Stockholders’ Equity

9 Months Ended

Sep. 30, 2021

Equity [Abstract]

Stockholders’ Equity

15. Stockholders’ Equity

	Common Stock				Paid-in		Accumulated			Total Stockholders’ Equity
	Shares		Amount		Capital		Deficit			(Deficit)
Balance, December 31, 2020		10,382	$	1	$	52,985	$	(54,094	)	$	(1,108	)
Stock-based compensation		-		-		25		-			25
Issuance of common stock from warrant exercise for cash, net of expenses		900		-		2,375		-			2,375
Issuance of warrants for secured credit facility		-		-		717		-			717
Issuance of common stock for Azuñia initial earn-out		1,883		-		6,860		-			6,860
Issuance of common stock for services by third parties		141		-		263		-			263
Issuance of common stock for services by employees		63		-		131		-			131
Issuance of common stock, sold for cash, net		718		-		2,009		-			2,009
Deemed dividend-warrant price protection-revaluation adjustment		-		-		2,288		(2,288	)		-
Net income		-		-		-		30			30
Balance, September 30, 2021		14,087	$	1	$	67,653	$	(56,352	)	$	11,302

Issuance of Common Stock

During 2021, the Company issued 204,088 shares of common stock to directors and employees for stock-based compensation of $0.4 million. The shares were valued using the closing share price of the Company’s common stock on the date of grant, within the range of $1.28 to $2.98 per share.

On February 10, 2021 and April 19, 2021, the Company issued 1.2 million shares and 682,669 shares, respectively, of its common stock (the “Shares”) to certain affiliates of Intersect pursuant to an Asset Purchase Agreement dated September 12, 2019 by and between the Company and Intersect in respect of the Azuñia Tequila acquisition at a weighted-average of $4.67 per share and $1.82 per share, respectively. The Shares constitute the “Fixed Shares” due to Intersect pursuant to the Asset Purchase Agreement.

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited) 

On July 30, 2021, the Company entered into Inducement Letters with the holders of the Existing Warrants to exercise their Existing Warrants and purchased 900,000 shares of common stock for gross proceeds of $2.4 million.

In September 2021, the Company sold 718,255 shares of common stock for net proceeds of $2.0 million in at-the-market public placements.

During 2020, the Company issued 706,987 shares of common stock to directors, employees and consultants for stock-based compensation of $1.0 million. The shares were valued using the closing share price of the Company’s common stock on the date of grant, within the range of $1.08 to $3.20 per share.

Stock-Based Compensation

On September 8, 2016, the Company adopted the 2016 Equity Incentive Plan (the “2016 Plan”). Pursuant to the terms of the plan, on January 1, 2021, the number of shares available for grant under the 2016 Plan reset to 3,747,583 shares, equal to 8% of the number of outstanding shares of the Company’s capital stock, calculated on an as-converted basis, on December 31 of the preceding calendar year, and then added to the prior year plan amount. As of September 30, 2021, there were 71,086 options and 1,253,522 restricted stock units (“RSUs”) outstanding under the 2016 Plan, with vesting schedules varying between immediate or three (3) years from the grant date.

The Company also issues, from time to time, options that are not registered under a formal option plan. As of September 30, 2021, there were no options outstanding that were not issued under the Plans.

A summary of all stock option activity as of and for the nine months ended September 30, 2021 is presented below:

	# of Options			Weighted-Average Exercise Price
Outstanding as of December 31, 2020		134,931		$	4.71
Options granted		5,000			0.53
Options canceled		(68,845	)		5.31
Outstanding as of September 30, 2021		71,086		$	3.34
Exercisable as of September 30, 2021		65,503		$	3.21

The aggregate intrinsic value of options outstanding as of September 30, 2021 was $0 million.

