Eastside Distilling Reports First Quarter 2017 Financial Results

Company reports 33% revenue growth for the First Quarter; Case sales increase 89% from 3,146 in Q1 2016 to 5,937 in Q1 2017

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Eastside Distilling, Inc.

May 15, 2017, 08:00 ET

PORTLAND, Ore., May 15, 2017 /PRNewswire/ -- Eastside Distilling, Inc. (OTCQB: ESDI), a producer of award-winning master-crafted spirits, reported first quarter 2017 financial results.

Q1 2017 Financial and Operational Highlights:

Gross sales increased 33% to $829,669 during the first quarter of 2017, compared to $621,882 in Q1 2016. This was primarily because of our refocus on our core market in the Pacific Northwest, our acquisition of a contract bottling business, and an increase in product sales at special events in Oregon;
Shipments increased 89% from the previous year's shipments of 3,146 cases to 5,937 cases in Q1 2017, lead by continuing record sales of Portland Potato Vodka;
Gross margins improved to 47% during the first quarter 2017 from 44% in the year ago period, because of our concentration on higher margin products and efforts to reduce COGS;
General and administrative expenses decreased 18% from Q1 2016, while gross sales increased 33%, as we aggressively sought operational efficiencies;
Beginning in March 2017, our results include MotherLode Craft Distilling, the acquisition of which expanded our team to include Allen Barteld, reducing go-forward operating costs and opening new profit opportunities in private labeling;
Sales reflect the initiation of shipments to Alaska for the first time, in an expansion of our Pacific Northwest core market; and
As of March 31, 2017, the Company had a working capital position of $1,700,325 and a cash balance of $883,715.

Recent Developments

In May 2017, we acquired a 90% stake in Big Bottom Distilling, a Hillsboro, Oregon-based distillery headed by Oregon craft spirit Ted Pappas and Travis Shoney, formerly of High West. This is a strategic extension of our product line, as a low-cost way to add both distilling capacity and top talent;
Began receiving the first "deliverables" from Sandstrom Partners, a leading spirit branding firm renowned for its successes with Bulleit, St Germain, Aviation Gin and Stillhouse. Sandstrom also became a significant investor in Eastside; and
In Q2 2017, all remaining preferred stock has been converted to common stock, and there are zero preferred shares outstanding.

Management Commentary
Grover Wickersham, Executive Chairman of Eastside Distilling, commented, "Our Q1 results reflect continued progress toward our strategic plan. Revenues grew over 30% and our case volumes increased even more significantly, particularly in our key core market of the Pacific Northwest. We made an immediately accretive acquisition during the quarter, the MotherLode private label and bottling business. We followed this with a second acquisition on May 1st, Big Bottom Distilling, a highly-respected craft distiller that fills gaps in our craft spirit lineup with gin and other highly complementary products, and adds distilling capability. We are off to a good start so far and are optimistic about 2017 as we continue to execute on our plans to grow our business and improve profitability."

Steve Shum, Chief Financial Officer of Eastside Distilling, commented, "We have embarked on a number of strategic initiatives surrounding gross margin expansion and improved profitability. Our acquisition of MotherLode and their manufacturing operations enables the bulk purchase of spirits inventory which we are purchasing on much more favorable terms than previously. This decreased input cost should allow for an increase in gross margins in the second half of this year. Additionally, a reallocation of resources from general and administrative towards sales and marketing is proving successful as we drive consumer awareness and shelf depletions, and ultimately improved profitability ratios."

Mr. Wickersham concluded, "We are happy to be moving to newer and much more cost efficient facilities this quarter. There, we will be working closely with our new bottling group to reduce manufacturing costs, as well as exploiting some attractive private label opportunities that are shaping up in the short term. We have applied to the OLCC to immediately start distributing Big Bottom's high margin super premium products through our own retail sales channels in Oregon. Also, over the next 90 days, we hope to implement the first of Sandstrom's product branding improvements. We will begin by making changes to the packaging of our vodka and whiskeys to increase 'shelf impact" and hopefully boost sales."

