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What changed in REED'S, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of REED'S, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+244 added−423 removedSource: 10-K (2024-04-01) vs 10-K (2023-05-15)

Top changes in REED'S, INC.'s 2023 10-K

244 paragraphs added · 423 removed · 116 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

58 edited+22 added−37 removed45 unchanged
Biggest changeSome of our representative key customers include: ● Natural stores : Whole Foods Market, Sprouts, Natural Grocers by Vitamin Cottage, Fresh Thyme Farmers Market, Mother’s 4 ● Gourmet & specialty stores : Trader Joe’s, Bristol Farms, Lazy Acres, The Fresh Market, Central Market ● Grocery and mass chains : Kroger (and all Kroger banners), Albertson’s/Safeway, Publix, Food Lion, Stop & Shop, H.E.B., Wegmans, Target, Walmart ● Club stores : Costco ● Liquor stores : BevMo!, Total Wine & More, Spec’s ● Convenience & drug stores : CVS Health, Rite Aid Our Distribution Network Our products are brought to market through an extremely flexible and fluid hybrid distribution model, which is a mix of direct-store-delivery, customer warehouse, and distributor networks.
Biggest changeChanges to the retail landscape, including increased consolidation of retail ownership, the continued growth of sales through e-commerce websites and mobile commerce applications, including through subscription services and other direct-to-consumer businesses, the integration of physical and digital operations among retailers and the current economic environment continue to increase the importance of major customers. 4 Some of our representative key customers include: ● Natural stores : Whole Foods Market, Sprouts, Natural Grocers by Vitamin Cottage, Fresh Thyme, NDG, INFRA, Earthfare. ● Gourmet & specialty stores : Trader Joe’s, Erewhon, Gelson’s, Harmon’s, Bristol Farms, The Fresh Market, Woodman’s Cost Plus World Market, Cracker Barrel. ● Grocery and mass chains : Kroger (and all Kroger banners), Albertson’s/Safeway, Publix, Food Lion, Stop & Shop, H.E.B., Wegmans, Walmart, Raley’s, Savemart, Ingles, Harris Teeter, Hannaford, SEG/Winn Dixie, Giant, Spartan Nash, Food Land, Lowes, Smart and Final, Winco, Bashes, Haggen, AFS, Market Basket, Meijer, Cub HvVee. ● Club stores : Costco ● Liquor stores : BevMo!, Total Wine & More. ● Convenience & drug stores : Rite Aid, All Town Fresh Markets.
These outlets include the natural and specialty food channel, grocery stores, mass merchants, drug stores, convenience stores, club stores, liquor stores, and on-premises locations including bars and restaurants. Reed’s two core brands are Reed’s, which includes Reed’s Craft Ginger Beer, Reed’s Real Ginger Ale, Reed’s Mules, and Reed’s Hard Ginger Ale, and Virgil’s Handcrafted sodas.
These outlets include the natural and specialty food channel, grocery stores, mass merchants, drug stores, convenience stores, club stores, liquor stores, and on-premises locations including bars and restaurants. Reed’s two core brands are Reed’s, which includes Reed’s Craft Ginger Beer, Reed’s Real Ginger Ale, Reed’s Classic Mules, and Reed’s Hard Ginger Ale, and Virgil’s Handcrafted sodas.
Reed’s is the leading ginger beer in the US; Virgil’s is an independent natural full line craft soda and is a leader in the craft soda category. Historical Development Reed’s Original Ginger Brew, created in 1987, was introduced to the market in Southern California stores in 1989. By 1990, we began marketing our products through United Natural Foods Inc.
Reed’s is the first ginger beer in the US; Virgil’s is an independent natural full line craft soda and is a leader in the craft soda category. Historical Development Reed’s Original Ginger Brew, created in 1987, was introduced to the market in Southern California stores in 1989. By 1990, we began marketing our products through United Natural Foods Inc.
As of the end of 2022, the Reed’s Craft Ginger Beer line included five major varieties with a mix of bottles and cans: Reed’s Original Ginger Beer – Our first to market product uses a Jamaican-inspired recipe that calls for fresh ginger root, lemon, lime, pineapple juice, honey, raw cane sugar, herbs and spices.
As of the end of 2023, the Reed’s Craft Ginger Beer line included five major varieties with a mix of bottles and cans: Reed’s Original Ginger Beer – Our first to market product uses a Jamaican-inspired recipe that calls for fresh ginger root, lemon, lime, pineapple juice, honey, raw cane sugar, herbs and spices.
Our Primary Markets We target a smaller segment of the estimated $29 billion mainstream carbonated and non-carbonated soft drink markets in the United States. Our brands are generally considered premium and natural, with upscale packaging. They are loosely defined as the craft specialty bottled carbonated soft drink category.
Our Primary Markets We target a smaller segment of the estimated $41 billion mainstream carbonated and non-carbonated soft drink markets in the United States. Our brands are generally considered premium and natural, with upscale packaging. They are loosely defined as the craft specialty bottled carbonated soft drink category.
Department of Treasury, the Alcohol and Tobacco Tax and Trade Bureau ( “ TTB ” ), the U.S. Department of Agriculture, the FDA, state alcohol regulatory agencies and state and federal environmental agencies. Our third-party manufacturers, in particular, are subject to audits and inspections by TTB and applicable state alcohol regulatory agencies at any time.
Department of Treasury, the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), the U.S. Department of Agriculture, the FDA, state alcohol regulatory agencies and state and federal environmental agencies. Our third-party manufacturers, in particular, are subject to audits and inspections by TTB and applicable state alcohol regulatory agencies at any time.
It contains 7% ABV, and a light-spice flavor profile with no artificial colors, gluten, GMOs or caffeine. It is the ultimate mule, made with fresh ginger root, to be enjoyed anytime, anywhere.
It contains 7% ABV, and a light-spice flavor profile with no artificial colors, gluten, GMOs or caffeine. It is the ultimate stormy, made with fresh ginger root, to be enjoyed anytime, anywhere.
Reed’s Premium Ginger Beer – Our Original Ginger Beer sweetened with honey and pineapple juice. (No cane sugar added.) Reed’s Extra Ginger Beer – Contains 50% more fresh ginger than Reed’s Original recipe for extra spice. Reed’s Strongest Ginger Beer – Contains 115% more fresh ginger than Reed’s Original for the strongest spice.
Reed’s Premium Ginger Beer – Our Original Ginger Beer sweetened with honey and pineapple juice. (No cane sugar added.) Reed’s Extra Ginger Beer – Contains 50% more fresh ginger than Reed’s Original recipe for extra spice. Reed’s Strongest Ginger Beer – Contains 125% more fresh ginger than Reed’s Original for the strongest spice.
In 2021, we extended our Ginger Ale offerings with Mocktails, and we entered the alcohol space with the launch of our RTD Classic Mule that is 7% alcohol by volume (“ABV”) and Zero Sugar and Hard Ginger Ale which is 5% ABV and Zero Sugar 2 Reed’s Craft Ginger Beer Reed’s Craft Ginger Beer is set apart from other ginger beers by its proprietary process of pressing fresh ginger root, its exclusive use of natural ingredients, and its authentic Jamaican-inspired recipe.
In 2021, we entered the alcohol space with the launch of our RTD Classic Mule that is 7% alcohol by volume (“ABV”) with Zero Sugar and Hard Ginger Ale which is 5% ABV and Zero Sugar Reed’s Craft Ginger Beer Reed’s Craft Ginger Beer is set apart from other ginger beers by its proprietary process of pressing fresh ginger root, its exclusive use of natural ingredients, and its authentic Jamaican-inspired recipe.
Since our raw materials are common ingredients and supply is easily accessible, we have few long-term contracts in place with our suppliers. Many outside factors such as crop yield, weather, agricultural legislation, and the geopolitical climate could impact supply and price; however, we do source certain ingredients from different regions and suppliers to mitigate some of this risk.
Since our raw materials are common ingredients and supply is easily accessible, we have few long-term contracts in place with our suppliers. Many outside factors such as industry wide shortages, crop yield, weather, agricultural legislation, and the geopolitical climate impact supply and price; however, we do source certain ingredients from different regions and suppliers to mitigate some of this risk.
International markets where our brands are present are France, UK, South Africa, portions of the Caribbean, Canada, Spain, Philippines, Israel and Australia. 5 International sales to some areas of the world are cost prohibitive, except for some specialty sales, since our premium sodas were historically packed in glass, which drives substantial freight costs when shipping overseas.
International markets where our brands are present are France, UK, South Africa, portions of the Caribbean, Canada, Spain, Philippines, Mexico, Vietnam, and Australia. International sales to some areas of the world are cost prohibitive, except for some specialty sales, since our premium sodas were historically packed in glass, which drives substantial freight costs when shipping overseas.
Pursuant to our manufacturing and bottling agreements, we authorize our bottlers to use applicable Reed’s trademarks in connection with their manufacture, sale and distribution of our products. We have registered and intend to obtain additional trademarks in international markets as may become necessary. We use confidentiality and non-disclosure agreements with employees, manufacturers and distributors to protect our proprietary rights. Mr.
Pursuant to our manufacturing and bottling agreements, we authorize our co-packers to use applicable Reed’s trademarks in connection with their manufacture, sale and distribution of our products. We have registered and intend to obtain additional trademarks in international markets as may become necessary. We use confidentiality and non-disclosure agreements with employees, manufacturers and distributors to protect our proprietary rights.
Despite these cost challenges, we believe there are good opportunities to expand internationally, and we are increasing our marketing focus on these areas by adding freight friendly packages such as aluminum cans and also developing manufacturing partnerships in local markets whereby we ship concentrate rather than finished goods.
Despite these cost challenges, we believe there are good opportunities to expand internationally, and we are increasing our marketing focus on these areas by adding freight friendly packages such as aluminum cans and have secured manufacturing partnerships in local markets whereby we ship concentrate rather than finished goods.
We believe the strength of our brands, innovation, and marketing, coupled with the quality of our products and flexibility of our distribution network, allows us to compete effectively. Distribution Agreements We have entered into agreements with some of our distributors that commit us to “termination fees” if we terminate our agreements early or without cause.
We believe the strength of our brands, innovation, and marketing, coupled with the quality of our products and flexibility of our distribution network, allows us to compete effectively. Distribution Agreements Our agreements with some of our distributors commit us to “termination fees” if we terminate our agreements early or without cause.
Bottlers of our beverage products presently offer and use non-refillable, recyclable containers in the United States. Some of these bottlers also offer and use refillable containers, which are also recyclable.
Co-packers of our beverage products presently offer and use non-refillable, recyclable containers in the United States. Some of these co-packers also offer and use refillable containers, which are also recyclable.
Reed’s products are sold across the country and internationally in the following major channels: natural food, specialty food, grocery, mass merchant, convenience, club, drug, liquor, and on-premises locations (bars and restaurants). Carbonated Soft Drink Industry Overview The retail CSD category grew 14% during 2022 and the ginger ale segment grew 13% and is now a $1.5 billion-dollar market.
Reed’s products are sold across the country and internationally in the following major channels: natural food, specialty food, grocery, mass merchant, convenience, club, drug, liquor, and on-premises locations (bars and restaurants). Carbonated Soft Drink Industry Overview The retail CSD category grew 9% during 2023 and the ginger ale segment grew 7% and is now a $1.9 billion-dollar market.
