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

Thank you, Carrie. Good morning everyone, and thank you for joining us today to discuss Eastside Distilling's financial results for the quarter and year-end December 31, 2018. I'm Robert Blum at Lytham Partners. I will be your moderator for today's call. Joining us on today's call to discuss these results are Grover Wickersham, CEO of Eastside Distilling; Robert Manfredonia, President; and Steve Shum, Chief Financial Officer. Following their remarks, we will open the call to your questions. Before we 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 to the 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 cause 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 in obtaining new customers, success in product development, ability to execute its business model and strategic plans, success in integrating acquired entities and assets, ability to obtain capital, ability to continue as a growing concern, 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 pertaining to the company's annual report on Form-10K files with the Securities and Exchange Commission, for the year ended December 31, 2017. Now, I'd like to turn the call over to Grover Wickersham, CEO of Eastside Distilling. Grover, please proceed.

Good morning, Robert, and welcome everyone on the call. I'm Grover Wickersham, and I'm the CEO of Eastside Distilling. And it's my pleasure to report on our 2018 results, and also give some color as to what we see happening in 2019. Before I really officially launch in the call, I wanted to thank the loyal shareholders who participated in our raise [ph] at the end of December of 2018. This was an amazing addition to our war chest, and it has enabled us to put in place the Craft acquisition, and we have lots of plans for 2019. And I wanted just to say that we recognize the responsibility that these shareholders have placed in us, and we are working hard not to disappoint. I'm pleased with 2018, and I'm looking forward to even better 2019. For those who are new to Eastside, our business is working largely per the same plan that we drew up a couple of years ago when I took over as CEO. It's a three-pronged plan. The first part is to create a cash cow in Oregon by way of our Oregon sales operation and also by way of our co-packing operation. And if you look at everything that we're doing it all falls within this strategy in one way or another. The strategy in Oregon is to generate cash flow and use Oregon as a proving ground for products that we could take national. And it's also to -- and I would say that's exactly what we're doing with our new CBD mixer-beverage product line which we're very excited about. Co-packing is also a part of the strategy, and the first prong. And we had a transfer -- in know the word transformational is used a lot, but a truly transformational acquisition of…

Yes, thanks, Grover, and thank you for the kind words and good morning everyone. Let's get right to it with the 2018 Redneck Riviera total shipments. The total shipments for 2018 are 14,684, nine leader cases. The regional percentage breakdown is as follows; the southeast region 41% of the total volume contribution, southwest region 28%, the Midwest region 16% and the remaining regions combined for a 15% share. Quarter four represented 44% of the total 2018 volume and the end the top 10 states represented 68% of the overall volume. 2018 package mix Redneck Riviera 750 is accounted for 72% of the overall volume. The Redneck Riviera 750 value-added pack contributed 20% of the overall volume 375, 5% and 50 milliliters 2%. A few notes on the value-added pack, the package was extremely well received from wholesalers and retailers and that's primary tactical purpose was availability, visibility, and trial in the very key fourth quarter where the display space is dominated by mature top 15 brand. The package was distributed in 18 states and I also want to commend John Rich as always for his substantial impact was supporting those value-added packs that included social media messaging, point of purchase TV and radio interviews and bottle signings and much, much more. Moving forward in 2019, Redneck -- the Redneck package mix will change slightly with a new line and package extension that includes the following. Number one Granny Rich reserve, a premium price blended whiskey released in mid-February. Number two, Redneck Riviera 175s are shipping right now. The larger package will accommodate a growing size fire consumer in the market. And number three, we are scheduled to release a Ready-to-Drink brand an RTD, which will be a 12 ounce for a pack can and that is projected to be released…

Thanks, Robert. For 2018 as Grover mentioned previously growth sales total approximately $7.2 million for the year compared to $3.8 million in 2017. During the fourth quarter growth sales total $2.4 million versus $1.2 million in the fourth quarter of 2017. Net sales which exclude the excise taxes and customer incentives increased a 135% to $6.1 million versus $2.6 million in the prior year. And fourth quarter net sales increased a 143% over the prior year to $1.9 million. For the year, we sold 58,746 cases overall, this consisted of 37,262 cases of our branded products and 21,484 cases of private label. The annual case volume reflects an increase of 90% over the prior year and our branded products and a 450% growth in private label. In the fourth quarter, branded products grew a 135% to 13,949 cases, while private label cases increased 826% of 4,816 compared to the fourth quarter of 2017. As a side note moving forward, we intend to move to refer to this private label.

