REED'S, INC.

Previous wording

During the three months ended March 31, 2026, the Company continued its focus on profitable sales growth, improving gross margin, reducing freight costs, and optimizing selling, general and administrative expenses. The sales growth initiatives include channel expansion, in-store product placements, new product innovation, and improved sales execution. The gross margin enhancement initiatives include product portfolio optimization, equitable supplier negotiations, streamlining co-packer processes, and efficient inventory management. Underpinning these initiatives is a focus on optimizing delivery and handling and selling, general and administrative expenses.

Current wording

During the six months ended June 30, 2026, the Company continued its focus on achieving profitable sales growth, improving gross margin, reducing freight costs, and optimizing selling, general and administrative expenses. The sales growth initiatives include channel expansion, in-store product placements, new product innovation, and improved sales execution. The gross margin enhancement initiatives include product portfolio optimization, equitable supplier negotiations, streamlining co-packer processes, and efficient inventory management. Underpinning these initiatives is a focus on optimizing delivery and handling and selling, general and administrative expenses.

Previous wording

Although the U.S. economy continued to grow in 2025, inflation, actions by the Federal Reserve to address inflation, fluctuations in energy prices, and the potential impacts of tariffs, trade tensions and geopolitical events create uncertainty about the future economic environment which will continue to evolve and may impact our business in future periods. We have experienced supply chain challenges, including increased lead times, as well as inflation of raw materials, logistics and labor costs due to availability constraints and high demand. Although we regularly monitor vendors in our supply chain, and use alternative suppliers when necessary and available, supply chain constraints could cause a disruption in our ability to obtain raw materials required to manufacture our products and adversely affect our operations.

Current wording

Although the U.S. economy continues to grow, inflation, actions by the Federal Reserve to address inflation, fluctuations in energy prices, and the potential impacts of tariffs, trade tensions and geopolitical events create uncertainty about the future economic environment which will continue to evolve and may impact our business in future periods. We have experienced supply chain challenges, including increased lead times, as well as inflation of raw materials, logistics and labor costs due to availability constraints and high demand. Although we regularly monitor vendors in our supply chain, and use alternative suppliers when necessary and available, supply chain constraints could cause a disruption in our ability to obtain raw materials required to manufacture our products and adversely affect our operations.

Previous wording

During the three months ended March 31, 2026, the average cost of shipping and handling was $2.57 per case, as compared to $3.17 per case for the three months ended March 31, 2025. The Company has experienced increases in freight costs and there remains a volatile pricing environment, including due to the armed conflict in Iran. The Company will continue to monitor pricing and availability in transportation and has implemented plans designed to manage this risk. In the past, 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. Any disruption caused by labor shortages, significant raw material cost inflation, logistics issues, increased freight costs, or port congestion, may adversely impact margins in the future.

Current wording

During the six months ended June 30, 2026, the average cost of shipping and handling was $2.56 per case, as compared to $3.06 per case for the six months ended June 30, 2025. The Company has experienced increases in freight costs and there remains a volatile pricing environment, including due to the armed conflict in Iran. The Company will continue to monitor pricing and availability in transportation and has implemented plans designed to manage this risk. In the past, 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. Any disruption caused by labor shortages, significant raw material cost inflation, logistics issues, increased freight costs, or port congestion, may adversely impact margins in the future.

Previous wording

The following chart sets forth key statistics for the transition of the Company’s top line activity from the first quarter of 2025 through the first quarter of 2026.

Current wording

The following chart sets forth key statistics for the transition of the Company’s top line activity from the second quarter of 2025 through the second quarter of 2026.

Previous wording

Gross billing decreased by 23% to $8,514 during the three months ended March 31, 2026, compared to $11,013 during the prior year, primarily driven by Reed’s volume decline of 4%, and Virgil’s volume decline of 37%. Price on our brands decreased 9% to $19.57 per case, primarily driven by liquidation of select slow-moving product.

