Beeline Holdings, Inc 8-K/A, filed Dec 19, 2024
Beeline Holdings, Inc. (BLNE)
About this 8-K/A
Beeline Holdings, Inc filed this 8-K/A on December 19, 2024, reporting on events of October 7, 2024.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (CFR §230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (CFR §240.12b-2 of this chapter).
Emerging
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Explanatory Note
This Amendment No. 1 on Form 8-K/A amends the Current Report on Form 8-K filed on October 7, 2024 in connection with the merger (the “Original 8-K”), to include the consolidated financial statements of Beeline and the combined pro forma financial information referred to in Item 9.01(a) and (b) below. Pursuant to the instructions to Item 9.01 of Form 8-K, the Company hereby amends Item 9.01 of the Original 8-K to include previously omitted consolidated financial statements and pro forma financial information. The information previously reported in the Original 8-K is hereby incorporated by reference into this Form 8-K/A.
| 2 |
Item 9.01 Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
The audited consolidated financial statements of Beeline as of and for the fiscal years ended December 31, 2023 and 2022 are filed as Exhibit 99.1, and the unaudited condensed consolidated financial statements of Beeline as of and for the nine months ended September 30, 2024 and 2023 are filed as Exhibit 99.2, each of which is incorporated herein by reference.
(b) Pro forma financial information.
Unaudited pro forma combined financial information as of and for the fiscal year ended December 31, 2023 and as of and for the nine months ended September 30, 2024 is filed as Exhibit 99.3 and is incorporated herein by reference.
(d) Exhibits.
| Incorporated by Reference | Filed or Furnished | |||||||||
| Exhibit # | Exhibit Description | Form | Date | Number | Herewith | |||||
| 99.1 | Audited Consolidated Financial Statements of Beeline Financial Holdings, Inc. As of and for the fiscal years ended December 31, 2023 and 2022 | Filed | ||||||||
| 99.2 | Unaudited Consolidated Financial Statements of Beeline Financial Holdings, Inc. as of and for the nine months ended September 30, 2024 and 2023 | Filed | ||||||||
| 99.3 | Unaudited Combined Pro Forma Financial Information as of and for the fiscal year ended December 31, 2023 and nine months ended September 30, 2024 | Filed | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||||
| 3 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: December 19, 2024
| EASTSIDE DISTILLING, INC. | ||
| ||
| By: | /s/ Geoffrey Gwin | |
| Geoffrey Gwin | ||
| Chief Executive Officer | ||
| 4 |
Exhibit 99.1
BEELINE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2023 and 2022
BEELINE FINANCIAL HOLDINGS, INC.
December 31, 2023 and 2022
TABLE OF CONTENTS
| F-1 |
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of:
Beeline Financial Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Beeline Financial Holdings, Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity (deficit) and cash flows, for each of the two years in the period ended December 31, 2023 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Restatement
As discussed in Note 15 to the consolidated financial statements, the 2023 and 2022 consolidated financial statements, as originally audited by a predecessor auditor, have been restated to correct certain errors.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred recurring losses from operations since its inception and is dependent on debt and equity financing. The Company had a net loss and cash used in operations of $10,899,722 and $7,275,185, respectively, in 2023 and an accumulated deficit, stockholders’ deficit and working capital deficit of $38,369,200, $16,497,293 and $2,815,232 respectively at December 31, 2023. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s Plan in regard to these matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| F-2 |
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Salberg & Company, P.A.
SALBERG & COMPANY, P.A.
We have served as the Company’s auditor since 2024.
Boca Raton, Florida
December 13, 2024
2295 NW Corporate Blvd., Suite 240 • Boca Raton, FL 33431-7326
Phone: (561) 995-8270 • Toll Free: (866) CPA-8500 • Fax: (561) 995-1920
www.salbergco.com • info@salbergco.com
Member National Association of Certified Valuation Analysts • Registered with the PCAOB
Member CPAConnect with Affiliated Offices Worldwide • Member AICPA Center for Audit Quality
| F-3 |
BEELINE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| 2023 | 2022 | |||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| (As Restated) | (As Restated) | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 3,351 | $ | 32,713 | ||||
| Restricted cash | 187,006 | 100,510 | ||||||
| Mortgage loans held for sale, at fair value | 2,301,012 | 3,022,969 | ||||||
| Interest rate lock derivative | 57,505 | 30,757 | ||||||
| Prepaid expenses and other current assets | 82,137 | 92,843 | ||||||
| Total Current Assets | 2,631,011 | 3,279,792 | ||||||
| Property and equipment, net | 308,693 | 460,069 | ||||||
| Software development costs, net | 4,863,090 | 5,452,197 | ||||||
| Right of use assets | 1,643,432 | 1,947,804 | ||||||
| Security deposit | 58,181 | 58,431 | ||||||
| Total Assets | $ | 9,504,407 | $ | 11,198,293 | ||||
| Liabilities & Stockholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 1,349,112 | $ | 1,238,369 | ||||
| Warehouse lines of credit | 2,157,119 | 3,060,923 | ||||||
| Lease liability, current portion | 323,959 | 309,167 | ||||||
| Overdraft liability | 35,162 | - | ||||||
| Loan payable and accrued interest | 91,999 | 100,000 | ||||||
| Loan payable and accrued interest, related party | 1,050,179 | - | ||||||
| Loan payable | 1,050,179 | - | ||||||
| Promissory note | - | 112,500 | ||||||
| BDCRI loan, current portion | 104,346 | 109,005 | ||||||
| Accrued payroll | 300,132 | 412,391 | ||||||
| Escrows held for others | 4,906 | 22,195 | ||||||
| Accrued expenses and other current liabilities | 29,329 | 54,153 | ||||||
| Total Current Liabilities | 5,446,243 | 5,418,704 | ||||||
| Long Term Liabilities | ||||||||
| Convertible notes | 8,889,261 | 745,238 | ||||||
| Convertible notes - related party | 8,986,493 | 3,601,000 | ||||||
| Convertible notes | 8,986,493 | 3,601,000 | ||||||
| Accrued interest on convertible notes, including related party | 965,378 | 77,883 | ||||||
| BDCRI Loan | 187,500 | 254,346 | ||||||
| Lease liability, net of current portion | 1,526,825 | 1,850,784 | ||||||
| Total Long Term Liabilities | 20,555,457 | 6,529,251 | ||||||
| Total Liabilities | 26,001,700 | 11,947,955 | ||||||
| COMMITMENTS AND CONTINGENCIES (See Note 11) | - | - | ||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, $0.00001 par value, 3,282,896 shares authorized | - | - | ||||||
| Series A preferred stock, 172,260 shares designated, and 247,960 and 472,910 shares issued and outstanding, respectively | 2 | 5 | ||||||
| Series B preferred stock, 3,110,636 designated, none issued and outstanding | - | - | ||||||
| Preferred stock, value | - | - | ||||||
| Common stock, $0.00001 par value, 27,717,104 shares authorized, 1,644,040 shares issued and outstanding | 16 | 16 | ||||||
| Additional paid in capital | 22,274,390 | 27,106,404 | ||||||
| Accumulated other comprehensive loss | (95,728 | ) | (79,836 | ) | ||||
| Accumulated deficit | (38,369,200 | ) | (27,628,717 | ) | ||||
| Total Beeline Financial Holdings, Inc. stockholders’ deficit | (16,190,520 | ) | (602,128 | ) | ||||
| Non-controlling interest | (306,773 | ) | (147,534 | ) | ||||
| Total Stockholders’ Deficit | (16,497,293 | ) | (749,662 | ) | ||||
| Total Liabilities & Stockholders’ Deficit | $ | 9,504,407 | $ | 11,198,293 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
BEELINE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| 2023 | 2022 | |||||||
| Years Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| (As Restated) | (As Restated) | |||||||
| Revenues | ||||||||
| Gain on sale of loans, net | $ | 2,974,536 | $ | 1,835,778 | ||||
| Interest income | 132,297 | 225,848 | ||||||
| Interest expense | (179,886 | ) | (249,794 | ) | ||||
| Loan origination fees | 304,488 | 413,209 | ||||||
| Title fees | 559,762 | 722,703 | ||||||
| Data and tech services | 2,748 | - | ||||||
| REVENUES, NET | 3,793,946 | 2,947,744 | ||||||
| Operating Expenses | ||||||||
| Selling, general and administrative | 292,895 | 267,563 | ||||||
| Salaries and benefits | 6,418,989 | 6,052,874 | ||||||
| Payroll taxes | 415,809 | 405,065 | ||||||
| Professional fees | 920,656 | 920,578 | ||||||
| Marketing and advertising | 1,891,128 | 1,788,458 | ||||||
| Loan originating expenses | 805,996 | 917,966 | ||||||
| Depreciation and amortization | 1,591,511 | 1,161,094 | ||||||
| Rent and utilities | 369,785 | 620,779 | ||||||
| Computer and software | 537,889 | 842,798 | ||||||
| Title operation expense | 199,202 | 140,951 | ||||||
| Travel and entertainment | 71,976 | 71,654 | ||||||
| Insurance expense | 212,546 | 202,649 | ||||||
| Total Operating Expenses | 13,728,382 | 13,392,429 | ||||||
| Operating Loss | (9,934,436 | ) | (10,444,685 | ) | ||||
| Other (Income)/Expenses | ||||||||
| Other (income)/expense | (296,553 | ) | - | |||||
| Interest expense | 1,253,728 | 106,849 | ||||||
| Other taxes | 8,110 | 702 | ||||||
| Total Other Expenses, Net | 965,285 | 107,551 | ||||||
| NET LOSS | $ | (10,899,722 | ) | $ | (10,552,236 | ) | ||
| Net loss of subsidiary attributable to noncontrolling interest | (159,239 | ) | (147,534 | ) | ||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | (10,740,483 | ) | (10,404,702 | ) | ||||
| Unrealized foreign currency translation loss | (15,892 | ) | (70,298 | ) | ||||
| TOTAL OTHER COMPREHENSIVE LOSS | (15,892 | ) | (70,298 | ) | ||||
| TOTAL COMPREHENSIVE LOSS | $ | (10,756,375 | ) | $ | (10,475,000 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
BEELINE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2023 AND 2022
(As Restated)
| Shares | Amount | Shares | Amount |
Capital |
Deficit |
Interests | Loss |
(Deficit) | ||||||||||||||||||||||||||||
| Common Stock | Series A Preferred Stock | Additional Paid in | Accumulated | Non-Controlling | Accumulated Other Comprehensive | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount |
Capital |
Deficit |
Interests | Loss |
(Deficit) | ||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 1,643,840 | $ | 16 | 269,100 | $ | 3 | $ | 22,030,739 | $ | (17,224,015 | ) | $ | - | $ | (9,538 | ) | $ | 4,797,205 | ||||||||||||||||||
| Stock option compensation expense | - | - | - | - | 77,217 | - | - | - | 77,217 | |||||||||||||||||||||||||||
| Restricted stock unit vesting | 200 | - | - | - | 286,974 | - | - | - | 286,974 | |||||||||||||||||||||||||||
| Preferred stock issued under series A warrants exercises | - | - | 203,810 | 2 | 4,711,474 | - | - | - | 4,711,476 | |||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | - | - | - | (70,298 | ) | (70,298 | ) | |||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (10,404,702 | ) | (147,534 | ) | - | (10,552,236 | ) | ||||||||||||||||||||||||
| Balance, December 31, 2022 | 1,644,040 | 16 | 472,910 | 5 | 27,106,404 | (27,628,717 | ) | (147,534 | ) | (79,836 | ) | (749,662 | ) | |||||||||||||||||||||||
| Balance | 1,644,040 | 16 | 472,910 | 5 | 27,106,404 | (27,628,717 | ) | (147,534 | ) | (79,836 | ) | (749,662 | ) | |||||||||||||||||||||||
| Series A Preferred stock exchanged for convertible notes | - | - | (224,950 | ) | (3 | ) | (5,206,760 | ) | - | - | - | (5,206,763 | ) | |||||||||||||||||||||||
| Stock option compensation expense | - | - | - | - | 374,746 | - | - | - | 374,746 | |||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | - | - | - | (15,892 | ) | (15,892 | ) | |||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (10,740,483 | ) | (159,239 | ) | - | (10,899,722 | ) | ||||||||||||||||||||||||
| Balance, December 31, 2023 | 1,644,040 | $ | 16 | 247,960 | $ | 2 | $ | 22,274,390 | $ | (38,369,200 | ) | $ | (306,773 | ) | $ | (95,728 | ) | $ | (16,497,293 | ) | ||||||||||||||||
| Balance | 1,644,040 | $ | 16 | 247,960 | $ | 2 | $ | 22,274,390 | $ | (38,369,200 | ) | $ | (306,773 | ) | $ | (95,728 | ) | $ | (16,497,293 | ) | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
BEELINE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| 2023 | 2022 | |||||||
| THE YEARS ENDED | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| (As Restated) | (As Restated) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | (10,899,722 | ) | $ | (10,552,236 | ) | ||
| Adjustments to reconcile net loss to net cash (used in ) provided by operating activities: | ||||||||
| Depreciation and amortization | 1,591,511 | 1,161,094 | ||||||
| Gain on sale mortgage loans held for sale, net of direct costs | (2,974,536 | ) | (1,835,778 | ) | ||||
| Stock-based compensation | 374,746 | 364,191 | ||||||
| Noncash lease expense | (4,795 | ) | (276,113 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Proceeds from principal payments and sales of loans held for sale | 59,831,839 | 132,474,641 | ||||||
| Originations and purchases of mortgage loans held for sale | (56,135,346 | ) | (122,263,204 | ) | ||||
| Accounts receivable | - | 280,285 | ||||||
| Derivative assets | (26,748 | ) | (30,757 | ) | ||||
| Prepaid expenses and other current assets | 10,706 | 209,108 | ||||||
| Deposits | 250 | 255,408 | ||||||
| Accounts payable and accrued expenses | 956,910 | 277,396 | ||||||
| Promissory note issued for lease cancellation | - | 225,000 | ||||||
| Net Cash (Used in) Provided by Operating Activities | (7,275,185 | ) | 289,035 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of software and property and equipment | (851,028 | ) | (1,914,773 | ) | ||||
| Net Cash Used in Investing Activities | (851,028 | ) | (1,914,773 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net repayments/borrowings under warehouse line of credit | (903,804 | ) | (8,237,999 | ) | ||||
| Repayments under notes payable | (222,500 | ) | (225,000 | ) | ||||
| Repayments under notes payable, related party | - | (700,000 | ) | |||||
| Net borrowings under operating lines of credit | - | (1,025 | ) | |||||
| Borrowings under notes and convertible notes payable | 5,129,472 | 732,612 | ||||||
| Borrowings under notes and convertible notes payable, related party | 4,196,071 | 3,601,000 | ||||||
| Proceeds from the issuance of preferred stock upon warrant exercises | - | 4,711,476 | ||||||
| Net Cash Provided by (Used in) Financing Activities | 8,199,239 | (118,936 | ) | |||||
| Effect of exchange rate changes on cash | (15,892 | ) | (70,298 | ) | ||||
| Net increase (decrease) in cash | 57,134 | (1,814,972 | ) | |||||
| Cash and cash equivalents - beginning of year | 133,223 | 1,948,195 | ||||||
| Cash and cash equivalents - end of year | $ | 190,357 | $ | 133,223 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the year: | ||||||||
| Interest | $ | 194,136 | $ | 273,509 | ||||
| Income Tax | $ | 8,110 | $ | 701 | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Preferred stock exchanged for convertible notes | $ | 4,000,370 | $ | - | ||||
| Preferred stock exchanged for convertible notes - related party | $ | 1,206,393 | $ | - | ||||
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheet that sum to the same such amounts shown in the consolidated statement of cash flows:
| 2023 | 2022 | |||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash and cash equivalents | $ | 3,351 | $ | 32,713 | ||||
| Restricted cash | 187,006 | 100,510 | ||||||
| Total cash and cash equivalents and restricted cash | $ | 190,357 | $ | 133,223 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-7 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
NOTE 1 - NATURE OF BUSINESS
Description of Business
Beeline Financial Holdings, Inc. (the “Company,” and together with its consolidated subsidiaries, “Beeline,” “we”, “us”, “our”) was incorporated in Delaware on July 1, 2020, via a merger with Beeline Financial Holdings, Inc, a Rhode Island corporation founded on September 20, 2018. Beeline is a full service Direct-to-Consumer lender specializing in conventional conforming and non-conforming residential first-lien mortgages.
The consolidated financial statements include the consolidated accounts of Beeline Financial Holdings, Inc. and its wholly-owned subsidiaries, Beeline Title Holdings, Inc. (“Beeline Title Holdings”), Beeline Mortgage Holdings, Inc. (“Beeline Mortgage”), and Beeline Loans Pty Ltd. (“Australian Subsidiary”). Beeline Title Holdings has five subsidiaries, Beeline Title, LLC (“Beeline Title”), Beeline Texas Title, LLC (“Beeline Texas Title”), Beeline Settlement Services, LLC (“Beeline Settlement Services”), and Beeline Title Agency, LLC (“Beeline Title Agency”). Beeline Mortgage Holdings has one subsidiary, Beeline Loans, Inc. (“Beeline Loans”). Beeline also has a majority-owned subsidiary called Nimble Title Holdings, LLC FKA Cambridge Title Holdings, LLC (“Nimble Title Holdings”), which is 50.1% owned by Beeline and 49.9% owned by Ellington Financial. Nimble Title Holdings has four subsidiaries, Nimble Title, LLC (“Nimble Title”), Nimble Title Agency, LLC (“Nimble Title Agency”), Nimble Texas Title, LLC (“Nimble Texas Title”), and Nimble Settlement Services, LLC (“Nimble Settlement Services”).
Beeline is an Artificial Intelligence (AI)-driven fintech mortgage lender that launched its lending platform in May 2020. Beeline continues to develop proprietary software in the form of major enhancements and new developments in its lending platform, introducing its Chat Application Programming Interface (API) “Bob” in July 2023. Beeline continues to hire key personnel to be able to scale into the future. As noted above, Beeline also has subsidiaries who perform title services.
Beeline is subject to a number of risks common to emerging companies stemming from, among other things, a limited operating history, rapid technological change, uncertainty of market acceptance and products, uncertainty of regulatory approval, competition from substitute products and larger companies, the need to obtain additional financing, compliance with government regulation, protection of proprietary technology, interest rate fluctuations, product liability, and the dependence on key individuals.
On June 4, 2024, the Company effected a 10-for-1 forward stock split and changed the authorized common and preferred shares and par values. All share and per share data in the accompanying consolidated financial statements and footnotes has been retrospectively adjusted to reflect these changes.
NOTE 2 – GOING CONCERN, LIQUIDITY, AND MANAGEMENT’S PLANS
Going Concern, Liquidity, and Management’s Plans
These consolidated financial statements have been prepared on a basis that assumes Beeline will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. Beeline has incurred recurring losses from operations since its inception and is dependent on debt and equity financing. These factors raise substantial doubt about Beeline’s ability to continue as a going concern for the twelve months following the issuance of these financial statements. The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if Beeline were unable to continue as a going concern.
Management believes that its available funds and cash flow from operations may not be sufficient to meet our working capital requirements for the twelve months subsequent to the issuance of our financial statements. In order to accomplish its business plan objectives, Beeline will need to either increase revenues or raise capital by the issuance of debt and/or equity or sell Beeline to a strategic acquirer. In October 2024, Beeline was acquired by Eastside Distilling, Inc. (see Note 14)
| F-8 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
Management believes that it will be successful in obtaining additional financing based on its limited history of raising funds; however, there can be no assurances that our business plans and actions will be successful, that we will generate anticipated revenues, or that unforeseen circumstances will not require additional funding sources in the future or effectuate plans to conserve liquidity. Future efforts to raise additional funds may not be successful or they may not be available on acceptable terms, if at all.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of Beeline Financial Holdings, Inc., and its subsidiaries. Intercompany transactions and balances have been eliminated.
USE OF ESTIMATES
Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Significant estimates and assumptions in these consolidated statements include: the fair value of mortgage loans held for sale, valuation of derivative instruments, valuation of software, valuation of right of use assets, contingent liability for loan repurchases, and for equity instruments such as options, estimating the fair value of options granted and expensed. Actual results and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties.
