Business Context and Reporting Period
This Form 8-K Current Report was filed by XpresSpa Group, Inc. (trading symbol: XSPA) on March 6, 2020. The filing discloses the entry into a material definitive agreement involving a sixth amendment to the Company's existing credit agreement with B3D, LLC, and the triggering of anti-dilution provisions on various outstanding securities.
Key Financial Metrics and Obligations
- Debt Principal Increase: The principal amount of the B3D Convertible Promissory Note was increased from $7.15 million to $7.9 million, adding $750,000 in principal.
- Additional Funding: B3D agreed to provide an additional $500,000 in funding.
- Interest Rate: The B3D Note bears interest at 9.00% per annum, payable monthly in arrears.
- Maturity Date: The B3D Note matures on May 31, 2021.
- Conversion Price Adjustment: The conversion rate for the B3D Note was decreased from $2.00 per share to $0.56 per share.
- Immediate Conversions: B3D submitted notices to convert $375,000 of principal on March 6, 2020, and an additional $375,000 on or before March 27, 2020.
Material Changes and Anti-Dilution Triggers
The reduction of the B3D Note conversion price to $0.56 per share triggered full-ratchet anti-dilution provisions for several outstanding securities, significantly increasing the potential share count issuable upon exercise or conversion:
- Class A Warrants: Exercise price reduced from $2.00 to $0.56; share count increased from 2,296,250 to 8,200,893 shares.
- Calm Warrants: Exercise price reduced from $2.00 to $0.56; share count increased from 937,500 to 3,348,214 shares.
- December 2016 Warrants: Exercise price reduced from $2.00 to $0.56; share count increased from 125,000 to 446,429 shares.
- Calm Notes: Per Common Share Conversion Price reduced from $2.00 to $0.56.
- Series F Convertible Preferred Stock: Conversion price reduced from $2.00 to $0.56.
Restriction on New Principal: The additional $750,000 principal and accrued interest are not convertible into Common Stock until shareholder approval is obtained in accordance with Nasdaq rules.
Prepayment Terms
If the Company prepays the B3D Note in full more than fifteen business days prior to maturity, a premium is due equal to the greater of 4% of the prepaid principal or the Black Scholes value of the prepaid amount.
Outlook, Risks, and Contingencies
- Dilution Risk: The filing highlights significant dilution risks due to the triggered anti-dilution provisions, which increase the number of shares issuable upon exercise of warrants and conversion of notes/preferred stock.
- Future Triggers: The outstanding instruments retain full-ratchet anti-dilution protections, meaning future issuances at prices below $0.56 could trigger further price reductions and share count increases.
- Shareholder Approval: Conversion of the new $750,000 principal tranche is contingent upon shareholder approval.
Note: This filing does not provide specific revenue, profit, cash flow, or liquidity metrics for the reporting period.
Key Facts for Investor Verification
- Verify the total potential dilution impact by calculating the aggregate shares issuable from the adjusted Class A, Calm, and December 2016 Warrants, plus the Calm Notes and Series F Preferred Stock.
- Confirm the status of the shareholder approval required to convert the additional $750,000 principal.
- Assess the Company's ability to service the 9.00% interest payments on the $7.9 million note given the lack of disclosed operating cash flow in this filing.
- Review the Company's capitalization table to understand the current ownership structure post-conversion of the $750,000 in principal.