Filing summary
Entity discrepancy: The supplied filing is Eastside Distilling, Inc.’s Form 10-Q, not a filing identified as Beeline Holdings, Inc. It covers the quarter ended September 30, 2019, and is unaudited.
Business context and reporting period
Eastside produces and markets craft spirits, operates tasting rooms, and provides contract bottling, canning, and packaging services. It reported one operating segment. During 2019 it acquired Craft Canning (January) and the Azuñia tequila brand and related assets (September). The company said its products were sold in 46 states and Ontario, Canada.
Financial results and liquidity
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Sales | 2019: $4.75 million; 2018: $1.70 million | 2019: $12.68 million; 2018: $4.79 million |
| Net sales | 2019: $4.43 million; 2018: $1.49 million | 2019: $11.83 million; 2018: $4.23 million |
| Gross profit / margin | 2019: $1.77 million / 40%; 2018: $0.60 million / 40% | 2019: $4.42 million / 37%; 2018: $1.96 million / 46% |
| Net loss attributable to common shareholders | 2019: $3.54 million; 2018: $2.63 million | 2019: $9.44 million; 2018: $5.85 million |
| Basic and diluted loss per share | 2019: $0.38; 2018: $0.42 | 2019: $1.03; 2018: $1.07 |
For the nine months, operating expenses were $13.52 million, including $4.39 million in advertising, promotional and selling expenses and $9.14 million in general and administrative expenses. Operating loss was $9.10 million. The filing reports no income-tax provision.
Operating cash use was $7.92 million in the first nine months of 2019, versus $10.36 million in 2018. Investing cash use was $3.80 million, principally reflecting capital spending and the Craft Canning acquisition; financing provided $1.53 million. Cash fell to $446,983 from $10.64 million at December 31, 2018.
At September 30, 2019, current assets were $15.44 million and current liabilities $3.86 million; management described working capital as positive at approximately $11.5–$11.6 million. Total liabilities were $23.94 million. Notes payable totaled $4.48 million, the secured inventory credit facility was fully drawn at $3.0 million, lease liabilities were $1.05 million, and deferred Azuñia acquisition consideration was $12.78 million. The company reported an accumulated deficit of $36.76 million.
Material changes versus the prior comparable period
- Nine-month sales increased about 165%, mainly reflecting Craft Canning, continued Redneck Riviera Whiskey sales, and stronger Pacific Northwest wholesale sales. Private-label/co-packing became 56% of nine-month sales, versus 28% in 2018.
- Nine-month gross margin declined to 37% from 46%, which management attributed to sales mix, raw-material costs, and higher facility costs relative to current volume. Third-quarter margin remained 40%.
- Nine-month net loss widened to $9.44 million from $5.85 million, as higher gross profit was outweighed by increased operating expenses.
- Cash declined substantially, while investing cash use rose to $3.80 million from $0.94 million. Financing cash provided fell to $1.53 million from $13.57 million in 2018.
- Assets and liabilities increased following acquisitions, including the recognition of Azuñia brand intangibles and deferred consideration. Eastside also adopted lease accounting in 2019 and recognized right-of-use assets and lease liabilities.
Outlook, risks, contingencies, and unusual items
No quantified revenue, earnings, or cash-flow guidance is provided. Management said the company’s ability to meet operating cash needs over the following 12 months depended on additional debt or equity financing and improved operating cash flow through sales growth, profit improvement, and expense control. It also intended to use inventory and receivables to support working capital. If financing were unavailable on acceptable terms, the company said it might sell assets, reduce expenses, or curtail marketing.
Key risks include continued losses and cash consumption, reliance on external financing, distributor and customer concentration, inventory and supplier risks, acquisition integration and execution, and regulatory uncertainty surrounding CBD beverages. Two customers represented 33% of receivables at quarter-end; two customers accounted for 28% of nine-month net sales. Management also cited volatile margins and the need to grow Azuñia sales and expand Craft Canning.
A lawsuit filed by two former employees on October 22, 2019 alleges discrimination, retaliation, and harassment, among other claims, and seeks up to $560,000 plus fees. The company said the outcome and any loss estimate could not be determined; its insurer accepted the initial defense subject to a reservation of rights. The filing also reports leadership changes and states that, as of November 12, 2019, the company was not in compliance with Nasdaq’s board and audit committee independence requirements. Management concluded disclosure controls were effective as of September 30, 2019.
The Azuñia consideration is contingent on future revenue and share-price measures; the filing recorded $12.78 million of deferred consideration and described potential aggregate initial consideration of up to approximately $14.7 million, plus up to $1.5 million of additional consideration if a revenue target is achieved. The September 2019 private offering raised $1.26 million net and included warrants. The filing gives no formal forecast of whether acquisitions or growth initiatives will produce profitability or positive cash flow.
Important facts for investors to verify
- Confirm the issuer: the filing supplied is for Eastside Distilling, Inc., despite the request metadata naming Beeline Holdings, Inc.
- Review the company’s financing needs, cash runway, secured-credit terms, debt maturities, and ability to meet the stated 12-month liquidity requirement.
- Assess the Azuñia acquisition’s contingent payment terms, related-party interests, revenue milestones, and expected dilution, alongside Craft Canning’s contribution and integration costs.
- Track whether gross margins recover and whether sales growth can offset operating expenses and ongoing cash use.
- Check subsequent disclosures on the employee litigation, Nasdaq governance compliance, executive leadership, and any financing or share issuance.
- Reconcile the 2018 nine-month net-loss figures: the statements show $5.852 million attributable to common shareholders, while the table’s net-loss line shows $5.852 million with a differing figure elsewhere in the source text.