8-K: Polomar Health Services Restructures Debt with $750K Preferred Stock Issuance to Affiliates

Polomar Health Services, Inc. has issued $750,000 in Series A Convertible Preferred Stock to affiliated entities, Reprise Management, Inc. and CWR 1, LLC, to restructure existing debt and extend loan maturities.

Summary

• Polomar Health Services, Inc. (the "Company") executed a Second Amendment to its Promissory Note and Loan Agreement with Reprise Management, Inc. (an affiliate) on July 2, 2025, effective June 30, 2025.
• The original Reprise Note allowed borrowing up to $700,000 with variable interest rates between 12% and 15% per annum, due July 31, 2025.
• As of June 30, 2025, the total amount due to Reprise was $897,549.74.
• The Company utilized $300,000 from the sale of Series A Convertible Preferred Stock to reduce the Reprise Note principal to $597,549.74.
• The remaining balance of the Reprise Note will bear a 12% per annum simple interest rate, and its maturity date was extended to July 31, 2027.
• The Company also executed a First Amendment to its Promissory Note and Loan Agreement with CWR 1, LLC (an affiliate) on July 2, 2025, effective June 30, 2025.
• The CWR Note had a total amount due of $450,000 as of June 30, 2025, with variable interest rates between 12% and 13.5% per annum, due July 31, 2025.
• The Company used $450,000 from the sale of Series A Convertible Preferred Stock to fully repay the CWR Note, reducing its outstanding balance to zero.
• On July 3, 2025, the Company issued and sold 60 shares of Series A Convertible Preferred Stock to Reprise Management, Inc. for $300,000 and 90 shares to CWR 1, LLC for $450,000, totaling 150 shares and $750,000 in proceeds.
• The Series A Convertible Preferred Stock has a stated value of $5,000 per share and a cumulative cash dividend rate of 10% per annum ($500 per share), payable quarterly in arrears.
• Dividends for the first two years can be paid in cash or additional preferred shares (PIK Dividends) at the Company's discretion; thereafter, at the Majority Holders' discretion.
• In case of a Dividend Default, the dividend rate increases to 15% per annum, and dividends must be paid in cash or freely tradeable Common Stock if listed on a National Market.
• The Preferred Stock ranks senior to Common Stock and any Junior Stock regarding liquidation preference, which is $5,000 per share plus accrued but unpaid dividends.
• Each share of Preferred Stock is convertible into Common Stock at a conversion price of $0.40 per share, subject to adjustments for recapitalizations, stock splits, distributions, reorganizations, and dilutive equity sales.
• Holders of Preferred Stock are entitled to 0.90 votes per share of Common Stock on an as-converted basis, with total voting power capped at 19.9% of outstanding Common Stock until shareholder approval is obtained.
• The Company has reserved 1,500,000 shares of Common Stock for Reprise and 2,250,000 shares for CWR to fulfill conversion notices, totaling 3,750,000 shares.
• The Company acknowledges it does not have sufficient authorized Common Stock as of the Issuance Date to meet the 200% required reserve for conversion and will seek shareholder approval for necessary amendments.

Sentiment

Score: 3

Explanation: The sentiment is moderately negative. While the Company addressed immediate debt obligations, the terms of the capital raise (high dividend, significant control ceded to affiliates, and explicit lack of sufficient authorized common stock for full conversion) suggest underlying financial distress and unfavorable conditions for common shareholders.

Positives

• The Company successfully restructured $750,000 of existing debt by converting it into preferred equity, reducing immediate cash outflow for debt service.
• The Promissory Note with CWR 1, LLC, totaling $450,000, was fully repaid, eliminating that specific debt obligation.
• The principal amount of the Promissory Note with Reprise Management, Inc. was reduced by $300,000, from $897,549.74 to $597,549.74.
• The maturity date for the remaining balance of the Reprise Note was extended by two years, from July 31, 2025, to July 31, 2027, providing the Company with more time to repay.
• The interest rate on the remaining Reprise Note balance was reduced from 15% to 12% per annum, lowering future interest expenses on that portion of the debt.
• The newly issued Series A Convertible Preferred Stock provides a mechanism for future funding and has a fixed 10% cumulative dividend rate, offering a predictable return for preferred holders.