Each Zero Sugar soda is sweetened with a proprietary blend of natural sweeteners with no added sugars and is certified Keto. This natural line of Zero Sugar flavors includes Root Beer, Cola, Black Cherry, Vanilla Cream, Orange Cream, Lemon-Lime, Ginger Ale, Grapefruit and Dr. Better.
Each Zero Sugar soda is sweetened with a proprietary blend of natural sweeteners with no added sugars and is certified Keto. This natural line of Zero Sugar flavors includes Root Beer, Cola, Black Cherry, Vanilla Cream, Orange Cream, and Dr. Better.
We constantly review our distribution agreements with our partners across North America. Some of our outside distributors are not bound by written agreements with us and may discontinue their relationship with us on short notice. Most distributors handle a number of competitive products. In addition, our products are sometimes a small part of our distributors’ businesses.
Some of our outside distributors are not bound by written agreements with us and may discontinue their relationship with us on short notice. Most distributors handle a number of competitive products. In addition, our products are sometimes a small part of our distributors’ businesses.
In 2019, we streamlined our focus to our core categories of Reed’s Ginger Beverages and Virgil’s Craft Sodas. In April 2020, we launched our new line of Reed’s Real Ginger Ales, in both Full Sugar and Zero Sugar varieties, made with fresh organic ginger.
Over the years, Reed’s has developed several product offerings. In 2019, we streamlined our focus to our core categories of Reed’s Ginger Beverages and Virgil’s Craft Sodas. In April 2020, we launched our new line of Reed’s Real Ginger Ales, in both Full Sugar and Zero Sugar varieties, made with fresh organic ginger.
Seasonality Sales of our nonalcoholic beverages are somewhat seasonal with higher-than-average volume in the warmer months. The volume of sales in the beverage business may be affected by weather conditions.
Seasonality Sales of our nonalcoholic beverages are somewhat seasonal with higher-than-average volume in the warmer months. The volume of sales in the beverage business is affected by weather conditions from time to time.
Raw Materials Substantially all of the raw materials used in the preparation, bottling and packaging of our products are purchased by Reed’s or by our contract packers in accordance with our specifications. Raw materials are delivered and stored at our various third-party co-packers.
In the Mule segment, the key players include ‘Merican Mule, Cutwater Mule, and Copper Can. Raw Materials Substantially all of the raw materials used in the preparation, bottling and packaging of our products are purchased by Reed’s or by our contract packers in accordance with our specifications. Raw materials are delivered and stored at our various third-party co-packers.
We believe these areas are a natural fit for Reed’s ginger products because of the popularity and importance of ginger in international markets, especially the Asian market, where ginger is a significant part of the local diet and nutrition.
We believe this area is a natural fit for Reed’s ginger products because of the popularity and importance of ginger in international markets, where ginger is a significant part of the local diet and nutrition.
The principal areas of competition include pricing, packaging, development of new products and flavors, and marketing campaigns. Our products compete with a wide range of drinks produced by a relatively large number of manufacturers. Many of these brands have enjoyed broad, well-established national recognition for years, through well-funded advertising and other branding campaigns.
Our products compete with a wide range of drinks produced by a relatively large number of manufacturers. Many of these brands have enjoyed broad, well-established national recognition for years, through well-funded advertising and other branding campaigns.
Reed’s Zero Sugar Real Ginger Ale – also launched in April 2020 in standard and slim cans. It uses a proprietary sweetening system to match the great taste of the cane sugar version in a zero-calorie drink. Reed’s Mocktails – In 2021 Reed’s line extended its Zero Sugar Ginger Ale, with the launch of Mocktail Flavors.
Reed’s Zero Sugar Real Ginger Ale – also launched in April 2020 in standard and slim cans. It uses a proprietary sweetening system to match the great taste of the cane sugar version in a zero-calorie drink. Reed’s Real Cranberry Ginger Ale – Seasonal product, launch in the fall of 2021 is our Real Ginger Ale with cranberry added.
Ready to Drink: The RTD category refers to canned cocktails that offer convenience and quality for cocktail drinkers. The start of Covid-19, when restaurants and bars closed in March 2020, helped propel the category with consumers bringing the on-premises cocktail occasion to their homes. This was a major boost for canned, single-serve RTDs.
The start of Covid-19, when restaurants and bars closed in March 2020, helped propel the category with consumers bringing the on-premises cocktail occasion to their homes. This was a major boost for canned, single-serve RTDs. Without the recent quality improvements of RTD cocktails, however, it’s unlikely that the category would have taken off.
Today, Reed’s has 45 products that are sold throughout the United States, Canada, the United Kingdom, South Africa and the European Union. It produces its products through a network of nine independent manufacturers and distribution through five independent distribution centers. Going Concern The Company’s financial statements as of December 31, 2022, were prepared on a going concern basis.
Today, Reed’s has 45 products that are sold throughout the United States, Canada, the United Kingdom, South Africa and the European Union. It produces its products through a network of nine independent manufacturers and distribution through five independent distribution centers.
Our strategies will remain responsive to these macro consumer trends as we concentrate our efforts on developing the Company’s sales and marketing functions. Our Products We make our hand-crafted beverages with only premium, natural ingredients. Our products are free of genetically modified organisms (“GMOs”) and artificial preservatives. Over the years, Reed’s has developed several product offerings.
Annual growth is expected to be 3% from 2024 to 2028. 2 Our strategies will remain responsive to these macro consumer trends as we concentrate our efforts on developing the Company’s sales and marketing functions. Our Products We make our hand-crafted beverages with only premium, natural ingredients. Our products are free of genetically modified organisms (“GMOs”) and artificial preservatives.
We also sell our products and promotional merchandise directly to consumers via the Internet through our Amazon storefront which can be accessed through our company web site www.drinkreeds.com .
We also sell our products and promotional merchandise directly to consumers via the Internet through our Amazon storefront which can be accessed through our company web site www.drinkreeds.com . In November 2023 we relaunched this ecommerce platform, which includes a reoccurring subscription model.
We periodically review our co-packing relationships to ensure that they are optimal with respect to quality of production, cost and location. In some instances, subject to agreement, certain equipment may be purchased exclusively by us and/or jointly with our co-packers and installed at their facilities to enable them to produce certain of our products.
In some instances, subject to agreement, certain equipment may be purchased exclusively by us and/or jointly with our co-packers and installed at their facilities to enable them to produce certain of our products.
Our ability to estimate demand for our products is imprecise, particularly with new products, and may be less precise during periods of rapid growth, including in new markets.
For most of our products there are limited co-packing facilities in our markets with adequate capacity and/or suitable equipment to package our products. Further, our ability to estimate demand for our products is imprecise, particularly with new products, and may be less precise during periods of rapid growth, including in new markets.
We employ additional people on a part-time basis as needed. We have never participated in a collective bargaining agreement. We believe relations with our employees are good. Available Information The Company maintains a website at the following address: www.drinkreeds.com. The information on the Company’s website is not incorporated by reference in this report.
Risk Factors.” Employees As of December 31, 2023, we had 21 full-time equivalent employees on our corporate staff. We employ additional people on a part-time basis as needed. We have never participated in a collective bargaining agreement. We believe relations with our employees are good. Available Information The Company maintains a website at the following address: www.drinkreeds.com.
We don’t use any artificial preservatives, any artificial colors, or any GMO-sourced ingredients, and our Virgil’s line is certified kosher. The Virgil’s line includes the following products: Handcrafted Line: Virgil’s first Handcrafted soda was launched in 1994. It began as one man’s passion to create the finest root beer ever produced and has since won numerous awards.
The Virgil’s line includes the following products: Handcrafted Line: Virgil’s first Handcrafted soda was launched in 1994. It began as one man’s passion to create the finest root beer ever produced and has since won numerous awards. Virgil’s difference is using natural ingredients to craft bold, classic soda flavors.
In certain other states and countries where our products are sold, we are also required to collect deposits from our customers and to remit such deposits to the respective jurisdictions based upon the number of cans and bottles of certain carbonated and non-carbonated products sold in such states. 10 Employees As of December 31, 2022, we had 22 full-time equivalent employees on our corporate staff.
In certain other states and countries where our products are sold, we are also required to collect deposits from our customers and to remit such deposits to the respective jurisdictions based upon the number of cans and bottles of certain carbonated and non-carbonated products sold in such states. In addition to the discussion in this section, see also “Item 1A.
Competitors in the ginger beer category include Goslings, Fever Tree, Bundaberg, Cock ‘n Bull and Q; in the craft soda category we compete with brands such as Stewart’s, IBC, Zevia, Henry Weinhard’s, Boylan, Sprechers, and Jones Soda; In the Ginger Ale category we compete with Canada Dry, Schweppes, Seagram’s, Vernor’s, and Zevia.
Competitors in the ginger beer category include Goslings, Barrett’s, Fever Tree, Bundaberg, Cock ‘n Bull and Q; in the craft soda category we compete with brands such as Stewart’s, IBC, Zevia, Henry Weinhard’s, Boylan, Sprechers, and Jones Soda; In the Ginger Ale category we compete with Canada Dry, Schweppes, Seagram’s, Vernor’s, and Zevia. 7 We also compete for distributors who will concentrate on marketing our products over those of our competitors, provide stable and reliable distribution, and secure adequate shelf space in retail outlets.
We follow a “fill as needed” model to the best of our ability and have no significant order backlog.
This partnership supports planning and execution of all inventory movement, assessment of storage needs and cost management. We follow a “fill as needed” model to the best of our ability and have no significant order backlog.
If we materially underestimate demand for our products, and/or are unable to secure sufficient ingredients or raw materials, and/or procure adequate packing arrangements and/or obtain adequate or timely shipment of our products, we might not be able to satisfy demand on a short-term basis. 6 We continue to actively seek alternative and/or additional co-packing facilities with adequate capacity and capability for the production of our various products to minimize transportation costs and transportation-related damages as well as to mitigate the risk of a disruption.
If we materially underestimate demand for our products, and/or are unable to secure sufficient ingredients or raw materials, and/or procure adequate packing arrangements and/or obtain adequate or timely shipment of our products, we are not be able to satisfy demand on a short-term basis.
(See “Government Regulation” below for additional information) Despite our products having a relatively high price for a craft premium beverage product, minimal mass media advertising to date, and a small but growing presence in the mainstream market compared to many of our competitors, we believe our natural innovative beverage recipes, packaging, use of premium ingredients, and a proprietary ginger processing formula provide us with a competitive advantage.
Our products have a relatively high price, we have minimal mass media advertising to date, and a small but growing presence in the mainstream market compared to many of our competitors, Our success in this competitive market is dependent on our natural innovative beverage recipes, brand innovation, packaging, commitment to the highest quality standards, use of premium ingredients, and our proprietary ginger processing formula.
They contain 5% ABV, 100 calories and zero carbohydrates and have no added sugar, artificial colors, gluten, GMOs or caffeine. They are made with fresh ginger root, to be enjoyed anytime, anywhere. Virgil’s Handcrafted Sodas Virgil’s is a premium handcrafted soda that uses only natural ingredients to create bold renditions of classic flavors.
