Reed report final final draft for regional

California State Polytechnic University, Pomona Student Research
This report is publishedfor educational purposes onlyby
Students competing in the CFA Institute Research Challenge. Company: Reed’s Inc.
1
Source: FactSet, Yahoo Finance
Source: FactSet
Key Financial Ratios
2012 2013E 2014E
P/S 2.15 3.04 2.65
D/E 1.48 2.04 2.36
ROE -12.8% -7.3% 11.0%
ROA -3.8% -1.8% 2.4%
EPS $-0.05 $0.00 $0.04
Source FactSet, Team Estimate
Valuation DCF P/S
Estimated
Price
$8.46 $8.19
Weights 50% 50%
Target
Price $8.33
Source: Team Estimate
Market Data
Price
Jan 28 2014
$7.19
52 Wk Range $3.80 - $8.98
Avg. Daily
Volume (3
Month)
84,727
Beta 0.93
Shares
Outstanding 12.88 M
Shares Out -
Diluted
13.5 M
Market Cap $92.6 M
Ownership %
Insiders 33.4%
Institutional 7.81%
RECOMMENDATION: HOLD
Exchange NYSE MKT Price (1/28/14) $7.19
Ticker Symbol REED
2014 Year-End Target
Price
$8.33
Sector
ConsumerNon-
Durables
UpsidePotential 15.86%
Industry
Beverage: Non-
Alcoholic
Highlights
We issue a HOLD recommendation for Reed’s, Inc. (REED)with a 2014year-endtarget price
of $8.33.This offers potential upside of 15.86% from the January28th closingprice of $7.19.
REED shows signs of high growth with new distribution deals and increased demand for its
products, but detrimental risk factors andweak margins have dampened the outlook on this
up-and-coming firm in the beverage industry.
High Growth Already Priced In?
Changes in the tastes and preferences of the U.S. population towards healthier foods and
beverages shoulddrive sales growth in REED’s market segment. Because of this, we estimate
high growth in the REED product lines, particularly in kombucha.REED is well positionedto
capture kombucha growthwith its competitive advantages over most other current producers.
Although we predict high growth for REED, our recommendation is HOLD because our
model suggests much of the firm’s growth is already beingaccountedforby its current market
price.
Financial Position
Although we expect increases in sales andimprovement in gross and net margins over time,
poor liquidity ratios create additional short termissues for the company. The Current Ratio
was at 1.32 in 2012, but the Quick Ratio was only 0.50 because much of the Current Assets
were tiedup in inventory. Over the past 5 years,the average Quick Ratiohas onlybeen 1/3 of
its peers. REED is more highly leveredthanits peers andwill require debt financingtoexpand
operations. In 2012, the D/E ratio was 1.48 vs. 5-year peer average of 0.69.
Key Risks
REED has several risks that may impede its future profitability.
 The recent resignation of CFO Jim Linesch gives us serious concerns about the
stability of management. We believe that there is potential for high growth in
REED’s target market, but the firm will require a strong management team to
effectively guide the companythrough its high growth phase andtransition towards
profitability.
 REED has struggled with production shortfalls and if these continue they may
significantly limit the growth potential of the firm.
 Concerns regarding corporate governance lead us to believe that the Board of
Directors is not adequately reviewing and advising executive management.

CFA Institute Research Challenge 31 January 2014
2
Figure 1: REED Revenue Breakdown
Source: REED Financial Statements
Figure 2: REED Product Growth
Projected Annual Growth
Rates for REED Products
Core Brand Sodas 15%-20%
Kombucha 50-100%
Private Labels 35-40%
Source: Company Guidance
Figure 3: U.S. Beverage Market Volume
Source: Marketline
Business Description
Reed’s, Inc. (REED) is an Americanbeverage companythat develops, produces, andsells top
sellingbeverages in the natural premium beverage category.They offer24 types ofall natural
non-alcoholic soft drinks andseven product lines that include Reed’s Ginger Brews, Virgil’s
Root Beer andCream Sodas, Dr. Better andReal Cola, CultureClubKombucha, China Colas,
Reed’s Ginger Chews, Reed’s Ginger Ice Creams and Sonoma Sparkler Sparkling Juices.
REED also operates a growing private label business.
REED products are soldin more than14,000gourmet andnatural foodstores, grocery stores,
supermarket chains andspecialtystores throughout the UnitedStates, andto a lesser degree, in
Canada andEurope. Distributionchannels for REED are national natural foods distributors
andan increasingnumber ofregional mainstream direct store delivery (DSD) distribut ors. Its
customer base is servedby about 10,500 natural andmainstream supermarkets. New product
developments such as kombucha, expansion in distribution channels, andtrade and consumer
promotions are expected to fuel future sales growth.
Core Natural Premium Sodas
REED has been #1 in sales for natural soda since 1992. Their Ginger Brews and Virgil’s
Sodas currently makeup 80% of sales, while Culture ClubKombucha andprivate labels each
account for10%.Thecompany’s non-alcoholic ginger sodas are brewed using fresh ginger,
spices andfruits in a unique brewing process that sets REED apart fromother commercial soft
drink brands. Each 12 ounce bottle contains between8 and26 grams of fresh ginger. They use
pure cane sugar as a sweetener, andcolor thedrinks naturallyfrom herbs, fruits, spices, roots
andjuices. REED does not use injection based carbonation or preservatives in their ginger
beverages. Companyguidance estimates its core soda brands will grow at 15-20% in 2014.
Kombucha
REED enteredthe kombucha market in fall 2012with its Culture ClubKombucha line. Their
existing national distribution and experience in natural beverages has given REED a
competitiveadvantage in this segment.The Culture ClubKombucha line was introduced into
800 newretailers throughout the U.S. andinto select Whole Foods Markets in 2012. InCulture
Club Kombucha’s first year, 200,000cases were sold, penetrating50%of natural food stores.
Although REED is currently #2in kombuchasales nationally, GT’s Synergy Drinks controls
most of the kombucha market share.As of 2013, REED accounts for only$5 millionin sales
in this $300millioncategory. The companyplans on capturingmore market share in this
segment with its flavorinnovations, signature branding, andnewdistribution deals. Company
guidance suggests a growth rate of 50-100% for its kombucha products in 2014.
Private Label Products
REED startedproducing private label products in 2009. REED has seen increases in sales
within this segment withsales of $200,000in 2009growingto$5.2millionin 2012. Theynow
have 10 private label customers as opposed tofour in 2012. Outlook for REED’s private label
segment looks optimistic as revenues in the first half of2013increased by 50% compared to
2012. Companyguidance suggests a growth rate of 35-40% for its private label products in
2014.
CurrentStrategies:
 Stimulate consumer demand and awareness for existing brands and products
through promotions and advertising – REED will continue to aggressively
promote andadvertise its Culture Club Kombucha and core brands through non-
traditional and alternative channels to attain high sales growth.
 Increase direct sales relationships and expand market – Products are distributed
through natural and specialty food stores, mainstream markets and warehouse
clubs. In August 2013, REED announced a distribution agreement with Kroger
Supermarkets,oneof the largest grocerychains, to carryfour flavors of kombucha
in nearly 1000 locations. REED continues to expand its sales channels with
recentlyreachedagreements with Haggen Food& Pharmacy and Ingles Markets,
Inc., to distribute kombucha throughout Washington, Oregon, and the Southeast
United States.
 Expand their national distribution networks by adding regional direct store
delivery (DSD) accounts – Recent expansions ofREED DSD networkhas resulted
in a 50% increase in sales fromthis channel in 2012. REED has continued to add
DSD accounts in NorthAmerica; its most recent agreement was reached in early
2014 with ManhattanBeer Distributors to distribute eight Culture Club Kombucha
flavors in metropolitan New York.
79%
10%
10% 1%
REED' S INC.
P RODUCT
LINES -2 0 1 3
REED Core Brands
CultureClub Kombucha
Private Labels
Other
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
28,000.0
28,500.0
29,000.0
29,500.0
30,000.0
30,500.0
2007 2008 2009 2010 2011 2012
%CHANGE
GALLONS(INMILLIONS)
YEAR
U.S. Liquid Refreshment Beverage
Market: Volume and growth
Gallons (in mi llions) % change

