What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-04-01 compared with 2023-05-15 · 490 added, 564 removed, 602 unchanged (64% of the section changed)

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Statements of Operations for the years ended December 31, 2023 and 2022

Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2022 and 2021

Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2023 and 2022

Statements of Cash Flows for the years ended December 31, 2023 and 2022

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its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note

1 to the financial statements, during the year ended December 31, 2022, the Company incurred a net loss and utilized cash in operations.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans to

alleviate these conditions are also described in Note 1.

The financial statements do not include any adjustments that might result from

the outcome of this uncertainty.

financial statements are the responsibility of the Company’s management.

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matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

described in Notes 2 and 3 to the financial statements, the Company’s inventories are stated at the lower of cost or net realizable

value, determined on first-in, first-out (“FIFO”) basis.

As of December 31, 2022, the Company held inventories of $16.2 million.

In determining net realizable value, management considers historical usage, forecasted demand in relation to inventory on hand, market

conditions, and other factors.

identified the evaluation of management’s estimate of the net realizable value of certain inventory as a critical audit matter,

because of the significant judgments made by management in estimating future demand and market conditions which are used to arrive at

the net realizable value.

This required a high degree of auditor judgment and increased auditor effort in auditing such assumptions.

As of December 31, 2023, the Company’s inventory totaled $11.3 million.

As explained in Note 2 to the financial statements, inventories are stated at the lower of cost or net realizable value, with cost determined

on a first-in, first-out (“FIFO”) basis.

The Company assesses inventory at each reporting date in order to assert that it

is recorded at net realizable value.

In determining net realizable value, management considers historical usage, forecasted demand in

relation to inventory on hand, market conditions, and other factors.

identified management’s assessment of net realizable value of inventory as a critical audit matter as a high degree of auditor

judgment and increased auditor effort was required to evaluate the Company’s ability to sell certain products, taking into consideration

a number of factors, such as estimating future customer demand, customer preferences, and the broader economy.

primary procedures we performed to address this critical audit matter included:

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obtained in other areas of the audit.

compared significant assumptions used by management to current industry and economic trends.

developed an independent expectation of the net realizable value of inventory using historic

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financial statements.

payable to former related party

As described in Note 13 to the financial

statements, as of December 31, 2022, the Company has an arrangement with California Custom Beverage, LLC (“CCB”), a

former related party and one of its one copackers.

In the opinion of management, the arrangement allows for the cost of certain

services provided by CCB to be offset to certain amounts due the Company.

As of December 31, 2022, the Company recorded a net

payable of $1,248 due to CCB.

We identified the net payable to CCB as a

critical audit matter because of the significant judgements made by management in estimating net payable to CCB including the

Company’s determination that a right of offset exists related to amounts payable to and amounts receivable from CCB.

required a high degree of auditor judgement to assess the reasonableness of management’s conclusions.

primary procedures we performed related to the net payable to CCB included:

inquired of management and external legal counsel to gain an understanding of the relevant facts and circumstances related to the

net payable to CCB.

obtained and read the contract, as amended, related to transactions between the Company and CCB.

amounts to a schedule of accumulated costs and offsets.

evaluated the reasonableness of management’s conclusions regarding the net payable to CCB.

assessed the sufficiency of management’s disclosures related to the net payable to CCB.

of the Company’s ability to continue as a going concern

discussed in Note 1 to the financial statements, for the year ended December 31, 2023, the Company recorded a net loss of $15,523 and

used cash in operations of $4,266.

Management believes that the Company’s ongoing business, existing cash, plus additional cash

received subsequent to December 31, 2023, from investments with significant stockholders, is sufficient to fund operations for twelve

months from the date of issuance of these financial statements.

identified the evaluation of Management’s assessment of the Company’s ability to continue as a going concern as a critical

audit matter due to the high degree of subjective auditor judgment required to evaluate the Company’s forecasted cash flows used

in its going concern analysis due to uncertainty in certain assumptions, specifically forecasted sales, gross profit margins, and feasibility

of the Company’s expense management activities

primary procedures we performed to address this critical audit matter included:

obtained management’s cash flow forecast and evaluated the reasonableness of the cash

flow forecast by comparing it to historical operating results, considering management’s

ability to accurately forecast and perform sensitivity analysis on revenue, cash expenditures,

and commitments.

performed sensitivity analyses on the forecasted revenue and operating margins used in the

Company’s cash flow forecast to evaluate the impact on the conclusions reached by management.

considered the Company’s historical ability to raise capital, and tested subsequent

event activity including, but not limited to, the receipt of subsequent proceeds from investments

with significant stockholders.

assessed the appropriateness and sufficiency of the Company’s liquidity disclosures

and compared to other audit evidence obtained to determine whether such information is consistent

with the Company’s disclosures.

have served as the Company’s auditor since 2004.

& Company, P.A .

Weinberg & Company, P.A.

Angeles, California

in thousands, except share amounts)

receivable, net of allowance of $ 860 and $ 252 , respectively

from former related party

expenses and other current assets

current assets

Accounts receivable, net of allowance of $ 252 and $ 215 , respectively

Inventory, net

Receivable from former related party

Prepaid expenses and other current assets

Total current assets

Property and equipment, net of accumulated depreciation of $ 787 and $ 561 , respectively

Intangible assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

and equipment, net of accumulated depreciation of $ 1,068 and $ 787 , respectively

AND STOCKHOLDERS’ DEFICIT

line of credit, net of capitalized financing costs of $ 201 and $ 363 , respectively

to former related party

portion of convertible notes payable, net of debt discount of $ 424 and $ 414 , respectively

portion of lease liabilities

current liabilities

Accounts payable

Accrued expenses

Revolving line of credit, net of capitalized financing costs of $ 363 and $ 0 , respectively

Payable to former related party

Current portion of convertible notes payable, net of debt discount of $ 414 and $ 0 , respectively

Current portion of lease liabilities

Total current liabilities

Convertible note payable, net of debt discount of $ 562 and $ 0 , respectively, less current portion

Lease liabilities, less current portion

Total liabilities

Stockholders’ equity (deficit):

Series A Convertible Preferred stock, $ 10 par value, 500,000 shares authorized, 9,411 shares issued and outstanding

Common stock, $ .0001 par value, 180,000,000 shares authorized;

note payable, net of debt discount of $ 148 and $ 562 , respectively, less current portion

liabilities, less current portion

Stockholders’ deficit:

A Convertible Preferred stock, $ 10 par value, 500,000 shares authorized, 9,411 shares issued and outstanding

stock, $ .0001 par value, 180,000,000 shares authorized;

4,187,291 and 2,519,485 shares issued and outstanding, respectively

Additional paid in capital

Accumulated deficit

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

paid in capital

stockholders’ deficit

liabilities and stockholders’ deficit

accompanying notes are an integral part of these financial statements.

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in thousands, except share and per share amounts)

Year Ended December 31,

Cost of goods sold

Ended December 31,

of goods sold

write-offs associated with exited categories and major packaging and formula changes

Product quality hold write-down

and handling expense

and marketing expense

and administrative expense

for receivable with former related party

operating expenses

Delivery and handling expense

Selling and marketing expense

General and administrative expense

Provision for receivable with former related party

Total operating expenses

Loss from operations

Gain on extinguishment of PPP note payable

Interest expense

Dividends on Series A Convertible Preferred Stock

Net loss attributable to common stockholders

Loss per share – basic and diluted

Weighted average number of shares outstanding – basic and diluted

from operations

on Series A Convertible Preferred Stock

loss attributable to common stockholders

per share – basic and diluted

average number of shares outstanding – basic and diluted

accompanying notes are an integral part of these financial statements.

