Reed’s, Inc. Announces 2017 Third Quarter Results

LOS ANGELES, Nov. 13, 2017 (GLOBE NEWSWIRE) — Reed’s Inc. (NYSE American:REED), owner of the nation’s leading portfolio of handcrafted, all-natural beverages, today announced financial results for the fiscal third quarter ended September 30, 2017.

Financial Overview:

For the third quarter 2017 compared to the third quarter 2016:

  • Net sales were $10.9 million versus $12.3 million or a decline of 11.7%
    •  On a volume basis, non-core and discontinued products were down 25.2% for the quarter, while core products were down 8.5%
  • The company took its first price increase on its core products in 7 years which temporarily suppressed volume in August and explains the decline for the quarter
  • On a monthly basis, core product volume was up 7.3% in July; 5.7% in September and the positive trend continued into October indicating that the market has absorbed the new pricing
  • Significant idle plant costs continued to impact gross profit margins which remained unchanged versus the prior quarter at 19% versus 23% for the prior year
  • Delivery and handling expenses increased to $1,119,000 from $901,000 driven temporarily by added shipping costs related to the increased private label production at the LA plant during the third quarter
  • Selling and marketing expenses decreased to $828,000 from $918,000
  • General and Administrative expenses increased to $3,109,000 from $871,000, $2.0 million of which was driven by a non-cash impairment charge on uninstalled plant equipment and the remainder by increased filing fees and the timing of the annual shareholder meeting.
  • Interest expense and bank related charges increased to $757,000 from $415,000 primarily driven by the cost of the convertible note accrued interest and debt discount amortization of $274,000
  • Financing costs and warrant modifications totaled $1,798,000 which offsets the gain reported in Q2 2017
  • Net loss was ($0.37) per diluted share versus ($0.02) per diluted share
  • Modified EBITDA was a loss of ($839,000) versus positive $557,000

Val Stalowir CEO of Reed’s, Inc. stated, “After my first quarter here at Reed’s I see even more opportunity than I originally anticipated. The team has responded well, and we continue to make progress to improve the company’s overall performance.  I am encouraged to see that some initiatives underway have already begun to have a positive impact on the business.  The current priority is to continue to significantly improve the company’s margins and re-accelerate growth of the core brands. There are several significant initiatives the company has been negotiating that will be concluded in the short-term which we believe will have a significant positive impact on the company’s performance.  We intend to press release these new developments and host business update calls over the coming weeks,” Stalowir concluded.

Q3 2017 Earnings Call Details:
The Company will conduct a conference call at 4:30 pm eastern time today, November 13, 2017 to discuss its 2017 third quarter results. To participate in the call, please dial the following number 5 to 10 minutes prior to the scheduled call time (800) 942-2493. International callers should dial +1 (303) 223-0117.

A replay of the call will be available on the Reed’s website at www.reedsinc.com in the “Investors” section following the earnings call within a day.

About Reed’s, Inc.:
Established in 1989, Reed’s has sold over 500 million bottles of its category leading all-natural, handcrafted beverages. Reed’s is America’s #1 selling Ginger Beer brand and has been the leader and innovator in the ginger beer category for decades. Virgil’s is America’s #1 selling independent, all-natural craft soda brand. The Reed’s Inc. portfolio is sold in over 20,000 retail doors across the natural, specialty, grocery, drug, club and mass channels nationwide.  Reed’s Ginger Beers are unique to the category because of the proprietary process of hand brewing its award-winning products using fresh organic ginger combined with natural spices and fruit juices. Reed’s Ginger Beers come in three levels of increasing ginger intensity that deliver a delicious and powerful ginger bite and burn that can only come from fresh ginger root. The Company uses this same handcrafted approach and dedication to the highest quality ingredients in its award-winning Virgil’s line of great tasting, bold flavored craft sodas.

For more information about Reed’s, please visit the Company’s website at: http://www.reedsinc.com or call 800-99-REEDS.

Follow Reed’s on Twitter at http://twitter.com/reedsgingerbrew

Reed’s Facebook Fan Page at https://www.facebook.com/reedsgingerbrew

SAFE HARBOR STATEMENT 
Some portions of this press release, particularly those describing Reed’s goals and strategies, contain “forward-looking statements.” These forward-looking statements can generally be identified as such because the context of the statement will include words, such as “expects,” “should,” “believes,” “anticipates” or words of similar import. Similarly, statements that describe future plans, objectives or goals are also forward-looking statements. While Reed’s is working to achieve those goals and strategies, actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties. These risks and uncertainties include difficulty in marketing its products and services, maintaining and protecting brand recognition, the need for significant capital, dependence on third party distributors, dependence on third party brewers, increasing costs of fuel and freight, protection of intellectual property, competition and other factors, any of which could have an adverse effect on the business plans of Reed’s, its reputation in the industry or its expected financial return from operations and results of operations. In light of significant risks and uncertainties inherent in forward-looking statements included herein, the inclusion of such statements should not be regarded as a representation by Reed’s that they will achieve such forward-looking statements. For further details and a discussion of these and other risks and uncertainties, please see our most recent reports on Form 10-K and Form 10-Q, as filed with the Securities and Exchange Commission, as they may be amended from time to time. Reed’s undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

