Note 5 - Senior Credit Facility, Subordinated Convertible Note, Net - CD Financial, LLC and Other Long Term Debt

12 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

5

.

Senior

Credit Facility

,

Subordinated

Convertible Note, net - CD Financial, LLC

and other Long Term Debt

As of

June 30, 2017

and

2016,

the Company had the following debt outstanding:

	Principal Amount						Interest Rate			Maturity Date
	June 30,
	2017			2016
Revolving advances under Senior Credit
Facility with PNC Bank, National Association	$	4,676		$	4,210			4.25%			2/19/2020
Installment Note with PNC Bank		2,542			3,259			4.75%			2/19/2020
Installment Note with PNC Equipment Finance, LLC		190			275			4.57%			7/29/2019
Promissory Note with CD Financial, LLC		1,714			1,714			6.00%			2/29/2020
Promissory Note with Vitamin Realty, LLC		686			686			4.00%			2/29/2020
Capitalized lease obligations		307			306		3.86%	-	11.43%	3/6/2018	-	12/8/2020
Total outstanding debt		10,115			10,450
Less: Revolving Advances		(4,676	)		(4,210	)
Prepaid financing costs		(75	)		(102	)
Current portion of long term debt, net		(1,118	)		(897	)
Long term debt, net	$	4,246		$	5,241
Convertible Note payable - CD Financial, LLC	$	5,350		$	5,350			6.00%			2/29/2020
Less: Discount for embedded derivative		(105	)		(144	)
Prepaid financing costs		(24	)		(34	)
Convertible Note payable, net - CD Financial, LLC	$	5,221		$	5,172

S

ENIOR CREDIT FACILITY

On

February 19, 2016,

the Company, MDC, AgroLabs, IHT, IHT Properties Corp. (“IHT Properties”) and Vitamin Factory (collectively, the “Borrowers”) amended the Revolving Credit, Term Loan and Security Agreement (the “Amended Loan Agreement”) with PNC Bank, National Association as agent and lender (“PNC”) and the other lenders party thereto entered into on

June 27, 2012.

The Amended Loan Agreement provides for a total of

$11,422

in senior secured financing (the “Senior Credit Facility”) as follows: (i) discretionary advances (“Revolving Advances”) based on eligible accounts receivable and eligible inventory in the maximum amount of

$8,000

(the “Revolving Credit Facility”) and (ii) a term loan in the amount of

$3,422

(the “Term Loan”). The Senior Credit Facility is secured by all assets of the Borrowers, including, without limitation, machinery and equipment, real estate owned by IHT Properties, and common stock of iBio owned by the Company. Revolving Advances bear interest at PNC

’s Base Rate or the Eurodollar Rate, at Borrowers’ option, plus

2.75%

(

4.25%

as of

June 30, 2017

and

3.50%

as of

June 30, 2016).

The Term Loan bears interest at PNC’s Base Rate or the Eurodollar Rate, at Borrowers’ option, plus

3.25%

(

4.75%

as of

June 30, 2017

and

4.00%

as of

June 30, 2016).

Upon and after the occurrence of any event of default under the Amended Loan Agreement, and during the continuation thereof, interest shall be payable at the interest rate then applicable plus

2%.

The Senior Credit Facility matures on

February 19, 2020 (

the “Senior Maturity Date”).

The principal balance of the Revolving Advances is payable on the Senior Maturity Date, subject to acceleration, based upon a material adverse event clause, as defined, subjective accelerations for borrowing base reserves, as defined or upon the occurrence of any event of default under the

Amended Loan Agreement or earlier termination of the Amended Loan Agreement pursuant to the terms thereof. The Term Loan shall be repaid in

eighty-four

(

84

) consecutive monthly installments of principal, the

first

eighty-three

(

83

) of which shall be in the amount of

$41,

commencing on the

first

business day of

March, 2016,

and continuing on the

first

business day of each month thereafter, with a final payment of any unpaid balance of principal and interest payable on the Senior Maturity Date. The foregoing is subject to customary mandatory prepayment provisions and acceleration upon the occurrence of any event of default under the Amended Loan Agreement or earlier termination of the Amended Loan Agreement pursuant to the terms thereof.

The Revolving Advances are subject to the terms and conditions set forth in the Amended Loan Agreement and are made in aggregate amounts at any time equal to the lesser of (

x

)

$8.0

million or (y) an amount equal to the sum of: (i) up to

85%,

subject to the provisions in the Amended Loan Agreement, of eligible accounts receivables (“Receivables Advance Rate”), plus (ii) up to the lesser of (A)

75%,

subject to the provisions in the Amended Loan Agreement, of the value of the eligible inventory (“Inventory Advance Rate” and together with the Receivables Advance Rate, collectively, the “Advance Rates”), (B)

85%

of the appraised net orderly liquidation value of eligible inventory (as evidenced by the most recent inventory appraisal reasonably satisfactory to PNC in its sole discretion exercised in good faith) and (C) the inventory sublimit in the aggregate at any

one

time (“Inventory Advance Rate” and together with the Receivables Advance Rate, collectively, the “Advance Rates”), minus (iii) the aggregate Maximum Undrawn Amount of all outstanding Letters of Credit, minus (iv) such reserves as PNC

may

reasonably deem proper and necessary from time to time.

