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 11, 2020

 

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.)

 

201 Merritt 7 Corporate Park, Norwalk, CT 06851

(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))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Trading Symbol(s)   Name of Each Exchanged on Which Registered
Common Stock, $.0001 par value per share   REED   The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

 

Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

 

 

 
 

  

Item 2.02 Results of Operations and Financial Condition.

 

On May 11, 2020, Reed’s Inc., a Delaware corporation (the “Company”) issued a press release announcing financial results for the first fiscal quarter ended March 31, 2020. The full text of the press release issued in connection with the announcement is attached as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference.

 

Item 7.01. Regulation FD Disclosure.

 

See “Item 2.02 Results of Operations and Financial Condition” above.

 

The information in this Current Report on Form 8-K under Items 2.02 and 7.01, including the information contained in Exhibit 99.1, is being furnished to the Securities and Exchange Commission, and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by a specific reference in such filing.

 

(d) Exhibits.

 

The following exhibit is furnished with this Current Report on Form 8-K:

 

Exhibit No.   Description
99.1   Press Release of Reed’s Inc. dated May 11, 2020

 

 

 

 

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 11, 2020 By: /s/ Thomas J. Spisak
    Thomas J. Spisak
    Chief Financial Officer

 

 

 

Exhibit 99.1

 

 

Reed’s, Inc. Announces First Quarter 2020 Financial Results

 

Net sales increased 13%

 

Core brand gross sales increased 12%

 

Reaffirms fiscal 2020 outlook

 

NORWALK, CT, May 11, 2020 (GLOBE NEWSWIRE) — Reed’s Inc. (Nasdaq:REED), owner of the nation’s leading portfolio of handcrafted, all-natural beverages, today announced financial results for the fiscal first quarter ended March 31, 2020.

 

Highlights for the First Quarter of 2020

 

  Net sales increased 13% to $9.5 million in the first quarter compared to $8.4 million in the prior year. The increase compared to the prior year reflects increased sales of both the Reed’s® and Virgil’s® brands, including the launch of significant new Reed’s® brand innovation;
  Core brand gross sales increased 12% versus prior year period primarily driven by strong 21% volume growth of the Reed’s® brand;
  Gross profit increased 15% to $2.9 million compared to $2.5 million in the prior year period. Gross margin increased 50 basis points to 30.1%;
  Operating loss narrowed to $2.3 million compared to $2.9 million in the first quarter of 2019; and
  Net loss was $2.6 million, or $0.05 per share, compared to $3.3 million, or $0.11 per share, in the prior year period; and
  Non-GAAP Modified EBITDA loss improved to $1.4 million in the first quarter of 2020 compared to a Modified EBITDA loss of $2.3 million in the prior year.

 

Management Commentary

 

“We are very pleased with our results in the first quarter achieving 13% net sales growth driven by 21% volume growth of the Reed’s® brand. We are seeing strong consumer take-away of both the Reed’s® and Virgil’s® brands, with accelerating growth in March and April. According to IRI data, during the most recent 4-week period ended April 19th, dollar sales of Reed’s® increased 32% and Virgil’s® increased 25%. Our recent innovations, including Reed’s® Real Ginger Ale, Reed’s® Extra Zero Sugar and Reed’s® Wellness Ginger Shots, are all contributing to growth and we are seeing a strong response from retailers and consumers. We are particularly excited with the broad-based retailer interest in Reed’s® Real Ginger Ale, allowing us to capitalize on the fast growing $1.2 billion ginger ale market,” stated Norman E. Snyder, Chief Executive Officer of Reed’s, Inc. “We have strengthened our supply chain and co-packer network, are driving costs out the business and are laser focused on progressing toward cash flow break-even. We recently strengthened our balance sheet with a successful equity offering, all of our innovations are now in place and we have significantly expanded our market opportunity with the launch of Reed’s® Real Ginger Ale. The entire Reed’s® team and partners are delivering a high level of execution supporting growth and efficiencies. We have also successfully adapted to the current environment associated with the COVID-19 pandemic, and are delivering our customers uninterrupted service. I am extremely appreciative of the efforts of all of our employees and partners amid these recent challenges.”

