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Reed's, Inc. Announces Record Second Quarter Results

18% Growth in Net Revenue Drives $633,000 Second Quarter Profit; Company Achieves Year-to-Date Profitability

LOS ANGELES, CA -- (Marketwired) -- 08/12/14 -- Reed's, Inc. (NYSE MKT: REED), maker of the top-selling sodas in natural food stores nationwide, today announced the financial results for its fiscal second quarter ended June 30, 2014.

Financial Highlights: Second Quarter 2014 Compared to Second Quarter 2013

  • Net revenue increased 18% to a record $11.2 million
  • Gross profit increased 51% to $3.7 million
  • Gross profit margin increased 700 basis points to 33% from 26%
  • Plant Idle Capacity costs improved from 5% of net sales to 4%
  • Company achieved net income of $633,000 versus a net loss of ($494,000)
  • Earnings per diluted share of $0.05 versus loss of ($0.04) per diluted share
  • Modified EBITDA was $1.1 million during the 2014 second quarter versus a negative $100,000 during the same period last year. (See EBITDA table at end of this release for further non-GAAP information).

Operational Highlights: Second Quarter 2014 Compared to Second Quarter 2013

  • Reed's Ginger Brew sales increased by 34%
  • Virgil's craft sodas sales increased by 10%
  • Reed's Culture Club Kombucha sales increased by 35%
  • Driven by plant improvements in Los Angeles in 2013, production was 221,000 cases during the second quarter 2014, an increase of 28% over the second quarter 2013

Marketing/Distribution Highlights:

  • Reed's announced that Reed's and Virgil's premium craft sodas are now authorized at SpartanNash stores throughout the Midwest
  • Reed's announced that Reed's and Virgil's premium craft sodas are now authorized at Food Lion grocery stores in the Mid-Atlantic and Southern states
  • Reed's announced the rollout of Reed's Culture Club Kombucha into Dierbergs throughout Missouri and Illinois
  • Reed's announced a new distribution partnership with Haralambos Beverage Company in Southern California
  • Reed's announced that Reed's and Virgil's premium craft sodas are now authorized at Books-A-Million, Inc.

"Our sales momentum continues and we achieved profitability, not only in the second quarter, but also year-to-date. Sales for the quarter were driven by a 34% increase in sales of Reed's Ginger Brews that grew organically at an accelerated clip without any new marketing programs. Our Kombucha sales slowed while we changed packaging, but still racked up 35% sales growth for the quarter. We estimate that our Kombucha growth rate would have been approximately double this rate had we not experienced these production delays. We are second in market share and continue to believe that there is significant growth opportunity in this beverage category that is estimated to be $500 million in annual retail sales," commented Chris Reed, Founder and CEO of Reed's, Inc.

"Our second quarter sales were driven by a 21% increase in our core brands (Reed's & Virgil's) and a 35% increase in the sales of our Kombucha beverages. Our private label sales were off by $749,000 in the second quarter, accounting for only 5% of our gross sales, although we anticipate that the category will experience decent growth in the back half of the year. Our gross margin increased 100 basis points to 33% versus the first quarter of 2014 and 700 basis points when compared to the prior year when we had a contractual issue with a private label product offering. Year over year we had a 51% increase in gross profit dollars for the quarter," stated Larry Tomsic, Interim CFO at Reed's, Inc.

Chris Reed, CEO and Founder, continued, "We kicked off the third quarter with the launch of our first national TV advertising campaign targeted at foodies who can appreciate the taste and quality of our Reed's Extra Ginger Brew. We believe that in addition to increasing brand awareness it will ultimately drive sales to the doors that carry Reed's products. We continue to focus our efforts on driving sales and improving gross margins to fund our growth. Although our foundation was built in the natural grocery channel, we have seen significant growth coming from the traditional grocery channel where carbonated soft drinks are struggling and consumers are increasingly looking for unique and all natural beverages like our Reed's Ginger Brew and Virgil's craft sodas."

2014 Outlook

The Company expects revenue growth of 15-20% in fiscal 2014. Core brands (Reed's & Virgil's) are expected to grow 15-20%; Kombucha is expected to grow 40 to 50%; and our other product category, that includes private label, candy and non-core beverage assortments, is expected to be approximately flat. EBITDA is expected to range between $1.5 and $2.0 million for the year and the Company expects to generate a modest net income.

The Company will conduct a conference call @ 4:30PM EDT today, August 12th, to discuss its 2014 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 (800) 758-5606. International callers should dial +1 (212) 231-2939.

A replay of the call will be available on the Reed's website at www.reedsinc.com in the "Investors" section following the earnings call within a day.

About Reed's, Inc.

