Stockholders’ Equity

3 Months Ended

Mar. 31, 2023

Equity [Abstract]

Stockholders’ Equity

15. Stockholders’ Equity

	Series B Preferred Stock				Common Stock				Paid-in		Accumulated			Total Stockholders’
(Shares and dollars in thousands)	Shares		Amount		Shares		Amount		Capital		Deficit			Equity
Balance, December 31, 2021		2,500	$	-		14,791	$	1	$	72,003	$	(58,605	)	$	13,399
Stock-based compensation		-		-		-		-		2		-			2
Issuance of common stock for services by third parties		-		-		125		-		119		-			119
Issuance of common stock for services by employees		-		-		170		1		206		-			207
Issuance of detachable warrants on notes payable		-		-		-		-		948		-			948
Net loss		-		-		-		-		-		(38	)		(38	)
Net loss		-		-		-		-		-		(2,036	)		(2,036	)
Balance, March 31, 2022		2,500	$	-		15,086	$	2	$	73,278	$	(60,679	)	$	12,601

	Series B Preferred Stock				Common Stock				Paid-in		Accumulated			Total Stockholders’ Equity
	Shares		Amount		Shares		Amount		Capital		Deficit			(Deficit)
Balance, December 31, 2022		2,500	$	-		16,199	$	2	$	73,503	$	(75,021	)	$	(1,516	)
Issuance of common stock for services by third parties		-		-		225		-		83		-			83
Issuance of common stock for services by employees		-		-		236		-		60		-			60
Preferred stock dividends		-		-		-		-		-		(38	)		(38	)
Net loss		-		-		-		-		-		(1,598	)		(1,598	)
Balance, March 31, 2023		2,500	$	-		16,660	$	2	$	73,646	$	(76,657	)	$	(3,009	)

Issuance of Common Stock

During the three months ended March 31, 2023, the Company issued 460,899 shares of common stock to directors and employees for stock-based compensation of $0.1 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 $0.25 to $0.37 per share.

During the year ended December 31, 2022, the Company issued 385,306 shares of common stock to directors and 96,153 shares of its common stock to each of the Subscribers of the 6% Secured Convertible Promissory Notes for stock-based compensation of $0.3 million These shares were valued using the closing share price of the Company’s common stock on the date of grant, within the range of $0.28 to $0.96 per share.

On April 5, 2022, the Company sold 200,000 shares of common stock to its Chief Executive Officer for proceeds of $0.2 million based on the market price of the stock at that date.

On February 4, 2022, 170,000 shares were issued at $1.21 per share to the Company’s former Chief Executive Officer pursuant to his separation agreement for stock-based compensation of $0.2 million.

Issuance of Series B Preferred Stock

On October 19, 2021, Company entered into a securities purchase agreement (“Purchase Agreement”) with an accredited investor (“Subscriber”) for its purchase of 2.5 million shares (“Preferred Shares”) of Series B Convertible Preferred Stock (“Series B Preferred Stock”) at a purchase price of $1.00 per Preferred Share, which Preferred Shares are convertible into shares of the Company’s common stock pursuant to the terms and conditions set forth in a Certificate of Designation Establishing Series B Preferred Stock of the Company with an initial conversion price of $3.10 per share. 850,000 shares of common stock were reserved for issuance in the event of conversion of the Preferred Shares.

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2023

(Unaudited)

The Series B Preferred Stock accrues dividends at a rate of 6% per annum, payable annually on the last day of December of each year. Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends are payable at the Company’s option either in cash or “in kind” in shares of common stock; provided, however that dividends may only be paid in cash following the fiscal year in which the Company has net income (as shown in its audited financial statements contained in its Annual Report on Form 10-K for such year) of at least $0.5 million. For “in-kind” dividends, holders will receive that number of shares of common stock equal to (i) the amount of the dividend payment due such stockholder divided by (ii) the volume weighted average price of the common stock for the 90 trading days immediately preceding a dividend date (“VWAP”). For the year ended December 31, 2022, the Company issued dividends of 460,093 shares of common stock at a VWAP of $0.33 per share. For the three months ended March 31, 2023, the Company accrued $37,500 of preferred dividends.

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, 2022 the number of shares available for grant under the 2016 Plan reset to 5,225,141 shares, equal to 8% of the number of outstanding shares of the Company’s capital stock, calculated on an as-converted basis, on March 31 of the preceding calendar year, and then added to the prior year plan amount. As of March 31, 2023, there were 61,752 options and 7,115,483 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 March 31, 2023, there were no options outstanding that were not issued under the Plans.

A summary of all stock option activity as of and for the three months ended March 31, 2023 is presented below:

	# of Options		Weighted- Average Exercise Price
Outstanding as of December 31, 2022		51,752	$	3.16
Outstanding as of March 31, 2023		51,752	$	3.16
Exercisable as of March 31, 2023		51,752	$	3.16

The aggregate intrinsic value of options outstanding as of March 31, 2023 was $0. As of March 31, 2023, all 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.

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.

Eastside Distilling, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2023

(Unaudited)

The Company did not issue any additional options during the three months ended March 31, 2023.

For the three months ended March 31, 2023 and 2022, net compensation expense related to stock options was $0 and $1,614, respectively.

Warrants

On March 21, 2022, the Company entered into a promissory note with TQLA LLC to accept a one year loan of $3.5 million. In addition, the Company issued a common stock purchase warrant to TQLA covering the loan amount with a common stock value of $1.20 per share. The note payable was fully repaid in October 2022. The common stock purchase warrant expires in March 2027.

From April 19, 2021 through May 12, 2021, the 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. 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 and are exercisable until August 19, 2026.

On January 15, 2020, the Company and its subsidiaries entered into a loan agreement (the “Loan Agreement”) between the Company and Live Oak Banking Company (“Live Oak”), a North Carolina banking corporation (the “Lender”) to refinance existing debt of the Company and to provide funding for general working capital purposes In connection with the Loan Agreement, the Company issued to the Lender a warrant to purchase up to 100,000 shares of the Company’s common stock at an exercise price of $3.94 per share (the “Warrant”). The Warrant expires on January 15, 2025. In connection with the issuance of the Warrant, the Company granted the Lender piggy-back registration rights with respect to the shares of common stock issuable upon exercise of the Warrant, subject to certain exceptions.

A summary of all warrant activity as of and for the three months ended March 31, 2023 is presented below:

	Warrants		Weighted- Average Remaining Life (Years)		Weighted- Average Exercise Price		Aggregate Intrinsic Value
Outstanding as of December 31, 2022		4,033,333		3.8	$	1.67	$	-
Outstanding as of March 31, 2023		4,033,333		3.8	$	1.67	$	-