The Amended Loan Agreement contains customary mandatory prepayment provisions, including, without limitation the requirement to use any sales proceeds from the sale of iBio Stock to repay the Term Loan and to prepay the outstanding amount of the

Revolving Advances in an amount equal to

twenty-five

percent (

25%

) of Excess Cash Flow for each fiscal year commencing with the fiscal year ending

June 30, 2016,

payable upon delivery of the financial statements to PNC referred to in and required by the Amended Loan Agreement for such fiscal year but in any event

not

later than

one hundred twenty

(

120

) days after the end of each such fiscal year, which amount shall be applied ratably to the outstanding principal installments of the Term Loan in the inverse order of the maturities thereof. The Amended Loan Agreement also contains customary representations and warranties, covenants and events of default, including, without limitation, (i) a fixed charge coverage ratio

maintenance requirement and (ii) an event of default tied to any change of control as defined in the Amended Loan Agreement. As of

June 30, 2017,

the Company was in compliance with the fixed charge coverage ratio maintenance requirement.

In connection with the Senior Credit Facility, PNC and CD Financial entered into the Intercreditor and Subordination Agreement (the “Intercreditor Agreement”), which was acknowledged by the Borrowers, pursuant to which, among other things, (a) the lien of CD Financial on assets of the Borrowers is subordinated to the lien of PNC on such assets during the effectiveness of the Senior Credit Facility, and (b) priorities for payment of the debt for the Company and its subsidiar

ies (as described in this Note

6

) are established.

In addition, in connection with the Senior Credit Facility, the following loan documents were executed: (i) a Stock Pledge Agreement with PNC, pursuant to which the Company pledged to PNC the iBio Stock; (ii) a Mortgage and Security Agreement with PNC with IHT Properties; and (iii) an Environmental Indemnity Agreement with PNC.

CD FINANCIAL

, LLC

On

June 27, 2012,

the Company also entered into an Amended and Restated Securities Purchase Agreement (the “CD SPA”) with CD Financial, which amend

ed and restated the Securities Purchase Agreement, dated as of

February 21, 2008,

between the Company and CD Financial, pursuant to which the Company issued to CD Financial a

9.5%

Convertible Senior Secured Note in the original principal amount of

$4,500

(the “Original CD

Note”). Pursuant to the CD SPA, the Company issued to CD Financial (i) the Amended and Restated Convertible Promissory Note in the

principal amount of

$5,350

(the “CD Convertible Note”) and (ii) the Promissory Note in the principal amount of

$1,714

(the “Liquidity Note”, and collectively with the CD Convertible Note, the “CD Notes”). The CD Notes had an original maturity date of

July 7, 2017,

however, on

February 19, 2016,

the CD Notes were amended to extend the maturity date thereof to

February

29,

2020.

The proceeds of the CD Notes were used to refinance (a) the Original CD Note, (b) the

CD MDC Note which was assigned by MDC to the Company, (c) past due interest in the aggregate amount of

$333

and (d) other expenses owed to CD Financial by the Company in the aggregate amount of approximately

$217.

The CD Notes are secured by all assets of the Borrowers, including, without limitation, machinery and equipment, real estate owned by IHT

Properties, and iBio Stock owned by the Company. The CD Notes bear interest at an annual rate of

6%

and have a default rate of

10%.

The CD Convertible Note is convertible at the option of CD Financial into common stock of the Company at a conversion price of

$0.65

per share, subject to customary adjustments

including conversion price protection provisions.

Pursuant to the terms of the

Amended Loan Agreement and the Intercreditor Agreement, during the effectiveness of the Senior Credit Facility, (i) the principal of the CD Convertible Note

may

not

be repaid, (ii) the principal of the Liquidity Note

may

only be repaid if certain conditions under the Amended Loan Agreement are satisfied, and (iii) interest in respect of the CD Notes

may

only be paid if certain conditions under the Intercreditor Agreement are satisfied.

The CD SPA contains customary representations and warranties, covenants and events of default, including, without limitation, an event of default tied to any change of control as defined in the CD SPA.

In connection with the CD SPA, the Borrowers entered into an Amended and Restated Security Agreement and Amended and Restated Subsidiary Guaranty.

As of

June 30, 2017

and

2016,

the related embedded derivative liability with respect to the CD Convertible Note has an estimated fair value of

$503

and

$76,

respectively.

The Company used the following assumptions to calculate the fair value of the derivative liability using the Black-Scholes option pricing model: 

	June 30,
	2017			2016
Risk Free Interest Rate		1.49	%		0.81	%
Volatility		98.11	%		63.20	%
Term	2 years 8 Months			3 years 8 Months
Dividend Rate		0.00	%		0.00	%
Closing Price of Common Stock	$	0.19		$	0.11

OTHER LONG TERM DEBT

Related Party Debt

.

