Blueprint
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q/A
Amendment
No. 1
[X] QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly
period ended March 31,
2018
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE
ACT OF 1934
Commission
File No. 001-38014
NEW AGE BEVERAGES CORPORATION
(Exact Name of
Small Business Issuer as specified in its charter)
Washington
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27-2432263
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(State or other
jurisdiction
incorporation or
organization)
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(IRS Employer File
Number)
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|
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1700
E. 68th
Avenue
|
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Denver,
CO
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80229
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(Address of
principal executive offices)
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(zip
code)
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(303)-289-8655
(Registrant’s
telephone number, including area code)
Indicate by check
mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). YES [X] NO [ ]
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated
filer
|
[ ]
|
|
|
Accelerated
filer
|
[ ]
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Non-accelerated
filer
|
[ ]
|
(Do not check if a
smaller reporting company)
|
|
Smaller reporting
company
|
[X]
|
|
|
Emerging growth
company
|
[ X ]
|
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.
[ ]
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
The number of
shares outstanding of the issuer’s common stock on May 8,
2018 was 39,207,931.
EXPLANATORY NOTE
New
Age Beverages Corporation (the “Company”) is filing
this Amendment No. 1 on Form 10-Q/A (the “Form
10-Q/A”) to its Quarterly Report on Form 10-Q for
the quarter ended March 31, 2018, filed with the Securities and
Exchange Commission on May 15, 2018 (the “Form 10-Q”)
to disclose the Company’s adoption of ASC 606 and also to
provide management’s conclusion as to the effectiveness of
its disclosure controls and procedures.
Other
than with respect to the foregoing, this Form 10-Q/A does not
modify or update in any way the disclosures made in the Form 10-Q.
This Form 10-Q/A speaks as of the original filing date of the Form
10-Q and does not reflect events that may have occurred subsequent
to such original filing date, other than as described
above.
In
connection with the filing of this Form 10-Q/A and pursuant to the
rules of the Securities and Exchange Commission, we are including
with this Form 10-Q/A new certifications by our principal executive
officer and principal financial officer as of the date of this
filing.
NEW
AGE BEVERAGES CORPORATION
FORM
10-Q
FOR
THE THREE MONTHS ENDED MARCH 31, 2018
TABLE
OF CONTENTS
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Page
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PART
I. FINANCIAL INFORMATION
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ITEM 1
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Financial
Statements
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3
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Consolidated
balance sheets as of March 31, 2018 (unaudited) and December 31,
2017
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3
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Consolidated
statements of operations for the three months ended March 31, 2018
and March 31, 2017 (unaudited)
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4
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Consolidated
statements of cash flows for the three months ended March 31, 2018
and March 31, 2017 (unaudited)
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5
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Notes to
Consolidated Financial Statements
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6
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ITEM
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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19
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ITEM
3.
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Quantitative and
Qualitative Disclosures about Market Risk
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25
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ITEM
4.
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Controls and
Procedures
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25
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PART
II. OTHER INFORMATION
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ITEM
1.
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Legal
Proceedings
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26
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ITEM
1A.
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Risk
Factors
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26
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ITEM
2.
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Unregistered Sales
of Equity Securities and Use of Proceeds
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26
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ITEM
3.
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Defaults Upon
Senior Securities
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26
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ITEM
4.
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Mine Safety
Disclosures
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26
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ITEM
5.
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Other
Information
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26
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ITEM
6.
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Exhibits
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27
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SIGNATURES
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28
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PART
I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEW
AGE BEVERAGES CORPORATION
CONSOLIDATED
BALANCE SHEETS
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ASSETS
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CURRENT
ASSETS:
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Cash
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$94,041
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$285,245
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Accounts
receivable, net of allowance for doubtful accounts
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6,715,734
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7,462,065
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Inventories
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7,360,648
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7,041,775
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Prepaid expenses
and other current assets
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1,833,229
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1,435,058
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Total current
assets
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16,003,652
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16,224,143
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Prepaid expenses,
long-term
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415,430
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504,355
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Property and
equipment, net of accumulated depreciation
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1,805,523
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1,894,820
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Security
deposit
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195,420
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197,515
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Right-of-use
asset
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4,007,846
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4,064,883
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Goodwill
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21,230,212
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21,230,212
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Intangible assets,
net of accumulated amortization
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23,188,423
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23,556,251
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Total
assets
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$66,846,506
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$67,672,179
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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|
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CURRENT
LIABILITIES:
|
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Accounts
payable
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$3,035,925
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$4,370,491
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Accrued
expenses
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4,975,578
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2,276,638
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Lease liability,
current
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245,169
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239,079
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Current portion of
notes payable
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3,427,051
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3,427,051
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Total current
liabilities
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11,683,723
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10,313,259
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|
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Lease liability,
net of current portion
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3,758,779
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3,820,865
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Contingent
consideration
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900,000
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800,000
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Total
liabilities
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16,342,502
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14,934,124
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COMMITMENTS AND
CONTINGENCIES (Note 7)
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STOCKHOLDERS’
EQUITY:
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Common stock,
$0.001 par value, 50,000,000 shares authorized; 36,647,931 and
35,171,419 shares issued and outstanding at March 31, 2018, and
December 31, 2017, respectively
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36,648
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35,171
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Series B Preferred
stock, $0.001 par value: 300,000 shares authorized, zero and
169,234 shares issued and outstanding at March 31, 2018 and
December 31, 2017, respectively
|
-
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169
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Additional paid-in
capital
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63,619,496
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63,203,598
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Accumulated
deficit
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(13,152,140)
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(10,500,883)
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Total
stockholders’ equity
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50,504,004
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52,738,055
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Total liabilities
and stockholders’ equity
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$66,846,506
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$67,672,179
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See accompanying notes, which are an integral part of these
unaudited consolidated financial statements.
NEW
AGE BEVERAGES CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
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REVENUES,
net
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$11,558,203
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$10,787,801
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Cost of Goods
Sold
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8,941,778
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8,352,472
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GROSS
PROFIT
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2,616,425
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2,435,329
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OPERATING
EXPENSES:
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Advertising,
promotion and selling
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501,205
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697,767
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General and
administrative
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4,348,849
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2,090,291
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Legal and
professional
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254,002
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73,391
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Total operating
expenses
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5,104,056
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2,861,449
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LOSS FROM
OPERATIONS
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(2,487,631)
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(426,120)
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OTHER
EXPENSE:
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Interest
expense
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(56,411)
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(80,280)
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Other expense
net
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(107,212)
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(200,954)
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Total
expense
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(163,623)
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(281,234)
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NET
LOSS
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$(2,651,254)
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$(707,354)
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NET LOSS PER SHARE
– BASIC AND DILUTED
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$(0.07)
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$(0.03)
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See accompanying notes, which are an integral part of these
unaudited consolidated financial statements.
