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What changed in Beeline Holdings, Inc.'s 10-K2022 vs 2023

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Paragraph-level year-over-year comparison of Beeline Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+120 added145 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-31)

Top changes in Beeline Holdings, Inc.'s 2023 10-K

120 paragraphs added · 145 removed · 85 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe are currently the exclusive provider of can printing and co-packing services for a local CBD and wellness water maker. Mobile Canning Our mobile canning business has locations in Oregon, Washington and Colorado. We use extensive proprietary and data-driven quality control measures and a robust clean-in-place procedure in order to provide the best packaging service for our customers.
Biggest changeWe use extensive proprietary and data-driven quality control measures and a robust clean-in-place procedure in order to provide the best packaging service for our customers. We take great pride in helping local beverage producers expand their distribution reach by using our service to offer industry-top quality and branding.
We source fair-trade, single-origin Arabica coffee beans from the Finca El Paternal Estate in Huehuetenango, Guatemala that are lightly roasted for us by Portland Coffee Roasters. 5 Azuñia Tequilas Smooth, clean, additive-free tequilas crafted by Rancho Miravalle, a second generation, family-owned-and-operated estate, bursting with authentic flavor from the local terroir of Tequila Valley, Mexico. 100% pure Weber Blue Agave is harvested by hand, roasted in traditional clay hornos, and finished with a natural, open-air fermentation process.
We source fair-trade, single-origin Arabica coffee beans from the Finca El Paternal Estate in Huehuetenango, Guatemala that are lightly roasted for us by Portland Coffee Roasters. Azuñia Tequilas Smooth, clean, additive-free tequilas crafted by Rancho Miravalle, a second generation, family-owned-and-operated estate, bursting with authentic flavor from the local terroir of Tequila Valley, Mexico. 100% pure Weber Blue Agave is harvested by hand, roasted in traditional clay hornos, and finished with a natural, open-air fermentation process.
We are also required to conduct business in the U.S. only with holders of licenses to import, warehouse, transport, distribute and sell spirits. We are subject to U.S. regulations on spirits, marketing, and advertising, such as style, media and messages.
We are also required to conduct business in the U.S. only with holders of licenses to import, warehouse, transport, distribute and sell spirits. 7 We are subject to U.S. regulations on spirits, marketing, and advertising, such as style, media and messages.
Our portfolio includes originals like the Quercus garryana barrel-finished Burnside Whiskey family, Portland Potato Vodka, Hue-Hue Coffee Rum, and Azuñia Tequilas. 4 Burnside Whiskey Family Our Burnside Whiskey Family celebrates the unique attributes of the native Oregon Oak tree ( Quercus garryana ).
Our portfolio includes originals like the Quercus garryana barrel-finished Burnside Whiskey family, Portland Potato Vodka, Hue-Hue Coffee Rum, and Azuñia Tequilas. Burnside Whiskey Family Our Burnside Whiskey Family celebrates the unique attributes of the native Oregon Oak tree ( Quercus garryana ).
Moreover, we compete at the hyper-local scale, where we have a customer base concentrated in the craft beer segment. One of our greatest threats associated with losing customers is the customer’s own growth and success. As new brewers grow, they are able to afford the investment in their own canning line.
The threat of new entrants is high. Moreover, we compete at the hyper-local scale, where we have a customer base concentrated in the craft beer segment. One of our greatest threats associated with losing customers is the customer’s own growth and success. As new brewers grow, they are able to afford the investment in their own canning line.
The U.S. Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau regulates the production, blending, bottling, sales and advertising and transportation of alcohol products. Also, each state regulates the advertising, promotion, transportation, sale and distribution of alcohol products within its jurisdiction.
Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau regulates the production, blending, bottling, sales and advertising and transportation of alcohol products. Also, each state regulates the advertising, promotion, transportation, sale and distribution of alcohol products within its jurisdiction.
Through our internal sales team, we have established relationships for our brands with wholesale distributors in the states where we sell our products, and our products are sold in the U.S. by these wholesale distributors, as well as by various state beverage alcohol control agencies. 9 Significant Customers Sales to one customer, the Oregon Liquor Control Commission, accounted for approximately 18% and 20% of our consolidated sales for the years ended December 31, 2022 and 2021, respectively.
Through our internal sales team, we have established relationships for our brands with wholesale distributors in the states where we sell our products, and our products are sold in the U.S. by these wholesale distributors, as well as by various state beverage alcohol control agencies. 6 Significant Customers Sales to one customer, the Oregon Liquor Control Commission, accounted for approximately 19% and 18% of our consolidated sales for the years ended December 31, 2023 and 2022, respectively.
However, we compete with other can decorating companies that offer different decorating technologies. These alternative suppliers can produce can decorations at lower costs than our technology as well as at greater volumes. The mobile canning and bottling industry is highly fragmented and very competitive. The threat of new entrants is high.
However, we compete with other digital can decorating companies in other regional markets and other can decorating companies that offer different decorating technologies. These alternative suppliers can produce can decorations at lower costs than our technology as well as at greater volumes. The mobile canning and bottling industry is highly fragmented and very competitive.
It is bottled on-site in small batches using a consistent process to deliver consistent field-to-bottle quality and exclusively exported by Agaveros Unidos de Amatitán. Eastside Brands Craft inspired high-quality limited-edition products. which focus on innovation, craftsmanship and curiosity, and creativity.
It is bottled on-site in small batches using a consistent process to deliver consistent field-to-bottle quality and exclusively exported by Agaveros Unidos de Amatitán. Eastside Brands Craft inspired high-quality limited-edition products, which focus on innovation, craftsmanship and curiosity, and creativity. 5 Production and Supply Digital printing customers must make a significant investment and bear substantial risks when converting their supply chain to digital printed cans.
If we begin distributing our products internationally, import and excise duties could have a significant effect on our sales, both through reducing the consumption of alcohol and through encouraging consumer switching into lower-taxed categories of alcohol. 11 Employees As of March 31, 2023, we have 50 employees, 7 of whom are in sales and marketing, 31 in production/canning/bottling, and 12 of whom are in administration.
If we begin distributing our products internationally, import and excise duties could have a significant effect on our sales, both through reducing the consumption of alcohol and through encouraging consumer switching into lower-taxed categories of alcohol.
Competition Over the past ten years, the U.S. wine and spirits industry has undergone dramatic consolidation and realignment of brands and brand ownership. The number of major importers in the U.S. has declined significantly.
Recently, the growth of craft beer startups has slowed and this has affected the competition in our market and our ability to achieve adequate pricing. Over the past ten years, the U.S. wine and spirits industry has undergone dramatic consolidation and realignment of brands and brand ownership. The number of major importers in the U.S. has declined significantly.
Today, we believe seven major companies dominate the market: Diageo PLC, Pernod Ricard S.A., Bacardi Limited, Brown-Forman Corporation, Beam Suntory Inc., Davide Campari-Milano S.p.A., and Rémy Cointreau S.A. These competitors have substantially greater resources than we do. Our printing business is the only one of its kind in the Pacific Northwest.
Today, we believe seven major companies dominate the market: Diageo PLC, Pernod Ricard S.A., Bacardi Limited, Brown-Forman Corporation, Beam Suntory Inc., Davide Campari-Milano S.p.A., and Rémy Cointreau S.A. These competitors have substantially greater resources than we do due to their scale and ability to more effectively leverage the three-tier distribution system.
Our strategy is to utilize our public company stature to our advantage and position to expand our two distinct businesses Spirits and Craft C+P. Our spirits portfolio is to be positioned as a leading regional craft spirits provider that develops brands, expands geographic presence growing revenue and cash flow.
Our spirits portfolio is to be positioned as a leading regional craft spirits provider that develops brands, expands geographic presence growing revenue and cash flow. These two segments are detailed below.
Our brands are protected by trademark registrations or are the subject of pending applications for trademark registration in the U.S. where we distribute our brands. The trademarks may be registered in the names of our subsidiaries. In the U.S., trademark registrations need to be renewed every ten years.
Intellectual Property Trademarks are an important aspect of our business. We sell our products under a number of trademarks which we own. Our brands are protected by trademark registrations or are the subject of pending applications for trademark registration in the U.S. where we distribute our brands. The trademarks may be registered in the names of our subsidiaries.
Recently, the growth of craft beer startups has slowed and this has affected the competition in our market and our ability to achieve adequate pricing. Government Regulation We are subject to the jurisdiction of the Federal Alcohol Administration Act, U.S. Customs laws, and the Alcoholic Beverage Control laws of the states where our products are distributed, among many other regulations.
Our spirits business has been repositioned to compete regionally in key markets where we have the greatest competitive advantage. Government Regulation We are subject to the jurisdiction of the Federal Alcohol Administration Act, U.S. Customs laws, and the Alcoholic Beverage Control laws of the states where our products are distributed, among many other regulations. The U.S.
