Reeds, Inc.(REED) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Condensed Financial Statements Q1 2025 condensed financial statements show a $2.0 million net loss, reduced equity, and significant cash usage from operations, primarily for inventory Condensed Balance Sheets As of March 31, 2025, cash and total assets decreased, while liabilities increased, reducing stockholders' equity to $4.7 million Balance Sheet Summary (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $22,669 | $23,311 | | Cash | $4,862 | $10,391 | | Inventory, net | $12,333 | $8,114 | | Total Assets | $24,519 | $25,140 | | Total Current Liabilities | $19,028 | $17,655 | | Senior secured loan, net | $9,648 | $9,571 | | Total Liabilities | $19,855 | $18,492 | | Total Stockholders' Equity | $4,664 | $6,648 | Condensed Statements of Operations Q1 2025 net sales rose 4.5% to $10.0 million, but increased operating expenses widened the net loss to $2.0 million Q1 Statement of Operations (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net sales | $10,029 | $9,595 | | Gross profit | $3,402 | $3,413 | | Total operating expenses | $5,144 | $4,063 | | Loss from operations | $(1,742) | $(650) | | Net loss | $(2,031) | $(1,673) | | Net loss per share | $(0.04) | $(0.40) | Condensed Statements of Cash Flows Q1 2025 cash flow shows $5.4 million used in operations, primarily for inventory, resulting in a $5.5 million net cash decrease Q1 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(5,362) | $(2,395) | | Net cash used in investing activities | $(74) | $(18) | | Net cash provided by (used in) financing activities | $(93) | $2,124 | | Net decrease in cash | $(5,529) | $(289) | | Cash at end of period | $4,862 | $314 | Notes to Condensed Financial Statements Notes detail liquidity concerns, the $10 million Senior Secured Loan maturity, customer concentration, ongoing arbitration, and CEO transition - The company's $10 million Senior Secured Loan is due on November 14, 2025, and management is currently evaluating refinancing alternatives[24] - In Q1 2025, three customers accounted for 21%, 17%, and 17% of net sales, respectively, indicating significant customer concentration[37] - The company is in a consolidated arbitration process with California Custom Beverage, LLC (CCB), a former related party, over various disputed amounts[60] - Effective April 16, 2025, CEO Norman E. Snyder, Jr. retired and was succeeded by Cyril A. Wallace, Jr[66] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2025 net sales increased 5% to $10.0 million, but rising operating expenses led to a wider operating loss and negative Modified EBITDA Results of Operations Q1 2025 net sales increased 5% to $10.0 million, but a 27% rise in operating expenses led to a $2.0 million net loss Q1 2025 vs Q1 2024 Performance (in thousands) | Metric | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $10,029 | $9,595 | 5% | | Gross profit | $3,402 | $3,413 | 0% | | Gross Margin % | 34% | 36% | -2 p.p. | | Total operating expenses | $5,144 | $4,063 | 27% | | Loss from operations | $(1,742) | $(650) | 168% | | Net loss | $(2,031) | $(1,673) | 21% | - Core brand gross billing increased by 6%, driven by a 19% volume increase for Virgil's, partially offset by a 2% volume decline for Reed's, with the average price per case on core brands increasing by 2%[80] Modified EBITDA Q1 2025 Modified EBITDA, a non-GAAP metric, worsened to a loss of $1.6 million from $0.4 million in Q1 2024 Reconciliation of Net Loss to Modified EBITDA (in thousands) | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net loss | $(2,031) | $(1,673) | | Total EBITDA adjustments | $397 | $1,303 | | Modified EBITDA | $(1,634) | $(370) | Liquidity and Capital Resources Q1 2025 liquidity weakened, with $5.4 million cash used in operations, reducing cash to $4.9 million as the $10 million Senior Secured Loan nears maturity - As of March 31, 2025, the company had a cash balance of $4,862 thousand and availability of $100 thousand under its Senior Secured Loan[94] - Cash used in operations was $5,362 thousand, primarily for a $4,194 thousand investment in inventory to better fulfill customer demand[93] - Management is evaluating various funding alternatives, including equity or debt issuance, as it seeks to refinance its maturing credit facility and potentially fund additional growth initiatives[96] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Reed's, Inc. is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide the information required by this Item[104] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2025[105] - No material changes to the Company's internal control over financial reporting occurred during the three months ended March 31, 2025[106] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is engaged in arbitration with a former related party and has a potential $1.5 million obligation to an investment bank - The company is party to legal proceedings, including an arbitration with former related party California Custom Beverage, LLC, and a potential contingency with an investment bank[107] Item 1A. Risk Factors Key risks include the impending maturity of the Senior Secured Loan and the potential need for additional, potentially dilutive, financing - The Senior Secured Loan matures on November 14, 2025; failure to secure refinancing on favorable terms, or at all, could adversely affect the company's financial position and operations[110] - The company may require additional capital for growth and operations; an inability to secure additional financing could impair business expansion and adversely affect financial results[111][112] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities that have not been previously disclosed in a Current Report on Form 8-K - None that have not been previously disclosed in a Current Report on Form 8-K[113] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[114] Item 5. Other Information No changes to board nominee procedures or director/officer trading arrangements were reported during the quarter - No changes were made to the procedures for security holders to recommend board nominees, and no directors or officers modified trading arrangements under Item 408 of Regulation S-K[116] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents and SEC certifications - This section lists all exhibits filed with the Form 10-Q, including certifications and material contracts[117][118]