Business Context and Reporting Period
Company: Eastside Distilling, Inc. (Note: Metadata referenced "Beeline Holdings, Inc.", but the filing text identifies the registrant as Eastside Distilling, Inc.)
Filing Type: Form 8-K (Current Report)
Date of Report: April 14, 2016
Event: Entry into a Material Definitive Agreement involving an amendment to a securities purchase agreement and the issuance of a new secured convertible promissory note.
Key Financial Metrics
- Debt Issuance: Issued a 14% Secured Convertible Promissory Note ("Additional Note") with a principal amount of $300,000.
- Original Issue Discount (OID): $100,000.
- Gross Proceeds Received: $200,000.
- Transaction Expenses: $15,000 paid immediately (remaining expenses deferred).
- Net Proceeds: $185,000.
- Use of Proceeds: Working capital and general corporate purposes.
- Total Outstanding Notes: $575,000 aggregate principal (combining the Initial Note of $275,000 and the Additional Note of $300,000), now held by MR Group I, LLC.
- Security: Notes are secured by all of the Company's assets.
Material Changes and Terms
The Company amended a September 10, 2015 Securities Purchase Agreement to facilitate the issuance of the Additional Note. Key terms include:
- Maturity Date: January 18, 2017.
- Repayment Structure: Six amortization payments beginning 30 days after issuance; failure to make these payments is not an event of default.
- Prepayment: Allowed at any time prior to the maturity date.
- Conversion Rights: Convertible into common stock at the lesser of a fixed price of $0.40 or 65% of the lowest trading price during the 5 trading days prior to conversion.
- Subsequent Placement Contingency: If a proposed $2 million financing is consummated, $200,000 of the Additional Note principal and accrued interest will be applied to reduce the purchase price of that financing, with the remainder cancelled.
- Covenants: Restrictions on incurring new indebtedness, permitting liens, paying dividends, or disposing of assets.
Guidance, Risks, and Contingencies
- Dividend Restriction: The Notes prohibit the payment of cash dividends or distributions on equity securities while the Notes are outstanding without the written consent of all Note holders.
- Events of Default: Include failure to pay principal or interest or failure to comply with covenants.
- Regulatory Status: The issuance was exempt under Section 4(a)(2) of the Securities Act of 1933 and/or Rule 506 of Regulation D.
- Future Financing: The Company has executed a non-binding term sheet for a subsequent $2 million placement, which could alter the outstanding debt balance.
Investor Verification Checklist
- Verify the current trading price of common stock to assess the potential dilution impact of the 65% discount conversion feature.
- Confirm the status of the proposed $2 million "Subsequent Placement" financing to determine if the $200,000 debt reduction clause will be triggered.
- Review the "Amended and Restated Security and Pledge Agreement" (Exhibit 10.2) to understand the full scope of assets pledged as collateral.
- Monitor the Company's ability to meet the six amortization payment schedule, noting that while missed payments are not defaults, they may impact liquidity.
- Check for any subsequent filings regarding the deferred transaction expenses mentioned in the net proceeds calculation.