8-K: Eva Live Inc. Secures $2.16M Convertible Note

Eva Live Inc. has entered into a securities purchase agreement for a $2.16 million secured convertible promissory note with Streeterville Capital, LLC, to fund working capital and business objectives.

Summary

• Eva Live Inc. has entered into a Securities Purchase Agreement with Streeterville Capital, LLC, for a secured convertible promissory note.
• The note has an original principal amount of $2,160,000 and an effective date of July 23, 2026.
• The company will receive $2.0 million in gross proceeds after an original issue discount (OID) of $160,000 and transaction expenses of $8,500.
• The note matures 24 months after the Purchase Price Date and bears interest at 8% per annum.
• Streeterville Capital, LLC has the option to convert the note into common shares of Eva Live Inc. at a conversion price of 87% of the lowest daily VWAP over a preceding 10-day period, with a floor price of $0.472.
• The company also granted Streeterville Capital, LLC the right to purchase an additional note of $1,250,000 under similar terms.
• The note is secured by a Security Agreement, which includes equity interests in subsidiaries, customer accounts, and equipment.
• The company has the right to prepay the note with a 10% premium, and Streeterville Capital, LLC has redemption rights if the stock price falls below the floor price for 10 consecutive days.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a negative development due to the high cost of capital, significant dilution potential, and numerous trigger events that increase financial risk for the company.

Positives

• Secured $2.16 million in financing through a convertible note, providing capital for working capital and general corporate purposes.
• The financing is structured as a convertible note, which may not require immediate cash repayment if converted into equity.
• The company has the right to prepay the note, offering flexibility in managing its debt.
• The conversion price is set at a discount (87% of VWAP) with a floor price, potentially benefiting the company if its stock price increases significantly.

Negatives

• The note carries an original issue discount (OID) of $160,000, reducing the net proceeds received by the company.
• Transaction expenses of $8,500 further reduce the immediate cash inflow.
• The convertible nature of the note can lead to significant equity dilution for existing shareholders upon conversion.
• The note accrues 8% annual interest, increasing the company's debt burden.
• The lender has the right to convert the note into equity, which could dilute existing shareholders' ownership.
• The lender can redeem the note if the stock price falls below a certain threshold, potentially forcing cash outlays.
• Trigger events and defaults can lead to increased principal, default interest (15%), and accelerated repayment, significantly increasing the company's financial obligations.

Risks

• Potential for significant equity dilution if the note is converted into common shares, especially if the conversion price is low.
• The company may face cash flow challenges if the lender opts for cash redemption or if the note is accelerated due to default.
• The trigger event provisions, including the 'Trigger Effect' which can increase the outstanding balance by 5-10% per event, pose a substantial risk of escalating debt.
• The company's ability to meet its obligations is dependent on its future financial performance and stock price.
• Failure to deliver conversion shares on time can result in late fees of 1% per day, capped at 100% of the conversion share value, adding to the debt.
• The lender's ability to convert or redeem the note could impact the company's stock price and market capitalization.
• The security agreement grants a security interest in various company assets, which could be seized by the lender in case of default.

Future Outlook

The company intends to use the net proceeds from the sale of the note for working capital requirements, general corporate purposes, and the advancement of business objectives. The note has a maturity of 24 months, and the lender has the option to purchase an additional note within that period.

Management Comments

• Eva Live Inc. intends to use the net proceeds from the sale of the Initial Note for working capital requirements, general corporate purposes, and the advancement of business objectives.

Industry Context

StockSavvy.ai notes that the issuance of convertible notes is a common financing method for early-stage or growth-oriented companies, particularly in the technology and biotech sectors, to access capital without immediate equity dilution. However, the terms, including the discount, interest rate, conversion price, and trigger events, are critical in assessing the overall cost and potential impact on existing shareholders.

Comparison to Industry Standards

• Convertible notes typically have interest rates ranging from 3% to 8%. The 8% rate in this note is at the higher end of this range.
• Original Issue Discounts (OIDs) on convertible notes can vary widely, but an 8% OID on a $2.16 million note is substantial, indicating a higher cost of capital.
• Conversion prices are often set at a discount to the market price to incentivize the lender. An 87% of VWAP with a floor price is a common structure, but the specific floor price of $0.472 needs to be compared to the company's current trading price to assess its attractiveness.
• Prepayment penalties on convertible notes can range from 0% to 5% of the prepaid amount. The 10% premium in this note is relatively high.
• The inclusion of significant trigger events that can increase the principal and interest rates, along with redemption rights, suggests a higher risk profile for the borrower compared to standard convertible debt.

Stakeholder Impact

• Shareholders: Potential for significant dilution of ownership and voting power upon conversion of the note. The stock price may also be negatively impacted by the issuance and potential conversion.
• Creditors: The note is secured by company assets, potentially impacting the recovery of other creditors in case of default.
• Management: Increased pressure to meet financial obligations and potentially manage dilution concerns.

Next Steps

• Closing of the transaction upon satisfaction of closing conditions, including the filing of a Rule 424(b) prospectus supplement.
• Potential issuance of an additional note of $1,250,000 by the investor within 24 months.
• Company to use proceeds for working capital, general corporate purposes, and business objectives.

Key Dates

Recommendation

While the financing provides necessary capital, the terms of the convertible note, including the OID, high interest rate, potential for significant dilution, and numerous trigger events, present substantial risks. Existing shareholders should monitor the company's performance closely and consider the dilutive impact before increasing their position. A 'hold' recommendation reflects the balance between the need for capital and the associated financial risks.

Keywords

Convertible Note, Secured Debt, Eva Live Inc., Streeterville Capital, Financing, Dilution, Working Capital, Securities Purchase Agreement