We look to grow and vertically integrate our Craft C+P business to expand our product offerings and improve our competitive position. These two segments are detailed below. Segments Spirits Since 2014 we have developed or acquired many award-winning spirits while evolving to meet the growing demand for quality products and services associated with the burgeoning craft and premium beverage trade.
Spirits Since 2014 we have developed or acquired award-winning spirits while evolving to meet the growing demand for quality products and services associated within the burgeoning craft and premium beverage trade.
We will continue to monitor our staffing while streamlining our operations for working capital needs. Geographic Information Spirits currently sells its products in 30 states. Craft C+P operates in three states.
Employees As of April 1, 2024, we have 47 employees, 7 of whom are in sales and marketing, 33 in printing/production/canning/bottling, and 7 of whom are in administration. We will continue to monitor our staffing while streamlining our operations for working capital needs. Geographic Information Craft C+P operates in one state. Spirits currently sells its products in 23 states.
Craft Canning + Printing Digital Can Printing In April 2022, we initiated operations of an innovative digital can printing facility that allows us to customer-design four sizes of popular aluminum beverage cans. This flexibility allows for custom graphics of limited releases, vintages, partnerships, and special events.
Segments Craft Canning + Printing Digital Can Printing In April 2022, we initiated operations of an innovative digital can printing facility that allows us to digitally print high quality graphics on aluminum beverage cans.
We expect to register our trademarks in additional markets as we expand our distribution territories. 10 Seasonality Our business has historically followed the spirits industry seasonality trends with peak sales generally occurring in the fourth calendar quarter in spirits, primarily due to seasonal holiday buying. Our Craft C+P business typically has peak sales mid to late summer.
In the U.S., trademark registrations need to be renewed every ten years. We expect to register our trademarks in additional markets as we expand our distribution territories. Seasonality Our Craft C+P business typically has peak sales mid to late summer.
Our Spirits segment manufactures, blends, bottles, markets and sells a wide variety of alcoholic beverages under recognized brands in 30 U.S. states. Our Craft Canning + Printing (“Craft C+P”) segment provides digital can printing and canning services to the craft beverage industry in Washington, Oregon and Colorado.
Our Spirits segment manufactures, blends, bottles, markets and sells a wide variety of alcoholic beverages under recognized brands in 23 U.S. states. Across both businesses we employ 47 people in the United States. Mission and Strategy Our mission is to offer great products and services in the craft beverage space.
In addition, we offer advanced digital can printing decoration with custom graphics and co-packing services with distinct capability and craftsmanship. Strategy Our spirits brands span several alcoholic beverage categories, including whiskey, vodka, rum and tequila. We sell our products on a wholesale basis to distributors through open states, and brokers in control states.
This includes advanced digital can printing decoration with custom graphics and co-packing services with distinct capability and craftsmanship serving the craft beer, cider, and kombucha among other beverage segments. Craft C+P offers digital can printing to customers and co-packing services. Our spirits brands span several alcoholic beverage categories, including whiskey, vodka, rum and tequila.
This new acquisition of technology gives Craft C+P the ability to offer unparalleled customization and flexibility to craft beverage producers seeking direct printing for canning projects of all sizes, while having a production capacity of over 20 million cans. 6 Co-packing Facility We offer co-packing services for non-alcoholic canned beverages including CBD soda waters in Portland, Oregon through our recent asset acquisition, allowing us to offer end-to-end production capabilities.
This investment in digital printing at Craft C+P allows the Company the ability to offer unparalleled customization and flexibility to craft beverage producers seeking direct printing for canning projects of all sizes, while having an annual production capacity of over 20 million cans.
We bring our mobile equipment to their facility, or our customers can bring their product to us for co-packing. 8 Production and Supply Bringing a brand to market involves several important stages, including bottle and label design, raw materials procurement, filling the bottles, and packaging the bottles in various configurations for shipment.
We have a limited number of contracts with both equipment and material suppliers as well as logistics providers that form the core of our supply chain. Our Spirits business production and supply chain involves several important stages, including bottle and label design, raw materials procurement, filling the bottles, and packaging the bottles in various configurations for shipment.
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In addition to mobile co-packing services we offer co-packing services from a single fixed site in Portland, Oregon. We employ 50 people in the United States. Mission-What We Do Our mission is to source, make and deliver the best in class, end-to-end craft spirits brands and product portfolio.
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Our Craft Canning + Printing (“Craft C+P”) segment provides digital can printing to customers in the craft beverage industry operating throughout the Pacific Northwest as well as other states. We also provide mobile canning services to the craft beverage industry in Oregon. In addition to these services we offer co-packing services from a single fixed site in Portland, Oregon.
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Craft C+P primarily services the craft beer, cider and kombucha beverage segments. Craft C+P offers digital can printing to customers and co-packing services, as well as operates 13 mobile lines in Seattle and Spokane, Washington; Portland, Oregon; and Denver, Colorado.
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We sell our products on a wholesale basis to distributors through open states, and brokers in control states. Our strategy is to expand our two distinct businesses – Craft C+P and Spirits in our regional market where our brand equity and concentration of investment will have the greatest return.
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We take great pride in helping local beverage producers expand their distribution reach by using our service to offer industry-top quality and branding. Our greatest asset is the unmatched expertise of our talented group of printing and packaging professionals who show up every day to go above and beyond to get the job done.
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This technology offers greater flexibility than traditional decoration methods and initially was directed toward smaller craft beverage manufacturers seeking custom graphics of limited releases, vintages, partnerships, and special events.
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Our Craft mobile team offers a variety of services and products, including: ● High Mobile Canning Capacity – We operate 13 Wild Goose MC-250 machines, with the capacity to can over 150,000 barrels per year.
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One of Craft C+P’s many goals for 2024 is to significantly increase its production capacity. 4 Co-packing Facility We offer co-packing services for non-alcoholic canned beverages including CBD soda waters in Portland, Oregon through a mobile co-packing network and one fixed co-packing location. Mobile Canning Our mobile canning business is located in Portland, Oregon.
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In addition to the canning lines, we use custom in-house designed fully automated depalletizers and twist rinses. ● Large Craft Volumes – With capabilities of around 600-800 cases per shift, we can manage any volume.
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Customers rely on our ability to produce and supply critical components on a timely basis . Likewise, Craft C+P has made significant investments in technology, processes and its supply chain to deliver digitally printed cans ready for co-packing.
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Averaging 40 cans per minute, each machine can do 100 cases per hour. 7 ● Dedicated Team – All of our employees are carefully and rigorously trained. A fully insured workforce is ready to take on any and all of the customer’s packaging needs.
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Our spirits business has historically followed the spirits industry seasonality trends with peak sales generally occurring in the fourth calendar quarter in spirits, primarily due to seasonal holiday buying. Competition We are the only digital can printing business in the United States operating in the Pacific Northwest.
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We believe in continuous improvement and we understand the value of our clients’ products and dedicate ourselves to making every run a successful run. ● Quality Control – Hach Orbispheres measure our dissolved oxygen (“DO”) during packaging to ensure the lowest Total Packaged Oxygen for the customer’s can. We use luminometers and ATP swabs to ensure sanitation of our equipment.
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We can provide Zahm & Nagel volume meters to measure carbon dioxide (“CO2”) volumes in carbonated products before packaging. As masters of the “double seam” we frequently take on-site measurements with micrometers.
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We also offer CMC Kuhnke technology to generate even more accurate measurements in the form of visual seam reports. ● Velcorin and Nitrogen Dosing – We have both velcorin and nitrogen dosing capabilities that supports microbial control and allows packaging of still products in addition to carbonated and nitrogenated beverages. ● Pre-printing and Outfeed Labeling – Bringing on advanced digital can printing technology from Hinterkopf allows us to offer customers both world-class aesthetics and full sustainability in an end-to-end branding and packaging solution, accessible from our smallest to our largest customers.
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We also provide outfeed labeling and the ability to package customer-provided branded cans of all varieties. ● Location Flexibility – We allow our customers to choose the location of canning.
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Sales Team Spirits We have a total spirits sales force of four people, who have an average of close to ten years of industry experience with premium spirits brands.
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Our spirits sales personnel are engaged in the day-to-day interaction with our distributors, which includes setting quotas, coordinating promotional plans for our brands, maintaining adequate levels of stock, brand education and training and sales calls with distributor personnel. Our sales team also maintains relationships with key chain and retail customers through independent sales calls.
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They also schedule promotional events, create local brand promotion plans, host in-store tastings, where permitted, and provide wait staff and bartender training and education for our brands.
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In addition, we have also engaged for our spirits business Park Street, a provider of back-office administrative, fulfillment, and logistical services for alcohol and beverage distributors, which services include state compliance, logistics planning, order processing, order fulfillment, distributor chargeback and bill-support management and certain accounting and reporting services.
