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Debt

6 Months Ended

Jun. 30, 2018

Debt Disclosure [Abstract]

(5) DEBT

Term Loan

In November 2017, the Company entered into an amended and restated loan and security agreement with East West Bank (“EWB”),under which the Company borrowed $4,500,000 in the form of a 36-month term loan, which matures on November 29, 2020. EWB has a first-priority security interest in all the Company’s existing and future personal property, including its intellectual property, subject to limited exceptions. The Company has no more borrowing availability under this credit facility.

As of June 30, 2018, $4,500,000 was outstanding under this credit facility, of which $1,950,000 was recorded in current portion of long-term debt and $2,550,000 was recorded in long-term debt on the accompanying consolidated balance sheet. The Company’s monthly payments were interest only until June 30, 2018, at which time such payment became principal and interest. EWB automatically withdraws the applicable payment from the Company’s bank account when due. The first principal payment was due June 30, 2018, a Saturday. Accordingly, EWB debited the Company’s account in July for such payment. As a result, the amount of long-term debt on the accompanying consolidated balance sheet as of June 30, 2018 includes the amount of principal payment due on such date.

The Company must satisfy financial covenants under this credit facility, including minimum liquidity, maximum senior leverage ratio and 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

As of June 30, 2018, the Company was in compliance with all covenants. Beginning with the quarter ending March 31, 2019, the Company must satisfy a minimum fixed charge coverage ratio in lieu of the minimum Adjusted EBITDA covenant.

“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.

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 June 30, 2018, the unamortized portion of the debt issuance costs was $40,000 and is recorded as a reduction of long term debt.

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 June 30, 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 borrowed under a prior credit facility 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 June 30, 2018, $260,000 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 does not expect the lender to lend any additional funds under this financing arrangement.