UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the transition period from ______________ to _________________

Commission File No.:001-38182

EASTSIDE DISTILLING, INC.

(Exact name of registrant as specified in its charter)

1001 SE Water Avenue, Suite 3902321 NE Argyle Street, Unit D

Portland, Oregon 9721497211

(Address of principal executive offices)

Issuer’sRegistrant’s telephone number:(971) (971) 888-4264

2150 SE Hanna Harvester DriveSecurities registered pursuant to Section 12(b) of the Act:

Portland, Oregon 97222

(Former name, former address and former fiscal year, if changed since last report)

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 [X] ☒ No [  ]☐

Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [X] ☒ 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.

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 [X] ☒

As of NovemberAugust 14, 2017, 4,824,9902023, 1,109,176 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

SeptemberJune 30, 20172023

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION

ITEM 1 –FINANCIAL– FINANCIAL STATEMENTS (unaudited)

Eastside Distilling, Inc. and Subsidiaries

Consolidated Balance Sheets

September 30, 2017(Dollars in thousands, except shares and December 31, 2016per share amounts)

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

Eastside Distilling, Inc. and Subsidiaries

Consolidated Statements of Operations

For the threeThree and nine months ended SeptemberSix Months Ended June 30, 20172023 and 20162022

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

(Unaudited)

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

Eastside Distilling, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the nine months ended SeptemberSix Months Ended June 30, 20172023 and 20162022

(unaudited)(Dollars in thousands)

(Unaudited)

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

Eastside Distilling, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

SeptemberJune 30, 20172023

(unaudited)(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. (“Eastside” orto reflect the “Company”) is an Oregon-based produceracquisition of Eastside Distilling, LLC. The Company manufactures, acquires, blends, bottles, imports, markets and marketersells a wide variety of craft spirits, foundedalcoholic beverages under recognized brands. The Company currently employs 49 people in 2008. Our productsthe 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 13 mobile filling lines in Seattle, Washington; Spokane, Washington; and Portland, Oregon. The Company also offers co-packing services in Portland, Oregon offering end-to-end production capabilities.

The Company’s spirits’ brands span several alcoholic beverage categories, including bourbon, American whiskey, vodka, rum, and rum. Unlike many, if not most, distillers, we operate several retail tasting roomstequila. The Company sells products on a wholesale basis to distributors in Oregon to market our brands directly to consumers. Our growth strategy is to build on our local baseopen states and through brokers in control states.

2. Liquidity

The Company’s primary capital requirements are for cash used in operating activities and the Pacific Northwest and expand selectively to other markets by using major spirits distributors, such as Southern Glazer Wines and Spirits, and regional distributors that focus on craft brands. As a small business in the large, international spirits marketplace populated with massive conglomerates, we are innovative in exploiting new trends with our products, for example, our Coffee Rum with cold brew coffee and low sugar and our gluten-free potato vodka. In December 2016 we retained Sandstrom Partners (an internationally known spirit branding firm that branded St Germain and Bulleit Bourbon) to guide our marketing strategy and branding. Sandstrom Partners subsequently became an investor in our Company. We seek to be both a leader in creating spirits that offer better value than comparable spirits, for example our value-priced Portland Potato Vodka, and an innovator in creating imaginative spirits that offer a unique taste experience, for example our cold-brewed Coffee Rum, Oregon oak aged whiskeys, Marionberry Whiskey and Peppermint Bark holiday liqueur. On May 1, 2017, we acquired 90%repayment of the ownership of Big Bottom Distillery (“BBD”) for its excellent, award winning range of super premium gins and whiskeys, including The Ninety One Gin, Navy Strength Gin, Oregon Gin, Delta Rye and initial production of American Single Malt Whiskey. BBD’s super premium spirits will expand our tasting room offerings and give us a presence at the “high end” of the market. In addition, through MotherLode Craft Distillery (“MotherLode”), our wholly-owned subsidiary acquired in March 2017, we also provide contract bottling and packaging services for existing and emerging spirits producers, some of whom contract with us to blend or distill spirits. MotherLode has also launched a new canning line of Ready-to-Drink (RTD) products, primarily designeddebt. Funds for the wine and pre-mixed alcoholic drink industry. As a publicly-traded craft spirit producer, we have access to the public capital markets to support our long-term growth initiatives, including strategic acquisitions.

