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Reed's Inc. Announces Third Quarter 2008 Financial Results Company Expects Full Year 2008 Sales to Increase Approximately 20% Company Expects 2008 Gross Profit to Increase 100% Year-over-Year LOS ANGELES, Nov. 11, 2008 (GLOBE NEWSWIRE) -- Reed's, Inc. (NasdaqCM:REED - News), today announced its financial results for the three and nine months ended September 30, 2008. Third Quarter 2008 Highlights: * Net sales increased 9% to $4.2 million from $3.9 million in the same period last year * Gross profit increased 62% to $1.3 million from $0.8 million in the same period last year * Gross margin expanded 1010 basis points to 30.7% of net sales from 20.6% of net sales in the third quarter of 2007 * Operating expenses decreased to 32.5% of net sales from 59.8% of net sales in the third quarter of 2007 * Company achieves a positive Adjusted EBITDA of $131,983 * Net loss attributable to common stockholders decreased to $174,000 compared to loss of $1,526,000 in the prior year period ``We are extremely pleased with our third quarter results which demonstrate our revenue and margin enhancement efforts are producing the results we expected,'' commented Chris Reed, Founder and Chief Executive Officer. ``During the third quarter of 2008, we delivered revenue growth of 9% compared to the third quarter of 2007 which included promotional sales not repeated in the third quarter of 2008, expanded gross margins by 48% and delivered profitable results on an Adjusted EBITDA basis (excluding non cash expense). We attribute our strong sales growth to the strength of the Reed's and Virgil's brands in our core natural foods channel, the initial success of our re-focused sales strategy in mainstream grocery store accounts and our ongoing product diversification initiatives. Despite the current economic slowdown, an emphasis on healthier lifestyles is driving demand for natural and organic products. SPINS, a leading information and service provider for the natural products industry, recently reported that in the twelve weeks ending October 4th, 2008, natural and organic product growth rates from Natural retailers were more than triple those of Conventional Food retailers. In addition, our sales force continues to make progress in expanding into mainstream grocery store accounts. We recently announced enhanced partnerships with several nationwide grocery stores including Earth Fare, Quality Food Centers, Yokes Fresh Markets and Rosauers Supermarkets. We also continue to expand our product portfolio with the recent introduction of Virgil's Real Cola and Reed's Natural Energy Elixir. We are especially excited to announce the launch of Reed's Natural Energy Elixir which will expand our reach into one of the fastest growing segments of the beverage market.'' Mr. Reed continued, ``In addition to driving top-line growth, we continue to implement methods to improve gross margins and operating efficiencies. As an example, in April of 2008 we raised prices of our Reed's Ginger Brews in order to be inline with competitor pricing in the natural foods category. We are better leveraging the use of promotional discounting, and subsequent to the end of the second quarter, we held the line on operating expense. In fact, operating expenses declined for the third consecutive quarter. As a result of these measures, we made a measureable improvement in our net loss -- approaching breakeven and achieving positive adjusted EBITDA. Subsequent to quarter end, we have renegotiated our agreement with our main co-packing facility. We estimate this will result in gross margin improvement of approximately 500 to 600 basis points and generate cost savings of approximately $1.0 million in 2009.'' Mr. Reed concluded, ``We look forward to building upon our positive year-to-date performance in the fourth quarter of 2008. We expect to realize additional gross margin improvement and operating expense efficiencies in the fourth quarter resulting in sequential improvement in our bottom line. Turning to 2009, we believe we are well positioned for profitable growth. Sales in 2009 will benefit from the organic growth of our 2008 product launches, many of which have been in the mainstream and natural foods markets for less than a year, and the expansion of Reed's presence within our newly enhanced supermarket partnerships. In addition, we have a number of exciting new product launches anticipated for 2009 that we expect will drive future revenue growth. Lastly, we will maintain our keen focus on improving gross margins, and holding the line on operating expenses.'' Third Quarter 2008 Results For the quarter ended September 30, 2008, net sales increased 9.0% to $4,233,186 from $3,881,328 for the prior year period. Sales growth was primarily driven by increases in the Company's Virgil's and Reed's Ginger Brews product lines. Growth within the Virgil's product line was primarily due to an increase in sales of Virgil's Root Beer, Virgil's Cream Soda and Black Cherry Cream Soda, the Virgil's 5 liter party keg, the introduction of Virgil's diet soda line and the launch of Virgil's Real Cola. The increase in sales was also attributable to additional sales from newly introduced mainstream distributors and increased sales from existing natural food distributors and retailers. Net sales for the three months ended September 30, 2007 included $251,401 in promotional sales to Costco which did not occur in the three months ended September 30, 2008. The Company does not consider promotional sales to Costco part of its core business growth. Excluding these sales, the Company's third quarter sales would have increased 16.6%. Gross profit for the quarter ended September 30, 2008, increased 62.3% to $1,295,499, or 30.7% of sales, from $798,273, or 20.6% of sales for the prior year period. The Company's gross margin in the third quarter of 2008 benefitted from pricing increases of the Company's Reed's Ginger Brew line by approximately 20%, inline with competitors in natural soda category, and better management of the use of promotional discounting by the sales