NEW
AGE BEVERAGES CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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CASH FLOWS FROM
OPERATING ACTIVITIES:
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Net income
(loss)
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$(2,651,254)
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$(707,354)
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Adjustments to
reconcile net loss to net cash used in operating
activities:
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Depreciation and
amortization
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521,204
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229,929
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Amortization of
debt discount
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-
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128,614
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Provision for
doubtful accounts
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42,136
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30,082
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Share-based
compensation
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377,086
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-
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Changes in
operating assets and liabilities:
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Accounts
receivable
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704,195
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(121,062)
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Inventories
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(318,873)
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551,301
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Prepaid expenses
and other current assets
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(267,034)
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(273,224)
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Accounts
payable
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(1,334,566)
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(2,952,444)
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Accrued
expenses
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2,698,940
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-
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Contingent
consideration
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100,000
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-
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Net change in lease
liability
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1,041
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-
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Net cash used in
operating activities
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(127,125)
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(3,114,158)
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CASH FLOWS FROM
INVESTING ACTIVITIES:
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Purchases of
property and equipment
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(64,079)
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(148,560)
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Acquisition
of assets of Maverick Brands, LLC
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-
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(2,000,000)
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Net cash used in
investment activities
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(64,079)
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(2,148,560)
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CASH FLOWS FROM
FINANCING ACTIVITIES:
|
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Issuance of common
stock for cash
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-
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15,638,232
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Repayment of notes
payable and capital lease obligations
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-
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(10,369,667)
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Net cash provided
by financing activities
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-
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5,268,565
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NET CHANGE IN
CASH
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(191,204)
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5,847
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CASH AT BEGINNING
OF PERIOD
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285,245
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529,088
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CASH AT END OF
PERIOD
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$94,041
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$534,935
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See accompanying notes, which are an integral part of these
unaudited consolidated financial statements.
NEW
AGE BEVERAGES CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES
New Age Beverages
Corporation (the “Company”) was formed under the laws
of the State of Washington on April 26, 2010 under the name
American Brewing Company, Inc. On April 1, 2015, the Company
acquired the assets of B&R Liquid Adventure, which included the
brand Bucha® Live Kombucha. On June 30, 2016, the Company
acquired the combined assets of New Age Beverages, LLC, Aspen Pure,
LLC, New Age Properties, LLC and Xing Beverage, LLC and changed the
Company’s name to New Age Beverages Corporation. In March 2017, the Company acquired the assets of
Maverick Brands LLC (“Maverick”), including the
Coco-Libre brand. In May 2017, the Company acquired the assets of
Premier Micronutrient Corporation (“PMC”). In June
2017, the Companyalso completed the acquisition of the Marley
Beverage Company (“Marley”) including the brand
licensing rights to all Marley brand ready to drink beverages (see
Note 3).
The Company
manufactures, markets and sells a portfolio of healthy functional
beverages including XingTea®, an all-natural, non-GMO,
non-HFCS premium Ready to Drink (RTD) Tea; Aspen Pure®, an
artesian-well, naturally-high PH balanced, source water from the
Colorado Rocky Mountains; XingEnergy®, an all-natural,
vitamin-enriched, non-GMO, Non-HFCS Energy Drink; and
Búcha® Live Kombucha, an organic, all natural, fermented
kombucha tea. The portfolio is distributed through the
Company’s own Direct Store Distribution (DSD) network in
Colorado and surrounding states, throughout the United States both
direct to major retailers and through its network of DSD partners,
and in 10 countries around the world. The brands are sold in all
channels of distribution including Hypermarkets, Supermarkets,
Pharmacies, Convenience, Gas and other outlets.
Basis of Presentation
The accompanying
unaudited interim condensed consolidated financial statements as of
March 31, 2018 of the Company have been prepared in accordance with
accounting principles generally accepted in the United States of
America (“U.S. GAAP”) and the rules of the Securities
and Exchange Commission (“SEC”), and should be read in
conjunction with the audited financial statements and notes thereto
contained in the Company’s Form 10-K filed with the SEC on
April 17, 2018. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations
for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily
indicative of the results to be expected for future quarters or for
the full year. Notes to the unaudited condensed consolidated
financial statements which substantially duplicate the disclosure
contained in the audited financial statements for fiscal 2017 as
reported in the Form 10-K have been omitted.
Concentrations of Credit Risk
Financial
instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and accounts
receivables. The Company places its cash with high credit quality
financial institutions. At times such amounts may exceed federally
insured limits.
As of March 31,
2018, three customers accounted for approximately 29.4% (11.7%,
9.8% and 7.9%) of accounts receivables. As of December 31, 2017,
three customers represented approximately 23.1% (10.5%, 6.7% and
5.9%) of accounts receivable.
For the three
months ended March 31, 2018, three customers represented
approximately 23.6% (10.6%, 8.1% and 4.9%) of revenue. For the
three months ended March 31, 2017, two customers represented
approximately 18.5% (11.0% and 7.5%) of revenue.
Accounts Receivable
The Company’s
accounts receivable primarily consists of trade receivables. The
Company records an allowance for doubtful accounts that is based on
historical trends, customer knowledge, any known disputes, and the
aging of the accounts receivable balances combined with
management’s estimate of future potential recoverability.
Receivables are written off against the allowance after all
attempts to collect a receivable have failed. The Company’s
allowance for doubtful accounts was $94,481 as of March 31, 2018
and $52,345 as of December 31, 2017.
NEW
AGE BEVERAGES CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Goodwill and Intangible assets
Goodwill
represents the excess of the purchase price of acquired businesses
over the estimated fair value of the identifiable net assets
acquired. Goodwill and other intangibles with indefinite useful
lives are not amortized but tested for impairment annually or more
frequently when events or circumstances indicates that the carrying
value of a reporting unit more likely than not exceeds its fair
value. The goodwill impairment test is applied by performing a
qualitative assessment before calculating the fair value of the
reporting unit. If, on the basis of qualitative factors, it is
considered not more likely than not that the fair value of the
reporting unit is less than the carrying amount, further testing of
goodwill for impairment would not be required. If the carrying
amount of a reporting unit exceeds the reporting unit’s fair
value, an impairment loss is recognized in an amount equal to that
excess, limited to the total amount of goodwill allocated to that
reporting unit. The Company performed a qualitative assessment and
determined there was no impairment of goodwill for the three-months
ended March 31, 2018 and 2017, respectively.
Intangible assets are recorded at acquisition fair
value as part of the acquisitions. The balance as of March 31, 2018
and December 31, 2017 is reflected net of accumulated amortization.
Definite lived intangible assets are amortized over their estimated
useful life using the straight-line method, which is determined by
identifying the period over which the cash flows from the asset are
expected to be generated, typically 15 to 42 years. For the
three-months ended March 31, 2018 and 2017 amortization expense
totaled $367,828 and $97,981, respectively. As of March 31, 2018
and December 31, 2017, accumulated amortization was $1,736,396 and
$1,368,568, respectively.
Long-lived Assets
Long-lived assets
consisted of property and equipment and customer relationships and
are reviewed for impairment in accordance with the guidance of the
Financial Accounting Standards Board (“FASB”) Topic
Accounting Standards Codification (“ASC”) 360,
Property, Plant, and
Equipment. The Company tests for impairment losses on
long-lived assets used in operations whenever events or changes in
circumstances indicate that the carrying amount of the asset may
not be recoverable. Through March 31, 2018, we had not experienced
impairment losses on our long-lived assets as management determined
that there were no indicators that a carrying amount of the asset
may not be recoverable.
Share-Based Compensation
The Company accounts for share-based compensation
to employees in accordance with ASC 718 Compensation—Stock
Compensation. Share-based
compensation to employees is measured at the grant date, based on
the fair value of the award, and is recognized as expense over the
requisite employee service period. The Company accounts for
share-based compensation to nonemployees in accordance with ASC
505-50, Equity-Based Payments to
Nonemployees. Equity
instruments issued to nonemployees are valued at the earlier of a
commitment date or upon completion of the services, based on the
fair value of the equity instruments and is recognized as expense
over the service period. The Company estimates the fair value of
share -based payments using the Black-Scholes option- pricing
model for common stock options and warrants and the latest fair
market price of the Company’s common stock for common share
issuances. The Company has not experienced any forfeitures as of
March 31, 2018. Management does not anticipate future forfeitures
to be material.
