LOS ANGELES, Aug. 14, 2017 (GLOBE NEWSWIRE) -- Reed's, Inc. (NYSE American:REED), owner of the nation’s leading
portfolio of handcrafted, all-natural beverages, today announced the financial results for its fiscal second quarter ended June 30,
2017.
Select Financial Information for Second Quarter 2017 versus Second Quarter 2016
- Second quarter net sales revenue decreased 19% to $8.9 million from $11.0 million.
- Net sales revenue of ‘Core Brands’ defined as Reed’s, Virgil’s and branded sparkling beverages decreased 9%.
- Gross margin of all products decreased to 19% from 24%.
- Total operating expenses decreased 3%. Sales and marketing expenses decreased 24% which outpaced the decline in net
sales. Delivery and handling expenses decreased 18% which were in line with the decline in volume. General and
administrative expenses increased 35%, driven primarily by employee transition costs of $183,000 and additional legal and filing
costs of $117,000.
- Interest expense and bank related charges increased to $995,000 from $416,000. The increase is primarily due to the cost of
the April 21 convertible note accrued interest and debt discount amortization of $501,000.
- Non-Cash warrant and financing costs totaled $2,321,000. This amount consists of the $978,000 cost of warrant modification
and financing costs related to the convertible note, offset by a derivative gain in the second quarter of $3,299,000.
Operational and Marketing Highlights
- Val Stalowir announced as Chief Executive Officer in July 2017.
- Stefan Freeman announced as Chief Operating Officer in July 2017.
- Management’s corrective operational initiatives in 2017 drove continued improvement in gross margins which were 13% in Q1,
19% in Q2 and in July reached 23%.
- Renewed focus on core brands Reed’s and Virgil’s has reversed recent sales declines and in July posted double digit net sales
growth.
- Company believes it has regained its previously lost shelf space in the conventional channel and anticipates closing the
small gap remaining in the natural channel by year end.
- Successful Rite Aid test launch of Reed’s Extra Ginger Brew, Virgil’s Root Beer & Virgil’s Cream in 1,000+ stores results in
brand’s expansion to 4,000 locations.
- Reed’s expands its UK presence with launch of Virgil’s Root Beer, Cream and Black Cherry at 400+ Tesco locations. Tesco is
the 3rd largest retailer in the world by profit.
- Reed’s begins its renewed focus on the ‘on-premise’ channel through securing a partnership with MS Walker Fine Wine & Spirits
Distributors in Massachusetts and Rhode Island.
- Reed’s Stronger, Extra and Original authorized in planograms of 300+ stores in the Albertson’s Southwest Division including
Safeway and VONS.
- Reed’s Stronger, Extra and Premium, and Virgil’s Root Beer, Cream and Orange Cream authorized in 150+ Shaw’s stores in the
Northeast.
- Reed’s Stronger and Original Ginger Brews authorized at all 50 Vallarta Supermarkets in Southern California.
- Reed’s Extra Ginger Brew and Virgil’s Root Beer 12 packs are now authorized at 200+ Smart and Final stores in the states of
California, Nevada, Arizona, Idaho, Oregon and Washington.
Val Stalowir, CEO of Reed’s, Inc. stated, “Our second quarter 2017 results continue to reflect the Company’s operational
challenges and the prior lack of focus on the core brands. The current management team has initiated a multi-pronged
turnaround plan that we believe will continue to deliver improved results in the coming quarters. Management has successfully
eliminated over 70 SKU’s since the start of 2017 which reduces the Company’s working capital needs and will allow the Company to
focus all available resources on reaccelerating growth of the core product line. A total of 71% of the volume loss during the
second quarter was driven by what is now defined as ‘Non-Core’ products such as Kombucha, private label and candy. We have ramped
up the Los Angeles plant to run 2 shifts 6 days a week which is significantly reducing idle plant charges and increasing core
product shipments to our West Coast customers. In July, we announced Stefan Freeman as our new Chief Operating Officer.
