REED'S, INC.

Previous wording

Our discussion and analysis is intended to help the reader understand our results of operations and financial condition and is provided as an addition to, and should be read in connection with, our condensed financial statements and the accompanying notes. Cautionary statements on page ii of this report and in “Part I, Item 1A. Risk Factors” of our 2024 Form 10-K, as updated by “Part II, Item 1A” of this report, should be considered when evaluating our trends and future results.

Current wording

Our discussion and analysis is intended to help the reader understand our results of operations and financial condition and is provided as an addition to, and should be read in connection with, our condensed financial statements and the accompanying notes. Some of the information contained in this discussion and analysis, including information with respect to our intentions, plans, objectives and expectations for our business, includes forward-looking statements that involve risks and uncertainties. You should review the sections titled “Cautionary Statements Regarding Forward-Looking Statements and Information” and “Risk Factors” in this Quarterly Report on Form 10-Q and in our 2024 Form 10-K for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Previous wording

In addition to our GAAP results, the following discussion includes Modified EBITDA as a supplemental measure of our performance. 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 is not a recognized measurement under GAAP and should not be considered as an alternative to net income (loss), income (loss) 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, insurance settlements, contract proceedings, 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 wording

In addition to our GAAP results, the following discussion includes Modified EBITDA as a supplemental measure of our performance. 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 is not a recognized measurement under GAAP and should not be considered as an alternative to net income (loss), income (loss) 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, contract proceedings, 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 Company remains focused on driving sales growth, improving gross margin, and reducing freight costs. The sales growth focus is on channel expansion, increase in store placements, new product introduction and improved sales execution. The margin enhancement initiative is driven by packaging savings, co-packer upgrades, and better leveraged purchasing and improved efficiency. Underpinning these initiatives is a focus on strategically reducing operating costs, particularly delivery and handling expenses. In addition, the Company continues to augment its co-packer network to drive further efficiencies and build proper levels of inventory at the appropriate location to maximize delivery metrics.

Current wording

During the six months ended June 30, 2025, the Company continued its focus on driving sales growth, improving gross margin, and reducing freight costs. 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 strategically reducing operating costs, particularly delivery and handling expenses.

Previous wording

Although the U.S. economy continued to grow in the first quarter of 2025 and throughout 2024, inflation, actions by the Federal Reserve to address inflation, fluctuations in energy prices, and the potential impacts of tariffs 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 continued to grow in the first half of 2025 and throughout 2024, inflation, actions by the Federal Reserve to address inflation, fluctuations in energy prices, and the potential impacts of tariffs 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, 2025, the average cost of shipping and handling was $3.13 per case, as compared to $3.01 per case for the three months ended March 31, 2024. The Company has experienced increases in freight costs and there remains a volatile pricing environment. 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, 2025, the average cost of shipping and handling was $2.97 per case, as compared to $2.54 per case for the six months ended June 30, 2024. The Company has experienced increases in freight costs and there remains a volatile pricing environment. 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

Results of Operations – Three Months Ended March 31, 2025, as compared to March 31, 2024

Current wording

Results of Operations – Three Months Ended June 30, 2025, as compared to Three Months Ended June 30, 2024

Previous wording

The following chart sets forth key statistics for the transition of the Company’s top line activity from the first quarter of 2024 through the first quarter of 2025.

Current wording

The following chart sets forth key statistics for the transition of the Company’s top line activity from the second quarter of 2024 through the second quarter of 2025.

Previous wording

Core brand gross billing increased by 6% to $11,013 compared to $10,377 during the same period last year, driven by Virgil’s volume increase of 19%, partially offset by Reed’s volume decline of 2%. Price on our core brands increased 2% to $21.18 per case. The increase in gross billings was a result of higher volumes with recurring national customers, optimizing our sales prices, and the Company’s ability to produce sufficient levels of inventory to meet current demand.

Current wording

Core brand gross billing decreased by 15% to $11,569 during the three months ended June 30, 2025, compared to $13,584 during the same period last year, driven by Virgil’s volume decline of 19% and Reed’s volume decline of 10%. Price on our core brands increased 1% to $21.01 per case. The decrease in gross billing was a result of lower volumes with recurring national customers.