force. Subsequent to quarter end, the Company renegotiated its production costs from its largest co-packer which is expected to improve gross margins by 5 - 6% in 2009. Operating expenses for the third quarter of 2008 decreased by 40.5% to $1,377,456, or 32.5% of net sales, from $2,318,723, or 59.8% of net sales, in the third quarter of 2007. The decrease in operating expenses was primarily due to decreased selling expense related to a reduction in the Company's sales force from 33 to 17 people and a decrease in general and administrative expense resulting from a decrease in legal, accounting and investor relations expense. Operating expenses have declined for the third consecutive quarter. The Company expects to stabilize its operating expenses at this level for the next few quarters and increase in 2009 in later quarters due to increased gross profits expected in 2009. For the quarter ended September 30, 2008, interest expense was $92,201 compared to interest expense of $51,407 in the three months ended September 30, 2007. Interest expense increased due to increased borrowing on the Company's $3.0 million credit facility with First Capital. The net loss attributable to common stockholders for the quarter ended September 30, 2008, improved to $174,158 from a net loss attributable to common stockholders of $1,525,959 for the quarter ended September 30, 2007. The net loss per share attributable to common stockholders -- basic and fully diluted was $0.02 for the quarter ended September 30, 2008 and $0.18 for the quarter ended September 30, 2007. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization and stock based compensation), was $131,983 in the third quarter of 2008 compared with an Adjusted EBITDA loss of ($1,277,408) in the third quarter of 2007. A quantitative reconciliation from the company's GAAP results to its pro forma and adjusted results is provided in the accompanying tables. Balance Sheet and Liquidity For the quarter ended September 30, 2008, cash and cash equivalents were $83,091, working capital was $1,656,096, total debt (including long-term debt and obligations on lines of credit) was $3,057,184, stockholders' equity was $4,978,223 and the accumulated deficit was $13,760,048. The Company recently entered into a new $3.0 million, two year secured credit facility with First Capital. As of September 30, 2008, the Company had outstanding borrowings of $1,290,082 under its line of credit. The amount available under the credit facility is based on accounts receivable and inventory levels. The Company's credit lender is a privately held, Senior Secured Lender. The Lender has communicated to Reed's that they are not a bank and not subject to banking regulations. Additionally, the lender has communicated that they have adequate lines of credit in place with banks to achieve their business goals. Based on these communications, Reed's believes that its lending source will be able to fund the full extent of its line of credit, should Reed's require it. In combination with Reed's working capital, Reed's believes that its new facility will provide sufficient liquidity and cash flows needed to fund operations through the end of 2008 without raising additional equity. If the overall market improves the company will consider an equity raise to accelerate its expansion plans. Nine Months Ended 2008 Results For the first nine months ended September 30, 2008, net sales increased 19.3% to $12,368,102 from $10,366,378 for the prior year period. Sales growth was primarily driven by increases in the Company's Virgil's and Reed's Ginger Brews product lines. The increase in sales was also attributable to additional sales from newly introduced mainstream distributors and increased sales from existing natural food distributors and retailers. Gross profit for the first nine months of 2008 increased 52.8% to $3,084,642, or 24.9% of sales, from $2,018,323, or 19.5% of sales for the prior year period. The improvement in gross margin was primarily due to pricing increases of the Company's Reed's Ginger Brew line by approximately 20%, inline with competitors in natural soda category, and better management of the use of promotional discounting by the sales force. Subsequent to quarter end, the Company renegotiated its production costs from its largest co-packer which is expected to improve gross margins by 5 - 6% in 2009. Operating expenses for the first nine months of 2008 increased 18.9% to $5,542,334, or 44.8% of net sales, from $4,660,483, or 44.9% of net sales in the first nine months of 2007. The increase in general, administrative and selling expenses was primarily due to increased promotional and advertising expenses and increased general and administrative expense resulting from higher legal, accounting and professional fees associated with being a public company and an increase in salaries expense associated with the hiring of the Company's Chief Operating Officer, and costs of additional support in the form of personnel and computer systems. This was partially offset by a reduction in selling expenses as the Company reduced its sales force from 33 to 17 people in the first quarter of 2008. For the nine months ended September 30, 2008, interest expense was $198,629 compared to interest expense of $163,290 in the nine months ended September 30, 2007. The net loss attributable to common stockholders for the nine months ended September 30, 2008 was $2,678,907 compared to a net loss attributable to common stockholders of $2,734,722 for the nine months ended September 30, 2007. The net loss per share attributable to common stockholders -- basic and fully diluted was $0.30 for the nine months ended September 30, 2008 and $0.35 for the nine months ended September 30, 2007. 2008 Strategic Initiatives Expected to Increase Revenue and Improve Margins in the Fourth Quarter of 2008 and for the Full Year of 2009
* Increase sales in Reed's existing 10,500 supermarket accounts
* Add approximately 3,500 additional supermarket accounts
* Expanded line of offerings including Virgil's Real Cola, draft
versions of Reed's Virgil's Root Beer, and other sodas.