Included
in prepaid expenses as of March 31, 2018 and December 31, 2017 are
prepaid share-based compensation of approximately $1,000,000 and
$1,000,000, of which approximately $415,000 and $500,000 are
presented as long-term on the consolidated balance sheets under the
caption Prepaid Expenses, long-term. These amounts represent the
prepaid compensation to employees and certain non-employees for
services rendered.
NEW
AGE BEVERAGES CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Recently
Issued Accounting Standards
Recently Adopted Accounting
Guidance
In May 2014, the Financial Accounting Standards
Board ("FASB") issued Accounting Standards Update ("ASU")
2014-09, Revenue from Contracts with
Customers, which replaces most
existing revenue recognition guidance in U.S. GAAP and is intended
to improve and converge with international standards the financial
reporting requirements for revenue from contracts with customers.
ASU 2014-09 and its amendments were included primarily in ASC 606.
The core principle of ASC 606 is that an entity should recognize
revenue for the transfer of goods or services equal to the amount
that it expects to be entitled to receive for those goods or
services. ASC 606 also requires additional disclosures about the
nature, amount, timing and uncertainty of revenue and cash flows
arising from customer contracts, including significant judgments
and changes in judgments. We adopted ASC 606 effective January 1,
2018, using the modified retrospective method. There was no impact
to the opening balance of reinvested earnings as of January 1,
2018.
Accounting Guidance Not Yet Adopted
In January 2017, the FASB issued 2017-04,
Intangibles -
Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment. The amendments in
this ASU simplify the subsequent measurement of goodwill by
eliminating Step 2 from the goodwill impairment test and
eliminating the requirement for a reporting unit with a zero or
negative carrying amount to perform a qualitative assessment.
Instead, under this pronouncement, an entity would perform its
annual, or interim, goodwill impairment test by comparing the fair
value of a reporting unit with its carrying amount and would
recognize an impairment change for the amount by which the carrying
amount exceeds the reporting unit’s fair value; however, the
loss recognized is not to exceed the total amount of goodwill
allocated to that reporting unit. In addition, income tax effects
will be considered, if applicable. This ASU is effective for fiscal
years, and interim periods within those fiscal years, beginning
after December 15, 2019. Early adoption is permitted. The Company
is currently evaluating the impact of this ASU on its consolidated
financial statements and related
disclosures.
Cash Flows
Supplemental
Disclosures
|
Three
months
ended March 31,
2018
|
Three
months
ended March 31,
2017
|
|
|
|
CASH PAID DURING
THE PERIODS FOR:
|
|
|
Interest
|
$56,770
|
$80,280
|
Income
taxes
|
$-
|
$-
|
|
|
|
NONCASH INVESTING
AND FINANCING ACTIVITIES:
|
|
|
|
|
|
Common stock issued
for acquisition of Maverick Brands, LLC
|
$-
|
$9,086,000
|
NOTE
2 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY
PLANS
The accompanying
unaudited interim condensed consolidated financial statements have
been prepared assuming the Company will continue as a going
concern, which contemplates, among other things, the realization of
assets and satisfaction of liabilities in the normal course of
business. Since inception, the Company has financed its operations
primarily through equity and debt financings. As of March 31, 2018
and December 31, 2017, the Company had an accumulated deficit of
$13,152,140 and $10,500,883 (all of which was attributed to the
losses of Búcha, Inc., and one-time expenses associated with
the integration and up-listing onto the NASDAQ exchange and
acquisitions of Maverick, PMC and Marley during the year ended
December 31, 2017 and Xing during the year ended December 31,
2016). For the three-months ended March 31, 2018 and 2017,
respectively, cash flows used in operating activities were
($127,125) and ($3,114,158).
NEW
AGE BEVERAGES CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The 2017
acquisitions of Maverick, PMC and Marley (see Note 3) required
significant cash outlays for integration and operations. The
Company continues to raise funds through the issuance of its equity
securities, See Note 12, Subsequent Events. With the additional
proceeds received from the Company’s April 2018 equity
financing, the Company believes that its current capital will be
sufficient to meet the Company’s operating liquidity, capital
expenditure and debt repayment requirements for at least another
year.
NOTE
3 – ACQUISITIONS
Maverick Brands, LLC.
On March 31, 2017,
the Company acquired all of the assets of Maverick Brands, LLC or
Maverick. Maverick is engaged in the manufacturing and sale of
coconut water and other beverages. The acquisition helped the
Company expand its capabilities and product offering. The operating
results of Maverick have been consolidated with those of the
Company beginning April 1, 2017. Total purchase consideration paid
was $11,086,000, which consisted of $2,000,000 of cash and
2,200,000 shares of common stock valued at $9,086,000. The common
stock issued was valued at $4.13 per share, which was the closing
price of the Company’s stock on the date of the acquisition.
The acquisition was subject to customary closing conditions. All of
the goodwill was assigned to the Company’s Brands segment.
All of the goodwill and intangible assets recognized is expected to
be deductible for income tax purposes. The fair value of the
customer list was valued using the income approach, as the Company
obtained an independent third-party valuation. In addition, the
market approach was utilized to determine the fair value of the
trade name and recipes.
The purchase price
was allocated to the net assets acquired based on their estimated
fair values as follows:
Cash
|
$2,000,000
|
Stock
|
9,086,000
|
Purchase
price
|
$11,086,000
|
|
|
Accounts
receivable
|
$245,426
|
Inventories
|
1,523,413
|
Prepaid expenses
and other current assets
|
211,213
|
Property and
equipment, net
|
68,282
|
Other intangible
assets acquired (trade names, recipes and customer
lists)
|
6,660,441
|
Accounts payable
and accrued expenses
|
(1,345,155)
|
Assumption of note
payable
|
(1,427,051)
|
|
5,936,569
|
Goodwill
|
5,149,431
|
|
$11,086,000
|
Goodwill is the
excess of the purchase price over the preliminary fair value of the
underlying net tangible and identifiable intangible assets. In
accordance with applicable accounting standards, goodwill is not
amortized but instead is tested for impairment at least annually or
more frequently if certain indicators are present.
In connection with
the acquisition of Maverick, the Company incurred transactional
costs totaling $231,925, which has been recognized as expense as of
March 31, 2017. These costs have been reflected in other
expenses.
NEW
AGE BEVERAGES CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PMC Holdings, Inc.
On May 18, 2017,
the Company entered into an Asset Purchase Agreement whereby the
Company acquired substantially all of the operating assets of
Premier Micronutrient Corporation, a subsidiary of PMC Holdings,
Inc. or PMC, which is a company engaged in the business of
developing, manufacturing, selling and marketing micronutrient
products and formulations . On May 23, 2017, the parties executed
the Bill of Sale and Assignment and Assumption Agreement for the
Acquisition.
Upon the closing of
the acquisition, the Company received substantially all of the
operating assets of PMC, consisting of fixed assets and
intellectual property in exchange for a purchase price of 1,200,000
shares of the Company’s common stock. The shares were fair
valued at $4.58 per share. The Company also agreed to assume
various accounts payable and accrued liabilities of PMC. The shares
of Common Stock to be issued pursuant to the Acquisition will be
restricted under Rule 144. The Acquisition was subject to customary
closing conditions. All of the goodwill was assigned to the
Company’s Brands segment. All of the goodwill and intangible
assets recognized is expected to be deductible for income tax
purposes. The fair value of the patents were valued using the
market approach, as the Company obtained an independent third-party
valuation.