Stefan is evaluating our entire supply chain line by line and vendor by vendor and is developing a plan to increase efficiency and
improve our margins and overall profitability. The Company is also exploring strategies to move to a simpler, asset light
operating model that would direct more resources towards sales and marketing. Reed’s and Virgil’s are leading brands in
growing categories and our plan is to capture more than our fair share of growth moving forward by bringing innovation to our
iconic brands. These initiatives include a complete brand refresh and bottle upgrade for both brands, the launch of 12oz slim
cans to more effectively pursue underdeveloped channels, the renewed focus on Reed’s Ginger Brew in the bar and restaurant channel
and the launch of a new and greatly improved No Sugar line of Virgil’s all-natural handcrafted sodas. Chris Reed and his team
have done an incredible job developing what I call the 2.0 of all-natural sweeteners that deliver the bold taste of full sugar with
only 5 calories. There is tremendous upside in the Reed’s and Virgil’s brands and I am confident we have the team and plans
in place to begin to realize their true potential and drive improved shareholder value,” Mr. Stalowir concluded.
The Company will conduct a conference call at 5:00 PM EDT today, August 14th, to discuss its 2017 fiscal second
quarter results. To participate in the call, please dial the following number 5 to 10 minutes prior to the scheduled call time:
Domestic callers should dial (888) 224-7957
International callers should dial +1 (303) 223-2697
A replay of the call will be available by the following day in the investor relations section of the Company's website at: http://www.reedsinc.com/investors/.
| |
|
| REED’S INC. |
|
| CONDENSED BALANCE SHEETS |
|
| |
|
| |
|
June 30,
2017 |
|
|
December 31,
2016 |
|
| |
|
(Unaudited) |
|
|
|
|
| ASSETS |
|
|
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
|
| Cash |
|
$ |
251,000 |
|
|
$ |
451,000 |
|
| Trade accounts receivable, net of allowance for doubtful accounts,
returns and discounts of $282,000 and $256,000, respectively |
|
|
2,730,000 |
|
|
|
2,485,000 |
|
| Inventory, net of reserve for obsolescence of $180,000 and $115,000,
respectively |
|
|
7,917,000 |
|
|
|
6,885,000 |
|
| Prepaid and other current assets |
|
|
283,000 |
|
|
|
500,000 |
|
| Total Current Assets |
|
|
11,181,000 |
|
|
|
10,321,000 |
|
| Property and equipment, net of accumulated depreciation of $5,122,000 and
$4,863,000, respectively |
|
|
8,250,000 |
|
|
|
7,726,000 |
|
| Brand names |
|
|
805,000 |
|
|
|
805,000 |
|
| Total assets |
|
$ |
20,236,000 |
|
|
$ |
18,852,000 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY |
|
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
| Accounts payable |
|
$ |
6,690,000 |
|
|
$ |
5,959,000 |
|
| Accrued expenses |
|
|
345,000 |
|
|
|
215,000 |
|
| Advances from officers |
|
|
277,000 |
|
|
|
- |
|
| Line of credit |
|
|
4,589,000 |
|
|
|
4,384,000 |
|
| Current portion of long term financing obligations |
|
|
197,000 |
|
|
|
190,000 |
|
| Current portion of capital leases payable |
|
|
171,000 |
|
|
|
183,000 |
|
| Current portion of bank notes |
|
|
953,000 |
|
|
|
953,000 |
|
| Total current liabilities |
|
|
13,222,000 |
|
