Eastside Reports Third Quarter 2017 Financial Results

Company reports 12% revenue growth for the third quarter

Case sales increase 55% from 3,974 in Q3 2016 to 6,162 in Q3 2017

PORTLAND, Ore.--()--Eastside Distilling, Inc. (NASDAQ: ESDI), a producer of award-winning craft spirits, reported third quarter 2017 financial results.

Q3 2017 Financial Highlights:

  • Q3 2017 gross revenues were $895,182, an increase of 12% over the $796,222 reported in Q3 2016, resulting primarily from increased wholesale and retail sales in our Pacific Northwest core market;
  • Case volume of 6,162 in Q3 (5,462 for branded products and 700 for private label), represented an increase of 55% from the previous year’s shipments of 3,974 cases (all branded products), led by record sales of our Portland Potato Vodka;
  • General and administrative expenses decreased 14% from Q3 2016, as we continue to seek improved efficiencies; and
  • Adjusted EBITDA improved to $(1,062,977) compared to $(1,158,393) in the year ago quarter.

YTD 2017 Financial Highlights:

  • Gross revenues for the nine months ended September 30, 2017 increased 28% to $2,608,373 compared to $2,045,568 in the year ago period;
  • YTD case volume of 17,027 (13,850 for branded products and 3,177 for private label), represented an increase of 62% from the previous year’s shipments of 10,496 cases (all branded products);
  • YTD adjusted EBITDA improved to $(2,398,873) compared to $(2,823,753) in the year ago 9-month period.

Recent Operational Highlights:

  • In October 2017, the company launched its long-awaited rebranding efforts by Sandstrom Partners of its Burnside Bourbon line of products, including its West End Blend American Whiskey, Burnside Oregon Oaked Bourbon, and Goose Hollow Reserve;
  • Launched new speciality products, including “Hot Potato Vodka” in collaboration with Secret Aardvark and “Kachka Horseradish Vodka” in collaboration with Troika Spirits;
  • Launched the Company’s new canning line of Ready-to-Drink (RTD) products, primarily designed for the wine and pre-mixed alcoholic drink industry;
  • Several Big Bottom products won awards at the 2017 Best of the Northwest spirits competition, including taking Double Gold and Gold in the Best Whiskey category for its Barlow Trail Port Cask Finish and Delta Rye products, respectively, and taking Bronze for its Navy Strength Gin.

Management Commentary

Grover Wickersham, Executive Chairman of Eastside Distilling, commented, “The launch of our new line of Burnside Bourbon, with branding by Sandstrom Partners, is undoubtedly Eastside's most significant development so far in 2017. With the launch taking place the first week of October, we believe it will have a significant positive effect on our fourth quarter results and into the future. In addition to the boost it will provide to Burnside, it likewise impacts our entire IP of existing and contemplated products. The remake of the Burnside brand is only the first of many Sandstrom brand innovations that are already in the pipeline for release.”

Mr. Wickersham continued, “The third quarter was driven by 217% growth of our Portland Potato Vodka, offset by limited shipments of our Bourbon products until the rebranding was completed. Our primary sales focus in 2017 has been on our core markets in the Pacific Northwest, where we have experienced strong growth. This growth has more than compensated for sales declines outside of our core markets, especially since the comparable quarter in 2016 contained an unusually large order to our East Coast distributor. During the quarter, in a difficult environment for micro-cap companies, we also completed a follow-on public offering of approximately $6.2 million, and uplisted to the Nasdaq Capital Market exchange. We at Eastside believe that we have the products, the branding and the resources to end the year on a high note and have 2018 be our best year yet.”

Redneck Riviera Whiskey Co, LLC

Eastside Distilling has formed a wholly owned subsidiary, Redneck Riviera Whiskey Co, a Tennessee LLC. This subsidiary is slated to hold intellectual property associated with a proposed line of Redneck Riviera branded spirits. Both Eastside Distilling and John Rich, the licensor of the brand, will share equity in the brand itself and benefit from the increased value of the brand, if any, through the sale of licensed product. Further details about this agreement, including the Company’s strategic plans, will be announced in due course.

