REEDS INC
For the period ended Jun 30, 2024. Filed Aug 13, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 13, 2024
REED$1.01+4.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-20.
0001493152-24-020661
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-13.
0001493152-24-031590
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 54 previous paragraphs and 82 current paragraphs.
29 unchanged; 18 reworded; 26 added; 7 removed; 0 previous and 9 current paragraphs rearranged.
Tables are not compared: 4 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (26)
Current report
Gross margin was 32% for the three months ended June 30, 2024, compared to 25% for the same period last year.
Current report
Results of Operations – Six months ended June 30, 2024, as compared to Six Months Ended June 30, 2023
Current report
Core brand gross billing increased by 2% to $23,962 compared to $23,429 during the same period last year, driven by Reed’s volume decline of 5% and Virgil’s volume decline of 11%. The result is an increase in total gross billing of 1%, to $23,963 during the six months ended June 30, 2024, from $23,618 in the same period last year. Price on our core brands increased 3% to $20.82 per case. The decrease was a result of volume declines that have impacted the CSD segment as a result of price increases coupled with the Company’s inability to produce sufficient levels of inventory to meet current demand as a result of tighter credit terms from suppliers.
Current report
Discounts as a percentage of gross sales was 10% compared to 10% in the same period last year. As a result, net sales revenue increased 1% in the six months ended June 30, 2024, to $21,469, compared to $21,162 in the same period last year.
Current report
Cost of Goods Sold
Current report
Cost of goods sold decreased $1,730 during the six months ended June 30, 2024, as compared to the same period last year. As a percentage of net sales, cost of goods sold for the six months ended June 30, 2024, was 66% as compared to 75% for the same period last year.
Current report
Gross Margin
Current report
Gross margin increased to 34% for the six months ended June 30, 2023, compared to 25% for the same period last year.
Current report
Operating Expenses
Current report
Delivery and Handling Expenses
Current report
Selling and Marketing Expenses
Current report
General and Administrative Expenses
Current report
General and administrative expenses consist primarily of the cost of executive, administrative, and finance personnel, as well as professional fees. General and administrative expenses increased in the six months ended June 30, 2024, to $3,448 from $3,020, an increase of $428 over the same period last year. The increase was driven by higher legal settlements costs and professional fees spending partially offset by lower public company costs.
Current report
Loss from Operations
Current report
The loss from operations was $1,319 for the six months ended June 30, 2024, as compared to a loss of $4,325 in the same period last year driven by increased gross profit and decreased operating expenses discussed above.
Current report
Interest and Other Expense
Current report
Interest and other expense for the six months ended June 30, 2024, consisted of $2,173 of interest expense and $1,393 of the change in fair value of our SAFE investments. During the same period last year, interest and other expense consisted solely of $3,166 of interest expense.
Current report
Modified EBITDA
Current report
In addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance. However, Modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of liquidity. We define Modified EBITDA as net income (loss), plus interest expense, tax expense, depreciation and amortization, stock-based compensation, changes in fair value of warrant expense, change in fair value of SAFE agreements, legal and insurance settlements, non-recurring professional fees inventory write-offs associated with exited categories and major packaging and formula changes, one-time changes in policy, impact of changes to accounting methodology and one-time restructuring-related costs including employee severance and asset impairment.
Current report
Going Concern
Current report
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, for the six months ended June 30, 2024, the Company recorded a net loss of $4,885, and utilized $3,307 of cash in operations and at June 30, 2024, had a working capital deficiency of $19,378 and a stockholders’ deficit of $23,849. As of June 30, 2024, the Company borrowed $9,124 on its line of credit and owed $18,821on its Notes (See Note 5 and Note 6 for further detail). These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Current report
As of June 30, 2024, we had a cash balance of $326, no availability under our line of credit and $3,876 of additional borrowing capacity from the credit facility assuming there is availability under the terms.
Current report
On July 26, 2024, Norman E. Snyder Jr, CEO of the Company, provided a personal guaranty for a $500 over advance on our existing line of credit with ACS. On August 1, 2024, the Company funded $1,400 pursuant to an option exercise by Whitebox under the Option Notes.