OF CHANGES IN STOCKHOLDERS’ EQUITY

OF CHANGES IN STOCKHOLDERS’ DEFICIT

the Years Ended December 31, 2023 and 2022

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Balance, December 31, 2021

$ ( 103,137 )

Fair value of vested options

Fair value of warrants issued as financing costs

Fair value of vested restricted shares granted to officers

Dividends on Series A Convertible Preferred Stock

Repurchase of common stock

Common shares issued on exercise of options

Dividends on Series A Convertible Preferred Stock

Common shares issued for financing costs

Common shares issued for interest payment

Common shares issued pursuant to a rights offering, net of offering costs

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Repurchase of common stock

Dividends on Series A Convertible Preferred Stock

Common shares issued for financing costs

Common shares issued for interest payment

Common shares issued pursuant to a rights offering, net of offering costs

Issuance of shares for dividends on Series A Convertible Preferred Stock

Common shares issued as compensation

Common shares issued for cash, net of offering costs

Balance, December 31, 2023

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Loss on disposal of property & equipment

Gain on termination of leases

Gain on extinguishment of PPP note payable

Amortization of debt discount

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Common shares issued as financing costs

Change in allowance for doubtful accounts

Common shares issued for compensation

Product quality hold write-down

Allowance for estimated credit losses

Provision for receivable with former related party

Change in inventory reserve

Inventory write down

Accrued interest on convertible note

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Purchase of property and equipment

Sale of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Borrowings under revolving line of credit

Repayments of revolving line of credit

Capitalization of financing costs

Proceeds from line of credit

Payments on the line of credit

Payment of debt issuance costs

Proceeds from sale of common stock

Proceeds from convertible note payable, net of expenses

Repayment of convertible note payable

Amounts from former related party

Principal repayments on finance lease obligation

Exercise of options

Payment of convertible note payable

Amounts from former related party, net

Repurchase of common stock

Net cash provided by financing activities

Net increase (decrease) in cash

Net increase in cash

Cash at beginning of period

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Dividends on Series A Convertible Preferred Stock

Fair value of warrant recorded to prepaid expenses

Common Shares issued for financing costs

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Common Shares issued for interest payment

Note Payable principal extinguished

accompanying notes are an integral part of these financial statements.

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and is incorporated in the state of Delaware.

on January 24, 2023, the Board of Directors and stockholders have approved resolutions authorizing a reverse stock split of the outstanding

shares of the Company’s common stock on the basis of 1 share for every 50 shares of common stock .

All shares and per share amounts

and information presented herein have been retroactively adjusted to reflect the reverse stock split for all periods presented.

accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement

of liabilities and commitments in the normal course of business.

As reflected in the accompanying financial statements, for the year

ended December 31, 2022, the Company recorded a net loss of $ 20,057 and used cash in operations of $ 15,530 .

These factors raise substantial

doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are

The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going

of December 31, 2022, we had a cash balance of $ 533 , with $ 110 of current availability, and $ 1,663 of additional borrowing capacity.

the year ended December 31, 2023, the Company recorded a net loss of $15,523 and used cash in operations of $4,266.

In accordance with

Accounting Standards Codification (“ASC”) 205-40, Going Concern , the Company’s management has evaluated whether

there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue

as a going concern within one year after the date the accompanying financial statements were issued.

As of the issuance date of these

financial statements, management expects that the Company’s existing cash of $603, plus $4,100 of additional cash received subsequent

to December 31, 2023, from investments with significant stockholders, will be sufficient to fund the Company’s current operating

plan for at least twelve months from the date of issuance of these financial statements.

The financial statements do not include any

adjustments that might be necessary if the Company is unable to continue as a going concern.

assessment whether there is sufficient cash on hand, together with expected capital raises, to assure operations for a period of at least

twelve months from the date these financial statements are issued, is based on conditions that are known and reasonably knowable to management,

considering various scenarios, projections, and estimates and certain key assumptions.

These assumptions include, among other factors,

management’s ability to raise additional capital, and the expected timing and nature of the Company’s forecasted cash expenditures.

Historically,

we have financed our operations through public and private sales of common stock, issuance of preferred and common stock, convertible

debt instruments, term loans and credit lines from financial institutions, and cash generated from operations.

To alleviate these conditions,

management is currently evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity,

mezzanine or debt securities, through arrangements with strategic partners or through obtaining credit from financial institutions.

we seek additional sources of financing, there can be no assurance that such financing would be available to us on favorable terms or

Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market

and economic conditions, our performance and investor sentiment with respect to us and our industry.

have also taken decisive action to improve our margins, including fully outsourcing our manufacturing process, streamlining our product

portfolio, negotiating improved vendor contracts and restructuring our selling prices.

the Company has financed its operations through public and private sales of common stock, convertible debt instruments, credit lines

from financial institutions, and cash generated from operations.

As we seek additional sources of financing, there can be no assurance

that such financing would be available to us on favorable terms or at all.

Our ability to obtain additional financing in the debt and

equity capital markets is subject to several factors, including market and economic conditions, our performance and investor sentiment

with respect to us and our industry.

Trends – Market Conditions

the year ended December 31, 2022, the COVID-19 pandemic continued to impact our operating results and the Company anticipates a residual

effect for the balance of the year.

In addition, the pandemic could cause reduced demand for our products if, for example, the pandemic

results in a recessionary economic environment which negatively affects the consumers who purchase our products.

Based on the recent

increase in demand for our products, we believe that over the long term, there will continue to be strong demand for our products.

economy continued to grow during the first quarter of 2022, the continuing impact of the COVID-19 pandemic, higher inflation,

the actions by the Federal Reserve to address inflation, and rising energy prices create uncertainty about the future economic environment

which will continue to evolve and may impact our business in future periods.

We have experienced supply chain challenges, including increased

lead times, as well as inflation of raw materials, logistics and labor costs due to availability constraints and high demand.

we regularly monitor companies in our supply chain, and use alternative suppliers when necessary and available, supply chain constraints

could cause a disruption in our ability to obtain raw materials required to manufacture our products and adversely affect our operations.

We expect the inflationary trends and supply chain pressures to continue throughout 2023.

the year ended December 31, 2022, the Company experienced moderation from elevated freight costs.

While the average cost of shipping

and handling for the year ended December 31, 2022, was $ 3.95 per case, which is the same as the $ 3.95 per case for the year ended December

31, 2021, it was significantly higher during the first half of the year, however, was significantly reduced during the second half of

The Company believes these challenges will continue throughout the year.

In addition, the Company experienced increases in

the pricing of several of its raw materials and delays in procuring several of these items.

However, mitigation plans have been implemented

to manage this risk.

Additionally, the Company was negatively impacted by supply chain challenges impacting our ability to benefit from

strong demand for, and increased sales of our product.

The disruption caused by labor shortages, significant raw material cost inflation,

logistics issues and increased freight costs, and ongoing port congestion, resulted in suppressed margins and net income.

anticipates a continued impact throughout 2023.

ability to operate without significant incremental negative operational impact from the COVID-19 pandemic will in part depend on our

ability to protect our employees and protect our supply chain.

The Company has endeavored to follow the recommended actions of government

and health authorities to protect our employees.

Since the inception of the COVID-19 pandemic and through December 31, 2022, we maintained

the consistency of our operations during the onset of the COVID-19 pandemic.

We will continue to innovate in managing our business, coordinating

with our employees and suppliers to do our part to be responsible to our employees and business partners in responding to our customers

and suppliers.

However, the uncertainty resulting from the pandemic could result in an unforeseen disruption to our workforce and supply

chain (for example an inability of a key supplier or transportation supplier to source and transport materials) that could negatively

impact our operations.

have not observed any material impairments of our assets or a significant change in the fair value of our assets due to the COVID-19

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard

economy continued to grow throughout 2023, the higher inflation, the actions by the Federal Reserve to address inflation, and

rising energy prices create uncertainty about the future economic environment which will continue to evolve and may impact our business

in future periods.

The Company has experienced supply chain challenges, including increased lead times, as well as inflation of raw materials,

logistics and labor costs due to availability constraints and high demand.

Although the Company regularly monitors companies in our supply

chain, and use alternative suppliers when necessary and available, supply chain constraints could cause a disruption in our ability to

obtain raw materials required to manufacture our products and adversely affect our operations.

The Company has experienced moderation in inflation and anticipates this to continue throughout 2024.

the year ended December 31, 2023, the Company experienced moderation from the elevated freight costs experienced in 2022.

cost of shipping and handling for year ended December 31, 2023, was $ 3.07 per case, as compared to $ 3.95 per case for the year ended

December 31, 2022.

Although the Company has experienced decreases in freight costs over the last three quarters, in the Company’s

opinion there remains a volatile environment and the Company will continue to monitor pricing and availability in transportation.

plans have been implemented to manage this risk.

The Company has been negatively impacted by supply chain challenges impacting our ability

to benefit from strong demand for, and increased sales of our product.

The disruption caused by labor shortages, significant raw material

cost inflation, logistics issues and increased freight costs, and ongoing port congestion, resulted in suppressed margins.

Delisting and now trading on the OTCQX US Market

August 16, 2021, the Company received a written notice from the Nasdaq Listing Qualifications staff of The Nasdaq Stock Market LLC (“Nasdaq”)

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days and, as a result, did not comply with Listing Rule 5550(a)(2) (the “Bid Price Rule”).

