Eastside Distilling Reports Third Quarter 2016 Financial Results

Q3 2016 Gross Sales Increase 62% to $796,000 on 3,974 Cases Shipped

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Nov 14, 2016, 04:05 ET

PORTLAND, Ore., Nov. 14, 2016 /PRNewswire/ -- Eastside Distilling, Inc. (OTCQB: ESDI), a producer of award-winning master-crafted spirits, reported financial results for the third quarter ended September 30, 2016.

Recent Highlights:

Gross sales increased to $796,000 during third quarter of 2016, compared to $492,000 in the year ago period, an increase of 62%;
Net sales (excluding excise taxes) for the third quarter of 2016 increased 73% to $607,000 compared to the third quarter of 2015;
Third quarter total shipments increased 81% to 3,974 cases from 2,191 cases in the year ago quarter, bringing trailing twelve-month case shipments to 14,712;
42% of sales during the third quarter came from outside the Company's home state of Oregon compared to 23% in the year ago period as orders expand;
The Company's Burnside 'Oregon Oaked' Bourbon received a double gold medal, while its Barrel Hitch 'Oregon Oak' American Whiskey earned a silver medal at the prestigious 2016 New York Wine and Spirits Competition;
The Eastside Board of Directors expanded to five directors, of which four are "independent" as defined by the SEC as the Company prepares for growth as a business and as a public company; and
In efforts to gain access to an increasing number of investors, while striving to meet minimum listing requirements of a national exchange such as the NASDAQ or NYSE, the Company instituted a reverse stock split with a record date of October 17, 2016. Following the split, the Company now has approximately 4.8 million shares outstanding.

Third Quarter 2016 Financial Results

Gross sales in the third quarter of 2016 increased 62% to approximately $796,000 from $492,000 in the year-ago period. Gross sales for the first nine months of 2016 were up 52% to approximately $2.0 million. On a net sales basis (less excise taxes), sales were up 73% to approximately $607,000 in Q3 2016 versus the year-ago quarter, and up 61% to approximately $1.6 million in the first nine months compared to the nine months ended September 30, 2015. The increase in both periods was primarily due to expanded distribution into new states along with continued growth in the Company's home Oregon market. Case sales in Oregon increased 19% during the third quarter of 2016. However, wholesale case sales in Oregon grew 61% while the Oregon retail sales declined 34%, primarily due to fewer Company-owned retail locations operating during the quarter. Case sales outside of Oregon grew 182% compared to the year ago period, as the Company's efforts to expand distribution beyond Oregon continued to gain momentum.

Gross profit margins were 38.9%, compared to gross margins of 52.4% in the same year-ago period. The change in gross margin is attributed to the fluctuation in sales mix from quarter to quarter as well as higher raw material costs incurred during the quarter. As a result of improved material purchases since quarter end, the Company expects gross profit margins to improve going forward.

Net loss totaled $1.4 million or ($0.31) per diluted share versus a loss of $1.4 million or ($0.62) per diluted share in the same year-ago period. Included in the third quarter of 2016 were certain unusual non-operating expenses, including certain legal and professional fees of approximately $220,000. Additionally, on November 10, 2016, the Company filed an 8-K referencing certain cost cutting initiatives.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, stock based compensation and gain on spin-off) totaled a loss of $1.2 million in Q3 2016 compared to a loss of $0.7 million in the year-ago quarter (see discussion about the presentation of adjusted EBITDA, a nonGAAP term, and reconciliation to the nearest GAAP metric, below). As previously mentioned, the third quarter also included certain unusual non-operating expenses.

Management Commentary

"I am pleased with the transformation taking place within the operations of our business, as well as the structure of our company, to drive value on a go forward basis," said Eastside president and chief executive officer, Steven Earles. "We continue to see tremendous acceptance of our unique spirits throughout the country as our national rollout campaign continues, having shipped a 3^rd quarter record 3,974 cases during the third quarter, and 14,712 during the last 12 months. Our objective to drive case volumes through expanded distribution agreements and strong marketing support continues to gain traction.