* Improve gross margin by:
-- Increased prices of Reed's Ginger Brew line by approximately 20%,
inline with competitors in natural soda category
-- Implemented systems to track and manage the use of promotional
discounting by the sales force
-- Renegotiated its production costs from its largest co-packer
which is expected to improve gross margins by 5 - 6%.
* Decrease general and administrative expenses on an absolute basis
as compared to 2007
* Target additional regional mainstream beverage distributors to
deliver Reed's product
* Refocused sales efforts on supermarkets, which resulted in a
reduction in Reed's sales force from 33 to 17 people. This
reduction is expected to generate approximately $2.0 million in
direct annualized expense savings.
Adjusted EBITDA Reconciliation This earnings release includes information presented on a pro forma basis. These pro forma financial measures are considered ``non-GAAP'' financial measures within the meaning of SEC Regulation G. The company believes that this presentation of pro forma results provides useful information to both management and investors by excluding specific revenue, costs and expenses that the company believes are not indicative of core operating results. The reconciliation set forth below are provided in accordance with Regulation G and reconcile the pro forma financial measures with the most directly comparable GAAP-based financial measures.
Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA (Note 1)
(Unaudited)
Quarter Ended Quarter Ended
September 30, September 30,
2008 2007
---------------------------------------------------------------------
Net income (loss) ($174,158) ($1,525,959)
Adjustments:
Interest expense, net 92,201 51,409
Depreciation 78,211 63,080
Amortization 17,033 4,686
Taxes -- 0
------------- -------------
EBITDA (Note 1) $13,287 ($1,406,784)
============= =============
Non-cash stock-based compensation 118,696 129,376
Other 0 0
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Adjusted EBITDA (Note 1) 131,983 ($1,277,408)
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Note 1: EBITDA (earnings before interest, income taxes, depreciation, and amortization, including goodwill and intangible asset impairment) is not a measure of financial performance under generally accepted accounting principles, or GAAP, but is used by some investors to determine a company's ability to service or incur indebtedness. Adjusted EBITDA is presented as it includes other adjustments permitted under the company's lending agreement for covenant calculations. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles. The reconciliation set forth above is provided in accordance with Regulation G and reconciles EBITDA and adjusted EBITDA with the most directly comparable GAAP-based financial measure. EBITDA is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. EBITDA is not intended to represent and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP. Outlook The Company is refining its full year 2008 guidance as follows: * Sales for fiscal 2008 are expected to increase approximately 20% over fiscal 2007 * Company expects 2008 Gross Profit to Increase 100% over fiscal 2007 * The Company expects an annualized reduction in operating expenses of approximately $4 million About Reed's, Inc. Reed's, Inc. makes the top selling sodas in natural food markets nationwide and is currently selling in 10,500 supermarkets in natural foods and mainstream. Its six award-winning non-alcoholic Ginger Brews are unique in the beverage industry being brewed not manufactured and use fresh ginger, spices and fruits in a brewing process that predates commercial soft drinks. In addition, the Company has acquired the top selling root beer line in natural foods, the Virgil's Root Beer product line, and the top selling cola line in natural foods, the China Cola product line. Other product lines include: Reed's Ginger Candies and Reed's Ginger Ice Creams. Reed's products are sold through specialty gourmet and natural food stores, supermarket chains, retail stores and restaurants nationwide and in Canada. For more information about Reed's, please visit the company's website at: http://www.reedsgingerbrew.com or call 800-99-REEDS. SAFE HARBOR STATEMENT Some portions of this press release, particularly those describing Reed's goals and strategies, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. While Reed's is working to achieve those goals and strategies, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including difficulties in marketing its products and services, need for capital, competition from other companies and other factors, any of which could have an adverse effect on the business plans of Reed's, its reputation in the industry or its expected financial return from operations and results of operations. In light of significant uncertainties inherent in forward-looking statements included herein, the inclusion of such statements should not be regarded as a representation by Reed's that they will achieve such forward-looking statements.
