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Debt

3 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

(5) 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 amended and restated the loan and security agreement that the Company entered into with EWB in April 2015 (as the same has been previously amended, the “Prior Loan Agreement”). The Amended and Restated Loan Agreement provides for a $4,500,000 36-month term loan, which the Company used to refinance the $4,450,000 that it had outstanding under the Prior Loan Agreement. The Company is 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.

The Company must comply with certain financial covenants, including a minimum fixed charge coverage ratio, minimum liquidity and a maximum senior leverage ratio. As of December 31, 2017, the Company was in compliance with all covenants except the fixed charge coverage ratio covenant. In March 2018, the Company entered into an amendment to the Amended and Restated Loan Agreement, which provided for the following:

	●	EWB waived the minimum fixed charge coverage ratio covenant default for the fiscal quarter ended December 31, 2017.

	●	The minimum fixed charge coverage ratio covenant was suspended for 2018, and as a result, the Company is not required to satisfy this covenant until the quarter ending March 31, 2019.

	●	A covenant was added under which the Company is required to achieve a minimum Adjusted EBITDA (as defined below) set forth below for the period indicated:

Six Month Period Ending		Minimum Adjusted EBITDA
March 31, 2018		$	600,000
June 30, 2018		$	1,200,000
September 30, 2018		$	1,600,000
December 31, 2018		$	1,500,000

“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 (d) 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.

As of March 31, 2018, the Company was in compliance with all covenants.

As of March 31, 2018, $4,500,000 was outstanding under the Amended and Restated Loan Agreement, of which $1,500,000 is recorded in current portion of long-term debt and $3,000,000 is recorded in long-term debt on the accompanying consolidated balance sheet. The Company recorded total debt issuance costs of $59,000, which includes a $45,000 facility fee. The Company is amortizing the debt issuance costs to interest expense using the effective interest rate method over the life of the loan. As of March 31, 2018, the unamortized portion of the debt issuance costs was $48,000 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 March 31, 2018, 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 March 31, 2018, $442,000 was outstanding under this financing arrangement, all of which is recorded in current portion of 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.