UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
(Mark
One)
x
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the
quarterly period ended March 31, 2007
o
TRANSITION
REPORT UNDER SECTION 13
OR 15(d) OF THE EXCHANGE ACT
For
the
transition period from __________ to __________
Commission
file number
Commission
file number: 000-32501
REED'S
INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
35-2177773
|
(State
of incorporation)
|
(I.R.S.
Employer Identification No.)
|
|
Los
Angeles, Ca. 90061
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(310)
217-9400
(Registrant's
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to
such filing requirements for the past 90 days.
Yes
x No o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
APPLICABLE
ONLY TO CORPORATE ISSUERS
State
the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date:
There
were 7,153,225 shares of the registrant's common stock outstanding as of
May 11, 2007.
Transitional
Small Business Disclosure Format (Check one) Yes o No x
Item
1. Financial Statements
REED’S,
INC
|
|
March
31, 2007
|
|
December
31, 2006
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
Cash
|
|
$
|
469,643
|
|
$
|
1,638,917
|
|
Restricted
cash
|
|
|
1,726,120
|
|
|
1,580,456
|
|
Inventory
|
|
|
1,990,554
|
|
|
1,511,230
|
|
Trade
accounts receivable, net of allowance for doubtful accounts and
returns
and discounts of $173,253 as of March 31, 2007 and December 31,
2006
|
|
|
1,369,389
|
|
|
1,183,763
|
|
Other
receivables
|
|
|
36,461
|
|
|
24,811
|
|
Prepaid
expenses
|
|
|
246,318
|
|
|
164,462
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
5,838,485
|
|
|
6,103,639
|
|
Property
and equipment, net of accumulated depreciation of $701,901 as of
March 31,
2007 and $663,251 as of December 31, 2006
|
|
|
1,928,137
|
|
|
1,795,163
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
Brand
names
|
|
|
800,201
|
|
|
800,201
|
|
Other
intangibles, net of accumulated amortization of $4,653 as of March
31,
2007 and $4,467 as of December 31, 2006
|
|
|
13,960
|
|
|
14,146
|
|
Deferred
costs
|
|
|
82,585
|
|
|
-
|
|
Total
Other Assets
|
|
|
896,746
|
|
|
814,347
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
8,663,368
|
|
$
|
8,713,149
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,823,811
|
|
$
|
1,695,014
|
|
Bank
overdraft
|
|
|
224,872
|
|
|
-
|
|
Lines
of credit
|
|
|
1,354,896
|
|
|
1,355,526
|
|
Current
portion of long term debt
|
|
|
175,720
|
|
|
71,860
|
|
Accrued
interest
|
|
|
7,818
|
|
|
27,998
|
|
Accrued
expenses
|
|
|
125,741
|
|
|
118,301
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
3,712,858
|
|
|
3,268,699
|
|
|
|
|
|
|
|
|
|
Long
term debt, less current portion
|
|
|
835,240
|
|
|
821,362
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
4,548,098
|
|
|
4,090,061
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
Preferred
stock, $10.00 par value, 500,000 shares authorized, 58,940 issued
and
outstanding at March 31, 2007 and December 31, 2006, liquidation
preference of $10.00 per share
|
|
|
589,402
|
|
|
589,402
|
|
Common
stock, $.0001 par value, 11,500,000 shares authorized,
7,143,185 shares issued and outstanding at March 31, 2007 and
December 31, 2006
|
|
|
714
|
|
|
714
|
|
Additional
paid in capital
|
|
|
9,515,242
|
|
|
9,535,114
|
|
Accumulated
deficit
|
|
|
(5,990,088
|
)
|
|
(5,502,142
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
4,115,270
|
|
|
4,623,088
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
8,663,368
|
|
$
|
8,713,149
|
|
See
accompanying Notes to Condensed Financial Statements
REED’S,
INC.
CONDENSED
STATEMENTS OF OPERATIONS
For
the Three Months Ended March 31, 2007 and 2006
(Unaudited)
|
|
Three
months ended (Unaudited)
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
SALES
|
|
$
|
3,012,690
|
|
$
|
1,979,272
|
|
COST
OF SALES
|
|
|
2,473,068
|
|
|
1,688,876
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
539,622
|
|
|
290,396
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
Selling
|
|
|
554,165
|
|
|
287,158
|
|
General &
Administrative
|
|
|
449,343
|
|
|
272,228
|
|
Total
Operating Expenses
|
|
|
1,003,508
|
|
|
559,386
|
|
|
|
|
|
|
|
|
|
LOSS FROM
OPERATIONS
|
|
|
(463,886
|
)
|
|
(268,990
|
)
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
23,491
|
|
|
-
|
|
Interest
Expense
|
|
|
(47,551
|
)
|
|
(100,607
|
)
|
Total
Other Income (Expense)
|
|
|
(24,060
|
)
|
|
(100,607
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(487,946
|
)
|
$
|
(369,597
|
)
|
|
|
|
|
|
|
|
|
LOSS
PER SHARE —
Basic and Diluted
|
|
$
|
(0.07
|
)
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED
|
|
|
7,143,185
|
|
|
5,157,077
|
|
See
accompanying Notes to Condensed Financial Statements
REED’S
INC.
