UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file # 333-177918
EUROCAN HOLDINGS LTD.
(Exact Name of Registrant as Specified in its Charter)
| Nevada | 20-3937596 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification number) | |
| 1 Union Square West, Suite 610, New York, NY | 10003 | |
|
(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone number: (212) 419-4924
Securities registered under Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.0001 par value
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| Non-accelerated filer | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of August 4, 2014 the registrant had 32,910,000 shares of its Common Stock outstanding.
Part I – Financial Information
Eurocan Holdings Ltd.
Consolidated Balance Sheets
(Expressed in US dollars)
| June 30, 2014 $ (unaudited) | December 31, 2013 $ | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | 17,478 | 618 | ||||||
| Interest receivable | 354 | – | ||||||
| Note receivable | 150,000 | – | ||||||
| Total Current Assets | 167,832 | 618 | ||||||
| Total Assets | 167,832 | 618 | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | 37,564 | 37,640 | ||||||
| Accrued liabilities | 16,949 | 31,199 | ||||||
| Deferred revenue | 16,670 | 730 | ||||||
| Due to related party (Note 5) | 9,070 | 1,214 | ||||||
| Notes payable (Note 4) | 218,230 | 7,150 | ||||||
| Total Liabilities | 298,483 | 77,933 | ||||||
| Stockholders’ Deficit | ||||||||
| Preferred Stock, 100,000,000 shares authorized, par value $0.0001; None issued and outstanding | – | – | ||||||
| Common Stock, 900,000,000 shares authorized, par value $0.0001; 32,910,000 and 32,910,000 shares issued and outstanding, respectively | 3,291 | 3,291 | ||||||
| Additional Paid-In Capital | 246,691 | 246,691 | ||||||
| Deficit | (380,633 | ) | (327,297 | ) | ||||
| Total Stockholders’ Deficit | (130,651 | ) | (77,315 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | 167,832 | 618 | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
| 2 |
Eurocan Holdings Ltd.
Consolidated Statements of Operations
(Expressed in US dollars)
| For the Three Months Ended | For the Three Months Ended | For the Six Months Ended | For the Six Months Ended | |||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Revenue | 7,139 | 16,023 | 8,139 | 49,363 | ||||||||||||
| Cost of Sales | – | 4,434 | 215 | 6,127 | ||||||||||||
| Gross Margin | 7,139 | 11,589 | 7,924 | 43,236 | ||||||||||||
| Expenses | ||||||||||||||||
| Rent | – | 1,092 | – | 7,192 | ||||||||||||
| General and administrative | 5,650 | 10,147 | 8,564 | 23,308 | ||||||||||||
| Management fees (Note 5) | – | – | – | 11,200 | ||||||||||||
| Professional fees | 12,399 | 19,177 | 46,975 | 40,447 | ||||||||||||
| Total Operating Expenses | 18,049 | 30,416 | 55,539 | 82,147 | ||||||||||||
| Loss from Operations | (10,910 | ) | (18,827 | ) | (47,615 | ) | (38,911 | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest income | 354 | – | 354 | – | ||||||||||||
| Other income | – | – | – | 4,405 | ||||||||||||
| Interest and bank charges | (3,038 | ) | (4,051 | ) | (6,075 | ) | (7,505 | ) | ||||||||
| Total Other Income (Expense) | (2,684 | ) | (4,051 | ) | (5,721 | ) | (3,100 | ) | ||||||||
| Net Loss | (13,594 | ) | (22,878 | ) | (53,336 | ) | (42,011 | ) | ||||||||
| Net Loss Per Share – Basic and Diluted | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||
| Weighted Average Shares Outstanding – Basic and Diluted | 32,910,000 | 12,710,000 | 32,910,000 | 12,710,000 | ||||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
| 3 |
Eurocan Holdings Ltd.
