Eastside Distilling(EAST) - 2021 Q3 - Quarterly Report

PART I: FINANCIAL INFORMATION Financial Statements Unaudited consolidated financial statements for Eastside Distilling, Inc. as of September 30, 2021, including balance sheets, operations, cash flows, and detailed notes Consolidated Balance Sheets The consolidated balance sheets reflect a significant improvement in stockholders' equity by September 30, 2021, primarily due to reduced current liabilities Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2021 (Unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $29,440 | $31,732 | | Total Current Assets | $12,063 | $12,841 | | Intangible assets, net | $13,728 | $14,038 | | Total Liabilities | $18,138 | $32,840 | | Total Current Liabilities | $6,568 | $30,259 | | Total Stockholders' Equity (Deficit) | $11,302 | $(1,108) | Consolidated Statements of Operations Consolidated statements of operations for the nine months ended September 30, 2021, show decreased net sales but a significant shift to net income, driven by discontinued operations and other income Statement of Operations Summary (Nine Months Ended Sep 30, in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net Sales | $9,613 | $10,569 | | Gross Profit | $3,038 | $3,550 | | Loss from Operations | $(5,196) | $(6,397) | | Net Income (Loss) from Discontinued Operations | $3,869 | $(227) | | Net Income (Loss) | $30 | $(7,462) | | Net Loss Attributable to Common Shareholders | $(2,258) | $(7,462) | | Basic Net Loss Per Share | $(0.19) | $(0.75) | Consolidated Statements of Cash Flows Consolidated statements of cash flows for the nine months ended September 30, 2021, show net cash used in operations, offset by investing and financing activities, leading to an overall cash increase Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(2,652) | $(2,855) | | Net Cash Provided by Investing Activities | $3,283 | $235 | | Net Cash Provided by Financing Activities | $1,303 | $3,236 | | Net Increase in Cash | $1,934 | $616 | | Cash at End of Period | $2,770 | $959 | Notes to the Consolidated Financial Statements Notes to the consolidated financial statements detail the company's business, liquidity, accounting policies, discontinued operations, debt facilities, related party transactions, and equity activities - The company's primary capital needs for operations and debt repayment are not met by operational cash flow, making it dependent on debt and equity financing[23] - On February 5, 2021, the company sold its Redneck Riviera inventory for $4.7 million and terminated the associated license agreement for an additional $3.0 million, with these activities now classified as discontinued operations[65] - The company is finalizing an amendment to extend the maturity date of its Loan Agreement with Live Oak, which was due November 11, 2021[100][142] - Subsequent to the quarter end, on October 19, 2021, the company raised $2.5 million through a private placement of Series B Convertible Preferred Stock[143][144] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting decreased sales but improved net income for the nine months ended September 30, 2021, driven by asset sales and PPP loan forgiveness, with liquidity enhanced by external capital Results of Operations Results of operations for the nine months ended September 30, 2021, show decreased sales and a slight gross margin decline, offset by significant reductions in operating expenses Sales Breakdown (Nine Months Ended Sep 30, in thousands) | Segment | 2021 | % of Total | 2020 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Wholesale finished goods | $4,234 | 42% | $4,471 | 40% | | Canning & Bottling | $5,898 | 58% | $6,692 | 60% | | Total | $10,138 | | $11,242 | | - Gross margin for the nine-month period decreased from 34% in 2020 to 32% in 2021, primarily due to higher cost of goods and in-bound freight[167] - Sales and marketing expenses for the nine-month period decreased by $1.4 million, from $3.3 million in 2020 to $1.9 million in 2021, mainly due to lower headcount as the company focused sales efforts on western markets[169] - Other income of $2.2 million was recognized in the first nine months of 2021, primarily from the forgiveness of PPP loans and the remeasurement of deferred consideration for the Azuñia acquisition[172] Liquidity and Capital Resources Liquidity and capital resources as of September 30, 2021, show significant improvement in cash and working capital, driven by financing activities and PPP loan forgiveness, with future operations dependent on revenue growth or additional funding - Working capital increased by $22.9 million from December 31, 2020, primarily due to increased cash balances and the repayment or refinancing of current debt[187] - The Small Business Administration (SBA) approved the full forgiveness of the company's $1.4 million Paycheck Protection Program (PPP) loan during 2021[186] Cash Flow Summary (Nine Months Ended Sep 30, in millions) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Operating Activities | $(2.6) | $(2.9) | | Investing Activities | $3.3 | $0.2 | | Financing Activities | $1.3 | $3.2 | Quantitative and Qualitative Disclosures About Market Risk The company is a "smaller reporting company" and is therefore not required to provide the information requested by this item - As a "smaller reporting company," Eastside Distilling is exempt from providing quantitative and qualitative disclosures about market risk[203] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting - Based on an evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[205] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[206] PART II: OTHER INFORMATION Legal Proceedings The company is defending a lawsuit filed by its former CEO and Chairman, Grover Wickersham, disputing allegations of fraud, breach of contract, and defamation - The company is defending a lawsuit filed by former CEO and Chairman Grover Wickersham, which alleges fraud, breach of contract, defamation, and other claims[208] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes in risk factors were reported compared to those in the Form 10-K for the year ended December 31, 2020[211] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[212] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[213] Mine Safety Disclosures This item is not applicable to the company - Not applicable[214] Other Information The company reported no other information for this item - None[215] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - The report includes CEO and CFO certifications pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350, as well as Inline XBRL instance and taxonomy documents[215]