That one interaction with the establishment convinced Reed that his frugality was justified. From then on--"You don't even wanna know how sick we are," Reed says--he mandated that Sharma Edgarize the documents by hand. "If you ask anyone in the industry, they will say they have never heard of this in their whole life," Reed says. Sharma spent many a late night going through page after page. "Actually, I think I have a little bit of carpal tunnel from it," he says. A few months later, when Reed fired the lawyer who had taken him to Bowne and hired a lawyer named Larry Horwitz, Horwitz balked at the hand-Edgarizing and sent the documents to a publisher called Vintage Filings, which did the job for about $4,000. But properly formatted documents weren't enough to spare Reed the scrutiny of the SEC.
In all, the SEC had 69 comments on Reed's registration statement. Some were basic, which made the company look amateurish; the substantive ones, questioning his accounting practices and requesting disclosures, were even more troubling. Reed, of course, pushed back on almost every comment. The SEC responded with item after item stating, "We reissue our prior comment."
As Reed went back and forth with the SEC, he also started tussling with the states' responses. In choosing a coordinatedreview, he realized as he read their comments, he had chosena system in which each state fed off every other state's concerns. He thought he had discovered a shortcut, but once again, hisdo-it-yourself approach plopped him on a tortuous path. With the coordinated approach, he soon found, "youhave them all get together and have someone go, 'What about this,' and everyone else goes, 'Yeah, what about that?'…It was so bad."
Reed originally offered Horwitz $2,500 per response to the comments from the SEC and the states. When it became clear how many responses would be necessary, Reed attempted to do them on his own. Characteristically, he kept trying to explain why his way of doing things made perfect sense. That led to a lot of exchanges without many changes. "There were certain state comments that kept coming back the same way," Reed says. "Finally we had to call them up, and we had to say, 'What do you mean? Why is it we keep giving you the same answer, and you don't get it?' We'd try every permutation on the answer, and we just gave up."
And a problem with doing the states' coordinated review along with the SEC review soon became clear.In just one of several examples, the SEC asked Reed to edit his founder's statement to its specifications, which he did. The states then mandated that he remove it from the document altogether. With every response, Reed thought he was finished and could finally turn his attention to his business. "Then the states could say, 'I want all this crap,' then the SEC'd say, 'I gotta review all the crap that the states made you put in.' It's like they fester on each other. Then the SEC says, 'You gotta change that,' and the states say, 'I see you changed that'--it's like, OK, stopit! Stop it now!"
The state-federal conflict came to a head in the middle ofMay 2005, when Reed finally received clearance to sell fromthe SEC…
… only to be thwarted by the states:
Pennsylvania wanted minutes from a recent board meeting; Arizona wouldn't allow Reed's to sell there until 800,000 shares had been sold elsewhere; all 30 states wanted a note that Reed's had withdrawn its previous IPO. Once the states were finally sated, the SEC had to review everything; by then, it had been so long that Reed's had to update its numbers and get those figures cleared with both the SEC and the states. "When you're sending it in, you're going, 'OK, now there isn't much left,' " Reed says. "Every day for six months we'd expect to be cleared. Every fricking day."
Finally, on August 13, 2005, three months after the initial clearance, Reed's was cleared to sell. Rather than feeling relief, though, Reed started worrying about the next stage, the hard work of selling. His concern was warranted. In the first two months of the $8 million offering, Reed's sold only about $90,000 in shares. "In 2002, our analysis was that the issue was wartime," Reed says. "So now, the stock market's doing well; Jones Soda is doing great; Hansen's is doing great. We're the next beverage company, and I just couldn't believe we weren't doing well." He harangued Brookstreet and Sharma, but nothing changed. "I got more and more desperate," Reed says. He had spent years doing everything he could to outwit Wall Street and avoid expensive lawyers, to prove that he could do this his way. Now, with a second public offering that was on the brink of collapsing, he considered that he might have been wrong all along.
