Business Context and Reporting Period
This Form 8-K was filed by BioZone Pharmaceuticals, Inc. (not Cocrystal Pharma, Inc.) on March 22, 2013. The report details the entry into a material definitive agreement by BioZone Laboratories, Inc., a wholly-owned subsidiary of the Company.
Key Financial Metrics and Agreements
- Financing Capacity: The Company entered into a Factoring Agreement with Midland American Capital Corporation providing up to $1,500,000 in discretionary financing against accounts receivable.
- Factoring Fees: An initial fee of 2.5% of the face amount of an account, plus 0.833% for each 10-day period following the first 30 days of financing.
- Raw Material Financing: A Purchase Money Rider allows for discretionary financing to procure raw materials via direct payment or letters of credit.
- Rider Fees: An initial purchase fee of 2.95% of the amount financed, plus 0.933% for each 10-day period following the first 30 days.
- Collateral: The Company granted a security interest in all of its assets to secure obligations. Additionally, the Company and its subsidiary Baker Cummins Corp. executed a Guarantee and Security Agreement.
- Debt Subordination: Certain noteholders holding notes with an aggregate principal amount of $2,300,000 agreed to subordinate their security interests to Midland.
Material Changes and Terms
The filing represents a new material definitive agreement and a direct financial obligation. Key terms include:
- Term: The Factoring Agreement has a one-year term, terminable by either party with 60 days' prior written notice.
- Chargeback Provisions: Midland may chargeback receivables to the Seller if not paid within 75 days of purchase (unless the debtor is insolvent), or in cases of default or termination.
- Executive Guarantees: CEO Elliot Maza and President Brian Keller executed a Validity Guaranty to indemnify Midland against losses from breaches of representations, fraud, or criminal acts.
Guidance, Risks, and Contingencies
The filing does not provide specific financial guidance, revenue outlook, or management commentary regarding future performance. However, it highlights the following risks and contingencies:
- Liquidity Risk: The Company is subject to penalties for misdirected fees, missing notations on invoices, and late charges.
- Asset Risk: All assets of the Seller, the Company, and Baker Cummins Corp. are pledged as collateral.
- Personal Liability: Key executives have personally indemnified the lender against specific legal and financial breaches.
Investor Verification Checklist
- Verify the exact utilization amount of the $1,500,000 factoring facility and the $2,300,000 in subordinated notes.
- Confirm the current status of the Company's accounts receivable and the likelihood of chargebacks under the 75-day payment window.
- Review the full text of the Factoring Agreement, Purchase Money Rider, and Intercreditor Agreements expected to be filed as exhibits to the Form 10-K for the year ended December 31, 2012.
- Assess the impact of the 2.5% to 2.95% initial fees and recurring periodic fees on the Company's operating margins.