We currently sell our products in 25 states (Oregon, California, Washington, Florida, New York, Illinois, Texas, Georgia, Pennsylvania, Alaska, Connecticut, Idaho, Indiana, Iowa, Kansas, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, North Carolina, Rhode Island, Virginia, West Virginia and Wyoming) as well as Washington D.C. and Ontario, Canada. The Company also generates revenue from tastings, tasting room tours, private parties, and merchandise sales from its facilities in Oregon. The Company is subject to the Oregon Liquor Control Commission (OLCC) and the Alcohol and Tobacco Tax and Trade Bureau (TTB).

Historically, the Company has funded itsCompany’s cash and liquidity needs through the issuance ofhave historically not been generated from operations but rather from loans as well as from convertible notes, extended credit termsdebt and the sale of equity. The Company has incurred a net loss of $3,602,104 and has an accumulated deficit of $16,419,011 for the nine months ended September 30, 2017.equity financings. The Company has been dependent on raising capital from debt and equity financings to fund itsmeet the Company’s operating activities. Forneeds.

The Company had an accumulated deficit of $78.3 million as of June 30, 2023, having incurred a net loss of $3.2 million during the ninesix months ended SeptemberJune 30, 2017, the Company raised $8,033,942 in proceeds from financing activities to meet cash flow used in operating activities.2023.

At September 30, 2017, the Company had $4,190,085 of cash on hand with a positive working capital of $6,469,391. The Company’s ability to meet its ongoing operating cash needs is dependentover 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. Management has taken actions to improve profitability, by managing expenses while increasing sales. Also, in March and May 2017,In addition, the Company acquired two businesses, a contract bottlinghas been negotiating with creditors to reduce the interest burden and packaging services company and a small distillery business (both stock purchase transactions), that are expected to improve operating results. Management believes that cash on hand, including proceeds generated from the most recent equity financing, along with revenue thatflow. If the Company expectsis unable to generate fromreach 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 including as a resultgoing concern, the report of its two recent acquisitions, will be sufficient to meetindependent 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 cash needs forability to continue as a going concern, based on the foreseeable future.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.

Eastside Distilling, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements3. Summary of Significant Accounting Policies

September 30, 2017

(unaudited)

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements for Eastside Distilling, Inc. and Subsidiariessubsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP)(“GAAP”) for interim financial information and in accordance with instructions for Form 10-Qthe rules and therefore, do not include allregulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures necessary for a complete presentation ofnormally included in financial condition, results of operations,statements in accordance with GAAP have been condensed or eliminated as permitted under the SEC’s rules and cash flows in conformity with GAAP.regulations. In ourmanagement’s opinion, the unaudited condensed consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly ourthe Company’s financial position as of SeptemberJune 30, 2017, our2023, its operating results for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 and ourits cash flows for the ninesix months ended SeptemberJune 30, 20172023 and 2016.2022. The unaudited condensed 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, 2016.2022. Interim results are not necessarily indicative of the results that may be expected for thean entire fiscal year ending December 31, 2017.year. The condensed 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 (beginning as of March 8, 2017), and majority-owned subsidiary BBD (beginning as of May 1, 2017).LLC. All intercompany balances and transactions have been eliminated inon consolidation.

Segment Reporting

Eastside Distilling, Inc. and Subsidiaries

The Company determined its operating segment on the same basis that it usesNotes to evaluate its performance internally. The Company has one business activity, producing, marketing and distributing hand-crafted spirits, and operates as one segment. The Company’s chief operating decision makers, its chief executive officer and chief financial officer, review the Company’s operating results on an aggregate basis for purposes of allocating resources and evaluating financial performance.Consolidated Financial Statements

June 30, 2023

(Unaudited)

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 revenue includessales include product sales, less excise taxes and customer programs and incentives. The Company recordsrecognizes 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 all four of the following criteria are met: (i) thereeach performance obligation is persuasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the selling price is fixed or determinable; and (iv) collectability is reasonably assured.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, (OLCC), 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. The Company excludes sales tax collected and remitted to various states from sales and cost of sales. Sales from items sold through the Company’s retail location are recognized at the time of sale.

Eastside Distilling, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2017

(unaudited)

Revenue received from online merchants who sell discounted gift certificates for the Company’s merchandise and tastings is deferred until the customer has redeemed the discounted gift certificate or the gift certificate has expired, whichever occurs earlier.