3
Figure 4: U.S. CSD Consumption
Source: Beverage Marketing Corp.
Figure 5: Volume Change by Segment
Source: Beverage Marketing Corp.
Figure 6: 2011 PackagedBeverage Sales
Source: Nielsen
Industry Overview & Competitive Positioning
Beverage Industry - Carbonated Soft Drinks (CSD) on the Decline
Coca-Cola (KO),PepsiCo (PEP), andDr. Pepper Snapple Group (DPS) represent 87% of the
CSD market. These leading producers have invested heavily in advertising to drive brand
loyalty andhave purchasedseveral minor market players. The beverage industryis considered
a consumer staple, and historically the demand for products has been relatively inelastic.
Although the beverage industry grew by 1% to 29.8 billion gallons sold in 2012, the
carbonated beverages segment declined by 1.8% during the same period. According to
BevNET magazine, CSD’s are expectedto fall below50% of the market for volume in 2017
and50% of the market in revenue in 2018. This can be attributed to natural and healthier
alternatives that have steadily gainedmarket penetration in recent years. According to the
Beverage Marketing Corporation, the alternative beverage category of the market was
estimatedtobe approximately$34.4 billionin 2012, an 8.3%increase from2011. Alternative
beverages include energy drinks,bottledwater, juices, sports drinks, ready-to-drink teas and
coffee teas. Additionally, beverages containing probiotics are gaining recognition due to
perceived health benefits. Increases in public awareness of sugar induced issues such as
obesity anddiabetes is expected to drive down carbonated beverage consumption further.
Functional Beverage Resilience
While the carbonated beverage sector is starting to decline, the functional sector is
experiencinghigh growth.According to IBISWorld, over the next five years the beverage
industry will see many state andlocal governments attempt tolimit the sales of CSD’s due to
growinghealth concerns. Health conscious consumers have been willing to spend on higher
pricedhealthy options due to endorsements from medical experts on the importanceof proper
nutrition.Eventhough thereis a decliningtrendin sales for CSD consumption, the functional
beverage markets may hold an insulated position.
Strong Growth Opportunities in Kombucha
Kombucha signals the arrival of a new generation of functional beverages, utilizing
ingredients with active constituents-carbs, caffeine,antioxidants, alcohol, various natural acids
and beneficial yeasts and bacteria. Kombucha is the fastest growing segment in the $609
million functional juice and beverage category. Of that segment, REED ranks second in
Kombucha with its current $5 million in sales in a $300 million category. Kombucha is
gainingshelf spaces in healthy food stores and natural gourmet food stores. According to
BevNET, Kombucha sales are expectedto reach $500 million by 2015. High sales growth is
beginning to attract the attention of the large players in the beverage industry.
Overview ofCompetitors
Dr. PepperSnapple Group, Inc. (DPS) is the third largest soda business in the U.S. and
Canada. IBISWorld reports that DPS accounts for a 14.8% market share in beverages.
Accordingto Nielsen’s 2012retails sales, theymake up 39.8% market share in flavoredCSDs.
The companycontinues tobuildandenhance theirleadingbrands while developing premium
value teas andjuices. Currently, theyholdthetop ginger ale beverage andtheirSnapple brand
leads in ready-to-drink tea.
Monster Beverage Corporation has $1.9billion sales in energy drinks, $110.2 millionin
non-carbonatedbeverages, and$31million in carbonatedbeverages. Their direct store
delivery segment generates 95% of 2012revenues, up from90% in 2008. Theyalso have an
agreement with Coca-Colatodistributetheir products in 70countries.
Monster will continue to add new flavors and improve their products that compete in the
functional beverage category. TheirHansen’s BrandSodas have been the leadingnatural soda
brand on the West Coast for over 30 years and currently have 6.9% market share in the
functional drinks category. Like REED, Hansen’s sodas are sweetened with cane sugar,
contains no preservatives, caffeine or artificial flavorings. They also offer organic natural
sodas under their Blue Sky Products Brands.
PepsiCo, Inc. is the #2 carbonated soft drink maker with a 41.7% market share in the
functional drinks categoryand30.3% market share as the largest non-alcoholic drink producer.
They have plans toexpandin healthy and premium priced products as well as products for
aging consumer demographics. Pepsi operates in the natural soda segment through its
subsidiaries, SOBE andIZZE. SoBe started producing functional drinks in 1997, releasing
products that containedexoticherbs, vitamins andminerals. IZZE was acquired in 2006 and
its products mix carbonatedspringwater with 100% fruit juices. These beverages are primarily
sold in the US, Canada, Caribbean and the South Pacific.
The Coca-ColaCompany is the #1nonalcoholic beverage company, as well as one of the
world's most recognizable brands. Coca Cola owns 16“billion dollarbrands”, includingfour
of the topfive soft drinks: Coca-Cola, Diet Coke, Fanta, andSprite. Other topbrands include
Minute Maid, PowerAde, andVitaminwater. Withthe world's largest beverage distribution
system, the Coca-ColaCompanyreaches more than 200 countries. Coca-Cola operates in the
natural beverage market through its subsidiary Odwalla. Odwalla, Inc. offers natural juices,
juice drinks, fruit smoothies,garden organics, protein drinks, soy-baseddrinks, nutritionbars,
smoothie refreshers, andsuperfoods.
0
10
20
30
40
50
Gallons
Years
U.S. Per CapitaConsumption
of CSDs
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
%changefrom2011-2012
Segments
U.S. Liquid Refreshment Beverage
Market: Change in volume by segment
Energydrinks Ready-to-drink coffee
Bottled water Ready-to-drink tea
Sports drinks Value-added water
Carbonated soft drinks Fruit beverages
43.9%
14.5%
13.3%
10.8%
9.5%
5.9%
2.1%
% D O L L A R S A L E S
P A C K A G E D B E V E R A G E S
( 2 0 1 1 )
Carbonated drinks
Alternatives (energydrinks, etc.)
Bottled water
Juice drinks
Sports drinks
Iced tea (ready-to-drink)
Other

4
Figure 7: U.S. Functional Beverage
Forecast
Source: Marketline
Figure 8: U.SFunctional Market Share
Source: Marketline
Figure 9: Team Criteria
Recommendation Criteria Price
Range
Jan. 28, 2014 Price $7.19
20% Upside
Price
Above
$8.63
BUY
10% Downside
to 20% Upside
Price
$6.47-
$8.63
HOLD
10% Downside
Price
Below
$6.47
SELL
Source: Team Estimates
Figure 10: 2014E Target Price
Valuation DCF P/S
Estimated
Price
$8.46 $8.19
Weights 50% 50%
Target
Price $8.33
Jones Soda Co. markets andsells brightly coloredsodas with wacky names andflavors. The
soda maker’s beverages are soldin the US(75% ofsales) andCanada where theyare
distributedthrough a network ofmore than 185independent distributors. Outside the USthey
have distributors in the UK, IrelandandAustralia.Sales have gone down 57% since 2007to
$17.4 million in2011. Thecompanyhas not recordeda profit in the last five years.
GT’s SynergyDrinks is the industryleader of Kombucha drinks. In 2009,Americans bought
more thana millionbottles of GT’s Kombucha.Establishedin 1995, theyhave distribution
channels all across 50states.In 2008, their Kombuchadrinks realized$66.1 millionin sales.
Investment Summary
Conflicting Signals
We issue a HOLD recommendation for Reeds, Inc.with a 2014year-endtarget price of $8.33.
This offers potential upside of 15.86% from January28thclosingprice of$7.19. REED shows
signs of high growth with its newdistribution deals andincreaseddemandfor its products, but
high levels of risk and weak margins weigh the firm down. Between January 2012 and
December 2013, we sawREED take huge strides as it closeddeal after deal with distribution
companies throughout the USandCanada alongwith entering the kombucha market. With
these newly addedopportunities for growth,REED stockprice soaredby 611.71% during this
time period. We believe that much ofREED’s expected growth is already priced in and that
there is not much room for additional gain.
Valuation methods
Our target price was estimated by assigning both our DCF valuation and relative valuation
models a 50/50 weighting. We realize that for relative valuation, price to sales is limited to
only looking into a company’s revenues. However, we accounted for this by applying a
discount for REED poor net margin,amongother factors. Forthis reason, we could not find a
reason to apply more weighting to one valuation method over the other.
Strong Outlook for Product Line
With consumers becoming increasingly cognizant of their well-being, demand for more
healthyfoods andbeverages has gone up. REED beingthe topseller of premium natural sodas
has positioneditselfwell to capitalize onthis growth. On topofthat, REEDexplores another
growingmarket in functional beverages with his Culture ClubKombuchaline. Since adding it
in 2012, REED has alreadyseen moderatesuccess with its growthexpectedtoexceed 50% in
2014.
Financial Position
Weak gross, operating, and net margins compared to the beverage industry average have
resultedin negative earnings since REED went public in 2006. While we expect margins to
improve,we do not currentlysee a mechanism to allow REED to operate at gross margins
similar to its large competitors. REED has relativelyhigh levels ofdebt andmust take on more
debt to expand. We expect it tobe several years before REEDgenerates enough cash flow to
pay down debt and move towards a long term sustainable capital structure. Our model
suggests that the average D/E ratiofor next 10years tobe 2.30. This is more than three times
the peer group average 5-year D/E ratio of 0.69.
Investment Risks
REED is a high growth companythat currentlydoes not have any earnings, andtherefore has
many serious risks tofuture profitability. Given the high growth niche segment that REED
operates in, it is difficult to estimate several key growth factors that drive the stock price.
REED also has several operational andstrategic risks, such as recent productionshortages and
a sudden change in executive management that maydeter the firm’s future growth. These risks
are further discussed in the Investment Risks section.
Acquisition Premium
While we viewREED as a likely candidate for acquisition and that an acquisition premium
may cause the price of REED to meet our BUY criteria, we do not believe that just the
possibility of a future acquisition is enough to change our investment recommendation.
Criteria
We assign a BUY ratingto a stockthat exhibits a 20% orgreaterpotential upside. WhileBUY
ratings may typicallybe issuedto a stock with15% upside, we believe that small cap stocks
are inherentlymore volatile and therefore require a higher return before issuing a buy. We
assign a HOLD recommendation to a stock with less than 20% potential upside to a 10%
potential downside. We assign a sell rating to a stock with potential downside greater than
10%.

5
Figure 11: Sales Growth Forecast
Source: FactSet, Team Estimate
Figure 12: Gross Margin Forecast
Source; FactSet, Team Estimate
Figure 13: FinancingTerms
REED Financing
Rate
Line of Credit
Prime +
3.75%
Term Loan
Prime +
11.6%
Term Loan shall not be below 14.85%
Source: REED Financial Statements
Valuation
In order to arrive at a year-end 2014 target price for REED we used two valuation models;
DiscountedCash Flows through a Free Cash Flow to Equity Model and Relative Valuation
using Price/Sales Multiples.
Free Cash Flow to Equity Model
We evaluatedREED usinga 3-stage Discounted Cash Flow Analysis. A Free Cash Flow to
Equity (FCFE) model was chosen because we expect REEDtohave a period of high growth
andtransitionfrom beingan unprofitable company toa profitable one. FCFE is a useful model
for high growth companies as longas the capital structure does not drastically change over the
forecastedperiod. Company guidance has suggestedthat the capital structure ofREED should
remain similar tocurrent conditions for the near future, although new expansion would be
financedby debt. We estimatedfree cash flows by forecastingthe determinants of net income,
CAPEX, andworkingcapital. Determinants ofNet Income include revenue growth, margin
improvement, andexpectedinterest payments based upon our estimated debt levels. Given
these estimates we forecast the year-endtarget price for REED at $8.46 per share. Given a
January 28, 2014closingprice of $7.19, this price would imply 18% potential upside (See
Appendix 5).
Sales Forecast
Sales revenues were forecastedusinga 3-stage growth model. In the first stage, REED sales
growth was estimated at 25% for the next 5 years. 25% growth was derived from a
combinationof the FactSet futureyearestimatedgrowthrates andREED historic growth. We
believe this number to be reasonable given the growth rate of natural products within the
beverage industry andREED’s strongcompetitive advantages in the natural foods segment.
This growth is supportedby our expectedgrowthforthe kombucha product over the next 10
years andREED’s positionin this market. Foryears 2019-2022 our model assumes that the
growth rate will decline by 5% each year. As REED revenues grow, the growth rate will
naturally declineas market sharein the natural foods segment matures. For years 2023and on
we used 3% as an average long-termgrowthrate toreflect historical long-term real growth in
the US economy.
Depreciation
We assume that REED will continue to depreciate its assets similar to its rates in 2012 and
2011. In these years, depreciation was 22% and 19% of fixed assets, respectively. In our
forecasted period depreciation ranges from 18-19% of fixed assets.
Gross Margin
Historically, REED gross margin has been much lower than its competitors. With the large
beverage companies likeCoca-Cola,Pepsi, Dr. Pepper Snapple and Monster each having a
gross margin of over 50%, it makes REED historical gross margin average of 23.2% look
small in comparison.Due to REED’s size andpremiumnature ofits products, we do not see it
beingrealistic for REED to reach margins of this level. However, REED has been able to
improve that figure to32% in its most recent earnings report due to increasing production
efficiency anddecreasingtransportationcosts. We expect to see gross margin steadily increase
to 38% by 2023 driven by expected sales growth on REED branded products.
Selling, General & Administrative (SG&A) Expense Growth
Currently, SG&A expenses have heldconstant at 30% ofsales duringthe years endingin 2011
and2012. SG&A expenses hadincreasedto 31.5% ofsales through thefirst three quarters of
2013, but much ofthis increase is relatedtoadditional trade showandadvertisingexpenditure
due to a newproduct rollout.Companyguidance has suggestedthat advertisingwill remain at
similar levels for the near future, unless an extraordinaryopportunity arises. Large companies
in the industry,such as Coca-ColaandPepsi typicallyhave SG&A to sales ratios of 36-38%.
This cost canbe attributedto thehigherlevel ofadvertising that mainstream manufacturers
engage in. Monster, a comparable companyin the energy drink submarket, operates at 25%
SG&A to sales. We believe holdingSG&A to sales at 30% is a reasonable estimate forREED.
Interest Expenses
REED currentlypays 7% on its $4.5 million dollar short term revolving line of credit and
14.85% onits longterm debt. Both of these rates are floating. We assume additional debt
financingwill be available at 14.85%. REED also has interest expenses resulting from its
capital leases of propertyandequipment.REED uses a rate of 9.9% toaccount for its interest
expense for its capital leases.
Tax Advantage
Due to previous losses, REED may be able to realize a carried loss of $5.3 million against
projectedearnings in 2014-2016. Our model assumes that this will result in no taxes due in
2014-2016.
Cost ofEquity
Cost of Equity was estimatedat 7.65% by usingCAPM model. Forrisk free rate, US 10 year
Treasury bondrate of3.04% from year end 2013 was used. Market risk premium of 4.96%
was used from Damodaran’s 2014 market premium forecast. Beta of .93 was used from
-10%
0%
10%
20%
30%
40%
Sales Growth
Actual Forecast
0.0%
10.0%
20.0%
30.0%
40.0%
Gross Margin
Actual Forecast

