OREANDA-NEWS. May 12, 2016. 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 first quarter ending March 31, 2016.

Financial Highlights for First Quarter 2016 versus 2015

  • First quarter net sales decreased from a record \\$10.7 million to \\$10.0 million.
  • Gross profit decreased from \\$3.3 million to \\$1.9 million due to a one-time non-cash charge of \\$0.7 million.
  • Gross margin decreased from 30.5% to 18.9%. Excluding non-cash charges gross margin would have been 26%.
  • Operating expenses decreased 5.5% driven by:
    • Idle Plant costs reduced by 59.1% to \\$0.3 million from \\$0.7 million
    • Delivery and handling expenses decreased 27.4% to \\$0.85 million from \\$1.17 million.
    • Sales and marketing expenses decreased 12.7% to \\$1.0 million from \\$1.2 million.
    • G&A expenses increased to \\$1.2 million from \\$0.9 million.
  • Net loss was (\\$1.6 million) versus (\\$0.3 million) in the year ago period.

Marketing Highlights:

  • Company debuted first all-natural fountain sodas at Natural Products Expo West, the largest natural food show in the world, to strong positive reviews.  New beverage format allows Reed’s to sell premium craft sodas at 80% less cost than current bottle format and opens company’s brands to much wider marketplace across the US.  Already in talks with national and regional fast casual restaurant chains and supermarkets.
  • Stater Bros Markets, a dominate Southern California retailer, authorized Reed’s and Virgil’s craft sodas for the chain
  • Beverage World magazine named Reed’s CEO Chris Reed #4 of top 50 Beverage World Disruptors in their January issue for our craft sodas
  • Stronger Ginger Brew launched at Expo West.  Gains national distribution at Kroger Supermarkets.

“Reed’s continues to recover from supply chain issues that caused last year’s 2nd and 3rd quarter out of stocks. New production partners are keeping us in stock now and we continue to reach out and bring back shelf placements. The Reed’s Ginger Brew line is already back in a growth mode. The Virgil’s soda line and our Kombucha line were hit harder from the 2015 supply chain issues and we have started their recovery from a bigger deficit.

Reeds was invited to develop and bid on an all natural soda fountain version of our brands with a large national chain of restaurants. We d?buted our soda fountain products at the Natural Products Expo in March, the largest natural food trade show in the world. The reception was well received and we are negotiating placements with a number of large retailers.

Through soda fountain versions of our products, we can offer our beverages at 80% off every day prices while maintaining our margins due to the efficiencies of the soda fountain system. This opens up our sodas to a new marketplace that would ordinarily look at our products as too expensive for their customers or not profitable enough for them. We look forward to the new business in our soda fountain products in addition to driving growth for our packaged brands,” commented Chris Reed, Founder and CEO of Reed’s Inc.

Dan Miles, Chief Financial Officer of Reeds’ Inc. stated, “Operating expenses decreased 5.5% during the quarter driven by more efficient shipping and handling, sales and marketing and production operations at our L.A. plant that experienced a 59% reduction in idle plant costs.  We continue to work on improving operating efficiencies as we focus on sales growth during the peak summer selling season.”

Mr. Miles continued, “Beginning this quarter we are presenting our results in industry standard 8-ounce serving equivalents. Additionally, we will begin the process to change our fiscal year from a calendar year to a 52-week fiscal year. We believe that this will help investors better understand our business results and the progress that we are making with our leading brands.”

The Company will conduct a conference call at 4:30 PM EDT on May 11th to discuss its 2016 fiscal first 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 1-800-909-7944
International callers should dial 1-212-231-2901
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/.

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 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 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.

Part I – FINANCIAL INFORMATION
Item 1. Financial Statements

  
REED’S, INC. 
CONDENSED BALANCE SHEETS 
  
  March 31, 2016  December 31, 2015 
  (Unaudited)    
ASSETS        
Current assets:        
Cash \\$ 648,000  \\$1,816,000 
Trade accounts receivable, net of allowance for doubtful accounts and returns and discounts of \\$263,000 and \\$356,000, respectively   2,675,000   2,894,000 
Inventory, net of reserve for obsolescence of \\$220,000 and \\$290,000, respectively   8,186,000   7,927,000 
Prepaid inventory   203,000   47,000 
Prepaid and other current assets   456,000   769,000 
Total Current Assets   12,168,000   13,453 ,000 
         
Property and equipment, net of accumulated depreciation of \\$4,416,000 and \\$4,216,000, respectively   5,788,000   5,369,000 
Brand names   1,029,000   1,029,000 
Total assets \\$ 18,985,000  \\$19,851,000 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)        
Current Liabilities:        
Accounts payable \\$ 7,721,000  \\$7,458,000 
Accrued expenses   183,000   168,000 
Line of credit   4,250,000   4,443,000 
Current portion of long term financing obligations   167,000   160,000 
Current portion of capital leases payable   151,000   153,000 
Current portion of term loans    341,000   341,000 
Total current liabilities   12,813,000   12,723,000 
         