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We believe, given our smaller scale, that we can leverage the outsourced services of Park Street to reduce complexity. Craft C+P The canning sales force is made up of four members, focusing on three regions. Their goal is to connect with and onboard new clients, as well as maintain relations and offer expanded digital can printing capabilities to current clients.
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The sales team provides a premium customer service experience from introductory conversations about mobile canning to the very first packaging day and beyond. Their previous experience of operating the equipment gives them deep knowledge to share with prospective customers, including trust and accountability. Our sales team is keen on strong partnerships that allow for sustainable success.
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We also partner with local craft beverage industry guilds and associations for creative collaborations, booth events and sponsorships. Advertising, Marketing and Promotion To build and sell our brands, we must effectively communicate with three distinct audiences: distributors, retail trade and end consumers.
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Social media, sponsorships, sampling and other promotional activities help to establish and reinforce the image of our brands, and to provide the push into the trade and pull through out of the trade that our customers demand. We have significantly narrowed our focus on building three main brands, Burnside Whiskeys, Portland Potato Vodka and Azuñia Tequilas, across seven key markets.
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In Oregon, which has the strongest distribution for Burnside Whiskeys and Portland Potato Vodka, our focus is on closing the distribution gaps and on driving consumer pull through local sponsorships.
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In our six key open states where Azuñia is the lead brand, driving distribution is the main priority, In these states, we focus mostly on price promotions, point-of-sale materials, and tastings to drive trial. Intellectual Property Trademarks are an important aspect of our business. We sell our products under a number of trademarks which we own.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

36 edited+17 added11 removed68 unchanged
Biggest changeWe have not concluded our process; however we may be unable to sell a spirit asset and realize substantial cash from an asset sale. We may be unable to complete a sale on favorable terms including amending certain debt provisions allowing us to use a portion of the proceeds from a sale for purposes other than debt paydown.
Biggest changeCompletion of a sale on favorable terms, including the modification of certain debt provisions to allocate a portion of the proceeds for purposes other than debt repayment, may also prove challenging. 8 We may fail to secure additional capital and achieve adequate liquidity to grow and compete.
As a result, it is possible that our competitors may either respond to industry conditions or consumer trends more rapidly or effectively or resort to price competition to sustain market share, which could adversely affect our sales and profitability. 16 We face unique risks relating to class actions or other litigation relating to alcohol abuse or the misuse of alcohol.
As a result, it is possible that our competitors may either respond to industry conditions or consumer trends more rapidly or effectively or resort to price competition to sustain market share, which could adversely affect our sales and profitability. We face unique risks relating to class actions or other litigation relating to alcohol abuse or the misuse of alcohol.
Any class action or other litigation asserted against us could be expensive and time-consuming to defend against, depleting our cash and diverting our personnel resources and, if the plaintiffs in such actions were to prevail, our business could be harmed significantly. We face substantial regulatory risks including compliance with local and national laws, legal, regulatory and tax changes.
Any class action or other litigation asserted against us could be expensive and time-consuming to defend against, depleting our cash and diverting our personnel resources and, if the plaintiffs in such actions were to prevail, our business could be harmed significantly. 13 We face substantial regulatory risks including compliance with local and national laws, legal, regulatory and tax changes.
Also, our inventory may become obsolete as we introduce new products, cease to produce old products or modify the design of our products’ packaging, which would increase our operating losses and negatively impact our results of operations. 14 We have been unsuccessful in launching new products and recent launches have negatively impacted the rate of loss.
Also, our inventory may become obsolete as we introduce new products, cease to produce old products or modify the design of our products’ packaging, which would increase our operating losses and negatively impact our results of operations. We have been unsuccessful in launching new products and recent launches have negatively impacted the rate of loss.
In any event, extensive product liability claims could be costly to defend and/or costly to resolve and could harm our reputation or business. 17 We could face issues including the risk of contamination of our products and/or counterfeit or confusingly similar products. The success of our brands depends upon the positive image that consumers have of them.
In any event, extensive product liability claims could be costly to defend and/or costly to resolve and could harm our reputation or business. We could face issues including the risk of contamination of our products and/or counterfeit or confusingly similar products. The success of our brands depends upon the positive image that consumers have of them.
For the foreseeable future, it is anticipated that earnings, if any, that may be generated from our operations will be used to finance our operations and that cash dividends will not be paid to holders of common stock. 19 By issuing preferred stock, we may adversely affect the market price and voting rights of common shareholders.
For the foreseeable future, it is anticipated that earnings, if any, that may be generated from our operations will be used to finance our operations and that cash dividends will not be paid to holders of common stock. By issuing preferred stock, we may adversely affect the market price and voting rights of common shareholders.
If we are unable to generate sufficient cash from operations or obtain additional financing in the future, we might not be able to continue as a going concern. There are no assurances that such financing, if necessary, will be available to us at all or will be available in sufficient amounts or on reasonable terms.
If we are unable to generate sufficient cash from operations or obtain additional financing in the future, we might not be able to continue as a going concern. There are no assurances that such financing will be available to us at all or will be available in sufficient amounts or on reasonable terms.
This could cause them to refrain from purchasing our brands in the future and in turn could impair our brand equity and adversely affect our sales and operations. In addition, we also provide contract bottling, canning, and packaging services for existing and emerging beer, wine and spirits producers.
This could cause them to refrain from purchasing our brands in the future and in turn could impair our brand equity and adversely affect our sales and operations. 14 In addition, we also provide contract bottling, canning, and packaging services for existing and emerging beer, wine and spirits producers.
Our product liability insurance coverage is limited to $1 million per occurrence and $3 million in the aggregate and $2 million products/completed operations aggregate, and our general liability umbrella policy is limited to $5 million per occurrence and $5 million in the aggregate and $5 million products/completed operations aggregate. We do not have insurance covering employee lawsuits.
Our general liability insurance coverage is limited to $1 million per occurrence and $3 million in the aggregate and $2 million products/completed operations aggregate, and our general liability umbrella policy is limited to $5 million per occurrence and $5 million in the aggregate and $5 million products/completed operations aggregate. We do not have insurance covering employee lawsuits.
Our independent registered public accounting firm included in its audit report for the year ended December 31, 2022 an explanatory paragraph referring to our net loss from operations and accumulated deficit and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available.
Our independent registered public accounting firm included in its audit report for the year ended December 31, 2023 an explanatory paragraph referring to our net loss from operations and accumulated deficit and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available.
We also anticipate that our operating and investing cash needs may exceed our income from sales in 2023. Results of operations will depend upon numerous factors, some of which are beyond our control, including but not limited to new entrants, competitive activity, government regulations and increase in tax.
We also anticipate that our operating and investing cash needs may exceed our income from sales in 2024. Results of operations will depend upon numerous factors, some of which are beyond our control, including but not limited to new entrants, competitive activity, government regulations and increase in tax.
We also incur substantial operating expenses at the corporate level, including costs directly related to being a reporting company with the SEC. We may be unsuccessful monetizing spirits assets in 2023. On December 14, 2022, we announced the intent to pursue the sale of one or more of our spirits assets.
We also incur substantial operating expenses at the corporate level, including costs directly related to being a reporting company with the SEC. We may be unsuccessful monetizing spirits assets in 2024. On December 14, 2022, we announced the intent to pursue the sale of one or more of our spirits assets.
Continued use of our stock in this manner, especially if our stock price is trading at a low price, may cause dilution to our shareholders and could adversely affect the market price of our common stock. 18 A decline in the price of our common stock could affect our ability to raise working capital and finance our operations.
Continued use of our stock in this manner, especially if our stock price is trading at a historic low price, may cause dilution to our shareholders and could adversely affect the market price of our common stock. A decline in the price of our common stock could affect our ability to raise working capital and finance our operations.
We may have other risks that we have not yet identified or that we currently believe are immaterial but may become material. RISKS RELATING TO OUR BUSINESS We expect to continue to produce net operating losses in 2023. We believe that we will continue to incur net losses in 2023.
We may have other risks that we have not yet identified or that we currently believe are immaterial but may become material. RISKS RELATING TO OUR BUSINESS We expect to continue to produce net operating losses in 2024. We believe that we will continue to incur net losses in 2024.
Over the past decade there has been increasing consolidation in production, distribution, and retail (the three tiers of the current system) that challenges the growth of small businesses in the marketplace. Our distributors also distribute competitive brands for much larger companies with significant pricing power.
We currently distribute our spirits in 23 states. 10 Over the past decade there has been increasing consolidation in production, distribution, and retail (the three tiers of the current system) that challenges the growth of small businesses in the marketplace. Our distributors also distribute competitive brands for much larger companies with significant pricing power.
