| Summary of Significant Accounting Policies | 3. Summary of Significant Accounting Policies Basis of Presentation and Consolidation The accompanying unaudited consolidated
financial statements for Eastside Distilling, Inc. and subsidiaries were prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations
of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial
statements in accordance with GAAP have been condensed or eliminated as permitted under the SEC’s rules and regulations. In management’s
opinion, the unaudited consolidated financial statements include all material adjustments, all of which are of a normal and recurring
nature, necessary to present fairly the Company’s financial position as of March 31, 2021, its operating results for the three months
ended March 31, 2021 and 2020 and its cash flows for the three months ended March 31, 2021 and 2020. The unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2020. Interim results are not necessarily indicative of the results that may be expected
for an entire fiscal year). The consolidated financial statements include the accounts of Eastside Distilling, Inc.’s wholly-owned
subsidiaries, including, MotherLode LLC, Big Bottom Distilling, LLC, Outlandish Beverages LLC, LLC, Redneck Riviera Whiskey Co., LLC,
and Craft Canning + Bottling, LLC and the Azuñia tequila assets. All intercompany balances and transactions have been eliminated
on consolidation. Segment Reporting The Company determined its operating
segment on the same basis that it uses to evaluate its performance internally. The Company has one business activity, producing, packaging,
marketing and distributing alcoholic beverages 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. Use of Estimates The preparation of financial statements
in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Revenue Recognition Net sales include product sales,
less excise taxes and customer programs and incentives. The Company recognizes revenue by applying the following steps in accordance with
Accounting Standards Codification (“ASC”) Topic 606 – Revenue from Contracts with Customers The Company recognizes sales when
merchandise is shipped from a warehouse directly to wholesale customers (except in the case of a consignment sale). For consignment sales,
which include sales to the Oregon Liquor Control Commission (OLCC), the Company recognizes sales upon the consignee’s shipment to
the customer. Postage and handling charges billed to customers are also recognized as sales upon shipment of the related merchandise.
Shipping terms are generally FOB shipping point, and title passes to the customer at the time and place of shipment or purchase by customers
at a retail location. For consignment sales, title passes to the consignee concurrent with the consignee’s shipment to the customer.
The customer has no cancellation privileges after shipment or upon purchase at retail locations, other than customary rights of return.
The Company excludes sales tax collected and remitted to various states from sales and cost of sales. Customer Programs Customer programs, which include
customer promotional discount programs, customer incentives, and broker commissions, are a common practice in the alcoholic beverage industry.
The Company makes these payments to customers and incurs these costs to promote sales of products and to maintain competitive pricing.
Amounts paid in connection with customer programs and incentives are recorded as reductions to net sales or as sales and marketing expenses
in accordance with ASC 606 - Revenue from Contracts with Customers, Excise Taxes The Company is responsible for
compliance with the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) regulations, which includes making timely and accurate
excise tax payments. The Company is subject to periodic compliance audits by the TTB. Individual states also impose excise taxes on alcoholic
beverages in varying amounts. The Company calculates its excise tax expense based upon units produced and on its understanding of the
applicable excise tax laws. Excise taxes totaled $0 million and $0.1 million for the three months ended March 31, 2021 and 2020, respectively. Cost of Sales Cost of sales consists of the
costs of ingredients utilized in the production of spirits, manufacturing labor and overhead, warehousing rent, packaging, and in-bound
freight charges. Ingredients account for the largest portion of the cost of sales, followed by packaging and production costs. Sales and Marketing Expenses The following expenses are included
in sales and marketing expenses in the accompanying consolidated statements of operations: media advertising costs, promotional costs
of value-added packaging, salary and benefit expenses, travel and entertainment expenses for the sales, brand and sales support workforce
and promotional activity expenses. Sales and marketing costs are expensed as incurred. General and Administrative Expenses The following expenses are included
in general and administrative expenses in the accompanying consolidated statements of operations: salary and benefit expenses, travel
and entertainment expenses for executive and administrative staff, rent and utilities, professional fees, insurance, and amortization
and depreciation expense. General and administrative costs are expensed as incurred. Stock-Based Compensation The Company recognizes as compensation
expense all stock-based awards issued to employees. The compensation cost is measured based on the grant-date fair value of the related
stock-based awards and is recognized over the service period of stock-based awards, which is generally the same as the vesting period.
The fair value of stock options is determined using the Black-Scholes valuation model, which estimates the fair value of each award on
the date of grant based on a variety of assumptions including expected stock price volatility, expected terms of the awards, risk-free
interest rate, and dividend rates, if applicable. Stock-based awards issued to nonemployees are recorded at fair value on the measurement
date and are subject to periodic market adjustments at the end of each reporting period and as the underlying stock-based awards vest.
