Reed�s, Inc. (NASDAQ: REED) today announced its financial results
for the three and six months ended June 30, 2008. Second Quarter
2008 Highlights: Net sales increased 32% to $4.6 million from $3.5
million in the same period last year Gross profit increased 87% to
$1.3 million from $0.7 million in the same period last year Gross
margin expanded 820 basis points to 27.8% from 19.6% in the second
quarter of 2007 Operating expenses decreased 110 basis points to
37.4% of net sales from 38.5% of net sales in the second quarter of
2007 Net loss attributable to common stockholders decreased to
$515,000 compared to loss of $721,000 in the prior year period
Increased its available borrowing capacity up to $3.0 million. The
amount available under the credit facility is based on accounts
receivable and inventory levels. �We are very pleased with our
second quarter results which mark another quarter of strong revenue
growth and demonstrate a measurable improvement in profitability,�
commented Chris Reed, Founder and Chief Executive Officer. �During
the second quarter, we achieved year-over-year sales growth of
approximately 32%, continued to expand our presence and shelf space
within mainstream grocery store accounts and continued to build
international awareness of Reed�s brands. We are especially pleased
to deliver this strong top-line growth, without compromising
profitability. During the second quarter our 2008 strategic
initiatives aimed at increasing our presence in national grocery
chains, improving gross margins and rationalizing expenses began to
take hold. This is evidenced by the expansion of our sales, the
improvement in our gross margin to 27.8% and the sequential
reduction in operating expenses by approximately $700,000 from the
first quarter of 2008, the combination of which resulted in a large
decrease in our net loss to approximately $0.5 million. We expect
this trend to continue as we reduce operating expense by an
additional $300,000 to $400,000 in the third quarter of 2008.� Mr.
Reed continued, �We attribute our strong performance to the
continued demand for the Reed�s and Virgil�s product lines as well
as the success of our refocused sales strategy on strengthening our
presence in the estimated 10,500 supermarkets nationwide. During
the second quarter we entered into enhanced partnerships with
several nationwide grocery store accounts including Kroger,
Ralph�s, Sprouts, Haggen�s, Earth Fare, among others, demonstrating
Reed�s commitment and success in expanding our presence within the
mainstream marketplace. With these enhanced partnerships, we will
look to drive awareness of the Reed�s brand through development of
full year �partner-with-purpose� marketing plans, in-store sampling
campaigns, weekly Ad/Circular participation and additional
promotional efforts.� Mr. Reed concluded, �We are pleased with our
strong start to the first half of 2008 and we expect our positive
momentum to carry into the back half of the year. In addition to
driving top-line sales growth, we will continue to evaluate methods
to improve gross margin and enhance efficiencies in our operations.
Specifically, because of the strong growth we have experienced in
the last year we are better positioned to negotiate alternative
co-pack production agreements, which we expect will result in
further gross margin improvement. As a result, we expect to report
improved bottom line results in the back half of 2008 compared to
the first six-months of 2008.� Second Quarter 2008 Results For the
quarter ended June 30, 2008, net sales increased 31.6% to
$4,570,816 from $3,472,360 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 natural food distributors and
retailers. Gross profit for the quarter ended June 30, 2008,
increased 86.5% to $1,269,330, or 27.8% of sales, from $680,428, or
19.6% of sales for the prior year period. The improvement in gross
margin was primarily due to pricing increases of the Company�s
Reed�s Ginger Brew line by approximately 20%, inline with
competitors in natural soda category, and better management of the
use of promotional discounting by the sales force. This was
partially offset by 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 in the near future. Operating expenses for the second
quarter of 2008 increased 27.8% to $1,710,604, or 37.4% of net
sales, from $1,338,252, or 38.5% of net sales, in the second
quarter of 2007. The increase in general, administrative and
selling expenses was primarily due to increased promotional and
advertising expenses and increased general and administrative
expense resulting from higher legal, accounting and professional
fees associated with being a public company and an increase in
salaries expense associated with the hiring of the Company�s Chief
Operating Officer, and costs of additional support in the form of
personnel and computer systems. This was partially offset by a
reduction in selling expenses as the Company reduced its sales
force from 33 to 17 people. For the quarter ended June 30, 2008,
interest expense was $49,990 compared to interest expense of
$64,330 in the three months ended June 30, 2007. Interest expense
decreased in the second quarter of 2008 principally due to the pay
down of the Company�s lines of credit and certain long-term debt.