In accordance with Listing Rule

5810(c)(3)(A), the Company was provided 180 calendar days, or until February 14, 2022, to regain compliance with the Bid Price Rule.

The Company did not regain compliance during the compliance period ended February 14, 2022.

Accordingly, the Company requested that Nasdaq

grant the Company a second 180 calendar day period to regain compliance.

On February 15, 2022, the Company was provided an additional

180 calendar day compliance period, or until August 15, 2022, to demonstrate compliance with the Bid Price Rule.

The Company did not

regain compliance during the compliance period ended August 15, 2022.

August 16, 2022, the Company received a written notice from Nasdaq indicating that, based upon the Company’s continued non-compliance

with the Bid Price Rule, Nasdaq had determined to delist the Company’s securities from Nasdaq unless the Company timely requested

a hearing before the Nasdaq Hearings Panel (the “Panel”).

The written notice also indicated that the Company was not in compliance

with the $ 2.5 million minimum stockholders’ equity requirement for continued listing of the Company’s common stock on Nasdaq

as set forth in Nasdaq Listing Rule 5550(b)(1) (the “Minimum Stockholders’ Equity Rule”).

The Company timely requested

a hearing with the Panel, and after a hearing on September 28, 2022, the Company was given until February 13, 2023, to regain compliance

with the Bid Price Rule, and to regain compliance with the Minimum Stockholders’ Equity Rule.

January 27, 2023, the Company achieved compliance with the Bid Price Rule after effecting a 1:50 reverse split (see Reverse Stock Split

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and the Company continues to be a reporting company under the Securities Exchange Act of 1934, as amended.

a special meeting of shareholders held on January 24, 2023, the Company’s shareholders granted the Company’s board of directors

the discretion to effect a reverse stock split of the common stock through an amendment to the Company’s Certificate of Incorporation,

as amended, at a ratio of any ratio not less than 1-for-6 and not more than 1-for-50 , at any time on or prior to January 24, 2024, with

the exact ratio to be set at a whole number within this range by the board of directors in its sole discretion.

On January 25, 2023,

the Company announced that its board of directors approved a 1-for-50 reverse stock split of the Company’s issued and outstanding

shares of common stock, par value $ 0.0001 per share.

January 25, 2023, the Company effectuated a 1-for-50 reverse stock split of its issued and outstanding shares of common stock, par value

$ 0.0001 per share.

authorized number of shares of common stock were not affected by the reverse stock split.

No fractional shares were issued in connection

with the reverse stock split, as all fractional shares were rounded up to the next whole share.

Accordingly, all share and per share

amounts presented herein with respect to common stock have been retroactively adjusted to reflect the above-described reverse stock split

for all periods presented.

with the reverse stock split, and there was no effect on total stockholders’ deficit.

All common shares, stock options, stock

warrants and per share amounts presented herein have been adjusted retroactively to reflect the reverse stock splits for all periods

Significant Accounting Policies

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from those estimates.

Those estimates and assumptions include estimates for reserves of uncollectible accounts receivables, assumptions

used in valuing inventories at net realizable value, impairment testing of recorded long-term tangible and intangible assets, the valuation

allowance for deferred tax assets, accruals for potential liabilities, assumptions made in valuing stock instruments issued for services,

and assumptions used in valuing warrant liabilities, and assumptions used in the determination of the Company’s liquidity.

receivable are generally recorded at the invoiced amounts net of an allowance for expected losses.

The Company evaluates the collectability

of its trade accounts receivable based on a number of factors.

In circumstances where the Company becomes aware of a specific customer’s

inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces

the recognized receivable to the estimated amount the Company believes will ultimately be collected.

In addition to specific customer

identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall assessment

of past due trade accounts receivable outstanding.

allowance for accounts receivable is established through a provision reducing the carrying value of receivables.

At December 31, 2022,

and 2021, the allowance was $ 252 and $ 215 , respectively.

Those estimates and assumptions include estimates for credit loss reserves for accounts receivable, assumptions

used in valuing inventories at net realizable value, impairment testing of recorded long-term tangible and intangible assets, the realizability

of deferred tax assets and the related valuation allowance, accruals for potential liabilities, assumptions made in valuing stock instruments

issued for services, and assumptions used in the determination of the Company’s

receivable are generally recorded at the invoiced amounts net of an allowance for credit losses, which

is an estimate of amounts that may not be collectible .

The Company evaluates the collectability of its trade accounts receivable

based on a number of factors.

In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial

obligations to the Company, a specific reserve for credit losses is estimated and recorded, which reduces the recognized receivable to

the estimated amount the Company believes will ultimately be collected.

In addition to specific customer identification of potential

credit losses, credit losses are recorded based on the Company’s historical losses and an overall assessment of past due trade

accounts receivable outstanding.

A s of December 31, 2023 and December 31, 2022, the allowance for

credit losses was $ 860 and $ 252 , respectively.

is stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis.

regularly review our inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated

forecast of product demand and our ability to sell the product(s) concerned.

Company regularly reviews inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our

estimated forecast of product demand and our ability to sell the product(s) concerned.

Demand for our products can fluctuate significantly.

that could affect demand for our products include unanticipated changes in consumer preferences, general market conditions or other factors,

which may result in cancellations of advance orders or a reduction in the rate of reorders placed by customers.

Additionally, our management’s

estimates of future product demand may be inaccurate, which could result in an understated or overstated provision required for excess

and obsolete inventory.

At December 31, 2022, and 2021, inventory has been reduced by cumulative write-downs for inventory aggregating

$ 479 and $ 135 , respectively.

Factors that could affect demand for our products include unanticipated changes in consumer preferences, general market conditions or

other factors, which may result in cancellations of advance orders or a reduction in the rate of reorders placed by customers.

Additionally,

our management’s estimates of future product demand may be inaccurate, which could result in an understated or overstated provision

required for excess and obsolete inventory.

At December 31, 2023, and 2022, inventory has been reduced by cumulative write-downs for

inventory aggregating $ 1,434 and $ 479 , respectively.

and Equipment

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not be recoverable.

If there is an indication of impairment, management prepares an estimate of future cash flows expected to result from

the use of the asset and its eventual disposition.

If there is an indication of impairment, management prepares an estimate of future cash flows expected to result

from the use of the asset and its eventual disposition.

If these cash flows are less than the carrying amount of the asset, an impairment

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costs are expensed as incurred and are included in selling and marketing expense.

Advertising costs aggregated $ 668 and $ 1,418 for the

years ended December 31, 2022 and 2021, respectively.

Advertising costs aggregated $ 24 and $ 668 for the years

ended December 31, 2023 and 2022, respectively.

Compensation Expense

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as if the Company had paid cash for the services.

The Company recognizes the fair value of stock-based compensation within its Statements

of Operations with classification depending on the nature of the services rendered.

fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing model, which uses certain

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The potentially dilutive securities consisted of the following:

Schedule of Potentially Dilutive Securities

of Potentially Dilutive Securities

December 31, 2023

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Unvested restricted common stock

Anti-dilutive Securities

Series A Convertible Preferred Stock is convertible into Common shares at the rate of 1:0.08 .

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2—Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

3—Unobservable inputs based on the Company’s assumptions.

3—Unobservable inputs in which there is little or no market data for the asset or liability which requires the Company to develop

its own assumptions.

Company believes the carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, short-term

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interest rates on these obligations are based on prevailing market interest rates.

Company operates in one segment for the manufacture and distribution of our products.

In accordance with the “Segment Reporting”

Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President,

who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company.

guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information

quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the

entity holds material assets and reports revenue.

All material operating units qualify for aggregation under “Segment Reporting”

due to their similar customer base and similarities in economic characteristics, nature of products and services, and procurement, manufacturing

and distribution processes.

Since the Company operates in one segment, all financial information required by “Segment Reporting”

can be found in the accompanying financial statements.

ASC 280, Segment Reporting, operating segments are defined as components of an enterprise where discrete financial information is available

that is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and in

assessing performance.

The Company has one component.

Therefore, the Company’s Chief Executive Officer, who is also the CODM, makes

decisions and manages the Company’s operations as a single operating segment for the manufacture and distribution of its products.

Concentrations

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respectively.

As of December 31, 2022, the Company had accounts receivable from two customers which comprised 19 % and 11 % of its gross

accounts receivable, respectively.