As of September 30, 2021, there were 5,583 unvested options with an aggregate grant date fair value of $0 million. The unvested options will vest in accordance with the vesting schedule in each respective option agreement, which varies between immediate and three years from the grant date. The aggregate intrinsic value of unvested options as of September 30, 2021 was $0 million. During the nine months ended September 30, 2021, 13,667 options 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.

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited) 

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

● Exercise price of the option

● Fair value of the Company’s common stock on the date of grant

● Expected term of the option

● Expected volatility over the expected term of the option

● Risk-free interest rate for the expected term of the option

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

The following weighted-average assumptions were used in the Black-Scholes valuation model for options granted during the nine months ended September 30, 2021:

Risk-free interest rate	1.69	%
Expected term (in years)	5.0
Dividend yield	-
Expected volatility	75	%

The weighted-average grant-date fair value per share of stock options granted during the year ended September 30, 2021 was $1.17. The aggregate grant date fair value of the 5,000 options granted during the nine months ended September 30, 2021 was $0 million.

For the nine months ended September 30, 2021 and 2020, net compensation expense related to stock options was $0 million and $0.2 million, respectively. As of September 30, 2021, the total compensation expense related to stock options not yet recognized was approximately $0.1 million, which is expected to be recognized over a weighted-average period of approximately 0.8 years.

On August 11, 2021, the Company’s annual compensation program for its board of directors was approved. Effective October 1, 2021, it now includes 1) annual board member fees of $0.05 million, paid in quarterly installments, (2) an annual board chair premium of $0.02 million, paid in quarterly installments, (3) an annual committee chair premium of $0.01 million, paid in quarterly installments, and (4) an annual committee member fee of $0.02 million, paid in quarterly installments. The directors have agreed to be compensated in RSU's in lieu of cash payment.

Warrants

From April 19, 2021 through May 12, 2021, Company issued in a private placement, Existing Warrants to purchase up to 900,000 shares of common stock at an exercise price of $2.60 per Warrant Share. The estimated fair value of the warrants of $0.7 million was recorded as debt issuance cost and will be amortized to interest expense over the maturity period of the secured credit facility, with $0.2 million recorded during the period ended September 30, 2021.

On July 30, 2021, the Company entered into Inducement Letters with the holders of the Existing Warrants whereby such holders agreed to exercise for cash their Existing Warrants to purchase the 900,000 Warrant Shares in exchange for the Company’s agreement to issue new warrants (the “New Warrants”) to purchase up to 900,000 shares of common stock (the “New Warrant Shares”). The New Warrants have substantially the same terms as the Existing Warrants, except that the New Warrants have an exercise price of $3.00 per share, are exercisable until August 19, 2026. The Company received gross proceeds of $2.4 million on the exercise of the outstanding warrants, and recognized a deemed dividend of $2.3 million based on the Black Scholes valuation as a result of the higher strike price on the July 2021 issued warrants, which is included in the consolidated statements of operations as a deemed dividend - warrant price protection-revaluation adjustment and in additional paid-in capital in the consolidated balance sheets.

During the year ended December 31, 2020, the Company issued a warrant to purchase an aggregate of 100,000 shares of common stock at an exercise price of $3.94 per share in connection with the Secured Credit Facility from Live Oak.

The estimated fair value of the Company’s outstanding warrants was based on a combination of closing market trading price on the date of issuance for the public offering warrants, and the Black-Scholes option-pricing model, using the weighted-average assumptions below:

Volatility		75	%
Risk-free interest rate		0.69	%
Expected term (in years)		5.0
Expected dividend yield		-
Fair value of common stock	$	3.88

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited) 

A summary of activity in warrants was as follows:

	Warrants			Weighted-Average Remaining Life (Years)		Weighted-Average Exercise Price		Aggregate Intrinsic Value
Outstanding as of December 31, 2020		240,278			3.2	$	4.85	$	-
Granted		1,800,000			4.8		2.29		-
Exercised		(900,000	)		-		2.60		-
Outstanding as of September 30, 2021		1,140,278			4.2	$	3.39	$	-