The net loss attributable to common stockholders for the quarter
ended June 30, 2008, improved to $514,680 from a net loss
attributable to common stockholders of $720,815 for the quarter
ended June 30, 2007. The net loss per share attributable to common
stockholders - basic and fully diluted was $0.06 for the quarter
ended June 30, 2008 and $0.10 for the quarter ended June 30, 2007.
For the quarter ended June 30, 2008, cash and cash equivalents were
$39,963, working capital was $1,702,206, total debt (including
long-term debt and obligations on lines of credit) was $2,650,140,
stockholders� equity was $5,032,680 and the accumulated deficit was
$13,585,890. The Company recently entered into a new $3.0 million,
two year secured credit facility with First Capital. The amount
available under the credit facility is based on accounts receivable
and inventory levels. Reed�s believes that its new facility will
provide sufficient liquidity and cash flows needed to fund
operations 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. First Half 2008
Results For the first six months ended June 30, 2008, net sales
increased 25.4% to $8,134,916 from $6,485,050 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. The
increase in sales was also attributable to additional sales from
newly introduced mainstream distributors and increased sales from
existing natural food distributors and retailers. Gross profit for
the first six months of 2008 increased 46.6% to $1,789,143, or
22.0% of sales, from $1,220,150, or 18.8% of sales for the prior
year period. The improvement in gross margin was primarily due to
pricing increases of the Company�s Reed�s Ginger Brew line by
approximately 20%, inline with competitors in natural soda
category, and better management of the use of promotional
discounting by the sales force. This was partially offset by
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. Operating expenses for the
first six months of 2008 increased 77.9% to $4,164,878, or 51.2% of
net sales, from $2,341,760, or 36.1% of net sales in the first six
months of 2007. The increase in general, administrative and selling
expenses was primarily due to increased promotional and advertising
expenses and increased general and administrative expense resulting
from higher legal, accounting and professional fees associated with
being a public company and an increase in salaries expense
associated with the hiring of the Company�s Chief Operating
Officer, and costs of additional support in the form of personnel
and computer systems. This was partially offset by a reduction in
selling expenses as the Company reduced its sales force from 33 to
17 people. For the six months ended June 30, 2008, interest expense
was $106,428 compared to interest expense of $111,883 in the six
months ended June 30, 2007. The net loss attributable to common
stockholders for the six ended June 30, 2008 was $2,504,749
compared to a net loss attributable to common stockholders of
$1,208,763 for the quarter ended June 30, 2007. The net loss per
share attributable to common stockholders - basic and fully diluted
was $0.28 for the quarter ended June 30, 2008 and $0.17 for the
quarter ended June 30, 2007. 2008 Strategic Initiatives Expected to
Increase Revenue and Improve Margins in the Second Half of 2008 --
� 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%, inline 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 third quarter
guidance and updating its full year 2008 guidance as follows: Sales
for fiscal 2008 are expected to increase approximately 20% to 30%
