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Reed's, Inc. Announces 2016 Financial Results; Chris Reed Takes on New Role as Chief Innovation Officer

LOS ANGELES, April 24, 2017 (GLOBE NEWSWIRE) -- Reed’s, Inc. (NYSE MKT:REED), maker of the top-selling sodas in natural food stores nationwide, today announced the financial results for its fiscal full-year ended December 31, 2016. In addition to the earnings results the Company announced today in a separate press release the appointment of Stefan Freeman as Interim Chief Executive Officer and Founder and former Chief Executive Officer Chris Reed to the newly created position of Founder and Chief Innovation Officer. The Company also issued a separate press release today announcing the closing of a $3.4 million private placement transaction.

Chris Reed, Founder and Chief Innovation Officer commented, “Reed’s has never had a more impressive portfolio of new products waiting to launch in the history of the Company. My transition from CEO to Chief Innovation Officer allows me to focus my full energies to bringing these exciting new products to fruition. We have developed the first natural soda fountain products and have it in trial at a large national fast casual restaurant chain. These soda fountain versions of our popular natural sodas allow restaurants and other fountain concessions to buy our products for significantly less than the full packaged bottled price and at competitive prices to other fountain products. This supports our strategy for opening up new markets and strengthening our brand equity. In addition, we have developed a compelling line of full flavor, all natural, low calorie sodas that we believe taste identical or better than their full calorie counterparts. I believe that these new product ideas have such significant potential that we will be reaching out to form strategic partnerships, including with larger beverage companies, to help with their implementation.”

Interim Chief Executive Officer, Stefan Freeman commented, “The Company is going through a critical transition. I would like to thank Chris Reed who did a phenomenal job building this business from scratch and is truly a pioneer in the craft soda industry. We are excited about his new role as Chief Innovation Officer and his exclusive focus on product development. We have the best craft sodas in the marketplace and we intend to be the growth leader in this space. We are targeting greater operational efficiencies and better margins and we believe that will translate into more profitability and accelerated marketing programs. I am excited to be here and look forward to reporting our progress and enhancing shareholder value.”

The 2016 audited financial results for the Company were as follows:

For the full year 2016 compared to the full year 2015:

  • Net sales were $42.5 million versus $45.9 million
  • Gross margin decreased to 21.1% from 25.3%
  • Delivery and handling costs decreased 24% to $3.9 million
  • Selling and marketing costs decreased 24% to $3.7 million
  • General and administrative expenses increased 1.5% to $4.4 million
  • Operating loss increased to ($3.1 million) from ($2.7 million)
  • Interest expense increased to $2.0 million from $1.2 million
  • Modified EBITDA was a loss of ($1.6 million) as compared to a loss of ($1.0 million) in the prior year period
  • Net loss increased to a loss of ($0.36) per share from a loss of ($0.30) per share in the prior year period

Operational Highlights

  • Reed’s branded product gross sales grew 2.0% driven by the growth of Reed’s Stronger Ginger Brew that grew 685%
  • Virgil’s branded product gross sales declined -9.8% although Virgil’s Root Beer grew 1%
  • Butterscotch Beer gross revenues grew more than 40% to $1.7MM
  • Private label sales grew 3.6%
  • Reed’s Ginger Brews are now available at more the 1,300 Target stores
  • Reed’s and Virgil’s are now authorized and available in 1,135 CVS pharmacies throughout the country
  • Reed’s partners with Barone Distribution headquartered in Reno, Nevada
  • Reed’s expands distribution footprint in Southern California with John Lenore & Company
  • Reed’s expands distribution in New England with Dari Farms Distribution
  • Stronger Ginger available at Kroger and Kroger banners across the US
  • Reed’s and Virgil’s available at Shopko Stores
  • Reed’s and Virgil’s available at all Stater Bros stores in Southern Cal
  • Reed’s started trial of its all natural fountain beverages product at a large national fast casual restaurant
  • Two East coast back up plants on-board resulting in 95% of product in stock in 2016

