Business context and reporting period
The supplied filing is Eastside Distilling, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2021—not a filing identified as Beeline Holdings, Inc. The company manufactures and sells spirits and operates a mobile craft canning and bottling business. Retail tasting rooms and the Redneck Riviera spirits business are reported as discontinued operations.
Financial performance and liquidity
Amounts below are in millions of dollars unless otherwise noted.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $3.16 | $4.02 | $9.61 | $10.57 |
| Gross profit / margin | $1.15 / 36% | $1.40 / 35% | $3.04 / 32% | $3.55 / 34% |
| Operating loss | $(1.50) | $(1.64) | $(5.20) | $(6.40) |
| Net income (loss) | $(1.91) | $(1.77) | $0.03 | $(7.46) |
| Net loss attributable to common shareholders | $(4.20) | $(1.77) | $(2.26) | $(7.46) |
- Q3 basic loss per share was $0.32; nine-month basic loss per share was $0.19.
- At September 30, cash was $2.77, working capital was $5.5, and total assets were $29.44. Total liabilities were $18.14.
- Balance-sheet borrowings included $5.70 under secured credit facilities, $2.17 of notes payable, and $6.96 of related-party notes payable. The Live Oak facility balance was approximately $3.0.
- Cash used in operating activities was $2.65 for the nine months, versus $2.86 in the prior-year period. Investing activities provided $3.28, including proceeds from the Redneck Riviera transaction; financing activities provided $1.30. Cash increased to $2.77 from $0.84 at year-end 2020.
Material changes versus the prior comparable period
- Nine-month net sales fell about 9%; Q3 net sales fell about 21%. Management attributed the declines to lower Craft Canning and Bottling sales, Azuñia supply constraints, discontinued legacy brands, and distributor-related delays.
- Nine-month gross margin declined from 34% to 32%, reflecting higher product and inbound freight costs. Q3 margin rose from 35% to 36%, as improved spirits margins partly offset weaker Craft Canning and Bottling margins.
- Operating losses narrowed year over year in both the quarter and nine-month period, with lower sales and marketing and general and administrative expenses. Nine-month other income included PPP loan forgiveness and remeasurement of Azuñia deferred consideration.
- The nine-month net income of $0.03 included $3.87 of income from discontinued operations, including a $2.85 gain on termination of the Redneck Riviera license. A $2.29 deemed dividend from warrant price protection caused common-shareholder losses to exceed reported net loss.
- Working capital improved substantially from year-end, principally as current debt was repaid or refinanced. The company also raised capital through warrant exercises and stock sales.
Outlook, risks and unusual items
- Management provided no quantified revenue or earnings guidance. It said cash needs over the following 12 months depend on revenue and gross-margin growth, positive operating cash flow, and expense control; additional financing may be needed. If unavailable on acceptable terms, the company may sell assets or cut expenses and marketing.
- Live Oak’s loan maturity had been extended several times and was extended to November 11, 2021 after quarter-end. As of the filing, the company said it was finalizing a further extension. The lender could demand repayment under the agreement.
- Management reported that pandemic-driven Craft Canning and Bottling demand had slowed toward pre-pandemic levels. It cited on-premise market shifts, supply-chain constraints, aluminum-can availability, and spirits distribution challenges.
- On October 19, 2021, the company closed a $2.5 million Series B preferred-stock placement, with a 6% cumulative dividend and conversion and warrant features. It also reported $1.5 million net proceeds from at-the-market stock sales between September 20 and November 8, 2021.
- A former CEO and board chair’s lawsuit alleges, among other matters, fraud, breach of contract, defamation, and misleading proxy materials. The company disputes the allegations and intends to defend the case.
- The company reported no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements, and effective disclosure controls as of September 30, 2021.
Most important facts to verify
- Confirm the issuer: the request names Beeline Holdings, Inc., but the supplied 10-Q identifies Eastside Distilling, Inc.
- Review the Live Oak extension status, maturity terms, and any repayment demand or covenant developments after November 11, 2021.
- Assess operating cash burn and financing needs, and distinguish recurring results from discontinued-operation gains, PPP forgiveness, and other nonrecurring items.
- Check the terms and dilution implications of the Series B preferred stock, warrants, and subsequent at-the-market share sales.
- Monitor sales trends, gross-margin recovery, Craft Canning and Bottling demand, and the progress of spirits distribution expansion.