 

   

 

 

Financial Overview for the First Quarter of 2020 Compared to the First Quarter of 2019

 

During the first quarter of 2020, net sales increased 13% to $9.5 million compared with $8.4 million in the prior year. Core brand gross sales increased 12% compared to the same period in 2019, driven by 21% volume growth of the Reed’s® brand primarily as a result of new products introduced in the quarter. This increase was partially offset by residual sales of discontinued and private label, which are no longer part of our portfolio as a result of the sale of the private label business at end of fiscal 2018 and planned discontinued sales of exited and non-core products.

 

Gross profit during the first quarter of 2020 increased 15% to $2.9 million compared to the same period in 2019. The increase in gross profit reflects increased revenue during the quarter driven by strong volume growth of the Reed’s® brand. Gross margin increased 50 basis points to 30.1% from 29.6% in the prior year period.

 

Delivery and handling costs increased 23% to $1.3 million during the first quarter of 2020 compared to the same period in 2019. As a percentage of net sales, delivery and handling costs increased 110 basis points compared to the prior year, reflecting increased volumes and elevated costs due to market forces impacted by COVID-19.

 

Selling and marketing costs decreased 4% to $1.9 million during the first quarter of 2020. As a percentage of net sales, selling and marketing costs decreased to 20% from 24% in the prior year period. The decrease was primarily a result of programs offered in the first quarter of 2019 that were not implemented in the first quarter of 2020.

 

General and administrative expenses (G&A) decreased to $1.9 million during the first quarter of 2020 compared to $2.4 million in the prior year period. The decrease in general and administrative expenses compared to the prior year period was largely driven by the exit of the Los Angeles facility and reduction of temporary staff.

 

Operating loss during the first quarter of 2020 narrowed to $2.3 million from $2.9 million in the prior year period.

 

Interest expense of $0.3 million during the first quarter of 2020 was consistent with the first quarter of 2019.

 

Net loss during the first quarter of 2020 was $2.6 million, or $0.05 per share, compared to $3.3 million, or $0.11 per share in the first quarter of 2019.

 

Modified EBITDA loss was $1.4 million in the first quarter of 2020 compared to a loss of $2.3 million in the first quarter of 2019.

 

Liquidity and Cash Flow

 

During the first three months of 2020, the Company used $2.4 million of cash in operating activities compared to $8.8 million of cash used in operating activities in the prior year period. The decrease in cash used in operating activities during the first quarter of 2020 relates primarily to a lower net loss and a decrease in finished goods inventory. As of March 31, 2020, the Company had $3.0 million of available borrowing capacity on its revolving line of credit.

 

   

 

 

Follow-on Offering

 

On April 20, 2020, the Company closed an underwritten public offering of 15.3 million shares of common stock, at a public offering price of $0.375 per share. The gross proceeds to the Company from this offering were approximately $5.8 million, before deducting commissions and other offering expenses.

 

Full Year 2020 Guidance

 

The Company is reaffirming its fiscal 2020 outlook. The Company continues to expect to generate core brand growth of approximately 10% and continues to anticipate a gross margin of 32% or greater for the full year 2020. Fiscal 2020 guidance reflects year-to-date business trends, including the current operating environment related to COVID-19. The COVID-19 pandemic and its related impacts create many incremental potential business risks, including potential impacts to the Company’s ability to access raw materials, production, transportation and/or other logistics needs, which cannot be reasonably estimated and are not factored into current fiscal 2020 guidance.

