Good afternoon, and welcome to the Eastside Distilling Reports Fourth Quarter and Fiscal Year 2019 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] Please note, that this event is being recorded.I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

Thanks so much, Eric. Good afternoon and thank you to everyone for joining us on today's call to discuss Eastside Distilling's financial results for the quarter and fiscal year ended December 31, 2019. Apologize for getting started just a moment late here, just waiting on the SEC to -- for the filing to close, [indiscernible]. As the operator indicated, my name is Robert Blum with Lytham Partners, and I will be your moderator for today's call. Earlier Eastside issued their fourth quarter and fiscal year 2019 results in a press release and the 10-K has been filed.Joining us on today's to discuss these results are Mr. Lawrence Firestone, the company's Chief Executive Officer; Mr. Robert Manfredonia, Eastside's President; and Mr. Stuart Schreiner, the company's Interim 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 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, 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, anticipates, 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 involve risks and uncertainties and may cause actual results to differ materially, includes, 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 it's 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 the latest information pertaining to the company's Annual Reports on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission today.Now, I'd like to turn the call over to Lawrence Firestone. Larry, please proceed.

Thank you, Robert, and thank you everyone for joining us this afternoon. First of all, we hope everyone on the call and your families are safe and healthy, and steering clear of the coronavirus. We are certainly operating in unprecedented times and the world has changed drastically since we spoke at the end of January. As you'll see from the press release, results for the fourth quarter and year ended 2019 were in line with our preliminary report we provided back on January 30, which marked a tremendous growth and record revenues, as well as case volumes for the year in 2019 for Eastside.For 2019, gross sales were $17 million compared with $7.2 million in 2018, an increase of 136%. The increase was attributable to organic growth in the company's Redneck Riviera product which grew to approximately 27,200 cases in 2019 compared to roughly 15,000 cases in 2018, as we expanded our points of distribution at a record pace. Full year results from Craft Canning and Bottling, which we acquired in January of 2019, as well as late third and fourth quarter contributions from the Azunia Tequila brand, which we acquired in September of 2019.For the fourth quarter, gross sales were $4.3 million compared to $2.4 million in the fourth quarter of 2018, an increase of 79%. As we described back in January because we were a recasting our 2020 forecast to bend the curve and put some leverage in our P&L, our off-premise programs represented late and planned shipments of the Redneck Riviera set for December 2019 were pushed to January which negatively impacted the fourth quarter results. However, the fourth quarter and even at the time of our conference call that we had in January, it seems like a lifetime ago as the COVID-19 situation moved in and…

Okay. Thanks, Larry, and good afternoon, everyone. While I normally go through a series of market data points, I will adjust because of the realities of the market and the significant changes over the last month plus instead. I will focus on details from Larry's overview and I will elaborate on the market and how we are adapting to the significant changes.As Larry indicated, we started off with a very strong January, in fact, we were significantly over the original forecast for the month. As an example, the Redneck Riviera new distribution for public Florida was set on the shelf and provided an initial list. We expect it, the usual off-premise cadence of gradual monthly growth to continue through the quarter. Unfortunately, our expectations and many other early stage brands were interrupted with market circumstances. Redneck Riviera also was further challenged by a large program cancellation with Costco Louisiana, this further exasperated the volume challenge. Fortunately, in regards to Costco, we have a Southeast regional program, committed to before the fourth quarter.Moving to Azunia, shipments were impacted by the market disruption as well. This is inclusive of in months March shipments and case deliveries for April business; this is inclusive of existing sell-through business replenishments and new incremental business schedule for a March release. This market condition also had a slight offsets of early delivery opportunities for [indiscernible] program Nationwide, generally, the first quarter cadence are very linear in the on-premise. Azunia's current volume is driven by the on-premise delivering 78% of the total volume.Regarding new Azunia business, the team has spent a considerable amount of time in the first quarter adjusting our wholesaler network in the East and the Central region, the transitions we're focused on 15 wholesalers; highlights include the transition to RNDC Florida, the favorable news, the…

