Business context and reporting period
The supplied filing is Eastside Distilling, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2021—not a filing identified as Beeline Holdings, Inc. The company makes and sells spirits and operates a mobile craft canning and bottling business. It reports one operating segment. Dollar amounts below are in millions unless otherwise noted.
Financial performance and liquidity
- Revenue: Net sales were $3.067 million, up 5% from $2.912 million a year earlier. Canning and bottling sales rose to $1.920 million from $1.495 million; wholesale finished-goods sales declined to $1.322 million from $1.634 million.
- Profit and margins: Gross profit was $0.749 million versus $0.725 million; gross margin slipped to 24% from 25%. Continuing-operations loss was $0.225 million, compared with a $3.249 million loss. Net income was $3.708 million versus a $3.508 million net loss, primarily reflecting $3.933 million of income from discontinued operations. That discontinued-operations result included a $2.850 million gain on license termination and $1.029 million of other income.
- Expenses and interest: Sales and marketing expense fell 49% to $0.776 million, while general and administrative expense was $2.211 million, slightly higher year over year. Interest expense declined to $0.126 million from $0.304 million.
- Cash flow: Total operating cash flow was positive $1.400 million, including $4.614 million from discontinued operations; continuing-operations operating cash flow was negative $3.214 million. Investing cash flow was positive $3.419 million, including $3.345 million from discontinued operations. Financing cash flow was negative $3.641 million, mainly from debt repayments. Cash increased by $1.178 million to $2.014 million.
- Liquidity and balance sheet: Working capital was $0.5 million, and accumulated deficit was $50.4 million. Total assets were $28.109 million and total liabilities $19.794 million, versus $31.732 million and $32.840 million, respectively, at December 31, 2020. Stockholders’ equity improved to $8.315 million from a $1.108 million deficit.
- Debt: At quarter-end, notes payable totaled $3.872 million and the Live Oak secured credit facility balance was approximately $3.0 million. The Live Oak facility was subject to lender demand and its maturity was extended after quarter-end. The filing lists $3.359 million of notes payable as current and $0.513 million as long-term.
Material changes and unusual items
- In February 2021, the company sold Redneck Riviera-related inventory, branding and other assets for $4.7 million and terminated the related license agreement for $3.0 million. The business and former retail operations were presented as discontinued operations. The transaction contributed to reported discontinued-operations income and cash proceeds.
- The company received forgiveness of $1.448 million in PPP loans during the quarter, recorded as other income. It also recorded a $0.750 million benefit from remeasurement of deferred Azuñia acquisition consideration.
- The company issued 1.2 million shares for Azuñia acquisition consideration during the quarter. After quarter-end, it issued a further 682,669 shares and entered into $7.8 million of Azuñia earn-out promissory notes, bearing 6% interest and maturing April 1, 2024.
- Management attributed canning growth to increased at-home consumption during the pandemic, while spirits revenue was pressured by restrictions and weaker on-premise demand. It reported Craft Canning revenue growth of more than 30% and an approximately 20% decline in spirits revenue compared with 2020.
Outlook, risks and contingencies
Management said meeting cash needs over the next 12 months depends on cost reductions, additional financing and generating positive operating cash flow through higher sales, improved profit growth and expense control. It set a goal to reduce annual cash burn below $3 million through 2021; this is a management target, not formal earnings guidance. The company cautioned that unavailable or unfavorable financing could lead it to sell assets, cut operating expenses or reduce marketing, potentially harming the business.
After quarter-end, the Live Oak facility maturity was extended to August 11, 2021. The company also closed an April 2021 private offering of $3.0 million principal amount of 6% secured convertible notes, receiving $2.8 million net proceeds; proceeds were intended for repayment of prior notes and working capital and general corporate purposes. Risks discussed include continued pandemic effects, dependence on financing and distributors, demand and brand acceptance, inventory and supply-chain issues, competition, and execution of the company’s strategy. A former CEO’s lawsuit alleging multiple claims was pending; the company disputed the allegations and said it intended to defend the case. Management reported disclosure controls were effective as of March 31, 2021 and no material change in internal control during the quarter.
Important facts for investors to verify
- Issuer mismatch: Confirm the intended company and filing: the provided document names Eastside Distilling, Inc., while the request metadata names Beeline Holdings, Inc.
- Reconcile reported positive total operating cash flow with the negative $3.214 million from continuing operations and assess the company’s stated 12-month funding dependence.
- Check the status, terms and repayment obligations of the Live Oak facility, subsequent convertible-note financing, and Azuñia earn-out notes and shares.
- Assess how much of quarterly net income and cash generation came from discontinued operations, asset and license transactions, and PPP forgiveness rather than recurring operations.
- Monitor progress toward the cash-burn target, gross-margin improvement, spirits demand recovery, and customer/distributor concentration; three distributors represented 22% of receivables and one distributor accounted for 18% of quarterly sales.
- Review the pending former-CEO litigation and any subsequent developments; the filing does not provide a clear estimate of potential financial exposure.