As of December 31, 2021, the Company had accounts receivable from one customer which comprised 18 %

of its gross accounts receivable.

the years ended December 31, 2022, and 2021, the Company utilized six separate co-packers for most its production and bottling of beverage

products in the United States.

The Company utilizes co-packers to produce 100 % of its products.

The Company has long-standing relationships

with two different co-packers, and in conjunction with the sale of its manufacturing plant we entered into a third co-packing agreement

with California Custom Beverage LLC (“CCB”), the purchaser of the plant (see Note 13).

CCB is 100 % owned by Chris Reed, founder

of the Company and formerly Chief Executive Officer, Chairman, director, and most recently, Chief Innovation Officer.

Although there

are other packers, a change in co-packers may cause a delay in the production process, which could ultimately affect operating results.

For the years ending December 31, 2023 or 2022, no other customer accounted for more than 10% revenue.

As of December 31, 2023, the Company had accounts receivable from three customers which comprised 24 %, 15 % and 11 % of

its gross accounts receivable, respectively.

As of December 31, 2022, the Company had accounts receivable from two customers which comprised

19 % and 11 % of its gross accounts receivable, respectively.

At December 31, 2023 or 2022, no other customers accounted for more than

10% of accounts receivable.

Company utilizes co-packers to produce 100% of its products.

During the year ended December 31, 2023 and the year ended December

31, 2022, the Company utilized six separate co-packers for most its production and bottling

of beverage products in the United States.

The Company has long-standing relationships with two different co-packers, and a third co-packing

agreement with California Custom Beverage LLC (“CCB”), a former related party (see Note 13).

Although there are other packers,

a change in co-packers may cause a delay in the production process, which could ultimately affect operating results.

from vendors.

During the year ended December 31, 2023, the Company’s largest vendor accounted for approximately 12 % of all

During the year ended December 31, 2021, the Company’s largest two vendors accounted for approximately 13 % and 10 % of

all purchases, respectively.

No other vendor accounted for more than 10% of the total vendor purchases.

As of December 31, 2022, no vendor accounted for more than 10 % of the total accounts payable.

As of December 31, 2021, no vendor

accounted for more than 10 % of the total accounts payable.

During the year ended December 31, 2022, the Company’s largest vendor accounted for approximately 12 % of all purchases.

As of December 31, 2023, two vendors accounted for 10 % and 10 % of total accounts payable, respectively.

As of December 31,

2022, no vendor accounted for more than 10 % of the total accounts payable.

Accounting Pronouncements

Adopted Accounting Pronouncements

August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2020-06 “Debt—Debt with Conversion

and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU

2020-06”).” ASU 2020-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash

conversion and beneficial conversion models.

The diluted net income per share calculation for convertible instruments will require the

Company to use the if-converted method.

For contracts in an entity’s own equity, the type of contracts primarily affected by this

update are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet

the settlement conditions of the derivative scope exception.

This update simplifies the related settlement assessment by removing the

requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required

to be posted, and (iii) assess shareholder rights.

ASU 2020-06 is effective January 1, 2024, for the Company and the provisions of this

update can be adopted using either the modified retrospective method or a fully retrospective method.

Early adoption is permitted, but

no earlier than January 1, 2021, including interim periods within that year.

Effective January 1, 2021, the Company early adopted ASU

2020-06 and that adoption did not have an impact on our financial statements and related disclosures.

In November 2023, the FASB issued ASU

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosure , which is intended to improve

reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense categories that

are regularly provided to the chief operating decision maker and included in each reported measure of a segment’s profit or

The update also requires all annual disclosures about a reportable segment’s profit or loss and assets to be provided in

interim periods and for entities with a single reportable segment to provide all the disclosures required by ASC 280, Segment

Reporting , including the significant segment expense disclosures.

This standard will be effective for the Company on January 1,

2024 and interim periods beginning in fiscal year 2025, with early adoption permitted.

The updates required by this standard should

be applied retrospectively to all periods presented in the financial statements.

The Company does not expect this standard to have a

material impact on its results of operations, financial position or cash flows.

September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04, Liabilities—Supplier

Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations .

The ASU requires buyers to disclose information

about their supplier finance programs.

Interim and annual requirements include the disclosure of outstanding amounts under the obligations

as of the end of the reporting period, and annual requirements include a roll-forward of those obligations for the annual reporting period,

as well as a description of payment and other key terms of the programs.

This update is effective for annual periods beginning after

December 15, 2022, and interim periods within those fiscal years, except for the requirement to disclose roll-forward information, which

is effective for fiscal years beginning after December 15, 2023.

The Company adopted ASU 2022-04 on January 1, 2023, and there was no

material impact on our financial statements.

May 2021, the FASB issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),

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2021-04 did not have any impact on the Company’s financial statement presentation or disclosures.

Issued Accounting Pronouncements Not Yet Adopted

September 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments .

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This may result in the earlier recognition of allowances for losses.

is effective for the Company beginning January 1, 2023, and early adoption is permitted.

The Company does not believe the potential impact

of the new guidance and related codification improvements will be material to its financial position, results of operations and cash

recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants,

and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s

present or future financial statements.

is valued at the lower of cost (first-in, first-out) or net realizable value and is comprised of the following (in thousands):

adopted this standard effective January 1, 2023 and there was no material impact of adopting this standard on the Company’s financial

statements and related disclosures.

recent accounting pronouncements and guidance issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified

Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on

the Company’s present or future financial statements.

consisted of the following (in thousands):

December 31, 2023

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Finished products

the year ended December 31, 2023, the Company incurred inventory charges of totaling $ 1,848 , which represents $ 1,452 impairment charge

related to major packaging and formula changes and $ 396 for the markdown of inventory related to exited categories.

There were no such

inventory charges during the year ended December 31, 2022.

Property and Equipment

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Machinery and equipment

Construction in progress

Accumulated depreciation and amortization

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the years ended December 31, 2023, and 2022 as $ 139 and $ 117 , respectively.

the year ended December 31, 2021, the Company disposed of right-of-use assets under finance leases with a cost of $ 48 and accumulated

amortization of $ 38 and terminated $ 13 of related finance leases payable.

the year ended December 31, 2021, the Company disposed the equipment held for sale and recorded a loss on disposal of $ 67 .

the year ended December 31, 2023, the Company disposed of its equipment costing $ 77 and recorded a loss on disposal of $ 9 .

Intangible Assets

assets consisted of the following (in thousands):

Summary of Intangible Assets

December 31, 2023

December 31, 2022

assets are comprised of brand names acquired, specifically Virgil’s, and costs related to trademarks.

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incurred in applying for international trademarks for Reeds and Virgil’s brands.

assets consist of the following (in thousands):

Summary of Intangible Assets

December 31, 2022

December 31, 2021

Line of Credit

outstanding under the Company’s credit facilities are as follows (in thousands):

Company’s credit facility consisted of the following (in thousands):

Schedule of Amount Outstanding Under Credit Facilities

December 31, 2022

December 31, 2021

Line of credit – Alterna Capital Solutions

Line of credit – Rosenthal & Rosenthal

capitalized financing costs

Capital Solutions

March 28, 2022, the Company entered into a financing agreement with Alterna Capital Solutions (“ACS”), for a line of credit

to replace its existing credit facility.

The ACS line of credit is for a term of 3 years, provides for borrowings of up to $ 13,000 , and

is secured by eligible accounts receivable and inventory.

An over advance rider provides for up to $ 400 of additional borrowing above

the collateralized base (the “Over Advance”) up to a total borrowing of $ 13,000 .

At December 31, 2022, $ 110 of current availability

and $ 1,663 of borrowing capacity was available under the financing agreement.

based on receivables bears an interest of prime plus 4.75% but not less than 8.0%.

Borrowings based on inventory bears an interest of

prime plus 5.25% but not less than 8.5%.

In March, 2022, the Company entered into a financing agreement for a line of credit with Alterna Capital Solutions

(“ACS”) The ACS line of credit is for a term of 3 years, provides for borrowings of up to $ 13,000 , and is secured by eligible

accounts receivable and inventory, and are subject to a collateral sharing agreement with Whitebox, another secured lender (see Note 7).

An over advance rider provides for up to $ 400 of additional borrowing above the collateralized base (the “Over Advance”) up

to a total borrowing of $ 13,000 .

As of December 2023, the remaining availability under the line of credit was $ 23 of current availability,

and $ 3,041 of borrowing capacity available.

based on receivables bears an interest of prime plus 4.75% but not less than 8.0% (13.25% at December 31, 2023 and 12.25% at December

Borrowings based on inventory bears an interest of prime plus 5.25% but not less than 8.5% (13.90 % at December, 31, 2023

and 12.90% at December 31, 2022).

