Business Context and Reporting Period
Company: REED's, INC.
Filing Type: Form 8-K (Current Report)
Date of Report: October 9, 2018
Event Date: October 4, 2018
Context: The Company entered into a new Finance Agreement with Rosenthal & Rosenthal, Inc. to replace its existing credit facility with PMC Financial Services, Inc.
Key Financial Metrics and Transaction Details
- New Credit Facility: Up to $13,000,000, including a permitted over-advance of $4,000,000.
- Term: 2.5 years.
- Interest Rates:
- Eligible Accounts Receivables: Prime + 2% (Prime defined as greater of prime rate or 4.75%).
- Average Daily Inventory: Prime + 2.5%.
- Permitted Over-advance: Prime + 3.5%.
- Minimum Fees: Aggregate minimum monthly fees (including interest) of $4,000.
- Debt Repayment: Approximately $8,800,000 paid in full to PMC Financial Services, Inc. upon closing.
- Collateral: All inventory, receivables, accounts, documents, chattel paper, general intangibles, instruments, intellectual property, and certain other personal property.
Material Changes and Related Party Transactions
The filing details a significant restructuring of the Company's debt and related party arrangements:
- Over-advance Guarantee: The $4,000,000 permitted over-advance is guaranteed by Daniel J. Doherty, III and his family trust (affiliates of Raptor/Harbor Reed's SPV, LLC) via an irrevocable stand-by letter of credit of at least $1,500,000.
- Put Option: Raptor/Harbor Reed's SPV LLC holds a put option to purchase the outstanding permitted over-advance at par plus accrued interest in the event of a default, prior to Rosenthal declaring a default.
- Warrant Adjustment: In consideration for the letter of credit, the Company reduced the exercise price of Raptor's warrant to purchase 750,000 shares of common stock from $1.50 to $1.10 per share.
Guidance, Outlook, and Risks
Outlook: The filing does not provide specific financial guidance or forward-looking projections regarding revenue or earnings.
Risks and Contingencies:
- The credit facility is subject to acceleration upon customary events of default.
- The transaction involves significant related party guarantees and security interests in intellectual property.
- The Company has granted a continuing lien and right of set-off to Rosenthal on substantially all of its assets.
Investor Verification Checklist
- Verify the exact interest rate calculation based on the current "Prime" rate versus the 4.75% floor.
- Confirm the status of the $1,500,000 stand-by letter of credit issued by Daniel J. Doherty, III.
- Review the amended secured note and purchase agreement with Raptor/Harbor Reed's SPV LLC filed as exhibits to the 10-Q.
- Assess the impact of the reduced warrant exercise price ($1.10) on potential future dilution.
- Examine the full text of the Finance Agreement for specific covenants and events of default not detailed in this summary.