STATEMENT
OF CHANGES IN STOCKHOLDERS’ EQUITY
For
the
three months ended March 31, 2007 (Unaudited)
|
|
Common
Stock
|
|
Preferred
Stock
|
|
Additional
Paid
in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2007
|
|
|
7,143,185
|
|
$
|
714
|
|
|
58,940
|
|
$
|
589,402
|
|
$
|
9,535,114
|
|
$
|
(5,502,142
|
)
|
$
|
4,623,088
|
|
Public
offering expenses
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(45,000
|
)
|
|
-
|
|
|
(45,000
|
)
|
Fair
value of options issued to employees
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,128
|
|
|
-
|
|
|
25,128
|
|
Net
Loss for the three months ended March, 31, 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(487,946
|
)
|
|
(487,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2007
|
|
|
7,143,185
|
|
$
|
714
|
|
|
58,940
|
|
$
|
589,402
|
|
$
|
9,515,242
|
|
$
|
(5,990,088
|
)
|
$
|
4,115,270
|
|
See
accompanying Notes to Condensed Financial Statements
REED’S
INC.
CONDENSED
STATEMENTS OF CASH FLOWS
For
the three months ended March 31, 2007 and 2006
(Unaudited)
|
|
Three
Months Ended (Unaudited)
|
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
Net
Loss
|
|
$
|
(487,946
|
)
|
$
|
(369,597
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
38,836
|
|
|
34,918
|
|
Fair
value of options issued to employees
|
|
|
25,128
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(185,626
|
)
|
|
(207,103
|
)
|
Inventory
|
|
|
(479,324
|
)
|
|
(212,673
|
)
|
Prepaid
Expenses
|
|
|
(81,856
|
)
|
|
36,303
|
|
Other
receivables
|
|
|
(11,650
|
)
|
|
1,200
|
|
Accounts
payable
|
|
|
128,797
|
|
|
199,140
|
|
Accrued
expenses
|
|
|
7,440
|
|
|
19,976
|
|
Accrued
interest
|
|
|
(20,180
|
)
|
|
6,408
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(1,066,381
|
)
|
|
(491,428
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Increase
in restricted cash
|
|
|
(145,664
|
)
|
|
-
|
|
Purchase
of property and equipment
|
|
|
(171,624
|
)
|
|
(19,271
|
)
|
Net
cash used in investing activities
|
|
|
(317,288
|
)
|
|
(19,271
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
received from long term debt borrowings
|
|
|
163,276
|
|
|
-
|
|
Increase
in bank overdraft
|
|
|
224,872
|
|
|
-
|
|
Principal
payments on debt
|
|
|
(45,538
|
)
|
|
(28,703
|
)
|
Proceeds
received on sale of common stock
|
|
|
-
|
|
|
811,955
|
|
Net
borrowing (payment) on lines of credit
|
|
|
(630
|
)
|
|
93,993
|
|
Payment
for public offering expenses
|
|
|
(45,000
|
)
|
|
-
|
|
Payments
for
Deferred stock offering costs |
|
|
-
|
|
|
(198,833
|
) |
Deferred
costs
|
|
|
(82,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
214,395
|
|
|
678,412
|
|
|
|
|
|
|
|
|
|
NET
(DECREASE)INCREASE IN
CASH
|
|
|
(1,169,274
|
)
|
|
167,713
|
|
CASH —
Beginning of period
|
|
|
1,638,917
|
|
|
27,744
|
|
|
|
|
|
|
|
|
|
CASH —
End of period
|
|
$
|
469,643
|
|
$
|
195,457
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
67,732
|
|
$
|
94,199
|
|
|
|
|
|
|
|
|
|
Taxes
|
|
$
|
-
|
|
$
|
-
|
|
See
accompanying Notes to Condensed Financial Statements
REED’S,
INC.
Three
Months Ended March 31, 2007 and 2006 (UNAUDITED)
The
accompanying interim condensed financial statements are unaudited, but in the
opinion of management of Reeds, Inc. (the Company), contain all adjustments,
which include normal recurring adjustments necessary to present fairly the
financial position at March 31, 2007 and the results of operations and cash
flows for the three months ended March 31, 2007 and 2006. The balance sheet
as
of December 31, 2006 is derived from the Company’s audited financial
statements.
Certain
information and footnote disclosures normally included in financial statements
that have been prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission, although management of the Company
believes that the disclosures contained in these financial statements are
adequate to make the information presented herein not misleading. For further
information, refer to the financial statements and the notes thereto included
in
the Company’s Annual Report, Form 10-KSB, as filed with the Securities and
Exchange Commission on April 16, 2007.
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expense during the reporting period. Actual results
could differ from those estimates.
The
results of operations for the three months ended March 31, 2007 are not
necessarily indicative of the results of operations to be expected for the
full
fiscal year ending December 31, 2007.
Income
(Loss) per Common Share
Basic
income (loss) per share is calculated by dividing net income (loss) available
to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted income (loss) per share is calculated assuming the
issuance of common shares, if dilutive, resulting from the exercise of stock
options and warrants. As the Company had a loss in the three month period ended
March 31, 2007 and 2006, basic and diluted loss per share are the same because
the inclusion of common share equivalents would be anti-dilutive. At March
31,
2007 and 2006, potentially dilutive securities consisted of convertible
preferred stock, common stock options and warrants to acquire an aggregate
of
1,461,500 and 1,276,159 shares, respectively.
Adoption
of New Accounting Policy
Effective
January 1, 2007, the Company adopted Financial Accounting Standards Board
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (“FIN
48”)
—an
interpretation of FASB Statement No. 109, Accounting for Income
Taxes.”
The
Interpretation addresses the determination of whether tax benefits claimed
or
expected to be claimed on a tax return should be recorded in the financial
statements. Under FIN 48,
we may
recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position should
be
measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. FIN
48
also
provides guidance on derecognition, classification, interest and penalties
on
income taxes, accounting in interim periods and requires increased disclosures.
At the date of adoption, and as of March 31, 2007, the Company does not have
a
liability for unrecognized tax benefits.
