REED's, INC. - 10-Q Summary (Q1 2026)
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for REED's, INC., a manufacturer of carbonated beverages under the Reed's and Virgil's brands. The reporting period covers the three months ended March 31, 2026. The Company is classified as a Non-Accelerated Filer and a Smaller Reporting Company. During 2025, the Company initiated a strategic expansion into the Asia Pacific region, forming several wholly-owned subsidiaries, though these entities did not generate material sales in Q1 2026.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Net Sales | $7,142 | $10,029 |
| Gross Profit | $697 | $3,402 |
| Gross Margin | 10% | 34% |
| Net Loss | $(6,464) | $(2,031) |
| Loss Per Share (Basic/Diluted) | $(0.55) | $(0.27) |
| Cash and Cash Equivalents (End of Period) | $4,580 | $4,862 |
| Net Cash Used in Operating Activities | $(5,844) | $(5,362) |
| Total Debt (Senior Secured Loan) | $9,250 | $9,250 |
| EBITDA | $(6,218) | $(1,689) |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 29% year-over-year, driven by a 23% drop in gross billing. Volume declined 4% for the Reed's brand and 37% for the Virgil's brand. Average price per case also decreased 9% due to liquidation of slow-moving products.
- Margin Compression: Gross margin collapsed from 34% to 10%. This was primarily caused by a $738 inventory charge related to product portfolio optimization by new management, which significantly increased the Cost of Goods Sold (COGS) as a percentage of net sales (90% vs. 66% prior year).
- Operating Expenses: Total operating expenses increased 34% to $6,912. General and Administrative (G&A) expenses more than doubled (up 101%) to $4,045, largely due to a $1,441 investment in personnel and services to support the Asia Pacific growth initiative. Selling and marketing expenses rose 16%.
- Liquidity: Cash balance decreased by $5,844 during the quarter. The Company has no remaining availability under its Senior Secured Loan.
Outlook, Risks, and Management Commentary
- Liquidity and Going Concern: Management has evaluated the Company's ability to continue as a going concern. While current cash ($4,580) is deemed sufficient to fund operations for at least 12 months, the Company may require additional funding if it pursues further growth initiatives. There is no assurance that additional financing will be available on favorable terms.
- Strategic Focus: Management is focusing on profitable sales growth, gross margin improvement, and expense optimization. Initiatives include channel expansion, new product innovation, and supply chain improvements.
- Risks: Key risks include supply chain disruptions, inflation of raw materials and logistics costs, and the potential impact of geopolitical events and tariffs. The Company relies on co-packers for 100% of production, creating dependency risks.
- Legal Proceedings: An arbitration with a former related party (California Custom Beverage, LLC) resulted in an interim award in favor of the Company in February 2026. Management does not anticipate material adverse impacts from current litigation.
Investor Verification Checklist
- Inventory Valuation: Verify the rationale and magnitude of the $738 inventory write-off and its impact on future COGS.
- Cash Runway: Confirm the sufficiency of the $4,580 cash balance against the burn rate of ~$5.8M per quarter and the lack of available credit facilities.
- Asia Expansion Costs: Assess the ROI timeline for the $1,441 G&A spend allocated to the Asia Pacific initiative, given the lack of material sales from these subsidiaries to date.
- Debt Covenants: Review the financial covenants of the Senior Secured Loan (minimum cash balance and liquidity thresholds) to ensure continued compliance.
- Volume Trends: Monitor the 37% volume decline in the Virgil's brand to determine if this is a temporary liquidation effect or a structural loss of market share.