Beeline Holdings, Inc. (BLNE) Q1 2018 Earnings Report, Transcript and Summary

Good morning everyone, and welcome to the Eastside Distilling reports first quarter of fiscal year 2018 financial results conference call. All participants will be in a listen-only mode. [Operator Instructions] Please also note today’s event is being recorded. At this time I would turn the conference call over Mr. Robert Blum. Mr. Blum, please go ahead.

Thank you Jamie and good morning everyone. Thank you for joining us to discuss Eastside Distilling’s financial results for the quarter ended March 31, 2018. I’m Robert Blum at Lytham Partners, I will be your moderator for today's call. Earlier, Eastside issued their first quarter 2018 results in a press release as well as filed its 10-Q. Joining us on today's call to discuss these results are to Grover Wickersham and Steve Shum. Following their remarks, we will open the call to your questions. Please note that listeners both from the live portion of the call, as well as webcast will be able ask questions. If you are on the webcast, you can type your questions into the question box and press submit. We will take as many questions as time will permit for. [Operator Instructions] Before begin with prepared remarks, we submit for the record the following statement. Certain matters discussed on this conference call by the Management of Eastside Distilling may be forward-looking statements within the meaning of section 27 A of the Securities Act of 1933, as amended, section 21E of the Securities Exchange Act of 1934, as amended and such forward-looking statements are made pursuant for Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results, or strategies and are generally preceded by words such as, may, future, plan or planned, will or should, expected, anticipate, draft, eventually or projected. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could future circumstances, events or results to differ materially from those projected in the forward-looking statements. Such matters involves risks and uncertainties that may cause actual results to differ materially include, but are not limited to, the Company's acceptance and the Company's products in the market success and obtaining new customers, success in product development, ability to execute its business model and strategic plans, success in integrating acquired entities in their assets, ability to obtain capital, ability to continue the growing concern and all the risk 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 pertaining to the Company’s annual report on Form-10K for the year ended December 31, 2017 filed with the Securities and Exchange Commission on April 2, 2018. Now I would like to turn the call over to Grover Wickersham, CEO of Eastside Distilling. Grover, please proceed.

