Business Context and Reporting Period
This Form 8-K Current Report is filed by XpresSpa Group, Inc. (XSPA) on January 14, 2020, covering events occurring on January 9, 2020. The filing details the entry into a material definitive agreement for a credit facility and amendments to an existing convertible note. The company also references preliminary, unaudited estimated results for the fiscal quarter and year ended December 31, 2019, which were announced in a press release on January 14, 2020.
Key Financial Metrics and Agreements
- New Credit Facility: Entered into an accounts receivable advance agreement with CC Funding for an advance of $1,000,000. The total repayment amount is $1,160,000, inclusive of $160,000 in aggregate fees.
- Repayment Terms: The new facility is repayable over 12 months via a fixed daily deduction of $4,461.54 from a collection account. The advance is secured by substantially all assets of the borrowing subsidiaries, including accounts receivable.
- Existing Debt Amendment (B3D Note): Amended a senior secured convertible promissory note with B3D, LLC. The principal amount was increased from $7.0 million to $7.15 million.
- Interest Payment: The company issued 291,669 shares of common stock to satisfy interest payable for October, November, and December 2019.
- Conversion Terms: The B3D Note bears interest at 9.00% per annum and is convertible at $2.00 per share, subject to shareholder approval for the additional principal.
Material Changes and Unusual Items
The primary material change is the increase in debt obligations and the issuance of equity to service existing interest. The new $1.0 million facility carries a high effective cost, with fees totaling 16% of the principal amount. Additionally, the B3D Note includes a prepayment premium equal to the greater of 4% of the prepaid amount or the Black-Scholes value of the prepaid principal if paid in full before 15 business days prior to maturity (May 31, 2021). The filing notes that the B3D Note is the senior secured obligation of the company.
Guidance, Outlook, and Risks
The filing references a press release containing preliminary, unaudited estimated results for the fiscal year ended December 31, 2019, but does not provide specific revenue, profit, or cash flow figures within the text of this 8-K. The company includes standard forward-looking statements regarding risks and uncertainties that could cause actual results to differ from projections. Specific risks highlighted include the potential for the lender to increase fixed daily payments and interest rates to 18% per annum upon an event of default under the new agreement.
Investor Verification Checklist
- Verify the specific preliminary revenue and net income figures for the fiscal year ended December 31, 2019, in the referenced press release (Exhibit 99.1).
- Confirm the status of shareholder approval required for the conversion of the additional $150,000 principal and accrued interest under the B3D Note.
- Review the full text of the Accounts Receivable Advance Agreement (Exhibit 10.1) to understand specific events of default that could trigger the 18% interest rate.
- Assess the impact of the 291,669 shares issued for interest on existing shareholder dilution.
- Monitor the company's liquidity position given the immediate cash outflow requirements for the new facility's daily repayments.