Eastside Distilling(EAST) - 2024 Q2 - Quarterly Report

PART I— FINANCIAL INFORMATION Financial Statements The company's financial position deteriorated significantly by June 30, 2024, marked by a shift to a stockholders' deficit and low cash reserves Consolidated Balance Sheets | Metric | June 30, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $4,947 thousand | $4,537 thousand | | Total Assets | $16,589 thousand | $17,480 thousand | | Total Current Liabilities | $17,168 thousand | $4,205 thousand | | Total Liabilities | $18,523 thousand | $16,627 thousand | | Total Stockholders' Equity (Deficit) | $(1,934) thousand | $853 thousand | - The company's financial position weakened significantly, with stockholders' equity shifting from $853 thousand to a deficit of $(1,934) thousand in the first six months of 2024, primarily due to a substantial increase in current liabilities from $4,205 thousand to $17,168 thousand as debt became current[4][5] Consolidated Statements of Operations | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,952 thousand | $2,661 thousand | $5,363 thousand | $5,514 thousand | | Gross Profit | $153 thousand | $26 thousand | $339 thousand | $667 thousand | | Loss from Operations | $(1,182) thousand | $(1,402) thousand | $(2,232) thousand | $(2,642) thousand | | Net Loss | $(1,488) thousand | $(1,643) thousand | $(2,781) thousand | $(3,241) thousand | | Net Loss per Share (Basic) | $(0.87) | $(1.96) | $(1.65) | $(3.94) | - For Q2 2024, net sales increased by 11% year-over-year, and net loss narrowed, while six-month net sales slightly declined but net loss was reduced, indicating operational improvements or cost controls[6] Consolidated Statements of Cash Flows | Cash Flow Activity (Six Months Ended June 30) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,137) thousand | $(639) thousand | | Net cash provided by investing activities | $95 thousand | $73 thousand | | Net cash provided by financing activities | $1,059 thousand | $682 thousand | | Net increase in cash | $17 thousand | $116 thousand | | Cash at the end of the period | $420 thousand | $839 thousand | - Cash used in operations nearly doubled in the first half of 2024 compared to 2023, with the company relying on financing activities, raising $1,059 thousand from secured credit facilities, to fund operations and ending with a cash balance of only $420 thousand[11] Notes to the Consolidated Financial Statements Notes highlight a going concern warning due to an $85,600 thousand accumulated deficit, mixed segment performance, and recent debt restructuring and financing - The company's independent auditor's report for the year ended December 31, 2023, contained a going concern explanatory paragraph, expressing substantial doubt about the company's ability to continue as a going concern[16] Segment Performance (Six Months Ended June 30) | Segment Performance (Six Months Ended June 30) | 2024 | 2023 | | :--- | :--- | :--- | | Craft C+P Net Sales | $4,146 thousand | $3,381 thousand | | Craft C+P Gross Profit (Loss) | $38 thousand | $(164) thousand | | Spirits Net Sales | $1,217 thousand | $2,133 thousand | | Spirits Gross Profit | $301 thousand | $831 thousand | - On September 29, 2023, the company entered a Debt Satisfaction Agreement, exchanging $6,500 thousand in debt for equity and extending remaining debt maturity to March 31, 2025[69][70] - In May 2024, the company secured $1,100 thousand in new financing through the issuance of 2024 Secured Notes to address liquidity needs[61] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2024 net sales growth to Craft C+P, offsetting Spirits decline, while facing severe liquidity constraints and reliance on external financing Results of Operations Q2 2024 consolidated net sales increased due to strong Craft C+P growth, offsetting a decline in Spirits sales, while gross margin improved - Craft C+P segment sales increased 22% for Q2 2024 due to growth in digital can printing, with 6.0 million cans printed compared to 4.2 million in Q2 2023[102][106] - Spirits segment sales decreased for the six months ended June 30, 2024, primarily due to the absence of $600 thousand in bulk barrel sales that occurred in the prior year[107] Metric (Three Months Ended June 30) | Metric (Three Months Ended June 30) | 2024 | 2023 | | :--- | :--- | :--- | | Consolidated Gross Margin | 5% | 1% | | Craft C+P Gross Margin | 0% | -3% | | Spirits Gross Margin | 26% | 12% | Liquidity and Capital Resources The company faces critical liquidity challenges with significant deficits, relying on asset sales and external financing to meet its needs - As of June 30, 2024, the company had an accumulated deficit of $85,600 thousand and a negative working capital of $12,200 thousand[120] - The company's ability to meet ongoing operating cash needs depends on asset sales, external financing, and improving operating results, with deferred interest payments and ongoing creditor discussions[121] Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," Eastside Distilling is exempt from providing market risk disclosures - The company is exempt from this disclosure requirement due to its status as a "smaller reporting company"[127] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[130] PART II— OTHER INFORMATION Legal Proceedings The company is defending a $285,000 lawsuit from Sandstrom Partners, Inc., while a separate lawsuit by former CEO Grover Wickersham was settled - A complaint filed by Sandstrom Partners, Inc. on March 1, 2023, alleges failure to pay for services and seeks damages of $285,000, which the company intends to defend vigorously[131] - A lawsuit filed by former CEO Grover Wickersham on December 15, 2020, was settled during June 2024[132] Risk Factors The company faces significant risks including potential Nasdaq delisting due to non-compliance with equity and governance requirements, and deferred interest payments - The company is out of compliance with Nasdaq's minimum stockholders' equity requirement of $2,500 thousand, reporting a deficit of $(1,934) thousand as of June 30, 2024, risking delisting[134] - The company is also non-compliant with Nasdaq's independent director and audit committee requirements as of March 7, 2024, but has a cure period to regain compliance[135] - A key operational risk is the deferral of interest payments to certain creditors in 2024, with ongoing discussions but no assured successful outcome[135] Unregistered Sales of Equity Securities and Use of Proceeds The company did not engage in any unregistered sales or repurchases of equity securities during Q2 2024 - There were no unregistered sales of equity securities or company repurchases during the second quarter of 2024[136] Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None reported[136] Other Information No other information was reported for this item - None[136]