The purchase price
was allocated to the net assets acquired based on their estimated
fair values as follows:
Stock
|
$5,496,000
|
Purchase
price
|
$5,496,000
|
Prepaid expenses
and other current assets
|
2,256
|
Property and
equipment, net
|
55,023
|
Patents
|
4,100,000
|
Accounts
payable
|
(27,772)
|
Assumption of notes
payable
|
(401,095)
|
|
3,728,412
|
Goodwill
|
1,767,588
|
|
$5,496,000
|
Marley Beverage Company, LLC
On March 23, 2017,
the Company entered into an asset purchase agreement whereby the
Company agreed to acquire substantially all of the operating assets
of Marley Beverage Company, LLC or Marley, which is a company
engaged in the development, manufacturing, selling and marketing of
nonalcoholic relaxation teas and sparkling waters, and ready to
drink coffee drinks. The consideration for the acquisition was
amended pursuant to an amendment to the asset purchase agreement on
June 9, 2017. The acquisition closed on June 13, 2017.
At closing, the
Company received substantially all of the operating assets of
Marley, consisting of inventory, accounts receivable, fixed assets
and intellectual property in exchange for a purchase price of
3,000,000 shares of the Company’s common stock. The Company
agreed to an earn out payment of $1,250,000 in cash if the gross
revenues of the Marley business during any trailing twelve calendar
month period after the closing are equal to or greater than
$15,000,000. The earnout, if applicable, will be paid as $625,000
on or before the 15th day after the end of the first trailing
twelve calendar month period in which the earnout condition is
satisfied, $312,500 not later than the first anniversary of the
initial earnout payment, and $312,500 not later than the second
anniversary of the initial earnout payment. The fair value of the
earnout was valued using the weighted average return on asset. The
shares of common stock issued pursuant to the acquisition have not
been registered, but the holders were granted piggyback
registration rights, as well as demand registration rights, with
the demand registration rights beginning twelve months from the
Closing Date. The acquisition was subject to customary closing
conditions. The shares were fair valued at $6.20 per share. All of
the goodwill was assigned to the Company’s Brands segment.
All of the goodwill and intangible assets recognized is expected to
be deductible for income tax purposes. The fair value of the
customer list was valued using the cost approach, as the Company
obtained an independent third-party valuation. In addition, the
market approach was utilized to determine the fair value of the
trade name and recipes.
NEW
AGE BEVERAGES CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The purchase price
was allocated to the net assets acquired based on their estimated
fair values as follows:
Stock
|
$18,600,000
|
Contingent
consideration
|
800,000
|
Purchase
price
|
$19,400,000
|
Accounts
receivable
|
$186,658
|
Inventories
|
798,098
|
Prepaid expenses
and other current assets
|
198,882
|
Property and
equipment, net
|
22,191
|
Other intangible
assets acquired (trade names, recipes and customer lists)
|
9,281,365
|
Accounts payable
and accrued expenses
|
(505,146)
|
|
9,982,048
|
Goodwill
|
9,417,952
|
|
$19,400,000
|
The following
unaudited pro forma financial results reflects the historical
operating results of the Company for the three-months ended March
31, 2017 and includes the pro forma results of operations as if
Maverick, PMC and Marley were acquired on January 1, 2017. The
unaudited pro forma financial information includes an adjustment to
remove $231,925 of one-time transactional costs related to the
Maverick acquisition that were expensed during the three months
ended March 31, 2017. These one-time costs were removed for pro
forma purposes as the costs were non-recurring. No adjustments have
been made for synergies that may result from the acquisition. These
combined results are not necessarily indicative of the results that
may have been achieved had the companies been combined as of such
dates or periods, or of the Company’s future operating
results.
|
Three
Months Ended
March
31, 2017
|
|
|
|
|
Revenues
|
$13,998,793
|
Net loss from
continuing operations
|
(4,668,825)
|
Net loss per share
– Basic and diluted
|
$(0.16)
|
Weighted average
number of common shares outstanding – Basic and
Dilutive
|
28,454,868
|
Adjustments to the
fair values of the assets acquired, which are subject to change,
could have a material impact on these pro forma combined
results.
NOTE
4 – INVENTORIES
Inventories consist
of brewing materials, tea ingredients, bulk packaging and finished
goods. The cost elements of work in process and finished goods
inventory consist of raw materials and direct labor. Provisions for
excess inventory are included in cost of goods sold and have
historically been immaterial but adequate to provide for losses on
its raw materials. Inventories are stated at the lower of cost,
determined on the first-in, first-out basis, or
market.
NEW
AGE BEVERAGES CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Inventories
consisted of the following as of:
|
|
|
Finished
goods
|
$5,753,385
|
$6,302,265
|
Raw
materials
|
1,607,263
|
739,510
|
|
$7,360,648
|
$7,041,775
|
NOTE
5 – PROPERTY AND EQUIPMENT
Property and
equipment consisted of the following as of:
|
|
|
Land and
building
|
$518,293
|
$518,293
|
Trucks and
coolers
|
1,290,133
|
1,226,053
|
Other property and
equipment
|
913,053
|
913,053
|
Less: accumulated
depreciation
|
(915,956)
|
(762,579)
|
|
$1,805,523
|
$1,894,820
|
Depreciation
expense, computed on the basis of three-to-five year useful lives
for all property and equipment, and a 40-year useful life on the
building, was $153,377 and $131,948 for the three months ended
March 31, 2018 and 2017; respectively.
NOTE
6 – NOTES PAYABLE AND CONVERTIBLE NOTE PAYABLE
Notes payable
consisted of the following as of:
|
|
|
Revolving note
payable due bank
|
$2,000,000
|
$2,000,000
|
Series B note
assumed from the Maverick Acquisition
|
1,427,051
|
1,427,051
|
|
3,427,051
|
3,427,051
|
Less: current
portion
|
(3,427,051)
|
(3,427,051)
|
Long-term portion,
net of unamortized discounts
|
$-
|
$-
|
In connection with
the acquisition of Maverick, the Company assumed Series B notes
payable in the aggregate amount of $1,427,051. Monthly payments
consist of interest only payments, which bear interest at a rate of
10% per annum The loans are due December 2018.
NEW
AGE BEVERAGES CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On July 6, 2017 the
Company entered into a revolving credit agreement with U.S. Bank
National Association. Total borrowings under the revolving credit
agreement are $2,000,000 and are subject to borrowing base
requirements. The credit agreement bears interest at 2.5% plus
Daily Reset LIBOR Rate. Currently, interest only payments of
approximately $7,000 are due monthly. The entire principal and
outstanding interest payments are due on maturity on July 6, 2018.
The revolving credit line is subject to a fixed charged ratio
financial covenant. The Company must maintain a fixed charged
coverage ratio of at least 1:15 to 1:00. As of and for the
three-month period ended March 31, 2018 and for the year ended
December 31, 2017, the Company was in compliance with this
financial covenant.
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
On June 30, 2016,
the Company assumed the lease commitments for the New Age Beverage,
LLC (NAB) and Xing Beverage, LLC (Xing) when it acquired those
companies. The Colorado Springs property, previously leased by
Xing, has a base rent of $14,000 per month plus common area
expenses, with escalation clauses over time. On April 14, 2017 the
Company entered into the Second Lease Amendment whereby extending
the lease term through August 31, 2020 and new monthly rental
payments of $16,400, subject to rental escalation
clauses.