Customer Programs and Incentives

Customer programs, and incentives, which include customer promotional discount programs, customer incentives and other payments, are a common practice in the alcoholalcoholic beverage industry. The Company makes these payments to customers and incurs these costsreimburses wholesalers for an agreed amount to promote sales of products and to maintain competitive pricing. Amounts paid in connection with customer programs and incentives are recorded as reductions to net sales or as advertising, promotional and selling expenses in accordance with Accounting Standards Codification (“ASC”) Topic 605-50, ASC 606 - Revenue Recognition - Customer Payments and Incentives, based on the nature of the expenditure.from Contracts with Customers. Amounts paid to customersin customer programs totaled $118,389$55,852 and $72,918$0.1 million for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.

Advertising, Promotional and Selling Expenses

The following expenses are included in advertising, promotions and selling expenses in the accompanying consolidated statements of operations: media advertising costs, special event costs, tasting room costs, sales and marketing expenses, salary and benefit expenses, travel and entertainment expenses for the sales, brand and sales support workforce and promotional activity expenses. Advertising, promotional and selling costs are expensed as incurred. Advertising, promotional and selling expense was $1,499,751 and $951,293 for the nine months ended September 30, 2017 and 2016, respectively.

Cost of Sales

Cost of sales consists of the costs of ingredients utilized in the production of spirits, manufacturing labor and overhead, warehousing rent, packaging, and in-bound freight charges. Ingredients account for the largest portion of the cost of sales, followed by packaging and production costs.

Shipping and Fulfillment Costs

Freight costs incurred related to shipment of merchandise from the Company’s distribution facilities to customers are recorded in cost of sales.

Cash and Cash Equivalents

Cash equivalents are considered to be highly liquid investments with maturities of three months or less at the time of the purchase. The Company had no cash equivalents at September 30, 2017 and December 31, 2016.

Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivables. At September 30, 2017, four customers represented 82% of trade receivables, and at December 31, 2016, three customers represented 91% of trade receivables. Sales to two customers accounted for approximately 48% of consolidated net sales for the nine months ended September 30, 2017. Sales to three customers accounted for approximately 57% of net sales for the nine months ended September 30, 2016.

Eastside Distilling, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2017

(unaudited)

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. At September 30, 2017 and December 31, 2016, 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:

None of the Company’s assets or liabilities were measured at fair value at September 30, 2017 and December 31, 2016. 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, note payable, and convertible note payable. The estimated fair value of trade receivables, accounts payable, and accrued liabilities approximates their carrying value due to the short period of time to their maturities. At September 30, 2017 and December 31, 2016, the Company’s note payable and convertible notes payable are at fixed rates and their carrying value approximates 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.

Inventories

Inventories primarily consist of bulk and bottled liquor and merchandise 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 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. The Company has recorded no write-downs of inventory for the nine months ended September 30, 2017 and 2016.

Eastside Distilling, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2017

(unaudited)

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 long-lived assets, including property and equipment, 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. At September 30, 2017 and December 31, 2016, no impairment loss was recognized.

Income Taxes

The provision for income taxes is based on income and expenses as reported for financial statement purposes using the “asset and liability method” for accounting for deferred taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. At September 30, 2017 and December 31, 2016, the Company established valuation allowances against its net deferred tax assets.

Income tax positions that meet the “more-likely-than-not” recognition threshold are measured at the largest amount of income tax benefit that is more than 50 percent likely to be realized upon settlement with the applicable taxing authority. The portion of the benefits associated with income tax positions taken that exceeds the amount measured as described above would be reflected as a liability for unrecognized income tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized income tax benefits would be classified as additional income taxes in the accompanying condensed consolidated statements of operations. There were no unrecognized income tax benefits, nor any interest and penalties associated with unrecognized income tax benefits, accrued or expensed at and for the nine months ended September 30, 2017 and 2016.

The Company files federal income tax returns in the U.S. and various state income tax returns. The Company is no longer subject to examinations by the related tax authorities for the Company’s U.S. federal and state income tax returns for years prior to 2011.

Comprehensive Income

The Company does not have any reconciling other comprehensive income items for the nine months ended September 30, 2017 and 2016.

Eastside Distilling, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2017

(unaudited)

Excise Taxes

The Company is responsible for compliance with the TTBAlcohol 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 alcoholalcoholic 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 $654,136$65,735 and $469,936$0.2 million for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 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 $0.4 million for the six months ended June 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. Stock-based compensation was $900,130

Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivables. As of June 30, 2023, two distributors represented 27% of trade receivables. As of December 31, 2022, one distributor represented 15% of trade receivables. Sales to one distributor and $427,947one wholesale customer accounted for 27% of consolidated sales for the nine months ended September 30, 2017 and 2016, respectively.

