DEBT

9 Months Ended

Jun. 30, 2023

Debt Instruments [Abstract]

DEBT

NOTE 8 – DEBT

Lines of Credit as of June 30, 2023:
						Unpaid		Contractual
		Net Carrying Value				Principal		Interest Rates	Contractual	Warrants
Related party lines of credit:		Current		Long Term		Balance		Cash	Maturity Date	issued
$4,022,986 non-revolving line of credit, amended December 12, 2022		$	3,293,289	$	—	$	4,022,986	12%	5/25/2024	383,141
$2,200,000 non-revolving line of credit, May 31, 2023			2,200,000		—		2,200,000	10.50%	8/31/2023	—
$2,650,000 non-revolving line of credit, May 10, 2023			—		—		—	12%	5/10/2025	—
Total related party lines of credit, net		$	5,493,289	$	—	$	6,222,986
Lines of credit:
$2,200,000 non-revolving line of credit, May 13, 2022		$	1,967,157	$	—	$	2,200,000	12%	11/13/2023	314,286
$1,350,000 non-revolving line of credit, May 10, 2023			—		409,632		900,000	12%	5/10/2025	83,142
$6,000,000 revolving line of credit, July 29, 2022			—		2,246,060		3,155,361	Greater of 4% or Prime	7/29/2024	—
Total lines of credit, net		$	1,967,157	$	2,655,692	$	6,255,361
Lines of Credit as of September 30, 2022:
						Unpaid		Contractual
		Net Carrying Value				Principal		Interest Rates	Contractual	Warrants
Related party lines of credit:		Current		Long Term		Balance		Cash	Maturity Date	issued
$4,022,986 non-revolving line of credit, April 25, 2022	(1)	$	—	$	2,575,753	$	4,022,986	12%	10/25/2023	383,141
Total related party lines of credit, net		$	—	$	2,575,753	$	4,022,986
Lines of credit:
$2,200,000 non-revolving line of credit, May 13, 2022	(2)	$	—	$	1,494,469	$	2,200,000	12%	11/13/2023	314,286
$6,000,000 revolving line of credit, July 29, 2022			—		3,030,516		4,543,560	Greater of 4% or Prime	7/29/2024	—
Total lines of credit, net		$	—	$	4,524,985	$	6,743,560

The following table presents the interest expense related to the contractual interest coupon and the amortization of debt discounts on the lines of credit:

	Three months ended June 30,				Nine months ended June 30,
		2023		2022		2023		2022
Interest expense	$	364,604	$	247,622	$	1,037,499	$	502,310
Amortization of debt discounts		597,674		819,313		1,842,003		1,532,792
Total	$	962,278	$	1,066,935	$	2,879,502	$	2,035,102
Maturity analysis under the line of credit agreements for the fiscal years ended September 30,
2023	$	2,200,000
2024		9,378,347
2025		900,000
2026		—
2027		—
Lines of credit, related and non-related party		12,478,347
Less: Debt discount on lines of credit payable		(2,362,186)
Total Lines of credit payable, related and non-related party, net	$	10,116,161

Non-Revolving Lines of Credit

Excel Non-Revolving Loan

On February 23, 2022, we entered into a Non-Revolving Line of Credit Loan Agreement (the “Prior Excel Loan Agreement”) with Excel, an entity managed by Bruce Cassidy, Chairman of our Board of Directors, for aggregate principal amount of $1,500,000, which was amended on April 13, 2022, to increase the aggregate

