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Bank Borrowings and Equity Line Financing
12 Months Ended
Sep. 30, 2011
Bank Borrowings and Equity Line Financing [Abstract]  
Bank Borrowings and Equity Line Financing

7.        Bank Borrowings and Equity Line Financing

 

On February 25, 2011, the Company entered into $500,000 asset-based line of credit with Summit Financial Resources LP for its accounts receivable. The Company may borrow up to 80% of its domestic accounts receivable at a daily interest rate of prime plus 2%, plus a monthly management fee of 1.1% of the borrowed accounts. As of September 30, 2011, the Company owed $51,400 on the line of credit. Interest expense on these borrowings for the fiscal year ended September 30, 2011 was $16,300.

 

On March 10, 2011, the Company entered an equity line agreement (the “Agreement”) with Dutchess Opportunity Fund, II, LP (“Dutchess”). Subject to the terms and conditions of the Agreement, the Company has the right to “put,” or sell up to $5.0 million in shares of its common stock to Dutchess. The Company will not receive any proceeds from the resale of these shares of common stock offered by Dutchess. The Company will, however, receive proceeds from the sale of shares to Dutchess, pursuant to the Agreement. When the Company puts an amount of shares to Dutchess, the per share purchase price that Dutchess will pay to it in respect of such put will be determined in accordance with a formula set forth in the Agreement. Generally, in respect of each put, Dutchess will pay the Company a per share purchase price equal to 95% of the lowest daily volume weighted average price of its common stock during the five consecutive trading day period beginning on the trading day immediately following the date Dutchess receives the put notice.

 

Dutchess is not obligated to purchase shares if its total number of shares beneficially held at that time would exceed 4.99% of the number of shares of the Company’s outstanding common stock as determined in accordance with Rule 13d-1 of the Securities Exchange Act of 1934, as amended. In addition, the Company is not permitted to draw on the facility unless there is an effective registration statement to cover the resale of the shares.

 

Pursuant to the terms of a registration rights agreement between the Company and Dutchess, the Company was obligated to file a registration statement with the SEC to register the resale by Dutchess of 1,740,000 shares of the common stock underlying the Agreement on or before 21 calendar days of the date of the registration rights agreement. The Company filed the required registration statement and it was declared effective on July 14, 2011. To date, the Company has not utilized this equity line as its stock price has been too low.