6
Figure 14: P/SREED vs. Peers
Source: FactSet
Figure 15: REED vs. PeerKey Numbers
Reed vs. Peer Group
2008-2011
Reed Peers
Net Margin -13% 14%
Payout Ratio 0% 33.50%
D/E 1.08 0.66
Beta 0.93 0.79
Source: FactSet
Figure 16: Effects of CFO Resignation
REED P/S discount after CFO
announcement
Price (1/27/2014) $6.82
# Shares (million) 13.5
Market Cap (1/27/2014) $92.07
2013E Sales (million) 37.75
Implied P/S 2.44
2013E Peers P/S multiple 3.24
Implied Discount 25%
Source: FactSet, Team Estimates
Figure 17: P/SDiscount
P/S Discount Sensitivity
Analysis
Applied
Discount
2014E
Price
Potential
Upside
40% $6.55 -8.8%
35% $7.10 -1.2%
30% $7.65 6.3%
25% $8.19 13.9%
20% $8.74 21.5%
15% $9.28 29.1%
10% $9.83 36.7%
FactSet estimate. A regression analysis was attemptedtoestimate beta against the S&P 500
(^GSPC), but the results were not considered useful as our regression coefficient of
determinationwas 1.1%. We considerDamodaranandFactSet to be reliable sources for these
estimates.
Dividend Policy
Companyguidance suggests that REED will not payanydividendon common stock for the
foreseeable future. Our model assumes that no dividend will be paid in forecasted period.
Capital Expenditures (CAPEX)
Duringthe one-on-one meetingthat we had with REED management, it was suggestedthat the
companywill financenewexpansionby issuingdebt as opposedtodilutingshareholders. We
believe that the forecastedfuture debt levels of REED are reasonable given its high growth,
and as the company becomes profitable it will be able to pay down debt.
Balance Sheet
For our model we have assumedthat all assets andshort-termliabilities will remain a constant
percentage of sales.
Multiples Valuation
This model seeks toarrive at a valuation by comparing how similar companies are priced in
the market.
Peer Group Selection
It is imperative to select a set of similarfirms in order to obtaina more precise market -based
valuation.However, REEDis a very unique company in whichit encompasses a small niche
within the beverage industry.This makes it difficult to findcompanies that strongly resemble
REED. Companies that we didfindto be similar to REED were either private, subsidiaries of
larger companies, ortoo small for analyst coverage.We declinedto use these companies due
to the difficultyin obtainingforwardprojections. For this reason,we chose its peergroup to be
its biggest competitors within thebeverage industry. This list includes Coca-Cola,Dr. Pepper-
Snapple, Pepsi, and Monster.
What Multiples to Use?
Due to REED beinga companythat has historicallyhadnegative earnings with a small book
value, both its earnings multiples and book value multiples are unreliable. We felt it most
appropriate to use the Price to Sales multiple given how the company resembles a start-up
alongwith its historicalpoor earnings. Theadvantages of usingthis method include that it is
much less volatile than earnings multiples and harder to manipulate through accounting
methods. However,we are aware that this multiple has its limitations as it does not account for
a company’s debt levels or cost structures and plan to account for these factors in our
valuation.
Price toSales Multiple
Historically, REED has been tradingat a discount to its peers.Between the years of 2008 to
2011, the average P/S discount was 72.22%. There were several reasons for this:
 Significantly smallernet margin due to negative profits (-13.0% avg. vs. 14.0%
avg.)
 Non-existent payout ratioas REED didnot payout dividends (0% avg. vs. 33.5%
avg.)
 Higher total debt to equity ratio (1.08 avg. vs. 0.66 avg.)
 Greater amounts of systematic risk (0.93 vs. 0.79)
From 2012onward, REED has been trading at a much smaller discount to its peers with an
average discount of 15%. We believe that this is due to the following reasons:
 Improving net margins (from -25.0% in 2008 to -1.7% in 2012)
 Higher expectedgrowthdue to new distribution agreements, a new private label
partnershipwith one of the largest supermarket chains in the country, and the
addition of kombucha to its product line
Although REED’s average D/E Ratio grew to 1.6 during this time period, we feel that the
improvements in net margin andexpectedgrowthmore than made up forthis factor to justify a
15% discount.
For our year endprojection,we forecast REED tosustain its high level ofgrowthdue to an
increasingdemandforkombucha andnatural sodas. Also,we expect net margin to continue to
improve as revenues grow. Basedoff thesefactors, we decidedto applya 15% discount to
year end2014, similartothe average ofthe discounts in 2012and2013. However onJanuary
21, 2014, it was announcedthat REED CFO of 5 years, Jim Linesch, was leavingthe
company. Given that the CFO hadjust bought over$200,000worth ofshares 19 days prior to
this announcement, we can assume that this decision was very abrupt. This poses a red flagas
there appears to be serious management problems within REED. Wefeel that this addedrisk
warrants an additional 10% discount.
This estimationof 10% was derivedfromusingthe followingcalculations:
0
0.5
1
1.5
2
2.5
3
3.5
2008
2009
2010
2011
2012
2013
2014E
Price to Sales
Reed's, Inc. Peers

7
Figure 18: Weighting Sensitivity
Sensitivity of Weighting on
Target Price
DCF
Weight
Relative
Weight
Target Price
20% 80% $ 8.24
30% 70% $ 8.27
40% 60% $ 8.30
50% 50% $ 8.33
60% 40% $ 8.35
70% 30% $ 8.38
80% 20% $ 8.41
Figure 19: Implications of Acquisition
Acquisition Premium
Premium Price
Potential
Upside
0% $8.33 15.86%
5% $8.75 21.65%
10% $9.16 27.44%
15% $9.58 33.23%
20% $10.00 39.03%
25% $10.41 44.82%
30% $10.83 50.61%
Figure 20: Net Income Forecast
 Taking REED market cap by end of January 27, 2014
 Divide it by our 2013E sales forecast to get to an implied current P/S ratio for
REED
 Foundthe discount ofthis P/Sin comparisontothe 2013E average peer group P/S
ratio
The resultingdiscount of REED was 25%, 10% more than its average discount toits peers for
the past 2 years.
Since there was a large price change afterthe announcement of resignation,we believe that the
market was applyingthis addeddiscount basedupon similarconcerns about management. We
also believe that continuingto use this 25% multiple discount for 2014is appropriate. This
would give us a 2014 year-endtarget priceof $8.19. This implies potential upside of 13.9%
relative toJanuary 28th, 2014close price of$7.19(See Appendix6).
Weightof Models
We obtained a final one year target price by taking a weighted average of our DCF and
relative valuations. We utilizedequal weights for both our DCF and P/S model. We believe
that both ofour models are rigorous andappropriatelyconsider the majorfactors in valuation
of REED. We performeda sensitivity analysis to determine howthe weighting of our models
would change our target priceanddiscoveredthat any changes in weighting would not result
in a change of investment recommendation based upon our stated criteria. While it was
difficult to finda strongcomparable group for REED, we feel we have correctly applied an
appropriate discount relative our chosen group. Combiningour forecasts gives us a 2014year-
endtarget priceof $8.33.Given a January28 price of$7.19 this represents 15.9% potential
upside (See Appendix 7).
Additional Upside - Acquisition Premium
Historical acquisition premiums in the beverage industry have been known to range from
25%-30% above market price per share. In 2001, Odwalla, an American food product
companythat sells fruit juice, was acquiredby The Coca-Cola Companyfor$18million. The
companywas purchasedat a premiumof 28.9%. More recently Jim Beam was purchased for
$16 billion by a Japanese company, Suntory Holdings Ltd. The company paid a 25%
premium. Otheracquisitions in thebeverage industryinclude SoBe and Izze sparkling juices,
all of which were acquiredunder the PepsiCo brand. Izze was purchasedat an estimated price
of $75 millionandSoBe was acquiredaround$370 millionfor a 90 percent stake, about 12
times its EBITDA.
With a market size of $92.6 million, REED’s relativelysmall size also makes thecompany a
great acquisition target.Competitors such as theCoca-Cola CompanyandPepsiCohave the
resources andability topurchase a small-capcompany. As ownership is concentratedamongst
a few large shareholders, it is easier to gain majorityapproval andconsensus in voting
decisions.
REED has developeda strongbrandidentityin the functional beverage andkombucha
segment. This canleadto highgrowthpotential in a fairlynewanddevelopingmarket.
Industry leaders in the beverage market lookingto differentiate intofunctional drinks would
value the acquisitionof REEDtotheir business. As a small-capcompany, REED mayalso not
have the resources that manyofthe large competitors mayhave. Unlockingvalue in REED
through expandeddistribution networks, marketing, andadditional capital couldalso provide
grounds for the companytobe acquired. Possible synergies wouldgive large competitors
incentive toacquire as well.
Given this information, we believe REED is an attractive acquisitiontarget, andcould
potentially have15-30% additional upside froman acquisitionpremium.However, there are
also several risks that may impede anacquisitionorresult in a lower premium. These risks are
further discussedin our Investment Risks section.
Financial Analysis
Future Earnings
While REED has reportednegative net incomein the past, it has been consistently improving
these figures over the last 6 years. Between 2007and2012, REEDwent fromnet income of -
$5.58 million to -$0.57 million. We expect earnings to increase as revenues rise because
REED closely resembles a start-up company in its high growth stage. Due to a higher demand
of natural sodas andkombucha,we do not anticipate sales growth slowing down in the near
future. This will boost net income with2014 expecting to be REED’s first year of positive
earnings. Given our sales growth andmargin forecasts we estimate that REED will grow from
a current net margin of 0% to 1.93% in 2018, with earnings of $2.27 million.
Sales Growth
REED sales growth has been consistently over15%for the time periods 2007to 2012, which
is well above the industry average of 1% forbeverage companies. However, sales in 2009 had
declineddue to the effects of theU.S. recession. Webelieve these growthtrends will continue
at a high level because of favorable market trends forREED product lines, their position as a
-10
-5
0
5
10
Net Income In Millions
Actual Forecast

