Reed's, Inc. Announces First Quarter 2011 Financial Results

LOS ANGELES, CA–(Marketwire – May 16, 2011) – Reed’s, Inc. (NASDAQ: REED) (OTCBB: REEDP), maker of the top-selling sodas in natural food stores nationwide, today announced its financial results for its first fiscal quarter ended March 31, 2011.

Financial Highlights:

 --  First quarter sales increased 28% to $5.1 million --  Gross profit was 28% of sales during the first quarter, as compared to     34% in 2010 --  Operating expenses increased by 9% in the quarter due primarily to     increased delivery and handling costs --  Modified EBITDA for the first quarter 2011 was $30,000, as compared to     $171,000 in the first quarter of 2010. (See EBITDA table at end of this     release for further non-GAAP information) --  Net loss for the quarter was $365,000, or $0.04 per share, compared to     $273,000 a year earlier --  Working capital at March 31, 2011 was $2.2 million, as compared to $1.8     million at December 31, 2010 --  Cash availability was $1.0 million at September 30, 2010, as compared     to $1.1 million at December 31, 20010 

First Quarter Operational Highlights:

 --  Completed rollout of new ZERO line of Virgil's Stevia-sweetened diet     sodas with total diet sales increasing by over 50% from the prior year --  Gained Safety Quality in Foods (SQF) certification for the Los Angeles     plant. --  Opened up new markets with mainstream DSD distributors in Southern     California, Georgia, Arizona and Florida --  Expanded Virgil's line through a co-developed Virgil's Sparkling 100%     Juice brand, featured in 3 flavors.  This new line launched exclusively     with one of the largest natural retail companies in the US. --  Created new Virgil's "all-natural" line extension flavor  with a launch     scheduled for June 2011 (Q2) --  Reed's & Virgil's Expands presence on College Campuses.  University of     Texas, Miami University in Oxford, OH and San Francisco State     University 

“Our double-digit growth has averaged about 35% over the past five quarters,” stated Chris Reed, Founder, Chairman and CEO of Reed’s, Inc. “We are seeing an expansion of opportunities for both near and long term with no end in sight. During the quarter, we gained SQF compliance for our plant, immediately increasing the customers for our private label production. We also completed and are about to introduce a new Virgil’s soda line extension, in both regular and ZERO. We are continuing to innovate while we rapidly build our base of business. 2011 is just getting going.”

Neal Cohane, Reed’s Senior Vice President of Sales and Marketing states, “We continue to build demand for our brands, delivering another quarter of double digit volume increases. While our strength and longevity are well established in the natural foods grocery channel, we are still driving organic growth as reflected in our performance. Coupled with these gains is our success in delivering new incremental volume in DSD distribution and mainstream grocery stores. First quarter saw a renewed focus in our social media campaigns through Facebook & Twitter. These new media tools will be critical in our communication to the all important youth market that is just discovering the Reed’s & Virgil’s brands. Over 100,000 college students can now pick up a Reed’s or Virgil’s on their campuses at the University of Texas, Miami University in Oxford, Ohio, and San Francisco State University. Momentum continues to build and the team continues to drive expansion throughout the U.S.”

“Our gross profit decrease is due to three factors of roughly equal impact,” stated James Linesch, Reed’s chief financial officer. “First, our ingredient and packaging costs have increased during the past few quarters, a challenge impacting our entire industry. We are taking measures to mitigate these increases through collective buying and better sourcing. We are also making selective price increases. Second, our promotions are up from the prior year as a percentage of sales, which is a deduction from revenues. This represents opportunistic promotional activities, as described by Neal above. Third, our plant utilization was off, causing more fixed costs that were not allocated to product costs. This was mostly due to down time for the conversion of the plant to SQF standards, and we anticipate improvements in future quarters. Based on changes enacted in all three of these areas, we are already seeing margin improvements that we anticipate will continue for the remainder of the year.”

James Linesch concluded, “We are pleased to introduce a new income statement format this quarter that provides investors with much more transparency and comparability of our results to other companies in our industry. We have moved delivery and handling costs to operating expenses, an industry standard policy, and have broken out our cost of goods sold between tangible product costs and other operating costs. By separating these three categories, we are providing readers with a much deeper insight to our results.”

