UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 14, 2018
REED’S, INC.
(Exact name of registrant as specified in its charter)
Delaware | 001-32501 | 35-2177773 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) |
(IRS Employer Identification No.) |
1300 South Spring Street, Los Angeles, California 90061
(Address of principal executive offices and zip code)
Not applicable
(Former name or former address if changed since last report)
Registrant’s telephone number, including area code: (310) 217-9400
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
[ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. Results of Operations and Financial Condition.
On May 14, 2018, Reed’s Inc., a Delaware corporation (the “Company”) issued a press release announcing its 2018 first quarter results. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The Company will conduct a conference call at 4:30 pm eastern time today, May 14, 2018 to discuss its 2018 first quarter results. To participate in the conference call, dial 1-(800) 754-1336 (U.S.); or 1-(212) 231-2928 (International). Please dial in at least five minutes before the start of the conference call. A replay of the conference call will be available the following day on the Company’s website by logging on via the “Investors” section at www.reedsinc.com.
The information in this Form 8-K (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.
Forward Looking Statements
Some portions of the press release, particularly those describing the Company’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 the Company 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 Company’s business plans, 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 the Company that they will achieve such forward-looking statements. For further details, 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. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise
Use of Non-GAAP Measures
Modified EBITDA is used as a supplemental measure of the Company’s performance. However, Modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of liquidity. The Company defines Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization, stock-based compensation, impairments and changes in fair value of warrant expenses. Management believes that disclosure of Modified EBITDA offers an additional view of the Company’s operations that, when coupled with the GAAP results, provides a more complete understanding of the Company’s financial results. Modified EBITDA may not be comparable to similarly titled measures used by other companies, and it excludes financial information that some may consider important in evaluating the Company’s performance. A reconciliation of Modified EBITDA to net income (loss) for the three month periods ended March 31, 2018 and 2017 is included in the accompanying financial schedules to the press release. For further information, please refer to the Company’s Quarterly Report on Form 10-Q to be filed with the SEC on or about May 14, 2018, available online at www.sec.gov.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
The following exhibit relating to Item 2.02 shall be deemed to be furnished, and not filed:
99.1 | Press release of Reed’s Inc. dated May 14, 2018 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
REEDS, INC., | ||
a Delaware corporation | ||
Dated: May 14, 2018 | By: | /s/ Daniel Miles |
Daniel Miles | ||
Chief Financial Officer |
Reed’s, Inc. Announces First Quarter 2018 Financial Results
First quarter gross profit doubled as gross margin more than doubled to 27.8%
Continued progress on Transformation and Value Creation Plan
Launch of Virgil’s Zero Sugar line underway, shipping to distributors and retailers
LOS ANGELES, May 14, 2018 (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 first quarter 2018 ended March 31, 2018.
Financial Highlights for the First Quarter of 2018
● | Net Sales were $8.3 million, consistent with prior year period; |
● | Gross profit doubled to $2.3 million from $1.1 million in the prior year period and the gross margin more than doubled to 27.8% from 12.7% in the prior year period or 1510 basis points and increased 650 basis points sequentially from the fourth quarter of 2017; |
● | Operating loss narrowed to $1.1 million from $1.6 million in the prior year period; |
● | Net loss narrowed to $1.6 million or $0.06 per share compared to a net loss of $2.0 million or $0.14 per share in the prior year period; |
● | Modified EBITDA loss narrowed to $0.7 million from $1.3 million in the prior year period. |
Management Commentary
“We are pleased with our ability to hold net revenue despite our SKU rationalization and reduced marketing and promotional support during the quarter. We also continue to make progress on our transformation and value creation plan,” stated Val Stalowir CEO of Reed’s, Inc. “The benefits of our plan were clearly evident in the significant gross margin expansion during the first quarter. Our new glass contract with Owen-Illinois drove a majority of the incremental 650 basis points of improvement in gross margin from the fourth quarter of 2017 and contributed to a more than doubling of gross margin year-over-year, delivering 1510 basis points of improvement. We continue to see opportunities to improve gross margin as our business model is further optimized and transitioned to an asset-light sales and marketing model. We are making good progress on the sale of our Los Angeles manufacturing facility and are in the late stages of finalizing a new credit agreement with much improved terms and lower interest rates.”
