10-Q 1 form10-q.htm
false Q3 --12-31 0001534708 P3Y P7Y P7Y 0001534708 2023-01-01 2023-09-30 0001534708 2023-11-14 0001534708 2023-09-30 0001534708 2022-12-31 0001534708 us-gaap:SeriesBPreferredStockMember 2023-09-30 0001534708 us-gaap:SeriesBPreferredStockMember 2022-12-31 0001534708 us-gaap:SeriesCPreferredStockMember 2023-09-30 0001534708 us-gaap:SeriesCPreferredStockMember 2022-12-31 0001534708 2023-07-01 2023-09-30 0001534708 2022-07-01 2022-09-30 0001534708 2022-01-01 2022-09-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2021-12-31 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2021-12-31 0001534708 us-gaap:CommonStockMember 2021-12-31 0001534708 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0001534708 us-gaap:RetainedEarningsMember 2021-12-31 0001534708 2021-12-31 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2022-03-31 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2022-03-31 0001534708 us-gaap:CommonStockMember 2022-03-31 0001534708 us-gaap:AdditionalPaidInCapitalMember 2022-03-31 0001534708 us-gaap:RetainedEarningsMember 2022-03-31 0001534708 2022-03-31 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2022-06-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2022-06-30 0001534708 us-gaap:CommonStockMember 2022-06-30 0001534708 us-gaap:AdditionalPaidInCapitalMember 2022-06-30 0001534708 us-gaap:RetainedEarningsMember 2022-06-30 0001534708 2022-06-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2022-12-31 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2022-12-31 0001534708 us-gaap:CommonStockMember 2022-12-31 0001534708 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001534708 us-gaap:RetainedEarningsMember 2022-12-31 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2023-03-31 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2023-03-31 0001534708 us-gaap:CommonStockMember 2023-03-31 0001534708 us-gaap:AdditionalPaidInCapitalMember 2023-03-31 0001534708 us-gaap:RetainedEarningsMember 2023-03-31 0001534708 2023-03-31 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2023-06-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2023-06-30 0001534708 us-gaap:CommonStockMember 2023-06-30 0001534708 us-gaap:AdditionalPaidInCapitalMember 2023-06-30 0001534708 us-gaap:RetainedEarningsMember 2023-06-30 0001534708 2023-06-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2022-01-01 2022-03-31 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2022-01-01 2022-03-31 0001534708 us-gaap:CommonStockMember 2022-01-01 2022-03-31 0001534708 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-03-31 0001534708 us-gaap:RetainedEarningsMember 2022-01-01 2022-03-31 0001534708 2022-01-01 2022-03-31 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2022-04-01 2022-06-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2022-04-01 2022-06-30 0001534708 us-gaap:CommonStockMember 2022-04-01 2022-06-30 0001534708 us-gaap:AdditionalPaidInCapitalMember 2022-04-01 2022-06-30 0001534708 us-gaap:RetainedEarningsMember 2022-04-01 2022-06-30 0001534708 2022-04-01 2022-06-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2022-07-01 2022-09-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2022-07-01 2022-09-30 0001534708 us-gaap:CommonStockMember 2022-07-01 2022-09-30 0001534708 us-gaap:AdditionalPaidInCapitalMember 2022-07-01 2022-09-30 0001534708 us-gaap:RetainedEarningsMember 2022-07-01 2022-09-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2023-01-01 2023-03-31 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2023-01-01 2023-03-31 0001534708 us-gaap:CommonStockMember 2023-01-01 2023-03-31 0001534708 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-03-31 0001534708 us-gaap:RetainedEarningsMember 2023-01-01 2023-03-31 0001534708 2023-01-01 2023-03-31 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2023-04-01 2023-06-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2023-04-01 2023-06-30 0001534708 us-gaap:CommonStockMember 2023-04-01 2023-06-30 0001534708 us-gaap:AdditionalPaidInCapitalMember 2023-04-01 2023-06-30 0001534708 us-gaap:RetainedEarningsMember 2023-04-01 2023-06-30 0001534708 2023-04-01 2023-06-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2023-07-01 2023-09-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2023-07-01 2023-09-30 0001534708 us-gaap:CommonStockMember 2023-07-01 2023-09-30 0001534708 us-gaap:AdditionalPaidInCapitalMember 2023-07-01 2023-09-30 0001534708 us-gaap:RetainedEarningsMember 2023-07-01 2023-09-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2022-09-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2022-09-30 0001534708 us-gaap:CommonStockMember 2022-09-30 0001534708 us-gaap:AdditionalPaidInCapitalMember 2022-09-30 0001534708 us-gaap:RetainedEarningsMember 2022-09-30 0001534708 2022-09-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2023-09-30 0001534708 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2023-09-30 0001534708 us-gaap:CommonStockMember 2023-09-30 0001534708 us-gaap:AdditionalPaidInCapitalMember 2023-09-30 0001534708 us-gaap:RetainedEarningsMember 2023-09-30 0001534708 us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember EAST:OneDistributorMember 2023-01-01 2023-09-30 0001534708 us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember EAST:OneDistributorMember 2022-01-01 2022-12-31 0001534708 us-gaap:SalesRevenueNetMember us-gaap:SupplierConcentrationRiskMember EAST:OneWholesaleCustomerMember 2023-01-01 2023-09-30 0001534708 us-gaap:SalesRevenueNetMember us-gaap:SupplierConcentrationRiskMember EAST:OneDistributorAndOneWholesaleCustomerMember 2022-01-01 2022-09-30 0001534708 srt:MinimumMember 2023-09-30 0001534708 srt:MaximumMember 2023-09-30 0001534708 EAST:SpirtitsProgramAndCoPackingProgramMember 2023-01-01 2023-09-30 0001534708 EAST:SpiritsProgramMember 2023-01-01 2023-09-30 0001534708 EAST:CopackingProgramMember 2023-01-01 2023-09-30 0001534708 EAST:OneSpiritsCustomerMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember 2023-01-01 2023-09-30 0001534708 EAST:CraftCPMember 2023-01-01 2023-09-30 0001534708 EAST:CraftCPMember 2022-01-01 2022-09-30 0001534708 EAST:SpiritsMember 2023-01-01 2023-09-30 0001534708 EAST:SpiritsMember 2022-01-01 2022-09-30 0001534708 us-gaap:CorporateMember 2023-01-01 2023-09-30 0001534708 us-gaap:CorporateMember 2022-01-01 2022-09-30 0001534708 us-gaap:FurnitureAndFixturesMember 2023-09-30 0001534708 us-gaap:FurnitureAndFixturesMember 2022-12-31 0001534708 EAST:DigitalCanPrinterMember 2023-09-30 0001534708 EAST:DigitalCanPrinterMember 2022-12-31 0001534708 us-gaap:LeaseholdImprovementsMember 2023-09-30 0001534708 us-gaap:LeaseholdImprovementsMember 2022-12-31 0001534708 us-gaap:VehiclesMember 2023-09-30 0001534708 us-gaap:VehiclesMember 2022-12-31 0001534708 EAST:EnterpriseFMTrustMember 2022-01-01 2022-09-30 0001534708 EAST:EnterpriseFMTrustMember 2023-04-01 2023-04-30 0001534708 EAST:EnterpriseFMTrustMember 2023-01-01 2023-09-30 0001534708 EAST:PermitsAndLicensesMember 2023-09-30 0001534708 EAST:PermitsAndLicensesMember 2022-12-31 0001534708 EAST:AzuniaBrandMember 2023-09-30 0001534708 EAST:AzuniaBrandMember 2022-12-31 0001534708 us-gaap:CustomerListsMember 2023-09-30 0001534708 us-gaap:CustomerListsMember 2022-12-31 0001534708 EAST:ProductBrandingMember 2023-09-30 