Beeline Holdings, Inc. current report, 19 April 2021

Business Context and Reporting Period

This Form 8-K Current Report was filed by Eastside Distilling, Inc. (trading symbol: EAST) on April 23, 2021, covering events occurring on April 19, 2021. The company is a Nevada corporation listed on The Nasdaq Stock Market LLC. The filing primarily details a private offering of secured convertible notes and warrants, the resolution of a Nasdaq listing compliance issue, and the issuance of earnout shares related to a prior asset purchase.

Key Financial Metrics and Capital Structure

  • Capital Raised: The company closed on $3,000,000 of a private offering of secured convertible promissory notes.
  • Net Proceeds: Approximately $2.81 million was received after deducting a 5% placement agent fee and legal fees.
  • Debt Instrument Terms: Notes bear 6% annual interest, payable in cash or stock, with a maturity date of October 18, 2022.
  • Conversion Terms: Initial conversion price is $2.20 per share. Notes are subject to full ratchet anti-dilution protection.
  • Warrant Terms: Warrants cover 60% of the principal amount of notes issued, with an exercise price of $2.65 per share.
  • Existing Debt: The company issued promissory notes totaling $7,841,042 to Intersect Beverage, LLC as part of earnout consideration. These notes bear 6% interest and mature in April 2024.
  • Equity Issuance: 682,669 shares of common stock were issued to affiliates of Intersect Beverage, LLC.

Material Changes and Corporate Actions

  • Secured Financing: The company entered into a Security Agreement granting investors a subordinated security interest in certain company assets to secure the new notes.
  • Nasdaq Compliance: The company resolved a non-compliance issue regarding the independence of its Board of Directors. Following the appointment of Elizabeth Levy-Navarro to the Board and committees, Nasdaq confirmed compliance with Listing Rule 5605 on April 22, 2021.
  • Issuance Restrictions: Until stockholder approval is obtained, the company is restricted from issuing equity at a price below the warrant exercise price ($2.65).

Outlook, Risks, and Management Commentary

  • Use of Proceeds: Management intends to use the net proceeds from the offering to repay prior outstanding notes payable and for working capital and general corporate purposes.
  • Prepayment Penalty: The company may prepay the notes at any time but must pay a 5% prepayment fee on the principal amount repaid.
  • Default Risks: The notes contain customary triggering events, including failure to make payments or bankruptcy/insolvency, which allow holders to demand immediate cash redemption.
  • Dilution Risk: The notes and warrants include significant anti-dilution provisions (full ratchet) that could significantly lower the conversion and exercise prices if the company issues equity at a lower price in the future.
  • Ownership Caps: Conversion and exercise are limited if the holder would beneficially own more than 9.99% of the outstanding common stock.

Investor Verification Checklist

  • Verify the exact amount of "prior outstanding notes payable" the company intends to repay with the new proceeds.
  • Confirm the status of the stockholder approval required to lift the restriction on issuing equity below $2.65 per share.
  • Review the Security Agreement (Exhibit 10.2) to understand the specific assets pledged as collateral.
  • Assess the impact of the 9.99% beneficial ownership limitation on the ability of investors to convert or exercise warrants.
  • Monitor the filing of the Form S-3 registration statement for the resale of conversion shares and warrant shares, required within 30 days of closing.