The
Company files income tax returns in the U.S. federal jurisdiction and various
states. The Company is subject to U.S. federal or state income tax examinations
by tax authorities for five years after 2002. During the periods open to
examination, the Company has net operating loss and tax credit carry
forwards for U.S. federal and state tax purposes that have attributes from
closed periods. Since these NOLs and tax credit carry forwards may
be utilized in future periods, they remain subject to
examination.
The
Company’s policy is to record interest and penalties on uncertain tax provisions
as income tax expense. As of March 31, 2007, the Company has no accrued
interest or penalties related to uncertain tax positions.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which
provides enhanced guidance for using fair value to measure assets and
liabilities. SFAS No. 157 provides a common definition of fair value and
establishes a framework to make the measurement of fair value in generally
accepted accounting principles more consistent and comparable. SFAS No. 157
also
requires expanded disclosures to provide information about the extent to which
fair value is used to measure assets and liabilities, the methods and
assumptions used to measure fair value, and the effect of fair value measures
on
earnings. SFAS No. 157 is effective for financial statements issued in fiscal
years beginning after November 15, 2007 and
to
interim periods within those fiscal years.
The
adoption of this SFAS has not had a material change on the Company’s results of
operations, financial position, or cash flows.
In
February 2007, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB No. 115”. This
statement permits entities to choose to measure many financial instruments
and
certain other items at fair value. This statement is effective for years
beginning after November 15, 2007. Management believes the adoption will not
have a material impact on the Company’s results of operations, financial
position or cash flow.
Concentrations
The
Company’s cash balances on deposit with banks are guaranteed by the Federal
Deposit Insurance Corporation up to $100,000. The Company may be exposed to
risk
for the amounts of funds held in one bank in excess of the insurance limit.
In
assessing the risk, the Company’s policy is to maintain cash balances with high
quality financial institutions. The Company had cash balances in excess of
the
$100,000 guarantee during the three months ended March 31, 2007.
During
the three months ended March 31, 2007 and 2006 the Company had two customers,
which accounted for approximately 39% and 16% and 45% and 18% of sales,
respectively . No other customers accounted for more than 10% of sales in either
year. As of March 31, 2007, the Company had $329,284and $168,720, respectively
of accounts receivable from these customers.
Restricted
cash consists of $1,596,120 relating to an arrangement in effect at December
31,
2006, as previously disclosed in our 10-KSB filing and $130,000 of the amount
relates to a certificate of deposit which secures a note payable the Company
originated in February 2007, in the amount of $130,000, see Note 4. This deposit
cannot be withdrawn until the note is paid in full. The note is scheduled to
mature in February 2008.
Inventory
consists of the following at March 31, 2007
Raw
Materials
|
|
$
|
737,650
|
|
Finished
Goods
|
|
|
1,252,904
|
|
|
|
$
|
1,990,554
|
|
In
February 2007, the Company originated a note payable with a bank in the amount
of $130,000. The note matures in February 2008. The note requires 11 principal
payments of $2,167 and one final payment in February 2008 of $106,674. The
note
carries a 5.50% interest rate and is secured by a certificate of deposit with
the bank in the amount of $130,000 (see Note 2). The bank may offset the
certificate of deposit against the loan balance and the monies cannot be
withdrawn until the loan is repaid in full.
In
January and February 2007, the Company originated two car loans for $33,276.
The
loans have interest rates ranging from 8.85% to 9.4%. The loans have monthly
payments of approximately $298 and $352 and mature in 2012 and
2013.
5. |
Stock
Based Compensation
|
The
impact on our results of operations of recording stock-based compensation for
the three-month period ended March 31, 2007 and 2006 was to increase
selling expenses by $25,127 and $0, respectively. As of March 31, 2007, the
Company had unvested options of 134,000, which will be reflected as
compensation cost, estimated to be $284,994, over the remaining vesting
period of five years.
We
calculated the fair value of each option award on the date of grant using the
Black-Scholes option pricing model. The following weighted average assumptions
were used for the three months ended March 31, 2007:
Risk-free
interest rate
|
|
|
4.76
|
%
|
Expected
lives (in years)
|
|
|
5.00
|
|
Dividend
yield
|
|
|
0
|
%
|
Expected
volatilty
|
|
|
70
|
%
|
Expected
volatility is based on the volatilities of public entities which are in the
same
industry as the Company. For purposes of determining the expected life of the
option, the full contract life of the option is used. The risk-free rate for
periods within the contractual life of the options is based on the U. S.
Treasury yield in effect at the time of the grant.
The
following table summarizes stock option activity for the three months ended
March 31, 2007 :
|
|
Shares
|
|
Weighted-Average
Exercise
Price
|
|
Weighted-Average
Remaining
Contractual
Term
(Years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at January 1, 2007
|
|
|
363,500 |
|
$ |
3.84 |
|
|
|
|
|
|
|
Granted
|
|
|
49,000 |
|
$ |
3.54 |
|
|
|
|
|
— |
|
Exercised
|
|
|
— |
|
|
— |
|
|
|
|
|
— |
|
Outstanding
at March 31, 2007
|
|
|
412,500 |
|
$ |
3.81 |
|
|
3.7
|
|
$
|
979,450
|
|
Exercisable
|
|
|
278,500 |
|
$ |
3.79 |
|
|
3.2
|
|
$
|
664,630
|
|
Stock
options granted under our equity incentive plans generally vest over three
years
from the date of grant, 1/3 per year and generally expire five years from the
date of grant. The weighted average exercise price of stock options granted
during the period was $3.54 per share and the related weighted average
grant date fair value was $2.18 per share.
