Reed's, Inc. (REED) Earnings Call Transcript & Summary

Welcome to the Reed's Inc. Annual Meeting of Stockholders Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Norm Snyder, Chief Executive Officer. Please go ahead.

Good morning, ladies and gentlemen. Will the Reed's Annual Meeting of Stockholders' meeting please come to order? I would like to welcome all of you to the 2022 Annual Meeting of Stockholders of Reed's Incorporated. I am Norman Snyder, Chief Executive Officer, and I will be presiding at this meeting. This annual meeting will be a completely virtual meeting. Also present in the meeting today are the Chairman of the Board, John Bello; Board members, Lou Imbrogno, Lew Jaffe, Lenny Zaltzman, Tom Kosler and Jim Bass. Additionally, we have Tom Spisak, our Chief Financial Officer; and Neal Cohane, our Chief Sales Officer. Mr. Spisak will act as secretary of the meeting. Chuck Garske, a representative of Okapi Partners, has been appointed to act as inspector of election. Shares represented by proxy will be voted during this meeting and may be revoked at any time prior to the time at which voting closes during the meeting by voting online. Please note that attending the meeting without casting a vote will not revoke any previously submitted vote or proxy. An agenda and list of rules of conduct for the annual meeting have been posted. We ask that you abide by these rules to be fair to the other stockholders present, and so we can conduct an orderly meeting. Stockholders should not address the meeting until recognized. If you want to ask a question or speak during the meeting, please wait for the appropriate time in the agenda. After you are recognized, first identify yourself and your status as a stockholder or representative of a stockholder, then make your comment or ask your question. We ask that you restrict your remarks or questions to 2 minutes and that they pertain to the items under discussion in the agenda. Thank you for your cooperation with these rules. The secretary has delivered an affidavit of mailing establishing the notice of this meeting was duly given in accordance with our bylaws. A copy of the notice of the meeting was mailed on September 2, 2022, to all stockholders of record. A copy of the notice of the meeting and the affidavit of mailing will be incorporated into the minutes of the meeting. All stockholders of record at the close of business on August 26, 2022, are entitled to vote at this meeting. Our first order of business is to determine whether the shares represented at the meeting, either in person or by proxy, are sufficient to constitute a quorum for the purpose of transacting business. Tom, do you have a report on quorum?

Yes. The certified stockholders list shows that the holders of 112,946,266 shares of common stock of the company are entitled to vote at this meeting. We are informed by Chuck Garske that there are represented in person or by proxy 80,833,089 shares of common stock or approximately 71.57% of all shares entitled to vote at this meeting. Therefore, we have a quorum.

Thank you. Because holders of the majority of shares entitled to vote at this meeting are present in person or by proxy, I declare this meeting to be duly convened for purposes of transaction of such business as may properly come before us. In proceeding with the meeting, we will introduce all proposals. After all proposals have been presented, we will open the floor to questions on specific proposals. I ask that you hold all questions on the agenda items until we actually open the floor and to direct your questions only to me. The next order of business is a description of the matters to be voted on at today's meeting. The first proposal to be voted on is the election of 7 directors to serve a 1-year term until their respective successors are duly elected and qualified or until their death, resignation, removal or disqualification. The nominee's qualifications are described in this year's proxy statement. Based on the recommendation of the Governance Committee, the Board has nominated for election the following 7 persons as directors of the company: John J. Bello, Norman E. Snyder, Jr., Lewis Jaffe, James C. Bass, Louis Imbrogno, Jr.; Leon M. Zaltzman; Thomas W. Kosler. The second proposal to be voted on is the approval for purpose of the rules of the NASDAQ Stock Market LLC, the potential issuance of more than 19.9% of our outstanding common stock upon the conversion of our 10% secured convertible notes. Our Board recommends a vote for the approval of the convertible note share issuance. Third proposal is the ratification of the appointment of Weinberg & Company, P.A. as our independent registered public accounting firm for the fiscal year ending December 31, 2023. Our Board recommends a for for this proposal. The fourth proposal is to approve an amendment to the Reed's Certificate of Incorporation to effect a reverse stock split of our issued and outstanding shares of common stock by a ratio of not less than 1 for 6 and not more than 1 for 25 at any time prior to December 31, 2022. Our Board recommends a vote for this proposal. The fifth proposal is to approve on an advisory basis the compensation of named executive officers. Our Board recommends a vote for this proposal. The sixth proposal is to approve an adjournment of the annual meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of proposal #2 and/or #4. Our Board recommends a for this proposal. Are there any questions or comments? I now declare the polls open. [Voting]

Please remember that if you have already sent in your proxy card or voted by Internet or telephone, your shares have been voted accordingly. You do not need to vote today unless you are voting for the first time or want to change your previous vote. The ballots and proxies will be held in Tom's possession and by our inspector of election. This is consistent with state law and our corporate bylaws. The list of the stockholders known to us that are entitled to notice of this meeting is available for inspection. We do have a question.

Okay. We will have a question. [Operator Instructions]. At this time, we have a question from [ Wally Jay ], who is a private investor.