Okay. I was on mute, I apologize. Thank you, Robert. As mentioned on the call, at the beginning Stuart Schreiner, our new Interim Chief Financial Officer has joined us on the call today. And I have worked with Stuart previously, and he joined at a critical time to help Eastside with leadership in the finance area.His first point of attack has been in the cash flow of the company, this is so critical for growing the company for now and especially in these times. Because he recently joined, he has been getting his hands dirty inside the finance and control side, and I'm going to give him the pass on discussing the normal quarterly analysis that I've already summarized today. Now, I'm confident that Stuart's hands-on approach with the process and continuous improvement will add tremendous value to Eastside going forward, and he is certainly well versed in solving problems for companies that are transitioning on the stage of investment to that are cash flow positive.As a company, we've become more nimble and are completely focused on creating value. So just a shout out to our Eastside team, Robert and his team are working hard every day on the customer facing side of the company. Stu and his team are working with the cash flow and financial models, and Kevin Quinn and Mel Heim [ph] are working to outsource Redneck Riviera Whiskey production and to improve our gross margins on that brand in mining all of our brands for cost reduction. Todd Garrett and his team are driving hard capitalizing on the opportunities for Craft Canning and not just during the crisis. We've gelled with the team over the last four months and come up literally every day as all of us are working to lower overhead and breakeven point to get Eastside to the point where we can run the business organically on our own cash flow.We would also like to thank John Rich as well for all of his efforts to promote the Redneck Riviera brand. I had the pleasure to watch John in action at a private concert, and the Redneck Riviera bar on stage was awesome. But more importantly, his commitment to our armed forces is moving. Thank you, John.Now clearly, the COVID-19 has raised the bar on our team and near-term impact on our business. But we believe this will quickly pass and we will drive to regain the strong footing by which we started the year off with. There is plenty of work to do, but I believe we have a great team to get us there. Robert and Stu and I are all remote, so as you ask your questions we will call on each other to answer, which is certainly a change from all being in the same room.So with that said, we'll go ahead and open up the call for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from David Bain of Roth Capital. Please go ahead with your question.

Great, thank you and thanks for some of the additional transparency in the press release with cases [ph] and revenue by driver. I guess first, Larry, you mentioned you lower the breakeven point. Just looking at 2020 trying to expect it next with our on-premise and off-premise now, and you're Canning, and then the other margin efforts you sought to; could you point us to kind of where top line needs to be for a breakeven on a quarterly basis?

Yes. It's still a moving target, David. So I'm going to pass on that for right now because we have -- we're still pieces in the middle of the business. As we mentioned, the on-premise team is really kind of on the sidelines right now, so as we work through that we'll come back to you with that number. But it's -- certainly we're moving the headcount down and closing the retail operations and those kind of things, it is really moving in the right direction. But I'm not yet to the point where I'm ready to guide to a breakeven point.

Okay, I understand. That's fair. And then just given, as you know is historical on-premise mix and I understand the plan has always been a tactical that kind of built national off-premise chain. But obviously the urgency here are probably even a little bit higher, and Robby there is acceptance data points at [indiscernible]. I guess just a couple of questions as we head into resets; I mean broadly, has timing of resets changed? I understand the form factor is more popular as you mentioned for the 1.75 versus 750's, but can we adjust to match the current environment we're current path are not long? But what has been the response from distribution hosts to kind of the sales effort at this point? And what you're doing outside of kind of the forward incentives you mentioned? And how those are being accepted at this point?

