Business Context and Reporting Period
Company: REED's, INC.
Filing Type: Form 8-K (Current Report)
Date of Report: December 9, 2016 (Event Date: December 7, 2016)
Context: The company entered into Amendment Number Thirteen to its Amended and Restated Loan and Security Agreement with PMC Financial Services Group, LLC.
Key Financial Metrics and Debt Structure
This filing details a restructuring of existing debt facilities rather than reporting period-end financial performance metrics (revenue, profit, cash flow). Key debt terms updated include:
- Cap Ex Loan Cap: Increased by $1,500,000 to a total borrowing cap of $4,700,000.
- Interest Rate: Additional interest reduced from 3.0% to 1.5%, resulting in a total rate of 10.5% (subject to performance metrics).
- Maturity Date: Extended for Revolving Loans, Cap Ex Loans, Term Loan, and Term Loan B to January 1, 2019.
- Repayment Terms: Cap Ex Loans are interest-only through January 31, 2017, followed by principal and interest repayment over a 48-month amortization schedule.
- One-Time Fee: $35,000 payable to the lender.
Material Changes vs. Prior Period
Material changes involve the modification of the loan agreement and equity instruments:
- Debt Capacity: Increased borrowing limit for capital expenditures.
- Cost of Capital: Reduction in the additional interest component.
- Equity Warrants: Repricing of exercise prices for previously granted warrants:
- 50,000 warrants (Amendment Twelve): Repriced from $4.50 to $4.10.
- 125,000 warrants (Amendment Ten): Repriced from $5.01 to $4.10.
- Prepayment Obligation: Agreement to pre-pay at least $300,000 of the Cap Ex Loan using proceeds from the sale of idle equipment.
Guidance, Risks, and Unusual Items
Management Commentary: The filing does not contain forward-looking guidance on revenue or earnings. The primary focus is on debt refinancing and covenant compliance.
Risks and Contingencies:
- Performance Metrics: Interest rates on Revolving, Term, and Capex Loans are subject to modification based on performance metrics outlined in the amendment.
- Asset Liquidation: The company must generate proceeds from the sale of idle equipment to meet the $300,000 prepayment requirement.
- Unregistered Securities: The warrant issuances were exempt from registration under Section 4(2) of the Securities Act of 1933 based on a preexisting relationship with PMC and no public offering.
Investor Verification Checklist
- Verify the current status of the $300,000 prepayment from idle equipment sales.
- Review the specific performance metrics in Amendment Thirteen that could trigger interest rate modifications.
- Confirm the dilution impact of the 175,000 warrants with the new $4.10 exercise price.
- Assess the company's liquidity position relative to the extended maturity date of January 1, 2019.