|
|
11,884,000 |
|
| |
|
|
|
|
|
|
|
|
| Other long term liabilities |
|
|
|
|
|
|
|
|
| Other liabilities |
|
|
123,000 |
|
|
|
130,000 |
|
| Long term financing obligation, less current portion, net of discount
of $774,000 and $825,000, respectively |
|
|
1,317,000 |
|
|
|
1,363,000 |
|
| Capital leases payable, less current portion |
|
|
360,000 |
|
|
|
438,000 |
|
| Bank notes, net of discount $0 and $78,000, respectively |
|
|
6,365,000 |
|
|
|
5,919,000 |
|
| Convertible note, net of discount $2,975,000 and $0,
respectively |
|
|
501,000 |
|
|
|
- |
|
| Warrant liability |
|
|
1,527,000 |
|
|
|
775,000 |
|
| Total Liabilities |
|
|
23,415,000 |
|
|
|
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, 19,500,000 shares authorized, 14,013,378 and
13,982,230 shares outstanding |
|
|
1,000 |
|
|
|
1,000 |
|
| Additional paid in capital |
|
|
30,294,000 |
|
|
|
29,971,000 |
|
| Accumulated deficit |
|
|
(33,568,000 |
) |
|
|
(31,723,000 |
) |
| Total stockholders’ deficiency |
|
|
(3,179,000 |
) |
|
|
(1,657,000 |
) |
| Total liabilities and stockholders’ deficiency |
|
$ |
20,236,000 |
|
|
$ |
18,852,000 |
|
| |
|
|
|
|
|
|
|
|
| |
|
| REED’S, INC. |
|
| CONDENSED STATEMENTS OF
OPERATIONS |
|
| For the Six Months Ended June 30, 2017 and
2016 |
|
| (Unaudited) |
|
| |
|
| |
|
Three months
ended |
|
|
Six months
ended |
|
| |
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
| Net sales |
|
$ |
8,864,000 |
|
|
$ |
10,992,000 |
|
|
$ |
17,159,000 |
|
|
$ |
20,996,000 |
|
| Cost of goods sold |
|
|
7,181,000 |
|
|
|
8,390,000 |
|
|
|
14,391,000 |
|
|
|
16,501,000 |
|
| Gross profit |
|
|
1,683,000 |
|
|
|
2,602,000 |
|
|
|
2,768,000 |
|
|
|
4,495,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Delivery and handling expenses |
|
|
869,000 |
|
|
|
1,064,000 |
|
|
|
1,612,000 |
|
|
|
1,913,000 |
|
| Selling and marketing expense |
|
|
728,000 |
|
|
|
954,000 |
|
|
|
1,516,000 |
|
|
|
1,995,000 |
|
| General and administrative expense |
|
|
1,259,000 |
|
|
|
931,000 |
|
|
|
2,297,000 |
|
|
|
2,136,000 |
|
| Total operating expenses |
|
|
2,856,000 |
|
|
|
2,949,000 |
|
|
|
5,425,000 |
|
|
|
6,044,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss from operations |
|
$ |
(1,173,000 |
) |
|
$ |
(347,000 |
) |
|
$ |
(2,657,000 |
) |
|
$ |
(1,549,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense |
|
|
(995,000 |
) |
|
|
(416,000 |
) |
|
|
(1,513,000 |
) |
|
|
(794,000 |
) |
| Financing costs and warrant modification |
|
|
(978,000 |
) |
|
|
- |
|
|
|
(978,000 |
) |
|
|
- |
|
| Change in fair value of warrant liability |
|
|
3,299,000 |
|
|
|
- |
|
|
|
3,308,000 |
|
|
|
- |
|
| Net income (loss) basic and diluted |
|
|
153,000 |
|
|
|
(763,000 |
) |
|
|
(1,840,000 |
) |
|
|
(2,343,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred stock dividends |
|
|
(5,000 |
) |
|
|
(5,000 |
) |
|
|
(5,000 |
) |
|
|
(5,000 |
) |
| Net income (loss) attributable to common stockholders |
|
$ |
148,000 |
|
|
$ |
(768,000 |
) |
|
$ |
(1,845,000 |
) |
|
$ |
(2,348,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average number of shares outstanding – basic |
|
|
14,013,378 |
|
|
|
13,184,000 |
|
|
|
13,982,230 |
|
|
|
13,184,000 |
|
| Income (loss) per share – basic and diluted |
|
$ |
0.01 |
|
|
$ |