8
Figure 21: REED Gross Margin Forecast
Gross Margin
2012 2013E Terminal
REED 30% 31.5% 38%
Peer Group 5-YearAvg. 56.09%
Figure 22: REED Liquidity Ratios
Source: FactSet
market leaderin the natural sodas market, andtheir establishednational distribution network.
This is reflectedin theforecastedgrowth rates for years 2013-2018. We expect that REED’s
growth in sales can be heavily attributedtotheir position in thekombucha market segment, the
fastest growing product in functional beverages.
Improving Gross Margin
We believe the relatively low gross margin is the most important factor limiting REED’s
earningpower. In 2012 REED gross marginwas 30.47%, which was well below the average
of large beverage manufacturers.However, gross margin has increasedfrom 15% in 2007 to
30% in 2012,andwe expect this trendto continue. REED uses promotional allowances as a
direct reductionin sales. Due to newproduct rollouts, higher allowances have lowered gross
margin. Therehas been a historyin kombucha production inefficiencies that hindered gross
margin. Thirdquarter 2013 results show a gross margin of 32%, leading us to believe that
these inefficiencies have been corrected. REEDhas investedheavilyin expanding production
capacity in its west coast plant. Capital expenditures totaled$507,000in 2012 and $447,000
through the first nine months of2013. These enhancements should decrease transportation
costs because they reduce shipments from the east coast co-packing facility.
Increases in brandedproduct sales will improve gross margins in the forecastedperioddue to
higher margins on brandedas opposedtoprivate label offerings. Their CultureClub
Kombucha is expectedtohave the highest sales growth, andshouldimprove brandedsales.
Beverage industry peers Coca-Cola, PepsiCo, Dr. Pepper Snapple andMonsterhave a gross
margin of over50%.This maynot be realisticfor REED given its size andpremium nature of
its products. Companyexecutives suggestedin the2013thirdquarterconference call that they
would like to see gross margin beingcloser to40%. We haveforecasteda steadytrend
towards an estimate of38% in the terminal stage of ourvaluationmodel. This estimate allows
for realistic andattainable increases of0.5% per year from2014to 2023(See Appendix16).
Efficiency Ratios
REED has a 5-year average Total Asset Turnover Ratio of 1.79 compared to peer group
average of 0.92. This implies REED is managingits assets efficiently compared to the large
beverage manufacturers. REEDalso has a higher Receivables Turnover and lower Payables
Turnover comparedtopeeraverage. This demonstrates REED collects its receivables quicker
and it takes longer to pay its suppliers than its peers.
Balance Sheet & Financing
REED 3 year average Debt/Equity Ratiowas 0.46 priorto2009. D/E Ratio increased to 0.93
in 2009 andhas continuedtoincrease in thefollowingyears reachinga forecastedhigh of2.47
in 2015E.The highratio is due in part to thefact that REEDsoldandconcurrentlyenteredinto
a long-termlease agreement ofits two buildings andbrewery equipment in 2009. The capital
lease has the effect ofincreasingoperatingincome while also increasinginterest expense. The
building andequipment were soldat $3,056,000but were recorded as a long-term financing
obligation. At the endof 2013,we estimated the remaining balance of that obligation to be
$2,784,000. The company is expectedtodecreasethat balanceat therate of 9.9% annuallyand
this has been takenintoaccount in the balance sheet under long-termfinancing(see Appendix
11).
As of thirdquarter2013, REEDhas longtermdebt consistingof a $525,000 termloanat
11.6% plus prime.Interest shall not be below14.85% perterms ofthe loan.
REED has maintaineda Current Ratioover 1, withit being1.32 in year ending2012. The
forecastedCurrent Ratioremains above1.32(See Appendix4). However, due to REED
havingmore than 60% ofits Current Assets in inventories, its Quick Ratiois 0.5 in 2012,
which we project toremain relatively constant through the forecastedperiod.
DuPont Analysis
DuPont analysis was employed to examine how the return on equity was affected by the
company’s operatingefficiency, asset efficiency, and financial leverage. Due to operating
losses from 2006to2012, thereturnon equity(ROE)has been negative. However we expect
in subsequent years, therewill be gradual improvement. In 2007, the return on equity was -
76.67%, andby 2012, theROE was drastically reducedto -12.78%. Through examination of
the company's operatingefficiency, profit margins have increased40.76%, from -42.51% in
2007 to-1.75% in 2012. The Total Asset Turnover has also increasedfrom1.29 to 2.17 over
the periods of 2007 to 2012, showing improvement in the company’s utilization of its
resources. However REEDcapital structureshows that its financial leverage is increasing as
the equity multiplierrises from 1.39in 2007to3.37 in 2012. This implies an increase in debt
to financethe company's operations over theyears. The projections for 2013 continue to show
signs of optimismfor thefirm. By 2014, projectedprofit margins andROE are expected to be
positive withprofit margins reaching1.05%andreturn onequity increasing to 11.02%. The
DuPont analysis suggests that the profit margins are the most important driver for the firm’s
return on equity. Thus we believe REED is showingpositive signs of growththat areexpected
to continue into the future (See Appendix 15.)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
Dec'06
Dec'07
Dec'08
Dec'09
Dec'10
Dec'11
Dec'12
Ratio Analysis
Current Ratio Quick Ratio
Cash Ratio

9
Figure 23: ForecastedRatios
2013 Forecasted Ratios Affecting
Liquidity & Solvency
REED
2013E
5 Year
Peer
Average
Current
Ratio 1.33 2.07
Quick
Ratio 0.5 1.69
D/E Ratio 2.04 0.69
Figure 24: CFO Resignationon Stock
Price
Impact from Loss of Key
Management Executive
REED S&P 500
Jan. 21st
Open price
$8.32 $1,841
Jan. 27th
Close price
$6.82 $1,781
Percentage
Change
-18.03% -3.23%
Source: FactSet
Investment Risks
Operational Risk: Production Shortfall
REED may not be able to produce at a level to support high sales growth. REED had issues
with productionshortages in 2012 andearly2013, andthis ledtoCEO Chris Reedtakingover
plant management at the west coast facility. Continuedissues from production shortages due
to equipment erroror inefficiencies in production process may harm sales growth and gross
margin.
Operational Risk: Increase in Supply Prices
Costs in tangible goods soldwere 63% of sales in 2012and2011. Cost of tangible goods sold
includes raw materials, packaging, co-packingandrepackingfees, inboundfreight charges and
certain internal transfers.Increases in these costs could lower gross margin and impact the
current andfutureprofitabilityof REED. However,we wouldexpect that such increases may
happen across the industry andaffect REED competitors as well. Given its relatively small
size, future supply price increases mayaffect REED morethanits competitors, resulting in a
lower gross margin.
Operational Risk: Lack of Working Capital
REED Current Ratiohas trendeddownwards goingfrom 2.41in 2007to1.44and1.33 in 2011
and2012 respectively.TheirCurrent Ratioalso trails the 5-year peer group average, 1.33 to
2.07. REED Quick Ratiohas trendeddownwards overtime, goingfrom0.96 in 2007 to 0.43
and0.50 in 2011 and2012 respectively. TheirQuick Ratio also trails the 5-year peer group
average, .50 to 1.69. These ratios signal it mayhave some challenges paying bills over time.
REED currentlyhas a D/E Ratioof 2.04, comparedtopeergroup five yearaverage of .69,and
companyguidance has suggested that new funding would come from new debt rather than
equity financing. Lackof workingcapital maynegativelyaffect REED’s ability to borrow. If
revenue fromproduct sales is inadequate, the firmmayalso have insufficient working capital
to continue operations. Inthe longrun, poorliquidity can result in the firm managing business
instead of growing it.
REED is also susceptible to changes in interest rates because of the floatingrate onits current
andlongterm debt. Given thehistorical lowinterest rates that have prevailed during the last
few years, if interest rates go up, REED wouldhave toincur higherinterest expenses in order
to service its debt.
Operational Risk:Loss ofKey Management Executive
On January 21, 2014, REED announced that its CFO of 5 years, James Linesch, would be
leavingthe companyat the endof themonthandthat the firm was seeking a replacement. It
was not publicly statedas to what the reason was for his leaving, but with him gone it does
leave a hole within management. Lineschhas heldseveral CFO positions with small publicly
tradedcompanies such as AdStar, Inc.(ADST), DynTek, Inc. (DYNE) and CompuMed, Inc.
(CMPD). Whenhe was appointedas the chieffinancial officerforREED, hebrought with him
valuable management experience in emergingpublic companies.Alongwith his normalduties
of managingthecompany’s finances, Lineschwas responsible for improving REED’s line of
credit andcuttinglegal costs by at least 50%. CEO Chris Reed had even stated that Linesch
had contributed to the “inspiration and technical ‘macgyvering’ that gave us the Reed’s
Culture Club Kombucha.” Since he was brought on board, REED has seen a rise in stockprice
by almost 500%.
When the announcement cameout that Linesch was steppingdown from his position REED’s
stock plummeted. Withinthe spanof 5 tradingdays, the price haddropped18% vs. 3.0%
decline in the S&P 500. The fact that Linesch hadbought over $200,000of REED stock 19
days prior to the announcement suggests that this decisionwas very abrupt. Also,the fact that
REED does not have a replacement alreadyset in place further justifies our assumption.It
comes into questionas to what hadcausedthe sudden departure as there was no explanation
given as to why Linesch left.The uncertaintythat this event creates adds additional risktothe
company. With REEDin a crucial periodof high growth, it is vital tofindan experienced
replacement.
Competition Risk: Major Competitors Enter Market
If the natural beverage industrycontinues its growth, there will be a large incentive for the
major beverage manufacturers Coca-Cola, Pepsi, Dr Pepper-Snapple, andMonstertoenterthe
market.While we see REED as an ideal acquisition target fora larger firm, it is also possible
for one of REED’s competitors tobe acquiredinstead. Major firms may also start to operate
their own premium natural lines. This couldmaterially impact revenue and profitability, as
they wouldbe competingagainst a powerful firm withmore established distributionchannels.
Strategic Risk: New Product Failure
REED’s fastest growingproduct is expectedtobe its Culture ClubKombucha line. Expected
growth of this line is 50%-100%, comparedto15-20% for REEDcore brands (accordingto
companyguidance). IfKombucha sales falter, overall sales growth may be dampened.