If we are unable to continue as a going concern, our securities will have little or no value. We have incurred operating losses since our inception, and we expect to continue to incur significant expenses and operating losses for the foreseeable future. Our financial statements have been prepared under the assumption that we will continue as a going concern.
We have incurred operating losses since our inception, and we expect to continue to incur significant expenses and operating losses for the foreseeable future. Our financial statements have been prepared under the assumption that we will continue as a going concern.
We are required by law to use state-licensed distributors or, in 17 states known as “control states,” state-owned agencies performing this function, to sell our products to retail outlets, including liquor stores, bars, restaurants and national chains in the United States.
We are required by law to use state-licensed distributors or, in 17 states known as “control states,” state-owned agencies performing this function, to sell our products to retail outlets, including liquor stores, bars, restaurants and national chains in the United States. We have established relationships for our brands with a limited number of wholesale distributors.
Failure to retain and recruit executive management and to build morale and improve performance could negatively impact our business. Eastside Distilling’s success depends upon the efforts and abilities of our executive management team, key senior management, and a high-quality employee base, as well as our ability to attract, motivate, reward, and retain them.
Eastside Distilling’s success depends upon the efforts and abilities of our executive management team, key senior management, and a high-quality employee base, as well as our ability to attract, motivate, reward, and retain them.
In any of these events, we could also be required to spend significant financial and other resources to remedy the damage caused by a security breach or to repair or replace networks and IT systems. RISKS RELATED TO OUR INDUSTRY Demand for our products may be adversely affected by consumer taste changes affecting category trends.
In such scenarios, significant financial and other resources might be required to rectify the damage caused by a security breach or to repair and replace networks and IT systems. RISKS RELATED TO OUR INDUSTRY Demand for our products may be adversely affected by consumer taste changes affecting category trends.
While these new facilities do not have the same covenants, they include substantial restrictions that could have important consequences, including the following: We may need to prematurely pay down our outstanding debt balance if the market value of our bulk spirits falls and we need to remain within our borrowing base covenants; We may be more limited in our ability to execute on our strategy and have flexibility to operate or restructure our business; Our cash flow from operations may be allocated to the payment of outstanding debt and not to developing and growing our brands; We might not generate sufficient cash flow from operations or other sources to enable us to meet our payment obligations under the facility and to fund other liquidity needs; We may be more vulnerable to economic downturns, less able to withstand competitive pressures, and less flexible in responding to changing business and economic conditions; or We may be unable to incur additional debt, including for working capital, acquisitions, or other needs.
In 2023, we refinanced debt, which include substantial restrictions that could have important consequences, including the following: We may be more limited in our ability to execute on our strategy and have flexibility to operate or restructure our business; Our cash flow from operations may be allocated to the payment of outstanding debt and not to developing and growing our brands; We might not generate sufficient cash flow from operations or other sources to enable us to meet our payment obligations under the facility and to fund other liquidity needs; We may be more vulnerable to economic downturns, less able to withstand competitive pressures, and less flexible in responding to changing business and economic conditions; or We may be unable to incur additional debt, including for working capital, acquisitions, or other needs.
Our debt agreements contain limits on our ability to, among other things, incur additional debt, grant liens, undergo certain fundamental changes, make investments, and dispose of inventory. In 2022, we refinanced debt that had certain covenants with other facilities.
Our debt agreements contain limits on our ability to, among other things, incur additional debt, grant liens, undergo certain fundamental changes, make investments, and dispose of inventory.
We may fail to secure additional capital and achieve adequate liquidity to grow and compete. Historically, we have not generated sufficient cash from operations to finance additional capital needs, and thus we have used external sources of capital to fund operations. The source of these funds has included both private and public equity and/or debt financing.
Historically, we have not generated sufficient cash from operations to finance additional capital needs, and thus we have used external sources of capital to fund operations. The source of these funds has included both private and public equity and/or debt financing. We have also raised cash from the bulk sale of whiskey.
Much of our debt is secured by our bulk spirits inventory and other assets, including assets in Craft C+P. Our ability to meet our debt service obligations depends upon our operating and financial performance, which is subject to general economic and competitive conditions and to financial, business, and other factors affecting our operations, many of which are beyond our control.
Our ability to meet our debt service obligations depends upon our operating and financial performance, which is subject to general economic and competitive conditions and to financial, business, and other factors affecting our operations, many of which are beyond our control.
If competitors independently develop or otherwise obtain access to our trade secrets, proprietary know-how or recipes, the appeal, and thus the value, of our brand portfolio could be reduced, negatively impacting our sales and growth potential. 15 Failure to manage our relationships with suppliers Our business depends on our ability to manage our relationships with suppliers and at times we have disputes on contracts, terms and conditions, required payments and our suppliers’ recourse.
If competitors independently develop or otherwise obtain access to our trade secrets, proprietary know-how or recipes, the appeal, and thus the value, of our brand portfolio could be reduced, negatively impacting our sales and growth potential. Failure to manage our relationships with suppliers.
These disputes have been material at various periods. If we are unable to resolves disputes on a timely basis we could be subject to protracted litigation that would be costly to us. In addition, we, at times, have requested extended payment terms from customers due to cash flow limitations.
If we are unable to resolve disputes on a timely basis we could be subject to protracted litigation that would be costly to us. In addition, we, at times, have requested extended payment terms from customers due to cash flow limitations. A number of suppliers have restricted our purchasing ability to cash paid in advance, which negatively impacts us.
If additional capital is either unavailable or cost prohibitive, our operations and growth may be limited, and we may need to change our business strategy to slow the rate of, or eliminate, our expansion or to reduce or curtail our operations. Also, any additional financing we undertake could impose covenants upon us that restrict our operating flexibility.
We cannot assure that additional financing will be available to us on acceptable terms or at all. If additional capital is either unavailable or cost prohibitive, our operations and growth may be limited, and we may need to change our business strategy to slow the rate of, or eliminate, our expansion or to reduce or curtail our operations.
If we are successful in acquiring additional brands or related service businesses, we may still fail to achieve our target margins or maintain profitability levels that would justify our investment in those additional brands or services or fail to realize operating and economic efficiencies or other planned benefits with respect to those additional brands or services.
If we are successful in acquiring additional brands or related service businesses, we may still fail to achieve our target margins or maintain profitability levels that would justify our investment in those additional brands or services or fail to realize operating and economic efficiencies or other planned benefits with respect to those additional brands or services. 11 The addition of new products or businesses entails numerous risks with respect to integration and other operating issues, any of which could have a detrimental effect on our results of operations and/or the value of our equity.
Operating with a single person as both CEO and CFO adds risk to the Company’s operating performance, given the complexity of our business. RISKS RELATED TO OUR COMMON STOCK We no longer meet the continued listing requirements of the Nasdaq Capital Market and expect to be removed from the Market, which will reduce our ability to secure equity-based financing.
Operating with a single person as both CEO and CFO adds risk to the Company’s operating performance, given the complexity of our business. RISKS RELATED TO OUR COMMON STOCK We have fallen out of compliance with the requirements for continued listing on Nasdaq.
In addition, such events could result in unauthorized disclosure of material confidential information, and we may suffer financial and reputational damage because of lost or misappropriated confidential information belonging to us or to our partners, our employees, customers, suppliers, or consumers.
This may result in reputational, competitive, and/or business harm, potentially adversely impacting our business operations and financial condition. Furthermore, such incidents could lead to the unauthorized disclosure of critical confidential information, causing financial and reputational damage due to the loss or misappropriation of confidential information belonging to us, our partners, employees, customers, suppliers, or consumers.
If the IT systems, networks, or service providers we rely upon fail to function properly, or if we suffer a loss or disclosure of business or other sensitive information, due to any number of causes, ranging from catastrophic events to power outages to security breaches, and our business continuity plans do not effectively address these failures on a timely basis, we may suffer interruptions in our ability to manage operations and reputational, competitive and/or business harm, which may adversely affect our business operations and/or financial condition.
Should the IT systems, networks, or service providers we rely on encounter malfunctions or if we experience a loss or disclosure of sensitive information due to various causes such as catastrophic events, power outages, or security breaches, and our business continuity plans fail to address these issues promptly, we could face disruptions in managing operations.
Increased IT security threats and more sophisticated cyber-crime pose a potential risk to the security of our IT systems, networks, and services, as well as to the confidentiality, availability, and integrity of our data.
Some of these are overseen, hosted, supplied, and/or utilized by third parties or their vendors, supporting us in the administration of our business. 12 The escalation of IT security threats and the increasing sophistication of cyber-crime pose a potential hazard to the security of our IT systems, networks, and services, as well as to the confidentiality, availability, and integrity of our data.
In addition, we could experience business disruption and/or increased costs related to organizational changes, reductions in workforce, or other cost-cutting measures. 13 Failure of our brands to achieve anticipated consumer acceptance would impact sales and profitability. Most of our brands are relatively new and have not achieved national brand recognition.