They are made with fresh ginger root, to be enjoyed anytime, anywhere. Virgil’s Handcrafted Sodas Virgil’s is a premium handcrafted soda that uses only natural ingredients to create bold renditions of classic flavors. We don’t use any artificial preservatives, any artificial colors, or any GMO-sourced ingredients, and our Virgil’s line is certified kosher.
Virgil’s difference is using natural ingredients to craft bold, classic soda flavors. Virgil’s Handcrafted line includes Root Beer, Vanilla Cream, Black Cherry, and Orange Cream. Zero Sugar Line: Virgil’s launched a new line of Zero Sugar, Zero Calorie craft sodas in 2019.
Virgil’s Handcrafted line includes Root Beer, Vanilla Cream, Black Cherry, and Orange Cream. Beginning in 2023 Virgil’s Handcrafted soda will be offered in both glass and can formats. Zero Sugar Line: Virgil’s launched a new line of Zero Sugar, Zero Calorie craft sodas in 2019.
Manufacturing Our Products All of Reed’s products are produced by our co-pack partners. They brew, blend, bottle, and package our products and charge us a fee, generally by the case, for the products produced. We have a long-standing relationship with three co-packers in Pennsylvania and two in California.
We continually monitor our distribution agreements with our partners across North America to ensure that they are optimal. Manufacturing Our Products All of Reed’s products are produced by our co-pack partners. They brew, blend, bottle, and package our products and charge us a fee, generally by the case, for the products produced.
Say they are reducing their sugar intake. ● Plant Based : 39% of consumers actively try to eat more plant-based foods. ● Craft: Appeal continues to grow of higher-quality, independent, and more authentic brands. ● Premiumization: A trend towards embracing quality has accelerated during the pandemic with consumers splurging on premium beverages at retail, including premium mixers. ● Better-for-you Mocktails : More consumers are seeking non-alcoholic alternatives with bold and unique flavors.
The global reduced-sugar-food and beverage market is expected to grow at an annual rate of 9% from 2022 to 2030. ● Plant Based : 70% of U.S. consumers are consuming plant-based foods and beverages. ● Craft: Appeal continues to grow of higher-quality, independent, and more authentic brands across many beverage categories. ● Premiumization: A trend towards embracing quality has accelerated during the pandemic with consumers splurging on premium beverages at retail, including premium mixers. 54% of 18 to 34 year olds are likely to choose a premium drink. ● Better-for-you Mocktails : More consumers are seeking non-alcoholic alternatives with bold and unique flavors.
Our commitment to the highest quality standards and brand innovation are keys to our success. Candy Reed’s Crystallized Ginger and Reed’s Ginger Chews restaged their product line up in 2020. The category is small and there is not a significant number of entrants. Key competitors are Chimes and Gin Gins.
Candy Reed’s Crystallized Ginger and Reed’s Ginger Chews restaged their product line up in 2020. The category is small and there is not a significant number of entrants. Key competitors are Chimes and Gin Gins. During 2023, the Company licensed its candy business to Rootstock Trading, a company founded and owned by our former Chief Sales Officer, Neal Cohane.
Without the recent quality improvements of RTD cocktails, however, it’s unlikely that the category would have taken off. Today’s RTD cocktails bring much higher quality versus earlier wine coolers and malt-based hard lemonades. Premiumization has resulted in a new wave of products that boast less sugar and more transparency.
Today’s RTD cocktails bring much higher quality versus earlier wine coolers and malt-based hard lemonades. Premiumization has resulted in a new wave of products that boast less sugar and more transparency. Variety has also been a key driver, allowing consumers ways to experiment without buying costly ingredients or spirits.
We are generally responsible for arranging for the purchase and delivery to our third-party co-packers of the containers in which our beverage products are packaged. In December 2017, we entered into an exclusive strategic partnership with Owens-Illinois (glass), and in February 2018 we entered into a strategic partnership with Crown Cork & Seal for aluminum cans.
Glass Bottles and Aluminum Cans A significant component of our product cost is the purchase of glass bottles and aluminum cans. We are generally responsible for arranging for the purchase and delivery to our third-party co-packers of the containers in which our beverage products are packaged.
Wholesale Distribution We utilize a network of five independent distribution and consolidation centers across the United States to store and distribute our products. Our Wholesale Distributor network handles the wholesale shipments of our products. These distributors have a warehouse and distribution center, and ship Reed’s and Virgil’s products directly to the retailer (or to customers who opt for drop shipping).
Wholesale Distribution We utilize a network of four independent distribution and consolidation centers across the United States to store and distribute our products. Our Wholesale Distributor network handles the wholesale shipments of our products.
Reed is also subject to an intellectual property agreement with Reed’s restricting competition consistent with his fiduciary obligations to Reed’s. Regulation Our Company is required to comply, and it is our policy to comply with all applicable laws in all jurisdictions in which we do business.
Regulation We are required to comply, and it is our policy to comply with all applicable laws in all jurisdictions in which we do business.
It is a consumer favorite during the holiday season and is available October through December. 3 Reed’s Ready to Drink Reed’s Zero Sugar Classic Mule – Launched in 2020 and expanded to 42 states in 2022, Reed’s first-ever alcoholic offering is packed with REAL, fresh ginger root and made through a unique handcrafted brewing and fermentation process.
Reed’s Ready to Drink Reed’s Zero Sugar Classic Mule – Launched in 2020 and now sold in 23 states, Reed’s first-ever alcoholic offering is packed with REAL, fresh ginger root and made through a unique handcrafted brewing and fermentation process. It contains 7% ABV, and a light-spice flavor profile with no artificial colors, gluten, GMOs or caffeine.
Reed’s Zero Sugar Stormy Mule – Launched in 2022 , the Stormy is the perfect companion to our Classic Mule, the Stormy Mule is the ultimate rum flavored alcohol and ginger beer. It contains 7% ABV, and a light-spice flavor profile with no artificial colors, gluten, GMOs or caffeine.
It is the ultimate mule, made with fresh ginger root, to be enjoyed anytime, anywhere. Reed’s Zero Sugar Stormy Mule – Launched in 2022 , the Stormy is the perfect companion to our Classic Mule, the Stormy Mule is the ultimate rum flavored alcohol and ginger beer.
Warehousing and Logistics are a significant portion of the Company’s operational costs. In order to drive efficiency and reduce costs, on February 1, 2019, we entered into a strategic partnership with FitzMark to manage all freight movement for the Company.
In order to drive efficiency and reduce costs, on February 1, 2019, we entered into a strategic partnership with FitzMark to manage all freight movement for the Company. FitzMark is one of the largest distribution service providers in North America and has expertise that will provide a competitive advantage in the movement of raw materials and finished goods.
We believe our new business model enhances our ability to be nimble and innovative, producing category leading new products in a short period of time. Competition Nonalcoholic Beverages The nonalcoholic beverage segment of the commercial beverage industry is highly competitive, consisting of numerous companies ranging from small or emerging to very large and well established.
We believe our new business model enhances our ability to be nimble and innovative, producing category leading new products in a short period of time.
Top selling brands in the category are High Noon, Cutwater Spirits, On The Rocks, Jose Cuervo, 1800 Tequila, Buzzballz, Bacardi, The Long Drink Company, and Fisher’s Island. In the Mule segment, the key players include ‘Merican Mule, Cutwater Mule, and Copper Can.
Reed’s is poised to leverage these trends by bringing high-quality, crafted Mules made with real fresh ginger to the market. Top selling brands in the category are High Noon, Cutwater Spirits, On The Rocks, Jose Cuervo, 1800 Tequila, Buzzballz, Bacardi, The Long Drink Company, and Fisher’s Island.
It is the ultimate stormy, made with fresh ginger root, to be enjoyed anytime, anywhere. Reed’s Zero Sugar Hard Ginger Ale - Launched in late 2002, our line of light refreshing hard ginger ales are available in four flavors: Mango, Cherry Lime, Strawberry Watermelon and Pineapple Coconut.
Reed’s Zero Sugar Hard Ginger Ale – Launched in late 2002, our line of light refreshing hard ginger ales are available in four flavors: Mango, Cherry Lime, Strawberry Watermelon and Pineapple Coconut. They contain 5% ABV, 100 calories and zero carbohydrates and have no added sugar, artificial colors, gluten, GMOs or caffeine.
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. 1 Industry Overview Reed’s offers its portfolio of natural hand-crafted beverages in the craft specialty foods industry as natural alternatives to the $29 billion mainstream carbonated soft drinks (“CSD”) market in the United States as measured by IRI Multi Outlet scan data.
We are a reporting company currently registered under section 12(g) of the Securities Exchange Act of 1934, as amended. 1 Industry Overview Reed’s offers its portfolio of natural hand-crafted beverages in the craft specialty foods industry as natural alternatives to the $41 billion mainstream carbonated soft drinks (“CSD”) market in the United States as measured by IRI Multi Outlet scan data.
International Distribution We presently export Reed’s and Virgil’s brands throughout international markets via US based exporters.
These distributors have a warehouse and distribution center, and ship Reed’s and Virgil’s products directly to the retailer (or to customers who opt for drop shipping). 5 International Distribution We presently export Reed’s and Virgil’s brands throughout international markets via US based exporters.
During 2022 we entered into an agreement with a packaging broker to supply us with 25 million sleek and standard 12-ounce cans during 2023.
We source glass bottles directly from manufacturers or indirectly through brokers or co-packers, based on their cost and availability regionally. During 2022 we entered into a three year agreement with a packaging broker to supply us with sleek and standard 12-ounce cans though the year 2025.
Consumer Trends Driving Growth for Our Products The following is a list of consumer trends that are accelerating as we exit the pandemic, and which support our brands. ● Natural : Interest in natural products has gone mainstream. ● Clean Label : 62% of Americans are avoiding at least one ingredient. ● Reduced Sugar : A favorable trend for our zero-sugar beverages, 67% of consumers prefer low or no sugar soft drinks.
Consumer Trends Driving Growth for Our Products The following is a list of consumer trends that are accelerating and support our brands. ● Natural : Interest in natural products has gone mainstream with annual growth expected to be 11.4% from 2022 through 2030. ● Clean Label : 31% of all food and beverage launches between 2022 and 2030 contained clean labels. ● Reduced Sugar : Most consumers – 72% are looking to limit or avoid sugar.
Outside the United States, the distribution and sale of our many products and related operations are also subject to numerous similar and other statutes and regulations. 9 The Safe Drinking Water and Toxic Enforcement Act of 1986 (“Proposition 65”) of the state of California requires a specific warning to appear on any product containing a component listed by the state as having been found to cause cancer or birth defects.
We are subject to various state and local statutes and regulations, including state consumer protection laws such as Proposition 65 in California, which requires that a specific warning appear on any product that contains a substance listed by the State of California as having been found to cause cancer or birth defects, unless the amount of such substance in the product is below a safe harbor level.
The distribution system used depends on customer needs, product characteristics, and local trade practices.
Our Distribution Network Our products are brought to market through an extremely flexible and fluid hybrid distribution model, which is a mix of direct-store-delivery, customer warehouse, and distributor networks. The distribution system used depends on customer needs, product characteristics, and local trade practices.