On January 10,
2017, the Company entered into a Purchase and Sale Agreement with
an unaffiliated third party. Pursuant to the agreement, the Company
entered into a commitment to sell the property located at 1700 E
68th Avenue, Denver, CO 80229 for a purchase price of $8,900,000.
The agreement contains a lease back provision, whereby the Company
leases the property for an initial term of ten years, with an
option to extend for two successive five-year periods. The lease
cost is $52,000 per month for the initial year, with two percent
annual increases. The Company elected to early adopt ASU 2016-02
(‘Leases”) and, as a result, the Company recognized a
Right-of-Use for the asset of approximately $4,065,000 and a
corresponding liability of a similar amount as of December 31,
2017. The total Right-of-Use for the asset as of March 31, 2018
approximated $4,008,000.
Future minimum
lease payments under these facilities leases are approximately as
follows:
Remaining of
2018
|
$705,832
|
2019
|
820,800
|
2020
|
830,640
|
2021
|
840,000
|
2022
|
845,000
|
Thereafter
|
$4,042,272
|
Rent expense was
$262,241 and $48,365 for the three months ended March 31, 2018 and
2017, respectively.
Legal
In the normal
course of business, the Company may be involved in legal
proceedings, claims and assessments arising in the ordinary course
of business. Such matters are subject to many uncertainties, and
outcomes are not predictable with assurance. There are no such
matters that are deemed material to the condensed consolidated
unaudited interim financial statements as of March 31,
2018.
NEW
AGE BEVERAGES CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
8 – STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is
authorized to issue 1,000,000 shares of preferred stock, each
having a par value of $0.001, with voting, distribution, dividend
and redemption rights, and liquidation preferences and conversions
as designated by the board of directors from time to time. The
board of directors has designated 250,000 shares as Series A
Preferred stock, par value $.001 per share and 300,000 shares as
Series B Preferred stock.
Series A Preferred Stock
Each share of
Series A Preferred has the right to vote on any matter with holders
of common stock and shall each have 500 votes. As of December 31,
2016, 250,000 shares of Series A Preferred are issued and
outstanding. As a result of the February 17, 2017 public offering,
all shares of Series A Preferred stock were rescinded, resulting in
an increase to additional paid in capital of
$250.
Series B Preferred Stock
The board of
directors has designated 300,000 shares as Series B Preferred
stock, par value $.001 per shares (“Series B
Preferred”). The Series B Preferred is non-voting, not
eligible for dividends and ranks equal to common stock and below
Series A preferred stock. Each share of Series B Preferred has a
conversion rate into eight shares of common stock. As of December
31, 2017, 169,234 shares of Series B Preferred are issued and
outstanding. In January 2018, all remaining 169,234 shares of
Series B Preferred stock were converted into shares of common stock
at a ratio of 8:1.
Common Stock
On February 17,
2017, the Company issued 4,285,714 shares of common stock at an
offering price of $3.50 per share. In addition, the Company’s
underwriter exercised the over-allotment to purchase an additional
642,857 shares of common stock. Gross proceeds to the Company were
approximately $17,250,000 before deducting underwriting discounts
and commissions, and other estimated offering expenses payable by
the Company.
NEW
AGE BEVERAGES CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
9 – COMMON STOCK AWARDS
Long-term Incentive Plan:
On August 3, 2016,
the Company’s approved and implemented the New Age Beverages
Corporation 2016-2017 Long Term Incentive Plan (the
“Plan”) pursuant to which the maximum number of shares
that can be granted as of March 31, 2018 is 3,517,141 shares.
Grants under the Plan include options and share awards. The purpose
of the Plan is to provide such individuals with additional
incentive and reward opportunities designed to enhance the
profitable growth of the Company and its affiliates. The shares of
common stock to be issued in connection with the Plan will not be
registered under the Securities Act. As of March 31, 2018 and
December 31, 2017, a total of 1,583,975 options, were outstanding
under the plan. As of March 31, 2018 and December 31, 2017, a total
of 1,583,975 options, respectively, were outstanding under the
plan. Through March 31, 2018 1,934,957 share awards have been
issued under the plan.
Employee stock
option activities under the Incentive Plan for the three-month
period ended and year ended March 31, 2018 and December 31, 2017,
and changes during the years then ended are presented
below:
Employee Stock Option Compensation Award
Activity
|
|
Weighted-
Average Grant
Date Fair
Value
|
|
|
|
Non-vested
options at January 1, 2017
|
484,348
|
$1.11
|
Granted
|
1,099,627
|
$1.22
|
Vested
|
(161,449)
|
$1.11
|
Forfeited
|
-
|
$-
|
Non-vested
options at December 31, 2017
|
1,422,526
|
$1.11
|
Granted
|
-
|
$-
|
Vested
|
(165,331)
|
$1.20
|
Forfeited
|
-
|
$-
|
Non-vested
options at March 31, 2018
|
1,257,195
|
$1.20
|
The options granted
in 2016 were fair valued using the BlackScholes Merton model and
valued at $1.11 per share on the grant date. The options granted in
2017 were fair valued using the BlackScholes Merton model and
valued at $1.33 and $0.83 per share on the grant date.
The following table
presents the assumptions for the Black-Scholes option-pricing model
used in determining the fair value of options granted to employees
on the grant date:
|
|
Exercise
price
|
$2.04-2.09
|
Dividend
yield
|
0.0%
|
Risk-free interest
rate
|
2.01%
|
Expected
volatility
|
100%
|
Expected term
(years)
|
1.0-3.0
|
Estimated
forfeiture % rate
|
0.0%
|
NEW
AGE BEVERAGES CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Restricted Stock Awards:
Restricted stock
award activity under the Incentive Plan for the three months ended
March 31, 2018 and for the year ended December 31, 2017, and
changes during the years then ended are presented
below:
|
|
Restricted Stock-Based Compensation
Award Activity
|
|
Weighted-
Average Grant
Date Fair
Value
|
|
|
|
Non-vested
restricted stock awards January 1, 2017
|
771,783
|
$0.33
|
Granted
|
838,178
|
$2.11
|
Vested
|
(740,439)
|
$0.33
|
Forfeited
|
-
|
$-
|
Non-vested
restricted stock awards at December 31, 2017
|
869,522
|
$0.71
|
Granted
|
324,996
|
$2.12
|
Vested
|
(167,919)
|
$2.11
|
Forfeited
|
-
|
$-
|
Non-vested
restricted stock awards at March 31, 2018
|
1,026,599
|
$2.11
|
The shares were
fair valued using our closing stock price of $2.11 in 2017 and
$2.12 in 2018 per share on the grant dates.
NOTE
10 – NET LOSS PER SHARE
The following table
provides basic and diluted shares outstanding for the calculation
of net (loss) income per share. Series B preferred stock is
included on an as-converted basis and warrants are included using
the treasury stock method. For the periods whereby the Company is
reporting a net loss from continuing operations, securities to
acquire common stock or convertible into shares of common stock are
excluded from the computation of net (loss) income per share as
they would be anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding – Basic
|
36,196,640
|
24,254,868
|
Series B preferred
stock
|
-
|
-
|
Warrant to acquire
common stock
|
-
|
-
|
Weighted average
shares outstanding – Diluted
|
36,196,640
|
24,254,868
|
NEW
AGE BEVERAGES CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
11 –
SEGMENT INFORMATION
The Company follows
segment reporting in accordance with FASB ASC Topic 280,
Segment
Reporting.
Management views
its operations based on two distinct reporting segments: (1) the
Direct Store Distributions (DSD) and (2) the Brands
segment.
