Reed’s, Inc. Announces Second Quarter 2011 Financial Results

LOS ANGELES, CA–(Marketwire – Aug 11, 2011) – Reed’s, Inc. (NASDAQ: REED) Maker of the top-selling sodas in natural food stores nationwide, today announced the financial results for its second fiscal quarter ending June 30, 2011.

Financial Highlights:

  • Revenues during the second quarter of 2011 increased by 26% to 6.2 million from 4.9 million in the prior year period. Approximately 70% of the increase is due to branded products and 30% is due to an over twofold increase in private label products sold.
  • Gross profit margin in the quarter increased by 27%,or $407,000 to 1.9 million, from 1.5 million in 2010 despite increases in the costs of certain raw materials and packaging
  • Sales and administration costs increased by only 6% over the prior year period, indicating scalability of the business.
  • Earnings before non-cash items and finance costs (modified EBITDA) increased to $395,000 during the second quarter, as compared to $210,000 in the prior year period. (See EBITDA table at end of this release for further non-GAAP information)
  • Net loss for the quarter was $55,000, or $0.01 per share, compared to a loss of $164,000, a year earlier.
  • Working capital at June 30, 2011 was $2.3 million, as compared to $1.8 million at December 31, 2010.
  • Cash availability was $1.1 million at June 30, 2011, as compared to $1.1 million at December 31, 2010.

Operational Highlights:

  • Introduced Virgil’s “Dr. Better” in both regular and ZERO calories.
  • Gained distribution in 350 Stop and Shop, Winn Dixie chains and increased distribution in Publix Supermarkets.
  • Expanded DSD distribution in Florida, Georgia, Arizona, Colorado and other markets.
  • Completed Safety Quality in Foods(SQF) certification for the Los Angles plant.
  • Continued Los Angeles plant upgrades designed to increase capacity and efficiency.

“This is our 7th quarter of back-to-back growth, with an average of 30%,” stated Chris Reed, Founder, Chairman and CEO of Reed’s, Inc. “We have a solid business model and see no reason why we won’t continue to grow at a significant rate for years to come”

“We are committed to meeting the challenge of using high quality natural ingredients in our premium sodas while also preserving and growing the gross margin contributions from our sales,” stated James Linesch, Reed’s Chief Financial Officer. “Our overall EBITDA earnings before non-cash costs exceed our interest costs by about $100,000 during the second quarter, indicating a cash contribution from operations. We are just starting to gain economies of scale in our operations, in relation to our expanded sales base, bringing us above breakeven into profitable contributions that support our strong growth initiatives.”

Conference Call

The Company will conduct a conference call at 4:15pm Eastern Daylight Time on August 11, 2011 to discuss its 2011 second quarter 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: 1-877-852-0653 International callers should dial 1-512-225-9559. The conference ID for this call is 645933#.

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. 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

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 and Six Months Ended June 30, 2011 and 2010
(Unaudited)
Three months ended June 30, Six months ended June 30,
2011 2010 2011 2010
Sales $ 6,191,000 $ 4,905,000 $ 11,331,000 $ 8,917,000
Cost of tangible goods sold 3,762,000 3,062,000 7,083,000 5,450,000
Cost of goods sold – idle capacity 493,000 314,000 895,000 555,000
Gross profit 1,936,000 1,529,000 3,353,000 2,912,000
Operating expenses:
Delivery and handling expenses 544,000 360,000 932,000 677,000
Selling and marketing expense 601,000 538,000 1,181,000 1,062,000
General and administrative expense 676,000 672,000 1,331,000 1,324,000
Total operating expenses 1,821,000 1,570,000 3,444,000 3,063,000
Income (loss) from operations 115,000 (41,000 ) (91,000 ) (151,000 )
Interest expense (170,000 ) (123,000 ) (329,000 ) (272,000 )
Net loss (55,000 ) (164,000 ) (420,000 ) (423,000 )
Preferred stock dividends (33,000 ) (36,000 ) (44,000 ) (50,000 )
Net loss attributable to common stockholders $ (88,000 ) $ (200,000 ) $ (464,000 ) $ (473,000 )
Loss per share available to common stockholders, basic and diluted $ (0.01 ) $ (0.02 ) $ (0.04 ) $ (0.05 )
Weighted average number of shares outstanding – basic and diluted 10,818,170 10,215,185 10,719,256 10,025,991
MODIFIED EBITDA SCHEDULE

Three months ended June 30, Six months ended June 30,
2011 2010 2011 2010
Net loss $ (55,000 ) $ (164,000 ) $ (420,000 ) $ (423,000 )
Modified EBITDA adjustments:
Depreciation and amortization 165,000 156,000 308,000 305,000
Interest expense 170,000 123,000 329,000 272,000
Stock option and warrant compensation 80,000 47,000 129,000 104,000
Other stock compensation for services 35,000 48,000 77,000 84,000
Total EBITDA adjustments 450,000 374,000 843,000 765,000
Modified EBITDA $ 395,000 $ 210,000 $ 423,000 $ 342,000
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
June 30,
2011
December 31,
2010
ASSETS (unaudited)
Current assets:
Cash $ 1,114,000 $ 1,084,000
Inventory 4,578,000 4,555,000
Trade accounts receivable, net of allowance for doubtful accounts and returns and discounts of $105,000 and $105,000, respectively 2,006,000 1,295,000
Prepaid inventory 384,000 138,000
Prepaid and other current assets 146,000 78,000
Total Current Assets 8,228,000 7,150,000
Property and equipment, net of accumulated depreciation of $1,444,000 and $1,178,000, respectively 3,613,000 3,650,000
Brand names 1,029,000 1,029,000
Deferred financing fees, net of amortization of $25,000 and $8,000, respectively 29,000 47,000
Total assets $ 12,899,000 $ 11,876,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable $ 2,891,000 $ 2,586,000
Accrued expenses 179,000 162,000
Dividends payable 87,000 44,000
Recycling fees payable 263,000 325,000
Line of credit 2,387,000 2,038,000
Current portion of long term financing obligation 63,000 55,000
Current portion of capital leases payable 43,000 39,000
Current portion of note payable 18,000 71,000
Total current liabilities 5,931,000 5,320,000
Long term financing obligation, less current portion, net of discount of $651,000 and $677,000, respectively 2,261,000 2,268,000
Capital leases payable, less current portion 124,000 146,000
Total Liabilities 8,316,000 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, 10,824,708 and 10,446,090 shares issued and outstanding, respectively 1,000 1,000
Additional paid in capital 22,645,000 21,701,000
Accumulated deficit (19,348,000 ) (18,884,000 )
Total stockholders’ equity 4,583,000 4,142,000
Total liabilities and stockholders’ equity $ 12,899,000 $ 11,876,000