Filing and reporting period
The supplied filing is Eastside Distilling, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2022—not a filing identified as Beeline Holdings, Inc. The company operates Spirits and Craft Canning + Bottling (Craft C+B) businesses. Unless otherwise noted, financial amounts below are in millions of dollars.
Financial performance and position
- Net sales were $3.74 million, up 19% from $3.15 million. Gross profit rose to $0.95 million from $0.54 million, and gross margin improved to 25% from 17%.
- Operating expenses were $2.58 million, down from $2.84 million. Operating loss narrowed to $1.63 million from $2.30 million.
- Net loss attributable to common shareholders was $2.07 million, or $0.14 per share, versus net income of $3.71 million, or $0.33 per share, in the prior-year quarter. The comparison is affected by $3.93 million of discontinued-operations income in 2021, including a gain on license termination, and $2.20 million of other income, including PPP loan forgiveness and earn-out remeasurement.
- Cash used in operating activities was $0.14 million, compared with $1.40 million provided in 2021. Investing activities used $1.39 million, primarily for digital can-printing equipment. Financing activities provided $0.86 million. Cash declined to $2.61 million from $3.28 million at year-end.
- At March 31, total assets were $34.41 million, total liabilities $21.81 million, and stockholders’ equity $12.60 million. Working capital was $3.8 million. Current liabilities were $11.18 million against current assets of $15.02 million.
- Debt included $8.76 million of notes payable, $4.99 million current secured credit facilities, and $1.17 million of related-party notes payable. Lease liabilities totaled approximately $3.49 million. Interest expense was $0.41 million, versus $0.13 million.
Changes and segment results
- Spirits net sales increased to $2.66 million from $1.24 million; gross margin improved to 37% from 15%. A one-time sale of 798 barrels of rye whiskey generated $1.5 million in gross proceeds. Spirits volumes overall were lower, including Azuñia sales of 2,059 nine-liter cases versus 2,910.
- Craft C+B net sales fell to $1.08 million from $1.91 million. The segment recorded a $0.04 million gross loss and a $1.35 million net loss, compared with a 19% gross margin and $0.41 million net loss in 2021.
- Customer and excise deductions were $0.04 million, versus $0.10 million. Sales and marketing costs declined to $0.65 million from $0.86 million; general and administrative expenses were essentially unchanged at $1.93 million.
- Capital investment included approximately $1.3 million for a digital can printer, which began operating in April 2022. The filing says the printer incurred costs without associated revenue during the quarter.
Liquidity, outlook, risks and unusual items
- Management said meeting operating cash needs over the next 12 months depends on increasing revenue and gross margins, achieving positive operating cash flow, and controlling expenses. The company has historically relied on debt and equity financing; it reported an accumulated deficit of $60.7 million and a $2.0 million quarterly net loss.
- The 2021 audit report included a going-concern explanatory paragraph expressing substantial doubt about the company’s ability to continue as a going concern. The filing warns that unavailable or unacceptable financing could lead to asset sales or expense and marketing cuts.
- Live Oak’s facility had matured, and the lender entered into a forbearance agreement while an extension was being finalized. The company reported a $1.9 million Live Oak principal balance at quarter-end after a $0.9 million repayment. A Craft C+B note was past maturity; the company disclosed covenant noncompliance on two Craft C+B notes and discussions with First International Bank regarding forbearance and an extension.
- On March 21, the company borrowed $2.0 million from related party TQLA at 9.25% interest, with a 2.5% commitment fee and warrants. After quarter-end, it drew an additional conditional $1.0 million and issued more warrants. The filing also reports that the 6% convertible notes’ conversion price was reduced to $1.30 per share on April 1 following the TQLA warrant issuance.
- Management cited competition, supply-chain constraints, higher input costs, distributor inventory and distribution challenges, and weaker Craft C+B demand. Craft C+B’s margin pressure reflected lower service sales, product mix, and raw-material costs; management expected the new printer to support improved results later in 2022, but provided no quantified guidance.
- A former CEO’s lawsuit alleging fraud and other claims remained pending; the company disputes the allegations. Management reported no material change to previously disclosed risk factors and stated disclosure controls were effective at quarter-end.
Important facts to verify
- Confirm the intended issuer: the supplied document names Eastside Distilling, Inc., while the request metadata names Beeline Holdings, Inc.
- Assess liquidity and refinancing needs, including the Live Oak forbearance and maturity extension, Craft C+B covenant defaults, and available financing.
- Evaluate whether the one-time rye barrel sale is repeatable and whether underlying spirits volumes and Craft C+B sales can recover.
- Review the related-party TQLA loan, warrant terms, subsequent $1.0 million draw, and resulting potential dilution and convertible-note repricing.
- Track digital printer utilization, revenue contribution, and cash requirements, as the filing gives no quantified outlook.