Accounts Receivable Factoring Program

During the threesix months ended June 30, 2017, we terminated our previous2023. Sales to one distributor and one wholesale customer accounted for 49% of consolidated sales for the six months ended June 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 June 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:

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023

(Unaudited)

None of the Company’s assets or liabilities were measured at fair value as of June 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 June 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 June 30, 2023 and determined that they were not impaired.

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 June 30, 2023 and determined that they were not impaired.

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023

(Unaudited)

Comprehensive Income

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

Accounts Receivable Factoring Program

The Company has two accounts receivable factoring program. programs. One for its spirits customers (the “spirits program”) and another for its co-packing customers (the “co-packing program”). Under the prior program, we hadprograms, the Company has the option to sell certain customer account receivables in advance of payment for 75%75% (spirits program) or 85% (co-packing program) of the amount due. When the customer remittedremits payment, we would receivethe Company receives the remaining 25%. We werebalance. For the spirits program, interest is charged interest on the advanced 75% payment at a rate of 1.5% per month.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 the agreement withboth agreements, the factoring provider any factored invoices hadhas full recourse against the Company should the customer fail to pay the invoice. Thus, we recorded factored amountsIn 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 liability untilsale. Given the customer remitted payment and we received the remaining 25%quality of the non-factored amount. We didfactored accounts, the Company has not factorrecognized 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 during the nine months ended September 30, 2017. At September 30, 2017, we had no factored invoices outstanding, and we incurred $20,821 in fees associated with the factoring program of $63,238programs during the ninesix months ended SeptemberJune 30, 2017. During2023. As of June 30, 2023, the nine months ended September 30, 2016, weCompany had $0.1 million factored invoices totaling $560,172outstanding.

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 received total proceeds of $420,129. At September 30, 2016, we had $184,875corporate. 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 factored invoices,states, and we incurred fees associated withbrokers in control states. The Company’s principal area of operation is in the factoring programU.S. and has two spirits customers that represents 27% of $21,500 during the nine months ended September 30, 2016.

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standard Boards (the “FASB”) issued Accounting Standard Update (“ASU”) No. 2016-09,Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), which simplifies several aspectsits revenue. Corporate consists of thekey executive and accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures,personnel and statutory tax withholding requirements,corporate expenses such as public company and board costs, as well as classificationinterest on debt.

The measure of profitability reviewed is 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 statementSummary of cash flows. ASU 2016-09 was effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We have adopted ASU 2016-09 as of March 31, 2017.Significant Accounting Policies in Note 3.

In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842) (“ASU 2016-02”). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

Eastside Distilling, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

SeptemberJune 30, 20172023

(unaudited)(Unaudited)

Under

Segment information was as follows for the six months ended June 30, 2023 and 2022:

Schedule of Segment Information

Craft C+P’s sales increased due to new guidance, lessor accounting is largely unchanged. Certain targeted improvements were madedigital printing revenues offset by lower mobile revenues. Negative gross margin decreased compared to align, where necessary, lessor accounting with the lessee accounting modelprior year due to digital can printing volumes. The Company also incurred higher raw material costs in the quarter related to digital printing.

Spirits’ sales in 2022 included bulk inventory sales of $4.2 million. During the six months ended June 30, 2023, the Company undertook restructuring actions to reduce volumes in unprofitable market segments and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplified the accounting for saleincrementally restricting actions to lower production costs and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted for all public business entities upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginningimprove profitability.

5. Inventories

Inventories consisted of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. We are currently evaluating the impact ASU 2016-02 will have on the Company’s condensed consolidated financial statements.following:

In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”).ASU 2014-09 will supersede virtually all existing revenue guidance. Under this update, an entity is required to recognize revenue upon transferSchedule of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. As such, an entity will need to use more judgment and make more estimates than under the current guidance. ASU 2014-09 is to be applied retrospectively either to each prior reporting period presented in the financial statements, or only to the most current reporting period presented in the financial statements with a cumulative effect adjustment to retained earnings. The Company will elect to apply the impact (if any) of applying ASU 2014-09 to the most current reporting period presented in the financial statements with a cumulative effect adjustment to retained earnings. In August 2015, the FASB issued ASU No. 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date(“ASU 2015-14”). ASU 2015-14 deferred the effective date of ASU 2014-09 for one year, making it effective for the year beginning December 31, 2017, with early adoption permitted as of January 1, 2017. The Company currently expects to adopt ASU 2014-09 in the first quarter of 2018. The Company does not expect adoption of ASU 2014-09 to have a material impact on its condensed consolidated financial statements.Inventories