10
Valuation Risk: LongTermGrowth Rates
REED intrinsic value was calculatedby usinga long-term growth rateof 3%,which was set to
model typical long term U.S. Economic Growth. This growth factor can have significant
impact onthe valuationof REED,bothin when theterminal value is calculatedandwith what
long-term growth rate is used. A range of long term growth rates were modeled using
sensitivityanalysis todetermine the effect on our one year target price (See Appendix 10).
Valuation Risk: Intermediate TermGrowth
REED intermediate-term sales growth rates (IGR) were estimated by utilizing analyst
consensus, recent performance, andexpectedgrowthin market andmarket share. We utilized
an annualizedgrowth rate of25% over the next five years, which we believe to be the best
estimate given current production and market conditions. If these estimates are overly
optimistic it wouldhave a huge impact on REED valuation, as REED requires high growth
andgrowth in margins to become profitable. Given the difficulty in predicting the growth
pattern ofa newniche product in kombucha, these growth numbers may be understated and
therefore undervalue thecompany. A range of IGR were modeledusingsensitivityanalysis to
determine the effects of different growth rates on our 2014 year-end target price (See
Appendix 8).
Valuation Risk: Changes in Cost ofCapital
REED is a relativelyyoungcompany with high growth and a high D/E Ratio. Due t o these
factors, REEDcurrentlyhas a high cost of capital comparedto thebeverage industry. Wehave
assumedthat this number will not drasticallychange over time.If there are changes in capital
structure, inherent business risk, market risk premium, or risk free rate, cost of capital will
change, andtherefore our estimateof valuationmaychange substantially.Sensitivity analysis
was performedto viewthe effects ofdifferent longterm cost ofcapital rates on the one year
target price (See Appendix 9).
Valuation Risk: Acquisition Risk
While visitingREED headquarters, Chris Reeddiscussedan expectedexit strategy in the next
4 to 5 years, andhopedtoreceivean offer valuingthe company at $200million.Withthe 2013
year endmarket capbeing$102.22million, this is a 95.66% premium. The possibility that
Chris Reed could turn away potentially good acquisition deals based on his unreasonable
expectations could lead to a risk for investors. Also with Chris being the age of 56, the
decision to sell the company couldbe greatly influencedby his desire to retire. As both Chris
andhis wife are on the boardofdirectors, theyhave a verystronginfluence onwhat price the
companycouldbe purchasedat. Due to Chris Reed’s possible personal motives, this could
lead to a much smaller acquisition premium than shareholders would hope for.
Issues RegardingCorporate Governance
Insider stake ownershipat REEDrepresents 33.4%of the company’s float, making it greatly
influencedby a fewinsiders. The Chairman of the board is CEO Chris Reed. His wife Judy
Reed, Mark Harris, DanielS.J. Muffoletto, andMichael Fischmanalso serve on the board of
REED. Given the makeupof the board, we have concerns to howthe board could objectively
reviewmanagement decisions. It appears that bothDaniel Muffoletto and Michael Fischman
have no shares in thecompany, andboth arepaidverylittletoserveon theboard. Fischman is
paidonly $750toserve on the board and in 2012 attended less than 75% of the meetings.
Total lackof ownership andtheminimal payments todirectors forfulfilling their duties leads
us to the assumptionthat theyserveon theboardas a possible favorto Chris Reed. This does
not provide sufficient motivation for the directors to adequately review and advise
management.
These current corporategovernance standards also make it difficult toattract investment from
institutional investors. Right now, REEDhas an institutional ownershipof6%, which
significantlytrails the industry average of 46%. Thelack ofcorporate governance gives
shareholders limitedpower in REED management decisions. This has ledto a recent
shareholder proxyinitiative tochange the boardnomination process that ultimatelyfaileddue
to insider opposition.A proposal tolimit proxy reviewof executivecompensationto3 years
from everyyearalso passedwith insidersupport. Whenshareholders havethe abilityto
scrutinize a company’s corporategovernance practices,theycan helptoidentify areas of
improvement. Howeverthis onlyhappens if the boardandmanagement promote shareholders
engagement andactivelyconsider the interests ofthe shareholders they serve. It is important
that the boardandmanagement listen to what theirshareholders have to say andadjust their
governance practices when warranted. Thus far the REEDboardhas made noattempt to
address these concerns over their corporate governance practices.

11
Appendix 1: Pro Forma Balance Sheet (All figures in Millions)
Balance Sheet 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Assets
Cash & ST Investments 1.08 0.71 1.16 1.46 1.82 2.28 2.85 3.56 4.45 5.34 6.15 6.76 7.10 7.31
Short-Term Receivables 1.30 1.63 1.96 2.47 3.08 3.85 4.82 6.02 7.52 9.03 10.38 11.42 11.99 12.35
Inventories 4.56 6.10 5.79 7.28 9.10 11.38 14.23 17.78 22.23 26.67 30.68 33.74 35.43 36.49
Other Current Assets 0.22 0.29 0.41 0.52 0.64 0.81 1.01 1.26 1.57 1.89 2.17 2.39 2.51 2.58
Total Current Assets 7.16 8.73 9.32 11.7 14.7 18.3 22.9 28.6 35.8 42.9 49.4 54.3 57.0 58.7
Net Property, Plant& Equipment 3.65 3.51 3.42 4.15 5.19 6.49 8.11 10.14 12.67 15.21 17.49 19.24 20.20 20.80
IntangibleAssets 1.03 1.03 1.03 1.03 1.03 1.03 1.03 1.03 1.03 1.03 1.03 1.03 1.03 1.03
Other Assets 0.05 0.09 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05
Total Assets 11.89 13.36 13.82 16.96 20.93 25.89 32.09 39.84 49.53 59.22 67.94 74.63 78.31 80.63
Liabilities & Shareholders' Equity 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
ST Debt & Curr. Portion LT Debt 2.20 3.37 3.36 4.17 5.11 6.27 7.76 9.69 12.02 14.30 16.35 17.93 18.79 19.32
Accounts Payable 2.91 2.42 3.37 4.24 5.30 6.62 8.28 10.35 12.94 15.53 17.85 19.64 20.62 21.24
Other Current Liabilities 0.21 0.28 0.31 0.39 0.49 0.61 0.76 0.95 1.19 1.43 1.64 1.81 1.90 1.95
Total Current Liabilities 5.32 6.07 7.04 8.80 10.90 13.51 16.80 20.99 26.15 31.25 35.85 39.37 41.30 42.52
Term Loan 0.40 0.525 0.525 0.525 0.525 0.525 0.525 0.525 0.525 0.525 0.525 0.525
Long Term FinancingObligation-Net 2.208 2.164 2.083 1.980 1.853 1.674 1.477 1.349 1.248 1.156 1.081 1.015
Capital Leaseequipment 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10
Additional Financing 1.32 2.81 4.40 5.94 8.24 10.79 12.22 11.87 9.08 3.32 4.49
Long-Term Debt 2.41 2.98 2.71 4.10 5.52 7.00 8.42 10.53 12.89 14.19 13.74 10.86 5.03 6.13
Total Liabilities 7.73 9.05 9.75 12.90 16.42 20.51 25.22 31.52 39.03 45.44 49.59 50.23 46.33 48.65
Preferred Stock (CarryingValue) 1.32 1.27 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56
Retained Earnings (18.88) (19.89) (20.46) (20.46) (19.95) (19.00) (17.43) (15.90) (13.63) (10.26) (5.58) 0.59 8.29 8.29
Capital Surplus 21.70 22.92 24.00 24.00 24.00 24.00 24.00 24.00 24.00 24.00 24.00 24.00 24.00 24.00
Common Equity 2.82 3.03 3.54 3.54 4.05 5.00 6.57 8.10 10.37 13.74 18.42 24.59 32.29 32.29
Total Shareholders' Equity 4.38 4.14 4.31 4.10 4.61 5.56 7.13 8.66 10.93 14.30 18.98 25.15 32.85 32.85
Liabilities & Shareholders' Equity 11.87 13.35 13.85 16.96 20.93 25.89 32.09 39.84 49.53 59.22 67.94 74.63 78.31 80.63
Source: Team Estimates, FactSet