principal amount to $2,000,000 (the “$2m Loan”). Effective as of April 25, 2022, we entered into a Non-Revolving Line of Credit Loan Agreement with Excel (the “Excel Non-Revolving Loan Agreement”) for an aggregate principal amount of $4,022,986 (the “Excel Non-Revolving Loan”). The Excel Non-Revolving Loan matures eighteen (18) months from the date of the Excel Non-Revolving Loan Agreement and accrues interest, payable semi-annually in arrears, at a fixed rate of interest equal to twelve (12) percent per year. On April 25, 2022, we used $2,000,000 of the proceeds of the Excel Non-Revolving Loan to prepay all of the remaining outstanding principal and interest of the $2m Loan and the Prior Excel Loan Agreement was terminated in connection with such prepayment. Under the Excel Non-Revolving Loan Agreement, we granted to the lender a security interest in all of our present and future assets and properties, real or personal, tangible or intangible, wherever located, including products and proceeds thereof (which was subsequently subordinated in connection with our Revolving Loan Agreement (as defined below)). In connection with the Excel Non-Revolving Loan, on April 25, 2022, we issued a warrant for an aggregate of up to 383,141 shares of our Common Stock. The warrant has an exercise price of $5.25 per share, expires on April 25, 2025, and shall be exercisable at any time prior to the expiration date. Effective as of December 14, 2022, we entered into a Non-Revolving Line of Credit Agreement Amendment and a Non-Revolving Line of Credit Promissory Note Amendment with Excel to extend the maturity date of the Excel Non-Revolving Loan from eighteen (18) months to twenty-four (24) months from the date of the Excel Non-Revolving Loan. Effective as of May 10, 2023, we entered into a Non-Revolving Line of Credit Agreement Amendment No. 2 and a Non-Revolving Line of Credit Promissory Note Amendment No. 2 with Excel to extend the maturity date of the Excel Non-Revolving Loan from twenty-four (24) months to twenty-five (25) months from the date of the Excel Non-Revolving Loan.

The Excel Non-Revolving Loan had a balance, including accrued interest, amounting to $4,352,871 and $4,226,181 as of June 30, 2023, and September 30, 2022, respectively. We incurred interest expense for the Excel Non-Revolving Loan in the amount of $1,080,945 and $331,548 for the nine months ended June 30, 2023, and 2022, respectively.

RAT Non-Revolving Loan

Effective as of May 13, 2022, we entered into a Secured Non-Revolving Line of Credit Loan Agreement (the “RAT Non-Revolving Loan Agreement”) with several institutions and individuals and RAT Investment Holdings, LP, as administrator of the loan (the “Loan Administrator”) for an aggregate principal amount of $2,200,000 (the “RAT Non-Revolving Loan”). The RAT Non-Revolving Loan matures eighteen (18) months from the effective date of the RAT Non-Revolving Loan Agreement and accrues interest, payable semi-annually in arrears, at a fixed rate of interest equal to twelve (12) percent per year. Under the RAT Non-Revolving Loan Agreement, we granted to the lenders under the RAT Non-Revolving Loan Agreement a security interest in all of our present and future assets and properties, real or personal, tangible or intangible, wherever located, including products and proceeds thereof, which security interest is pari passu with the Excel Non-Revolving Loan Agreement (which was subsequently subordinated in connection with our Revolving Loan Agreement). In connection with the RAT Non-Revolving Loan Agreement, on May 13, 2022, we issued a warrant to each lender under the RAT Non-Revolving Loan Agreement for an aggregate of up to 209,522 shares of our Common Stock. Each warrant has an exercise price of $5.25 per share, expires on May 13, 2025, and shall be exercisable at any time prior to the expiration date.

The warrants were accounted for as equity awards. We allocated the debt and warrant on a relative fair value basis to the proceeds received for the non-revolving lines of credit. We further allocated the fair value of $2,975,261 of the warrants at inception as a debt discount and recorded the straight-line amortization of debt discount as interest expense.

The RAT Non-Revolving Loan had a balance, including accrued interest, amounting to $2,234,356 and $2,301,260 as of June 30, 2023, and September 30, 2022, respectively. We incurred interest expense for the RAT Non-Revolving Loan in the amount of $670,146 and $118,970 for the nine months ended June 30, 2023, and 2022, respectively.

