Good evening, Hostastock, and thanks for your earlier compliment,
For the sake of the readership, let me copy the terms of the new BofI loan into this post:
On November 3, 2015, Vapor Hub International Inc. (the “Company”) entered into a Business Loan and Security Agreement with BofI Federal Bank (the “Bank”). Pursuant to the agreement, the Company borrowed $125,000 from the Bank and received net proceeds of $93,615.51 after deducting the repayment of $31,384.49 in full satisfaction of the Company’s remaining obligations under that certain Business Loan and Security Agreement entered into with the Bank on June 2, 2015. The new loan is payable in 126 payments of $1,220.24 due each business day beginning on November 4, 2015, with the total repayment amount (subject to certain exceptions) being equal to $153,750.24 (the “Total Repayment Amount”).[Further along in the narrative, the story about the key people of the company personally guaranteeing the note is presented.]
Let's calculate the effective interest rate on this loan:
1. The amount borrowed is roughly 94K, and it's being repaid on an almost constant basis (for the sake of simplicity, let's say that each "business" day is every day of the week rather than five out of seven days of the week). So that means that the average loan is about 47K.
2. 126 payments of $1220 each multiplies out to about 154K, of which 94K is principal and 60K is interest.
3. If 60K is the interest on a 47K loan, and the term of the loan were a year, then the effective interest rate would be about 80%. 126 business days is about half a year (126 X 7/5), so I think that the company just borrowed money at a 160% annual rate.
4. The fact that they had to borrow more money means that it's unlikely that Q1 ran profitably.
5. The fact that they have to pay usurious rates to borrow money is not a good sign, partially offset by the fact that the key people in the company have co-signed on the loan, which shows confidence that the company will survive.
Overall, it's getting close to the time when the company will absolutely need to get long-term capital into place, whether it's a matter of bonds or of stock.
Sorry not to be able to cast the 8K into a more positive light.
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