Thank you, Robert and good morning to all of you. Thank you for joining us today. Let me start by mentioning that with me in addition to Steve Shum is our Controller Kim Davis. Our first quarter 2018 results had initial returns from the investments made and actions taken during 2017. To position Eastside Distilling as a leader in the emerging craft spirits segment of the spirit industry. The Eastside sales growth to 70% was achieved with just two months of Redneck Riviera shipments and a few weeks of wine canning operations during the quarter. Additionally our Burnside Bourbon rebranding which launched at the end of last year has also gone better than expected. Sales of the rebranded line in the Pacific Northwest have already surpassed the peak levels for the line that we hit last year. Our new product pipeline continues to flow and you should expect more innovation from us in 2018. A recent example is our just launched Oregon Oaked Rye it took Double Gold at the San Francisco World Spirits Competition. Tyne Blanton's Bourbon beating Wild Turkey Rye, Bulleit Rye, Woodford Reserve Rye, [South Wreck Rye] (Ph), Jim Beam Rye and about 200 others most of which are much more expensive. All told, I believe we are positioned for continued strong growth throughout the remainder of 2018 and barring unforeseen circumstances continuing on to 2019. Before Steven and I go through the details of the quarter in depth, I think it's important to take a step back and look at how we have positioned Eastside for future success based on the business strategy we laid out at the very start of 2017. As a reminder, that strategy is summarized as first creating and monetizing new and exciting brands through our great strength and developing innovative spreads and are close collaboration with the branding firm Sandstrom Partners. Secondly, using our status as the only NASDAQ listed craft distiller to make strategic acquisitions. Thirdly, creating a cash sustaining business through our broad range of product sales in our Oregon home market and by co-packing the Pacific Northwest companies. Starting in January of 2017, as one of the three prongs of our new business strategy for Eastside, we have set out to create a “brand factory.” We did this by closely associating with Sandstrom Partners. The Eastside of 2016 produced tremendous craft spirits that one scores of awards, but frankly our packaging was awful. For the most part it was just wine bottle. Fortunately, for us we had one of the spirit industries most successful branding firms right in our own backyard namely Sandstrom partner. As a reminder, to people who don’t know Sandstrom, it's the branding firm behind Bullet Bourbon, Aviation Gin, Stillhouse and St-Germain. These brands all grew into major success stories and two of them are acquired for more than 150 million. The firs of our 2017 collaboration with Sandstrom began to emerge for the first time in the fourth quarter of 2017 in the form of the totally rebranded and reinvented Burnside line of bourbon in Whiskey. While the [strategy] (Ph) itself is winning national awards, our new craft spirit offerings carrying on our position of excellence in spirits. As I mentioned, our new Burnside Oregon Oaked Rye won a very rare and hard to get Double Gold on May 1, 2018 in the SF World Spirits Competition, but this was just a total of 14 medals that we won in this preeminent and prestigious event. Our flagship Burnside lineup recently rebranded is once again seeing growth accelerate. Remember, we stopped production in summer of 2017 and stopped opening new accounts. We did this to allow our customers to sell through the old Burnside in-store inventory. New Burnside came back strong and we recently surpassed previous peak sales levels. The rebranding of our cold brewed Coffee Rum product to Hue-Hue Coffee Rum is also being met with good reviews. Our cold brewed coffee rum product is unlike anything else in the market and reimagining it as Hue-Hue Sandstrom Partners packaging highlighted the uniqueness of its batch process, cold brewed flavor and the richness of its Portland Roasted Guatemalan Coffee. This is the modern alternative to the sugariness of coffee liquors, it’s launched in Oregon in January, was very well received. Eastside and Sandstrom are systematically working through and evaluating our existing product lineup, as well as loaning new ideas it could become successful product, especially in the very promising area of canned, ready to drink RTG beverages. We believe the plan is in place to create significant value with Sandstrom in the future. The collaboration with Sandstrom can also be credited with a larger part of our landing John Rich as a partner. We got this business because we coupled Sandstrom’s impressive Redneck Riviera branding concepts in our pitch to John with Travis Schoney and Mel Heim's delicious Redneck Riviera blend. Again, this is a winning combination of world class marketing and world class spirit production. As we reported in our earnings release, just over 2,800 nine liter cases of Redneck Riviera and just the two months it was available during Q1. We are continuing ad stays and build momentum. While John Rich and Eastside team were optimistic about what Redneck might do when it left the gate, the extent of its early success surprised even us. It has been less than four months since we first shipped the brand and during that four month period we signed distribution agreements with the largest distributor in the southeast RNDC and added other key distributors including Southern Glazer. We expanded distribution from the initial five Gulf states in 15 states including California and are discussing further additions. We set records by receiving authorization from