Business Context and Reporting Period
This Form 8-K was filed by KBL Merger Corp. IV (KBLM) on June 26, 2020, reporting events occurring on that date and July 2, 2020. The registrant is a Special Purpose Acquisition Company (SPAC) incorporated in Delaware, currently in the process of a contemplated business combination. The filing details the entry into a material definitive agreement to secure financing and the creation of a new class of preferred stock.
Key Financial Metrics and Capital Structure
The filing discloses specific financing terms rather than operational financial metrics such as revenue or operating cash flow, as the company is a pre-combination SPAC.
- Debt Financing: Issued secured convertible promissory notes with an aggregate principal amount of $3,601,966.28 for a purchase price of $3,407,521.97 (reflecting a 10% original issue discount).
- Debt Terms: 8-month term; 10% annual interest rate (guaranteed to maturity); initial conversion price of $5.28 per share.
- Equity Issuance: Issued 650,000 restricted "Commitment Shares" of Common Stock to the institutional investors.
- Preferred Stock: Agreed to issue Series A Preferred Stock for a purchase price of $3,000,000 upon satisfaction of certain conditions. This stock carries a 10% annual dividend and a conversion price of $5.28 per share.
- Collateral: Obligations are secured by all assets of the Company and guaranteed by entities party to the Business Combination Agreement.
Material Changes and Agreements
The primary material change is the execution of a Securities Purchase Agreement (SPA) on June 26, 2020, and the subsequent filing of the Certificate of Designation for Series A Preferred Stock on July 2, 2020. Key structural changes include:
- Conversion Mechanics: The conversion price for the Notes will adjust 90 days post-business combination to the lowest 5-day VWAP, subject to a $2.00 floor.
- Redemption Rights: Holders of the Series A Preferred Stock may force the Company to redeem shares in cash after the three-month anniversary of the Business Combination.
- Mandatory Conversion: The Company retains the right to force conversion of up to $1,000,000 of the Preferred Stock into Common Stock under specific market conditions (e.g., stock price exceeding $6.00 and volume thresholds).
Outlook, Risks, and Contingencies
Management's actions are contingent upon the successful completion of the Business Combination referenced in a July 23, 2019 filing. The financing structure introduces specific risks and contingencies:
- Default Triggers: The Notes and Preferred Stock contain covenants and events of default that could require immediate repayment of obligations.
- Liquidity Constraints: The ability to issue the Preferred Stock is conditional on satisfying specific terms in the SPA.
- Market Conditions: Mandatory conversion rights for the Company are dependent on the Common Stock trading above $6.00 and maintaining specific daily average trading volumes ($80,000).
- Unregistered Sales: The securities were issued under Section 4(a)(2) of the Securities Act of 1933 without registration, though the Company has agreed to register the resale of shares issuable upon conversion.
Investor Verification Checklist
- Verify the status of the "Business Combination" referenced in the July 23, 2019 filing to determine if the 90-day conversion price adjustment and redemption rights have been triggered.
- Confirm whether the conditions for the second closing (issuance of $3,000,000 Series A Preferred Stock) have been satisfied.
- Review the "Certificate of Designation" (Exhibit 4.7) for specific definitions of the "Make-Whole Amount" and detailed redemption mechanics.
- Assess the Company's current cash position against the guaranteed interest obligations on the Notes and Preferred Stock.
- Check for any subsequent filings regarding the registration statement required for the resale of the Commitment Shares and conversion shares.