| Summary of Significant Accounting Policies | 1. Summary of Significant Accounting Policies
Basis of Presentation 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, 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. Principles
of Consolidation 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 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. 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 ended September
30, 2015. This gain is primarily the result of the transfer of net liabilities to Michael Williams.
The results for the three and nine
months ended September 30, 2015 referred to in these condensed consolidated financial statements include both the results
of Eastside and MWWD (through February 3, 2015). The results for the three and nine months ended September 30, 2014 referred
to in these condensed consolidated financial statements include the results of the LLC. Liquidity
The Company incurred a loss of $2,931,690
and used cash flow from operations of $1,241,924 for the nine months ended September 30, 2015. The Company raised net proceeds
of approximately $2.2 million from the issuance of common stock in 2014 and 291,000 in convertible notes payable in 2015 and
has approximately $85,000 of cash on hand at September 30, 2015. The Company will require additional capital or financing
to sustain its current level of operations for the next twelve months. Management believes the Company will be successful
in raising sufficient additional capital to sustain its operations and continue to expand its business. Any failure to obtain
additional capital will have a material adverse effect upon the Company and will likely result in a substantial reduction
in the scope of the Company's operations. 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. 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, 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. 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. Concentrations Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivables. At
September 30, 2015 and December 31, 2014, one distributor, the Oregon Liquor Control Commission (OLCC), represented 67% and 70%
of trade receivables, respectively. Sales to one distributor, the OLCC, accounted for approximately 35% and 39% of consolidated
revenues for each of the nine-month periods ended September 30, 2015 and 2014, respectively. Fair
Value Measurements GAAP
defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements.
GAAP permits an entity to choose to measure many financial instruments and certain other items at fair value and contains financial
statement presentation and disclosure requirements for assets and liabilities for which the fair value option is elected. At September
30, 2015 and December 31, 2014, 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 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 at September 30, 2015 and December 31, 2014. 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 and December 31, 2014, the Companys note payable and
convertible notes payable are at fixed rates and their carrying value approximates fair value. Recent
Accounting Pronouncements In
May 2014, the Financial Accounting Standards Board (the "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 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 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 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, 2015. Reclassifications Certain
prior period amounts have been reclassified to conform to the September 30, 2015 presentation with no changes to net income (loss)
or total stockholders' equity previously reported. |