Failure of our brands to achieve anticipated consumer acceptance would impact sales and profitability. Most of our brands are relatively new and have not achieved national brand recognition. In addition, financial constraints facing the Company has resulted in underinvestment in the Company’s spirits brands, which has had a negative impact on sales.
We rely on information technology (“IT”) systems, networks, and services, including internet sites, data hosting and processing facilities and tools, hardware (including laptops and mobile devices), and software and technical applications and platforms, some of which are managed, hosted, provided and/or used by third-parties or their vendors, to assist us in the management of our business.
We are susceptible to cybersecurity breaches and cyber-related fraud. We depend on information technology (“IT”) systems, networks, and services, encompassing internet sites, data hosting and processing facilities, as well as hardware (including laptops and mobile devices), along with software and technical applications and platforms.
If we issue equity securities to raise capital, our existing shareholders may experience dilution and the new securities may have rights, preferences and privileges senior to those of our common stock. We have defaulted in repaying the Senior Convertible Notes. On October 18, 2022, $3.4 million of Senior Convertible Notes became due and were not repaid by the Company.
Also, any additional financing we undertake could impose covenants upon us that restrict our operating flexibility. If we issue equity securities to raise capital, our existing shareholders may experience dilution and the new securities may have rights, preferences and privileges senior to those of our common stock. We may be unable to effectively service and refinance debt.
We do not expect to pay dividends for the foreseeable future.
For that reason, we may find it more difficult to raise additional equity capital while we have these derivatives outstanding. 16 We do not expect to pay dividends for the foreseeable future.
Therefore, the delisting of our common stock from Nasdaq will make it more difficult for us to secure equity-based financing for our business. Sales of our stock or use of our common stock to satisfy obligations may impact the market price and cause substantial dilution to existing shareholders.
However it increased the potential amount of common stock that could be sold which over time could increase the amount of stock sold to the public. 15 Sales of our stock or use of our common stock to satisfy obligations such as the exchange transaction completed in 2023, may impact the market price of our common stock and cause substantial dilution to existing shareholders.
Removed
We have also raised cash from the bulk sale of whiskey. We cannot assure that additional financing will be available to us on acceptable terms or at all.
Added
Although the process is ongoing, there is a possibility that we may not successfully sell a spirit asset and generate significant cash from the sale.
Removed
We received a one-time extension to November 18, 2022; however, we have not received a second extension. The Company continues to discuss extension and refinance options with the holders of the Notes, who have not exercised any of their remedial rights in the event of a default under the Notes.
Added
We have incurred significant debt under promissory notes and rely on payment terms from key customers. Much of our debt is secured by our bulk spirits inventory and other assets, including assets in Craft C+P.
Removed
The Note-holders do however, reserve their rights to remediate our default under the Notes, including foreclosure on their liens on the Company’s assets.
Added
In 2023, we issued preferred equity to satisfy a significant amount of debt, which included interest expense. Our secured creditors also granted the Company exemptions on paying certain interest and fees and lengthened the maturities of some debt.
Removed
If we are unable to reach a satisfactory accommodation with the Note-holders, our secured creditors may take action, including foreclosure, that would adversely affect our business and possibly force us into liquidation. 12 We may be unable to effectively service and refinance debt. We have incurred significant debt under promissory notes and inventory financing lines.
Added
There are no assurances we will be able to secure additional debt exchanges or that they may be offered at terms that enable us to sustain operations. 9 Failure to retain and recruit executive management and to build morale and improve performance could negatively impact our business.
Removed
We have established relationships for our brands with a limited number of wholesale distributors; however, failure to maintain those relationships could significantly and adversely affect our business, sales and growth. We currently distribute our spirits in 30 states.
Added
In addition, we could experience business disruption and/or increased costs related to organizational changes, reductions in workforce, or other cost-cutting measures. Currently, Eastside has one executive employee, Mr. Gwin who functions as both Chief Executive Officer and Chief Financial Officer. Mr. Gwin has no employment contract with the Company.
Removed
The addition of new products or businesses entails numerous risks with respect to integration and other operating issues, any of which could have a detrimental effect on our results of operations and/or the value of our equity.
Added
In the past two years at least one distribution has significantly reduced its investment in our spirits brands which has had an adverse effect our business, sales and growth. This could continue into the future. We have engaged new distributors, however they do not have the same scale as the former distributor.
Removed
A number of suppliers have restricted our purchasing ability to cash paid in advance, which negatively impacts us. We are susceptible to cyber-security breaches and cyber-related fraud.
Added
Our business depends on our ability to manage our relationships with suppliers and at times we have disputes on contracts, terms and conditions, required payments and our suppliers’ recourse. These disputes have been material at various periods.
Removed
In June 2022, Nasdaq informed us that our common stock will be delisted from the Nasdaq Capital Market unless it achieves the minimum closing bid price requirement for a Nasdaq listing, which is $1.00 per share. On December 1, 2022, Nasdaq granted our request to extend our listing until May 30, 2023.
Added
We had fallen out of compliance with the requirements for continued listing of our common stock on Nasdaq. Specifically, Nasdaq Listing Rule 5550(b)(1) requires that the stockholders’ equity of a listed company must exceed $2.5 million. As of December 31, 2023, we had stockholders’ equity of $0.9 million.
Removed
At the present time, the market price of our common stock is significantly short of $1.00 per share. In addition, the financial statements included in this Report show that our shareholders’ equity no longer meets the standard of $2.5 million required for continuing listing.
Added
We are currently reviewing potential transactions that, if implemented, could remedy the shortfall in our stockholders’ equity. We do not know at this time, however, whether we will be able to remedy the non-compliance.
Removed
For these reasons, our common stock will be delisted from the Nasdaq Capital Market in the near future and will thereafter trade on the facilities of OTC Markets. Many institutional investors will not provide financing to a company that does not have a listing on Nasdaq or an exchange.
Added
Moreover, even if we are able to remedy the current non-compliance, if we continue to be unprofitable, stockholders’ equity may again fall below the requirement for continued listing, which could result in our common stock being removed from NASDAQ to the facilities of OTC Markets.
Removed
During the terms that these derivative securities are outstanding, the holders will be given the opportunity to profit if there is a rise in the market price of our common stock. We may find it more difficult to raise additional equity capital while we have these derivatives outstanding. We might issue additional derivatives along with a future financing.
Added
Losing our NASDAQ listing will make it more challenging to secure growth capital critical to executing our business plan. In 2023, the Company reduced its debt burden by issuing Series C Preferred Stock that can be converted over time into 1,838,000 shares of common stock, which substantially increased the number of potential shares outstanding.
Added
On September 29, 2023, we issued 296,722 shares of common stock and 200,000 shares of Series C Preferred Stock to The B.A.D. Company, LLC (the “SPV”) in exchange for cancellation by the four members of the SPV of $6.5 million in debt.
Added
The 200,000 shares of Series C Preferred Stock can be converted into a total of 1,838,000 shares of our common stock; provided, however, that Series C Preferred Stock can only be converted if, upon completion of the conversion, the common stock owned by the SPV and its affiliates would be less than 9.9% of the total outstanding common stock.
Added
Therefore, since the SPV and its affiliates presently own 19.9% of the outstanding common stock, the SPV cannot convert any of the Series C shares.
Added
If in the future, however, the SPV sells common stock and reduces its ownership of the outstanding common stock below 9.9%, it will be able to convert its Series C Preferred shares from time to time and offer the common shares for sale. This transaction reduced debt.
Added
In addition, we have entered into certain agreements associated with the 2023 debt for preferred C exchange that will cause further dilution to our equity owners if we issue our common stock at a price below $3.05 per share. If we are unable to continue as a going concern, our securities will have little or no value.
Added
If the market price of our common stock rises above the exercise price of the warrants or the conversion price of the convertible instruments during the terms that these derivative securities are outstanding, the holders are likely to take advantage of the opportunity to profit by exercising their warrants or converting their convertibles and then selling the common stock into the market.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changePROPERTIES We leased the following properties as of December 31, 2022: Location Principal Activities Sq Ft Lease Termination 1601 South 92nd Place, Suite A, Seattle, WA 98108 Craft C+P Operation 9,300 07/31/2023 6035 East 76th Ave., Suite G-I, Commerce City, CO 80022 Craft C+P Operation 4,500 08/01/2023 10100 SE Main St., Milwaukie, OR 97222 Distilling, Blending, Bottling, Warehousing 29,960 10/01/2023 4736 SE 24 th Street, Portland, OR 97202 CBD Co-packing Operations 9,000 05/31/2026 3808 N.