The additional over advance rider bears a rate of prime plus 12.75%, but not less than 16.00% (18.00%

Additionally, the line of credit is subject to monthly monitoring fee of $1 with a minimum usage requirement on the credit facility .

A loan balance of less than $ 1,500 will bear interest at a rate in line with account receivables advances plus the monthly monitoring

at December 31, 2023 and 18.00% at December 31, 2022).

Additionally, the line of credit is subject to monthly monitoring fee of $1 with

a minimum usage requirement on the credit facility .

A loan balance of less than $ 1,500 will bear interest at a rate in line with account

receivables advances plus the monthly monitoring fee of $ 1 .

Company incurred $ 483 of direct costs of the transaction, consisting primarily of broker, bank and legal fees.

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capitalized and are being amortized over the 3 -year life of the ACS agreement.

For the year ended December 31, 2022, amortization of

debt discount was $ 121 , and as of December 31, 2022, the remaining unamortized debt discount balance is $ 363 .

& Rosenthal (paid off in full on March 30, 2022)

2018, the Company entered into a financing agreement with Rosenthal & Rosenthal, Inc.

(“Rosenthal”) that provided a maximum

borrowing capacity of $ 13,000 , based on eligible accounts receivable and inventories (the “permitted borrowings”) plus advances

(an “over-advance” of up to $ 4,000 ) in excess of permitted borrowings.

On March 30, 2022, the Company paid in full the outstanding

balance on its credit facility with Rosenthal with proceeds from ACS discussed above.

under the Rosenthal financing agreement bore interest at the greater of prime or 4.75 %, plus an additional 2.0 % to 3.5 % depending on

whether the borrowing was based upon receivables, inventory or is an over-advance.

Additionally, the Rosenthal line of credit was subject

to monthly facility and administration fees, and aggregate minimum monthly fees (including interest) of $ 4 .

line of credit was secured by substantially all of the assets, excluding intellectual property, of the Company.

The over-advance was

secured by all of Reed’s intellectual property collateral.

On March 11, 2021, the Company entered into an amendment to the Rosenthal

agreement and replaced a standby letter of credit of $ 1,500 by a guarantor with a $2,000 pledge of securities to Rosenthal by John J.

Bello and Nancy E.

Bello, as Co-Trustees of The John and Nancy Bello Revocable Living Trust.

Bello, current Chairman and former

Interim Chief Executive Officer of Reed’s, is a related party, and greater than 5 % beneficial owner of Reed’s common stock .

As consideration for the collateral support, Mr.

Bello received 8,000 shares of Reed’s restricted stock, with a fair value of

$ 472 which was recorded a prepaid financing cost.

During the year ended December 31, 2022, $ 121 of the prepaid financing cost was amortized,

and as of December 31, 2022, there was no remaining unamortized prepaid finance cost balance.

Company annually incurred an additional $ 130 of fees from Rosenthal, or 1 % of the $ 13,000 borrowing limit.

Amortization of this debt

discount was $ 65 and $ 162 for the year ended December 31, 2022, and 2021, respectively.

At December 31, 2022, there was no remaining

unamortized debt discount balance.

The unamortized debt discount balance was $ 363 at December

For the year ended December 31, 2023, amortization of debt discount was $ 162 , and as of December 31, 2023, the remaining unamortized

debt discount balance is $ 201 .

Secured Convertible Notes Payable

outstanding under secured convertible notes payable are as follows (in thousands):

December 31, 2022

December 31, 2021

of Secured Convertible Notes Payable

Secured Convertible Note Payable

Accrued interest

Accrued interest (includes excess ABL fees of $ 2,176 and $ 648 )

Capitalized financing costs

Current portion

Long term portion

Convertible Note Payable

May 2022, the Company entered into a note purchase agreement and agreed to issue $ 11,250 of secured convertible promissory notes (the

“Notes”) to entities affiliated with Whitebox Advisors, LLC (collectively, “Whitebox”).

The Notes bear interest

at a rate of 10% per annum (with 5% per annum payable in cash and 5% per annum payable in kind (“PIK”) by adding such PIK

interest to the principal amount of the Notes) .

The Notes are secured by substantially all of the Company’s assets (including all

of its intellectual property) and are subject to a collateral sharing agreement with ACS, the Company’s existing secured lender

(see Note 6).

The Notes mature on May 9, 2025 .

May 9, 2022, the Company issued $ 11,250 of Notes to Whitebox.

In September 2022, the Company issued an additional $ 2,500 of Notes to

The net proceeds from the issuance of the Notes, after deducting placement agent fees and other debt issuance costs, was approximately

In November 2022, the Company paid off the $ 2,500 of Notes in cash.

Beginning in August 2022, $ 11,250 of the Notes have an amortization

feature which requires the Company to make monthly payments of principal of $ 200 plus accrued interest, payable in cash or in shares

of the Company’s common stock at the option of the Company.

Amortization payments that are paid in shares are priced at 90 % of

the average of the daily volume weighted average prices of the Company’s common stock during the five trading days prior to the

date of amortization payment.

During the year ended December 31, 2022, the Company made monthly amortization principal payments aggregating

$ 800 , made up of $ 600 in cash, and the issuance of 32,362 shares of common stock valued at $ 200 .

At December 31, 2022, the principal

balance of the Notes was $ 10,450 .

Effective February 10, 2023, the requirement for monthly amortization payments of $ 200 due December

2022 to May 2023 was waived (see Note 15).

Remaining amortization payments of principal, as amended, total approximately $ 1.2 million

in 2023, $ 2.4 million in 2024, and $ 800 in 2025, leaving a principal balance of the Notes of approximately $ 6.0 million due at maturity.

August 11, 2022, the Notes were amended to add a 10 % fee for the amount that the Company’s line of credit with ACS exceeds $ 6,000 ,

Long term portion due through May, 2025

May 2022, the Company issued $ 11,250 of convertible notes payable (the “Original Notes”) to entities affiliated with Whitebox

Advisors, LLC (collectively, “Whitebox”).

The Original Notes bear interest at 10% per annum (with 5% per annum payable in

cash and 5% per annum payable in kind (“PIK”) by adding such PIK interest to the principal amount of the notes), are secured

by substantially all of the Company’s assets (including all of its intellectual property) and are subject to a collateral sharing

agreement with ACS, the Company’s existing secured lender (see Note 6).

The Original Notes mature on May 9, 2025 .

2022, the Company issued an additional $ 2,500 of convertible notes payable (the “Option Notes”) to Whitebox.

The Option Notes

were due May 9, 2025, and were repaid in full in November 2022.

The Original Notes together with the Option Notes are collectively referred

to as the “Notes”.

Upon conversion or early payment, holders of the Notes are entitled to receive an interest make-whole

payment, as defined, equal to the sum of the remaining scheduled payments of interest on the Notes that would be due at maturity, payable,

at the Company’s option, in cash or in shares of common stock.

Effective August 11, 2022,

the Notes were amended to add a 10 % fee for the amount that the Company’s line of credit with ACS (see Note 6) exceeds $ 6,000 ,

as defined (the “Excess ABL Amount”).

In addition, Whitebox amended the amount of permitted indebtedness prior to September

30, 2022, to $ 11.5 million.

The Company was not in compliance with the Excess ABL Amount covenant at December 31, 2022, and received

a waiver of this covenant violation at December 31, 2022, on February 10, 2023.

conversion, holders of the Note are entitled to receive an interest make-whole payment, as defined.

The make-whole amount is equal to

the sum of the remaining scheduled payments of interest on the Notes to be converted that would be due if such notes matured May 9, 2025 ,

payable, at the Company’s option in cash or in shares of common stock.

the year ended December 31, 2022, the Company recorded interest of $ 3,023 , made up of $ 800 of interest on the Notes, $ 489 related to

make whole interest on the $ 2,500 Notes repaid in November 2022, and $ 1,734 related to the excess line of credit debt fee.

year ended December 31, 2022, the Company made interest payments of $ 1,892 , made up of $ 632 in cash, and the issuance of 229,871 shares

of common stock valued at $ 1,261 .

Effective June 30, 2023, the Excess ABL Amount was amended to $ 7,500 .

Original Notes and Option Notes have an amortization feature which requires the Company to make monthly payments of principal of $ 200

plus accrued interest, payable in cash or in shares of the Company’s common stock at the option of the Company, based on 90 % of

the average prices of the Company’s common stock, as defined.