Long term financing obligation, less current portion, net of discount of \\$907,000 and \\$953,000, respectively   1,427,000   1,443,000 
Capital leases payable, less current portion   536,000   490,000 
Capital expansion loan   1,896,000   1,542,000 
Term loan, less current portion, net of discount \\$106,000 and \\$132,000, respectively   2,894,000   2,868,000 
Total Liabilities   19,566,000   19,066,000 
         
Commitments and contingencies        
         
Stockholders’ equity (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, 13,184,331 and 13,160,860 shares issued and outstanding, respectively   1,000   1,000 
Additional paid in capital   27,613,000   27,399,000 
Accumulated deficit   (28,289,000)  (26,709,000)
Total stockholders’ equity (deficiency)   (581,000)  785,000 
Total liabilities and stockholders’ equity (deficiency) \\$ 18,985,000  \\$19,851,000 
REED’S, INC. 
CONDENSED STATEMENTS OF OPERATIONS 
For the Three Months Ended March 31, 2016 and 2015 
(Unaudited) 
  
  Three months ended
March 31,
 
  2016
   2015
 
Sales \\$ 10,004,000   \\$10,672,000 
         
Cost of goods sold   8,111,000    7,413,000 
           
Gross profit   1,893,000    3,259,000 
           
Operating expenses:          
Delivery and handling expenses   849,000    1,169,000 
Selling and marketing expense   1,041,000    1,193,000 
General and administrative expense   1,205,000    914,000 
Total operating expenses   3,095,000    3,276,000 
           
Loss from operations   (1,202,000)   (17,000)
           
Interest expense   (378,000)   (254,000)
           
Net loss \\$ (1,580,000)  \\$(271,000)
           
Loss per share – basic and diluted \\$ (0.12)  \\$(0.02)
Weighted average number of shares outstanding – basic and diluted   13,184,331    13,068,675 
REED’S, INC. 
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY) 
For the Three Months Ended March 31, 2016 
(Unaudited) 
  
        Series A  Additional     Total 
  Common Stock  Preferred Stock  Paid-In  Accumulated  Stockholders’ 
  Shares  Amount  Shares  Amount  Capital  Deficit  Equity (Deficiency) 
Balance, January 1, 2015  13,160,860  \\$1,000   9,411  \\$94,000  \\$27,399,000  \\$(26,709,000) \\$785,000 
                             
Common shares issued upon exercise of warrants  16,260               45,000       45,000 
Common shares issued upon exercise of options  7,211               -       - 
Fair value vesting of options issued to employees                  169,000       169,000 
Net loss                      (1,580,000)  (1,580,000)
Balance, March 31, 2016  13,184,331  \\$1,000   9,411  \\$94,000  \\$27,613,000  \\$(28,289,000) \\$(581,000)
REED’S, INC. 
CONDENSED STATEMENTS OF CASH FLOWS 
For the Three Months Ended March 31, 2016 and 2015 
(Unaudited) 
  
  Three Months Ended March 31,  
  2016  2015 
Cash flows from operating activities:        
Net loss \\$(1,580,000) \\$(271,000)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  261,000   213,000 
Fair value of stock options issued to employees  169,000   212,000 
(Decrease) increase in allowance for doubtful accounts  (93,000)  1,000 
Changes in assets and liabilities:        
Accounts receivable  313,000   (479,000)
Inventory  (259,000)  (2,054,000)
Prepaid Inventory  (156,000)  474,000 
Prepaid expenses and other current assets  312,000   168,000 
Accounts payable  263,000   1,267,000 
Accrued expenses  15,000   11,000 
         
Net cash used in operating activities  (755,000)  (458,000)
Cash flows from investing activities:        
Purchase of property and equipment  (186,000)  (351,000)
Net cash used in investing activities  (186,000)  (351,000)
Cash flows from financing activities:        
Proceeds from warrant exercises  45,000   31,000 
Principal repayments on long term financing obligation  (37,000)  (31,000)
Principal repayments on capital lease obligation  (42,000)  (33,000)
Net draw down (repayment) on line of credit  (193,000)  1,104,000 
Net cash (used in) provided by financing activities  (227,000)  1,071,000 
Net increase (decrease) in cash  (1,168,000)  262,000 
Cash at beginning of period  1,816,000   959,000 
Cash at end of period \\$648,000  \\$1,221,000 
         
Supplemental disclosures of cash flow information:        
Cash paid during the period for:        
Interest \\$364,000  \\$201,000 
Non Cash Investing and Financing Activities        
Property and equipment acquired through capital expansion loan \\$354,000  \\$311,000 
Property and equipment acquired through capitalized leases  86,000   250,000