Reed's, Inc. Announces Fiscal 2008 Financial Results

LOS ANGELES, CA–(Marketwire – March 27, 2009) – Reed’s, Inc. (NASDAQ: REED), maker of the top selling sodas in natural food stores nationwide, today announced its financial results for the fiscal year ended December 31, 2008.

Fiscal 2008 Highlights:

 --  Net Sales increased 17% to $15.3 million compared to 2007 --  Gross Margin expands 700 basis points to over 22% --  Gross Profit increases 68% over 2007 to $3.4 million --  Implemented cost cutting initiatives during 2008 that decreased     operating expenses (OPEX) from $2.5 million in Q1 to $1.4 million in Q4,     and a further OPEX reduction of about $0.3 million per quarter forecast for     2009 --  Refocused and strengthened Executive management and sales team --  Expanded product line to include new 12-pack packaging, Virgil's     Orange Cream Soda and diet Virgil's sodas     

Fiscal 2009 Outlook:

 --  Anticipates additional improvement in 2009 gross profit of 20% - 40% --  Expects to achieve over $2.5 million in additional OPEX savings during     2009 over 2008 --  Anticipates 2009 operating cash flow to be breakeven as a result of     gross profit expansion and additional operating expense savings     

“2008 was a transformational year for Reed’s, characterized by a successfully realigned sales strategy, an expanded product assortment and solid financial performance,” commented Chris Reed, Founder and Chief Executive Officer. “During 2008, we refocused our sales strategy on increasing our product placement within the estimated 10,500 supermarkets nationwide. This strategy enables our sales personnel to leverage Reed’s success at natural food grocery stores to establish new and enhanced relationships with mainstream grocery stores as well as capitalize on the increasing consumer demand for natural and ‘good-for-you’ products. The initial success of our re-aligned sales strategy is reflected in our solid 17% revenue growth in fiscal 2008, driven by continued strength in our core Reed’s and Virgil’s brands as well as our new product introductions including diet versions of our Virgil’s sodas, Virgil’s Orange Cream Soda, and the launch of new products in specialty packaging, the consumer response to which has been very positive. We view our ability to deliver year-over-year revenue growth as a strong accomplishment, particularly in light of the challenging macro-economic environment.”

Mr. Reed continued, “In addition to driving top-line growth, we implemented several strategic initiatives aimed at improving gross margins and delivering operating expense savings in 2008. Our 700 basis point improvement in gross margin reflects the benefit of several strategic decisions including raising the prices of our Reed’s Ginger Brews by approximately 20%, in-line with competitors, renegotiating our production costs from our largest co-packer and better management of promotional discounting. In connection with our re-aligned sales strategy, we reduced our sales force by 16 employees, which we believe will result in OPEX savings of approximately $2.5 million in 2009. The positive impact of these strategic cost savings decisions is reflected in our reduction in loss from operations which improved to a loss of $3.5 million in 2008.”

Fiscal 2008 Year End Results

For the year ended December 31, 2008, sales increased 17% to $15.3 million from $13.1 million for the prior year. Sales growth was driven by increased sales of the Company’s Virgil’s and Reed’s Ginger Brews product lines in existing natural food supermarkets, increased sales to newly introduced mainstream distributors and the launch of new products and specialty packaging.

Gross profit for the year ended December 31, 2008, increased 68% to $3.4 million, or 22% of sales, from $2.0 million or 15% of sales, for the prior year. The increase in gross margin is due primarily to pricing increases on the Reed’s Ginger Brew product line by approximately 20% implemented in 2008, better management of promotional discounting by the sales force and renegotiated production costs from the Company’s largest co-packer.

Operating expenses for the full year 2008 decreased 7% to $7.0 million from $7.5 million for the prior year. The decrease in operating expenses was primarily due to decreased selling expense associated with the re-alignment of Reed’s sales force in 2008. The Company’s strategic direction in sales is to focus on increasing its product placements in its estimated 10,500 supermarkets nationwide. In connection with this sales strategy, the Company reduced its sales organization by 16 employees at year-end 2008 as compared to year-end 2007. The decrease in selling expenses was partially offset by increased general and administrative expense associated with higher professional fees and increased legal and accounting costs. In addition, the Company incurred a one-time non-cash expense of approximately $300,000 in the fourth quarter of 2008 for professional services, for which Reed’s issued stock.