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
Beeline considers highly liquid investments purchased with a remaining maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents include money market accounts that are readily convertible into cash.
The Company maintains certain cash balances that are restricted under warehouse and/or master repurchase agreements, broker margin accounts associated with its derivative instruments. The restricted cash balance at December 31, 2023 and 2022 is $187,006 and $100,510 respectively.
MORTGAGE LOANS HELD FOR SALE AND GAINS ON SALE OF LOANS REVENUE RECOGNITION
Mortgage loans held for sale are carried at fair value under the fair value option in accordance with Financial Accounting Standards Board’s Accounting Standards Codification Topic (“ASC”) 825-Financial Instruments, with changes in fair value recorded in gain on sale of loans, net on the consolidated statements of operations. The fair value of mortgage loans held for sale committed to investors is calculated using observable market information such as the investor commitment, assignment of trade or other mandatory delivery commitment prices. The fair value of mortgage loans held for sale not committed to investors is based on quoted best execution secondary market prices. If no such quoted price exists, the fair value is determined using quoted prices for a similar asset or assets, such as Mortgage-Backed Securities (MBS) prices, adjusted for the specific attributes of that loan, which would be used by other market participants. Mortgage loans held for sale not calculated using observable market information are based on third-party broker quotations or market bid pricing.
| F-9 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
Gains and losses from the sale of mortgage loans held for sale are recognized based upon the difference between the sales proceeds and carrying value of the related loans upon sale and are recorded in gain on sale of loans, net on the consolidated statements of operations. Sales proceeds reflect the cash received from investors through the sale of the loan and servicing release premium. Gain on sale of loans, net also includes the unrealized gains and losses associated with the changes in the fair value of mortgage loans held for sale, and the realized and unrealized gains and losses from derivative instruments.
Mortgage loans held for sale are considered sold when the Company surrenders control over the financial assets. Control is considered to have been surrendered when the transferred assets have been isolated from the Company, beyond the reach of the Company and its creditors; the purchaser obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets; and the Company does not maintain effective control over the transferred assets through either an agreement that both entitles and obligates the Company to repurchase or redeem the transferred assets before their maturity or the ability to unilaterally cause the holder to return specific financial assets. The Company typically considers the above criteria to have been met upon acceptance and receipt of sales proceeds from the purchaser.
Mortgage loans sold to investors by the Company, and which met investor underwriting guidelines at the time of sale, may be subject to repurchase in the event of specific default by the borrower or subsequent discovery that underwriting standards were not met. The Company may, upon mutual agreement, indemnify the investor against future losses on such loans. Additionally, reserves are established for estimated liabilities from the need to repay, where applicable, a portion of the premium received from investors on the sale of certain mortgage loans if such loans are repaid in their entirety within a specified period after the sale of the loans. The Company has established a reserve for potential losses related to these representations and warranties. In assessing the adequacy of the reserve, management evaluates various factors including actual write-offs during the period, historical loss experience, known delinquent and other problem loans, and economic trends and conditions in the industry. Actual losses incurred are reflected as write-offs against the loan indemnification reserve.
Since mortgage loans held for sale have maturity dates greater than one year from the balance sheet date but are expected to be sold in a short time frame (less than one year), they are recorded as current assets.
Changes in the balances of mortgage loans held for sale are included in cash flows from operating activities in the consolidated statement of cash flows in accordance with ASC 230-10-45-21.
REVENUE RECOGNITION
Loan Origination Fees and Costs
Loan origination fees represent revenue earned from originating mortgage loans. Loan origination fees generally represent flat per-loan fee amounts based on a percentage of the original principal loan balance and are recognized as revenue at the time the mortgage loans are funded since the loans are held for sale. Loan origination costs are charged to operations as incurred.
Interest Income
Interest income on mortgage loans held for sale is recognized for the period from loan funding to sale based upon the principal balance outstanding and contractual interest rates. Revenue recognition is discontinued when loans become 90 days delinquent, or when, in management’s opinion, the recovery of principal and interest becomes doubtful and the mortgage loans held for sale are put on nonaccrual status. For loans that have been modified, a period of 6 payments is required before the loan is returned to an accrual basis.
| F-10 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
Interest Expense
Interest expense relating to the warehouse lines of credit is included in Revenues. Other interest expense is included under Other (Income)/Expense.
Title Fees
Commissions earned at loan settlement on insurance premiums paid to title insurance companies.
Data and Tech
Fees received from a marketing partner who is embedded in our point-of-sale journey for investment property customers. The partner pays Beeline for leads they receive from a customer opting in to use their insurance company for landlord insurance during the application process.
DERIVATIVE FINANCIAL INSTRUMENTS AND REVENUE RECOGNITION
The Company holds and issues derivative financial instruments such as interest rate lock commitments (IRLCs). IRLCs are subject to price risk primarily related to fluctuations in market interest rates. To hedge the interest rate risk on certain IRLCs, the Company enters into best effort forward sale commitments with investors, whereby certain loans are locked with a borrower and simultaneously committed to an investor at a fixed price. If the best effort IRLC does not fund, the Company has no obligation to fulfill the investor commitment.
FASB ASC 815-25, “Derivatives and Hedging,” requires that all derivative instruments be recognized as assets or liabilities on the consolidated balance sheets at their fair value. Changes in the fair value of the derivative instruments are recognized in gain on sale loans, net on the consolidated statements of operations in the period in which they occur. The Company accounts for all derivative instruments as free-standing derivative instruments and does not designate any for hedge accounting.
DEPOSITS
Deposits include security deposits for leased office spaces, which are refundable to Beeline upon expiration of the lease agreements.
PROPERTY AND EQUIPMENT, NET
Property and equipment, including leasehold improvements, are recorded at cost, and are depreciated or amortized using the straight-line method over the estimated useful lives of the related assets, which range from five to seven years. Repair and maintenance costs are expensed as incurred. Leasehold improvements are amortized over the shorter of the lease term or the improvement’s estimated useful life. Improvements, which increase the productive value of assets, are capitalized, and depreciated over the remaining useful life of the related asset.
SOFTWARE DEVELOPMENT COSTS, NET
Under ASC 350-40, “Internal-Use Software,” Beeline capitalizes certain qualifying costs incurred during the application development stage in connection with the development of internal-use software. Costs related to preliminary project activities are expensed as incurred and post-implementation activities will be expensed as incurred. Capitalized software costs are amortized over the useful life of the software, which is five years. Impairment of internal-use software is evaluated under ASC 350-40-35 “Subsequent Measurement” on a qualitative basis and if indicators exist, then a quantitative analysis is performed under ASC 360” Property, Plant, and Equipment”.
| F-11 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
IMPAIRMENT OF LONG-LIVED ASSETS
Beeline continually evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful life of its long-lived assets, including internal-use software, may warrant revision or that the carrying value of these assets may be impaired.
FAIR VALUE MEASUREMENTS
Fair value is the price that would be received if an asset were sold or the price that would be paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. Required disclosures include classification of fair value measurements within a three-level hierarchy (Level 1, Level 2, and Level 3). Classification of a fair value measurement within the hierarchy is dependent on the classification and significance of the inputs used to determine the fair value measurement. Observable inputs are those that are observed, implied from, or corroborated with externally available market information. Unobservable inputs represent the estimates of market participants’ assumptions.
Fair value measurements are classified in the following manner:
Level 1—Valuation is based on quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2—Valuation is based on either observable prices for identical assets or liabilities in inactive markets, observable prices for similar assets or liabilities, or other inputs that are derived directly from, or through correlation to, observable market data at the measurement date.
Level 3—Valuation is based on the internal models using assumptions at the measurement date that a market participant would use.
In determining fair value measurement, Beeline uses observable inputs whenever possible. The level of a fair value measurement within the hierarchy is dependent on the lowest level of input that has a significant impact on the measurement as a whole. If quoted market prices are available at the measurement date or are available for similar instruments, such prices are used in the measurements. If observable market data is not available at the measurement date, judgment is required to measure fair value.
The following is a description of measurement techniques for items recorded at fair value on a recurring basis. There were no material items recorded at fair value on a nonrecurring basis as of December 31, 2023 and 2022.
Mortgage loans held for sale: Loans held for sale that are valued using Level 2 measurements derived from observable market data, including market prices of securities backed by similar mortgage loans adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk. Loans held for sale for which there is little to no observable trading activity of similar instruments are valued using Level 3 measurements based upon dealer price quotes and internal models.
| F-12 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
IRLCs: The fair value of IRLCs is based on current market prices of securities backed by similar mortgage loans (as determined above under mortgage loans held for sale), net of costs to close the loans, subject to the estimated loan funding probability, or “pull-through factor.” Given the significant and unobservable nature of the pull-through factor, IRLCs are classified as Level 3.
Forward commitments: Beeline’s forward commitments are valued based on quoted prices for similar assets in an active market with inputs that are observable and are classified within Level 2 of the valuation hierarchy. There were no open forward contracts at December 31, 2023 and 2022.
Assets or liabilities measured at fair value or a recurring basis were as follows at December 31, 2023 and 2022:
Schedule of Assets or Liabilities Measured at Fair Value Recurring Basis
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Mortgage loans held for sale | $ | - | $ | 2,301,012 | $ | - | $ | - | $ | 3,022,969 | $ | - | ||||||||||||
| Interest rate lock derivative | $ | - | $ | - | $ | 57,505 | $ | - | $ | - | $ | 30,757 | ||||||||||||
A roll forward of the level 3 valuation financial instruments was as follows:
Schedule of Roll Forward for Valuation of Financial Instruments
| For the years ended December 31, | ||||||||
| Balance at beginning of year | 2023 | 2022 | ||||||
| Initial valuation | $ | 30,757 | $ | - | ||||
| Change in fair value in gain on sale of loans, net | 26,748 | 30,757 | ||||||
| Balance at end of year | $ | 57,505 | $ | 30,757 | ||||
DEBT ISSUANCE COSTS
Beeline’s notes or loans payable agreements are recorded net of issuance costs (debt discount). The resulting debt discount is being amortized over the term of the term loan using the straight-line method, which approximates the effective interest method, and the amortization of debt discount is included in interest expense in the Other (Income)/Expense category in the statement of operations.
MARKETING AND ADVERTISING COSTS
Marketing and advertising costs are expensed as incurred.
For the year ended December 31, 2023, marketing and advertising expenses were $1,891,128. For the year ended December 31, 2022, they were $1,788,458.
STOCK-BASED COMPENSATION EXPENSE
Beeline measures and recognizes compensation expense for restricted stock awards and options granted to employees based on the fair value of the award on the grant date and recognized as expense over the related service or performance period. Beeline elected to account for forfeitures as they occur.
Stock-based compensation expense totaled $374,746 for the year ended December 31, 2023, and $364,191 for the year ended December 31, 2022.
| F-13 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
Foreign Currency TranslatioN AND TRANSACTIONS
The reporting currency of the company is the U.S. dollar. Except for Beeline Loans Pty Ltd, the functional currency of the company is the U.S. dollar. The functional currency of Beeline Loans Pty Ltd is the Australian dollar (AUS). For Beeline Loans Pty Ltd, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts related to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive loss. The translation adjustment for years ended December 31, 2023 and 2022 was $15,892 and $70,298, respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency included in the results of operations as incurred.
NON-CONTROLLING INTERESTS
Beeline follows ASC Topic 810 – Consolidation, governing the accounting for and reporting of non-controlling interests (NCI) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than step acquisitions or dilution gains or losses, and that losses of a partially-owned subsidiary be allocated to non-controlling interests even when such allocation might result in a deficit balance. The net loss attributed to NCI was separately designated in the accompanying consolidated statements of operations and comprehensive loss. Losses attributable to NCI in a subsidiary may exceed NCI’s interests in the subsidiary’s equity. The excess attributable to NCI is attributed to those interests. NCI shall continue to be attributed their share of losses even if that attribution results in a deficit NCI balance.
Segment Information
The Company operates in one reportable segment as a Direct-to-Consumer lender. The Company’s chief operating decision makers, its Chief Executive Officer and Chief Financial Officer manage the Company’s operations as a whole.
INCOME TAXES
The Company uses the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial statement amounts. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that, more likely than not, will be realized. The Company has deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are subject to periodic recoverability assessments. Realization of the deferred tax assets, net of deferred tax liabilities, is principally dependent upon achievement of projected future taxable income.
| F-14 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
The Company records a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company accounts for uncertainty in income taxes using a two-step approach for evaluating tax positions. Step one, recognition, occurs when the Company concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Step two, measurement, is only addressed if the position is more likely than not to be sustained. Under step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE
In November 2023, the FASB issued ASU 2023-7, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires enhanced disclosure of significant segment expenses on an annual and interim basis. The ASU is effective on a retrospective basis for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company will adopt ASU 2023-7 beginning with its fiscal year ended December 31, 2024.
In December 2023, the FASB issued ASU 2023-9, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024, and early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company will include the required disclosures in its condensed consolidated financial statements once adopted.
NOTE 4 – MORTGAGE LOANS HELD FOR SALE
Mortgage Loans held for Sale
Beeline sells substantially all of its originated mortgage loans to investors. At December 31, 2023 and 2022, Beeline adjusted its loan balance to estimated fair value based on the eventual sales of loans.
Schedule of Estimated Fair Value Based On Eventual Sale of Loans
| 2023 | 2022 | |||||||
| Mortgage loans held for sale | $ | 2,267,596 | $ | 3,104,591 | ||||
| Fair value adjustment | 33,416 | (81,622 | ) | |||||
| Mortgage loans held for sale, at fair value | $ | 2,301,012 | $ | 3,022,969 | ||||
NOTE 5 - PROPERTY AND EQUIPMENT
Property and Equipment
Property and equipment as of December 31, 2023 and 2022, consisted of the following:
Schedule of Property and Equipment
| 2023 | 2022 | |||||||
| Leasehold improvements | $ | 696,894 | $ | 696,894 | ||||
| Furniture and fixtures | 129,962 | 129,962 | ||||||
| Computers and hardware | 81,779 | 81,779 | ||||||
| Property and equipment gross | 908,635 | 908,635 | ||||||
| Less: accumulated depreciation | (599,942 | ) | (448,566 | ) | ||||
| Property and equipment, net | $ | 308,693 | $ | 460,069 | ||||
Depreciation expense totaled $151,376 for the year ended December 31, 2023 and $151,376 for 2022.
NOTE 6 - CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Capitalized Software Development Costs
Beeline released its proprietary software “Hexagon” in May 2020.
Beeline continues to use the “Hexagon” software for processing mortgages of commercial and residential properties and intends on licensing this software to other mortgage loan originators in the future.
In January 2023, Beeline’s internal developers began the initial development of a new proprietary software, “Hive”. The new software is an entirely new platform and code built by Beeline. The most notable feature of the new software is the integration of Beeline’s Chat API “Bob.” The official launch of Hive was January 2024 and Beeline is currently implementing the new software in its residential mortgage origination process.
A major upgrade to the system “Version 2” was immediately started after the initial launch of the system and went into use starting November 2020. This upgrade gave the consumer access to a user portal and the ability to process some conditions on their own through uploading documents and accessing key information of their loan.
Additional functionality was added to the system in “Version 3”. This version will allow proprietary technologies to process underwriting conditions and automating major functions of the business. The basics of Beeline’s “Automation Condition Resolution Engine” was substantially completed in this Version.
“Version 4” was released in May 2022. It significantly changed the loan options user interface and experience for customers. It also introduced a dedicated flow for new loan types and channels. Other changes in Version 4 included additional build out of the Automation Condition Resolution Engine. Version 4 was completed by December 31, 2022, with development starting on Version 5 in early 2023. At December 31, 2023 and 2022, capitalized software development costs consisted of the following:
Schedule of Capitalized Software Development Costs
| 2023 | 2022 | |||||||
| Software Development Version 1 | $ | 1,725,250 | $ | 1,725,250 | ||||
| Software Development Version 2 | 821,983 | 821,983 | ||||||
| Software Development Version 3 | 3,335,136 | 3,335,136 | ||||||
| Software Development Version 4 | 1,438,149 | 1,346,424 | ||||||
| Software Development Version 5 | 759,303 | - | ||||||
| Capitalized Computer Software Gross | 8,079,821 | 7,228,793 | ||||||
| Less: Accumulated Depreciation | (3,216,731 | ) | (1,776,596 | ) | ||||
| Software Development, net | $ | 4,863,090 | $ | 5,452,197 | ||||
Amortization expense totaled $1,440,135 and $1,009,718 for the years ended December 31, 2023 and 2022, respectively.
| F-15 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
NOTE 7 - WAREHOUSE LINES OF CREDIT
Warehouse Lines of Credit
FIRSTFUNDING, INC.
At December 31, 2023, Beeline was engaged with one bank for a secured line of credit to fund originated loans in the normal course of business. The agreement contains specific financial covenants and requirements that Beeline must analyze on a quarterly basis in order to be compliant with the agreement and contains default provisions as defined. The aggregate potential borrowing capacity under the warehouse line of credit is $5,000,000 at December 31, 2023 .
On September 21, 2021, Beeline entered into an agreement with FirstFunding, Inc. (lender) for a $10,000,000 line. The line automatically renews for successive one-year terms, unless terminated by Beeline or FirstFunding, Inc upon 60 days notice. The line was renewed on September 30, 2023 with a reduction in available funding from $10,000,000 to $5,000,000. The interest rate is the greater of 1.) interest on the underlying loan or 2.) 4.25% - 5.50%, depending on how many loans Beeline closes per month. Beeline is required to provide FirstFunding, Inc. with annual audited financial statements, quarterly unaudited financial statements, and monthly interim unaudited financial statements if requested. Beeline is also subject to non-financial covenants. Beeline grants to the lender a security interest in and to all of Beeline’s right, title, and interest in and to each mortgage loan in which the lender has acquired a warehouse interest.
FLAGSTAR BANK
As of July 25, 2023, Beeline requested the closure of the Flagstar Bank warehouse line. The Company’s focus has been on non-QM loans as the market has fluctuated and First Funding permits both non-QM and conventional loans.
The below is a summary of warehouse lines outstanding as of December 31:
Summary of Warehouse Lines Outstanding
| Year | Warehouse Lender | Line Amount | Outstanding | Remaining Unused | ||||||||||
| 2023 | FirstFunding, Inc. | $ | 5,000,000 | $ | 2,157,119 | $ | 2,842,881 | |||||||
| 2022 | Flagstar Bank | $ | 10,000,000 | $ | 3,060,923 | $ | 6,939,077 | |||||||
INTEREST EXPENSE ON WAREHOUSE LINES OF CREDIT
Interest expense on warehouse lines of credit were $179,886 in 2023 and $249,794 in 2022.
| F-16 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
NOTE 8 - DEBT
Notes Payable
BDCRI LOAN
On April 29, 2021, Beeline and Beeline Loans entered into a term loan agreement with Business Development Company of Rhode Island (the “BDCRI Loan”) for $450,000. The BDCRI Loan matures on April 29, 2026. As of December 31, 2023 and 2022, the balance due is $291,846 and $363,351, respectively, net of discounts of $8,154 and $11,649, respectively. Principal payments of $9,375 began in April of 2022. In October 2023, Beeline began making interest-only payments in the near term until market conditions improved. The interest rate is 6%. Beeline recorded debt issuance costs of $17,182 in 2021, which are being amortized over the term of the BDCRI Loan. The BDCRI Loan contains default covenants and prepayment terms and is collateralized and guaranteed by two of the shareholders of Beeline.
The payment schedule for the BDCRI loan is as follows:
Schedule of Bdcri Loan
| Year | Amount | |||
| 2024 | $ | 100,000 | ||
| 2025 | 100,000 | |||
| 2026 | 100,000 | |||
| Total | $ | 300,000 | ||
LOANS PAYABLE
In 2022, Beeline received $100,000 from Capital Markets Group in the form of a loan payable. This loan is currently past due. Default interest is accruing at 24% per annum. As of December 31, 2023 and 2022, the balance due is $60,244 and $100,000, respectively. The balance of the loan was paid in full on June 6, 2024.
In March 2023, Beeline received $30,000 from an individual in the form of a loan payable. Interest accrues at 7% per annum. At December 31, 2023, the balance due is $31,755. This loan was subsequently reclassified as a Convertible Notes when a convertible note agreement was signed by the lender in March 2024.