Previous wording

Discounts as a percentage of gross sales were 9% compared to 8% in the same period last year. As a result, net sales revenue increased 5% during the three months ended March 31, 2025, to $10,029, compared to $9,595 in the same period last year driven by higher sales and higher prices for our products.

Current wording

Discounts as a percentage of gross sales were 18% during the three months ended June 30, 2025, compared to 13% in the same period last year. As a result, net sales decreased 20% during the three months ended June 30, 2025, to $9,523, compared to $11,874 in the same period last year driven by lower volumes with recurring national customers and higher promotional and other allowances.

Previous wording

The total cost of goods sold per case increased to $12.75 per case in the three months ended March 31, 2025, from $12.39 per case for the same period last year.

Current wording

The total cost of goods sold per case increased to $15.70 per case in the three months ended June 30, 2025, from $12.34 per case 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 increased by $125 in the three months ended March 31, 2025, to $1,627 from $1,502 in the same period last year, primarily driven by transportation costs associated with increased finished good production. Delivery costs in the three months ended March 31, 2025, were 16% of net sales and $3.13 per case, compared to 16% of net sales and $3.01 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 increased by $149 in the three months ended June 30, 2025, to $1,572 from $1,423 in the same period last year, primarily driven by transportation costs associated with increased finished goods production. Delivery costs in the three months ended June 30, 2025, were 17% of net sales and $2.83 per case, compared to 12% of net sales and $2.18 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 $1,502 during the three months ended March 31, 2025, compared to $1,093 during the same period last year. As a percentage of net sales, selling and marketing costs were 15% during the three months ended March 31, 2025, as compared to 11% during the same period last year. The increase was primarily driven by higher employee related costs and marketing expenditures, partially offset by lower stock compensation expense.

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 $1,271 during the three months ended June 30, 2025, compared to $1,097 during the same period last year. As a percentage of net sales, selling and marketing costs were 13% during the three months ended June 30, 2025, as compared to 9% during the same period last year. The increase was primarily driven by higher employee related costs and marketing expenditures.

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 $2,015 in the three months ended March 31, 2025, an increase of $547 over the same period last year. As a percentage of net sales, general and administrative expenses were 20% during the three months ended March 31, 2025, as compared to 15% during the same period last year. The increase was driven by higher employee related costs, professional fees, and customer penalties, partially offset by lower stock compensation expense, franchise taxes and board of directors’ fees.

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 $3,757 in the three months ended June 30, 2025, an increase of $1,777 over the same period last year. As a percentage of net sales, general and administrative expenses were 39% during the three months ended June 30, 2025, as compared to 17% during the same period last year. The increase was driven by contract proceedings costs and the Company’s investments in personnel and related services to support growth initiatives.

Previous wording

The loss from operations was $1,742 for the three months ended March 31, 2025, as compared to a loss of $650 in the same period last year driven by increases in operating expenses discussed above.

Current wording

The loss from operations was $5,793 for the three months ended June 30, 2025, as compared to a loss of $669 in the same period last year driven by decreased gross profit and increased operating expenses discussed above.

Previous wording

Interest and other expense for the three months ended March 31, 2025, consisted of $289 of interest expense. During the same period last year, interest and other expense consisted of $1,023 of interest expense.

Current wording

Interest and other expense for the three months ended June 30, 2025, consisted of $301 of interest expense offset by $46 of other income. During the same period last year, interest and other expense consisted of $1,150 of interest expense and $1,393 of the change in fair value of our SAFE investments.

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 (loss), income (loss) 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, insurance settlements, contract proceedings, 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 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 (loss), income (loss) 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, contract proceedings, 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

Cost of goods sold increased $445 during the three months ended March 31, 2025, 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, 2024, was 66% as compared to 64% for the same period last year.

Current wording

Cost of goods sold increased $1,118 during the six months ended June 30, 2025, 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, 2025, was 78% as compared to 66% for the same period last year. The increase 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 $1.661.

Previous wording

Gross margin was 34% for the three months ended March 31, 2025, compared to 36% for the same period last year.

Current wording

Gross margin was 22% for the six months ended June 30, 2024, compared to 34% for the same period last year.

Previous wording

As of March 31, 2025, we had a cash balance of $4,862 and availability under our Senior Secured Loan of $100. Our Senior Secured Loan, which provides a revolving credit commitment in an aggregate amount of $10,000, is due on November 14, 2025 (see Note 5). The Company is evaluating refinancing alternatives for the Senior Secured Loan, which may include existing or new lenders.

