XML 29 R17.htm IDEA: XBRL DOCUMENT v3.25.1
Subordinated Credit Facility
 9 Months Ended
Apr. 30, 2025
Investments, Debt and Equity Securities [Abstract]  
Subordinated Credit Facility Credit Facility
On June 17, 2024, we entered into a senior secured loan facility with a syndicate of lenders which replaced our prior credit facility and, as further discussed below, we subsequently amended the credit facility on October 17, 2024 and March 3, 2025 (the "Credit Facility"). The Credit Facility consists of: (i) a $162,000,000 term loan (the "Term Loan" facility) and (ii) an asset-based revolving credit facility with revolving commitments in an aggregate principal amount of $56,821,000, subject to borrowing base limitations as described below (the "Revolving Loan" facility). At closing, the proceeds were used to repay the prior credit facility in full and for working capital and other general corporate purposes. The obligations under the Credit Facility are guaranteed by certain of our domestic and foreign subsidiaries (the "Guarantors"), who have granted for the benefit of the lenders, a lien on, and first priority security interest in, substantially all of our tangible and intangible assets.

The Credit Facility was amended on October 17, 2024 (the "First Amendment") which among other things: (i) waived all defaults under the Credit Facility, specifically in connection with our Net Leverage Ratio and Fixed Charge Coverage Ratio covenants as of July 31, 2024; (ii) increased the interest rate margins applicable to the Term Loan to 12.00% per annum for Base Rate Loans and 13.00% per annum for SOFR Loans and increased interest rate margins applicable to the Revolving Loan by 1.00% at each level; (iii) permitted the incurrence of $25,000,000 of total unsecured subordinated debt (as described further in Note (11) – Amended Subordinated Credit Facility); (iv) suspended testing of the Net Leverage Ratio and the Fixed Charge Coverage Ratio covenants until January 31, 2025; (v) provided the lenders a consent right with respect to Revolver Loan borrowings above $32,500,000; and (vi) amended the maturity date to the earlier of (x) July 31, 2028 or (y) 90 days prior to the earliest date that the debt under the Amended Subordinated Credit Facility becomes due and payable (the "Senior Credit Facility Maturity Date").

The Credit Facility was amended again on March 3, 2025 (the "Second Amendment") which, among other things: (i) waived all defaults under the Credit Facility, specifically in connection with our Net Leverage Ratio and Fixed Charge Coverage Ratio covenants as of January 31, 2025; (ii) decreased the interest rate margins applicable to the Term Loan from 12.00% to 9.50% per annum for Base Rate Loans and from 13.00% to 10.50% per annum for SOFR Loans; (iii) permitted the incurrence of an additional $40,000,000 of total unsecured subordinated debt (as described further in Note (11) – Amended Subordinated Credit Facility); (iv) suspended testing of the Net Leverage Ratio and the Fixed Charge Coverage Ratio covenants until October 31, 2025; (v) suspended our ability to pay interest in-kind until after the interest rate margins are tested based on net leverage ratios; (vi) permitted partial principal repayments of $27,252,000 and $9,084,000 on the Term Loan and Revolving Loan, respectively, and waived the prepayment fees that would have been payable under the Credit Facility with regard to such repayments; (vii) permanently reduced commitments under the Revolving Loan Facility by $3,179,000 and provided the lenders a consent right with respect to Revolver Loan borrowings above $29,321,000; (viii) reduced the minimum quarterly average liquidity requirement from $20,000,000 to $17,500,000; and (ix) provided the lenders the right to appoint an independent director to our Board of Directors after May 31, 2025. As a result of the March 3, 2025 amendment, there are no ongoing events of default under the Credit Facility. We accounted for both the October 17, 2024 and March 3, 2025 amendments to our Credit Facility as debt modifications.
In connection with entering the Credit Facility, the Term Loan lenders received 1,435,884 detachable warrants ("Lender warrants") granted at an exercise price of $0.10 per common share which entitles the Term Loan lenders to purchase 1,435,884 shares of our common stock from us at any time and from time to time after the Closing Date and on or prior to June 17, 2031, subject to certain adjustments. If the Term Loan is refinanced, the Term Loan lenders have the right to sell up to 50.0% of the warrants back to us for cash, at a 10.0% discount to the 30-day volume weighted average price of our common stock, subject to certain adjustments. We determined that the Lender warrants met the definition of a freestanding financial instrument that should be accounted for as a liability. We established an initial Lender warrant liability of $3,011,000, which was allocated as a discount against the Term Loan proceeds. The Lender warrant liability is classified in "Warrant and derivative liabilities" on the Condensed Consolidated Balance Sheets and is remeasured to its estimated fair value each reporting period, using Level 3 fair value inputs, until the Lender warrants are exercised or expire. Changes in the estimated fair value of the Lender warrant liability are recognized in our Condensed Consolidated Statements of Operations as a non-cash expense or benefit. As of April 30, 2025 and July 31, 2024, the Lender warrant liability was remeasured to $1,862,000 and $4,544,000, respectively. For the three and nine months ended April 30, 2025, we recorded non-cash benefits of $907,000 and $2,682,000, respectively, in "Other expenses (income) - Change in fair value of warrants and derivatives" on the Condensed Consolidated Statements of Operations.