Dan Miles, Chief Financial Officer of Reed’s, Inc. commented, “The supply chain issues in the third quarter of 2015 created residual and significant issues entering 2016 primarily related to lost shelf space at our retailers. Our supply chain recovered in 2016 and we shipped at 95% of orders, a significant year over year improvement. We focused our initial priority on our Reed’s Ginger Brew product line and it drove slight growth for the year. The Virgil’s product line was our next priority and was down about 10% for the year. Our Reed’s Culture Club Kombucha was hit the hardest and has taken longer to get back in stock and on the shelves. Gross sales of Kombucha were down 54% in 2016 and caused the most sales impact in our year over year comparison. A primary impact to gross margins in 2016 were packaging and ingredient costs that were not offset by price increases and by idle plant costs due to lower sales volumes of Kombucha produced exclusively at the LA plant as well as other products manufactured at the LA facility. Our current plans to improve margins in 2017 include a combination of plant projects coming online, better packaging pricing and innovations and better sourcing to save on raw materials. The $3.4 million financing transaction announced today strengthens our financial position significantly and will help us achieve our objectives. I look forward to working under the leadership of Stefan Freeman, our new Interim CEO, who has extensive operational experience to support our sales recovery.”

Preliminary First Quarter 2017 Results:

The Company expects to report revenues for the first quarter of 2017 ended March 31, 2017 of approximately $8.3 million versus $10.0 million in the prior year period. The lower sales volume will have an impact on both gross margins and operating margins.

Conference Call Details

The Company will conduct a conference call at 10:30 am pacific time today, April 24, 2017 to discuss its 2016 results. To participate in the call, please dial the following number 5 to 10 minutes prior to the scheduled call time (800) 683-3233. International callers should dial +1 (303) 223-2692.

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.
Reed’s, Inc. makes the top-selling sodas in the natural and specialty foods industry and are sold in over 15,000 natural and mainstream supermarkets nationwide. Reed’s products are sold through an additional estimated 40,000 accounts that include specialty gourmet, natural food stores, retail stores, convenience stores and restaurants nationwide and in select international markets. Reed’s has sold over 500 million bottles since inception in June 1989 and is considered the leader of the fast growing craft soda category. Its seven award-winning non-alcoholic Ginger Brews are unique in the beverage industry, being brewed, not manufactured and using fresh ginger, spices and fruits in a brewing process that predates commercial soft drinks. The Company owns the top-selling root beer line in natural foods, the Virgil’s Root Beer product line, and a top-selling cola line in natural foods, the China Cola product line. In 2012, the Company launched its Reed’s Culture Club Kombucha line of organic live beverages. Other product lines include Reed’s Ginger Candies and previously Reed’s Ginger Ice Creams.

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 Instagram, Twitter and Facebook.
Reed’s Facebook Fan Page at https://www.facebook.com/ReedsGingerBrew

SAFE HARBOR STATEMENT
This press release contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. These statements include projections, predictions, expectations or statements as to beliefs or future events or results or refer to other matters that are not historical facts. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by these statements. The forward- looking statements contained in this press release are based on various factors and were derived using numerous assumptions. In some cases, you can identify these forward-looking statements by the words “anticipate”, “estimate”, “plan”, “project”, “continuing”, “ongoing”, “target”, “aim”, “expect”, “believe”, “intend”, “may”, “will”, “should”, “could”, or the negative of those words and other comparable words.

Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Forward-looking statements in this press release may include, without limitation, statements reflecting management's expectations for future financial performance and operating expenditures, expected growth, profitability and business outlook.

Forward-looking statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from those anticipated by such statements. These factors include, but are not limited to, the Company's ability to manage growth; manage debt; meet development goals; and other important risks and uncertainties referenced and discussed under the heading titled “Risk Factors” in the Company's filings with the Securities and Exchange Commission. Although we believe that the expectations reflected in the forward-looking statements contained in this press release are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

The statements in this press release are made as of the date of this press release, even if subsequently made available by the Company on its website or otherwise. The Company does not assume any obligations to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

REED’S INC.
BALANCE SHEETS
December 31,
2016
December 31,
2015
ASSETS
Current assets:
Cash $451,000 $1,816,000
Trade accounts receivable, net of allowance for doubtful accounts and returns and discounts of $256,000 and $356,000, respectively 2,485,000 2,894,000
Inventory, net of reserve for obsolescence of $115,000 and $290,000, respectively 6,885,000 7,974,000
Prepaid and other current assets 500,000 769,000
Total Current Assets 10,321,000 13,453,000
Property and equipment, net of accumulated depreciation of $4,719,000 and $4,216,000, respectively 7,726,000 5,369,000
Brand names 805,000 1,029,000
Total assets $18,852,000 $19,851,000
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $5,959,000 $7,458,000
Accrued expenses 215,000 168,000
Line of credit 4,384,000 4,443,000
Current portion of long term financing obligations 190,000 160,000
Current portion of capital leases payable 183,000 153,000
Current portion of bank notes 953,000 341,000
Total current liabilities 11,884,000 12,723,000
Other Long Term Liabilities 130,000 -
Long term financing obligation, less current portion, net of discount of $825,000 and $935,000, respectively 1,363,000 1,443,000
Capital leases payable, less current portion 438,000 490,000
Bank notes, net of discount $78,000 and $132,000, respectively 5,919,000 4,410,000
Warrant liability 775,000 -
Total Liabilities 20,509,000 19,066,000
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, 19,500,000 shares authorized, 13,982,230 and 13,160,860 shares issued and outstanding, respectively 1,000 1,000
Additional paid in capital 29,971,000 27,399,000
Accumulated deficit (31,723,000) (26,709,000)
Total stockholders’ equity (deficit) (1,657,000) 785,000
Total liabilities and stockholders’ equity (deficit) $18,852,000 $19,851,000