2023 Secured Loan

Effective as of May 10, 2023, we entered into the 2023 Secured Loan Agreement with several individuals and institutional lenders (each individually a “Lender” and collectively, the “Lenders”) with several individuals and institutional lenders (each individually a “Lender” and collectively, the “Lenders”) for aggregate loans of up to $4.0 million (the “2023 Secured Loan”), evidenced by Secured Non-Revolving Line of Credit Promissory Notes (each a “2023 Secured Note” and collectively, the “2023 Secured Notes”), also effective as of May 10, 2023. The 2023 Secured Loan matures twenty-four (24) months from the date of the 2023 Secured Loan Agreement and accrues interest, payable semi-annually in arrears, at a fixed rate of interest equal to twelve (12) percent per year. Excel, an entity managed by Bruce Cassidy, Chairman of our Board of Directors, has committed to be a Lender under the 2023 Secured Loan Agreement for an aggregate loan of $2.65 million. As of the date of this filing, Excel has not loaned any funds to us under the 2023 Secured Loan.  As of June 30, 2023, a total principal amount of $900,000 had been drawn on the 2023 Secured Loan.

In connection with the 2023 Secured Loan, on May 10, 2023, we agreed to issue a warrant to each Lender, upon drawdown, under the 2023 Secured Loan Agreement to purchase up to an aggregate of 369,517 shares of our Common Stock. The warrants have an exercise price of $4.33 per share, expire on May 10, 2026, and shall be exercisable at any time prior to such date. As of June 30, 2023, we had issued warrants for a total of 83,142 warrant shares to Lenders in connection with the 2023 Secured Loan.

Under the 2023 Secured Loan Agreement, we have granted to the lenders a security interest in all of our present and future assets and properties, real or personal, tangible or intangible, wherever located, including products and proceeds thereof. In connection with the 2023 Secured Loan Agreement, the lenders delivered subordination agreements to GemCap Solutions, LLC, as successor and assign to Industrial Funding Group, Inc.(the “Senior Lender” or “GemCap”), pursuant to which our obligations to the lenders and the indebtedness under the 2023 Secured Loan Agreement are subordinate and junior in right of payment to the indebtedness under our account receivable facility evidenced by that certain Loan and Security Agreement dated as of July 29, 2022, with the Senior Lender (the “Revolving Loan Agreement”).

The 2023 Secured Loan had a balance, including accrued interest, amounting to $915,000 and $0 as of June 30, 2023, and September 30, 2022, respectively. We incurred interest expense for the 2023 Secured Loan in the amount of $40,736 and $0 for the nine months ended June 30, 2023, and 2022, respectively.

Excel $2.2M Line of Credit

On May 31, 2023, we entered into the Excel Secured Line of Credit Agreement with Excel, an entity managed by Bruce Cassidy, Chairman of our Board of Directors for the Excel $2.2M Line of Credit, evidenced by a Non-Revolving Line of Credit Promissory Note. The Excel $2.2M Line of Credit matures ninety (90) days from the date of the Excel Secured Line of Credit Agreement and accrues interest, payable in arrears on the Excel $2.2M Line of Credit maturity date, at a fixed rate of interest equal to ten and one half (10.5) percent per year.

Under the Excel Secured Line of Credit Agreement, we granted to Excel a security interest in all of our present and future assets and properties, real or personal, tangible or intangible, wherever located, including products and proceeds thereof. In connection with the Excel Secured Line of Credit Agreement, Excel delivered a subordination agreement to the Senior Lender, pursuant to which our obligations to Excel and the indebtedness under the Excel Secured Line of Credit Agreement are subordinate and junior in right of payment to the indebtedness under the account receivable facility evidenced by the Revolving Loan Agreement.