over fiscal 2007 The Company expects an annualized reduction in
operating expenses of approximately $4 million The Company expects
a sequential decrease in its operating expenses of approximately
$300,000 to $400,000 in the third quarter of 2008 from the second
quarter of 2008 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 potions 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. CONDENSED STATEMENTS OF OPERATIONS For
the Three and Six Months Ended June 30, 2008 and 2007 (Unaudited) �
� � Three months ended Six months ended � June 30, � June 30, June
30, � June 30, 2008 2007 2008 2007 � SALES $ 4,570,816 $ 3,472,360
$ 8,134,916 $ � 6,485,050 COST OF SALES 3,301,486 � 2,791,932 �
6,345,773 � � 5,265,000 � GROSS PROFIT 1,269,330 � 680,428 �
1,789,143 � � 1,220,050 � OPERATING EXPENSES Selling 1,051,008
888,104 2,175,136 1,442,269 General and Administrative 659,596 �
450,148 � 1,989,742 � � 899,,491 Total Operating Expenses 1,710,604
� 1,338,252 � 4,164,878 � � 2,341,760 � LOSS FROM OPERATIONS
(441,274 ) (657,824 ) (2,375,735 ) � (1,121,710 ) OTHER INCOME
(EXPENSE) Interest Income 145 29,109 975 52,600 Interest Expense
(49,990 ) (64,330 ) (106,428 ) � (111,883 ) Total Other Income
(Expense) (49,845 ) (35,221 ) (105,453 ) � 59,283 � NET LOSS
(491,119 ) (693,045 ) (2,481,188 ) (1,180,993 ) � Preferred stock
dividend (23,561 ) (27,770 ) (23,561 ) � (27,770 ) � Net loss
attributable to common stockholders $ (514,680 ) $ (720,815 ) $
(2,504,749 ) $ � (1,208,763 ) � LOSS PER SHARE- Available to Common
Stockholders Basic and Diluted $ (0.06 ) $ (0.10 ) $ (0.28 ) $ �
(0.17 ) � WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED
8,911,327 � � 7,403,777 � � 8,837,956 � � � 7,274,201 � � � �
CONDENSED BALANCE SHEETS � � � ASSETS June 30, 2008 (Unaudited)
December 31, 2007 � CURRENT ASSETS Cash $ 39,963 $ 742,719
Inventory 3,739,678 3,028,450 Trade accounts receivable, net of
allowance for doubtful accounts and returns and discounts of
$150,000 as of June 30, 2008 and $407,480 as of December 31, 2007
1,543,839 1,160,940 Other receivables 250 16,288 Prepaid Expenses
135,634 � � 76,604 � Total Current Assets 5,459,364 � � 5,025,001 �
� Property and equipment, net of accumulated depreciation of
$1,019,087 as of June 30, 2008 and $867,769 as of December 31, 2007
4,255,365 � � 4,248,702 � OTHER ASSETS Brand names 800,201 800,201
Other intangibles, net of accumulated amortization of $295 as of
June 30, 2008 and $5,212 as of December 31, 2007 35,105 � � �
13,402 � Total Other Assets 835,306 � � 813,603 � � TOTAL ASSETS $
10,550,035 � $ 10,087,306 � � LIABILITIES AND STOCKHOLDERS� EQUITY
� CURRENT LIABILITIES Accounts payable $ 2,770,797 1,996,849 Lines
of credit 879,205 -- Current portion of long term debt 10,738
27,331 Accrued interest 20,267 3,548 Accrued expenses 76,151 � �
54,364 � � Total Current Liabilities 3,757,158 2,082,092 � Long
term debt, less current portion 1,760,197 � � 765,753 � � Total
Liabilities 5,517,355 � � 2,847,845 � � COMMITMENTS AND
CONTINGENCIES � STOCKHOLDERS� EQUITY Preferred stock, $10 par
value, 500,000 shares authorized, 47,121 shares outstanding at June
30, 2008 and 48,121 shares at December 31, 2007 471,212 481,212
Common stock, $.0001 par value, 19,500,000 shares authorized,
8,928,591 shares issued and outstanding at June 30, 2008 and
8,751,721 at December 31, 2007 892 874 Additional paid in capital
18,146,466 17,838,516 Accumulated deficit (13,585,890 ) �
(11,081,141 ) � Total stockholders� equity 5,032,680 � � 7,239,461
� � TOTAL LIABILITIES AND STOCKHOLDERS� EQUITY $ 10,550,035 � $
10,087,306 �
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