Additionally, we identified several embedded derivatives that require bifurcation from the Credit Facility under ASC 815-15 "Embedded Derivatives" ("ASC 815"). Certain of these embedded features include contingent event of default and going concern interest rate increases and/or fees, which qualify for accounting as one combined embedded derivative liability. We established an initial embedded derivative liability of $3,116,000, which was allocated as a discount against the Term Loan proceeds. The combined embedded derivative liability is presented with the host instrument as part of the amount outstanding under the Credit Facility on the Condensed Consolidated Balance Sheets, and is remeasured to its estimated fair value each reporting period, using Level 3 fair value inputs, until the embedded derivative features have zero probability of occurring or expire. Changes in the estimated fair value of the combined embedded derivative liability are recognized in our Condensed Consolidated Statements of Operations as a non-cash expense or benefit. As of April 30, 2025 and July 31, 2024, the combined embedded derivative liability was remeasured to $2,331,000 and $3,041,000, respectively. For the three and nine months ended April 30, 2025, we recorded non-cash benefits of $2,214,000 and $710,000, respectively, in "Other expenses (income) - Change in fair value of warrants and derivatives" on the Condensed Consolidated Statements of Operations.

The following table summarizes the activity relating to deferred financing costs and discounts under the Credit Facility:

Deferred Financing CostsDiscount
Term LoanRevolverTotalTerm LoanTotal
Credit Facility fees$6,626,000 3,353,000 $9,979,000 $7,486,000 $17,465,000 
Term Loan proceeds allocated to Lender
  warrants		— — — 3,011,000 3,011,000 
Term Loan proceeds allocated to
  embedded derivative		— — — 3,116,000 3,116,000 
Amortization(201,000)(102,000)(303,000)(411,000)(714,000)
Balance at July 31, 2024
$6,425,000 3,251,000 $9,676,000 $13,202,000 $22,878,000 
Amendment fees— 650,000 650,000 8,166,000 8,816,000 
Write-off due to prepayments and
  reduced commitments		(924,000)(1,585,000)(2,509,000)(2,382,000)(4,891,000)
Amortization (824,000)(466,000)(1,290,000)(2,206,000)(3,496,000)
Balance at April 30, 2025
$4,677,000 1,850,000 $6,527,000 $16,780,000 $23,307,000 
Deferred financing fees and discounts attributable to the Term Loan are amortized as interest expense over the life of the debt through the Senior Credit Facility Maturity Date and are presented as a deduction to the borrowings outstanding under the Term Loan. Deferred financing fees attributable to the Revolving Loan are capitalized on the Condensed Consolidated Balance Sheets and amortized as interest expense over the life of the debt.

