Good day, and welcome to the Eastside Distilling Reports Second Quarter Fiscal Year 2019 Financial Results. 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]. Please note this event is being recorded. I would now like to turn the conference over to Mr. Robert Blum. Please go ahead.

Thanks so much Shawn and good afternoon, everyone. Thank you for joining us today to discuss Eastside Distilling’s financial results for the quarter ended June 31, 2019. As Shawn indicated I’m Robert Blum with Lytham Partners. I will be your moderator for today's call. Earlier, Eastside issued their second quarter 2019 results in a press release as well as filed its 10-Q. Joining us on the call today to discuss these results are Steve Shum, Interim Chief Executive Officer and Chief Financial Officer and Robert Manfredonia Eastside's President. Following their remarks, we will open the call to your questions. Please note that there is a slide presentation that will accompany a portion of today's call. Those of you listening on the webcast will have access through the webcast portal and a copy is also available on the Company’s website under the Investor Relations section. Before we begin for the remark, we submit for the record the following statements. Certain matters discussed on this conference call by the management of Eastside Distilling may be Forward-Looking Statements within the meaning of Section 27A of the Securities Act of 1933, as amended and 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 10-K for the year ended December 31, 2018 filed with Securities and Exchange Commission on March 28, 2019. With that said, I would like to turn the call over to Steve Shum. Steve, please proceed.

Thank you Robert. We would like to thank everyone for joining us today. We have a fair amount to cover on the call. So thought saw we change the format out around this time to start with quickly recapping, the results in the second quarter, so we can spend more time reviewing our current positioning as a Company, the business trend and our general outlook. The gross sales topped 4.25 million in the quarter an increase of 154% over last year. Net sales increased 3.9 million, up 155%. As we stated on our first quarter call, aside from expecting sequential revenue growth. We also had two other key goals for sequential improvement over the first quarter of this year. Gross margins and the EBITDA loss. Gross margin on net sales improved 38% from 34% in the first quarter, and EBITDA loss improved sequentially to 1.82 million or roughly a $300,000 improvement. Branded case sales increased 57% over last year’s second quarter and was down slightly from the first quarter of this year as the Redneck Riviera case volume was below plan for the quarter. We will address that in more detail as part of our outlets discussion. Co-packing services grew 389% over last year as a result of the acquisition Craft Canning at the beginning of this year, which added substantially to this part of the business. On a pro forma basis, assuming we don't craft last year, the business was up 32%. Although I would note, that craft specific portion was up in excess of 50%. We could not be more pleased with how the co-packing businesses performing and growing. We closed the quarter with approximately 768,000 cash and a strong overall working capital position of just over 12 million, which included 2.2 million of accounts receivables, and 11.9…

Steve thank you and good afternoon and good evening to the folks in the east. This presentation that we are going to go through is actually available on the website and on the webcast. So Robert Slides 4, which starts with Redneck Riviera first half results. H1, 9413 that is nine liter cases versus H1 2018 to 4378 cases that is a 126% growth year-over-year. Quarter two, 4271 cases, quarter two 2018, 2182, cases. Depletions off premise represents 92% of the total volume packaged mix the 750 package represents 90% of the total volume. It is also worth noting Granny Rich is now surging with interest and more importantly new distribution. We just secured our first corporate customer last week with ABC Liquor in Florida and we are presenting it as our number one priority outside of Redneck Riviera 750 with full assortment new presentations and we expect mainstream broachers to have it only shelves in spring 2020. Slide 5. Accounts sold towards the distribution. Off-premise represents 88% of the total distribution base. We are however spending special focus within the national account on premise segments. New accounts that have been secured include Logan's Roadhouse 23 states, 175 locations that will become operational September 1st. Jim & Nicks, Ford Garage and Cody’s Roadhouse. And we are also very excited to start a trial within Hooters within Florida. Coyote Ugly within Florida, and Hard Rock Cafe in Ohio, Sacramento, and Tampa, Florida. Slide 6, regional business unit volume breakdown. You can see the breakdown by regions. The central region is our fastest growing region. And it is the most balanced business with four states in the top 10. The southeast is disproportionately driven by Florida with 17% of the overall business in California is the far west driver, it’s also worth…