0001534708 EAST:ProductBrandingMember 2022-12-31 0001534708 us-gaap:DepositsMember 2023-09-30 0001534708 us-gaap:DepositsMember 2022-12-31 0001534708 us-gaap:OtherAssetsMember 2023-01-01 2023-09-30 0001534708 us-gaap:OtherAssetsMember 2022-01-01 2022-09-30 0001534708 EAST:NotePayableOneMember 2023-09-30 0001534708 EAST:NotePayableOneMember 2022-12-31 0001534708 EAST:NotePayableTwoMember 2023-09-30 0001534708 EAST:NotePayableTwoMember 2022-12-31 0001534708 EAST:NotePayableOneMember 2023-01-01 2023-09-30 0001534708 EAST:NotePayableTwoMember 2023-01-01 2023-09-30 0001534708 EAST:NotesPayableMember 2023-01-01 2023-09-30 0001534708 EAST:NotesPayableMember 2022-01-01 2022-09-30 0001534708 EAST:NotePurchaseAgreementMember 2022-10-07 0001534708 EAST:NotePurchaseAgreementMember EAST:TQLALLCMember 2022-10-07 2022-10-07 0001534708 EAST:NotePurchaseAgreementMember 2022-10-07 2022-10-07 0001534708 EAST:DebtSatisfactionAgreementMember EAST:AegisAndOtherCreditorsMember 2023-09-29 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember EAST:AegisAndOtherCreditorsMember EAST:SPVMember 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember EAST:AegisAndOtherCreditorsMember 2023-09-30 0001534708 EAST:PurchaseAgreementMember EAST:AccreditedInvestorsMember EAST:SecuredConvertiblePromissoryNotesMember 2021-04-19 0001534708 EAST:PurchaseAgreementMember EAST:AccreditedInvestorsMember EAST:SecuredConvertiblePromissoryNotesMember us-gaap:CommonStockMember 2021-04-19 0001534708 EAST:PurchaseAgreementMember EAST:AccreditedInvestorsMember EAST:SecuredConvertiblePromissoryNotesMember us-gaap:CommonStockMember 2021-04-17 2021-04-19 0001534708 EAST:PurchaseAgreementMember EAST:AccreditedInvestorsMember EAST:SecuredConvertiblePromissoryNotesMember us-gaap:WarrantMember 2021-04-19 0001534708 EAST:PurchaseAgreementMember EAST:AccreditedInvestorsMember EAST:SecuredConvertiblePromissoryNotesMember us-gaap:IPOMember 2021-04-17 2021-04-19 0001534708 EAST:RothCapitalLLCMember 2023-01-01 2023-09-30 0001534708 EAST:SecuredConvertiblePromissoryNotesMember 2023-09-30 0001534708 EAST:SecuredConvertiblePromissoryNotesMember 2023-01-01 2023-09-30 0001534708 EAST:SecuredConvertiblePromissoryNotesMember 2022-04-01 0001534708 EAST:SecuredConvertiblePromissoryNotesMember 2022-04-01 2022-04-01 0001534708 EAST:SecuredConvertiblePromissoryNotesMember us-gaap:CommonStockMember 2022-04-01 0001534708 EAST:NotePurchaseAgreementMember EAST:SubscribersMember 2022-10-13 0001534708 EAST:NotePurchaseAgreementMember EAST:EachOfTheSubscribersMember 2022-10-11 2022-10-13 0001534708 EAST:DebtSatisfactionAgreementMember EAST:SubscribersAndOtherCreditorsMember 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember EAST:SubscribersAndOtherCreditorsMember 2023-09-29 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember EAST:SubscribersMember 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember EAST:SubscribersAndOtherCreditorsMember 2023-09-30 0001534708 EAST:SandstromPartnersIncMember 2023-03-01 2023-03-01 0001534708 2022-01-01 2022-12-31 0001534708 2023-05-12 2023-05-12 0001534708 2023-09-29 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember us-gaap:CommonStockMember 2023-09-29 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember us-gaap:SeriesCPreferredStockMember 2023-09-29 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember 2023-09-29 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember EAST:AegisMember 2023-09-29 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember EAST:LDIInvestmentsLLCMember 2023-09-29 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember EAST:BiggerCapitalFundLPMember 2023-09-29 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember EAST:District2CapitalFundLPMember 2023-09-29 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember EAST:BiggerAndDistrict2Member 2023-09-29 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember EAST:TQLALLCMember 2022-03-21 0001534708 EAST:DebtSatisfactionAgreementMember EAST:TQLALLCMember 2022-03-21 0001534708 EAST:DebtSatisfactionAgreementMember srt:MinimumMember 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember srt:MaximumMember 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember 2023-01-01 2023-09-30 0001534708 EAST:DirectorsAndEmployeesMember 2023-01-01 2023-09-30 0001534708 EAST:DirectorsAndEmployeesMember srt:MinimumMember 2023-09-30 0001534708 EAST:DirectorsAndEmployeesMember srt:MaximumMember 2023-09-30 0001534708 EAST:AtTheMarketPublicPlacementsMember 2023-01-01 2023-09-30 0001534708 EAST:DirectorsMember 2022-01-01 2022-12-31 0001534708 EAST:SubscribersMember 2022-01-01 2022-12-31 0001534708 EAST:NotePurchaseAgreementMember EAST:SubscribersMember 2022-12-31 0001534708 EAST:DirectorsAndSubscribersMember 2022-01-01 2022-12-31 0001534708 EAST:DirectorsAndSubscribersMember srt:MinimumMember 2022-12-31 0001534708 EAST:DirectorsAndSubscribersMember srt:MaximumMember 2022-12-31 0001534708 srt:ChiefExecutiveOfficerMember 2022-04-04 2022-04-05 0001534708 EAST:FormerChiefExecutiveOfficerMember 2022-02-04 2022-02-04 0001534708 EAST:FormerChiefExecutiveOfficerMember 2022-02-04 0001534708 EAST:SecuritiesPurchaseAgreementMember us-gaap:SeriesBPreferredStockMember 2021-10-18 2021-10-19 0001534708 EAST:SecuritiesPurchaseAgreementMember us-gaap:SeriesBPreferredStockMember 2021-10-19 0001534708 EAST:SecuritiesPurchaseAgreementMember EAST:SeriesBConvertiblePreferredStockMember 2021-10-19 0001534708 us-gaap:SeriesBPreferredStockMember 2021-10-18 2021-10-19 0001534708 us-gaap:SeriesBPreferredStockMember 2022-01-01 2022-12-31 0001534708 EAST:SecuritiesPurchaseAgreementMember us-gaap:SeriesBPreferredStockMember 2022-12-31 0001534708 EAST:SecuritiesPurchaseAgreementMember us-gaap:SeriesBPreferredStockMember 2023-01-01 2023-09-30 0001534708 EAST:SecuritiesPurchaseAgreementMember us-gaap:SeriesBPreferredStockMember 2022-01-01 2022-09-30 0001534708 EAST:DebtSatisfactionAgreementMember EAST:SVPMember us-gaap:SeriesCPreferredStockMember 2023-09-29 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember us-gaap:SeriesCPreferredStockMember EAST:SVPMember 2023-09-29 0001534708 EAST:TwoThousandAndSixteenEquityIncentivePlanMember 2016-09-08 0001534708 EAST:TwoThousandAndSixteenEquityIncentivePlanMember 2016-09-07 2016-09-08 0001534708 EAST:TwoThousandAndSixteenEquityIncentivePlanMember 2023-09-30 0001534708 EAST:TwoThousandAndSixteenEquityIncentivePlanMember 2023-01-01 2023-09-30 0001534708 EAST:TQLALLCMember 2022-03-21 0001534708 EAST:TQLALLCMember us-gaap:WarrantMember 2022-03-21 0001534708 us-gaap:WarrantMember 2021-05-12 0001534708 us-gaap:WarrantMember 2021-07-30 0001534708 EAST:NewWarrantSharesMember 2021-07-30 0001534708 us-gaap:WarrantMember EAST:LoanAgreementMember 2020-01-15 0001534708 2022-01-01 2022-01-01 0001534708 2022-01-01 0001534708 EAST:NotePurchaseAgreementMember EAST:TQLALLCMember 2022-12-31 0001534708 EAST:NotePurchaseAgreementMember EAST:AegisMember 2022-10-07 0001534708 EAST:LDIInvestmentsLLCMember 2023-09-29 0001534708 EAST:DebtSatisfactionAgreementMember EAST:LDIInvestmentsLLCMember EAST:SPVMember 2023-09-29 0001534708 us-gaap:SubsequentEventMember EAST:AtTheMarketPublicPlacementsMember 2023-10-01 2023-11-14 iso4217:USD xbrli:shares iso4217:USD xbrli:shares EAST:Segment utr:bbl xbrli:pure

