REED Reeds Inc

Reed�s, Inc. (NASDAQ:REED) today announced its financial results for the quarter ended March 31, 2008. First Quarter 2008 Highlights: Net Sales increased 18% to $3.6 million compared to the same period last year Refocused sales efforts on mainstream grocery store accounts Began increasing prices on certain items to offset rising commodity prices and to bring product prices in-line with competitors in the natural soda category Implemented overall cost reduction strategy projected to reduce operating expenses by $300,000 each month beginning in April 2008 or approximately $4 million in annualized savings Products remain top selling soft drinks in the natural foods industry �We are pleased with our first quarter sales results, which reflect continued expanding brand awareness and gains in shelf space,� commented Chris Reed, Founder and Chief Executive Officer. �We delivered revenue growth in excess of 18%, in a challenging consumer environment, led by the strength of our core Reed�s and Virgil�s product lines and our continued expansion into mainstream grocery stores. We attribute our top-line success to the newly implemented sales strategy in which we have re-focused our sales efforts on strengthening our presence in the estimated 10,500 supermarkets nationwide. In addition, our sales force is making progress in leveraging our success in natural foods grocery stores to establish new relationships with mainstream grocery accounts.� Mr. Reed continued, �In addition to driving top-line growth, during the first quarter we identified gross margin expansion opportunities by increasing prices on certain items so they are more in-line with competitors in the natural soda category and implemented a cost reduction strategy that more properly aligns our sales force with our growth opportunities. We expect to recognize the positive effects of these actions beginning in the second quarter, and sustaining throughout 2008, with gross margins improving above current levels, and a reduction in 2008 annual operating expense by approximately $3 million which includes $2 million from sales force reduction savings.� With over $4 million of unencumbered inventory and receivable assets, the Company believes it has the current assets to meet its cash needs through the end of 2008 without raising additional equity. If the overall market improves the company will consider an equity raise to accelerate its expansion plans. The Company believes it will be able to attain a $3 million line of credit based on its level of receivables and inventory. First Quarter 2008 Results For the quarter ended March 31, 2008, net sales increased 18.3% to $3,564,100 from $3,012,690 for the prior year period. Sales growth was primarily driven by increases in the Company�s Virgil�s and Reed�s Ginger Brews product lines. Growth within the Virgil�s product line was primarily due to an increase in sales of Virgil�s Root Beer, Virgil�s Cream Soda and Black Cherry Cream Soda, the Virgil�s 5 liter party keg and the introduction of Virgil�s diet soda line. The increase in sales was also attributable to additional sales from newly introduced mainstream distributors and increased sales from existing distribution channels of natural food distributors and retailers. Gross profit for the quarter ended March 31, 2008 decreased 3.7% to $519,813 or 14.6% of sales, from $539,622 or 17.9% of sales for the prior year period. The decline in gross margin was primarily due to increased costs of production, packaging and ingredients at the Company�s main co-pack production facility and increased delivery costs resulting from rising fuel prices. The Company is currently evaluating alternative co-pack production facilities to reduce its co-pack production costs, its largest expense, and expects to reach arrangements with alternative co-pack facilities by the third quarter of 2008. Operating expenses for the first quarter of 2008 increased 144.6% to $2,454,274 from $1,003,508 in the first quarter of 2007. The increase in general, administrative and selling expenses was primarily due to increased salaries and commissions in the Company�s sales and sales support staff, increased recruiting costs of sales personnel and increased general and administrative expense resulting from an increase in salaries expense associated with the hiring of the Company�s Chief Operating Officer and former Chief Financial Officer, higher legal and accounting expenses associated with being a public company and costs of additional support in the form of personnel and computer systems. For the quarter ended March 31, 2008, interest expense was $56,438 compared to interest expense of $47,551 in the first three months of 2007. The net loss attributable to common stockholders for the quarter ended March 31, 2008 was $1,990,069 compared to a net loss attributable to common stockholders of $487,946 for the quarter ended March 31, 2007. The net loss per share attributable to common stockholders - basic and fully diluted was $0.28 for the quarter ended March 31, 2008 and $0.07 for the quarter ended March 31, 2007. For the quarter ended March 31, 2008, cash and cash equivalents were $111,022, working capital was $2,211,872, total debt (including long-term debt and obligations on lines of credit) was $1,773,741, stockholders� equity was $5,542,171 and the accumulated deficit was $13,071,210. 