Current report
We have also taken decisive action to improve our margins, including fully outsourcing our manufacturing process, streamlining our product portfolio, negotiating improved vendor contracts and restructuring our selling prices.
Current report
Notes Payable and Existing Financing
Current report
Please refer to Notes 5 and 6 in the accompanying condensed financial statements for a description of our existing line of credit agreement and outstanding notes payable.
Removed paragraphs (7)
Previous report
Sales, Cost of Sales, and Gross Margins
Previous report
Sales, Cost of Sales, and Gross Margins
Previous report
During 2023, the Company licensed its candy business to Rootstock Trading, a company founded and owned by our former Chief Sales Officer, Neal Cohane. As part of this agreement, Rootstock agrees to pay a royalty on a percentage of its net sales of licensed products. The royalty fees are 0% for 2023, 2% for 2024, 4% for 2025, and 5% thereafter.
Previous report
Gross margin was 36% for the three months ended March 31, 2024, compared to 24% for the same period last year.
Previous report
Liquidity and Capital Resources
Previous report
For the three months ended March 31, 2024, the Company recorded a net loss of $1,673 and used cash in operations of $2,395. In accordance with Accounting Standards Codification (“ASC”) 205-40,Going Concern, the Company’s management has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the accompanying financial statements were issued. As of the issuance date of these financial statements, management expects that the Company’s existing cash of $314, which includes $4,100 of additional cash received during the three months ended March 31, 2024, from investments with significant stockholders and expected cash flow from operations, will be sufficient to fund the Company’s current operating plan for at least twelve months from the date of issuance of these financial statements. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Previous report
Management’s assessment whether there is sufficient cash on hand, together with expected capital raises, to assure operations for a period of at least twelve months from the date these financial statements are issued, is based on conditions that are known and reasonably knowable to management, considering various scenarios, projections, and estimates and certain key assumptions. These assumptions include, among other factors, management’s ability to raise additional capital, and the expected timing and nature of the Company’s forecasted cash expenditures.
Reworded paragraphs (18)
Previous wording
During the three months ended March 31, 2024, the Company continued to strengthen its supply chain, implement gross margin enhancement initiatives, drive efficiencies in transportation and warehouse costs and reduce operating expenses. In addition, it continues to build its innovation pipeline with sustained growth in Reed’s Real Ginger Ale, Virgil’s Zero Sugar handcrafted sodas, Reed’s Classic and Stormy Mule, and Reed’s Hard Ginger Ale.
Current wording
During the six months ended June 30, 2024, the Company continued to strengthen its supply chain, implement gross margin enhancement initiatives, drive efficiencies in transportation and warehouse costs and reduce operating expenses. In addition, it continues to build its innovation pipeline with sustained growth in Reed’s Real Ginger Ale, Virgil’s Zero Sugar handcrafted sodas, Reed’s Classic and Stormy Mule, and Reed’s Hard Ginger Ale.
Previous wording
During the three months ended March 31, 2024, the Company experienced moderation from the elevated freight costs experienced in 2023. The average cost of shipping and handling for period March 31, 2024, was $3.01 per case, as compared to $3.46 per case for the period ended March 31, 2023. Although the Company has experienced decreases in freight costs over the last four quarters, in the Company’s opinion there remains a volatile environment and the Company will continue to monitor pricing and availability in transportation. Mitigation plans have been implemented to manage this risk. The Company has been negatively impacted by supply chain challenges affecting our ability to benefit from strong demand for, and increased sales of our product. The disruption caused by labor shortages, significant raw material cost inflation, logistics issues and increased freight costs, and ongoing port congestion, resulted in suppressed margins. The Company has experienced moderation in inflation and anticipates this to continue throughout 2024.