“We have officially launched the Virgil’s Zero Sugar line and have started shipping product to distributors and retailers. We are very encouraged by the initial response from retailers and we are in the process of increasing our level of sales and promotional spend to support the launch. Phase 2 of our transformation plan will be investing in sales and marketing programs to drive revenue growth and brand value. We are well into the development phase of these initiatives and should start to see benefits from their implementation by the end of Q2. We will continue to execute against our transformation plan and are pleased with the results we are delivering.” Stalowir concluded.
Financial Overview for the First Quarter of 2018 Compared to the First Quarter of 2017
During the first quarter of 2018, net sales of $8.3 million were consistent with the same period in 2017, as increased average selling prices as a result of a price increase in the third quarter of 2017 were offset by lower volumes that resulted from reductions in promotional spending versus the prior year.
Gross profit during the first quarter of 2018 more than doubled to $2.3 million compared to the same period in 2017. Gross margin was 27.8% of net sales during the first quarter of 2018 compared to 12.7% of net sales in the same period in 2017, and up from 21.3% the fourth quarter of 2017. The 650 basis point improvement in gross margin as a percentage of revenue compared to the fourth quarter of 2017 was primarily driven by the benefits of the new glass supplier contract with Owens-Illinois. On a year over year basis, lower glass costs contributed to roughly 900 basis points of the improvement in gross margin, with the remainder primarily reflecting the impact of higher average selling prices and SKU rationalization.
Delivery and handling costs increased 28.7% to $1.0 million during the first quarter of 2018 driven by one-time transition charges to a new warehouse and logistics partner and a general increase in freight rates. Selling and marketing costs increased 28.6% to $1.0 million during the first quarter of 2018 due to investments related to the development of a marketing function with agency support resources. General and administrative expenses increased 31.3% to $1.5 million during the first quarter of 2018 from $1.1 million in the prior year period, primarily as a result of non-cash equity compensation and shareholder related activities.
Operating loss narrowed to $1.1 million during the first quarter of 2018 from $1.6 million in the prior year period, or a net $0.5 million improvement.
Interest expense increased to $0.5 million during the first quarter of 2018 from $0.4 million during the first quarter of 2017.
Net loss narrowed to $1.6 million, or $0.06 per share in the first quarter of 2018, from a loss of $2.0 million, or $0.14 per share in the first quarter of 2017.
Modified EBITDA loss narrowed to $0.7 million in the first quarter of 2018 from $1.3 million in the first quarter of 2017.
Liquidity and Cash Flow
During the first quarter, the Company used $4.6 million of cash in operating activities compared to $0.5 million of cash generated from operating activities in the prior year period. The cash outlay was primarily used to pay stretched payables and pay down the high interest rate working capital line as described in the rights offering that funded on December 28, 2017. As of March 31, 2018, the Company had cash and cash equivalents of $3.4 million and $4.4 million of undrawn availability on its working capital line of credit.
First Quarter 2018 Earnings Call Details
The Company will conduct a conference call at 1:30 pm Pacific Time (4:30 pm Eastern Time) today, May 14, 2018 to discuss its first quarter 2018 results. To participate in the call, please dial 1-(800) 754-1336 (U.S.); or 1-(212) 231-2928 (International). Please dial in at least five minutes before the start of the conference call. A replay of the conference call will be available the following day on the Company’s website by logging on via the “Investors” section at www.reedsinc.com.
About Reed’s, Inc.
Established in 1989, Reed’s has sold over 500 million bottles of its category leading 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, full line of natural craft sodas. The Reed’s Inc. portfolio is sold in over 30,000 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 only comes 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.
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, 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.