The DSD segment
distributes beverages throughout Colorado and surrounding states,
delivering to approximately 6,000 retail customers.
The Brands segment
sells beverages to wholesale distributors, broad-liners, key
account owned warehouses and international accounts using several
distribution channels.
Total revenues by
reporting segment for the periods presented are as
follows:
|
Three Months Ended
March 31,
(in thousands)
|
(In thousands)
|
|
|
DSD
|
$8,655
|
$8,466
|
Brands
|
2,903
|
2,321
|
Total
revenues
|
$11,558
|
$10,787
|
Total assets for
each reporting segment as of March 31, 2018 and December 31, 2017
are as follows:
|
|
(In thousands)
|
|
|
DSD
|
$15,359
|
$16,630
|
Brands
|
51,488
|
51,042
|
Total
Assets
|
$66,847
|
$67,672
|
NEW
AGE BEVERAGES CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DSD
A summary of the
DSD segment’s revenues and cost of sales is as
follows:
|
Three Months Ended March 31,
(in thousands)
|
(In thousands)
|
|
|
Revenues
|
$8,655
|
$8,466
|
Cost
of sales
|
(6,627)
|
(6,726)
|
Gross
profit
|
$2,028
|
$1,740
|
Brands
A summary of the
Brands segment’s revenues and cost of sales is as
follows:
|
Three Months Ended March 31,
(in thousands)
|
(In thousands)
|
|
|
Revenues
|
$2,903
|
$2,321
|
Cost
of sales
|
(2,314)
|
(1,626)
|
Gross
profit
|
$589
|
$695
|
NOTE
12 – SUBSEQUENT EVENTS
On April 10, 2018,
the Company, entered into an underwriting agreement with Euro
Pacific Capital, Inc., doing business as A.G.P./Alliance Global
Partners acting as representative of the several underwriters,
which provided for the issuance and sale by the Company in an
underwritten public offering and the purchase by the underwriters
of 2,285,715 shares of the Company’s common stock, $0.001 par
value per share. Subject to the terms and conditions contained in
the underwriting agreement, the shares were sold to the
underwriters at a public offering price of $1.75 per share, less
certain underwriting discounts and commissions. The Company also
granted the underwriters a 45- day option to purchase, severally
and not jointly, up to 342,857 (of which 274,285 shares were issued
subsequent to March 31, 2018) additional shares of the
Company’s common stock on the same terms and conditions for
the purpose of covering any over-allotments in connection with the
offering. The net offering proceeds to the Company from the
offering were $3.5 million, after deducting estimated underwriting
discounts and commissions and other estimated offering expenses.
The Company intends to use the net proceeds from the offering for
purchasing inventory for newly gained distribution and other
general working capital purposes.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Notice Regarding Forward Looking Statements
Certain statements in Management’s Discussion and Analysis or
MD&A, other than purely historical information, including
estimates, projections, statements relating to our business plans,
objectives and expected operating results, and the assumptions upon
which those statements are based, are “forward-looking
statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities
Act of 1933, as amended, or the Securities Act, and
Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. These forward-looking statements
generally are identified by the words “believe,”
“project,” “expect,”
“anticipate,” “estimate,”
“intend,” “strategy,” “plan,”
“may,” “should,” “will,”
“would,” “will be,” “will
continue,” “will likely result,” and similar
expressions. Historical results may not indicate future
performance. Our forward-looking statements reflect our current
views about future events, are based on assumptions and are subject
to known and unknown risks and uncertainties that could cause
actual results to differ materially from those contemplated by
these statements. Factors that may cause differences between actual
results and those contemplated by forward-looking statements
include, but are not limited to, those discussed in “Risk
Factors” in the Company’s annual report on Form 10-K
for the year ended December 31, 2017 filed on April 17, 2018. We
undertake no obligation to publicly update or revise any
forward-looking statements, including any changes that might result
from any facts, events or circumstances after the date hereof that
may bear upon forward-looking statements. Furthermore, we cannot
guarantee future results, events, levels of activity, performance
or achievements.
Overview
We
are a Colorado-based healthy beverage company engaged in the
development and commercialization of a portfolio of organic,
natural and other better-for-you healthy beverages. We market a
full portfolio of Ready-to-Drink (“RTD”) better-for-you
beverages including competitive offerings in the kombucha, tea,
coffee, functional waters, relaxation drinks, energy drinks,
rehydrating beverages, and functional medical beverage segments. We
differentiate our brands through superior functional performance
characteristics and ingredients and offer products that are 100%
organic and natural, with no high-fructose corn syrup
(“HFCS”), no-genetically modified organisms
(“GMOs”), no preservatives, and only natural flavors,
fruits, and ingredients. We rank as the 58th largest non-alcoholic
beverage company in the world, one of largest healthy beverage
companies, and the fastest growing according to Beverage Industry
Magazine annual rankings and Markets and Markets.
Our
goal is to become the world’s leading healthy beverage
company, with leading brands for consumers, leading growth for
retailers and distributors, and leading return on investment for
shareholders. Our target market is health conscious consumers, who
are becoming more interested and better educated on what is
included in their diets, causing them to shift away from less
healthy options such as carbonated soft drinks or other high
caloric beverages and towards alternative beverages choices.
Consumer awareness of the benefits of healthier lifestyles and the
availability of heathier beverages is rapidly accelerating
worldwide, and New Age is capitalizing on that shift.
Highlights
We generate revenue
through the commercialization of our portfolio of brands to
consumers via our retailer partners and directly via our own
Ecommerce system.
We
believe that on a consolidated basis, and with the reductions in
operating expenses in each of the acquired companies in 2016 and
2017, the integrated company will generate sufficient cash flow
internally to meet its needs. In addition, the Company received
approval of a credit facility with PNC bank of $15 million, at an
estimated annual interest rate of ~3.5%. We previously had a small
revolving credit line in place with US Bank, which we intend to
replace with the new accordion line with PNC Bank. The Company is
currently negotiating the terms of the facility. However, there can
be no assurance that the Company will be able to consummate the
facility. In April 2018, the Company consummated a public offering
to facilitate the purchase of inventory to meet customer
demand.
The
following are highlights of our operating results for the three
months ended March 31, 2018 versus the three months ended March 31,
2017:
Revenue. During the three months ended March 31, 2018, we
generated gross revenue of $12,767,789 compared to $11,437,638 for
the three months ended March 31, 2017, an increase of 11.6%. Our
revenue for the quarter was positively impacted by the growth and
scale of our core Xing and Búcha brands and our DSD
distribution business, and negatively impacted by inventory
shortfalls that affected revenue approximately $3.5 million, as
estimated by management. We generated net revenue of $11,558,203
and $10,787,801 for the three months ended March 31, 2018 and 2017,
reflective of lower discounts, returns and billbacks as we evolve
our distribution systems from primarily a 100% DSD distribution
system nationally in 2017, to more of a lower-cost, hybrid
distribution route to market.
Gross
Margin. Gross margin for the
three months ended March 31, 2018 was 26.4% (excluding shipping
costs), compared to 26.5% for the three months ended March 31,
2017. Our cost of goods sold (including shipping) for the three
months ended March 31, 2018 was $8,509,583 equating to 73.6% of net
revenue compared to $7,933,293 equating to 73.5% of net revenue for
the three months ended March 31, 2017.
Operating Expenses.
During the quarter ended March 31,
2018, our operating expenses were $5,104,056, an increase of
$2,242,607, as compared to $2,861,449 for the three months ended
March 31, 2017. The increase was primarily attributable to the
infrastructures and integration of the Maverick, Marley and PMC
acquisitions and the non-cash associated with stock compensation
expense.