The amount of debt outstanding under our Credit Facility was as follows:
 April 30, 2025July 31, 2024
Term Loan$144,592,000 $161,663,000 
Less unamortized deferred financing costs related to Term Loan4,677,000 6,425,000 
Less unamortized discount related to Term Loan16,780,000 13,202,000 
     Term Loan, net123,135,000 142,036,000 
Revolving Loan23,416,000 32,500,000 
Embedded derivative related to Credit Facility2,331,000 3,041,000 
Amount outstanding under Credit Facility, net$148,882,000 177,577,000 
Less current portion of credit facility, net148,882,000 4,050,000 
Non-current portion of credit facility, net$— $173,527,000 

During the nine months ended April 30, 2025, we reclassified the combined embedded derivative liability balance as of July 31, 2024 from "Other Liabilities" on the Condensed Consolidated Balance Sheets to conform to the current period presentation. During the nine months ended April 30, 2025, we had outstanding balances under our Credit Facility ranging from $168,008,000 to $202,940,000.

Availability under the Revolving Loan is subject to eligibility criteria set forth in the Credit Facility, and equal to a borrowing base in an amount equal to, from time to time: (a) 85% of the net book value of billed and invoiced accounts receivables of the Borrowing Base Parties; plus (b) 85% of the net book value of accounts receivables that the Borrowing Base Parties have the right to bill but have not yet billed up to the lesser of (i) 12.5% of the amount calculated pursuant to the sum of clauses (a) and (b) and (ii) $15,000,000 of such accounts; plus (c) 60% of the net book value of all inventory of the Borrowing Base Parties, less (d) customary reserves. As of April 30, 2025 and July 31, 2024, our eligible Borrowing Base collateral, as defined under the Revolving Loan, was $113,381,000 and $114,661,000, respectively.

Interest expense related to our Credit Facility (both current and prior), including amortization of deferred financing costs and debt discount, recorded during the three months ended April 30, 2025 and 2024 was $8,330,000 and $5,130,000, respectively. Interest expense related to our Credit Facility (both current and prior), including amortization of deferred financing costs and debt discount, recorded during the nine months ended April 30, 2025 and 2024 was $27,257,000 and $15,286,000, respectively. Our blended interest rate approximated 18.4% and 12.3% for the three months ended April 30, 2025 and 2024, respectively, and 18.7% and 11.4% for the nine months ended April 30, 2025 and 2024, respectively.

Under the First Amendment, the interest rate margins applicable to the Revolving Loan increased by 1.00% at each level. Accordingly, the Credit Facility, as amended, provides that, with respect to interest rate margins on the Revolving Loans, (i) Base Rate Loans shall bear interest at the Base Rate plus an additional margin ranging from 4.75% to 5.25%; and (ii) SOFR Loans shall bear interest at the Term SOFR rate plus an additional margin ranging from 5.75% to 6.25%, each depending on the average quarterly revolving loan usage during the applicable determination period.
The Second Amendment provides that the interest rate margins on the Term Loans would be 9.50% per annum for Base Rate Loans and 10.50% per annum for SOFR Loans until the first business day of the month following October 31, 2025, when we deliver financial statements demonstrating compliance with the financial covenants under the Credit Facility. If demonstrated, the interest rate margins would revert to the margins provided under the Credit Facility prior to the amendments with respect to Term Loans, specifically, (i) Base Rate Loans shall bear interest at the Base Rate plus an additional margin ranging from 7.50% to 9.00%; and (ii) SOFR Loans shall bear interest at the Term SOFR rate plus an additional margin ranging from 8.50% to 10.00%, each depending on our Net Leverage Ratio during the applicable determination period. The Credit Facility provides for an unused line fee of 0.50% per annum on the average unused Revolving Loan commitment, with no fee payable on the $27,500,000 commitment subject to the consent right of the revolving lender and Agent.