Current wording

As reflected in the accompanying financial statements, for the six months ended June 30, 2025, the Company recorded a net loss of $8,079 and used cash in operations of $10,410. Cash used in operations was primarily for working capital as the Company invested $6,728 in inventory to more effectively fulfill customer demand. As of June 30, 2025, we had a cash balance of $2,677 and availability under our Senior Secured Loan of $100. Our Senior Secured Loan, which provides a revolving credit commitment in an aggregate amount of $10,000, is due on November 14, 2025 (see Note 5). The Company is evaluating refinancing alternatives for the Senior Secured Loan, which may include existing or new lenders.

Previous wording

For the three months ended March 31, 2025, the Company recorded a net loss of $2,031 and used cash in operations of $5,362. Cash used in operations was primarily for working capital as the Company invested $4,194 in inventory to more effectively fulfill customer demand. Historically, we have financed our operations through existing cash balances, cash generated from operations, public and private issuance of common stock, preferred stock, convertible debt instruments, term loans and credit lines from financial institutions.

Current wording

Historically, we have financed our operations through existing cash balances, cash generated from operations, public and private issuance of common stock, preferred stock, convertible debt instruments, term loans and credit lines from financial institutions.

Previous wording

As of the issuance date of the financial statements included in this Quarterly Report on Form 10-Q, management expects that the Company’s existing cash of $4,862, ongoing cash generated from operations, and access to committed financing, will be sufficient to fund the Company’s operating plan, which was approved by the Board of Directors in January 2025, for at least twelve months from the date of issuance of such financial statements; however, if the Company’s management and Board of Directors approve additional growth initiatives and related investment in human resources, working capital, new geographic markets, information technology, and other uses of cash, the Company may require additional funding.

Current wording

As of the issuance date of the financial statements included in this Quarterly Report on Form 10-Q, management expects that the Company’s existing cash of $2,677, cash generated from operations, and access to committed financing will be sufficient to fund the Company’s operating plan, which was approved by the Board of Directors in January 2025, for at least twelve months from the date of issuance of such financial statements; however, if the Company’s management and Board of Directors approve additional growth initiatives and related investment in human resources, working capital, new geographic markets, information technology, and other uses of cash, the Company may require additional funding.

Previous wording

We are also continuing to take actions to improve the Company’s operating performance and cash generated from operations, including outsourcing our manufacturing processes, streamlining our product portfolio, negotiating equitable vendor contracts, and optimizing our selling prices.

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 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.

Previous wording

Net cash used in operating activities totaled $5,362 for the three months ended March 31, 2025, compared to $2,395 for the three months ended March 31, 2024. The increase in net cash used was primarily driven by changes in working capital, particularly an increase in inventory.

Current wording

Net cash used in operating activities totaled $10,410 for the six months ended June 30, 2025, compared to $3,307 for the six months ended June 30, 2024. The increase in net cash used was primarily driven by changes in working capital, particularly an increase in inventory.

Previous wording

Net cash used in investing activities totaled $74 for the three months ended March 31, 2025, compared to $18 for the three months ended March 31, 2024. The increase in net cash used was primarily driven by purchases of property and equipment,

Current wording

Net cash used in investing activities totaled $101 for the six months ended June 30, 2025, compared to $34 for the six months ended June 30, 2024. The increase in net cash used was primarily driven by purchases of property and equipment.

Previous wording

Net cash used in financing activities totaled $93 for the three months ended March 31, 2025, compared to $2,124 net cash provided by financing activities for the three months ended March 31, 2024. The net cash provided by financing activities in the three months ended March 31, 2024 was primarily driven by proceeds from the issuance of a SAFE agreement.

Current wording

Net cash provided by financing activities totaled $2,797 for the six months ended June 30, 2025, compared to $3,064 net cash provided by financing activities for the six months ended June 30, 2024. The net cash provided by financing activities in the six months ended June 30, 2025 was primarily driven by proceeds from the sale of common stock in the Private Placement. The net cash provided by financing activities in the six months ended June 30, 2024 was primarily driven by proceeds from the issuance of a SAFE agreement.