Business context and reporting period
The supplied filing is Eastside Distilling, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2019—not a filing identified as Beeline Holdings, Inc. The company produces and markets craft spirits and provides contract bottling, canning and packaging services. It reported operations as one segment. The filing says it sells in 46 states and Ontario, Canada.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Sales | $3.686 million | $1.413 million |
| Net sales | $3.496 million | $1.220 million |
| Gross profit / margin | $1.175 million / 34% | $0.593 million / 49% |
| Operating expenses | $4.011 million | $1.855 million |
| Operating loss | $(2.836) million | $(1.263) million |
| Net loss | $(2.943) million | $(1.319) million |
| Basic and diluted loss per share | $(0.32) | $(0.27) |
| Cash used in operating activities | $(3.877) million | $(2.547) million |
Cash fell to $4.181 million from $10.643 million at December 31, 2018. Working capital was positive at $15.2 million. Total assets were $29.139 million and total liabilities $11.179 million at quarter-end. Notes payable totaled $4.196 million, including $0.581 million current; the company had also drawn the full $3.0 million secured inventory credit facility (reported net of debt issuance costs on the balance sheet). Lease liabilities totaled $1.375 million. The company reported $2.555 million of investing cash outflow, including the acquisition and capital expenditures, and $0.029 million of financing cash outflow.
Material changes versus the prior comparable period
- Sales rose about 161%, driven by Redneck Riviera Whiskey, stronger Pacific Northwest wholesale sales and the January 2019 acquisition of Craft Canning. Private-label/co-packing sales were $1.994 million, versus $0.352 million; wholesale sales were $1.467 million, versus $0.756 million.
- Gross margin declined to 34% from 49%, which management attributed to business and product mix, raw-material costs and facility costs. Cost of sales rose about 270% to $2.321 million.
- Advertising, promotional and selling expense increased to $1.333 million from $0.643 million; general and administrative expense increased to $2.678 million from $1.213 million. Management cited expanded marketing, increased headcount and compensation, higher depreciation and amortization, bonuses and acquisition costs.
- Craft Canning was acquired on January 11 for stated consideration of $4.845 million: $2.080 million in stock, $2.003 million in cash and $0.762 million in notes. Its included results from acquisition through March 31 were revenue of $1.477 million and net income of $0.121 million, including transaction costs.
- Property and equipment rose to $4.805 million from $1.758 million, and net intangible assets increased substantially, mainly reflecting the acquisition. The company adopted the lease standard on January 1, recognizing right-of-use assets and lease liabilities.
Outlook, risks and unusual items
Management said it expected cash on hand, receivables, inventory and anticipated operating revenue to meet cash needs for the next 12 months. It also said continued liquidity depends on increased sales, improved profitability and expense control. This outlook is qualified by the company’s recurring losses, $30.3 million accumulated deficit and operating cash use; it raised no additional capital in Q1 2019. No specific revenue or earnings guidance was provided.
Key disclosed risks include the need for future capital, continued losses and negative cash flow, reliance on a limited number of distributors and suppliers, customer and brand acceptance, inventory needs, margin volatility, acquisition integration and execution, and extensive alcohol regulation. The filing also highlights uncertainty around CBD regulation and the planned CBD beverage, the Redneck Riviera license and its future sales requirements, and dilution and thin trading in the stock.
After quarter-end, the CEO transitioned to Executive Chairperson effective May 10, 2019; CFO Steve Shum became interim CEO while the company searches for a permanent CEO. The Executive Chairperson Agreement provides an annual board fee of $185,000, with potential discretionary bonuses and equity awards. The company reported no material legal proceedings, no defaults upon senior securities, and effective disclosure controls as of March 31, 2019.
Important facts for investors to verify
- Confirm the issuer: the request names Beeline Holdings, Inc., but the supplied filing is for Eastside Distilling, Inc.
- Assess cash runway against quarterly operating cash use, acquisition spending, debt maturities and management’s 12-month liquidity assertion.
- Track whether sales growth translates into better gross margins and lower operating losses, especially as co-packing grows.
- Review Craft Canning’s integration, acquisition assumptions and contribution to ongoing results.
- Check customer and distributor concentration, the secured inventory facility’s covenants and collateral requirements, and the CEO transition and permanent CEO search.