Filing summary
Issuer identity discrepancy: The request identifies Beeline Holdings, Inc., but the supplied Form 10-Q is for Eastside Distilling, Inc. This summary covers the filing provided, for the quarter ended September 30, 2018; the financial statements are unaudited.
Business context and reporting period
Eastside produces and markets craft spirits, including Redneck Riviera Whiskey (RRW), sells through wholesale distributors and Oregon tasting rooms, and provides private-label bottling and packaging services. Management attributes growth to RRW, stronger Pacific Northwest wholesale sales, acquisitions, and expanded canning capabilities. The company reported one operating segment.
Financial performance and position
| Metric | Three months ended Sept. 30, 2018 | Nine months ended Sept. 30, 2018 |
|---|---|---|
| Sales before deductions | $1.70 million, up about 90% year over year | $4.79 million, up about 84% |
| Net sales | $1.49 million | $4.23 million |
| Gross profit / margin | $602,219 / 40% (38% in 2017) | $1.96 million / 46% (40% in 2017) |
| Operating loss | $2.09 million | $5.15 million |
| Net loss attributable to common shareholders | $2.63 million; $0.42 per share | $5.85 million; $1.07 per share |
For the nine-month period, advertising, promotional and selling expense rose to $2.84 million from $1.50 million, and general and administrative expense rose to $4.27 million from $2.62 million. Interest expense was $703,903, versus $184,998 in the prior-year period. Management says increased staffing, marketing investment, and interest costs contributed to the larger net loss.
At September 30, cash was $4.86 million, working capital was positive $14.57 million, and total assets were $18.49 million. Inventory was $10.18 million, up from $4.05 million at year-end 2017. Total liabilities were $5.91 million. Debt included a secured credit facility with a $1.95 million net carrying value and notes payable of $2.47 million gross, including $169,005 current and $2.30 million long-term.
Nine-month cash flow from operations was negative $10.36 million, investing cash flow was negative $944,248, and financing cash flow was positive $13.57 million. Cash increased by $2.27 million. The operating cash outflow included a $6.12 million increase in inventory. Financing included warrant exercises, promissory notes, and a secured credit facility.
Material changes and unusual items
- Growth shifted toward wholesale and private label: wholesale represented 57% of nine-month sales versus 55% in 2017; private label rose to 28% from 10%, while retail and special events fell to 15% from 35%.
- Gross margin improved year over year, which management attributes partly to lower federal excise taxes and product mix; lower-margin private-label sales were a partial offset.
- Operating expenses grew substantially alongside sales, and losses widened. Management reported $882,261 of nine-month marketing expense related to RRW.
- Other expense included a $332,483 debt-discount charge associated with warrant exercises and note principal reduction.
- Shares outstanding increased to 7,202,648 at quarter-end from 4,889,745 at December 31, 2017. The company also issued equity for services and debt-related transactions.
Outlook, risks, and contingencies
Management expects RRW to remain a growth area into 2019 and believes existing capacity and infrastructure investments can support improved performance. It gave no quantified revenue, earnings, or margin guidance. Despite recurring losses and reliance on external financing, management believes cash, recent financing proceeds, and expected operating revenue will cover cash needs for the next 12 months. It also disclosed an additional $482,004 received from warrant exercises through November 14, 2018.
Key risks include the need to generate positive operating cash flow, dependence on a limited number of distributors, customer acceptance of new products, inventory and demand forecasting, competitive and consumer-preference changes, and the company’s ability to manage rapid growth. Two customers accounted for approximately 44% of sales in the nine-month periods presented; five customers accounted for 72% of receivables at September 30, 2018. The company disclosed no material legal proceedings. It reported disclosure controls as effective and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is Eastside Distilling, Inc., not Beeline Holdings, Inc.
- Assess whether RRW and private-label growth can translate into operating cash flow, given the $10.36 million nine-month operating cash outflow and increased inventory.
- Review inventory composition, turnover, demand assumptions, and the company’s exposure to concentrated customers and distributors.
- Verify debt terms, interest burden, collateral requirements for the secured facility, and future financing needs; management’s 12-month liquidity statement is forward-looking.
- Evaluate the impact of marketing and administrative cost growth, lower-margin sales mix, and equity issuance and warrants on profitability and dilution.