Hey, Robert, thank you very much. And thanks everybody on the call, I have been listening to Steve and Robert go down through this information which I’m very well acquainted with as we work and speak together on a daily basis. I wanted to be on this call because I know who always listening all of our investors, people that are looking at Eastside and watching this very closely. And without hearing from me directly, you might not fully understand that scope of the amount of effort and leverage and heat that is being applied to this brand. So I just wanted to go through a few things. First of all, before I get into some stats here, I want to say thanks to Steve for being a very steady solid guy. And a guy that has a lot of passion for Redneck Riviera for Eastside and for hiring people like Robert Man Fredonia, and [Jared Cattle Ronnie] (Ph), who then has hired people out in the field that I have worked side-by-side with, at this point literally hundreds of occasions with this team. And as you know, I come from the music business, which is one of the most cutthroat competitive environments a person can find themselves in. And so when I stepped in to this arena of the spirits world, I found myself standing side-by-side with people that I would walk into a site anywhere anytime, I truly believe we have one of the most bulletproof teams out there down to every single member, seeing people, do things above and beyond their job descriptions, doing whatever it takes to make it happen, and to see the success that Robert just walked you through with some of these numbers in placements. So, with that being said, when we started…

John, thank you. I'm kind of laughing a little bit, because I'm always in the position of following John Rich, which is quite difficult to do. But it is been a pleasure working with John and we are going to see this mission through with what John has created. So thanks again, John, we appreciate it. Slide 19 is a picture of the Redneck Riviera. And when I look at this personally, it is more than just a picture of brands. There is been a thoughtfulness a collaborative approach. And we have gotten into a really following data as I like to call it a data driven approach to anything that we are looking at for new development or expansion. So when you look at Granny Rich is one example that is the premium vertical price strategy approach that we took to that brands at 3999 study to segment the price of what we can do and that is why we came out with that brand. Also, I didn't mention, John just mentioned it, it is the highest margin Eastside brand within the portfolio. So, we have invested economic reason to drive that brand. So, when you look at that and you look at how to do a unique offering within the high growth RTD sector, we are doing things in a very, very systematic, sequential, a thoughtful way and that is the way we approach everything that we do. Next slide please. So I'm going to run through this very quickly. This is the Oregon top line results and some overall business adjustments. H1 17.60 was in H1, 2018. We finished up H1, 2019 with 11,333, 46% growth. We just came out of a very, very productive July where we grew 50%, which was our highest month to-date. The…

Thanks, Robert. And john much appreciated. So as many of you know, acquisitions have also been part of our overall strategy. We thought I would take a few minutes to describe the key elements, we would look for an acquisition. And let me first say, we would not be interested in issuing shares at the current price as part of the potential transaction. We want any deal structure be highly attractive for our shareholders. So beyond price and deal structure, the key elements we would target at this point include, brand that already has real face volume and critical mass, and not so much that it is on the radar screen of a major player, but substantial relative to our current level of business. Something that plays in the premium or luxury position end of the market, especially considering that this is an area where many key industry growth is occurring. Preferably something that is in one of the fastest growing specific product categories. And really something that perpetuates the goal of building additional products through our national platform, and which allows us to jumpstart it more aggressively. The last area I would like to cover is a general outlook. As you all know, in the past, we have avoided providing guidance, and it is a bit challenging for early stage high growth companies. However, as we are becoming bigger, we are reaching a point where we have improving visibility into our overall business activity. And we feel it is important for shareholders understand how we see the business unfolding. For the balance of this year we expect to see further top line growth in both the third and fourth quarters. Gross sales rain seen $10 million to $11 million for the six month period. We believe we can see further see strong improvements in our EBITDA loss in the back half of this year as well. So before we open up the call, just want to thank our investors for their support. Also want to personally thank all of our employees, their dedication, hard work is what really makes all this possible, not easy building a business like this, and they are all doing a great job. So with that, let's go ahead and open up the call for questions. And our apologize our prepared remarks went as long as they did today. But we want to try to give you guys a lot of information. Operator,

Thank you. We will now begin the question and answer session.[Operator Instructions] Our first question today will come from David Bain with ROTH Capital. Please go ahead.