On

June 27, 2012,

MDC and the Company entered into a promissory note with Vitamin Realty Associates, LLC (“Vitamin Realty”) in the principal amounts of approximately

$686

(the “Vitamin Note”). The principal amount of the Vitamin Note represents the aggregate amount of unpaid, past due rent owing by MDC under the Lease Agreement, dated as of

January 10, 1997,

between MDC, as lessor, and Vitamin Realty, as landlord, pertaining to the real property located at

225

Long Avenue, Hillside, New Jersey. (See Note

10.

Commitments and Contingencies (a) Leases – Related Parties Leases).  The Vitamin Note matures on

February

29,

2020,

as amended on

February 19, 2016.

The Vitamin Note accrues interest at an annual rate of

4%

per annum. Interest in respect of the Vitamin Note is payable on the

first

business day of each calendar month. Pursuant to the terms of the Loan Agreement, during the effectiveness of the Senior Credit Facility, the Vitamin Note

may

only be repaid or prepaid if certain conditions set forth in the Amended Loan Agreement are satisfied.

Capitalized Lease Obligations.

On

November 20, 2016,

the capitalized lease obligation the Company entered into on

December 5, 2013

with De Lage Landen Financial Services in the amount of

$72,

which lease was secured by certain machinery and equipment, was satisfied with all payments being made under the capitalized lease obligation. The monthly lease payment was approximately

$2

and had an imputed interest rate of

5.3%.

On

December 8, 2015,

the Company entered into a capitalized lease obligation with Wells Fargo Equipment Finance, Manufacturer Services Group (“Wells Fargo”) in the amount of

$129

which matures on

December 8, 2020.

The lease payment amount of approximately

$2

is payable monthly and has an imputed interest rate of

4.01%.

On

February 27, 2016,

the capitalized lease obligation the Company entered into on

August 28, 2014

with Quantum Analytics in the amount of

$138,

which lease was secured by certain machinery and equipment, was satisfied with all payments being made under the capitalized lease obligation. The monthly lease payment was approximately

$8

and had an imputed interest rate of

0%.

On

March 21, 2016,

the Company entered into a capitalized lease obligation with Regents Capital Corporation (“Regents”) in the amount of

$123,

which lease is secured by certain machinery and equipment and matures on

March 6, 2018.

The lease payment is payable quarterly commencing on

June 6, 2016

in the amount of

$16

and has an imputed interest rate of

11.43%.

On

June 9, 2016,

the Company entered into a capitalized lease obligation with Marlin Leasing in the amount of

$65,

which lease is secured by certain machinery and equipment and matures on

June 17, 2018.

The lease payment amount of approximately

$3

is payable monthly and has an imputed interest rate of

6.40%.

On

August 2

0,

2016,

the capitalized lease obligation the Company entered into with Marlin Leasing on

August 22, 2014

in the amount of

$47,

which lease was secured by certain machinery and equipment, was satisfied with all payments being made under the capitalized lease obligation. The lease payment amount of approximately

$2

was payable monthly and had an imputed interest rate of

5.96%.

On

March 17, 2017,

the Company entered into a capitalized lease obligation with First American Equipment Finance (“First American”) in the amount of

$158,

which lease is secured by certain machinery and equipment and matures on

March 17, 2019.

The Company sold certain machinery, purchased from an equipment supplier other than First American in the amount of

$158,

to First American for

$158

and leased it back for monthly payments in the amount of approximately

$7

with an imputed interest rate of

3.86%.

Equipment Financing

Not

e.

On

September 22, 2014,

MDC entered into a Convertible Line of Credit Note (the “LC Note”) in the amount of

$350

with PNC Equipment Finance, LLC (“PNCEF”). The LC Note is convertible into a term note upon completion of the advances under the LC Note. 

During the period from

September 22, 2014

to and including the Conversion Date (defined below), the Company was able to borrow up to the full value of the LC Note (

$350

). The “Conversion Date” is the earliest to occur of (i)

July 31, 2015

or (ii) the date when the Company notifies PNCEF that

no

more advances will be requested or (iii) the date when PNCEF has made advances in an aggregate amount of

$350.

The Company completed the advances on

July 29, 2015

and converted the LC Note to a

four

year term note in the amount of

$350.

Prior to the Conversion Date, amounts outstanding under the LC Note bore interest at a rate per annum (“Floating Rate”) which is at all times equal to the sum of LIBOR Rate plus

325

basis points (

3.25%

). On the Conversion Date, the Company elected a fixed rate interest of

4.57%

as offered by PNCEF.

In addition, in connection with the LC Note, the following loan documents were executed: (i) a Security Agreement with PNCEF and MDC; (ii) a Guaranty and Security Agreement with PNCEF and the Company; and (iii) a Cross Collateralization Agreement with PNC, PNCEF and MDC.