Financial Results

For the quarter ended September 30, 2017, Eastside Distilling reported record gross sales of $895,182, an increase of 12% compared to the year ago third quarter of $796,222. Sales growth was driven by increased wholesale sales traction within the Pacific Northwest, especially with our Vodka product as we strategically invested in programs to promote the Vodka product while waiting for our new Burnside Bourbon branding launch (which will occur in the upcoming fourth quarter), the acquisitions of MotherLode and Big Bottom Distilling, and the expansion of our private label business, as well as the addition of three retail locations.

Total shipments increased to 6,162 cases during the third quarter of 2017 from 3,974 cases in the year ago period, an increase of 55%.

Gross profit margins (as a percent of Net Sales) were 38% during the third quarter of 2017, compared to 33% in the third quarter of the previous year. Gross margins during the period improved primarily due to a combination of product mix and lower introductory pricing on a large East Coast order in the third quarter of 2016.

Advertising, promotional and selling expenses increased by $244,363; however, general and administrative expenses decreased by $169,553 as the Company focused on driving sales growth, while tightening cost controls.

Adjusted EBITDA during the third quarter of 2017 was $(1,062,977), which compared to $(1,158,393) in the year ago quarter.

Net loss attributable to common shareholders was $(1,411,161), or $(0.34) per basic and diluted share for the third quarter of 2017, compared to $(1,456,049), or $(0.92) per basic and diluted share in the year ago period.

The company ended the third quarter with $4.2 million in cash compared to $1.3 million at the beginning of the quarter as the company raised $6.2 million in gross proceeds from a follow-on public offering during August 2017.

Conference Call

The Company will hold a conference call today, Tuesday, November 14, 2017, at 4:30 p.m. Eastern time to discuss these results.

Date: Tuesday, November 14, 2017
Time: 4:30 p.m. Eastern time (1:30 p.m. Pacific time)
Toll-free dial-in number: (844) 889-4332
International dial-in number: (412) 717-9595

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Lytham Partners at (602) 889-9700.

A webcast replay will be available in the Investor Relations section of the Company's website at http://www.eastsidedistilling.com/conference-calls or https://www.webcaster4.com/Webcast/Page/1518/23450

A telephone replay of the call will be available for three days:
Toll-free replay number: (877) 344-7529
International replay number: (412) 317-0088
Replay ID: 10114281

About Eastside Distilling

Eastside Distilling, Inc. (NASDAQ: ESDI) has been producing high-quality, award-winning craft spirits in Portland, Oregon since 2008. The company is distinguished by its highly decorated product lineup that includes Burnside Bourbon, West End American Whiskey, Goose Hollow Reserve, Below Deck Rums, Portland Potato Vodka, Hue-Hue Coffee Rum and a distinctive line of fruit infused spirits. Eastside Distilling is majority owner of Big Bottom Distilling (makers of The Ninety One Gin, Navy Strength Gin and Delta Rye whiskey) and the Redneck Riviera Whiskey Co. All Eastside and Big Bottom spirits are crafted from natural ingredients for quality and taste. Eastside’s MotherLode Bottling subsidiary is one of the Northwest’s leading independent spirit bottlers and ready-to-drink canners. For more information visit: www.eastsidedistilling.com or follow the company on Twitter and Facebook.

Important Cautions Regarding Forward-Looking Statements

Certain matters discussed in this press release may be forward-looking statements. Such matters involve risks and uncertainties that may cause actual results to differ materially, including the following: changes in economic conditions; general competitive factors; the Company's ability to continue as a going concern; acceptance of the Company's products in the market; the Company's success in obtaining new customers; the Company's ability to obtain additional capital, the Company's success in product development; the Company's ability to execute its business model and strategic plans; the Company's success in integrating acquired entities and assets, and all the risks and related information described from time to time in the Company's filings with the Securities and Exchange Commission, including the financial statements and related information contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on March 31, 2017. Examples of forward-looking statements in this release may include statements related to our strategic focus, product verticals, anticipated revenue and profitability. Further, such forward-looking statements in this press release include but are not limited to: that the Company's growth will continue on its current trajectory; the stage is set for significant growth and improved bottom line performance ahead and beyond; that the second half is traditionally our busiest of the year, when the Company typically generates close to 70% of its annual business. The Company assumes no obligation to update the cautionary information in this release.

Use of Non-GAAP Measures

Eastside Distilling's management evaluates and makes operating decisions using various financial metrics. In addition to the Company's GAAP results, management also considers the non-GAAP measure of adjusted EBITDA. Management believes this non-GAAP measure provides useful information about the Company's operating results.