12
Appendix 2: Pro Forma Income Statement
INCOME STATEMENT 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Sales/Revenue 20.38 25.01 30.01 37.75 47.19 58.98 73.73 92.16 115.20 138.24 158.98 174.87 183.62 189.13
Sales Growth (%) 34% 23% 20% 26% 25% 25% 25% 25% 25% 20% 15% 10% 5% 3%
COGS excludingD&A 15.43 16.96 20.13 25.06 30.41 37.71 46.79 58.04 72.04 85.71 97.80 106.73 111.18 113.60
D & A Expense 0.62 0.65 0.74 0.81 0.98 1.21 1.51 1.87 2.32 2.76 3.15 3.44 3.58 3.66
Gross Income 4.34 7.41 9.14 11.88 15.79 20.05 25.44 32.26 40.84 49.77 58.03 64.70 68.86 71.87
Gross Margin (%) 21.3% 29.6% 30.5% 31.5% 33.5% 34.0% 34.5% 35.0% 35.5% 36.0% 36.5% 37.0% 37.5% 38.0%
SG&A Expense 5.06 7.66 9.01 11.32 14.16 17.69 22.12 27.65 34.56 41.47 47.69 52.46 55.09 56.74
EBIT (Operating Income) (0.72) (0.25) 0.14 0.56 1.64 2.36 3.32 4.61 6.28 8.29 10.33 12.24 13.77 15.13
EBIT Margin (%) -3.6% -1.0% 0.5% 1.5% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0%
EBITDA (0.11) 0.40 0.87 1.36 2.62 3.57 4.82 6.48 8.60 11.05 13.48 15.68 17.35 18.79
Interest on CreditLine 0.21 0.26 0.33 0.41 0.52 0.65 0.81 0.97 1.11 1.22 1.29 1.32
Interest on New LT debt 0.00 0.00 0.40 0.63 0.84 1.17 1.54 1.74 1.67 1.24 0.36 0.54
interest on Term Loan 0.18 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21
Interest on Capital Leases 0.16 0.18 0.18 0.16 0.18 0.26 0.29 0.26 0.25 0.23 0.21 0.20
Interest Expense 0.59 0.69 0.66 0.66 1.13 1.41 1.75 2.29 2.84 3.18 3.24 2.90 2.07 2.27
EBT (1.31) (0.94) (0.52) (0.10) 0.51 0.95 1.57 2.32 3.44 5.11 7.09 9.34 11.70 12.86
Tax Expense 0.00 0.00 0.00 0.00 (0.17) (0.32) (0.53) (0.79) (1.17) (1.74) (2.41) (3.18) (3.99) (4.40)
Offset from Carried Loss 0.17 0.32 0.53
Average Tax Rate 0.0% 0.0% 0.0% 0.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.1% 34.2%
Consolidated Net Income (1.31) (0.94) (0.52) (0.10) 0.51 0.95 1.57 1.53 2.27 3.38 4.68 6.17 7.70 8.46
Net Margin (%) -6.4% -3.8% -1.8% -0.3% 1.1% 1.6% 2.1% 1.7% 2.0% 2.4% 2.9% 3.5% 4.2% 4.5%
Preferred Dividends 0.07 0.07 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05
Net Income Available To Common
Equity (1.38) (1.01) (0.57) (0.05) 0.47 0.90 1.53 1.49 2.22 3.33 4.64 6.12 7.66 8.41
Retained Earnings (0.05) 0.47 0.90 1.53 1.49 2.22 3.33 4.64 6.12 7.66

13
Appendix 3: Statement of Cash Flows
Statementsof Cash Flows 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
NetProfit (0.30) 0.50 0.92 1.53 1.50 2.23 3.32 4.62 6.09 7.62 8.37
D&A 0.81 0.98 1.21 1.51 1.87 2.32 2.76 3.15 3.44 3.58 3.66
ChangesReceivables (0.51) (0.62) (0.77) (0.96) (1.20) (1.50) (1.50) (1.35) (1.04) (0.57) (0.36)
ChangesInventories (1.49) (1.82) (2.28) (2.85) (3.56) (4.45) (4.45) (4.00) (3.07) (1.69) (1.06)
ChangesOtherCurrentAssets (0.11) (0.13) (0.16) (0.20) (0.25) (0.31) (0.31) (0.28) (0.22) (0.12) (0.08)
ChangesCurrentLiabilities 1.76 2.10 2.61 3.30 4.19 5.16 5.11 4.60 3.52 1.93 1.21
ChangesinNWC (0.35) (0.47) (0.60) (0.71) (0.82) (1.11) (1.16) (1.04) (0.80) (0.45) (0.29)
Cash FlowsFrom Operations 0.16 1.01 1.53 2.32 2.54 3.44 4.93 6.73 8.73 10.75 11.75
CAPEX -1.54 -2.02 -2.51 -3.13 -3.90 -4.85 -5.29 -5.43 -5.19 -4.54 -4.26
Cash FlowsFrom Investments -1.54 -2.02 -2.51 -3.13 -3.90 -4.85 -5.29 -5.43 -5.19 -4.54 -4.26
NetDebt 1.40 1.42 1.48 1.42 2.11 2.35 1.30 -0.45 -2.88 -5.83 1.10
DividendsPaid 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05
Cash FlowsFrom Financing 1.35 1.37 1.44 1.37 2.07 2.31 1.26 -0.50 -2.93 -5.87 1.06
NetChange in Cash (0.02) 0.36 0.46 0.57 0.71 0.89 0.89 0.80 0.61 0.34 8.54
BeginningCash 1.46 1.82 2.28 2.85 3.56 4.45 5.34 6.15 6.76 7.10
End Cash 1.46 1.82 2.28 2.85 3.56 4.45 5.34 6.15 6.76 7.10

14
Appendix 4: Key Financial Ratios
Key Financial Ratios 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Liquidity Ratios
Current Ratio(x) 1.35 1.44 1.32 1.33 1.34 1.36 1.36 1.36 1.37 1.37 1.38 1.38 1.38 1.38
Quick Ratio (x) 0.49 0.43 0.50 0.50 0.51 0.51 0.52 0.52 0.52 0.52 0.52 0.52 0.52 0.52
Cash Ratio(x) 0.20 0.12 0.16 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17
Efficiency Ratios
Total Asset Turnover (x) 1.71 1.87 2.17 2.23 2.25 2.28 2.30 2.31 2.33 2.33 2.34 2.34 2.34 2.35
Fixed Asset Turnover (x) 5.58 7.13 8.77 9.09 9.09 9.09 9.09 9.09 9.09 9.09 9.09 9.09 9.09 9.09
NWC Turnover (x) 11.07 9.40 13.16 12.90 12.56 12.25 12.09 12.07 11.96 11.83 11.75 11.70 11.68 11.66
ReceivablesTurnover (x) 18.78 17.07 16.72 17.06 17.01 17.01 17.01 17.01 17.01 16.70 16.38 16.04 15.68 15.54
Days ifSales Outstanding (days) 19.44 21.38 21.83 21.40 21.46 21.46 21.46 21.46 21.46 21.85 22.29 22.76 23.27 23.49
InventoryTurnover (x) 4.31 3.30 3.51 3.96 3.83 3.80 3.77 3.74 3.72 3.62 3.52 3.42 3.32 3.26
Days of InventoryOn Hand(days) 84.65 110.49 104.01 92.24 95.28 96.04 96.77 97.52 98.20 100.87 103.68 106.71 110.00 111.94
Payables Turnover (x) 8.20 7.18 7.10 7.19 6.96 6.91 6.86 6.81 6.77 6.53 6.29 6.04 5.78 5.65
Number of Days of Payables (days) 44.49 50.80 51.41 50.75 52.41 52.81 53.19 53.58 53.93 55.90 58.04 60.43 63.10 64.57
Cash Conversion Cycle (days) 59.59 81.06 74.43 62.88 64.32 64.69 65.04 65.40 65.72 66.83 67.92 69.04 70.18 70.87
Profitability Ratios
Gross Profit Margin(%) 21.28% 29.60% 30.47% 31.47% 33.47% 34.00% 34.50% 35.00% 35.45% 36.00% 36.50% 37.00% 37.50% 38.00%
EBIT Margin(%) -3.55% -1.00% 0.45% 1.47% 3.47% 4.00% 4.50% 5.00% 5.45% 6.00% 6.50% 7.00% 7.50% 8.00%
EBITDA Margin(%) -0.53% 1.61% 2.91% 3.61% 5.55% 6.06% 6.54% 7.03% 7.46% 8.00% 8.48% 8.97% 9.45% 9.93%
Net Profit Margin(%) -6.43% -3.76% -1.75% -0.79% 1.05% 1.56% 2.08% 1.62% 1.93% 2.40% 2.91% 3.48% 4.15% 4.43%
ROA (%) -11.02% -7.04% -3.79% -1.76% 2.37% 3.55% 4.77% 3.76% 4.49% 5.61% 6.80% 8.16% 9.73% 10.39%
ROE (%) -31.64% -21.9% -12.8% -7.34% 11.02% 17.08% 22.31% 18.00% 21.20% 24.12% 25.17% 24.96% 23.83% 26.19%
SG&A/Sale (%) 24.83% 30.60% 30.02% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00%
Solvency Ratios
Debt Ratio (%) 38.77% 47.53% 43.89% 48.79% 50.81% 51.27% 50.42% 50.75% 50.28% 48.11% 44.29% 38.57% 30.41% 31.57%
Debt to EquityRatio(x) 1.11 1.48 1.48 2.04 2.36 2.47 2.36 2.43 2.37 2.07 1.64 1.18 0.74 0.80
EquityMultiplier (x) 2.87 3.11 3.37 4.18 4.64 4.81 4.67 4.79 4.72 4.30 3.70 3.06 2.45 2.52
Long term Debt Ratio(%) 20.27% 22.31% 19.57% 24.20% 26.38% 27.04% 26.24% 26.44% 26.01% 23.96% 20.22% 14.55% 6.42% 7.60%
Interest Coverage Ratio (x) -1.24 -0.36 0.21 0.65 1.43 1.64 1.86 1.97 2.16 2.55 3.10 4.07 6.25 6.30

15
Appendix 5: DCF Valuation
FREE CASH FLOW EQUITY 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
NET INCOME -0.05 0.50 0.92 1.53 1.50 2.23 3.32 4.62 6.09 7.62 8.37
P Dividend 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05
NetCapex 0.73 1.04 1.30 1.62 2.03 2.53 2.53 2.28 1.75 0.96 0.61
ChangesInNWC -0.35 -0.47 -0.60 -0.71 -0.82 -1.11 -1.16 -1.04 -0.80 -0.45 -0.29
NetDebt 0.08 2.63 1.41 1.34 2.03 2.27 1.21 -0.56 -3.00 -5.96 1.10
DebtRatio 0.74 0.78 0.79 0.78 0.78 0.78 0.76 0.72 0.66 0.58 0.59
FCFE -0.45 0.06 0.39 0.88 0.71 1.22 2.22 3.49 5.05 6.93 7.96
Terminal Value 176.38
Total FCFE -0.18 0.33 0.73 1.29 1.20 1.88 2.96 4.24 5.74 183.75
EquityValue 106.42 114.24
Numberof shares 13.50 13.50
Share Price $7.88 $8.46
Model Returns
2014 Price 8.46
Jan 28 2014 Price 7.19
Potential Upside 18%
Net CAPEX = CAPEX - Depreciation
Net Debt = New Debt Issued – Debt Paid
Source: Team Estimates, FactSet, Damodaran Market Risk Premiums
CAPM
RiskFree 3.04% 10 Year TreasuryNote 12/31/2013
Market Premium 4.96% 2014 Estimate
Beta 0.93 FactSetEstimate
Cost of Equity 7.65%