In August 2014, the FASB issued ASU No. 2014-15,Presentation of Financial Statements - Going Concern(“ASU 2014-15”). The new guidance explicitly requires that management assess an entity’s ability to continue as a going concern and may require additional detailed disclosures. ASU 2014-15 was effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. We adopted ASU 2014-15 as of December 31, 2016. The Company does not believe the adoption of ASU 2014-15 had any material impact on its condensed consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11,Inventory (Topic 330), Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 is part of the FASB’s initiative to simplify accounting standards. The guidance requires an entity to recognize inventory within scope of the standard at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. ASU 2015-11 was effective prospectively for the year beginning January 1, 2017. We adopted ASU 2015-11 as of March 31, 2017. The Company does not believe the adoption of ASU 2015-11 had any material impact on its condensed consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, simplifying the presentation of debt issuance costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. ASU 2015-03 was effective for annual and interim periods beginning after December 15, 2015 and early application was permitted. We early adopted ASU 2015-03 as of December 31, 2015. The Company does not believe the adoption of ASU 2015-03 had any material impact on its condensed consolidated financial statements.

Eastside Distilling, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

SeptemberJune 30, 20172023

(unaudited)(Unaudited)

Reclassifications6. Prepaid Expenses and Current Assets

Certain prior period amounts have been reclassifiedPrepaid expenses and current assets consisted of the following:

Schedule of Prepaid Expenses and Current Assets

7. Property and Equipment

Property and equipment consisted of the following:

Schedule of Property and Equipment

Purchases of property and equipment totaled $0.1 million and $2.5 million for the six months ended June 30, 2023 and 2022, respectively. Depreciation expense totaled $0.6 million and $0.5 million for the six months ended June 30, 2023 and 2022, respectively.

During the six months ended June 30, 2023, the Company disposed of fixed assets for proceeds of $0.3 million, including future proceeds of installment sales of $0.1 million, with a net book value of $0.2 million resulting in a gain of $0.1 million. During the six months ended June 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 six months ended June 30, 2022, the Company entered into a master equity lease agreement with Enterprise FM Trust (“Enterprise”). Per the agreement, the Company delivered to conformEnterprise 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 September 30, 2017 presentation with no changesvehicles were returned to net loss or total stockholders’ equity previously reported.

During the nine months ended September 30, 2017, the Company, completedwhich resulted in a gain on disposal of $0.1 million, which is included in the following acquisitions:$0.1 million gain from 2023 above.

MotherLode Craft Distillery, LLC8. Intangible Assets

On March 8, 2017, the Company completed the acquisition of MotherLode Craft Distillery, LLC (“MotherLode”), a small Portland, Oregon-based provider of bottling services and production support to craft distilleries. The Company’s condensed consolidated financial statements for the three and nine months ended September 30, 2017 include MotherLode’s results of operations from the acquisition date of March 8, 2017 through September 30, 2017. The Company’s condensed consolidated financial statements reflect the final purchase accounting adjustments in accordance with ASC 805 “Business Combinations”, whereby the purchase price was allocated to theIntangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. MotherLode had approximately $375,000 in revenues (unaudited) in 2016.

The following allocationconsisted of the purchase price is as follows:following:

Schedule of Intangible assets are recorded at estimated fair value, as determined by management based on available information. The fair value assignedAssets

Eastside Distilling, Inc. and Subsidiaries

Notes to theConsolidated Financial Statements

June 30, 2023

(Unaudited)

The customer list intangible asset was determined through the use of the income approach, specifically the relief from royalty and the multi-period excess earning methods. The major assumptions used in arriving at the estimated identifiable intangible asset value included management’s estimates of future cash flows, discounted at an appropriate rate of return which is based on the weighted average cost of capitalbeing amortized over a seven-year life. Amortization expense totaled $0.2 million for both the Companysix months ended June 30, 2023 and other market participants, projected customer attrition rates, as well as applicable royalty rates for comparable assets. 2022.