Walmart in only our second month and landed other prestigious accounts including Specs in Texas, Safeway in Washington, HC in Florida and both Albertsons and Ralphs in Louisiana. As expected, John Rich has provided strong promotional support by making appearances on National TV shows as well as countless local TV and radio shows. John makes many in-store appearances for vital planning to support retailers. Selling typically as many as 100 cases in a single signing event and he might do more than one sometimes as much as three on the single day. John promotes Redneck during his live performances with the Big and Rich band and at numerous events including Roth Capital Partners 2018 conference. John joined the NASDAQ January 31 during the closing bell at NASDAQ for January, symbolizing how much he helped us ring the bell for Eastside’s Q1. We expect that John Rich’s promotion of brand will step up and notch later this year with [indiscernible] Brothers produced reality TV show called Living Big and Rich that will feature Redneck and even devote four shows to it. Meanwhile John is on tour, hitting estimated 70 cities between now and year-end with each stop being a great promotional opportunity for our brand. Yes, we have had a busy four months, but what is most important is that we are not slowing down or stopping anytime soon. To supplement John’s efforts we recently signed agreements with Gretchen Wilson a many times Grammy winning country star with Granger Smith and Colt Ford as Spirit Ambassadors for Redneck Riviera Whiskey. We will be issuing a press release shortly to provide further details. These three country stars will be supporting the Redneck plans, on their tours, in their social media and in all their promotional efforts. This partnership is a natural fit for these artists, as fans of John, fans of the whiskey and fans of the American roots. We look forward to 2018 to be tremendous year for Redneck Riviera Whiskey. However, we have many other things that we are doing here at Eastside in addition to Redneck Riviera Whiskey. In addition to our strategy of creating a Brand Factory we are using our production assets to generate cash from co-packing. We are just now beginning to get some traction in our initiative. In early 2017 we acquired a craft bottling operation. This acquisition immediately enhanced our operational efficiencies, but it also allowed us to expand into the fast growing market segment. Tin line Ready to Drink, RTDs and Wine Canny. Overcoming operational issues has taken us longer than expected, but we are now operational. We begun canning wine for customers and we have seen expanding list of potential customers. As previously noted, we hope to use the canny line to our advantage in developing and marketing our own Eastside Ready to Drink cocktails and other product. One of the most important steps we took last year and that was perhaps the most important step we took last year has been to strengthen our management team, so that we can position the Company to become a major player in the industry. We recently brought on Tom Lloyd, a highly experienced operator as VP of Production. Tom previously lead a team of 1000 process engineers at Intel, and most recently handled the production for PropA divino a wine single serve in Oregon that went from zero to over 25 million in sales which with Tom running production. And then on the sales side which is where we are putting tremendous emphasis. In addition to hiring the 27 year industry veteran Jerry Calderon any as our Senior VP of Sales, using Jerry’s contacts we recently poached Robert Manfredonia from Russian Standard where Robert had a stellar track record. As our VP of National Accounts Robert brings a strong background and dealing with the countries big-box retailers, and he is already proving his worth. In his first three weeks on the job, he brought in Segway in Washington and ABC Liquors the largest liquor stores chain in Florida. We expect to have a great year with Robert. We are also expanding our sales with additional hiring of some first class reps Florida, Tennessee and in Texas. Finally, we have added strength to our financial reporting control and finance functions by filling the vacancy left by our departing Controller with Kim Davis. Kim was previously CFO of the Oregon Liquor Control Commission and CFO of a major regional investment banking firm here in Portland. Kim is a great partner for Steve Shum and myself. I would just depart from the prepared remarks, just to mention that I'm very proud of the fact that the Eastside is now getting a sufficient reputation in the industry that we are able to track people of this quality and I would say we are constantly getting resumes of very, very talented people. This is not something that was happening a year ago. In addition to the realization of these whole strategic initiatives, we also are seeing the benefit of the recently enacted Craft Monetization and Tax Reform Act of 2017. It was enacted by Congress as part of the 2017 Tax Legislation package. It reduced the Federal Excise Tax from 13.50 to $2.70 per gallon for the first 100,000 proof gallons per year. This is an 80% tax reduction of a major cost in spirit manufacturing. To put this in perspective and the event that Eastside’s production reaches is the 100,000 proof gallons per annum needed to fully utilize the tax benefit to the Tax Act, our annual savings was 300 million. These savings are improvement to our gross margin line which we expect to improve by in excess of two points in 2018 compared to 2017 just simply based on the tax reduction. With that said, let me turn the call over to my fantastic CFO, Steve Shum to run you through the numbers and our finance strategy. Steve.