LOANS PAYABLE – RELATED PARTY
In July 2023, Beeline received $75,000 from Fluid Capital in the form of a loan payable. Interest accrues at 12.25%. per annum. This note is due April 2024. At December 31, 2023 the balance due is $78,826. Beeline was granted an extension on this note until year end 2024.
In September 2023, Beeline entered into a loan for $357,400 and in December 2023, another loan for $142,600 from Manta Reef (Gulp Data). Interest accrues at 18% per annum. Interest-only payments are made monthly. These loans are due December 2024. At December 31, 2023, the balance due on these loans is $587,529.
In November 2023, Beeline received $157,500 from American Heritage Lending in the form of a loan payable. Interest accrues at 12% per annum. This loan was paid in March 2024. At December 31, 2023, the balance due is $161,280.
An officer, director, and shareholder lends money to Beeline throughout the year in the form of loans payable. Interest accrues at 7% per annum and is due on demand. At December 31, 2023, the balance due is $222,544.
| F-17 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
2022 SUBORDINATED CONVERTIBLE PROMISSORY NOTES ISSUED
In June 2022, the Board of Directors authorized the issuance of three-year, 7%, 2022 Subordinated Convertible Promissory Notes (the “Convertible Notes”) and related Preferred Stock Warrants, up to a total of $25,000,000 as amended, to investors through May 29, 2024.
Beeline issued Convertible Notes totaling $4,436,238 in 2022 and $13,439,516 in 2023. See Note 10 - Stockholders’ Equity as to no estimate of the portion of the proceeds from the issuance of the convertible promissory notes attributable to such warrants can be determined.
Optional Conversion
The notes contain an optional conversion feature in the event the Company completes a capital raising transaction that is not significant enough to be a Qualified Financing, which option may be exercised collectively by a majority in interest of the note holders. If the Company completes a Non-Qualified Financing, a Majority in Interest of the Note holders may elect to convert all of the Notes, and any accrued but unpaid interest thereon, into the class or series of shares issued to the investors in the Non-Qualified Financing, but at a conversion price equal to the lower of (x) 80% of the per share price paid by such investors in the Non-Qualified Financing, or (y) the price obtained by dividing $50,000,000 by the number of outstanding shares of common stock of the Company immediately prior to the Non-Qualified Financing (assuming conversion of all securities convertible into common stock and exercise of all outstanding options and warrants, but excluding but excluding the first 15% of the shares issuable pursuant to the Company’s Employee Stock Ownership Plan and the shares of equity securities of the Company issuable upon the conversion of the Notes or other indebtedness)(the “Valuation Cap PPS”).
Mandatory Conversion
If the Company completes a Change of Control or an Initial Public Offering (each, as defined in the Notes) prior to the conversion of a holder’s Note, then such Note shall convert automatically into shares of the Company’s common stock, at a price equal to 80% of, as applicable,(x) the offering price to the public in the Initial Public Offering, or (y) the price or value of the Company’s common stock in the Change of Control transaction. Alternatively, we have reduced the term of the Notes to three (3) years(from five (5) years)and provided that, if a holder’s Note remains outstanding after such three (3)-year period, then it shall automatically convert into the class or series of shares of capital stock of the Company last issued in a Non-Qualified Financing, at a per share purchase price equal to the lower of (x) 80% of the per share price paid by the investors for the shares issued in such Non-Qualified Financing, and (y) the Valuation Cap PPS.
In 2023, three investors who made an investment of at least $500,000 in the 2022 Convertible Notes were entitled to exchange, for no additional consideration, Beeline Series A Preferred stock held by the investors for 2022 Convertible Notes having the same value as the investor’s existing investment. These three investors exchanged 224,950 shares of Series A Preferred stock for 2022 Convertible Notes having principal amounts totaling $5,206,763. There were no gains or losses on these exchanges.
All Convertible Notes are three-year notes of: $4,436,238 (raised in 2022) maturing in 2025 and $13,439,516 (raised in 2023) maturing in 2026. As of December 31, 2023 and 2022, interest of $965,378 and $77,883, respectively, has accrued on all these notes. At December 31, 2023 and 2022, the balance due on these notes, consisting of related party and non-related party notes, was $17,875,754 and $4,436,238, respectively.
| F-18 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
Convertible notes at December 31, were as follows:
Schedule of Convertible Notes
| 2023 | 2022 | |||||||
| Convertible notes | $ | 8,889,261 | $ | 745,238 | ||||
| Convertible notes - related party | 8,986,493 | 3,601,000 | ||||||
| Total | $ | 17,875,754 | $ | 4,346,238 | ||||
NOTE 9 - RELATED PARTY TRANSACTIONS
Related Party Transactions
Beeline has received, as noted in Note 8 - Loans Payable and Convertible Notes with related parties, including officers, directors, and affiliates.
NOTE 10 - STOCKHOLDERS’ EQUITY
Stockholders’ Equity
On June 4, 2024, Beeline’s shareholders approved a ten-for-one (10:1) Forward Stock Split (the “Forward Stock Split”), effective as of June 4, 2024. Proportional adjustments for the Forward Stock Split were made to the Company’s outstanding common stock, preferred stock, stock options, warrants and equity incentive plans. All share and per-share data and amounts have been retroactively adjusted as of the earliest period presented in the consolidated financial statements to reflect the Forward Stock Split .
The rights and privileges of Beeline’s Common and Preferred Stock are as follows:
SERIES A PREFERRED STOCK
During 2023, three investors exchanged 224,950 shares of preferred stock for a 2022 Convertible Notes having principal amounts totaling $5,206,763. Please see Note 8 – Debt as to the 2022 Convertible Notes.
During 2022, warrants were exercised for 203,810 shares of Series A preferred stock and the company received exercise proceeds of $4,711,476.
The rights and preferences of the Series A preferred stock are as follows:
Dividends
Subject to the rights of any series of Preferred Stock that may from time to time come into existence after the Filing Date, holders of outstanding shares of Preferred Stock are not entitled to dividends.
As of December 31, 2023 and 2022, no dividends have been declared or accrued on any class of Company stock.
Voting Rights
On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the (‘corporation (or by written consent of stockholders in lieu of a meeting), including for the election of members of the Corporation’s Board of Directors, each holder of outstanding shares of Preferred Stock shall he entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible at the applicable Conversion Price therefor as of the record date for determining stockholders entitled to vote on such matter.
| F-19 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
Liquidation Rights
Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), subject to the rights of any series of Preferred Stock that may from time to time come into existence. the holders of Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation the same amount that holders of Common Stock would receive if the Preferred Stock were fully converted (disregarding for such purposes any conversion limitations hereunder) to Common Stock at the Conversion Price then applicable for each share of outstanding Preferred Stock, which amount shall be paid to the holders of Preferred Stock pari passu with the amount paid to the holders of Common Stock.
Optional Conversion
From and after the Filing Date, and at any time prior to mandatory conversion of the outstanding shares of Series A Preferred Stock into shares of Common Stock upon a Qualified Offering or Qualified Event as defined, each outstanding share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time, and without the payment of additional consideration by the holder thereof, into such whole number of shares of Common Stock as is determined by dividing the Series A Original Issue Price of $23.117 by the Series A Conversion Price in effect at the time of conversion, which was $7.542280 as of December 31, 2023. The Series A Conversion Price. and the rate at which shares of Series A Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment.
Mandatory Conversion
All outstanding shares of Series A Preferred Stock shall automatically be converted, without the payment of additional consideration by any holder thereof, into such whole number of shares of Common Stock as is determined by dividing the Series A Original Issue Price by the Series A Conversion Price in effect upon and as of’ the earliest to occur of (the time of such conversion is referred to herein as the “Mandatory Conversion Time”) a Qualified Offering or Qualified Event.
Fundamental Transaction
Each holder of outstanding shares of Preferred Stock shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Corporation. if it is the surviving corporation. and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which such shares of Preferred Stock are convertible immediately prior to such Fundamental Transaction.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held. The voting, dividend, and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers, and preferences of the holders of the Preferred Stock described below.
No common shares were issued in 2023. See “Equity Compensation Plan” below for 2022 activity.
| F-20 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
COMMON STOCK WARRANTS
At December 31, 2023, Beeline has 58,680 outstanding common stock warrants with an exercise price of $23.12 and a remaining contractual life of 2.75 years.
Warrant activities for the years ended December 31, 2023 and 2022 are summarized as follows:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Balance Outstanding December 31, 2021 | 363,360 | $ | 23.12 | 4.75 | $ | - | ||||||||||
| Expired/Forfeits | (65,290 | ) | - | |||||||||||||
| Granted | - | - | - | |||||||||||||
| Exercises to Series A preferred stock | (203,810 | ) | - | - | - | |||||||||||
| Balance Outstanding December 31, 2022 | 94,260 | 23.12 | 3.75 | - | ||||||||||||
| Forfeits | (35,580 | ) | - | |||||||||||||
| Granted | - | - | - | - | ||||||||||||
| Balance Outstanding December 31, 2023 | 58,680 | $ | 23.12 | 2.75 | $ | - | ||||||||||
| Exercisable, December 31, 2023 | 58,680 | $ | 23.12 | 2.75 | $ | - | ||||||||||
In addition to the warrants noted above, Beeline issued warrants in connection with the 2022 Subordinated Convertible Promissory notes to possibly purchase a quantity of shares of the company’s capital stock based on the warrant coverage amount (which as of December 31, 2023 was $17.875 million and $4.346 million as of December 31, 2022) divided by the exercise price as defined which was indeterminant as of December 31, 2023 and 2022 (see Note 8). The warrant coverage amount equaled 100% of the aggregate principal borrowed by the company under all convertible promissory notes then issued by the company and outstanding (excluding interest thereon) as of such date. However, as of December 31, 2023 and 2022, (1) the right to exercise any such warrant, (2) the exercise price of any such warrant, and (3) the type and number of shares of capital stock for which any such warrant might eventually be exercisable, all remained contingent upon various and alternative equity financing events yet to have occurred. As such, no estimate of the portion of the proceeds from the issuance of the convertible promissory notes attributable to such warrants can be determined. See Note 14 – Subsequent Events for the exchange of these warrants for other equity instruments.
| F-21 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
EQUITY INCENTIVE PLANS
Beeline Financial Holdings, Inc.’s Amended Equity Incentive Plan provides employees, consultants, and directors of Beeline and its affiliates awards, including incentive stock options, non-qualified stock options, and restricted stock.
As approved by the Boards of Directors on December 21, 2023, the Plan was amended to increase the number of shares of Common Stock which could be made available for Award under the Plan by 717,160 for a total of one million (1,000,000) shares of Common Stock. As of December 31, 2023, Beeline granted a total of 792,810 awards. As of December 31, 2023, 207,190 shares of Common Stock remain available for grants of awards pursuant to this Plan.
Restricted Stock Awards
In 2020, Beeline granted 123,500 Restricted Common Stock (CRSA’s) shares with an estimated fair value of $597,864 to four employees. The shares vest over 25 months. The company recognized the remaining compensation expense of $286,974 in 2022. All restricted shares issued under the Plan are now fully vested and unrestricted. 200 shares were issued in fiscal 2022 related to this grant while the remainder were issued in 2020.
Schedule of Non Vested Shares
| Number of Non-Vested Shares | Weighted Average Grant Date Fair Value | |||||||
| Non-vested, December 31, 2021 | 59,280 | $ | 4.84 | |||||
| Granted | - | - | ||||||
| Shares vested | (59,280 | ) | $ | (4.84 | ) | |||
| Non-vested, December 31, 2022 | - | - | ||||||
| Shares vested | - | - | ||||||
| Non-vested, December 31, 2023 | - | $ | - | |||||
Option Awards
During 2023, the Company’s Board of Directors granted 609,090 new stock options to employees as incentive stock options (ISOs). These options have a fair value of approximately $900,000 and carry a four-year vesting period. The issuance of these options, along with a prior year grant, generated stock option compensation expense in the year 2023 in the amount of $374,746. Stock option expense in fiscal 2022, related to prior year grants was $77,217.
| F-22 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
At December 31, 2023, the total unrecognized compensation related to unvested stock option awards granted, was approximately $0.8 million, which the Company expects to recognize over a weighted-average period of approximately 3.5 years.
Schedule of Stock Option Activity
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Balance Outstanding, December 31, 2021 | 228,810 | $ | 4.08 | 6 | $ | - | ||||||||||
| Forfeited | (35,090 | ) | - | - | ||||||||||||
| Balance Outstanding, December 31, 2022 | 193,720 | 3.94 | 5 | - | ||||||||||||
| Granted | 609,090 | 2.50 | - | |||||||||||||
| Forfeited | (66,320 | ) | - | - | ||||||||||||
| Balance Outstanding, December 31, 2023 | 736,490 | $ | 2.89 | 4.6 | $ | - | ||||||||||
| Exercisable, December 31, 2023 | 152,850 | $ | 2.89 | 4.6 | $ | - | ||||||||||
The fair value of the stock option grants were estimated using the following assumptions:
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Risk free interest rate | 3.88 | % | 1.04% – 3.55% | |||||
| Expected term in years | 5.5 | 6 | ||||||
| Dividend yield | — | — | ||||||
| Volatility of common stock | 62% –64% | 58% – 60% | ||||||
| Weighted average grant date fair value per option | $ | 2.50 | $ | 4.08 | ||||
Phantom Stock Awards
In 2018, Beeline adopted the Phantom Equity Plan (the “Phantom Plan”), which authorizes up to 100,000 shares (“Phantom Shares”) to be granted to participating employees. The Phantom Shares are a hypothetical equity interest in Beeline and vest over a four-year period. Each award will only vest and become payable upon certain events, such as a change in ownership of Beeline or a liquidation event, as defined in the Phantom Plan agreement. At December 31, 2023 and 2022, the value per share was deminimis. No additional Phantom Shares were granted in 2023 or 2022. There are 39,750 issued and fully vested Phantom Shares at December 31, 2023 and 2022.
401(k) Employee Benefit Plan
Beeline has established a retirement benefit plan under Section 401(k) of the Internal Revenue Code. Under this plan, eligible employees are permitted to contribute a percentage of compensation into the retirement plan up to a maximum determined by the Internal Revenue Code. The plan also allows for discretionary employer matching contributions and profit-sharing contributions to the plan; however, no such contributions were elected for the 2023 year ended.
| F-23 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Commitments and Contingencies
LEASE OBLIGATIONS
Beeline leases office space under various operating lease agreements, including an office for its headquarters, for branch location and licensing purposes under non-cancelable lease arrangements that provide for payments on a graduated basis with various expiration dates.
Schedule of Components of Operating and Finance Lease Cost
| December 31, | ||||||||
| Components of Operating and Finance Lease Cost Table for the years ended | 2023 | 2022 | ||||||
| Operating lease cost | $ | 335,353 | $ | 482,363 | ||||
Schedule of Weighted Average Operating Leases
| Maturities of lease liabilities as of | December 31, | |||||||
| Operating Leases | 2023 | 2022 | ||||||
| Weighted average remaining lease term | 3.9 years | 4.6 years | ||||||
| Weighted average discount rate | 1.41 | % | 1.41 | % | ||||
Schedule of Supplemental Cash Flow Information Related to Leases
| Supplemental cash flow information related to leases for the years ended | December 31, | |||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | $ | - | $ | - | ||||
| Operating cash flows from operating leases | 340,149 | 451,199 | ||||||
| Operating cash flows from finance leases | - | - | ||||||
| Finance cash flows from finance leases | - | - | ||||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||
| Operating leases | $ | 3,716,897 | $ | 3,716,897 | ||||
| Finance leases | - | - | ||||||
Schedule of Right of Use Assets and Lease Liabilities
| 2023 | 2022 | |||||||
| Right-of-use assets and lease liabilities as of | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Operating lease right-of-use assets | $ | 1,643,432 | $ | 1,947,804 | ||||
| Finance lease right-of-use assets | - | - | ||||||
| Total right-of-use assets | $ | 1,643,432 | $ | 1,947,804 | ||||
| Liabilities | ||||||||
| Current | ||||||||
| Operating | $ | 323,959 | $ | 309,167 | ||||
| Finance | - | - | ||||||
| Non-current | ||||||||
| Operating | 1,526,825 | 1,850,784 | ||||||
| Finance | - | - | ||||||
| Total Lease Liabilities | $ | 1,850,784 | $ | 2,159,951 | ||||
| F-24 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
Schedule of Maturities of Operating Lease Liabilities
| Maturities of lease liabilities as of | December 31, | |||
| Operating Leases | 2023 | |||
| 2024 | $ | 350,316 | ||
| 2025 | 360,793 | |||
| 2026 | 282,758 | |||
| 2027 | 227,669 | |||
| 2028 | 234,499 | |||
| Thereafter | 490,314 | |||
| Total future minimum rental commitments | 1,946,349 | |||
| Less Imputed Interest | (95,565 | ) | ||
| Total Lease Liability | $ | 1,850,784 | ||
REGULATIONS
Government Regulations Affecting Mortgage Loan Origination
Beeline operates in a heavily regulated industry that is highly focused on consumer protection. The extensive regulatory framework to which Beeline is subject includes U.S. federal and state laws and regulations.
Governmental authorities and various U.S. federal and state agencies have broad oversight and supervisory authority over all aspects of Beeline’s business.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Consumer Financial Protection Bureau (the “CFPB”) was established to ensure, among other things, that consumers receive clear and accurate disclosures regarding financial products and to protect consumers from hidden fees and unfair, deceptive or abusive acts or practices. The CFPB’s jurisdiction includes those persons producing or brokering residential mortgage loans. It also extends to Beeline’s other lines of business title insurance. The CFPB has broad supervisory and enforcement powers with regard to non-depository institutions, such as Beeline, that engage in the production and servicing of home loans.
As part of its enforcement authority, the CFPB can order, among other things, rescission or reformation of contracts, the refund of moneys or the return of real property, restitution, disgorgement or compensation for unjust enrichment, the payment of damages or other monetary relief, public notifications regarding violations, remediation of practices, external compliance monitoring and civil money penalties. The CFPB has been active in investigations and enforcement actions and has issued large civil money penalties since its inception to parties the CFPB determines have violated the laws and regulations it enforces.
| F-25 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
Effective October 1, 2022, the CFPB revised the definition of a QM which permits mortgage lenders to gain a presumption of compliance with the CFPB’s ability to repay requirements if a loan meets certain underwriting criteria. Lenders are now required to comply with a new QM definition in order to receive a safe-harbor or rebuttable presumption of compliance under the ability-to-repay requirements of the Truth in Lending Act (“TILA”) and its implementing Regulation Z. The revision to the QM definition created additional compliance burdens and removed some of the legal certainties afforded to lenders under the prior QM definition. Specifically, the revised QM rule eliminated the previous requirement limiting QMs to a 43% debt-to-income ratio (“DTI”) and replaced it with pricing-based thresholds. Loans at 150 basis points or less over the average prime offer rate (“APOR”) as of the date the interest rate is set, receive a safe harbor presumption of compliance, while loans between 151 and 225 basis points over the APOR benefit from a rebuttable presumption of compliance. The new rule also created new requirements for a lender to “consider” and “verify” a borrower’s income and debts and associated DTI, along with several other underwriting requirements. Additionally, the new QM definition eliminated a path to regulatory compliance that was available for originating loans that were eligible to be sold to GSEs, which was heavily relied upon by a large segment of the mortgage industry. Due to the transition to the new QM definition, there may be residual compliance and legal risks associated with the implementation of these new underwriting obligations.
The CFPB’s loan originator compensation rule prohibits compensating loan originators based on a term of a transaction, prohibits loan originators from receiving compensation directly from a consumer or another person in connection with the same transaction, imposes certain loan originator qualification and identification requirements, and imposes certain loan originator compensation recordkeeping requirements, among other things.
Beeline is also supervised by regulatory agencies under state law. From time-to-time, Beeline receives examination requests from the states in which Beeline is licensed. State attorneys general, state mortgage licensing regulators, state insurance departments, and state and local consumer protection offices have authority to investigate consumer complaints and to commence investigations and other formal and informal proceedings regarding Beeline’s operations and activities. In addition, the government-sponsored enterprises, or GSEs, the Federal Housing Authority (the “FHA”), the Federal Trade Commission (the “FTC”), and others subject Beeline to periodic reviews and audits. This broad and extensive supervisory and enforcement oversight will continue to occur in the future.