The useful lives for intangible assets werepermits and licenses, and Azuñia brand have all been determined based upon the remaining useful economic lives of the tangible assets that are expected to contribute directly or indirectly to future cash flows. The customer relationships estimated useful life is seven years. The fair values assigned to the license intangible asset were determined through the use of the cost approach. The license hashave an indefinite life and will not be amortized.

Eastside Distilling, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2017

(unaudited)

Big Bottom Distillery, LLC

On May 1, 2017, The Company, on an annual basis, tests the Company acquired 90%indefinite life assets for impairment. If the carrying value of the ownership of Big Bottom Distillery, LLC (“BBD”), a Hillsboro, Oregon-based distiller of super premium spirits. The Company’s condensed consolidated financial statements for the three and nine months ended September 30, 2017 include BBD’s results of operations from the acquisition date of May 1, 2017 through September 30, 2017. The Company’s condensed consolidated financial statements reflect the final purchase accounting adjustments in accordance with ASC 805 “Business Combinations”, whereby the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. BBD had approximately $201,000 in revenues (unaudited) in 2016.

The following allocation of the purchase price is as follows:

Intangible assets are recorded at estimated fair value, as determined by management based on available information. The fair value assigned to the license intangible asset was determined through the use of the cost approach. The license has an indefinite life asset is found to be impaired, then the Company will record an impairment loss and will not be amortized.

Inventories consistreduce the carrying value of the following at September 30, 2017 and December 31, 2016:asset.

Property and equipment consists of the following at September 30, 2017 and December 31, 2016:9. Other Assets

Purchases of property and equipment totaled $381,837 and $6,952 for the nine months ended September 30, 2017 and 2016, respectively. Depreciation expense totaled $25,736 and $16,579 for the nine months ended September 30, 2017 and 2016, respectively.

Eastside Distilling, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2017

(unaudited)

There were no intangibleOther assets or goodwill at December 31, 2016. At September 30, 2017, intangible assets and goodwill consist of the following:

Amortization expense totaled $28,033 and nil for the nine months ended September 30, 2017 and 2016, respectively.

Notes payable consists of the following at September 30, 2017 and December 31, 2016:

Eastside Distilling, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2017

(unaudited)

Maturities on notes payable as of September 30, 2017, are as follows:

Year ending December 31:

The provision for income taxes results in effective tax rates which are different than the federal income tax statutory rate. The nature of the differences for the nine months ended September 30, 2017 and 2016 were as follows:

The components of the net deferred tax assets and liabilities at September 30, 2017 and December 31, 2016 consisted of the following:

Eastside Distilling, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial StatementsSchedule of other Assets

SeptemberAs of June 30, 2017

(unaudited)

At September 30, 2017,2023, 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 $28,571 for both the six months ended June 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 cumulative net operating loss carryforward (NOL) of approximately $12.2 million, to offset against future income for federal and state tax purposes. These federal and state NOLs can be carried forward for 20 and 15 years, respectively. The federal NOLs begin to expirelease at inception. As the rate implicit in 2034, and the state NOLs begin to expire in 2029. The utilization of the NOL carryforwards may be subject to substantial annual limitation due to ownership change provisions of the Internal Revenue Code of 1986 and similar state provisions. In general, ifeach lease is not readily determinable, the Company experiences a greater than 50 percentage aggregate change in ownership of certain significant stockholders over a three-year period (a “Section 382 ownership change”), utilization ofuses its pre-change NOL carryforwards are subjectincremental borrowing rate based on information available at commencement to an annual limitation under Section 382 ofdetermine the Internal Revenue Code (and similar state laws). The annual limitation generally is determined by multiplying thepresent value of the Company’s stocklease payments. Right-of-use assets and lease liabilities are recognized at commencement date based on the timepresent value of such ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the NOL carryforwards before utilization and may be substantial.

In assessing the realizable of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which those temporary differences become deductible. Due to the uncertainty of the realizability of the deferred tax assets, management has determined a full valuation allowance is appropriate.

