Filing and reporting period
Important identification discrepancy: The request identifies Beeline Holdings, Inc., but the supplied filing is Eastside Distilling, Inc.’s Form 10-K for the fiscal year ended December 31, 2018. The summary below covers the filing actually provided; it is an annual report, not a standalone fourth-quarter report.
Eastside produces and markets craft spirits and provides contract bottling and canning services. Its 2018 growth centered on Redneck Riviera Whiskey and expanding private-label operations. The financial statements were audited and received an unqualified opinion; the auditor did not audit internal control over financial reporting.
Financial results and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Sales before excise taxes and customer programs | $7.20 million | $3.79 million |
| Net sales | $6.12 million | $2.61 million |
| Gross profit / gross margin | $2.31 million / 38% | $0.98 million / 37% |
| Operating expenses | $10.57 million | $5.81 million |
| Loss from operations | $8.26 million | $4.83 million |
| Net loss attributable to common shareholders | $9.05 million | $5.28 million |
| Basic and diluted loss per share | $1.49 | $1.42 |
| Net cash used in operating activities | $13.92 million | $7.01 million |
| Net cash used in investing activities | $1.30 million | $0.65 million |
| Net cash provided by financing activities | $23.27 million | $9.16 million |
At year-end, cash was $10.64 million, working capital was approximately $21.12 million, total assets were $26.36 million, and total liabilities were $7.61 million. Debt included a $3.0 million inventory-secured credit facility (reported net of issuance costs at $2.93 million) and $2.30 million of notes payable. The credit facility was fully drawn, with less than $100,000 available under its stated limit. The notes payable were due in 2021; the credit facility terminates in June 2021.
Operating cash use rose substantially, with a $6.97 million inventory increase the principal working-capital driver. Inventory totaled $11.02 million at year-end, up from $4.05 million. Management said cash on hand was expected to cover near-term operating needs for the next 12 months, while emphasizing the need to improve operating cash flow through sales growth, margins, and expense control.
Changes versus 2017
- Sales increased approximately 90%, led by wholesale growth and private-label/co-packing revenue. Redneck Riviera accounted for 32% of 2018 sales; private-label revenue rose to $1.64 million from $0.32 million.
- Retail and special-event revenue fell to $1.21 million from $1.52 million. Burnside, vodka, specialty whiskey, rum, and Barrel Hitch declined as percentages of sales, largely reflecting the new whiskey brand and co-packing growth; the filing says several categories grew in dollar volume despite lower shares.
- Gross margin improved slightly to 38% from 37%, helped by lower federal spirits excise taxes, but was pressured by low-margin private-label transactions, lower facility utilization, and higher raw-material costs.
- Advertising, promotional and selling expense rose to $4.35 million from $2.22 million; general and administrative expense rose to $6.23 million from $3.55 million. Net loss and operating cash use both increased.
- Cash increased from $2.59 million to $10.64 million, principally through equity and debt financing. Common shares outstanding increased from 4.89 million to 8.76 million at year-end, reflecting offerings, warrant exercises, and other issuances.
Outlook, risks, and notable items
Management expected Redneck Riviera to be a key 2019 growth driver, with continued expansion in domestic and international sales, new products, and increased co-packing activity. The filing provides no quantified revenue, earnings, or cash-flow guidance. It identifies the January 2019 Craft Canning acquisition as a capacity and growth opportunity; the stated consideration was approximately $4.84 million, including cash, a three-year note, and shares. The agreement provides for a potential note reduction if Craft’s 2019 EBITDA is below $1 million.
- Continuing losses and funding dependence: The company reported losses every quarter since inception, a $27.14 million accumulated deficit, and expected continued losses and negative cash flow. Growth depends in part on external financing.
- Concentration: The Oregon Liquor Control Commission represented approximately 30% of 2018 sales. Two distributors represented about 42% of 2018 sales; the filing gives differing concentration descriptions for receivables in separate sections (37% versus 34%), which investors should reconcile.
- Brand and channel exposure: The Redneck Riviera license requires minimum case sales beginning in 2020 and may be terminated if thresholds are not met. The company also depends on distributors without long-term contracts, state product listings, and a limited number of suppliers.
- Regulatory and operating risks: CBD rules were evolving; the planned Outlandish product was initially limited to Oregon. Other risks include alcohol regulation and taxation, competition, product liability, inventory loss or obsolescence, and acquisition integration.
- Financing and dilution: 2018 funding included an underwritten equity offering, warrant exercises, notes, and a fully drawn secured inventory facility. Shares outstanding rose materially, and options and private warrants could create further dilution.
- Other items: The company acquired the remaining 10% of Big Bottom Distillery in December 2018. It recognized a $218,374 impairment related to that acquisition in 2017, with no additional impairment in 2018. No material legal proceedings or off-balance-sheet arrangements were reported.
Key facts for investors to verify
- Confirm the issuer and filing match the intended investment: the provided filing is for Eastside Distilling, Inc., not Beeline Holdings, Inc.
- Reconcile gross sales, net sales, customer incentives, and the differing customer-receivable concentration disclosures.
- Assess whether sales growth can translate into higher margins and reduced cash burn, especially given inventory growth and higher selling and administrative expenses.
- Review the terms, collateral, covenants, and repayment capacity for the fully drawn credit facility and outstanding notes.
- Track Redneck Riviera case-sales requirements, distributor expansion, and the contribution and integration costs of the Craft Canning acquisition.
- Evaluate potential dilution from equity compensation, warrants, and future financing needs.