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For the year ended December 31, 2022, the Company recorded a net loss of $20,057 and used cash in operations of $15,530, and as of December 31, 2022, the Company had stockholders’ deficit of $8,470, and negative working capital of $1,563.
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Our Move to the OTCQX “Best Market” Our stock traded on the Nasdaq Capital Market from 2007 to 2013 and again form May 2019 through February 16, 2023. We voluntarily transferred to and from the NYSE American between 2013 and May 2019.
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These conditions 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.
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On August 16, 2021, we received a written notice from The Nasdaq Stock Market LLC (“Nasdaq”) that we were no longer in compliance with the bid price rule. On January 25, 2023, we effectuated a 1-for-50 reverse stock split of our issued and outstanding shares of common stock. On January 27, 2023, we achieved compliance with the bid price rule.
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In addition, the Company’s independent registered public accounting firm, in their report on the Company’s December 31, 2022, audited financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. As of December 31, 2022, we had a cash balance of $533 with borrowing capacity of $1,663.
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However, we fell out of compliance with Nasdaq’s minimum stockholders’ equity rule, and, after evaluating options to achieve compliance, our board of directors determined not to proceed with a dilutive capital raise. On February 14, 2023, we were delisted from the Nasdaq Capital Market. On February 16, 2023, our common stock began quotation on the OTCQX “Best Market”.
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The Company believes that its current level of cash and cash equivalents are not sufficient to fund its operations for the next 12 months. Our ability to continue as a going concern is dependent upon our ability to obtain additional financing, drive further operating efficiencies, reduce expenditures, and ultimately, create profitable operations.
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It is a consumer favorite during the holiday season and is available October through December. 3 Reed’s Harvest Spiced Apple Cider – This seasonal product launched in the fall of 2022 and is a delicious holiday offering available September through December.
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We may not be able to obtain additional capital on reasonable terms. Our financial statements do not include adjustments that would result from the outcome of this uncertainty.
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We currently have production facilities in the U.K. and will be expanding into the European Union during 2024. We are open to exporting and co-packing internationally and expanding our brands into foreign markets and believe that our new partnership with D and D Holdings will advance our ability to successfully penetrate the continent of Asia.
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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.
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We have a long-standing relationship with two co-packers in Pennsylvania and one in California, one in Washington state and one in New York state. We are actively expanding co-packing capacity and building finished goods inventory. During 2023, we entered into co-packing agreements with a new facility in the Southeast United States and a co-packer in North Carolina, Battle Co-Packaging.
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As we seek additional sources of financing, there can be no assurance that such financing will be available to us on favorable terms or at all.
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Our agreement with Battle Co-Packaging serves to expand our production for both bottles and cans and will allows us to better serve our Southeast and south-central customers and grow our sales in the region. We are also in discussions and negotiations with additional co-packers to secure added capability for future production needs.
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It uses our proprietary sweetening system to match the great taste of the cane sugar version in a zero-calorie drink. The two flavors are Shirley Tempting and Transfusion. Reed’s Real Cranberry Ginger Ale – This seasonal product, launch in the fall of 2021 is our Real Ginger Ale with cranberry added.
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We have experienced disruptions and delays in production that have impacted our operations and revenues and there can be no assurances that we will not encounter such disruptions in the future.
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We are open to exporting and co-packing internationally and expanding our brands into foreign markets, and we have held preliminary discussions with trading companies and import/export companies for the distribution of our products throughout Asia, Europe, Australia, and South America.
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We continue to actively seek alternative and/or additional co-packing facilities with adequate capacity and capability for the production of our various products to minimize transportation costs and transportation-related damages as well as to mitigate the risk of a disruption. 6 Warehousing and Logistics are a significant portion of the Company’s operational costs.
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During 2020 we entered into co-packing agreements with a co-packer on the East Coast, Clinton’s Ditch, and on the West Coast, Noel Canning. We are in discussions and negotiations with additional co-packers to secure added capability for future production needs.
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We are in the process of formulating new products that leverage fresh organic ginger to create a portfolio of beverages targeting the “better-for-you” lifestyle category. We look forward to unveiling these products in the back half of the year with a soft launch during Q4.
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For most of our products there are limited co-packing facilities in our markets with adequate capacity and/or suitable equipment to package our products.
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Competition Nonalcoholic Beverages Success in this competitive environment is dependent on effective promotion of existing products, effective introduction of new products and reformulations of existing products, increased efficiency in production techniques, effective incorporation of technology and digital tools across all areas of our business, the effectiveness of our advertising campaigns, marketing programs, product packaging and pricing, new vending and dispensing equipment and brand and trademark development and protection.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThere can be no assurance that economic improvements will occur, or that they would be sustainable, or that they would enhance conditions in markets relevant to us. In addition, we cannot predict the duration and severity of disruptions in any of our markets or the impact they may have on our customers or business.
Biggest changeIn addition, we cannot predict how current or future economic conditions will affect our business partners, including financial institutions with whom we do business, and any negative impact on any of the foregoing may also have an adverse impact on our business. 13 Future cyber incidents and other disruptions to our information systems can adversely affect our business.
Significant changes to or failure to comply with various environmental laws may our co-packers to liability or cause them to close, relocate or operate at reduced production levels, which could adversely affect our business, financial condition and results of operations.
Environmental Risk Factors Significant changes to or failure to comply with various environmental laws may our co-packers to liability or cause them to close, relocate or operate at reduced production levels, which could adversely affect our business, financial condition and results of operations.
None of the manufacturing processes used in producing our products are subject to a patent or similar intellectual property protection. Our only protection against a third party using our recipes and processes is confidentiality agreements with the companies that produce our beverages and with our employees who have knowledge of such processes.
Our manufacturing process is not patented. None of the manufacturing processes used in producing our products are subject to a patent or similar intellectual property protection. Our only protection against a third party using our recipes and processes is confidentiality agreements with the companies that produce our beverages and with our employees who have knowledge of such processes.
Climate change may also exacerbate water scarcity and cause a further deterioration of water quality in affected regions, which could limit water availability for our independent bottlers. Increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt our supply chain or impact demand for our products.
Climate change may also exacerbate water scarcity and cause a further deterioration of water quality in affected regions, which could limit water availability for our independent cop-packers. Increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt our supply chain or impact demand for our products.
Some of these factors include: ● the level of demand for our brands and products in a particular distribution area; ● our ability to price our products at levels competitive with those of competing products; and ● our ability to deliver products in the quantity and at the time ordered by distributors, retailers and brokers.
Some of these factors include: (i) the level of demand for our brands and products in a particular distribution area; (ii) our ability to price our products at levels competitive with those of competing products; and (iii) our ability to deliver products in the quantity and at the time ordered by distributors, retailers and brokers.
Our inability to achieve success with regards to any of these factors in a geographic distribution area will have a material adverse effect on our relationships in that particular geographic area, thus limiting our ability to maintain or expand our market, which will likely adversely affect our revenues and financial results. 15 We incur significant time and expense in attracting and maintaining key distributors.
Our inability to achieve success with regards to any of these factors in a geographic distribution area will have a material adverse effect on our relationships in that particular geographic area, thus limiting our ability to maintain or expand our market, which will likely adversely affect our revenues and financial results.
It is possible that our competitors may either respond to industry conditions or consumer trends more rapidly or effectively or resort to price competition to sustain market share, which could adversely affect our sales and profitability. Adverse public opinion about alcohol could reduce demand for our products.
It is possible that our competitors may either respond to industry conditions or consumer trends more rapidly or effectively or resort to price competition to sustain market share, which could adversely affect our sales and profitability.
If our competitors develop substantially equivalent proprietary information or otherwise obtain access to our knowledge, we will have greater difficulty in competing with them for business, and our market share could decline.
If our competitors develop substantially equivalent proprietary information or otherwise obtain access to our knowledge, we will have greater difficulty in competing with them for business, and our market share could decline If we are unable to adequately protect our intellectual property rights, or if we are found to infringe on the intellectual property rights of others, our business can be adversely affected.
If we materially underestimate demand for our products or are unable to maintain sufficient inventory of raw materials, we might not be able to satisfy demand on a short-term basis.
When we underestimate demand for our products, are unable to secure sufficient ingredients or raw materials or procure adequate packing arrangements to obtain adequate or timely shipment of our products, we are not be able to satisfy demand on a short-term basis.
Water is a main ingredient in substantially all of our products, is vital to the production of the agricultural ingredients on which our business relies and is needed in our manufacturing process. It also is critical to the prosperity of the communities we serve and the ecosystems in which we operate.
Water scarcity and poor quality could negatively impact our costs and capacity. Water is a main ingredient in substantially all of our products, is vital to the production of the agricultural ingredients on which our business relies and is needed in our manufacturing process.
The effects of climate change and legal or regulatory initiatives to address climate change could have a long-term adverse impact on our business and results of operations. . Adverse weather conditions could reduce the demand for our products. The sales of our products are influenced to some extent by weather conditions in the markets in which we operate.
The effects of climate change and legal or regulatory initiatives to address climate change could have a long-term adverse impact on our business and results of operations. 16
During the year ended December 31, 2022, the Company had two customers that accounted for approximately 17% and 16% of its sales, respectively; and during the year ended December 31, 2021, the Company had two customers that accounted for approximately 19% and 11% of its sales, respectively.
During the year ended December 31, 2023, we had two customers that accounted for approximately 24% and 15% of its sales, respectively; and during the year ended December 31, 2022, we had two customers that accounted for approximately 17% and 16% of its sales, respectively. These two customers serve hundreds if not thousands of various retail chains and end customers.
Upon a default, our secured lenders would have the right to exercise their rights and remedies to collect, which would include foreclosing on our assets. Accordingly, a default would have a material adverse effect on our business, and we would likely be forced to seek bankruptcy protection.
Upon a default, the holders have the right to exercise their remedies to collect, including foreclosing on our assets. Accordingly, we would likely be forced to seek bankruptcy protection in the event of default. Business and Operational Risks Failure to realize benefits from our productivity initiatives can adversely affect our financial performance.
(Beneficial ownership is calculated pursuant to Section 13d-3 of the Securities Exchange Act of 1934, as amended, and includes shares underlying derivative securities which may be exercised or converted within 60 days.) If securities analysts or industry analysts downgrade our shares, publish negative research or reports, or do not publish reports about our business, our share price and trading volume could decline.
(Beneficial ownership is calculated pursuant to Section 13d-3 of the Securities Exchange Act of 1934, as amended, and includes shares underlying derivative securities which may be exercised or converted within 60 days.) Our largest stockholder’s preemptive right could dissuade a strategic investor from making an investment in the Company. Our largest stockholder, D&D Source of Life Holding, Ltd.
Our reliance on distributors, retailers and brokers could affect our ability to efficiently and profitably distribute and market our products, maintain our existing markets and expand our business into other geographic markets.
If a co-packer terminates its relationship with us, we are have in the past, and will likely in the future, experience a delay finding a suitable replacement, which will negatively impact or business and financial results. 11 Our reliance on distributors, retailers and brokers could affect our ability to efficiently and profitably distribute and market our products, maintain our existing markets and expand our business into other geographic markets.