Loss from operations for the full year 2008 decreased to $3.5 million from $5.5 million in 2007. The improvement was due to increased sales, expanding gross margins and decreased selling expenses. In addition, the Company has implemented cost cutting measures throughout its business during 2008 that Reed’s expects will result in over $2.5 million in additional expense savings in 2009.

For the year ended December 31, 2008, interest expense increased to approximately $244,000 compared to interest expense of approximately $182,000 in 2007. Interest expense increased in 2008 due to increased borrowing under Reed’s long-term mortgage and line of credit.

The net loss attributable to common stockholders for the year ended December 31, 2008 was $3.8 million compared to a net loss attributable to common stockholders of $5.6 million for the year ended December 31, 2007. The net loss per share attributable to common stockholders — basic and fully diluted was $0.43 for the year ended December 31, 2008 and $0.70 for the year ended December 31, 2007.

For the year ended December 31, 2008, cash and cash equivalents were approximately $229,000, working capital was approximately $636,000, total debt (including long-term debt and obligations on lines of credit) was $3.4 million, stockholders’ equity was $4.0 million and the accumulated deficit was $14.9 million.

2009 Outlook

Mr. Reed stated, “We expect further gross margin expansion and we are anticipating additional improvement in 2009 gross profit by 20% – 40%. We also believe we will be able to cut our expenses by another $2.5 million this year, which, we believe, will enable Reed’s to be operating cash flow break-even in 2009.

“We expect to provide full year 2009 revenue guidance in our second quarter 2009 earnings report as we factor in new and expanded relationships with our existing supermarket customers. While consumer demand for our products has continued to be strong, despite the significantly weak economy, the overall current economic and consumer retail environment in which we operate has softened compared to historical levels.

“Looking ahead, we will continue to build upon our momentum in 2008 by growing our presence in mainstream grocery store accounts, expanding our product offering through new products and packaging introductions, adding additional high-volume distribution and by increasing our domestic and international points of presence to position Reed’s for continued market share growth in 2009.”

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 using fresh ginger, spices and fruits in a brewing process that predates commercial soft drinks. In addition, 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. 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. For more information about Reed’s, please visit the company’s website at: http://www.reedsgingerbrew.com or call 800-99-REEDS.

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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.

