Market Overview

Eastside Reports Second Quarter 2018 Financial Results


Gross Sales increase 90% driven by strong Redneck Riviera shipments

Eastside Distilling, Inc. (NASDAQ:EAST), a producer of craft spirits,
reported second quarter 2018 financial results.

Financial Highlights for Q2 2018 ended June 30, 2018:

  • Gross sales for Q2 2018 were $1,675,067, an increase of 90% compared
    to $883,522 in the Q2 2017, led by the continued launch of Redneck
    Riviera Whiskey, sales from our private label and wine canning
    operations, as well as resumption of growth within the Pacific
    Northwest of our rebranded Burnside lineup.
  • Total shipments increased to 18,401 cases during Q2 2018 from 4,928
    cases in Q2 2017, an increase of 273%.
  • Branded product shipments increased 70% to 7,445 cases in Q2 2018
    compared to 4,384 in the year ago quarter.
  • Case shipments of Redneck Riviera Whiskey were approximately the same
    in Q2 2018 compared to the very strong Q1 initial launch shipments and
    we have already received orders in excess of this figure in the first
    5 weeks of Q3 2018, reflecting an acceleration beginning to occur as a
    result of new states and strong reorders from many of the Q1-Q2 2018
    initial launch states.
  • Gross margins improved to 49.9% during Q2 2018 compared to 34.8%
    during Q2 2017.
  • EBITDA during Q2 2018 was $(1,250,729), which compared to $(771,402)
    in Q2 2017 as the company continued to invest in laying the foundation
    for sustainable growth in the Redneck Riviera Whiskey brand.

Recent Operational Highlights:

  • Redneck Riviera Whiskey is now distributed in 28 states, with 14
    states added since the end of he first quarter. Redneck Riviera
    Whiskey is now available in Texas, California, Louisiana, Alabama,
    Georgia, Mississippi, Florida, North Carolina, South Carolina, North
    Dakota, South Dakota, Oregon, Tennessee, Oklahoma, Nebraska, Kentucky,
    Missouri, Washington, Iowa, Minnesota, Wisconsin, Alaska, Illinois,
    Michigan, Kansas, Colorado, Nevada and Arizona.
  • The company continues to add new distribution partners across the
    U.S., with Redneck Riviera Whiskey now distributed by Republic
    National Distributing Company (RNDC), Southern Glazer's Wine &
    Spirits, Breakthru Beverage Group, Lipman Brothers, West Tennessee
    Crown Distributing Co., Lohr Distributing Company, Johnson Brothers
    Liquor Company, and Worldwide Beverage Group.
  • An impressive line up of retailers now carry Redneck Riviera Whiskey,
    including Walmart, ABC Fine Wine & Spirits (Florida), Rouses
    (Louisiana), Spec's (Texas), Total Wine & More, Albertsons, and
  • Gretchen Wilson, Granger Smith and Colt Ford joined the Redneck
    Riviera Whiskey team as Brand Ambassadors, adding to the strong
    promotional support from John Rich.
  • Eastside introduced its first American Single Malt Whiskey in limited
    release which saw immediate success with two very prestigious craft
    spirits industry awards, a Gold Medal from the 2018 Francisco World
    Spirits Competition and Best of Category (with 93 points) from the
    2018 Los Angeles International Spirits Competition.
  • The company won 21 medals at the 2018 Los Angeles World Spirits
    Competition, of these 21 medals, 14 were won by Eastside directly and
    7 in the Big Bottom Distilling division, while at the San Francisco
    World Spirits Competition, Eastside won an impressive 14 medals, with
    5 of those won by its Big Bottom Distilling division.
  • The company completed its first full quarter of wine canning

Management Commentary

Grover Wickersham, Chairman and CEO of Eastside Distilling, commented,
"I am pleased with the second quarter results and excited by the
opportunities in our immediate future. The quarter was highlighted by
the expanding footprint of Redneck Riviera Whiskey, growth of our wine
canning operations, and the continuing relaunch of our Burnside family
of whiskeys. During Q2 and extending to Q3 we invested heavily in laying
the foundation for sustainable growth in the Redneck Riviera Whiskey
brand, and this is reflected in our EBITDA. Brand investment included
hiring a sales team capable of creating a national brand, promotional
budgets for supporting distributors as we opened up new states, spending
on point of sale and sales promotions as key retailers began carrying
product on their shelves, ramping production, and supporting the brand
with marketing. These activities carry a major upfront cost, but we
believe they will maximize the performance of the brand.

