Reed's Inc. Announces Year End 2007 Financial Results

Los Angeles, April 15 - Reed's announced its financial results for the year ended December 31, 2007.

Fiscal 2007 Highlights:

• Net Sales increased 25% to $13.1 million compared to the same period last year
• Refocused and strengthened Executive management and sales team
• Expanded distribution network with entrance into 20 key markets
• Expanded product line to include diet Virgil’s sodas and 7 oz package of Reed’s Extra Ginger Brew
• Products remain top selling soft drinks in the natural foods industry

“2007 was a transformational year for Reed’s marked by accelerated revenue growth, an expanded distribution network and continued investment in our infrastructure,” commented Chris Reed, Founder and Chief Executive Officer. “Our products remain the number 1, 2, 3 and 4 top selling soft drinks in natural foods and outsold the next most popular ginger ales and root beers by 450-500% in 2007. This ranking and performance is consistent with prior years. We achieved year-over-year revenue growth of 25%, demonstrating the continued demand for our core Reed’s and Virgil’s product lines. We attribute our performance to the significant progress of our sales force in expanding Reed’s presence within the mainstream marketplace and our continued ability to offer new and innovative products to consumers. Specifically, we entered over 20 key markets in 2007 through new relationships with mainstream distributors, expanding our reach beyond our core natural and specialty retail accounts.”

Mr. Reed continued, “In 2007, we executed two major sales efforts. The first effort was selling to the 3,000 natural and 7,500 mainstream supermarket stores that carry Reed’s products nationwide. The second effort was selling to new beverage distributors in the 20 key markets we opened. While, we were pleased with the results of both approaches, we experienced greater success with selling to large supermarket chains. Prior to hiring our new Senior Vice President of Sales, Neal Cohane, our relationship with these large supermarket accounts had been minimal. Neal has since leveraged his significant experience with Pepsi and SoBe to expand our relationships with these large retailers into exciting partnerships.”

Mr. Reed continued, “As a result, our primary sales focus in 2008 will be on increasing sales to our existing 10,500 natural and mainstream supermarket customers. Natural food and beverage products continue to expand into the mainstream marketplace as a result of increasing consumer demand for natural, better-for-you products. Reed’s top selling soft drinks in natural foods are uniquely positioned to fulfill that demand. Additionally, we introduced a couple of new products in 2007 including our new 7 oz package of Reed’s Extra Ginger Brew and launched Diet Versions of our Virgil’s line of sodas, broadening our consumer audience.

“Investing in our infrastructure remained a key priority during 2007. We strengthened our executive management and sales team and utilized the funds from our June 2007 capital raise to broaden our sales and marketing efforts to meet the growing demand for Reed’s products both domestically and abroad. As we enter 2008, we believe we have the right management team and strategy in place to drive growth and improve margins.”

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:

• 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 expenses.

Fiscal 2007 Year End Results

For the year ended December 31, 2007, net sales increased 24.6% to $13,058,813 from $10,484,353 for the prior year. Sales growth was primarily driven by a 44.9% increase in the Company’s Virgil’s product line and a 13.2% increase in the Company’s Reed’s Ginger Brews product line. The strong growth within the Virgil’s product line was due to an increase in sales of 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, partially offset by a decrease in sales to international customers. In 2007, net sales to distributors that cater to mainstream consumers totaled $0.4 million; net sales to distributors specializing in natural foods increased 23.6% to $9.7 million from $7.9 million; net sales to mainstream customers including chains, club stores and mass merchants increased 21.9% to $3.0 million from $2.4 million.

Gross profit for the year ended December 31, 2007 decreased 1.9% to $2,019,236 or 15.5% of sales, from $2,057,579 or 19.6% of sales for the prior year. The decline in gross margin was primarily due to increased promotion discounting and increased costs of production, packaging and ingredients at the Company’s main co-pack production facility. 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 end of the first quarter of 2008. Additionally, the Company is actively negotiating packaging and raw material prices with its suppliers.