If we are unable to service or repay these obligations at maturity and we are otherwise unable to extend the maturity dates or refinance these obligations, we would be in default. We cannot provide any assurances that we will be able to raise the necessary amount of capital to service these obligations.
If we are unable to service or repay these obligations at maturity and we are otherwise unable to extend the maturity dates or refinance these obligations, we may default. A default would trigger acceleration under the Notes, and it is unlikely that we would have sufficient funds to make these payments.
We may not be able extend or repay our current obligations, which could impact our ability to continue to operate as a going concern. Our ability to service our indebtedness will depend on our ability to generate cash in the future.
There may be other risks we are not currently aware of or that we currently deem not to be material but that may become material in the future. Risks Related to Our Debt Service Obligations Our ability to service our indebtedness will depend on our ability to generate cash in the future.
Collectively, members of our board of directors and our executive officers hold approximately 23.3% of the Company’s outstanding common stock, beneficially own approximately 29.3% of our common stock and may greatly influence the outcome of all matters on which stockholders vote.
Our Chairman and Vice Chairman are significant stockholders and may greatly influence the outcome of all matters on which stockholders vote. After the conversion of the SAFE investment, Shufen Deng, our Vice Chairman, will beneficially own approximately 47% of our common stock and John J. Bello, our Chairman, will beneficially own approximately 9% of our common stock.
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Item 1A. Risk Factors The following are some of the risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to us.
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Item 1A. Risk Factors The following risks, some of which have occurred and any of which may occur in the future, can have a material adverse effect on our business or financial performance, which in turn can affect the price of our publicly traded securities. These are not the only risks we face.
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Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business. All forward-looking statements in this document are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements.
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At December 31, 2023, our outstanding obligation our 10% Secured Convertible Notes (“Notes”) was approximately $18.1 million and the balance on our ABL line of credit was approximately $9.9 million.
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Summary of Material Risk Factors ● We have a history of operating losses.
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However, such alternatives may not be feasible or adequate. Holders of our 10% Secured Convertible Notes (“Notes”) have been amenable to making accommodations under the Notes by waiving conditions and financial covenants in exchange for certain negotiated penalties in lieu of declaring default.
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Our estimates regarding the sufficiency of our cash resource and capital requirements and needs for additional financing raises substantial doubt about our ability to continue as a going concern. ● We may not be able to extend or repay our indebtedness owed to our secured lenders, which would have a material adverse effect on our financial condition and ability to continue as a going concern. ● We require additional financing to support our working capital and execute our operating plans for fiscal 2023, which may not be available or may be costly and dilutive. ● We rely on contract packers to manufacture our products. ● If we are not able to pass on increases in the costs of raw materials, including aluminum cans, ingredients, fuel and/or costs of co-packing or if we experience shortages of such raw materials, our business and results of operations could be materially, adversely affected and result in a higher cost base. ● Our failure to accurately estimate demand for our products or maintain sufficient inventory levels could adversely affect our business and financial results. 11 ● Our business is subject to seasonality, which may cause fluctuations in our operating results. ● The costs of packaging supplies, ocean and domestic freight, and inflation generally may adversely affect our results of operations. ● Global or regional catastrophic events, such as the military conflict in Ukraine, could impact our operations and affect our ability to grow our business. ● The COVID-19 pandemic has impacted and may continue to impact our business and operations. ● Climate change and natural disasters may negatively affect our business. ● If we are not able to retain the services of our workforce, there may be an adverse effect on our operations and/or our operating performance until we find suitable replacements. ● Regulations imposing excise taxes on sweetened beverages may adversely affect our business, financial condition or results of operations and inhibit the sales of products. ● Regulations concerning alcohol beverages may adversely affect our business, financial condition or results of operations and inhibit the sales of such products. ● Significant changes to or failure to comply with various environmental laws may expose us to liability and/or cause certain facilities of our co-packers to close, relocate or operate at reduced production levels, which could adversely affect our business, financial condition and results of operations. ● Uncertainty in the financial markets and other adverse changes in general economic or political conditions could adversely affect our industry, business and results of operations.
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If do not meet our obligations under the Notes and are unable to negotiate accommodations in the future, the Note holders may declare a default, which would likely force us into bankruptcy. At December 31, 2023, our outstanding obligation under the Notes was approximately $18.1 million. The Notes are secured by substantially all of the company’s assets.
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Risk Factors Relating to Our Business There is Substantial doubt about our ability to continue as a going concern. The Company’s financial statements as of December 31, 2022, were prepared on a going concern basis.
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We have negotiated an extension under the Notes, subject to meeting certain conditions and executing documentation. As such the maturity date will be in April 2024. The indebtedness under the Notes limits our growth, and management of the debt requires a significant amount of time and effort of our executive officers.
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For the year ended December 31, 2022, the Company recorded a net loss of $20,057 and used cash in operations of $15,530, and as of December 31, 2022, the Company had stockholders’ deficit of $8,470, and negative working capital of $1,563.
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While we have been successful negotiating waivers and amendments under the Notes, we may not be able to continue to do so in the future. We have further been exploring our options to refinance these Notes.
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These conditions 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.
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Our future growth depends, in part, on our ability to continue to reduce costs and improve efficiencies. We continue to identify and implement initiatives that we believe will position our business for long-term sustainable growth by allowing us to achieve a lower cost structure, improve decision-making and operate more efficiently.
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In addition, the Company’s independent registered public accounting firm, in their report on the Company’s December 31, 2022, audited financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. As of December 31, 2022, we had a cash balance of $533 with borrowing capacity of $1,663.
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If we are unable to successfully implement our productivity initiatives as planned or do not achieve expected savings as a result of these initiatives, we may not realize all or any of the anticipated benefits, resulting in adverse effects on our financial performance.
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The Company believes that its current level of cash and cash equivalents are not sufficient to fund its operations for the next 12 months. Our ability to continue as a going concern is dependent upon our ability to obtain additional financing, drive further operating efficiencies, reduce expenditures, and ultimately, create profitable operations.
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Demand for our products can fluctuate significantly and our management’s estimates of future product demand may be inaccurate, particularly with new product. Further, we may are subject to a variety of other factors that impact timely production and shipment of our products. Our business and results of operations are impacted by product shortages as well as product surplus.
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We may not be able to obtain additional capital on reasonable terms. Our financial statements do not include adjustments that would result from the outcome of this uncertainty.
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Management’s estimates of future product demand may be inaccurate, which could result in an understated or overstated provision required for excess and obsolete inventory. At December 31, 2023, and 2022, inventory has been reduced by cumulative write-downs for inventory aggregating $1,848 and $479, respectively.
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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.
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Additionally, our larger distributors and partners may make orders that are larger than we have historically been required to fill. Further, all of our products are produced by our co-pack partners. For most of our products there are limited co-packing facilities in our markets with adequate capacity and/or suitable equipment to package our products.
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As we seek additional sources of financing, there can be no assurance that such financing will be available to us on favorable terms or at all.
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Supply chain challenges have impacted our ability to benefit from strong demand for, and increased sales of our products and adversely impacted our business. Disruption of our production or supply chain, including continued increased commodity, packaging, transportation, labor and other input costs, can adversely affect our business.
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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. 12 We have significant obligations under payables and debt obligations. Our ability to operate as a going concern are contingent upon successfully obtaining additional financing.
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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.
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Failure to do so would adversely affect our ability to continue operations. If capital is not available, we may then need to scale back or freeze our organic growth plans, sell our business under unfavorable terms, and reduce expenses to manage our liquidity and capital resources.
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The raw materials and other supplies, including agricultural commodities, fuel and packaging materials, transportation, labor and other supply chain inputs that are required for the manufacturing, production and distribution of our products are subject to price volatility and fluctuations in availability caused by many factors, including changes in supply and demand, supplier capacity constraints, inflation, weather conditions (including potential effects of climate change), fire, natural disasters, disease or pests, agricultural uncertainty, health epidemics or pandemics or other contagious outbreaks (including COVID-19), labor shortages or changes in availability of our or our business partners’ workforce (including the lack of availability of truck drivers as a result of COVID-19), strikes or work stoppages (including by railway workers or other third parties involved in the manufacture, production and distribution of our products), governmental incentives and controls (including import/export restrictions, such as new or increased tariffs, sanctions, quotas or trade barriers), port congestions or delays, transport capacity constraints, cybersecurity incidents or other disruptions, loss or impairment of key manufacturing sites, political uncertainties, geopolitical events, wars and other military conflicts, acts of terrorism, governmental instability or currency exchange rates.
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Our ability to make payments on our indebtedness (including our Notes) will depend on our ability to generate cash in the future. Our ability to generate cash is subject to general economic and market conditions and financial, competitive, legislative, regulatory and other factors that are beyond our control.
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Many of our raw materials and supplies are purchased in the open market and the prices we pay for such items are subject to fluctuation. Although we have experienced decreases in freight costs over the last three quarters, we believe there remains a volatile environment, and we continue to monitor pricing and availability in transportation.
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However, such alternatives may not be feasible or adequate. Holders of the Notes agreed to waive certain provisions of the Notes resulting from the delisting of the Company’s common stock from the Nasdaq Capital Market and the resulting Fundamental Change and Make-Whole Fundamental Change subject to certain conditions, through May 1, 2023.
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When input prices increase unexpectedly or significantly, we may be unwilling or unable to increase our product prices or unable to effectively hedge against price increases to offset these increased costs without suffering reduced volume, revenue, margins and operating results The disruption we experiences caused by labor shortages, significant raw material cost inflation, logistics issues and increased freight costs, and ongoing port congestion, resulted in suppressed margins.
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In the event of a Make-Whole Fundamental Change under the Notes, the holders of the Notes would have the right to require the Company to repurchase the Notes at a purchase price of 100% of the principal amount held by such holder, plus accrued and unpaid interest through, but not including, the repurchase date.
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We could continue to experience disruption in our manufacturing operations and supply chain. Reduction in future demand for our products would adversely affect our business.
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In addition, we would also be required to pay the holders of the Notes a Make-Whole Fundamental Change payment. The repurchase of the Notes as a result of a Make-Whole Fundamental Change would likely render us insolvent and result in some type of bankruptcy, insolvency, liquidation, or reorganization event for the company.
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Demand for our products depends in part on our ability to innovate and anticipate and effectively respond to shifts in consumer trends and preferences, including the types of products our consumers want and how they browse for, purchase and consume them.
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Such an event could result in substantial dilution to investors in our common stock.
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Consumer preferences continuously evolve due to a variety of factors, including: changes in consumer demographics, consumption patterns, diet (whether due to changes in consumer behavior and eating habits, the use of weight-loss drugs or other factors) and channel preferences (including continued increases in the e-commerce and online-to-offline channels); pricing; product quality; concerns or perceptions regarding packaging and its environmental impact (such as single-use and other plastic packaging); and concerns or perceptions regarding the nutrition profile and health effects of, or location of origin of, ingredients or substances in our products or packaging, including due to the results of third-party studies (whether or not scientifically valid).
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While we expect the holders to provide further accommodations regarding this provision, there can be no assurances that they will be able to continue to do so or that the conditions imposed will be reasonable. 13 In the event that management proceeds with sale assets rather than continuing to hold and operate all its assets long term, management’s assessment of the fair value, and ultimate recoverability, of goodwill, intangibles, and other long-lived assets would be impacted and the Company could incur significant noncash charges and cash exit costs in future periods.
