Reeds, Inc.(REED) - 2024 Q4 - Annual Report

Product Portfolio and Market Trends - Reed's has a portfolio of 50 products sold in over 32,000 outlets across the US and internationally, including Canada, the UK, and the EU[11][13]. - The retail carbonated soft drink (CSD) market grew by 6% in 2024, with the ginger ale segment growing by 9%, now valued at $2.1 billion[21]. - The premium beverage market is projected to grow at an annual rate of 6% from 2024 to 2031, with the premium cocktail mixer market expected to grow at 8% from 2024 to 2033[27]. - The global ginger market is expected to grow at an annual rate of 9% from 2024 to 2032, driven by increased consumer awareness of ginger's health benefits[27]. - 72% of U.S. consumers are looking to limit or avoid sugar, and the global reduced-sugar food and beverage market is expected to grow at an annual rate of 9% through 2028[27]. - Reed's products are free of GMOs and artificial preservatives, aligning with the growing consumer trend towards natural products, which saw a 6% sales increase in 2024[27]. New Product Launches - Reed's is set to launch a new multi-functional soda line in April 2025, featuring organic ginger and adaptogen extracts, with 8,000 points of distribution secured[24]. - A new line of multi-functional beverages is set to launch in Q1 2025, featuring organic ginger and adaptogen mushroom extracts, with each serving containing only 5 grams of sugar and 30 to 45 calories[63]. Financial Performance - For the year ended December 31, 2024, gross billing decreased by 13% to$ 44,316,000 from $50,689,000 in 2023[169]. - Net sales fell by 15% to$ 37,954,000 compared to $44,711,000 in the previous year[169]. - Gross profit increased by 17% to$ 11,376,000, with a gross profit margin of 30% of net sales, up from 22%[169]. - The net loss for the year was $13,152,000, a 15% improvement from the previous year's loss of$ 15,523,000[169]. - Loss per share improved by 63% to $(1.64) from$ (4.39) in 2023[169]. - The company recorded a net loss of $13.2 million and used cash in operations of$ 6.1 million during the year ended December 31, 2024[209]. Operational Challenges - Supply chain challenges have negatively impacted the company's ability to meet strong demand, with average shipping costs decreasing from $3.07 per case in 2023 to$ 2.75 per case in 2024[113]. - The company continues to face supply chain challenges, including increased lead times and inflation of raw materials, logistics, and labor costs[166]. - The company is actively seeking additional co-packing facilities to minimize transportation costs and mitigate production disruptions[59]. - The company has entered into a co-packing agreement with DrinkPak in Southern California to enhance production capacity for cans, aiming to better serve Southwest and club customers[56]. Strategic Partnerships and Agreements - D&D Source of Life Holding Ltd. became the majority stockholder of Reed's following a change of control in 2024[15]. - A strategic partnership with FitzMark was established to manage freight movement, enhancing efficiency in logistics and inventory management[60]. - The company has licensed its candy business to Rootstock Trading, with royalty fees structured at 0% for 2023, 2% for 2024, 4% for 2025, and 5% thereafter[70]. Regulatory and Compliance Issues - The company is subject to various federal, state, and local environmental laws and regulations, which could increase costs due to compliance mandates[92]. - The company anticipates additional legal requirements related to recycling and waste reduction may be proposed or enacted in the future[88]. - The company is monitoring pending and proposed legislation related to data privacy and protection, including the California Consumer Privacy Act[93]. - Certain jurisdictions are considering imposing new or increased taxes on the manufacture, distribution, or sale of the company's products[89]. Workforce and Employee Relations - As of December 31, 2024, the company had 24 full-time equivalent employees on its corporate staff[96]. - The company has never participated in a collective bargaining agreement and believes relations with employees are good[96]. - The company faces challenges in attracting and retaining a skilled workforce, which is critical for maintaining competitive advantage[120]. Market Competition and Consumer Trends - The non-alcoholic beverage segment is highly competitive, with the company competing on brand recognition, quality, and innovation against established brands[67]. - Changes in consumer preferences and public perception regarding health and nutrition could adversely affect demand for the company's products[125]. - Future demand for products is influenced by consumer trends, with potential reductions due to health concerns and legislative initiatives against sweetened beverages[126]. - The beverage industry is highly competitive, with significant pressure from larger companies and private label brands affecting market share and pricing strategies[122]. Financial Management and Future Outlook - Management believes that the Company's ongoing business, existing cash, and credit facilities are sufficient to fund operations for twelve months from the date of issuance of the financial statements[209]. - The company took significant steps to convert high-interest debt to equity and raise additional equity during 2024[192]. - Management's estimates of future product demand may be inaccurate, impacting inventory provisions, with cumulative write-downs for inventory at $277 for 2024[108]. - The company is classified as a smaller reporting company and is not required to provide certain disclosures about market risk[199].