CONTACT:
Reed’s, Inc.
Investor Relations
(310) 217-9400 Ext 6
Email: ir@reedsinc.com
www.reedsinc.com

REED’S INC.  
CONDENSED BALANCE SHEETS  
   
    September 30,      December 31,  
    2017     2016  
    (Unaudited)        
ASSETS                
Current assets:                
Cash   $ 348,000     $ 451,000  
Trade accounts receivable, net of allowance for doubtful accounts and returns and discounts of $378,000 and $256,000, respectively     3,188,000       2,485,000  
Inventory, net of reserve for obsolescence of $290,000 and $115,000, respectively     7,815,000       6,885,000  
Prepaid and other current assets     301,000       500,000  
Total Current Assets     11,652,000       10,321,000  
Property and equipment, net of accumulated depreciation of $5,280,000 and $4,863,000, respectively     4,089,000       7,726,000  
Equipment held for sale, net of reserve of $2,000,000     2,465,000        
Brand names     805,000       805,000  
Total assets   $ 19,011,000     $ 18,852,000  
LIABILITIES AND STOCKHOLDER’S DEFICIENCY                
Current liabilities:                
Accounts payable   $ 6,992,000     $ 5,959,000  
Accrued expenses     181,000       215,000  
Advances from officers     277,000        
Line of credit     5,153,000       4,384,000  
Current portion of long term financing obligations     214,000       190,000  
Current portion of capital leases payable     194,000       183,000  
Current portion of bank notes     953,000       953,000  
Total current liabilities     13,964,000       11,884,000  
Other long term liabilities                
Long term financing obligation, less current portion, net of discount of $742,000 and $825,000, respectively     1,283,000       1,363,000  
Capital leases payable, less current portion     286,000       438,000  
Bank notes, net of discount $0 and $78,000, respectively     6,182,000       5,919,000  
Convertible note, net of discount $2,833,000 and $0, respectively     748,000        
Warrant liability     74,000       775,000  
Other long term liabilities     117,000       130,000  
Total Liabilities     22,654,000       20,509,000  
Stockholders’ Deficiency                
Series A Convertible Preferred stock, $10 par value, 500,000 shares authorized, 9,411 shares issued and outstanding     94,000       94,000  
Common stock, $.0001 par value, 40,000,000 shares authorized, 15,286,258 and 13,982,230 shares outstanding     1,000       1,000  
Additional paid in capital     35,447,000       29,971,000  
Accumulated deficit     (39,185,000 )     (31,723,000 )
Total stockholders’ deficiency     (3,643,000 )     (1,657,000 )
Total liabilities and stockholders’ deficiency   $ 19,011,000     $ 18,852,000  

The accompanying notes are an integral part of these condensed financial statements

F-1
 

REED’S, INC.  
CONDENSED STATEMENTS OF OPERATIONS  
(Unaudited)  
   
    Three months ended      Nine months ended   
    September 30,     September 30,  
    2017     2016     2017     2016  
Net Sales   $ 10,887,000     $ 12,329,000     $ 28,046,000     $ 33,326,000  
Cost of goods sold     8,825,000       9,443,000       23,216,000       25,945,000  
Gross profit     2,062,000       2,886,000       4,830,000       7,381,000  
                                 
Operating expenses:                                
Delivery and handling expenses     1,119,000       901,000       2,731,000       2,815,000  
Selling and marketing expense     828,000       918,000       2,344,000       2,911,000  
General and administrative expense     1,105,000       871,000       3,402,000       3,007,000  
Impairment of assets     2,000,000             2,000,000        
Total operating expenses     5,052,000       2,690,000       10,477,000       8,733,000  
                                 
Income/(loss) from operations     (2,990,000 )     196,000       (5,647,000 )     (1,352,000 )
                                 
Interest expense     (757,000 )     (415,000 )     (2,270,000 )     (1,239,000 )
Financing costs and warrant modification     (1,798,000 )           (2,776,000 )      
Change in fair value of warrant liability     (72,000 )           3,236,000        
Net loss     (5,617,000 )     (219,000 )     (7,457,000 )     (2,591,000 )
                                 
Preferred Stock Dividends                 (5,000 )     (5,000 )
Net loss attributable to common stockholders   $ (5,617,000 )   $ (219,000 )   $ (7,462,000 )   $ (2,596,000 )
                                 
Weighted average number of shares outstanding – basic     15,033,083       13,908,247       14,336,375       13,504,223  
Loss per share   $ (0.37 )   $ (0.02 )   $ (0.52 )   $ (0.19 )

The accompanying notes are an integral part of these condensed financial statements

F-2
 

REED’S, INC.
 