See financial statements and EBITDA schedule at the end of this release.

Conference Call

The Company will conduct a conference call at 4:15 p.m. Eastern Daylight Time on Monday, May 16th, 2011 to discuss its 2011 1st QT results and outlook for the rest 2011. To participate in the call, please dial the following number five to ten minutes prior to the scheduled call time: 605-562-3000. International callers should dial 001-605-562-3000. The conference ID for this call is 1019143#. Conference call will be recorded and be available on www.reedsinc.com

About Reed’s, Inc.

Reed’s, Inc. makes the top selling natural sodas in the natural foods industry sold in over 10,500 natural food markets and supermarkets nationwide. In 2009, Reed’s started producing Private Label natural beverages for select national chains. Its six award-winning non-alcoholic Ginger Brews are unique in the beverage industry, being brewed, not manufactured and using fresh ginger, spices and fruits in a brewing process that predates commercial soft drinks. The Company owns the top selling root beer line in natural foods, the Virgil’s Root Beer product line, and the top selling cola line in natural foods, the China Cola product line. Recently, Reed’s introduced its Reed’s All Natural Ginger Nausea Relief product for the over-the-counter stomach aisle for all retail channels and acquired the Sonoma Sparkler brand, a sparkling juice celebration drink with an established customer base. 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, mainstream supermarket chains, retail stores and restaurants nationwide, and in Canada, as well as through private label relationships with major supermarket chains. For more information about Reed’s, please visit the company’s website at: http://www.reedsinc.com or call 800-99-REEDS.

Follow Reed’s on Twitter at http://twitter.com/reedsgingerbrew

Reed’s Facebook Fan Page at: http://www.facebook.com/pages/Reeds-Ginger-Brew-and-Virgils-Natural-Sodas/57143529039?ref=nf

SAFE HARBOR STATEMENT

Some portions of this press release, particularly those describing Reed’s goals and strategies, contain “forward-looking statements.” These forward-looking statements can generally be identified as such because the context of the statement will include words, such as “expects,” “should,” “believes,” “anticipates” or words of similar import. Similarly, statements that describe future plans, objectives or goals are also forward-looking statements. While Reed’s is working to achieve those goals and strategies, actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties. These risks and uncertainties include difficulty in marketing its products and services, maintaining and protecting brand recognition, the need for significant capital, dependence on third party distributors, dependence on third party brewers, increasing costs of fuel and freight, protection of intellectual property, competition and other factors, any of which could have an adverse effect on the business plans of Reed’s, its reputation in the industry or its expected financial return from operations and results of operations. In light of significant risks and uncertainties inherent in forward-looking statements included herein, the inclusion of such statements should not be regarded as a representation by Reed’s that they will achieve such forward-looking statements. For further details and a discussion of these and other risks and uncertainties, please see our most recent reports on Form 10-KSB and Form 10-Q, as filed with the Securities and Exchange Commission, as they may be amended from time to time. Reed’s undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