Beeline maintains dedicated staff on the legal and compliance team to ensure timely responses to regulatory examination requests and to investigate consumer complaints in accordance with regulatory regulations and expectations.
NOTE 12 - CONCENTRATIONS
Concentrations
Beeline maintains cash balances with several regional banks. The deposits are insured by the Federal Deposit Insurance Corporation up to $250,000 per depositor per bank. At various times throughout the year, cash balances held within these accounts may exceed the maximum insured amounts. There were no balances that exceeded insured limits as of December 31, 2023 and 2022.
The Company relies on one lender for the warehouse line it uses to fund the mortgage loans it makes to its customers.
The Company sells its mortgage loans primarily to four investors.
| F-26 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
ESCROWS PAYABLE
As a service to its clients, Beeline administers escrow deposits representing undisbursed amounts received for payment of settlement and title services. Cash held by Beeline was $375,765 as of December 31, 2022, and $574,012 as of December 31, 2023. Nimble Title held $23,447 in escrow as of December 31, 2023. These amounts are not considered assets of Beeline and, therefore, are excluded from the Consolidated Balance Sheet. Beeline remains contingently liable for the disposition of these deposits.
NOTE 13 – INCOME TAXES
Income Taxes
The Company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred tax assets (liabilities) at December 31, 2023 and 2022 consist of net operating loss carryforwards and differences in the book basis and tax basis of mortgage loans and intangible assets.
The items accounting for the difference between income taxes at the effective statutory rate and the provision for income taxes for the years ended December 31, 2023 and 2022 were as follows:
Schedule of Difference Between Income Taxes at the Effective Statutory Rate and the Provision for Income Taxes
| Statutory Rate Reconciliation | 2023 | 2022 | |||||||||||||||
| Loss before taxes | $ | (2,288,942 | ) | 21.00 | % | $ | (2,215,970 | ) | 21.00 | % | |||||||
| Effect of permanent differences | 4,820 | -0.04 | % | (124,870 | ) | 1.18 | % | ||||||||||
| State taxes, net of federal benefit | (498,553 | ) | 4.57 | % | (510,933 | ) | 4.84 | % | |||||||||
| Valuation Allowance | 2,782,675 | -25.53 | % | 2,851,773 | -27.03 | % | |||||||||||
| Total | $ | 0 | 0.00 | % | $ | (0 | ) | 0.00 | % | ||||||||
The Company’s approximate net deferred tax assets as of December 31, 2023 and 2022 were as follows:
Schedule of Deferred Tax Assets
| Years Ended December 31, | 2023 | 2022 | ||||||
| Deferred Tax Asset: | ||||||||
| Fixed Assets | $ | 43,031 | $ | 43,031 | ||||
| NOL Carryforward | 10,160,018 | 7,370,500 | ||||||
| Deferred Income Tax Assets | 10,203,049 | 7,413,531 | ||||||
| Deferred Tax Liabilities: | ||||||||
| LHFS | (365,031 | ) | (365,031 | ) | ||||
| Derivatives | (14,712 | ) | (7,869 | ) | ||||
| Intangible Assets | (142,676 | ) | (142,676 | ) | ||||
| Deferred Income Tax Liabilities | (522,419 | ) | (515,576 | ) | ||||
| Valuation Allowance | (9,680,630 | ) | (6,897,955 | ) | ||||
| Net Deferred Income Tax Asset/(Liability) | $ | - | $ | - | ||||
The gross operating loss carryforward was approximately $40,439,859 and $29,536,339 at December 31, 2023 and 2022, respectively. The Company provided a valuation allowance equal to the net deferred income tax assets for the years ended December 31, 2023, and 2022 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward and other deferred tax assets. The increase in the valuation allowance was $2,782,675 in 2023.
The potential tax benefit arising from the net operating loss carryforward of $10,160,018 can be carried forward indefinitely within the annual usage limitations.
Additionally, the future utilization of the net operating loss carryforward to offset future taxable income is subject to an annual limitation as a result of ownership or business changes that may occur in the future. The Company has not conducted a study to determine the limitations on the utilization of these net operating loss carryforwards. If necessary, the deferred tax assets will be reduced by any carryforward that may not be utilized or expires prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.
The Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2021, 2022 and 2023 Corporate Income Tax Returns are subject to Internal Revenue Service examination.
NOTE 14 - SUBSEQUENT EVENTS
Subsequent events
The Company’s management has evaluated subsequent events up to December 13, 2024, the date these consolidated financial statements were issued, pursuant to the requirements of ASC 855 and has determined to disclose the following subsequent events:
Sale of 2022 Convertible Notes
During 2024, i) the Company received cash proceeds from the sale of 2022 Convertible Notes of $3,442,219, ii) Series A preferred shares investors exchanged 75,700 shares of Series A preferred stock for 2022 Convertible Notes having principal amounts totaling $1,750,079, iii) the Company issued a Convertible Note in the amount of $150.000 for future services to be rendered, and iv) the Company issued a Convertible Note in the amount of $10,000 for accrued interest.
Exchange of Debt for Equity
On June 4, 2024, the Company issued 1,646,157 shares of Series B preferred stock and 7,333,207 shares of common stock for the conversion of all the convertible notes with a principal balance of $23,228,052 and accrued interest payable amounting to $1,585,958 for an aggregate amount of $24,814,011 and in exchange for all warrants issued with the convertible notes. The common shares were valued at $1.50 per share based on recent sales of common stock and the Series B shares were valued at $1.50 per share since the Series B shares are convertible into an equal amount of common shares. In connection with the conversion of the debt and accrued interest and surrender of the warrants, the Company recorded a gain on extinguishment of debt of $11,344,207.
2024 Convertible Notes
On June 5, 2024, Beeline engaged in Debenture agreements with Gunnar and issued convertible notes in the amount of $3,300,000 and received cash of $2,519,000, after deducting original issue discount and fees of $781,000., which was reflected as a debt discount to be amortized over the note term. Additionally, in connection with the 2024 Convertible Notes, the Company issued 740,496 Series B preferred shares to the 2024 convertible note holders. These series B preferred shares were valued at $770,843 based on the relative fair value of such shares, which was reflected as a debt discount to be amortized over the note term. The notes bear interest at 10% per annum and due on June 5, 2025.
In October 2024, these convertible notes were amended to i) increase the principal balance by $300,000 to $3,600,000, ii) to remove the conversion feature, and to extend the maturity date through and until September 5, 2025, and payments shall be made in nine equal consecutive monthly installments of $440,328. In accordance with ASC 470-50, Debt Modifications and Extinguishments, in October 2024, in connection with the amendments to the 2024 Convertible Notes, discussed above (the “Amendments”), the Company performed an assessment of whether the Amendments were deemed to be new debt, a modification of existing debt, or an extinguishment of existing debt. The Company evaluated the Amendments for debt modification and concluded that the debt qualified for debt extinguishment. The Company determined the transaction was considered a debt extinguishment because the removal of the conversion terms was substantive. Upon extinguishment, the Company had approximately $1,000,000 of unamortized debt discount recorded which will be written off to loss on debt extinguishment. Additionally, the Company will expense the $300,000 increase in principal balance and record a loss on debt extinguishment.
Sale of Common Stock
During 2024, the Company issued 1,605,935 shares of its common stock for cash proceeds of $2,408,902.
On October 7, 2024, immediately after the closing under the Debt Agreement, a closing was held pursuant to the Merger Agreement (the “Merger Closing”). Beeline merged into Merger Sub and became a wholly-owned subsidiary of Eastside, with the name of the surviving subsidiary being changed to Beeline Financial Holdings, Inc. In the Merger, the shareholders of Beeline gained the right to receive a total of 69,482,229 shares of Eastside’s Series F Preferred Stock and a total of 517,771 shares of Eastside’s Series F-1 Preferred Stock. In addition, each option to purchase shares of Beeline common stock outstanding at the time of the Merger was converted into an option to purchase shares of Eastside’s common stock measured by the same ratio.
Investment in Equity Method Investee
On February 7, 2024, MagicBlocks, Inc., a Delaware corporation, was incorporated by a third party. On July 31, 2024, the Company was issued 4,285,000 shares of Magic Blocks which represents 47.6% of MagicBlocks common shares outstanding. The Company has determined that its investment in MagicBlocks is subject to the equity method of accounting in accordance with ASC 825-10, Financial Instruments (“ASC 825-10”). In accordance with ASC 825-10, the Company shall include this equity method investment in “Other assets” within the consolidated balance sheets, and the Company’s portion of any gains or losses shall be included in the consolidated statements of operations. In September 2024, the Company invested $96,500 in MagicBlocks.
Series B Preferred Stock
On June 4, 2024, Beeline designated 3,110,636 shares of Series B Preferred Stock at a par value of $0.00001 with the following rights:
Dividends
Subject to the rights of any series of Preferred Stock that may from time to time come into existence after the Filing Date, holders of outstanding shares of Preferred Stock are not entitled to dividends.
| F-27 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
As of December 31, 2023 and 2022, no dividends have been declared or accrued on any class of Company stock.
Voting Rights
On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the (‘corporation (or by written consent of stockholders in lieu of a meeting), including for the election of members of the Corporation’s Board of Directors, each holder of outstanding shares of Preferred Stock shall he entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible at the applicable Conversion Price therefor as of the record date for determining stockholders entitled to vote on such matter.
Liquidation Rights
Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), subject to the rights of any series of Preferred Stock that may from time to time come into existence. the holders of Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation the same amount that holders of Common Stock would receive if the Preferred Stock were hilly convened (disregarding for such purposes any conversion limitations hereunder) to Common Stock at the
Conversion Price then applicable for each share of outstanding Preferred Stock, which amount shall be paid to the holders of Preferred Stock pan passu with the amount paid to the holders of Common Stock.
Optional Conversion
From and after the Series B Original Issue date each share of outstanding Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time, and without the payment of additional consideration by the holder thereof, into such whole number of shares of Common Stock as is determined by dividing the Series B Original Issue Price b- the Series B Conversion Price in effect at the time of conversion. The Series B Conversion Price, and the rate at which shares of Series B Preferred Stock may be convened into shares of Common Stock, shall be subject to adjustment.
For Series B preferred stock, the conversion price shall mean a price per share of Common Stock equal to the lowest of the following, as applicable at the time of conversion: (a) the price per share of Common Stock resulting from dividing (x) $25,000,000 by (y) the Fully Diluted Capitalization immediately prior to such conversion; (b) the Mandatory Debentures Conversion Price; and (c) a 25% discount to the five-day VWAP of the Common Stock prior to the date that is 366 days after the closing of a Qualified Offering or Qualified Event, subject to a floor price of $0.25 per share.
Fundamental Transaction
Each holder of outstanding shares of Preferred Stock shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Corporation. if it is the surviving corporation. and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which such shares of Preferred Stock are convertible immediately prior to such Fundamental Transaction.
| F-28 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
NOTE 15 – RESTATEMENT OF FINANCIALS
Restatement of Financials
The Company has restated its consolidated financial statements for certain errors. In addition, a 10 for 1 forward stock split was retrospectively applied to the restated consolidated financial statements. This retrospective application is not considered a restatement. Below is a reconciliation from the previously reported consolidated financial statements to the restated amounts in the accompanying consolidated financial statements.
The previously reported amounts were included in a Form 8-K filed on November 21, 2024 of Eastside Distilling, Inc., who acquired the Company on October 7, 2024.
Schedule of Error Corrections and Prior Period Adjustments
BEELINE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| As previously reported | Restatement adjustment | As restated | ||||||||||
| As of December 31, 2023 | ||||||||||||
| As previously reported | Restatement adjustment | As restated | ||||||||||
| Assets | ||||||||||||
| Current Assets | ||||||||||||
| Cash and cash equivalents | $ | 190,357 | $ | (187,006 | ) | $ | 3,351 | |||||
| Restricted cash | - | 187,006 | 187,006 | |||||||||
| Accounts Receivable, net | 57,970 | (57,970 | ) | - | ||||||||
| Mortgage loans held for sale, at fair value | 2,243,043 | 57,969 | 2,301,012 | |||||||||
| Interest rate lock derivative | - | 57,505 | 57,505 | |||||||||
| Prepaid expenses and other current assets | 82,137 | - | 82,137 | |||||||||
| Total Current Assets | 2,573,507 | 57,504 | 2,631,011 | |||||||||
| Property and equipment, net | 308,693 | - | 308,693 | |||||||||
| Software development costs, net | 4,863,090 | - | 4,863,090 | |||||||||
| Right of use assets | 1,643,432 | - | 1,643,432 | |||||||||
| Security deposit | 58,181 | - | 58,181 | |||||||||
| Total Assets | $ | 9,446,903 | $ | 57,504 | $ | 9,504,407 | ||||||
| Liabilities & Stockholders’ Deficit | ||||||||||||
| Current Liabilities | ||||||||||||
| Accounts payable | $ | 1,384,275 | $ | (35,162 | ) | $ | 1,349,112 | |||||
| Warehouse lines of credit | 2,158,099 | (980 | ) | 2,157,119 | ||||||||
| Lease liability, current portion | 323,959 | - | 323,959 | |||||||||
| Overdraft liability | - | 35,162 | 35,162 | |||||||||
| Loan payable | 91,999 | - | 91,999 | |||||||||
| Loan payable, related party | 973,173 | 77,006 | 1,050,179 | |||||||||
| Loan payable | 91,999 | - | 91,999 | |||||||||
| BDCRI loan, current portion | - | 104,346 | 104,346 | |||||||||
| Accrued payroll | 300,132 | - | 300,132 | |||||||||
| Escrows held for others | 4,906 | - | 4,906 | |||||||||
| Accrued expenses and other current liabilities | 9,404 | 19,925 | 29,329 | |||||||||
| Total Current Liabilities | 5,245,946 | 200,297 | 5,446,243 | |||||||||
| Long Term Liabilities | ||||||||||||
| Convertible notes | 9,469,018 | (579,757 | ) | 8,889,261 | ||||||||
| Convertible notes - related party | 9,440,428 | (453,935 | ) | 8,986,493 | ||||||||
| Accrued interest on convertible notes | - | 965,378 | 965,378 | |||||||||
| BDCRI Loan, net | 291,846 | (104,346 | ) | 187,500 | ||||||||
| Lease liability, net of current portion | 1,526,825 | - | 1,526,825 | |||||||||
| Total Long Term Liabilities | 20,728,117 | (172,660 | ) | 20,555,457 | ||||||||
| Total Liabilities | 25,974,063 | 27,636 | 26,001,700 | |||||||||
| Stockholders’ Deficit | ||||||||||||
| Preferred stock, $0.00001 par value, 3,282,896 shares authorized | ||||||||||||
| Series A preferred stock, 172,260 shares designated, and 247,960 and 472,910 shares issued and outstanding, respectively | 248 | (246 | ) | 2 | ||||||||
| Common stock, $0.00001 par value, 27,717,104 shares authorized, 1,644,040 shares issued and outstanding | 1,644 | (1,628 | ) | 16 | ||||||||
| Common stock, value | 1,644 | (1,628 | ) | 16 | ||||||||
| Additional paid in capital | 21,772,516 | 501,874 | 22,274,390 | |||||||||
| Accumulated other comprehensive loss | (95,728 | ) | - | (95,728 | ) | |||||||
| Accumulated deficit | (38,205,841 | ) | (163,359 | ) | (38,369,200 | ) | ||||||
| Total Beeline Financial Holdings, Inc. stockholders’ deficit | (16,527,161 | ) | 336,641 | (16,190,520 | ) | |||||||
| Non-controlling interest | - | (306,773 | ) | (306,773 | ) | |||||||
| Total Stockholders’ Deficit | (16,527,161 | ) | 29,868 | (16,497,293 | ) | |||||||
| Total Liabilities & Stockholders’ Deficit | $ | 9,446,903 | $ | 57,504 | $ | 9,504,407 | ||||||
| F-29 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
| As previously reported | Restatement adjustment | As restated | ||||||||||
| As of December 31, 2022 | ||||||||||||
| As previously reported | Restatement adjustment | As restated | ||||||||||
| Assets | ||||||||||||
| Current Assets | ||||||||||||
| Cash and cash equivalents | $ | 133,223 | $ | (100,510 | ) | $ | 32,713 | |||||
| Restricted cash | - | 100,510 | 100,510 | |||||||||
| Accounts Receivable, net | 29,595 | (29,595 | ) | - | ||||||||
| Mortgage loans held for sale, at fair value | 2,993,374 | 29,595 | 3,022,969 | |||||||||
| Interest rate lock derivative | - | 30,757 | 30,757 | |||||||||
| Prepaid expenses and other current assets | 92,843 | - | 92,843 | |||||||||
| Total Current Assets | 3,249,035 | 30,757 | 3,279,792 | |||||||||
| Property and equipment, net | 460,069 | - | 460,069 | |||||||||
| Software development costs, net | 5,452,197 | - | 5,452,197 | |||||||||
| Right of use assets | 1,947,804 | - | 1,947,804 | |||||||||
| Security deposit | 58,430 | 1 | 58,431 | |||||||||
| Total Assets | $ | 11,167,536 | $ | 30,758 | $ | 11,198,293 | ||||||
| Liabilities & Stockholders’ Deficit | ||||||||||||
| Current Liabilities | ||||||||||||
| Accounts payable | $ | 1,236,957 | $ | 1,412 | $ | 1,238,369 | ||||||
| Warehouse lines of credit | 3,060,923 | - | 3,060,923 | |||||||||
| Lease liability, current portion | 309,167 | - | 309,167 | |||||||||
| Loan payable | 100,000 | - | 100,000 | |||||||||
| Promissory note | 112,500 | - | 112,500 | |||||||||
| BDC loan, current portion | - | 109,005 | 109,005 | |||||||||
| Accrued payroll | 412,391 | - | 412,391 | |||||||||
| Escrows held for others | 22,195 | - | 22,195 | |||||||||
| Accrued expenses and other current liabilities | 5,767 | 48,386 | 54,153 | |||||||||
| Total Current Liabilities | 5,259,901 | 158,803 | 5,418,704 | |||||||||
| Long Term Liabilities | ||||||||||||
| Convertible notes | 852,643 | (107,405 | ) | 745,238 | ||||||||
| Convertible notes - related party | 2,985,148 | 615,852 | 3,601,000 | |||||||||
| Accrued interest on convertible notes | - | 77,883 | 77,883 | |||||||||
| BDC Loan, net | 363,351 | (109,005 | ) | 254,346 | ||||||||
| Lease liability, net of current portion | 1,850,784 | - | 1,850,784 | |||||||||
| Total Long Term Liabilities | 6,051,927 | 477,325 | 6,529,251 | |||||||||
| Total Liabilities | 11,311,828 | 636,128 | 11,947,955 | |||||||||
| Stockholders’ Deficit | ||||||||||||
| Preferred stock, $0.00001 par value | ||||||||||||
| Series A preferred stock | 269 | (264 | ) | 5 | ||||||||
| Common stock, $0.00001 par value | 1,644 | - | 16 | |||||||||
| Additional paid in capital | 27,866,976 | (760,572 | ) | 27,106,404 | ||||||||
| Accumulated other comprehensive loss | (79,836 | ) | - | (79,836 | ) | |||||||
| Accumulated deficit | (27,933,345 | ) | 304,628 | (27,628,717 | ) | |||||||
| Total Beeline Financial Holdings, Inc. stockholders’ deficit | (144,292 | ) | (457,836 | ) | (602,128 | ) | ||||||
| Non-controlling interest | - | (147,534 | ) | (147,534 | ) | |||||||
| Total Stockholders’ Deficit | (144,292 | ) | (605,370 | ) | (749,662 | ) | ||||||
| Total Liabilities & Stockholders’ Deficit | $ | 11,167,536 | $ | 30,758 | $ | 11,198,293 | ||||||
| F-30 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
BEELINE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/LOSS
| Revenues | As previously reported | Restatement adjustment | As restated | |||||||||
| For the Year Ended December 31, 2023 | ||||||||||||
| Revenues | As previously reported | Restatement adjustment | As restated | |||||||||