Negatives

• The issuance of Series A Convertible Preferred Stock to Reprise Management, Inc. and CWR 1, LLC, both affiliates of the Company, suggests potential difficulty in securing financing from independent, arm's-length investors.
• The terms of the Series A Convertible Preferred Stock grant significant protective provisions to the Majority Holders, requiring their consent for numerous key corporate actions, which could limit management's operational and strategic flexibility.
• The potential conversion of the preferred stock into common stock at a $0.40 conversion price, coupled with the reservation of 3,750,000 common shares for conversion, poses a significant risk of dilution for existing common shareholders.
• The Company explicitly stated that it does not have sufficient authorized Common Stock as of the Issuance Date to meet the 200% required reserve for conversion, necessitating future shareholder approval for full conversion, which introduces uncertainty.
• Despite the debt restructuring, the Company still carries a substantial remaining debt balance of $597,549.74 with Reprise Management, Inc.
• The cumulative nature of the 10% annual dividend on the preferred stock means that unpaid dividends will accrue, increasing the Company's future obligations to preferred shareholders.
• A Dividend Default on the preferred stock triggers an increased dividend rate of 15% per annum and a requirement to pay dividends in cash or freely tradeable common stock, adding financial pressure.

Risks

• **Dilution Risk:** The potential conversion of Series A Convertible Preferred Stock into Common Stock, especially given the 19.9% voting cap until shareholder approval, poses a significant risk of dilution for existing common shareholders.
• **Control Risk:** The protective provisions granted to the Majority Holders of the Series A Convertible Preferred Stock, requiring their consent for various corporate actions, could significantly limit the Company's management and Board's flexibility and decision-making autonomy.
• **Financial Health Risk:** The necessity of restructuring existing debt and issuing preferred stock to affiliated parties suggests ongoing financial challenges and a potential inability to secure more favorable financing from external, non-affiliated sources.
• **Shareholder Approval Risk:** The Company's acknowledgment of insufficient authorized Common Stock for the required conversion reserve means that future shareholder approval is necessary, introducing uncertainty and potential delays for full conversion.
• **Cumulative Dividend Obligation:** The cumulative nature of the 10% annual dividend on the preferred stock means that if dividends are not paid, they will accrue, increasing the Company's financial obligations and potentially leading to a higher 15% penalty rate upon default.

Future Outlook

No specific forward-looking guidance on operational performance or financial results was provided beyond the terms of the preferred stock and debt agreements. The Company's cautionary statement refers to risks described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and other periodic filings.

Industry Context

NA

Corporate Governance

Related Party Transactions

• Polomar Health Services, Inc. entered into a Second Amendment to Promissory Note and Loan Agreement and a Securities Purchase Agreement with Reprise Management, Inc. Mr. Daniel Gordon, President of Reprise, is an affiliate of the Company.
• Polomar Health Services, Inc. entered into a First Amendment to Promissory Note and Loan Agreement and a Securities Purchase Agreement with CWR 1, LLC. Mr. Daniel Gordon, Manager of CWR 1, LLC, is an affiliate of the Company and Reprise.
• The Company issued 60 shares of Series A Convertible Preferred Stock to Reprise Management, Inc. for $300,000, which was used to reduce the outstanding principal of the Reprise Note.
• The Company issued 90 shares of Series A Convertible Preferred Stock to CWR 1, LLC for $450,000, which was used to fully repay the CWR Note.

Stakeholder Impact

• **Shareholders (Common Stock):** Face potential significant dilution upon conversion of the Series A Convertible Preferred Stock. Their voting power is also subject to a 19.9% cap until further shareholder approval, and their ability to receive dividends is subordinated to preferred shareholders. The protective provisions granted to preferred holders could limit the Board's flexibility, potentially impacting common shareholder value.
• **Shareholders (Series A Convertible Preferred Stock):** Benefit from a senior ranking in liquidation, a cumulative 10% annual dividend (with a 15% penalty rate on default), and significant protective voting rights that provide substantial control over key corporate actions. They also have the option to convert to common stock at a fixed price.
• **Creditors:** The restructuring reduced the Company's immediate debt burden by converting $750,000 of promissory notes into preferred equity. The extension of the Reprise Note maturity date provides more time for repayment, which could be seen as positive for the remaining debt, but the issuance of senior preferred stock could impact the Company's ability to incur future senior debt.

Next Steps

• The Company needs to obtain shareholder approval for the voting power of the Series A Convertible Preferred Stock to exceed 19.9% of outstanding Common Stock.
• The Company must take corporate action to increase its authorized but unissued shares of Common Stock to meet the 200% required reserve for conversion of the Series A Convertible Preferred Stock, including seeking requisite Shareholder Approval for any necessary amendment.
• The Company has agreed to execute and deliver Registration Rights Agreements for purposes of registering for resale the shares of common stock underlying the Preferred Stock issued to Reprise and CWR.

Key Dates

Recommendation

Keywords

Preferred Stock, Convertible Securities, Debt Restructuring, Capital Raise, Affiliate Transaction, Corporate Governance, SEC Filing, Financial Reporting, Dilution, Shareholder Rights, Promissory Note, Loan Agreement, Polomar Health Services