TSS, Inc. Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed by TSS, Inc. on February 3, 2015. The filing discloses the entry into a material definitive contract and the creation of a direct financial obligation involving the Company and its subsidiaries (collectively, the "Borrowers").
Key Financial Metrics and Obligations
- Loan Facility: Maximum principal amount of $2,000,000.
- Initial Funding: $945,000 advanced on February 3, 2015.
- Remaining Availability: Up to $1,055,000 may be advanced at the lender's discretion prior to February 23, 2015.
- Interest Rate: Fixed at 12% per annum.
- Repayment Terms: Interest-only payments monthly beginning March 1, 2015; maturity is 60 months from the date of the last advance.
- Prepayment Fees: 4% if prepaid before Feb 3, 2016; 2% between Feb 4, 2016 and Feb 3, 2017; 1% between Feb 4, 2017 and Feb 3, 2018.
- Collateral: Secured by substantially all Borrower assets.
- Subordination: The loan is subordinated to senior debt held by Bridge Bank, National Association.
Material Changes and Equity Issuance
In connection with the loan, the Company issued a warrant to the lender, MHW SPV II, LLC ("MHW"), granting the right to purchase up to 1,115,827 shares of common stock. The warrant is exercisable for five years with tiered strike prices:
- 472,500 shares at $0.50 per share.
- 425,250 shares at $1.00 per share.
- 218,077 shares at $1.30 per share.
The issuance was made in reliance on the Section 4(2) exemption from registration under the Securities Act of 1933.
Related Party Transactions and Risks
Peter H. Woodward, Chairman of the Board of TSS, Inc., is a principal of MHW Capital Management, LLC, the investment manager for MHW. MHW Capital Management is entitled to a performance fee equal to 10% of any appreciation in the valuation of the Company's common stock in excess of the applicable strike price under the Warrant.
Key risks include customary events of default such as payment defaults, insolvency, bankruptcy, and failure to comply with covenants. The filing does not provide specific revenue, profit, or cash flow data for the period.
Investor Verification Checklist
- Verify the total amount of the loan actually drawn down after the February 23, 2015 deadline.
- Confirm the current status of the senior debt held by Bridge Bank, National Association, to which this new loan is subordinated.
- Review the impact of the 12% interest rate and prepayment fees on future cash flow projections.
- Assess the potential dilution impact of the warrant issuance (1,115,827 shares) at the specified tiered exercise prices.
- Examine the related party agreement regarding the 10% performance fee payable to MHW Capital Management.