Yes, thanks David. The first thing I want to reiterate is the wholesaler confidence that we have, the numbers that I quoted with new distribution points are not the norm, it's usually a wait and see that take very little product inventory and then based upon the market reaction then they incrementally start to taking more inventory, that hasn't been the case. So there is a position from New York City to Florida to Illinois and many other states where a lot of our wholesaler partners are very bullish on the brand itself. It starts with that and their confidence because we need their support with retailer presentations.We are presenting for the -- what they call the fall, pull and plug, which is a September timed period of time, usually the -- most of the distribution changes are done in the spring. We missed a large portion of that with acquiring the brand in mid-September, so we're going to go through the mid-year and we are presenting Reposado for the most part to most of the chains across the country and the reception has been fantastic. A lot of the chains are starting to trade up from Longo [ph] to Reposado; we have a product that's organic and they're very excited about it. We will say it's a smaller consideration period, so there is less -- there's less changes that are made overall. But we will continue to fill in what we call the general market, the independents where there isn't that hardline consideration period, but the early response has been fantastic and even to the point of brands like HueHue, there are selected retailers that are intrigued by the brand like Publix in Florida, in South Florida, that we have an opportunity to be very selective on where the brands go. So, we have the right brands to go into high growth categories, we're positioned in the right price segmentations which is above premium and luxury, and that's where we want to stay. So that's really the model and now we're moving things through the model itself.

Okay, all right, great. And I guess, I just want to -- are you looking at -- for divestment potential opportunities are cashing in us in some of the growth you've created for certain brands. I know there is the opportunity to combine with environment and needs. But when you look at the portfolio, are there certain broad strategies you can consider, like a matrix you look at -- when you look to potential brand incubation, that period being finalized with anytime?

You broke up a little bit at the beginning there. But I think the question was…

I'm just asking about divestments.

Go ahead, go ahead again.

Okay. So divestment opportunities and what you're looking at on year-end as to considerations to pull the trigger, should you be approached on certain brands or market certain brands outside of financial considerations? Or is there something of a matrix you look at within the portfolios? I mean, I'm just trying to understand…

Yes, that's a great question. The brands that hit the national platform, we -- well, straight up, Robert and I are working on that. So what is the -- what's the exact model that we want to get to, and that's a work in progress. I mentioned the gross margin target is being a piece of that and I think the way I look at it is, as a trailer hedged to one of the Tier 1s; what would they like to buy? They would probably much rather buy a brand that's performing in the margin level that they're used to and that has -- in the national platform, wide distribution that's sticky that can -- that they can easily import into their lineup and take it to the next level. So metrically, I don't have that yet David, but for the local brands or the brands that are more predominant in Oregon in the Northwest, Robert and I have talked about some of those brands and whether they have -- what kind of growth opportunities they have, have peaked, and what kind of margin opportunities they have as well. So we're just getting started on digging into cost of goods sold and those kind of things because I feel like there is quite a bit there, with the 30% -- mid-30s kind of gross margin. So, it's really going to come down to taking it apart and kind of taking the brand engine apart and seeing what we need to do when we put it back together.

Great. Well, it sounds like things are extremely strong before and look forward to getting back there. Thanks so much.

Likewise.

Our next question comes from Jim McIlree of Bradley Woods. Please go ahead.

Yes, thanks and good evening. Just a couple of questions. How much was on-premise sales in the quarter? And then of the inventory balance at year-end, how much of that was whiskey?

On-premise sales, I'll let Robert answer that from probably -- maybe just a percentage of the business. But the whiskey, the raw barrels of whiskey; I want to say -- at cost, it's probably in the $6 million to $7 million range and the strange thing there Jim is, is -- when we borrow from Live Oak, they lend against market value; so there is a spread there between our cost and our market.

Got it. And the on-premise sales or you're saying just a small percentage?

Well, it just depends upon the brand itself. So Redneck Riviera is a 11% on-premise brand from a volume standpoint.

Okay.

The Azunia brand is 78% of the volume, it's provided by the on-premise. The Oregon market alone -- the on-premise is 12% of the market.

Okay, so that's in part what we're all dealing with, right. Not only us, but it's part of it. And it's also -- I think it's worth adding, wholesalers have taking sort of a position within this crisis of really focusing on the very well developed brands, that's what they're bringing in additional inventory with the smaller brands, the mid-sized brands even; they are playing inventory levels very, very tight at this point in time, that's part of this challenge that we're facing in the near-term. That will loosen up very quickly, we're already having planning sessions with them for the month of May and June, so we have our plans in place for the reopening of the market.

