Business Context and Reporting Period
Company: REED's, INC.
Filing Type: Form 8-K (Current Report)
Date of Report: November 6, 2008
Event Date: November 1, 2008 (Effective date of new agreement)
Reed's, Inc. entered into a new material definitive agreement with The Lion Brewery, Inc. ("The Lion"), its primary co-pack facility. This agreement supersedes the previous contract dated June 1, 2001.
Key Financial Metrics and Agreements
This filing does not report historical revenue, profit, cash flow, or debt figures. Instead, it outlines the financial implications of a new manufacturing agreement:
- Contract Term: Three years, with an option to extend for one additional year.
- Scope: The Lion will brew, produce, bottle, and package all products sold to Reed's direct customers in the United States east of the Mississippi River ("Territory Requirements").
- Projected Gross Margin Improvement: Anticipated increase of 500 to 600 basis points.
- Projected Cost Savings: Estimated savings of over $1 million in manufacturing costs for the 2009 fiscal year.
Material Changes Versus Prior Period
The primary material change is the replacement of the 2001 co-pack production agreement with a new three-year contract effective November 1, 2008. The new agreement maintains The Lion as the exclusive producer for the defined Territory but introduces terms expected to significantly reduce manufacturing costs and improve gross margins compared to the prior arrangement.
Guidance, Outlook, and Risks
Management Commentary and Outlook: Management anticipates the re-negotiated agreement will result in a 500 to 600 basis point improvement in gross margin and over $1 million in manufacturing cost savings in 2009. The Lion retains a right of first refusal if Reed's intends to market other soda products or new packaging configurations within the Territory.
Risks and Contingencies: The filing includes standard forward-looking statement disclaimers. Actual results may differ significantly from anticipated results due to risks, uncertainties, and assumptions relating to the industry, operations, and potential acquisitions. The filing does not provide specific quantitative risk factors beyond the general disclaimer.
Key Facts for Investor Verification
- Verify the actual gross margin performance in 2009 against the projected 500-600 basis point improvement.
- Confirm the realization of the estimated $1 million+ in manufacturing cost savings.
- Monitor whether Reed's exercises the option to extend the agreement beyond the initial three-year term.
- Review the full text of the press release (Exhibit 99.1) for additional details on the agreement terms not summarized in the 8-K.