The Excel $2.2M Line of Credit had a balance, including accrued interest, amounting to $2,219,250 and $0 as of June 30, 2023, and September 30, 2022, respectively. We incurred interest expense for the Excel $2.2M Line of Credit in the amount of $19,250 and $0 for the three months ended June 30, 2023, and 2022, respectively, and $19,250 and $0 for the nine months ended June 30, 2023, and 2022, respectively.

Revolving Loan Agreement

Effective as of July 29, 2022, we entered into the Revolving Loan Agreement with Industrial Funding Group, Inc. (the “Initial Lender”) for a revolving loan credit facility for the initial principal sum of up to $4,000,000, and through the exercise of an accordion feature, a total sum of up to $10,000,000, evidenced by a Revolving Loan Secured Promissory Note, also effective as of July 29, 2022 (the “Revolving Loan”). Shortly after the effective date of the Revolving Loan, the Initial Lender assigned the Revolving Loan Agreement, and the loan documents related thereto, to the Senior Lender.  Availability for borrowing under the Revolving Loan Agreement is dependent upon our assets in certain eligible accounts and measures of revenue, subject to reduction for reserves that the Senior Lender may require in its discretion, and the accordion feature is a provision whereby we may request that the Senior Lender increase availability under the Revolving Loan Agreement, subject to its sole discretion. Effective as of October 27, 2022, we entered into Amendment Number 1 to the Revolving Loan Agreement with the Senior Lender to increase the principal sum available from $4,000,000 to $6,000,000. As of June 30, 2023, we had borrowed $3,155,361 under the Revolving Loan. The Revolving Loan matures on July 29, 2024, and began accruing interest on the unpaid principal balance of advances, payable monthly in arrears, on September 7, 2022, at an annual rate equal to the greater of (I) the sum of (i) the “Prime Rate” as reported in the “Money Rates” column of The Wall Street Journal, adjusted as and when such Prime Rate changes, plus (ii) zero percent (0.00%), and (II) four percent (4.00%). Under the Revolving Loan Agreement, we have granted to the Senior Lender a first-priority security interest in all of our present and future property and assets, including products and proceeds thereof. In connection with the loan, our existing secured lenders (the “Subordinated Lenders”) delivered subordination agreements (the “Revolving Loan Subordination Agreements”) to the Senior Lender. We are permitted to make regularly scheduled payments, including payments upon maturity, to such subordinated lenders and potentially other payments subject to a measure of cash flow and receiving certain financing activity proceeds, in accordance with the terms of the Revolving Loan Subordination Agreements. In connection with the delivery of the Revolving Loan Subordination Agreements by the Subordinated Lenders, on July 29, 2022, we issued warrants to each Subordinated Lender on identical terms for an aggregate of up to 296,329 shares of our Common Stock. Each warrant has an exercise price of $5.25 per share, expires on July 29, 2025, and shall be exercisable at any time prior to such date. One warrant for 191,570 warrant shares was issued to Eagle Investment Group, LLC, an entity managed by Bruce Cassidy, Chairman of our Board of Directors, as directed by its affiliate, Excel, one of the Subordinated Lenders. The Subordinated Lenders receiving warrants for the remaining 104,759 warrant shares were also entitled to receive a cash payment of $22,000 six months from the date of the Revolving Loan Subordination Agreements, representing one percent (1.00%) of the outstanding principal amount of the loan held by such Subordinated Lenders. This cash payment was made to such Subordinated Lenders on January 25, 2023.

The warrants were accounted for as equity awards. We allocated the debt and warrant on a relative fair value basis to the proceeds received for the revolving loan agreement. We further allocated the fair value of the $1,347,719 of the warrants at inception as a debt discount and recorded the straight-line amortization of debt discount as interest expense.

The Revolving Loan had a balance, including accrued interest, amounting to $3,196,581 and $4,587,255 as of June 30, 2023, and September 30, 2022, respectively. We incurred interest expense for the Revolving Loan in the amount of $1,068,425 and $0 for the nine months ended June 30, 2023, and 2022, respectively.