Got it. All right, very good. Thank you. Good luck with everything.

Thank you.

Our next question comes from Harold Weber of Aegis Capital. Please go ahead with your question.

Yes, hi, good afternoon. Can you hear me?

Good afternoon. Yes, yes, we can hear you.

I've got a question, a couple of questions. First, on a basic level. There has been all kinds of talk about distillers converting some of their production to making alcohol to distribute for sanitizing purposes. Have you guys have been involved in that at all? Do you have any…

We have not, we have not. You know, we run a small production shop and frankly, Robert and I and the rest of the team that I mentioned, have been working so hard to construct or reconstruct or transform -- transition the business in so many different ways for us to the stop drop, enroll and cut in a new sanitizer product; we would be up against [Technical Difficulty].

Okay. So just to value, if you have idle capacity and/or production, if you don't have, that's okay too. Is -- what should I say good public relations thing, so being a good corporate citizen and stuff like that but if you're saying that it doesn't make sense then, okay. And I'd like to get an idea if you've been working on -- we were talking about doing something in regard to enhancing our corporate branding image. Have you been doing something in regards to that?

Yes. So we have our marketing team is -- probably not along the lines that you want to hear Harold, but our team and I have been trained on this. If you look at the Tier 1 peers in the industry, most of the -- if not all of the brands -- each of the brand stands on their own and they roll upto a corporate parent. So, other than maybe like a Seagrams, you wouldn't really know who owns, for example, Jose Cuervo or Bushmill's Whiskey or just go on down the brands. So, the -- what you've been asking for is Eastside name on the bottle of everything and that is...

Not exactly. I'm just -- I'm trying to get it to raise the corporate identity of Eastside with some type of a better branding logo showing the brands that we own. I am not saying we have to put Eastside in every bottle, I don't really care about. I'm trying to get the image of Eastside as a premium brand company, raised.

Yes. And that I would say we're starting our press release campaign, you've seen that's hit the newswire now, on a pretty consistent basis. That attaches Eastside to the specific brands and our marketing team is actually working on the brand sites. And as I mentioned earlier in the call, they are working on the brand sides so that there is a buy now and every brand side, we have some buy now that don't quite work well. So we've got to get that fixed so that people who are on our brand sites can buy our brands and that's kind of my primary focus right now. I hate to have a customer that wants to drink our liquids and can get them.

Absolutely, you want to certainly -- anybody who wants it should be able to get fulfilled.

Yes.

Any progress or any further developments in regards to the outlandish products?

Outlandish, we have -- we've pulled back from that when the -- it was an Oregon-only product for us. And when the Liquor Board in Oregon pulled back from the ability to mix CBD with spirits, that made that business for us extremely small. So we're putting our horses behind the mainstream spirits business that we're running.

That's fine, that's fine. And when that changes, we can go back to ramping that up is -- if the demand is there, right?

If it's there, yes.

Okay. And [indiscernible] was saying, it's something in regard -- some kind of branding identity, a logo some -- when you send that email, do you send that -- it just puts you to sleep. Something these companies they have vibrant; they have colors, they have picture, they have a theme, they have something. I don't really care what you -- look at the bottles, we have all kinds of bottles with nice stuff on them, maybe put [indiscernible] on the label or on the corporate logo with something; something.

Yes. We've got a great branding house in Sandstrom Partners and they really work on the brand level, but I -- so I think that's really where our money is going in, and when we talked about deploying our resources, it's really -- it's really at the brand level.

How do you see the other products getting rolled out? I suppose at some point have you gotten any feedback from the distributors about some of the other things?

