Reed's, Inc. Announces Third Quarter 2010 Financial Results

LOS ANGELES, CA–(Marketwire – November 9, 2010) –  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 third fiscal quarter and the nine months ended September 30, 2010.

Financial Highlights:

  • Third quarter sales increased 35% to a record $5.4 million. Nine month 2010 sales were $14.3 million, 23% ahead of 2009. 
  • Gross profit was 20% of sales during the third quarter, as compared to 25% in 2009, reflecting start up costs incurred during the period.
  • Operating expenses increased by 3% in the quarter due primarily to some non-recurring charges. 
  • EBITDA income for the third quarter 2010 was $32,000, as compared to $15,000 in the third quarter of 2009. For the nine month period, EBITDA income was $400,000, as compared to a loss of $140,000 in the prior year period. (See EBITDA table at end of this release for further non-GAAP information).
  • Net loss for the quarter narrowed slightly to $398,000, or $0.04 per share, from $402,000 a year earlier.
  • Working capital at September 30, 2010 was $2.1 million, as compared to $2.0 million at December 31, 2009.
  • Cash availability was $1.1 million at September 30, 2010, as compared to $1.3 million at December 31, 2009. 

Third Quarter Operational Highlights:

  • Introduced new ZERO line of Virgil’s Stevia-sweetened diet sodas and gained authorization into Whole Foods
  • Continued expansion into Canada with new distribution and Bulk Barn penetration
  • Became first bottling plant in North America to launch swing-top bottles from U.S. factory 
  • Expanded sales of ‘Reed’s Rx’ Natural Ginger Nausea Relief into Publix Super Markets and Fred Meyer Stores
  • Launched first-ever marketing pull campaign utilizing Google AdWords and radio campaign with Clear Channel and Fresh & Easy Neighborhood Markets

“Sales are accelerating for our branded and private label products,” stated Chris Reed, Founder, Chairman and CEO of Reed’s, Inc. “We came in ahead of our revenue estimates. Profit margin on our new private label customers is expected to improve as we digest the start up costs. Our branded business is growing nicely with our private label business expanding faster. Our plan is to use private label to increase gross profits and invest these funds into the growth of our brands. For the record, we are only making non-competitive products for our private label customers.” Mr. Reed added, “Our fourth quarter is going very strong. We see sales acceleration in 2011 for both our brands and private label business.” 

James Linesch, Reed’s Chief Financial Officer, said, “Our fiscal quarter results reflect a proof of concept on many levels. Our marketing efforts delivered sales of 23% more cases of branded sodas during the third quarter than last year, without margin erosion. Our Los Angeles plant produced record volumes as we continued to fulfill significant private label orders, with strong backlog, and we are successfully introducing our new ZERO product line with minimal product introduction costs.” Mr. Linesch added, “Our third quarter margins were hit by costs associated with plant upgrades and product introductions, and this will continue in the fourth quarter to some extent. Our margins on our sales of branded sodas, however, have remained as strong as ever and are expected to increase in 2011 with new pricing and promotion plans. Private label margins will increase too, as we move into 2011 contracts. Operating expenses remain steady, despite our high growth, reflecting the scalability of our business.”

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 Standard Time on Tuesday, November 9, 2010 to discuss its third quarter 2010 results. To participate in the call, please dial the following number five to ten minutes prior to the scheduled call time: 888-240-4700. International callers should dial 512-225-9559. The conference ID for this call is 936603#.

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.

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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.

– FINANCIAL TABLES FOLLOW —

CONDENSED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2010 and 2009
(Unaudited)

         
         
    Three months ended September 30,   Nine months ended September 30,
    2010   2009   2010   2009
Sales   $ 5,428,000     $ 4,027,000     $ 14,345,000     $ 11,658,000  
Cost of sales     4,365,000       3,038,000       11,047,000       8,722,000  
                                 
  Gross profit     1,063,000       989,000       3,298,000       2,936,000  
                                 
Operating expenses:                                
Selling and marketing expense     570,000       646,000       1,632,000       1,853,000  
General and administrative expense     742,000       623,000       2,066,000       1,896,000  
Impairment of assets     -       -       -       641,000  
    Total operating expenses     1,312,000       1,269,000       3,698,000       4,390,000  
                                 
  Loss from operations     (249,000 )     (280,000 )     (400,000 )     (1,454,000 )
                                 