REED’S, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2016 and 2015
2016 2015
Net Sales $42,472,000 $45,948,000
Cost of goods sold 33,490,000 34,343,000
Gross profit 8,982,000 11,605,000
Operating expenses:
Delivery and handling expenses 3,902,000 5,100,000
Selling and marketing expense 3,701,000 4,867,000
General and administrative expense 4,208,000 4,368,000
Impairment of assets 224,000 -
Total operating expenses 12,035,000 14,335,000
Loss from operations (3,053,000) (2,730,000)
Interest expense (1,724,000) (1,231,000)
Change in fair value of warrant liability (232,000) -
Net loss (5,009,000) (3,961,000)
Preferred Stock Dividends (5,000) (5,000)
Net loss attributable to common stockholders $(5,014,000) $(3,966,000)
Loss per share – basic and diluted $(0.37) $(0.30)
Weighted average number of shares outstanding – basic and diluted 13,619,930 13,147,815


REED’S, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2016 and 2015
2016 2015
Cash flows from operating activities:
Net loss $(5,009,000) $(3,961,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 642,000 933,000
Fair value of vested stock options issued to employees 658,000 877,000
Fair value of common stock issued for services 15,000 1,000
(Decrease) increase in allowance for doubtful accounts (100,000) 103,000
(Decrease) increase in reserve for impairment of assets 484,000 -
Change in fair value of warrant liability 232,000 -
Changes in operating assets and liabilities:
Accounts receivable 509,000 (497,000)
Inventory 1,089,000 (381,000)
Prepaid expenses and other assets 269,000 (25,000)
Accounts payable (1,499,000) 1,564,000
Accrued expenses 17,000 38,000
Increase in other long term obligations 160,000 -
Net cash used in operating activities (2,533,000) (1,348,000)
Cash flows from investing activities:
Purchase of property and equipment (410,000) (532,000)
Net cash used in investing activities (410,000) (532,000)
Cash flows from financing activities:
Proceeds from stock option and warrant exercises 116,000 75,000
Principal payments on capital expansion loan (375,000) -
Proceeds from sale of common stock 2,230,000 -
Proceeds from borrowing on Term Loan B - 1,500,000
Principal repayments on long term financial obligation (160,000) (134,000)
Principal repayments on capital lease obligation (174,000) (138,000)
Net borrowings (repayments) on existing line of credit (59,000) 1,434,000
Net cash provided by financing activities 1,578,000 2,737,000
Net increase (decrease) in cash (1,365,000) 857,000
Cash at beginning of period 1,816,000 959,000
Cash at end of period $451,000 $1,816,000
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $1,746,000 $1,187,000
Non Cash Investing and Financing Activities
Property and equipment acquired through capital expansion loan $2,442,000 $915,000
Property and equipment acquired through capital lease obligations 152,000 179,000
Other current assets acquired through capital expansion loan - 297,000
Fair value of warrants granted as debt discount 91,000 141,000
Dividends payable in common stock 5,000 5,000
Warrant liability from private financing 543,000 -


MODIFIED EBITDA SCHEDULE
Year ended December 31,
2016 2015
(unaudited) (unaudited)
Net loss $(5,009,000) $(3,961,000)
Modified EBITDA adjustments:
Depreciation and amortization 642,000 933,000
Interest expense 1,724,000 1,231,000
Reserve for replacement on fixed assets 260,000 -
Stock option and warrant compensation 658,000 877,000
Stock compensation for services 15,000 1,000
Impairment loss on brand names 224,000 -
Change in fair value of warrant liability 232,000 -
Total EBITDA adjustments $3,755,000 $1,811,000
Modified EBITDA $(1,254,000) $(2,150,000)


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

Source:Reed's Inc.