Consolidated Statements of Cash Flows
(Expressed in US dollars)
| For the Six Months Ended June 30, 2014 $ (unaudited) | For the Six Months Ended June 30, 2013 $ (unaudited) | |||||||
| Operating Activities | ||||||||
| Net loss for the period | (53,336 | ) | (42,011 | ) | ||||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Interest receivable | (354 | ) | – | |||||
| Gain on sale of property and equipment | – | (4,405 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | – | (1,040 | ) | |||||
| Accounts payable and accrued liabilities | (14,326 | ) | 2,276 | |||||
| Deferred revenue | 15,940 | – | ||||||
| Net Cash Used In Operating Activities | (52,076 | ) | (45,180 | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Note receivable | (150,000 | ) | – | |||||
| Proceeds from sale of property and equipment | – | 4,405 | ||||||
| Net Cash (Used In) Provided By Investing Activities | (150,000 | ) | 4,405 | |||||
| Financing Activities | ||||||||
| Principal payments on related party debt | 7,856 | – | ||||||
| Proceeds from notes payable | 211,080 | 35,000 | ||||||
| Net Cash Provided By Financing Activities | 218,936 | 35,000 | ||||||
| Increase (decrease) in Cash | 16,860 | (5,775 | ) | |||||
| Cash - Beginning of Period | 618 | 5,899 | ||||||
| Cash - End of Period | 17,478 | 124 | ||||||
| Supplemental Disclosures: | ||||||||
| Income taxes paid | – | 50 | ||||||
| Interest paid | 4,808 | 4,576 | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
| 4 |
Eurocan Holdings Ltd.
Notes to Consolidated Financial Statements
June 30, 2014
(Expressed in U.S. dollars)
| 1. | Basis of Presentation |
The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the Company’s audited 2013 annual financial statements and notes thereto. In the opinion of management, all adjustments consisting of normal recurring adjustments, necessary for a fair presentation of financial position, the results of operations and cash flow for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements, which would substantially duplicate the disclosures required in the Company’s 2013 annual financial statements have been omitted.
| 2. | Going Concern |
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since inception, the Company has incurred losses of $380,633 and negative working capital of $130,651. In addition, the Company generated negative cash flows from operations during the year ended December 31, 2013. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.
If necessary, the Company will pursue additional equity and/or debt financing while managing cash flows from operations in an effort to provide funds to meet its obligations on a timely basis and to support future business development.
The consolidated financial statements do not contain any adjustments to reflect the possible future effects on the classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
| 3. | Note Receivable |
On June 17, 2014, the Company loaned the sum of $150,000 to Eastside Distilling LLC, an Oregon corporation. The loan accrues interest daily at the rate of 5% per annum (computed on the basis of the actual number of days elapsed and a year of 360 days and compounded monthly) and is secured with any and all asset of the Eastside Distilling LLC from June 13, 2014. The loan matures on June 13, 2015, but it may be prepaid in whole or in part at any time prior to the maturity date. As at June 30, 2014, the entire principal amount of the loan and $354 in accrued interest remain outstanding.
| 4. | Notes Payable |
During October, 2013 the Company received advances totaling $7,150 and issued non-interest bearing promissory notes, unsecured and due on demand. As at June 30, 2014, the entire principal amount of the note remains outstanding.
During the six months ended June 30, 2014 the Company received advances totaling $211,080 and issued eleven promissory notes to non-related parties. These notes are non-interest bearing, unsecured and due on demand. As at June 30, 2014, the entire principal amount of the note remains outstanding.
| 5 |
Eurocan Holdings Ltd.
Notes to Consolidated Financial Statements
June 30, 2014
(Expressed in U.S. dollars)
| 5. | Related Party Transactions |
During the six months ended June 30, 2013 a director of the Company received $11,200 as compensation for management services provided to the Company.
As of June 30, 2014 and December 31, 2013, the Company owed $9,070 and $1,214, respectively to the director of the Company. The amount is non-interest bearing, unsecured and due on demand.
| 6 |
Item 2. Management's Discussion and Analysis or Plan of Operations
The following discussion and analysis of our plan of operation should be read in conjunction with the financial statements and the related notes. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors.
Our Plan of Operation
We are an online marketing and media solutions firm specializing in digital interactive media. We utilize state-of-the-art digital interactive media technology to efficiently develop quantifiable and comprehensive advertising and marketing campaigns. By utilizing digital interactive media such as the internet, mobile communications, and digital interactive signage, our management believes that we can implement highly targeted campaigns to a local and global market quickly and cost effectively.