| Gain on sale of loans, net | $ | 2,948,791 | $ | 25,745 | $ | 2,974,536 | ||||||
| Interest income | (47,588 | ) | 179,885 | 132,297 | ||||||||
| Interest expense | - | (179,886 | ) | (179,886 | ) | |||||||
| Loan origination fees | 304,388 | 100 | 304,488 | |||||||||
| Title fees | 558,759 | 1,003 | 559,762 | |||||||||
| Data and tech services | 2,748 | - | 2,748 | |||||||||
| REVENUES, NET | 3,767,097 | 26,848 | 3,793,946 | |||||||||
| Operating Expenses | ||||||||||||
| Selling, general and administrative | 496,393 | (203,498 | ) | 292,895 | ||||||||
| Salaries and benefits | 6,422,175 | (3,186 | ) | 6,418,989 | ||||||||
| Payroll taxes | 31,468 | 384,341 | 415,809 | |||||||||
| Professional fees | 920,656 | - | 920,656 | |||||||||
| Marketing and advertising | 1,883,622 | 7,506 | 1,891,128 | |||||||||
| Loan originating expenses | 675,053 | 130,943 | 805,996 | |||||||||
| Depreciation and amortization | 1,591,511 | - | 1,591,511 | |||||||||
| Rent and utilities | 369,785 | - | 369,785 | |||||||||
| Computer and software | 668,733 | (130,844 | ) | 537,889 | ||||||||
| Title operation expense | 199,202 | - | 199,202 | |||||||||
| Travel and entertainment | 71,976 | - | 71,976 | |||||||||
| Insurance expense | 212,546 | - | 212,546 | |||||||||
| Other expenses | 215,240 | (215,240 | ) | - | ||||||||
| Total Operating Expenses | 13,758,360 | (29,978 | ) | 13,728,382 | ||||||||
| Operating Loss | (9,991,263 | ) | 56,826 | (9,934,436 | ) | |||||||
| Other (Income)/Expenses | ||||||||||||
| Other (income)/expense | (295,946 | ) | (607 | ) | (296,553 | ) | ||||||
| Interest expense | 569,069 | 684,659 | 1,253,728 | |||||||||
| Other taxes | 8,110 | - | 8,110 | |||||||||
| Total Other Income/Expenses | 281,233 | 684,052 | 965,285 | |||||||||
| NET LOSS | $ | (10,272,496 | ) | $ | (627,227 | ) | $ | (10,899,722 | ) | |||
| Net loss of subsidiary attributable to noncontrolling interest | - | (159,239 | ) | (159,239 | ) | |||||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | (10,272,496 | ) | (467,988 | ) | (10,740,483 | ) | ||||||
| Unrealized foreign currency translation gain (loss) | - | (15,892 | ) |
(15,892 | ) | |||||||
| TOTAL OTHER COMPREHENSIVE INCOME (LOSS) | - | (15,892 | ) | (15,892 | ) | |||||||
| TOTAL COMPREHENSIVE LOSS | $ | (10,272,496 | ) | $ | (483,880 | ) | $ | (10,756,375 | ) | |||
| As previously reported | Restatement adjustment | As restated | ||||||||||
| For the Year Ended December 31, 2022 | ||||||||||||
| As previously reported | Restatement adjustment | As restated | ||||||||||
| Revenues | ||||||||||||
| Gain on sale of loans, net | $ | 1,854,910 | $ | (19,132 | ) | $ | 1,835,778 | |||||
| Interest income | (23,946 | ) | 249,794 | 225,848 | ||||||||
| Interest expense | - | (249,794 | ) | (249,794 | ) | |||||||
| Loan origination fees | 413,209 | - | 413,209 | |||||||||
| Title fees | 672,813 | 49,890 | 722,703 | |||||||||
| REVENUES, NET | 2,916,987 | 30,758 | 2,947,744 | |||||||||
| Operating Expenses | ||||||||||||
| Selling, general and administrative | - | 267,563 | 267,563 | |||||||||
| Salaries and benefits | 5,812,860 | 240,014 | 6,052,874 | |||||||||
| Payroll taxes | 405,065 | - | 405,065 | |||||||||
| Professional fees | 920,578 | - | 920,578 | |||||||||
| Marketing and advertising | 1,776,042 | 12,416 | 1,788,458 | |||||||||
| Loan originating expenses | 1,047,241 | (129,275 | ) | 917,966 | ||||||||
| Depreciation and amortization | 1,161,094 | - | 1,161,094 | |||||||||
| Rent and utilities | 620,779 | - | 620,779 | |||||||||
| Computer and software | 922,527 | (79,729 | ) | 842,798 | ||||||||
| Title operation expense | 140,951 | - | 140,951 | |||||||||
| Travel and entertainment | 71,655 | (1 | ) | 71,654 | ||||||||
| Insurance expense | 202,649 | - | 202,649 | |||||||||
| Other expenses | 260,991 | (260,991 | ) | - | ||||||||
| Total Operating Expenses | 13,342,430 | 49,997 | 13,392,429 | |||||||||
| Operating Loss | (10,425,443 | ) | (19,239 | ) | (10,444,685 | ) | ||||||
| Other (Income)/Expenses | ||||||||||||
| Interest expense | 283,187 | (176,338 | ) | 106,849 | ||||||||
| Other taxes | 701 | 1 | 702 | |||||||||
| Total Other Income/Expenses | 283,888 | (176,337 | ) | 107,551 | ||||||||
| NET LOSS | $ | (10,709,332 | ) | $ | 157,098 | $ | (10,552,236 | ) | ||||
| Net loss of subsidiary attributable to noncontrolling interest | - | (147,534 | ) | (147,534 | ) | |||||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | (10,709,332 | ) | 304,632 | (10,404,702 | ) | |||||||
| Unrealized foreign currency translation gain (loss) | - | (70,298 | ) |
(70,298 | ) | |||||||
| TOTAL OTHER COMPREHENSIVE INCOME (LOSS) | - | (70,298 | ) | (70,298 | ) | |||||||
| TOTAL COMPREHENSIVE LOSS | $ | (10,709,332 | ) | $ | 234,334 | $ | (10,475,000 | ) | ||||
| F-31 |
Beeline Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
BEELINE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| As previously reported | Restatement adjustment | As restated | ||||||||||
| For the Year Ended December 31, 2023 | ||||||||||||
| As previously reported | Restatement adjustment | As restated | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net Loss | $ | (10,272,496 | ) | $ | (627,227 | ) | $ | (10,899,722 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Depreciation and amortization | 1,591,511 | - | 1,591,511 | |||||||||
| Allowance for change in fair market value | 24,552 | (24,552 | ) | - | ||||||||
| Gain on sale mortgage loans held for sale, net of direct costs | - | (2,974,536 | ) | (2,974,536 | ) | |||||||
| Stock-based compensation | 374,746 | - | 374,746 | |||||||||
| Noncash lease expense | - | (4,795 | ) | (4,795 | ) | |||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Proceeds from principal payments and sales of loans held for sale | - | 59,831,839 | 59,831,839 | |||||||||
| Originations and purchases of mortgage loans held for sale | - | (56,135,346 | ) | (56,135,346 | ) | |||||||
| Derivative asset | - | (26,748 | ) | (26,748 | ) | |||||||
| Accounts receivable | (28,375 | ) | 28,375 | - | ||||||||
| Loans held for sale | 725,779 | (725,779 | ) | - | ||||||||
| Prepaid expenses and other current assets | 10,706 | - | 10,706 | |||||||||
| Deposits | 250 | - | 250 | |||||||||
| Accounts payable | 147,317 | 809,593 | 956,910 | |||||||||
| Accrued payroll | (112,259 | ) | 112,259 | - | ||||||||
| Right of use asset | 304,371 | (304,371 | ) | - | ||||||||
| Escrows held | (17,289 | ) | 17,289 | - | ||||||||
| Warehouse lines of credit, net | (902,824 | ) | 902,824 | - | ||||||||
| Lease liability | (309,170 | ) | 309,170 | - | ||||||||
| Promissory note | (112,500 | ) | 112,500 | - | ||||||||
| Accrued expenses and other liabilities | 3,640 | (3,640 | ) | - | ||||||||
| Net Cash Used in Operating Activities | $ | (8,572,041 | ) | $ | 1,296,857 | $ | (7,275,185 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Purchases of software and property and equipment | $ | (851,028 | ) | $ | - | $ | (851,028 | ) | ||||
| Net Cash Used in Investing Activities | $ | (851,028 | ) | $ | - | $ | (851,028 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Payments from BDCRI loan | $ | (71,505 | ) | $ | 71,505 | $ | - | |||||
| Net borrowings under warehouse line of credit | - | (903,804 | ) | (903,804 | ) | |||||||
| Repayments under notes and convertible notes payable | - | (222,500 | ) | (222,500 | ) | |||||||
| Proceeds from convertible notes issued | 3,940,403 | 1,189,069 | 5,129,472 | |||||||||
| Proceeds from convertible notes issued - related party | 4,662,026 | (465,955 | ) | 4,196,071 | ||||||||
| Proceeds from demand notes | 153,454 | (153,454 | ) | - | ||||||||
| Proceeds from demand notes - related party | 811,718 | (811,718 | ) | - | ||||||||
| Net Cash Provided by Financing Activities | $ | 9,496,096 | $ | (1,296,857 | ) | $ | 8,199,239 | |||||
| Effect of exchange rate changes on cash | $ | (15,892 | ) | $ | - | $ | (15,892 | ) | ||||
| Net increase (decrease) in cash | 57,134 | - | 57,134 | |||||||||
| Cash and cash equivalents - beginning of year | 133,223 | - | 133,223 | |||||||||
| Cash and cash equivalents - end of year | $ | 190,357 | $ | - | $ | 190,357 | ||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | As previously reported | Restatement adjustment | As restated | |||||||||
| For the Year Ended December 31, 2022 | ||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | As previously reported | Restatement adjustment | As restated | |||||||||
| Net Loss | $ | (10,709,332 | ) | $ | 157,098 | $ | (10,552,236 | ) | ||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||
| Allowance for gain/loss on loans held for sale | 111,216 | 111,216 | - | |||||||||
| Depreciation and amortization | 1,161,094 | - | 1,161,094 | |||||||||
| Gain on sale mortgage loans held for sale, net of direct costs | - | (1,835,778 | ) | (1,835,778 | ) | |||||||
| Stock-based compensation | 364,191 | - | 364,191 | |||||||||
| Noncash lease expense | - | (276,113 | ) | (276,113 | ) | |||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Proceeds from principal payments and sales of loans held for sale | - | 132,474,641 | 132,474,641 | |||||||||
| Originations and purchases of mortgage loans held for sale | - | (122,263,204 | ) | (122,263,204 | ) | |||||||
| Accounts receivable | 200,452 | 79,833 | 280,285 | |||||||||
| Derivative asset | - | (30,757 | ) | (30,757 | ) | |||||||
| Loans held for sale | 8,294,039 | (8,294,039 | ) | - | ||||||||
| Prepaid expenses and other current assets | 266,443 | (57,335 | ) | 209,108 | ||||||||
| Deposits | 254,276 | 1,132 | 255,408 | |||||||||
| Accounts payable | 330,123 | (52,727 | ) | (277,396 | ) | |||||||
| Promissory note issued for lease cancellation | - | 225,000 | 225,000 | |||||||||
| Accrued payroll | (96,159 | ) | 96,159 | - | ||||||||
| Right of use asset | (1,947,804 | ) | 1,947,804 | - | ||||||||
| Escrows held | (30,524 | ) | 30,524 | - | ||||||||
| Warehouse lines of credit, net | (8,237,999 | ) | 8,237,999 | - | ||||||||
| Deferred rent | (641,627 | ) | 641,627 | - | ||||||||
| Lease liability | 2,159,951 | (2,159,951 | ) | - | ||||||||
| Other changes | 145,691 | (145,691 | ) | - | ||||||||
| Accrued expenses and other liabilities | (60,908 | ) | 60,908 | - | ||||||||
| Net Cash Provided by (Used in) Operating Activities | $ | (8,436,877 | ) | $ | 8,948,344 | $ | 289,035 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Purchase of property and equipment | (26 | ) | 26 | - | ||||||||
| Purchases of software and property and equipment | (1,914,772 | ) | (1 | ) | (1,914,773 | ) | ||||||
| Net Cash Used in Investing Activities | $ | (1,914,798 | ) | $ | 25 | $ | (1,914,773 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Payments from BDCRI loan | (71,575 | ) | 71,575 | - | ||||||||
| Net borrowings under warehouse line of credit | - | (8,237,999 | ) | (8,237,999 | ) | |||||||
| Net borrowings under operating lines of credit | - | (1,025 | ) | (1,025 | ) | |||||||
| Repayments under notes and convertible notes payable | - | (225,000 | ) | (225,000 | ) | |||||||
| Proceeds from promissory note | 225,000 | (225,000 | ) | - | ||||||||
| Repayment of promissory note | (112,500 | ) | 112,500 | - | ||||||||
| Series A warrants exercised | 4,711,476 | (4,711,476 | ) | - | ||||||||
| Proceeds from convertible notes issued | 852,642 | (120,030 | ) | 732,612 | ||||||||
| Proceeds from convertible notes issued - related party | 2,985,148 | 615,852 | 3,601,000 | |||||||||
| Proceeds from the issuance of preferred stock upon warrant exercises | - | 4,711,476 | 4,711,476 | |||||||||
| Amortization of debt discount | 254,223 | (254,223 | ) | - | ||||||||
| 2022 warrants issued | 169,442 | (169,442 | ) | - | ||||||||
| 2022 warrants issued - related party | 593,226 | (593,226 | ) | - | ||||||||
| Repayments of demand notes - related party | (700,000 | ) | - | (700,000 | ) | |||||||
| Proceeds from corporation note | 100,000 | (100,000 | ) | - | ||||||||
| Net Cash Provided by (Used in) Financing Activities | $ | 9,007,082 | $ | (9,126,018 | ) | $ | (118,936 | ) | ||||
| Effect of exchange rate changes on cash | $ | 70,298 | $ | (140,596 | ) | (70,298 | ) | |||||
| Net decrease in cash | (1,274,295 | ) | (540,675 | ) | (1,814,972 | ) | ||||||
| Cash and cash equivalents - beginning of year | 1,407,520 | 540,675 | $ | 1,948,195 | ||||||||
| Cash and cash equivalents - end of year | $ | 133,223 | $ | - | $ | 133,223 | ||||||
| F-32 |
Exhibit 99.2
BEELINE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2024 and 2023
(Unaudited)
BEELINE FINANCIAL HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
| F-1 |
BEELINE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 102,672 | $ | 3,351 | ||||
| Restricted cash | 91,041 | 187,006 | ||||||
| Mortgage loans held for sale, at fair value | 6,271,551 | 2,301,012 | ||||||
| Interest rate lock derivative | 62,796 | 57,505 | ||||||
| Prepaid expenses and other current assets | 247,441 | 82,137 | ||||||
| Total Current Assets | 6,775,501 | 2,631,011 | ||||||
| Property and equipment, net | 195,161 | 308,693 | ||||||
| Software development costs, net | 4,030,624 | 4,863,090 | ||||||
| Right of use assets | 1,412,131 | 1,643,432 | ||||||
| Equity method investment | 96,500 | - | ||||||
| Security deposit | 58,492 | 58,181 | ||||||
| Total Assets | $ | 12,568,409 | $ | 9,504,407 | ||||
| Liabilities & Stockholders’ Deficit | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 1,672,225 | $ | 1,349,112 | ||||
| Debt, convertible notes, net of debt discount | 2,265,438 | - | ||||||
| Warehouse lines of credit | 5,996,846 | 2,157,119 | ||||||
| Lease liability, current portion | 335,416 | 323,959 | ||||||
| Overdraft liability | - | 35,162 | ||||||
| Loan payable | - | 91,999 | ||||||
| Loan payable, related party | 908,432 | 1,050,179 | ||||||
| Loan payable | 908,432 | 1,050,179 | ||||||
| BDC loan, current portion | 109,005 | 104,346 | ||||||
| Accrued payroll | 712,381 | 300,132 | ||||||
| Escrows held for others | 42,885 | 4,906 | ||||||
| Accrued expenses and other current liabilities | 110,907 | 29,329 | ||||||
| Total Current Liabilities | 12,153,535 | 5,446,243 | ||||||
| Long Term Liabilities: | ||||||||
| Debt, convertible notes | - | 8,889,261 | ||||||
| Debt, convertible notes - related party | - | 8,986,493 | ||||||
| Accrued interest on convertible notes | - | 965,378 | ||||||
| BDC Loan | 185,462 | 187,500 | ||||||
| Loan | 185,462 | 187,500 | ||||||
| Lease liability, net of current portion | 1,273,314 | 1,526,825 | ||||||
| Total Long Term Liabilities | 1,458,776 | 20,555,457 | ||||||
| Total Liabilities | 13,612,311 | 26,001,700 | ||||||
| COMMITMENTS AND CONTINGENCIES (See Note 12) | - | |||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $0.00001 par value, 3,282,896 shares authorized: | ||||||||
| Series A preferred stock, 172,260 shares designated, and 172,260 and 247,960 shares issued and outstanding at September 30 2024 and December 31, 2023, respectively | 2 | 2 | ||||||
| Series B preferred stock, 3,110,636 shares designated, and 2,386,653 and 0 shares issued and outstanding at September 30 2024 and December 31, 2023, respectively | 24 | - | ||||||
| Preferred stock, value | 24 | - | ||||||
| Common stock, $0.00001 par value, 27,717,104 shares authorized, 10,255,302 and 1,644,040 shares issued and outstanding as of September 30, 2024 and December 31, respectively | 102 | 16 | ||||||
| Common stock, value | 102 | 16 | ||||||
| Additional paid in capital | 36,681,230 | 22,274,390 | ||||||
| Accumulated other comprehensive loss | (88,095 | ) | (95,728 | ) | ||||
| Accumulated deficit | (37,252,280 | ) | (38,369,200 | ) | ||||
| Total Beeline Financial Holdings, Inc. stockholders’ deficit | ||||||||
| Stockholders’ deficit | ||||||||
| Non-controlling interest | (384,885 | ) | (306,773 | ) | ||||
| Total Stockholders’ Deficit | (1,043,902 | ) | (16,497,293 | ) | ||||
| Total Liabilities & Stockholders’ Deficit | $ | 12,568,409 | $ | 9,504,407 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-2 |
BEELINE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenues | ||||||||
| Gain on sale of loans, net | $ | 2,394,250 | $ | 2,215,221 | ||||
| Interest Income, net | (45,058 | ) | (39,344 | ) | ||||
| Loan origination fees | 503,306 | 248,573 | ||||||
| Title fees | 756,411 | 396,086 | ||||||
| Data and tech services | 28,298 | 91,990 | ||||||
| REVENUES, NET | 3,637,207 | 2,912,526 | ||||||
| Operating Expenses | ||||||||
| Salaries and benefits | 4,885,059 | 4,380,769 | ||||||
| Payroll taxes | 365,294 | 302,702 | ||||||
| Professional fees | 1,641,025 | 955,121 | ||||||
| Marketing and advertising | 1,618,472 | 1,356,123 | ||||||
| Loan originating expenses | 1,076,853 | 644,592 | ||||||
| Depreciation and amortization | 1,325,505 | 1,187,641 | ||||||
| Rent and utilities | 312,391 | 386,523 | ||||||
| Computer and software | 435,105 | 474,460 | ||||||
| Title operation expense | 234,971 | 156,732 | ||||||
| Travel and entertainment | 38,196 | 58,800 | ||||||
| Insurance expense | 132,193 | 158,094 | ||||||
| Other expenses | 147,480 | 172,327 | ||||||
| Total Operating Expenses | 12,212,544 | 10,233,884 | ||||||
| Operating Loss | (8,575,337 | ) | (7,321,358 | ) | ||||
| Other Income/Expenses | ||||||||
| Other income | 350 | 245,369 | ||||||
| Interest expense | (1,430,412 | ) | (198,846 | ) | ||||
| Legal settlement | (300,000 | ) | - | |||||
| Gain on extinguishment of debt | 11,344,207 | - | ||||||
| Total Other Income | 9,614,145 | 46,523 | ||||||
| NET INCOME (LOSS) | $ | 1,038,808 | $ | (7,274,835 | ) | |||
| Net loss of subsidiary attributable to noncontrolling interest | 78,112 | 120,875 | ||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | 1,116,920 | (7,153,960 | ) | |||||
| OTHER COMPREHENSIVE INCOME | ||||||||
| Unrealized foreign currency translation gain | 7,663 | 3,608 | ||||||
| TOTAL OTHER COMPREHENSIVE INCOME | 7,663 | 3,608 | ||||||
| TOTAL COMPREHENSIVE INCOME (LOSS) | $ | 1,202,695 | $ | (7,029,477 | ) | |||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-3 |
BEELINE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Loss | Deficit | ||||||||||||||||||||||||||||||||||
Series A Preferred Stock | Series B Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Non-Controlling | Accumulated Other Comprehensive | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Loss | Deficit | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | 247,960 | $ | 2 | - | $ | - | 1,644,040 | $ | 16 | $ | 22,274,390 | $ | (38,369,200 | ) | $ | (306,773 | ) | $ | (95,728 | ) | $ | (16,497,293 | ) | |||||||||||||||||||||
| Sale of common stock for cash | - | - | - | - | 1,278,055 | 13 | 1,917,128 | - | - | - | 1,917,141 | |||||||||||||||||||||||||||||||||
| Preferred stock exchanged for convertible notes | (75,700 | ) | - | - | - | - | - | (1,750,079 | ) | - | - | - | (1,750,079 | ) | ||||||||||||||||||||||||||||||
| Shares issued for conversion of debt | - | - | 1,646,157 | 17 | 7,333,207 | 73 | 13,468,955 | - | - | - | 13,469,045 | |||||||||||||||||||||||||||||||||
| Series B preferred stock issued in connection with convertible debt | - | - | 740,496 | 7 | - | - | 770,836 | - | - | - | 770,843 | |||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | 7,633 | 7,633 | |||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | 1,116,920 | (78,112 | ) | - | 1,038,808 | ||||||||||||||||||||||||||||||||
| Balance, September 30, 2024 | 172,260 | $ | 2 | 2,386,653 | $ | 24 | 10,255,302 | $ | 102 | $ | 36,681,230 | $ | (37,252,280 | ) | $ | (3384,885 | ) | $ | (88,095 | ) | $ | (1,043,902 | ) | |||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Loss | Deficit | ||||||||||||||||||||||||||||||||||
Series A Preferred Stock | Series B Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Non-Controlling | Accumulated Other Comprehensive | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Loss | Deficit | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 472,190 | $ | 5 | - | $ | - | 164,440 | $ | 16 | $ | 27,106,404 | $ | (27,628,717 | ) | $ | (147,534 | ) | $ | (79,836 | ) | $ | (749,662 | ) | |||||||||||||||||||||
| Balance | 472,190 | $ | 5 | - | $ | - | 164,440 | $ | 16 | $ | 27,106,404 | $ | (27,628,717 | ) | $ | (147,534 | ) | $ | (79,836 | ) | $ | (749,662 | ) | |||||||||||||||||||||
| Preferred stock exchanged for convertible notes | (203,320 | ) | (2 | ) | - | - | - | - | (4,706,536 | ) | - | - | - | (4,706,538 | ) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | 281,060 | - | - | - | 281,060 | |||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | 3,608 | 3,608 | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (7,153,960 | ) | (120,875 | ) | - | (7,274,835 | ) | ||||||||||||||||||||||||||||||
