Reed’s Inc. Reports Second Quarter 2012 First Profitable Quarter

LOS ANGELES, CA–(Marketwire – Aug 13, 2012) – 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, 2012.

Financial Highlights for the Quarter:

  • Revenues increased 27% to $7.8 million in 2012, compared to 2011. 
  • Gross profit increased to $2.7 million in 2012, an increase of 39% from 2011. The gross profit percentage increased to 34% of sales, an increase from 31% in 2011.
  • Earnings before non-cash items and finance costs (modified EBITDA) increased to $831,000 during 2012, as compared to $395,000 in the prior year period. (See EBITDA table at end of this release for further non-GAAP information).
  • Net income for the 2012 second quarter was $444,000, or $0.04 per share, compared to a loss of $55,000 a year earlier.
  • Reduced inventory levels by over $1 million.
  • Working capital at June 30, 2012 was $3.1 million, as compared to $2.7 million at December 31, 2011.

Operational Highlights:

  • Developed and launched new Reed’s Culture Club Kombucha in four flavors.
  • Launched Reed’s Chocolate Crystallized Ginger candy.
  • New distribution partners in, South Carolina, Michigan, Utah and Tennessee.
  • Started shipping a new Private Label project for large national supermarket chain.
  • Increased sales team, adding new, experienced players in key markets to meet increased demand of our brands and to maintain and grow solid relationships with distributor and retail partners.

“This is our 11th quarter of double-digit revenue growth and has resulted in the company moving into a profitable position,” stated Chris Reed, Founder and CEO of Reed’s, Inc. ”The second quarter results are confirmation that our 2012 business plan remains on track. Our branded and private label categories continue expand. We believe our momentum will continue in the second half of the year. Our new Kombucha line continues to roll out nationally. Early results are positive.”

James Linesch, Chief Financial Officer stated, “We have reached a profitable sales velocity and margin contribution by holding down costs and by investing in effective promotions. Our gross margins have increased mostly through higher effective prices and lower production and raw material costs overall, while also making a higher investment in promotions and discounts this year. We gained more liquidity by reducing our inventory levels and improving turnover through careful production scheduling and timing of raw materials purchases. We have aggressive plans for expansion on several fronts this year, and we believe that our company is well-capitalized to carry out our plans.”

The Company will conduct a conference call @ 4:15PM EDT today, August 13th, to discuss its 2012 second quarter results and outlook for the future. To participate in the call, please dial the following number 5 to 10 minutes prior to the scheduled call time (866) 240-5139. International callers should dial (713) 481-0091.

A replay will be available within a few days after the meeting in the investor relations section of the Company’s website at: http://www.reedsinc.com/investor-relations/

About Reed’s, Inc.

Reed’s, Inc. makes the top-selling natural sodas in the natural foods industry sold in over 13,000 natural food markets and supermarkets nationwide. 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. In 2012, the Company launched Reed’s Culture Club Kombucha line of organic live beverages. Other product lines include: Reed’s Ginger Candies and Reed’s Ginger Ice Creams. In 2009, Reed’s started producing private label natural beverages for select national chains. 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 https://www.facebook.com/ReedsGingerBrew

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-K 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.  
CONDENSED STATEMENTS OF OPERATIONS  
For the Three and Six Months Ended June 30, 2012 and 2011  
(Unaudited)  
   
    Three months ended June 30,     Six months ended June 30,  
    2012     2011     2012     2011  
Sales   $ 7,831,000     $ 6,191,000     $ 14,370,000     $ 11,331,000  
Cost of tangible goods sold     4,696,000       3,762,000       8,881,000       7,083,000  
Cost of goods sold – idle capacity     438,000       493,000       807,000       895,000  
                                 
    Gross profit     2,697,000       1,936,000       4,682,000       3,353,000  
                                 
Operating expenses:                                
Delivery and handling expenses     585,000       544,000       1,064,000       932,000  
Selling and marketing expense     699,000       601,000       1,421,000       1,181,000  
General and administrative expense     805,000       676,000       1,545,000       1,331,000  
  Total operating expenses     2,089,000       1,821,000       4,030,000       3,444,000  
                                 
    Income (loss) from operations     608,000       115,000       652,000       (91,000 )
                                 
