Good day everyone, and welcome to the Eastside Distilling Second Quarter Fiscal Year 2018 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] And please note that today’s event is being recorded. I’d now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

Thank you, William. Good morning everyone and thank you for joining us to discuss Eastside Distilling’s financial results for the quarter ended June 30, 2018. I’m Robert Blum at Lytham Partners, and I will be your moderator for today's call. Earlier, Eastside issued their second 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; Steve Shum; and Kim Davis. Following the 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 SEC on April 2, 2018. Now I would like to turn the call over to Grover Wickersham, CEO of Eastside Distilling. Grover, please proceed.

Robert, thank you very much, and good morning to everyone on the call. Thank you for joining us today. I'm pleased with the second quarter results which showed record revenues for the second quarter. I'm excited about the opportunities that is East has untapped for the rest of 2018. The quarter highlights are the rapidly expanding geographical footprint of Redneck Riviera Whiskey to an even more than expected number of 28 states. The growth of our new wine and RTD canning operations, the continuing re-launch of our Burnside family of whiskeys our financing activities to strengthen our balance sheet and put us on a very sound footing as we continued into Q3, and finally, the overall sales performance of up 90% and shipments of branded products up 70%. Let's now take a deep drive into Q2 performance and our management's business strategy on a unit by unit basis starting with Redneck which because of its importance I will intentionally emphasize. Starting with the Redneck Riviera update, I’d point out that in Q1 when we announced our plans for the first year of Redneck Riviera, we were telling shareholders it was rolled out in five goal states then expanded to 11 and we would pursue other markets later in the year. We quickly blew pass those targets as we met unexpected demand in new areas. Redneck Riviera whiskey is now distributed in 28 states and counties with half of these or 14 states added since the end of the first quarter. Five of these states are so new that our first stocking shipments have not even shifted though they are pending and will go out shortly. Robert Manfredonia, our new VP of National Accounts got us into an amazing lineup of chain store accounts like Safeway, Albertsons, ABC Liquor and Total…

Thanks Grover. Growth sales in the second quarter totaled approximately 1.68 million as compared to 883,000 in the prior year, an increase of approximately 90%. Net sales which exclude the Excise Taxes and certain customer promotion activities increased to a 152% to the 1.52 million versus 605,000 in the year ago period. During the second quarter, we sold 18,401 cases overall this consisted of 7,445 cases of our branded products and 10,957 cases of private label, most of which was from newer wine canning business. This reflects an increase of 70% over the prior year in our branded products and a 273% case growth overall. Similar to last quarter, the higher branded product case sales were driven largely by the newly launched Redneck Riviera product and an increase in wholesale traction within the Pacific Northwest on our vodka products and our newly re-launch Burnside brand. That was partially offset by slightly lower retail case sales during the period due to our decision to close an underperforming retail location. The private label business benefited in the second quarter from a ramp up in the number of canning projects, in addition similar to the first quarter, we also conducted another opportunistic sale of surplus bulk spirits in the period for a profit. Overall, wholesale revenues improved by approximately 68% to 830,000 compared to 495,000 last year. Clearly, the new Redneck Riviera product contributed to this improvement, but we also saw contributions from other key products Vodka and Burnside in our Big Bottom line. Looking ahead to the rest of the year we believe the Redneck Riviera brand will continue to benefit from the investments being made, especially considering the rapidly expanding geographic footprint and the marketing we are doing to pull product off the shelf. To this point, we are already experiencing…

Thank you, Steve. We are making a great progress in developing Eastside Distilling into the brand factory concept that we envisioned when I became CEO at the end of 2016. Redneck Riviera whiskey is off to a blistering pace in Q3 2018 and when you look at other very successful product launches recently, such as Casamigos and Patron. They were no near where we are out to sell few short months. We are highly appreciative of the trust for shareholders place in us and we are dedicated to maximizing in the value of their investment in the future. With that, I’d like to open up the mic to Q&A session and look forward to -- Steve and I look forward to your questions. Thank you.

And we'll now begin the question-and-answer session. [Operator Instructions] And our first questioner today will be Ian Gilson with Zacks Investment Research. Please go ahead with your question.