A
summary
of warrant activity as March 31, 2007 and changes during the three
months then ended is presented below:
|
|
Shares
|
|
Weighted-Average
Exercise
Price
|
|
Weighted-Average
Remaining
Contractual
Term
(Years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at January 1, 2007
|
|
|
813,241
|
|
$
|
3.74
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2007
|
|
|
813,241
|
|
$
|
3.74
|
|
|
2.7
|
|
$
|
2,068,482
|
|
Exercisable
at March 31, 2007
|
|
|
613,241
|
|
$
|
2.80
|
|
|
2.1
|
|
$
|
|
|
Subsequent
to March 31, 2007, 10,040 shares of common stock were issued. 9,600 shares
of
common stock were issued in accordance with the conversion privileges of certain
preferred stockholders. Accordingly, 2,400 shares of preferred stock were
converted to common stock. In addition, 440 shares of common stock were issued
to employees as a bonus.
Item
2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
FORWARD
LOOKING STATEMENTS
Certain
statements in this Quarterly Report on Form 10-QSB, or the Report, are
“forward-looking statements.” These forward-looking statements include, but are
not limited to, statements about the plans, objectives, expectations and
intentions of Reed’s, Inc., a Delaware corporation (referred to in this Report
as “we,” “us,” or “our””) and other statements contained in this Report that are
not historical facts. Forward-looking statements in this Report or hereafter
included in other publicly available documents filed with the Securities and
Exchange Commission, or the Commission, reports to our stockholders and other
publicly available statements issued or released by us involve known and unknown
risks, uncertainties and other factors which could cause our actual results,
performance (financial or operating) or achievements to differ from the future
results, performance (financial or operating) or achievements expressed or
implied by such forward-looking statements. Such future results are based upon
management's best estimates based upon current conditions and the most recent
results of operations. When used in this Report, the words “expect,”
“anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar
expressions are generally intended to identify forward-looking statements,
because these forward-looking statements involve risks and uncertainties. There
are important factors that could cause actual results to
differ materially from those expressed
or implied by these forward-looking statements, including our plans, objectives,
expectations and intentions and other factors that are discussed under the
section entitled “Risk Factors,” in our Annual Report on Form 10-KSB for the
year ended December 31, 2006.
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed financial
statements and the related notes appearing elsewhere in this Form 10-QSB.
Overview
We
develop, manufacture, market, and sell natural non-alcoholic and “New Age”
beverages, candies and ice creams. “New Age Beverages” is a category that
includes natural soda, fruit juices and fruit drinks, ready-to-drink teas,
sports drinks, and water. We currently manufacture, market and sell six unique
product lines:
|
·
|
Virgil’s
Root Beer and Cream Sodas,
|
|
·
|
Reed’s
Ginger Juice Brews,
|
|
·
|
Reed’s
Ginger Candies, and
|
|
·
|
Reed’s
Ginger Ice Creams
|
We
sell
most of our products in specialty gourmet and natural food stores, supermarket
chains, retail stores and restaurants in the United States and, to a lesser
degree, in Canada. We primarily sell our products through a network of natural,
gourmet and independent distributors. We also maintain an organization of
in-house sales managers who work mainly in the stores serviced by our natural,
gourmet and mainstream distributors and with our distributors. We also work
with
regional, independent sales representatives who maintain store and distributor
relationships in a specified territory. In Southern California, we have our
own
direct distribution system.
Trends,
Risks, Challenges, Opportunities That May or Are Currently Affecting Our
Business
Our
main
challenges, trends, risks, and opportunities that could affect or are affecting
our financial results include but are not limited to:
Fuel
Prices - As oil prices continue to increase, our packaging, production and
ingredient costs will continue to rise. We have attempted to offset the rising
freight costs from fuel price increases by creatively negotiating rates and
managing freight. We will continue to pursue alternative production, packaging
and ingredient suppliers and options to help offset the affect of rising fuel
prices on these expenses.
Low
Carbohydrate Diets and Obesity - Our products are not geared for the low
carbohydrate market. Consumer trends have reflected higher demand for lower
carbohydrate products. Despite this trend, we achieved an increase in our sales
growth in 2006. We monitor these trends closely and have started developing
low-carbohydrate versions of some of our beverages, although we do not have
any
currently marketable low-carbohydrate products.
Distribution
Consolidation - There has been a recent trend towards continued consolidation
of
the beverage distribution industry through mergers and acquisitions. This
consolidation results in a smaller number of distributors to market our products
and potentially leaves us subject to the potential of our products either being
dropped by these distributors or being marketed less aggressively by these
distributors. As a result, we have initiated our own direct distribution to
mainstream supermarkets and natural and gourmet foods stores in Southern
California and to large national retailers. Consolidation among natural foods
industry distributors has not had an adverse affect on our sales.
Consumer
Demanding More Natural Foods - The rapid growth of the natural foods industry
has been fueled by the growing consumer awareness of the potential health
problems due to the consumption of chemicals in the diet. Consumers are reading
ingredient labels and choosing products based on them. We design products with
these consumer concerns in mind. We feel this trend toward more natural products
is one of the main trends behind our growth. Recently, this trend in drinks
has
not only shifted to products using natural ingredients, but also to products
with added ingredients possessing a perceived positive function like vitamins,
herbs and other nutrients. Our ginger-based products are designed with this
consumer demand in mind.
Supermarket
and Natural Food Stores - More and more supermarkets, in order to compete with
the growing natural food industry, have started including natural food sections.
As a result of this trend, our products are now available in mainstream
supermarkets throughout the United States in natural food sections. Supermarkets
can require that we spend more advertising money and they sometimes require
slotting fees. We continue to work to keep these fees reasonable. Slotting
fees
in the natural food section of the supermarket are generally not as expensive
as
in other areas of the store.
