Gross Margin Increases 12 Percentage Points Versus Year Ago
Company At 9,345 Total Dispensers; $35 Million Run Rate
Conference Call Wednesday, November 12 At 11 a.m.
Eastern Standard Time
SAN DIEGO, Nov. 11, 2008 (GLOBE NEWSWIRE) -- Javo(r) Beverage Company, Inc. (OTCBB:JAVO), a leading provider of premium dispensable coffee and tea-based beverages to the food service industry, announced today its unaudited financial results for the third quarter of 2008.
Financial highlights for the third quarter ending September 30, 2008 include the following:
* Revenues increased 45% to $5.6 million from $3.9 million in
the third quarter 2007.
* Gross profit margin expanded to 40.3%, an increase of 1,230
basis points from the year ago period.
* The Company's total base of beverage dispensers reached 9,345,
an increase of 519 from the prior quarter in line with
forecast.
* Dispensed products revenue reached $4.3 million, up 51% over
third quarter 2007.
* Selling, general and administrative expenses totaled $4.7
million, an increase of 63% versus the year ago period, due
primarily to larger non-cash expenses and higher variable
marketing expenses related to the Company's national account
programs.
* The Company had a net loss of $2.6 million compared to a loss
of $127 thousand in the prior year quarter. The difference of
$2.6 million was attributable to a reduction in non-cash
derivative income of $2.0 million and additional non-cash
expense increases for depreciation, amortization and stock
compensation.
Financial highlights for the first nine months ending September 30, 2008 include the following:
* Revenues increased 65% to $16.2 million from $9.8 million in the third quarter 2007. * Gross profit margin expanded to 43.1%, an increase of 920 basis points from the year ago period. * The Company's total base of beverage dispensers reached 9,345, an increase of 5,040 since the beginning of the year. * Dispensed products revenue reached $12.8 million, up 105% over the first nine months of 2007. * Selling, general and administrative expenses totaled $11.6 million, an increase of 48%, primarily due non-cash items, expenses associated with fielding the Company's national sales force and higher variable marketing expenses for national programs. * The Company had a net loss of $6.7 million compared to a loss of $5.4 million in the prior year quarter. The difference of $1.3 million was entirely accounted for by the reduced non-cash derivative income for the period versus year ago.
Cody C. Ashwell, chairman and CEO of Javo Beverage Company, said, "Javo's third quarter results and year-to-date performance demonstrate the superiority of Javo's product proposition compared to its competitors and the strength of our business model, especially in this difficult economic environment. The Company stayed on target with respect to our 2008 business plan, so far adding 5,040 new recurring revenue dispensing locations and leaving us within reach of our year-end target of 10,000 dispenser placements."
Ashwell continued, "Our dispensed specialty beverage platform gives the 2.5 million traditional foodservice locations across the country the ability to deliver coffee shop-style beverages in a convenient, high quality platform at a time when consumers are looking for value oriented alternatives for many of their daily purchases. When a foodservice location installs and maintains a Javo hot coffee or specialty beverage dispenser in their restaurant, hospital, hotel, convenience store or casino it creates a predictable monthly revenue stream for Javo who supplies the beverage concentrates for that equipment. Reaching the 10,000 dispenser milestone means that we enter 2009, without any additional growth, with an annual revenue run rate in excess of $ 35 million, above our annual operating breakeven with current overhead."
Ashwell added, "Our operations group, which recently managed the integration of coffee roasting and certain key processing and packaging operations at our brewing facility in Vista, achieved a gross margin of 40.3% for the quarter, 12 full percentage points above year ago. This investment in our manufacturing operations eliminated several third party manufacturing operations, reduced inter-plant freight and improved the overall efficiency of our beverage production operations. The margin performance was lower versus the prior quarter was due to an expected shift in product mix to packaged and bulk coffee products."
Ashwell said, "Selling, general and administrative expenses, which have been scaled to support a fully national customer base and selling force, were $4.7 million, compared to $ 2.9 million in the same quarter in 2007. The $1.8 million increase was due, primarily, to increases in non-cash expenses for depreciation and amortization of $476 thousand and stock compensation issuance of $378 thousand. Selling costs for the third quarter were higher by $ 896 thousand versus year ago with $ 619 thousand attributable to planned variable marketing allowances tied to our growing national account business. The remainder of the increase was tied to the expansion of our sales force to better capitalize on customer opportunities in key geographic areas. Our general and administrative costs have stabilized and excluding non-cash items, were nearly identical with year ago."
Ashwell concluded, "We recorded a $2.7 million net loss for the third quarter versus a loss of $ 128 thousand in the same quarter of 2007. The difference of $ 2.6 million was attributable to a reduction in non-cash income from derivatives due to liability accounting for warrants of $2.0 million and additional non-cash expense increases for depreciation, amortization and issuance of stock for compensation of $ 852 thousand."
