. Debt

Debt as of

June 30, 2018

and

September 30, 2017

consists of the following:

	As of			As of
	June 30, 2018			September 30, 2017
Line of credit borrowings	$	2,267		$	2,500
Term loan - Montage Capital		1,000			-
Subtotal debt	$	3,267		$	2,500
Other (debt discount)		(259	)		-
Total debt	$	3,008		$	2,500
Less current portion		198			-
Long term debt, net of current portion	$	2,810		$	2,500

Heritage Line of Credit

June 2016,

the Company entered into a new Loan and Security Agreement with Heritage Bank of Commerce (“Heritage Agreement” or “Loan Agreement”). The Heritage Agreement had an original a term of

months but was amended in

2017

to a maturity date of

June 9, 2019

and then further extended on

August 10, 2018

September 7, 2019 (

Eighth Amendment). The Company paid an annual commitment fee of

0.4%

of the commitment amount in the

first

year and

0.2%

in the

second

year. The facility fee is

on each anniversary thereafter. Borrowings are secured by all of the Company’s assets and all of the Company’s intellectual property. The Company is required to comply with certain financial and reporting covenants including an Asset Coverage Ratio and an Adjusted EBITDA metric. The Company and Heritage Bank mutually agree upon minimum quarterly Adjusted EBITDA amounts for each fiscal year within

thirty

days following the beginning of each fiscal year. The Company was in compliance with all financial covenants as of

June 30, 2018.

The Heritage Agreement provides for up to

$2.5

million of revolving credit advances which

may

be used for acquisitions and working capital purposes. Borrowings are limited to the lesser of (i)

$2.5

million and (ii)

75%

of eligible receivables as defined. The Company can borrow up to

$1.0

million in out of formula borrowings for specified periods of time. The borrowings or credit advances

may

not

exceed the monthly borrowing base capacity, which will fluctuate based on monthly accounts receivable balances. The Company

may

request credit advances if the borrowing capacity is more than the current outstanding loan advance, and must pay down the outstanding loan advance if it exceeds the borrowing capacity. Borrowings accrue interest at Wall Street Journal Prime Rate plus

1.75%,

(currently

). As of

June 30, 2018,

the Company had an outstanding balance under the Loan Agreement of

$2.3

million.

A Director and Shareholder of the Company, Michael Taglich, signed an unconditional guaranty (the “Guaranty”) and promise to pay Heritage Bank all indebtedness in an amount

not

to exceed

$1.5

million in connection with the out of formula borrowings. Under the terms of the Guaranty, the Guarantor authorizes Lender, without notice or demand and without affecting its liability hereunder, from time to time to: (a) renew, compromise, extend, accelerate, or otherwise change the time for payment, or otherwise change the terms, of the Indebtedness or any part thereof, including increase or decrease of the rate of interest thereon, or otherwise change the terms of the Indebtedness; (b) receive and hold security for the payment of this Guaranty or any Indebtedness and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such security; (c) apply such security and direct the order or manner of sale thereof as Lender in its discretion

may

determine; and (d) release or substitute any Guarantor or any

one

or more of any endorsers or other guarantors of any of the Indebtedness.

To secure all of Guarantor's obligations hereunder, Guarantor assigns and grants to Lender a security interest in all moneys, securities, and other property of Guarantor now or hereafter in the possession of Lender, all deposit accounts of Guarantor maintained with Lender, and all proceeds thereof. Upon default or breach of any of Guarantor's obligations to Lender, Lender

may

apply any deposit account to reduce the Indebtedness, and

may

foreclose any collateral as provided in the Uniform Commercial Code and in any security agreements between Lender and Guarantor.

Amendments

– Heritage Bank

October 6, 2017,

fourth

amendment to the Heritage Agreement (“Fourth Amendment”) was executed. The Fourth Amendment included a consent to the Company’s incurrence of additional indebtedness from Montage and the grant of a

second

position lien to Montage (See Subsequent Events). In addition, Heritage Bank and Montage entered into an Intercreditor Agreement dated

October 10, 2017,

and acknowledged by the Company.

November 27, 2017,

fifth

amendment to the Heritage Agreement (“Fifth Amendment”) was executed. The Fifth Amendment included the Adjusted EBITDA metrics for the

second

half of fiscal

2017

and the

first

six

months of fiscal

2018.

Thereafter, the Company and Heritage Bank shall mutually agree upon minimum quarterly Adjusted EBITDA amounts for each fiscal year within

thirty

days following the beginning of each fiscal year.

February 1, 2018,

sixth

amendment to the Heritage Agreement (“Sixth Amendment”) was executed. The Sixth Amendment amended the definition of Eligible Foreign Accounts.

May 10, 2018,

seventh

amendment to the Heritage Agreement (“Seventh Amendment”) was executed. The Seventh Amendment included the Adjusted EBITDA metrics for the

third

and

fourth

quarter of fiscal

2018

and a waiver for

not

achieving the Adjusted EBITDA metric for the quarter ended

March 31, 2018.

August 10, 2018,

the

eighth

Amendment was executed (“Eighth Amendment”). The Eighth Amendment extended the maturity date of the loan to

September 7,

2019.

Montage Capital II, L.P. Loan Agreement

October 10, 2017,

the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Montage Capital II, L.P. (“Montage”). The Loan Agreement has a

thirty-six

(

) month term which expires on

October 10, 2020.

The Loan Agreement provides for up to

$1.5

million of borrowing in the form of a non-revolving term loan which

may

be used by the Company for working capital purposes.

million of borrowing was advanced on the date of closing. An additional

$500

thousand of borrowing was available at the Company’s option through

May 31, 2018

in the event that the Company achieved certain financial milestones and is otherwise in compliance with its loan covenants (the “Second Tranche”). However, the Company did

not

borrow the Second Tranche, as the financial milestones were

not

achieved, and the option expired. Borrowings bear interest at the rate of

12.75%

per annum. The Company paid a fee of

$47

to Montage at closing. Interest only payments are due and payable during the

first

nine

months of the Loan. Commencing on

July 1, 2018,

the Company shall be obligated to make principal payments of

$26

per month. All remaining principal and interest shall be due and payable at maturity. Borrowings are secured by a

second

position lien on all of the Company’s assets including intellectual property and general intangibles. Pursuant to the Loan Agreement, the Company is also required to comply with certain financial covenants. The Loan is subordinate to the Company’s senior debt facility with Heritage Bank. Heritage Bank consented to the Company’s incurrence of additional indebtedness from Montage and the grant of a

second

position lien to Montage. In addition, Heritage Bank and Montage entered into an intercreditor agreement dated

October 10, 2017,

and acknowledged by the Company. The Company was

not

in compliance with the EBITDA financial covenants as of

March 31, 2018,

but received a waiver (“First Amendment”). On

May 10, 2018,

the

first

amendment to the Montage Agreement (“First Amendment”) was executed. The First Amendment included the Adjusted EBITDA metrics for the

third

quarter of fiscal

2018

and a waiver for

not

achieving the Adjusted EBITDA metrics for the quarter ended

March 31, 2018.

The Company was in compliance with all financial covenants as of

June 30, 2018.

As additional consideration for the Loan, the Company issued to Montage an

eight

-year warrant (the “Warrant”) to purchase

66,315

shares of the Company’s common stock at a price equal to

$2.65

per share. The Warrant contains an equity buy-out provision upon the earlier of (

) dissolution or liquidation of the Company, (

) any sale or distribution of all or substantially all of the assets of the Company or (

) a “Change in Control” as defined within the meaning of Section

(d) and

(d)(

) of the Securities Exchange Act of

1934.

Montage shall have the right to receive an equity buy-out of

$250.

If the equity buy-out is exercised, the Warrant will be surrendered to the Company for cancellation. At the loan execution, the initial fair value of the Warrant was

$341.

The fair value as of

June 30, 2018

$185.

The warrants were initially valued with certain assumptions, including the probability of exercising the Second Tranche, which would require the issuance of additional warrants of

33,767.

However, the Second Tranche was

not

exercised resulting in a decrease in the fair value of the warrant. The Warrant is classified as a liability with an offsetting entry to debt discounts, which will be amortized over the life of the Loan Agreement. Total amortization of the debt discount for the

three

and

nine

months ended

June 30, 2018

was

$28

and

$82.

For the

three

and

nine

months ended

June 30, 2018,

the total adjustments to fair value were (

$133

) and (

$156

). Adjustments to fair value are recorded as interest expense in the Condensed Consolidated Statement of Operations with the offset to warrant liability currently included in Other Long Term Liabilities in the Condensed Consolidated Balance Sheet.