Current wording
During the three months ending June 30, 2024, the Company continued to experience moderation from the elevated freight costs experienced in 2023. The average cost of shipping and handling for the three months ended June 30, 2024, was $2.18 as compared to $3.05 in the three months ended June 30, 2023. During the six months ended June 30, 2024, the average cost of shipping and handling was $2.54 per case, as compared to $3.27 per case for the six months ended June 30, 2023. Although the Company has experienced decreases in freight costs over the last four quarters, in the Company’s opinion there remains a volatile environment and the Company will continue to monitor pricing and availability in transportation. Mitigation plans have been implemented to manage this risk. The Company has been negatively impacted by supply chain challenges affecting our ability to benefit from strong demand for, and increased sales of our product. The disruption caused by labor shortages, significant raw material cost inflation, logistics issues and increased freight costs, and ongoing port congestion, resulted in suppressed margins. The Company has experienced moderation in inflation and anticipates this to continue throughout 2024.
Previous wording
During the three months ended March 31, 2024, we continued to generate cash flows to meet our short-term liquidity needs, and we expected to maintain access to the capital markets.
Current wording
During the six months ended June 30, 2024, we continued to generate cash flows to meet our short-term liquidity needs, and we expected to maintain access to the capital markets.
Previous wording
Results of Operations – Three Months Ended March 31, 2024, as compared to March 31, 2023
Current wording
Results of Operations – Three Months Ended June 30, 2024, as compared to Three Months Ended June 30, 2023
Previous wording
The following chart sets forth key statistics for the transition of the Company’s top line activity from the first quarter of 2023 through the first quarter of 2024.
Current wording
The following chart sets forth key statistics for the transition of the Company’s top line activity from the second quarter of 2023 through the second quarter of 2024.
Previous wording
As part of the Company’s ongoing initiative to simplify and streamline operations the Company has identified core products on which to place its strategic focus. These core products consist of Reed’s and Virgil’s branded beverages. Non-core products consist primarily of candy and slower selling discontinued Reed’s and Virgil’s SKUs.
Current wording
As part of the Company’s ongoing initiative to simplify and streamline operations the Company has identified core products on which to place its strategic focus. These core products consist of Reed’s and Virgil’s branded beverages. Non-core products consist primarily of Wellness Shots, candy and slower selling discontinued Reed’s and Virgil’s SKUs.
Previous wording
Core beverage volume for the three months ended March 31, 2024, represents 100% of all beverage volume.
Current wording
Core beverage volume for the three months ended June 30, 2024, represents 99% of all beverage volume.
Previous wording
Core brand gross billing decreased by 16% to $10,377 compared to $12,333 during the same period last year, driven by a Reed’s volume decline of 6% and Virgil’s volume decline of 37%. The result is a decrease in total gross billing of 17%, to $10,379 during the three months ended March 31, 2024, from $12,453 in the same period last year. Price on our core brands increased 3% to $20.80 per case. The increase was a result of price increases across the channels of our product lines.
Current wording
Core brand gross billing increased by 22% to $13,584 compared to $11,095 during the same period last year, driven by a Reed’s volume increase of 16% and Virgil’s volume increase of 21%. The result is an increase in total gross billing of 22%, to $13,584 during the three months ended June 30, 2023, from $11,164 in the same period last year. Price on our core brands increased 4% to $20.84 per case.
Previous wording
Discounts as a percentage of gross sales decreased to 8% from 10% in the same period last year. This decline in discounts partially offset the revenue decline. Net sales revenue decreased 14% in the three months ended March 31, 2024, to $9,595, compared to $11,157 in the same period last year.
Current wording
Discounts as a percentage of gross sales was 13% compared to 10% in the same period last year. As a result, net sales revenue increased 19% in the three months ended June 30, 2024, to $11,874, compared to $10,005 in the same period last year.
Previous wording
Cost of goods sold decreased $2,277 during the three months ended March 31, 2024, as compared to the same period last year. As a percentage of net sales, cost of goods sold for the three months ended March 31, 2023, was 64% as compared to 76% for the same period last year.
Current wording
Cost of goods sold increased $547 during the three months ended June 30, 2024, as compared to the same period last year. As a percentage of net sales, cost of goods sold for the three months ended June 30, 2024, was 68% as compared to 75% for the same period last year.