 

First Quarter 2020 Earnings Call Details

 

The Company will conduct a conference call at 4:30 pm Eastern Time today, May 11, 2020 to discuss its first quarter 2020 results. This conference call can be accessed via a link on Reed’s investor website at http://investor.reedsinc.com/ under the “Events & Presentations” section or directly at http://public.viavid.com/index.php?id=139524. To listen to the live call over the Internet, please go to Reed’s website at least fifteen minutes early to register, download and install any necessary audio software. Additionally, the call may be accessed with the toll-free dial-in number, 1-(877) 425-9470 (U.S.); or 1-(201) 389-0878 (International). Please dial in at least fifteen minutes before the start of the conference call due to increased demand for conference calls.

 

A replay of the webcast will be archived on the Company’s website at http://investor.reedsinc.com under the “Events & Presentations” section for approximately 90 days.

 

About Reed’s, Inc.

 

Established in 1989, Reed’s® is America’s best-selling Ginger Beer brand and has been the leader and innovator in the ginger beer category for decades. Virgil’s® is America’s best-selling independent, full line of natural craft sodas. The Reed’s Inc. portfolio is sold in over 35,000 retail doors nationwide. Reed’s® Ginger Beers are unique due to the proprietary process of using fresh ginger root combined with a Jamaican inspired recipe of natural spices and fruit juices. The Company uses this same handcrafted approach 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.drinkreeds.com or call 800-99-REEDS. Follow Reed’s® on Twitter, Instagram, and Facebook @drinkreeds.

 

For more information about Virgil’s® please visit Virgil’s® website at: http://www.virgils.com. Follow Virgil’s® on Twitter and Instagram @drinkvirgils and on Facebook @drinkvirgilssoda.

 

   

 

 

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.

 

CONTACTS:

 

Investor Relations

Scott Van Winkle, ICR

(800) 997-3337 Ext 6

Or (617) 956-6736

Email: ir@reedsinc.com

www.reedsinc.com

 

   

 

 

REED’S, INC.

CONDENSED STATEMENTS OF OPERATIONS

For the Three months Ended March 31, 2020 and 2019

(Unaudited)

(Amounts in thousands, except share and per share amounts)

 

   Three Months Ended 
   2020   2019 
Net Sales  $9,523   $8,449 
Cost of goods sold   6,653    5,945 
Gross profit   2,870    2,504 
           
Operating expenses:          
Delivery and handling expense   1,263    1,030 
Selling and marketing expense   1,925    2,015 
General and administrative expense   1,932    2,371 
Gain on sale of assets   -    (30)
Total operating expenses   5,120    5,386 
           
Loss from operations   (2,250)   (2,882)
           
Interest expense   (336)   (335)
Change in fair value of warrant liability   6    (47)
           
Net loss  $(2,580)  $(3,264)
           
Net loss per share – basic and diluted  $(0.05)  $(0.11)
           
Weighted average number of shares outstanding – basic and diluted   47,595,206    29,103,645 

 

   

 

 

REED’S INC.

CONDENSED BALANCE SHEETS

(Amounts in thousands, except share amounts)

 

   March 31, 2020   December 31, 2019 
   (Unaudited)     
ASSETS          
Current assets:          
Cash  $28   $913 
Accounts receivable, net of allowance for doubtful accounts and returns and discounts of $282 and $375, respectively   4,018    2,099 
Receivable from related party   230    356 
Inventory, net of reserve for obsolescence of $262 and $646, respectively   7,990    10,508 
Prepaid expenses and other current assets   911    420 
Total current assets   13,177    14,296 
           
Property and equipment, net of accumulated depreciation of $520 and $482, respectively   1,026    1,053 
Equipment held for sale, net of impairment reserves of $96 and $96, respectively   67    67 
Intangible assets   576    576 
Total assets  $14,846   $15,992 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
Current liabilities:          
Accounts payable  $4,500   $5,539 
Accrued expenses   624    646 
Revolving line of credit   4,785    3,177 
Current portion of leases payable   95    49 
Total current liabilities   10,004    9,411 
           
