000. On May 3, 2010, the Company borrowed $2,000,000 on the first tranche and on November 17, 2010, the Company borrowed $1,000,000 on the second tranche.  The loan is secured by all assets of the Company excluding intellectual property under certain circumstances. Related to the first tranche, the Company made eight monthly interest-only payments of $16,660 through December 1, 2010. Thereafter, the Company began making interest and principal payments of $75,000 per month through June 1, 2013. Related to the second tranche, the Company paid monthly interest only payments of $8,330 through May 1, 2011. Thereafter, the Company began making interest and principal payments of $37,500 per month through November 1, 2013. Additionally, the Company will make a final balloon payment related to the first tranche of $132,000 on June 1, 2013, and will make a final balloon payment related to the second tranche of $66,000 on November 1, 2013. The effective interest rate on the first and second tranche is 13.3%.  During the years ended March 31, 2012 and 2011, the Company made interest payments of $317,000 and $160,000, respectively.  During the years ended March 31, 2012 and 2011, the Company made principal payments of $974,000 and $236,000, respectively.

Additionally, in connection with the Agreements, the Company issued warrants to Venture Lending & Leasing, Inc. for the purchase of 250,000 shares of the Company’s common stock (the “Warrants”).  The Warrants may be exercised for a cash payment of $2.00 per share of common stock.  The Warrants are subject to adjustment for stock splits, dividends, a change in control or similar transactions.  The Warrants also have a cashless exercise feature.  The Warrants expire on November 30, 2017.  The Warrants may be put back to the Company for $750,000 in cash.  The put feature is available to the holder for 60 days after the first of the following to occur: i) a change of control of the Company, ii) the closing of at least $15,000,000 of additional equity financing, or iii) March 31, 2014.  The $750,000 cash value of the Warrants was recorded as a put warrant liability and a corresponding amount of $750,000 was recorded as a discount on the note payable.  The discount will be accreted to non-cash interest expense over the term of the loan using the effective interest method.  During the years ended March 31, 2012 and 2011, the Company recorded $237,000 and $159,000, respectively, of non-cash interest expense related to these notes.  The remaining balance of the discount on the note amounted to $354,000 at March 31, 2012. The remaining balance of the notes amounted to $1,864,000 at March 31, 2012, of which $1,171,000 is included in the current portion of long-term debt, net of debt discount in the accompanying consolidated balance sheet.

On August 12, 2010, the Company entered into a note agreement for $40,000 with an interest rate of 11.99% per year. This instrument was issued in connection with the financing of an automobile. During the years ended March 31, 2012 and 2011, the Company made interest payments related to this note in the amounts of $3,500 and $3,000, respectively. During the years ended March 31, 2012 and 2011, the Company made principal payments related to this note in the amounts of $6,000 and $8,000, respectively. The remaining balance of this note amounted to $26,000 at March 31, 2012, of which $7,000 is included in the current portion of long-term debt in the accompanying consolidated balance sheet.

On November 30, 2010, the Company entered into a note agreement for $27,000 with an interest rate of 8.90% per year. This instrument was issued in connection with the financing of an automobile. During the years ended March 31, 2012 and 2011, the Company made interest payments related to this note in the amount of $2,000 and $700, respectively. During the years ended March 31, 2012 and 2011, the Company made principal and interest payments related to this note in the amount of $5,000 and $1,000, respectively. The remaining balance of this note amounted to $22,000 at March 31, 2012, of which $5,000 is included in the current portion of long-term debt in the accompanying consolidated balance sheet.

On February 25, 2011, the Company entered into a note agreement for $165,000 with an interest rate of 4.24% per annum. This instrument was issued in connection with financing insurance premiums. The note was payable in monthly installments of $18,700 with the final payment on October 25, 2011. During the years ended March 31, 2012 and 2011, the Company made interest payments of $2,000, respectively, on this note.  During the years ended March 31, 2012 and 2011, the Company made principal payments of $129,000 and $36,000, respectively.  The final payment on this note was made in October 2011.