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the quarterly period ended September 30, 2023
   
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the transition period from ______________ to _________________

 

Commission File No.: 001-38182

 

 

 

EASTSIDE DISTILLING, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   20-3937596

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

2321 NE Argyle Street, Unit D

Portland, Oregon 97211

(Address of principal executive offices)

 

Registrant’s telephone number: (971) 888-4264

 

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, $0.0001 par value   EAST   The Nasdaq Stock Market LLC
(Title of Each Class)   (Trading Symbol)   (Name of Each Exchange on Which Registered)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
Emerging growth company  

 

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. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of November 14, 2023, 1,561,953 shares of our common stock, $0.0001 par value, were outstanding.

 

 

 

 
 

 

NOTE REGARDING REVERSE STOCK SPLIT

 

On May 15, 2023, Eastside Distilling, Inc. implemented a one-for-twenty reverse split of its common stock. To facilitate comparative analysis, all statements in this Report regarding numbers of shares of common stock and all references to prices of a share of common stock, if referencing events or circumstances occurring prior to May 15, 2023, have been modified to reflect the effect of the reverse stock split on a pro forma basis.

 

 
 

 

EASTSIDE DISTILLING, INC.

 

FORM 10-Q

 

September 30, 2023

 

TABLE OF CONTENTS

 

    Page
PART I— FINANCIAL INFORMATION 3
     
Item 1. Financial Statements 3
  Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 3
  Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 4
  Consolidated Statements of Stockholders’ Equity (Deficit) for the Nine Months Ended September 30, 2023 and 2022 5
  Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 7
  Notes to the Consolidated Financials Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27
Item 4 Controls and Procedures 31
     
PART II— OTHER INFORMATION 31
     
Item 1 Legal Proceedings 31
Item 1A Risk Factors 32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
Item 3. Defaults Upon Senior Securities 32
Item 4. Mine Safety Disclosures 32
Item 5. Other Information 32
Item 6. Exhibits 32
     
SIGNATURES 33

 

2
 

 

PART I: FINANCIAL INFORMATION

 

ITEM 1 – FINANCIAL STATEMENTS

 

Eastside Distilling, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except shares and per share amounts)

 

         
   September 30, 2023   December 31, 2022 
   (Unaudited)     
Assets          
Current assets:          
Cash  $358   $723 
Trade receivables, net   1,089    876 
Inventories   3,563    4,442 
Prepaid expenses and other current assets   739    579 
Total current assets   5,749    6,620 
Property and equipment, net   4,995    5,741 
Right-of-use assets   2,237    2,988 
Intangible assets, net   5,473    5,758 
Other assets, net   326    369 
Total Assets  $18,780   $21,476 
           
Liabilities and Stockholders’ Equity (Deficit)          
Current liabilities:          
Accounts payable  $1,958   $1,728 
Accrued liabilities   709    1,509 
Deferred revenue   53    18 
Current portion of secured credit facilities, net of debt issuance costs   -    3,442 
Current portion of note payable, related party   92    4,598 
Current portion of notes payable   486    - 
Current portion of lease liabilities   719    991 
Other current liability, related party   -    725 
Total current liabilities   4,017    13,011 
Lease liabilities, net of current portion   1,634    2,140 
Secured credit facilities, related party   2,639    - 
Secured credit facilities, net of debt issuance costs   319    - 
Note payable, related party   -    92 
Notes payable, net of current portion   7,517    7,749 
Total liabilities   16,126    22,992 
           
Commitments and contingencies (Note 13)   -    - 
           
Stockholders’ equity (deficit):          
Common stock, $0.0001 par value; 1,750,000 shares authorized; 1,538,407 and 809,963 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively   -    - 
Preferred stock, $0.0001 par value; 100,000,000 shares authorized; 2,500,000 Series B shares issued and outstanding as of both September 30, 2023 and December 31, 2022   -    - 
Preferred stock, $0.0001 par value; 240,000 shares authorized; 200,000 Series C shares issued and outstanding as of September 30, 2023 and 0 issued and outstanding as of December 31, 2022   -    - 
Additional paid-in capital   83,185    73,505 
Accumulated deficit   

(80,531

)   (75,021)
Total stockholders’ equity (deficit)   2,654    (1,516)
Total Liabilities and Stockholders’ Equity (Deficit)  $18,780   $21,476 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3
 

 

Eastside Distilling, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2023 and 2022

(Dollars and shares in thousands, except per share amounts)

(Unaudited)

 

                         
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2023   2022   2023   2022 
                 
Sales  $3,081   $3,064   $8,717   $11,967 
Less customer programs and excise taxes   98    87    220    393 
Net sales   2,983    2,977    8,497    11,574 
Cost of sales   2,471    2,787    7,318    8,985 
Gross profit   512    190    1,179    2,589 
Operating expenses:                    
Sales and marketing expenses   381    702    1,261    2,078 
General and administrative expenses   832    1,438    3,390    5,116 
(Gain) loss on disposal of property and equipment   (39)   -    (168)   101 
Total operating expenses   1,174    2,140    4,483    7,295 
Loss from operations   (662)   (1,950)   (3,304)   (4,706)
Other income (expense), net                    
Interest expense   (207)   (808)   (862)   (1,976)
Loss on debt to equity conversion   (1,321)   -    (1,321)   - 
Other income   34    25    90    125 
Total other income (expense), net   (1,494)   (783)   (2,093)   (1,851)
Loss before income taxes   (2,156)   (2,733)   (5,397)   (6,557)
Provision for income taxes   -    -    -    - 
Net loss   (2,156)   (2,733)   (5,397)   (6,557)
Preferred stock dividends   (38)   (38)   (113)   (113)
Net loss attributable to common shareholders  $(2,194)  $(2,771)  $(5,510)  $(6,670)
                     
Basic net loss per common share  $(2.00)  $(3.59)  $(5.93)  $(8.76)
Basic weighted average common shares outstanding   1,097    772    929    761 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4
 

 

Eastside Distilling, Inc. and Subsidiaries

Consolidated Statements of Stockholder’s Equity (Deficit)

For the Nine Months Ended September 30, 2023 and 2022

(Dollars and shares in thousands)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   (Deficit) 
   Series B
Preferred Stock
   Series C
Preferred Stock
   Common Stock   Paid-in   Accumulated  

Total Stockholders’

Equity

 
(Shares and dollars in thousands)  Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   (Deficit) 
Balance, December 31, 2021   2,500   $-     -     $ -      740   $-   $72,004   $(58,605)  $13,399 
Stock-based compensation   -    -     -       -      -    -    2    -    2 
Issuance of common stock for services by third parties   -    -     -       -      6    -    119    -    119 
Issuance of common stock for services by employees   -    -     -       -      8    -    207    -    207 
Issuance of detachable warrants on notes payable  -   -  -       -      -    -    948    -    948 
Preferred stock dividends   -    -     -       -      -    -    -    (38)   (38)
Net loss   -    -     -       -      -    -    -    (2,036)   (2,036)
Balance, March 31, 2022   2,500   $-     -     $ -      754   $-   $73,280   $(60,679)  $12,601 
Stock-based compensation   -    -     -       -      -    -    -    -    - 
Issuance of common stock for services by third parties   -    -     -       -      8    -    111    -    111 
Issuance of common stock for services by employees   -    -     -       -      1    -    -    -    - 
Issuance of detachable warrants on notes payable   -    -     -       -      -    -    506    -    506 
Shares issued for cash   -    -     -       -      10    -    197    -    197 
Preferred stock dividends   -    -     -       -      -    -    -    (37)   (37)
Net loss   -    -     -       -      -    -    -    (1,788)   (1,788)
Balance, June 30, 2022   2,500   $-     -     $ -      773   $-   $74,094   $(62,504)  $11,590 
Issuance of detachable warrants on notes payable   -    -     -       -      -    -    136    -    136 
Preferred stock dividends   -    -     -       -      -    -    -    (38)   (38)
Net loss   -    -     -       -      -    -    -    (2,733)   (2,733)
Balance, September 30, 2022   2,500   $-     -     $ -      773   $-   $74,230   $(65,275)  $8,955 

 

5
 

 

Eastside Distilling, Inc. and Subsidiaries

Consolidated Statements of Stockholder’s Equity (Deficit) - Continued

For the Nine Months Ended September 30, 2023 and 2022

(Dollars and shares in thousands)

 

   Series B
Preferred Stock
   Series C
Preferred Stock
   Common Stock   Paid-in   Accumulated  

Total Stockholders’

Equity

 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   (Deficit) 
Balance, December 31, 2022   2,500   $-      -     $ -     810   $-   $73,505   $(75,021)  $(1,516)
Issuance of common stock for services by third parties   -    -      -       -     11    -    83    -    83 
Issuance of common stock for services by employees   -    -      -       -     12    -    60    -    60 
Preferred stock dividends   -    -      -       -     -    -    -    (38)   (38)
Net loss   -    -      -       -     -    -    -    (1,598)   (1,598)
Balance, March 31, 2023   2,500   $-      -     $ -     833   $-   $73,648   $(76,657)  $(3,009)
Shares issued for cash   -    -      -       -     135    -    651    -    651 
Preferred stock dividends   -    -      -       -     -    -    -    (37)   (37)
Net loss   -    -      -       -     -    -    -    (1,643)   (1,643)
Balance, June 30, 2023   2,500   $-      -     $ -     968   $-   $74,299   $(78,337)  $(4,038)
Issuance of common stock for services by third parties   -    -    -    -    121    -    373    -    373 
Issuance of common stock for services by employees   -    -    -    -    11    -    33    -    33 
Shares issued for cash   -    -    -    -    141    -    649    -    649 
Debt to equity conversion   -    -    200    -    297    -    7,831    -    7,831 
Preferred stock dividends   -    -    -    -    -    -    -    (38)   (38)
Net loss   -    -    -    -    -    -    -    (2,156)   

