Business Context and Reporting Period
This Form 8-K is filed by Emerald Bioscience, Inc. (not Skye Bioscience, Inc.) on April 29, 2020. The filing reports material definitive agreements, new debt obligations, and executive departures. The company is an emerging growth company incorporated in Nevada.
Key Financial Metrics and Obligations
- Amended Credit Facility: Entered into an Amended and Restated Multi-Draw Credit Agreement with Emerald Health Sciences, Inc., providing a facility up to $20,000,000.
- Outstanding Debt: As of the filing date, the company had made drawdowns totaling $6,000,000 under the amended agreement. A fourth drawdown of $150,000 was executed immediately upon signing.
- Paycheck Protection Program (PPP): Secured a PPP loan of $116,700 from City National Bank with a 1.00% interest rate, maturing in two years.
- Warrant Obligations: Issued warrants for 7,500,000 shares at $0.50/share under the existing agreement. New advances under the amended agreement generally trigger warrants at $0.35/share, though the $150,000 drawdown did not include a warrant.
- Executive Compensation: Agreed to a separation package for the departing CFO including a $125,000 gross payment and six months of health benefits.
Material Changes and Agreements
- Debt Restructuring: The new agreement amends the October 2018 credit facility. It mandates advances of at least $150,000 for May, June, and July 2020.
- Interest Deferral: The lender agreed to defer all accrued interest beginning the quarter ended June 30, 2020, until the company completes a capital raise of at least $5,000,000.
- Conversion Terms: The lender may convert advances at $0.25/share under the new agreement, while existing advances remain convertible at $0.40/share.
- Leadership Change: Doug Cesario is departing as Chief Financial Officer effective May 15, 2020. Elena Traistaru is appointed as interim CFO and Secretary effective the same date.
Outlook, Risks, and Contingencies
- Liquidity Strategy: Proceeds from the $150,000 drawdown are designated for general corporate and working capital purposes.
- Loan Forgiveness: The PPP loan is potentially forgivable based on documented payroll, rent, and utility costs, subject to SBA requirements and headcount retention.
- Default Risk: The credit agreement includes an Event of Default clause allowing the lender to declare the entire outstanding principal and accrued interest immediately due and payable.
- Capital Raise Requirement: Interest deferral is contingent on the company raising at least $5,000,000 in capital.
Investor Verification Checklist
- Verify the total outstanding principal balance under the Amended Credit Agreement following the $150,000 drawdown.
- Confirm the status of the $5,000,000 capital raise required to maintain interest deferral.
- Review the specific terms of the warrant exercise agreement regarding the 40,800,000 shares previously exercised.
- Monitor the appointment of a permanent CFO following the interim appointment of Ms. Traistaru.
- Check for any subsequent filings regarding the forgiveness application for the PPP loan.