Yes. I'll take that. So as I mentioned, we have all of the markets that we identified are -- have accepted all of the brands, some we have shipped in, they've landed in the warehouses, some we have -- POs that are waiting, that they are waiting for the market conditions to change. But we've have already have confirmed POs, if not product in the systems, we have kick-off dates that have been pushed back a little bit. But there is a process to kicking off a brand, it just makes sense, right. You have to -- before you're launching into a market, you have to sit down with the teams that are representing the brands, explain what the brand is about and make sure that they are fully equipped to go out and appropriately represent the brands. So, all the states that we put forth has been the launch dates are engaged, they've accepted all of the brands, we have either POs in hand or we have products in the warehouses, we're just waiting for the market conditions to adjust and we're ready to go; we're ready to go and they are too.And I did mention that we, like many other company's presents our brands to them for representation and most get declined, so above and beyond acceptance, and the size of the initial orders and the financial commitment, we're extremely excited about the position that you're taking with our brands. So I expect big things to be happening again once things normalize.

Okay. So basically, we're ready to ship and as soon as they say we are ready to come to take [ph], is that basically right?

That is correct. They are ready to go and once we can go through the process of kicking off, the product will be in. Prior to that, we will do our meetings and we will start going out aggressively into the market with a targeted plan. That is correct.

And how long would you anticipate it taking to roll out to many of these distributors?

I would say Well, I think…

Once everybody is back to -- is somewhat back to normal, let's say.

Right, right. So let's just say Harold, if it seems normalized and everything in the market -- on-premise is open, we can get in a room with people in the month of May, then the products will be launched in May. If that's June, then that will be June. There'll be no delay or lag time once everything normalizes with the market back to the wholesaler.

Okay, that sounds good. We're waiting to hear about it, only to see it; waiting to see them in the stores.

Well, we're excited too. For our New York City, we couldn't be more excited about the opportunity that -- not just for Azunia, but for HueHue and Burnside and Redneck in the city, but also the suburbia markets within the Boroughs. The reaction of the wholesaler was as our expectations, so that is something that we can really build our brains off of. So there is a lot to come with that. We're excited about it.

Okay, great. Hopefully we'll be able to ramp up sooner rather than later. Good luck.

We agree.

We totally agree.

Our next question comes from David Bain of ROTH Capital. Please go ahead.

Only one quick follow-up. It was on the online expansion -- distribution. Obviously, that's a huge market but sometimes we hear how competitive it can be. Can you kind of lay out what the strategy could look like, the platforms that you'll be utilizing to try and penetrate sales from that method?

Do you want to take that one, Robert?

Yes, absolutely. Well, I meant -- I mentioned, David that we are utilizing delivery services of Instacart and Drizly, right; their models are -- and what we're going after is we're focused on when -- when consumers approach Drizzly or Instacart, our brands pop-up, it's part of the geo-targeting we're doing with. And that's part of the plan. The secondary piece of it is, that we are utilizing our databases and our social media platforms of engagement, right, with direct messaging through a John Rich video, as an example, or through something with the brand like Azunia or even products within Oregon. So -- and we have different tactics that we're doing, we're sending messaging and then we're trying to focus on high density opportunities with distribution. And then, we provide them sort of the support of a coupon, right. You know, you can download coupon for $3 on a one bottle buy or buy two and you save $8. So we're trying to use a variety of different tactics and through the digital space to get people to be aware of our products.Georgiou Santi [ph], our Senior Vice President, he's doing a good job, a really good job in expanding what's going on with this approach, and we have a lot more to come. So this was always part of where we want it to go. Obviously, it's being further accelerated because of the conditions and we are receiving a lot of data back through just Google Analytics and Facebook Analytics, and we're starting to see sales coming through through the online space. So it's going to be something that we're going to continue to advance and develop, these brands speak well online, and we have the ability to do it. So that's where we're going to be driving as we move forward.

Okay, that's helpful. I understand. Thank you so much.

Sure. Thank you, David.

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Firestone for any closing remarks.

Thank you, operator and thanks again to everyone for joining us on the call today. I look forward to speaking with you all on our earnings call in May, if not before as we strive to keep you updated on our progress. Please stay safe and healthy, and have a good evening. Thank you.

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