7. Bank Line of Credit

3 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Bank Line of Credit

7. Bank Line of Credit

In October 2018, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”). The Loan Agreement provided us with a $4.0 million revolving line of credit based on qualified accounts receivable and had a maturity date of September 30, 2020. There were no outstanding borrowings as of September 30, 2019 or June 30, 2019.

The Loan Agreement provides for an interest rate per annum equal to the greater of (i) the prime rate plus 0.50% or (ii) 5.00%, provided that we maintain a monthly quick ratio of 1.0 to 1.0 or greater. The quick ratio measures our ability to use our cash and cash equivalents maintained at SVB to extinguish or retire our current liabilities immediately. If this ratio is not met, the interest rate will become the greater of (i) the prime rate plus 1.00% or (ii) 5.00%. At September 30, 2019, we met the quick ratio requirement.

The Loan Agreement also includes a covenant requiring us to maintain a certain Minimum Tangible Net Worth (“Minimum TNW”), currently required to be $7,750,000. The Minimum TNW is subject to adjustment upward to the extent we raise additional equity or debt financing or achieve net income in future periods. Our Actual Tangible Net Worth (“Actual TNW”) is calculated as total stockholders’ equity, less goodwill and other intangible assets. At September 30, 2019, our Actual TNW was $21,166,000.

On November 12, 2019, we entered into a Second Amended and Restated Loan and Security Agreement (“Amended Agreement”) with Silicon Valley Bank, which amended, restated and superseded the Loan Agreement in its entirety.

Pursuant to the Amended Agreement, SVB has agreed to make available to us a senior secured revolving line of credit of up to $6 million (“Revolving Facility”) and a senior secured term loan of up to $6 million (“Term Loan Facility”). Advances under the Revolving Facility may be borrowed from time to time prior to November 12, 2021, subject to the satisfaction of certain conditions, and may be used to fund our working capital and general business requirements. The proceeds of the Term Loan Facility were drawn in full at closing and may be used solely to fund our acquisition of Intrinsyc, refer to Note 11 below for further information on the acquisition of Intrinsyc. In the event the Intrinsyc acquisition is not consummated prior to January 31, 2020, we must immediately repay the obligations under the Term Loan Facility. The Revolving Facility matures on November 12, 2021. The Term Loan Facility is repayable over a 48 month period commencing January 1, 2020 after an initial interest-only period following closing.

The interest rate on the Revolving Facility floats at a rate per annum equal to the greater of the prime rate and 5.00 percent. The interest rate on the Term Loan Facility floats at a rate per annum equal to the greater of 1.00 percent above the prime rate and 6.00 percent. We may elect to repay and reborrow the amounts outstanding under the Revolving Facility at any time prior to the maturity date of the Revolving Facility without premium or penalty. We may elect to repay the Term Loan Facility at any time without premium or penalty in minimum amounts equal to at least $1,000,000. A commitment fee in the amount of $60,000 was paid to the Lender on the closing date and a $10,000 anniversary fee is payable to the Lender on the earliest to occur of the one year anniversary of the effective date, the termination of the Amended Agreement or the Revolving Facility, or the occurrence of an event of default.

The Amended Agreement includes a financial covenant that requires that we maintain a minimum cash balance of $3,000,000 at SVB, as measured at the end of each month. The Amended agreement also requires that we do not exceed a maximum leverage ratio, calculated as the ratio of funded debt to the consolidated trailing 12 month earnings before interest, taxes, depreciation and amortization, of (i) 3.0 to 1.0 for each calendar quarter ending December 31, 2019 through and including December 31, 2020, (ii) 2.5 to 1.0 for each calendar quarter ending March 31, 2021 through and including December 31, 2021, and (iii) 2.0 to 1.0 for each calendar quarter ending after January 1, 2022. We are in compliance with all covenants.