Current wording

Gross billing decreased by 24% to $8,771 during the three months ended June 30, 2026, compared to $11,569 during the prior year, primarily driven by Reed’s volume decline of 15%, and Virgil’s volume decline of 25%. Prices on our brands decreased 7% to $20.12 per case, primarily driven by liquidation of select slow-moving product.

Previous wording

Discounts as a percentage of gross sales were 16% during the three months ended March 31, 2026, compared to 9% in the prior year. Net sales decreased 29% during the three months ended March 31, 2026, to $7,142, compared to $10,029 in the prior year, primarily driven by lower volumes with recurring national customers and higher promotional and other allowances.

Current wording

Discounts as a percentage of gross sales were 15% during the three months ended June 30, 2026, compared to 18% in the prior year. Net sales decreased 21% during the three months ended June 30, 2026, to $7,488, compared to $9,523 in the prior year, primarily driven by lower volumes with recurring national customers and higher promotional and other allowances.

Previous wording

Cost of goods sold decreased $182 during the three months ended March 31, 2026, as compared to the prior year. As a percentage of net sales, cost of goods sold for the three months ended March 31, 2026, was 90% as compared to 66% for the prior year. The decrease in cost of goods sold was primarily driven by inventory write-offs related to changes in product portfolio optimization made by new management, in an amount of $738.

Current wording

Cost of goods sold decreased $3,017 during the three months ended June 30, 2026, as compared to the prior year. As a percentage of net sales, cost of goods sold for the three months ended June 30, 2026, was 76% as compared to 92% for the prior year. The decrease in cost of goods sold was primarily driven by the net sales decrease discussed above and lower inventory write-offs. Inventory write-offs were $92 during the three months ended June 30, 2026 and $1,606 in the prior year period.

Previous wording

The total cost of goods per case increased to $14.82 per case in the three months ended March 31, 2026, from $12.92 per case for the prior year.

Current wording

The total cost of goods per case decreased to $13.07 per case in the three months ended June 30, 2026, from $16.38 per case for the prior 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 $507 in the three months ended March 31, 2026, to $1,120 from $1,627 in the prior year, primarily driven by continued improvements in logistics efficiency and freight optimization. Delivery costs in the three months ended March 31, 2026, were 16% of net sales and $2.57 per case, compared to 16% of net sales and $3.17 per case during the prior 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 $465 in the three months ended June 30, 2026, to $1,107 from $1,572 in the prior year, primarily driven by continued improvements in logistics efficiency and freight optimization. Delivery costs in the three months ended June 30, 2026, were 15% of net sales and $2.54 per case, compared to 17% of net sales and $2.95 per case during the prior 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 $1,747 during the three months ended March 31, 2026, compared to $1,502 during the prior year. The increase was primarily driven by higher employee related costs and marketing expenditures. As a percentage of net sales, selling and marketing expenses were 24% of net sales during the three months ended March 31, 2026, as compared to 15% of net sales during the prior year.

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 $1,709 during the three months ended June 30, 2026, compared to $1,271 during the prior year. The increase was primarily driven by higher sales broker and marketing expenses. As a percentage of net sales, selling and marketing expenses were 23% of net sales during the three months ended June 30, 2026, as compared to 13% of net sales during the prior year.

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 were $4,045 during the three months ended March 31, 2026, an increase of $2,030 over the prior year. As a percentage of net sales, general and administrative expenses were 57% during the three months ended March 31, 2026, as compared to 20% during the prior year. The increase was primarily driven by investments in personnel and related services to support our Asia growth initiative, in an amount of $1,441.

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 were $3,037 during the three months ended June 30, 2026, a decrease of $720 over the prior year. The decrease was primarily driven by lower legal settlements and continuing efforts to optimize general and administrative expenses, offset by investments in personnel and related services to support our Asia growth initiative. As a percentage of net sales, general and administrative expenses were 41% during the three months ended June 30, 2026, as compared to 39% during the prior year.

Previous wording

The loss from operations was $6,215 for the three months ended March 31, 2026, as compared to a loss of $1,742 in the prior year, primarily driven by lower gross profit and higher operating expenses discussed above.