Beverage
Packaging Changes - Beverage packaging has continued to innovate, particularly
for premium products. There is an increase in the sophistication with respect
to
beverage packaging design. While we feel that our current core brands still
compete on the level of packaging, we continue to experiment with new and novel
packaging designs such as the 5-liter party keg and 750 ml. champagne style
bottles. We have further plans for other innovative packaging
designs.
Packaging
or Raw Material Price Increases - An increase in packaging or raw materials
has
caused our margins to suffer and has negatively impacted our cash flow and
profitability. We continue to search for packaging and production alternatives
to reduce our cost of goods.
Cash
Flow
Requirements - Our growth will depend on the availability of additional capital
infusions. We have a financial history of losses and are dependent on
non-banking sources of capital, which tend to be more expensive and charge
higher interest rates. Any increase in costs of goods will further increase
losses and will further tighten cash reserves.
Interest
Rates - We use lines of credit as a source of capital and are negatively
impacted as interest rates rise.
Critical
Accounting Policies
Our
financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, or GAAP. GAAP requires
us to
make estimates and assumptions that affect the reported amounts in our financial
statements including various allowances and reserves for accounts receivable
and
inventories, the estimated lives of long-lived assets and trademarks and
trademark licenses, as well as claims and contingencies arising out of
litigation or other transactions that occur in the normal course of business.
The following summarize our most significant accounting and reporting policies
and practices:
Revenue
Recognition. Revenue is recognized on the sale of a product when the product
is
shipped, which is when the risk of loss transfers to our customers, and
collection of the receivable is reasonably assured. A product is not shipped
without an order from the customer and credit acceptance procedures performed.
The allowance for returns is regularly reviewed and adjusted by management
based
on historical trends of returned items. Amounts paid by customers for shipping
and handling costs are included in sales.
Trademark
License and Trademarks. Trademark license and trademarks primarily represent
the
costs we pay for exclusive ownership of the Reed’s® trademark in connection with
the manufacture, sale and distribution of beverages and water and non-beverage
products. We also own the Virgil’s® trademark and the China Cola® trademark. In
addition, we own a number of other trademarks in the United States as well
as in
a number of countries around the world. We account for these items in accordance
with SFAS No. 142, “Goodwill and Other Intangible Assets.” Under the
provisions of SFAS No. 142, we do not amortize indefinite-lived trademark
licenses and trademarks.
In
accordance with SFAS No. 142, we evaluate our non-amortizing trademark
license and trademarks quarterly for impairment. We measure impairment by the
amount that the carrying value exceeds the estimated fair value of the trademark
license and trademarks. The fair value is calculated by reviewing net sales
of
the various beverages and applying industry multiples. Based on our quarterly
impairment analysis the estimated fair values of trademark license and
trademarks exceeded the carrying value and no impairments were identified during
the three months ended March 31, 2007 or March 31, 2006.
Long-Lived
Assets. Our management regularly reviews property, equipment and other
long-lived assets, including identifiable amortizing intangibles, for possible
impairment. This review occurs quarterly or more frequently if events or changes
in circumstances indicate the carrying amount of the asset may not be
recoverable. If there is indication of impairment of property and equipment
or
amortizable intangible assets, then management prepares an estimate of future
cash flows (undiscounted and without interest charges) expected to result from
the use of the asset and its eventual disposition. If these cash flows are
less
than the carrying amount of the asset, an impairment loss is recognized to
write
down the asset to its estimated fair value. The fair value is estimated at
the
present value of the future cash flows discounted at a rate commensurate with
management’s estimates of the business risks. Quarterly, or earlier, if there is
indication of impairment of identified intangible assets not subject to
amortization, management compares the estimated fair value with the carrying
amount of the asset. An impairment loss is recognized to write down the
intangible asset to its fair value if it is less than the carrying amount.
Preparation of estimated expected future cash flows is inherently subjective
and
is based on management’s best estimate of assumptions concerning expected future
conditions. No impairments were identified during the three months ended March
31, 2007 or 2006.
Management
believes that the accounting estimate related to impairment of our long lived
assets, including our trademark license and trademarks, is a “critical
accounting estimate” because: (1) it is highly susceptible to change from
period to period because it requires management to estimate fair value, which
is
based on assumptions about cash flows and discount rates; and (2) the
impact that recognizing an impairment would have on the assets reported on
our
balance sheet, as well as net income, could be material. Management’s
assumptions about cash flows and discount rates require significant judgment
because actual revenues and expenses have fluctuated in the past and we expect
they will continue to do so.
In
estimating future revenues, we use internal budgets. Internal budgets are
developed based on recent revenue data for existing product lines and planned
timing of future introductions of new products and their impact on our future
cash flows.
Advertising.
We account for advertising production costs by expensing such production costs
the first time the related advertising is run.
Accounts
Receivable. We evaluate the collectibility of our trade accounts receivable
based on a number of factors. In circumstances where we become aware of a
specific customer’s inability to meet its financial obligations to us, a
specific reserve for bad debts is estimated and recorded which reduces the
recognized receivable to the estimated amount our management believes will
ultimately be collected. In addition to specific customer identification of
potential bad debts, bad debt charges are recorded based on our historical
losses and an overall assessment of past due trade accounts receivable
outstanding.
Inventories.
Inventories are stated at the lower of cost to purchase and/or manufacture
the
inventory or the current estimated market value of the inventory. We regularly
review our inventory quantities on hand and record a provision for excess and
obsolete inventory based primarily on our estimated forecast of product demand
and/or our ability to sell the product(s) concerned and production requirements.
Demand for our products can fluctuate significantly. Factors that could affect
demand for our products include unanticipated changes in consumer preferences,
general market conditions or other factors, which may result in cancellations
of
advance orders or a reduction in the rate of reorders placed by customers.
