|9 Months Ended|
Sep. 30, 2018
|Debt Disclosure [Abstract]|
NOTE F – DEBT
Revolving Credit Facility
The Heritage Bank Loan Agreement (the “Credit Facility”) contains representations and warranties, covenants, and other provisions customary to transactions of this nature. The outstanding principal balance of the Credit Facility bears interest at the Prime Rate plus 3.00%, which was 8.3% at September 30, 2018 and 7.50% at December 31, 2017. The outstanding balance on the Credit Facility was $255,730 and $682,211 at September 30, 2018 and December 31, 2017, respectively. The remaining available borrowing capacity was approximately $453,739 and $202,000 at September 30, 2018 and December 31, 2017, respectively.
Covenants and events of default
The Credit Facility contains customary events of default (including the failure to meet certain financial covenants), the occurrence which could allow Heritage Bank of Commerce (“HBOC”) to exercise any one or more of the following rights: declare all obligations immediately due and payable, cease advancing money or extending credit, set off and apply any and all indebtedness at any time owing to or for the credit or the account of a Borrower held by Bank, among other remedies available to HBOC under the Credit Facility. The covenants in the Credit Facility include: a minimum asset coverage ratio (monthly) and maximum quarterly YTD EBITDA Loss values. On November 7, 2018, an amendment to the revolving credit facility with HBOC, effective September 30, 2018 was executed to amend certain terms of the Credit Facility. Among the terms of the amendment, even if the Company fails to comply with required EBITDA covenants as of any particular quarterly measurement date, the Company will be deemed to be in compliance as of the measurement date if the Company’s unrestricted cash maintained at HBOC is in excess of $3 million.
As of September 30, 2018, the Company did not meet the EBITDA covenant for YTD EBITDA loss; however the Company maintained unrestricted cash in excess of $3 million at the bank as of September 30, 2018.
The Company has assessed both historical quarterly trends and average cash burn during the past fiscal year. Per the Company’s assessment, there is uncertainty looking forward to meet both the EBITDA and unrestricted cash covenants during fiscal year 2019.
The Credit Facility matures on September 30, 2019. The Company is exploring alternatives regarding the Credit Agreement with HBOC. There can be no assurance that the Company will be successful in obtaining a modification of the Agreement or financing through another lender, on acceptable terms, if at all.
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.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef