Medalist Diversified, Inc. current report, 27 October 2020

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Business Context and Reporting Period

Company: Medalist Diversified REIT, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: October 27, 2020
Reporting Period: Event date October 27, 2020; Signed November 2, 2020.
Context: The Company entered into a Securities Purchase Agreement with YA II PN, LTD. to issue convertible debt securities to raise capital.

Key Financial Metrics

This filing details a specific financing transaction rather than periodic financial performance. Key metrics related to the transaction include:

  • Initial Proceeds: $1,270,000 net proceeds from the sale of the Initial Convertible Debenture (Principal: $1,500,000).
  • Potential Future Proceeds: Approximately $3,045,000 net proceeds from the Second and Third Convertible Debentures (Total Principal: $3,500,000), subject to closing conditions.
  • Interest Rate: 5% per annum on the Convertible Debentures.
  • Default Interest: 15% per annum upon an Event of Default.
  • Redemption Premium: 15% of the outstanding principal amount if redeemed prior to maturity.
  • Original Issue Discount (OID): 5.0%.
  • Conversion Price: Lower of $2.47 per share or 88% of the lowest daily volume weighted average trading price during the ten trading days prior to conversion.

Note: The filing text does not provide clear values for total revenue, net profit, operating cash flow, overall debt levels, or liquidity ratios outside of this specific transaction.

Material Changes

The primary material change is the creation of a new direct financial obligation and the potential dilution of existing shareholders:

  • Debt Issuance: Issuance of $1,500,000 in Initial Convertible Debentures with commitments for an additional $3,500,000.
  • Equity Dilution: Creation of Conversion Shares issuable upon conversion of the debentures, subject to a 4.99% beneficial ownership limitation (expandable to 9.8% at the Purchaser's option).
  • Registration Obligation: Agreement to file a registration statement for the resale of Conversion Shares by December 11, 2020.

Outlook, Risks, and Contingencies

Management Commentary and Conditions:

  • The Second Convertible Debenture is contingent upon the filing of a registration statement for the Conversion Shares.
  • The Third Convertible Debenture is contingent upon the SEC declaring that registration statement effective.
  • The Company intends to seek common stockholder approval for the issuance of Conversion Shares.
Risks and Contingencies:
  • Events of Default: Include failure to make payments, breach of covenants, bankruptcy, failure to timely file the registration statement, suspension of trading, or a change of control.
  • Acceleration: Upon an Event of Default, the full outstanding principal and interest become immediately due and payable.
  • Redemption Risk: The Company may redeem the debentures if the trading price of Common Stock is less than the Fixed Conversion Price, incurring a 15% premium.

Investor Verification Checklist

  • Verify the status of the registration statement for Conversion Shares (required by December 11, 2020) to determine if the Second and Third Debentures will be issued.
  • Confirm the current trading price of Common Stock relative to the $2.47 Fixed Conversion Price to assess conversion likelihood and redemption risk.
  • Review the Company's cash position to ensure ability to service the 5% interest and potential redemption premiums.
  • Check for any subsequent filings regarding stockholder approval for the Conversion Shares.
  • Monitor for any Events of Default that could trigger immediate repayment of the $1,500,000 principal plus accrued interest.