Additionally, our management’s estimates of future product demand may be
inaccurate, which could result in an understated or overstated provision
required for excess and obsolete inventory.
Income
Taxes. Current income tax expense is the amount of income taxes expected to
be
payable for the current year. A deferred income tax asset or liability is
established for the expected future consequences of temporary differences in
the
financial reporting and tax bases of assets and liabilities. We consider future
taxable income and ongoing, prudent, and feasible tax planning strategies,
in
assessing the value of our deferred tax assets. If our management determines
that it is more likely than not that these assets will not be realized, we
will
reduce the value of these assets to their expected realizable value, thereby
decreasing net income. Evaluating the value of these assets is necessarily
based
on our management’s judgment. If our management subsequently determined that the
deferred tax assets, which had been written down, would be realized in the
future, the value of the deferred tax assets would be increased, thereby
increasing net income in the period when that determination was
made.
Results
of Operations
Three
Months Ended March 31, 2007 Compared to Three Months Ended March 31,
2006
Net
sales
increased by $1,033,418 or 52.2%, from $1,979,272 in the first three months
ended March 31, 2006 to $3,012,690 in the first three months ended March 31,
2007. The Reed’s Ginger Brew product line increased by 37.2% from $1,078,722 in
the first three months ended March 31, 2006 to $1,480,499 in the first three
months ended March 31, 2007. Sales of our Virgil’s Root Beer 12 ounce bottles
and our new Virgil’s Cream soda increased by 38.0% from $678,165 to
$935,675. Candy sales increased by $51,406 or 25.0% from $205,886 in the first
three months ended March 31, 2006 to $257,292 in the first three months ended
March 31, 2007. Ice cream sales decreased by 9.7% from $36,384 in the first
three months ended March 31, 2006 to $32,868 in the first three months ended
March 31, 2007. Cost of sales increased by $784,192 or 46.4%, from $1,688,876
in
the first three months ended March 31, 2006 to $2,473,068 in the first three
months ended March 31, 2007.
As a
percentage of net sales, cost of sales
decreased from 85.3% in the first three months ended March 31, 2006 to 82.1%
in
the first three months ended March 31, 2007. Increase
in costs of sales dollars was
primarily due to a larger
production volume and increases
in exchange rate conversion (1.9%), and costs of packaging
(3.6%),
production
co-pack
(0.7%) and laboratory testing
(0.1%),
offset
by decreases in costs of ingredients (-1.0%), production supplies by (-0.1%),
production workers compensation insurance (-0.4%) due to improved pricing
arrangements, and production lease expense (-0.2%) as a result of the expiration
of a lease on certain equipment as to which we exercised an option to
purchase
the
equipment for $8,080.
Gross
profit increased by $249,226 or 85.8% from $290,396 in the first three months
ended March 31, 2006 to $539,622 in the first three months ended March 31,
2007.
As a percentage of net sales, gross profit increased from 14.7% in the first
three months ended March 31, 2006 to 17.9% in the first three months ended
March
31, 2007. Fuel price increases have driven costs of production and packaging.
We
intend to focus our attention on reducing these costs. In 2006, we were able
to
reduce freight expenses at a time of rapidly rising fuel costs. Currently,
we
are looking at alternative production plants to reduce production costs, our
largest expense, and we are aggressively negotiating packaging and raw material
prices.
Operating
expenses increased by $444,122 or 79.4% from $559,386, in the first three months
ended March 31, 2006 to $1,003,508in the first three months ended March 31,
2007.
Operating expenses
increased as a percentage of net sales from 28.3% in the first three months
ended March 31, 2006 to 33.3% in the first three months ended March 31, 2007.
The increase was
primarily
due
to
increases in repairs and maintenance (0.1%), sales salaries and commissions
as a
result of an increase in our sales force (3.1%),
sales
expenses (0.6%)
and legal
and
accounting costs (2.2%) due to the costs associated with being a public
reporting company. These
increases were offset by decreases in office
expenses (-0.1%), office payroll, benefits and insurance (-3.4%), bank charges
(-0.4%) and utilities (-0.3%).
Interest
expense decreased by $53,056 or 52.7%, from $100,607 in the first three months
ended March 31, 2006 to $47,551 in the first three months ended March 31, 2007.
The decrease in interest expense was due to the payoff of BACC, Merrill Lynch,
Sandler, Johnson and R. T. Reed Sr. loans. As a result of the foregoing, we
experienced a net loss of $487,946 or 16.2% of net sales in the first three
months ended March 31, 2007 compared to $369,597 or 18.7% in the first three
months ended March 31, 2006. Accordingly,
we experienced a net loss of $(0.07) per
share
in
each
of
the
first three months ended March 31, 2006 and 2007.
Our
loss per share remained the same
in the
two periods,
despite
the rise in net loss,
due to
the
increase in the number of our
outstanding shares
as a
result of our
initial public offering.
Liquidity
and Capital Resources
Historically,
we have financed our operations primarily through private sales of common stock,
preferred stock, convertible debt, a line of credit from a financial
institution, and cash generated from operations. In 2006 we completed our
initial public offering which sold 2,000,000 at $4.00 per share.
As
of
March 31, 2007, we had an accumulated deficit of $5,990,088 and we had working
capital of $2,125,627, compared to working capital of $2,834,940 as of
December 31, 2006. Cash and cash equivalents were $469,643 as of March 31,
2007, as compared to $1,638,917 as of December 31, 2006. This decrease in our
working capital and cash position was primarily attributable to our loss from
operations.
Net
cash
used in operating activities during the three months ended March 31, 2007 was
$1,066,381 which was due primarily to our net loss of $487,946 and net increases
in our accounts receivable and inventory offset by increases in accounts
payable.