(0.06 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.18 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| REED’S, INC. |
|
| CONDENSED STATEMENT OF CHANGES IN
STOCKHOLDERS’ DEFICIENCY |
|
| For the Six Months Ended June 30,
2017 |
|
| (Unaudited) |
|
| |
|
| |
|
Common Stock |
|
|
Preferred Stock |
|
|
Additional
Paid |
|
|
Accumulated |
|
|
Total
Shareholder |
|
| |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
In 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228,000 |
|
|
|
|
|
|
|
228,000 |
|
| Fair value of common shares issued for services |
|
|
29,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,000 |
|
|
|
|
|
|
|
90,000 |
|
| Preferred dividends paid in common stock |
|
|
1,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
(5,000 |
) |
|
|
- |
|
| Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,840,000 |
) |
|
|
(1,840,000 |
) |
| Balance, June 30, 2017 |
|
|
14,013,378 |
|
|
$ |
1,000 |
|
|
|
9,411 |
|
|
$ |
94,000 |
|
|
$ |
30,294,000 |
|
|
$ |
(33,568,000 |
) |
|
$ |
(3,179,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| REED’S, INC. |
|
| CONDENSED STATEMENTS OF CASH
FLOWS |
|
| For the Six Months Ended June 30, 2017 and
2016 |
|
| (Unaudited) |
|
| |
|
| |
|
6/30/2017 |
|
|
6/30/2016 |
|
| Cash flows from operating activities: |
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(1,840,000 |
) |
|
$ |
(2,343,000 |
) |
| Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
813,000 |
|
|
|
477,000 |
|
| Increase (decrease) in allowance for doubtful accounts |
|
|
26,000 |
|
|
|
(50,000 |
) |
| Fair value of vested stock options issued to employees and
directors |
|
|
228,000 |
|
|
|
302,000 |
|
| Fair value of common stock issued for services |
|
|
90,000 |
|
|
|
- |
|
| Fair value of warrants recorded as financing costs |
|
|
978,000 |
|
|
|
- |
|
| Change in fair value of warrant liability |
|
|
(3,308,000 |
) |
|
|
- |
|
| Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Accounts receivable |
|
|
(271,000 |
) |
|
|
(600,000 |
) |
| Inventory |
|
|
(1,032,000 |
) |
|
|
204,000 |
|
| Prepaid Inventory |
|
|
217,000 |
|
|
|
(529,000 |
) |
| Prepaid expenses and other assets |
|
|
- |
|
|
|
196,000 |
|
| Accounts payable |
|
|
731,000 |
|
|
|
(1,785,000 |
) |
| Accrued expenses |
|
|
159,000 |
|
|
|
24,000 |
|
| Accrued interest on convertible note |
|
|
76,000 |
|
|
|
- |
|
| Payment of other long term obligations |
|
|
(37,000 |
) |
|
|
- |
|
| Net cash provided (used) by operating activities |
|
|
(3,170,000 |
) |
|
|
(4,104,000 |
) |
| Cash flows from investing activities: |
|
|
|
|
|
|
|
|
| Purchase of property and equipment |
|
|
(60,000 |
) |
|
|
(78,000 |
) |
| Net cash used in investing activities |
|
|
(60,000 |
) |
|
|
(78,000 |
) |
| Cash flows from financing activities: |
|
|
|
|
|
|
|
|
| Advances from officers |
|
|
500,000 |
|
|
|
- |
|
| Repayment of amounts due to officers |
|
|
(223,000 |
) |
|
|
- |
|
| Proceeds from sale of common stock |
|
|
- |
|
|
|
2,239,000 |
|
| Proceeds from issuance of convertible note |
|
|
3,083,000 |
|
|
|
- |
|
| Proceeds from stock option and warrant exercises |
|
|
- |
|
|
|
45,000 |
|
| Principal payments on capital expansion loan |
|
|
(355,000 |
) |
|
|
- |
|
| Principal repayments on long term financial obligation |
