| Debt | (4) DEBT Revolving Line
of Credit In April 2015, the
Company entered into a loan and security agreement (the Original Loan Agreement) with East West Bank (the Lender),
pursuant to which, the Company may request advances in an aggregate outstanding amount at any time up to the lesser of $7,500,000,
which is referred to as the revolving line, or an amount equal to its borrowing base, in each case, less the aggregate outstanding
principal amount of prior advances. So long as there is no event of default, the Company may make a one-time request to increase
the revolving line by up to $2,500,000, which the Lender may accept or decline. In March 2016, the Company and the Lender entered
into an amendment (the Amendment) to the Original Loan Agreement. The Original Loan Agreement as amended by the Amendment
is referred to as the Amended Loan Agreement. Under the Amended Loan Agreement, through March 31, 2017, the Company
may request advances in an aggregate outstanding amount at any time up to the lesser of (a) the revolving line (or $7,500,000)
or (b) the sum of $2,000,000 (which the Company refers to as the sublimit) plus the amount equal to the Companys
borrowing base, in each case, less the aggregate outstanding principal amount of prior advances. On March 31, 2017, the sublimit
becomes zero. If the aggregate amount of advances as of March 31, 2017 exceeds the lesser of the revolving line or the amount equal
to the Companys borrowing base, then it must pay the Lender the amount of such excess. Under the Original
Loan Agreement, the Companys borrowing base was, as of the date of determination, an amount equal to the product of: (a)
the average monthly recurring revenue for the immediately preceding three months; times (b) one plus the average churn rate for
the immediately preceding three months (not to exceed zero); times (c) 300%. The churn rate, with respect to any month, is the
quotient of the Companys monthly net revenue change calculated with respect to such month, divided by its monthly revenue
from subscriptions for the month. The manner in which the borrowing base is determined is unchanged under the Amendment, except
that the monthly recurring revenue is limited to all recurring subscription revenue attributable to software that the Company sold
or licensed and all recurring revenue relating to services it delivered and 50% of all revenue attributable to the Companys
Stump product line. In addition, under
the Amended Loan Agreement, the Company is required to meet a minimum adjusted earnings before interest, taxes, depreciation and
amortization (Adjusted EBITDA), target and churn rate targets, in each case, as specified in the Amended Loan Agreement.
Adjusted EBITDA is the sum (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) non-cash stock compensation expenses, plus (f) other non-cash expenses and charges, plus (g) to the extent approved by
the Lender, other one-time charges, plus (h) to the extent approved by the Lender, any losses arising from the sale, exchange,
transfer or other disposition of assets not in the ordinary course of business. Under the Original Loan Agreement, the Adjusted
EBITDA target was measured as of the last day of each fiscal quarter with respect to the immediately prior six-month period. Under
the Amended Loan Agreement, the Adjusted EBITDA target is measured as of the last day of each fiscal quarter with respect to the
immediately prior three-month period. The churn rate targets, which were unchanged in the Amendment, are measured on a monthly
and trailing three-month basis. The Company met the Adjusted EBITDA and the trailing three-month churn rate targets as of the quarter
ended March 31, 2016. The Company did not meet the monthly churn rate for the month ended January 31, 2016, which constituted an
event of default under the Original Loan Agreement, however, the Lender waived that event of default. The Amended Loan
Agreement requires: (a) that the Company maintain a balance on deposit with the Lender equal to (i) on March 31, 2017, 100% of
the aggregate outstanding principal amount of the advances at such time, and (ii) at all times after March 31, 2017, an amount
determined by the Lender based on the Companys 2017 financial projections; and (b) that the sum of the following be not
less than $2,000,000: (i) the aggregate amount of unrestricted cash that the Company holds in accounts maintained with the Lender
and (ii) the amount available to the Company under the Amended Loan Agreement. Under the Amended
Loan Agreement, all then-outstanding advances are due on December 31, 2017 (under the Original Loan Agreement, the due date was
April 14, 2018). On or before March 31, 2017, advances will bear interest, at the Companys option, at the rate of either
(A) a variable rate per annum equal to the prime rate as set forth in The Wall Street Journal As of March 31, 2016,
the Company requested and received advances in the aggregate of $6,500,000, all of which were advanced at the LIBOR rate plus the
applicable margin with a three-month interest period. Each time the interest period expired on these advances, the Company elected
to renew the advance at the LIBOR rate plus the applicable margin with a three-month interest period. Prior to the Amendment, the
interest rate on advances ranged from 4.313% to 4.688% per annum. The interest rate on advances since the Amendment have ranged
from 6.125% to 6.188% per annum. As of March 31, 2016, $6,500,000 remained outstanding under this credit facility, of which, $2,000,000
is recorded in current portion of long-term debt on the accompanying consolidated balance sheet. The Company had approximately
$103,000 available to borrow as of March 31, 2016 based on its borrowing base calculated as of that date. The Company used approximately
$3,381,000 of the total amount borrowed under this credit facility to pay down existing indebtedness that was owed to an equipment
lender (see Equipment Notes Payable, below). Under the Amended Loan Agreement, the amount that the Company
may owe under its current credit facility with that equipment lender is not limited to any specified amount. In addition, with
the Lenders consent, the Company may incur additional indebtedness with other equipment lenders of up to $2,000,000 in the
aggregate for equipment financing. Pursuant to the Amended
Loan Agreement, the Company continues to grant and pledge to the Lender a first-priority security interest in all the Companys
existing and future personal property. The Company has paid
$37,500 to the Lender as a facility fee at the time of closing in April 2014, and has accrued approximately $5,000 for fees associated
with the Amendment. An additional facility fee (equal to the product of (x) 0.50% of the increase in the revolving line times (y)
the quotient of the number of days remaining between the effective date of such increase and December 31, 2017, divided by 1,095)
will be due if the revolving line is increased pursuant to the Companys request. The Company also pays an unused line fee
equal to 0.50% per year of the difference between the amount of the revolving line as in effect from time to time and the average
monthly balance in each month, which is payable monthly in arrears. The average monthly balance is calculated by adding the ending
outstanding balance under the revolving line for each day in the month divided by the number of days in the month. Equipment Notes
Payable In May 2013, the
Company entered into a financing arrangement with a lender under which the Company may borrow up to $500,000 to purchase certain
equipment. Over time, the lender has increased the maximum amount the Company may borrow, and as of March 31, 2016, the maximum
amount was $9,853,000. The Company may borrow up to the maximum amount 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 7.75% 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. In April 2015, the
Company used approximately $3,381,000 of the proceeds received from the East West Bank credit facility to pay down a portion of
the principal amount the Company had borrowed under this financing arrangement, accrued interest and a prepayment fee. Through
March 31, 2016, the Company borrowed approximately $9,302,000 of the $9,853,000 maximum amount available under this financing arrangement.
As of March 31, 2016, approximately $2,017,000 of principal remained outstanding under this financing arrangement, of which, $1,044,000
is recorded in current portion of long-term debt on the accompanying consolidated balance sheet, and approximately $551,000 was
available for borrowing. |
