~~(1) Derived from the Company's December 31, 2014 audited financial statements~~

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

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~

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

For the ~~nine~~three months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~

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

The ~~accompanying unaudited condensed consolidated financial statements for Eastside Distilling, Inc.~~Company was formed in 2008 and ~~Subsidiary were prepared in accordance with accounting principles generally accepted~~is a manufacturer, developer, producer, and marketer of hand-crafted spirits in the ~~United States~~following beverage alcohol categories: bourbon, whiskey, rum, and vodka. The Company currently distributes its products in twenty states (Oregon, Washington, California, Nevada, Texas, Virginia, Indiana, Illinois, New York, New Jersey, Massachusetts, Connecticut, Minnesota, Georgia, Pennsylvania, Rhode Island, New Hampshire, Maine, Vermont, and Maryland) and is authorized to distribute its products in Idaho and the province of ~~America (GAAP) for interim financial information~~Ontario, Canada. The Company also generates revenue from tastings, tasting room tours, private parties, and ~~with instructions for Form 10-Q~~merchandise sales from its facilities in Oregon. The Company is subject to the Oregon Liquor Control Commission (OLCC) and ~~therefore, do not include all disclosures necessary for a complete presentation of financial condition, results of operations,~~the Alcohol and ~~cash flows~~Tobacco Tax and Trade Bureau (TTB). The Company is headquartered in conformity with GAAP. However, all adjustments which are, in the opinion of management, necessary for a fair presentation of the interim condensed consolidated financial statements have been included. All such adjustments are of a normal recurring nature. 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, 2014. The unaudited condensed consolidated results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2015.

On October 31, 2014, Eurocan Holdings Ltd. (Eurocan) consummated the acquisition (the Acquisition) of Eastside Distilling, LLC (the LLC) pursuant to an Agreement and Plan of Merger (the Agreement) by and among Eurocan, the LLC, and Eastside Distilling, Inc., Eurocan's wholly-owned subsidiary. Pursuant to the Agreement, the LLC merged with and into Eastside Distilling, Inc. The merger consideration for the Acquisition consisted of 32,000,000 shares of Eurocan's common stock. In addition, certain of Eurocan's stockholders cancelled an aggregate of 24,910,000 shares of Eurocan's common stock held by them. As a result, on October 31, 2014, Eurocan had 40,000,000 shares of common stock issued and outstanding, of which 32,000,000 shares were held by the former members of the LLC. Consequently, for accounting purposes, the transaction was accounted for as a reverse acquisition, with the LLC as the acquirer of Eurocan. These condensed consolidated financial statements are presented as a continuation of the operations of the LLC with one adjustment to retroactively adjust the legal common stock of Eastside Distilling, Inc. to reflect the legal capital of Eurocan prior to the Acquisition.

Subsequent to the Acquisition, Eastside Distilling, Inc. merged with and into Eurocan, and Eurocan's name was officially changed to Eastside Distilling, Inc. (Eastside). Prior to the Acquisition, Michael Williams Web Design, Inc. (MWWD) was a wholly-owned subsidiary of Eurocan and constituted the majority of Eurocan's operations. Pursuant to the Agreement and subsequent activity, MWWD became a wholly-owned subsidiary of Eastside on October 31, 2014. MWWD's operations were not significant. Eastside and MWWD are collectively referred to herein as "the Company".

On February 3, 2015, the Company entered into a Separation and Share Transfer Agreement (Share Transfer) with MWWD under which substantially all assets and liabilities of MWWD were transferred to Michael Williams in consideration of MWWD's and Mr. Williams' full release of all claims and liabilities related to MWWD and the MWWD business. Following the ~~Share~~ Transfer, MWWD ceased to be a ~~subsidiary of the Company.~~subsidiary. As a result of the Share Transfer, the Company recorded a gain of approximately $53,000, which is included in other income (expense) in the accompanying ~~condensed~~ consolidated statement of operations for the ~~nine months~~year ended ~~September 30,~~December 31, 2015. This gain is primarily the result of the transfer of net liabilities to Michael Williams.

The results for the three months ended March 31, 2015 referred to in these condensed consolidated financial statements include the results of Eastside’s wholly-owned subsidiary MWWD (through February 3, 2015).

The Company’s financial statements have been prepared assuming that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred a net loss of $1,014,679 and has an accumulated deficit of $8,576,430 for the period ended March 31, 2016, and expect to incur further losses in the development of our business. The Company has negative working capital of $1.9 million at March 31, 2016, and have been dependent on funding operations through the issuance of debt, convertible debt and private sale of equity securities. These conditions raise substantial doubt about the Company’s ability to continue as the going concern. Management’s plans include continuing to finance operations through the private or public placement of debt and/or equity securities and the reduction of expenses. The financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

~~Liquidity~~Management believes that its successful ability to raise capital and increases in revenues will provide the opportunity for the Company to continue as a going concern. The Company's ultimate success depends on its ability to achieve profitable operations and generate positive cash flow from operations. There can be no assurance that the Company will achieve profitable operations or raise additional capital or financing at acceptable terms.

The accompanying unaudited condensed consolidated financial statements for Eastside Distilling, Inc. and Subsidiary were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with GAAP. However, all adjustments which are, in the opinion of management, necessary for a fair presentation of the interim condensed consolidated financial statements have been included. All such adjustments are of a normal recurring nature. 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, 2015. The unaudited condensed consolidated results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2016. The condensed consolidated financial statements include the accounts of Eastside Distilling, Inc.’s wholly-owned subsidiary MWWD (through February 3, 2015). All intercompany balances and transactions have been eliminated in consolidation.

The Company determined its operating segment on the same basis that it uses to evaluate its performance internally. The Company has one business activity, 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.

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.

The Company records revenue when all four of the following criteria are met: (i) there 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.

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, the Company recognizes sales upon the consignee’s (typically the OLCC) 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. 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 locations are recognized at the time of sale.

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.

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 contract production fees and packaging.

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

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 March 31, 2016 and December 31, 2015.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivables. At ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, one distributor, the Oregon Liquor Control Commission (OLCC), represented ~~67%~~22% and ~~70%~~50% of trade receivables, respectively. Sales to one distributor, the OLCC, accounted for approximately ~~35%~~32% and ~~39%~~40% of consolidated revenues for each of the ~~nine-month periods~~three months ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014,~~ respectively.

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, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, 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, 2015~~March 31, 2016 and December 31, ~~2014.~~2015. 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, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, the Company’s note payable and convertible notes payable are at fixed rates and their carrying value approximates fair value.

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 the OLCC 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 three months ended March 31, 2016 and 2015.

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 two 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.

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.

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 March 31, 2016 and December 31, 2015, 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 three months ended March 31, 2016 and 2015.

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.

Advertising costs are expensed as incurred. Advertising expense was approximately $31,000 and $97,000 for the three months ended March 31, 2016 and 2015, respectively, and is included in selling, general, and administrative expenses in the accompanying condensed consolidated statements of operations.

Comprehensive (loss) income consists of net (loss) income and other comprehensive income. The Company does not have any reconciling other comprehensive income items for the three months ended March 31, 2016 and 2015.

The Company is responsible for compliance with the 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 alcohol 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.

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.

The Company uses an accounts receivable factoring program with certain customer accounts. Under this program, the Company has the option to sell those customer receivables in advance of payment for 75% of the amount due. When the customer remits payment, we then receive the remaining 25%. The Company is charged interest on the advanced 75% payment at a rate of 1.5% per month. This program has improved our liquidity, but there can be no assurance that these programs will continue in the future. Under the terms of the agreement with the factoring provider, any factored invoices have recourse should the customer fail to pay the invoice. Thus, the Company records factored amounts as a liability until the customer remits payment and the Company receives the remaining 25% of the non-factored amount. During the period ended March 31, 2016, the Company factored invoices totaling $117,933 and received total proceeds of $88,450. At March 31, 2016, the Company had factored invoices outstanding of $79,120. The Company incurred interest expense associated with the factoring program of $4,269 during the period ended March 31, 2016. We did not factor any invoices during the period ended March 31, 2015.

In ~~May 2014,~~March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting” ("ASU 2016-09"), which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company does not plan to early adopt. We are currently evaluating the impact ASU 2015-11 will have on the Company's condensed consolidated financial statements.

In February 2016, the Financial Accounting Standard Boards (the “FASB”) issued Accounting Standards ~~Board (the "FASB")~~Update No. 2016-02 —Leases (Topic 842). 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:

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplified the accounting for sale 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 beginning 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.

In May 2014, FASB issued Accounting Standard Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted for annual and interim reporting periods beginning after December 15, 2016. The Company does not plan to early adopt. We are currently evaluating the impact ASU 2014-09 will have on the Company's condensed consolidated financial statements.

In August 2014, the FASB issued Accounting Standard Update 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 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Though permitted, the Company does not plan to early adopt. The Company does not believe that this standard will have a significant impact on its condensed consolidated financial statements.

In July 2015, the FASB issued Accounting Standard Update No. 2015-11, Simplifying the Measurement of Inventory ("ASU 2015-11"), which requires entities to measure most inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for annual and interim periods beginning after December 15, 2016. Though permitted, the Company does not plan to early adopt. We are currently evaluating the impact ASU 2015-11 will have on the Company's 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 is effective for annual and interim periods beginning after December 15, 2015 and early application is permitted. We have early adopted as of ~~September 30,~~December 31, 2015.

Certain prior period amounts have been reclassified to conform to the ~~September 30, 2015~~March 31, 2016 presentation with no changes to net ~~income (loss)~~loss or total stockholders' equity previously reported.

Property and equipment consists of the following at March 31, 2016 and December 31, 2015:

Depreciation and amortization expense totaled $5,574 and $19,277 for the period ended March 31, 2016 and the year ended December 31, 2015, respectively.

~~Inventories consist of the following at September 30, 2015 and December 31, 2014:~~

~~Property and equipment consists of the following at September 30, 2015 and December 31, 2014:~~

Note payable consists of the following at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014:~~2015:

At March 31, 2016 and December 31, 2015, convertible notes payable consisted of three separate notes:

Amortization of the debt discount and beneficial conversion feature totaled $159,244 for the period ended March 31, 2016 and $0 for March 31, 2015 and was recorded as other expense in the consolidated statement of operations.

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 three months ended March 31, 2016 and 2015 were as follows:

The components of the net deferred tax assets and liabilities at March 31, 2016 and December 31, 2015 consisted of the following:

At March 31, 2016, the Company has a cumulative net operating loss carryforward (NOL) of approximately $5.0 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 begins to expire in 2034, and the state NOLs begins to expire in 2029.

In assessing the realizability 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.