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Concerns with any of the foregoing could lead consumers to reduce or publicly boycott the purchase or consumption of our products. Pandemics, epidemics or other disease outbreaks, such as COVID-19, and geopolitical events, wars and other military conflicts have also impacted and could continue to impact consumer preferences and demand for our products.
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In the event that additional working capital is not available, we may be forced to scale back or freeze our growth plans, sell assets on less than favorable terms, reduce expenses, and/or curtail future plans to manage our liquidity and capital resources.
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Consumer preferences are also influenced by perception of our brand image or the brand images of our products, the success of our advertising and marketing campaigns, our ability to engage with our consumers in the manner they prefer, including through the use of digital media or assets, and the perception of our use of social media and our response to political and social issues, geopolitical events, wars and other military conflicts or catastrophic events.
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In the event that management elects to proceed with asset sales in the future rather than continue to hold and operate all its assets long term, management’s assessment of the fair value, and ultimate recoverability, of goodwill, intangibles, and other long-lived assets would be impacted and the Company could incur significant noncash charges and cash exit costs in future periods.
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These and other factors have reduced and could continue to reduce consumers’ willingness to purchase certain of our products, including as a result of public boycotts.
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We may not be able to extend or repay our indebtedness owed to our secured lenders, which would have a material adverse effect on our financial condition and ability to continue as a going concern.
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Any inability on our part to anticipate or react to changes in consumer preferences and trends, or make the right strategic investments to do so, including investments in data analytics to understand consumer trends, can lead to reduced demand for our products, lead to inventory write-offs or erode our competitive and financial position, thereby adversely affecting our business.
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We require additional financing to support our working capital and execute our operating plans for 2023, which may not be available or may be costly and dilutive. We require additional financing to support our working capital needs and fund our operating plans for fiscal 2023.
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In addition, our business operations, including our supply chain, are subject to disruption by geopolitical events, wars and other military conflicts, natural disasters, pandemics, epidemics or other events beyond our control that could negatively impact product availability and decrease demand for our products. 12 Damage to our reputation or brand image can adversely affect our business.
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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.
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Maintaining a positive reputation is critical to selling our products.
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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.
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Our reputation or brand image could be adversely impacted by a variety of factors, including: particular ingredients in our products, including concerns regarding whether certain of our products contribute to obesity and other health conditions; any product quality or safety issues, including the recall of any of our products; any failure to comply with laws and regulations; marketing programs, use of social media; or any failure to effectively respond to negative or inaccurate comments about us on social media or otherwise regarding any of the foregoing.
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Additionally, these alternatives may require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives may not provide us with sufficient funds to meet our long-term capital requirements. Our indebtedness and liquidity needs could restrict our operations and make us more vulnerable to adverse economic conditions.
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Damage to our reputation or brand image could decrease demand for our products, thereby adversely affecting our business. Product recalls or other issues or concerns with respect to product quality and safety can adversely affect our business. We have recalled, and could in the future recall, products due to product quality or safety issues, such as mislabeling, spoilage or malfunction.
Removed
Our existing indebtedness may adversely affect our operations and limit our growth, and we may have difficulty making debt service payments on such indebtedness as payments become due. We may also experience the occurrence of events of default or breach of financial covenants. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired.
Added
Product quality or safety issues could reduce consumer confidence and demand for our products, cause production and delivery disruptions, and result in increased costs (including payment of fines, judgments and legal fees, and costs associated with alternative sources of production) and damage our reputation, all of which can adversely affect our business.
Removed
If we violate any of the restrictions or covenants, a significant portion of our indebtedness may become immediately due and payable, our lenders’ commitment to make further loans to us may terminate. We might not have, or be able to obtain, sufficient funds to make these accelerated payments. Risks associated with the conflict in Ukraine.
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Any perception or allegation (whether or not valid) of failure to maintain adequate oversight over product quality or safety can result in product recalls, litigation, government investigations or inquiries or civil, all of which may result in fines, penalties and damages.
Removed
The conflict in Ukraine has continued to result in worldwide geopolitical and macroeconomic uncertainty.
Added
In addition, while we currently maintain insurance coverage that, subject to its terms and conditions, is intended to address costs associated with certain aspects of product recalls, this insurance coverage may not, depending on the specific facts and circumstances surrounding an incident, cover all losses or all types of claims that arise from an incident, or the damage to our reputation or brands that may result from an incident.
Removed
The conflict has resulted and could continue to result in volatile commodity markets, supply chain disruptions, increased risk of cyber incidents or other disruptions to our information systems business disruptions, limitations on access to credit markets and other corporate banking services, including working capital facilities, reduced availability and increased costs for transportation, energy and packaging and raw materials and other input costs.
Added
Any inability to compete effectively can adversely affect our business. Our products compete against products of international beverage companies as well as regional, local and private label and economy brand manufacturers and other competitors, including smaller companies developing and selling micro brands directly to consumers through e-commerce platforms or through retailers focused on locally sourced products.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings From time to time, we are a party to ordinary, routine litigation incidental to our business. Our management evaluates our exposure to these claims and proceedings individually and in the aggregate and provides for potential losses on such litigation if the amount of the loss is estimable and the loss is probable.
Biggest changeOur management evaluates our exposure to these claims and proceedings individually and in the aggregate and provides for potential losses on such litigation if the amount of the loss is estimable and the loss is probable.
Although the results of such litigation matters and claims cannot be predicted with certainty, we believe that the final outcome of ordinary, routine litigation will not have a material adverse impact on our financial position, liquidity, or results of operations. Item 4. Mine Safety Disclosures Not applicable. 32 PART II
Although the results of such litigation matters and claims cannot be predicted with certainty, we believe that the final outcome of such ordinary, routine litigation will not have a material adverse impact on our financial position, liquidity, or results of operations. Item 4. Mine Safety Disclosures Not applicable. PART II
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Item 3. Legal Proceedings In 2018, California Custom Beverage, LLC’s (“CCB”), an entity owned by Christopher J. Reed, a former related party, assumed the monthly payments on our lease obligation for a Los Angeles manufacturing plant, and our release from the obligation by the lessor, however, is dependent upon CCB’s deposit of $1,200 of security with the lessor.
Added
As of December 31, 2023, $800 has been deposited with the lessor and Chris J. Reed has placed approximately 7,260 shares of the Company’s common stock valued at $12 that remain in escrow with the lessor. From time to time, we are a party to ordinary, routine litigation incidental to our business.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of March 31, 2023, there were approximately 165 holders of record of the common stock and 2,602,399 outstanding shares of common stock. The holders of record do not include those stockholders whose shares are held of record by banks, brokers and other financial institutions.
Biggest changeAs of March 19, 2024there were approximately 165 holders of record of our common This number does not include “street name” or beneficial holders, whose shares are held of record by banks, brokers, financial institutions and other nominees.
Item 5. Market for Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock was delisted from The Nasdaq Capital Market on February 16, 2023. Concurrently, our common stock became quoted on the OTCQX Best Market. We continue to trade under the symbol “REED”.
Item 5. Market for Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock was delisted from The Nasdaq Capital Market on February 16, 2023. Concurrently, our common stock became quoted on the OTCQX Best Market. Our symbol remains “REED”. The OTCQX Best Market is an over-the-counter market.
During the year ended December 31, 2022, we repurchased 265 shares of common stock from an officer for $2 based on the market value of share on the date repurchased. We retired the shares. We currently have no expectation to pay cash dividends to holders of our common stock in the foreseeable future.
During the twelve months ended December 31, 2023, we repurchased 274 shares of common stock from an officer for $1 based on the market value of share on the date repurchased. We retired the shares in the second quarter of 2023. We currently have no expectation to pay cash dividends to holders of our common stock in the foreseeable future.
On December 21, 2021, our shareholders approved an increase in the number of authorized shares of common stock from 120 million to 180 million. On January 24, 2023, our shareholders approved a up to a 1:50 reverse stock split of our common stock. Effective January 27, 2023, we effected the 1:50 reverse stock split of our common stock.
On January 24, 2023, our shareholders approved a up to a 1:50 reverse stock split of our common stock. Effective January 27, 2023, we effected the 1:50 reverse stock split of our common stock.
Removed
Unregistered Sales of Equity Securities None that have not been previously disclosed in a Current Report on Form 8-K.
Added
Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. On December 21, 2021, our shareholders approved an increase in the number of authorized shares of common stock from 120 million to 180 million.
Added
Unregistered Sales of Equity Securities In March 2023, John J. Bello funded $300,000 to Reed’s through the SAFE investment. The SAFE investment convert into the next equity financing of Reed’s on the same terms and conditions as investors in Reed’s next equity financing, subject to certain limitations and conditions.
Added
The SAFE has not been registered under the Securities Act of 1933, as amended (the “Securities Act”) and instead was offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act on the basis that there was no public offering.
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Except as set forth above, the information has previously been included on a Current Report on Form 8-K or Quarterly Report on Form10Q.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations – Year Ended December 31, 2022 The following table sets forth key statistics for the years ended December 31, 2022, and 2021, in thousands: Year Ended December 31, Pct. 2022 2021 Change Gross billing (A) $ 59,464 $ 54,658 9 % Less: Promotional and other allowances (B) 6,423 5,059 27 % Net sales $ 53,041 $ 49,599 7 % Cost of goods sold 40,929 36,001 14 % % of Gross billing 69 % 66 % % of Net sales 77 % 73 % Gross profit $ 12,112 $ 13,598 -11 % % of Net sales 23 % 27 % Expenses Delivery and handling $ 11,603 $ 11,939 -3 % % of Net sales 22 % 24 % Dollar per case ($) 3.95 3.95 Selling and marketing 7,316 9,665 -24 % % of Net sales 14 % 19 % General and administrative 7,489 7,965 -6 % % of Net sales 14 % 16 % Provision for receivable with former related party 538 - - % of Net sales 1 % 0 % Total Operating expenses 26,946 29,569 -9 % Loss from operations $ (14,834 ) $ (15,971 ) -7 % Interest expense and other expense $ (5,223 ) $ (431 ) 1,112 % Net loss $ (20,057 ) $ (16,402 ) 22 % Loss per share – basic and diluted $ (9.07 ) $ (8.99 ) 1 % Weighted average shares outstanding - basic & diluted 2,211,319 1,824,688 21 % 35 (A) We define gross billing as the total sales for the Company unadjusted for costs related to generating those sales.
