Castle Brands Board (ROX)

[FUNMAN]

A few Q thoughts:

https://www.sec.gov/Archives/edgar/data/1311538/000149315218015502/form10-q.htm

Inventory is up $6 million in 6 months and $6.5 million in 12 months. Looks like they are stocking up for a big holiday Q and laying down more than ever. We just heard Trey tell us yesterday in the interview that Jefferson's laid down 8,000 barrels this year.


If the trend continues, next year ROX should have approximately $48 million in inventory.



Total assets went up $7 million, compared to Total liabilities being up $4 million.



Net loss attributable to common shareholders


Six months ended
September 30,


2018 ... (906,843)


2017 ... (948,078)



Three months ended
September 30,


2018 ... (216,136)


2017 ... (1,681)


Seems like a step backwards.





Six months ended September 30,


CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss


2017 ... (253,554)


2018 ... (30,378)


Big improvement





Unfortunately, this went the wrong way because interest rates are rising:


Notes to Unaudited Condensed Consolidated Financial Statements - Continued from page 15

The Amended Agreement contains EBITDA targets allowing for further interest rate reductions in the future. The Company and CB-USA are permitted to prepay the Credit Facility in whole or the Purchased Inventory Sublimit, in whole or in part, subject to certain prepayment penalties as set forth in the Loan Agreement Amendment. For the six months ended September 30, 2018, the Company paid interest at 7.31175% through April 30, 2018, then 7.35805% through May 31, 2018, then 7.30031% through June 30, 2018, then 7.5% through September 27, 2018, then 7.75% through September 30, 2018 on the Amended Agreement. For the six months ended September 30, 2017, the Company paid interest at 6.5% through June 14, 2017, then 6.75% through September 30, 2017 on the Amended Agreement. For the six months ended September 30, 2018, the Company paid interest at 9.06175% through April 30, 2018, then 9.10805% through May 31, 2018, then 9.05031% through June 30, 2018, then 9.25% through September 27, 2018, then 9.5% through September 30, 2018 on the Purchased Inventory Sublimit. For the six months ended September 30, 2017, the Company paid interest at 8.25% through June 14, 2017, and then at 8.5% through September 30, 2017 on the Purchased Inventory Sublimit. Interest is payable monthly in arrears, on the first day of every month on the average daily unpaid principal amount of the Credit Facility.





From page 16 ... I missed this news when it happened. Maybe it was not announced? The keys are a longer term and a higher percentage can be collateralized by inventory. They paid a lot of money for those rights.


In November 2018, the Company and CB-USA entered into a Sixth Amendment (the “Sixth Amendment”) to the Amended Agreement to amend certain terms of the Company’s existing Credit Facility with ACF. Among other changes, the Sixth Amendment extends the term of the Credit Facility to July 31, 2020 and amended the definition of borrowing base to increase the amount of borrowing that can be collateralized by inventory. The Company and CB-USA paid ACF an aggregate $57,500 commitment fee in connection with the Amendment.




Consolidated Net Income (Loss) Attributable to Common Shareholders:
Interestingly, the company made money internationally. Huummm
International ... $48,135
United States ... (264,271)





Product Category Sales ... Impressive contributions from the core products.


Three months ended September 30,


Whiskey ... 2018 ... $9,000,528 .......... 2017 ... 7,335,290


RUM ... 2018 ... $4,174,322 .......... 2017 ... 4,168,262 .......... All of the advertising and promotions have reversed the decline and turned it into growth .......... Yea!


Ginger Beer ... 2018 ... $7,235,923 .......... 2017 ... $6,372,809 .......... GGB continues to Kick A _ _!





Three months ended September 30,


Gross profit


2018 ... 39.2% .......... 2017 ... 40.9%




Six months ended September 30,


2018 ... 39.6% .......... 2017 ... 41%


This is a disturbing trend that might indicate price cutting to push volumes.


Gross profit. Gross profit increased 7.0% to $9.1 million for the three months ended September 30, 2018 from $8.5 million for the comparable prior-year period, while gross margin decreased to 39.3% for the three months ended September 30, 2018 as compared to 40.9% for the comparable prior-year period. The increase in gross profit was primarily due to increased aggregate revenue in the current period. We expect gross margin in the near term will be impacted negatively as we use higher-cost bourbon to meet our sales needs, but positively impacted by the Craft Beverage Modernization and Tax Reform Act of 2017.



Selling expense. Selling expense increased 8.6% to $5.3 million for the three months ended September 30, 2018 from $4.9 million for the comparable prior-year period, primarily due to a $0.3 million increase in employee costs and a $0.2 million increase in shipping costs associated with increased Goslings Stormy Ginger Beer sales volume. Selling expense as a percentage of net sales decreased to 22.8% for the three months ended September 30, 2018 as compared to 23.4% for the comparable prior-year period due to increased revenues and decreased expenses in the current period.



As a result of our focus on our stronger growth markets and better performing brands, and expected growth from our existing brands, we anticipate improved results of operations in the near term as compared to prior years, although there is no assurance that we will attain such results.



As of September 30, 2018, we had borrowed $22.3 million of the $23.0 million then available under the Credit Facility, including $6.4 million of the $7.0 million available under the Purchased Inventory Sublimit, leaving $0.1 million in potential availability for working capital needs under the Credit Facility and $0.6 million available for aged whiskey inventory purchases. As of November 7, 2018, we had borrowed $22.2 million of the $25.0 million then available under the amended Credit Facility, including $6.4 million of the $7.0 million available under the Purchased Inventory Sublimit, leaving $2.2 million in potential availability for working capital needs under the amended Credit Facility and $0.6 million available for aged whiskey inventory purchases.


During the six months ended September 30, 2018, net cash used in operating activities was $4.0 million, consisting primarily of a $6.2 million increase in inventory, a $1.0 million decrease in due to related parties and a net loss of $0.3 million. These uses of cash were partially offset by a $1.4 million increase in accounts payable and accrued expenses, a $0.3 million decrease in accounts receivable, stock based compensation expense of $1.0 million and depreciation and amortization expense of $0.4 million


I believe that in the next Q, in addition to purchasing aged bourbon for bottling, ROX will also draw down on aged and re-barrelled inventory of Jefferson's extensions to meet holiday demand, and when it introduces the new Tobacco extension in the coming weeks.





Three months ended September 30,


EBITDA, as adjusted ... 2018 ... $1,844,597 .......... (2017) ... $1,866,361



Six months ended September 30,


EBITDA, as adjusted ... 2018 ... $3,350,037 .......... (2017) ... $2,665,210


This is impressive since these are the slowest 2 Q's of the year.




In summation:


Overall the only negative I see is Gross Profit shrunk. That's not a good trend.


The Q's YoY revenue rise was consistent with the prior Quarter's year over year growth.


Assuming that trend continues, then our holiday Q ending December 31, 2018 should be GAAP black while producing a revenue number of $26.873 million. Seeing that will be FUN.