Pardon to the interruption, while we seek to reconnect the speaker's line. Thank you.

Are you still there?

We are here now. Yes.

Right. So, overall, we're pleased to see our 2018 growth rate increase nicely over what we experience in 2017. This was a direct result of our key initiatives already underway. To break the growth down a little more, we look at our branded products business in two main sales channels, wholesale, and retail special events. As many of you know, we only conduct the retail special event activities here in Oregon. Wholesale revenue grew by approximately 124% for the year and 227% in the fourth quarter. That success in wholesale was driven largely by our successful first year launch of the Redneck Riviera whiskey product, as well as continued strong increases in wholesale traction within the Pacific Northwest, especially with our vodka and Burnside brands. At $4.35 million in growth sales, the wholesale portion represented approximately 60% of our overall business in 2018. Revenues derived from our retail and special events operations were approximately $1.2 million in 2018, which represented a 20% decrease from a year ago and represented just under 17% of the overall business. As we discussed on prior calls, we made some decisions to reduce certain unprofitable event activities, along with closing one of our underperforming retail locations during the year. That said, we've just recently opened a new retail location located in Northwest Portland. Overall the average per case sale price for the branded products for the year was about a $149 per case and a $152 in the fourth quarter. The private label or co-packing business benefited from an increase in canyon projects as well as from the sale of both spirits throughout the year reaching $1.6 million or an increase of just over 400% during the year versus 2017. Gross profit for the year total $2.3 million compared to 977,000 in the prior year.…

Thank you very much, Steve. And as Steve has said during 2018, especially in Q3 and Q4, we made a strategic change in our approach to invest very, very heavily for the faster-than-expected rollout of Redneck Riviera, but I will like to emphasize a point that Steve made is that if and when there's a sale of the brand, 50% of those expenses now will also include even the sales team, a salary expenses of the Redneck force, 50% of those are reimbursable. Okay, so I'm just going to mention first Craft Canning and Bottling. Craft's operations and mobile canning and bottling give the side a major participation in co-packing in three states: Oregon, Washington, and Colorado. We would have the ability to go into California if we want. It gives -- the acquisition also gives Craft access to -- for the first time to a fixed facility mainly our very, very well-equipped operations in Milwaukee. And Craft has been running at full capacity and also doesn't have all the tools that we have available in Milwaukee. So, they are able to leverage the overlapping capabilities of both. And early indications are that they have been able to take our mother load assets and generate more revenue off those assets in Q1 than we were able to produce in the entire 2018. And we believe that's going to be accelerating. So, Craft Canning is not a static business. It's a very, very much a high growth business. And we are in the sweet spot of the market with the particular packages and the services we are offering. Now I would like to talk a little bit about RTDs. One of the key growth areas we have talked about for the last 12 months has been the RTD space or ready-to-drink…

All right. Sarah, can you provide the instructions. Thanks.

Sure. We will now begin the question-and-answer session. [Operator Instructions] The first question will come from David Bain of ROTH Capital.

Great, thank you. Congratulations on the quarter, and thanks for all the detail. One of the metrics -- result metrics that edged our assumptions were the non-Redneck or more Oregon-targeted portfolio that, Grover, you just touched on at the end there, but can you give us a sense as to what's driving that growth within the portfolio, some trends there? And then the over strategy with what you've built out for Redneck in terms of distribution and when we can see proliferation into that chain of any sort of significance, how that cadence could look like or what the strategy is there?

Well, I'll just -- I know Steve may want to add a little to this, but on your question about what we're doing with Burnside and the other -- we have several other brands besides Burnside and Oregon, is that last year we exited with 60% growth. We like to maintain growth in that neighborhood. And what we're doing to accelerate the growth, which I think is your question, is we're continuing with our branding activities, and we're also really for the first time devoting significantly to sales and marketing. So, as far as --

And is it vodka that's -- I'm just trying to get a sense within the portfolio…

Well, I mean, vodka is kind of like the meat and potatoes. And we're going to be re-branding it in May or June, and we should get an uplift out of that. We're also continuing to do brand extensions, so -- and I was really, really pleased to see that February, which is normally a slow month of the year, we actually did the same sales numbers -- actually beat the sales numbers for December for vodka, which is, you know, I mean that's an awfully high bar. So the momentum -- if anything the momentum on the vodka is increasing, but our focus on the marketing has been the brow spirits. We're really focusing on taking advantage of the fact that we want to Double Gold on rye. We've got a big campaign going on the rye whisky right now, the rye Burnside. And we're promoting pretty heavily the family of the Burnside products.