16
Appendix 6: Multiples Valuation
Price/Sales 2008 2009 2010 2011 2012 2013 2014 E
Dr PepperSnapple Group,Inc. 0.72x 1.31x 1.51x 1.48x 1.56x 1.66x 1.63x
MonsterBeverage Corporation 3.16x 3.18x 3.73x 5.05x 4.69x 5.41x 5.10x
PepsiCo,Inc. 2.03x 2.22x 1.82x 1.59x 1.65x 1.95x 1.91x
The Coca-ColaCompany 3.31x 4.27x 4.37x 3.48x 3.46x 3.94x 3.86x
Average 2.31x 2.74x 2.86x 2.90x 2.84x 3.24x 3.12x
Reed's,Inc. 0.64x 0.87x 1.00x 0.48x 2.15x 3.04x
Discount 72.26% 68.28% 64.84% 83.49% 24.29% 6.33%
DiscountAverage 72.22% 15.31%
Price/Sales 2014E
P/SPeersMedian 3.12
Applieddiscount 25%
Target P/S 2.34
Sales(millions) $47.19
# of sharesoutstanding(millions) 13.5
Price from P/S $8.19
Additional Explanations
 For 2013, our multiples were based off of year end 2013 market cap divided by the sum of
YTD Q3 revenues and Q4 revenues of 2012. We did this because 2013 Q4 earnings reports
have not come out yet for REED or its peers. However, we do not anticipate that this will be
an issue as we assume that the multiples will not change very much after Q4 earnings reports
come out.
Appendix 7: Weighting of Valuations
WeightingofDCF and Multiples
Price from Relative Valuation $8.19
Weightof Relative Valuation 50%
Price from DCF $8.46
Weightof DCF 50%
Price per share (endof 2014) $8.33
Price pershare (January28, 2014) $7.19
Potential Upside 15.86%
Source: Team Estimates. FactSet

17
Appendix 8: Intermediate Sales Growth/Cost of Capital Sensitivity Analysis
10% BelowJan28 Price Above Jan28 Price 20% Above Jan28 Price
Cost Of Capital
12.96% 11.97% 10.98% 9.98% 8.99% 8.00% 7.65% 7.26% 6.76% 6.51% 6.02%
Intermediate 40% $ 5.89 $ 6.78 $ 7.90 $ 9.36 $ 11.32 $ 14.10 $ 15.36 $ 17.06 $ 19.70 $ 21.30 $ 25.31
Term 30% $ 3.99 $ 4.60 $ 5.36 $ 6.35 $ 7.69 $ 9.58 $ 10.43 $ 11.59 $ 13.38 $ 14.47 $ 17.20
Growth 25% $ 3.23 $ 3.72 $ 4.33 $ 5.14 $ 6.23 $ 7.76 $ 8.46 $ 9.39 $ 10.85 $ 11.74 $ 13.95
(2014-2018) 23% $ 2.95 $ 3.40 $ 3.96 $ 4.70 $ 5.70 $ 7.10 $ 7.74 $ 8.60 $ 9.94 $ 10.75 $ 12.78
22% $ 2.82 $ 3.24 $ 3.79 $ 4.49 $ 5.44 $ 6.79 $ 7.40 $ 8.22 $ 9.50 $ 10.27 $ 12.22
20% $ 2.56 $ 2.95 $ 3.45 $ 4.09 $ 4.96 $ 6.19 $ 6.75 $ 7.50 $ 8.67 $ 9.37 $ 11.15
19% $ 2.44 $ 2.81 $ 3.29 $ 3.90 $ 4.73 $ 5.90 $ 6.43 $ 7.15 $ 8.27 $ 8.94 $ 10.64
18% $ 2.32 $ 2.68 $ 3.13 $ 3.71 $ 4.50 $ 5.62 $ 6.13 $ 6.81 $ 7.88 $ 8.52 $ 10.14
15% $ 1.99 $ 2.30 $ 2.68 $ 3.19 $ 3.87 $ 4.84 $ 5.27 $ 5.87 $ 6.78 $ 7.34 $ 8.74
10% $ 1.50 $ 1.74 $ 2.03 $ 2.42 $ 2.95 $ 3.69 $ 4.03 $ 4.49 $ 5.19 $ 5.62 $ 6.70
5% $ 1.09 $ 1.26 $ 1.49 $ 1.78 $ 2.17 $ 2.73 $ 2.99 $ 3.33 $ 3.86 $ 4.19 $ 5.00
3% $ 0.94 $ 1.10 $ 1.29 $ 1.55 $ 1.90 $ 2.39 $ 2.62 $ 2.92 $ 3.39 $ 3.68 $ 4.40
This chart represents 2014E prices with a range of estimates of Intermediate Term Growth and a range of estimates of for Cost of Capital.

18
Appendix 9: Long-Term Growth Rate/Long-Term Cost of Capital Sensitivity Analysis
Long Term Cost of Capital
12.96% 11.97% 10.98% 9.98% 8.99% 8.00% 7.65% 7.26% 6.76% 6.51% 6.02%
Long 5% $ 5.49 $ 6.10 $ 6.91 $ 8.05 $ 9.74 $ 12.56 $ 14.05 $ 16.30 $ 20.56 $ 23.73 $ 34.72
Term 4.50% $ 5.23 $ 5.76 $ 6.46 $ 7.41 $ 8.78 $ 10.92 $ 11.99 $ 13.54 $ 16.24 $ 18.09 $ 23.61
Growth 4% $ 5.00 $ 5.47 $ 6.07 $ 6.88 $ 8.00 $ 9.68 $ 10.49 $ 11.62 $ 13.49 $ 14.70 $ 18.01
Rate 3.75% $ 4.89 $ 5.33 $ 5.90 $ 6.64 $ 7.67 $ 9.17 $ 9.88 $ 10.86 $ 12.45 $ 13.46 $ 16.14
3.50% $ 4.79 $ 5.21 $ 5.74 $ 6.43 $ 7.37 $ 8.72 $ 9.35 $ 10.21 $ 11.58 $ 12.43 $ 14.64
3.25% $ 4.69 $ 5.09 $ 5.58 $ 6.23 $ 7.09 $ 8.32 $ 8.88 $ 9.64 $ 10.83 $ 11.56 $ 13.41
3% $ 4.60 $ 4.97 $ 5.44 $ 6.04 $ 6.84 $ 7.95 $ 8.46 $ 9.13 $ 10.18 $ 10.81 $ 12.39
2.75% $ 4.51 $ 4.87 $ 5.31 $ 5.87 $ 6.61 $ 7.63 $ 8.08 $ 8.68 $ 9.61 $ 10.16 $ 11.52
2.50% $ 4.43 $ 4.77 $ 5.18 $ 5.71 $ 6.39 $ 7.33 $ 7.74 $ 8.28 $ 9.10 $ 9.59 $ 10.77
2.25% $ 4.35 $ 4.67 $ 5.06 $ 5.56 $ 6.19 $ 7.05 $ 7.43 $ 7.92 $ 8.66 $ 9.09 $ 10.13
2% $ 4.27 $ 4.58 $ 4.95 $ 5.41 $ 6.01 $ 6.80 $ 7.15 $ 7.59 $ 8.26 $ 8.64 $ 9.56
1.50% $ 4.13 $ 4.41 $ 4.74 $ 5.16 $ 5.68 $ 6.36 $ 6.65 $ 7.02 $ 7.57 $ 7.89 $ 8.62
1% $ 4.00 $ 4.26 $ 4.56 $ 4.93 $ 5.39 $ 5.98 $ 6.23 $ 6.55 $ 7.00 $ 7.27 $ 7.86
This chart represents 2014E prices with different estimates for Long Term Growth rates along with different estimates for cos t of capital in the terminal scenario.

19
Appendix 10: Intermediate Term Growth/Long-Term Growth Sensitivity Analysis
Long Term Growth
5% 4.50% 4% 3.75% 3.50% 3.25% 3% 2.75% 2.50% 2.25% 2% 1.50% 1%
40% $ 25.47 $ 21.74 $ 19.04 $ 17.95 $ 16.98 $ 16.13 $ 15.37 $ 14.69 $ 14.07 $ 13.51 $ 13.01 $ 12.11 $ 11.35
Intermediate 30% $ 17.31 $ 14.77 $ 12.93 $ 12.19 $ 11.54 $ 10.96 $ 10.44 $ 9.98 $ 9.56 $ 9.18 $ 8.83 $ 8.22 $ 7.70
Term 25% $ 14.06 $ 11.99 $ 10.49 $ 9.89 $ 9.36 $ 8.88 $ 8.46 $ 8.08 $ 7.74 $ 7.43 $ 7.15 $ 6.65 $ 6.23
Growth 23% $ 12.88 $ 10.99 $ 9.61 $ 9.05 $ 8.56 $ 8.13 $ 7.74 $ 7.40 $ 7.08 $ 6.80 $ 6.54 $ 6.09 $ 5.70
2014-2018 22% $ 12.32 $ 10.50 $ 9.19 $ 8.66 $ 8.19 $ 7.77 $ 7.40 $ 7.07 $ 6.77 $ 6.50 $ 6.25 $ 5.81 $ 5.44
20% $ 11.25 $ 9.59 $ 8.38 $ 7.90 $ 7.47 $ 7.09 $ 6.75 $ 6.45 $ 6.17 $ 5.92 $ 5.70 $ 5.30 $ 4.96
19% $ 10.73 $ 9.15 $ 8.00 $ 7.53 $ 7.12 $ 6.76 $ 6.44 $ 6.15 $ 5.89 $ 5.65 $ 5.43 $ 5.05 $ 4.73
18% $ 10.23 $ 8.72 $ 7.62 $ 7.18 $ 6.79 $ 6.44 $ 6.13 $ 5.86 $ 5.61 $ 5.38 $ 5.17 $ 4.81 $ 4.50
15% $ 8.83 $ 7.52 $ 6.57 $ 6.18 $ 5.85 $ 5.55 $ 5.28 $ 5.04 $ 4.82 $ 4.63 $ 4.45 $ 4.13 $ 3.86
10% $ 6.78 $ 5.77 $ 5.03 $ 4.73 $ 4.47 $ 4.24 $ 4.03 $ 3.85 $ 3.68 $ 3.53 $ 3.39 $ 3.14 $ 2.94
5% $ 5.07 $ 4.30 $ 3.74 $ 3.52 $ 3.32 $ 3.14 $ 2.99 $ 2.85 $ 2.72 $ 2.60 $ 2.50 $ 2.31 $ 2.16
3% $ 4.47 $ 3.79 $ 3.29 $ 3.09 $ 2.91 $ 2.76 $ 2.62 $ 2.49 $ 2.38 $ 2.28 $ 2.19 $ 2.02 $ 1.88
This chart represents 2014E prices for different estimates of long and intermediate term sales growth.

