Reed's Inc. Announces Second Quarter ResultsReed's Inc. Announces Second Quarter ResultsGLOBE NEWSWIREAugust 14, 2017

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.

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

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