| Net Income (loss) | - | - | - | - | - | - | - | (7,153,960 | ) | (120,875 | ) | - | (7,274,835 | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | 268,870 | $ | 3 | - | $ | - | 164,440 | $ | 16 | $ | 22,680,928 | $ | (34,782,677 | ) | $ | (268,409 | ) | $ | (76,228 | ) | $ | (12,446,367 | ) | |||||||||||||||||||||
| Balance | 268,870 | $ | 3 | - | $ | - | 164,440 | $ | 16 | $ | 22,680,928 | $ | (34,782,677 | ) | $ | (268,409 | ) | $ | (76,228 | ) | $ | (12,446,367 | ) | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-4 |
BEELINE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| 2024 | 2023 | |||||||
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income (Loss) | $ | 1,038,808 | $ | (7,274,835 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 1,325,505 | 1,187,641 | ||||||
| Gain on sale mortgage loans held for sale, net of direct costs | (705,967 | ) | (373,162 | ) | ||||
| Amortization of debt discount to interest expense | 519,902 | 2,621 | ||||||
| Stock-based compensation | - | 281,060 | ||||||
| Non-cash gain on extinguishment of debt | (11,344,207 | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Proceeds from principal payments and sales of loans held for sale | 70,737,835 | 75,299,655 | ||||||
| Originations and purchases of mortgage loans held for sale | (74,002,407 | ) | (74,002,407 | ) | ||||
| Accounts receivable | - | - | ||||||
| Derivative assets | (5,291 | ) | - | |||||
| Prepaid expenses and other current assets | (15,304 | ) | (413,545 | ) | ||||
| Deposits | (311 | ) | 1,184 | |||||
| Accounts payable and accrued expenses | 819,757 | 206,525 | ||||||
| Promissory note issued for lease cancellation | - | - | ||||||
| Accrued interest payable | 629,917 | (77,883 | ) | |||||
| Lease liability | (10,753 | ) | (3,030 | ) | ||||
| Net Cash Used in Operating Activities | (11,012,516 | ) | (5,166,176 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Investmnet in equity method investee | (96,500 | ) | - | |||||
| Purchases of software and property and equipment | (379,507 | ) | (665,806 | ) | ||||
| Net Cash Used in Investing Activities | (476,007 | ) | (665,806 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net borrowings (repayments) under warehouse line of credit | 3,839,727 | (1,038,794 | ) | |||||
| Repayments under notes and convertible notes payable | (91,999 | ) | (104,745 | ) | ||||
| Net borrowings under operating lines of credit | - | - | ||||||
| Borrowings under notes and convertible notes payable | 5,961,124 | 7,025,665 | ||||||
| Borrowings under notes and convertible notes payable, related party | (141,747 | ) | - | |||||
| Proceeds from the sale of common stock | 1,917,141 | - | ||||||
| Net Cash Provided by Financing Activities | 11,484,246 | 5,882,126 | ||||||
| Effect of exchange rate changes on cash | 7,633 | 3,608 | ||||||
| Net increase in cash | 3,356 | 53,752 | ||||||
| Cash and cash equvalents - beginning of period | 190,357 | 133,223 | ||||||
| Cash and cash equivalents - end of period | $ | 193,713 | $ | 186,975 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the year: | ||||||||
| Interest | $ | - | $ | - | ||||
| Income Tax | $ | - | $ | - | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Preferred stock exchanged for convertible notes | $ | 1,750,079 | $ | 4,706,538 | ||||
| Convertible notes and accrued interest exchanged for common stock and Series B preferred stock | $ | 13,469,045 | $ | - | ||||
| Issuincxe of Series B reflects as debt discount | $ | 770,843 | $ | - | ||||
| Convertible note issued for future services | $ | 150,000 | $ | - | ||||
| Convertible note issued for accrued interest | $ | 10,000 | $ | - | ||||
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheet that sum to the same such amounts shown in the consolidated statement of cash flows:
| 2024 | 2023 | |||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash and cash equivalents | $ | 102,672 | $ | - | ||||
| Restricted cash | 91,041 | 186,975 | ||||||
| Total cash and cash equivalents and restricted cash | $ | 193,713 | $ | 186,975 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-5 |
BEELINE FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2024
(Unaudited)
NOTE 1 - NATURE OF BUSINESS
Description of Business
Beeline Financial Holdings, Inc. (the “Company,” and together with its consolidated subsidiaries, “Beeline,” “we”, “us”, “our”) was incorporated in Delaware on July 1, 2020, via a merger with Beeline Financial Holdings, Inc, a Rhode Island corporation founded on September 20, 2018. Beeline is a full service Direct-to-Consumer lender specializing in conventional conforming and non-conforming residential first-lien mortgages.
The consolidated financial statements include the consolidated accounts of Beeline Financial Holdings, Inc. and its wholly-owned subsidiaries, Beeline Title Holdings, Inc. (“Beeline Title Holdings”), and Beeline Loans Pty Ltd. (“Australian Subsidiary”). Beeline Title Holdings has five subsidiaries, Beeline Title, LLC (“Beeline Title”), Beeline Texas Title, LLC (“Beeline Texas Title”), Beeline Settlement Services, LLC (“Beeline Settlement Services”), and Beeline Title Agency, LLC (“Beeline Title Agency”). Beeline Mortgage Holdings has one subsidiary, Beeline Loans, Inc. (“Beeline Loans”). Beeline also has a joint venture called Nimble Title Holdings, LLC FKA Cambridge Title Holdings, LLC (“Nimble Title Holdings”), which is 50.1% owned by Beeline and 49.9% owned by Ellington Financial. Nimble Title Holdings has four subsidiaries, Nimble Title, LLC (“Nimble Title”), Nimble Title Agency, LLC (“Nimble Title Agency”), Nimble Texas Title, LLC (“Nimble Texas Title”), and Nimble Settlement Services, LLC (“Nimble Settlement Services”).
Beeline is an Artificial Intelligence (AI)-driven fintech mortgage lender that launched its lending platform in May 2020. Beeline continues to develop proprietary software in the form of major enhancements and new developments in its lending platform, introducing its Chat Application Programming Interface (API) “Bob” in July 2023. Beeline continues to hire key personnel to be able to scale into the future. As noted above, Beeline also has subsidiaries who perform title services.
Beeline is subject to a number of risks common to emerging companies stemming from, among other things, a limited operating history, rapid technological change, uncertainty of market acceptance and products, uncertainty of regulatory approval, competition from substitute products and larger companies, the need to obtain additional financing, compliance with government regulation, protection of proprietary technology, interest rate fluctuations, product liability, and the dependence on key individuals.
NOTE 2 – GOING CONCERN, LIQUIDITY, AND MANAGEMENT’S PLANS
Going Concern, Liquidity and Management’s Plans
These unaudited consolidated financial statements have been prepared on a basis that assumes Beeline will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. Beeline has incurred recurring losses from operations since its inception and is dependent on debt and equity financing. These factors raise substantial doubt about Beeline’s ability to continue as a going concern for the twelve months following the issuance of these financial statements. The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if Beeline were unable to continue as a going concern.
Management believes that its available funds and cash flow from operations may not be sufficient to meet our working capital requirements for the twelve months subsequent to the issuance of our financial statements. In order to accomplish its business plan objectives, Beeline will need to either increase revenues or raise capital by the issuance of debt and/or equity and stock or sell Beeline to a strategic acquirer.
Management believes that it will be successful in obtaining additional financing based on its limited history of raising funds; however, there can be no assurances that our business plans and actions will be successful, that we will generate anticipated revenues, or that unforeseen circumstances will not require additional funding sources in the future or effectuate plans to conserve liquidity. Future efforts to raise additional funds may not be successful or they may not be available on acceptable terms, if at all.
| F-6 |
BEELINE FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2024
(Unaudited)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The unaudited consolidated financial statements include the accounts of Beeline Financial Holdings, Inc., and its subsidiaries. Intercompany transactions and balances have been eliminated.
USE OF ESTIMATES
Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Significant estimates and assumptions in thee consolidated statements include: the fair value of mortgage loans held for sale, valuation of derivative instruments, valuation of software, valuation of right of use assets, contingent liability for loan repurchases, and for equity instruments such as options, estimating the fair value of options granted and expensed. Actual results and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties.
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
Beeline considers highly liquid investments purchased with a remaining maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents include money market accounts that are readily convertible into cash.
The Company maintains certain cash balances that are restricted under warehouse and/or master repurchase agreements, broker margin accounts associated with its derivative instruments. The restricted cash balance at September 30, 2024 and December 31, 2023 and 2022 is $91,041 and $187,006 respectively.
MORTGAGE LOANS HELD FOR SALE AND GAIN ON SALE OF LOANS REVENUE RECOGNITION
Mortgage loans held for sale are carried at fair value under the fair value option in accordance with Financial Accounting Standards Board’s Accounting Standards Codification Topic (“ASC”) 825-Financial Instruments, with changes in fair value recorded in gain on sale of loans, net on the consolidated statements of operations. The fair value of mortgage loans held for sale committed to investors is calculated using observable market information such as the investor commitment, assignment of trade or other mandatory delivery commitment prices. The fair value of mortgage loans held for sale not committed to investors is based on quoted best execution secondary market prices. If no such quoted price exists, the fair value is determined using quoted prices for a similar asset or assets, such as Mortgage-Backed Securities (MBS) prices, adjusted for the specific attributes of that loan, which would be used by other market participants. Mortgage loans held for sale not calculated using observable market information are based on third-party broker quotations or market bid pricing.
Gains and losses from the sale of mortgage loans held for sale are recognized based upon the difference between the sales proceeds and carrying value of the related loans upon sale and are recorded in gain on sale of loans, net on the consolidated statements of operations. Sales proceeds reflect the cash received from investors through the sale of the loan and servicing release premium. Gain on sale of loans, net also includes the unrealized gains and losses associated with the changes in the fair value of mortgage loans held for sale, and the realized and unrealized gains and losses from derivative instruments.
Mortgage loans held for sale are considered sold when the Company surrenders control over the financial assets. Control is considered to have been surrendered when the transferred assets have been isolated from the Company, beyond the reach of the Company and its creditors; the purchaser obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets; and the Company does not maintain effective control over the transferred assets through either an agreement that both entitles and obligates the Company to repurchase or redeem the transferred assets before their maturity or the ability to unilaterally cause the holder to return specific financial assets. The Company typically considers the above criteria to have been met upon acceptance and receipt of sales proceeds from the purchaser.
Mortgage loans sold to investors by the Company, and which met investor underwriting guidelines at the time of sale, may be subject to repurchase in the event of specific default by the borrower or subsequent discovery that underwriting standards were not met. The Company may, upon mutual agreement, indemnify the investor against future losses on such loans. Additionally, reserves are established for estimated liabilities from the need to repay, where applicable, a portion of the premium received from investors on the sale of certain mortgage loans if such loans are repaid in their entirety within a specified period after the sale of the loans. The Company has established a reserve for potential losses related to these representations and warranties. In assessing the adequacy of the reserve, management evaluates various factors including actual write-offs during the period, historical loss experience, known delinquent and other problem loans, and economic trends and conditions in the industry. Actual losses incurred are reflected as write-offs against the loan indemnification reserve.
Since mortgage loans held for sale have maturity dates greater than one year from the balance sheet date but are expected to be sold in a short time frame (less than one year), they are recorded as current assets.
Changes in the balances of mortgage loans held for sale are included in cash flows from operating activities in the consolidated statement of cash flows in accordance with ASC 230-10-45-21.
REVENUE RECOGNITION
Loan Origination Fees and Costs
Loan origination fees represent revenue earned from originating mortgage loans. Loan origination fees generally represent flat per-loan fee amounts based on a percentage of the original principal loan balance and are recognized as revenue at the time the mortgage loans are funded since the loans are held for sale. Loan origination costs are charged to operations as incurred.
Interest Income
Interest income on mortgage loans held for sale is recognized for the period from loan funding to sale based upon the principal balance outstanding and contractual interest rates. Revenue recognition is discontinued when loans become 90 days delinquent, or when, in management’s opinion, the recovery of principal and interest becomes doubtful and the mortgage loans held for sale are put on nonaccrual status. For loans that have been modified, a period of 6 payments is required before the loan is returned to an accrual basis.
Interest Expense
Interest expense relating to the warehouse lines of credit is included in Revenues. Other interest expense is included under Other (Income)/Expense.
Title Fees
Commissions earned at loan settlement on insurance premiums paid to title insurance companies.
Data and Tech
Fees received from a marketing partner who is embedded in our point-of-sale journey for investment property customers. The partner pays Beeline for leads they receive from a customer opting in to use their insurance company for landlord insurance during the application process.
| F-7 |
BEELINE FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2024
(Unaudited)
DERIVATIVE FINANCIAL INSTRUMENTS AND REVENUE RECOGNITION
The Company holds and issues derivative financial instruments such as interest rate lock commitments (IRLCs). IRLCs are subject to price risk primarily related to fluctuations in market interest rates. To hedge the interest rate risk on certain IRLCs, the Company enters into best effort forward sale commitments with investors, whereby certain loans are locked with a borrower and simultaneously committed to an investor at a fixed price. If the best effort IRLC does not fund, the Company has no obligation to fulfill the investor commitment.
FASB ASC 815-25, “Derivatives and Hedging,” requires that all derivative instruments be recognized as assets or liabilities on the consolidated balance sheets at their fair value. Changes in the fair value of the derivative instruments are recognized in gain on sale loans, net on the consolidated statements of operations in the period in which they occur. The Company accounts for all derivative instruments as free-standing derivative instruments and does not designate any for hedge accounting.
DEPOSITS
Deposits include security deposits for leased office spaces, which are refundable to Beeline upon expiration of the lease agreements.
PROPERTY AND EQUIPMENT, NET
Property and equipment, including leasehold improvements, are recorded at cost, and are depreciated or amortized using the straight-line method over the estimated useful lives of the related assets, which range from five to seven years. Repair and maintenance costs are expensed as incurred. Leasehold improvements are amortized over the shorter of the lease term or the improvement’s estimated useful life. Improvements, which increase the productive value of assets, are capitalized, and depreciated over the remaining useful life of the related asset.
SOFTWARE DEVELOPMENT COSTS, NET
Under ASC 350-40 Internal-Use Software, Beeline capitalizes certain qualifying costs incurred during the application development stage in connection with the development of internal-use software. Costs related to preliminary project activities are expensed as incurred and post-implementation activities will be expensed as incurred. Capitalized software costs are amortized over the useful life of the software, which is five years. Impairment of internal-use software is evaluated under ASC 350-40-35 Subsequent Measurement on a qualitative basis and if indicators exist, then a quantitative analysis is performed under ASC 360” Property, Plant, and Equipment”.
Investment in Equity Method Investee
On February 7, 2024, MagicBlocks, Inc., a Delaware corporation, was incorporated by a third party. On July 31, 2024, the Company was issued 4,285,000 shares of Magic Blocks which represents 47.6% of MagicBlocks common shares outstanding. The Company has determined that its investment in MagicBlocks is subject to the equity method of accounting in accordance with ASC 825-10, Financial Instruments (“ASC 825-10”). In accordance with ASC 825-10, the Company included this equity method investment in “Other assets” within the consolidated balance sheets, and the Company’s portion of any gains or losses shall be included in the consolidated statements of operations. In September 2024, the Company invested $96,500 in MagicBlocks.
IMPAIRMENT OF LONG-LIVED ASSETS
Beeline continually evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful life of its long-lived assets, including internal-use software, may warrant revision or that the carrying value of these assets may be impaired.
| F-8 |
BEELINE FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2024
(Unaudited)
FAIR VALUE MEASUREMENTS
Fair value is the price that would be received if an asset were sold or the price that would be paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. Required disclosures include classification of fair value measurements within a three-level hierarchy (Level 1, Level 2, and Level 3). Classification of a fair value measurement within the hierarchy is dependent on the classification and significance of the inputs used to determine the fair value measurement. Observable inputs are those that are observed, implied from, or corroborated with externally available market information. Unobservable inputs represent the estimates of market participants’ assumptions.
Fair value measurements are classified in the following manner:
Level 1—Valuation is based on quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2—Valuation is based on either observable prices for identical assets or liabilities in inactive markets, observable prices for similar assets or liabilities, or other inputs that are derived directly from, or through correlation to, observable market data at the measurement date.
Level 3—Valuation is based on the internal models using assumptions at the measurement date that a market participant would use.
In determining fair value measurement, Beeline uses observable inputs whenever possible. The level of a fair value measurement within the hierarchy is dependent on the lowest level of input that has a significant impact on the measurement as a whole. If quoted market prices are available at the measurement date or are available for similar instruments, such prices are used in the measurements. If observable market data is not available at the measurement date, judgment is required to measure fair value.
The following is a description of measurement techniques for items recorded at fair value on a recurring basis. There were no material items recorded at fair value on a nonrecurring basis as of September 30, 2024 and December 31, 2023.