(2,156

)
Balance, September 30, 2023   2,500   $-    200   $-    1,538   $-   $83,185   $(80,531)  $2,654 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6
 

 

Eastside Distilling, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2023 and 2022

(Dollars in thousands)

(Unaudited)

 

         
   2023   2022 
Cash Flows From Operating Activities:          
Net loss  $(5,397)  $(6,557)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities        - 
Depreciation and amortization   1,122    1,104 
Bad debt expense   68    126 
Other income   (25)   - 
(Gain) loss on disposal of assets   (168)   101 
Inventory reserve   (8)   (32)
Loss on debt to equity conversion   1,321    - 
Stock dividend payable   (113)   (113)
Amortization of debt issuance costs   -    1,225 
Interest accrued to secured credit facilities   71    119 
Payment of accrued interest on secured credit facilities   (142)   - 
Interest accrued for amounts due to related parties   363    - 
Payment of accrued interest on amounts due to related parties   (348)   - 
Issuance of common stock in exchange for services of related parties   93    206 
Issuance of common stock in exchange of services of third parties   456    230 
Stock-based compensation   -    3 
Changes in operating assets and liabilities:          
Trade receivables, net   (89)   408 
Inventories   887    1,567 
Prepaid expenses and other assets   (160)   (197)
Right-of-use assets   751    721 
Accounts payable   469    881 
Accrued liabilities   (661)   899 
Other liabilities, related party   556    - 
Deferred revenue   35    62 
Net lease liabilities   (778)   (602)
Net cash (used in) provided by operating activities   (1,697)   151 
Cash Flows From Investing Activities:          
Proceeds from sale of fixed assets   175    12 
Purchases of property and equipment   (199)   (2,495)
Net cash used in investing activities   (24)   (2,483)
Cash Flows From Financing Activities:          
Proceeds from issuance of stock   1,300    197 
Proceeds from secured credit facilities   56    - 
Proceeds from note payable, related party   -    3,500 
Payments of principal on notes payable, related party   -    (275)
Payments of principal on secured credit facilities   -    (2,933)
Payments of principal on notes payable   -    (1,001)
Net cash provided by (used in) financing activities   1,356    (512)
Net decrease in cash   (365)   (2,844)
Cash at the beginning of the period   723    3,276 
Cash at the end of the period  $358   $432 
           
Supplemental Disclosure of Cash Flow Information          
Cash paid during the period for interest  $1,068   $772 
Cash paid for amounts included in measurement of lease liabilities  $1,031   $705 
           
Supplemental Disclosure of Non-Cash Financing Activity          
Debt exchanged for equity  $6,510   $- 
Accrued interest rolled into notes payable  $241   $- 
Exchange of assets for services  $42   $- 
Future proceeds related to installment sales of equipment  $211   $- 
Issuance of detachable warrants on notes payable  $-   $1,590 
Right-of-use assets obtained in exchange for lease obligations  $-   $527 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7
 

 

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)  

 

1. Description of Business

 

Eastside Distilling (the “Company” or “Eastside Distilling”) was incorporated under the laws of Nevada in 2004 under the name of Eurocan Holdings, Ltd. In December 2014, the Company changed its corporate name to Eastside Distilling, Inc. to reflect the acquisition of Eastside Distilling, LLC. The Company manufactures, acquires, blends, bottles, imports, markets and sells a wide variety of alcoholic beverages under recognized brands. The Company currently employs 51 people in the United States.

 

The Company operates a beverage packaging and services business that operates in the beverage segment. During 2022, the Company made substantial investments to expand its product offerings to include digital can printing in the Pacific Northwest (together Craft Canning + Printing, “Craft C+P”). Craft C+P operates mobile filling lines and offers co-packing services with end-to-end production capabilities in Portland, Oregon.

 

The Company’s spirits’ brands span several alcoholic beverage categories, including whiskey, vodka, rum, and tequila. The Company sells products on a wholesale basis to distributors in open states and through brokers in control states.

 

2. Liquidity

 

The Company’s primary capital requirements are for cash used in operating activities and the repayment of debt. Funds for the Company’s cash and liquidity needs have historically not been generated from operations but rather from loans as well as from convertible debt and equity financings. The Company has been dependent on raising capital from debt and equity financings to meet the Company’s operating needs.

 

The Company had an accumulated deficit of $80.5 million as of September 30, 2023, having incurred a net loss of $5.4 million during the nine months ended September 30, 2023.

 

The Company’s ability to meet its ongoing operating cash needs over the next 12 months depends on growing revenues and gross margins, and generating positive operating cash flow primarily through increased sales, improved profit growth, and controlling expenses. In addition, the Company has been negotiating with creditors to reduce the interest burden and improve cash flow. If the Company is unable to reach an agreement with creditors or obtain additional financing, or additional financing is not available on acceptable terms, the Company may seek to sell assets, reduce operating expenses, reduce or eliminate marketing initiatives, and take other measures that could impair its ability to be successful.

 

Although the Company’s audited financial statements for the year ended December 31, 2022 were prepared under the assumption that it would continue operations as a going concern, the report of its independent registered public accounting firm that accompanied the financial statements for the year ended December 31, 2022 contained a going concern explanatory paragraph in which such firm expressed substantial doubt about the Company’s ability to continue as a going concern, based on the financial statements at that time. If the Company cannot continue as a going concern, its stockholders would likely lose most or all of their investment in it.

 

8
 

 

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)

 

3. Summary of Significant Accounting Policies

 

Basis of Presentation and Consolidation

 

The accompanying unaudited consolidated financial statements for Eastside Distilling, Inc. and subsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements in accordance with GAAP have been condensed or eliminated as permitted under the SEC’s rules and regulations. In management’s opinion, the unaudited consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly the Company’s financial position as of September 30, 2023, its operating results for the three and nine months ended September 30, 2023 and 2022 and its cash flows for the nine months ended September 30, 2023 and 2022. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Interim results are not necessarily indicative of the results that may be expected for an entire fiscal year. The consolidated financial statements include the accounts of Eastside Distilling, Inc.’s wholly-owned subsidiaries, including Craft Canning + Bottling, LLC (doing business as Craft Canning + Printing) and its wholly-owned subsidiary Galactic Unicorn Packaging, LLC (the Company’s newly acquired fixed co-packing assets) and MotherLode LLC. All intercompany balances and transactions have been eliminated on consolidation.

 

Use of Estimates

 

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Revenue Recognition

 

Net sales include product sales, less excise taxes and customer programs and incentives. The Company recognizes revenue by applying the following steps in accordance with Accounting Standards Codification (“ASC”) Topic 606 – Revenue from Contracts with Customers: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

 

The Company recognizes sales when merchandise is shipped from a warehouse directly to wholesale customers (except in the case of a consignment sale). For consignment sales, which include sales to the Oregon Liquor Control Commission, the Company recognizes sales upon the consignee’s shipment to the customer. Postage and handling charges billed to customers are also recognized as sales upon shipment of the related merchandise. Shipping terms are generally FOB shipping point, and title passes to the customer at the time and place of shipment or purchase by customers at a retail location. For consignment sales, title passes to the consignee concurrent with the consignee’s shipment to the customer. The customer has no cancellation privileges after shipment or upon purchase at retail locations, other than customary rights of return.

 

Customer Programs

 

Customer programs, which include customer promotional discount programs, are a common practice in the alcoholic beverage industry. The Company reimburses wholesalers for an agreed amount to promote sales of products and to maintain competitive pricing. Amounts paid in connection with customer programs are recorded as reductions to net sales in accordance with ASC 606 - Revenue from Contracts with Customers. Amounts paid in customer programs totaled $0.1 million and $0.2 million for the nine months ended September 30, 2023 and 2022, respectively.

 

Excise Taxes

 

The Company is responsible for compliance with the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) regulations, which includes making timely and accurate excise tax payments. The Company is subject to periodic compliance audits by the TTB. Individual states also impose excise taxes on alcoholic beverages in varying amounts. The Company calculates its excise tax expense based upon units produced and on its understanding of the applicable excise tax laws. Excise taxes totaled $0.1 million and $0.2 million for the nine months ended September 30, 2023 and 2022, respectively.

