Business Context and Reporting Period
Company: Pavmed Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: December 27, 2018
Event: Entry into a Material Definitive Agreement involving a private placement of a Senior Secured Convertible Note and the repayment of existing debt.
Key Financial Metrics and Transaction Details
- New Debt Issuance: Senior Secured Convertible Note with an initial principal amount of $7,750,000.
- Gross Proceeds: $7,000,000 (issued with a $750,000 original issue discount).
- Transaction Costs: Placement agent fee of $455,000 (6.5% of gross proceeds).
- Net Proceeds: Approximately $6,445,000 after fees and estimated expenses.
- Debt Repayment: Full repayment of outstanding principal and accrued interest on a Senior Secured Note held by Scopia Holdings LLC.
- Repayment Consideration: $5,000,000 cash and issuance of 600,000 shares of common stock ("Payoff Shares").
- Interest Rate: 7.875% per annum (increases to 18.0% per annum upon an Event of Default).
- Conversion Price: Initial price of $1.60 per share.
- Liquidity Covenant: Requirement to maintain available cash of $1,750,000 at the end of each fiscal quarter.
Material Changes Versus Prior Period
The filing does not provide comparative financial statements or revenue/profit metrics for the prior period. The primary material change is the restructuring of the company's capital structure:
- Replacement of existing senior secured debt with a new convertible note facility.
- Reduction of cash reserves by $5,000,000 to settle prior debt obligations.
- Issuance of 600,000 shares of common stock to settle a portion of the prior debt.
- Establishment of a new amortization schedule commencing June 28, 2019, requiring monthly installment payments or conversions.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook
The company intends to utilize the net proceeds for general corporate purposes. Management has agreed to hold a stockholder meeting by June 28, 2019, to approve an increase in authorized shares from 75 million to 100 million and to authorize the issuance of shares under the Convertible Note to comply with Nasdaq rules.
Risks and Contingencies
- Events of Default: Includes breach of the financial covenant (maintaining $1.75M cash) and the failure of the CEO (Lishan Aklog, M.D.) or CFO (Dennis McGrath) to serve as officers.
- Redemption Penalties: Upon an Event of Default, the note may be redeemed at 115% of the outstanding principal plus accrued interest.
- Change of Control: Triggers a mandatory redemption option for the holder at 115% of principal or market value, whichever is greater.
- Registration Delay Payments: The company must file a registration statement by January 26, 2019, and have it declared effective by April 26, 2019, or face penalty payments.
- Conversion Limitations: Conversion is capped at 4.99% of outstanding shares (expandable to 9.99%) and 19.99% of shares outstanding as of December 27, 2018, unless stockholder approval is obtained.
Important Facts for Investor Verification
- Verify the company's ability to maintain the $1,750,000 quarterly cash covenant given the $5,000,000 cash outflow for debt repayment.
- Confirm the status of the stockholder meeting required by June 28, 2019, to approve the increase in authorized shares and Nasdaq compliance.
- Monitor the filing and effectiveness of the registration statement for the resale of shares underlying the Convertible Note (deadline: April 26, 2019).
- Assess the impact of the 7.875% interest rate and potential 18.0% default rate on future cash flows.
- Review the terms of the "Leak-Out Agreement" which restricts the sale of shares issued via installment conversions to 25% of daily average trading volume.