8-K: Yerba Brands Corp. Secures $750,000 Loan at 55.8% Interest, Issues Shares as Stacking Fee

Yerba Brands Corp. has entered into a loan agreement for $750,000 with a 55.8% annual interest rate, secured against company assets, and issued shares as a stacking fee.

Summary

• Yerba Brands Corp. secured a $750,000 loan from Maximcash Solutions LLC on July 3, 2024.
• The loan has a 12-month term, maturing on July 3, 2025, and is payable in 24 bi-weekly installments.
• The annual interest rate on the loan is 55.80%.
• The loan is secured against all present and after-acquired property of Yerba Brands Corp. and its subsidiary.
• Yerba Brands Corp. can prepay the loan with a 3% discount if they pay $937,500 within 90 days of receiving the loan proceeds.
• The loan proceeds will be used to release a UCC-1 financing statement related to a prior credit facility with Oxford Commercial Finance.
• As a stacking fee, Yerba Brands Corp. issued 214,285 common shares at a deemed price of $0.35 per share to Maximcash.
• These shares are subject to a four-month and one-day hold period.
• Final approval of the loan is pending from the TSX Venture Exchange.

Sentiment

Score: 3

Explanation: The high interest rate and share issuance as a stacking fee indicate financial distress and a lack of access to better financing options, resulting in a negative sentiment.

Positives

• The loan provides Yerba Brands Corp. with $750,000 in funding.
• The company has the option to prepay the loan at a discount within 90 days.

Negatives

• The loan carries a very high annual interest rate of 55.80%.
• The loan is secured against all company assets, increasing the risk for the company.
• The company had to issue 214,285 common shares as a stacking fee, diluting existing shareholders.

Risks

• The high interest rate of 55.80% could significantly impact the company's financials.
• Securing the loan against all company assets puts the company at risk of losing those assets in case of default.
• The issuance of shares as a stacking fee dilutes the ownership of existing shareholders.
• The loan agreement includes default clauses that could trigger immediate repayment or collateral seizure.

Future Outlook

The company needs to obtain final approval from the TSX Venture Exchange for the loan. The company will need to manage the high interest payments and the debt obligations.

Management Comments

• Todd Gibson, Chief Executive Officer, signed the report on behalf of Yerba Brands Corp.
• Yerba Brands Corp. wishes to supplement certain disclosures related to its previously announced loan agreement.

Industry Context

The high interest rate on the loan suggests that Yerba Brands Corp. may have limited access to traditional financing options, possibly due to its financial situation or perceived risk. This is not uncommon for smaller companies in the beverage industry.

Comparison to Industry Standards

• A 55.80% interest rate is exceptionally high compared to typical business loans, which usually range from 5% to 15% for established companies.
• Companies like Monster Beverage or Celsius Holdings, which are established players in the energy drink market, would likely secure much more favorable loan terms.
• The issuance of shares as a stacking fee is also unusual and indicates a need for immediate capital, which is not typical for companies with strong financial positions.
• The loan terms are more akin to those seen in high-risk lending scenarios, such as those involving distressed companies or very early-stage startups.

Stakeholder Impact

• Shareholders will experience dilution due to the issuance of new shares.
• Creditors are now secured against all company assets, increasing their security.
• Employees may be concerned about the company's financial stability due to the high-interest loan.

Next Steps

• Yerba Brands Corp. needs to obtain final approval for the loan from the TSX Venture Exchange.
• The company will need to manage the loan repayment schedule and high interest payments.
• The company will need to monitor the four-month and one-day hold period on the issued shares.

Key Dates

Keywords

loan agreement, financing, interest rate, secured loan, share issuance, debt, Maximcash, Yerba Brands Corp, UCC-1, prepayment