~~At September 30, 2015 and December 31, 2014, convertible notes payable consisted of three separate notes:~~Operating Leases

The Company leases its warehouse, kiosks, and tasting room space under operating lease agreements, which expire through October 2020. Monthly lease payments range from $1,300 to $24,000 over the terms of the leases. For operating leases which contain fixed escalations in rental payments, the Company records the total rent expense on a straight-line basis over the lease term. The difference between the expense computed on a straight-line basis and actual payments for rent represents deferred rent which is included within accrued liabilities on the accompanying consolidated balance sheets. Retail spaces under lease are subject to monthly percentage rent adjustments when gross sales exceed certain minimums.

At March 31, 2016, future minimum lease payments required under the operating leases are approximately as follows:

Total rent expense was approximately $74,000 and $89,000 for the three months ended March 31, 2016 and 2015, respectively.

The Company is involved in certain legal matters arising from the ordinary course of business. Management does not believe that the outcome of these matters will have a significant effect on the Company's consolidated financial position or results of operations.

Basic loss per common share is computed by dividing net 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 and convertible notes. Potentially dilutive securities are excluded from the computation if their effective is anti-dilutive. ~~During the periods ended September 30, 2015 and 2014, there~~There were no dilutive ~~securities.~~common shares at March 31, 2016 and 2015. The numerators and denominators used in computing basic and diluted net loss per common share ~~for the three~~in 2016 and ~~nine months ended September 30,~~ 2015 ~~and 2014~~ are as follows:

In ~~April 2015,~~January 2016, the Company issued ~~37,500 shares of common stock to a third-party consultant in exchange for services rendered.~~

~~In July 2015, the Company issued 225,000~~330,000 shares of common stock to two third-party consultants in exchange for services rendered.

In ~~August 2015,~~January 2016, the Company issued ~~135,000~~201,000 shares of common stock to ~~two third-party consultants in exchange~~employees for ~~services rendered.~~stock-based compensation of $54,270.

In ~~August 2015,~~February 2016, the Company issued ~~45,000~~90,000 shares of common stock to ~~employees.~~a third party consultant in consideration for services rendered under a management consulting agreement entered into by the Company in November 2015.

In February 2016, the Company issued 50,000 shares of common stock to a third party consultant in consideration for services rendered under a management consulting agreement entered into by the Company in November 2015.

On January 29, 2015, the Company adopted the 2015 Stock Incentive Plan (the Plan). The total number of shares available for the grant of either stock options or compensation stock under the Plan is 3,000,000 shares, subject to adjustment. The exercise price per share of each stock option shall not be less than 20 percent of the fair market value of the Company's common stock on the date of grant. ~~Stock~~At March 31, 2016, there were 1,200,000 options ~~shall~~issued under the Plan outstanding, which options vest at the rate of at least 2025 percent ~~per~~in the first year, ~~over five years from~~starting 6-months after the grant date, ~~of grant. At September 30, 2015, there were 350,000 options issued under the Plan outstanding.~~and 75% in year two.

The Company also issues, from time to time, options which are not registered under a formal option plan. At ~~September 30, 2015,~~March 31, 2016, there were ~~1,450,000~~1,000,000 options outstanding that were not issued under the Plan.

~~There were no stock options issued or outstanding at and for the nine months ended September 30, 2014.~~ A summary of all stock option activity at and for the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 is presented below:

~~(2) 350,000~~1,200,000 options granted under 2015 Stock Incentive Plan; ~~450,000 non-plan options~~

The aggregate intrinsic value of options outstanding at ~~September 30, 2015~~March 31, 2016 was $0.

At ~~September 30, 2015,~~March 31, 2016, there were ~~750,000~~1,006,250 unvested options with an aggregate grant date fair value of ~~$539,000. Of these unvested options, 100,000 will vest at the discretion of the Company's board of directors and 150,000 will vest upon the option recipient completing a performance condition.~~$346,925. The ~~remaining 500,000~~ unvested options will vest in accordance with the vesting schedule in each respective option agreement, which is generally over a period of 6 to 24 months. The aggregate intrinsic value of unvested options at ~~September 30, 2015~~March 31, 2016 was $0. During the ~~nine-months~~three months ended ~~September 30, 2015, 50,000 non-Plan~~March 31, 2016, 94,792 options became ~~vested but are not exercisable until October 2015.~~vested.

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:

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 following weighted-average assumptions were used in the Black-Scholes valuation model for options granted during the ~~nine months~~year ended ~~September 30,~~December 31, 2015:

The weighted-average grant-date fair value per share of stock options granted during the ~~six~~three months ended ~~September 30,~~March 31, 2015 was ~~$0.71. The aggregate grant date fair value of the 800,000~~$0.45. No options were granted during the ~~nine~~three months ended ~~September 30, 2015 was $565,500.~~March 31, 2016.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2016 and 2015, total stock option expense related to stock options was ~~$124,250.~~$51,569 and $31,000 respectively. At ~~September 30, 2015,~~March 31, 2016, the total compensation cost related to stock options not yet recognized is approximately ~~$473,125,~~$395,169, which is expected to be recognized over a weighted-average period of approximately ~~1.57~~1.60 years.

During the ~~periods~~three months ended ~~September 30,~~March 31, 2016 and 2015, ~~and December 31, 2014,~~ the Company's chief executive officer paid expenses on behalf of the Company on his personal credit card. These related party advances do not bear interest and are payable on demand. At ~~September 30,~~March 31, 2016 and 2015, ~~and December 31, 2014,~~ the balance due to the chief executive officer was approximately ~~$83,000~~$95,000 and ~~$3,000,~~$0, respectively, and is included in accounts payable on the accompanying condensed consolidated balance sheets.

Prior to the three months ended March 31, 2016, the Company collected initial proceeds totaling $151,200 related to its preferred stock offering. The Company ~~leases~~did not conduct the first closing of its ~~warehouse, kiosks, and tasting room space under operating lease agreements which expire through October 2020. Monthly lease payments range from $1,300~~preferred offering until after the quarter end, on April 4, 2016. As a result, the initial proceeds collected prior to ~~$24,000 over~~ the ~~terms of~~first closing were reflected as a deposit outstanding at March 31, 2016. Since the ~~leases. For operating leases which contain fixed escalations~~deposit was applied to preferred stock issued in ~~rental payments,~~April 2016, the ~~Company records the total rent expense on~~deposit has been shown as a straight-line basis over the lease term. The difference between the expense computed on a straight-line basis and actual payments for rent represents deferred rent which is included within accrued liabilities on the accompanying consolidated balance sheets. Retail spaces under lease are subject to monthly percentage rent adjustments when gross sales exceed certain minimums.noncurrent liability.

~~At September 30, 2015, future minimum lease payments required under the operating leases are approximately as follows:~~

~~Total rent expense was approximately $290,000 and $8,000 for the nine months ended September 30, 2015 and 2014, respectively.~~

The Company evaluated the convertible note and determined that a portion of the note should be allocated to additional paid-in capital as a beneficial conversion feature, since the conversion price on the note as of March 10, 2016 was now set at a discount to the fair market value of the underlying stock. As a result, a discount of $148,077 was attributed to the beneficial conversion feature of the note, which amount was then amortized fully during the three months ended March 31, 2016.

On ~~October~~April 1, ~~2015,~~2016, the Company’s 5% convertible note with Crystal Falls Investments, LLC was further amended to extend the maturity date thereunder to May 31, 2016 and to provide for installment payments on the principal amount on such note as follows: $25,000 on April 5, 2016; $35,000 on April 29, 2016; $40,000 on May 16, 2016 and $50,000 on May 31, 2016. Failure to make the installment payments on the prescribed due dates will constitute an event of default under such note. Effective April 29, 2016, the Company ~~entered into an Employment Agreement with Steve Shum~~received a limited waiver regarding the April 29, 2016 and May 16, 2016 installment payments so long as such payments are received by May 31, 2016.

From April 4, 2016 to ~~serve as~~April 20, 2016, the ~~Company’s chief financial officer. The agreement provides~~Company conducted closings for 930 units (“Units”) to 14 accredited investors at a price of $1,000 per Unit for an ~~annual base~~aggregate purchase price of $930,000, of which (i) 457 Units were purchased for $457,000 in cash (ii) 423 Units were purchased by certain of its officers in consideration of $423,000 accrued and unpaid salary ~~$195,000~~ and ~~5-year options~~(iii) 50 Units were purchased in consideration of cancellation of $50,000 of outstanding indebtedness. Each Unit consists of (i) 1 share of our Series A Convertible Preferred Stock convertible into shares of our common stock, $0.0001 par value per share at a rate of $0.15 per share, and (ii) one Warrant, exercisable for 3-years, to purchase ~~850,000~~six thousand six hundred sixty six (6,666) shares of Common Stock at an exercise price of $0.18 per whole share. The Company received gross proceeds of $457,000 from the sale of the 457 Units for cash. The Company used $32,560 of these proceeds as payment for non-exclusive placement agent fees to FINRA registered broker-dealers. In addition, approximately $25,000 was used to repay outstanding indebtedness under 5% promissory notes. The remaining proceeds will be used for working capital and general corporate purposes and to fund growth opportunities. In addition, the Company issued 5-year warrants to purchase 81,400 shares of common stock with an exercise price of ~~$0.45~~$0.15 to broker-dealers in connection with the initial closing of this private placement. Steven Earles, the Company’s president and chief executive officer, purchased 185 Units in the Offering in consideration of $185,000 in accrued and unpaid salary. Steven Shum the Company’s chief financial officer purchased 97 Units in the Offering in consideration of $97,000 in accrued and unpaid salary. Martin Kunkel the Company’s chief marketing officer and secretary purchased 58 Units in the Offering in consideration of $58,000 in accrued and unpaid salary. Carrie Earles the Company’s chief branding officer and wife of Steven Earles purchased 83 Units in the Offering in consideration of $83,000 in accrued and unpaid salary.

On April 14, 2016, the Company entered into an Amendment Agreement with WWOD Holdings, LLC (“WWOD”) and MR Group I, LLC (“Investor”). The Amendment Agreement amends that certain securities purchase agreement on September 10, 2015 (the “Existing SPA”), with WWOD pursuant to which the Company issued and sold to WWOD that certain 14% convertible promissory note in the principal amount of $275,000 with a maturity date of May 10, 2016 and an original issue discount of $33,500 (the “Initial Note”).

The Amendment Agreement amended the Existing SPA to reflect an additional closing under the Existing SPA (as amended by the Amendment Agreement the “Amended SPA”) pursuant to which the Company issued and sold to Investor a convertible promissory note dated April 18, 2016, bearing interest at 14% per ~~share.~~annum in the principal amount of $300,000 (the “Additional Note”, together with the Initial Note, the “Notes”). The Additional Note was issued on April 18, 2016 and has a maturity date of January 18, 2017 and an original issue discount of $100,000; provided, however, that in the event that the Company consummates the additional proposed $2 million financing with Investor for which the Company executed a non-binding term sheet (the “Subsequent Placement”), $200,000 of aggregate principal of the Additional Note, together with any accrued, and unpaid, interest then outstanding under the Additional Note, shall be applied, on a dollar-for-dollar basis, to reduce the purchase price of the Investor in such Subsequent Placement and upon the closing of such Subsequent Placement and such application, the remainder of the Additional Note then outstanding shall be deemed cancelled for no additional consideration. Accordingly, the Company received gross proceeds from the Investor of $200,000. After paying $15,000 of the Investor’s expenses in connection with the Amended SPA (with payment of the remaining expenses deferred), the Company received net proceeds of $185,000, which is to be used for working capital and general corporate purposes. Concurrent with the SPA, WWOD contributed the Initial Note to Investor. Following issuance of the Additional Note, the aggregate principal amount of Notes issued under the Amended SPA is $575,000, both of which are now held by the Investor. In connection with the issuance of the Additional Note, the Company entered into an Amended and Restated Security and Pledge Agreement dated April 18, 2016 pursuant to which the Notes are secured by all of the Company’s assets.