 

9
 

 

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)

 

Cost of Sales

 

Cost of sales consists of all direct costs related to both spirits and canning for service, labor, overhead, packaging, and in-bound freight charges. Ingredients account for the largest portion of the cost of sales, followed by packaging and production costs.

 

Sales and Marketing Expenses

 

Sales and marketing expenses consist of sponsorships, agency fees, digital media, salary and benefit expenses, travel and entertainment expenses. Sales and marketing costs are expensed as incurred. Advertising and marketing expenses totaled $0.1 million and $0.6 million for the nine months ended September 30, 2023 and 2022, respectively.

 

General and Administrative Expenses

 

General and administrative expenses consist of salary and benefit expenses, travel and entertainment expenses for executive and administrative staff, rent and utilities, professional fees, insurance, and amortization and depreciation expense. General and administrative costs are expensed as incurred.

 

Stock-Based Compensation

 

The Company recognizes as compensation expense all stock-based awards issued to employees. The compensation cost is measured based on the grant-date fair value of the related stock-based awards and is recognized over the service period of stock-based awards, which is generally the same as the vesting period. The fair value of stock options is determined using the Black-Scholes valuation model, which estimates the fair value of each award on the date of grant based on a variety of assumptions including expected stock price volatility, expected terms of the awards, risk-free interest rate, and dividend rates, if applicable. Stock-based awards issued to nonemployees are recorded at fair value on the measurement date and are subject to periodic market adjustments at the end of each reporting period and as the underlying stock-based awards vest.

 

Concentrations

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivables. As of September 30, 2023, one distributor represented 7% of trade receivables. As of December 31, 2022, one distributor represented 15% of trade receivables. Sales to one wholesale customer accounted for 17% of consolidated sales for the nine months ended September 30, 2023. Sales to one distributor and one wholesale customer accounted for 43% of consolidated sales for the nine months ended September 30, 2022.

 

Fair Value Measurements

 

GAAP defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements. GAAP permits an entity to choose to measure many financial instruments and certain other items at fair value and contains financial statement presentation and disclosure requirements for assets and liabilities for which the fair value option is elected. As of September 30, 2023 and December 31, 2022, management has not elected to report any of the Company’s assets or liabilities at fair value under the “fair value option” provided by GAAP.

 

The hierarchy of fair value valuation techniques under GAAP provides for three levels: Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable, generally would require significant management judgment. The three levels for categorizing assets and liabilities under GAAP’s fair value measurement requirements are as follows:

 

  Level 1: Fair value of the asset or liability is determined using cash or unadjusted quoted prices in active markets for identical assets or liabilities.
     
  Level 2: Fair value of the asset or liability is determined using inputs other than quoted prices that are observable for the applicable asset or liability, either directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
     
  Level 3: Fair value of the asset or liability is determined using unobservable inputs that are significant to the fair value measurement and reflect management’s own assumptions regarding the applicable asset or liability.

 

10
 

 

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)

 

None of the Company’s assets or liabilities were measured at fair value as of September 30, 2023 or December 31, 2022. However, GAAP requires the disclosure of fair value information about financial instruments that are not measured at fair value. Financial instruments consist principally of trade receivables, accounts payable, accrued liabilities, notes payable, and the secured credit facilities. The estimated fair value of trade receivables, accounts payable, and accrued liabilities approximate their carrying value due to the short period of time to their maturities. As of September 30, 2023 and December 31, 2022, the principal amounts of the Company’s notes approximate fair value.

 

Items Measured at Fair Value on a Nonrecurring Basis

 

Certain assets and liabilities acquired in a business acquisition are valued at fair value at the date of acquisition due to having indefinite lives. The Company, on an annual basis, tests the indefinite life assets for impairment. If an indefinite life asset is found to be impaired, then the Company will estimate its useful life and amortize the asset over the remainder of its useful life.

 

Inventories

 

Inventories primarily consist of bulk and bottled liquor and raw materials and are stated at the lower of cost or market. Cost is determined using an average costing methodology, which approximates cost under the first-in, first-out (“FIFO”) method. A portion of the Company’s finished goods inventory is held by certain independent distributors on consignment until it is sold to a third party. The Company regularly monitors inventory quantities on hand and records write-downs for excess and obsolete inventories based primarily on the Company’s estimated forecast of product demand and production requirements. Such write-downs establish a new cost basis of accounting for the related inventory.

 

Property and Equipment

 

Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, ranging from three to seven years. Amortization of leasehold improvements is computed using the straight-line method over the life of the lease or the useful lives of the assets, whichever is shorter. The cost and related accumulated depreciation and amortization of property and equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is reported as current period income or expense. The costs of repairs and maintenance are expensed as incurred.

 

Intangible Assets / Goodwill

 

The Company accounts for certain intangible assets at cost. Management reviews these intangible assets for probable impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If there is an indication of impairment, management would prepare an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. If these estimated cash flows were less than the carrying amount, an impairment loss would be recognized to write down the asset to its estimated fair value. The Company performed a qualitative assessment of certain of its intangible assets as of September 30, 2023 and determined that they were not impaired.

 

11
 

 

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)

 

Long-lived Assets

 

The Company accounts for long-lived assets, including certain intangible assets, at amortized cost. Management reviews long-lived assets for probable impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If there is an indication of impairment, management would prepare an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. If these estimated cash flows were less than the carrying amount of the asset, an impairment loss would be recognized to write down the asset to its estimated fair value. The Company performed a qualitative assessment of certain of its long-lived assets as of September 30, 2023 and determined that they were not impaired.

 

Comprehensive Income

 

The Company did not have any other comprehensive income items in either the nine months ended September 30, 2023 or 2022.

 

Accounts Receivable Factoring Program

 

The Company had two accounts receivable factoring programs: one for its spirits customers (the “spirits program”) that had a zero balance at September 30, 2023 and another for its co-packing customers (the “co-packing program”) that terminated in August 2023. Under the programs, the Company has the option to sell certain customer account receivables in advance of payment for 75% (spirits program) or 85% (co-packing program) of the amount due. When the customer remits payment, the Company receives the remaining balance. For the spirits program, interest is charged on the advanced 75% payment at a rate of 2.4% for the first 30 days plus 1.44% for each additional ten-day period. For the co-packing program, interest is charged against the greater of $0.5 million or the total funds advanced at a rate of 1% plus the prime rate published in the Wall Street Journal. Under the terms of both agreements, the factoring provider has full recourse against the Company should the customer fail to pay the invoice. In accordance with ASC Topic 860 – Transfers and Servicing, the Company has concluded that these agreements have met all three conditions identified in ASC Topic 860-10-40-5 (a) – (c) and have accounted for this activity as a sale. Given the quality of the factored accounts, the Company has not recognized a recourse obligation. In certain limited instances, the Company may provide collection services on the factored accounts but does not receive any fees for acting as the collection agent, and as such, the Company has not recognized a service obligation asset or liability. The Company factored $0.7 million of invoices and incurred $20,821 in fees associated with the factoring programs during the nine months ended September 30, 2023.

 

Reclassification of Prior Year Presentation

 

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

 

4. Business Segment Information

 

The Company’s internal management financial reporting consists of Craft C+P, Eastside spirits and corporate. Craft C+P offers digital can printing and co-packing services in Portland, Oregon allowing it to offer end-to-end production capabilities. Craft C+P operates 13 mobile lines in Washington and Oregon. The spirits brands span several alcoholic beverage categories, including whiskey, vodka, rum, and tequila and are sold on a wholesale basis to distributors in open states, and brokers in control states. The Company’s principal area of operation is in the U.S. and has one spirits customer that represents 17% of its revenue. Corporate consists of key executive and accounting personnel and corporate expenses such as public company and board costs, as well as interest on debt.

 

The measure of profitability reviewed are condensed statements of operations and gross margins. These business segments reflect how operations are managed, operating performance is evaluated and the structure of internal financial reporting. Total asset information by segment is not provided to, or reviewed by, the chief operating decision maker (“CODM”) as it is not used to make strategic decisions, allocate resources or assess performance. The accounting policies of the segments are the same as those described for the Company in the Summary of Significant Accounting Policies in Note 3.