On June 29, 2011, the Company entered into a loan and security agreement and a supplement to the loan and security agreement with Venture Lending & Leasing VI, Inc. to borrow up to an aggregate of $2,500,000 (collectively, the “VLL6 Agreements”).  The VLL6 Agreements provided for a first tranche of $1,500,000 and, upon meeting certain milestones, the Company would become eligible to borrow an additional $1,000,000. The loan is secured by all assets of the Company. On June 29, 2011, the Company borrowed $1,500,000 on the first tranche. On November 10, 2011, the Company borrowed $1,000,000 on the second tranche. The cash interest or “streaming” rate on the loan is 10%. In connection with the first tranche, for the first nine months, the Company made monthly interest-only payments of $12,500 through March 1, 2012. Going forth, the Company began making principal and interest payments of $56,250 per month for thirty months. Additionally, the Company will make a final balloon payment of $116,505 on September 1, 2014. In connection with the second tranche, for the first nine months, the Company makes monthly interest-only payments of $8,333 through August 1, 2012. Thereafter, the Company will make principal and interest payments of $37,500 per month for thirty months.  Additionally, the Company will make a final balloon payment of $77,670 on February 1, 2015, resulting in an effective interest rate of 13%. During the year ended March 31, 2012, the Company made interest payments of $155,000.

In connection with the VLL6 Agreements, the Company issued a warrant to Venture Lending & Leasing VI, LLC for the purchase of 226,325 shares of the Company’s common stock at a purchase price per share equal to $1.657. Once the Company became eligible to draw the second tranche of the loan, it was required to issue a second warrant to Venture Lending & Leasing VI, LLC with coverage equal to $62,500 for the purchase of additional shares of the Company’s common stock at a strike price equal to the 10-day volume-weighted average price (“VWAP”) ending on the trading day prior to the date the Company satisfied the second tranche milestones. On September 30, 2011, the Company met the second tranche milestones and it issued the second warrant for the purchase of 39,100 shares of the Company’s common stock at a purchase price per share equal to $1.5985. On November 10, 2011, the Company borrowed the second tranche and therefore the Company became obligated to issue a third warrant to Venture Lending & Leasing VI, LLC with coverage equal to $62,500 for the purchase of additional shares of the Company’s common stock at a strike price equal to the 10-day VWAP ending on the trading day prior to the borrowing date of the second tranche. In connection with borrowing the second tranche, the Company issued the third warrant for the purchase of 41,187 shares of the Company’s common stock at a purchase price per share equal to $1.5175. The three warrants issued to Venture Lending & Leasing VI, LLC are hereinafter collectively referred to as the “Warrants”. The Warrants have a cashless exercise feature. The Warrants expire on November 30, 2018. Additionally, the Warrants include a put option. The warrant related to the first tranche may be put back to the Company for $937,500 cash. On September 30, 2011, when the Company became eligible to draw the second tranche and issued the second warrant, the second warrant included a put option in an amount equal to $156,250, which increased the total cash payment to $1,093,750. On November 10, 2011, when the Company borrowed the additional $1,000,000 on the second tranche and issued the third and final warrant, the third warrant included a put option in an amount equal to $156,250, which increased the total cash payment under the Warrants to $1,250,000. The put feature is available to the holder of the Warrants for 60 days after the first of the following to occur: (i) a change in control of the Company, (ii) the closing of at least $20,000,000 of a round of additional equity financing, or (iii) July 31, 2015.

The Company recorded the $1,250,000 cash value of the Warrants as a put warrant liability and a corresponding amount of $1,250,000 was recorded as a discount on the note payable. The discount will be accreted to non-cash interest expense over the term of the loan using the effective interest method. For the year ended March 31, 2012, the Company recorded $211,000 of non-cash interest related to the note. The remaining balance of the discount on the note amounted to $1,039,000 at March 31, 2012.  The remaining balance of the note amounted to $2,500,000 at March 31, 2012, of which $684,000 is included in the current portion of long-term debt in the accompanying consolidated balance sheet.

On February 25, 2012, the Company entered into a note agreement for $160,000 with an interest rate of 4.76% per annum. This instrument was issued in connection with financing insurance premiums. The note is payable in monthly installments of $20,400 with the final payment on October 25, 2012. During the year ended March 31, 2012, the Company made principal and interest payments of $19,000 and $1,000, respectively.  The remaining balance of this note amounted to $141,000 at March 31, 2012 and is included in the current portion of long-term debt in the accompanying consolidated balance sheet.

A summary of principal payments due in years subsequent to March 31, 2012 is as follows (in thousands):

For Years Ending March 31,
     
2013
 
$
2,039
 
2014
   
1,669
 
2015
   
916
 
2016
   
8
 
Total principal payments
   
4,632
 
Less: current portion
   
(2,039
)
Long-term portion
 
$
2,593