Okay, great. And Robert, thanks so much for the detail on the Redneck. I'm going to ask you for one more detailed point if I could. If you could bifurcate the 8,000 points of distribution, I know that you did lay out on-premise, but I'm just wondering if you could them into categories, broad-based percentage of big box, grocery, that type of thing, and then discuss where you see most of the distribution growth coming from for the remainder of the year?

Okay, David, thanks for the question too. So, as I laid out, the on-premise business is a very small piece of the overall business. So, when you look at it, it's roughly, and I'm not looking at the exact number, about 15% of the total overall distribution. So when you look at the off-premise and you break it down into corporate or independent, the corporate side of the business, David, will do, from a distribution standpoint, about 30% of the overall distribution. The volume contribution though will be about 50% to 55% of the overall volume by the end of the year. Just the rate of sale movement of these type of stores and the exposure lends itself to just an accelerated rate of sale versus independent mom and pop sort of independent stores. So, you're going to start seeing that, as I mentioned, really we're setting stores in California, which we're adding 965 points of distribution. The lion's share of those, outside of Walmart, are being reset right now, and those will conclude by the end of April. As I mentioned, Walmart will start in May, and they will conclude on May 27th, Memorial Day. Does that answer your question or…

Yes, I know, that's very helpful, yes. And then just last one, if I could. Grover, you'd mentioned kind of the prong two where you laid out the strategy and had M&A I think as the second piece there. Obviously the balance sheet, never been more healthy, can you give us your view on M&A strategies from here, have ties of what you're looking at changed? Are you looking more towards a new brand, or how are you thinking about M&A right now?

Well, honestly, David, I mean we're kind of taking the smorgasbord approach a little bit because we're seeing a lot of different things being offered to us, and we're trying to be picky. If we can do something that is kind of a simple bolt-on at where we can get some EBITDA and basically have something that just kind of bolts right on to our existing structure or sales force, either in Oregon or potentially nationally. The national ones are kind of a bigger deal, obviously. But those kind of bolt-ons are extremely attractive. And we're seeing opportunities. Probably could've done five or six acquisitions in the last two weeks if we had jumped at everything. But we're trying to be very astute dealmakers, and even if it's something we want, we want to make sure that we structure the deal correctly. I would say that there are some things that we're looking at, like for example, either internationally or in the online area that we're considering that I think would be -- that would be something that would -- we'd have to craft that into our existing strategy and see how that could. But anything we do, we want it to be synergistic with the platform that we have right now. So, for example, if we could find a marketing organization that we could use to market direct-to-consumer or help us market CBD, I mean we would look at things like that. So, anyway, I don't know if that -- did you want to say anything, Steve, on that or is that…

No, I think that's good.

Okay. Yes, that's kind of the way we're looking at. We're being -- if you look at the acquisitions we've done they've been thought out.

Right, Great. No, thank you, guys.

Thank you.

The next question is from Geoffrey Gwin of Quad Group.

Yes. Thanks guys, thanks for taking the call -- or the question. First of all, I mean, it's amazing transformation we've seen in the past year. My question, the first thing I want to ask is about this Craft acquisition. You gave us the pro forma number for the year, but when we look at it for the fourth quarter and the growth rate, Grover, that you're kind of suggesting here, is that we should see this really accelerate into the first quarter. And I want to a sense, is the run rate $4 million or $5 million in revenue for the entire business for the first quarter?

Hey, Geoff. We're probably not prepared to give a projection. But I guess I would also say, Craft's business historically has been a little bit seasonal, where their really strong periods are the second quarter, third quarter, and into the very early part of the fourth quarter. So they kind of have their bubble period, so to speak, in Q2 and Q3. So we're pretty pleased with what they're doing for us on their own rye plus some of the added business they've been able to help us generate in our own fixed facility during Q1. So, we're certainly pleased with how that's shaping up or has shaped actually since we're almost done with Q1. But we definitely, as Grover mentioned, that'll really also be much more impactful as we go into Q2 and Q3. Also, I would note that last year Craft pretty much ran at nearly full capacity for the amount of lines that they had in their operation. And even as we were purchasing them, they were planning to add some additional capacity. Of course, we supported that, and we're actually further adding to that. So they're adding capacity this year throughout the year. They're going to be adding roughly 60% additional capacity to their operations which will be coming online over -- throughout the year, starting with some of it starting to hit right now coming online. And that's a reflection really of the demand that's out there and what we're seeing from customer interest. So, like I said, we're pretty excited. I'm not answering your question specifically about Q1, but needless to day Craft and the whole co-packaging side of our business is definitely going to be a growth area in Q1 and beyond.