 

12
 

 

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)

 

Segment information was as follows for the nine months ended September 30, 2023 and 2022:

 

(Dollars in thousands)  2023   2022 
Craft C+P          
Sales  $5,637   $4,381 
Net sales   5,558    4,281 
Cost of sales   5,378    4,809 
Gross profit   180    (528)
Total operating expenses   2,013    2,813 
Net loss   (1,812)   (3,273)
Gross margin   3%   -12%
           
Interest expense  $12   $32 
Depreciation and amortization   1,008    982 
Significant noncash items:          
(Gain) loss on disposal of property and equipment   (171)   113 
Stock compensation   -    148 
           
Spirits          
Sales  $3,080   $7,586 
Net sales   2,939    7,293 
Cost of sales   1,940    4,176 
Gross profit   999    3,117 
Total operating expenses   1,183    1,963 
Net income (loss)   (127)   1,179 
Gross margin   34%   43%
           
Depreciation and amortization  $114   $122 
Significant noncash items:          
(Gain) loss on disposal of property and equipment   3    (12)
           
Corporate          
Total operating expenses  $1,287   $2,519 
Net loss   (3,458)   (4,463)
           
Interest expense  $850   $1,944 
Significant noncash items:          
Stock compensation   98    498 
Loss on debt to equity conversion   1,321    - 

 

Craft C+P’s sales increased due to new digital can printing revenues, offset by lower mobile revenues. Spirits’ sales in 2022 included bulk inventory sales of $4.4 million. During the nine months ended September 30, 2023, the Company undertook restructuring actions to reduce volumes in unprofitable market segments and incrementally restricting actions to lower production costs and improve profitability.

 

5. Inventories

 

Inventories consisted of the following:

 

(Dollars in thousands)  September 30, 2023   December 31, 2022 
Raw materials  $2,424   $3,127 
Finished goods   1,139    1,315 
Total inventories  $3,563   $4,442 

 

13
 

 

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)

 

6. Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets consisted of the following:

 

(Dollars in thousands)  September 30, 2023   December 31, 2022 
Prepayment of fixed assets  $332   $346 
Prepayment of inventory   157    - 
Other   250    233 
Total prepaid expenses and other current assets  $739   $579 

 

7. Property and Equipment

 

Property and equipment consisted of the following:

 

(Dollars in thousands)  September 30, 2023   December 31, 2022 
Furniture and fixtures  $3,641   $4,093 
Digital can printer   4,342    4,216 
Leasehold improvements   1,529    1,529 
Vehicles   752    222 
Total cost   10,264    10,060 
Less accumulated depreciation   (5,269)   (4,319)
Total property and equipment, net  $4,995   $5,741 

 

Purchases of property and equipment totaled $0.2 million and $2.5 million for the nine months ended September 30, 2023 and 2022, respectively. Depreciation expense totaled $0.8 million for both the nine months ended September 30, 2023 and 2022, respectively.

 

During the nine months ended September 30, 2023, the Company disposed of fixed assets for proceeds of $0.2 million, including future proceeds of installment sales of $0.2 million, with a net book value of $0.3 million resulting in a gain of $0.2 million. During the nine months ended September 30, 2022, the Company disposed of fixed assets with a net book value of $0.1 million resulting in a loss on disposal of fixed assets of $0.1 million.

 

During the nine months ended September 30, 2022, the Company entered into a master equity lease agreement with Enterprise FM Trust (“Enterprise”). Per the agreement, the Company delivered to Enterprise the titles to certain vehicles resulting in a loss on disposal of $0.1 million, which is included in the $0.1 million loss from 2022 above. In return, the Company directly leased the vehicles from Enterprise, which also managed the maintenance of the vehicles. In April 2023, the master equity lease agreement matured and the titles to the vehicles were returned to the Company, which resulted in a gain on disposal of $0.1 million, which is included in the $0.1 million gain from 2023 above.

 

8. Intangible Assets

 

Intangible assets consisted of the following:

 

(Dollars in thousands)   September 30, 2023     December 31, 2022  
Permits and licenses   $  25     $ 25  
Azuñia brand     4,517       4,492  
Customer lists     2,895       2,895  
Total intangible assets     7,437       7,412  
Less accumulated amortization      (1,964 )     (1,654 )
Intangible assets, net   $  5,473     $ 5,758  

 

14
 

 

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)

 

The customer list is being amortized over a seven-year life. Amortization expense totaled $0.3 million for both the nine months ended September 30, 2023 and 2022.

 

The permits and licenses, and Azuñia brand have all been determined to have an indefinite life and will not be amortized. The Company, on an annual basis, tests the indefinite life assets for impairment. If the carrying value of an indefinite life asset is found to be impaired, then the Company will record an impairment loss and reduce the carrying value of the asset.

 

9. Other Assets

 

Other assets consisted of the following:

 

(Dollars in thousands)  September 30, 2023   December 31, 2022 
Product branding  $400   $400 
Deposits   255    256 
Total other assets   655    656 
Less accumulated amortization   (329)   (287)
Other assets, net  $326   $369 

 

As of September 30, 2023, the Company had $0.4 million of capitalized costs related to services provided for the rebranding of its existing product line. This amount is being amortized over a seven-year life.

 

Amortization expense totaled $42,857 for both the nine months ended September 30, 2023 and 2022.

 

The deposits represent office lease deposits.

 

10. Leases

 

The Company has various lease agreements in place for facilities, equipment and vehicles. Terms of these leases include, in some instances, scheduled rent increases, renewals, purchase options and maintenance costs, and vary by lease. These lease obligations expire at various dates through 2027. The Company determines if an arrangement is a lease at inception. As the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate based on information available at commencement to determine the present value of the lease payments. Right-of-use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less (“short-term leases”) are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. As of September 30, 2023, the amount of right-of-use assets and lease liabilities were $2.2 million and $2.4 million, respectively. Aggregate lease expense for the nine months ended September 30, 2023 was $1.8 million, consisting of $1.0 million in operating lease expense for lease liabilities and $0.8 million in short-term lease cost.

 

Maturities of lease liabilities as of September 30, 2023 were as follows:

 

(Dollars in thousands)  Operating Leases  

Weighted-

Average

Remaining

Term in Years

 
2023  $231      
2024   821      
2025   805      
2026   632      
2027   141      
Thereafter   -      
Total lease payments   2,630      
Less imputed interest (based on 6.7% weighted-average discount rate)   (277)     
Present value of lease liability  $2,353    3.04 

 

15
 

 

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)

 

11. Notes Payable

 

Notes payable consisted of the following:

 

(Dollars in thousands)  September 30, 2023   December 31, 2022 
    486    7,749 
Promissory notes payable bearing interest of 6.0%. The notes have a 36-month term with maturity in April 2024. Accrued interest is paid in accordance with a monthly amortization schedule.  $486   $7,749 
Amended and restated promissory notes payable bearing interest of 8.0%. The notes mature in April 2025. Accrued interest is paid in accordance with an amortization schedule.   7,517    - 
Total notes payable   8,003    7,749 
Less current portion   (486)   - 
Long-term portion of notes payable  $7,517   $7,749 

 

The Company paid $0.1 million and $0.4 million in interest on notes for the nine months ended September 30, 2023 and 2022, respectively.

 

Maturities on notes payable as of September 30, 2023 were as follows:

 

(Dollars in thousands)      
2023  $ - 
2024    486 
2025    7,517 
2026    - 
2027    - 
Thereafter    - 
Total  $ 8,003 

 

12. Secured Credit Facilities

 

Note Purchase Agreement

 

On October 7, 2022, the Company entered into a Note Purchase Agreement dated as of October 6, 2022 with Aegis Security Insurance Company (“Aegis”). Pursuant to the Note Purchase Agreement, Aegis purchased from the Company a secured promissory note in the principal amount of $4.5 million (the “Aegis Note”). Aegis paid for the Aegis Note by paying $3.3 million to TQLA to fully satisfy a secured line of credit promissory note that the Company issued to TQLA on March 21, 2022; and the remaining $1.2 million was paid in cash to the Company. The Aegis Note bears interest at 9.25% per annum, payable every three months. The principal amount of the Aegis Note will be payable on March 31, 2025. The Company pledged substantially all of its assets to secure its obligations to Aegis under the Aegis Note.

 

16
 

 

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)

 

On September 29, 2023, the Company entered into a Debt Satisfaction Agreement with Aegis and other creditors, pursuant to which the Aegis Note was amended and restated. See: Note 15, Stockholders Equity – Debt Satisfaction Agreement. Principal and interest of $1.9 million were exchanged for equity issued to a special purpose vehicle, The B.A.D. Company, LLC (the SPV), in which Aegis holds a 29% interest. As of September 30, 2023, the principal balance of the Aegis Note was $2.6 million and interest expense accrued was $669.