"Eastside's products are now available in 22 states across the country, including all five of the largest liquor consumption states. Recently, we shipped our largest single order to date of approximately 2,000 cases to the East Coast (or approximately 1,000 adjusted for 12-pack cases), where shipments have been increasing since we entered the market back in Q3 of 2015. With approximately 42% of our sales now coming from outside our home state of Oregon, the success of our national rollout strategy is evident as we enter our strongest quarter of the fiscal year.

"While we maintain our efforts on driving case volumes and sales, we are simultaneously focused on doing the things we believe are necessary to improve the structure of the Company to drive long-term value. Recently, we expanded our board of directors to meet SEC independence requirements, made some improvements to our cost structure, and have enacted a reverse stock split we believe will help expand our reach to new investors, while setting the stage for a potential uplisting to a national exchange such as the NYSE or NASDAQ."

Mr. Earles concluded, "We believe there is a strong foundation in place to take advantage of some significant industry trends, specifically the boom taking place within bourbons and whiskeys. We believe there is an opportunity for significant value creation as we strive towards our near term goals, which will be driven by exceptional products, expanded distribution and strong marketing support. With a strong and energized team and tremendous distribution partners in place, we look forward to the future with great optimism."

Conference Call
The Company will hold a conference call today, Monday, November 14, 2016, at 4:30 p.m. Eastern time to discuss these results.

Date: Monday, November 14, 2016
Time: 4:30 p.m. Eastern time (1:30 p.m. Pacific time)
Toll-free dial-in number: (877) 317-6789
International dial-in number: (412) 317-6789

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Lytham Partners at (602) 889-9700.

A webcast replay will be available in the Investor Relations section of the Company's website at http://www.eastsidedistilling.com/presentations/ or https://www.webcaster4.com/Webcast/Page/1518/18168.

A telephone replay of the call will be available until November 17, 2016:
Toll-free replay number: (877) 344-7529
International replay number: (412) 317-0088
Replay ID: 10095652

About Eastside Distilling
Eastside Distilling, Inc. (OTCQB: ESDI) is located in Southeast Portland's Distillery Row and has been producing high-quality, master-crafted spirits since 2008. Makers of award winning spirits, the Company is unique in the marketplace and distinguished by its highly decorated product line-up that includes Barrel Hitch American Whiskies, Burnside Bourbon, Below Deck Rums, Portland Potato Vodka and a distinctive line of infused whiskeys. All Eastside spirits are master crafted from natural ingredients for unparalleled quality and taste. The Company is publicly traded under the symbolOTCQB: ESDI. For more information, visit: www.eastsidedistilling.com

Important Cautions Regarding Forward-Looking Statements
Certain matters discussed in this press release may be forward-looking statements. Such matters involve risks and uncertainties that may cause actual results to differ materially, including the following: changes in economic conditions; general competitive factors; the Company's ability to continue as a going concern; acceptance of the Company's products in the market; the Company's success in obtaining new customers; the Company's ability to obtain additional capital, the Company's success in product development; the Company's ability to execute its business model and strategic plans; the Company's success in integrating acquired entities and assets, 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 contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission on April 13, 2016. Examples of forward-looking statements in this release may include statements related to our strategic focus, product verticals, anticipated revenue and profitability. Further, such forward looking statements in this press release include but are not limited to: that the Company's growth will continue on its current trajectory; the stage is set for significant growth and improved bottom line performance ahead and beyond; that the second half is traditionally our busiest of the year, when the Company typically generates close to 70% of its annual business. The Company assumes no obligation to update the cautionary information in this release.

Company Contact:	Investor Relations Contact:
Eastside Distilling	Robert Blum, Joe Diaz or Joe Dorame
Tel 971-888-4264	Lytham Partners, LLC
[email protected]	(602) 889-9700
	[email protected]

Use of Non-GAAP Measures
Eastside Distilling's management evaluates and makes operating decisions using various financial metrics. In addition to the Company's GAAP results, management also considers the non-GAAP measure of adjusted EBITDA. Management believes this non-GAAP measure provides useful information about the Company's operating results.

The Company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, stock based compensation and gain on spin-off. The table below provides a reconciliation of this non-GAAP financial measure with the most directly comparable GAAP financial measure.