                                REED’S, INC.                               BALANCE SHEETS                                                    December 31,  December 31,                                                     2008          2007                                                 ------------  ------------ ASSETS Current assets:   Cash                                          $    229,000  $    743,000   Inventory                                        2,837,000     3,028,000   Trade accounts receivable, net of allowance    for doubtful accounts and returns and    discounts of $97,000 as of December 31, 2008    and $408,000 as of December 31, 2007              897,000     1,161,000   Prepaid and other current assets                    68,000        93,000                                                 ------------  ------------     Total Current Assets                           4,031,000     5,025,000  Property and equipment, net                        4,133,000     4,249,000 Brand names                                          800,000       800,000 Deferred offering costs                               77,000             - Deferred financing fees                               62,000        13,000                                                 ------------  ------------      Total assets                                $  9,103,000  $ 10,087,000                                                 ============  ============  LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities:   Accounts payable                              $  1,929,000  $  1,997,000   Lines of credit                                  1,354,000             -   Current portion of long term debt                   16,000        27,000   Accrued interest                                         -         4,000   Accrued expenses                                    96,000        54,000                                                 ------------  ------------     Total current liabilities                      3,395,000     2,082,000  Long term debt, less current portion               1,747,000       766,000                                                 ------------  ------------     Total Liabilities                              5,142,000     2,848,000                                                 ------------  ------------  Commitments and contingencies  Stockholders’ equity:   Preferred stock, $10 par value, 500,000    shares authorized, 47,121 shares outstanding    at December 31, 2008 and 48,121 shares    outstanding at December 31, 2007                  471,000       481,000   Common stock, $.0001 par value, 19,500,000    shares authorized, 8,979,341 shares    issued and outstanding at December 31, 2008    and 8,751,721 shares issued and outstanding    at December 31, 2007                                1,000         1,000   Additional paid in capital                      18,408,000    17,838,000   Accumulated deficit                            (14,919,000)  (11,081,000)                                                 ------------  ------------     Total stockholders’ equity                     3,961,000     7,239,000                                                 ------------  ------------      Total liabilities and stockholders’ equity  $  9,103,000  $ 10,087,000                                                 ============  ============  The accompanying notes in the company's 10-K filing are an integral part of these financial statements                                  REED’S, INC.                          STATEMENTS OF OPERATIONS               For the Years Ended December 31, 2008 and 2007                                                        2008          2007                                                 ------------  ------------  Sales                                           $ 15,277,000  $ 13,059,000  Cost of sales                                     11,891,000    11,040,000                                                 ------------  ------------     Gross profit                                    3,386,000     2,019,000                                                 ------------  ------------  Operating expenses:  Selling and marketing expense                      3,817,000     4,587,000 General and administrative expense                 3,140,000     2,621,000 Write-off note receivable                                  -       300,000                                                 ------------  ------------    Total operating expenses                        6,957,000     7,508,000                                                 ------------  ------------     Loss from operations                           (3,571,000)   (5,489,000)  Interest income                                        1,000       120,000 Interest expense                                    (244,000)     (182,000)                                                 ------------  ------------     Net loss                                       (3,814,000)   (5,551,000)  Preferred stock dividend                             (24,000)      (28,000)                                                 ------------  ------------     Net loss attributable to common stockholders $ (3,838,000) $ (5,579,000)                                                 ============  ============  Loss per share available to common stockholders  - basic and diluted                            $      (0.43) $      (0.70)                                                 ============  ============ Weighted average number of shares outstanding -  basic and diluted                                 8,884,338     8,009,009                                                 ============  ============  The accompanying notes in the company's 10-K filing are an integral part of these financial statements                                    REED’S, INC.                          STATEMENTS OF CASH FLOWS               For the Years Ended December 31, 2008 and 2007                                                        2008          2007                                                 ------------  ------------ Cash flows from operating activities:    Net loss                                     $ (3,814,000) $ (5,551,000)    Adjustments to reconcile net loss to net     cash used in operating activities:       Depreciation and amortization                  355,000       205,000       Loss on disposal of equipment                    5,000             -       Fair value of stock options issued to        employees                                     144,000       420,000       Fair value of common stock issued for        services or bonuses                           392,000         4,000       Write off of note receivable                         -       300,000       Changes in assets and liabilities:          Accounts receivable                         264,000        23,000          Inventory                                   191,000    (1,517,000)          Prepaid expenses and other current           assets                                      25,000        96,000          Accounts payable                            (68,000)      302,000          Accrued expenses                             42,000       (64,000)          Accrued interest                             (4,000)      (24,000)                                                 ------------  ------------             Net cash used in operating              activities                           (2,468,000)   (5,806,000)                                                 ------------  ------------ Cash flows from investing activities:    Purchase of property and equipment               (191,000)   (2,651,000)    Increase in notes receivable                            -      (300,000)                                                 ------------  ------------             Net cash used in investing              activities                             (191,000)   (2,951,000)                                                 ------------  ------------ Cash flows from financing activities:    Proceeds from issuance of common stock                  -     7,626,000    Payments for offering costs                       (77,000)      (55,000)    Payments for deferred financing fees             (102,000)            -    Decrease in restricted cash                             -     1,581,000    Proceeds from exercise of warrants                      -       165,000    Net borrowings (repayments) on existing     lines of credit                                1,354,000    (1,356,000)    Principal repayments on notes                    (800,000)     (263,000)    Proceeds received from borrowings on debt       1,770,000       163,000                                                 ------------  ------------             Net cash provided by financing              activities                            2,145,000     7,861,000                                                 ------------  ------------             Net decrease in cash                    (514,000)     (896,000) Cash at beginning of year                            743,000     1,639,000                                                 ------------  ------------ Cash at end of year                             $    229,000  $    743,000                                                 ============  ============  Supplemental Disclosures of Cash Flow  Information: Cash paid during the year for:   Interest                                      $    248,000  $    207,000   Taxes                                         $          -  $          - Non Cash Investing and Financing Activities   Preferred Stock converted to common stock     $     10,000  $    108,000   Common Stock issued in settlement of preferred    stock dividend                               $     24,000  $     28,000   Common Stock issued in acquisition of property    and equipment                                $          -  $      7,000  The accompanying notes in the company's 10-K filing are an integral part of these financial statements