Thanks Grover. While the first quarter is normally a seasonally softer period, especially compared to the seasonally strong fourth quarter, we are pleased to be reporting a sequential improvement in sales, margins and EBITDA in our first quarter as compared to the fourth quarter. As Grover noted, we do see momentum continuing to build with our branding initiatives this is illustrated by our 2018 Oregon wholesale case growth January it was a 52% versus January 2017 which was similar to our overall case sales growth in fiscal 2017. February was up 65%, March 95% and April 98% versus the comparable month in 2017. So fairly the Oregon trends are favorable. Our Boston growth comparisons do get harder this year, but our Oregon sales team is performing great and motivated to continue beating our goals. Gross sales in the first quarter totaled approximately 1.4 million as compared to 829,000 in the prior year an increase of 7%. Net sales which exclude the Excise Taxes and certain customer promotion activities increased nearly a 100% to the 1.22 million versus 612,000 in the prior year. During the first quarter, we sold 8,305 cases. This consisted of 6,877 cases of our branded product and 1,428 cases of private label, reflecting an increase of 80% over the prior year in our branded products and a 40% case growth overall. The higher branded products case sales were driven largely by the newly launched Redneck Riviera product and an increased in wholesale attraction within Pacific Northwest [indiscernible] and our newly re-launched Burnside brand which is progressing well. We also experienced some modest improvement in our retail case sales during the period. The private label business benefit in the period from the initial production of our new canny wine as well as from an opportunistic private and profitable sale of bulk spirit period. Those profitable sales underscores the hidden value to our shareholders of large bulk spirit inventory with the sometimes overlooked. While it's not a focus we may periodically benefit from such sales as we did in the first quarter. Overall wholesale revenues improved by approximately 53% to 755,000 compared to 429,000 last year. While we are pleased with the recent Burnside progress the product was still down compared to last year as the brand re-launch was still on early phases during the quarter. However, strong Vodka product growth along with the new Redneck Riviera product launch more than offset Burnside in the period contributing to the strong overall wholesale increase. Looking ahead, we do expect Burnside product to contribute more significantly. As noted, since March of this year approximately four months post the re-launch, Burnside has been tracking above the legacy brand volumes in Oregon. We have also begun selling to key out of Oregon markets. Going forward, the wholesale business will also greatly benefit from the new Redneck Riviera brand which continues to experience very strong momentum after the fast start in its initial two month debut. Revenues in our private label business were approximately 350,000 for the period which actually exceeded what we did the entire year last year, was tripled over the year ago period. Again, this was a result of both the new canning operations coming online along with the sale of some excess spirits. Revenues arrived from our retail and special events operations grew to approximately 305,000 which represented an 8% increase from a year ago. In May we launched a new initiative to draw our customers, improve the customer experience and sell additional high-margin products. We know this will bear fruit in the second half. Gross profit in the period totaled approximately 593,000 compared to current 290,000 in the prior year. Gross margin relative to net sales is 49% versus 47% a year ago and overall 2017 margin of 37%. The gross margin in the period was positively impacted by the new FET rate which we have highlighted several times in the recent past, which was partially offset by higher customer incentive programs as compared to last year. We certainly have a longer-term goal to further improve margins, and increased volumes and better spread our facilities costs. However, in the shorter run, margins may fluctuate around these levels as we continue to implement customer programs and incentives associated with the new product launch of Burnside, Hue-Hue and Redneck Riviera. Advertising, promotional and selling expense for the year increased to 643,000, up approximately 67% from 386,000 last year. It was down actually slightly sequentially from the fourth quarter. This increase is primarily due to our launch related efforts to expand our product sales both regionally as well as in national markets. Under agreement with John Rich if and when the Redneck brand is sold, we are allowed to recover 50% of our direct marketing expenses in support of the Redneck brand. We hope to provide more specific guidance on this in the future, but due to our emphasis on Redneck this amount is already well under six figures. G&A expenses for the period totaled 1.2 million, an increase of 67% from last year. This increase was a result of additions to key personnel along with higher stock based compensation and depreciation expenses. In fact the higher stock based comp and depreciation expense accounted for nearly half of the G&A increase. Net loss in the period totaled 1.3 million or $0.27 per share compared to a net loss of 900,000 or $0.35 a share in the year ago period. Our adjusted EBITDA during that period was a loss of approximately 780,000 which compared to a loss of 565,000 a year ago, and a loss of 930,000 to prior sequential fourth quarter. I would point out that the sequential improvement in EBITDA is something we hope to maintain as we move throughout the year. Moving to the balance sheet cash, at the end of the period totaled approximately 1.5 million, inventories further increased from the year end totaling just over 5.3 million. As previously mentioned, we have purposely built our inventories to support the new product launches, especially new Redneck Rivera Whiskey product which we is seeing tremendous interest and momentum. [indiscernible] to the period in we added to our working capital position by closing on additional note proceeds of 880,000 along with bringing an additional 735,000 in cash from voluntary early warrant exercises. We also executed a new of 3 million bulk spirit credit facility with an existing primary shareholder. This line has a 7% rate that is far better than the double-digit rates that are offered to the industry by typical bulk spirit lenders. This facility has an initial three-year term. To further illustrate the support we have to serve shareholder, let me also note that this financing has no equity elements whatsoever meaning it is not convertible and it has no warrants attached. We have the full three million available to us on this facility and we could try any time to purchase bulk spirits. We believe this puts us in an excellent position, especially given our existing strong inventory levels. That concludes my highlights for the quarter further, details are available on our 10-Q. With that, I will hand it back to Grover.

