8-K: Star Alliance International Corp. Discloses Details of Convertible Promissory Note

Star Alliance International Corp. has provided a breakdown of a previously reported convertible promissory note, revealing a $56,200 agreement with Keystone Capital Partners, LLC.

Summary

• Star Alliance International Corp. disclosed details of a convertible promissory note with Keystone Capital Partners, LLC.
• The note, signed on May 10, 2023, has a principal amount of $56,200.
• The note includes an original issue discount of $11,200, resulting in a purchase price of $45,000.
• The note has a 10% interest rate and matures on November 9, 2023.
• The note is convertible into common stock at a price of $0.01 per share or 90% of the average of the two lowest VWAPs for the five consecutive trading days prior to conversion, whichever is lower.
• The note includes provisions for mandatory prepayment from proceeds of a prior stock purchase agreement and prepayment upon a qualified financing of at least $5,000,000.
• The note is secured by a security agreement dated September 21, 2021.
• The note contains various events of default, including failure to pay principal or interest, breach of covenants, and bankruptcy events.

Sentiment

Score: 5

Explanation: The document is neutral in tone, providing factual details about a financial instrument. While the terms of the note are not particularly favorable, they are not unexpected for a company of this size and risk profile.

Positives

• The note provides a potential source of capital for Star Alliance International Corp.
• The conversion feature allows the holder to potentially benefit from an increase in the company's stock price.
• The mandatory prepayment clause ensures that the note will be repaid if the company receives proceeds from a prior stock purchase agreement.
• The prepayment upon qualified financing clause ensures that the note will be repaid if the company raises a significant amount of capital.

Negatives

• The note has a high original issue discount of $11,200.
• The note has a relatively short maturity date of November 9, 2023.
• The note includes a number of events of default that could trigger acceleration of the debt.
• The conversion price is subject to adjustment based on future equity sales, which could dilute existing shareholders.

Risks

• The company may not be able to repay the note by the maturity date.
• The company may trigger an event of default, leading to acceleration of the debt.
• The conversion of the note could significantly dilute existing shareholders.
• The company's stock price may not increase, making the conversion feature less valuable.
• The company may not be able to secure a qualified financing of at least $5,000,000.

Future Outlook

The document outlines the terms of the convertible note, including potential conversion and prepayment scenarios, but does not provide specific forward-looking statements about the company's future performance or financial condition.

Management Comments

• The company is providing a breakdown of the convertible promissory note previously reported in aggregate on its financial statements.

Industry Context

Convertible notes are a common financing tool for small and emerging companies, allowing them to raise capital while offering investors the potential for equity upside. The terms of this note, including the original issue discount and conversion features, are typical for this type of financing.

Comparison to Industry Standards

• The 20% original issue discount (OID) is relatively high, suggesting a higher risk profile for Star Alliance International Corp. compared to companies with lower OID on similar notes.
• The 10% interest rate is within the typical range for convertible notes issued by small-cap companies, but may be considered high compared to larger, more established companies.
• The conversion price of $0.01 or 90% of the average of the two lowest VWAPs for the five consecutive trading days prior to conversion is a common structure, but the specific discount and lookback period can vary.
• The mandatory prepayment clause tied to a prior stock purchase agreement is a unique feature, indicating a specific financial arrangement between the company and the note holder.
• The inclusion of a qualified financing prepayment clause is standard in convertible notes, but the $5,000,000 threshold may be considered high for a company of this size.

Stakeholder Impact

• Shareholders may experience dilution if the note is converted into common stock.
• Creditors are impacted by the terms of the note, including the mandatory prepayment and events of default.
• Employees may be indirectly impacted by the company's financial condition and ability to raise capital.

Next Steps

• The company is required to deliver share certificates upon conversion of the note.
• The company must monitor compliance with the terms of the note, including the beneficial ownership limitation.
• The company must provide notice to the holder of any events that could trigger adjustments to the conversion price or other terms of the note.

Key Dates

Keywords

convertible promissory note, debt financing, Keystone Capital Partners, original issue discount, conversion price, maturity date, mandatory prepayment, qualified financing, stock dilution, events of default