Filing summary
Entity and period: The supplied filing is Eastside Distilling, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2015—not a filing identified as Beeline Holdings, Inc. The filing describes a hand-crafted spirits business; financial statements are presented as a continuation of Eastside Distilling, LLC following a 2014 reverse acquisition.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 or comparison |
|---|---|---|
| Sales before excise taxes | $424,910 | $182,350 |
| Excise taxes | $99,840 | $35,237 |
| Net sales | $325,070 | $147,113 |
| Gross profit / margin | $107,208 / 25.2% | $52,176 / 28.6% |
| SG&A | $987,163 | $77,061 |
| Operating loss | $(879,955) | $(24,885) |
| Net loss | $(831,018) | $(25,279) |
| Basic and diluted loss per share | $(0.02) | $(0.00) |
| Operating cash flow | $(713,353) | $(1,866) |
| Cash at quarter end | $368,136 | $43,161 |
- At March 31, 2015, total assets were $1.69 million, current assets $1.46 million, and current liabilities $896,156. Accounts payable was $640,368; inventories were $841,843, up from $377,020 at December 31, 2014.
- Total liabilities were $918,471, including a $150,000 convertible note and a $26,030 vehicle-secured note bearing 7.99%. The convertible note bears 5% interest, matures June 13, 2015, converts at $0.40 per share, and may be prepaid at 150% of principal.
- Stockholders’ equity was $767,090, versus $1.58 million at December 31, 2014. No income tax provision was recorded; management cited a full valuation allowance on deferred tax benefits.
Changes and notable items
- Net sales increased 133.5% year over year, which management attributed to higher sales across channels, including wholesale distributors and newly opened retail locations. Gross margin declined to 25.2% from 28.6%, attributed to product mix and higher shipping costs.
- SG&A rose by approximately $910,000. Management cited about $421,000 of additional professional accounting, legal, and marketing fees and approximately $86,503 of added payroll associated with retail locations and office personnel.
- The February 3, 2015 transfer of subsidiary MWWD and its related assets and liabilities generated a reported gain of approximately $52,890 (the income statement reports net other income of $48,937). MWWD’s results are included through the transfer date. The filing also says the spin-off had led to a $3.2 million goodwill impairment in 2014.
- Operating cash use reflected inventory build. The company reported no investing cash flows and $801 of debt principal payments in Q1 2015.
- In April 2015, the company issued 37,500 common shares to a consultant for services, with no cash proceeds. At May 15, 2015, 45,550,000 common shares were outstanding; quarter-end shares were 45,512,500.
Liquidity, outlook, and risks
- Management said cash and available capital were insufficient to sustain the current operating level for the next 12 months and that additional capital or financing would be required. It expected to seek debt and equity financing and said failure to raise funds could materially adversely affect the company, reduce operations, or constrain growth.
- The company estimated it could require up to an additional $3.5 million for nationwide expansion: $1.1 million for inventory, $0.9 million to make a new facility operational, and $1.5 million for sales and marketing. No specific financing commitments or quantified earnings guidance are provided.
- Management cited risks including customer acceptance of brands, dependence on external financing and wholesale distributors, new-product development, inventory management, changing demand and preferences, and industry conditions. Five customers represented all reported trade receivables; the listed customer percentages total 105%, an apparent inconsistency to verify.
- Disclosure controls and procedures were deemed ineffective due to material weaknesses, including limited resources and segregation of duties, lack of an audit committee, inadequate documentation of review procedures, and insufficient IT backup procedures. No material control changes during the quarter were reported.
- The filing reported no legal proceedings and no significant off-balance-sheet arrangements. The filing states results for the quarter are not necessarily indicative of full-year results.
Important facts for investors to verify
- Confirm the issuer: the provided filing is for Eastside Distilling, Inc., whereas the request identifies Beeline Holdings, Inc.
- Assess the company’s ability to obtain capital to fund operations and the stated expansion needs, given $368,136 of quarter-end cash and $713,353 of quarterly operating cash use.
- Determine how the $150,000 convertible note due June 13, 2015 was repaid, converted, or otherwise resolved after quarter-end; the supplied filing does not provide that outcome.
- Reconcile the stated customer concentration percentages, which sum to 105% despite the filing saying the five customers account for 100% of receivables.
- Evaluate the sharp increase in SG&A and the stated internal-control weaknesses, and check for subsequent remediation or financing disclosures.