Previous wording
Delivery and handling expenses consist of delivery costs to customers and warehousing costs incurred for handling our finished goods after production. Delivery and handling expenses decreased by $618 in the three months ended March 31, 2024, to $1,502 from $2,120 in the same period last year, driven by our efforts to mitigate inflationary costs. Delivery costs in the three months ended March 31, 2024, were 16% of net sales and $3.01 per case, compared to 19% of net sales and $3.46 per case during the same period last year.
Current wording
Delivery and handling expenses consist of delivery costs to customers and warehousing costs incurred for handling our finished goods after production. Delivery and handling expenses decreased by $263 in the three months ended June 30, 2024, to $1,423 from $1,686 in the same period last year, driven by our efforts to mitigate inflationary costs. Delivery costs in the three months ended June 30, 2024, were 12% of net sales and $2.18 per case, compared to 17% of net sales and $3.05 per case during the same period last year.
Previous wording
Marketing expenses consist of direct marketing, marketing labor, and marketing support costs. Selling expenses consist of all other selling-related expenses including personnel and contractor support. Total selling and marketing expenses were $1,093 during the three months ended March 31, 2024, compared to $1,447 during the same period last year. As a percentage of net sales, selling and marketing costs was 11% during the three months ended March 31, 2024, as compared to 13% during the same period last year. The decrease was primarily driven by lower employee related costs, marketing expenditures, and travel and entertainment expense, partially offset by slightly higher professional fees.
Current wording
Marketing expenses consist of direct marketing, marketing labor, and marketing support costs. Selling expenses consist of all other selling-related expenses including personnel and contractor support. Total selling and marketing expenses were $1,097 during the three months ended June 30, 2024, compared to $1,259 during the same period last year. As a percentage of net sales, selling and marketing costs was 9% during the three months ended June 30, 2024, as compared to 13% during the same period last year. The decrease was primarily driven by lower marketing costs, service fees and product sampling costs partially offset by higher broker commissions.
Previous wording
General and administrative expenses consist primarily of the cost of executive, administrative, and finance personnel, as well as professional fees. General and administrative expenses decreased in the three months ended March 31, 2024, to $1,468 from $1,709, a decrease of $241 over the same period last year. As a percentage of net sales, general and administrative expenses were 15% during the three months ended March 31, 2024, as compared to 15% during the same period last year. The decrease was driven by lower employee related costs, professional fees, and stock compensation.
Current wording
General and administrative expenses consist primarily of the cost of executive, administrative, and finance personnel, as well as professional fees. General and administrative expenses increased in the three months ended June 30, 2024, to $1,980 from $1,311, an increase of $669 over the same period last year. As a percentage of net sales, general and administrative expenses were 17% during the three months ended June 30, 2024, as compared to 13% during the same period last year. The increase was driven by higher professional fees, legal settlements and higher stock compensation.
Previous wording
The loss from operations was $650 for the three months ended March 31, 2024, as compared to a loss of $2,578 in the same period last year driven by decreased gross profit offset by decreases in operating expenses discussed above.
Current wording
The loss from operations was $669 for the three months ended June 30, 2024, as compared to a loss of $1,747 in the same period last year driven by decreased gross profit offset by decreases in operating expenses discussed above.
Previous wording
Interest and other expense for the three months ended March 31, 2024, consisted of $1,023 of interest expense. During the same period last year, interest and other expense consisted of $1,779 of interest expense.
Current wording
Interest and other expense for the three months ended June 30, 2024, consisted of $1,150 of interest expense and $1,393 of the change in fair value of our SAFE investments. During the same period last year, interest and other expense consisted solely of $1,387 of interest expense.
Previous wording
In addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance. However, Modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of liquidity. We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization, stock-based compensation, changes in fair value of warrant expense, legal settlements, and one-time restructuring-related costs including employee severance and asset impairment.