Thank you, then, thank you guys, that was very helpful earnings call in many fronts. And obviously completely clear that you are all in now and going forward. And I don't know. I think everyone saw that got a deep appreciation of that. So thank you. I guess my first question would be just because the first time guidance based on the midpoint, it looks like we should see close to 60% of the year in the back half. Can you give us a broad sense as to, bifurcated segment growth in the second half or so the first half. So, like a Redneck did 10,500 units in the first half and probably what kind of growth can we look for in the second half? And I'm not trying to get too intrusive, just broad categoricalmetric or revenue growth related, the guidance would be helpful.

Yeah, I mean, on Redneck Dave, you certainly see the back half of the year to be significantly stronger than the first half. Aside from there being seasonality, which causes that. But there is other dynamics that play for us the backpack, the point of distribution that, are now finally set. So, there is a number of contributing factors that we would anticipate pretty strong. Redneck second half of the year. I said probably, I think we would say at least 35,000 cases is kind of the target for the year. So as you can see, as you can imagine, we are certainly expecting a pretty strong second half for Redneck. The co-packing business inherently, as we said before, really has the strong periods in the second, third quarter, they tend to be a little softer in the fourth quarter. But there is some interesting dynamics going on in the co-packing business. It is really fascinating, we went out and we spent a lot of time and effort and had to really cut our teeth, trying to figure out how to stabilize CBD and liquid and introduce our own branded products. And when we announced that, we actually see a pretty significant volume of other players that need help producing their product. And so the craft team is, they have a pretty tremendous pipeline of leads. So we look at it is, it'll be great if we do really well for own branded products, but we know we are going to make good money on the CBD business on a co-packing side. And that could lend itself to having less seasonality in the co-packing business in the fourth quarter. We are not calling the ball on that yet. But it looks pretty promising for us smoother, sort of run on the co-packing side into the fourth quarter. But we'll see, we need a little more visibility on that first ourselves, what to go a little deeper into this quarter before we can make that call. But that is kind of that. So we extend this before that, you look at the for the business as a whole office for the first co-packing really strong in the second and third branded business really strong in the fourth. But again, we think and we certainly think the branded business is going to be really strong in the fourth starts in the third that really strong in the fourth. But I said we could see a reasonably strong quarter in the fourth, but the co-packing business as well.

Can I add a little bit more to the question regarding Redneck and the national platform? Just the industry norm within [indiscernible] the fourth quarter typically represents from 37% to 45% of volume from any Whiskey, Vodka mainstream product is 37% to 45%. That is a norm. So where we think will be right in that ballpark. So there is a disproportionate amount of volume that will be done in that final trimester of the year. That is just the nuances within the sphere space of how things work. So we are bullish on and optimistic that will over deliver on that.

And then for the major national markets, California, Florida, what have you we have boots on the ground. Give me an idea as to current reorder pacing for Redneck, I mean, second half growth? Is that like a balanced combination of new points of distribution you'd mentioned, the market, you get 50% of the market let them Florida to go to Walmart in there. Is it extensions, is it reorders, which elements truly lead the growth at this stage of the cycle?

It is a good question. I think there is a way that I would look at it from your perspective in license business. So most of the big chunks of new distribution, they are all going to be seated in the spring. The spring furious, right. We are full assortment presentations, which we are right in the middle of right now. All that will be said with all those major grocers across the country. That'll be done spring. So if you look at your incremental new business, most VAP will be captured from a grocery sector standpoint in the spring of each and every year. Now, we have availabilities with the selected chains be at the Winn-Dixie of the world, Texas which is state sort of packaged entities done a little bit different. So, we are going to have package extensions that will drive some of the incremental but now where we are really focused on David is execution of organic business and back to your point of looking at weighted sale, making sure that we hit the measurable and keep driving tactically how do we drive business that we have existing, because that is the health of a brand. It is really organically rate us that acceleration. So, that is will be the focus of the team right now, but, And then we will have these nice chunks of new business that will be primarily in the spring period each and every year.

Okay. And then, I don't want to use - but just two quick ones. One is, you know, looking at wholly-owned non-redneck, obviously great result there in terms of growth, does that encapsulates any significant portion of Burnside being put into the national system or is that driver to still too early in that truly proliferated in a big way?

Yeah. It is early there Dave. That is just coming out of Oregon business, so and quite strong. We are still just starting to get our feet going so to speak putting Burnside in select markets.

Okay. So, impact of second half, however, a little bit or...

Yeah. We'll some contribution there.

Okay.