Thanks Steve. I would also before we open up the Q&A just over a few points under the general concept of strategic initiatives. this is kind of forward-looking comments, but we have mentioned in the past that we have pillars out to potential industry strategic partners. And as a way of organizing this effort the board formed a committee and that consist of Shelley Saunders the former CFO of Campari Canada and Jack Pearson the CEO of Sandstorm and also myself. As a trajectory of our brands continues to improve we think that we may be able to have options in regards to brand strategic partners. My final comment on this subject, although you hear this from every CEO, I do believe that the share price is not fully reflected value of our brands to the extent that the valuations that occurred in this industry and bringing in strategic partner might be a way to demonstrate that. Secondly, acquisitions, we continue to see a constant potential deal flow, we tend to be very selective. We can't predict when we might enter into a transaction, but I just want shareholders aware that is extremely likely there will be more acquisition transactions in the future. And then the third comment is we are very mindful of dilution, if you look at our financing efforts today that involves the minimum amount of equity and as noted by Steve, we have had almost $2 million in early exercise of publicly traded warrants. This is I think a evidence that we have some very supportive large institutional shareholders that they share our goal of maximizing shareholder value. So with those comments, I would like to turn the call over to Q&A.

[Operator Instructions] Our first question today comes from Ian Gilson from the Zacks Investment Research. Please go ahead with your question.

Good morning gentlemen, congratulations. As we look at the numbers, the average price per case has increased significantly and in fact I believe on a year-over-year basis its up close to 40%, how much of the revenue is non spirit based, so we have not accounted in the cases sold and what can we look for on a average selling price through the rest of the year.

Well I think it’s important Ian to separate private label business when you are doing that calculation. The overall average per case price when isolating just the branded products relative to branded revenue wholesale and retail that was around $154 per case. There is two dynamic that are impacting that one is, if you look at the wholesale side of the business as a percentage of the branded revenue again excluding private label, wholesale increased to 71% in this quarter versus about 60% last year, so that distribution mix if you will is going to put downward pressure on the average price and it did so in this quarter. The other dynamic that happen is the heavier concentration in both vodka and Redneck Riviera is also brought the average per case price down a little bit. Vodka average is what promotional activities might be going on between $95 and $105 per case and the Redneck Riviera runs $150 per case and that’s compared to our Burnside line which is closer to $200 per case. So product mix and channel mix impact average price per case. What we think going forward is, we would anticipate to stay around these levels, because we do see Burnside picking up some volume relative vodka. Of course the Redneck Riviera dramatic growth will certainly continue to see higher percentages of that but on balance we would anticipate the average price per case to sit around these areas that we saw on the first quarter and its going to fluctuated of course depending on exact - mix.

Are you talking on a gross basis?

Yes, on gross sales.

As we look at new customers for Redneck Riviera, I notice that we have [indiscernible] in international, that Albertson is national. Does the acceptance in one space or area carried through at the corporate level and give you extra push and then the same glossary chain other states.

Well This is Grover. Thanks for the question Ian, good morning too. Yes, so I mean that’s definitely the case. I mean we found for example that we got into the Albertson’s in Louisiana that was partially because we got the largest change in Louisiana and Ralphs’ and having gotten into Albertson’s in Louisiana, we began to present to Albertson's national. And I would say that having Robert Manfredonia on board is a huge weapon in our arsenal, because Robert has spent the better part of his carrier dealing with national accounts like Albertson's and he is able to exploit that relationship. So I do think that once we get our foot in the door and one state in the change, we have a chance to get into other state and we have the right people to make those sales.