Interest expense     (164,000 )     (170,000 )     (332,000 )     (329,000 )
                                 
Net income (loss)     444,000       (55,000 )     320,000       (420,000 )
                                 
Preferred stock dividends     (23,000 )     (33,000 )     (32,000 )     (44,000 )
Net income (loss) attributable to common stockholders   $ 421,000     $ (88,000 )   $ 288,000     $ (464,000 )
                                 
Income (loss) per share available to common stockholders, basic   $ 0.04     $ (0.01 )   $ 0.03     $ (0.04 )
Weighted average number of shares outstanding – basic     11,041,558       10,818,170       10,981,317       10,719,256  
Income (loss) per share available to common stockholders, diluted   $ 0.04     $ (0.01 )   $ 0.02     $ (0.04 )
Weighted average number of shares outstanding – diluted     11,940,343       10,818,170       11,647,148       10,719,256  
                                 
   
Reed’s Inc.  
MODIFIED EBITDA SCHEDULE  
   
    Three months ended
June 30,
    Six months ended
June 30,
 
    2012   2011     2012   2011  
Net loss   $ 444,000   $ (55,000 )   $ 320,000   $ (420,000 )
                             
Modified EBITDA adjustments:                            
Depreciation and amortization     189,000     165,000       372,000     308,000  
Interest expense     164,000     170,000       332,000     329,000  
Stock option and warrant compensation     29,000     80,000       55,000     129,000  
Other stock compensation for services     5,000     35,000       20,000     77,000  
  Total EBITDA adjustments     387,000     450,000       779,000     843,000  
                             
Modified EBITDA   $ 831,000   $ 395,000     $ 1,099,000   $ 423,000  
                             
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,
2012
    December 31,
2011
 
ASSETS   (unaudited)        
Current assets:                
  Cash   $ 1,391,000     $ 713,000  
  Inventory     5,046,000       6,099,000  
  Trade accounts receivable, net of allowance for doubtful accounts and returns and discounts of $195,000 and $135,000, respectively     2,543,000       1,626,000  
  Prepaid inventory     241,000       168,000  
  Prepaid and other current assets     148,000       123,000  
    Total Current Assets     9,369,000       8,729,000  
                 
Property and equipment, net of accumulated depreciation of $2,048,000 and $1,739,000, respectively     3,418,000       3,512,000  
Brand names     1,029,000       1,029,000  
Deferred financing fees, net of amortization of $88,000 and $50,000, respectively     52,000       85,000  
    Total assets   $ 13,868,000     $ 13,355,000  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current Liabilities:                
  Accounts payable   $ 2,648,000     $ 2,310,000  
  Accrued expenses     208,000       196,000  
  Dividends payable     85,000       83,000  
  Recycling fees payable     99,000       111,000  
  Line of credit     2,951,000       3,095,000  
  Current portion of long term financing obligation     80,000       71,000  
  Current portion of capital leases payable     61,000       56,000  
  Current portion of term loan     163,000       152,000  
    Total current liabilities     6,295,000       6,074,000  
                 
Long term financing obligation, less current portion, net of discount of $614,000 and $626,000, respectively     2,231,000       2,247,000  
Capital leases payable, less current portion     121,000       153,000  
Term loan, less current portion     490,000       576,000  
    Total Liabilities     9,137,000       9,050,000  
                 
Commitments and contingencies                
                 
Stockholders’ equity:                
  Series A Convertible Preferred stock, $10 par value, 500,000 shares authorized, 32,941 and 46,621 shares issued and outstanding, respectively     329,000       466,000  
  Series B Convertible Preferred stock, $10 par value, 500,000 shares authorized, 52,507 and 80,415 shares issued and outstanding, respectively     525,000       804,000  
  Common stock, $.0001 par value, 19,500,000 shares authorized, 11,207,769 and 10,885,833 shares issued and outstanding, respectively     1,000       1,000  
  Additional paid in capital     23,478,000       22,924,000  
  Accumulated deficit     (19,602,000 )     (19,890,000 )
    Total stockholders’ equity     4,731,000       4,305,000  
    Total liabilities and stockholders’ equity   $ 13,868,000     $ 13,355,000