The Company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, stock based compensation and gain on spin-off. The table below provides a reconciliation of this non-GAAP financial measure with the most directly comparable GAAP financial measure.

Third Quarter 2017 Financial Summary Tables

The following financial information should be read in conjunction with the audited financial statements and accompanying notes filed by the Company with the Securities and Exchange Commission on November 14, 2017 on Form 10-Q for the period ended September 30, 2017, and which can be viewed at www.sec.gov and in the investor relations section of the company’s website at www.eastsidedistilling.com.

 
Eastside Distilling, Inc. and Subsidiaries
Consolidated Statements of Operations
For the three and nine months ended September 30, 2017 and 2016
(unaudited)
             
Three Months Ended Nine Months Ended

September 30,
2017

September 30, 2016 September 30, 2017 September 30, 2016
Sales $ 895,182 $ 796,222 $ 2,608,373 $ 2,045,568
Less excise taxes, customer programs and incentives   276,845     242,042     772,525     542,854  
Net sales 618,337 554,180 1,835,848 1,502,714
Cost of sales   384,265     370,854     1,101,803     895,239  
Gross profit   234,072     183,326     734,045     607,475  
Operating expenses:
Advertising, promotional and selling expenses 563,754 319,391 1,499,751 951,293
General and administrative expenses 1,040,942 1,210,495 2,615,810 2,923,799
Loss on disposal of property and equipment   -     -     40,975     -  
Total operating expenses   1,604,696     1,529,886     4,156,536     3,875,092  
Loss from operations   (1,370,624 )   (1,346,560 )   (3,422,491 )   (3,267,617 )
Other income (expense), net
Interest expense (41,436 ) (91,085 ) (184,998 ) (492,350 )
Other income (expense)   900     1,196     5,385     (662 )
Total other expense, net   (40,536 )   (89,889 )   (179,613 )   (493,012 )
Loss before income taxes (1,411,160 ) (1,436,449 ) (3,602,104 ) (3,760,629 )
Provision for income taxes   -     -     -     -  
Net loss   (1,411,160 )   (1,436,449 )   (3,602,104 )   (3,760,629 )
 
Dividends on convertible preferred stock - 19,600 5,037 37,359
Income (loss) attributable to noncontrolling interests   301     -     (1,174 )   -  
 
Net loss attributable to Eastside Distilling, Inc. common shareholders $ (1,411,461 ) $ (1,456,049 ) $ (3,605,967 ) $ (3,797,988 )
 
Basic and diluted net loss per common share $ (0.34 ) $ (0.92 ) $ (1.08 ) $ (3.43 )
 
Basic and diluted weighted average common shares outstanding   4,142,632     1,587,285     3,342,332     1,106,832  
 
 

Eastside Distilling, Inc. and Subsidiaries

Consolidated Balance Sheets
September 30, 2017 and December 31, 2016
   

September 30, 2017
(unaudited)

December 31, 2016

Assets
Current assets:
Cash $ 4,190,085 $ 1,088,066
Trade receivables 192,805 344,955
Inventories 2,416,946 780,037
Prepaid expenses and current assets   386,168     187,714  
Total current assets 7,186,004 2,400,772
Property and equipment, net 468,382 99,216
Intangible assets, net 373,398 -
Goodwill 221,556 -
Other assets   238,375     48,000  
Total Assets $ 8,487,715   $ 2,547,988  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 523,882 $ 457,034
Accrued liabilities 152,879 523,702
Deferred revenue 820 2,126
Current portion of notes payable   39,032     4,537  
Total current liabilities 716,613 987,399
Notes payable - less current portion and debt discount   1,331,007     427,756  
Total liabilities   2,047,620     1,415,155  
 

Commitments and contingencies

 
Stockholders' equity:

Series A convertible preferred stock, $0.0001 par value; 3,000 shares authorized; 0 and 300 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively (liquidation values of $0 and $750,000, respectively)

 
 
- 245,838
Common stock, $0.0001 par value; 15,000,000 shares authorized; 4,824,990 and 2,542,504 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively
 
482 254
Additional paid-in capital 22,844,814 13,699,785
Accumulated deficit   (16,419,011 )   (12,813,044 )
   