Okay, thank you. On the Excise Tax basis is the current level of taxes per case going to translate into the same percentage through the rest of the year?

Yes. I mean again it will fluctuate a little bit based on mix, but yes.

Great. Thank you.

[Operator Instructions] At this I would like to turn the floor over to Mr. Blum with any webcast questions.

Yes. Just a couple of our questions here folks. What will the next Sandstrom rebranded product be?

We actually have a wealth of choices, we have several on the pipeline so I think it's a little hard to answer that question. I think that we are working on the rum and we are working on our fruited spirits which is growing [Indiscernible] category or Cherry Bomb, and our Marionberry and it's also some great ideas there. But we are also looking at potential move products ups which would either be a product that Sandstorm thinks there is a space in the market where to be a good product, well alternatively a product is to brand extension. For example, an additional spirit in the Redneck line or an additional spirit in the vodka line that sort of thing. So, in addition to that, as I mentioned, we are also looking at RTGs. So I can't exactly say which is the products that I mentioned is going to emerge from the pipeline first, but we are hoping to cast several this year.

Alright. The next question here is when you think about sort of the continuing to introduce new product versus growing the volumes of your existing products, what should we think about that mix going forward?

Well I certainly think in the very near-term that the growth is going to emanate from our existing products. We are pleased with their progress as we described and that will be the bulk of the growth in the short run. As Grover just mentioned, our goal is to introduce new innovative products or rebrand some of the other legacy packaging, but that will not only take a little time, but even meeting out the market as we have seen with Burnside, it takes some time to start building on that. So, again the heavy focus is on existing products in the market.

Alright, next question here and then we will get back to some of the folks on the live call here. Talk about the go to market status within the canned wine venture?

Yes. Well the canned wine, the category is really taking off, I think the concept that we had back last year of getting into providing canning capability and then using those same capabilities to come out with our own products, I think the strategy is very good. Unfortunately, our execution on it, we have taken longer than we thought to get it dialed in and that’s been a drag on our cash flow, I hope to see that trend reverse this quarter hopefully in a big way. And I think that that will support the operation, pay for the operation and we want to use that as a platform to have our own products. We have a very long list that we are looking out with Sandstrom, but given that we have our own retail stores and we have such a great sales presence here in Oregon we are actually in excellent position to launch products here using that canning facility. We are also looking at RTD and wine canning opportunities with our partner John Rich. So again, I can’t tell you right now and that’s most of it I don’t know which of our products will emerge first, but we will have products and hopefully the operational cost of that facility are going to be picked up by our customers in the co-packing area.

Alright, very good. Jamie, I would like to turn it back over to you for additional questions from the audience here.

And our next question comes from Brian Sognefest from ROTH Capital. Please go ahead with your question.

Hi guys. Just a quick housekeeping question, you ended the quarter with 1.5 million in cash on the balance sheet and then you said you got some additional cash in the early exercising of warrants of about 1.7 million, so does that mean you have around 3.2 million in cash plus the facility you talked about?

Yes, that’s the proper math Brian.

Okay. And then I was wondering if you are willing to give any insight into the Redneck Rivera, obviously that’s not the only business you are doing, but the important one at the moment and I know there are like Walmart and some others that - was that part of the first quarter or is that just going to start hitting in the second quarter?

Yes, we were not in Walmart yet in the first quarter so that’s a lot of - some of these things we are discussing, we are not even impacted in Q1 they will hit in Q2.

Okay. Anything you can talk about in terms of the ramp in California as well with Southern Glazers I think.

Yes, actually I was just communicated with Jarrett about that. I think I have said the way it works with Walmart is you get approved for purchase and then the actual purchases are done by store managers and that’s happening this month. So we will start seeing sales at Walmart in this quarter for sure.

Alright. Thanks guys.

Thanks Brian.

