New Leaf Brands, Inc., ("the Company"), a provider of great tasting healthy beverages for consumers that are great-tasting and made only with high quality ingredients, today announced unaudited financial results for the third quarter ended September 30, 2009 and has provided a shareholder update.
Shareholder Update -- The Company Restructuring
During the three month period ended September 30, 2009, the Company initiated the restructuring of its balance sheet by converting its preferred stock and accrued dividends into common stock, offering to convert debt into common stock and offering to convert warrants into common stock, while also completing a significant sale of assets. The Company intends to continue its restructuring plans to recapitalize its balance sheet and capital structure, while focusing on the growth of its beverage business, namely New Leaf Tea, as well as the expansion of new products within the functional beverage space.
Subsequent to the end of the third quarter ending September 30, 2009, the Company had several material events close which has substantially changed the Company's business and financial condition. Management believes that these changes will have a positive effect on the long term performance of New Leaf Brands. On October 9, 2009 the Company closed the asset sale of its wholly-owned subsidiary, Nutritional Specialties, Inc., to Nutra, Inc., a subsidiary of Nutraceutical International Corporation, for $8,578,000 in consideration. Simultaneous with the sale, $3.6 million of the proceeds were used to pay off the Company's senior lender, Vineyard Bank, N.A. The Company has no senior debt as of today.
On October 19, 2009 the Company officially changed its name to New Leaf Brands, Inc. and began trading under the stock symbol NLEF. The name change reflects the Company's new strategy of being a leading healthy beverage company, initially focusing on its 14 great tasting flavors of Iced Tea. As part of the ongoing restructuring, on October 20, 2009 pursuant to the approval by the Company's Series A, Series I and Series J Preferred Stock and the Board of Directors, the Company filed Certificates of Amendment to the Certificates of Designation that caused the outstanding shares to be converted into shares of the Company's common stock, with an effective date of August 31, 2009. This eliminated all Preferred Stock and accrued dividends for the issuance of 20.2 million common shares.
Additionally, the Company has been converting notes and warrants into the Company's common stock pursuant to agreements between certain holders and the Company. The individual agreements provide that the holders' existing securities will be exchanged for new securities and any defaults and obligations existing under such existing securities, if any, will be waived. Further, the Company offered warrant holders the opportunity to exercise their outstanding warrants, on a cash or cashless basis, for common stock in the Company. The Company also offered debt holders the opportunity to convert the Company's existing debt obligations to the debt holder into shares of the Company's common stock. The Company has agreed to convert an aggregate of $4,763,565 of notes and accrued interest of related parties into an aggregate of 19,054,260 shares of the Company's common shares. Additionally, the Company has received $276,631 from warrant holders for the exercise of 1,106,524 warrants into the Company's common stock and through a cashless exercise has converted 920,847 warrants into 526,172 shares of the Company's common stock. Through the restructuring as of November 16, 2009, the Company has reduced its current liabilities from $18.83 million as at September 30, 2009 to approximately $4.41 million, while stockholders' equity has gone from a deficit of $(6.1) million to a positive value of $1.2 million.
Mr. Eric Skae, CEO of New Leaf, stated, "Just as our slogan implies, our company has turned over a New Leaf. This has been an extraordinary effort by our management team, advisors and board of directors. We all want to thank our stockholders for the vote of confidence they have bestowed upon us by converting their debt, warrants, and all preferred shares into the common stock of the company. While this has caused us to issue additional common shares, it has enabled us to restore a healthy capital structure and significantly strengthen the balance sheet. Management believes that these were key objectives in setting the stage for a high growth healthy beverage company. This will enable New Leaf to pursue growth initiatives in 2010 to become a leading national brand, and a strong investment opportunity for new potential investors."
Shareholder Update -- Third Quarter 2009
On September 3, 2009, the Company announced that it had signed a new distribution agreement to enter the state of Wisconsin with Water Concepts. This agreement will add three more distributors including Kay Distributing Company in Green Bay, General Beer Distributors Co. in Milwaukee and Four Seasons Beer Distributors in Aurora. New Leaf can now be purchased in six chain stores including Piggly Wiggly, Festival Foods, Woodman's Food Market, Sentry Foods, Sendik's Food Market and Shopko.
On September 15, 2009, the Company announced that its new distributors, RBI Distributing in Des Moines, IA and Gateway Distributing in Omaha, NE, have expanded distribution of New Leaf with the addition of four chain stores including Hy-Vee, Dahl's Foods, No Frills Supermarkets and Bag 'N Save, as well as numerous other independent accounts.
On September 29, 2009, the Company announced that a new distributor, New Age Distributing in Little Rock, AR, has begun distributing New Leaf Tea through its network of retailers including Doublebee's Exxon, Knight's Super Foods, LRAFB Shoppettes, USA Drug as well as numerous other independent accounts. In total this distribution agreement covers 22 counties.
