The company said that it would soon announce a programme of cost-cutting that would almost certainly involve redundancies.
Paul Millman, managing director, blamed a drop in sales of the company's Two Dogs alcoholic lemonade on a surge in the number of alcopop brands flooding on to the market.
Mr Millman said that profits for the financial year to the end of March would be "significantly below" analysts' expectations. He would not be drawn on the scale of the job losses among its 150 staff.
The company is to "change the nature of the business", and refocus on its core cider products, which, according to Mr Millman, have been performing well over the last few years.
Sales of Two Dogs during the January to March quarter were "disappointing".
Mr Millman said that distribution of Two Dogs had now been safeguarded by a contract with Scottish Courage. Scottish Courage will, with immediate effect, take on the marketing and distribution of the brand.
"When we started Two Dogs in 1995, there was just us and Hooper's Hooch [owned by Bass].
"Now there are some 90 brands. We don't have a massive sales force: we're a small company and Bass is a big one." Mr Millman added that the deal with Scottish Courage - the UK's largest brewer - would give the company improved marketing muscle. He also believed that "some rationalisation" in the crowded alcopops sector would be likely.
Last July, Merrydown was riding on the crest of the alcopops wave, reporting sales up 58 per cent at pounds 37.1m, and pre-tax profits of pounds 2.03m for the year to the end of March. Analysts yesterday cut profits estimates for 1996/97 to around pounds 850,000.