Operating Leases

The Company leases its warehouse, kiosks and tasting room space under operating lease agreements, which expire through October 2021. Monthly lease payments range from $1,802 to $6,400 over the termslease term. Leases with an initial term of 12 months or less (“short-term leases”) are not recorded on the leases. For operating leases which contain fixed escalations in rental payments, the Company records the total rent expensebalance sheet and are recognized on a straight-line basis over the lease term. The difference betweenAs of June 30, 2023, the expense computed on a straight-line basisamount of right-of-use assets and actual payments for rent represents deferred rent which is included within accruedlease liabilities on the accompanying consolidated balance sheets. Retail spaces underwere $2.5 million and $2.6 million, respectively. Aggregate lease are subject to monthly percentage rent adjustments when gross sales exceed certain minimums.

At September 30, 2017, future minimum lease payments required under the operating leases are approximately as follows:

Total rent expense was $248,535 and $304,000 for the ninesix months ended September 30, 2017 and 2016, respectively.

On February 7, 2017, we entered into a Lease Termination Agreement with PJM BLDG. II LLC (the “Termination Agreement”), the landlord of our current headquarters and production facilities located at 1805 SE Martin Luther King Jr. Blvd., Portland, Oregon. The Termination Agreement provides that the original lease agreement dated July 17, 2014 terminated on June 30, 2017 rather than October2023 was $0.7 million, consisting of $0.7 million in operating lease expense for lease liabilities and $2,385 million in short-term lease cost.

Maturities of lease liabilities as of June 30, 2020.2023 were as follows:

Schedule of Maturities of Operating Lease Liabilities

Eastside Distilling, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

SeptemberJune 30, 20172023

(unaudited)(Unaudited)

Legal Matters

Except11. Notes Payable

Notes payable consisted of the following:

Schedule of Notes Payable

The Company paid $0.1 million and $0.8 million in interest on notes for the six months ended June 30, 2023 and 2022, respectively.

Maturities on notes payable as described below, weof June 30, 2023 were as follows:

Schedule of Maturities on Notes payable

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 Company pledged substantially all of its assets to secure its obligations to Aegis under the Aegis Note.

The Aegis Note bears interest at 9.25% per annum, payable every three months. The principal amount of the Aegis Note and a Commitment Fee of $45,000 will be payable on October 6, 2023. The Company has a conditional right to twice extend the maturity date of the Aegis Note by six months upon payment on each occasion of an extension fee of one percent of the principal balance. As of June 30, 2023, the Company had accrued $0.2 million of interest expense.

See additional discussion in Note 16.

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.

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023

(Unaudited)

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 accrues at a rate of 6% per annum and is 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. As of June 30, 2023, the Company had accrued $0.2 million of interest expense.

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. The Company is in discussions to further extend the maturity date.

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.

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023

(Unaudited)

The Company is not currently subject to any other material legal proceedings,proceedings; however, weit could be subject to legal proceedings and claims from time to time in the ordinary course of our business.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.

On October 10, 2017, we received a letter from a law firm purporting to represent a Company stockholder named Jason Price. The letter stated that such representative was launching an “investigation” into certain grants of stock options and restricted stock units that exceeded applicable limits under the Company’s 2016 Equity Incentive Plan (the “2016 Plan”) (collectively, the “Additional Grants”). The representative stated the belief that the Board had violated the terms of the 2016 Plan by approving the Additional Grants, and such approval constituted a breach of fiduciary duty and possible evidence of material weaknesses in internal controls. The Board rejects any such contentions. Although we acknowledge that the Additional Grants were made despite the stated limits in the 2016 Plan, we believe that the Additional Grants were in the best interests of our stockholders. We believe that our existing corporate governance mechanisms are sufficiently robust as to be able to review and take a proper response to Mr. Price’s letter. We are seeking stockholder approval of the Additional Grants and of certain amendments to the 2016 Plan to increase such limits at the upcoming annual stockholder meeting on December 8, 2017.14. Net Income (Loss) per Common Share

Basic lossincome (loss) per common share is computed by dividing net lossincome (loss) by the weighted average number of common shares outstanding during the period, without considering any dilutive items. Diluted net loss per common share is computed by dividing net loss by the sum of the weighted average number of common shares outstanding and the potential number of any dilutive common shares outstanding during the period. Potentially dilutive securities consist of the incremental common stock issuable upon exercise of stock options, convertible notes and convertible notes.warrants. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. There were no dilutive anti-dilutive common shares at September 30, 2017 and 2016. The numerators and denominators usedincluded in computing basic and diluted net lossthe calculation of income (loss) per common share in 2017as of June 30, 2023 and 2016 are as follows:December 31, 2022.

15. Stockholders’ Equity

Schedule of Stockholders’ Equity