 

6% Secured Convertible Promissory Notes

 

On April 19, 2021, the Company entered into a securities purchase agreement (“Purchase Agreement”) with accredited investors (“Subscribers”) for their purchase of up to $3.3 million of principal amount of 6% secured convertible promissory notes of the Company (“Note” or “Notes”), which notes are convertible into shares (“Conversion Shares”) of the Company’s common stock, par value $0.0001 per share pursuant to the terms and conditions set forth in the Notes with an initial conversion price of $44.00. In connection with the purchase of such Notes, each Subscriber received a warrant (“Existing Warrant”), to purchase a number of shares of common stock (“Warrant Shares”) equal to 60% of the principal amount of any Note issued to such Subscriber divided by the conversion price of the Note issued to such Subscriber, at an exercise price equal to $52.00. In connection with the Purchase Agreement, the Company entered into a Security Agreement under which it granted the Subscribers a security interest in certain assets of the Company (the “Security Agreement”) and a Registration Rights Agreement under which the Company agreed to register for resale the Conversion Shares and the Warrant Shares. Concurrently therewith, the Company and the investors closed $3.3 million of the private offering.

 

Roth Capital, LLC acted as placement agent in the private offering, and the Company paid the Placement Agent a cash fee of five percent (5%) of the gross proceeds therefrom. The Company received $3.1 million in net proceeds from the closing, after deducting the fee payable to the Placement Agent and the legal fees of the Subscribers in connection with the transaction. The Company used the proceeds to repay prior outstanding notes payable and for working capital and general corporate purposes.

 

Interest on the Notes accrued at a rate of 6% per annum and was payable either in cash or in shares of the Company’s common stock at the conversion price in the Note on each of the six and twelve month anniversaries of the issuance date and on the maturity date of October 18, 2022.

 

All amounts due under the Notes are convertible at any time after the issuance date, in whole or in part (subject to rounding for fractional shares), at the option of the holders into the Company’s common stock at a fixed conversion price, which is subject to adjustment as summarized below. The Notes were initially convertible into the Company’s common stock at an initial fixed conversion price of $44.00 per share. This conversion price is subject to adjustment for stock splits, combinations, or similar events, among other adjustments. On April 1, 2022, the Company and the holders agreed to a reduction of the conversion price of the 6% secured convertible promissory notes to $26.00 per share in connection with the Company’s issuance of a common stock purchase warrant to TQLA covering its loan amount of $3.5 million with a common stock value of $24.00 per share.

 

The Notes contain customary triggering events including but not limited to: (i) failure to make payments when due under the Notes; and (ii) bankruptcy or insolvency of the Company. If a triggering event occurs, each holder may require the Company to redeem all or any portion of the Notes (including all accrued and unpaid interest thereon), in cash.

 

The Notes are secured by a subordinated security interest in the Company’s assets pursuant to the terms of a Security Agreement entered into between the Company and the Subscribers.

 

On October 13, 2022, the Company entered into an Amendment Agreement with the holders of the 6% Secured Convertible Promissory Notes. The Amendment Agreement changed the Maturity Date of the Notes from October 18, 2022 to November 18, 2022. In consideration of the extension, the Company issued 4,808 shares of its common stock to each of the Subscribers.

 

On September 29, 2023, the Company entered into a Debt Satisfaction Agreement with the Subscribers and other creditors, pursuant to which the Maturity Date of the Notes was extended from November 18, 2022 to March 31, 2025 and interest accrues at 9% per annum. See: Note 15, Stockholders Equity – Debt Satisfaction Agreement. Principal and interest on the Notes of $3.3 million was exchanged for equity issued to the SPV, in which the Subscribers held a 50% ownership interest, and the Notes were then amended and restated. As of September 30, 2023, the principal balance was $0.4 million and interest expense accrued was $100.

 

17
 

 

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)

 

13. Commitments and Contingencies

 

Legal Matters

 

On March 1, 2023, Sandstrom Partners, Inc. filed a complaint in the Circuit Court of the State of Oregon for the County of Multnomah alleging the Company failed to pay for its services pursuant to an agreement entered into on October 16, 2019. The complaint seeks damages of $285,000, plus a judicial declaration, due to the Company’s failure to pay for the services. The Company believes that it paid for services rendered and, if any balance is outstanding, it is minimal. The Company intends to defend the case vigorously.

 

On December 15, 2020, Grover Wickersham filed a complaint in the United States District Court for the District Court of Oregon against the Company. Mr. Wickersham, the former CEO and Chairman of the Board of the Company, has asserted causes of action for fraud in the inducement, breach of contract, breach of the implied covenant of good faith and fair dealing, defamation, interference with economic advantage, elder financial abuse, and dissemination of false and misleading proxy materials. The Company disputes the allegations and intends to defend the case vigorously.

 

The Company is not currently subject to any other material legal proceedings; however, it could be subject to legal proceedings and claims from time to time in the ordinary course of its business, or legal proceedings it considered immaterial may in the future become material. Regardless of the outcome, litigation can, among other things, be time consuming and expensive to resolve, and can divert management resources.

 

14. Net Income (Loss) per Common Share

 

Basic income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period, without considering any dilutive items. Potentially dilutive securities consist of the incremental common stock issuable upon exercise of stock options, convertible notes and warrants. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. There were no anti-dilutive common shares included in the calculation of income (loss) per common share as of September 30, 2023 and December 31, 2022.

 

15. Stockholders’ Equity

 

Reverse Stock Split

 

All shares and per share information in these financial statements has been adjusted to give effect to the 1-for-20 reverse stock split of the Company’s common stock effected on May 12, 2023.

 

Debt Satisfaction Agreement

 

On September 29, 2023, the Company entered into a Debt Satisfaction Agreement (the “DSA”) with the SPV, Aegis, Bigger Capital Fund, LP (“Bigger”), District 2 Capital Fund, LP (“District 2”), LDI Investments, LLC (“LDI”) and TQLA, LLC. The SPV is a special purpose vehicle whose equity is shared 50% by Bigger and District 2 and 50% by Aegis and LDI.

 

Pursuant to the DSA, on September 29, 2023, the Company issued to the SPV 296,722 shares of the Company’s common stock and 200,000 shares of its Series C Preferred Stock, and executed a Registration Rights Agreement providing that the Company will register for public resale that common stock and the common stock issuable upon conversion of the Series C Preferred Stock. In exchange for that equity, the Company’s debts to the members of the SPV were reduced by a total of $6.5 million and the Company recognized a loss on the conversion of $1.3 million for the nine months ended September 30, 2023. Specifically the debt was reduced as follows:

 

the principal balance of the Secured Promissory Note issued by the Company to Aegis on October 6, 2022 was reduced by $1.9 million;

 

the Company’s debt to LDI of $1.4 million arising from advances made by LDI to the Company during the past 10 months was eliminated;

 

the aggregate principal balance of the Secured Convertible Promissory Notes issued by the Company to Bigger in April and May of 2021 was reduced by $1.6 million; and

 

the aggregate principal balance of the Secured Convertible Promissory Notes issued by the Company to District 2 in April and May of 2021 was reduced by $1.6 million.

 

18
 

 

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)

 

Further pursuant to the DSA:

 

the maturity date of the secured debt listed above as well as unsecured notes issued by the Company and held by Bigger and District 2 in the aggregate amount of $7.4 million was deferred to March 31, 2025 and the interest rate on all such debt was increased to 8% per annum;

 

the Company, Aegis, Bigger and District 2 entered into an Intercreditor Agreement, pursuant to which the remaining secured debt obligations of the Company to Aegis, Bigger and District 2 were made pari passu;

 

the Common Stock Purchase Warrant issued by the Company to TQLA LLC on March 21, 2022, which permits TQLA LLC to purchase up to 145,834 shares of the Company’s common stock, was amended to prevent any exercise of the Warrant that would result in the portion of the cumulative voting power in the Company that the holder and its affiliates may own after the conversion to 9.99%. The Beneficial Ownership Limitation may be increased to 19.99% by the holder upon 61 days advance notice to the Company.

 

The DSA mandates that the Company obtain shareholder approval of an increase in the Company’s authorized common stock from 1,750,000 shares to 6,000,000 shares. If the increase is not approved by the earlier of the first date on which the Company has no authorized and unissued common stock or March 31, 2024, the Company will be required to pay the SPV liquidated damages of $.01 million per month for twelve months or until shareholder approval is obtained, if sooner. Until shareholder approval of the increase in authorized shares is obtained, the Company is not permitted to issue any capital stock or capital stock derivatives, with certain specified exceptions.

 

Issuance of Common Stock

 

During the nine months ended September 30, 2023, the Company issued 155,554 shares of common stock to directors and employees for stock-based compensation of $0.5 million. The shares were valued using the closing share price of the Company’s common stock on the date of grant, within the range of $3.05 to $7.40 per share.

 

During the nine months ended September 30, 2023, the Company sold 276,167 shares of common stock for net proceeds of $1.3 million in at-the-market public placements.