Operating expenses for the full year 2007 increased 94.3% to $7,508,125 from $3,864,169 for the prior year period. The increase in general, administrative and selling expenses was primarily due to building out the infrastructure to support the anticipated growth in sales and production capacities. Specifically, this resulted in increased salaries and commissions in the Company’s sales and sales support staff, increased recruiting costs of sales personnel and higher advertising and promotional expense and increased general and administrative expense resulting from higher legal and accounting expenses associated with being a public company and costs of additional support in the form of personnel and computer systems. These increased costs were partially offset by the elimination of rescission offer expenses in 2007, which were incurred in 2006. We do not expect to increase selling or general and administrative expenses in 2008.

For the year ended December 31, 2007, interest expense decreased to $182,402 compared to interest expense of $414,792 in 2006. Interest expense decreased in 2007 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 year ended December 31, 2007 was $5,578,999 compared to a net loss attributable to common stockholders of $2,243,079 for the year ended December 31, 2006. The net loss per share attributable to common stockholders - basic and fully diluted was $0.70 for the year ended December 31, 2007 and $0.41 for the year ended December 31, 2006.

For the year ended December 31, 2007, cash and cash equivalents were $742,719 working capital was $2,942,909 total debt (including long-term debt and obligations on lines of credit) was $793,084 stockholders’ equity was $7,239,461 and the accumulated deficit was $11,081,141.

Inventory for the year ended December 31, 2007 was $3,028,450, an increase of 100.4% from $1,511,230 at December 31, 2006. The growth in inventory reflects the Company’s strategy to create increased flexibility to meet demand as the Company increases points of distribution within new and existing markets.

Outlook

Mr. Reed stated, “We expect first quarter 2008 sales to increase in the range of 20% to 30% compared to the same period in 2007. We expect to provide full year 2008 guidance on our second quarter 2008 earnings report as we factor in new relationships with many of our existing supermarket customers. While we continue to benefit from strong consumer demand for our products, we feel it prudent to acknowledge the overall current economic and consumer retail environment in which we operate is soft compared to historical levels. As such, in addition to driving top-line growth sales growth, we will look for ways to improve efficiencies in our operations. We will evaluate methods to improve our gross margins including outsourcing the production and distribution of our product. Further, we will continue to assess the cost structure of the business to identify areas for improvement. As part of this effort, we recently refocused our sales force efforts which resulted in a reduction in our DSD sales force by approximately 40%. This reduction is expected to generate approximately $2.0 million in annualized expense savings.”

The Company believes it has the current cash position and access to lines of credit 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.

About Reed’s, Inc.

Reed's, Inc. makes the top selling sodas in natural foods markets nationwide and is currently taking its natural food market success into the mainstream markets. 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.

REED'S, INC
BALANCE SHEET
December 31, 2007
ASSETS
Cash		$	742,719
Inventory			3,028,450
Trade accounts receivable, net of allowance for doubtful accounts and returns and discounts of $407,480			1,160,940
Other receivables			16,288
Prepaid expenses			76,604
Total Current Assets			5,025,001
Property and equipment, net of accumulated depreciation of $867,769			4,248,702
OTHER ASSETS
Brand names			800,201
Other intangibles, net of accumulated amortization of $5,212			13,402
Total Other Assets			813,603
TOTAL ASSETS		$	10,087,306
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable		$	1,996,849
Current portion of long term debt			27,331
Accrued interest			3,548
Accrued expenses			54,364
			2,082,092
Long term debt, less current portion			765,753
Total Liabilities			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
Common stock, $.0001 par value, 19,500,000 shares authorized, 8,751,721 shares issued and outstanding			874
Additional paid in capital			17,838,516
Accumulated deficit			(11,081,141	)
Total stockholders' equity			7,239,461
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	10,087,306
The accompanying notes are an integral part of these financial statements

REED'S, INC
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2007 and 2006
		Year Ended
		December 31,
			2007				2006
SALES		$	13,058,813			$	10,484,353
COST OF SALES			11,039,577				8,426,774
GROSS PROFIT			2,019,236				2,057,579
OPERATING EXPENSES
Selling			4,586,806