Mortgage loans held for sale: Loans held for sale that are valued using Level 2 measurements derived from observable market data, including market prices of securities backed by similar mortgage loans adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk. Loans held for sale for which there is little to no observable trading activity of similar instruments are valued using Level 3 measurements based upon dealer price quotes and internal models.
IRLCs: The fair value of IRLCs is based on current market prices of securities backed by similar mortgage loans (as determined above under mortgage loans held for sale), net of costs to close the loans, subject to the estimated loan funding probability, or “pull-through factor.” Given the significant and unobservable nature of the pull-through factor, IRLCs are classified as Level 3.
Forward commitments: Beeline’s forward commitments are valued based on quoted prices for similar assets in an active market with inputs that are observable and are classified within Level 2 of the valuation hierarchy. There were no open forward contracts at September 30, 2024 and December 31, 2023.
A roll forward of the level 3 valuation financial instruments is as follows:
Schedule of Assets or Liabilities Measured at Fair Value Recurring Basis
| September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Interest rate lock derivative | $ | - | $ | - | $ | 62,796 | $ | - | $ | - | $ | 57,505 | ||||||||||||
Schedule of Roll Forward For Valuation of Financial Instruments
| For the Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Balance at beginning of period | $ | 57,505 | $ | 30,757 | ||||
| Change in fair value included in derivative expense (income) | 5,291 | - | ||||||
| Balance at end of period | $ | 62,796 | $ | 30,757 | ||||
| F-9 |
BEELINE FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2024
(Unaudited)
DEBT ISSUANCE COSTS
Beeline’s notes payable agreements are recorded net of issuance costs (debt discount). The resulting debt discount is being amortized over the term of the term loan using the straight-line method, which approximates the effective interest method, and the amortization of debt discount is included in the statement of operations.
MARKETING AND ADVERTISING COSTS
Marketing and advertising costs are expensed as incurred.
For the nine months ended September 30, 2024 and 2023, marketing and advertising expenses were $1,618,472 and $1,356,123, respectively.
STOCK-BASED COMPENSATION EXPENSE
Beeline measures and recognizes compensation expense for restricted stock awards and options granted to employees based on the fair value of the award on the grant date and recognized as expense over the related service or performance period. Beeline elected to account for forfeitures as they occur.
Stock-based compensation expense totaled $0 and $281,060 for the nine months ended September 30, 2024 and 2023, respectively.
| F-10 |
BEELINE FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2024
(Unaudited)
Foreign Currency Translation
The reporting currency of the company is the U.S. dollar. Except for Beeline Loans Pty Ltd, the functional currency of the company is the U.S. dollar. The functional currency of Beeline Loans Pty Ltd is the Australian dollar (AUS). For Beeline Loans Pty Ltd, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts related to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive loss. The cumulative translation adjustment and effect of exchange rate changes on cash for the nine months ended September 30, 2024 and 2023 was $7,633 and $3,608, respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency included in the results of operations as incurred.
NON-CONTROLLING INTERESTS
Beeline follows ASC Topic 810 – Consolidation, governing the accounting for and reporting of non-controlling interests (NCI) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than step acquisitions or dilution gains or losses, and that losses of a partially-owned subsidiary be allocated to non-controlling interests even when such allocation might result in a deficit balance. The net loss attributed to NCI was separately designated in the accompanying consolidated statements of operations and comprehensive loss. Losses attributable to NCI in a subsidiary may exceed NCI’s interests in the subsidiary’s equity. The excess attributable to NCI is attributed to those interests. NCI shall continue to be attributed their share of losses even if that attribution results in a deficit NCI balance.
INCOME TAXES
Deferred tax assets and liabilities are recorded for the difference between the financial statement carrying amounts and the tax basis of existing assets and liabilities using tax rates expected to be in effect in the years in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. At December 31, 2023, the amount of the deferred tax assets of approximately $38 million arising principally from the net operating loss carryforward was reduced to $0 by a valuation allowance of the same amount.
ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE
In November 2023, the FASB issued ASU 2023-7, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires enhanced disclosure of significant segment expenses on an annual and interim basis. The ASU is effective on a retrospective basis for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024. The adoption of ASU 2023-7 had no effect on the Company’s financial position or results of operations.
In December 2023, the FASB issued ASU 2023-9, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024, and early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company will include the required disclosures in its condensed consolidated financial statements once adopted.
NOTE 4 – MORTGAGE LOANS HELD FOR SALE
Mortgage Loans held for Sale
Beeline sells substantially all of its originated mortgage loans to investors. As of September 30, 2024 and December 31, 2023, Beeline recognized an allowance for estimated fair value on the eventual sales of loans.
Schedule of Estimated Fair Value Based On Eventual Sale Of Loans
| September 30, 2024 | December 31, 2023 | |||||||
| Mortgage loans held for sale | $ | 6,116,847 | $ | 2,267,596 | ||||
| Fair value adjustment | 154,704 | 33,416 | ||||||
| Mortgage loans held for sale, at fair value | $ | 6,271,551 | $ | 2,301,012 | ||||
| F-11 |
BEELINE FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2024
(Unaudited)
NOTE 5 - PROPERTY AND EQUIPMENT
Property and Equipment
Property and equipment as of September 30, 2024 and December 31, 2023, consisted of the following:
Schedule of Property And Equipment
September 30, 2024 | December 31, 2023 | |||||||
| Leasehold improvements | $ | 696,894 | $ | 696,894 | ||||
| Furniture and fixtures | 129,962 | 129,962 | ||||||
| Computers and hardware | 81,779 | 81,779 | ||||||
| Property and equipment gross | 908,635 | 908,635 | ||||||
| Less accumulated depreciation | (713,474 | ) | (599,942 | ) | ||||
| Property and equipment, net | $ | 195,161 | $ | 308,693 | ||||
Depreciation expense totaled $113,532 and $113,532 for the nine months ended September 30, 2024 and 2023, respectively.
NOTE 6 - CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Capitalized Software Development Costs
Beeline released its proprietary software “Hexagon” in May 2020.
Beeline continues to use the “Hexagon” software for processing mortgages of commercial and residential properties and intends on licensing this software to other mortgage loan originators in the future.
In January 2023, Beeline’s internal developers began the initial development of a new proprietary software, “Hive”. The new software is an entirely new platform and code built by Beeline. The most notable feature of the new software is the integration of Beeline’s Chat API “Bob.” The official launch of Hive was January 2024 and Beeline is currently implementing the new software in its residential mortgage origination process.
A major upgrade to the system “Version 2” was immediately started after the initial launch of the system and went into use starting November 2020. This upgrade gave the consumer access to a user portal and the ability to process some conditions on their own through uploading documents and accessing key information of their loan.
Additional functionality was added to the system in “Version 3”. This version will allow proprietary technologies to process underwriting conditions and automating major functions of the business. The basics of Beeline’s “Automation Condition Resolution Engine” was substantially completed in this Version.
“Version 4” was released in May 2022. It significantly changed the loan options user interface and experience for customers. It also introduced a dedicated flow for new loan types and channels. Other changes in Version 4 included additional build out of the Automation Condition Resolution Engine. Version 4 was completed by December 31, 2022, with development starting on Version 5 in early 2023.
As of September 30, 2024 and December 31, 2023, capitalized software development costs consisted of the following:
Schedule of Capitalized Software Development Costs
September 30, 2024 | December 31, 2023 | |||||||
| Software development costs capitalized | $ | 8,459,328 | $ | 8,079,821 | ||||
| Less accumulated amortization | (4,428,704 | ) | (3,216,731 | ) | ||||
| Software development costs, net | $ | 4,030,624 | $ | 4,863,090 | ||||
Amortization expense totaled $1,211,973 and $1,074,109 for the nine months ended September 30, 2024 and 2023, respectively.
| F-12 |
BEELINE FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2024
(Unaudited)
NOTE 7 - WAREHOUSE LINES OF CREDIT
Warehouse Lines of Credit
Beeline engaged with one bank for a line of credit to fund originated loans in the normal course of business. The agreement contains specific financial covenants and requirements that Beeline must analyze on a quarterly basis in order to be compliant with the agreement. The aggregate potential borrowing capacity under the warehouse line of credit is $5,000,000 as of September 30, 2024.
FIRSTFUNDING, INC.
On October 1, 2022, Beeline entered into an agreement with FirstFunding, Inc. for a $5,000,000 line. The line automatically renews for successive one-year terms, unless terminated by Beeline or FirstFunding, Inc. The interest rate is the greater of 1.) interest on the underlying loan or 2.) 4.25% - 5.50%, depending on how many loans Beeline closes per month. Beeline is required to provide FirstFunding, Inc. with annual audited financial statements and monthly interim unaudited financial statements. Beeline is also subject to non-financial covenants.
The below is a summary of warehouse lines outstanding as of September 30, 2024 and December 31, 2023:
Summary of Warehouse Lines Outstanding
| Year | Warehouse Lender | Line Amount | Outstanding | Remaining Unused | ||||||||||
| December 31, 2023 | First Funding, Inc. | $ | 5,000,000 | $ | 2,157,119 | $ | 2,841,901 | |||||||
| September 30, 2024 | First Funding, Inc. | $ | 5,000,000 | $ | 5,996,846 | $ | 4,003,154 | |||||||
FLAGSTAR BANK
As of July 25, 2023, Beeline requested the closure of the Flagstar Bank warehouse line. The Company’s focus has been on non-QM loans as the market has fluctuated and First Funding permits both non-QM and conventional loans.
NOTE 8 - DEBT
Notes Payable
BDCRI LOAN
On April 29, 2021, Beeline and Beeline Loans entered into a term loan agreement with Business Development Company of Rhode Island (the “BDCRI Loan”) for $450,000. The BDCRI Loan matures on April 29, 2026. As of September 30, 2024 and December 31, 2023, the balance due is $294,467 and $291,846, respectively, net of discounts of $5,533 and $8,154, respectively. Principal payments of $9,375 began in April of 2022. In October 2023, Beeline began making interest-only payments in the near term until market conditions improved. The interest rate is 6%. Beeline recorded debt issuance costs of $17,182, which are being amortized over the term of the BDCRI Loan. The BDCRI Loan contains default covenants and prepayment terms and is collateralized and guaranteed by two of the shareholders of Beeline.
LOANS PAYABLE
In 2022, Beeline received $100,000 from Capital Markets Group in the form of a loan payable. This loan is currently past due. Default interest is accruing at 24% per annum. The balance was paid in full in June 2024. As of September 30, 2024 and December 31, 2023, the balance due is $0 and $60,244, respectively.
| F-13 |
BEELINE FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2024
(Unaudited)
In March 2023, Beeline received $30,000 from an individual in the form of a loan payable. Interest accrues at 7% per annum. As of September 30, 2024 and December 31, 2023, the balance due is $0 and $31,755, respectively. This note was subsequently reclassified as a Convertible Note when the agreement was signed in March 2024.
LOANS PAYABLE – RELATED PARTY
In July 2023, Beeline received $75,000 from Fluid Capital in the form of a loan payable. Interest accrues at 12.25%. per annum. This note is due April 2024. As of September 30, 2024 and December 31, 2023, the balance due is $78,826 and $78,826, respectively.
In September 2023, Beeline received $310,000 and in December 2023, Beeline received $130,500 Manta Reef (Gulp Data), in the form of loans payable. Interest accrues at 18% per annum. Interest-only payments are made monthly. These loans are due December 2024, As of September 30, 2024 and December 31, 2023, the balance due on these loans is $511,502 and $511,502, respectively.
In November 2023, Beeline received $157,500 from American Heritage Lending in the form of a loan payable. Interest accrues at 12% per annum. This loan was paid in March 2024. At December 31, 2023, the balance due is $161,280.
An officer, director, and shareholder lends money to Beeline throughout the year in the form of loans payable. Interest accrues at 7% per annum. As of September 30, 2024 and December 31, 2023, the balance due is $318,104 and $221,565, respectively.
2022 SUBORDINATED CONVERTIBLE PROMISSORY NOTES ISSUED
In June 2022, the Board of Directors authorized the issuance of three-year, 7%, 2022 Subordinated Convertible Promissory Notes (the “Convertible Notes”) and related Preferred Stock Warrants, up to a total of $20,000,000, to investors through March 31, 2024.
Beeline raised total proceeds of $17,875,754 with Convertible Notes, $4,436,238 in 2022 and $13,439,516 in 2023.
In 2023, three investors who made an investment of at least $500,000 in the 2022 Convertible Notes were entitled to exchange, for no additional consideration, Beeline securities held by the investor for 2022 Convertible Notes having the same value as the investor’s existing investment. These three investors exchanged 22,495 shares of preferred stock for a 2022 Convertible Notes having principal amounts totaling $5,706,559.
Additionally, during the nine months ended September 30, 2024, i) the Company received cash proceeds from the sale of 2022 Convertible Notes of $3,442,219, ii) Series A preferred shares investors exchanged 75,700 shares of Series A preferred stock for 2022 Convertible Notes having principal amounts totaling $1,750,079, iii) the Company issued a Convertible Note in the amount of $150.00 for future services to be rendered, which as of September 30, 2024 is included reflected in prepaid expenses on the accompanying unaudited consolidated balance sheet, and iv) the Company issued a Convertible Note in the amount of $10,000 for accrued interest. Warrants were issued with these rates with the same terms as the 2022 convertible notes issued in previous years. See Note 10 - Stockholders’ Equity as to no estimate of the portion of the proceeds from the issuance of the convertible promissory notes attributable to such warrants can be determined.
Optional Conversion
We have added an optional conversion feature in the event the Company completes a capital raising transaction that is not significant enough to be a Qualified Financing, which option may be exercised collectively by a majority in interest of the note holders. If the Company completes a Non-Qualified Financing, a Majority in Interest of the Note holders may elect to convert all of the Notes, and any accrued but unpaid interest thereon, into the class or series of shares issued to the investors in the Non-Qualified Financing, but at a conversion price equal to the lower of (x) 80% of the per share price paid by such investors in the Non-Qualified Financing, or (y) the price obtained by dividing $50,000,000by the number of outstanding shares of common stock of the Company immediately prior to the Non-Qualified Financing (assuming conversion of all securities convertible into common stock and exercise of all outstanding options and warrants, but excluding but excluding the first 15% of the shares issuable pursuant to the Company’s Employee Stock Ownership Plan and the shares of equity securities of the Company issuable upon the conversion of the Notes or other indebtedness)(the “Valuation Cap PPS”).
| F-14 |
BEELINE FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2024
(Unaudited)
Mandatory Conversion
We have provided that, if the Company completes a Change of Control or an Initial Public Offering (each, as defined in the Notes) prior to the conversion of a holder’s Note, then such Note shall convert automatically into shares of the Company’s common stock, at a price equal to 80% of, as applicable,(x) the offering price to the public in the Initial Public Offering, or (y) the price or value of the Company’s common stock in the Change of Control transaction. Alternatively, we have reduced the term of the Notes to three (3) years(from five (5) years)and provided that, if a holder’s Note remains outstanding after such three (3)-year period, then it shall automatically convert into the class or series of shares of capital stock of the Company last issued in a Non-Qualified Financing, at a per share purchase price equal to the lower of (x) 80% of the per share price paid by the investors for the shares issued in such Non-Qualified Financing, and (y) the Valuation Cap PPS.
On June 4, 2024, the Company issued 1,646,157 shares of Series B preferred stock and 7,333,207 shares of common stock for the conversion of all the convertible notes with a principal balance of $23,228,052 and accrued interest payable amounting to $1,585,958 for an aggregate amount of $24,814,011 and in exchange for all warrants issued with the convertible notes. The common shares were valued at $1.50 per share based on recent sales of common stock and the Series B shares were valued at $1.50 per share since the Series B shares are convertible into an equal amount of common shares. In connection with the conversion of the debt and accrued interest and surrender of the warrants, the Company recorded a gain on extinguishment of debt of $11,344,207, which is reflected in other income on the accompanying unaudited consolidated statement of operations and comprehensive loss.
As of September 30, 2024 and December 31, 2023, interest of $0 and $965,378 has accrued on all these notes, respectively. As of September 30, 2024 and December 31, 2023, the balance due on these notes was $0 and $17,875,754, respectively.
2024 Convertible Notes
On June 5, 2024, Beeline engaged in Debenture agreements with Gunnar and issued convertible notes in the amount of $3,300,000 and received cash of 2,519,000, after deducting original issue discount and fees of $781,000., which was reflected as a debt discount to be amortized over the note term. Additionally, in connection with the 2024 Convertible Notes, the Company issued 740,496 Series B preferred shares to the 2024 convertible note holders. These series B preferred shares were valued at $770,843 based on the relative fair value of such shares, which was reflected as a debt discount to be amortized over the note term. The notes bear interest at 10% per annum and due on June 5, 2025. In October 2024, these 2024 Convertible Notes were amended (See Note 12).
During the nine months ended September 30, 2024, amortization of debt discount amounted to $517,281 which is included in interest expense on the accompanying statement of operations and comprehensive loss.
NOTE 9 - RELATED PARTY TRANSACTIONS
Related Party Transactions
Beeline has received, as noted in Note 8 - Loans Payable, convertible notes with related parties, including officers and directors.
| F-15 |
BEELINE FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2024
(Unaudited)
On June 4, 2024, all of the related party convertibles notes were converted to common stock and series B preferred stock (see Note 8).
NOTE 10 - STOCKHOLDERS’ EQUITY
Stockholders’ Equity
On June 4, 2024, Beeline’s shareholders approved a one-for-ten (1:10) Forward Stock Split (the “Forward Stock Split”), effective as of June 4, 2024. Proportional adjustments for the Forward Stock Split were made to the Company’s outstanding common stock, preferred stock, stock options, warrants and equity incentive plans. All share and per-share data and amounts have been retroactively adjusted as of the earliest period presented in the unaudited consolidated financial statements to reflect the Reverse Stock Split.
The rights and privileges of Beeline’s Common and Preferred Stock are as follows:
COMMON STOCK
The holders of common stock are entitled to one vote for each share held. The voting, dividend, and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers, and preferences of the holders of the Preferred Stock described below.
No common shares were issued in 2023.
During the nine months ended September 30, 2024, the Company issued 1,278,055 shares of its common stock for cash proceeds of $1,917,141.
During the nine months ended September 30, 2024, the Company issued 7,333,207 shares of its common stock in connection with the conversion of convertible notes (See Note 8).
PREFERRED STOCK
Series A preferred stock
During 2023, three investors exchanged 224,950 shares of Series A preferred stock for a 2022 Convertible Notes having principal amounts totaling $5,206,559. Please see Note 8 – Debt as to the 2022 Convertible Notes.
During the nine months ended September 30, 2024, Series A preferred shares investors exchanged 75,700 shares of Series A preferred stock for 2022 Convertible Notes having principal amounts totaling $1,750,079,
The agreement for the sale of shares of the Series A Preferred Stock states a par value $0.00001 per share. In connection with that agreement, such purchasers of Preferred Stock are provided with the right, among other rights, to designate the election of certain members of the board of directors of the Corporation (the “Board”) in accordance with the terms of the agreement.
| F-16 |
BEELINE FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2024
(Unaudited)
Dividends
Beeline shall not declare, pay, or set aside any dividends on shares of any other class or series of capital stock of Beeline (other than dividends on shares of Common Stock payable in shares of Common Stock) unless the holders of the Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Preferred Stock.
As of September 30, 2024 and December 31, 2023, no dividends have been declared or accrued on any class of Company stock.
Voting Rights
On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the (‘corporation (or by written consent of stockholders in lieu of a meeting), including for the election of members of the Corporation’s Board of Directors, each holder of outstanding shares of Preferred Stock shall he entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible at the applicable Conversion Price therefor as of the record date for determining stockholders entitled to vote on such matter.
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution or winding up of Beeline, the holders of shares of Preferred Stock then outstanding shall be entitled to be paid out of the assets of Beeline available for distribution to its stockholders.
Optional Conversion
From and after the Filing Date, and at any time prior to mandatory conversion of the outstanding shares of Series A Preferred Stock into shares of Common Stock upon a Qualified Offering or Qualified Event as defined, each outstanding share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time, and without the payment of additional consideration by the holder thereof, into such whole number of shares of Common Stock as is determined by dividing the Series A Original Issue Price of $23.117 by the Series A Conversion Price in effect at the time of conversion, which was $7.542280 as of September 30, 2024. The Series A Conversion Price. and the rate at which shares of Series A Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment.