Biggest changeResults of Operations – Year Ended December 31, 2023 The following table sets forth key statistics for the years ended December 31, 2023, and 2022, in thousands: Year Ended December 31, Pct. 2023 2022 Change Gross billing (A) $ 50,689 $ 59,464 -15 % Less: Promotional and other allowances (B) 5,978 6,423 -7 % Net sales $ 44,711 $ 53,041 -16 % Cost of goods sold 31,884 40,929 -22 % % of Gross billing 63 % 69 % % of Net sales 71 % 77 % Product quality hold write-down 1,848 - -22 % % of Gross billing 4 % 0 % % of Net sales 4 % 0 % Provision for product hold 1,267 - % of Gross billing 3 % 0 % % of Net sales 3 % 0 % Gross profit $ 9,712 $ 12,112 -20 % % of Net sales 22 % 23 % Expenses Delivery and handling $ 7,561 $ 11,603 -35 % % of Net sales 17 % 22 % Dollar per case ($) 3.07 3.95 Selling and marketing 4,865 7,316 -34 % % of Net sales 11 % 14 % General and administrative 6,118 7,489 -18 % % of Net sales 14 % 14 % Provision for receivable with former related party 585 538 9 % % of Net sales 1 % 1 % Total Operating expenses 19,129 26,946 -29 % Loss from operations $ (9,417 ) $ (14,834 ) -37 % Interest expense and other expense $ (6,106 ) $ (5,223 ) 17 % Net loss $ (15,523 ) $ (20,057 ) -23 % Loss per share – basic and diluted $ (4.39 ) $ (9.07 ) -52 % Weighted average shares outstanding – basic & diluted 3,537,882 2,211,319 60 % 20 (A) We define gross billing as the total sales for the Company unadjusted for costs related to generating those sales.
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.
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.
There were no changes to our critical accounting policies described in the consolidated financial statements included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2021, that impacted our condensed consolidated financial statements and related notes included herein. Recent Accounting Pronouncements See Note 2 of the financial statements for a discussion of recent accounting pronouncements.
There were no changes to our critical accounting policies described in the consolidated financial statements included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2022, that impacted our condensed consolidated financial statements and related notes included herein. Recent Accounting Pronouncements See Note 2 of the financial statements for a discussion of recent accounting pronouncements.
Sales, Cost of Sales, and Gross Margins The following chart sets forth key statistics for the transition of the Company’s top line activity through the years ended December 31, 2022.
Sales, Cost of Sales, and Gross Margins The following chart sets forth key statistics for the transition of the Company’s top line activity through the years ended December 31, 2023.
Additionally, the Company was negatively impacted by supply chain challenges impacting 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 and net income.
The Company has been negatively impacted by supply chain challenges impacting 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.
Delivery costs in the year ended December 31, 2022, were 22% of net sales and $3.95 per case, compared to 24% of net sales and $3.95 per case during the same period last year. Selling and Marketing Expenses Marketing expenses consist of direct marketing, marketing labor, and marketing support costs.
Delivery costs in the year ended December 31, 2023, were 17% of net sales and $3.07 per case, compared to 22% of net sales and $3.95 per case during the same period last year. Selling and Marketing Expenses Marketing expenses consist of direct marketing, marketing labor, and marketing support costs.
Modified EBITDA has limitations as an analytical tool, which includes, among others, the following: ● Modified EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; ● Modified EBITDA does not reflect changes in, or cash requirements for, our working capital needs; ● Modified EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and ● Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Modified EBITDA does not reflect any cash requirements for such replacements.
Modified EBITDA has limitations as an analytical tool, which includes, among others, the following: ● Modified EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; ● Modified EBITDA does not reflect changes in, or cash requirements for, our working capital needs; ● Modified EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and ● Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Modified EBITDA does not reflect any cash requirements for such replacements. 24 Liquidity For the year ended December 31, 2023, the Company recorded a net loss of $15,523 and used cash in operations of $4,266.
As a percentage of net sales, selling and marketing costs decreased to 14% during the year ended December 31, 2022, as compared to 19% during the same period last year.
As a percentage of net sales, selling and marketing were 11% of net sales during the year ended December 31, 2023, as compared to 14% of net sales during the same period last year.
Selling expenses consist of all other selling-related expenses including personnel and contractor support. Total selling and marketing expenses decreased $2,349 to $7,316 during the year ended December 31, 2022, compared to $9,665 during the same period last year.
Selling expenses consist of all other selling-related expenses including personnel and contractor support. Total selling and marketing expenses were $4,865 during the year ended December 31, 2023, compared to $7,316 during the same period last year.
Although the U.S. economy continued to grow during the first quarter of 2022, the continuing impact of the COVID-19 pandemic, higher inflation, the actions by the Federal Reserve to address inflation, and rising energy prices create uncertainty about the future economic environment which will continue to evolve and may impact our business in future periods.
Recent Trends – Market Conditions Although the U.S. economy continued to grow throughout 2023, the higher inflation, the actions by the Federal Reserve to address inflation, and rising energy prices create uncertainty about the future economic environment which will continue to evolve and may impact our business in future periods.
Loss from Operations The loss from operations was $14,834 for the year ended December 31, 2022, as compared to a loss of $15,971 in the same period last year driven by decreased gross profit partially offset by decreases in operating expenses discussed above.
Loss from Operations The loss from operations was $9,417 for the year ended December 31, 2023, as compared to a loss of $14,834 in the same period last year driven by decreased gross profit and decreases in operating expenses discussed above. Interest Expense Interest expense for the year ended December 31, 2023, consisted of $6,106 of interest expense.
Results of Operations Overview During the year ended December 31, 2022, 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 and Reed’s Classic Mule.
Results of Operations Overview During the year ended December 31, 2023, the Company continued to strengthen its supply chain, implement gross margin enhancement initiatives, drive efficiencies in transportation and warehouse costs and reduce operating expenses.
Although we regularly monitor companies 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. We expect the inflationary trends and supply chain pressures to continue throughout 2023.
Although we regularly monitor companies 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. During the year ended December 31, 2023, the Company experienced moderation from the elevated freight costs experienced in 2022.
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 settlement, and one-time restructuring-related costs including employee severance and asset impairment.
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, legal and insurance settlements, 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.
Core brand gross billing increased by 3% to $54,613 compared to the same period last year, driven by Reed’s volume decline of 1% and Virgil’s volume decline of 13%. The result is an increase in total gross billing of 9%, to $59,464 in the year ended December 31, 2022, from $54,658 during the year ended December 31, 2021.
Core brand gross billing decreased by 11% to $48,778 compared to $54,613 during the same period last year, driven by a Reed’s volume decline of 3% and Virgil’s volume decline of 28%. The result is a decrease in total gross billing of 15%, to $50,689 during the year ended December 31, 2023, from $59,464 in the same period last year.
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.
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. Critical Accounting Policies and Estimates The preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States (“U.S.
Management believes that the presentation of gross billing provides a useful measure of Reed’s operating performance. 33 Amounts presented in the discussion below are in thousands, except share and per share amounts.
Management utilizes gross billing to monitor operating performance of products and salespersons, which performance can be masked by the effect of promotional or other allowances. Management believes that the presentation of gross billing provides a useful measure of Reed’s operating performance. Amounts presented in the discussion below are in thousands, except share and per share amounts.
The cost of goods sold per case on core brands was $13.59 during the year ended December 31, 2022, compared to $11.63 for the same period last year. Gross Margin Gross margin was 23% for the year ended December 31, 2022, compared to 27% for the same period last year.
The total cost of goods per case decreased to $14.22 per case for the year ended December 31, 2023, from $13.92 per case for the same period last year. The cost of goods sold per case on core brands was $12.82 during the year ended December 31, 2023, compared to $13.59 for the same period last year.
Modified EBITDA In addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance.
During the same period last year, interest expense consisted of $5,223 of interest expense. Modified EBITDA In addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance.
The decrease was driven by lower employee related costs, stock compensation, distributor buyouts and reduced sampling and marketing spend partially offset by higher broker fees. 37 General and Administrative Expenses General and administrative expenses consist primarily of the cost of executive, administrative, operations and finance personnel, as well as professional fees.
The decrease was driven by lower marketing related expenditures, headcount, broker commissions, information technology charges, travel and entertainment expenses partially offset by stock compensation and trade show expenses. General and Administrative Expenses General and administrative expenses consist primarily of the cost of executive, administrative, and finance personnel, as well as professional fees.
Gross billing represents invoiced amounts to distributors and retailers, excluding sales adjustments. Gross billing may include deductions from MSRP or “list price”, where applicable, and excludes promotional costs of generating such sales. Management utilizes gross billing to monitor operating performance of products and salespersons, which performance can be masked by the effect of promotional or other allowances.
The following discussion also includes the use of gross billing, a key performance indicator and metric. Gross billing represents invoiced amounts to distributors and retailers, excluding sales adjustments. Gross billing may include deductions from MSRP or “list price”, where applicable, and excludes promotional costs of generating such sales.
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. 38 Set forth below is a reconciliation of net loss to Modified EBITDA for the year ended December 31, 2022, and 2021 (in thousands): Year Ended December 31, 2022 2021 Net loss $ (20,057 ) $ (16,402 ) Modified EBITDA adjustments: Depreciation and amortization 225 243 Interest expense 5,223 1,201 Stock option and other noncash compensation 859 1,927 Provision for receivable with former related party 538 - Gain on extinguishment of debt - (770 ) Legal settlement - 292 Severance costs 66 - Total EBITDA adjustments $ 6,911 $ 2,893 Modified EBITDA $ (13,146 ) $ (13,509 ) 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.
Set forth below is a reconciliation of net loss to Modified EBITDA for the year ended December 31, 2023, and 2022 (in thousands): Year Ended December 31, 2023 2022 Net loss $ (15,523 ) $ (20,057 ) Modified EBITDA adjustments: Depreciation and amortization 281 225 Interest expense 6,106 5,223 Tax expense 251 - Stock option and other noncash compensation 493 859 Provision for receivable with former related party 585 538 Product quality hold write-down 1,267 - Inventory write-offs associated with exited categories and major packaging and formula changes 1,848 One-time change in policy for discounts 756 - Legal settlement 12 - Severance costs 256 66 Total EBITDA adjustments $ 11,855 $ 6,911 Modified EBITDA $ (3,668 ) $ (13,146 ) 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.
As a percentage of net sales, cost of goods sold for the year ended December 31, 2022, was 77% as compared to 73% for the same period last year. The total cost of goods per case increased to $13.92 per case in the year ended December 31, 2022, from $11.91 per case for the same period last year.
Cost of Goods Sold Cost of goods sold decreased $9,045 during the year ended December 31, 2023, as compared to the same period last year. As a percentage of net sales, cost of goods sold for the year ended December 31, 2023, was 71% as compared to 77% for the same period last year.
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.
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.
Total Total Per Case Per Case 2022 2021 vs PY 2022 2021 vs PY Cases: Reed’s 1,582 1,605 -1 % Virgil’s 1,209 1,388 -13 % Total Core 2,791 2,993 -7 % Non-Core 131 2 6432 % Candy 18 28 -36 % Total 2,940 3,023 -3 % Gross Billing: Core $ 54,613 $ 53,263 3 % $ 19.6 $ 17.8 10 % Non-Core 4,032 362 1014 % 30.9 181.0 -83 % Candy 819 1,033 -21 % 45.3 36.9 23 % Total $ 59,464 $ 54,658 9 % 20.2 18.1 12 % Discounts: Total $ (6,423 ) $ (5,059 ) 27 % $ (2.2 ) $ (1.7 ) 31 % COGS: Core $ (37,931 ) $ (34,804 ) 9 % $ (13.6 ) $ (11.6 ) 17 % Non-Core (2,568 ) (304 ) 745 % (19.7 ) $ (152.0 ) -87 % Candy (430 ) (893 ) -52 % (23.8 ) $ (31.9 ) -25 % Total $ (40,929 ) $ (36,001 ) 14 % $ (13.9 ) $ (11.9 ) 17 % Gross Margin: $ 12,112 $ 13,598 -11 % $ 4.1 $ 4.5 -8 % as % Net Sales 23 % 27 % 36 Sales, Cost of Sales, and Gross Margins 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.