Our next question comes from Jeffrey Gwin from Group G Capital Partners. Please go ahead with your question.

Yes again, great quarter and I just want to follow-up on Brian's question about the rollout, specifically the number of doors that you are opening. I mean the case number are really helpful for Oregon lumpy numbers. But I’m curious if you can give us a sense of the numbers or doors that you are opening, I mean growth on month-on-month or that you have a target for the second quarter something like that.

Well, we haven’t given specifics in the past on point to distribution, but I think we may start try to give a little bit of color on that, but as it relates to Redneck Riviera specifically, I believe we are approaching 1000 point distribution on the product and as the team Jarrett and the rest of the team feels is that they think that starts expanding quite significantly soon as things are just really starting to get rolling. I know that’s not necessarily giving you a precise answer, but remember, it’s also pretty early in this launch, I mean it’s going and going fantastic, but it’s still early.

Great, that’s really helpful. And I know it’s hard to talk about the strategic partnership question, but when you think about that Grover I mean is that to help the Company with production or distribution or both? When you think of bringing someone in, obviously there is potential opportunity there to fund working capital growth and so on and so forth. So what specifically are you trying to accomplish with that?

Well I think really it depends on somewhat on who the partner is, but its partially to assist in distribution. Partially there is a brain trust that you get when you team up with a major player, the smaller players like us are similar to in the high tech industry or the innovators, but there is a huge value that comes from being associated with a major industry player. I would say international marketing is one of the key things, because the really successful brand at someone always seem to go international and [indiscernible] all this players are extraordinarily international. And the second thing I would mention or the third thing I guess it would be is the financial aspect. Obviously we are investing a lot of money right to develop our brands and launch and our feeling is that this is a good investment, we hope to see our operational metrics are continuing to improve, we are starting to get operational leverage and as we add more and more accounts that kind of almost become an annuity so those are all very positive. But I think having additional financial resources is important and I think from a strategic partner we are going to be able to get that at a higher stock price than our current stock price. And abasing that solely on the valuations that I see in the industry. I mean I don't want to give the impression we have talks going currently, we have feelers out. And I think as the quarter progresses and certainly as the third quarter goes on, I think opportunities in some form will materialize, But if you look at the trajectories say of the Redneck brand but you also look at the excellent branding with Sandstorm we have got with Hue-Hue and we have got the Burnside line and we also are going to have the other things in our pipeline. This is unusual in the industry. The larger players have tried to create what you call them, sort of incubators to get brands going and if you look at the list of the [indiscernible] has for example, of their success stories, I mean I didn’t recognize a single one of the brands. So I think we are in a position where we can offer that innovation and then it’s very valuable in the industries. So I think we command a good price for it. So those are my thoughts on the subject and I’m kind of excited about exploring that area. We would not be interested in acquisition I said that previously, but we would be interested in a genuine minority partnership from a major player. And then I’m going to cut offs and going to hear from Steve, but I will just mention one last thing, as the Redneck brand takes off, a lot of people have not focus on this, but we actual have a right of first refusal on that brand. So in the future if that becomes a desirable acquisition and I’m sure it will almost positive will be we are kind of in a position of having that offer to a major player.

Great. That’s really helpful. Good luck in the next quarter here, I’m looking forward to seeing results.

Thanks Jeffrey.

And our next question is a follow-up from Ian Gilson from Zacks Investment Research. Please go ahead with your follow-up.

Yes thanks. Grover you mentioned international, don’t you have a relationship in Canada currently with the Ontario board and you still have it going.

Well it was primarily with or older Burnside line, we are selling into Canada and that's something that we have ongoing conversations about how we can expand that?

Great. Thank you.

And ladies and gentlemen at this point we have reached the end of the today's question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

I just like to thanks all the shareholders on the call for their support. Steven and I are available anytime for to take phone calls or meet. We look forward to having a very, very exciting and remaining 2018 and also into 2019 and we appreciate the confidence that you put in us and we are working hard every day to get some great results. So thank you very much and that concludes our quarterly conference call for Q1.

Ladies and gentlemen that does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.