			Three Months Ended		Nine Months Ended
			Sept 30		Sept 30
			2016	2015	2016	2015

Net Loss			$ (1,436,449)	$(1,412,612)	$ (3,760,629)	$ (2,931,690)
	Add:
		Interest Expense	89,889	8,856	147,613	15,593
		Gain on Spin-off	-	-	-	(52,890)
		Provision for Income taxes	-	-	-	-
		Stock-based compensation	51,569	40,875	208,977	124,250
		Stock issued for services	129,870	650,246	218,970	715,871
		Depreciation and amortization	5,531	4,918	361,878	13,927

Adjusted EBITDA			$ (1,159,590)	$ (707,717)	$ (2,823,191)	$ (2,114,939)

Third Quarter 2016 Financial Summary Tables
The following financial information should be read in conjunction with the unaudited financial statements and accompanying notes filed by the Company with the Securities and Exchange Commission on November 14, 2016 in its Quarterly Report on Form 10-Q for the period ended September 30, 2016, and which can be viewed at www.sec.gov and in the investor relations section of the company's website at www.eastsidedistilling.com.

Eastside Distilling, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
For the three and nine months ended September 30, 2016 and 2015
(unaudited)

	Three Months Ended		Nine Months Ended
	September 30, 2016	September 30, 2015	September 30, 2016	September 30, 2015
Sales	$ 796,222	$ 492,380	$ 2,045,568	$ 1,344,881
Less excise taxes	188,375	140,299	469,936	363,316
Net sales	607,847	352,081	1,575,632	981,565
Cost of sales	370,854	167,524	895,239	518,356
Gross profit	236,993	184,557	680,393	463,209
Selling, general, and administrative expenses	1,583,553	1,587,260	3,948,010	3,431,143
Loss from operations	(1,346,560)	(1,402,703)	(3,267,617)	(2,967,934)
Other (expense) income - net	(89,889)	(9,909)	(493,012)	36,244
Loss before income taxes	(1,436,449)	(1,412,612)	(3,760,629)	(2,931,690)
Provision for income taxes	-	-	-	-
Net loss	(1,436,449)	(1,412,612)	(3,760,629)	(2,931,690)

Dividends on convertible preferred stock	(19,600)	-	(37,359)	-

Net loss available to common shareholders	$ (1,456,049)	$ (1,412,612)	$ (3,797,988)	$ (2,931,690)

Basic and diluted net loss per common share	$ (0.31)	$ (0.62)	$ (1.14)	$ (1.28)

Basic and diluted weighted average common shares outstanding	4,761,854	2,291,489	3,320,494	2,281,548

Eastside Distilling, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
September 30, 2016 and December 31, 2015

	September 30, 2016 (unaudited)	December 31, 2015
Assets
Current assets:
Cash	$ 400,178	$ 141,317
Trade receivables	383,004	142,206
Inventories	881,652	683,824
Prepaid expenses	70,379	163,506
Total current assets	1,735,213	1,130,853
Property and equipment - net	102,378	112,005
Other assets	48,000	49,000
Total Assets	$ 1,885,591	$ 1,291,858

Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable	$ 805,161	$ 1,300,532
Accrued liabilities	818,164	563,814
Deferred revenue	3,194	727
Current portion of notes payable	4,424	4,098
Related party note payable	12,500	12,500
Convertible notes payable - net of debt discounts	-	455,958
Total current liabilities	1,643,443	2,337,629
Notes payable - less current portion and debt discount	929,537	17,842
Total liabilities	2,572,980	2,355,471

Commitments and contingencies (Note 9)

Stockholders' deficit:
Series A convertible preferred stock, $0.0001 par value; 100,000,000 shares authorized; 972 and 0 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively (liquidation value of $2,430,000 at September 30, 2016)	756,835	-
Common stock, $0.0001 par value; 45,000,000 shares authorized; 4,766,659 and 2,309,750 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively	9,535	4,620
Additional paid-in capital	9,905,980	6,493,518
Accumulated deficit	(11,359,739)	(7,561,751)
Total stockholders' deficit	(687,389)	(1,063,613)
Total Liabilities and Stockholders' Deficit	$ 1,885,591	$ 1,291,858