Total Total Per Case Per Case 2023 2022 vs PY 2023 2022 vs PY Cases: Reed’s 1,530 1,582 -3 % Virgil’s 870 1,209 -28 % Total Core 2,400 2,791 -14 % Non-Core 60 149 -60 % Total 2,460 2,940 -16 % Gross Billing: Core $ 48,778 $ 54,613 -11 % $ 20.32 $ 19.57 4 % Non-Core 1,911 4,851 -61 % 31.85 32.56 -2 % Total $ 50,689 $ 59,464 -15 % 20.61 20.23 2 % Discounts: Total $ (5,978 ) $ (6,423 ) -7 % $ (2.4 3) $ (2.18 ) 11 % COGS: Core $ (30,777 ) $ (37,931 ) -19 % $ (12.82 ) $ (13.59 ) -6 % Non-Core (4,222 ) (2,998 ) -41 % (70.46 ) $ (20.12 ) 250 % Total $ (34,999 ) $ (40,929 ) -14 % $ (14.22 ) $ (13.92 ) 2 % Gross Margin: $ 9,712 $ 12,112 -1 9 % $ 3.95 $ 4.1 2 -4 % as % Net Sales 22 % 23 % 21 Sales, Cost of Sales, and Gross Margins Sales 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.
While the average cost of shipping and handling for the year ended December 31, 2022, was $3.95 per case, which is the same as the $3.95 per case for the year ended December 31, 2021, it was significantly higher during the first half of the year, however, was significantly reduced during the second half of the year.
The average cost of shipping and handling for year ended December 31, 2023, was $3.07 per case, as compared to $3.95 per case for the year ended December 31, 2022.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes appearing elsewhere in this Annual Report. This discussion and analysis may contain forward-looking statements based on assumptions about our future business.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes appearing elsewhere in this report. 18 In addition to our GAAP results, the following discussion includes Modified EBITDA as a supplemental measure of our performance.
As a result, net sales revenue grew 7% in the year ended December 31, 2022, to $53,041, compared to $49,599 in the same period last year. Cost of Goods Sold Cost of goods sold increased $4,928 during the year ended December 31, 2022, as compared to the same period last year.
Discounts as a percentage of gross sales were 12% compared to 11% in the same period last year. As a result, net sales revenue decreased 16% for the year ended December 31, 2023, to $44,711, compared to $53,041 in the same period last year.
Delivery and handling expense decreased by $336 in the years ended December 31, 2022, to $11,603 from $11,939 in the same period last year, driven by decreased volumes, ecommerce fulfilment costs, and decreasing freight rates due to market conditions.
Delivery and handling expenses decreased by $4,042 in the year ended December 31, 2023, to $7,561 from $11,603 in the same period last year, driven by our efforts to mitigate inflationary costs.
At the end of the first quarter, the Company shipped its rebranded Virgil’s zero sugar line in 12 oz. sleek cans and produced its new line of Reed’s Hard Ginger Ale. The Company remains focused on driving sales growth, improving gross margin, and reducing freight costs.
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. The Company remains focused on driving sales growth, improving gross margin, and reducing freight costs.
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.
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. 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.
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 settlement, and one-time restructuring-related costs including employee severance and asset impairment. The following discussion also includes the use of gross billing, a key performance indicator and metric.
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, legal and insurance settlements, 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. 23 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.
Operating Expenses Delivery and Handling Expenses Delivery and handling expenses consist of delivery costs to customers and warehousing costs incurred for handling our finished goods after production.
Excluding the one-time adjustments related to discounts, inventory write-offs, and provision for product quality hold write-down. discussed above, gross margin would have been 30% for the year ended December 31, 2023. 22 Operating Expenses Delivery and Handling Expenses Delivery and handling expenses consist of delivery costs to customers and warehousing costs incurred for handling our finished goods after production.
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. Core beverage volume for the year ended December 31, 2022, represents 95% of all beverage volume.
These core products consist of Reed’s and Virgil’s branded beverages. Non-core products consist primarily of Private Label, Wellness Shots, candy and slower selling discontinued Reed’s and Virgil’s SKUs. During 2023, the Company licensed its candy business to Rootstock Trading, a company founded and owned by our former Chief Sales Officer, Neal Cohane.
Removed
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors” and elsewhere in this Annual Report. In addition to our GAAP results, the following discussion includes Modified EBITDA as a supplemental measure of our performance.
Added
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.
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Recent Trends – Market Conditions During the year ended December 31, 2022, the COVID-19 pandemic continued to impact our operating results and the Company anticipates a residual effect for the balance of the year.
Added
Although the Company has experienced decreases in freight costs over the last three 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.
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In addition, the pandemic could cause reduced demand for our products if, for example, the pandemic results in a recessionary economic environment which negatively effects the consumers who purchase our products. Based on the recent increase in demand for our products, we believe that over the long term, there will continue to be strong demand for our products.
Added
The Company has experienced moderation in inflation and anticipates this to continue throughout 2024. 19 Through December 31, 2023, we continued to generate cash flows to meet our short-term liquidity needs, and we expected to maintain access to the capital markets.
Removed
During the year ended December 31, 2022, the Company experienced moderation from elevated freight costs.
Added
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. Core beverage volume for the year ended December 31, 2023, represents 98% of all beverage volume.
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The Company believes these challenges will continue throughout the year. In addition, the Company experienced increases in the pricing of several of its raw materials and delays in procuring several of these items. However, mitigation plans have been implemented to manage this risk.
Added
Price on our core brands increased 4% to $20.32 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.
Removed
The Company anticipates a continued impact throughout 2023. Our ability to operate without significant incremental negative operational impact from the COVID-19 pandemic will in part depend on our ability to protect our employees and protect our supply chain. The Company has endeavored to follow the recommended actions of government and health authorities to protect our employees.
Added
In December 2023, the Company made a one-time change in policy for discounts which resulted in an additional $756 of deductions in 2023. Excluding this adjustment, discounts as a percentage of sales would have been 10%.
Removed
Since the inception of the COVID-19 pandemic and through December 31, 2022, we maintained the consistency of our operations during the onset of the COVID-19 pandemic.
Added
The decrease was primarily driven by lower supply chain and input costs. In December 2023, the Company wrote off $1,848 of inventory comprised of $1,452 of packaging and ingredients related to major changes in packaging and formulations, and $396 of candy as a result of exiting this line of business. These write-offs represented 4% of net sales.
Removed
We will continue to innovate in managing our business, coordinating with our employees and suppliers to do our part to be responsible to our employees and business partners in responding to our customers and suppliers.
Added
During the three months ended December 31, 2023, the Company was made aware of a closure failure in our seasonal swing-lid products which resulted in a product quality hold write-down. The Company recorded expense of $1,267 related to costs associated with the product quality hold write-down. An insurance claim is pending.
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However, the uncertainty resulting from the pandemic could result in an unforeseen disruption to our workforce and supply chain (for example an inability of a key supplier or transportation supplier to source and transport materials) that could negatively impact our operations. 34 We have not observed any material impairments of our assets or a significant change in the fair value of our assets due to the COVID-19 pandemic.
Added
Excluding the write-offs and provision for product quality hold write-down., total cost of goods sold per case would have been $12.96. Gross Margin Gross margin decreased to 22% for the year ended December 31, 2023, compared to 23% for the same period last year.
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During the year ended December 31, 2022, the Ukraine conflict did not have a direct material impact on our financial position, results of operations and liquidity.
Added
General and administrative expenses decreased in the year ended December 31, 2023, to $6,118 from $7,489, a decrease of $1,371 over the same period last year. The decrease was driven by lower stock compensation, bad debt expense, co-packer and customer penalties, information technology charges, consulting fees, and investor relation charges partially offset by higher franchise tax expense.
Removed
Price on our core brands increased 10.0% to $19.57 per case due to a shift in mix to lower priced, higher margin products. Discounts as a percentage of gross billing increased to 11% from 9% in the same period last year.
Added
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.
Removed
General and administrative expenses decreased in the year ended December 31, 2022, to $7,489 from $7,965, a decrease of $476 over the same period last year. As a percentage of net sales, general and administrative expenses decreased to 14% during the year ended December 31, 2022, as compared to 16% during the same period last year.
Added
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.
Removed
The decrease was driven by lower legal settlements, stock compensation and employee related costs, and bad debt expense, partially offset by higher public company costs and co-packer downtime charges. Provision for Receivable with Former Related Party At December 31, 2022, the Company had a receivable due from California Custom Beverage, LLC’s (“CCB”), an entity owned by Christopher J.
Added
As of the issuance date of these financial statements, management expects that the Company’s existing cash of $603, plus $4,100 of additional cash received subsequent to December 31, 2023, from investments with significant stockholders (See Note 15), 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.
Removed
Reed, a former related party. At December 31, 2022, CCB disputes that it owes $1,043 recorded as receivable by the Company.
Added
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Removed
The Company believes that it will prevail in this dispute, however, as of December 31, 2022, due to the uncertainty about the ultimate amount that will be settled, the Company has provided a reserve for $538 based on management’s estimate.
Added
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.
Removed
Interest and Other Income (Expense) Interest and other income for the year ended December 31, 2022, consisted of $5,223 of interest expense. During the same period last year, interest and other expense consisted of consisted of $1,201 of interest expense offset by $770 gain on forgiveness of debt.
Removed
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.
Removed
Liquidity, Capital Resources and Going Concern The accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern for one year from the date these financial statements are issued. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
Removed
For the year ended December 31, 2022, the Company recorded a net loss of $20,057 and used cash in operations of $15,530.
Removed
As of December 31, 2022, we had a cash balance of $533, with $110 of current availability, and $1,633 of additional borrowing capacity, a stockholder’s deficit of $8,470 and negative working capital of $1,563, compared to a cash balance of $49 with borrowing capacity of $109, stockholders’ equity of $4,203 and working capital of $2,981 at December 31, 2021 .
Removed
During the year ended December 31, 2022, the Company entered into a note purchase agreement with Whitebox Advisors, LLC and agreed to issue $13,750 of secured convertible promissory notes (the “Notes”).
Removed
The net proceeds from the issuance of the Notes, after deducting placement agent fees and other debt issuance costs, was approximately $12,430. 39 The Notes will mature on May 9, 2025, bear interest at a rate of 10% per annum (with 5% per annum payable in cash and 5% per annum payable “in kind” by adding such accrued interest to the principal amount of the Notes).
Removed
The Notes are secured by substantially all of the Company’s assets (including all of its intellectual property) and are subject to a collateral sharing agreement with ACS, the Company’s existing secured lender (see Note 5).
Removed
During the year ended December 31, 2022, principal payments of $800 were made, and accrued interest of $1,052 was added to the principal balance, leaving a balance owed of $11,502 at December 31, 2022.
Removed
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.
Removed
We have 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. Critical Accounting Policies and Estimates The preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States (“U.S.

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