Financial Results
For the quarter ended March 31, 2017, Eastside Distilling reported record gross sales of $829,669, an increase of 33%. Sales growth was driven during the quarter by increased wholesale traction within the Pacific Northwest, the addition of a new retail location, and contributions from the addition of MotherLode's private label bottling business.

Total shipments increased to 5,937 cases during the first quarter of 2017 from 3,146 cases in the year ago period, an increase of 89%.

Gross profit margins increased to 47% during the first quarter of 2017, compared to 44% in the first quarter of the previous year. The improvement in gross profit margins is primarily due to a more favorable product mix.

Advertising, promotional and selling expenses increased by $229,929, however general and administrative expense decreased by approximately $159,615 as the company focused on driving sales growth, while maintaining tighter overhead cost controls.

Adjusted EBITDA during the first quarter of 2017 was $(564,494), which compared to $(643,112) in the year ago quarter.

Net loss attributable to common shareholders was $(906,855), or $(0.12) per basic and diluted share for the first quarter of 2017, compared $(1,014,679), or $(0.45) per basic and diluted share in the year ago period.

The company ended the first quarter with $883,715 in cash and working capital of $1,700,325. After the end of the quarter, the company raised an additional $833,815 through placement of equity and medium term debt.

Conference Call
The Company will hold a conference call today, Monday, May 15, 2017, at 11:00 a.m. Eastern time to discuss these results.

Date: Monday, May 15, 2017
Time: 11:00 a.m. Eastern time (8:00 a.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/presentations/ or https://www.webcaster4.com/Webcast/Page/1518/21140.

A telephone replay of the call will be available until May 18, 2017:
Toll-free replay number: (877) 344-7529
International replay number: (412) 317-0088
Replay ID: 10107423

About Eastside Distilling
Eastside Distilling, Inc. (OTCQB: ESDI) is located in Southeast Portland's Distillery Row and has been producing high-quality, master-crafted spirits since 2008. Makers of award winning spirits, the Company is unique in the marketplace and distinguished by its highly decorated product line-up that includes Barrel Hitch American Whiskies, Burnside Bourbon, Below Deck Rums, Portland Potato Vodka and a distinctive line of infused whiskeys. All Eastside spirits are master crafted from natural ingredients for unparalleled quality and taste. The Company is publicly traded under the symbolOTCQB: ESDI. For more information, visit: www.eastsidedistilling.com

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.

Company Contact:	Investor Relations Contact:
Eastside Distilling	Robert Blum, Joe Diaz or Joe Dorame
(971) 888-4264	Lytham Partners, LLC
[email protected]	(602) 889-9700
	[email protected]

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.

First 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 May 12, 2017 on Form 10-Q for the period ended March 31, 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 Subsidiary
Consolidated Statements of Operations
For the three months ended March 31, 2017 and 2016
(unaudited)

	Three Months Ended
	March 31, 2017	March 31, 2016
Sales	$ 829,669	$ 621,882
Less excise taxes, customer programs and incentives	217,188	167,120
Net sales	612,481	454,762
Cost of sales	322,913	256,169
Gross profit	289,568	198,593
Operating expenses:
Advertising, promotional and selling expenses	386,132	156,203
General and administrative expenses	726,396	886,011
Loss on disposal of property and equipment	35,534	-
Total operating expenses	1,148,062	1,042,214
Loss from operations	(858,494)	(843,621)
Other income (expense), net
Interest expense	(47,809)	(171,054)
Other income (expense)	4,485	(4)
Total other expense, net	(43,324)	(171,058)
Loss before income taxes	(901,818)	(1,014,679)
Provision for income taxes	-	-
Net loss	(901,818)	(1,014,679)

Dividends on convertible preferred stock	(5,037)	-

Net loss attributable to common shareholders	$(906,855)	$(1,014,679)

Basic and diluted net loss per common share	$ (0.12)	$ (0.45)