The Company has agreed to repay the Additional Note in six installments at set forth in the Amortization Schedule attached to the Note beginning 30th day after issuance and each 30-days thereafter. However, failure to make any Amortization Payment will not be deemed an event of default under the Additional Note. In addition, the Additional Note can be prepaid at any time until the date immediately preceding the Maturity Date. The Additional Note is convertible into common stock at a conversion price equal to the lesser of (i) the Fixed Conversion Price (currently $0.40) or (ii) 65% of the lowest trading price of our common stock during the 5-trading days prior to conversion. The total amount of principal outstanding under the Additional Note at April 27, 2016 was approximately $300,000.

The Notes contains certain covenants and restrictions including, restrictions on the Company’s ability to not incur indebtedness, permit liens, pay dividends or dispose of certain assets. Events of default under the note include, among others, failure to pay principal or interest on the note or comply with certain covenants under the note. The Noted are secured by our assets pursuant to the terms and conditions of an Amended and Restated Pledge and Security Agreement.

From April 20, 2016 to May 11, 2016, the Company issued 2,743,591 shares of our common stock upon conversion of a 14% convertible promissory note. The aggregate principal amount of this note that was converted was $75,500.

On May 13, 2016, the Company entered into Exchange Agreement (the “Exchange Agreement”) with MR Group I, LLC, an accredited investor (“Investor”) pursuant to which the Company (i) issued Investor a 14% secured convertible promissory note dated May 13, 2016 in the aggregate principal amount of $219,200.65 with an August 31, 2016 maturity date (the “Note”) in exchange for a previously issued 14% secured convertible promissory note dated September 10, 2015 in the original principal amount of $275,000 (with current outstanding principal and interest of $197,208.233 and $21,9992.32, respectively) with a May 10 2016 maturity date held by Investor and (ii) issued Investor a 14% secured convertible promissory note dated May 13, 2016 in the aggregate principal amount of $302,646.58 with an April 30, 2017 maturity date (the “Second Note”, together with the Note, the “Exchange Notes”) in exchange for a previously issued 14% secured convertible promissory note dated April 18, 2016 in the original principal amount of $300,000 (with current outstanding principal and interest of $300,000 and $2,646.58, respectively) with a May 10 2016 maturity date held by Investor. In the event that the Company consummates the additional proposed $2 million financing with Investor for which we have executed a non-binding term sheet (the “Subsequent Placement”), $200,000 of aggregate principal of the Second Note, together with any accrued, and unpaid, interest then outstanding or any additional amounts due and payable as a result of an event of default under the Second Note, shall be applied, on a dollar-for-dollar basis, to reduce the purchase price of the Investor in such Subsequent Placement and upon the closing of such Subsequent Placement and such application, the remainder of the Second Note then outstanding shall be deemed cancelled for no additional consideration.

In ~~October 2015,~~connection with the issuance of the Exchange Notes, the Company entered into a ~~revised contract with a service provider, under~~Security and Pledge Agreement dated May 13, 2016 pursuant to which ~~it agreed to issue (i) 100,000 shares~~the Exchange Notes are secured by all of the ~~Company's common stock and (ii) 3-year options to purchase 450,000 shares of~~Company’s assets. The Exchange Notes can be prepaid at any time until the date immediately preceding their respective Maturity Dates. The Exchange Notes are convertible into common stock at ~~exercise prices~~a conversion price equal to the lesser of (i) the Fixed Conversion Price (currently $0.15 for the Note and ~~vesting provisions as set forth in~~$0.40 for the ~~agreement. On October 30, 2015,~~Second Note) or (ii) 65% of the ~~service provider terminated this contract. The~~lowest trading price of our common stock during the (i) 5-trading days prior to conversion (for conversions on or before May 22, 2016 or (ii) 10-trading days prior to conversion (for conversions after May 22, 2016). The Exchange Notes contain certain covenants and ~~options were never issued by the Company~~restrictions including, restrictions on our ability to incur indebtedness, permit liens, pay dividends or dispose of certain assets. Events of default under the ~~agreement.~~

Exchange Notes include, among others, failure to pay principal or interest on the note or comply with certain covenants under the note. The Company will be required to repay the Exchange Notes at 133% upon an event of default.

This section of the Quarterly Report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions, which could cause actual results to differ materially from Management's expectations. Factors that could cause differences include, but are not limited to, customer acceptance risks for current and new brands, reliance on external sources on financing, development risks for new products and brands, dependence on wholesale distributors, inventory carrying issues, fluctuations in market demand and customer preferences, as well as general conditions of the alcohol and beverage industry.

We were incorporated on February 11, 2004 in Nevada as Eurocan Holdings, Ltd. Until closing of the Acquisition (described below), Eurocan operated solely as an online marketing and media solutions firm specializing in digital interactive media, which business was conducted through Eurocan’s wholly-owned subsidiary, Michael Williams Web Design Inc. of New York, NY (“~~MWWD”~~MWW”).

On December 1, 2014, we changed our corporate name to “Eastside Distilling, Inc.” from Eurocan Holdings Ltd, to reflect our recent acquisition of Eastside Distilling, LLC resulting in us primarily conducting Eastside’s business (See “The Acquisition of Eastside Distilling, LLC” below). Until February 3, 2015, we continued to operate our online marketing and media ~~solutions~~solutions’ business through ~~MWWD~~MWW (See “Spin-Off of ~~MWWD”~~MWW” below).

On ~~or about April 30,~~October 31, 2014, Eurocan Holdings Ltd. (“we,” “us,” or the “Company”) entered into a letter of intent with Eastside Distilling LLC (“Eastside”) with respect to a proposed business combination. We were introduced to Eastside by an existing debt investor and creditor of the Company, who in turn was introduced to Eastside LLC by a mutual colleague. The parties decided to proceed with the transaction in order to provide Eastside with access to the public capital markets and to enhance the financial condition and performance of the Company. The transaction structure was negotiated between the parties to reflect the economic terms that the parties negotiated and to qualify the transaction as a tax-free exchange under Section 351 of the Internal Revenue Code.

Thereafter, in June, 2014, as the Company and Eastside were negotiating and structuring the proposed business combination, the Company loaned $150,000 to Eastside, which loan in turn was financed by the issuance of a demand loan by the Company to the existing debt investor and creditor of the Company. The loan was made as a bridge loan in anticipation of the business combination contemplated by the letter of intent. The parties negotiated to structure the bridge loan as a loan from the existing debt investor to the Company and then as a loan from the Company to Eastside. The business purposes of structuring the loans in this manner were two-fold. First, the existing debt investor was already a debt investor and creditor of the Company and preferred to make an additional investment in a company in which it had already invested, rather than a new investment in a different issuer. This facilitated the transaction documentation and the due diligence investigation, as time was of the essence in the making of the bridge loan. Second, the existing debt investor preferred to invest in an issuer whose common stock was already publicly traded, rather than in a privately held LLC. In accordance with these two investment criteria, the existing debt investor, the Company, and Eastside negotiated to have the debt investor purchase the demand note from the Company and then have the Company loan the proceeds to Eastside. As time was of the essence, the parties agreed to have the Company issue a demand note to the existing debt investor initially in order to provide the parties additional time to negotiate the remaining terms of the loan in good faith. These negotiations continued until around September 19, 2014, at which point, in lieu of the existing debt investor demanding repayment of the note, the Company and the existing debt investor amended the note to be a 5% Convertible Note. The convertible notebears interest at 5% per annum and has a maturity date of December 13, 2015. The note may be converted into shares of our common stock at a fixed conversion price of $0.40 per share. This note may be prepaid upon payment of 150% of the outstanding principal amount to the holder. Other than as described herein, no~~material relationship between the Company and its affiliates and Eastside and its affiliates existed before October 31, 2014.~~

~~On October 31, 2014, Eurocan~~ consummated the acquisition (the “Acquisition”) of Eastside Distilling, LLC (“Eastside”) pursuant to an Agreement and Plan of Merger (the “Agreement”) by and among the Company, Eastside, and Eastside Distilling, Inc., our wholly-owned subsidiary. Pursuant to the Agreement, Eastside merged with and into Eastside Distilling, Inc. The merger consideration for the acquisition consisted of 32,000,000 shares (the “Shares”) of our common stock. In addition, certain of our stockholders cancelled an aggregate of 24,910,000 shares of our common stock held by them. As a result, upon consummation of the Agreement on October 31, 2014, we had 40,000,000 shares of our common stock issued and outstanding, of which 32,000,000 shares were held by the former members of Eastside. The issuance of these Shares was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to exemptions afforded by Section 4(a)(2) of the Securities Act, Rule 506 of Regulation D promulgated thereunder, and/or Regulation S promulgated thereunder.

At the effective time of the Acquisition, our officers and directors resigned, and appointed Steven Earles and Lenny Gotter as directors to our board of directors. In addition, concurrent with closing of the Acquisition, wethe Company appointed Mr. Earles as Chief Executive Officer, Chief Financial Officer and Chairman and Mr. Gotter as Chief Operating Officer and Secretary. Mr. Gotter resigned as an officer in February 2015.

Following the Acquisition, we conduct the business of Eastside as our primary business.

Eastside is a manufacturer, developer, producer and marketer of master-crafted spirits in the following beverage alcohol categories: bourbon, whiskey, rum and vodka. Eastside currently distributes its products in twenty states (Oregon, Washington, California, Nevada, Texas, Virginia, Indiana, Illinois, New York, New Jersey, Massachusetts, Connecticut, Minnesota, Georgia, Pennsylvania, Rhode Island, New Hampshire, Maine, Vermont, and Maryland)and is ~~currently~~ authorized to distribute ~~its~~our products in ~~fourteen states (Oregon, Washington, Minnesota, Georgia, Pennsylvania,~~ Idaho ~~Virginia, Maryland, New York, Texas, Indiana, Illinois, Connecticut~~ and ~~Nevada) and is actively distributing in all of these states except Idaho, Illinois and Nevada.~~Ontario, Canada, as well. Eastside also generates revenue from tastings, tasting room tours, private parties and merchandise sales from its distillery and showroom located on the Distillery Row in Portland, Oregon.

