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Long-term Debt

12 Months Ended

Dec. 31, 2018

Debt Disclosure [Abstract]

Long-term Debt

11. Long-term Debt

Term Loan

On September 28, 2018, the Company entered into a loan and security agreement with Avidbank. The following is a summary of the material terms of that agreement:

	●	Avidbank loaned the Company $4,000,000 as a one-time 48-month term loan, all of which the Company used to pay-off the $4,050,000 of principal it borrowed from East West Bank (“EWB”). The Company used its cash on hand to pay the remaining $50,000 it borrowed from EWB plus accrued and unpaid interest.
	●	The Company must make monthly principal payments of approximately $83,000 plus accrued and unpaid interest on the last business day of each month commencing on October 31, 2018 and through the loan’s maturing date, September 30, 2022.
	●	Other than during the continuance of an event of default, the loan bears interest at a variable rate per annum equal to the prime rate as set forth in The Wall Street Journal plus 1.75%.
	●	The Company granted and pledged to Avidbank a first-priority security interest in all its existing and future personal property.
	●	The Company must comply with these financial covenants:

	○	EBITDA (as defined below) must be at least $1,000,000 for the trailing six month period as of the last day of each fiscal quarter. “EBITDA” means (a) net profit (or loss), after provision for taxes, plus (b) interest expense, plus (c) to the extent deducted in the calculation of net profit (or loss), depreciation expense and amortization expense, plus (d) income tax expense, plus (e) to the extent approved by Avidbank, other noncash expenses and charges, other onetime charges, and any losses arising from the sale, exchange, transfer or other disposition of assets not in the ordinary course of business.
	○	The aggregate amount of unrestricted cash the Company has in deposit accounts or securities accounts maintained with Avidbank must be not less than $2,000,000 at all times.

	●	Subject to customary exceptions, the Company is prohibited from borrowing additional indebtedness.
	●	The Company paid $20,000 to Avidbank as a facility fee upon entering into the loan and security agreement.
	●	If the Company prepays the loan before September 28, 2019, it must pay a prepayment fee of 1.75% of the principal amount repaid, and if the Company prepays the loan on or after such date but before September 28, 2020, it must pay a prepayment fee of 1.00% of the principal amount prepaid. There is no prepayment fee if the Company prepays the loan on or after September 28, 2020.

As of December 31, 2018, the Company was in compliance with both financial covenants described above.

The loan and security agreement includes customary representations, warranties and covenants (affirmative and negative), including restrictive covenants that, subject to specified exceptions, limit the Company’s ability to: dispose of its business or property; merge or consolidate with or into any other business organization; incur or prepay additional indebtedness; create or incur any liens on its property; declare or pay any dividend or make a distribution on any class of the Company’s stock; or enter specified material transactions with its affiliates.

The loan and security agreement also includes customary events of default, including: payment defaults; breaches of covenants following any applicable cure period; material breaches of representations or warranties; the occurrence of a material adverse effect; events relating to bankruptcy or insolvency; and the occurrence of an unsatisfied material judgment against the Company. Upon the occurrence of an event of default, Avidbank may declare all outstanding obligations immediately due and payable, do such acts as it considers necessary or reasonable to protect its security interest in the collateral, and take such other actions as are set forth in the loan and security agreement.

As of December 31, 2018, $3,750,000 of the term loan was outstanding, with $1,000,000 recorded in current portion of long-term debt and the remaining $2,750,000 recorded as long-term debt on the Company’s balance sheet. The Company recorded debt issuance costs of $23,000, which includes the $20,000 facility fee. The debt issuance costs will be amortized to interest expense beginning in October 2018 using the effective interest rate method over the life of the loan. The unamortized balance of the debt issuance costs as of December 31, 2018 was $21,000 and is recorded as a reduction of long term debt.

In connection with entering into the loan and security agreement with Avidbank, the amended and restated loan and security agreement the Company entered into with EWB on November 29, 2017, as amended on March 12, 2018, terminated on September 28, 2018.

Equipment Notes Payable

In May 2013, the Company entered into a financing arrangement with a lender under which the Company borrowed 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, 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.

As of December 31, 2018, there were no remaining amounts outstanding under this financing arrangement. The Company will not have access to any additional funds under this financing arrangement.

Long-Term Debt Principal Payments

Future minimum principal payments under long-term debt as of December 31, 2018 are as follows:

Years Ending December 31,		Principal Payments
2019		$	1,000,000
2020			1,000,000
2021			1,000,000
2022			750,000
Total		$	3,750,000

Interest expense related to long-term debt for the years ended December 31, 2018 and 2017 was $296,000 and $425,000, 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://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-URI http://asc.fasb.org/topic&trid=2208564

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