Adjusted
EBITDA. For the three months
ended March 31, 2018, EBITDA was ($1,286,553) driven by our
temporary pressure on working capital and the resulting inability
to procure the necessary inventory to meet
demand.
Management defines
adjusted EBITDA as earnings before income tax,
depreciation and amortization, one-time compensation and
acquisition charges, interest expense, shared-based compensation
and other acquisition-related integration charges. Management
believes adjusted EBITDA to be a meaningful indicator
of our performance that provides useful information to investors
regarding our financial condition and results of operations because
it removes material one-time and non-recurring
charges.
We consider
quantitative and qualitative factors in assessing whether to adjust
for the impact of items that may be significant or that could
affect an understanding of our ongoing financial and business
performance or trends.
Non-GAAP
information should be considered as supplemental in nature and is
not meant to be considered in isolation or as a substitute for the
related financial information prepared in accordance with U.S.
GAAP. In addition, our non-GAAP financial measures may not be the
same as or comparable to similar non-GAAP measures presented by
other companies.
The
following table includes the reconciliation of our consolidated US
GAAP net loss to our consolidated adjusted EBITDA for
the three months ended:
|
|
|
|
|
|
Net loss
|
$(2,651,254)
|
$(707,354)
|
Interest expense
|
56,411
|
80,280
|
Depreciation and amortization
|
521,204
|
358,543
|
Non-cash charges:
|
|
|
Share-based compensation
|
377,086
|
-
|
Contingent liability change
|
100,000
|
-
|
One-time charges:
|
|
|
Incremental transfer freight
|
160,000
|
-
|
Offering costs or acquisition costs
|
100,000
|
231,925
|
Repairs and maintenance
|
50,000
|
-
|
Adjusted EBITDA
|
$(1,286,553)
|
$(36,606)
|
Results
of Operations
The remainder of
this MD&A discusses our continuing operations of the newly
combined entity including all of the Company’s
brands.
For the three months ended March 31, 2018 compared to the three
months ended March 31, 2017
|
|
|
|
|
|
|
|
|
REVENUES,
net
|
$11,558,203
|
$10,787,801
|
Cost of Goods
Sold
|
8,509,583
|
7,933,293
|
|
|
|
GROSS
PROFIT
|
3,048,620
|
2,854,508
|
|
|
|
Shipping
costs
|
432,195
|
419,179
|
CONTRIBUTION
MARGIN
|
2,616,425
|
2,435,329
|
|
|
|
Operating
expenses
|
5,104,056
|
2,861,449
|
Other
expenses
|
163,623
|
281,234
|
Net
loss
|
$(2,651,254)
|
$(707,354)
|
Revenues
Net
revenues for the three months ended March 31, 2018 were $11,558,203
as compared to $10,787,801 for the three months ended March 31,
2017, an increase of 7.1%.
Organic growth of
the Búcha Live Kombucha brand contributed to overall revenue
growth, with the brand more than tripling in scale since
integration and conversion to being shelf stable, along with the
contribution of the DSD Division. Most of the new distribution for
the Company’s brands is occurring April through June 2018, as
the sales cycle for major retailers can be up to a year before
resets occur. In 2017 the Company primarily focused on integrating
the acquisitions, building the infrastructure, and rearchitecting
the brand portfolio and developing new products within its core
brands. With those components now largely in place, New Age’s
“new” portfolio in broader distribution is in a
position to contribute significant greater organic
growth.
Cost
of Goods Sold
|
Three
Months
Ended
March
31,
2018
|
Three
Months
Ended
March
31,
2017
|
|
|
|
Cost of goods
sold
|
$8,509,583
|
$7,933,293
|
Shipping
costs
|
432,195
|
419,179
|
Cost of goods sold
including shipping
|
$8,941,778
|
$8,352,472
|
Cost of goods sold
for the three months ended March 31, 2018 was $8,941,778, as
compared to, $8,352,472 for the three months ended March 31, 2017,
an increase of 7%. Numerous improvement in cost of goods sold are
underway to reduce product costs, reduce shipping and warehouse
costs, and to continue to change the mix to achieve the above 35%
targeted gross margin (not including shipping) in
2018.
Operating
Expenses
|
|
|
|
|
|
Advertising,
promotion and selling
|
$501,205
|
$697,767
|
General and
administrative
|
4,348,849
|
2,090,291
|
Legal and
professional
|
254,002
|
73,391
|
Total operating
expenses
|
$5,104,056
|
$2,861,449
|
During
the quarter ended March 31, 2018, our operating expenses were
$5,104,056, an increase of $2,242,607, as compared to $2,861,449
for the three months ended March 31, 2017. The increase was
primarily attributable to the infrastructures and integration of
the Maverick, Marley and PMC acquisitions and the non-cash
associated with stock compensation expense.
Liquidity
and Capital Resources
As
of March 31, 2018, we had cash of $94,041. The Company has always
operated with a limited cash balance. This led management to the
decision to raise additional capital through the sale and issuance
of an additional 2,285,715 shares of commons stock on April 10,
2018 for net proceeds of approximately $3,500,000. Management
believes that the funds received in the public offering provide
sufficient working capital, when coupled with the planned line of
credit from PNC Bank to continue to support the growth of the
Company in 2018. There can be no assurance that the Company will be
able to consummate the PNC Bank facility upon terms acceptable to
the Company.
The acquisitions in
2017 and 2016 substantially improved the Company’s resources,
and provided the scale to be profitable. We believe we have
sufficient cash and generate sufficient profitability to meet the
needs of the integrated operations. We estimate our capital needs
over the next twelve-month period to be approximately $3,000,000.
We may also seek to sell additional equity and debt securities. Any
sale of additional equity securities will result in dilution to our
stockholders. The incurrence of indebtedness will result in
increased debt service obligations and could require us to agree to
operating and financial covenants that could restrict our
operations or modify our plans to grow the business. Financing may
not be available in amounts or on terms acceptable to us, if at
all. Any failure by us to raise additional funds on terms favorable
to us, or at all, will limit our ability to expand our business
operations and could harm our overall business
prospects
Working
Capital
|
|
|
Current
assets
|
$16,003,652
|
$16,224,143
|
Less: current
liabilities
|
11,683,723
|
11,113,259
|
Working
capital
|
$4,319,929
|
$5,110,884
|
Cash
Flows
|
Three
Months
Ended
March
31,
2018
|
Three
Months
Ended
March
31,
2017
|
Net cash used in
operating activities
|
$(127,125)
|
$(3,114,158)
|
Net cash used in
investing activities
|
(64,079)
|
(2,148,560)
|
Net cash provided
by financing activities
|
-
|
5,268,565
|
Net change in
cash
|
$(191,204)
|
$5,847
|
Operating
Activities
Net
cash used in operating activities for the three months ended March
31, 2018 was $(127,125). Net cash used in operating activities for
the three months ended March 31, 2017 was $(3,114,158). The change
was attributable to the Company’s working capital constraints
during the three months ended March 31, 2018.
Investing
Activities
Net
cash used in investing activities is primarily driven by small
capital purchases versus the $(2,148,560) net cash used in
investing activities for the three months ended March 31, 2017
primarily driven by the acquisition of Maverick
Brands.
Financing
Activities
There was no cash
activity associated with financing activities for the three months
ended March 31, 2018. For the three months ended March 31,
2017 financing activities consisted of issuance of common stock for
$15 million and payments on note payables for $10
million.
Off-Balance Sheet Arrangements
We have no
off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources
that is material to stockholders.