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
 
Nine months ended September 30, 2017
 
(Unaudited)
 
   
                                    Additional              Total   
    Common Stock     Preferred Stock     Paid In     Accumulated     Shareholders  
    Shares     Amount     Shares     Amount     Capital      Deficit      Deficiency   
Balance, December 31, 2016     13,982,230     $ 1,000       9,411     $ 94,000     $ 29,971,000     $ (31,723,000 )   $ (1,657,000 )
                                                         
Fair value of vesting of options to employees and directors                                     199,000               199,000  
Fair value of common shares issued for services     62,365                             99,000               99,000  
Common shares issued upon exercise of warrants, net     1,122,376                             1,650,000               1,650,000  
Extinguishment of warrant liability                                     2,634,000               2,634,000  
Fair value of warrants issued for financing costs                                     689,000               689,000  
Common shares issued for cash     117,647                             200,000               200,000  
Preferred dividends paid in Common stock     1,640                             5,000       (5,000 )      
Net loss                                             (7,457,000 )     (7,457,000 )
Balance, September 30, 2017     15,286,258     $ 1,000       9,411     $ 94,000     $ 35,447,000     $ (39,185,000 )   $ (3,643,000 )

The accompanying notes are an integral part of these condensed financial statements

F-3
 

REED’S, INC.  
CONDENSED STATEMENTS OF CASH FLOWS   
(Unaudited)  
   
    Nine months ended  
    9/30/2017     9/30/2016  
Cash flows from operating activities:                
Net loss   $ (7,457,000 )   $ (2,591,000 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     430,000       503,000  
Amortization     728,000       186,000  
Fair value of vested stock options issued to employees     199,000       449,000  
Fair value of common stock issued for services     99,000        
(Decrease) increase in allowance for doubtful accounts     122,000       (100,000 )
Reserve for impairment on equipment held for sale     2,000,000        
Fair value of warrants issued as financing cost     908,000          
Modification cost of warrants     1,868,000        
Change in fair value of warrant liability     (3,236,000 )      
Changes in operating assets and liabilities:                
Accounts receivable     (825,000 )     (61,000 )
Inventory     (930,000 )     122,000  
Prepaid expenses and other assets     199,000       6,000  
Accounts payable     1,033,000       (301,000 )
Accrued expenses     176,000       182,000  
Other long term liabilities     (43,000 )      
Net cash used in operating activities     (4,729,000 )     (1,605,000 )
Cash flows from investing activities:                
Purchase of property and equipment     (535,000 )     (585,000 )
Net cash used in investing activities     (535,000 )     (585,000 )
Cash flows from financing activities:                
Net borrowings (repayments) on advances from officers     277,000        
Proceeds from sale of common stock     200,000       2,230,000  
Proceeds from warrant exercises     1,650,000       45,000  
Principal payments on capital expansion loan     (538,000 )     (168,000 )
Proceeds from issuance of convertible note     3,083,000        
Principal repayments on long term financial obligation     (139,000 )     (117,000 )
Principal repayments on capital lease obligation     (141,000 )     (131,000 )
Net borrowings (repayments) on existing line of credit     769,000       462,000  
Net cash provided by financing activities     5,161,000       2,321,000  
Net (decrease) increase in cash     (103,000 )     131,000  
Cash at beginning of period     451,000       1,816,000  
Cash at end of period   $ 348,000     $ 1,947,000  
                 
Supplemental disclosures of cash flow information:                
Cash paid during the period for:                
Interest   $ 2,074,000     $ 843,000  
Non Cash Investing and Financing Activities                
Property and equipment acquired through capital expansion loan   $ 723,000     $ 1,307,000  
Property and equipment acquired through capital lease obligations           86,000  
Reclass of property to equipment held for sale     4,465,000        
Fair value of warrants granted as debt discount     3,083,000       54,000  
Dividends payable in common stock     5,000       5,000  
Extinguishment of warrant liability     2,634,000        

MODIFIED EBITDA SCHEDULE  
   
    Three months ended  
    Sept. 30,  
    2017     2016  
    (unaudited)     (unaudited)  
Net income (loss)   $ (5,617,000 )   $ (219,000 )
                 
Modified EBITDA adjustments:                
Depreciation     171,000       214,000  
Interest expense     757,000       415,000  
Stock option and warrant compensation     (20,000 )     147,000  
Impairment costs     2,000,000        
Financing costs and warrant modification     1,798,000        
Change in fair value of warrant liability     72,000        
Total EBITDA adjustments     4,778,000       776,000  
                 
Modified EBITDA   $ (839,000 )   $ 557,000  
                 

MODIFIED EBITDA SCHEDULE  
   
    Nine months ended Sept. 30,  
    2017     2016  
    (unaudited)     (unaudited)  
Net income (loss)   $ (7,457,000 )   $ (2,591,000 )
                 
Modified EBITDA adjustments:                
Depreciation     430,000       689,000  
Interest expense     2,270,000       1,239,000  
Stock option and warrant compensation     298,000       449,000  
Impairment costs     2,000,000        
Financing costs and warrant modification     2,776,000        
Change in fair value of warrant liability     (3,236,000 )      
Total EBITDA adjustments     4,538,000       2,377,000  
                 
Modified EBITDA   $ (2,919,000 )   $ (214,000 )