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/drinkreeds
Reed’s Facebook Fan Page at https://www.facebook.com/reedsgingerbrew
Contacts:
Investor Relations
Scott Van Winkle, ICR
(617) 956-6736
Email: scott.vanwinkle@icrinc.com
or
Email: ir@reedsinc.com
www.reedsinc.com
REED’S, INC.
CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2018 and 2017
(Unaudited)
2018 | 2017 | |||||||
Net Sales | $ | 8,288,000 | $ | 8,295,000 | ||||
Cost of goods sold | 5,985,000 | 7,239,000 | ||||||
Gross profit | 2,303,000 | 1,056,000 | ||||||
Operating expenses: | ||||||||
Delivery and handling expense | 956,000 | 743,000 | ||||||
Selling and marketing expense | 1,013,000 | 788,000 | ||||||
General and administrative expense | 1,459,000 | 1,111,000 | ||||||
Total operating expenses | 3,428,000 | 2,642,000 | ||||||
Loss from operations | (1,125,000 | ) | (1,586,000 | ) | ||||
Interest expense | (485,000 | ) | (416,000 | ) | ||||
Change in fair value of warrant liability | (5,000 | ) | 9,000 | |||||
Net loss attributable to common stockholders | $ | (1,615,000 | ) | $ | (1,993,000 | ) | ||
Loss per share – basic and diluted | $ | (0.06 | ) | $ | (0.14 | ) | ||
Weighted average number of shares outstanding – basic and diluted | 24,989,863 | 13,982,230 |
REED’S, INC.
BALANCE SHEETS
As of March 31, 2018 and December 31, 2017
March 31, 2018 | December 31, 2017 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 3,376,000 | $ | 12,127,000 | ||||
Accounts receivable, net of allowance for doubtful accounts and returns and discounts of $569,000 and $601,000, respectively | 2,464,000 | 2,691,000 | ||||||
Inventory, net of reserve for obsolescence of $451,000 and $509,000, respectively | 6,835,000 | 5,931,000 | ||||||
Prepaid expenses and other current assets | 316,000 | 199,000 | ||||||
Total Current Assets | 12,991,000 | 20,948,000 | ||||||
Property and equipment, net of accumulated depreciation and impairment reserves of $9,506,000 and $9,339,000, respectively | 203,000 | 353,000 | ||||||
Equipment held for sale | 2,184,000 | 2,370,000 | ||||||
Intangible assets | 805,000 | 805,000 | ||||||
Total assets | $ | 16,183,000 | $ | 24,476,000 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 4,543,000 | $ | 7,480,000 | ||||
Accrued expenses | 207,000 | 220,000 | ||||||
Advances from officers | - | 277,000 | ||||||
Line of credit | - | 3,301,000 | ||||||
Current portion of capital leases payable | 186,000 | 198,000 | ||||||
Current portion of long term financing obligation | 231,000 | 222,000 | ||||||
Bank notes | 6,440,000 | 6,947,000 | ||||||
Total current liabilities | 11,607,000 | 18,645,000 | ||||||
Capital leases payable, less current portion | 243,000 | 236,000 | ||||||
Long term financing obligation, less current portion, net of discount of $687,000 and $714,000, respectively | 1,219,000 | 1,250,000 | ||||||
Convertible note to a related party | 3,802,000 | 3,690,000 | ||||||
Warrant liability | 41,000 | 36,000 | ||||||
Other long term liabilities | 104,000 | 111,000 | ||||||
Total Liabilities | 17,016,000 | 23,968,000 | ||||||
Stockholders’ equity (deficit): | ||||||||
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, 25,036,043 and 24,619,591 shares issued and outstanding, respectively | 2,000 | 2,000 | ||||||
Common stock issuable, 838,140 and 400,000 shares, respectively | 84,000 | 680,000 | ||||||
Additional paid in capital | 50,703,000 | 49,833,000 | ||||||
Accumulated deficit | (51,716,000 | ) | (50,101,000 | ) | ||||
Total stockholders’ equity (deficit) | (833,000 | ) | 508,000 | |||||
Total liabilities and stockholders’ equity (deficit) | $ | 16,183,000 | $ | 24,476,000 |
REED’S, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2018 and 2017