We have got stores down [indiscernible] Well, throughout California so contractually we are set up in California and we are starting to early implementation with Burnside throughout the whole states. So, you should have some results with the next call.

Great. And then, comments last on guidance, you suggest sequentially improvements EBITDA and then into next year, I mean, does that inferred that at some point next year, the plan is the flow the positive EBITDA?

Yeah. I mean, still making some operational improvements and trying to get more focus and so I would say we made some improvements in Oregon and generally trying to get more efficient. Our current plan is to obviously see, we certainly expect really strong growth next year. We certainly expect to continue to drive EBITDA improvement. We have got a couple of different scenarios that could get us into that sort of breakeven level by the year, but that is definitely a goal and we are still looking to make some of those various improvements up and down the organization to be more efficient.

Great. Thanks and great color guys.

Thanks Dave.

Thanks Dave.

[Operator Instructions]. Our next question will come from Ross Taylor with ARS Investment Partners. Please go ahead.

Thank you. First, thank you gentleman for the new and focused direction of the company and I'm very excited about what you guys are doing. I also have to say John starting a quality me up. I also want to thank you guys for taking the time to ensure that are alternative ways to finance the tremendous growth opportunities this company have without the need to result from equity offering. I know that there were a lot of investors I talked to, a lot of potential who are sitting on the sidelines, waiting to get the chance because they feel you needed to do one to have that put the [indiscernible] here and that is in very positive fashion makes me exceptionally happy. I also like to have you guys can you expand a little bit more on canning how you see it playing out how it is impacting the balance sheet today and how you see it impacting the balance sheet as we go forward. To me it would seem that as you build up working capital on the licenses businesses should become effectively a bank producing strong cash flow with minimal additional investments needed in the light. And can you give us a little bit of the economics of that and a little bit of the eye or the drag and opportunities that will have for the balance sheet?

Yeah, sure. we really liked the canning business we I guess I was more broadly called co packing services side of the business it is a strong performer. We didn't we didn't bring that business in with the idea that it was a stable , cash cow is a cash cow but it is actually a nice be growing business. I mean, there exceeding their internal targets of at least 40% growth. And, it is it is contributing nice cash flow to the business. It is obviously not enough to offset the investment span we are doing on the branded side yet. But that is really part of, the vision to is to keep growing and building its cash flow which again, does help fund the branded business and mitigates the risk of the of the branded business in our minds, lessens the need for financing and diluting to support the branded business. So it is a very important symbiotic relationship the way we view it because it is a growth area as I said before, it is definitely, something we also look at as gives us the opportunity to have significant production capability that we make money on and have it as available to us for to support our branded business as it grows. As far as what kind of general economics look like to continue to allow them to grow because there is an element that they have to add equipment and capabilities to keep growing but the return profiles really quite attractive on that stuff. We are gearing up to do just an example gearing up to do some improvements in the facilities that you know that are specifically to support the co-packing that probably going to cost us a couple hundred thousand dollars at this point.…

And then, before I let you go, I do have to make a comment about the 8-K that was filed on Friday. And I have to say, I found it disingenuous is best for those gentlemen to indicate that the end result, when anyone who looks at the vote count recognizes that 3 of the 4 of them got less than 50% of the vote. And anyone who knows me knows that I'm a big believer in the ending of what I call Albanian elections, where you win as a director if you simply get able, because you are running on contest. Three of them that less than 60% and the fourth. I think he dropped out a 17 basis point went over 50%. And I know we ourselves organization, who are a large holder voted against them, not because are part of a velvet crew to replace someone or bring someone back, but rather because we had lost faith in them, we are lost faith in their judgment and their decision making. And I have to tell you that literally just days after them being gone, I listened to this call. And I know that we made the right choice to remove them. And allow you guys be and ability to grow this company and exploit the opportunities you have in front of you. And I couldn't be more excited about what I heard today and clients [indiscernible] at the totally different tone and tempo in private company. And thank you very much for that.

This will conclude our question-and-answer session. I would like to turn the conference and back over to Steve Shum for any closing remarks.

Well, I apologies. I know we went long on this call. Again, we really wanted to try to arm you with additional information if you have a good understanding of what we are doing and where we are headed. But we appreciate everybody's time. As always feel free to reach out to myself or Robert, if any of you have any follow up questions. We'll be will be happy to answer and thanks again.

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