Reed's, Inc. makes the top-selling natural sodas in the natural foods industry and is sold in over 15,000 natural and mainstream supermarkets nationwide. In addition, Reed's products are sold through specialty gourmet, natural food stores, retail stores, convenience stores and restaurants nationwide and select international markets. 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 a 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. The company is celebrating 25 years of hand crafting the best sodas in the world, naturally, in 2014.

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 Instagram, Twitter and Facebook.

Reed's Facebook Fan Page at https://www.facebook.com/ReedsGingerBrew


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.
         For the Three and Six Months Ended June 30, 2014 and 2013

                          Three months ended June    Six months ended June
                                    30,                       30,
                         ------------------------  ------------------------
                             2014         2013         2014         2013
                         -----------  -----------  -----------  -----------

Sales, net               $11,187,000  $ 9,519,000  $20,136,000  $17,645,000
Cost of goods sold         7,483,000    7,062,000   13,530,000   12,653,000
                         -----------  -----------  -----------  -----------

    Gross profit           3,704,000    2,457,000    6,606,000    4,992,000
                         -----------  -----------  -----------  -----------

Operating expenses:
Delivery and handling
 expenses                    926,000      954,000    1,821,000    1,860,000
Selling and marketing
 expense                   1,049,000      960,000    2,117,000    1,840,000
General and
 administrative expense      913,000      912,000    1,885,000    1,900,000
                         -----------  -----------  -----------  -----------
  Total operating
   expenses                2,888,000    2,826,000    5,823,000    5,600,000
                         -----------  -----------  -----------  -----------

    Income (loss) from
     operations              816,000     (369,000)     783,000     (608,000)

Interest expense            (178,000)    (125,000)    (365,000)    (289,000)
                         -----------  -----------  -----------  -----------

Net income (loss)            638,000     (494,000)     418,000     (897,000)

Preferred stock
 dividends                    (5,000)      (5,000)      (5,000)      (5,000)
                         -----------  -----------  -----------  -----------

Net income (loss)
 attributable to common
 stockholders            $   633,000  $  (499,000) $   413,000  $  (902,000)
                         ===========  ===========  ===========  ===========

Income (loss) per share
 available to common
 stockholders, basic     $      0.05  $     (0.04) $      0.03  $     (0.07)
                         ===========  ===========  ===========  ===========
Weighted average number
 of shares outstanding -
 basic                    13,046,631   12,543,983   13,025,195   12,413,958
                         ===========  ===========  ===========  ===========
Income (loss) per share
 available to common
 stockholders, diluted   $      0.05  $     (0.04) $      0.03  $     (0.07)
                         ===========  ===========  ===========  ===========
Weighted average number
 of shares outstanding -
 diluted                  13,256,624   12,543,983   13,298,114   12,413,958
                         ===========  ===========  ===========  ===========

Modified EBITDA

The Company defines modified EBITDA (a non-GAAP measurement) as net income or (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.

                          MODIFIED EBITDA SCHEDULE

                                                Three Months Ended June 30,
                                                     2014          2013
                                                ------------- -------------
Net income (loss)                               $     638,000 $    (494,000)
                                                ------------- -------------

Modified EBITDA adjustments:
Depreciation and amortization                         153,000       153,000
Interest expense                                      178,000       125,000
Stock option compensation                             119,000        69,000
Other stock compensation for services                  10,000             -
                                                ------------- -------------
  Total EBITDA adjustments                            460,000       347,000
                                                ------------- -------------

Modified EBITDA income (loss)                   $   1,098,000 $    (147,000)
                                                ============= =============

                                                 Six Months Ended June 30,
                                                     2014          2013
                                                ------------- -------------
Net income (loss)                               $     418,000 $    (897,000)
                                                ------------- -------------

Modified EBITDA adjustments:
Depreciation and amortization                         304,000       298,000
Interest expense                                      365,000       289,000
Stock option compensation                             218,000       188,000
                                                ------------- -------------
  Total EBITDA adjustments                            887,000       775,000
                                                ------------- -------------

Modified EBITDA income (loss)                   $   1,305,000 $    (122,000)
                                                ============= =============

                                REED'S, INC.
                          CONDENSED BALANCE SHEETS

                                                               December 31,
                                               June 30, 2014       2013
                                               -------------  -------------
Current assets:
  Cash                                         $   1,213,000  $   1,104,000
  Trade accounts receivable, net of allowance
   for doubtful accounts, returns and
   discounts of $310,000 and $324,000,
   respectively                                    2,881,000      2,143,000
  Inventory, net of reserve for obsolescence
   of $118,000 and $176,000, respectively          5,499,000      6,293,000
  Prepaid inventory                                  886,000        256,000
  Prepaid and other current assets                   160,000        178,000
                                               -------------  -------------
    Total Current Assets                          10,639,000      9,974,000

