Lines of Credit
|9 Months Ended|
Sep. 30, 2018
|Line Of Credit Facility [Abstract]|
|Lines of Credit||
NOTE 9—LINES OF CREDIT
On March 6, 2018, the Borrower entered into the Original Business Financing Agreement. Pursuant to the terms and conditions of the Original Business Financing Agreement, Western Alliance agreed to provide the Borrower a secured revolving line of credit permitting the Borrower to borrow or receive letters of credit up to the lesser of $6.0 million (the “Domestic Revolver”) (subject to a $6.0 million credit limit relating to domestic eligible accounts receivable (the “domestic credit limit”) and a $3.0 million credit limit relating to export-related (the “EXIM Revolver”) eligible accounts receivable (the “EXIM credit limit”)) and the borrowing base, which is defined as the sum of the domestic borrowing base (up to 75% of the Borrower’s eligible domestic accounts receivable less such reserves as Western Alliance may deem proper and necessary) and the export-related borrowing base (up to 85% of the Borrower’s eligible export-related accounts receivable less such reserves as Western Alliance may deem proper and necessary). The Business Financing Agreement expires on March 6, 2020, and the Borrower’s obligations thereunder are secured by a security interest in all of the Borrower’s assets.
On August 13, 2018, the Borrower and Western Alliance entered into a Business Financing Modification Agreement, pursuant to which Western Alliance waived the Borrower’s covenant defaults under the Original Business Financing Agreement and provided an advance of $1.5 million. This advance was due by September 27, 2018.
On September 27, 2018, the Borrower and Western Alliance entered into the Second Modification Agreement. Pursuant to the terms and conditions of the Second Modification Agreement, the credit limit under the Original Business Financing Agreement was reduced to $2.5 million and the due date of the $1.5 million advance was extended to March 6, 2019. Additionally, the Borrower agreed to certain amended financial covenants contained in the Original Business Financing Agreement (as amended on August 13, 2018), including a revised adjusted quick ratio covenant, and a $750,000 minimum unrestricted cash balance covenant. In addition, pursuant to the Second Modification Agreement, the Borrower agreed to deliver to Western Alliance a term sheet for an equity or debt financing for not less than $5 million in gross proceeds and agreed to close such financing on or before November 15, 2018. See Note 14 – Subsequent Events for information regarding further modifications to the Original Business Financing Agreement.
As of September 30, 2018, the Company had $1.5 million outstanding borrowings under the Domestic Revolver or the EXIM Revolver. There were no restricted cash balances required by the Domestic Revolver or the EXIM Revolver as of September 30, 2018. The Borrower’s obligations are generally secured by substantially all of the Company’s assets. There were no available borrowings under the Business Financing Agreement as of September 30, 2018.
The Business Financing Agreement requires the Borrower to maintain compliance with certain financial and non-financial covenants, as defined therein. If a default occurs, Western Alliance may declare the amounts outstanding under the Business Financing Agreement immediately due and payable. The Borrower received a waiver of default from Western Alliance related to certain deliverable covenants as of September 30, 2018.
Amounts outstanding under the Business Financing Agreement bear interest at a per annum floating rate equal to the greater of 5.0% or the “Prime Rate” published in the Money Rates section of the Western Edition of The Wall Street Journal (or such other rate of interest publicly announced from time to time by Western Alliance as its “Prime Rate”), plus 2.25% with respect to advances made under the line of credit, plus an additional 5.0% during any period that an event of default has occurred and is continuing. The commitment fee under the Business Financing Agreement is 0.25% of the domestic credit limit and 1.75% of the EXIM credit limit and is payable on March 6, 2018 and each anniversary thereof. As of September 30, 2018, the interest rate on both the Domestic Revolver and EXIM Revolver was 7.5%.
Pursuant to the Business Financing Agreement, the Company paid the first of two annual commitment fees totaling $67,500, being 0.25% of the aggregate $6.0 million commitment for the Domestic Revolver and 1.75% of the aggregate $3.0 million commitment for the EXIM Revolver. The commitment fees and the legal costs associated with acquiring the credit facilities were capitalized and are being amortized on a straight-line basis as interest expense over the term of the Business Financing Agreement.
As additional consideration for the lines of credit, the Company also issued the Original Western Alliance Warrants. As part of the Second Modification Agreement, the Original Western Alliance Warrants issued on March 6, 2018 were terminated and the Western Alliance Warrants were issued. For additional information on the Western Alliance Warrants, see Note 4 – Stockholders’ Equity. The fair value of the Western Alliance Warrants was estimated using the Black-Scholes option-pricing model with the following assumptions: expected term of 10 years; volatility of 91.71%; annual dividend per share of $0.00; and risk-free interest rate of 3.08%; and resulted in an estimated fair value of $0.1 million, which was recorded as a liability and resulted in a discount to the credit facilities at issuance. The discount is being amortized on a straight-line basis to interest expense over the term of the Business Financing Agreement.
On November 9, 2018, BIOLASE entered into a five-year secured Credit Agreement with SWK, pursuant to which the Company has borrowed $12.5 million. $0.9 million of the proceeds from the SWK Loan have been used to pay off all amounts owed to Western Alliance under the Business Financing Agreement (as amended on October 26, 2018), and the Company plans to use the remaining proceeds to provide additional working capital to fund its growth initiatives, such as broadening its customer base and increasing the utilization of its products to drive recurring higher margin consumables revenue. See Note 14 – Subsequent Event for additional information.
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