"Redneck Riviera Whiskey is off to a strong start and is accelerating,
with shipments during Q3 2018 being particularly encouraging. We are
constantly told that the rapid and accelerating adoption of the brand is
highly unusual in the industry. This is a testament to the value of our
partnership with John Rich and the capabilities of the entire Eastside
team. We are excited by the prospects of having strong second half of
the year," concluded Wickersham.

Financial Results

For the quarter ended June 30, 2018, Eastside Distilling reported record
gross sales of $1,675,067, an increase of 90% compared to $883,522 in
the second quarter of 2017. The increase in sales is primarily
attributable to: the newly launched Redneck Riviera Whiskey product,
increased wholesale sales traction within the Pacific Northwest due to
the rebranding of our Burnside family of products, strong continuing
vodka sales, our acquisitions of MotherLode and BBD and related
expansion of our private label business and canning abilities, offset by
a reduction in retail due to store relocations.

Total shipments increased to 18,401 cases during Q2 2018 (7,445 for
branded products and 10,957 for private label which now includes wine
canning) from 4,928 cases in Q2 2017 (4,384 for branded products and 544
for private label which excludes any wine canning), an increase of 273%
overall and 70% in branded products.

Gross profit margins (as a percent of Net Sales) were 49.9% during Q2
2018 compared to 34.8% during Q2 2017 and approximately 37% overall in
fiscal 2017. The improvement in gross profit margins is primarily due to
the combination of our new products which have higher margins than prior
legacy products as well as the new, lower federal excise tax. While our
goal is to ultimately improve our overall gross margin, it may fluctuate
around the current level due to the impact of two key factors: product
sales mix and the related customer programs and incentives, both of
which are subject to seasonal fluctuations and the competitive

Advertising, promotional and selling expenses during Q2 2018 increased
slightly as a percent of sales to 63.7% of sales compared to 62.2%
during Q2 2017 primarily due to our efforts to expand our product sales
both regionally in the Pacific Northwest as well as target national
markets, particularly with the new RRW product launch. General and
administrative expenses decreased slightly as a percent of sales, but up
on a dollar basis primarily due to increased headcount to support the
Redneck Riviera and wine canning launches, as well as higher stock-based

EBITDA during Q2 2018 was $(1,250,729), which compared to $(771,402) in
Q2 2017.

Net loss attributable to common shareholders was $(1,906,625), or
$(0.37) per basic and diluted share for Q2 2018, compared $(1,287,651),
or $(0.40) per basic and diluted share in the year ago period.

The company ended the quarter with $2.4 million in cash and inventories
of $7.9 million (at cost) consisting primarily of barrels of light
whiskey, bourbon whiskey and rye whiskey stored in third party
warehouses. The inventory balance reflects an increase of $2.6 million
compared to three months ago as the company continued to purchase
multi-year supplies of bulk spirits in advance of anticipated demand for
Redneck Riviera Whiskey and our other products. Supplies of aged spirits
remain tight and can command significant premiums from vendors and on
the secondary market, as well as suffering from a lack of availability.
Bulk spirit prices have in recent history increased at double digit
rates. By adding strategically to inventories of younger spirits and
buying newly filled barrels, the company seeks to reduce the cost of
goods sold ("COGs") of Redneck Riviera Whiskey, Burnside Bourbon and its
other whiskey-based products.