|
|
(90,000 |
) |
|
|
(76,000 |
) |
| Principal repayments on capital lease obligation |
|
|
(90,000 |
) |
|
|
(87,000 |
) |
| Net repayments on existing line of credit |
|
|
205,000 |
|
|
|
1,214,000 |
|
| Net cash used in financing activities |
|
|
3,030,000 |
|
|
|
3,335,000 |
|
| Net decrease in cash |
|
|
(200,000 |
) |
|
|
(847,000 |
) |
| Cash at beginning of period |
|
|
451,000 |
|
|
|
1,816,000 |
|
| Cash at end of period |
|
$ |
251,000 |
|
|
$ |
969,000 |
|
| |
|
|
|
|
|
|
|
|
| Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
| Cash paid during the period for: |
|
|
|
|
|
|
|
|
| Interest |
|
$ |
861,000 |
|
|
$ |
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 |
|
| Fair value of warrants granted as debt discount |
|
|
|
|
|
$ |
54,000 |
|
| Dividends payable in common stock |
|
$ |
5,000 |
|
|
$ |
5,000 |
|
| Debt discount on note recognized as warrant liability |
|
$ |
3,083,000 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| |
|
| MODIFIED EBITDA SCHEDULE |
|
| |
|
| |
|
Three months ended
June 30, |
|
| |
|
2017 |
|
|
2016 |
|
| |
|
(unaudited) |
|
|
(unaudited) |
|
| Net income (loss) |
|
$ |
153,000 |
|
|
$ |
(763,000 |
) |
| |
|
|
|
|
|
|
|
|
| Modified EBITDA adjustments: |
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
194,000 |
|
|
|
219,000 |
|
| Interest expense |
|
|
995,000 |
|
|
|
416,000 |
|
| Stock option and warrant compensation |
|
|
178,000 |
|
|
|
133,000 |
|
| Financing costs |
|
|
978,000 |
|
|
|
- |
|
| Change in fair value of warrant liability |
|
|
(3,299,000 |
) |
|
|
- |
|
| Total EBITDA adjustments |
|
$ |
(954,000 |
) |
|
$ |
768,000 |
|
| |
|
|
|
|
|
|
|
|
| Modified EBITDA |
|
$ |
(801,000 |
) |
|
$ |
5,000 |
|
| |
|
|
|
|
|
|
|
|
About Reed's, Inc.
Established in 1989, Reed’s has sold over 500 million bottles of its category winning hand-brewed craft 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. The
company is the maker of some of the best-selling all-natural, handcrafted beverages in the natural and specialty foods channel.
Reed’s portfolio is sold in well over 20,000 natural, specialty, mainstream and independent supermarkets nationwide. Additionally,
Reed’s products are sold through accounts within the drug, club, mass, and convenience store channels as well as on-premise
accounts that include bars and restaurants nationwide. The Reed’s and Virgil’s brands can also be found in a growing number of
international markets. Its seven award-winning non-alcoholic Ginger Brews are unique in the beverage industry. Reed’s Ginger Brews
are hand brewed, not formulated and use more than a million pounds of fresh ginger combined with spices and fruit juices every
year. Reed’s Ginger Brews deliver a delicious and intense ginger bite and burn that can only come from fresh ginger root. The
company applied its same handcrafted brewed approach and focus on high quality ingredients to its award-winning Virgil’s Root Beer.
The Virgil’s line of all-natural, handcrafted beverages is the top-selling craft soda in the natural food channel and is one of the
leading brands within the fast-growing craft soda category.
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.
Reed's, Inc. Investor Relations (310) 217-9400 ext. 6 Email: ir@reedsinc.com www.reedsinc.com