Property and equipment, net of accumulated
 depreciation of $3,099,000 and $2,796,000,
 respectively                                      3,537,000      3,686,000
Brand names                                        1,029,000      1,029,000
Deferred financing fees, net of amortization
 of $58,000 and $40,000, respectively                 34,000         60,000
                                               -------------  -------------
    Total assets                               $  15,239,000  $  14,749,000
                                               =============  =============

Current liabilities:
  Accounts payable                             $   4,131,000  $   3,612,000
  Accrued expenses                                   144,000        136,000
  Line of credit                                   3,982,000      4,524,000
  Current portion of long term financing
   obligation                                        122,000        111,000
  Current portion of capital leases payable           45,000         79,000
  Current portion of term loan                       177,000        165,000
                                               -------------  -------------
    Total current liabilities                      8,601,000      8,627,000

Long term financing obligation, less current
 portion, net of discount of $501,000 and
 $526,000, respectively                            2,109,000      2,147,000
Capital leases payable, less current portion          86,000        106,000
Term loan, less current portion                      390,000        482,000
                                               -------------  -------------
    Total Liabilities                             11,186,000     11,362,000
                                               -------------  -------------

Commitments and contingencies

Stockholders' equity:
  Series A Convertible Preferred stock, $10
   par value, 500,000 shares authorized, 9,411
   shares issued and outstanding                      94,000         94,000
  Common stock, $.0001 par value, 19,500,000
   shares authorized, 13,050,252 and
   12,922,832 shares issued and outstanding,
   respectively                                        1,000          1,000
  Additional paid in capital                      25,529,000     25,276,000
  Accumulated deficit                            (21,571,000)   (21,984,000)
                                               -------------  -------------
    Total stockholders' equity                     4,053,000      3,387,000
                                               -------------  -------------
    Total liabilities and stockholders' equity $  15,239,000  $  14,749,000
                                               =============  =============

The following table sets forth key statistics for the three months ended June 30, 2014 and 2013, respectively.

                                              Three Months Ended
                                                   June 30,           Pct.
                                               2014         2013     Change
                                           -----------  -----------  ------
Gross sales, net of discounts & returns*   $12,324,000  $11,125,000      11%

Less: Promotional and other allowances**     1,137,000    1,606,000     -29%
                                           -----------  -----------

Net sales                                   11,187,000    9,519,000      18%
                                           -----------  -----------
  Cost of tangible goods sold                7,037,000    6,630,000       6%
    As a percentage of:
    Gross sales                                     57%          60%
    Net sales                                       63%          70%
  Cost of goods sold - idle capacity           446,000      432,000       3%
    As a percentage of net sales                     4%           5%
                                           -----------  -----------

    Gross profit                           $ 3,704,000  $ 2,457,000      51%
                                           -----------  -----------
    Gross profit margin as a percentage of
     net sales                                      33%          26%

* Gross sales is used internally by management as an indicator of and to monitor operating performance, including sales performance of particular products, salesperson performance, product growth or declines and overall Company performance. The use of gross sales allows evaluation of sales performance before the effect of any promotional items, which can mask certain performance issues. We therefore believe that the presentation of gross sales provides a useful measure of our operating performance. Gross sales is not a measure that is recognized under GAAP and should not be considered as an alternative to net sales, which is determined in accordance with GAAP, and should not be used alone as an indicator of operating performance in place of net sales. Additionally, gross sales may not be comparable to similarly titled measures used by other companies, as gross sales has been defined by our internal reporting practices. In addition, gross sales may not be realized in the form of cash receipts as promotional payments and allowances may be deducted from payments received from certain customers.

** Although the expenditures described in this line item are determined in accordance with GAAP and meet GAAP requirements, the disclosure thereof does not conform with GAAP presentation requirements. Additionally, our definition of promotional and other allowances may not be comparable to similar items presented by other companies. Promotional and other allowances primarily include consideration given to the Company's distributors or retail customers including, but not limited to the following: (i) reimbursements given to the Company's distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; (ii) the Company's agreed share of fees given to distributors and/or directly to retailers for in-store marketing and promotional activities; (iii) the Company's agreed share of slotting, shelf space allowances and other fees given directly to retailers; (iv) incentives given to the Company's distributors and/or retailers for achieving or exceeding certain predetermined sales goals; and (v) discounted or free products. The presentation of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and the spending levels incurred or correlated with such sales. Promotional and other allowances constitute a material portion of our marketing activities. The Company's promotional allowance programs with its numerous distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, ranging from one week to one year.

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