Our cash flows from operations and our available capital are not presently sufficient to sustain our current level of operations for the next 12 months. Furthermore, we anticipate that a minimum of $500,000 will be required to expand the breadth and scope of our business and implement our sales and marketing strategy. We plan to improve our cash position by focusing on increasing sales, improving profitability and a combination of capital sources, including debt and equity financings. Any future financing through equity investments will likely be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, and the issuance of warrants or other derivative securities, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition.
There is no assurance that we will be able to obtain needed financing on terms satisfactory to us, or at all, and we do not have any arrangements in place for any future financing. Our ability to obtain financing may be impaired by such factors as the capital markets, both generally and specifically in the advertising industry, and the fact that we have not generally been profitable, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities together with our revenue from operations is not sufficient to satisfy our capital needs, we may be required to curtail, suspend or discontinue some or all of our operations, and investors could lose some or all of their investment. We have no plans, arrangements or contingencies in place in the event that we suspend or discontinue operations.
Our business plan calls for the hiring of one full-time mobile communications expert who will be strictly devoted to mobile communications marketing, and one full-time managed hosting specialist to oversee our managed hosting service. We do not otherwise expect any significant increase in the number of our employees. We intend to engage independent contractors on an “as needed” basis for the remainder of our personnel requirements, including sales and marketing, media content production and technical consulting. Except for certain capital lease purchases of equipment and systems for our managed hosting service, our management does not anticipate engaging in any research or development or purchasing any significant amount of equipment. Our ability to engage such personnel or to purchase any such equipment will be dependent upon our ability to raise additional financing as discussed above, of which there can be no assurance.
Results of Operations
We have suffered recurring losses and net cash outflows from operations since inception. When our cash flows from operations have been insufficient, our activities have been financed from the proceeds of share subscriptions and loans from management and non-affiliated third parties. We expect to continue to incur substantial losses to implement our business plan. We have not established any source of equity or debt financing and there can be no assurance that we will be able to obtain sufficient funds to implement our business plan. As a result of the foregoing, our auditors have expressed substantial doubt about our ability to continue as a going concern in our financial statements for the year ended December 31, 2013. If we cannot continue as a going concern, then our investors may lose all of their investment.
Three Months Ended June 30, 2014 Compared to the Three Months Ended June 30, 2013
Revenue for the three months ended June 30, 2014 decreased to $7,139 from $16,023 for the three months ended June 30, 2013. The decrease in revenue can be directly attributed to a decrease in contracts completed. During the three month period ended June 30, 2014, we completed one contract resulting in revenue of $7,139. As of June 30, 2014, we have one contract in process for which we expect to receive $16,669.98 in revenue. We have no new contracts that commenced after June 30, 2014. The decrease in cost of sales was due to reduced labor requirements.
| 7 |
Operating expenses for the three months ended June 30, 2014 decreased to $18,049 compared to $30,416 for the three months ended June 30, 2013. This decrease is primarily due to a decrease in professional fees and general and administrative expenses, offset against increases in professional fees and wages/payroll taxes. The decrease in professional fees during the period was due to legal and accounting fees payable in relation to our initial public offering last year. The decrease in general and administrative expense was a result of a decrease in utilities, travel, entertainment and office expenses.
We experienced a net loss of $10,910 during the three months ended June 30, 2014, as compared to a net loss of $18,827 for the three months ended June 30, 2013.
Six Months Ended June 30, 2014 Compared to the Six Months Ended June 30, 2013
Revenue for the six months ended June 30, 2014 decreased to $8,139 from $49,636 for the six months ended June 30, 2013. The decrease in revenue can be directly attributed to a decrease in contracts completed. During the six month period ended June 30, 2014, we completed six contracts resulting in revenue of $8,139. As of June 30, 2014, we have one contract in process for which we expect to receive $16,669.98 in revenue. We have no new contracts that commenced after June 30, 2014. The decrease in cost of sales was due to reduced labor requirements.