On August 3, 2018, the Company called for redemption of the warrants to
purchase shares of common stock, that were sold in its public unit
offering in August 2017 and the warrants sold in the note offering
between March and June 2018 (collectively, the "Common Stock Purchase
Warrants"). The Common Stock Purchase Warrants are currently exercisable
for an aggregate of 1,509,162 shares of common stock. If all such
currently outstanding warrants are exercised within the call exercise
period, then the Company will issue an aggregate of 1,509,162 shares of
common stock at $5.40 per share and receive gross exercise proceeds of
approximately $8,149,475. On the other hand, if all such Common Stock
Purchase Warrants are redeemed by Eastside Distilling, Inc. pursuant to
the notice of redemption, then the Company will pay to the registered
holders of such Common Stock Purchase Warrants an aggregate of
approximately $226,374. Since the end of the second quarter, the company
has received exercises totaling 984,087 shares or $5,314,069, with the
majority of those occurring since the call was announced on August 3.

Conference Call

The Company will hold a conference call today to discuss these results.

Date and Time: 11:30 am ET (8:30 am PT) on Monday, August 13, 2018

Call-in Information: Interested parties can access the conference
call by dialing (844) 889-4332 or (412) 717-9595.

Live Webcast Information: Interested parties can access the
conference call via a live Internet webcast, which is available in the
Investor Relations section of the Company's website at

To Ask a Question: The conference call will be moderated by
Lytham Partners, an investor relations firm. There will be three options
to ask a question during the call:

  1. Questions can be asked live during the call-in portion of the
    conference call.
  2. The live webcast will feature an option to submit questions in writing
    during the event.
  3. If you are unable to attend the event, you can submit a question in
    advance to

Replay: A teleconference replay of the call will be available for
three days at (877) 344-7529 or (412) 317-0088, confirmation # 10123140.
A webcast replay will be available in the Investor Relations section of
the Company's website at
for 90 days.

About Eastside Distilling

Eastside Distilling, Inc. (NASDAQ:EAST) has been producing
high-quality, award-winning craft spirits in Portland, Oregon since
2008. The company is distinguished by its highly decorated product
lineup that includes Burnside Bourbon, West End American Whiskey, Goose
Hollow Reserve, Below Deck Rums, Portland Potato Vodka, Hue-Hue Coffee
Rum and a distinctive line of fruit infused spirits. Eastside Distilling
is majority owner of Big Bottom Distilling (makers of The Ninety One
Gin, Navy Strength Gin and Delta Rye whiskey) and the Redneck Riviera
Whiskey Co. All Eastside and Big Bottom spirits are crafted from natural
ingredients for quality and taste. Eastside's MotherLode Bottling
subsidiary is one of the Northwest's leading independent spirit bottlers
and ready-to-drink canners. For more information visit:
or follow the company on Twitter
and Facebook.

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; acceptance of the
Company's products in the market; the Company's success in obtaining new
customers; 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 ("SEC"), including
the financial statements and related information contained in the
Company's Annual Report on Form 10-K and interim Quarterly Reports on
Form 10-Q. Examples of forward-looking statements in this release may
include statements related to our strategic focus, product verticals,
anticipated revenue, and profitability. The Company assumes no
obligation to update the cautionary information in this release.

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

Q2 2018 Financial Summary Tables

The following financial information should be read in conjunction with
the audited financial statements and accompanying notes filed by the
Company with the Securities and Exchange Commission on August 13, 2018
on Form 10-Q for the period ended June 30, 2018, and which can be viewed
and in the investor relations section of the company's website at