Okay, great.

Sorry to tag team here, but Steve did mention the utilization of our existing equipment. That actually -- the impact you're going to see in Q1, I think, our shareholders will say -- hey, they'll like this, they'll like what we did here with Craft.

Yes.

Okay. All right, so the follow-up on David's question to Robert. Robert, you were talking about the mandated distribution. And could you just clarify to us the accounts -- the distribution points that we're adding now in mass. As I understand it, those are much higher velocity distribution points. I just wanted you to clarify that. And the second thing is when we talk about open-for-order in, let's say for example, like a Walmart versus mandated, as in mandated as in the sense that you're in the planogram, how much does that change the velocity as well and the sales as we look at these -- the growth of points of distribution?

Yes, it's a great question, Geoff. So, let me take the second question first. So, when you look at Walmart, and I'll give you an example [indiscernible], their initial order is two full cases for every single store, 856 stores. Two cases per store is the opening order. So the difference between a mandated and an authorization, I'll just clarify that once more. That means that there is no store autonomy on what they want to have on the shelf, it is mandated, pushed down from the top, and it is programmed out from Bentonville, Arkansas. So the beauty is that we don't have to worry about store by store or sort of the slow methodical way of trying to go store by store and trying to get it on the shelf. We are locked and loaded, and ready to go. And now I program it out with the buyer and then we have consistency across the whole chain nationwide. So, the performance, the case volume that comes with it is exponential versus what we were dealing with last year, just to get our foot in the door. So the nice thing is that there's been a very methodical sort of progression from authorization, proof of concept, mandated positions, programming all locked up through the remainder of 2019.

Okay.

To your first question, I believe, is really what we focused on is the grocery sector. Most brands take this approach of phase 1 as independent liquor stores; phase 2 is usually your corporate liquor stores, the Total Wine or an ABC, or BevMo! in the far west. We kind of went past them and went straight to grocery, which is the largest segment of stores with the highest rate of sale. And we focused on them with our relationships and with the pressure that John Richards creating top-down from everything that he does with the brand. So, we didn't need transactional data validation to get all the way to the grocery sector. We went in and we used the category. We used the brand identity, we used banner, we used sort of above-the-line marketing that John provides. And then we used what we believe we have, which is execution discipline on the bottom end of it, and that was enough for everyone to put it into every single store. So, the results will start coming from all of that distribution, Geoff, probably by June-July of 2019.

Okay, great. And then lastly, Grover, I saw the rebranding of the Barrel Hitch product. I mean when you go back and look at what Sandstrom has done with Burnside, and we see that in the numbers that you mentioned, Hue-Hue, Barrel Hitch. I mean these rebranded products are above and beyond what they used to be as far as their shelf presence. And you mentioned that they're going to be -- we've been patiently waiting for these to be rolled out in this massive distribution that Robert has built. So, you talked about rolling the stuff out -- rolling Burnside out into Northern California from L.A. When do we get to see things like Barrel Hitch and Hue-Hue? When can I buy Hue-Hue on the East Coast? When can we see some of these other Sandstorm rebranded products on a more national scale?

Well, you've touched on a couple of things there. One is, with the Burnside rollout, well, Gerry Ruvo is a pretty famous guy in the business is that -- now his formula really is that the really premium high-margin brands tend to go through three stages of being cult, and then cool, and then they become consumer, and then they, in the process of doing that, they get a cache or become iconic. So kind of our -- we're not trying to spill out Burnside at BevMo! and everything else. We, our strategy has been to continue to rack up the medals, like we've been doing, and rack up the reputation. Even kind of make people aware of it nationally, even though it's kind of like Coors, you couldn't get it everywhere for a long time. And then Northern California is a logical extension of the Oregon market. Oregon is $4 million, Northern California more like $15 million. And our products resonate down there, so we're going to, and we're hiring -- extending our Oregon sales force essentially into Oregon with that. So, regarding Burnside, that's our strategy. Regarding Hue-Hue, Robert's kind of champing at the bit to do more than that, and I think he's got some targeted markets, products like that kind of product did really well in Southern Florida, where he's got some contacts. So, I think you'll be seeing that. I know you love the product; we're going to find a way to get it to New York. So, we will do that. As far as, I've got everybody -- all the sales guys, they're sort of champing at the bit to take our products and go out and start pushing them through the national sales force, but my approach is kind of like the bunker…

Right.

