Business Context and Reporting Period
This Form 8-K, filed on March 12, 2019, reports the completion of the acquisition of OpenALPR Technology, Inc. ("OpenALPR") by Novume Solutions, Inc. (Note: The request metadata lists "Rekor Systems, Inc.", but the filing text explicitly identifies the registrant as "Novume Solutions, Inc."). The transaction closed on March 12, 2019, following amendments to the original Asset Purchase Agreement signed in November 2018.
Key Financial Metrics and Transaction Details
The acquisition consideration and associated financing obligations are as follows:
- Acquisition Consideration:
- Cash paid: $7,000,000
- Common stock issued: 600,000 shares
- Promissory note issued to OpenALPR: $5,000,000 principal
- Debt Financing (Note Purchase Agreement):
- Aggregate principal amount of senior secured notes: $20,000,000
- Interest rate: 16% per annum (minimum 10% paid in cash; remainder as PIK interest)
- Maturity date: March 11, 2021
- Prepayment penalties: 20% if prepaid before March 11, 2020; 10% thereafter
- Exit fee: $1,000,000 payable at maturity or full repayment
- Closing fees: $200,000 paid immediately; $43,250 of a $403,250 work fee paid immediately (balance in installments)
- Equity Issuance (Warrants):
- Warrants issued to note purchasers: 2,500,000 shares
- Exercise price: $0.74 per share
- Expiration: Five-year anniversary of issuance
The filing does not provide specific revenue, profit, cash flow, or margin figures for the company or the acquired entity. Pro forma financial information is scheduled to be filed within 71 days.
Material Changes and Agreements
Significant modifications were made to the acquisition terms prior to closing:
- Amendment No. 1 (Feb 15, 2019): Modified the consideration mix to include a promissory note and redefined the base purchase price.
- Amendment No. 2 (Mar 8, 2019): Eliminated the working capital adjustment and replaced it with an adjustment for prepaid maintenance contracts.
- Collateral: The company granted liens and security interests in substantially all assets, including 100% of domestic subsidiary equity and significant portions of foreign subsidiary equity, to secure the $20 million note.
Outlook, Risks, and Contingencies
Financial Covenants and Defaults: The Note Purchase Agreement includes customary financial covenants and events of default, including payment defaults, covenant breaches, change of control, and bankruptcy/insolvency events.
Liquidity and Obligations: The company faces significant near-term cash obligations, including quarterly cash interest payments (commencing June 30, 2019), monthly work fee installments, and potential prepayment penalties if the debt is retired early.
Unregistered Securities: The common stock and warrants issued were sold in reliance on exemptions from registration under Section 4(a)(2) of the Securities Act and Regulation D.
Future Filings: Required financial statements of the acquired business and pro forma financial information are not included in this report and will be filed by amendment within 71 days.
Investor Verification Checklist
- Verify the exact number of shares outstanding post-issuance of the 600,000 acquisition shares and 2,500,000 warrant shares.
- Review the specific financial covenants in Article 6 of the Note Purchase Agreement (Exhibit 4.3) to assess compliance risks.
- Monitor the upcoming filing (within 71 days) for the pro forma financial information to understand the combined entity's leverage and liquidity.
- Confirm the valuation of the 600,000 shares issued to OpenALPR based on the trading price on March 12, 2019.
- Assess the impact of the 16% interest rate and PIK interest compounding on future earnings and cash flow.