Operating expenses for the six months ended June 30, 2014 decreased to $55,539 compared to $82,147 for the six months ended June 30, 2013. This decrease is primarily due to a decrease in general and administrative expenses , rent and management fees, offset against an increase in professional fees. The decrease in general and administrative expense was a result of a decrease in utilities, travel, entertainment and office expenses. The increase in professional fees during the period was due to an increase in legal and accounting fees.
We experienced a net loss of $47,615 during the six months ended June 30, 2014, as compared to a net loss of $38,911 for the six months ended June 30, 2013.
Liquidity and Capital Resources
As of June 30, 2014, our total assets were $167,832 comprised of $17,478 in cash, a note receivable for $150,000 and $354 in other receivables. This is an increase in total assets from $618 as of December 31, 2013. Our working capital deficit as of June 30, 2014 was $130,651, compared to a working capital deficit of $77,315 as of December 31, 2013.
During the six months ended June 30, 2014, we used $52,076 of cash for operating activities compared to $45,180 for the six months ended June 30, 2013.
Our cash flows from operations and our available capital are not presently sufficient to sustain our current level of operations for the next 12 months. Furthermore, we will require a minimum of $500,000 to expand and market our business. We plan to improve our cash position by focusing on increasing sales, improving profitability and a combination of capital sources, including debt and equity financings.
During the six months ended June 30, 2014 the Company received advances totaling $211,080 and issued eleven promissory notes to non-related parties. These notes are non-interest bearing, unsecured and due on demand.
On June 17, 2014, the Company loaned the sum of $150,000 to Eastside Distilling LLC, an Oregon corporation. The loan accrues interest daily at the rate of 5% per annum (computed on the basis of the actual number of days elapsed and a year of 360 days and compounded monthly) from June 13, 2014. The loan matures on June 13, 2015, but it may be prepaid in whole or in part at any time prior to the maturity date. The terms of the loan are more particularly set forth in a promissory note, dated June 13, 2014, a copy of which is filed as Exhibit 10.1 to this Quarterly Report (the “Eastside Note”). The description of the loan set forth herein does not purport to be complete and is qualified in its entirety by reference to the terms of the Eastside Note.
| 8 |
Critical Accounting Policies
Revenue Recognition
Revenue consists of web designing, web hosting, and maintenance services and is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is delivered, and collectability is reasonably assured. The registrant regularly reviews accounts receivable for any bad debts. Allowances for doubtful accounts are based on an estimate of losses on customer receivable balances.
Revenues from fixed-price contracts are recognized using the completed-contract method. A contract is considered complete when all costs except insignificant items have been incurred and the final product is delivered to the customer according to specifications. Revenues from time-and-material contracts are recognized as the work is performed.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this quarterly report on Form 10-Q, an evaluation was carried out by our management, with the participation of the Chief Executive Officer and the Chief Financial Officer (who are one and the same person), of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) as of June 30, 2014. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. In performing the assessment for the quarter ended June 30, 2014, our management concluded that our disclosure controls and procedures were not effective to accomplish the foregoing, due to the following material weaknesses in internal controls over financial reporting:
Procedures for Control Evaluation. Management has not established with appropriate rigor the procedures for evaluating internal controls over financial reporting. Due to limited resources and lack of segregation of duties, documentation of the limited control structure has not been accomplished.
Lack of Audit Committee. To date, the Company has not established an Audit Committee. It is management’s view that such a committee, including a financial expert, is an utmost important entity level control over the financial reporting process.
Insufficient Documentation of Review Procedures. We employ policies and procedures for reconciliation of the financial statements and note disclosures, however, these processes are not appropriately documented.
Insufficient Information Technology Procedures. Management has not established methodical and consistent data back-up procedures to ensure loss of data will not occur.
Changes in Disclosure Controls and Procedures
As of the end of the period covered by this report, there have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended June 30, 2013, that materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
| 9 |
Part II – Other Information
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The registrant did not sell any securities during the three month period ended June 30, 2014.
Item 3. Default Upon Senior Notes
Not applicable.