As we look at the gross margin for prior years, the second half of the year as always surely significant reduction as compared to the first half of the year. Are we looking for the same sort of dynamics in 2018? Or can we hold the gross margin close to the first half level?

Steve, you are a margin expert, do you want to answer Ian's question?

Definitely. Ian, I definitely think we won't see as dramatic of a change as we do point out. We certainly do have some plans for additional customer incentive programs going into the seasonal period in the late third quarter and fourth quarter. So there will be some fluctuations, but we generally wouldn’t anticipate a kind of change that we saw in the previous two years.

Excise taxes were even lower than I had anticipated. Now excise taxes plus promo incentives. What you reported in the second quarter relative to the spread going forward? Or was there something in there that was…

Yes, we think so. Part of that dynamic is also a function of the mix, further shifting more towards wholesale business versus retail. Within wholesale business, we only pay the federal excise tax. When we have our retail operations, we are paying both federal excise tax as well as the Oregon liquor control excise tax. But when we sell on a wholesale basis, we don't incur the state tax. So again, part of that is our mix issue. And we certainly anticipate, the retail is not an area that we see high growth. We are certainly implementing some programs to improve that, but the higher growth part of the business will really come from wholesales so we would expect that mix to further shift more towards wholesale.

You gave a breakdown of case sales and I don’t have a number for the first quarter. Do you have that?

The numbers between the branded products and the private label breakdown, is that we are referring so that we…

Yes.

We did provide that in the first quarter, it's in the press release. I can go back and pull that up, but it is certainly listed in the first quarter release.

I’ll check that myself. In the second quarter, how many cases were sold outside of Oregon?

Well, the outside of Oregon business is purely wholesale and certainly some of our private label wine canning, customers are also outside of Oregon. So it's really a function of what aspect of business you are looking at. If we look at the branded products, approximately -- and the wholesale side of it, approximately 40% of the business in our wholesale branded products came from outside of Oregon, which was largely dominated by the Redneck Riviera product.

[Operator Instructions] And our next questioner will be Harold Weber with Aegis Capital. Please go ahead.

My question is what type of timeframe or [indiscernible] do you have as far as moving products towards the East Coast?

We don’t have a specific timeframe in mind. I will say that one of our lead distributors is in Connecticut, so to the extent that we are doing expansion at our Connecticut probably top of the list, but I think I’d really leave that to Jarrett but it's probably going to be fourth quarter at the earliest before we do anything major on the East Coast because as I mentioned on the earlier part of the call, we got fairly forehead of our plan already, and there's a certain amount of consolidation and digestion that needs to be done.

But let's say mentally, I’m sure you are looking at this. How long do you think it will take so you are able to ramp up out but enough to start selling shipping stuff this way?

Well, I mean we have demand there right now Harold.

I’m sure, I’m saying how, but it's going to take you while to ramp up I guess in [indiscernible] but they'll get there.

Well, actually we have the production and we have the ability to go in there right now. It's more of a question of not getting ahead of our sales team. And our hiring, we are still feeling -- we have done a tremendous around hiring. As Steve and I both said, our marketing expense and on the prior earnings call I mentioned that actually the hiring that we are doing that specifically Redneck Riviera marketing team is actually part of this 50% that we recovered. So, that's a huge incentive to us to go forward quickly with the rollout of our sales team. But we don’t have a regional coverage right now on the East Coast on the sales team. So what we are going to be doing is filling in more in Florida more in Texas and one in the states that we recently announced, plus we will be announcing additional states that are within sort of Midwest, west coast footprint. So really don't count on us to anything really big on the East Coast until fourth quarter at the earliest, but we think we are going to have a really strong growth in that quarter without needing to have a big expansion on the East Coast.

But you are looking forward to planning that direction, yes.

Well, we know you and the other guys today just are going to be pretty big customers on your own. So, yes, we have got a lot of really -- we have got our major shareholders out there too. So, I mean we have and also John Rich is constantly getting national exposure on the East Coast and in the Northeast. So in fact a lot of the programs he interviewed on are based out there and have a lot of listeners out there. So, it's just a matter of time and I will keep you posted.