I'm sorry. We are messing with the speakerphone, and we entered the queue. We withdraw any questions.

Okay.

[Operator Instructions] Okay. We are then -- go ahead, Mr. Snyder. Go ahead.

Thank you. Thank you, stockholders, for taking the time to share your time with us. Has everyone voted who wishes to do so? I will ask Tom Spisak to close the polls.

The polls for voting on the matters before this meeting are hereby closed. We have been informed by the inspector of election that the proxies and the ballots have been counted. Based upon the preliminary vote totals, all nominees for the election of the Board of Directors have been elected. The potential issuance of more than 19.9% of our outstanding common stock upon conversion of our 10% secured convertible notes has been approved. The auditors have been ratified. The amendment of the Reed's Certificate of Incorporation to effect a reverse stock split has been approved. The ability for the Board to act on an advisory basis to approve the compensation of named executive officers has been approved and the ability to adjourn the annual meeting, if necessary, to solicit additional proxies have been approved. The final vote will be reported on Form 8-K.

Thank you, Tom. We have concluded the business part of the annual meeting, which is officially adjourned. We will now have a brief question-and-answer period.

There are no questions in the queue. I will then pass on the meeting to Mr. Snyder for some closing remarks.

No, we do have a question.

Okay. All right. The question comes from [ Jack Hire ]. And go ahead, please, from a retail.

So I wanted to say congratulations on, I guess, maybe not to be more of it, but the state of execution with getting the NASDAQ to push back the delisting notice. So curious on if you guys have sort of a game plan, we just got the ratification of approval for a reverse split. Is that something you guys might think about waiting to actually push through to see if we can get compliance over the next -- through, whatever it is, February? Just curious on if you guys have any insight as to what we might expect with getting the ratification but also with getting the pushout date for delisting?

Yes. We do obviously have a game plan, a very detailed game plan that we presented to the NASDAQ Hearing Panel, which a lot has been implemented. And based on the response from the hearing, there was really only 2 matters, and I believe November 1 is the deadline. The first was that we have to have our shareholders -- our stockholders' meeting and receive approval for the reverse split, which obviously we have, and then we have to file an S-1 by November 1. So I think that gives us runway up until our deadline of, what, February 13 to be in compliance. So we do have time before we have to effect the stock split. And obviously, we will work as hard as we can to continue to drive the stock price upwards and implement the items that we discussed in detail with the NASDAQ Hearing Board.

Okay. Cool. I appreciate the context. And my only other question is -- on the last call, we -- you had touched on being cash flow positive for Q3 and Q4 of this year. Is -- has there been any change on that? Is that still the expectation? I think maybe from the investor side of things, I think, going positive for 2 consecutive quarters would obviously be a pretty solid boost for pushing -- driving the price up. And would also be wondering with -- if Q4, do we plan on maybe doing that call earlier to precede the February 13 date? I can't remember one exactly like the Q4 meeting was held last year. But would we precede that February date with the meeting, maybe pushing it up a bit?

All right. I'm going to answer these in somewhat of a different order than you asked them. So in terms of cash flow positive, we are talking about achieving that in the second half of 2023 from a traditional financial statement perspective. For [ Q3 ], Q4, what we were referring to is because we had so much inventory that we would generate positive cash flow in terms of a -- I want to say a nontraditional income statement. So if you look at the income statement, you're still going to have cost of goods sold and a net operating loss, which will be lower than it has been in the prior quarters. But most of the cost of goods sold have been -- have an effect on prepaid. So it's not cash that we're actually expanding during the quarter, which will allow us to have more cash flow and actually reduce our outstanding credit line accordingly. So if that makes sense. So from a traditional perspective, you're still going to have those financial statement components, but from purely a cash flow standpoint, we'll generate positive cash from the inventory that we've built already and paid for. Does that make sense to you?

Yes. Yes, absolutely.

All right. And then your third question was, remind me, I guess to wrapped up in the cash flow -- about the announcement. Yes, we'll do -- I mean I don't -- unfortunately, because year-end, we actually have to go through our final audit, which takes time. So I'm not sure if we'll be able to move that up at all because of the time it takes. However, I think if we get a couple of years ago, we were in a position where we did present at a conference where we pre-released our top line numbers. So obviously, we'll consider that if we have the opportunity. But the audit just adds another element we work as quickly as we can, but I don't see that February 13 date moving up. But obviously, any opportunity that we have to share information, we will.

Okay. All right. Well, I certainly appreciate the transparency as always and keep up good work, and we're looking forward to the future.

Thank you.

Our next question is coming from [ Wally Jay ], private investor.

Good day, gentlemen. I just -- a touch on proposal #4. Just to clarify some of the language of the news that happened the other day and language on proposal 4. A proposal 4 is asked for, obviously, to change the range of a potential reverse split and which can happen any time before December 31, 2022, with the news that came from the NASDAQ Board, does that mean that Reed's is no longer obligated to effect the reverse split any time before December 31, 2022?