Following consummation of the Acquisition, our new management conducted an evaluation of the ~~MWWD~~MWW business and an analysis of the business going forward. Management determined that due to ~~MWWD’s~~MWW’s operating and net losses in each of the last two fiscal years, its working capital deficit as of the end of the latest fiscal year and as of the latest fiscal quarter, and its accumulated deficit, it was not in the best interest of the Company and its stockholders to continue the operation of ~~MWWD~~MWW going forward. Accordingly, on February 3, 2015, we transferred all shares of ~~MWWD~~MWW held by us along with all assets and liabilities related to ~~MWWD~~MWW to Michael Williams in consideration of ~~MWWD’s~~MWW’s and Mr. Williams’ full release of all claims and liabilities related to ~~MWWD~~MWW and the ~~MWWD~~MWW business. Mr. Williams is the sole officer, director and employee of ~~MWWD.As a result~~MWW. The spinoff of MWW resulted in the ~~Spin-Off, we determined that the~~impairment of goodwill ~~recorded in connection with~~related to the Acquisition ~~was impaired; accordingly, we recorded~~of approximately $3.2 million ~~of goodwill impairment for the year ended~~in December ~~31, 2014. Additionally,~~2014.Additionally, as a result of the Spin-Off, we recorded a net gain of approximately $52,890 on February 3, 2015. This gain is primarily the result of the transfer of net liabilities to Michael Williams, which is reflected in our financial statements for the ~~nine months~~year ended ~~September 30,~~December 31, 2015.

Bridge Financing.On April 18, 2016, we issued a 14% convertible promissory note in the principal amount of $300,000 to a single accredited Investor with a maturity date of January 18, 2017 and an original issue discount of $100,000; provided, however, that in the event that we consummate the additional proposed $2 million financing with the same Investor for which we have executed a non-binding term sheet (the “Subsequent Placement”), $200,000 of aggregate principal of the Additional Note, together with any accrued, and unpaid, interest then outstanding under the Additional Note, shall be applied, on a dollar-for-dollar basis, to reduce the purchase price of the Investor in such Subsequent Placement and upon the closing of such Subsequent Placement and such application, the remainder of the Additional Note then outstanding shall be deemed cancelled for no additional consideration. Accordingly, we received gross proceeds from the Investor of $200,000. After paying $15,000 of the Investor’s expenses in connection with the Amended SPA (with payment of the remaining expenses deferred), we received net proceeds of $185,000, which is to be used for working capital and general corporate purposes.

Series A Preferred Stock and Warrant Offering. From April 4, 2016 to April 20, 2016, we conducted closings for 930 units (“Units”) to 14 accredited investors at a price of $1,000 per Unit for an aggregate purchase price of $930,000, of which (i) 457 Units were purchased for $457,000 in cash (ii) 423 Units were purchased by certain of our officers in consideration of $423,000 accrued and unpaid salary and (iii) 50 Units were purchased in consideration of cancellation of $50,000 of outstanding indebtedness. Each Unit consists of (i) 1 share of our Series A Convertible Preferred Stock convertible into shares of our common stock, $0.0001 par value per share (“Common Stock”) at a rate of $0.15 per share and (ii) one Warrant, exercisable for 3-years, to purchase six thousand six hundred sixty six (6,666) shares of Common Stock at an exercise price of $0.18 per whole share. We received gross proceeds of $457,000 from the sale of the 457 Units for cash. We used $32,560 of these proceeds as payment for non-exclusive placement agent fees to FINRA registered broker-dealers. In addition, approximately $25,000 was used to repay outstanding indebtedness under 5% promissory notes. The remaining proceeds will used for working capital and general corporate purposes and to fund growth opportunities

National Rollout progress. Our national rollout plan continue to progress. We currently sell our products into twenty states which represents an increase of over 100% from March 2015 and is largely attributable to our addition of other distributors. In addition, we expect to expand distribution to 23 additional states in the coming months based on our various distributors near-term expansion plans.

Canadian Product Sale Approval. In March 2016, our Burnside Bourbon product was approved for sale in the province of Ontario, Canada.

Our executive offices are located at 1805 SE Martin Luther King Jr. Blvd., Portland, Oregon 97214. Our telephone number is (971) 888-4264 and our internet address iswww.eastsidedistilling.com. The information on, or that may be, accessed from our website is not part of this quarterly report.

First quarter net sales increased 43% over the prior year as we continued to successfully expand its products nationwide. During the first quarter last year, the Oregon market represented more than 90% of our revenue with limited sales in a few additional states. In the first quarter of this year, Oregon represented approximately 58%, with the new markets making increasing contributions due to our products now beginning to be sold in 20 states. While the Oregon market continues to experience strong year-over-year growth, we anticipate the new markets to make strong sales progress and become a larger percentage of our overall sales. Equally important, this national expansion has been supported by our efforts to work with the major distributors, something we anticipate to continue.

We have also invested heavily in our infrastructure (facilities, people, and marketing programs) in order to support our planned expansion and believe we are well positioned to experience further improved performance throughout the balance of 2016.

Three Months Ended ~~September 30, 2015~~March 31, 2016 Compared to the Three Months Ended ~~September 30, 2014~~March 31, 2015

Sales continued to expand during the September quarter, consistent with our recent trends. To date, the majority of our sales volume and growth has occurred in Oregon, our most established market where the Company originally began selling product. Over the past year, as part of our national expansion plans, we have also focused on obtaining approval and distributor relationships for other states. We are now positioned in a number of additional states (13 currently besides Oregon) and the Company has been shipping product to these new regions. We also intend to begin deploying similar marketing strategies (as currently used in Oregon) to help further promote our products in these new areas and drive greater adoption. As a result, we believe the Company is well positioned to continue its high rate of growth as we continue to successfully penetrate existing and new markets with our award winning product line.

Net sales consist of revenues from the sale of products we supply or distribute less excise taxes. The following table sets forth and compares our net sales in (in thousands of dollars) for the three months ended ~~September 30, 2015~~March 31, 2016 and ~~2014:~~2015:

The ~~$96,331~~$138,404 increase, or approximately ~~38%~~43% increase in net sales for the three months ended ~~September 30, 2015,~~March 31, 2016, as compared to the three months ended ~~September 30, 2014,~~March 31, 2015, was primarily the result of increased sales in Oregon ~~to both wholesale liquor distributors and our own retail stores. Since December 2014, we have opened retail stores~~as well as sales growth in ~~shopping centers, such as Clackamas Town Center and the Washington Town Center in Portland, Oregon.~~new states.

Gross profit is calculated by subtracting the cost of products sold from net sales. Cost of sales consists of the costs of ingredients utilized in the production of spirits, contract production fees, overhead, packaging and in-bound freight charges. Ingredients account for the largest portion of the cost of sales, followed by contract production fees and packaging. Gross margin is gross profits stated as a percentage of net sales.

The following table compares our gross profit (in thousands of dollars) and gross margin in the three months ended ~~September 30, 2015~~March 31, 2016 and ~~2014.~~2015.

Our gross margin of ~~52.4%~~44.7% of net sales in the three months ended ~~September 30, 2015~~March 31, 2016 improved from our gross margin of ~~36%~~32.9% for the three months ended ~~September 30,~~March 31, 2014 primarily due to ~~a difference in~~ sales-channel ~~mix. As we continue to grow sales, we anticipate improvement in gross margins~~mix along with ~~better leverage on~~improved coverage of our fixed facility ~~costs.~~costs as a result of the higher sales volumes.

Selling, general and administrative (“SG&A”) expenses include marketing and advertising costs and expenses, compensation paid (including non- cash stock-based compensation) to general and administrative personnel, depreciation expense, professional fees and other SG&A expenses for the three months ended ~~September 30,~~March 31, 2016 and March 31, 2015, ~~and September 30, 2014,~~ respectively (in thousands of dollars):

The ~~$1,229,318~~$40,561 increase in SG&A expenses for the three months ended ~~September 30, 2015~~March 31, 2016 was primarily attributable to an increase in professional ~~accounting, legal and marketing fees of~~fees. During the period, approximately $697,000, additional payroll expenses for additional sales personnel and event coordinators related to our new retail locations and office personnel of approximately $268,000, additional advertising costs of approximately $45,000, and increased rent related to our new facility of approximately $68,000. Of the overall increase in SG&A, approximately $588,625$343,000 was non-cash expenses associated with stock-based compensation of $105,839, shares issued for ~~employees~~services of $89,100, and ~~consultants.~~a beneficial conversion feature expense of $148,077 associated with the convertible note outstanding.

The following table compares our other expense (in thousands of dollars) for the three months ended ~~September 30, 2015~~March 31, 2016 and ~~2014.~~2015.

Other expense in the three months ended ~~September~~March 30, ~~2015~~2016 is primarily related to ~~an increase in interest expense.~~

~~Nine Months Ended September 30, 2015 Compared~~the expense associated with the amortization of a beneficial conversion feature on the convertible note payable. In the prior year, we recorded a one-time gain related to the ~~Nine Months Ended September 30, 2014~~

~~Net sales consist~~spin-off of revenues from the sales of products we supply or distribute less excise taxes. The following table sets forth and compares our sales in (in thousands of dollars) for the nine months ended September 30, 2015 and 2014

The $370,862 increase, or approximately 61% increase in net sales in the nine months ended September 30, 2015, as compared to the nine months ended September 30, 2014, was primarily the result of increased sales in Oregon to both high volume wholesale liquor distributors and our own retail stores. Since December 2014, we have opened retail stores in shopping centers, such as Clackamas Town Center and the Washington Town Center in Portland, Oregon.

~~The following table compares our gross profit (in thousands of dollars) and gross margin for the nine months ended September 30, 2015 and 2014~~

Our gross margin of 47.2% of net sales for the nine months ended September 30, 2015 decreased from our gross margin of 52.5% in the nine months ended September 30, 2014 due to a difference in sales-channel mix along with a higher amount of allocated facility costs, due to our new larger facility. As we continue to grow sales, we anticipate improvement in gross margins with better leverage on these higher fixed facility costs.MWW.

Selling, general and administrative (“SG&A”) expenses include marketing and advertising costs and expenses, compensation paid (including non- cash stock-based compensation) to general and administrative personnel, depreciation expense, professional fees and other SG&A expenses for the nine months ended September 30, 2015 and September 30, 2014, respectively (in thousands of dollars):

The $2,830,696 increase in SG&A expenses for the nine months ended September 30, 2015 was primarily attributable to an increase in professional accounting, legal and marketing fees of approximately $1,354,000, additional payroll expenses for additional sales personnel and event coordinators related to our new retail locations and office personnel of approximately $573,000, expanded advertising expense of approximately $179,000, and higher rent expense of approximately $245,000. Of the overall increase in SG&A, approximately $716,000 was non-cash expenses associated with stock and option expensing for employees and consultants.