Current wording
In addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance. However, Modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of liquidity. We define Modified EBITDA as net income (loss), plus interest expense, tax expense, depreciation and amortization, stock-based compensation, changes in fair value of warrant expense, change in fair value of SAFE agreements, legal and insurance settlements, non-recurring professional fees inventory write-offs associated with exited categories and major packaging and formula changes, one-time changes in policy, impact of changes to accounting methodology and one-time restructuring-related costs including employee severance and asset impairment.
Previous wording
The total cost of goods per case increased to $12.39 per case in the three months ended March 31, 2024, from $13.80 per case for the same period last year. The cost of goods sold per case on core brands was $12.39 during the three months ended March 31, 2024, compared to $13.78 for the same period last year.
Current wording
The total cost of goods per case decreased to $12.36 per case in the six months ended June 30, 2024, from $13.70 per case for the same period last year. The cost of goods sold per case on core brands was $12.36 during the six months ended June 30, 2024, compared to $13.59 for the same period last year.
Previous wording
Historically, the Company has financed its operations through public and private sales of common stock, convertible debt instruments, credit lines from financial institutions, and cash generated from operations. As we seek additional sources of financing, there can be no assurance that such financing would be available to us on favorable terms or at all. Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, our performance and investor sentiment with respect to us and our industry.
Current wording
Historically, we have financed our operations through public and private sales of common stock, issuance of preferred and common stock, convertible debt instruments, term loans and credit lines from financial institutions, and cash generated from operations. To alleviate these conditions, management is currently evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity, mezzanine or debt securities, through arrangements with strategic partners or through obtaining credit from financial institutions. The Company is continuing to discuss restructuring of debt with existing lenders and is exploring new financing opportunities to address the line of credit which comes due in March 2025 (see Note 5) and the portion of debt under the Notes that is due under on December 15, 2024 (see Note 6). As we seek additional sources of financing, there can be no assurance that such financing would be available to us on favorable terms or at all. Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, our performance and investor sentiment with respect to us and our industry.
Rearranged current paragraphs (9)
Current report — wording carried from elsewhere
The total cost of goods per case decreased to $12.34 per case in the three months ended June 30, 2024, from $13.58 per case for the same period last year.
Current report — wording carried from elsewhere
The following table sets forth key statistics for the six months ended June 30, 2024 and 2023, respectively, in thousands.
Current report — wording carried from elsewhere
As part of the Company’s ongoing initiative to simplify and streamline operations the Company has identified core products on which to place its strategic focus. These core products consist of Reed’s and Virgil’s branded beverages. Non-core products consist primarily of Wellness Shots, candy and slower selling discontinued Reed’s and Virgil’s SKUs.
Current report — wording carried from elsewhere
Core beverage volume for the six months ended June 30, 2023, represents 99% of all beverage volume.
Current report — wording carried from elsewhere
Delivery and handling expenses consist of delivery costs to customers and warehousing costs incurred for handling our finished goods after production. Delivery and handling expenses decreased by $881 in the six months ended June 30, 2024, to $2,925 from $3,806 in the same period last year, driven by our efforts to mitigate inflationary costs. Delivery costs in the six months ended June 30, 2024, were 14% of net sales and $2.54 per case, compared to 18% of net sales and $3.27 per case during the same period last year.
Current report — wording carried from elsewhere
Marketing expenses consist of direct marketing, marketing labor, and marketing support costs. Selling expenses consist of all other selling-related expenses including personnel and contractor support. Total selling and marketing expenses were $2,190 during the six months ended June 30, 2024, compared to $2,706 during the same period last year. As a percentage of net sales, selling and marketing were 10% of net sales during the six months ended June 30, 2024, as compared to 13% of net sales during the same period last year. The decrease was driven by lower service fees, and reduced sampling, trade show and marketing spend partially offset by higher broker fees.
Current report — wording carried from elsewhere
Management considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Modified EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Modified EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
Current report — wording carried from elsewhere
Set forth below is a reconciliation of net loss to Modified EBITDA for the six months ended June 30, 2022 and 2021 (unaudited; in thousands):
Current report — wording carried from elsewhere
We present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Modified EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; making compensation decisions; and in communications with our board of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes, among others, the following: