Credit and Term Loan Agreements

12 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Credit and Term Loan Agreements

NOTE 8. Credit and Term Loan Agreements

On March 4, 2016, the Company entered into a Credit Agreement (the “Agreement”) with NIL Funding Corporation to provide a $3 million revolving line of credit for working capital purposes, which was subsequently amended and restated on two occasions as described below. The Agreement provided for a borrowing formula based upon eligible accounts receivable and was secured by a first priority security interest in substantially all of the Company’s assets. Borrowings under the Agreement bore interest at a rate of 6.75% per annum. The Agreement also provided for an unused commitment fee equal to .5% per annum. The Agreement included provisions that are customarily found in similar financing agreements.

On August 18, 2016, the Company entered into an Amended and Restated Credit Agreement (the “Amended Agreement”) with NIL Funding Corporation which increased the $3 million revolving line of credit to $6 million. Under the Amended Agreement, the facility was to mature on October 2, 2018 and consisted of two credit lines of $4 million and $2 million which bore interest at rates of 6.95% per annum and 8.25% per annum, respectively. The $4 million line of credit was subject to a borrowing formula based upon eligible accounts receivable. The Amended Agreement also provided for an initial commitment fee of $60,000, which was paid at closing, as well as an unused commitment fee equal to .5% per annum. The Amended Agreement included a financial covenant that required the Company to maintain a specified minimum tangible net worth, as defined, and was otherwise substantially similar to the original Agreement with NIL Funding Corporation.

On April 20, 2017, the Company entered into the Second Amended and Restated Credit Agreement (the “Second Amended Agreement”) with NIL Funding Corporation, under which only $2 million of the $6 million facility was subject to a borrowing formula, effectively providing the Company with $2 million of additional borrowing availability. The Second Amended Agreement also extended the maturity date of the credit facility to April 2, 2019, and reduced the Company’s minimum tangible net worth requirement, but was otherwise substantially similar to the Amended Agreement.

In connection with the Second Amended Agreement, NIL Funding was issued a three-year warrant to purchase 1.5 million shares of the Company’s common stock at a price of $.40 per share. The fair value of the warrant at the date of issuance was $438,000, which is being amortized over the two-year remaining credit facility term from the date of issuance. At September 30, 2018 and 2017, there was approximately $108,000 and $339,000, respectively, of deferred warrant issuance costs included in other assets in the accompanying balance sheets.

The fair value for the warrants was determined at the date of issuance using the Black-Scholes valuation model and the straight-line attribution approach using the following weighted average assumptions (see Note 1 for further discussion of Black Scholes valuation method):

	2017
Risk-free interest rate		1.4	%
Dividend yield		0.0	%
Volatility factor		125.6	%
Weighted average expected life		3.0 years

Changes in outstanding warrants for the two years ended September 30, 2018 are as follows:

Warrants	Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at September 30, 2016		—		—
Warrants granted		1,500,000	$	0.40
Warrants exercised		—		—
Warrants forfeited		—		—
Outstanding at September 30, 2017		1,500,000		—
Warrants granted		—		—
Warrants exercised		—		—
Warrants forfeited		—		—
Outstanding at September 30, 2018		1,500,000	$	0.40		1.6	$	—
Exercisable at September 30, 2018		1,500,000	$	0.40		1.6	$	—

At June 30, 2018, the Company was in violation of the minimum tangible net worth covenant under Section 4.9 of the Second Amended Agreement. On July 27, 2018, the Company entered into an amendment (the “Amendment”) to the Second Amended Agreement with NIL Funding Corporation, which Amendment provided that, among other things, (a) from June 12, 2018 until September 1, 2018, the minimum tangible net worth covenant contained in Section 4.9 of the Second Amended Agreement was of no force or effect, (b) from June 12, 2018 until September 2, 2018, the Company was not permitted to borrow any additional funds under the Second Amended Agreement, and (c) NIL Funding Corporation waived any Event of Default (as defined in the Credit Agreement) with respect to Section 4.9 of the Second Amended Agreement that may have occurred prior to June 12, 2018. The Company paid NIL Funding Corporation a fee of $29,000 in connection with the Amendment, which has been included in interest expense.

On September 21, 2018, the Company entered into a $5.6 million Term Loan Agreement (the “Term Loan Agreement”) with NIL Funding Corporation (“NIL”) to replace the $5.8 million outstanding balance on its existing revolving line of credit agreement with a term loan. Upon closing, $5.6 million of outstanding borrowings under its revolving credit agreement were converted to a term loan while the remaining $200,000 of outstanding borrowings were repaid to NIL. The Term Loan Agreement requires monthly payments of accrued interest beginning on October 1, 2018. In addition, the Term Loan Agreement requires equal monthly principal payments of $25,000, plus accrued interest, beginning on April 1, 2019 until the loan maturity date of March 30, 2020, at which point the full outstanding balance of the loan and accrued interest are due. As of September 30, 2018, outstanding borrowings under the Term Loan Agreement of $5.6 million are due in the fiscal years shown as follows: 2019 - $150,000; and 2020 - $5,450,000.

The Term Loan Agreement provides for a formula that limits outstanding indebtedness based upon eligible accounts receivable and is secured by a first priority security interest in substantially all of the Company’s assets. Borrowings under the Term Loan Agreement bear interest at a rate of 8.85% per annum. The Term Loan Agreement required additional fees and expenses of approximately $81,000, which was paid at closing, and includes provisions that are customarily found in similar financing agreements, including a financial covenant which requires the Company to maintain a minimum level of inventory and liquid assets as defined therein.