During 2022, the Company made monthly amortization principal payments

aggregating $ 800 , made up of $ 600 in cash, and the issuance of 32,362 shares of common stock valued at $ 200 .

At December 31, 2022, the

principal balance of the Notes was $ 10,450 .

February 2023 and May 2023, the Company issued an aggregate of $ 4,050 of additional Option Notes to Whitebox that substantially have

the same terms as the Original Notes, except the Option Notes issued in 2023 do not require any amortization payments, bear interest

at 10% payable in cash, and were initially due four months after issuance and extended to November 28, 2023.

The Company and Whitebox

have tentatively agreed to extend the due date of the 2023 Option Notes to approximately April 30, 2024 (see Note 15).

During 2023, Whitebox

waived the requirement for the Company to pay the December 2022 to October 2023 monthly amortization payments on the Original Notes.

The November 2023 amortization payment of $ 200 principal was paid, and the amortization payment for December 2023 was waived subsequent

to December 31, 2023 (see Note 15).

At December 31, 2023, the principal balance of the Notes was $14,300.

2022, the Company recorded interest of $ 3,023 , made up of $ 800 of interest on the Notes, $ 489 related to make whole interest on the 2022

Option Notes repaid November 2022, and $ 1,734 related to the Excess ABL Amount fee.

During 2022, the Company made interest payments of

$ 1,892 , including the issuance of 229,871 shares of common stock valued at $ 1,261 , and at December 31, 2022, the balance of accrued interest

was $ 1,052 .

2023, the Company recorded interest of $ 3,604 , made up of $ 1,428 of interest on the Notes, and $ 2,176 related to the Excess ABL Amount

In addition, during 2023, accrued interest of $ 773 was paid.

At December 31, 2023, the balance of accrued interest was $ 3,883 .

initial conversion rate of the Notes is 0.08306 shares of the Company’s common stock per $1 dollar of principal converted, or

approximately $12.04 per share, subject to customary anti-dilution adjustments.

In addition, if certain corporate events occur that

constitute a make-whole fundamental change as defined, then the note holders are, under certain circumstances, are entitled to an

increase in the conversion rate, limited to 0.12155 shares of Common Stock per $1 dollar of principal, or approximately $8.23 per

Company’s ability to settle conversions and make amortization payments and interest make-whole payments using shares of the Company’s

common stock is subject to certain limitations set forth in the Notes.

If the Company experiences a fundamental change as defined, the

holders of the notes have the right to require the Company to repurchase the notes for cash at a repurchase price equal to 100 % of the

principal amount, plus accrued interest thereon.

Effective February 10, 2023, the repurchase price was amended to 110 % of the principal

amount, plus accrued interest (see Note 15).

At December 31, 2022, the Notes, including accrued interest, are convertible into 955,363

shares of the Company’s common stock pursuant to a share conversion cap limit as defined in the Notes.

Company incurred $ 1,320 of direct costs of the transactions, consisting primarily of placement agent fees and other offering expenses.

These costs have been capitalized and are being amortized over the 3 -year life of the Notes.

2022, the Company incurred $ 1,320 of direct costs of the Notes transactions, consisting primarily of placement agent fees and other offering

These costs were capitalized and are being amortized over the 3 -year life of the Notes.

For the year ended December 31, 2022,

amortization of debt discount was $ 344 , and as of December 31, 2022, the remaining unamortized debt discount balance is $ 976 .

the year ended December 31, 2023, the Company incurred $ 299 of direct costs of issuing the 2023 Option Notes and issued 82,438 shares

of the Company’s common stock valued at $ 273 as inducement for the aforementioned waiver.

These costs have been capitalized and

are being amortized over the shorter of the remaining term of the Notes or waiver period.

For the year ended December 31, 2023, amortization

of debt discount was $ 976 , and as of December 31, 2023, the remaining unamortized debt discount balance is $ 572 .

Company entered into a registration rights agreement with the holders, pursuant to which the Company agreed to register for resale shares

issuable under the Notes.

the Company experiences a fundamental change, as defined, such as a change of control, or the sale or disposition of all or substantially

all of the Company’s asset, the holders of the Notes have the right to require the Company to repurchase the notes for cash at

a repurchase price equal to 110 % (amended from 100%) of the principal amount, plus accrued interest, and among other amendments.

At December 31, 2023, the Original Notes and 2023

Option Notes are convertible at an initial conversion rate of 0.0831 shares of the Company’s common stock per one dollar of principal

converted, or approximately $12.04 per share, subject to customary anti-dilution adjustments.

In addition, if certain corporate events

occur that constitute a make-whole fundamental change as defined, then the note holders are, under certain circumstances, are entitled

to an increase in the conversion rate, limited to 0.12155 shares of Common Stock per one dollar of principal, or approximately $8.23 per

Subsequent to December 31, 2023, the conversion rate of the Notes was amended (see Note 15).

At December 31, 2023, the Notes, including accrued

interest, are convertible into 1,514,055 shares of the Company’s common stock.

The Company’s ability to settle conversions

and make amortization payments and interest make-whole payments using shares of the Company’s common stock is subject to certain

limitations set forth in the Notes.

A holder may not convert or be issued shares of common stock to the extent such conversion or issuance

would cause such holder, together with its affiliates and attribution parties and any group of which it is a member, to beneficially own

a number of shares of common stock which would exceed 9.9% of the Company’s then outstanding common stock following such conversion

The Company is subject to a registration rights agreement

with Whitebox dated May 9, 2023 pursuant to which the Company registered for resale by holders all shares potentially issuable upon conversion

of, or in satisfaction of amortization or interest make-whole payments with respect to the Notes.

noted above, while the Company has been successful negotiating waivers and amendments under the Notes to extend various due dates and

defer certain payments of interest and principal that were not paid when due, it may not be able to continue to do so in the future.

If the Company is unable to service or repay the Notes and accrued interest at maturity and is otherwise unable to extend the maturity

dates or refinance these obligations, the Company may default.

A default would trigger acceleration under the Notes, and it is unlikely

that the Company would have sufficient funds to make these payments.

Upon a default, the holders of the Notes have the right to exercise

their remedies to collect, including foreclosing on our assets.

Leases Liabilities

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value of unpaid lease payments over the lease term.

The Company leases its headquarters office ,

and certain office equipment and automobiles.

The Company leases its headquarters office, and certain office equipment and automobiles.

Leases with an initial term of 12 months or less are not included on the balance sheets.

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redemption or voting, including any other security convertible into or exercisable for any senior preferred stock.

the year ended December 31, 2021, the Company paid dividends on the Preferred Stock through the issuance of 93 shares of its common stock,

respectively, which based upon the then-current market price of the stock equated to dividends of $ 5 in each of the years.

year ended December 31, 2022, the Company accrued dividends on the Preferred Stock of $ 5 and is included in accrued expenses in the accompanying

balance sheets.

No shares of Series A preferred stock were converted into common stock in 2022.

Company’s common stock has a par value of $ .0001 .

On December 30, 2021, our shareholders approved an increase in the authorized

number of common shares from 120,000,000 to 180,000,000 .

On December 21, 2020, our shareholders approved an increase in the authorized

number of common shares from 100,000,000 to 120,000,000 .

As of December 31, 2022, there were 180,000,000 shares authorized, and 2,519,485

shares of common stock outstanding.

As of December 31, 2021, there were 180,000,000 shares authorized, and 1,874,866 shares of common

stock outstanding.

Stock Issuance

the years ended December 31, 2023 and 2022, the Company accrued dividends on the Preferred Stock of $ 5 and is included in accrued expenses

in the accompanying balance sheets.

No shares of Series A preferred stock were converted into common stock in 2023 and 2022.

of December 31, 2023, there were 180,000,000 shares authorized, and 4,187,291 shares of common stock outstanding.

As of December 31,

2022, there were 180,000,000 shares authorized, and 2,519,485 shares of common stock outstanding.

Stock Issuances

May 25, 2023, the Company entered into a Securities Purchase Agreement with D&D Source of Life Holding Ltd., as the lead investor,

and certain of Reed’s affiliates pursuant to which the investors agreed to purchase an aggregate of 1,566,732 shares of Reed’s

common stock and warrants to purchase 313,346 shares of Common Stock.

The purchase price was $ 2.585 per share of Common Stock with the

associated warrant.

The net proceeds to the Company, after deducting offering expenses, was $ 4,016 .