I just think it would be worthy to try you know you have a lot of momentum going with that idea, try and I don’t know tease them a little bit, but a little limited something out there, something coming soon or something I don’t know.

I’ll take that out with the rest of the team and we will see, if we can add some color in some of the upcoming press releases.

[Operator Instructions] And our next questioner will be Ross Taylor with ARS Investment Partners. Please go ahead.

Can you comment on two areas? One is how rapidly do you turn inventory into revenues? And how that should we expect that of inventory going forward as this brand rolls out particularly as Redneck Rivera will roll out, but also as Burnside picks up? And then second would be what percentage of the U.S. market do you currently believe are covered by Redneck Riviera with the agreement you have in place?

Steve, I don’t know if you want to take the inventory question. I’ll say that really as we have mentioned we maintain a rather large inventory aging spirit products. So for example, our Redneck Riviera is a minimum of three years and how some three-year in it. So, if you can buy that new fill and the current price we get is right around $450 a barrel versus buying two year old whiskey from MGP or other people and $900 a barrel or $850. You can see by buying is new filler and lighting age we have a major cost advantage, but that's really work in progress and inventory that is you wouldn’t expect a quick turn on it because it hasn't aged. Steve, do you want to -- can you answer the question?

Yes, I think you just highlighting that. We certainly are carrying more inventory on our books than we would envision necessarily needing for this year, for the balance of this year, but that’s on purpose as growers pointing out whatever being a strategic and opportunistic and our purchasing looking farther out especially since we had the working capital to do so because that will benefit us downstream and it ensures our supply and it also will allow us to improve margins as we look and get deeper into next year.

Which would make sense obviously and we have chatted before. This is a business so you have to invest upfront that’s why there are so few brand liquid companies which are public. The second question about the reach of into the U.S. market that you currently believe you have with Redneck Riviera. And are there specific areas you think that you will reach into before the end of the year that will greatly expand them?

Well, we are in 28 states and we have several states pending. I would think that we -- in terms of our coverage geographically we are a very strong and have very broad coverage in the Midwest and the West Coast in the South. And we are in fact a number of the states that we have got that we have recently announced like we announced Arizona and Nevada we are filling in states that are really within our existing footprint. I would say I’m hopeful Arkansas is going to come in fairly quickly, that is again its sort of a filling state. As far as -- I think I answered here all the day. This is a question regarding where we plan to go on the Northeast. And our base is really actually kind of the main untapped territory I mean we have a few states that I would call southern like Virginia that control states sometimes it takes a while to get into and we expect that we will get into them. But in terms of our reach I’d say we are going to be pretty much every major geographical area in the states with the exception of the Northeast been an area that we're going to take our timeline and be strategic about.

And our next questioner here will be Ian Gilson with Zacks Investment Research. Please go ahead.

How many gallons in a barrel when we're talking about spirits?

Well, if you want to tell me how old the barrel is, it can be when it's initially filled and I’m talking here standard barrel I mean there are big one for coming up with some of our extremely high end spirits. We occasionally will use smaller barrels like 20 or 30 gallons. But typical U.S. barrel is 53 gallons, but the vaporization on it approximately 10% a year. So, I’d say eight year barrel might be as little as 32 gallons of spirit. Those aren’t proof gallons, proof gallons are hundred -- based on hundred proof. So, if you have a barrel with like I just mentioned 32 gallons then the proof gallons would actually be a bit greater since -- I would estimate in eight year it would probably be around 118 to 120 proofs. So, it would dilute down by about 20%. So, it's all -- to other question as aging and like so many things in life, but it really depends exactly with the age of the specific spirit is. This is why our 10-year Bourbon Buckman that we are coming out with this kind of need to be at a fairly high price because of the vaporization and also the just generally the storage costs for holding a barrel for 10 years, but we might try to figure a way to get you a deal on that.

I was making sure selling price per case dropped in the second quarter, a new level or how do you expect…

Well, I think our price per case generally is going to be trending up since we have whiskey taking the place of vodka, but again that's really a question for Steve. Do you want to answer that, Steve?

