Business Context and Reporting Period
This Form 8-K, filed on January 14, 2019, reports on events occurring on January 11, 2019, for Eastside Distilling, Inc. (the "Registrant"). The filing details the completion of a merger with Craft Canning LLC ("Craft"), a wholly owned subsidiary of Eastside. Craft has been renamed Craft Canning + Bottling, LLC.
Key Financial Metrics and Transaction Details
The acquisition of Craft was completed for a total consideration of approximately $5,200,000, subject to post-closing adjustments. The consideration structure is as follows:
- Cash: $2,000,000
- Promissory Notes: $800,000 (three-year term)
- Equity: 338,212 shares of Eastside common stock (allocated to accredited investors)
Additionally, Owen Lingley, the founder of Craft, was appointed Executive Chairman of the acquired entity. As part of his employment agreement, he received a warrant to purchase 146,262 shares of Eastside common stock at an exercise price of $7.80 per share with a three-year exercise period.
Material Changes and Contingencies
The Merger Agreement includes a significant earn-out adjustment mechanism based on Craft's performance. If Craft's EBITDA for fiscal year 2019 falls below $1,000,000, the principal amount of the promissory notes payable to former Craft interest holders will be reduced pro rata by the amount of the shortfall.
Equity holders of the acquired company are subject to a one-year lock-up period on the Consideration Shares. After this period, they are granted "piggyback" registration rights.
Guidance, Outlook, and Risks
The filing does not provide specific revenue guidance or profit outlook for the combined entity. However, it notes that historical financial statements and pro forma financial information for the acquired business will be filed in an amendment to this report within 71 calendar days.
Risks and Contingencies:
- EBITDA Shortfall Risk: The reduction of debt principal if Craft fails to meet the $1,000,000 EBITDA threshold for 2019.
- Liquidity and Dilution: The issuance of 338,212 shares and warrants for 146,262 shares represents new equity dilution.
- Regulatory Compliance: Non-accredited investors received only cash and notes, not equity, to comply with Regulation D.
Investor Verification Checklist
- Verify the final post-closing adjustments to the $5,200,000 total consideration.
- Monitor Craft's 2019 EBITDA performance to determine if the $800,000 note principal will be reduced.
- Review the upcoming amendment to this 8-K for historical and pro forma financial data of Craft.
- Confirm the impact of the 338,212 new shares and 146,262 warrant shares on existing shareholder dilution.
- Check for any subsequent filings regarding the integration of Craft Canning + Bottling, LLC.