The Term Loan is subject to 2.50% amortization per annum. The first Term Loan repayment of $675,000 was paid on July 31, 2024. Pursuant to the Credit Facility, as amended, the next Term Loan repayment in the amount of $4,050,000 is due July 31, 2025, with quarterly Term Loan repayments of $1,012,500 payable on the last business day of each fiscal quarter thereafter, with the remaining Term Loan balance due on the Senior Credit Facility Maturity Date.

The Credit Facility contains: (a) customary representations, warranties and affirmative covenants; (b) customary conditions to drawing the Revolver; (c) customary negative covenants, subject to negotiated exceptions, including but not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, including the disposition of assets by any Loan Party to any Subsidiary that is not a Loan Party, (vi) restricted payments, including stockholder dividends, (vii) distributions, including the repayment of subordinated intercompany and third party indebtedness, and (viii) certain other restrictive agreements; (d) certain financial covenants (see below); (e) customary optional and mandatory prepayment events; and (f) customary events of default (subject to grace periods, as appropriate), such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control and the failure to observe the negative covenants and other covenants related to the operation of our business. In addition, under certain circumstances, we may be required to enter into amendments to the Credit Facility in connection with any further syndication of the Credit Facility.

Under the Credit Facility, we are required to comply with certain financial covenants, including: a maximum Net Leverage Ratio of 3.15x commencing with the four fiscal quarter period ending October 31, 2025; a minimum Fixed Charge Coverage Ratio of 1.25x commencing with the four fiscal quarter period ending October 31, 2025; a minimum Average Liquidity requirement at each fiscal quarter end of $17,500,000; and a minimum EBITDA of $35,000,000 for the four fiscal quarter period ending October 31, 2025. Over the next twelve months beyond the issuance date, we believe that it is probable we will not be able to comply with one or more of these covenants. As a result, all amounts outstanding under our Credit Facility have been presented as "Current portion of credit facility, net" on our Condensed Consolidated Balance Sheet as of April 30, 2025.

Capitalized terms used but not defined herein have the meanings set forth for such terms in the Credit Facility, which have been or will be documented and filed with the SEC.
Subordinated Credit Facility
On October 17, 2024, we entered into a subordinated credit agreement with the existing holders of our convertible preferred stock and U.S. Bank Trust Company, National Association, as agent (the “Subordinated Credit Agreement”) which provided an initial subordinated unsecured term loan facility in the aggregate principal amount of $25,000,000. On March 3, 2025, we entered into an amendment to the Subordinated Credit Agreement (the “Amended Subordinated Credit Facility”), which, in addition to providing incremental aggregate principal of $40,000,000, waived all defaults under the Subordinated Credit Agreement, specifically in connection with our Net Leverage Ratio and Fixed Charge Coverage Ratio covenants as of January 31, 2025 and suspends testing of the Net Leverage Ratio and the Fixed Charge Coverage Ratio covenants under the Subordinated Credit Agreement until October 31, 2025. The net proceeds of the Amended Subordinated Credit Facility were principally used to repay a portion of the Term Loan and Revolving Loan on March 3, 2025, fund our general working capital needs and enable us to negotiate the Second Amendment to the Credit Facility, including the waiver of existing defaults, as discussed above.
The obligations under the Amended Subordinated Credit Facility mature 90 days after the Senior Credit Facility Maturity Date, as discussed above. The Amended Subordinated Credit Facility is subject to Make-Whole Amounts with respect to certain repayments or prepayments. The Make-Whole Amounts are equal to: (i) from the respective closing date of each tranche of the Amended Subordinated Credit Facility through (but not including) the date that is nine months thereafter, the principal repayment amount multiplied by 33.0%; (ii) from the date that is nine months after the applicable closing date through (but not including) the date that is the second anniversary of such closing date, the principal repayment amount multiplied by 50.0%; (iii) from the second anniversary of the applicable closing date and thereafter, the principal repayment amount multiplied by 75.0%; plus, in the case of clause (iii), interest accrued on the principal amount outstanding at the Make-Whole Interest Rate (as defined below) starting on the second anniversary of the applicable closing date and calculated as of any such date of determination. The Make-Whole Interest Rate is a rate equal to 16.0% per annum, which is increased by 2.0% per annum upon the occurrence and during the continuation of an event of default under the Amended Subordinated Credit Facility.