Effects of Inflation
We do not believe
that inflation has had a material impact on our business, revenues
or operating results during the periods presented.
Critical Accounting Policies and Estimates
Our significant
accounting policies are more fully described in the notes to our
unaudited interim condensed consolidated financial statements
included herein for the quarter ended March 31, 2018.
Newly Issued Accounting Pronouncements
During the year
ended December 31, 2017, we early adopted the new lease accounting
standards issued by the FASB ASU No. 2016-02, Leases. This ASU
establishes a right-of-use (ROU) model that requires a lessee to
record a ROU asset and a lease liability on the balance sheet for
all leases with terms longer than 12 months. Leases will be
classified as either finance or operating, with classification
affecting the pattern of expense recognition in the income
statement. This ASU is effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal
years. A modified retrospective transition approach is required for
lessees for capital and operatingleases existing at, or entered
into after, the beginning of the earliest comparative period
presented in the financial statements, with certain practical
expedients available. The impact of adopting this standard resulted
in an ROU and lease liability on the consolidated balance sheet of
approximately $4MM as of March 31, 2018.
We do not believe
that any other recently issued, but not yet effective accounting
pronouncements, if adopted, would have a material effect on our
consolidated financial statements.
Inventories
and Provision for Excess or Expired Inventory
Inventories consist
of tea ingredients, packaging and finished goods and are stated at
the lower of cost (first-in, first-out basis) or market value.
Provisions for excess inventory are included in cost of goods sold
and have historically been immaterial but adequate to provide for
losses on its raw materials.
Long-lived
Assets
Our long-lived
assets consisted of property and equipment and customer
relationships and are reviewed for impairment in accordance with
the guidance of the FASB Topic ASC 360, Property, Plant, and Equipment. We test
for impairment losses on long-lived assets used in operations
whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. For the three
months ended March 31, 2018 and 2017, respectively, we had not
recognized impairment losses on our long-lived assets as management
determined that there were no indicators that a carrying amount of
the asset may not be recoverable.
Goodwill
and Intangible Assets
Goodwill represents
the excess of the purchase price of acquired businesses over the
estimated fair value of the identifiable net assets acquired.
Goodwill is not amortized but is tested for impairment at least
annually at the reporting unit level or more frequently if events
or changes in circumstances indicate that the asset might be
impaired. The goodwill impairment test is applied by performing a
qualitative assessment before calculating the fair value of the
reporting unit. If, on the basis of qualitative factors, it is
considered not more likely than not that the fair value of the
reporting unit is less than the carrying amount, further testing of
goodwill for impairment would not be required.
Intangible assets
are recorded at acquisition cost less accumulated amortization and
impairment. Definite lived intangible assets are amortized over
their estimated useful life using the straight-line method, which
is determined by identifying the period over which the cash flows
from the asset are expected to be generated.
Share-Based
Compensation
We account for
stock-based compensation to employees in accordance with FASB ASC
718, Compensation—Stock
Compensation. Stock-based compensation to employees is
measured at the grant date, based on the fair value of the award,
and is recognized as expense over the requisite employee service
period. We account for stock-based compensation to other than
employees in accordance with FASB ASC 505-50. Equity instruments
issued to other than employees are valued at the earlier of a
commitment date or upon completion of the services, based on the
fair value of the equity instruments and is recognized as expense
over the service period. We estimate the fair value of stock-based
payments using the Black-Scholes option-pricing model for common
stock options and warrants and the latest fair market price of the
Company’s common stock for common share
issuances.
Capital
Expenditures
Other Capital Expenditures
We expect to incur
research and development costs, as well as marketing expenses in
connection with the expansion of our business and the development
of our products.
Future
Contractual Obligations and Commitment
We incur
contractual obligations and financial commitments in the normal
course of our operations and financing activities. Contractual
obligations include future cash payments required under existing
contracts, such as debt and lease agreements. These obligations may
result from both general financing activities and from commercial
arrangements that are directly supported by related operating
activities.
As of March 31,
2018 we have no future contractual obligations or commitments,
other than lease and debt payments as defined in the
Company’s balance sheet.
Off-Balance
Sheet Arrangements
As of March 31,
2018 and December 31, 2017, respectively, we have not entered into
any transaction, agreement or other contractual arrangement with an
entity unconsolidated under which it has:
-
a
retained or contingent interest in assets transferred to the
unconsolidated entity or similar arrangement that serves as
credit;
-
liquidity or market
risk support to such entity for such assets;
-
an
obligation, including a contingent obligation, under a contract
that would be accounted for as a derivative instrument;
or
-
an
obligation, including a contingent obligation, arising out of a
variable interest in an unconsolidated entity that is held by, and
material to us, where such entity provides financing, liquidity,
market risk or credit risk support to or engages in leasing,
hedging, or research and development services with us.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
As a “smaller
reporting company” as defined by Item 10 of Regulation S-K,
the Company is not required to provide information required by this
Item.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
The
Company’s Principal Executive Officer and Principal Financial
Officer have evaluated the effectiveness of our disclosure controls
and procedures as of the end of the period covered by this report
pursuant to Rule 13a-15(b) under the Securities Exchange Act of
1934 (the “Exchange Act”). Based on that evaluation,
the Company’s Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of the period covered by
this report, our disclosure controls and procedures are effective
in ensuring that information required to be disclosed in the
reports that we file or submit under the Exchange Act is (1)
recorded, processed, summarized and reported within the periods
specified in the Commission’s rules and forms, and (2)
accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer or persons performing
similar functions, as appropriate to allow timely decisions
regarding required disclosure.
Changes to Internal Control over Financial Reporting
There
have been no changes in our internal controls over financial
reporting during our most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
The Company is not
currently subject to any legal proceedings. From time to time, the
Company may become subject to litigation or proceedings in
connection with its business, as either a plaintiff or defendant.
There are no such pending legal proceedings to which the Company is
a party that, in the opinion of management, is likely to have a
material adverse effect on the Company’s business, financial
condition or results of operations.
ITEM
1A. RISK FACTORS
There
have been no material changes to the risk factors disclosed in
“Risk Factors” in our annual report on Form 10-K filed
with the SEC on April 17, 2018.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS
EXHIBITS. The
following exhibits required by Item 601 to be filed herewith are
incorporated by reference to previously filed
documents:
Exhibit
Number
|
|
Description
|
|
|
|
|
|
Certification of
Chief Executive Officer pursuant to Section 302
|
|
|
|
|
|
Certification of
Chief Financial Officer pursuant to Section 302
|
|
|
|
|
|
Certification of
Chief Executive Officer pursuant to Section 906
|
|
|
|
|
|
Certification of
Chief Financial Officer pursuant to Section 906
|
|
|
|
101*
|
|
Interactive Data
Files
|
*
In
accordance with Rule 406T of Regulation S-T, these interactive data
files are deemed not filed or part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act
of 1933, as amended, are deemed not filed for purposes of Section
18 of the Securities Exchange Act of 1934, as amended, and
otherwise are not subject to liability under those
sections.
SIGNATURES
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.
|
NEW
AGE BEVERAGES CORPORATION
|
|
|
|
Date: August
17, 2018
|
By:
|
/s/ Brent Willis
|
|
|
Brent
Willis
|
|
|
Chief Executive
Officer,and Director
|
|
|
(Principal
Executive Officer)
|
|
|
|
Date: August
17, 2018
|
By:
|
/s/ Chuck Ence
|
|
|
Chuck
Ence
|
|
|
Controller
(Principal Financial and Accounting Officer)
|