2008 Strategic Initiatives Expected to Increase Revenue and Improve Margins -- � Increase sales in our existing 10,500 supermarket accounts � -- Add approximately 3,500 additional supermarket accounts � -- Expanded line of offerings including Virgil's Real Cola, draft versions of our Virgil's Root Beer, and our other sodas � -- Improve gross margin by: � -- � Increase prices of Reed's Ginger Brew line by approximately 20%, in-line with competitors in natural soda category -- Manage the use of promotional discounting by the sales force -- Leverage our increased volume to re-negotiate production co-packing fees allowing for larger, more efficient production plants to produce Reed's � -- Decrease general and administrative expenses on an absolute basis as compared to 2007 � -- Target additional regional mainstream beverage distributors to deliver our product � -- The new direction of sales focused on supermarkets has allowed us to reduce our sales force from 33 to 17 people. This reduction is expected to generate approximately $2.0 million in direct annualized expense savings. Outlook The Company is initiating its second quarter and full year 2008 guidance as follows: Sales for the second quarter of 2008 are expected to increase approximately 20% over the second quarter of 2007 Sales for the fiscal 2008 are expected to increase approximately 20% over fiscal 2007 Gross margins for the second quarter of 2008 are expected to increase approximately 500 basis points from first quarter 2008 levels as a result of the aforementioned gross margin improvement initiatives The Company expects an annualized reduction in operating expenses of approximately $4 million 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 use fresh ginger, spices and fruits in a brewing process that predates commercial soft drinks. In addition, the Company has acquired 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 Juice Brews, Reed�s Ginger Candies and Reed�s Ginger Ice Creams. Reed�s products are sold through specialty gourmet and natural food stores, supermarket chains, retail stores and restaurants nationwide and in Canada. For more information about Reed�s, please visit the company�s website at: www.reedsgingerbrew.com or call 800-99-REEDS. SAFE HARBOR STATEMENT Some portions of this press release, particularly those describing Reed�s goals and strategies, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 factors, including difficulties in marketing its products and services, need for capital, competition from other companies 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 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. REED'S, INC BALANCE SHEET � � March 31, 2008 December 31, 2008 (unaudited) (audited) ASSETS Cash $ 111,022 $ 742,719 Inventory 2,729,584 3,028,450 Trade accounts receivable, net of allowance for doubtful accounts and returns and discounts of $407,480 1,456,711 1,160,940 Other receivables 1,200 16,288 Prepaid expenses � 57,030 � � 76,604 � Total Current Assets � 4,355,547 � � 5,025,001 � � Property and equipment, net of accumulated depreciation of $942,288 � 4,255,742 � � 4,248,702 � � OTHER ASSETS Brand names 800,201 800,201 Other intangibles, net of accumulated amortization of $5,212 � 35,400 � � 13,402 � Total Other Assets � 835,601 � � 813,603 � � TOTAL ASSETS $ 9,446,890 � $ 10,087,306 � � LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 2,049,600 $ 1,996,849 Current portion of long term debt 12,697 27,331 Accrued interest 0 3,548 Accrued expenses � 81,378 � � 54,364 � 2,143,675 2,082,092 � Long term debt, less current portion � 1,761,044 � � 765,753 � � Total Liabilities � 3,904,719 � � 2,847,845 � � STOCKHOLDERS� EQUITY Preferred stock, $10 par value, 500,000 shares authorized, 48,121 shares outstanding, liquidation preference of $10.00 per share 481,212 481,212 Common stock, $.0001 par value, 19,500,000 shares authorized, 8,751,721 shares issued and outstanding 890 874 Additional paid in capital 18,159,262 17,838,516 Accumulated deficit � (13,099,193 ) � (11,081,141 ) Total stockholders' equity � 5,542,171 � � 7,239,461 � � TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,446,890 � $ 10,087,306 � REED'S, INC STATEMENTS OF OPERATIONS For the three months ended March 31, 2008 and 2007 (unaudited) � � Three months ended March 31, March 31, 2008 2007 � SALES $ 3,564,100 $ 3,012,690 COST OF SALES � 3,044,287 � � 2,473,068 � GROSS PROFIT � 519,813 � � 539,622 � � OPERATING EXPENSES Selling 1,124,128 554,165 General & Administrative 1,330,146 449,343 Write-off note receivable � � Total Operating Expenses � 2,454,274 � � 1,003,508 � � LOSS FROM OPERATIONS � (1,934,461 ) � (463,886 ) � OTHER INCOME (EXPENSE) Interest Income 830 23,491 Interest Expense � (56,438 ) � (47,551 ) Total Other Income (Expense) � (55,608 ) � (24,060 ) � NET LOSS (1,990,069 ) (487,946 ) Preferred stock dividend � � NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (1,990,069 ) $ (487,946 ) � NET LOSS PER SHARE AVAILABLE TO COMMON STOCKHOLDERS - Basic and Diluted $ (0.23 ) $ (0.07 ) � WEIGHTED AVERAGE SHARES OUTSTANDING, Basic and Fully Diluted � 8,764,683 � � 7,143,185 