DEBT

Credit Facility

On May 14, 2014, we entered into a Credit Agreement with Huntington Bank, which was subsequently amended on May 14, 2015 (“Agreement”). The Agreement includes both a term loan and a revolving loan and is secured by mortgages on our facilities in West Lafayette and Evansville, Indiana and liens on our personal property. As of December 31, 2015, we were not in compliance with certain financial covenants of the Agreement. Huntington Bank advised us that the failure to meet these financial covenants constituted an event of default under the Agreement and reserved all of its rights with respect thereto. As of March 31, 2016, we were also in default of the financial covenants covering the period then ended.

On April 27, 2016, the Company entered into a Forbearance Agreement and Second Amendment to Credit Agreement with Huntington Bank and on July 1, 2016, the Company entered into a Second Forbearance Agreement and Third Amendment to Credit Agreement (“Second Forbearance Agreement”) with Huntington Bank. Subject to the conditions set forth in the Second Forbearance Agreement, Huntington Bank agreed to continue to forbear from exercising its rights and remedies under the Agreement and from terminating the Company’s related swap agreement with respect to the Company’s non-compliance with applicable financial covenants under the Agreement and any further non-compliance with such covenants during the forbearance period ending September 30, 2016 and to continue to make advances under the Agreement.

In exchange for Huntington Bank’s agreement to forbear from exercising its rights and remedies under the Agreement, the Company agreed to, among other things: (i) amend the maturity dates for the term and revolving loans under the Agreement to September 30, 2016, (ii) meet an additional financial covenant during the forbearance period; (iii) take commercially reasonable efforts to obtain financing sufficient to repay indebtedness under the Agreement in full upon the expiration of the forbearance period; (iv) periodically deliver to Huntington Bank certain financial and budget information during the forbearance period; and (v) engage a consultant for purposes of preparing a report to Huntington Bank evaluating various matters concerning the Company.

The Second Forbearance Agreement provided for immediate termination of the forbearance period upon the occurrence of, among other events, the failure of the Company to perform, observe or comply with the terms of the Second Forbearance Agreement. As of June 30, 2016, the Company was not in compliance with the additional financial covenant under the Second Forbearance Agreement, resulting in termination of the forbearance period. Huntington Bank has reserved its rights resulting from this default, but as of August 15, 2016, has not exercised any of its remedies. The available remedies include among others, the ability to accelerate and immediately demand payment of the outstanding debt under our term loan and revolving loan, to exercise its security interest, to take possession of or sell the underlying collateral, to refrain from making additional advances under the revolving loan, to increase interest accruing on the debt by five percent (5%) per annum over the otherwise applicable rate effective after receipt of written notice from Huntington Bank, and to terminate our interest rate swap.

The term loan for $5,500 bears interest at LIBOR plus 325 basis points with monthly principal payments of approximately $65 plus interest. We have made all required principal payments on the term loan. The balance on the term loan at June 30, 2016 and September 30, 2015 was $3,863 and $4,452, respectively. The revolving loan for $2,000 bears interest at LIBOR plus 300 basis points with interest paid monthly. The revolving loan also carries a facility fee of .25%, paid quarterly, for the unused portion of the revolving loan. The revolving loan includes an annual clean-up provision that requires the Company to maintain a balance of not more than 20% of the maximum loan of $2,000 for a period of 30 days in any 12 month period while the revolving loan is outstanding. The revolving loan balance was $1,551 and $86 at June 30, 2016 and September 30, 2015, respectively. Due to our default, Huntington Bank may accelerate the maturity of the term loan and the revolving loan and demand immediate payment.

Were Huntington Bank to demand payment of the outstanding debt (whether at or prior to the scheduled maturity of the loans on September 30, 2016), we would currently have insufficient funds to satisfy that obligation, and the bank’s exercise of alternative remedies could also have a material adverse effect on our operations and financial condition. As an example, in recent periods we have drawn on our revolving facility to supplement cash from operations. Should cash from operating activities remain insufficient to cover expenses and if Huntington Bank determines to refrain from making additional advances under the revolving facility, we may not have the requisite funds to continue operations.

We cannot provide assurance that we will be able to complete initiatives to refinance our indebtedness or otherwise resolve our liquidity issues. If we are unable to execute on our initiatives, we may have insufficient funds to both satisfy our debt obligations and operate our business.

We incurred $134 of costs in connection with the issuance of the credit facility. These costs were capitalized and are being amortized to interest expense on a straight-line basis over five years based on the contractual term of the credit facility. In connection with the Forbearance Agreement, we incurred $41 of costs which were amortized during the third fiscal quarter of 2016, or the period covered by the first Forbearance Agreement. As of June 30, 2016 and September 30, 2015, the unamortized portion of debt issuance costs related to the credit facility was $73 and $94, respectively, and was included in Debt issue costs, net on the consolidated balance sheets.

Interest Rate Swap

We entered into an interest rate swap agreement with respect to the above loans to fix the interest rate with respect to 60% of the value of the term loan at approximately 5.0%. We entered into this interest rate swap agreement to hedge interest rate risk of the related debt obligation and not to speculate on interest rates. The changes in the fair value of the interest rate swap are recorded in Accumulated Other Comprehensive Income (“AOCI”) to the extent effective. We assess on an ongoing basis whether the derivative that is used in the hedging transaction is highly effective in offsetting changes in cash flows of the hedged debt. The Second Forbearance Agreement amended the terms of the interest rate swap to match the terms of the underlying debt resulting in no ineffectiveness.