The warrants are exercisable for

a term of three years at an exercise price of $ 2.50 per share.

May 25, 2023, in order to induce the lead investor to subscribe, the Company granted the lead investor certain preemptive rights and

agreed to support the lead investor’s nomination of two board designees, one of which shall be an independent director.

March 10, 2022, the Company entered into a securities purchase agreement with certain institutional and accredited investors pursuant

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of Reed’s common stock.

May 5, 2021, the Company entered into a placement agency agreement with Roth Capital Partners, LLC (the “Placement Agent”)

and a securities purchase agreement with a certain purchaser for the purchase of shares of the Company’s common stock, par value

$ 0.0001 per share, in an offering of securities registered under an effective registration statement filed with the Securities and Exchange

Commission (“SEC”).

In the offering, the Company sold 133,600 shares of common stock, at a price of $ 59.00 per share.

offering closed on May 7, 2021, and total proceeds received, net of fees, were $ 7,327 .

The Placement Agent was paid a total cash fee

at the closing of the Offering equal to 6.5% of the gross cash proceeds received by the Company from the sale of the shares of common

stock in the offering .

stock repurchases

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following table summarizes restricted stock activity during the years ended December 31, 2023, and 2022:

of Non-vested Restricted Stock Activity

of Restricted Stock Activity

Balance, December 31, 2021

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January 26, 2022, the board of directors of Reed’s, pursuant to a joint recommendation from its governance and compensation committees,

set the cash compensation of its non-employee directors at $50,000 for fiscal 2022, payable quarterly in accordance with the company’s

policies for non-employee director compensation.

In addition, the Company granted 8,035 restricted stock awards to five non-employee

2,009 of these restricted stock awards vested on February 1, 2022, May 1, 2022, August 1, 2022, and November 1, 2022.

aggregate fair value of the stock awards was $ 150 based on the market price of our common stock price which was $ 16.00 per share on the

date of grants and is amortized as shares vest.

the year ended December 31, 2021, the Company issued 4,920 restricted stock awards to five non-employee directors.

1,230 of these restricted

stock awards vested on February 1, 2021, May 1, 2021, August 1, 2021, and November 1, 2021.

The aggregate fair value of the stock awards

was $ 226 based on the market price of our common stock price which was $ 46.00 per share on the date of grants and is amortized as shares

set the cash compensation of its non-employee directors at $ 50,000

for fiscal 2022, payable quarterly in accordance

with the Company’s policies for non-employee director compensation.

In addition, the Company granted 8,035

restricted stock awards to five non-employee

of these restricted stock awards vested on February

1, 2022, May 1, 2022, August 1, 2022, and November 1, 2022.

The aggregate fair value of the stock awards was $ 150 based on the market

price of our common stock price which was $ 16.00

per share on the date of grants and is amortized

as shares vest.

total fair value of restricted common stock vesting during the year ended December 31, 2023, and 2022 was $ 3 and $ 158 , respectively,

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As of December 31, 2023, the amount

of unvested compensation related to issuances of restricted common stock was $ 26 , which will be recognized as an expense in future periods

as the shares vest.

When calculating basic loss per share, these shares are included in weighted average common shares outstanding from

the time they vest.

When calculating diluted net income per share, these shares are included in weighted average common shares outstanding

as of their grant date.

of unvested compensation related to issuances of restricted common stock was $ 0 .

When calculating basic loss per share, these shares

are included in weighted average common shares outstanding from the time they vest.

When calculating diluted net income per share, these

shares are included in weighted average common shares outstanding as of their grant date.

of December 31, 2023, the Company has issued stock options to purchase an aggregate of 145,012 shares of common stock.

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stock options are exercisable at a price of $ 4.50 per share and expire in ten years .

The total fair value of these options at grant

date was approximately $ 122 , which was determined using a Black-Scholes-Merton option pricing model with the following average assumption:

The total fair value of these options at grant date

was approximately $ 32 , which was determined using a Black-Scholes-Merton option pricing model with the following average assumption:

stock price of $ 4.50 share, expected term of six years , volatility of 82 %, dividend rate of 0 %, and weighted average risk-free interest

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in effect at the time of measurement corresponding with the expected term of the share option award.

the year ended December 31, 2021, the Company received proceeds of $ 32 and issued 1,260 shares of common shares on the exercise of stock

the year ended December 31, 2022, the Company approved options exercisable into 14,696 shares to be issued pursuant to Reed’s 2020

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14,696 options were issued to employees, 7,348 options vesting annually over a four -year vesting period, and 7,348

33,880 options that will vest based on performance criteria to be established by the board of directors.

stock options are exercisable at prices ranging from $ 49.00 to $ 59.00 per share and expire in ten year s.

The total fair value of these

options at grant date was approximately $ 2,412 , which was determined using a Black-Scholes-Merton option pricing model with the following

average assumption:

stock price of $ 52.69 per share, expected term of six years , volatility of 79 %, dividend rate of 0 %, and weighted

average risk-free interest rate of 0.98 %.

The expected term represents the weighted-average period of time that share option awards granted

are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior;

the expected volatility

is based upon historical volatility of the Company’s common stock;

the expected dividend yield is based on the fact that the Company

has not paid dividends in the past and does not expect to pay dividends in the future;

and the risk-free interest rate is based on the

Treasury yield curve in effect at the time of measurement corresponding with the expected term of the share option award.

the measurement of stock options granted in 2022 and 2021, the expected term represents the weighted-average period of time that share

option awards granted are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior;

the expected volatility is based upon historical volatility of the Company’s common stock;

the expected dividend yield is based

on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future;

and the risk-free

interest rate is based on the U.S.

Treasury yield curve in effect at the time of measurement corresponding with the expected term of

the share option award.

options vesting based on performance criteria to be established by the board of directors.

stock options are exercisable at a price of $ 11.69 per share and expire in ten years .

The total fair value of these options at grant

date was approximately $ 122 , which was determined using a Black-Scholes-Merton option pricing model with the following average assumption:

stock price of $ 11.69 share, expected term of six years , volatility of 82 %, dividend rate of 0 %, and weighted average risk-free interest

rate of 2.89 %.

The expected term represents the weighted-average period of time that share option awards granted are expected to be outstanding

giving consideration to vesting schedules and historical participant exercise behavior;

the expected volatility is based upon historical

volatility of the Company’s common stock;

the expected dividend yield is based on the fact that the Company has not paid dividends

in the past and does not expect to pay dividends in the future;

and the risk-free interest rate is based on the U.S.

Treasury yield curve

in effect at the time of measurement corresponding with the expected term of the share option award.

the year ended December 31, 2023 and 2022, the Company recognized $ 490 and $ 701 of compensation expense relating to vested stock options.

As of December 31, 2023, the aggregate amount of unvested compensation related to stock options was approximately $ 443 which will be

recorded as an expense in future periods as the options vest.

of December 31, 2022, the outstanding options have no intrinsic value.

The aggregate intrinsic value was calculated as the difference

between the closing market price as of December 31, 2022, which was $ 3.49 , and the exercise price of the outstanding stock options.

recognized as an expense as the options vest in future periods through March 28, 2027.

of December 31, 2023, the outstanding and exercisable options have no intrinsic value.

The aggregate intrinsic value was calculated as

the difference between the closing market price as of December 31, 2023, which was $ 1.60 , and the exercise price of the outstanding stock

information regarding options outstanding and exercisable as of December 31, 2023, is as follows:

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Exercisable at December 31, 2023

May 25, 2023, the Company entered into a Securities Purchase Agreement with D&D Source of Life Holding Ltd., as the lead investor,

and certain of Reed’s affiliates pursuant to which the investors agreed to purchase an aggregate of 1,566,732 shares of Reed’s

common stock and warrants to purchase 313,346 shares of Common Stock.

The purchase price per share of Common Stock and associated warrant

was $ 2.585 .

The warrants are exercisable for a term of three years at a per share exercise price of $ 2.50 .

March 10, 2022, the Company entered into a securities purchase agreement with certain institutional and accredited investors pursuant

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nine months from the closing date of March 11, 2022 (see Note 9).

November 24, 2021, the Company granted John Bello, current Chairman, significant shareholder and former Interim Chief Executive Officer

of Reed’s, who is a related party, a 5 -year warrant to purchase 30,000 shares of the Company common stock with an exercise price

The fair value of the warrants granted was determined to be $ 458 and was recorded as a prepaid financing costs.

year ended December 31, 2021, the Company amortized $148 of prepaid financing costs to interest expense, leaving a balance remaining

of $ 310 to be amortized through July 2022.