We identified an embedded derivative related to redemption features that requires bifurcation from the Amended Subordinated Credit Facility under ASC 815. We established a total embedded derivative liability of $16,864,000, which was allocated as a discount against the Amended Subordinated Credit Facility proceeds. The embedded derivative liability is presented with the "Current portion of subordinated credit facility, net" on the Condensed Consolidated Balance Sheet and is remeasured to its estimated fair value each reporting period, using Level 3 fair value inputs. Changes in the estimated fair value of the embedded derivative liability are recognized in our Condensed Consolidated Statements of Operations as a non-cash expense or benefit. As of April 30, 2025, the embedded derivative liability was remeasured to $14,645,000. For the three and nine months ended April 30, 2025, we recorded non-cash benefits of $6,146,000 and $2,219,000, respectively, in "Other expenses (income) - Change in fair value of warrants and derivatives" on the Condensed Consolidated Statements of Operations.

In connection with entering the Amended Subordinated Credit Facility, we paid financing fees of $1,761,000, which were accounted for as deferred financing costs. Deferred financing costs, discounts and the Make-Whole Amount are amortized as interest expense through the Amended Subordinated Credit Facility maturity date, and are presented as adjustments to the borrowings outstanding under such debt. Interest expense related to our Amended Subordinated Credit Facility for the three and nine months ended April 30, 2025 was $4,555,000 and $6,118,000, respectively, which included $1,667,000 of financing fees related to the first amendment to the Subordinated Credit Facility that were immediately expensed due to accounting for such amendment as a debt modification.

The following table presents a reconciliation of the amount outstanding under the Amended Subordinated Credit Facility to its net carrying value:
April 30, 2025
Amended Subordinated Credit Facility$65,000,000 
Less: Unamortized deferred financing costs1,604,000 
Less: Unamortized discount16,169,000 
Plus: Accretion of Make-Whole Amount3,599,000 
Amended Subordinated Credit Facility, net - subtotal50,826,000 
Plus: Embedded derivative related to redemption features14,645,000 
Amount outstanding under the Amended Subordinated Credit Facility65,471,000 
Less: Current portion of Amended Subordinated Credit Facility, net(65,471,000)
Non-current portion of Amended Subordinated Credit Facility, net$— 

The obligations under the Amended Subordinated Credit Facility are guaranteed by the same guarantors under the Credit Facility. The Amended Subordinated Credit Facility contains customary representations, warranties and affirmative covenants, in each case substantially consistent with the representations and warranties and affirmative covenants under the Credit Facility. The Amended Subordinated Credit Facility contains customary negative covenants, subject to negotiated exceptions, including but not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stockholder dividends, (vii) customary optional and mandatory prepayment events, and (viii) certain other restrictive agreements.
The outstanding portion of debt related to the Amended Subordinated Credit Facility will not be considered debt for purposes of our financial covenant testing under the Credit Facility. However, the Amended Subordinated Credit Facility includes a cross-default provision, whereby a default under the Credit Facility constitutes a default under the Amended Subordinated Credit Facility. Accordingly, consistent with the presentation of our Credit Facility as a current liability, the amount of debt outstanding under the Amended Subordinated Credit Facility has also been presented as a current liability on our Condensed Consolidated Balance Sheet as of April 30, 2025.

Capitalized terms used but not defined herein have the meanings set forth for such terms in the Amended Subordinated Credit Facility, which has been documented and filed with the SEC.