~~The following table compares our other income (expense) (in thousands of dollars) for the nine months ended September 30, 2015 and 2014.~~

~~Other income for the nine months ended September 30, 2015 is principally a net gain recorded in connection with the spin-off MWWD of $52,890, offset by interest expense.~~

Our primary capital requirements are for the financing of inventories and, sales and marketing efforts. Funds for such purposes have historically been generated from our operations, extended payment terms from suppliers for inventory purchases, notes payable and equity raisings.

We have ~~historically financed~~a history of losses over the past two years, including the period ended March 31, 2016 and for which we have generated negative operating cash flows. During the three months ended March 31, 2016 and 2015, we had net losses of $1.01 million and $0.83 million, respectively and net cash used in operating activities for the corresponding three months was $(0.27) million and $(0.71), respectively. As a result, since fiscal 2014, it has been necessary to rely on raising new equity or extended payment terms from vendors for our capital and working capital needs.

At March 31, 2016, we had outstanding convertible notes payable and another note payable indebtedness of $0.5 million compared to the same as of December 31, 2015. As a consequence of our indebtedness as of March 31, 2016, a portion of our cash flow from operations must be dedicated to interest and principal payments on our indebtedness, thereby reducing the availability of our cash flow to fund capital expenditures or other growth initiatives and other general corporate requirements, see “Part II, Item 1A. Risk Factors − Risks Related to Our Business − We will require additional capital, which we may not be able to obtain on acceptable terms. Our inability to raise such capital, as needed, on beneficial terms or at all could restrict our future growth and severely limit our operations.” below. In addition, at March 31, 2016, we had limited cash resources, with cash of $13 thousand see “Part II, Item 1A. Risk Factors − Risks Related to Our Business − Our current cash resources might not be sufficient to meet our expected near-term cash needs.”

Our short-term and long-term liquidity needs arise primarily from our working capital ~~requirements~~and debt service requirements. We anticipate that capital expenditures for ~~our operations~~the fiscal year ending December 31, 2016 will be approximately $100,000, primarily ~~from internally generated funds, debt and capital raisings.~~for increased manufacturing capacity. As of March 31, 2016, we have cash of approximately $13,000.

~~In December 2014,~~For the period ended March 31, 2016, we ~~raised $2.2~~have generated a net loss of $1.01 million, ~~from~~resulting in a ~~stock issuance that was~~shareholders’ deficit of approximately $1.73 million as of March 31, 2016. Additionally, for the period ended March 31, 2016, we have used ~~to support working capital needs. In September 2015, we received $289,000~~approximately $0.27 million in net ~~proceeds from~~cash to fund its operations. These matters, along with the ~~sale~~absence of ~~convertible notes, which was net of $2,500~~a revolving credit agreement and recurring losses in ~~legal expenses.~~

~~We used cash for operations~~prior years, raise substantial doubt as ~~we built inventory in the nine months ended September 30, 2015~~ to ~~support higher sales.~~our ability to continue as a going concern.

Net cash used in operating activities for the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 was ~~$1,241,924~~$271,477 resulting primarily from our net loss of ~~$2,931,690, less a gain on spin-off~~$1,014,679 and changes in trade receivables and accounts payable of ~~subsidiary of 52,890,~~$40,974 and ~~an increase in inventories of $436,565,~~$7,808, respectively, which amounts were offset by depreciation and amortization of $5,574, amortization of debt issuance costs of $11,167, amortization of beneficial conversion feature of $148,077, issuance of common stock in exchange for services of ~~$715,871,~~$89,100, stock-based compensation of ~~$124,250, a decrease in trade receivables of $74,103,~~$105,839, an increase in ~~accounts payable of $821,457, an increase in~~inventories and accrued liabilities ~~of $338,770, a decrease in~~of$61,356 and $304,739, respectively, prepaid expenses and other assets of ~~$89,704~~$64,751 and deferred revenue of ~~$1,139.~~$1,381. This is compared to net cash used in operating activities of ~~$171,265~~$713,353 for the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015 resulting primarily from our net loss of ~~$267,088~~$831,018 plus inventories of ~~$164,604, deposit~~$464,823, gain on spin-off of ~~$48,000~~subsidiary of $52,890 and deferred revenue of ~~$15,356,~~$3,339, which amounts were offset by depreciation and amortization of ~~$3,071,~~$4,379, stock based compensation of $31,000, trade receivables of ~~$14,163,~~$78,835, accounts payable of ~~$248,463~~$472,998, accounts payable of $13,248 and accrued liabilities of ~~$39,454.~~

We used $42,856 of cash in investing activities for the nine months ended September 30, 2015 for the purchase of property and equipment. This compares to $5,226 of cash used in investing activities during the nine months ended September 30, 2014 for the purchase of equipment.

We had $287,868 in net cash from financing activities for the nine months ended September 30, 2015, which amount was principally from the net proceeds received from the issuance of convertible notes of $289,000, which was offset by $3,632 in payments on notes payable. For the same period in 2014, we had net cash provided from financing activities of $163,014, principally from the net proceeds from notes payable of $169,980, which was offset by $5,448 in payments on notes payable and $1,518 in distributions.

Our cash balance at September 30, 2015 was approximately $85,000. We expect our principal uses for cash in the year ending December 31, 2015 will be to fund operations and capital expenditures. As we continue to pursue our efforts to expand from a local/regional company to a national company, our cash flows from operations and available capital are presently not sufficient to sustain our current level of operations over the next twelve months. We currently estimate that we will require up to an additional $3.5 million to expand and market our business to become a nationwide distributor. Of this amount, we require $1.5 million for working capital and to increase inventory to allow for nationwide distribution, $0.6 million to make our new facility fully operational to support production of up to one million cases per year, and $1.0 million for sales and marketing to facilitate nationwide distribution. We plan to improve our cash position by focusing on increasing sales, improving profitability and accessing a combination of capital sources including debt and equity financings. Failure to secure these additional funds will result in a less aggressive growth plan and could also result in a reduction in the current scope of our operations.$38,257.

Net cash flows used in investing activities for the three months ended March 31, 2016 was $6,954. We did not have any cash flows from investing activities in the three months ended Mach 31, 2015.

Net cash flows provided by financing activities in the three months ended March 31, 2016 was $149,914 consisting of $151,200 in deposits for our preferred stock offering which amount was offset by $1,286 in payments of principal on notes payable. Our net cash flows used in financing activities for the three months ended March 31, 2015 was $801 consisting of payments of principal on notes payable.

In ~~June 2014,~~order to meet its cash and liquidity needs, we intend to raise additional debt and equity financing and/or renegotiate its various debt obligations. There is no assurance that we will be successful in obtaining additional financing and/or be able to renegotiate the terms of its existing debt obligations on terms which are satisfactory to us, or at all. The accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. These financial statements do not include any adjustments relating to the ~~Company~~recoverability and ~~Eastside were negotiating~~classification of recorded asset amounts, or amounts and ~~structuring~~classification of liabilities that might result from this uncertainty. See “Part II, Item 1A. Risk Factors − Risks Related to Our Business − This quarterly Report on Form 10-Q includes a liquidity note to our condensed consolidated financial statements for the ~~proposed business combination~~quarter ended March 31, 2016 which ~~closed~~may make capital raising more difficult for us and may require us to scale back” below.

Our ability to improve our liquidity in future periods and continue as a going concern will depend on ~~October 31, 2014, the Company loaned $150,000 to Eastside,~~generating positive operating cash flow, primarily through increased distribution into other states, improved gross profit and controlling our expenses, which ~~loan~~ in turn, ~~was financed~~may be impacted by prevailing economic conditions and other financial and business factors, some of which are beyond our control, see “Part II, Item 1A. Risk Factors”.

We have incurred a net loss of $1,014,679 in the three months ended March 31, 2016 and have incurred cumulative losses of $8,576,430 for the period ended March 31, 2016, and expect to incur further losses in the development of our business and have been dependent on funding operations through the issuance of ~~a demand loan by the Company~~debt, convertible debt and private sale of equity securities. These conditions raise substantial doubt about our ability to ~~the existing debt investor and creditor of the Company. The loan was made~~continue as a ~~bridge loan~~going concern.

From April 4, 2016 to April 20, 2016, we conducted closings for 930 units (“Units”) to 14 accredited investors at a price of $1,000 per Unit for an aggregate purchase price of $930,000, of which (i) 457 Units were purchased for $457,000 in ~~anticipation~~cash (ii) 423 Units were purchased by certain of ~~the business combination contemplated by the aforementioned letter~~our officers in consideration of ~~intent between the Company~~$423,000 accrued and ~~Eastside. The parties negotiated to structure the bridge loan as a loan from the existing debt investor to the Company~~unpaid salary and ~~then as a loan from the Company to Eastside. The business purposes~~(iii) 50 Units were purchased in consideration of ~~structuring the loans in this manner were two-fold. First, the existing debt investor was already a debt investor and creditor~~cancellation of the Company and preferred to make an additional investment in a company in which it had already invested, rather than a new investment in a different issuer. This facilitated the transaction documentation and the due diligence investigation, as time was$50,000 of ~~the essence in the making~~outstanding indebtedness. Each Unit consists of the bridge loan. Second, the existing debt investor preferred to invest in an issuer whose common stock was already publicly traded, rather than in a privately held LLC. In accordance with these two investment criteria, the existing debt investor, the Company, and Eastside negotiated to have the debt investor purchase the demand note from the Company and then have the Company loan the proceeds to Eastside. As time was(i) 1 share of the essence, the parties agreed to have the Company issue a demand note to the existing debt investor initially in order to provide the parties additional time to negotiate the remaining terms of the loan in good faith. These negotiations continued until around September 19, 2014, at which point, in lieu of the existing debt investor demanding repayment of the note, the Company and the existing debt investor amended the note to be a 5%our Series A Convertible ~~Note. The~~Preferred Stock convertible ~~notebears interest at 5% per annum and has a maturity date of December 13, 2015. The note may be converted~~ into shares of our common stock, $0.0001 par value per share (“Common Stock”) at a ~~fixed conversion~~rate of $0.15 per share and (ii) one Warrant, exercisable for 3-years, to purchase six thousand six hundred sixty six (6,666) shares of Common Stock at an exercise price of $0.18 per whole share. We received gross proceeds of $457,000 from the sale of the 457 Units for cash. We used $32,560 of these proceeds as payment for non-exclusive placement agent fees to FINRA registered broker-dealers. In addition, approximately $25,000 was used to repay outstanding indebtedness under 5% promissory notes. The remaining proceeds will used for working capital and general corporate purposes and to fund growth opportunities

On December 31, 2014, we completed an offering (the “Offering”) of 5,512,500 shares of our common stock, par value $0.0001 per share (“Common Stock”) at a price of $0.40 per ~~share. This note may be prepaid upon payment~~share for an aggregate purchase price of ~~150%~~$2,205,000. The Offering was made to accredited investors and was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 4(a)(2) of the ~~outstanding principal amount~~Securities Act and/or Rule 506 of Regulation D promulgated thereunder. We intend to use the ~~holder. Other than as described herein, nomaterial relationship between the Company and its affiliates and Eastside and its affiliates existed before October 31, 2014.~~

~~During the three months ended September 2015, we received $289,000 in~~ net proceeds from the ~~issuance~~Offering for the build-out of ~~two separate convertible notes, which was net~~new facility, marketing expenditures, repayment of ~~$2,500~~indebtedness and working capital and general corporate purposes. Steven Earles, our president and chief executive officer, purchased 37,500 shares of Common Stock in ~~legal expense. This included, 1)~~the Offering for $15,000 in cash in the Offering.