Current wording

The loss from operations was $4,064 for the three months ended June 30, 2026, as compared to a loss of $5,793 in the prior year, primarily driven by higher gross profit and lower operating expenses discussed above.

Previous wording

Interest and other expense for the three months ended March 31, 2026, consisted of $204 of interest expense and $45 of other expense. During the prior year, interest and other expense consisted of $289 of interest expense.

Current wording

Interest and other expense for the three months ended June 30, 2026, consisted of $204 of interest expense and $5 of other expense. During the prior year, interest and other expense consisted of $301 of interest expense, offset by $46 of other income.

Previous wording

In September 2025, we entered into a loan agreement with certain funds affiliated with Whitebox Advisors LLC, as lenders, and Cantor Fitzgerald Securities, as administrative agent and collateral agent. The loan agreement provides for a senior secured loan and is further discussed in Note 6 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Current wording

In September 2025, we entered into a loan agreement with certain funds affiliated with Whitebox Advisors LLC, as lenders, and Cantor Fitzgerald Securities, as administrative agent and collateral agent. The loan agreement provides for a senior secured loan with a maturity date of September 30, 2026 and is further discussed in Note 6 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Previous wording

We are also continuing to take actions to improve the Company’s operating performance and cash generated from operations, including product portfolio optimization, implementing strategies to increase sales, streamlining operations, improving supply chains, negotiating equitable vendor contracts, and managing product price architecture. However, we may be unsuccessful in executing these actions in a timely manner or at all.

Current wording

We are also continuing to take actions to improve the Company’s operating performance and cash generated from operations, including product portfolio optimization, implementing strategies to achieve profitable sales growth, streamlining operations, improving supply chains, negotiating equitable vendor contracts, and managing product price architecture. However, we may be unsuccessful in executing these actions in a timely manner or at all.

Previous wording

Net cash used in operating activities totaled $5,844 for the three months ended March 31, 2026, compared to $5,362 for the three months ended March 31, 2025. The increase in net cash used in operating activities was primarily driven by operating losses, working capital, and investment in strategic growth initiatives.

Current wording

Net cash used in operating activities totaled $8,014 for the six months ended June 30, 2026, compared to $10,410 for the six months ended June 30, 2025. The decrease in net cash used in operating activities was primarily driven by operating losses, working capital, and investment in strategic growth initiatives.

Previous wording

Net cash used in investing activities totaled $0 for the three months ended March 31, 2026, compared to $74 for the three months ended March 31, 2025. The decrease in net cash used in investing activities was primarily driven by no purchases of property and equipment.

Current wording

Net cash used in investing activities totaled $0 for the six months ended June 30, 2026, compared to $101 for the six months ended June 30, 2025. The decrease in net cash used in investing activities was primarily driven by no purchases of property and equipment.

Previous wording

Net cash used in financing activities totaled $0 for the three months ended March 31, 2026, compared to $93 for the three months ended March 31, 2025. The decrease in net cash used in financing activities was primarily driven by no repayment of advances from a former related party and no payment of cash recorded as a debt discount.

Current wording

Net cash provided by financing activities totaled $0 for the six months ended June 30, 2026, compared to $2,797 for the six months ended June 30, 2025. The decrease in net cash used in financing activities was primarily driven by no proceeds from the sale of common shares.

Previous wording

The preparation of the Company’s financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates include those related to assumptions used in estimates for reserves of uncollectible accounts, inventory obsolescence, depreciable lives of property and equipment, analysis of impairments of recorded long-term tangible and intangible assets, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services. There were no changes to our critical accounting policies described in the condensed financial statements included in our 2025 Form 10-K that impacted our condensed financial statements and related notes included herein.

Current wording

The preparation of the Company’s financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates include those related to assumptions used in estimates for reserves of uncollectible accounts, inventory obsolescence, depreciable lives of property and equipment, analysis of impairments of recorded long-term tangible and intangible assets, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services. There were no changes to our critical accounting policies described in the consolidated financial statements included in our 2025 Form 10-K that impacted our condensed financial statements and related notes included herein.