20
Appendix 11: Capital Lease/Term Loan Payment Schedules
Capital Lease Payment Schedule Term Loan Payment Schedule
Year Year End Balance Payment Year Balance Payment
2012 2,874,000 2012 575,000
2013 2,784,000 90,000 2013 399,000 176,000
2014 2,673,000 111,000 2014 195,000 204,000
2015 2,539,000 134,000 2015 0 195,000
2016 2,378,000 161,000
2017 2,188,000 190,000
2018 1,971,388 216,612
2019 1,776,221 195,167
2020 1,600,375 175,846
2021 1,441,938 158,437
2022 1,299,186 142,752
2023 1,170,566 128,619

21
Appendix 12: REED Porter Five Forces Analysis
Barriers toEntry: Low-Medium
● Anyone may create newsoft drinks as the onlylimitation is in patentedflavors andbrands
● Existingfirms withlarge capital expenditures have economies ofscale, direct supplyanddistributionchannels set up
● Barriers are lowwith no consumer switchingcosts andzerocapital requirements
● Prices are competitive andfluctuate slightly dependingon location
● Major players haveflavor identities givingthemmore recognition
● Major brands have positionedthemselves in the maindistribution channels includingsuper markets, gas stations andrestaurants
● Licenses, insurances,andFDA approvalare requiredtoproduce anddistributeproducts andcoverpotential lawsuits
● Existingfirms have cost andperformance advantage andare able experience economies of scale
● Bottling, distribution,andstorage canbe contractedout
Intensityof Rivalry:High
● Costs for warehouse, trucks andlabor maybe substantial fixed costs
● Exitingthe market mayresult in huge losses due to bindingcontracts, fixedcosts andmarketingcosts
● Many beverage firms exists and are rollingout innovative products with trendy flavors
● Greater development anduse of natural ingredients for health benefits
● Firms are focusedon expandingtheirbeverage portfolios
● Natural premiumis growingandmajor firms have significant market share in CSDs, ready-to-drink teas, andenergydrinks
● Equipment is firm specific and may be difficult toliquidate
● Customers wouldnot incur high costs fromswitchingfrom one player toanother
● No needfor significant customer-producer interactionsince purchaseproducts dependon tastes
● Market is a differentiatedproduct oligopolyin promotional pricingandnewbrands
● Existenceof well establisheddistributionchannels, relationships with suppliers,retailers, andbrandvalue tocustomers
● Market shares in the industryare not more-or-less equally distributedamongcompetitors. This is evident because there are three
main firms that own approximately 87% ofthe industry,yet there are over100companies in the industry.
Threat of Substitutes: High
● Substitutes do not haveperformance limitations or highprices
● Substitutes are not pricedat a high enough cost whereit wouldaffect theiruse as a mainlandproduct
● Customers wouldnot incur costs in switchingtosubstitutes as switchingfor a customer wouldbe difference ofcents.
● Substitutes such as water, ready-to-drinktea andcoffee, sports drinks,andenergy drinks exist
● Consumers are brandnameloyalas theyhave consumedcertain beverages as longas they canremember
● Players have a wide portfolioof products forconsumers tochoose from
BargainingPower ofBuyers:High
● Soft drink market is the largest accountingforan annual sales of $60billion
● Three firms control 89% of theUnitedStates soft drinksales
● Average Americanconsumes over56 gallons of soda a year
● Average soft drinkcosts under $2which makes eachindividual purchase relatively immaterial
● All information such as nutritionfacts andingredients are listedon thelabel
● Manufacturing own soft drinkis inconvenient consideringhowinexpensive the product is
● Customers are highlysensitivetothe price of soft drinks andare willingto change brands if onebecomes more costly
● Major players havedevelopedsignificant brandloyalty
● Firms provide incentives tocustomers such as contests andadmissiondiscounts to theme parks enticingcustomers tochoose a
specific brand
BargainingPower ofSuppliers: Low
● Inputs usedto create products mayby unique andextremelydifferentiatedsuch as in formula, color,andflavor
● Product innovation is neededtosatisfy consumer’s needfora varietyof taste
● Firms can switch between suppliers veryquickly andeasily
● Suppliers to the industry arebottlingequipment manufacturers andsecondary packagingsuppliers
● Surplus of suppliers exists that canprovide sameproducts
● Firms have power toselect suppliers that do the best jobat the best price
● Soft drink companies own a portionof their own supplycompanies enablingeasy access toenterthe supplierforthe soft drink
industry
● Suppliers main revenue come fromdelivering soft drink beverages andequipment for the firms directlytocustomers
● Soft drink main ingredients include carbonatedwater, spices, roots toname a few
● Suppliers are not concentratedor differentiated

22
Porter'sFive Forces Analysis Rating
Barriers to Entry: Low-Medium 2
Intensity of Rivalry: High 5
Threat of Substitutes: High 5
Bargaining Power of Buyers: High 5
Bargaining Power of Suppliers: Low 1
Final Rating: 3.6
0
1
2
3
4
5
Barriers to Entry: Low-
Medium
Intensity of Rivalry: High
Threat of Substitutes: High
Bargaining Power of
Buyers: High
Bargaining Power of
Suppliers: Low
Porter's Five Forces Analysis
Scale Rating
High 5
Medium-High 4
Medium 3
Low-Medium 2
Low 1

23
Appendix 13: Industry Five Forces Analysis
0
1
2
3
4
5
Buyer Power
Supplier Power
SubstituteNew Entrants
Degree of Rivalry
Force Driving Competition in the
Functional Drinks Market in the U.S., 2011
0
1
2
3
4
5
Backwards integration
Buyer independence
Buyer size
Financial muscle
Low Cost switchingOligosony threat
Price sensitivity
Product dispensability
Tendy to switch
Drivers of Buyer Power in the
0
1
2
3
4
5
Differentiated input
Forward integration
No substitute inputs
Oligopoly threatPlayer dispensability
Player independence
Supplier size
Switching costs
Drivers of Supplier Power in the

24
0
1
2
3
4
5
Undifferentiated…
Weak brands
Distribution accessible
Little IP involved
Little regulationLow fixed costs
Low cost switching
Market Growth
Scale unimportant
Suppliers acessbile
Factors Influencing the Likelihood of New
Entrants in the Functional Drinks Market
in the U.S., 2011
0
1
2
3
4
5
Zero sum game
Competitor size
Easy to expand
Hard to exit
Lack of diversity
Low cost switchingLow fixed costs
Number of players
Similarity of players
Storage costs
Undifferentiated
product
Drivers of Degree of Rivalry in the
0
1
2
3
4
5
Low cost switching
Beneficial alternativeCheap alternative
Factors Influencing the Threat of
Substitutes in the Functional Drinks
Market in the U.S., 2011

25
APPENDIX 14: Price to Sales Multiple vs. Peer Group
Source: FactSet
0.00x
1.00x
2.00x
3.00x
4.00x
5.00x
6.00x
2008 2009 2010 2011 2012 2013 2014 E
Competitor: Priceto Sales Multiplier
Dr. Pepper Snapple Group, Inc. Monster BeverageCorporation PepsiCo, Inc.
The Coca-Cola Company Reed's, Inc. Average

26
APPENDIX 15: DuPont Analysis
Source: FactSet, Team Estimate
DuPont Analysis 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Equity Multiplier 1.39 2.30 2.28 2.87 3.11 3.37 4.18 4.64 4.81 4.67 4.79 4.72 4.30 3.70 3.06 2.45 2.52
Profit Margin -42.5% -25.0% -16.9% -6.4% -3.8% -1.7% -0.8% 1.1% 1.6% 2.1% 1.6% 1.9% 2.4% 2.9% 3.5% 4.1% 4.4%
TAT 1.29 1.68 1.52 1.71 1.87 2.17 2.23 2.25 2.28 2.30 2.31 2.33 2.33 2.34 2.34 2.34 2.35
ROA -55.0% -41.9% -25.6% -11.0% -7.0% -3.8% -1.8% 2.4% 3.6% 4.8% 3.8% 4.5% 5.6% 6.8% 8.2% 9.7% 10.4%
ROE -76.7% -96.3% -58.6% -31.6% -21.9% -12.8% -7.3% 11.0% 17.1% 22.3% 18.0% 21.2% 24.1% 25.2% 25.0% 23.8% 26.2%

27
DuPont Analysis Cont.
Return On Equity
-7.3% 11.0% 17.1%
22.3% 18.0% 21.2%
24.1% 25.2% 25.0%
23.8% 26.2%
Return On Assets
-1.8% 2.4% 3.6%
7.8% 3.8% 4.5%
5.6% 6.8% 8.2%
9.7% 10.4%
Profit Margin
-0.8% 1.1% 1.6%
2.1% 1.6% 1.9%
2.4% 2.9% 3.5%
4.1% 4.4%
Asset Turnover
2.23 2.25 2.28
2.30 2.31 2.33
2.33 2.34 2.34
2.34 2.35
Equity Multiplier
4.8 4.64 4.81
4.67 4.79 4.72
4.30 3.70 3.06
2.45 2.52
Legend (Years)
'13 '14 '15
'16 '17 '18
'19 '20 '21
'22 '23

28
APPENDIX 16: Margin & Sales Forecasts
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
AnnualSalesGrowth
Sales Growth
Actual
Forecast
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
GrossMargin
Gross Margin
Actual
Forecast

29
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
OperatingMargin Operating Margin
Actual
Forecast
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
NetMargin
Net Margin
Actual
Forecast

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