Mandatory Conversion
Upon any of (a) the closing of the sale of shares of Common Stock to the public in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended; (b) the closing of a Going-Public Transaction; or (c) the time and date, or the occurrence of an event, specified by vote or written consent of at least 65% of the issued and outstanding shares of Preferred Stock.
Series B preferred stock
On June 4, 2024, the Company issued 1,646,157 shares of Series B preferred stock for the conversion of all the convertible notes with a principal balance of $23,228,052 and accrued interest payable amounting to $1,585,958 for an aggregate amount of $24,814,011. The Series B shares were valued at $1.50 per share since the Series B shares are convertible into an equal amount of common shares. (See Note 8).
On June 5, 2024, in connection with the 2024 Convertible Notes, the Company issued 740,496 Series B preferred shares to the 2024 convertible note holders. These series B preferred shares were valued at $770,843 based on the relative fair value of such share, which was reflected as a debt discount to be amortized over the note term (See Note 8).
NOTE 11 - CONCENTRATIONS OF CREDIT RISK
Concentrations
Beeline maintains cash balances with several regional banks. The deposits are insured by the Federal Deposit Insurance Corporation up to $250,000 per depositor per bank. At various times throughout the year, cash balances held within these accounts may exceed the maximum insured amounts.
ESCROWS PAYABLE
As a service to its clients, Beeline administers escrow deposits representing undisbursed amounts received for payment of settlement and title services. Cash held by Beeline was $375,765.12 as of December 31, 2022, and $574,012.33 as of December 31, 2023. Nimble Title held $23,446.78 in escrow as of December 31, 2023. These amounts are not considered assets of Beeline and, therefore, are excluded from the Consolidated Balance Sheet. Beeline remains contingently liable for the disposition of these deposits.
| F-17 |
BEELINE FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2024
(Unaudited)
NOTE 12 - SUBSEQUENT EVENTS
Subsequent events
2024 Convertible Notes Amendment
In October 2024, the 2024 Convertible Notes (See Note 8) were amended to i) increase the principal balance by $300,000 to $3,600,000, ii) to remove the conversion feature, and to extend the maturity date through and until September 5, 2025, and payments shall be made in nine equal consecutive monthly installments of $440,328. In accordance with ASC 470-50, Debt Modifications and Extinguishments, in October 2024, in connection with the amendments to the 2024 Convertible Notes, discussed above (the “Amendments”), the Company performed an assessment of whether the Amendments were deemed to be new debt, a modification of existing debt, or an extinguishment of existing debt. The Company evaluated the Amendments for debt modification and concluded that the debt qualified for debt extinguishment. The Company determined the transaction was considered a debt extinguishment because the removal of the conversion terms was substantial. Upon extinguishment, the Company had approximately $1,000,000 of unamortized debt discount recorded which will be written off to loss on debt extinguishment. Additionally, the Company will expense the $300,000 increase in principal balance and record a loss on debt extinguishment.
Sale of Common Stock
Subsequent to September 30, 2024 through the date of this report, Beeline sold 327,880 shares of common stock for proceeds of $491,761, or $1.50 per share.
Merger Agreement
On September 4, 2024, the Company entered into the Merger Agreement with the Merger Sub and Eastside Distilling, Inc. (“Eastside”). On October 7, 2024, the parties executed Amendment No. 1 to the Merger Agreement.
On October 7, 2024, immediately after the closing under the Debt Agreement, a closing was held pursuant to the Merger Agreement (the “Merger Closing”). Beeline merged into Merger Sub and became a wholly-owned subsidiary of Eastside, with the name of the surviving subsidiary being changed to Beeline Financial Holdings, Inc. In the Merger, the shareholders of Beeline gained the right to receive a total of 69,482,229 shares of Eastside’s Series F Preferred Stock and a total of 517,771 shares of Eastside’s Series F-1 Preferred Stock. In addition, each option to purchase shares of Beeline common stock outstanding at the time of the Merger was converted into an option to purchase shares of Eastside’s common stock measured by the same ratio.
| F-18 |
Exhibit 99.3
FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited Pro Forma Consolidated Statements of Operations of Eastside Distilling, Inc. (“Eastside” or the “Company”) for the year ended December 31, 2023 and the nine months ended September 30, 2024 are presented as if the Transactions, as described below, had occurred as of January 1, 2023. The following unaudited Pro Forma Consolidated Balance Sheet of the Company as of September 30, 2024 is presented as if the Transactions had occurred on September 30, 2024.
The unaudited Pro Forma Consolidated Financial Statements are presented based on information currently available including certain assumptions and estimates. They are intended for informational purposes only, and do not purport to represent what the Company’s financial position and operating results would have been had the Transaction and related events occurred on the dates indicated above, or to project the Company’s financial position or results of operations for any future date or period. Furthermore, they do not reflect actions that may be undertaken by the Company after the Transactions.
The unaudited Pro Forma Consolidated Financial Statements should be read in conjunction with:
| ● | The audited Consolidated Financial Statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023; and | |
| ● | The Consolidated Financial Statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2024. |
The Transactions described below and included in the “First Amended and Restated Debt Exchange Agreement” and “Agreement and Plan of Merger and Reorganization” (together the “Pro Forma Adjustments”) columns in the unaudited Pro Forma Consolidated Statements of Operations and the unaudited Pro Forma Consolidated Balance Sheet reflect pro forma adjustments that are based on available information and assumptions that the Company’s management believes are reasonable and reflect the impact of events directly attributable to the Transactions that are factually supportable, and for purposes of the Pro Forma Consolidated Statements of Operations, are expected to have a continuing impact on the Company. The Pro Forma Adjustments do not reflect future events that may occur after the Transactions.
Historical Eastside Distilling
This column reflects the Company’s historical consolidated financial statements for the periods presented and does not reflect any adjustments related to the Transactions and related events. The historical Consolidated Statement of Operations for the year ended December 31, 2023 was derived from the Company’s audited Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2023. The historical Consolidated Balance Sheet as of September 30, 2024 and the historical Consolidated Statement of Operations for the nine months ended September 30, 2024 were derived from the Company’s unaudited Consolidated Financial Statements included in its Quarterly Report on Form 10-Q for the period ended September 30, 2024.
First Amended and Restated Debt Exchange Agreement
This column reflects the effect of the closing of the Debt Exchange Agreement that the Company entered into. On September 4, 2024, Eastside and its subsidiary, Craft Canning & Bottling, LLC (“Craft”) entered into a Debt Exchange Agreement with The B.A.D. Company, LLC (the “SPV”), Aegis Security Insurance Company (“Aegis”), Bigger Capital Fund, LP (“Bigger”), District 2 Capital Fund, LP (“District 2”), LDI Investments, LLC (“LDI”), William Esping (“Esping”), WPE Kids Partners (“WPE”) and Robert Grammen (“Grammen”). Subsequent to the execution of the Debt Exchange Agreement, the assets of the SPV were distributed to its members, i.e. Aegis, Bigger, District 2 and LDI. To reflect the effect of the distribution on the transactions contemplated by the Debt Exchange Agreement, the parties, on October 3, 2024, executed the First Amended and Restated Debt Exchange Agreement (the “Debt Agreement”). The seven counterparties to the Debt Agreement with Eastside and Craft are referred to in this Report collectively as the “Investors”.
Subsequent to execution of the Debt Exchange Agreement, Eastside organized a subsidiary named “Bridgetown Spirits Corp.” and assigned to Bridgetown Spirits Corp. all of the assets held by Eastside in connection with its business of manufacturing and marketing spirits. Bridgetown Spirits Corp. issued 1,000,000 shares of common stock to Eastside.
On October 7, 2024, a closing was held pursuant to the terms of the Debt Exchange Agreement. At that closing, the following transactions were completed:
| ● | Aegis, Bigger, District 2 and LDI transferred to Eastside a total of 31,234 shares of Eastside Series C Preferred Stock and 119,873 shares of Eastside Common Stock. The Investors also released Eastside from liability for $4,137,581 of senior secured debt and $2,465,169 of unsecured debt. In consideration of their surrender of stock and release of debt, Eastside caused Craft to be merged into a limited liability company owned by the Investors. |
| ● | Eastside issued a total of 255,474 shares of Series D Preferred Stock to Bigger and District 2, and Bigger and District 2 released Eastside from liability for $2,554,746 of unsecured debt. |
| ● | Eastside issued a total of 200,000 shares of Series E Preferred Stock to Bigger and District 2, and Bigger and District 2 released Eastside from liability for $2,000,000 of unsecured debt. |
| ● | Eastside transferred a total of 108,899 shares of Spirits to Bigger, District 2, Esping, WPE and Grammen, and those Investors released Eastside from unsecured debt in the aggregate amount of $888,247. |
| ● | Eastside issued a total of 190,000 shares of common stock to Esping, WPE and Grammen, and those Investors released Eastside from liability for $187,189 of unsecured debt. |
| ● | Each of the Investors released and discharged Eastside from all liability, including liability for accrued and unpaid interest. |
Agreement and Plan of Merger and Reorganization
This column reflects the effect of the merger that the Company entered into. On September 4, 2024, Eastside entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with East Acquisition Sub Inc. (“Merger Sub”) and Beeline Financial Holdings, Inc. (“Beeline”). Beeline is a privately-held mortgage technology company that operates an end-to-end, all-digital, AI-enhanced platform for homeowners and property investors. On October 7, 2024, the parties executed Amendment No. 1 to the Merger Agreement.
On October 7, 2024, immediately after the closing under the Debt Exchange Agreement, a closing was held pursuant to the Merger Agreement (the “Merger Closing”). Beeline merged into Merger Sub and became a wholly-owned subsidiary of Eastside, with the name of the surviving corporation being changed to Beeline Financial Holdings, Inc. In the Merger, the shareholders of Beeline gained the right to receive a total of 69,482,229 shares of Series F Preferred Stock and a total of 517,771 shares of Series F-1 Preferred Stock. In addition, each option to purchase shares of Beeline common stock outstanding at the time of the Merger was converted into an option to purchase shares of Eastside common stock measured by the same ratio.
The Merger Agreement provided that, as a condition to closing of the Merger, the Employment Agreement between Eastside and Geoffrey Gwin, Eastside’s Chief Executive Officer, would be amended in a manner satisfactory to Eastside, Beeline and Mr. Gwin. Accordingly, at the time of the Merger, Eastside’s Employment Agreement with Geoffrey Gwin was amended as follows:
| a. | The performance bonuses in Employment Agreement were replaced by a stock bonus of $90,000. |
| b. | Eastside issued 400,000 shares of common stock to Mr. Gwin, which will vest on the earlier of March 31, 2025 or the date on which Mr. Gwin’s employment is terminated without cause. |
Eastside Distilling, Inc. and Subsidiaries
Consolidated Balance Sheet
September 30, 2024
(Dollars in thousands)
(Unaudited)
| Historical Eastside Distilling | First Amended and Restated Debt Exchange Agreement | Agreement and Plan of Merger and Reorganization | Total | |||||||||||||
| Assets | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash | $ | 310 | $ | (60 | ) | $ | 103 | $ | 353 | |||||||
| Trade receivables, net | 105 | - | 91 | 196 | ||||||||||||
| Inventories | 1,793 | (636 | ) | - | 1,157 | |||||||||||
| Prepaid expenses and other current assets | 176 | - | 6,637 | 6,813 | ||||||||||||
| Current assets held for sale | 2,640 | (2,640 | ) | - | - | |||||||||||
| Total current assets | 5,024 | (3,336 | ) | 6,776 | 8,464 | |||||||||||
| Property and equipment, net | 112 | - | 195 | 307 | ||||||||||||
| Right-of-use assets | 430 | - | 1,412 | 1,842 | ||||||||||||
| Intangible assets, net | 4,178 | - | 6,840 | 11,018 | ||||||||||||
| Other assets, net | 182 | - | 24,677 | 24,859 | ||||||||||||
| Non-current assets held for sale | 6,298 | (6,298 | ) | - | - | |||||||||||
| Total Assets | $ | 16,224 | $ | (9,634 | ) | $ | 39,900 | $ | 46,490 | |||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Accounts payable | $ | 1,388 | $ | (1,081 | ) | $ | 1,674 | $ | 1,981 | |||||||
| Accrued liabilities | 418 | (85 | ) | 6,863 | 7,196 | |||||||||||
| Current portion of secured credit facilities, related party | 3,447 | (3,447 | ) | 908 | 908 | |||||||||||
| Current portion of secured credit facilities, net of debt issuance costs | 728 | (728 | ) | 2,674 | 2,674 | |||||||||||
| Current portion of notes payable | 8,155 | (8,155 | ) | - | - | |||||||||||
| Current portion of note payable, related party | 92 | (92 | ) | - | - | |||||||||||
| Current portion of lease liabilities | 191 | - | 334 | 526 | ||||||||||||
| Other current liability, related party | 85 | (85 | ) | - | - | |||||||||||
| Current liabilities held for sale | 3,124 | (3,124 | ) | - | - | |||||||||||
| Total current liabilities | 17,628 | (16,797 | ) | 12,454 | 13,285 | |||||||||||
| Lease liabilities, net of current portion | 213 | - | 1,273 | 1,486 | ||||||||||||
| Secured credit facilities, net of debt issuance costs | - | - | - | - | ||||||||||||
| Notes payable, net of current portion | - | - | 185 | 185 | ||||||||||||
| Non-current liabilities held for sale | 843 | (843 | ) | - | - | |||||||||||
| Total liabilities | 18,684 | (17,640 | ) | 13,912 | 14,956 | |||||||||||
| Stockholders’ equity (deficit): | ||||||||||||||||
| Common stock | - | - | - | - | ||||||||||||
| Preferred stock Series B | - | - | - | - | ||||||||||||
| Preferred stock Series C | - | - | - | - | ||||||||||||
| Preferred stock Series D | - | - | - | - | ||||||||||||
| Preferred stock Series E | - | - | - | - | ||||||||||||
| Preferred stock Series F | - | - | 7 | 7 | ||||||||||||
| Preferred stock Series F-1 | - | - | - | - | ||||||||||||
| Bridgetown common stock | - | - | - | - | ||||||||||||
| Minority Interest in Bridgetown Spirits Corp | - | (670 | ) | - | (670 | ) | ||||||||||
| Additional paid-in capital | 84,499 | 10,228 | 16,461 | 111,188 | ||||||||||||
| Accumulated deficit | (86,959 | ) | (1,552 | ) | 9,520 | (78,991 | ) | |||||||||
| Total stockholders’ equity (deficit) | (2,460 | ) | 8,006 | 25,988 | 31,534 | |||||||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | 16,224 | $ | (9,634 | ) | $ | 39,900 | $ | 46,490 | |||||||
Eastside Distilling, Inc. and Subsidiaries
Consolidated Statements of Operations
Nine Months Ended September 30, 2024
(Dollars in thousands)
Unaudited
| Historical Eastside Distilling | First Amended and Restated Debt Exchange Agreement | Agreement and Plan of Merger and Reorganization | Total | |||||||||||||
| Sales | $ | 2,106 | $ | - | $ | 3,637 | $ | 5,743 | ||||||||
| Less customer programs and excise taxes | 129 | - | - | 129 | ||||||||||||
| Net sales | 1,977 | - | 3,637 | 5,614 | ||||||||||||
| Cost of sales | 1,476 | - | - | 1,476 | ||||||||||||
| Gross profit | 501 | - | 3,637 | 4,138 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing expenses | 699 | - | 1,618 | 2,317 | ||||||||||||
| General and administrative expenses | 1,149 | - | 11,084 | 12,233 | ||||||||||||
| (Gain) loss on disposal of property and equipment | (1 | ) | - | - | (1 | ) | ||||||||||
| Total operating expenses | 1,847 | - | 12,702 | 14,549 | ||||||||||||
| Income (loss) from operations | (1,346 | ) | - | (9,065 | ) | (10,411 | ) | |||||||||
| Other income (expense), net | ||||||||||||||||
| Interest expense | (965 | ) | 917 | (1,430 | ) | (1,478 | ) | |||||||||
| Loss on disposal of Craft | - | (1,973 | ) | - | (1,973 | ) | ||||||||||
| Loss on debt to equity conversion | - | (402 | ) | - | (402 | ) | ||||||||||
| Gain on extinguishment of debt | - | - | 10,010 | 10,010 | ||||||||||||
| Other income (expense) | 37 | (94 | ) | (300 | ) | (357 | ) | |||||||||
| Total other income (expense), net | (928 | ) | (1,552 | ) | 8,280 | 5,800 | ||||||||||
| Income (loss) before income taxes | (2,274 | ) | (1,552 | ) | (785 | ) | (4,611 | ) | ||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net loss from continuing operations | (2,274 | ) | (1,552 | ) | (785 | ) | (4,611 | ) | ||||||||
| Net loss from discontinued operations | (1,866 | ) | - | - | (1,866 | ) | ||||||||||
| Net loss | (4,140 | ) | (1,552 | ) | (785 | ) | (6,477 | ) | ||||||||
| Preferred stock dividends | (113 | ) | - | - | (113 | ) | ||||||||||
| Net loss | $ | (4,253 | ) | $ | (1,552 | ) | $ | (785 | ) | $ | (6,590 | ) | ||||
| Net loss attributable to common shareholders | $ | (6,572 | ) | |||||||||||||
| Net loss attributable to minority shareholders | $ | (18 | ) | |||||||||||||
Eastside Distilling, Inc. and Subsidiaries
Consolidated Statements of Operations
Year Ended December 31, 2023
(Dollars in thousands)
Unaudited
| Historical Eastside Distilling | First Amended and Restated Debt Exchange Agreement | Agreement and Plan of Merger and Reorganization | Total | |||||||||||||
| Sales | $ | 10,798 | $ | (6,817 | ) | $ | 3,794 | $ | 7,775 | |||||||
| Less customer programs and excise taxes | 299 | (105 | ) | - | 194 | |||||||||||
| Net sales | 10,499 | (6,712 | ) | 3,794 | 7,581 | |||||||||||
| Cost of sales | 9,438 | (6,829 | ) | - | 2,609 | |||||||||||
| Gross profit | 1,061 | 117 | 3,794 | 4,972 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing expenses | 1,599 | (126 | ) | 1,891 | 3,364 | |||||||||||
| General and administrative expenses | 4,646 | (2,878 | ) | 11,837 | 13,605 | |||||||||||
| (Gain) loss on disposal of property and equipment | (364 | ) | 367 | - | 3 | |||||||||||
| Total operating expenses | 5,881 | (2,637 | ) | 13,728 | 16,972 | |||||||||||
| Income (loss) from operations | (4,820 | ) | 2,754 | (9,934 | ) | (12,000 | ) | |||||||||
| Other income (expense), net | ||||||||||||||||
| Interest expense | (1,108 | ) | 12 | (1,254 | ) | (2,350 | ) | |||||||||
| Impairment loss | (364 | ) | 364 | - | - | |||||||||||
| Loss on debt to equity conversion | (1,321 | ) | - | - | (1,321 | ) | ||||||||||
| Other income (expense) | 78 | (17 | ) | 297 | 358 | |||||||||||
| Total other income (expense), net | (2,715 | ) | 359 | (957 | ) | (3,313 | ) | |||||||||
| Income (loss) before income taxes | (7,535 | ) | 3,113 | (10,891 | ) | (15,313 | ) | |||||||||
| Provision for income taxes | - | - | 8 | 8 | ||||||||||||
| Net income (loss) from continuing operations | (7,535 | ) | 3,113 | (10,899 | ) | (15,321 | ) | |||||||||
| Net loss from discontinued operations | - | (2,769 | ) | - | (2,769 | ) | ||||||||||
| Net income (loss) | (7,535 | ) | 344 | (10,899 | ) | (18,090 | ) | |||||||||
| Preferred stock dividends | (150 | ) | - | - | (150 | ) | ||||||||||
| Net income (loss) | $ | (7,685 | ) | $ | 344 | $ | (10,899 | ) | $ | (18,240 | ) | |||||
| Net loss attributable to common shareholders | $ | (18,063 | ) | |||||||||||||
| Net loss attributable to minority shareholders | $ | (177 | ) | |||||||||||||