So, anyway, so we think we can be very effective with our 375. I'd like to go into more detail, but it wouldn't be appropriate for this call. But that we've got the 375, we've got the Granny Rich, we've got the 175, we've got the RTDs, so the sales force is going to be really focused on that and give me a call after this call and I'll give you some color on that. Thanks.

Okay. Let me slide in one last question, and then I'll pass it on. The RTD that you're talking about launching for Redneck, when we think about that product, Steve, what is the margin difference between something like that, and the whiskey product?

Well, we -- all of our focus in any new products is to have at or better margins than what we've had on, existing products. So I guess I would say that, we will always hold true when we're in, as we're introducing some of these RTDs. So, in general, we do see better margins on some of these RTDs in terms of cost and our pricing and then so forth. So we would expect the same to apply, we do expect the same to apply to the Redneck Riviera planned RTD.

Okay, great, all right. Good luck, guys.

Thank you, Geoff.

The next question comes from Ian Gilson of Zacks Investment Research.

Yes, good morning, gentlemen, and Melissa is there. I got three questions. I'll give you the three all at the same time. Like the case is down significant on the year-to-year and a sequential quarter basis. Why is that? The tax per gallon is up versus black borders. And that's only the quarters this year obviously, because the tax will change and third as the CBD extracts, you're using, is that an isolate? Or is that the oil? Thank you.

Ian, good to hear your voice, we will just on that last question, we're currently using for the mixer product we're using isolate. Yes, on average per case rate and that is purely a function of mix. The growth has been heavy in the Redneck Riviera whiskey product last year as well as our vodka product, which we piloted a number of times. Both of those have lower average per case rates than some of our other products particularly like the Burnside product and others. So that all said, I do think that, we will see that average per case rate starts to sort of stabilize around here, it'll probably bounce around a little bit, but I wouldn't anticipate seeing rapid changes like that for 2019. Yes, so you are correct that the federal excise tax is lower and our average and we are paying much lower federal excise taxes, or did in 2018. That will -- a lot of that was essentially offset by higher customer incentive programs that we've implemented to support, the growth in some of the key products like Redneck Riviera. So if you're looking at line item of excise tax and customer incentive programs, like said the federal rate has gone down, our Oregon rate has stayed the same. And so, it'll be higher in the fourth quarter because of our heavier activities in our retail operations where we pay the Oregon excise tax. And then again, that's all the Federal rate decline is being offset by higher customer incentive programs.

Great, thank you very much.

Thank you. Thanks Ian.

The next question will come from Brian [indiscernible] of ROTH Capital Partners.

Hey guys, just a quick question on, can you give an update on your efforts at Costco and rolling Redneck out there? Thanks.

Yes, Brian, it's Robert here. I am -- so Brian, I just got an update from Costco. And we have seven, seven buildings as they call it. We have four in South Carolina and we have three in Florida. And the overall performance from their vantage point is the transactional delivery has been good across the board. And in fact, it's been exceptional in selected buildings. Last week, I received data on just a one week run, and in East Jacksonville, one of our buildings in Florida, Redneck outpaced Jamison and Bulleit Rye too many well-developed mature brands and Redneck outsold them. The approach and the ambition of Redneck within Costco is to be a permanent placement nationwide. And just a very quick backdrop of that, they usually carry roughly 15 items, 11 are permanence for our rotational, and then they have a few other test items. So what we're going to probably do is run with this through the end of the trimester. And then, we're going to come back in the fourth quarter with a more nationwide view of it with Redneck and then we're going to march into 2020 as we further develop the brand in the grocery sector. So we're trying to take sort of parallel paths between the club environment, which is Costco, led by Costco, we're going to start reaching out for Sam's Club and then BJs in the east as we build the grocery sector come back in the fourth quarter, and then drive it hard through that class of trade in 2020.

All right, very good. Thanks, guys.

You're welcome.

The next question comes from Harold Weber of Aegis Capital.

Good morning, guys. How you doing? It's nice to see, nice number publicly. I have a question for you in regards to capacity based on what you added now and what's currently existing, how much more can we put out with the current capacity capability that we have, double what we’re selling until now, triple that we’re selling until now, how much can we increase actual business with the facilities that we have online presently?

Yes, with the -- thanks Harold, with the addition of Craft, which really gave us a tremendous amount of capabilities. You said actually, we did an analysis and this is before bringing on some additional equipment that is planned this year. So before that, we assess that we could do around 500,000 cases of bottled product per year, and over just over $2.6 million canned cases per year between the combined facilities. Now, of course, we're using a lot of capacity in our co-packing business for outside customers. But that is basically our current capacity. And again, we're going to be bringing on additional capacity vis-à-vis through Craft throughout this year.