(Unaudited)
03/31/2018 | 3/31/2017 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (1,615,000 | ) | $ | (1,993,000 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 177,000 | 121,000 | ||||||
Amortization of debt discount | 28,000 | 73,000 | ||||||
Loss on sale of property and equipment | 26,000 | - | ||||||
Fair value of vested stock options issued to employees | 161,000 | 140,000 | ||||||
Fair value of common stock issuable for services | 113,000 | - | ||||||
(Decrease) increase in allowance for doubtful accounts | (32,000 | ) | 26,000 | |||||
(Decrease) increase in inventory reserve | (58,000 | ) | 50,000 | |||||
(Decrease) increase in fair value of warrant liability | 5,000 | (9,000 | ) | |||||
Accrual of interest on Convertible Note Payable | 112,000 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 259,000 | 45,000 | ||||||
Inventory | (846,000 | ) | 1,319,000 | |||||
Prepaid expenses and other assets | (117,000 | ) | 124,000 | |||||
Accounts payable | (2,829,000 | ) | 656,000 | |||||
Accrued expenses | (13,000 | ) | 6,000 | |||||
Other long term obligations | (7,000 | ) | (31,000 | ) | ||||
Net cash used in operating activities | (4,636,000 | ) | 527,000 | |||||
Cash flows from investing activities: | ||||||||
Proceeds from sale of property and equipment | 69,000 | 0 | ||||||
Purchase of property and equipment | - | (41,000 | ) | |||||
Net cash provided by (used in) investing activities | 69,000 | (41,000 | ) | |||||
Cash flows from financing activities: | ||||||||
Repayments on line of credit | (3,301,000 | ) | (854,000 | ) | ||||
Principal repayments on capital expansion loan | (507,000 | ) | (177,000 | ) | ||||
Principal repayments on long term financial obligation | (50,000 | ) | (44,000 | ) | ||||
Net borrowings (repayments) on advances | (277,000 | ) | 380,000 | |||||
Principal repayments on capital lease obligation | (49,000 | ) | (45,000 | ) | ||||
Net cash used in financing activities | (4,184,000 | ) | (740,000 | ) | ||||
Net decrease in cash | (8,751,000 | ) | (254,000 | ) | ||||
Cash at beginning of period | 12,127,000 | 451,000 | ||||||
Cash at end of period | $ | 3,376,000 | $ | 197,000 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 334,000 | $ | 400,000 | ||||
Non Cash Investing and Financing Activities | ||||||||
Property and equipment acquired through capital expansion loan | $ | - | $ | 288,000 | ||||
Property and equipment acquired through capital lease | $ | 44,000 | $ | - | ||||
Vendor credits issued for fixed asset purchases | $ | 108,000 | $ | - | ||||
Assets sold to third parties at cost | $ | 69,000 | $ | - |
REED’S INC.
NON-GAAP FINANCIAL MEASURE
EBITDA RECONCILIATION
Modified EBITDA is used as a supplemental measure of the Company’s performance. However, Modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of liquidity. The Company defines Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization, stock-based compensation, impairments and changes in fair value of warrant expenses. Set forth below is a reconciliation of Modified EBITDA to net income (loss) for the three month periods ended March 31, 2018 and 2017:
March 31, | ||||||||
2018 | 2017 | |||||||
(unaudited) | (unaudited) | |||||||
Net loss | $ | (1,615,000 | ) | $ | (1,993,000 | ) | ||
Modified EBITDA adjustments: | ||||||||
Depreciation and amortization | 177,000 | 121,000 | ||||||
Interest expense | 485,000 | 416,000 | ||||||
Stock option and warrant compensation | 274,000 | 140,000 | ||||||
Change in fair value of warrant liability | (5,000 | ) | (9,000 | ) | ||||
Total EBITDA adjustments | $ | 931,000 | $ | 668,000 | ||||
Modified EBITDA | $ | (684,000 | ) | $ | (1,325,000 | ) |