Basic and diluted weighted average common shares outstanding	7,842,971	2,275,625

Eastside Distilling, Inc. and Subsidiary
Consolidated Balance Sheets
March 31, 2017 and December 31, 2016

	March 31, 2017 (unaudited)	December 31, 2016
Assets
Current assets:
Cash	$ 883,715	$ 1,088,066
Trade receivables	360,126	344,955
Inventories	995,733	780,037
Prepaid expenses and current assets	146,802	187,714
Total current assets	2,386,376	2,400,772
Property and equipment, net	128,560	99,216
Intangible assets, net	373,502	-
Deposits	59,400	48,000
Total Assets	$ 2,947,838	$ 2,547,988

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$ 476,175	$ 457,034
Accrued liabilities	208,418	523,702
Deferred revenue	1,458	2,126
Current portion of notes payable	-	4,537
Total current liabilities	686,051	987,399
Notes payable - less current portion and debt discount	365,160	427,756
Total liabilities	1,051,211	1,415,155

Commitments and contingencies (Note 9)

Stockholders' equity:
Series A convertible preferred stock, $0.0001 par value; 3,000 shares authorized; 50 and 300 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively (liquidation values of $125,000 and $750,000, respectively)


	49,426	245,838
Common stock, $0.0001 par value; 45,000,000 shares authorized; 9,010,352 and 7,627,512 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively

	901	764
Additional paid-in capital	15,566,199	13,699,275
Accumulated deficit	(13,719,899)	(12,813,044)
Total stockholders' equity	1,896,627	1,132,833
Total Liabilities and Stockholders' Equity	$ 2,947,838	$ 2,547,988

Eastside Distilling, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the three months ended March 31, 2017 and 2016
(unaudited)
	2017	2016
Cash Flows From Operating Activities:
Net loss	$ (901,818)	$ (1,014,679)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization	9,006	5,574
Loss on disposal of property and equipment	35,534	-
Amortization of debt issuance costs	37,009	11,167
Amortization of beneficial conversion feature	-	148,077
Issuance of common stock in exchange for services	86,317	89,100
Stock-based compensation	158,658	105,839
Changes in operating assets and liabilities:
Trade receivables	(15,171)	(40,974)
Inventories	(112,208)	61,356
Prepaid expenses and other assets	29,512	64,751
Accounts payable	13,961	(7,808)
Accrued liabilities	(466,335)	304,739
Deferred revenue	(668)	1,381
Net cash used in operating activities	(1,126,203)	(271,477)
Cash Flows From Investing Activities:
Cash acquired in acquisition	7,062	-
Purchases of property and equipment	(39,631)	(6,954)
Net cash used in investing activities	(32,569)	(6,954)
Cash Flows From Financing Activities:
Preferred stock deposit	-	151,200
Stock issuance cost related to acquisition	(5,580)	-
Payments of principal on notes payable	(1,716)	(1,286)
Proceeds from common stock, net of issuance costs of $6,033, with detachable warrants	802,467	-
Proceeds from warrant exercise	159,250	-
Net cash provided by financing activities	954,421	149,914
Net decrease in cash	(204,351)	(128,517)
Cash - beginning of period	1,088,066	141,317
Cash - end of period	$ 883,715	$ 12,800

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest	$ 10,800	$ 1,380

Supplemental Disclosure of Non-Cash Financing Activity:
Issuance of common stock for the acquisition of MotherLode Craft Distillery, LLC	$ 377,000	$ -
Common stock issued in exchange of notes payable	$ 87,500	$ -


			Three Months Ended
			March 31
			2017	2016

Net Loss			$ (901,818)	$ (1,014,679)
	Add:
		Interest Expense	47,809	171,054
		Loss on disposal of property and equipment	35,534	-
		Provision for Income taxes	-	-
		Stock-based compensation	158,658	105,839
		Stock issued for services	86,317	89,100
		Depreciation and amortization	9,006	5,574

Adjusted EBITDA			$ (564,494)	$ (643,112)