Well, Ian again, I think you have to separate private label case numbers and isolate the branded products relative to branded revenue both wholesale and retail to get sort of an accurate average case, which you won't see as much fluctuation. And we have talked about this before that the way the private label business is adding in this canning -- the canning capabilities, the case volumes versus revenue are going to bounce around quite a bit over there. So, I think you need look at it separate and private label from the branded products.

And our next questioner today will be Ross Taylor with ARS Investment Partners. Please go ahead.

Yes, I wanted to come back and ask your thoughts on the U.S. single malt market. You have mentioned the fact looks like you have -- you have one out and its young, but it's been well recognized. You're talking about bring something out in Burnside. This is an area that seems to be for tremendous upside opportunity. There simply aren’t a lot them in the U.S. Can you talk about it -- talk about the dynamic side, but why you think the opportunities are open?

Yes, this is something that we have been messaging for quite awhile. We feel that American single malt is kind of the next big thing at least in whiskey. And are you seeing what happened with Japanese whiskey or Japanese single malt? And we think there is no reason why that couldn’t be rival even displace for American single malt. And the quality has been fantastic of our product and there's some other great products out there. So, we think if you look at Bourbon which is one of -- Bourbon and whiskey, you know, Bourbon is one of our real signature products and what we do with that with Oregon Oak I think it's a really unique spirit and we see a lot of future in that. But if you think of Bourbon it's really a corn-based product, where these corn grown in places like Indiana, the South Kentucky. But when you think of single malt that's grown -- barley has grown in the Pacific Northwest and the best barley we think in the world, but certainly in the United States we think comes out of the Pacific Northwest. So in terms of street crowd for the Oregon, Washington geographical region, we have that with that grain. So, the other aspect of single malt is to qualify as single malt. Now, we could come out with the sourced malt, we're now having to do with single malt. But the single malt has to actually be produced at single distillery and it has to be -- and that's the whole point of single it comes from just one distillery, but that’s something you pretty much have to do yourself as a distiller. And so my hope is that with the still that we pay for with our uplifting in August last year that’s going to be able to increase our production. There is a two year timeframe on this product. As you can see, we are winning gold medals. So far we won a gold medal at least everywhere we have entered the single malt, we think it's great. That’s a two year product. So down the road, that’s a place I would like to see us put substantial investment. And like I said, I really think it's a next big thing. I also think we are in an excellent position to create a great reputation for single malt. That incidentally and I said this before is why we purchased Big Bottom Distilling because they consistently are either tied for first place or first place of Oregon single malts and San Francisco, LA and all the local contests winner -- anyway sorry -- sorry for taking so much time on that answer. But you hit on something that is I think one of the main reasons why we are excited about the future.

And also I’d say -- and don’t worry about the time you took from my perspective because it also seems this is an area where we've seen some consolidation. You've seen some Washington state producers them bought out rather a significant prices on the payroll of production basis.

Well, yes, I mean I’m not going to kicked out to Steve's as far as price per barrel, but I will say that, that's a very, very sophisticated point because whereas a number of distilleries have been brought out obviously Casamigos and some of the others and High West, when they get to a very large case volume or large for micro distillery north 30,000 cases or 100,000 cases plus for Casamigos. There have been two major buyouts by Purno in one case and Moet Hennessy in the other case of single malt distilleries in Washington State. One that production was a very low level I mean smaller than us, I mean smaller than us overall, not just -- I’m not referring to our single malt production. So why did they do that? Obviously, those are major mega players in the spirits industry. I think the only answer is, of course, because they think the American single malts couldn’t be really big.

I would agree, so I think it’s a very interesting initiative you guys have that makes you very different and unique from not just other public companies but other private ones as well.

Thanks and I appreciate you are saying that. I think we have some advantages and some barriers to entry there that we want to take advantage of.

And this will conclude our question-and-answer session. I’d like to turn the conference back over to Grover Wickersham for any closing remarks.

Thanks to everyone for joining the conference today. I appreciate your support. As always, Steve and I are available to any of our shareholders, if they care to make further inquiries about our strategy or how things are going. So don't hesitate to be in touch if you need further color on Q2 in a sense of where we are in Q3. So with that, I'll conclude the call and thanks everyone for joining us.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.