Leases payable, less current portion   662    737 
Convertible note to a related party   4,831    4,689 
Warrant liability   2    8 
Total liabilities   15,499    14,845 
           
Stockholders’ equity (deficit):          
Series A Convertible Preferred stock, $10 par value, 500,000 shares authorized, 9,411 shares issued and outstanding   94    94 
Common stock, $.0001 par value, 100,000,000 and 100,000,000 shares authorized, respectively; 47,595,206 and 47,595,206 shares issued and outstanding, respectively   5    5 
Common stock issuable, 350,000 shares at March 31, 2020   285    - 
Additional paid in capital   78,091    77,596 
Accumulated deficit   (79,128)   (76,548)
Total stockholders’ equity (deficit)   (653)   1,147 
Total liabilities and stockholders’ equity (deficit)  $14,846   $15,992 

 

   

 

 

REED’S, INC.

CONDENSED STATEMENTS OF CASH FLOWS

For the Three months Ended March 31, 2020 and 2019

(Unaudited)

(Amounts in thousands)

 

   March 31, 2020   March 31, 2019 
Cash flows from operating activities:          
Net loss  $(2,580)  $(3,264)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   12    13 
Gain on sale of property & equipment   -    (30)
Amortization of debt discount   96    75 
Amortization of right of use assets   37    23 
Fair value of vested options   495    412 
Fair value of vested restricted shares granted to officers   285    - 
Common stock issued for services   -    194 
Decrease in allowance for doubtful accounts   (93)   (175)
Decrease in inventory reserve   (384)   (84)
Change in fair value of warrant liability   (6)   47 
Accrual of interest on convertible note to a related party   142    126 
Lease liability   (7)   (4)
Changes in operating assets and liabilities:          
Accounts receivable   (1,826)   (668)
Inventory   2,902    (3,268)
Prepaid expenses and other assets   (365)   (314)
Accounts payable   (1,038)   (1,459)
Accrued expenses   (22)   (380)
Net cash used in operating activities   (2,352)   (8,756)
Cash flows from investing activities:          
Proceeds from sale of property and equipment   -    30 
Purchase of property and equipment   (22)   (52)
Net cash used in investing activities   (22)   (22)
Cash flows from financing activities:          
Borrowings on line of credit   9,188    18,696 
Repayments of line of credit   (7,677)   (22,992)
Repayment of amounts due to/from officers   -    195 
Principal repayments on capital lease obligation   (22)   (8)
Exercise of warrants   -    46 
Proceeds from sale of common stock   -    14,867 
Net cash provided by financing activities   1,489    10,804 
           
Net increase (decrease) in cash   (885)   2,026 
Cash at beginning of period   913    624 
Cash at end of period  $28   $2,650 
           
Supplemental disclosures of cash flow information:          
Cash paid for interest  $98   $135 

 

   

 

 

Modified EBITDA

 

In addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our 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. We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization, stock-based compensation, changes in fair value of warrant expense, and one-time restructuring-related costs including employee severance and asset impairment.

 

Management considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Modified EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Modified EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

 

Set forth below is a reconciliation of net loss to Modified EBITDA for the three months ended March 31, 2020 and 2019 (unaudited; in thousands):

 

   Three Months Ended March 31 
   2020   2019 
Net loss  $(2,580)  $(3,264)
           
Modified EBITDA adjustments:          
Depreciation and amortization   49    36 
Interest expense   336    335 
Stock option and other noncash compensation   780    606 
Change in fair value of warrant liability   6    (47)
Severance   -    33 
Total EBITDA adjustments  $1,171   $963 
           
Modified EBITDA  $(1,409)  $(2,301)

 

We present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Modified EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; making compensation decisions; and in communications with our board of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes, among others, the following:

 

  Modified EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
     
  Modified EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
     
  Modified EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and
     
  Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Modified EBITDA does not reflect any cash requirements for such replacements.