REED'S, INC.
CONDENSED BALANCE SHEETS
ASSETS September 30,
2008 December 31,
(Unaudited) 2007
----------- ----
CURRENT ASSETS
Cash $ 83,091 $ 742,719
Inventory 2,994,507 3,028,450
Trade accounts receivable, net of
allowance for doubtful accounts and
returns and discounts of $165,000 as of
September 30, 2008 and 407,480 as of
December 31, 2007 1,281,662 1,160,940
Other Receivable 4,255 16,288
Prepaid Expenses 62,857 76,604
------------ ------------
Total Current Assets 4,426,372 5,025,001
------------ ------------
Property and equipment, net of accumulated
depreciation of $1,091,986 as of
September 30, 2008 and $867,769 as of
December 31, 2007 4,207,441 4,248,702
OTHER ASSETS
Brand names 800,201 800,201
Other intangibles, net of accumulated
amortization of $ 15,984 as of
September 30, 2008 and $5,212 as of
December 31, 2007 72,166 13,402
Total Other Assets 872,367 813,603
TOTAL ASSETS $ 9,506,180 $ 10,087,306
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,328,774 $ 1,996,849
Lines of credit 1,290,082 --
Current portion of long term debt 9,421 27,331
Accrued interest 24,691 3,548
Accrued expenses 117,308 54,364
Total Current Liabilities 2,770,276 2,082,092
Long term debt, less current portion 1,757,681 765,753
Total Liabilities 4,527,957 2,847,845
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $10 par value, 500,000
shares authorized, 47,121 shares
outstanding at September 30, 2008 and
48,121 shares at December 31, 2007 471,212 481,212
Common stock, $.0001 par value, 19,500,000
shares authorized, 8,928,591 shares
issued and outstanding at September 30,
2008 and 8,751,721 at December 31, 2007 892 874
Additional paid in capital 18,266,167 17,838,516
Accumulated deficit (13,760,048) (11,081,141)
Total stockholders' equity 4,978,223 7,239,461
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 9,506,180 $ 10,087,306
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REED'S, INC.
CONDENSED STATEMENTS OF OPERATIONS
For the Three and Nine months Ended September 30, 2008 and 2007
(Unaudited)
Three months ended Nine months ended
------------------------ ------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2008 2007 2008 2007
----------- ----------- ----------- -----------
SALES $ 4,233,186 $ 3,881,328 $12,368,102 $10,366,378
COST OF SALES 2,937,687 3,083,055 9,283,460 8,348,055
----------- ----------- ----------- -----------
GROSS PROFIT 1,295,499 798,273 3,084,642 2,018,323
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling 819,362 1,606,938 2,994,498 3,049,207
General &
Administrative 558,094 711,785 2,547,836 1,611,276
----------- ----------- ----------- -----------
Total Operating
Expenses 1,377,456 2,318,723 5,542,334 4,660,483
----------- ----------- ----------- -----------
LOSS FROM
OPERATIONS (81,957) (1,520,450) (2,457,692) (2,642,160)
----------- ----------- ----------- -----------
OTHER INCOME
(EXPENSE)
Interest Income -- 45,898 975 98,498
Interest Expense (90,201) (51,407) (198,629) (163,290)
----------- ----------- ----------- -----------
Total Other Income
(Expense) (92,201) (5,509) (197,654) (64,792)
----------- ----------- ----------- -----------
NET LOSS (174,158) (1,525,959) (2,655,346) (2,706,952)
Preferred stock
dividend -- -- (23,561) (27,770)
----------- ----------- ----------- -----------
Net loss
attributable to
common
shareholders $ (174,158) $(1,525,959) $(2,678,907) $(2,734,722)
=========== =========== =========== ===========
LOSS PER SHARE-
Available to
Common
Stockholders
Basic and Diluted $ (0.02) $ (0.18) $ (0.30) $ (0.35)
=========== =========== =========== ===========
WEIGHTED AVERAGE
SHARES
OUTSTANDING, BASIC
AND DILUTED 8,928,591 8,714,050 8,868,381 7,759,425
=========== =========== =========== ===========
Contact: Integrated Corporate Relations
John Mills
310.954.1105
jmills@icrinc.com
Source: Reed's
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