Business context and reporting period
The supplied filing is Eastside Distilling, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2018—not a filing identified in its text as Beeline Holdings, Inc. Eastside produces and markets craft spirits, operates Oregon tasting rooms, and also earns revenue from private-label bottling and packaging. Management highlighted Redneck Riviera Whiskey (RRW), expanded wholesale distribution, and recently added production and canning capacity as growth initiatives.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Sales | $1.68 million | $0.88 million | $3.09 million | $1.71 million |
| Net sales | $1.52 million | $0.61 million | $2.75 million | $1.22 million |
| Gross profit | $0.76 million | $0.21 million | $1.35 million | $0.50 million |
| Gross margin | 50% | 35% | 49% | 41% |
| Net loss attributable to common shareholders | $1.91 million | $1.29 million | $3.23 million | $2.19 million |
| Loss per share | $0.37 | $0.40 | $0.64 | $0.75 |
For the first half, operating expenses rose to $4.42 million from $2.55 million, including advertising, promotional and selling costs of $1.71 million (up 83%) and general and administrative costs of $2.71 million (up 72%). Management attributed the increases mainly to brand-launch and market-expansion spending, higher staffing and compensation, and stock-based compensation. The larger gross profit did not offset these costs, and operating loss widened to $3.06 million from $2.05 million.
Operating cash outflow was $6.81 million for the first half, compared with $2.75 million a year earlier. Investing outflow was $0.70 million, primarily property and equipment purchases; financing provided $7.27 million, leaving cash of $2.35 million, down from $2.59 million at year-end 2017. Inventory increased to $7.89 million from $4.05 million, a significant use of cash.
At June 30, 2018, current assets were $11.46 million and current liabilities $1.49 million; the filing reports working capital of approximately $10.0 million. Total liabilities were $8.66 million, including $5.99 million of notes payable and $1.96 million net secured credit-facility debt. The secured facility permits borrowing up to $3.0 million for specified bulk spirits inventory and requires eligible inventory market value of at least 120% of the outstanding loan.
Material changes versus the prior comparable period
- First-half sales increased approximately 80%; Q2 sales increased approximately 90%. Management cited RRW, stronger Pacific Northwest wholesale sales, acquisitions, expanded private-label/canning activity, and retail-location changes.
- Private-label sales grew to $0.88 million for the first half from $0.19 million; wholesale sales rose to $1.59 million from $0.93 million. Q2 retail and special-event sales declined to $0.27 million from $0.31 million, which management attributed partly to store relocations.
- Gross margin improved, which management attributed to product mix and lower federal excise-tax rates. Excise taxes, customer programs and incentives deducted from sales fell to $0.34 million from $0.50 million for the first half.
- First-half net loss increased, while loss per share decreased due to a higher weighted-average share count. The company issued shares through warrant exercises and service compensation and obtained substantial debt financing.
Outlook, risks and unusual items
Management stated that cash on hand, financing proceeds and expected operating revenue should be sufficient for the next 12 months. This outlook depends on increasing sales and profitability and controlling expenses; the company reported continuing operating losses and reliance on external debt and equity financing. Through August 13, it reported an additional $5.76 million raised through debt offerings and warrant exercises.
After quarter-end, warrant exercises generated $5.31 million through August 13, and $1.00 million of convertible-note principal and accrued interest was converted into 167,273 shares. The company also announced a call of specified $5.40 exercise-price warrants, with a September 10, 2018 deadline. These events may affect liquidity and share dilution.
Risks identified include customer acceptance of existing and new brands, dependence on distributors and external financing, product-development and demand uncertainty, inventory exposure, and alcohol-industry conditions. Four customers represented 70% of receivables at June 30; two customers accounted for approximately 46% of first-half net sales. No material legal proceedings were reported, and the company reported no material change in previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Most important facts to verify
- Confirm the intended issuer: the provided filing identifies Eastside Distilling, Inc., while the request metadata names Beeline Holdings, Inc.
- Verify the post-quarter financing and warrant-exercise amounts, and the status and potential share impact of the warrant redemption and note conversions.
- Assess whether RRW and other sales growth can translate into operating cash flow, given the widening first-half cash burn and rising operating expenses.
- Review inventory build, customer concentration, secured-facility collateral requirements, and debt maturities, particularly the $4.55 million note balance due in 2021.