On September 10, 2015, we issued and sold a ~~$50,000 interest-free promissory note due February 6, 2016 with the option to convert into the next equity-based financing completed by the Company at the holder’s option and 2)a 14% secured~~ convertible promissory note ~~(the “14% Note”)~~bearing interest at 14% per annum in the principal amount of $275,000 ~~with~~to WWOD Holdings, LLC, an original issue discount of $33,500 resulting in gross proceeds received from the Lender of $241,500 to us. We were also required to pay lender’s legal fees of $2,500 in connection with the transaction resulting in net proceeds of $239,000. The 14% Noteaccredited investor (“WWOD”). This note has a maturity date of May 10, 2016 ~~(the “Maturity Date”). We agreed to repay~~and an original issue discount of $33,500. Accordingly, we received gross proceeds of $241,500. After paying the ~~14% Note in six installments (“Amortization Payments”) as set forth in the Amortization Schedule attached to the 14% Note beginning 30th day after issuance~~investors expenses, we received net proceeds of $241,500, which proceeds were used for working capital and ~~each 30-days thereafter. However, failure to make any Amortization Payment will not be deemed an event of default under the 14% Note.~~general corporate purposes. The 14% Note is initially convertible at a price per share equal to $1.00 (the “Fixed Conversion Price”); provided, however, that from and after March 10, 2016 and/or during the continuance of an event of default under the 14%Note, the conversion price ~~shall be~~for this note is equal to the lesser of (i) the Fixed Conversion Price (currently $0.15) or (ii) 65% of the lowest trading price of our common stock during the ~~5 trading~~5-trading days prior to conversion. ~~The 14% Note~~This note contains certain covenants and restrictions including, among others, that for so long as ~~the 14% Note~~this note is outstanding we will not incur indebtedness, permit liens, pay dividends or dispose of certain assets. Events of default under the note include, among others, failure to pay principal or interest on the note or comply with certain covenants under the note. The ~~14% Note~~note is secured by all of our ~~inventory~~assets.

On April 14, 2016, we entered into an Amendment Agreement with WWOD and MR Group I, LLC (“Investor”). The Amendment Agreement amends that certain securities purchase agreement on September 10, 2015 (the “Existing SPA”), with WWOD pursuant to which we issued and sold to WWOD a convertible promissory note, bearing interest at 14% per annum in the ~~terms~~principal amount of $275,000 (the “Initial Note”). The Amendment Agreement amended the Existing SPA to reflect an additional closing under the Existing SPA (as amended by the Amendment Agreement the “Amended SPA”) pursuant to which we issued and ~~conditions~~sold to Investor a convertible promissory note dated April 18, 2016, bearing interest at 14% per annum in the principal amount of $300,000 (the “Additional Note”, together with the Initial Note, the “Notes”). The Additional Note was issued on April 18, 2016 and has a maturity date of January 18, 2017 and an original issue discount of $100,000; provided, however, that in the event that we consummate the additional proposed $2 million financing with Investor for which we have executed a non-binding term sheet (the “Subsequent Placement”), $200,000 of aggregate principal of the Additional Note, together with any accrued, and unpaid, interest then outstanding under the Additional Note, shall be applied, on a dollar-for-dollar basis, to reduce the purchase price of the Investor in such Subsequent Placement and upon the closing of such Subsequent Placement and such application, the remainder of the Additional Note then outstanding shall be deemed cancelled for no additional consideration. Accordingly, we received gross proceeds from the Investor of $200,000. After paying $15,000 of the Investor’s expenses in connection with the Amended SPA (with payment of the remaining expenses deferred), we received net proceeds of $185,000, which is to be used for working capital and general corporate purposes. Concurrent with the SPA, WWOD contributed the Initial Note to Investor. Following issuance of the Additional Note, the aggregate principal amount of Notes issued under the Amended SPA is $575,000, both of which are now held by the Investor. In connection with the issuance of the Additional Note, we entered into an Amended and Restated Security and Pledge Agreement dated April 18, 2016 pursuant to which the Notes are secured by all of our assets. We have agreed to repay the Additional Note in six installments (“Amortization Payments”) at set forth in the Amortization Schedule attached to the Note beginning 30th day after issuance and each 30-days thereafter. However, failure to make any Amortization Payment will not be deemed an event of default under the Additional Note. In addition, the Additional Note can be prepaid at any time until the date immediately preceding the Maturity Date. The Additional Note is convertible into common stock at a conversion price is equal to the lesser of (i) the Fixed Conversion Price (currently $0.40) or (ii) 65% of the lowest trading price of our common stock during the 5-trading days prior to conversion. The Additional Note contains certain covenants and restrictions including, restrictions on our ability to incur indebtedness, permit liens, pay dividends or dispose of certain assets. Events of default under the note include, among others, failure to pay principal or interest on the note or comply with certain covenants under the note.

On May 13, 2016, we entered into Exchange Agreement (the “Exchange Agreement”) with the Investor pursuant to which we (i) issued Investor a 14% secured convertible promissory note dated May 13, 2016 in the aggregate principal amount of $219,200.65 with an August 31, 2016 maturity date (the “Note”) in exchange for a previously issued 14% secured convertible promissory note dated September 10, 2015 in the original principal amount of $275,000 (with current outstanding principal and interest of $197,208.233 and $21,9992.32, respectively) with a May 10 2016 maturity date held by Investor and (ii) issued Investor a 14% secured convertible promissory note dated May 13, 2016 in the aggregate principal amount of $302,646.58 with an April 30, 2017 maturity date (the “Second Note”, together with the Note, the “Exchange Notes”) in exchange for a previously issued 14% secured convertible promissory note dated April 18, 2016 in the original principal amount of $300,000 (with current outstanding principal and interest of $300,000 and $2,646.58, respectively) with a May 10 2016 maturity date held by Investor. In the event that we consummate the additional proposed $2 million financing with Investor for which we have executed a non-binding term sheet (the “Subsequent Placement”), $200,000 of aggregate principal of the Second Note, together with any accrued, and unpaid, interest then outstanding or any additional amounts due and payable as a result of an event of default under the Second Note, shall be applied, on a dollar-for-dollar basis, to reduce the purchase price of the Investor in such Subsequent Placement and upon the closing of such Subsequent Placement and such application, the remainder of the Second Note then outstanding shall be deemed cancelled for no additional consideration.

In connection with the issuance of the Exchange Notes, we entered into a Security ~~Agreement.~~and Pledge Agreement dated May 13, 2016 pursuant to which the Exchange Notes are secured by all of our assets. The Exchange Notes can be prepaid at any time until the date immediately preceding their respective Maturity Dates. The Exchange Notes are convertible into common stock at a conversion price equal to the lesser of (i) the Fixed Conversion Price (currently $0.15 for the Note and $0.40 for the Second Note) or (ii) 65% of the lowest trading price of our common stock during the (i) 5-trading days prior to conversion (for conversions on or before May 22, 2016 or (ii) 10-trading days prior to conversion (for conversions after May 22, 2016). The Exchange Note contains certain covenants and restrictions including, restrictions on our ability to incur indebtedness, permit liens, pay dividends or dispose of certain assets. Events of default under the Exchange Notes include, among others, failure to pay principal or interest on the note or comply with certain covenants under the note. We will be required to repay the Exchange Notes at 133% upon an event of default.

On June 13, 2014, we issued Crystal Falls Investments, LLC a demand promissory note in the amount of approximately $150,000, which note was amended on September 19, 2014 to be a 5% convertible promissory note. The amended note bears interest at 5% per annum and had a maturity date of June 13, 2015. The amended note may be converted into shares of our common stock at a fixed conversion price of $0.40 per share. This note contains significant cash penalties upon default. The amended note was further amended on July 24, 2015 to extend the maturity date to December 13, 2015. Effective December 13, 2015, this note was further amended to extend the Maturity Date to April 1, 2016; and remove the prepayment provision requiring 150% of the Note upon prepayment. Effective April 1, 2016, the note was further amended to extend the Maturity Date until May 31, 2016 and provide for installment payments of the principal amount beginning April 15, 2016 to the May 31, 2016 maturity date. As of May 10, 2016, the aggregate amount due under this note (including accrued interest) was approximately $129,790.

The acquisition of Eastside Distilling LLC by Eurocan Holdings, Ltd. (now known as Eastside Distilling Inc.) on October 31, 2014, was accounted for as a reverse acquisition with Eastside Distilling LLC as the acquirer of Eurocan. The ~~condensed consolidated~~ financial statements presented in this ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K are presented as a continuation of the operations of Eastside Distilling LLC with one adjustment to retroactively adjust the legal common stock shares of Eastside Distilling Inc. to reflect the legal capital of Eurocan prior to the October 31, 2014 acquisition.

~~The Company records~~We record revenue when all four of the following criteria are met: (i) there 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.

~~The Company recognizes~~We recognize 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~~we recognize 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~~We exclude sales tax collected and remitted to various states from sales and cost of sales. Sales from items sold through ~~the Company’s~~our retail ~~locations~~location are recognized at the time of sale.

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

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

~~The Company sells~~We sell to third-party resellers and performs ongoing credit evaluations of trade receivables due from third-party resellers. Generally, ~~the Company does~~we do not require collateral. An allowance for doubtful accounts is determined with respect to those amounts that ~~the Company has~~we have determined to be doubtful of collection using specific identification of doubtful accounts and an aging of receivables analysis based on invoice due dates. Generally, trade receivables are past due after 30 days after an invoice date, unless special payment terms are provided. Based on this analysis, ~~the Company~~we did not record an allowance for doubtful accounts at ~~September 30, 2015~~March 31, 2016 and ~~2014.~~2015.

Financial instruments that potentially subject ~~the Company~~our to concentrations of credit risk consist principally of ~~trade receivables.~~accounts receivable. At September 30, 2015, we had 13 customers representing 100% of our trade receivables. At September 30, 2014, we had 3 customers representing approximately 92% of our trade receivables. In addition, at September 30,March 31, 2016 and December 31, 2015, one ~~distributor, the Oregon Liquor Control Commission (OLCC),~~customer represented ~~65%~~22% and 50% of trade receivables, ~~and sales to one distributor, the OLCC, accounted for approximately 35% consolidated revenues for the nine-month period ended September 30, 2015.~~respectively.