Gary Lillian, president of Javo Beverage Company, said, "Javo's sales team continued to execute at a high level during challenging economic times, adding 519 on-demand beverage dispensing locations, bringing our total to 9,345. In line with the anticipated seasonality of our beverage business, we shifted our selling focus during the quarter from our iced coffee products, to hot coffee placements with our growing base of approved national programs, such as Premier Healthcare, the Department of Veterans Affairs, Compass Group, Amerinet and MedAssets Supply Chain Systems. Each new location adds a predictable product revenue stream over the following twelve month period of between $2,500 and $5,500."
Lillian added, "We have not seen a meaningful impact from the downturn in the economy on coffee orders for installed dispensers. During the spike in gas prices in July and August, however, we did encounter convenience store retailers being cautious about the introduction of new products and programs. In some cases, this hesitance resulted in test program or chain-wide expansion delays that negatively impacted Javo's third quarter. As gas prices have eased off their peaks, these program roll-outs have resumed without any loss in business potential. Aside from the unusual circumstances of the last several months, our business has demonstrated itself to be relatively insulated from economic cycles. The key reason is that, even though consumers may seek out less costly ways to source their coffee, they typically do not reduce daily consumption when tightening their belts. Furthermore, our largest customer sector is healthcare, where we expect stable or even growing patient and staff populations over the middle and long term. Regardless of the economic climate, Management believes Javo has an expansive opportunity for continued growth in market share within the $7 billion U.S. market for foodservice coffee and tea especially in which operators are increasingly converting from traditional to dispensed beverage platforms."
Management of Javo Beverage will host a conference call Wednesday, November 12, 2008 at 11:00 a.m. EST to discuss the company's financial results and achievements. Those who wish to participate in the conference call may telephone (866) 682-6100 from the U.S. or (201) 499-0416 for international callers. A digital replay of Wednesday's conference call will be available by telephone approximately 2 hours after the completion of the call. It wil be available for 30 days and may be accessed by dialing (888) 346-3949 from the U.S., or (404) 260-5385 for international callers. At the prompt, dial pin code "5401081" followed by "4" to listen a previously recorded conference followed by confirmation number "20081110190485". If you experience technical difficulties connecting to the conference call, please dial (760) 560-5286 ext. 102 for assistance.
About Javo(r) Beverage Company, Inc.
Based in Vista, California, Javo(r) Beverage Company (OTCBB:JAVO) is an innovator and leader in the manufacture of coffee and tea-based dispensed beverages, drink mixes and flavor systems. The company has successfully commercialized a proprietary brewing technology that yields fresh brewed coffees and teas that are flavorful, concentrated and stable, with broad applications in the food service, food manufacturing and beverage industries. For food service operators, Javo makes it possible to serve great tasting hot coffees and cold specialty coffee beverages from convenient dispenser-based systems. Javo also assists food and beverage processors seeking authentic and robust coffee and tea flavors through its development and supply of customized ingredients for packaged foods and ready-to-drink beverages. The company supplies a growing list of national and international food service operations, specialty coffee retailers, restaurant chains and food manufacturers. For information about Javo Beverage Company, please visit www.javobeverage.com.
Forward-looking statements
This release contains forward-looking statements made by or on behalf of Javo(r) Beverage Company, Inc. All statements that address operating performance that the Company expects will occur in the future, including statements relating to operating results for fiscal 2008, revenue growth, annual revenue per dispenser, volume growth, share of sales, or statements expressing general optimism about future operating results, are forward-looking statements. These forward-looking statements are based on management's current views and we cannot assure that anticipated results will be achieved. These statements are subject to numerous risks and uncertainties, including those set forth in the Company's risk factors contained in the Company's most recent annual report on Form 10-K and in subsequent quarterly reports on Form 10-Q, copies of which are available from the Company without charge and from the SEC's website at www.sec.gov. Readers are cautioned not to place undue reliance on forward-looking statements and are encouraged to review the risk factors that could affect actual results. The Company disclaims any intent to update forward looking statements.
JAVO BEVERAGE COMPANY, INC.