Biggest changePROPERTIES We leased the following properties as of December 31, 2023: Location Principal Activities Sq Ft Lease Termination 1601 South 92nd Place, Suite A, Seattle, WA 98108 Craft C+P Operation 9,300 10/01/2025 10100 SE Main St., Milwaukie, OR 97222 Distilling, Blending, Bottling, Warehousing 17,971 10/01/2026 4736 SE 24 th Street, Portland, OR 97202 CBD Co-packing Operations 9,000 05/31/2026 2321 NE Argyle, Unit D, Portland, OR 97211 Craft C+P Operation / Corporate Headquarters 50,380 03/01/2027
Removed
Sullivan Road, Spokane Valley, WA 98108 Craft C+P Operation 6,000 02/28/2027 2321 NE Argyle, Unit D, Portland, OR 97211 Craft C+P Operation / Corporate Headquarters 50,380 03/01/2027

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe complaint seeks damages of $285,000, plus a judicial declaration, due to the Company’s failure to pay for the services. The Company believes that it paid for services rendered, and if any balance is outstanding it is minimal, and intends to defend the case vigorously.
Biggest changeThe complaint seeks damages of $285,000, plus a judicial declaration, due to the Company’s failure to pay for the services. The Company believes that it paid for services rendered, and if any balance is outstanding it is minimal. The Company intends to defend the case vigorously.
On December 15, 2020, Grover Wickersham filed a complaint in the United States District Court for the District Court of Oregon against the Company. Mr.
On December 15, 2020, Grover Wickersham filed a complaint in the United States District Court for the District of Oregon against the Company. Mr.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock trades on the Nasdaq Capital Market (“Nasdaq”) under the symbol “EAST.” We have received notice that our common stock will be removed from Nasdaq on May 30, 2023, after which it will trade on the facilities of OTC Markets.
Biggest changeItem 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock trades on the Nasdaq Capital Market (“Nasdaq”) under the symbol “EAST.” Shareholders Our shares of common stock are issued in registered form.
Shareholders Our shares of common stock are issued in registered form. The registrar and transfer agent for our shares of common stock is Transfer Online, Inc. 512 SE Salmon Street, Portland, Oregon 97214 (Telephone: (503) 227-2950). As of March 31, 2023, there were 16,532,799 shares of our common stock outstanding, which were held by 78 record stockholders.
The registrar and transfer agent for our shares of common stock is Transfer Online, Inc. 512 SE Salmon Street, Portland, Oregon 97214 (Telephone: (503) 227-2950). As of April 1, 2024, there were 1,705,987 shares of our common stock outstanding, which were held by 76 record stockholders.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

21 edited+12 added28 removed10 unchanged
Biggest changeResults of Operations Overview Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 (Dollars in thousands) 2022 2021 Variance Sales $ 14,327 $ 12,890 $ 1,437 Less customer programs and excise taxes 444 496 (52 ) Net sales 13,883 12,394 1,489 Cost of sales 11,442 9,484 1,958 Gross profit 2,441 2,910 (469 ) Sales and marketing expenses 2,625 2,614 11 General and administrative expenses 6,407 6,777 (370 ) Loss on disposal of property and equipment 58 419 (361 ) Total operating expenses 9,090 9,810 (720 ) Loss from operations (6,649 ) (6,900 ) 251 Interest expense (2,216 ) (1,254 ) (962 ) Impairment loss (7,453 ) - (7,453 ) Other income 52 2,100 (2,048 ) Loss from continuing operations (16,266 ) (6,054 ) (10,212 ) Income from discontinued operations - 3,858 (3,858 ) Net loss (16,266 ) (2,196 ) (14,070 ) Preferred stock dividends (150 ) (27 ) (123 ) Deemed dividend- warrant price protection-revaluation adjustment - (2,288 ) 2,288 Net loss attributable to common shareholders $ (16,416 ) $ (4,511 ) $ (11,905 ) Gross margin 18 % 23 % -5 % 23 Segment information is as follows for the years ended December 31, 2022 and 2021: (Dollars in thousands) 2022 2021 Variance Spirits Sales $ 8,701 $ 5,672 $ 3,029 Net sales 8,357 5,176 3,181 Cost of sales 5,101 3,743 1,358 Gross profit 3,256 1,433 1,823 Total operating expenses 4,496 5,634 (1,138 ) Net income (loss) $ (10,917 ) $ 155 $ (11,072 ) Gross margin 39 % 28 % 11 % Craft C+P Sales $ 5,626 $ 7,218 $ (1,592 ) Net sales 5,526 7,218 (1,692 ) Cost of sales 6,341 5,741 600 Gross profit (815 ) 1,477 (2,292 ) Total operating expenses 4,594 4,176 418 Net loss $ (5,349 ) $ (2,351 ) $ (2,998 ) Gross margin -15 % 20 % -35 % Sales Sales were $14.3 million and $12.9 million for the years ended December 31, 2022 and 2021, respectively.
Biggest changeResults of Operations Overview Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 (Dollars in thousands) 2023 2022 Variance Sales $ 10,798 $ 14,327 $ (3,529 ) Less customer programs and excise taxes 299 444 (145 ) Net sales 10,499 13,883 (3,384 ) Cost of sales 9,438 11,442 (2,004 ) Gross profit 1,061 2,441 (1,380 ) Sales and marketing expenses 1,599 2,625 (1,026 ) General and administrative expenses 4,646 6,407 (1,761 ) (Gain) loss on disposal of property and equipment (364 ) 58 (422 ) Total operating expenses 5,881 9,090 (3,209 ) Loss from operations (4,820 ) (6,649 ) 1,829 Interest expense (1,108 ) (2,216 ) 1,108 Impairment loss (364 ) (7,453 ) 7,089 Loss on debt to equity conversion (1,321 ) - (1,321 ) Other income 78 52 26 Net loss (7,535 ) (16,266 ) 8,731 Preferred stock dividends (150 ) (150 ) - Net loss attributable to common shareholders $ (7,685 ) $ (16,416 ) $ 8,731 Gross margin 10 % 18 % -8 % 20 Segment information is as follows for the years ended December 31, 2023 and 2022: (Dollars in thousands) 2023 2022 Variance Craft C+P Sales $ 6,817 $ 5,626 $ 1,191 Net sales 6,712 5,526 1,186 Cost of sales 6,829 6,341 488 Gross profit (117 ) (815 ) 698 Total operating expenses 2,637 3,494 (857 ) Net loss $ (2,749 ) $ (4,249 ) $ 1,500 Spirits Sales $ 3,981 $ 8,701 $ (4,720 ) Net sales 3,787 8,357 (4,570 ) Cost of sales 2,609 5,101 2,492 Gross profit 1,178 3,256 (2,078 ) Total operating expenses 1,476 2,532 1,056 Impairment loss 364 7,453 (7,089 ) Net loss $ (601 ) $ (6,781 ) $ 6,180 Corporate Total operating expenses $ 1,768 $ 3,064 $ 1,296 Loss on debt to equity conversion 1,321 - 1,321 Net loss $ (4,185 ) $ (5,236 ) $ 1,051 Corporate consists of key executive and accounting personnel and corporate expenses such as public company and board costs, as well as interest on debt.
In connection with the preparation of our financial statements for the year ended December 31, 2022, there was one accounting estimate we made that was subject to a high degree of uncertainty and was critical to our results, as follows: Intangible Assets On September 12, 2019, we purchased the Azuñia brand, the direct sales team, existing product inventory, supply chain relationships and contractual agreements from Intersect Beverage, LLC, an importer and distributor of tequila and related products.
In connection with the preparation of our financial statements for the year ended December 31, 2023, there was one accounting estimate we made that was subject to a high degree of uncertainty and was critical to our results, as follows: Intangible Assets On September 12, 2019, we purchased the Azuñia brand, the direct sales team, existing product inventory, supply chain relationships and contractual agreements from Intersect Beverage, LLC, an importer and distributor of tequila and related products.
Funds for our cash and liquidity needs have historically not been generated from operations but rather from short-term credit in the form of extended payment terms from suppliers as well as proceeds from loans and the sale of convertible debt and equity. We have been dependent on raising capital from debt and equity financings to meet our operating needs.
Funds for our cash and liquidity needs have historically not been generated from operations but rather from short-term credit in the form of extended payment terms from suppliers as well as proceeds from loans and the sale of convertible debt and equity. We have been dependent on raising capital from debt and equity financing to meet our operating needs.
Net cash provided by financing activities during the year ended December 31, 2022 consisted primarily of net proceeds from a note payable with a related party of $4.5 million and the issuance of common stock of $0.2 million, offset by $2.8 million of principal payments of our secured credit facilities and $1.2 million of payments on principal of notes payable.
Total cash provided by financing activities was $0.6 million during the year ended December 31, 2022 primarily consisted of net proceeds from sale of a note payable to a related party of $4.5 million and the issuance of common stock of $0.2 million, offset by $2.8 million of principal payments to our secured credit facilities and $1.2 million of payments on principal of notes payable.
