Reel Paper

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this offering. Some of the information contained in this discussion and analysis, including information regarding the strategy and plans for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Tree-free and plastic-free household paper company.

What does your Company do? Reel markets and sells sustainable high quality household paper products across reelpaper.com, Amazon and retailers nationwide 

Where do you want to be in 5 years? In 5 years, Reel wants to be the next big brand in household paper and the reference brand for high-performing sustainable products.  

Milestones

Reel Products, Inc. was incorporated in the State of Delaware in April 2018.

Since then, we have:

• Gross revenue nearly doubling the first three years since inception with an additional 25% growth in FY23 to more than $16.5MM
• The leading sustainable national branded toilet paper sold in 1,800 Targets and 600+ additional stores.  
• A business led by experienced CPG brand builders from P&G, Mrs. Meyers, and Kimberly-Clark.
• Over 13k 5-star online reviews and a loyal base of nearly 50k subscribers.
• Business is nearing profitability so raising money through our community to remain focused on impact

Historical Results of Operations

• Revenues & Gross Margin. For the period ended December 31, 2023, the Company had revenues of $16,752,919.71 compared to the year ended December 31, 2022, when the Company had revenues of $13,501,393. Our gross margin was 49.85% in fiscal year 2023, compared to 42.58% in 2022.
• Assets. As of December 31, 2023, the Company had total assets of $4,777,437.69, including $1,582,333.08 in cash. As of December 31, 2022, the Company had $2,913,539 in total assets, including $599,569 in cash.
• Net Loss. The Company has had net losses of $4,752,566 and net losses of $8,182,001 for the fiscal years ended December 31, 2023 and December 31, 2022, respectively.
• Liabilities. The Company's liabilities totaled $23,433,879 for the fiscal year ended December 31, 2023 and $18,938,849 for the fiscal year ended December 31, 2022.

Related Party Transaction

Refer to Question 26 of this Form C for disclosure of all related party transactions.

Liquidity & Capital Resources

To-date, the company has been financed with $8,750,000 in debt, $200,000 in equity, $13,115,621 in convertibles, and $1,525,000 in SAFEs.

After the conclusion of this Offering, should we hit our minimum funding target, our projected runway is 12 months before we need to raise further capital.

We plan to use the proceeds as set forth in this Form C under "Use of Funds". We don’t have any other sources of capital in the immediate future.

We will likely require additional financing in excess of the proceeds from the Offering in order to perform operations over the lifetime of the Company. We plan to raise capital in 12 months. Except as otherwise described in this Form C, we do not have additional sources of capital other than the proceeds from the offering. Because of the complexities and uncertainties in establishing a new business strategy, it is not possible to adequately project whether the proceeds of this offering will be sufficient to enable us to implement our strategy. This complexity and uncertainty will be increased if less than the maximum amount of securities offered in this offering is sold. The Company intends to raise additional capital in the future from investors. Although capital may be available for early-stage companies, there is no guarantee that the Company will receive any investments from investors.

Runway & Short/Mid Term Expenses

Reel Products, Inc. cash in hand is $1,100,000, as of February 2024. Over the last three months, revenues have averaged $1,364,696/month, cost of goods sold has averaged $648,722/month, and operational expenses have averaged $762,861/month, for an average burn rate of $46,887 per month. Our intent is to be profitable in 4 months.

Since the date our financials cover, Reel has solidified unit economics and is currently operating at a 55% gross margin and 30% contribution margin which includes fulfillment costs.  We continue to grow across all channels (DTC, Retail, Amazon) and expect to reach profitability in Q2 2024.  We have optimized demand driving marketing spends and have customer acquisitions costs well below our $40.00 target resulting in increased ROI.  
We continue to build out our retail channel and are currently sold in Target, Harris Teeter, Gelson's, Erewhon, Fresh Thyme, Fred Meyer and other retailers that pull from our distributor relationships with UNFI and KeHE.  We expected to see continued acceleration in the retail channel in the near future and to establish direct relationships with large grocery and club chains.   
Amazon awarded Reel several significant event placements in FY23 including a 'Deal of the Day' on Earth Day in April and a featured placement during 'Prime Day' in July.  Reel generated 10x daily sales during these events and has qualified for additional placements during 'Fall Prime' and 'Black Friday' events driving continued revenue growth and brand awareness.  
Reel successfully raised $4 million in May through the Social Impact fund of Montage Capital.  The money raised through Montage plus the completion of our current raise is intended to carry us to profitability and beyond.  We recently closed a $3MM working capital line of credit to aid investment in inventory to support growth. 

We expect to be at a $1.8 million/month revenue run rate in the next 3-6 months.  We expect COGS + OPEX to be at $1.65 million/month generating $.15 million in EBITDA monthly.  

We are not profitable.  We expect to reach profitability in Q2 2024 as our revenue growth will fully offset our OPEX as we continue to scale.  We are anticipating cash burn of approximately $300k in the next 2 months until we reach profitability.  Based on our current cash position + the completion of our current raise we have sufficient cash to operate the business to profitability and beyond.  

Reel closed a working capital line of credit in Feb 2024 to aid investments in inventory to support growth
We are anticipating cash burn of approximately $300k in the next 4 months until we reach profitability.  Based on our current cash position + working capital line of credit

All projections in the above narrative are forward-looking and not guaranteed.