Interest expense     (149,000 )     (122,000 )     (421,000 )     (319,000 )
                                 
  Net loss     (398,000 )     (402,000 )     (821,000 )     (1,773,000 )
                                 
Preferred stock dividend     (12,000 )     -       (62,000 )     (23,000 )
                                 
Net loss attributable to common stockholders   $ (410,000 )   $ (402,000 )   $ (883,000 )   $ (1,796,000 )
                                 
Loss per share – available to common stockholders basic and diluted   $ (0.04 )   $ (0.04 )   $ (0.09 )   $ (0.20 )
Weighted average number of shares outstanding – basic and diluted     10,245,471       9,215,171       10,117,906       9,125,887  
                                 
                                 

EBITDA SCHEDULE
For the Three Months and Nine Months Ended September 30, 2010 and 2009

(Unaudited)

         
    Three months ended September 30,   Nine months ended September 30,
    2010   2009   2010   2009
Net loss   $ (398,000 )   $ (402,000 )   $ (821,000 )   $ (1,773,000 )
                                 
EBITDA adjustments:                                
                                 
Depreciation and amortization     160,000       109,000       465,000       324,000  
Interest expense     149,000       122,000       421,000       197,000  
Stock option compensation     35,000       122,000       189,000       269,000  
Other stock compensation for services     86,000       64,000       146,000       202,000  
  Total EBITDA adjustments     430,000       417,000       1,221,000       1,633,000  
                                 
EBITDA income (loss) from operations   $ 32,000     $ 15,000     $ 400,000     $ (140,000 )
                                 
                                 
The Company defines EBITDA (a non-GAAP measurement) as net loss before interest, taxes, depreciation and amortization, and non-cash expense for securities. Other companies may calculate EBITDA differently. Management believes that the presentation of EBITDA provides a meaningful measure of performance that approximates cash flow before interest expense, and is meaningful to investors.  
   
   

REED’S, INC.
CONDENSED BALANCE SHEETS

       
  September 30, 2010   December 31, 2009
ASSETS (unaudited)    
Current assets:      
  Cash $ 958,000     $ 1,306,000  
  Inventory   3,957,000       2,884,000  
  Trade accounts receivable, net of allowance for doubtful accounts and returns and discounts of $105,000 and $90,000, respectively   1,473,000       866,000  
  Prepaid and other current assets   625,000       99,000  
    Total Current Assets   7,013,000       5,155,000  
               
Property and equipment, net of accumulated depreciation of $1,062,000 and $727,000, respectively   3,693,000       3,655,000  
Brand names   1,029,000       1,029,000  
Deferred financing fees, net of amortization of $102,000 and $10,000, respectively   39,000       131,000  
    Total assets $ 11,774,000     $ 9,970,000  
               
LIABILITIES AND STOCKHOLDERS’ EQUITY              
Current Liabilities:              
  Accounts payable $ 2,643,000     $ 954,000  
  Accrued expenses   129,000       127,000  
  Dividends payable   36,000       -  
  Recycling fees payable   359,000       456,000  
  Line of credit   1,518,000       1,415,000  
  Current portion of long term financing obligation   51,000       40,000  
  Current portion of capital leases payable   38,000       24,000  
  Current portion of note payable   97,000       102,000  
    Total current liabilities   4,871,000       3,118,000  
               
Long term financing obligation, less current portion, net of discount of $689,000 and $726,000, respectively   2,271,000       2,274,000  
Capital leases payable, less current portion   157,000       130,000  
Note payable, less current portion   -       71,000  
    Total liabilities   7,299,000       5,593,000  
               
Commitments and contingencies              
               
Stockholders’ equity:              
  Series A Convertible Preferred stock, $10 par value, 500,000 shares authorized, 46,621 shares issued and outstanding, respectively   466,000       466,000  
  Series B Convertible Preferred stock, $10 par value, 500,000 shares authorized, 91,442 and 120,820 shares issued and outstanding, respectively   914,000       1,208,000  
  Common stock, $.0001 par value, 19,500,000 shares authorized, 10,353,884 and 9,606,127 shares issued and outstanding, respectively   1,000       1,000  
  Additional paid in capital   21,478,000       20,203,000  
  Accumulated deficit   (18,384,000 )     (17,501,000 )
    Total stockholders’ equity   4,475,000       4,377,000  
               
    Total liabilities and stockholders’ equity $ 11,774,000     $ 9,970,000