We
used
$317,288 of cash in investing activities as we transferred $145,664 of cash
to a
restricted account, to secure the payment of a bank note payable, due in
February 2008, and the purchase of vehicles, machinery and equipment and a
computer system totaling $171,624.
Net
cash
provided by financing activities during the three months ended March 31, 2007
was $214,395. The primary components of that were: the payment of $45,000 for
underwriting costs associated with our 2006 initial public offering, the payment
of $82,585 for deferred costs, and long term debt repayments of $45,538, offset
by increased long term borrowings of $163,276 and a bank overdraft of
$224,872.
As
of
March 31, 2007, we had outstanding borrowings of $1,354,896 under our lines
of
credit agreements. We have availability under our lines of credit of
approximately $896,000.
|
·
|
We
have an unsecured $50,000 line of credit with US Bank which expires
in
December 2009. Interest is payable monthly at the prime rate, as
published
in the Wall Street Journal, plus 12% per annum. Our outstanding balance
was $24,120 at March 31, 2007 and there was $25,880 available under
the
line of credit. The interest rate in effect at March 31, 2007 was
9.75%.
|
|
·
|
We
have a line of credit with Merrill Lynch. Robert T. Reed, Jr., our
Vice
President and National Sales Manager - Mainstream and a brother of
our
Chief Executive Officer, Christopher J. Reed, has pledged certain
securities (which do not include any of our securities which are
owned by
Mr. Reed) in his personal securities account on deposit with Merrill
Lynch
as collateral for repayment of the line of credit. The amount of
the line
of credit is based on a percentage value of such securities. At March
31,
2007, the outstanding balance on the line of credit was $-0-, and
there
was approximately $701,000 available under the line of credit. The
line of
credit bears interest at a rate of 3.785% per annum plus LIBOR (9.1%
as of
March 31, 2007). In consideration for Mr. Reed’s pledging his stock
account at Merrill Lynch as collateral, we have agreed to pay Mr.
Reed 5%
per annum of the amount we borrow from Merrill Lynch, as a loan fee.
In
addition, Christopher J. Reed has pledged all of his shares of common
stock to Robert T. Reed, Jr. as collateral for the shares pledged
by
Robert T. Reed, Jr.
|
|
·
|
We
have a line of credit with California United Bank. This line of credit
allows us to borrow a maximum amount of $1,500,000. As of March 31,
2007,
the amount borrowed on this line of credit was $1,330,776. The interest
rate on this line of credit is Prime, which was 8.25% at March 31,
2007.
The line of credit expires in June 2008. This revolving line of credit
is
secured by all Company assets, except real estate. In addition, we
have
assigned a security interest in a deposit account at the bank. The
amount
of the deposit and the security interest is $1,575,000 and may be
offset
by the bank against any balance on the line of credit. The deposit
cannot
be withdrawn during the term of the line of credit. We may terminate
the
line of credit arrangement at any time, without penalty. As of March
31,
2007, we had approximately $169,000 of availability on this line
of
credit. During the term of this line of credit, we are required to
have a
minimum stockholders’ equity balance of
$1,500,000.
|
At
March
31, 2007, we did not have any material commitments for capital
expenditures.
Management
recognizes that operating losses negatively impact liquidity and is working
on
decreasing operating losses, while focusing on increasing net sales. Management
believes our current cash position and lines of credit will be sufficient to
enable us to meet our cash needs through at least the end of 2007. We
have
had a
history of operating losses. We
may
not generate sufficient revenues from product sales in the future to achieve
profitable operations. If
we are
not able to achieve profitable operations at some point in the future, we
eventually may have insufficient working capital to maintain our operations
as
we presently intend to conduct them or to fund our expansion and marketing
and
product development plans. In addition, our losses may increase in the future
as
we expand our manufacturing capabilities and fund our marketing plans and
product development. These losses, among other things, have had and will
continue to have an adverse effect on our working capital, total assets and
stockholders’ equity. If we are unable to achieve profitability, the market
value of our common stock will decline and there would be a material adverse
effect on our financial condition.
Some
or
all of the elements of our expansion plan may have to be curtailed or delayed
unless we are able to find alternative external sources of working capital.
We
would need to raise additional funds to respond to business contingencies,
which
may include the need to:
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·
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fund
more rapid expansion,
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|
·
|
fund
additional marketing expenditures,
|
|
·
|
enhance
our operating infrastructure,
|
|
·
|
respond
to competitive pressures, and
|
|
·
|
acquire
other businesses.
|
We
cannot
assure you that additional financing will be available on terms favorable to
us,
or at all. If adequate funds are not available or if they are not available
on
acceptable terms, our ability to fund the growth of our operations, take
advantage of opportunities, develop products or services or otherwise respond
to
competitive pressures, could be significantly limited.
In
February 2007, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard No.159, “The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB No. 115”. This
statement permits entities to choose to measure many financial instruments
and
certain other items at fair value. This statement is effective for years
beginning after November 15, 2007. Management believes the adoption will not
have a material impact on the Company’s results of operations, financial
position or cash flow.
In
September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements,"which
provides enhanced guidance for using fair value to measure assets and
liabilities. SFAS No. 157 provides a common definition of fair value and
establishes a framework to make the measurement of fair value in generally
accepted accounting principles more consistent and comparable. SFAS No. 157
also
requires expanded disclosures to provide information about the extent to
which
fair value is used to measure assets and liabilities, the methods and
assumptions used to measure fair value, and the effect of fair value measures
on
earnings. SFAS No. 157 is effective for financial statements issued in fiscal
years beginning after November 15, 2007 and to interim periods within those
fiscal years. The adoption of this SFAS has not had a material change on
the
Company's results of operations, financial position, or cash
flows.