Our cash flow results for the years ended December 31, 2022 and 2021 were as follows: (Dollars in thousands) 2022 2021 Net cash flows provided by (used in): Operating activities $ (0.9 ) $ (5.9 ) Investing activities $ (2.3 ) $ 3.2 Financing activities $ 0.6 $ 5.2 Operating Activities Total cash used in operating activities was $0.9 million during the year ended December 31, 2022 compared to cash used of $5.9 million during the year ended December 31, 2021.
Our cash flow results for the year ended December 31, 2023 and 2022 were as follows: (Dollars in thousands) 2023 2022 Net cash flows provided by (used in): Operating activities $ (1.8 ) $ (0.9 ) Investing activities $ 0.1 $ (2.3 ) Financing activities $ 1.4 $ 0.6 23 Operating Activities Total cash used in operating activities was $1.8 million during the year ended December 31, 2023 compared to cash used of $0.9 million during the year ended December 31, 2022.
Gross profit was $2.4 million and $2.9 million for the years ended December 31, 2022 and 2021, respectively. Gross margin is gross profit stated as a percentage of net sales. Our gross margin was 18% and 23% for the years ended December 31, 2022 and 2021, respectively.
Gross profit was $1.1 million and $2.4 million for the years ended December 31, 2023 and 2022, respectively. Bulk sales gross profit was $0.6 million and $2.4 million for the years ended December 31, 2023 and 2022, respectively. Gross margin is gross profit stated as a percentage of net sales.
These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include the factors set forth above and the other information set forth in this Form 10-K.
These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include the factors set forth above and the other information set forth in this Form 10-K. 19 Recent Developments During 2023, we grew sales at Craft C+P and printed over 14 million cans.
Net Income (Loss) Net loss was $16.3 million and $2.2 million for the years ended December 31, 2022 and 2021, respectively. During 2022, we recorded $7.5 million for an impairment charge related to the Azuñia assets and $1.2 million of amortization of debt issuance costs included in interest expense.
Net Income (Loss) Net loss was $7.5 million and $16.3 million for the years ended December 31, 2023 and 2022, respectively, and included $0.4 million and $7.5 million for an impairment charge related to the Azuñia assets for the years ended December 31, 2023 and 2022, respectively.
While a substantial amount of our raw materials is owned, such as our whiskey, and not susceptible to price inflation, the prices of imported tequila and other materials such as glass increased through the year. These challenges are expected to continue into 2023.
At the beginning of 2023, we started a restructuring plan to lower costs and prepare the brands for reinvestment. While a substantial amount of our raw materials, such as our whiskey, is owned and not susceptible to price inflation, the inflated prices of shipping and other materials, such as glass, are expected to continue through 2024.
If we determine that is not the case, then we are not required to quantify the fair value. That assessment also takes considerable management judgment. Based on our assumptions, we believe that, as of December 31, 2022, the Azuñia brand was impaired, and accordingly we recorded an impairment loss of $7.5 million.
If we determine that is not the case, then we are not required to quantify the fair value. That assessment also takes considerable management judgment. As of December 31, 2023, as a result of the review described above, we found the Azuñia brand to be impaired and reduced its carrying cost by $0.4 million.
Cost of sales were $11.4 million and $9.5 million for the years ended December 31, 2022 and 2021, respectively. 24 Spirits Cost of sales increased for the year ended December 31, 2022 due to bulk sales partially offset by lower distributor sales volume.
Cost of sales were $9.4 million and $11.4 million for the years ended December 31, 2023 and 2022, respectively. Craft C+P Cost of sales increased for the year ended December 31, 2023 due to growth in printing sales volumes and related inventory costs and scrap related to the printer, partially offset by decreased labor costs.
The decrease in cash used was primarily attributable to the cash generated by our bulk spirits sales, as well as increased accrued liabilities. 26 Investing Activities Total cash used in investing activities was $2.3 million during the year ended December 31, 2022 representing our investment in digital can printing equipment, compared to cash provided of $3.2 million during the year ended December 31, 2021, which consisted of $3.4 million received for the Termination Agreement with RSG.
Total cash used in investing activities was $2.3 million during the year ended December 31, 2022 representing our investment in digital can printing equipment. Financing Activities Total cash provided by financing activities was $1.4 million during the year ended December 31, 2023 primarily consisted of proceeds from the issuance of stock.
As of December 31, 2022, we had $0.7 million of cash on hand with negative working capital of $6.4 million. During the year ended December 31, 2022, we raised $8.7 million in additional capital through debt financing and an equity raise of $0.2 million.
As a result, as of December 31, 2023, we had $0.4 million of cash on hand with working capital of $0.3 million, an increase of $6.7 million from negative working capital of $(6.4) million as of December 31, 2022.
Cost of Sales Cost of sales consists of all direct costs related to both spirits and canning for service, labor, overhead, packaging, and in-bound freight charges.
During the second quarter of 2022, as part of Craft’s asset acquisition, we offered a discount of $0.1 million to the beverage maker for our printing and canning services. Cost of Sales Cost of sales consists of all direct costs related to both spirits and canning for raw materials, service, labor, overhead, packaging, and in-bound freight charges.
Craft C+P Cost of sales increased for the year ended December 31, 2022 due to costs related to the ramp up of the digital can printer operation. Gross Profit Gross profit is calculated by subtracting the cost of products sold and services rendered from net sales.
Spirits Cost of sales decreased for the year ended December 31, 2023 due to lower bulk spirits and distributor sales, in addition to lower tequila volumes and a shift to a higher mix of vodka sales. Gross Profit Gross profit is calculated by subtracting the cost of products sold and services rendered from net sales.
Spirits Gross margin increased for the year ended December 31, 2022 primarily due to bulk spirits profits. Craft C+P Craft C+P’s gross margin decreased for the year ended December 31, 2022 primarily due to lower sales of services for the year ended December 31, 2022 and lower utilization of operating assets.
Spirits Gross margin decreased for the year ended December 31, 2023 primarily due to lower sales of bulk spirits in 2023 compared to the prior year and a greater mix of lower margin products such as vodka.
Liquidity and Capital Resources Our primary capital requirements are for cash used in operating activities and the repayment of debt.
Preferred Stock Dividends Preferred stock dividends were $0.2 million for both years ended December 31, 2023 and 2022, respectively, representing the Series B preferred stock dividend of 6% per annum. Liquidity and Capital Resources Our primary capital requirements are for cash used in operating activities and the repayment of debt.
General and Administrative Expenses General and administrative expenses were $6.4 million and $6.8 million for the years ended December 31, 2022 and 2021, respectively, primarily due to decreased professional fees and compensation, partially offset by increased rent as we entered into additional leases to support new business initiatives.
General and Administrative Expenses General and administrative expenses were $4.6 million and $6.4 million for the years ended December 31, 2023 and 2022, respectively, primarily due to decreased professional fees and reduced headcount. 22 Interest Expense Interest expense was $1.1 million and $2.2 million for the years ended December 31, 2023 and 2022, respectively.
Sales and Marketing Expenses Sales and marketing expenses were flat at $2.6 million for both the years ended December 31, 2022 and 2021.
Sales and Marketing Expenses Sales and marketing expenses were $1.6 million and $2.6 million for the years ended December 31, 2023 and 2022, respectively, due to lower sponsorship costs and reduced headcount as part of spirits restructuring.
The decline in sales was partially offset by a direct sale of nearly 1,500 barrels for $4.4 million during 2022. Craft C+P also continues to face unique challenges and opportunities: In the beginning of the second quarter, we started a new business activity digitally decorating craft beverage cans.
During 2023, we supplemented cash flow with bulk spirit sales, as we have in other periods. The decline in spirits sales was partially offset by direct sales of 300 barrels for $0.8 million during 2023 and nearly 1,500 barrels for $4.4 million during 2022.
Our ability to meet our ongoing operating cash needs over the next 12 months depends on receipt of additional financing, which in turn depends on our growing revenues and gross margins, and generating positive operating cash flow, primarily through increased sales, profitable operations, and controlling expenses.
Our ability to meet our ongoing operating cash needs over the next 12 months depends on asset sales, external financing and improving operating results. The availability of external financing will be largely dependent on improvement in performance, including higher digital can printing revenues and improved gross margins at Craft C+P as well as operational improvements in our Spirits segment.
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Recent Developments During the second quarter of 2022, we commenced operations of our digital can printing facility, providing our customers with photo-realistic graphics, the ability to make label modifications at the last minute, as well as lower minimum order quantities.
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Digital can printing represents the majority of our revenue as our customer base and excitement grows. Mobile canning sales continue to decrease as we focus on our digital can printing opportunity. We have undertaken a restructuring of our spirits business decreasing overhead costs and unproductive sales activities.
