Filing summary
Entity and period: The supplied filing is Eastside Distilling, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021—not a filing identified as Beeline Holdings, Inc. Investors should verify the issuer and filing before relying on this summary. Financial amounts below are in U.S. dollars; figures are generally in millions unless noted.
Business context and reporting period
Eastside manufactures and sells alcoholic beverages and operates Craft Canning & Bottling, serving mainly craft beer and cider producers. The company reported continuing operations separately from its closed retail tasting rooms and the Redneck Riviera spirits business, which were classified as discontinued operations.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Net sales | $3.383m in 2021; $3.639m in 2020 | $6.450m in 2021; $6.551m in 2020 |
| Gross profit and margin | $1.143m; 34% (2020: $1.421m; 39%) | $1.892m; 29% (2020: $2.146m; 33%) |
| Operating loss | $1.393m (2020: $1.816m) | $3.692m (2020: $4.761m) |
| Net income (loss) | $(1.768)m (2020: $(2.186)m) | $1.940m (2020: $(5.694)m) |
- Six-month continuing-operations net loss was $1.946m, compared with $5.384m in 2020. Reported six-month net income included $3.886m from discontinued operations and $2.217m of other income; the filing attributes the latter primarily to PPP loan forgiveness and remeasurement of Azuñia deferred consideration.
- Revenue mix for the first half was $4.1m from canning and bottling (60%) and $2.759m from wholesale finished goods (40%); bulk spirit sales were minimal.
- Cash was $1.069m at June 30, 2021, versus $0.836m at year-end 2020. Working capital was $2.0m. The accumulated deficit was $52.2m.
- Cash flow for the six months: operating activities used $0.159m net, including $4.640m provided by discontinued operations; investing activities provided $3.270m, primarily from the Redneck Riviera transaction; financing activities used $2.878m. Cash increased by $0.233m.
- Balance-sheet debt included $5.464m of secured credit facilities, net of issuance costs; $6.963m of related-party notes; and $2.376m of other notes payable. Current liabilities were $7.032m and total liabilities were $18.519m.
- Shares issued and outstanding rose to 12,417,577 at June 30 from 10,382,015 at year-end, largely reflecting Azuñia earn-out shares. The filing reports 13,317,577 shares outstanding as of August 12, 2021.
Material changes versus the prior comparable period
- Second-quarter net sales declined about 7% year over year; first-half net sales declined about 2%. Canning and bottling sales were higher for the half but lower in the second quarter, while wholesale finished-goods sales rose in the quarter.
- Gross margin weakened to 34% in the quarter from 39%, and to 29% for the half from 33%. Management cited spirits go-to-market changes, product and service mix, and higher raw-material costs associated with COVID-related supply shortages.
- Operating losses narrowed as sales and marketing and general and administrative expenses fell. First-half sales and marketing expense declined to $1.411m from $2.483m, primarily due to lower headcount; general and administrative expense declined to $4.112m from $4.443m.
- First-half net income turned positive from a large loss in 2020, but this did not reflect profitable continuing operations: the result included discontinued-operation gains and other income, including PPP forgiveness.
- On February 5, the company sold Redneck Riviera-related inventory and associated rights for $4.7m and received $3.0m to terminate the related license agreement. The discontinued-operation presentation includes the related activities.
Outlook, risks, contingencies, and unusual items
- Management said the next 12 months’ liquidity depends on reducing costs, increasing sales and margins, generating positive operating cash flow, and potentially raising debt or equity capital or selling assets. It warned that unavailable or unacceptable financing could require expense reductions or cuts to marketing and could impair the business.
- The company’s three-year strategic plan targets revenue approaching $70m in 2024 and, ultimately, double-digit EBITDA margins. These are management targets, not guaranteed results or specific near-term guidance. The plan emphasizes growing Craft Canning & Bottling, focusing spirits investment on four brands, and potentially using additional shares for capital raises and acquisitions.
- The Live Oak secured loan had been extended to August 11, 2021; the company said it was finalizing a further 60-day extension. The lender could demand repayment under the loan terms. Separately, April financing included $3.3m of 6% secured convertible notes, initially convertible at $2.20 per share, with warrants and potential dilution.
- After quarter-end, 900,000 warrants were exercised on July 30 for $2.4m gross proceeds. The company issued replacement warrants for up to 900,000 shares, subject to stockholder approval.
- A note describes a pending lawsuit brought by the company’s former CEO and chairman, asserting multiple claims; the company disputes the allegations and intends to defend itself. The filing does not quantify potential exposure.
- Other risks include distributor and receivables concentration, dependence on external financing, competition, customer demand and preferences, supply-chain availability and costs, and COVID-19 effects. Two distributors represented 24% of first-half sales, and two distributors represented 23% of receivables at June 30.
- Management reported disclosure controls were effective as of June 30, 2021 and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the filing’s issuer: the provided 10-Q identifies Eastside Distilling, Inc., despite the request metadata naming Beeline Holdings, Inc.
- Review the status and terms of the Live Oak loan extension, its demand-repayment provisions, and the company’s ability to meet near-term obligations.
- Separate continuing operating performance from gains, forgiveness, and other items that drove reported first-half net income.
- Assess gross-margin trends, the economics of the canning and bottling business, and progress toward management’s sales and EBITDA targets.
- Evaluate potential dilution from convertible notes, warrants, earn-out shares, and the stated multi-year share allocation.
- Check subsequent filings for updates on the former executive’s lawsuit, financing, and the post-quarter warrant exercise and replacement warrants.