Inflation
Although
management expects that our operations will be influenced by general economic
conditions, we do not believe that inflation has a material effect on our
results of operations.
Item
3.
CONTROLS AND PROCEDURES
(a)
Evaluation of Disclosure Controls and Procedures.
As
of
March 31, 2007, we carried out an evaluation, under the supervision and with
the
participation of our principal executive officer and principal financial
officer, of the effectiveness of the design and effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the
Securities Exchange Act of 1934, as amended)
Based
on
this evaluation, our chief
executive officer and chief
financial officer concluded
that,
as of
March
31,
2007,
such
disclosure
controls and procedures were
effective to
ensure
that information
required to be disclosed by
us
in
the
reports
we
file
or
submit
under
the Exchange
Act
is
recorded, processed, summarized and reported within the time
periods
specified in the rules and forms of the SEC, and accumulated and communicated
to
our management, including our chief executive officer and chief financial
officer, as appropriate to allow timely decisions regarding required disclosure.
In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives and in reaching a reasonable level of assurance our management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
(b)
Changes in Internal Controls.
There
were
no
changes
in our
internal controls
over
financial reporting during
the
quarter
ended
March 31, 2007 that
materially
affected, or are
reasonably likely to materially affect, our internal controls
over
financial reporting.
Part
II
Item
1.
Legal Proceedings
Reference
is made to Item 3, part I, Legal
Proceedings,
in our
Annual Report on Form 10-KSB for the year ended December 31, 2006 for
descriptions of our legal proceedings.
Except
as
set forth in such disclosure, we believe that there are no material litigation
matters at the current time. Although the results of such litigation matters
and
claims cannot be predicted with certainty, we believe that the final outcome
of
such claims and proceedings will not have a material adverse impact on our
financial position, liquidity, or results of operations.
Item
2.
Unregistered Sales of Equity Securities and Use of Proceeds
Use
of
Proceeds from Initial Public Offering
On
December 12, 2006, we completed the sale of 2,000,000 shares of our common
stock
at an offering price of $4.00 per share in our initial public offering. The
public offering resulted in gross proceeds of $8,000,000 to us. In connection
with the public offering (Registration Statement on Form SB-2, File No.
333-120451, effective date October 11, 2006) , we paid aggregate commissions,
concessions and non-accountable expenses to the underwriters of $800,000,
resulting in net proceeds of $7,200,000, excluding other expenses of the public
offering. From August 3, 2005 through April 7, 2006, we had issued 333,156
shares of our common stock in connection with the public offering. We sold
the
balance of the 2,000,000 shares in connection with the public offering
(1,666,844 shares) following October 11, 2006.
None
of
the proceeds were paid to directors, officers, affiliates or stockholders owning
10% or more of our common stock. We used approximately $340,000 of the proceeds
to pay expenses associated with our rescission offer, as described below. This
may be deemed to represent a material change from the estimated use of proceeds
contained in the final prospectus relating to our initial public offering.
The
following table sets forth the uses of approximately $7,524,000
of
the
proceeds from our initial public offering, as of March 31, 2007:
Commissions
related to the public offering (1)
|
|
$
|
800,000
|
|
Other
offering expenses (2)
|
|
|
830,000
|
|
Expenses
related to the rescission offer (3)
|
|
|
340,000
|
|
Investment
in a restricted money market account (4)
|
|
|
1,705,000
|
|
Payment
to reduce line of credit (5)
|
|
|
720,000
|
|
Payment
of accounts payable and current operating expenses
(6)
|
|
|
2,298,000
|
|
Costs
of hiring of additional sales personnel (7)
|
|
|
617,000
|
|
New
product launch costs (8)
|
|
|
4,000
|
|
Sales
delivery vehicles (9)
|
|
|
20,000
|
|
Brand
advertising (10)
|
|
|
101,000
|
|
New
computer system and brewery equipment (11)
|
|
|
89,000
|
|
Total
estimated proceeds used
|
|
$
|
7,524,000
|
|
(1) This
amount represents 10% of the gross proceeds of the public offering which were
paid as selling commissions to the underwriters in accordance with the
underwriting agreement.
(2) This
amount represents costs, including legal, accounting, printing and reimbursable
expenses of the underwriters associated with the public offering.
(3) This
amount represents legal and accounting expenses associated with the rescission
offer.
(4) These
funds were deposited in restricted money market accounts in order to secure
a
line of credit with California United Bank and a note payable to City National
Bank.
(5) These
funds were used to reduce our obligation on a line of credit with Merrill Lynch
in order to reduce interest expense. The line of credit remains in effect and
the amount remaining on the line of credit is available for our use, from time
to time.
(6) These
funds were used to settle accounts payable and pay for current operating
expenses.
(7) These
funds were used to pay the incremental increase of hiring new personnel and
related expenses.
(8) These
funds were used to pay for the development and product design costs for new
product launches.
(9) These
funds were used to purchase a new delivery vehicle related to the operations
of
the Brewery.
(10)
These funds were used to advertise our products.
(11)
These funds were used to purchase a new computer system and brewery equipment.
Item
3.
Defaults Upon Senior Securities
Not
applicable
Item
4.
Submission of Matters to a Vote of Security Holders
Not
applicable
Item
5.
Other Information
Not
applicable
Item
6.
Exhibits
Exhibit
|
|
|
Number
|
|
Description
of Document
|
|
|
|
31
|
|
Officer's
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
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Officer's
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
SIGNATURE
In
accordance with requirements of the Exchange Act, the Registrant caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
Reeds,
Inc.
|
|
|
|
|
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/s/
Christopher J. Reed
|
|
Christopher
J. Reed
Chief
Executive Officer, President
and
Chief Financial Officer
|
|
|
|
May
15, 2007
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