Beeline Holdings, Inc. — 2022 Q3 Form 10-Q Summary
Filing identity: The supplied filing is for Eastside Distilling, Inc., not Beeline Holdings, Inc. It covers the quarter and nine months ended September 30, 2022; financial amounts below are in U.S. dollars.
Business context and reporting period
Eastside Distilling manufactures and sells spirits and operates Craft Canning + Printing (Craft C+P), serving beverage producers in the Pacific Northwest and Colorado. Craft C+P added digital can printing and co-packing capabilities during 2022. The interim financial statements are unaudited.
Financial performance and liquidity
- Q3 revenue: Net sales were $2.98 million, down 7% from $3.21 million a year earlier. Gross profit was $0.19 million, and gross margin fell to 6% from 27%. Operating loss was $1.95 million; net loss was $2.73 million, compared with $1.91 million a year earlier.
- Nine-month revenue: Net sales were $11.57 million, up 18% from $9.80 million. Gross profit increased to $2.59 million from $2.31 million, but gross margin declined to 22% from 24%. Operating loss improved to $4.71 million from $5.20 million; net loss was $6.56 million versus net income of $0.03 million in 2021. The prior-year result included discontinued-operation income and other income that did not recur.
- Segments, nine months: Spirits net sales rose to $7.29 million from $3.97 million, with gross margin of 43% versus 25%. Craft C+P net sales fell to $4.28 million from $5.83 million; it recorded a $0.53 million gross loss and a $4.16 million net loss, versus a $1.34 million gross profit and $1.45 million net loss in 2021.
- Cash flow: Operating activities provided $0.15 million in the first nine months, versus $2.65 million used in 2021. Investing used $2.48 million, mainly for equipment; financing used $0.51 million. Cash declined by $2.84 million to $0.43 million.
- Balance sheet and debt: Current assets were $7.05 million and current liabilities $10.95 million, a $3.90 million working-capital deficit. Total liabilities were $20.97 million, including approximately $13.83 million of borrowings and $3.20 million of lease liabilities. Stockholders’ equity was $8.96 million; accumulated deficit was $65.28 million.
Material changes versus the prior comparable period
- Q3 sales and gross margin weakened, principally reflecting lower spirits volume and mix, while Craft C+P incurred digital-printer ramp-up costs.
- Nine-month spirits sales benefited from a roughly $4.4 million bulk-spirit barrel sale. Spirits case volumes overall fell, including a significant decline in Azuñia cases.
- Craft C+P’s nine-month sales declined amid competition and post-pandemic market changes; its new printer began operations in April but had not reached full capacity by quarter-end.
- Interest expense increased to $1.98 million for the first nine months from $0.89 million, including amortization of debt issuance costs. The prior-year period included $2.24 million in other income, including PPP loan forgiveness and deferred-consideration remeasurement.
- Property and equipment increased to $6.17 million from $2.16 million, reflecting investment in the digital printer and other assets. Cash and working capital deteriorated; the company attributed an $8.5 million working-capital reduction to its loss and reclassification of printer prepayments to equipment.
Outlook, risks, contingencies, and unusual items
- Management gave no quantified revenue or earnings guidance. It said Craft C+P investments are expected to improve results during 2023 and reported printing nearly 1 million cans in October 2022. The printer was not yet at full capacity.
- Management said meeting cash needs over the next 12 months depends on revenue and margin growth, positive operating cash flow, expense control, and potentially additional financing. If financing is unavailable on acceptable terms, the company may sell assets, cut expenses, or reduce marketing.
- The filing cites a going-concern explanatory paragraph in the auditor’s 2021 report. At September 30, 2022, cash was $0.43 million and working capital was negative $3.90 million.
- After quarter-end, Aegis purchased a $4.5 million secured note: $3.3 million paid off the TQLA loan and $1.2 million went to the company. The note bears 9.25% interest, is due October 2023, and is secured by substantially all company assets. Also after quarter-end, the maturity of the 6% convertible notes was extended from October 18 to November 18, 2022, with shares issued to subscribers as consideration.
- Key operating risks include raw-material and can costs, labor retention and hiring, distribution disruptions, competition, and spirits demand. Two distributors represented 37% of receivables; one distributor and one wholesale customer accounted for 43% of nine-month sales.
- The company is defending a lawsuit brought by its former CEO and board chair alleging, among other matters, fraud, breach of contract, and defamation. The company disputes the allegations. It reported no other material legal proceedings and no material change in previously disclosed risk factors.
Important facts for investors to verify
- Confirm the intended issuer: this filing names Eastside Distilling, Inc., despite the request identifying Beeline Holdings, Inc.
- Review liquidity and financing needs, including the terms, collateral, repayment capacity, and related-party connections of the Aegis and TQLA financing.
- Assess whether Craft C+P printing utilization and margins improved after the quarter, and whether its capacity expansion can produce positive cash flow.
- Evaluate spirits demand, the sustainability of bulk-barrel sales, distributor concentration, and the impact of cost inflation on margins.
- Check the status and potential financial impact of the former executive’s lawsuit and the company’s ability to meet near-term debt obligations.