Yes, I would just say, Steve but, that's correct. However, that does not include the canning capacity of Craft, outside of the Milwaukee facility in a -- I'm led to believe they have about 25 million can capacity outside with the mobile caning units. I was included, I was actually including that because I was giving cases, you're giving individual…

Oh.

Yes. I believe that it's pretty significant is the bottom line and relative, what you're seeing on our branded side of our production. We have over seven, eight times capacity versus what we sell in our branded product line. But again, we're using that lot of that capacity for the co-packing side. But, if we the way we look at it is that if we see further surges in our branded product side of the business, we will use our own facilities, whether it's the fixed or the Craft to make sure that we support that kind of production need.

Okay, design, and how does that apply in regard to the regular spirits? The one let's say, you've just started a new bottle the 1.75 I think it was, right -- production in that?

The 1.75 which is the new bottle -- yes.

Yes. So I mean, base.

Yes. I mean, we have -- yes, we have plenty of capacity, we have plenty of production capacity, we have tremendous amount of inventory and bulk spirits and…

Right.

And the other supplies necessary. So, again, the way we look at it is that we are locked and loaded and ready to handle the growth. And even if it exceeds our own internal forecasts, we are more than capable of handling it.

Okay. Well, we have one other question you had touched on last time, in regards to the what's the rising rate of course on the barrels that you had bought may have this listed and of course the last time you said they had gone up by a couple of hundred dollars a barrel, where is that – how is the current market on that presently?

Well, we've actually. So one of the things we did during 2018 is, and this so prior to 2018, you look all the way back in '16 and '17. Typically, when we were procuring bulk spirits -- we were procuring those bulk spirits, as they were essentially aged sufficiently to go into the bottle. And that's a higher cost product. As we improved our working capital and liquidity in late 2017, going into 2018, we started procuring less aged product and let it basically age on our balance sheet. And so, the importance of that is that it, buys down if you so to speak our cost of goods as we move forward. And so, as we start to head into this year, we're going to get the advantage of starting to be able to utilize in our produced products, that some of that material that we had purchased at lower rates. And so, what we've obviously developed a pretty extensive portfolio of inventory, bulk spirits. And so, what we did late last year is we identified and we did a couple of things, we identified earlier purchases that we really didn't have a need for as part of our portfolio of products until we move those out, move some of that product out in the fourth quarter to other small producers in a sale. That was a -- we essentially did most at cost, so we didn't really make any margin on it. So that impacted us in the fourth quarter, but it was an anomaly from our vantage point. And then we also consumed some of that earlier what I would say the 2016, 2017 stock that had a higher cost on it in the fourth quarter. So though -- and then lastly, again, we definitely, we further increased our production footprint in our main facility, we added square footage, we're installing the bigger news still there. So we've added kind of footprint, we've also added some bodies. And, that's actually increased our overall cost for our facility, which we didn't get the benefit of higher volumes yet in that facility so we had essentially a relatively lower utilization rate in our facilities in the fourth quarter. So those were sort of the three main buckets of impact in the fourth quarter for margin that we're really not anticipating to continue as we roll into this 2019 period.

So would it not be reasonable to say that our margin should be improving this year?

Yes, yes, that's our goal. Absolutely.

Okay.

No, and like they should be approving in Q1. And then you should see a nice improvement in Q1 back to our -- what's normal for us. And you should, because our Harold because our utilization is going up, we're going from about 20% utilization in Milwaukee to probably 70% plus we have a new equipment that is very, very, in demand that we're putting online, a pasteurizer and a sleever. And so, you should see, you definitely should see significant margin improvement continuing.

Okay. Well, good. I'm happy. That's all.

Thank you.

Thanks, Harold.

And this concludes our question-and-answer session. I would now like to turn conference back over to Grover Wickersham for any closing remarks.

Okay. Yes, I just like to thank everyone for their support, and I also like to encourage any of our shareholders to take advantage of the fact that we have a very small company. We've got an open-door policy, call Steve or myself at anytime, and we'll be happy to provide more color. So, also, play your cards right and come over to see us, and we could -- there could be a bottle of bourbon in your future too, but -- so, thanks, with that, I'll conclude the call and -- unless Steve has anything.

No.

Robert? Okay. Thank you very much.

Well-said, thank you.

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