 

On September 29, 2023, pursuant to the DSA (see discussion above), the Company issued to the SPV 296,722 shares of common stock and 200,000 shares of its Series C Preferred Stock. In exchange for that equity, the Company’s debts to the members of the SPV were reduced by a total of $6.5 million.

 

During the year ended December 31, 2022, the Company issued 19,265 shares of common stock to directors and 4,808 shares of its common stock to each of the Subscribers of the 6% Secured Convertible Promissory Notes for stock-based compensation of $0.3 million These shares were valued using the closing share price of the Company’s common stock on the date of grant, within the range of $5.60 to $19.20 per share.

 

On April 5, 2022, the Company sold 10,000 shares of common stock to its Chief Executive Officer for proceeds of $0.2 million based on the market price of the stock at that date.

 

On February 4, 2022, 8,500 shares were issued at $24.20 per share to the Company’s former Chief Executive Officer pursuant to his separation agreement for stock-based compensation of $0.2 million.

 

19
 

 

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)

 

Issuance of Series B Preferred Stock

 

On October 19, 2021, Company entered into a securities purchase agreement (“Purchase Agreement”) with an accredited investor (“Subscriber”) for its purchase of 2.5 million shares (“Preferred Shares”) of Series B Convertible Preferred Stock (“Series B Preferred Stock”) at a purchase price of $1.00 per Preferred Share, which Preferred Shares are convertible into shares of the Company’s common stock pursuant to the terms and conditions set forth in a Certificate of Designation Establishing Series B Preferred Stock of the Company with an initial conversion price of $62.00 per share. 42,500 shares of common stock were reserved for issuance in the event of conversion of the Preferred Shares.

 

The Series B Preferred Stock accrues dividends at a rate of 6% per annum, payable annually on the last day of December of each year. Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends are payable at the Company’s option either in cash or “in kind” in shares of common stock; provided, however that dividends may only be paid in cash following the fiscal year in which the Company has net income (as shown in its audited financial statements contained in its Annual Report on Form 10-K for such year) of at least $0.5 million. For “in-kind” dividends, holders will receive that number of shares of common stock equal to (i) the amount of the dividend payment due such stockholder divided by (ii) the volume weighted average price of the common stock for the 90 trading days immediately preceding a dividend date (“VWAP”). For the year ended December 31, 2022, the Company issued dividends of 23,005 shares of common stock at a VWAP of $6.60 per share. For both the nine months ended September 30, 2023 and 2022, the Company accrued $0.1 million of preferred dividends.

 

Issuance of Series C Preferred Stock

 

On September 29, 2023, the Company entered into the DSA, pursuant to which the Company issued to the SVP 200,000 shares of its Series C Preferred Stock. Each share of Series C Preferred Stock has a stated value of $28.025 and is convertible into shares of the Company’s common stock pursuant to the terms and conditions set forth in a Certificate of Designation Establishing Series C Preferred Stock with an initial conversion price of $3.05 per share.

 

Stock-Based Compensation

 

On September 8, 2016, the Company adopted the 2016 Equity Incentive Plan (the “2016 Plan”). Pursuant to the terms of the plan, on January 1, 2022 the number of shares available for grant under the 2016 Plan reset to 261,257 shares, equal to 8% of the number of outstanding shares of the Company’s capital stock, calculated on an as-converted basis, on March 31 of the preceding calendar year, and then added to the prior year plan amount. As of September 30, 2023, there were 2,487 options and 355,774 restricted stock units (“RSUs”) outstanding under the 2016 Plan, with vesting schedules varying between immediate or three (3) years from the grant date.

 

A summary of all stock option activity as of and for the nine months ended September 30, 2023 is presented below:

 

   # of Options   Weighted-
Average
Exercise Price
 
Outstanding as of December 31, 2022   2,587   $63.20 
           
Options canceled   (100)   91.40 
Outstanding as of September 30, 2023   2,487   $62.07 
           
Exercisable as of September 30, 2023   2,487   $62.07 

 

The aggregate intrinsic value of options outstanding as of September 30, 2023 was $0. As of September 30, 2023, all options vested.

 

20
 

 

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)

 

The Company uses the Black-Scholes valuation model to measure the grant-date fair value of stock options. The grant-date fair value of stock options issued to employees is recognized on a straight-line basis over the requisite service period. Stock-based awards issued to nonemployees are recorded at fair value on the measurement date and are subject to periodic market adjustments as the underlying stock-based awards vest.

 

To determine the fair value of stock options using the Black-Scholes valuation model, the calculation takes into consideration the effect of the following:

 

  Exercise price of the option
  Fair value of the Company’s common stock on the date of grant
  Expected term of the option
  Expected volatility over the expected term of the option
  Risk-free interest rate for the expected term of the option

 

The calculation includes several assumptions that require management’s judgment. The expected term of the options is calculated using the simplified method described in GAAP. The simplified method defines the expected term as the average of the contractual term and the vesting period. Estimated volatility is derived from volatility calculated using historical closing prices of common shares of similar entities whose share prices are publicly available for the expected term of the options. The risk-free interest rate is based on the U.S. Treasury constant maturities in effect at the time of grant for the expected term of the options.

 

The Company did not issue any additional options during the nine months ended September 30, 2023.

 

For the nine months ended September 30, 2023 and 2022, net compensation expense related to stock options was $0 and $2,926, respectively.

 

Warrants

 

On March 21, 2022, the Company entered into a promissory note with TQLA LLC to accept a one year loan of $3.5 million. In addition, the Company issued a common stock purchase warrant to TQLA covering the loan amount with an exercise price of $24.00 per share. The note payable was fully repaid in October 2022. The common stock purchase warrant expires in March 2027. The warrants were amended pursuant to the Debt Satisfaction Agreement (See discussion above) to prevent any exercise that would result in the warrant-holder and affiliates acquiring cumulative voting power in excess of 9.99%. This Beneficial Ownership Limitation may be increased to 19.99% upon 61 days advance notice to the Company.

 

From April 19, 2021 through May 12, 2021, the Company issued in a private placement Existing Warrants to purchase up to 45,000 shares of common stock at an exercise price of $52.00 per Warrant Share. On July 30, 2021, the Company entered into Inducement Letters with the holders of the Existing Warrants whereby such holders agreed to exercise for cash their Existing Warrants to purchase the 45,000 Warrant Shares in exchange for the Company’s agreement to issue new warrants (the “New Warrants”) to purchase up to 45,000 shares of common stock (the “New Warrant Shares”). The New Warrants have substantially the same terms as the Existing Warrants, except that the New Warrants have an exercise price of $60.00 per share and are exercisable until August 19, 2026.

 

On January 15, 2020, the Company and its subsidiaries entered into a loan agreement (the “Loan Agreement”) between the Company and Live Oak Banking Company (“Live Oak”), a North Carolina banking corporation (the “Lender”) to refinance existing debt of the Company and to provide funding for general working capital purposes In connection with the Loan Agreement, the Company issued to the Lender a warrant to purchase up to 5,000 shares of the Company’s common stock at an exercise price of $78.80 per share (the “Warrant”). The Warrant expires on January 15, 2025. In connection with the issuance of the Warrant, the Company granted the Lender piggy-back registration rights with respect to the shares of common stock issuable upon exercise of the Warrant, subject to certain exceptions.

 

21
 

 

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)

 

A summary of all warrant activity as of and for the nine months ended September 30, 2023 is presented below:

 

 

   Warrants   Weighted-
Average
Remaining
Life (Years)
   Weighted-
Average
Exercise
Price
   Aggregate
Intrinsic
Value
 
Outstanding as of December 31, 2022   201,667    3.8   $33.40   $- 
                     
Outstanding as of September 30, 2023   201,667    3.8   $33.40   $- 

 

16. Related Party Transactions

 

The following is a description of transactions since January 1, 2022 as to which the amount involved exceeds the lesser of $0.1 million or one percent (1%) of the average of total assets at year-end for the last two completed fiscal years, which was $0.3 million, and in which any related person has or will have a direct or indirect material interest, other than equity, compensation, termination and other arrangements.

 

TQLA, LLC

 

During 2022, the Company entered into a Secured Line of Credit Promissory Note (the “TQLA Note”) with TQLA LLC and amended it twice for total borrowing of $3.3 million. TQLA LLC is owned by Stephanie Kilkenny, a member of the Company’s Board of Directors, and her husband, Patrick Kilkenny.

 

Aegis Security Insurance Company

 

On October 7, 2022, the Company entered into a Note Purchase Agreement with Aegis. Pursuant to the Note Purchase Agreement, Aegis purchased from the Company a secured promissory note in the principal amount of $