Item 5. Other Information
(a) Other Events
Entry Into Material Definitive Agreements
On June 15, 2014, the Company issued a promissory note to Crystal Falls LLC to secure a loan to the Company of $150,000 (the “Crystal Note”). The Crystal Note does not accrue interest and is due and payable on demand. There was no material relationship between Crystal Falls LLC and the Company or any of their respective members, managers, directors or officers or any associate of any such members, managers, directors or officers prior to execution of the note. The description of the note set forth herein does not purport to be complete and is qualified in its entirety by reference to the terms of the note, which is filed as Exhibit 10.2 to this Quarterly Report.
On June 17, 2014, the Company loaned the sum of $150,000 to Eastside Distilling LLC, an Oregon corporation. The loan accrues interest daily at the rate of 5% per annum (computed on the basis of the actual number of days elapsed and a year of 360 days and compounded monthly) from June 13, 2014. The loan matures on June 13, 2015, but it may be prepaid in whole or in part at any time prior to the maturity date. The terms of the loan are more particularly set forth in the Eastside Note, a copy of which is filed as Exhibit 10.1 to this Quarterly Report. The description of the loan set forth herein does not purport to be complete and is qualified in its entirety by reference to the terms of the Eastside Note. There was no material relationship between Eastside Distilling LLC and the Company or any of their respective members, managers, directors or officers or any associate of any such members, managers, directors or officers prior to execution of the Eastside Note. The Company is interested in the vertical that Eastside represents and are presently discussing a greater business relationship. Otherwise, the Company takes the position that it has no legal obligation to disclose more than it has; that we aren't going to disclose information that could create false expectations; and further, the company has sound business reasons to keep the information confidential.
Item 6. Exhibits
| Exhibit | Description |
| 10.1 | Promissory Note dated June 15, 2014 |
| 10.2 | Eastside Distilling, LLC, 5% Secured Convertible Promissory Note, dated June 17, 2014 |
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Schema Document |
| 101.CAL | XBRL Calculation Linkbase Document |
| 101.DEF | XBRL Definition Linkbase Document |
| 101.LAB | XBRL Label Linkbase Document |
| 101.PRE | XBRL Presentation Linkbase Document |
| 10 |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| EUROCAN HOLDINGS LTD. | ||
| Date: August 11, 2014 | By: | /s/ Michael Williams |
| Michael Williams Chief Executive Officer, President, |
||
| Chief Financial Officer and | ||
| Principal Accounting Officer | ||
| 11 |
Exhibit 10.1
Promissory Note
| USD $150,000.00 | Due: ON DEMAND |
FOR VALUE RECEIVED, the undersigned hereby acknowledges itself indebted to Crystal Falls Llc(the “Lender”) and promises to pay to or to the order of the Lender at New York, New York or as otherwise directed in writing by the Lender, the principal sum of $150,000.00 in lawful money of the United States of America with no interest thereon.
The entire principal sum shall be paid on demand.
The Borrower may pay the principal sum at any time without penalty.
The Lender may assign all of its right, title and interest in, to and under this promissory note. All payments required to be made hereunder shall be made by the Borrower without any right of setoff or counterclaim.
DATED: June 13, 2014
EUROCAN HOLDINGS LTD.
Per: /s/ Michael Williams
Michael Williams
President
Exhibit 10.2
________________________________________
EASTSIDE DISTILLING, LLC
5% SECURED CONVERTIBLE PROMISSORY NOTE
DUE JUNE 13, 2015
________________________________________
$150,000.00
June 13, 2014
FOR VALUE RECEIVED, Eastside Distilling, LLC., a corporation organized and existing under the laws of the State of Oregon (the “Company”), promises to pay to Eurocan Holdings, Ltd., the registered holder hereof (the “Holder”), the principal sum of one hundred fifty thousand five dollars and no cents ($150,000.00) (the “Face Amount”) on the Maturity Date (as defined below) and to pay interest on the principal sum outstanding Face Amount from time to time at the rate of 5% per annum (computed on the basis of the actual number of days elapsed and a year of 360 days and compounded monthly), accruing on a daily basis from June 13, 2014, the date of initial issuance of this Note (the “Issue Date”), until payment in full of the Face Amount has been made or duly provided for (whether before or after the Maturity Date). Notwithstanding any other provision hereof, interest paid or becoming due hereunder and any other payments hereunder which may constitute interest shall in no event exceed the maximum rate permitted by applicable law.