Eastside Distilling, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2018 and 2017
Three Months Ended Six Months Ended
June 30, 2018 June 30, 2017 June 30, 2018   June 30, 2017
Sales $ 1,675,067 $ 883,522 $ 3,088,249 $ 1,713,191
Less excise taxes, customer programs and incentives   150,380     278,492     343,229     495,680  
Net sales 1,524,687 605,030 2,745,020 1,217,511
Cost of sales   763,768     394,625     1,391,291     717,538  
Gross profit   760,919     210,405     1,353,729     499,973  
Operating expenses:
Advertising, promotional and selling expenses 1,066,847 549,865 1,709,824 935,997
General and administrative expenses 1,495,486 848,472 2,707,998 1,574,868
Loss on disposal of property and equipment   -     5,441     -     40,975  
Total operating expenses   2,562,333     1,403,778     4,417,822     2,551,840  
Loss from operations   (1,801,414 )   (1,193,373 )   (3,064,093 )   (2,051,867 )
Other income (expense), net
Interest expense (107,015 ) (95,753 ) (163,653 ) (143,562 )
Other income (expense)   2,500     -     2,700     4,485  
Total other expense, net   (104,515 )   (95,753 )   (160,953 )   (139,077 )
Loss before income taxes (1,905,929 ) (1,289,126 ) (3,225,046 ) (2,190,944 )
Provision for income taxes   -     -     -     -  
Net loss   (1,905,929 )   (1,289,126 )   (3,225,046 )   (2,190,944 )
Dividends on convertible preferred stock - - - 5,037
Income (loss) attributable to noncontrolling interests   (696 )   (1,475 )   (103 )   (1,475 )
Net loss attributable to Eastside Distilling, Inc. common
$ (1,906,625 ) $ (1,287,651 ) $ (3,225,149 ) $ (2,194,506 )
Basic and diluted net loss per common share $ (0.37 ) $ (0.40 ) $ (0.64 ) $ (0.75 )
Basic and diluted weighted average common shares outstanding   5,194,538     3,253,246     5,058,293     2,935,551  
Eastside Distilling, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2018 and December 31, 2017
June 30, 2018 December 31, 2017
Current assets:
Cash $ 2,352,658 $ 2,586,315
Trade receivables 580,978 315,321
Inventories 7,891,154 4,051,282
Prepaid expenses and current assets   637,298     649,749  
Total current assets 11,462,088 7,602,667
Property and equipment, net 1,312,043 728,506
Intangible assets, net 310,778 325,668
Goodwill 28,182 28,182
Other assets   407,571     343,942  
Total Assets $ 13,520,662   $ 9,028,965  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 720,583 $ 1,267,189
Accrued liabilities 334,663 156,163
Deferred revenue 986 1,579
Current portion of notes payable   437,539     293,726  
Total current liabilities 1,493,771 1,718,657
Secured trade credit facility, net of debt issuance costs 1,957,432 -
Notes payable - less current portion and debt discount   5,205,693     2,161,760  
Total liabilities   8,656,896     3,880,417  
Commitments and contingencies (Note 10)
Stockholders' equity:
Series A convertible preferred stock, $0.0001 par value; 3,000 shares
authorized; 0 shares issued and outstanding at June 30, 2018
and December 31, 2017 - -
Common stock, $0.0001 par value; 15,000,000 shares authorized;
5,225,775 and 4,889,745 shares issued and outstanding at
June 30, 2018 and December 31, 2017, respectively 522 489
Additional paid-in capital 25,865,248 23,223,435
Stock payable 298,522 -
Accumulated deficit   (21,316,007 )   (18,090,961 )
Total Eastside Distilling, Inc. Stockholders' Equity 4,848,285 5,132,963
Noncontrolling interests   15,481     15,585  
Total Stockholders' Equity 4,863,766 5,148,548
Total Liabilities and Stockholders' Equity $ 13,520,662   $ 9,028,965  
Three Months Ended Six Months Ended
June 30 June 30
2018 2017 2018 2017
Net Loss $ (1,905,929 ) $ (1,289,126 ) $ (3,225,046 ) $ (2,190,944 )
Interest Expense 107,015 95,753 163,653 143,562
Loss on disposal of property and equipment - 5,441 - 40,975
Provision for Income taxes - - - -
Purchase accounting adjustments - 21,425 - 21,425
Stock-based compensation 386,026 120,664 651,280 279,322
Stock issued for services 71,050 253,403 196,078 339,720
Depreciation and amortization   91,109     21,038     158,945     30,044  
Adjusted EBITDA $ (1,250,729 ) $ (771,402 ) $ (2,055,090 ) $ (1,335,896 )

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