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 the ~~Oregon Liquor Control Commission (OLCC)~~OLCC on consignment until it is sold to a third party. Eastside regularly monitors inventory quantities on hand and records write-downs for excess and obsolete inventories based primarily on ~~the Company’s~~our 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~~We have recorded no write-downs of inventory for the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 and ~~2014.~~2015.

~~The Company~~Advertising costs are expensed as incurred. Advertising expense was approximately $31,000 and $97,000 for the three months ended March 31, 2016 and 2015, respectively, and is included in selling, general and administrative expenses in the accompanying statements of income.

We are responsible for compliance with the ~~Alcohol Tobacco Tax and Trade Bureau (TTB)~~TTB regulations which includes making timely and accurate excise tax payments. Eastside is subject to periodic compliance audits by the TTB. Individual states also impose excise taxes on alcohol beverages in varying amounts. ~~The Company calculates its~~We calculate our excise tax expense based upon units produced and on its understanding of the applicable excise tax laws.

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.

In connection with the preparation of this quarterly report on Form 10-Q, an evaluation was carried out by our management, with the participation of the Chief Executive Officer and the Chief Financial Officer (who are one and the same person), of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) as of ~~September 30, 2015.~~March 31, 2016. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. In performing the assessment for the quarter ended ~~September 30, 2015,~~March 31, 2016, our management concluded that our financial reporting controls and procedures were not effective to accomplish the foregoing, due to the following material weaknesses in internal controls over financial reporting:

Procedures for Control Evaluation. Management has not established with appropriate rigor the procedures for evaluating internal controls over financial reporting. Due to limited resources and lack of segregation of duties, documentation of the limited control structure has not been accomplished.

Lack of Audit Committee. To date, ~~the Company has~~we have not established an Audit Committee. It is management’s view that such a committee, including a financial expert, is an utmost important entity level control over the financial reporting process.

Insufficient Documentation of Review Procedures. We employ policies and procedures for reconciliation of the financial statements and note disclosures, however, these processes are not appropriately documented.

Insufficient Information Technology Procedures. Management has not established methodical and consistent data back-up procedures to ensure loss of data will not occur.

As of the end of the period covered by this report, there have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended ~~September 30, 2015,~~March 31, 2016, that materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.

On May 13, 2016, we entered into Exchange Agreement (the “Exchange Agreement”) with MR Group I, LLC, an accredited investor (“Investor”) pursuant to which we (i) issued Investor a 14% secured convertible promissory note dated May 13, 2016 in the aggregate principal amount of $219,200.65 with an August 31, 2016 maturity date (the “Note”) in exchange for a previously issued 14% secured convertible promissory note dated September 10, 2015 in the original principal amount of $275,000 (with current outstanding principal and interest of $197,208.233 and $21,9992.32, respectively) with a May 10 2016 maturity date held by Investor and (ii) issued Investor a 14% secured convertible promissory note dated May 13, 2016 in the aggregate principal amount of $302,646.58 with an April 30, 2017 maturity date (the “Second Note”, together with the Note, the “Exchange Notes”) in exchange for a previously issued 14% secured convertible promissory note dated April 18, 2016 in the original principal amount of $300,000 (with current outstanding principal and interest of $300,000 and $2,646.58, respectively) with a May 10 2016 maturity date held by Investor. In the event that we consummate the additional proposed $2 million financing with Investor for which we have executed a non-binding term sheet (the “Subsequent Placement”), $200,000 of aggregate principal of the Second Note, together with any accrued, and unpaid, interest then outstanding or any additional amounts due and payable as a result of an event of default under the Second Note, shall be applied, on a dollar-for-dollar basis, to reduce the purchase price of the Investor in such Subsequent Placement and upon the closing of such Subsequent Placement and such application, the remainder of the Second Note then outstanding shall be deemed cancelled for no additional consideration.

In connection with the issuance of the Exchange Notes, we entered into a Security and Pledge Agreement dated May 13, 2016 pursuant to which the Exchange Notes are secured by all of our assets. The Exchange Notes can be prepaid at any time until the date immediately preceding their respective Maturity Dates. The Exchange Notes are convertible into common stock at a conversion price equal to the lesser of (i) the Fixed Conversion Price (currently $0.15 for the Note and $0.40 for the Second Note) or (ii) 65% of the lowest trading price of our common stock during the (i) 5-trading days prior to conversion (for conversions on or before May 22, 2016 or (ii) 10-trading days prior to conversion (for conversions after May 22, 2016). The Exchange Notes contain certain covenants and restrictions including, restrictions on our ability to incur indebtedness, permit liens, pay dividends or dispose of certain assets. Events of default under the Exchange Notes include, among others, failure to pay principal or interest on the note or comply with certain covenants under the note. We will be required to repay the Exchange Notes at 133% upon an event of default.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Large accelerated filer¨	Accelerated filer¨
Non-accelerated filer¨ (Do not check if a smaller reporting company)	Smaller reporting companyx

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PART I— FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets as of ~~September 30, 2015 (unaudited)~~March 31, 2016 and December 31, ~~2014~~2015	3
	Unaudited Condensed Consolidated Statements of Operations for three ~~and nine~~ months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014 (unaudited)~~	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014 (unaudited)~~	5
	Notes to the Unaudited Condensed Consolidated Financial Statements ~~(unaudited)~~	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1420
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2328
Item 4	Control and Procedures	2329

PART II— OTHER INFORMATION

Item 1	Legal Proceedings	2530
Item 1A	Risk Factors	2530
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2530
Item 3.	Defaults Upon Senior Securities	2530
Item 4.	Mine Safety Disclosures	2530
Item 5.	Other Information	2530
Item 6.	Exhibits	2630

SIGNATURES		2731

	September 30, 2015 (unaudited)			December 31, 2014 (1)
Assets
Current assets:
Cash	$	85,378		$	1,082,290
Trade receivables		63,838			138,041
Inventories		813,585			377,020
Prepaid expenses		213,818			174,147
Total current assets		1,176,619			1,771,498
Property and equipment - net		110,135			81,206
Other assets		64,375			193,750
Total Assets	$	1,351,129		$	2,046,454

Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable	$	988,823		$	206,630
Accrued liabilities		400,510			72,610
Deferred revenue		6,554			8,275
Current portion of note payable		3,993			3,560
Convertible notes payable - net of debt discount		441,500			150,000
Total current liabilities		1,841,380			441,075
Note payable - less current portion		19,206			23,271
Total liabilities		1,860,586			464,346

Commitments and contingencies (Note 10)

Stockholders' equity:
Preferred stock, $0.0001 par value; 100,000,000 shares authorized; no shares issued and outstanding at Septemer 30, 2015 and December 31, 2014		-			-
Common stock, $0.0001 par value; 900,000,000 shares authorized; 45,955,000 and 45,512,500 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively		4,596			4,551
Additional paid-in capital		6,378,322			5,538,242
Accumulated deficit		(6,892,375	)		(3,960,685	)
Total stockholders' (deficit) equity		(509,457	)		1,582,108
Total Liabilities and Stockholders' Equity (Deficit)	$	1,351,129		$	2,046,454

	March 31, 2016 (unaudited)			December 31, 2015
Assets
Current assets:
Cash	$	12,800		$	141,317
Trade receivables		183,180			142,206
Inventories		622,468			683,824
Prepaid expenses		99,755			163,506
Total current assets		918,203			1,130,853
Property and equipment - net		113,382			112,005
Other assets		48,000			49,000
Total Assets	$	1,079,585		$	1,291,858

Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable	$	1,292,720		$	1,300,532
Accrued liabilities		868,553			563,814
Deferred revenue		2,108			727
Current portion of note payable		4,204			4,098
Related party note payable		12,500			12,500
Convertible notes payable - net of debt discounts		467,125			455,958
Total current liabilities		2,647,210			2,337,629
Preferred stock deposit		151,200
Note payable - less current portion		16,450			17,842
Total liabilities		2,814,860			2,355,471

Commitments and contingencies (Note 9)

Stockholders' deficit:
Preferred stock, $0.0001 par value; 100,000,000 shares authorized; no shares issued and outstanding at March 31, 2016 and December 31, 2015		-			-
Common stock, $0.0001 par value; 900,000,000 shares authorized; 46,726,000 and 46,195,000 shares issued and outstanding at March 31, 2016 and December 2015, respectively		4,673			4,620
Additional paid-in capital		6,836,482			6,493,518
Accumulated deficit		(8,576,430	)		(7,561,751	)
Total stockholders' deficit		(1,735,275	)		(1,063,613	)
Total Liabilities and Stockholders' Deficit	$	1,079,585		$	1,291,858

	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014			March 31, 2016			March 31, 2015
Sales	$	492,380		$	298,667		$	1,344,881		$	738,639		$	621,882		$	424,910
Less excise taxes		140,299			42,917			363,316			127,936			158,408			99,840
Net sales		352,081			255,750			981,565			610,703			463,474			325,070
Cost of sales		167,524			162,935			518,356			290,036			256,169			217,862
Gross profit		184,557			92,815			463,209			320,667			207,305			107,208
Selling, general, and administrative expenses		1,587,260			341,942			3,431,143			584,447			1,050,926			987,163

Loss from operations		(1,402,703	)		(249,127	)		(2,967,934	)		(263,780	)		(843,621	)		(879,955	)
Other (expense) income - net		(9,909	)		(2,450	)		36,244			(3,308	)		(171,058	)		48,937
Loss before provision for income taxes		(1,412,612	)		(251,577	)		(2,931,690	)		(267,088	)		(1,014,679	)		(831,018	)
Provision for income taxes		-			-			-			-			-			-
Net loss	$	(1,412,612	)	$	(251,577	)	$	(2,931,690	)	$	(267,088	)	$	(1,014,679	)	$	(831,018	)

Basic and diluted net loss per common share	$	(0.03	)	$	(0.01	)	$	(0.06	)	$	(0.01	)	$	(0.02	)	$	(0.02	)

Basic and diluted weighted average common shares outstanding		45,829,783			32,000,000			45,630,962			32,000,000			46,568,451			45,512,500