Stock-based compensation was $0 million and $0.1 million for the three months ended March 31, 2021 and 2020, respectively. Cash and Cash Equivalents Cash equivalents are considered
to be highly liquid investments with maturities of three months or less at the time of the purchase. The Company had no cash equivalents
as of March 31, 2021 and December 31, 2020. Concentrations Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of trade receivables. As of March 31, 2021, three distributors
represented 22% of trade receivables. As of December 31, 2020, one distributor represented 14% of trade receivables. Sales to one distributor
accounted for 18% of consolidated sales for the period ended March 31, 2021. Sales to one distributor accounted for 18% of consolidated
sales for the year ended December 31, 2020. Fair Value Measurements GAAP defines fair value, establishes
a framework for measuring fair value, and requires certain disclosures about fair value measurements. GAAP permits an entity to choose
to measure many financial instruments and certain other items at fair value and contains financial statement presentation and disclosure
requirements for assets and liabilities for which the fair value option is elected. As of March 31, 2021 and December 31, 2020, management
has not elected to report any of the Company’s assets or liabilities at fair value under the “fair value option” provided
by GAAP. The hierarchy of fair value valuation
techniques under GAAP provides for three levels: Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable,
generally would require significant management judgment. The three levels for categorizing assets and liabilities under GAAP’s fair
value measurement requirements are as follows:
Level 1: Fair value of the asset or liability is determined using cash or unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Fair value of the asset or liability is determined using inputs other than quoted prices that are observable for the applicable asset or liability, either directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Fair value of the asset or liability is determined using unobservable inputs that are significant to the fair value measurement and reflect management’s own assumptions regarding the applicable asset or liability. None of the Company’s assets
or liabilities were measured at fair value as of March 31, 2021 or December 31, 2020. However, GAAP requires the disclosure of fair value
information about financial instruments that are not measured at fair value. Financial instruments consist principally of trade receivables,
accounts payable, accrued liabilities, notes payable, and the secured credit facility. 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. As of
March 31, 2021 and December 31, 2020, the Company’s notes approximate fair value. Items Measured at Fair Value on a Nonrecurring
Basis Certain assets and liabilities
acquired in a business acquisition are valued at fair value at the date of acquisition. Inventories Inventories primarily consist
of bulk and bottled liquor and merchandise and are stated at the lower of cost or market. Cost is determined using an average costing
methodology, which approximates cost under the first-in, first-out (FIFO) method. A portion of the Company’s finished goods inventory
is held by certain independent distributors on consignment until it is sold to a third party. The Company regularly monitors inventory
quantities on hand and records write-downs for excess and obsolete inventories based primarily on the Company’s estimated forecast
of product demand and production requirements. Such write-downs establish a new cost basis of accounting for the related inventory. Property and Equipment Property and equipment is stated
at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful
lives of the assets, ranging from three to seven years. Amortization of leasehold improvements is computed using the straight-line method
over the life of the lease or the useful lives of the assets, whichever is shorter. The cost and related accumulated depreciation and
amortization of property and equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is reported as
current period income or expense. The costs of repairs and maintenance are expensed as incurred. Intangible Assets / Goodwill The Company accounts for certain
intangible assets at cost. Management reviews these intangible assets for probable impairment whenever events or circumstances indicate
that the carrying amount of such assets may not be recoverable. If there is an indication of impairment, management would prepare an estimate
of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition.
If these estimated cash flows were less than the carrying amount, an impairment loss would be recognized to write down the asset to its
estimated fair value. The Company performed a qualitative assessment of certain of its intangible assets as of March 31, 2021 and determined
that they were not impaired. Long-lived Assets The Company accounts for long-lived
assets, including certain intangible assets, at amortized cost. Management reviews long-lived assets for probable impairment whenever
events or circumstances indicate that the carrying amount of such assets may not be recoverable. If there is an indication of impairment,
management would prepare an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use
of the asset and its eventual disposition. If these estimated cash flows were less than the carrying amount of the asset, an impairment
loss would be recognized to write down the asset to its estimated fair value. The Company performed a qualitative assessment of certain
of its long-lived assets as of March 31, 2021 and determined that they were not impaired. Income Taxes The provision for income taxes
is based on income and expenses as reported for financial statement purposes using the “asset and liability method” for accounting
for deferred taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected
to be realized or settled. As changes in tax laws or rates
are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized. As of March 31, 2021 and December 31, 2020, 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% 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 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 as of and for the three months ended March 31, 2021 and 2020. The Company files federal income
tax returns in the United States. 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 2014. Comprehensive Income The Company did not have any reconciling
other comprehensive income items for the three months ended March 31, 2021 and 2020. Accounts Receivable Factoring Program The Company has entered into two
accounts receivable factoring programs. One for its spirits customers (the “spirits program”) and another for its co-packing
customers (the “co-packing program”). Under the programs, the Company has the option to sell certain customer account receivables
in advance of payment for 75% (spirits program) or 85% (co-packing program) of the amount due. When the customer remits payment, the Company
receives the remaining balance. For the spirits program, interest is charged on the advanced 75% payment at a rate of 2.4% for the first
30 days plus 1.44% for each additional ten-day period. For the co-packing program, interest is charged against the greater of $0.5 million
or the total funds advanced at a rate of 5% plus the prime rate published in the Wall Street Journal. Under the terms of both agreements,
the factoring provider has full recourse against the Company should the customer fail to pay the invoice. In accordance with ASC Topic
860 – Transfers and Servicing Recently Adopted Accounting Pronouncements None. |
