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Long-term Debt

12 Months Ended

Dec. 31, 2017

Debt Disclosure [Abstract]

Long-term Debt

11. Long-term Debt

Term Loan

In November 2017, the Company entered into an amended and restated loan and security agreement (the “Amended and Restated Loan Agreement”) with East West Bank (“EWB”). The Amended & Restated Loan Agreement amends and restates the loan and security agreement that the Company entered into with EWB dated as of April 14, 2015 (as the same has been previously amended, the “Prior Loan Agreement”).

The following is a summary of the material terms of the Amended and Restated Loan Agreement:

	●	EWB loaned the Company $4,500,000 as a one-time 36-month term loan, $4,450,000 of which the Company agreed to use, and did use, to refinance the $4,450,000 that it had outstanding under the Prior Loan Agreement. The Company applied the additional $50,000 to pay the facility fee ($45,000) and to pay reasonable costs or expenses incurred by EWB in connection with, among other matters, the preparation and negotiation of the Amended and Restated Loan Agreement.
	●	The Company are required to make payments on the loan on the last calendar day of each month commencing on December 31, 2017 and through its maturity date, November 29, 2020. Payments will be interest only until the payment due on June 30, 2018, at which time payments will become principal plus interest.
	●	Other than during the continuance of an event of default, the loan bears interest, on the outstanding daily balance thereof, at the Company’s option, at either: (A) a variable rate per annum equal to the prime rate as set forth in The Wall Street Journal plus 1.75%, or (B) a fixed rate per annum equal to the LIBOR rate for the interest period for the advance plus 4.50%.
	●	The Company continues to grant and pledge to EWB a first-priority security interest in all its existing and future personal property, including its intellectual property, subject to customary exceptions.
	●	Subject to customary exceptions, the Company continues to generally be prohibited from borrowing additional Indebtedness other than subordinated debt and up to $2.0 million in the aggregate for the purpose of equipment financing to the extent EWB approves such debt. “Indebtedness” means (i) all the Company’s other indebtedness for borrowed money or the deferred purchase price of property or services, (ii) all the its obligations evidenced by notes, bonds, debentures and similar instruments, (iii) all its capital lease obligations, and (iv) all its contingent obligations.
	●	The Company must comply with the following financial covenants:
		o	Minimum Fixed Charge Coverage Ratio – The Company must not have a Fixed Charge Coverage Ratio (as defined below) as of the last day of a fiscal quarter less than 1.25 to 1.00. However, if the Company’s unrestricted cash exceeds the loan principal outstanding, then what would otherwise be a breach of the covenant will be deemed automatically cured. The automatic cure may not be used more than (A) two times in any fiscal year or (B) four times during the term of the Amended and Restated Loan Agreement. Fixed Charge Coverage Ratio means the ratio of (a) Adjusted EBITDA (as defined below) for the four fiscal quarters ending on the applicable measuring date, less (i) unfinanced capital expenditures during such period and (ii) cash taxes paid during such period, to (b) the sum of (i) scheduled principal and interest payments with respect to the loan, (ii) scheduled principal and interest payments with respect to other Indebtedness (as defined below) and (C) scheduled lease payments. “Adjusted EBITDA” means (a) EBITDA (which is net income, plus interest expense, plus, to the extent deducted in the calculation of net income, depreciation expense and amortization expense, plus income tax expense) plus (b) other noncash expenses and charges, plus (c) to the extent approved by EWB, other onetime charges, plus (g) to the extent approved by EWB, any losses arising from the sale, exchange, transfer or other disposition of assets not in the ordinary course of business.
		o	Minimum Liquidity – The aggregate amount of unrestricted cash the Company has in deposit accounts or securities accounts maintained with EWB must not be less than $2,000,000. This liquidity test will be measured the last day of each calendar month.
		o	Maximum Sr. Leverage Ratio – As of the last day of a fiscal quarter, the ratio of (a) all the Company’s Indebtedness outstanding on such day, other than subordinated debt, to (b) Adjusted EBITDA for four fiscal quarters ending on such day, must not be greater than 2.75 to 1.00 for fiscal quarters ending December 31, 2017 through March 31, 2018, and must not be greater than 2.50 to 1.00 for fiscal quarters ending June 30, 2018 and later.

As of December 31, 2017, the Company was in compliance with all covenants except the Fixed Charge Coverage Ratio. The Company anticipates that EWB will waive such non-compliance, and EWB informed the Company that it would forbear from taking action with respect to the event of default caused by such non-compliance. Accordingly, the Company expects that its repayment terms will not change as a result of this non-compliance.

As of December 31, 2017, $4,500,000 was outstanding under the Amended and Restated Loan Agreement, all which is recorded in current portion of long-term debt on the accompanying consolidated balance sheet as a result of the covenant non-compliance as of December 31, 2017 discussed above. The Company recorded total debt issuance costs of $59,000, which includes the $45,000 facility fee. The debt issuance costs will be amortized to interest expense using the effective interest rate method over the life of the loan. As of December 31, 2017, the unamortized portion of the debt issuance costs was $56,000 and is recorded as a reduction of long term debt. The Company has no more borrowing availability under the Amended and Restated Loan Agreement.

Equipment Notes Payable

In May 2013, the Company entered into a financing arrangement with a lender under which the Company may borrow funds to purchase certain equipment. Initially, the maximum amount the Company could borrow under this financing arrangement was $500,000. Over time, the lender increased that maximum amount, and as of December 31, 2017, the maximum amount was $9,690,000, all of which has been borrowed. In April 2015, the Company used approximately $3,381,000 of the proceeds received under the Prior Loan Agreement with EWB to pay down a portion of the principal amount the Company had borrowed under this financing arrangement, accrued interest and a prepayment fee.

The Company was able to borrow up to the maximum amount available under this financing arrangement in tranches as needed. Each tranche borrowed through August 2015 incurred interest at 8.32% per annum; the interest for tranches borrowed thereafter was reduced to rates between 7.32% to 8.05% per annum. With respect to the first $1,000,000 in the aggregate borrowed, principal and interest payments are due in 36 equal monthly installments. With respect to amounts borrowed in excess of the first $1,000,000 in the aggregate, the first monthly payment will be equal to 24% of the principal amount outstanding, and the remaining principal and interest due is payable in 35 equal monthly installments. The Company granted the lender a first security interest in the equipment purchased with the funds borrowed. This equipment lender entered into a subordination agreement with EWB.

As of December 31, 2017, $623,000 was outstanding under this financing arrangement, of which $615,000 is recorded in current portion of long-term debt and $8,000 is recorded in long-term debt on the accompanying consolidated balance sheet. The Company currently does not expect the lender to lend any additional funds under this financing arrangement.

Long-Term Debt Principal Payments

Future minimum principal payments under long-term debt as of December 31, 2017 are as follows:

Years Ending December 31,		Principal Payments
2018		$	1,665,000
2019			1,808,000
2020			1,650,000
Total		$	5,123,000

Interest expense related to long-term debt for the years ended December 31, 2017 and 2016 was $425,000 and $517,000, respectively.

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- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-URI http://asc.fasb.org/topic&trid=2208564

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