	Nine Months Ended						Three Months Ended
	September 30, 2015			September 30, 2014			March 31, 2016			March 31, 2015
Cash Flows From Operating Activities
Net loss	$	(2,931,690	)	$	(267,088	)	$	(1,014,679	)	$	(831,018	)
Adjustments to reconcile net loss to net cash
used in operating activities
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		13,927			3,071			5,574			4,379
Amortization of debt issuance costs								11,167			-
Amortization of beneficial conversion feature								148,077			-
Issuance of common stock in exchange for services		715,871			-			89,100			-
Stock-based compensation		124,250			-			105,839			31,000
Gain on spin-off of subsidiary		(52,890	)		-			-			(52,890	)
Changes in operating assets and liabilities
Changes in operating assets and liabilities:
Trade receivables		74,103			14,163			(40,974	)		78,835
Inventories		(436,565	)		(164,604	)		61,356			(464,823	)
Prepaid expenses and other assets		89,704			-			64,751			13,248
Deposit		-			(48,000	)
Accounts payable		821,457			248,463			(7,808	)		472,998
Accrued liabilities		338,770			39,454			304,739			38,257
Deferred revenue		1,139			(15,356	)		1,381			(3,339	)
Due to related party		-			18,632
Net cash used in operating activities		(1,241,924	)		(171,265	)		(271,477	)		(713,353	)
Cash Flows From Investing Activities
Purchases of property and equipment		(42,856	)		(5,226	)
Purchases of equipment								(6,954	)		-
Net cash used in investing activities		(42,856	)		(5,226	)		(6,954	)		-
Cash Flows From Financing Activities
Proceeds from notes payable		291,500			169,980
Preferred stock deposit								151,200			-
Payments of principal on notes payable		(3,632	)		(5,448	)		(1,286	)		(801	)
Distributions		-			(1,518	)
Net cash provided by financing activities		287,868			163,014
Net cash provided by (used in) financing activities								149,914			(801	)
Net decrease in cash		(996,912	)		(13,477	)		(128,517	)		(714,154	)
Cash - beginning of period		1,082,290			29,784			141,317			1,082,290
Cash - end of period	$	85,378		$	16,307		$	12,800		$	368,136

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	4,593		$	1,067		$	1,380		$	2,900
Income taxes							$	-		$	-
Supplemental Disclosure of Non-Cash Financing Activity
Issuance of common stock for services							$	89,100		$	-
Beneficial converstion feature							$	148,077		$	-

	2016		2015
Raw materials	$	380,654	$	415,953
Finished goods		234,441		248,713
Other		7,373		19,158
Total	$	622,468	$	683,824

	2016			2015
Furniture and fixtures	$	67,890		$	64,288
Leasehold improvements		8,607			8,607
Vehicles		38,831			38,831
Construction In-Progress		34,603			31,253
Total cost		149,931			142,979
Less accumulated depreciation and amortization		(36,548	)		(30,974	)
Property and equipment - net	$	113,382		$	112,005

	2015		2014
Raw materials	$	501,188	$	282,007
Finished goods		296,018		84,887
Other		16,379		10,126
Total	$	813,585	$	377,020

	2016		2015
Convertible note bearing interest at 5% per annum. The original maturity date of June 13, 2015 was extended to April 1, 2016 during the period ended December 31, 2015 and was further extended to May 31, 2016 on April 1, 2016. The note may be converted into shares of the Company's common stock at a fixed conversion price of $0.40 per share.	$	150,000	$	150,000

Secured Convertible promissory note, bearing interest at 14% per annum in the principal amount of $275,000 (the “Note”), payable in six installments (“Amortization Payments”) as set forth in an Amortization Schedule beginning the 30^th day after issuance and each 30-days thereafter. The Note is convertible at a price per share equal to the lesser of (i) the Fixed Conversion Price (currently $0.15) or (ii) 65% of the lowest trading price of the Company’s common stock during the 5 trading days prior to conversion. The note was issued with an original issue discount, which is amortized over the life of the loan. The Note is secured by all of the Company’s assets pursuant to the terms and conditions of an Amended and Restated Pledge and Security Agreement. This note was exchanged for a new note on May 13, 2016 (see Note 16—Subsequent Events)		272,708		272,708

Convertible note bearing interest at 0% per annum. The note was converted into Company's preferred equity financing on April 4, 2016.		50,000		50,000
Totals		472,708		472,708

Less: discount on convertible debt		5,583		16,750

Current Convertible Notes Payable – net of debt discounts		467,125		455,958

Year ending December 31:

2016	$	476,912
2017		4,271
2018		4,625
2019		5,008
2020		4,264
Thereafter		500
	$	493,362

	2016			2015
Expected federal income tax benefit	$	(344,991	)	$	(282,546	)
State income taxes after credits		(66,969	)		(54,847	)
Change in valuation allowance		411,960			337,393
Other		-			-
Total provision for income taxes	$	-		$	-

	2016			2015
Deferred tax assets
Net operating loss carryforwards	$	1,994,277			1,582,317
Stock-based compensation		104,021			61,050
Total deferred tax assets		2,098,297			1,643,367

Deferred tax liabilities
Depreciation and amortization		(68,685	)		(61,888	)
Total deferred tax liabilities		(68,685	)		(61,888	)
Valuation allowance		(2,029,612	)		(1,581,479	)
Net deferred tax assets	$	-			-

	September 30, 2015		December 31, 2014
Convertible note bearing interest at 5% per annum. The original maturity date of June 13, 2015 was extended to December 13, 2015 during the period ended June 30, 2015. The note may be converted into shares of the Company's common stock at a fixed conversion price of $0.40 per share. The note may be prepaid upon payment of 150% of the outstanding principal balance to the holder.	$	150,000	$	150,000

Secured Convertible promissory note, bearing interest at 14% per annum in the principal amount of $275,000 (the “Note”). We agreed to repay the Note in six installments (“Amortization Payments”) as set forth in an Amortization Schedule beginning the 30^th day after issuance and each 30-days thereafter. The Note is initially convertible at a price per share equal to $1.00 (the “Fixed Conversion Price”); provided, however, that from and after March 10, 2016 and/or during the continuance of an event of default under the Note, the conversion price shall be equal to the lesser of (i) the Fixed Conversion Price or (ii) 65% of the lowest trading price of the Company’s common stock during the 5 trading days prior to conversion. The note was issued with an original issue discount, which is amortized over the life of the loan. The Note is secured by our inventory pursuant to the terms and conditions of a Security Agreement.	$	275,000	$	0

Convertible note bearing interest at 0% per annum. The note may be converted into Company's next equity based financing on the same terms as such financing. The note is due February 6, 2016.	$	50,000	$	0
Totals	$	475,000	$	150,000

Less: discount on convertible debt	$	33,500	$	0

Current Notes Payable – net of debt discount	$	441,500	$	150,000

Long-term portion	$	0	$	0

2016	$	236,000
2017		297,000
2018		272,000
2019		278,000
2020		240,000
Total	$	1,323,000

	Three months ended September 30,
	2015			2014
Net loss (numerator)	$	(1,412,612	)	$	(251,577	)
Weighted average shares (denominator)		45,829,783			32,000,000
Basic and diluted net loss per common share	$	(0.03	)	$	(0.01	)

	Nine months ended September 30,						March 31,
	2015			2014			2016			2015
Net loss (numerator)	$	(2,931,690	)	$	(267,088	)	$	(1,014,679	)	$	(831,018	)
Weighted average shares (denominator)		45,630,962			32,000,000			46,568,451			45,512,500
Basic and diluted net loss per common share	$	(0.06	)	$	(0.01	)	$	(0.02	)	$	(0.02	)

	# of Options			Weighted- Average Exercise Price		# of Options			Weighted- Average Exercise Price
Outstanding at December 31, 2014		1,000,000	(1)	$	0.40
Outstanding at December 31, 2015							2,200,000	(1)	$	0.40
Options granted		800,000	(2)		1.92		-			-
Options exercised		-			-		-			-
Options canceled		-			-		(98,958	)		1.75
Outstanding at September 30, 2015		1,800,000		$	1.07
Outstanding at March 31, 2016							2,101,042		$	0.59

Exercisable at September 30, 2015		1,000,000		$	0.40
Exercisable at March 31, 2016							1,094,792		$	0.52

Risk-free interest rate	~~0.75~~0.84	%
Expected term (in years)	~~2.48~~2.46
Dividend yield	-
Expected volatility	7274	%

Remainder of 2015	$	67,000
2016		296,000
2017		275,000
2018		266,000
2019		278,000
2020		240,000
Total	$	1,422,000

Three Months Ended September 30,
Three Months Ended March 31,							Three Months Ended March 31,
Amounts	Amounts			% Change			Amounts			% Change
2015		2014		2015 vs. 2014
2016							2016	2015		2015 vs. 2014
$	352	$	256		37.67	%	463	$	325		42.6	%

Nine Months Ended September 30,
Amounts				% Change
2015		2014		2015 vs. 2014
$	982	$	611		60.7	%

	4.	From April 20, 2016 to May 11, 2016, we issued 2,743,591 shares of our common stock upon conversion of a 0%14% convertible promissory ~~note in the~~note. The aggregate principal amount of ~~$50,000~~this note that was converted was $75,500. The issuances were exempt pursuant to ~~a single investor. The note has a maturity date of February 6, 2016~~Section 3(a)(9) and ~~at holder’s option may be converted into our next equity financing. The proceeds were used for working capital and general corporate purposes.The issuance was exempt under~~ Section 4(a)(2) of the Securities Act of 1933, as amended.

	5.	See Item 5 below. The issuance of the Exchange Notes was exempt pursuant to Section 3(a)(9) of the Securities Act as well as Section 4(a)(2) of the Securities Act.

~~Item~~Exhibit No.	Description	~~Method of Filing~~

4.1	~~0% Promissory~~ 14% Secured Convertible Note dated ~~August 6, 2015~~May 13, 2016 in the amount of ~~$50,000.~~$219,200.65.
4.2	~~Filed herewith.~~ 14% Secured Convertible Note dated May 13, 2016 in the amount of $302,646.58.
10.1	~~Financial Public Relations~~ Exchange Agreement ~~dated October 1, 2015.~~
10.2	~~Filed herewith.~~ Security Agreement
31.1	Certification of Steven Earles pursuant to Rule 13a-14(a)	~~Filed herewith.~~.
31.2	Certification of Steven Shum pursuant to Rule 13a-14(a).	~~Filed herewith~~
32.1	Certification of Chief Executive Officer and Chief Financial Officer ~~Certification~~ pursuant oto 18 ~~U.S.C. §~~U.S.C Section 1350, as adopted pursuant to Section 906 of the ~~Sarbanes Oxley~~Sarbanes-Oxley Act of ~~2002~~2002.
101.INS	~~Filed herewith.~~XBRL Instance Document
~~101 SCH~~101.SCH	XBRL Taxonomy ~~Scema~~Schema Linkbase Document	~~Filed herewith~~
~~101 CAL~~101.CAL	XBRL Taxonomy Calculation Linkbase Document	~~Filed herewith~~
~~101 DEF~~101.DEF	XBRL Taxonomy Definition Linkbase Document	~~Filed herewith~~
~~101 LAB~~101.LAB	XBRL Taxonomy Labels Linkbase Document	~~Filed herewith~~
~~101 PRE~~101.PRE	XBRL Taxonomy Presentation Linkbase Document	~~Filed herewith~~

	EASTSIDE DISTILLING, INC.

~~November 16, 2015~~	By:	/s/ Steven Earles
	Steven Earles
	President, ~~and~~ Chief Executive Officer, Director
	(Principal Executive Officer)
	Date: May 16, 2016
~~November 16, 2015~~	~~/s/ Steven Shum~~
	~~Steven~~By:	/s/ Steve Shum
	Steve Shum
	Chief Financial Officer
	(Principal Financial and Accounting Officer)
	Date: May 16, 2016