Beeline Holdings, Inc. annual report, FY2021

Business context and reporting period

Issuer discrepancy: The request identifies Beeline Holdings, Inc., but the supplied Form 10-K is for Eastside Distilling, Inc. (Nasdaq: EAST). Confirm the filing and issuer before relying on this summary. It reports the fiscal year ended December 31, 2021, compared with 2020; it is an annual report, not a standalone fourth-quarter report.

Eastside operated two segments: Spirits, which markets and sells alcoholic beverages, and Craft Canning + Bottling (Craft C+B), which provides mobile packaging services. Spirits sold in 34 states; Craft C+B operated in Oregon, Washington and Colorado.

Financial performance and condition

Amounts below are in U.S. dollars; financial statement figures are reported in thousands and converted to millions.

• Segment sales declined: Spirits to $5.67 million from $6.05 million; Craft C+B to $7.22 million from $8.74 million. Spirits gross margin improved to 28% from 18%, while Craft C+B margin fell to 20% from 31%.
• At December 31, 2021, working capital was $4.6 million, versus approximately $(17.4) million at year-end 2020. Current assets were $14.11 million and current liabilities $9.50 million.
• Balance-sheet debt included $5.73 million of current secured credit facilities and $8.97 million of notes payable, in addition to lease liabilities. Total liabilities were $20.16 million.
• Cash flows included $3.21 million of net investing inflows, largely from discontinued-operation activity, and $5.18 million of financing inflows. Financing included stock and preferred-stock proceeds and borrowings, offset by debt repayments.

Changes versus 2020

Sales fell 13%, and gross margin contracted by 3 percentage points. Management attributed weaker performance to distributor underinvestment and slower spirits distribution, Azuñia supply constraints, and lower Craft C+B volumes and margins amid can-supply costs, competition and customer insourcing. Lower sales and marketing and general and administrative expenses reduced operating losses.

Net loss narrowed substantially, but the comparison benefited from unusual items: $1.45 million of PPP loan forgiveness, a $0.75 million gain from remeasurement of Azuñia deferred consideration, and $3.86 million of income from discontinued operations. The latter included a $2.85 million gain on terminating the Redneck Riviera license agreement. A $2.29 million deemed dividend related to warrant price protection increased the loss attributable to common shareholders.

Outlook, risks and unusual items

• Management expected continued net losses in 2022 and said operating and investing cash needs could exceed sales income. It identified revenue and margin growth, positive operating cash flow, cost control and access to further financing as important to meeting cash needs. No quantified revenue or earnings guidance is provided.
• The auditor’s report includes a going-concern explanatory paragraph, citing operating losses and accumulated deficit and expressing substantial doubt about the Company’s ability to continue without additional capital. The Company reported an accumulated deficit of $58.6 million.
• The Live Oak facility had matured in November 2021; in February 2022 the lender agreed to forbear enforcement while an extension was being finalized. Subsequent events disclosed a $0.9 million repayment and a March 2022 agreement for a $2.0 million loan from TQLA, with a conditional additional $1.0 million. The new loan terms include 9.25% interest and a stock warrant.
• In February 2022, the CEO resigned; the CFO became CEO, combining the interim roles. Management cited ongoing pandemic impacts, supply-chain costs, strong competitors, distributor dependence, financing needs, secured-debt covenants and potential dilution as significant risks.
• The Company planned to launch a Hinterkopf digital can printer in April 2022, expanding custom-printing services. Management said the investment was intended to support Craft C+B growth; results were not assured.
• A former CEO’s lawsuit alleging fraud, contract and other claims remained pending. The Company disputes the allegations and intends to defend the case.
• Management reported effective disclosure controls and internal control over financial reporting as of year-end; the auditor did not attest to internal control effectiveness.

Important facts for investors to verify

• Confirm whether this Eastside Distilling filing is the intended filing for the requested company.
• Review the full financial statements and subsequent filings for the status, maturity, covenants and repayment terms of secured debt and the TQLA financing.
• Assess whether the reported working-capital improvement and cash balance provide sufficient liquidity given operating cash burn and the going-concern warning.
• Separate recurring operating performance from PPP forgiveness, discontinued-operation gains, the asset/license transaction and other nonrecurring items.
• Check whether spirits sales, Craft C+B margins, can-printing operations and distributor support improved after year-end.
• Review potential dilution from convertible notes, preferred shares, warrants and equity-based financing, and monitor the pending litigation and executive transition.