CONDENSED BALANCE SHEETS
September 30,
2008 December 31,
Unaudited 2007
-------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 372,346 $ 6,636,908
Restricted cash 4,777,000 3,863,000
-------------------------------
Total cash, restricted cash
and cash equivalents 5,149,346 10,499,908
Accounts receivable, less
allowances 2,711,006 1,481,924
Inventory, net of reserve for
obsolescence 1,086,231 691,420
Prepaid expenses 237,992 293,025
-------------------------------
Total current assets 9,184,575 12,966,277
Property and equipment, net 9,500,899 4,644,993
Intangibles, net 805,433 750,060
Deposits 23,858 20,242
-------------------------------
Total assets $19,514,765 $18,381,572
===============================
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued
expenses $ 6,191,340 $ 2,024,062
Accrued payroll and related
benefits 201,574 139,358
Accrued short-term interest
payable 267,754 399,808
Working capital line of credit 4,777,000 3,863,000
Warrants payable 557,690 2,389,215
Current portion of long-term
debt and capital leases 4,830,614 4,990,563
-------------------------------
Total current liabilities 16,825,972 13,806,006
Long-term debt and capital
leases, net of current portion 9,892,196 13,587,773
Unamortized discount on
long-term debt (6,214,871) (9,216,562)
Accrued long-term interest
payable 72,497 52,444
-------------------------------
Total liabilities 20,575,794 18,229,661
Commitments and contingencies -- --
Stockholders' equity (deficit):
Preferred stock, $0.001 par
value, 10,000,000 shares
authorized, 2,147,951 shares
issued and outstanding as of
September 30, 2008, and
1,952,683 as of December 31,
2007 2,148 1,953
Common stock, $0.001 par value,
300,000,000 shares authorized,
161,980,266 shares issued
and outstanding as of
September 30, 2008,
153,378,797 shares issued
and outstanding as of
December 31, 2007 161,980 153,379
Additional paid in capital 59,937,281 53,549,821
Deferred compensation (2,938,764) (4,023,653)
Accumulated deficit (58,223,674) (49,529,589)
-------------------------------
Total stockholders' equity
(deficit) (1,061,029) 151,911
-------------------------------
Total liabilities and
stockholders' equity $19,514,765 $18,381,572
===============================
JAVO BEVERAGE COMPANY, INC.
CONDENSED STATEMENT OF OPERATIONS
UNAUDITED
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
--------------------------------------------------
Net sales $ 5,636,101 $ 3,898,985 $16,169,911 $ 9,807,252
Cost of sales (3,365,333) (2,807,636) (9,202,085) (6,486,084)
--------------------------------------------------
Gross profit 2,270,768 1,091,349 6,967,826 3,321,168
Operating expenses:
Selling and
marketing (2,072,451) (1,176,101) (5,304,537) (3,022,781)
General and
administrative* (2,602,931) (1,698,928) (6,318,972) (4,828,063)
--------------------------------------------------
Total
operating
expenses (4,675,382) (2,875,029) (11,623,509) (7,850,844)
--------------------------------------------------
Loss from
operations (2,404,614) (1,783,680) (4,655,683) (4,529,676)
--------------------------------------------------
Other income
(expenses):
Interest income 32,487 186,806 135,092 560,849
Interest
expense** (1,305,436) (1,540,071) (4,083,279) (4,720,716)
Income
(expense) from
derivatives*** 990,050 2,998,898 1,831,525 3,263,206
Other income 271 11,746 40,941 42,849
Loss on disposal
of assets 3,441 (1,427) (10,000) (2,604)
--------------------------------------------------
Total other
income
(expense) (279,187) 1,655,952 (2,085,721) (856,416)
--------------------------------------------------
Net loss $(2,683,801) $ (127,728) $(6,741,404) $(5,386,092)
==================================================
Basic loss
per share $ (0.017) $ (0.001) $ (0.043) $ (0.036)
==================================================
Weighted average
number of shares
outstanding,
basic 155,966,182 150,889,106 157,975,375 150,013,683
==================================================
* For the three and nine months ended September 30, 2008, general and administrative expenses include non-cash option expense of $361,630 and $1,245,435, non-cash compensation stock issuance expense of $378,000 and non-cash depreciation and amortization expense of $594,810 and $1,084,890, respectively.
** For the three and nine months ended September 30, 2008, interest expense of $1,305,436 and $4,083,279 includes non-cash accretion of debt discount of $942,674 and $2,979,191. In addition, interest expense included accrued interest on its Senior Convertible Debt of $256,722 and $830,023 which was paid with common stock. Excluding the non-cash accretion of debt discount and the accrued interest converted to common stock, the Company's interest expense for the third quarter 2008 was $106,040 and $274,065.
*** For the three and nine months ended September 30, 2008, expense from derivatives is a non-cash income related to change in Black-Scholes value of warrants to purchase 7,195,844 shares of the Company's Common Stock. The warrants have strike prices ranging from $1.79 to $2.24 per share and expire on December 15, 2011. The Company would receive an additional $14.9 million in equity capital if these warrants were exercised in full at the current strike prices.