Business Context and Reporting Period
This Form 8-K is a current report filed by Novume Solutions, Inc. (the "Company") on December 12, 2017. The filing discloses the entry into a material definitive agreement and the creation of a direct financial obligation by the Company's wholly owned subsidiary, AOC Key Solutions, Inc. ("AOC Key").
Key Financial Metrics and Obligations
- Facility Type: Account Purchase Agreement (Factoring) with Wells Fargo Bank, National Association ("WFB").
- Maximum Facility Amount: $3,000,000.
- Initial Advance: $1,750,000 advanced simultaneously with the agreement execution on November 12, 2017.
- Advance Rate: WFB advances 90% of Eligible Accounts.
- Interest Rate: Daily One Month LIBOR plus 5%.
- Deficit Interest Rate: Applicable interest rate plus 50%.
- Default Interest Rate: Applicable or deficit interest rate plus 50%.
- Term: Initial term through December 31, 2018, with automatic 12-month renewal terms.
- Collateral: Full recourse; WFB does not assume risk of non-payment. Collateral includes all accounts, chattel paper, inventory, equipment, and other personal and real property of the Company and its subsidiaries.
Material Changes and Agreements
The primary material change is the establishment of a new $3 million revolving credit facility secured by accounts receivable. This agreement supersedes or operates alongside previous arrangements, as the default provisions explicitly reference prior Account Purchase Agreements dated August 22, 2012, involving subsidiaries Global Contract Professional, Inc. and Global Technical Services, Inc.
The Company and its subsidiaries (AOC Key, KeyStone Solutions, LLC, Global Contract, and Global Technical) entered into General Security Agreements granting WFB a continuing security interest in all assets. Additionally, the Company and its subsidiaries provided guarantees for the obligations of AOC Key and cross-guarantees for the obligations of Global Contract and Global Technical under their existing agreements.
Outlook, Risks, and Contingencies
- Termination Rights: WFB may terminate the agreement at any time with 30 days' notice or immediately upon an Event of Default. AOC Key may terminate with 60 to 120 days' notice prior to the end of a term.
- Events of Default: Include failure to pay obligations, breach of covenants, or defaults under the 2012 agreements with Global Contract and Global Technical.
- Recourse Risk: The transaction is with full recourse, meaning the Company retains the risk of non-payment on the underlying accounts.
- Management Commentary: The filing contains no forward-looking guidance, revenue projections, or management commentary beyond the description of the agreement terms.
Investor Verification Checklist
- Verify the current status of the 2012 Account Purchase Agreements with Global Contract and Global Technical, as defaults thereunder trigger defaults in the new 2017 facility.
- Confirm the utilization rate of the $3,000,000 facility beyond the initial $1,750,000 advance.
- Review the Company's cash flow statements to assess the impact of the LIBOR + 5% interest expense on net income.
- Assess the quality and collectability of the "Eligible Accounts" pledged as collateral, given the full recourse nature of the deal.
- Check for any subsequent filings regarding amendments to the security interests or additional guarantees.