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In addition to the increased marketing capabilities, we are offering sustainable product that is 100% recyclable, unlike the traditional craft paper adhesive labels and shrink sleeves. We believe these capabilities are important to customers in the craft beverage space and will expand the range of potential customers.
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Sales Sales were $10.8 million and $14.3 million for the years ended December 31, 2023 and 2022, respectively. Craft C+P Sales increased for the year ended December 31, 2023 attributable to growth in digital can printing sales. Craft C+P has made substantial investments in digital printing de-emphasizing legacy businesses, including mobile canning.
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During 2022, we printed almost 5 million cans and expanded our customer base substantially. In addition, we purchased the packaging assets from a maker of wellness beverages during the second quarter of 2022 and we are contracted to be its exclusive provider of can printing and co-packing services.
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During the year, lower mobile canning sales reduced mobile service revenues and the sales of undecorated cans were replaced with digital printing sales. Spirits Spirits sales decreased for the year ended December 31, 2023. The primary reason for the reduction was significant bulk spirits sales that we completed during 2022.
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This asset purchase allows us to offer additional production capabilities to existing and potential canning customers. However, we faced a number of challenges in both business segments in 2021 that have continued into 2022. Increased competition in our legacy mobile canning business, supply chain issues and restructuring activities added to performance challenges in 2021 and 2022.
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For the year ended December 31, 2023, we sold 300 barrels for gross proceeds of $0.8 million. For the year ended December 31, 2022, we sold nearly 1,500 barrels for gross proceeds of $4.4 million. Sales of tequila decreased during 2023, as we redirected investment into our higher margin Oregon brands.
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Moreover, a slower ramp up of digital printing resulted in substantial operating losses from the new digital printing plant. While those operating losses sequentially improved in the 2 nd and 3 rd quarter, our 4 th quarter performance was negatively impacted by a lower backlog of printing orders than anticipated.
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Lower, but more profitable tequila sales substantially reduced revenue in the spirits segment. 21 Customer programs and excise taxes Customer programs and excise taxes were $0.3 million and $0.4 million for the years ended December 31, 2023 and 2022, respectively. Spirits discounts were lower for the year ended December 31, 2023 due to lower sales volumes.
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As a result, we have yet to achieve the throughput rates needed to break even in digital printing. 22 Our spirits volume declined in 2022, primarily because we terminated deep discounting of Azuñia tequila in 2021. Our spirits sales were also adversely affected by our lack of available investment in marketing which impacted our other brands.
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Cost of sales decreased for the year ended December 31, 2023 due to reduced labor costs and an adjustment to depreciation based on the digital can printer’s hours of production, offset by increased scrap related to the printer.
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Additionally, we faced challenges with distribution partners that resulted in out of stocks at retail and missed programming windows. Finally, we saw cost increases across much of our direct and indirect costs.
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Our gross margin was 10% and 18% for the years ended December 31, 2023 and 2022, respectively. Craft C+P Craft C+P’s gross margin increased for the year ended December 31, 2023 primarily due to continued growth in can printing activities.
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The first half of 2022 involved substantial investment and planning to launch the technology in a new Portland, Oregon based printing facility. This new initiative has helped us improve our competitive position.
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The decrease was primarily due to the amortization of debt issuance costs on agreements that matured during 2022. Loss on Debt to Equity Conversion On September 29, 2023, as part of the debt to equity transaction referred to below, we issued 296,722 shares of common stock and 200,000 shares of Series C Preferred Stock.
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However, fourth quarter sales of printed cans were lower than we anticipated, so the printer is not yet operating at full capacity and this aspect of our business is not yet significantly profitable. ● Beginning mid-year 2020 and throughout 2021, the craft beverage industry faced a shortage of aluminum cans.
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In exchange for that equity, our debts to the members of the SPV were reduced by a total of $6.5 million. During the year ended December 31, 2023, we recognized a loss on the debt to equity conversion of $1.3 million.
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Domestic aluminum can manufacturers continued to make adjustments to manage a supply demand imbalance into 2022. As a result, buyers of aluminum cans continue to face uncertainties. This period of rapidly escalating prices left us at a competitive disadvantage to others that had a superior source of cans.
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We had an accumulated deficit of $82.7 million as of December 31, 2023, having incurred a net loss of $7.5 million during the year ended December 31, 2023. On September 29, 2023 we entered into a Debt Satisfaction Agreement with our four principal creditors (the “DSA”).
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We believe we have now sourced an adequate supply of cans to supply our current business plan. ● Due to the can shortage, can suppliers successfully passed through price increases, which we could not immediately pass through to our customers.
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Pursuant to the DSA, $6.5 million of secured debt classified as current liabilities was cancelled in exchange for the issuance of 296,722 shares of common stock and 200,000 shares of Series C Preferred Stock.
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Recently, however, our ability to offer digital can printing has allowed us to improve our ability to pass through aluminum can price inflation. ● Throughout 2022, Craft C+P faced workforce challenges related to retention and hiring.
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The increase in cash used was primarily attributable to our continued net losses and decreased accrued interest. Investing Activities Total cash provided by investing activities was $0.1 million during the year ended December 31, 2023 representing net proceeds from purchases and sales of fixed assets.
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Spirits Sales increased for the year ended December 31, 2022 due to the sale of nearly 1,450 barrels for gross proceeds of $4.4 million, partially offset by weaker Azuñia volume due to a reduction in discounting and a price increase in 2021.
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Craft C+P Sales decreased for the year ended December 31, 2022 due to competitive pressure in the legacy mobile canning business. At the same time, digital printing sales in the fourth quarter were less than we anticipated, with the result that sales from digital printing did not materialize fast enough to offset the decline in mobile canning.
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Customer programs and excise taxes Customer programs and excise taxes were $0.4 million and $0.5 million for the years ended December 31, 2022 and 2021, respectively. Included among customer programs during the year ended December 31, 2022 was the discount of $0.1 million that we gave to a beverage maker that sold us its printing and canning assets.
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In addition, Craft C+P launched its digital can printing business at the end of April 2022, which impacted margins. However, since we have not achieved full capacity of the printer, the costs of the ramp-up has negatively impacted gross margins.
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Impairment Loss Impairment loss was $7.5 million for the year ended December 31, 2022 related to the Azuñia assets. Other Income Other income was $0.1 million for the year ended December 31, 2022 and was attributable to our co-packing asset acquisition.
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Other income was $2.1 million for the year ended December 31, 2021 and was attributable to the forgiveness of our loans under the U.S. government Paycheck Protection Program (“PPP Loans”) and the remeasurement of deferred consideration for the final Azuñia earn-out.
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For the year ended December 31, 2021, we recorded $2.1 million of other income and income of $3.9 million from discontinued operations. 25 Preferred Stock Dividends Preferred stock dividends were $0.2 million for both the years ended December 31, 2022 and 2021 and related to the Series B preferred stock dividend of 6% per annum.
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Dividends were paid in common stock at year end. Deemed Dividend – Warrant Price Protection-Revaluation Adjustment Deemed dividend – warrant price protection-revaluation adjustment was $2.3 million for the year ended December 31, 2021 and related to the exercise of outstanding warrants.
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In 2022, we also relied on the sale of bulk whiskey inventory to generate cash. During the year we sold nearly 1,500 barrels of bulk inventory. At year-end 2022, we had 1,365 barrels of whiskey remaining, which is adequate to support our 2023 business plan.
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We had an accumulated deficit of $75.0 million as of December 31, 2022, having incurred a net loss of $16.3 million during the year ended December 31, 2022. The net loss, combined with a reclassification from current assets to equipment of $4.2 million in prepayments related to the digital can printer, resulted in an $6.8 million reduction in working capital.
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None of this is assured, as we currently anticipate recording a net loss for 2023. Our ability to obtain financing will also be hindered by the anticipated removal of our common stock from Nasdaq.
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If we are unable to obtain additional financing, or additional financing is not available on acceptable terms, we may seek to sell assets, reduce operating expenses, reduce or eliminate marketing initiatives and take other measures that could impair our ability to be successful.
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We continue to make substantial investments in Craft C+P, which we believe will deliver improved results during 2023, in part due to our acquisition of a state-of-the-art digital can printer that will add incremental services and revenue.
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Financing Activities Total cash provided by financing activities was $0.6 million during the year ended December 31, 2022 compared to $5.2 million during the year ended December 31, 2021.
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Net cash flows provided by financing activities during the year ended December 31, 2021 consisted of the proceeds from the issuance of common stock of $2.4 million, proceeds from a secured credit facility of $3.3 million, and the issuance of common stock from the warrant exercise for cash, net of expenses, proceeds from the issuance of preferred stock of $2.5 million; offset by $3.7 million of principal payments of our secured credit facilities and $2.9 million of payments on principal of notes payable.
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Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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