Total Eastside Distilling, Inc. Stockholders' Equity 6,426,285 1,132,833
Noncontrolling interests   13,810     -  
Total Stockholders' Equity 6,440,095 1,132,833
Total Liabilities and Stockholders' Equity $ 8,487,715   $ 2,547,988  
 
 
Eastside Distilling, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the nine months ended September 30, 2017 and 2016
(unaudited)
     
Nine Months Ended
September 30, 2017 September 30, 2016
Cash Flows From Operating Activities:
Net loss $ (3,602,104 ) $ (3,760,629 )
Adjustments to reconcile net loss to net cash used in operating activities:
 
Depreciation and amortization 53,770 16,579
Loss on disposal of property and equipment 40,975 -
Amortization of debt issuance costs 68,305 116,750
Amortization of beneficial conversion feature - 228,549
Issuance of common stock in exchange for services 413,936 218,970
Stock-based compensation 486,194 208,977
Changes in operating assets and liabilities:
Trade receivables 158,374 (240,798 )
Inventories (1,403,499 ) (197,828 )
Prepaid expenses and other assets (243,829 ) 94,127
Accounts payable 61,669 (476,158 )
Accrued liabilities (587,112 ) 657,650
Deferred revenue   (1,306 )   2,467  
Net cash used in operating activities   (4,554,627 )   (3,131,344 )
Cash Flows From Investing Activities:
Cash acquired in acquisition 4,541 -
Purchases of property and equipment   (381,837 )   (6,952 )
Net cash used in investing activities   (377,296 )   (6,952 )
Cash Flows From Financing Activities:
Stock issuance cost related to acquisitions (19,980 ) -
Stock issuance cost related to common shares issued for preferred conversion (15,000 ) -
Proceeds from common stock, net of issuance costs of $1,120,323, with detachable warrants 6,707,487 -
Proceeds from warrant exercise 159,250 -
Payments on conversion of note payable (90,000 ) (500,923 )
Payments of principal on notes payable (107,815 ) -
Proceeds from convertible notes payable, net of issuance costs 1,400,000 185,000
Proceeds from notes payable, warrants issued - 1,250,000
Proceeds from preferred stock, net of issuance costs of $35,920, with warrants - 463,080
Proceeds from common stock with detachable warrants   -     2,000,000  
Net cash provided by financing activities   8,033,942     3,397,157  
Net increase in cash 3,102,019 258,861
Cash - beginning of period   1,088,066       141,317  
Cash - end of period $ 4,190,085   $ 400,178  
 
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $ 90,276   $ 294,240  
 
Supplemental Disclosure of Non-Cash Financing Activity
Issuance of common stock for the acquisition of MotherLode Craft Distillery, LLC $ 377,000   $ -  
Issuance of common stock for the acquisition of Big Bottom Distilling, LLC $ 134,858   $ -  
Note payable issued in exchange of accounts payable $ 60,000   $ -  
Common stock issued in exchange of notes payable $ 505,637   $ -  
Issuance of common stock in exchange for services recorded as other assets $ 145,000   $ -  
Stock issued for payment of trade debt $ -   $ 19,213  
Dividends paid in common stock $ -   $ 17,759  
Stock issued in lieu of accrued compensation $ -   $ 423,000  
Stock issued to retire notes and accrued interest $ -   $ 246,330  
 
                 
Three Months Ended Nine Months Ended
September 30 September 30
2017 2016 2017 2016
 
Net Loss $ (1,411,160 ) $ (1,436,449 ) $ (3,602,104 ) $ (3,760,629 )
Add:
Interest Expense 41,436 91,085 184,998 492,350
Loss on disposal of property and equipment - - 40,975 -
Provision for Income taxes - - - -
Purchase accounting adjustments 1,933 - 23,358 -
Stock-based compensation 206,872 51,569 486,194 208,977
Stock issued for services 74,216 129,870 413,936 218,970
Depreciation and amortization   23,726     5,532     53,770     16,579  
 
Adjusted EBITDA $ (1,062,977 ) $ (1,158,393 ) $ (2,398,873 ) $ (2,823,753 )

Contacts

Company Contact:
Eastside Distilling
Steve Shum, CFO
971-888-4264
inquiries@eastsidedistilling.com
or
Investor Relations Contact:
Lytham Partners, LLC
Robert Blum, Joe Diaz or Joe Dorame
602-889-9700
esdi@lythampartners.com

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