October 20, 2009, the Company announced its newest flavor, Sweet Tea, to its line of all-natural ready-to-drink teas. New Leaf's version of Sweet Tea is a smooth blend of black tea and evaporated organic pure cane sugar, giving the product a smooth and sophisticated taste. Sweet Tea is a form of iced tea in which pure cane sugar is added to the tea while it is still hot, allowing for super saturation of the solution. This enables the tea to hold more dissolved sweetener than under colder temperatures. Popularity for sweet teas is seen mostly in the Southern United States, but it is growing in popularity nationwide. This is New Leaf's 14th unique iced tea flavor.
On October 22, 2009, the Company announced that it had expanded the distribution of New Leaf Tea into Whole Foods Markets in the Northeast and Mid-Atlantic regions to include an additional 22 stores.
New Leaf Tea is now sold in over 9,000 retail locations through 80 distributors in 29 states, and 8 locations outside of the U.S. including Canada and Puerto Rico.
Mr. Skae continued, "New Leaf continues to gain new chain authorizations and 'up and down the street' accounts. We are well on our way to becoming a national brand with the recently announced major distribution agreements and others that are to follow shortly. We are very excited about our future as the buzz in the marketplace for New Leaf continues to grow for our great tasting product."
Third Quarter 2009 Final Results
Results are being reported net of the Company's nutraceutical business and reflect comparisons based on the Company's acquisition of Skae Beverage International, LLC and the New Leaf brand as of September 2008. Since there are no comparative figures prior to that period, the company is not going to discuss the nine month period comparison as this would not be truly comparative and therefore not meaningful.
Net sales for the three months ended September 30, 2009 were $1,025,220, compared to $242,759 for the same period last year. The increase in net sales is due to better account penetration since the acquisition of the New Leaf brands on September 9, 2008 from Skae Beverage International, LLC. Case volume was up 54% from 77,124 to 118,820 cases in the third quarter of 2009 compared to third quarter of 2008.
Gross profit margin for the three month period ended September 30, 2009 was $286,318, or 28%, versus $33,918, or 14%, for the same quarter in 2008. The increase in margins is attributable to increased volume efficiencies and improved pricing on raw materials. Management expects margins to continue to improve over the next year, and believes they can reach 35% before the end of 2010.
Operating expenses for the three month periods ended September 30, 2009 and 2008 were $1,388,122 and $926,805, respectively. This increase in operating expenses for the periods is primarily due to the increased sales and marketing personnel investment required to build a national distribution network.
Debt financing cost for the three month periods ended September 30, 2009 and 2008 was $4,092,122 and $540,165, respectively. Of this amount during the current quarter, $3.2 million was the intrinsic value of the debt and warrants converted into common shares. Additionally, $624,835 was the amortization of debt discount and debt acquisition cost. Interest expense of $337,435 was incurred from interest on notes payable to officers, directors, banks and third parties, as well as from our outstanding bank line of credit.
The net loss for the third quarter of 2009 was $(4.9) million compared to $(1.2) million of the third quarter of 2008. One-time non-cash charges accounted for $(3.8) million in losses during the third quarter. The loss for the nine month period ending September 30, 2009 was $(15.8) million, but included one-time non-cash charges of $(12.0) million related to the restructuring.
Mr. Skae concluded, "While our financial results for the third quarter showed a large net loss, we believe that the one-time expenses relating to the restructuring and repositioning of New Leaf were necessary to enable our company to become a successful healthy beverage business. It is our intent to finish all major restructuring by the end of 2009, and enter 2010 with a clean slate focused exclusively on the growth of our brand while building value for our shareholders."
About New Leaf Brands, Inc.:
Founded by Eric Skae in 2004 in Orangeburg, New York, New Leaf was created with the vision of providing healthy beverages for consumers that are great-tasting and made only with high quality ingredients. New Leaf Tea was the company's first product that was born out of that vision and now is available to consumers in 14 unique flavors and in over 9,000 outlets including restaurants, delis, pizzerias and other retail establishments. For more information, please visit www.newleafbrands.com.
This press release may contain forward-looking statements, made in reliance upon Section 21D of the Exchange Act of 1934, which involve known and unknown risks, uncertainties or other factors that could cause actual results to differ materially from the results, performance, or expectations implied by these forward-looking statements. The Company's expectations, among other things, are dependent upon general economic conditions, continued demand for its products, the availability of raw materials, retention of its key management and operating personnel, its ability to operate its subsidiary companies effectively, need for and availability of additional capital as well as other uncontrollable or unknown factors which are more fully disclosed in the Company's Form 10-Ks and 10-Qs on file with the United States Securities and Exchange Commission.