This Note is subject to the following additional provisions:
| 1. | The term “Maturity Date” means the June 13, 2015. |
| 2. | Security. In consideration of any financial accommodation given, to be given, or continued to Company by Holder, and to secure the payment of all debts, obligations, or liabilities now or hereafter existing, absolute or contingent, of Company to Holder, Company pledges and grants to Holder a security interest in any and all assets of the Company held by the Company during the term of this Note which Company has this day and shall, for the term of this Note, provided reports and proof of such assets upon demand by Holder; and all property hereafter deposited with Holder in substitution for any of the property described above; and all stock rights, voting rights and rights to subscribe, dividends of any nature, new securities or other property which Company may be or become entitled to receive on account of any securities or other property subject to this Note; and all proceeds of any of the above-described collateral. |
| 3. | Prepayment. |
a. This Note may be prepaid in whole or in part at any time prior to the Maturity Date, without penalty; provided, however, that no portion of the Prepaid Interest shall be refundable or otherwise returned to the Company in the event of any such prepayment. Any payment shall be applied as provided in Section 3.
| 1 |
b. TIME IS OF THE ESSENCE WITH RESPECT TO ANY PAYMENT DUE HEREUNDER. The Company shall be in default hereunder if any payment is not made in a timely manner, without any right to cure unless such right to cure is granted by the Holder in each instance; provided, however, that the grant of such right is in the sole discretion of the Holder and may be withheld for any reason or for no reason whatsoever.
| 4. | Any payment made on account of the Note shall be applied in the following order of priority: (i) first, to any amounts due hereunder other than principal and accrued interest, (ii) then, to accrued interest through and including the date of payment, and (iii) then, to principal of this Note. |
| 5. | All payments contemplated hereby shall be made in immediately available good funds of United States of America currency by wire transfer to an account designated in writing by the Holder to the Company (which account may be changed by notice similarly given). For purposes of this Note, the phrase “date of payment” means the date good funds are received in the account designated by the notice which is then currently effective. |
| 6. | No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the coin or currency, as herein prescribed. This Note is a direct obligation of the Company. |
| 7. | The obligations of the Company under this Note are secured by a pledge by the Company of all Assets held by the Company for the entirety of the term of this Note. |
| 8. | The Holder of the Note, by acceptance hereof, agrees that this Note is being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Note except under circumstances which will not result in a violation of the Securities Act of 1933, as amended, or any applicable state Blue Sky or foreign laws or similar laws relating to the sale of securities. |
| 9. | Any notice given by any party to the other with respect to this Note shall be given in the manner contemplated by the Loan Agreement in the section entitled “Notices.” |
| 10. | This Note shall be governed by and construed in accordance with the laws of the State of New York. Each of the parties consents to the exclusive jurisdiction of the federal courts whose districts encompass any part of the County of New York or the state courts of the State of New York sitting in the County of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. To the extent determined by such court, the Company shall reimburse the Holder for any reasonable legal fees and disbursements incurred by the Holder in enforcement of or protection of any of its rights under any of this Note. |
| 2 |
| 11. | JURY TRIAL WAIVER. The Company and the Holder hereby waive a trial by jury in any action, proceeding or counterclaim brought by either of the Parties hereto against the other in respect of any matter arising out of or in connection with this Note. |
| 12. | The following shall constitute an “Event of Default” hereunder: |
a. The Company shall default in the payment of any amount due on this Note, time being of the essence, whether by maturity, pursuant to Section 2 or otherwise; or
b. Any of the representations or warranties made by the Company herein, in the Security Interest and Pledge Agreement or any of the other Transaction Documents shall be false or misleading in any material respect at the time made; or
c. The Company shall (1) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (2) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; or
d. A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent; or
e. Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company; or
f. The Company will not incur any indebtedness, other than indebtedness incurred in the ordinary course of business or outstanding the date hereof, unless such indebtedness is subordinated to the prior payment in full of this Note on terms reasonably satisfactory to the Lender.
g. Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of Holders shall be instituted by or against the Company or any of guarantor.
h. The Company or any subsidiary shall default in any of its obligations under any other note or any mortgage, credit agreement, loan agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any leasing or factoring arrangement of the Company or any subsidiary, whether such indebtedness now exists or shall hereafter be created and such default shall result in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; or
i. the Borrower requests an extension of the payment terms hereof during the term of the Note, unless otherwise mutually agreed by the Parties.
| 3 |
| 13. | If an Event of Default shall have occurred, then, or at any time thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Note immediately due and payable (and the Maturity Date shall be accelerated accordingly), without presentment, demand, protest or notice of any kinds, all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and interest shall accrue on the total amount due (the “Default Amount”) on the date of the Event of Default (the “Default Date”) at the rate of 30% per annum or the maximum rate allowed by law, whichever is lower, from the Default Date until the date payment is made, and the Holder may immediately enforce any and all of the Holder's rights and remedies provided. |
| 14. | In the event for any reason, any payment by or act of the Company or the Holder shall result in payment of interest which would exceed the limit authorized by or be in violation of the law of the jurisdiction applicable to this Note, then ipso facto the obligation of the Company to pay interest or perform such act or requirement shall be reduced to the limit authorized under such law, so that in no event shall the Company be obligated to pay any such interest, perform any such act or be bound by any requirement which would result in the payment of interest in excess of the limit so authorized. In the event any payment by or act of the Company shall result in the extraction of a rate of interest in excess of a sum which is lawfully collectible as interest, then such amount (to the extent of such excess not returned to the Company) shall, without further agreement or notice between or by the Company or the Holder, be deemed applied to the payment of principal, if any, hereunder immediately upon receipt of such excess funds by the Holder, with the same force and effect as though the Company had specifically designated such sums to be so applied to principal and the Holder had agreed to accept such sums as an interest-free prepayment of this Note. If any part of such excess remains after the principal has been paid in full, whether by the provisions of the preceding sentences of this Section or otherwise, such excess shall be deemed to be an interest-free loan from the Company to the Holder, which loan shall be payable immediately upon demand by the Company. The provisions of this Section shall control every other provision of this Note. |
| 15. | This Note shall be binding upon and shall inure to the benefit of the successors and permitted assigns of the Company and the Holder. In no event may the Company assign this Note or any rights or obligations hereunder without the Holder’s prior written consent and any purported assignment without such consent shall be null and void. This Note and the rights and obligations hereunder may not be assigned by the Holder at any time. |
[Remainder of Page Intentionally Left Blank; Signature Page Follows]
| 4 |
IN WITNESS WHEREOF, the Company has caused this 5% Original Issue Convertible Secured Promissory note to be duly executed by an officer thereunto duly authorized this 13 day of June 2014.
By: /s/ Steven Earles
Name: Steven Earles
Title: CEO
Agreed and confirmed this 13 day of June, 2014
Eastside Distilling
By:
| /s/ Steven Earles | Date: | 6-13-14 | Title: CEO | |
| Steven Earles | ||||
| /s/ Lenny Gotter | Date: | 6-13-14 | Title: COO | |
| Lenny Gotter | ||||
| Eurocan Holdings Ltd. | ||||
| By: | ||||
| .s. Michael Williams | Date: | 6-13-14 | Title: President & CEO | |
| Michael Williams |
| 5 |
EXHIBIT 31.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Michael Williams, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Eurocan Holdings Ltd.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.
6. I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
August 11, 2014
| By | /s/ Michael Williams |
| Michael Williams | |
|
Chief Executive Officer, President, Chief Financial Officer and Principal Accounting Officer |
EXHIBIT 32.1
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report of Eurocan Holdings Ltd. on Form 10-Q for the quarter ended June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Williams, Chief Executive Officer, President, Chief Financial Officer and Principal Accounting Officer of Eurocan Holdings Ltd., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Eurocan Holdings Ltd.
August 11, 2014
| By | /s/ Michael Williams |
| Michael Williams | |
|
Chief Executive Officer, President, Chief Financial Officer and Principal Accounting Officer |