— FINANCIAL TABLES FOLLOW —

                                REED'S, INC.                     CONDENSED STATEMENTS OF OPERATIONS              For the Three Months Ended March 31, 2011 and 2010                               (Unaudited)                                                  Three months ended March 31,                                               ----------------------------                                                   2011           2010                                               -------------  -------------    Sales                                       $   5,140,000  $   4,012,000    Cost of tangible goods sold                     3,321,000      2,388,000   Cost of goods sold - idle capacity                402,000        241,000                                               -------------  -------------      Gross profit                                  1,417,000      1,383,000                                               -------------  -------------    Operating expenses:    Delivery and handling expenses                    388,000        317,000   Selling and marketing expense                     580,000        524,000   General and administrative expense                655,000        652,000                                               -------------  -------------       Total operating expenses                    1,623,000      1,493,000                                               -------------  -------------      Loss from operations                           (206,000)      (110,000)    Interest expense                                 (159,000)      (149,000)                                               -------------  -------------      Net loss                                       (365,000)      (259,000)    Preferred stock dividend                          (11,000)       (14,000)                                               -------------  -------------    Net loss attributable to common    stockholders                               $    (376,000) $    (273,000)                                               =============  =============  Loss per share available to common  stockholders - basic and diluted             $       (0.04) $       (0.03)                                               =============  ============= Weighted average number of shares outstanding  - basic and diluted                             10,619,242      9,834,696                                               =============  =============                            MODIFIED EBITDA SCHEDULE                                                        Three Months Ended                                                           March 31,                                                     ----------------------                                                        2011        2010                                                     ----------  ---------- Net loss                                           $ (365,000) $ (259,000)                                                     ----------  ----------  Modified EBITDA adjustments:  Depreciation and amortization                          144,000     148,000 Interest expense                                       159,000     149,000 Stock option compensation                               50,000      57,000 Other stock compensation for services                   42,000      76,000                                                     ----------  ----------   Total EBITDA adjustments                             395,000     430,000                                                     ----------  ----------  Modified EBITDA income from operations              $   30,000  $  171,000                                                     ==========  ==========   The Company defines modified EBITDA (a non-GAAP measurement) as net loss before interest, taxes, depreciation and amortization, and non-cash expense for securities.  Other companies may calculate modified EBITDA differently. Management believes that the presentation of modified EBITDA provides a measure of performance that approximates cash flow before interest expense, and is meaningful to investors.                                REED'S, INC.                      CONDENSED BALANCE SHEETS                                                 March 31,      December 31,                                                 2011             2010                                              ------------   ------------- ASSETS                                       (unaudited)   Current assets:   Cash                                        $   1,024,000  $   1,084,000   Inventory                                       4,157,000      4,555,000   Trade accounts receivable, net of    allowance for doubtful accounts and    returns and discounts of $105,000 and    $105,000, respectively                         1,568,000      1,295,000   Prepaid inventory                                 146,000        138,000   Prepaid and other current assets                   49,000         78,000                                               -------------  -------------     Total Current Assets                          6,944,000      7,150,000  Property and equipment, net of accumulated  depreciation of $1,300,000 and $1,178,000,  respectively                                     3,695,000      3,650,000 Brand names                                       1,029,000      1,029,000 Deferred financing fees, net of amortization  of $17,000 and $8,000, respectively                 37,000         47,000                                               -------------  -------------     Total assets                              $  11,705,000  $  11,876,000                                               =============  =============  LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:   Accounts payable                            $   2,078,000  $   2,586,000   Accrued expenses                                  144,000        162,000   Dividends payable                                  53,000         44,000   Recycling fees payable                            294,000        325,000   Line of credit                                  2,035,000      2,038,000   Current portion of long term financing    obligation                                        59,000         55,000   Current portion of capital leases payable          41,000         39,000   Current portion of note payable                    44,000         71,000                                               -------------  -------------     Total current liabilities                     4,748,000      5,320,000  Long term financing obligation, less current  portion, net of discount of $664,000 and  $677,000, respectively                           2,265,000      2,268,000 Capital leases payable, less current portion        135,000        146,000                                               -------------  -------------     Total Liabilities                             7,148,000      7,734,000                                               -------------  -------------  Commitments and contingencies  Stockholders' equity:    Series A Convertible Preferred stock, $10    par value, 500,000 shares authorized,    46,621 shares issued and outstanding             466,000        466,000    Series B Convertible Preferred stock, $10    par value, 500,000 shares authorized,    81,866 and 85,766 shares issued and    outstanding, respectively                        819,000        858,000    Common stock, $.0001 par value, 19,500,000    shares authorized, 10,808,091 and    10,446,090 shares issued and outstanding,    respectively                                       1,000          1,000    Additional paid in capital                     22,531,000     21,701,000   Accumulated deficit                           (19,260,000)   (18,884,000)                                               -------------  -------------     Total stockholders' equity                    4,557,000      4,142,000                                               -------------  -------------     Total liabilities and stockholders'      equity                                   $  11,705,000  $  11,876,000                                               =============  =============