The fair value of the warrant was calculated using the Black-Scholes option pricing model

using the following assumptions – stock price of $ 23.00 ;

exercise price of $ 22.00 ;

expected life of 5 years;

volatility of 84.7 %;

dividend rate of 0 % and discount rate of 0.77 %.

As of December 31, 2021, the outstanding warrants have no intrinsic value.

The risk-free

interest rate is based on rates established by the Federal Reserve Bank.

The Company uses the historical volatility of its common stock

to estimate its future volatility.

The expected life of the warrant is based upon its remaining contractual life.

The expected dividend

yield reflects that the Company has not paid dividends to its common stockholders in the past and does not expect to do so in the foreseeable

of December 31, 2023, the outstanding and exercisable warrants have no intrinsic value.

The aggregate intrinsic value was calculated

as the difference between the closing market price as of December 31, 2023, which was $ 1.60 , and the exercise price of the Company’s

warrants to purchase common stock.

information regarding warrants outstanding and exercisable as of December 31, 2023, is as follows:

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State rate, net of federal benefit

Federal and state tax rate

Effect of change in tax rate

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Inventory reserves

Operating Least Liability

Reserve for asset impairment

Operating Leasr liability

Asset impairment

Gross deferred tax assets

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Net deferred tax asset (liability)

December 31, 2022, and 2021, the Company had available Federal and state net operating loss carryforwards (“NOLs”) to reduce

December 31, 2023 and 2022, the Company had available Federal and state net operating loss carryforwards (“NOL”s) to reduce

future taxable income.

For Federal purposes the amounts available were approximately $ 91,000 $ 80,000 , respectively.

For Federal purposes the amounts available were approximately $ 98,000 ] and $ 92,000 , respectively.

For state purposes

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in years prior to 2018 is approximately $[ 32,000 ], which expires on various dates through 2037.

NOLs for 2019, 2020, 2021 and 2022 of approximately

NOLs originating after 2017 of approximately

$ 66,000 , can be carried forward indefinitely, but are only able to offset 80% of taxable income in future years.

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to restrictions imposed by Internal Revenue Code Section 382 regarding substantial changes in ownership of companies with loss carryforwards,

the utilization of the Company’s NOLs may be limited as a result of changes in stock ownership.

the utilization of the Company’s NOL may be limited as a result of changes in stock ownership.

NOLs incurred subsequent to the

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Company recognizes as income tax expense, interest and penalties on uncertain tax provisions.

As of December 31, 2022, and 2021, the

Company has not accrued interest or penalties related to uncertain tax positions.

Tax years 2018 through 2022 remain open to examination

by the major taxing jurisdictions to which the Company is subject.

As of December 31, 2023 and 2022, the Company

has not accrued interest or penalties related to uncertain tax positions.

As of the year ended December 31, 2023, the tax returns for

2020 through 2023 remain open to examination by the Internal Revenue Service and for 2019 to 2023 for various state taxing jurisdictions

to which the Company is subject.

the attainment of taxable income by the Company, management will assess the likelihood of realizing the tax benefit associated with the

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Transactions with California Custom Beverage, LLC, former related party

In December 2018, the Company signed

a co-packing agreement with California Custom Beverage, LLC’s (“CCB”), an entity owned by Christopher J.

former related party, pursuant to which CCB agreed to produce certain products for the Company for agreed fees.

The co-packing

agreement, as amended, includes certain provisions, among others, for product inputs, shrinkage, and quality assurance.

beginning in 2019, CCB agreed to pay the Company a 5 %

royalty through 2021 on certain private label sales made by CCB.

During the years ended December 31, 2022 and 2021,

the Company incurred co-packing fees due to CCB of $ 3,718 and $ 2,747 , respectively, of which $ 2,025 and $ 614 , were payable to CCB as

of December 31, 2022 and 2021.

At December 31, 2022 and 2021, the Company had also recorded receivables from CCB of $ 1,315 and $ 933 , respectively,

including royalty receivable of $ 297 and $ 297 , and charge backs of certain costs management determined were permittable under the co-packing

agreement of $ 1,018 and $ 636 , respectively.

At December 31, 2022 and 2021, accounts receivable due from and accounts

payable due to CCB were as follows:

December 2018, the Company signed a co-packing agreement with California Custom Beverage, LLC’s (“CCB”), an entity

owned by Christopher J.

Reed, a former related party, pursuant to which CCB agreed to produce certain products for the Company for agreed

The co-packing agreement, as amended, includes certain provisions for product inputs, shrinkage, and quality assurance.

Also beginning

in 2019, CCB agreed to pay the Company a 5 % royalty through 2021 on certain private label sales made by CCB.

the years ended December 31, 2023 and 2022, the Company incurred co-packing fees due to CCB of $ 1,957 and $ 3,718 , respectively, of which

$ 259 and $ 2,205 , were payable to CCB as of December 31, 2023 and 2022.

At December 31, 2023 and 2022, the Company had also recorded receivables

from CCB of $ 1,382 and $ 1,315 , respectively, including royalty receivable of $ 297 , and the balance for charge backs of certain costs

management determined were permittable under the co-packing agreement.

December 31, 2022, CCB disputed that it owes $ 1,043 of the $ 1,315 recorded as receivable by the Company.

The Company believes that it

will prevail in this dispute, however, as of December 31, 2023 and 2022, due to the uncertainty about the ultimate amount that will be

settled, the Company has provided a reserve for $ 1,123 and $ 538 , respectively, based on management’s estimate.

December 31, 2023 and 2022, accounts receivable due from and accounts payable due to CCB were as follows:

of Related Parties

December 31, 2022

December 31, 2021

Accounts receivable, net of provision of $ 538 and zero at December 31, 2022 and 2021, respectively

Accounts receivable, net of provision of $ 1,123 and $ 538 at December 31, 2023 and 2022, respectively

Accounts payable

Net (payable) receivable

December 31, 2022, CCB disputes that it owes $ 1,043

of the $ 1,315 recorded as receivable by the Company.

The Company believes that it will prevail in this dispute, however, as of

December 31, 2022, due to the uncertainty about the ultimate amount that will be settled, the Company has provided a reserve for

based on management’s estimate.

In addition, on April 19, 2023, the Company received a letter from CCB demanding payment of

various amounts, including the $ 2,025

outstanding at December 31, 2022.

The Company has determined that the probability of realizing any loss on the demand from CCB is

remote and therefore has not recorded any additional accruals related to the demand.

In addition, on April 19, 2023, the Company received a letter from CCB demanding payment of various amounts, including

the $ 452 and $ 2,025 outstanding at December 31, 2023 and 2022, respectively.

The Company has determined that the probability of realizing

any loss on the demand from CCB is remote and therefore has not recorded any additional accruals related to the demand.

Commitments and Contingencies

In 2018, CCB assumed the monthly payments on our lease obligation for a

Los Angeles manufacturing plant, and our release from the obligation by the lessor, however, is dependent upon CCB’s deposit of

$1,200 of security with the lessor.

As of December 31, 2022, $800 has been deposited with the lessor and Chris J.

Reed has placed approximately

7,260 shares of the Company’s common stock valued at $25 that remain in escrow with the lessor.

2018, CCB assumed the monthly payments on our lease obligation for a Los Angeles manufacturing plant, and our release from the obligation

by the lessor, however, is dependent upon CCB’s deposit of $ 1,200 of security with the lessor.

As of December 31, 2023, $ 800 has

been deposited with the lessor and Chris J.

Reed has placed approximately 7,260 shares of the Company’s common stock valued at

$ 12 that remain in escrow with the lessor.

time to time, we are a party to claims and legal proceedings arising in the ordinary course of business.

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Subsequent Events

February 10, 2023, the Company entered into a Partial Option Exercise and Second Amendment to 10% Convertible Notes (the

“Notes”, see Note 7) with Whitebox.

The Notes were amended so if the Company experiences a fundamental change as

defined, the holders of the notes have the right to require the Company to repurchase the notes for cash at a repurchase price equal

(amended from 100 %)

of the principal amount, plus accrued interest.

In addition, Whitebox exercised a partial option to purchase $ 2,550

of additional notes (the “Option Notes”) from the Company.

The Option Notes bear interest at 10 %

payable in cash and mature on June

No amortization payments (as defined in the Notes) are payable on the Option Notes, and the Option Notes may be

prepaid without premium or penalty.

February 13, 2023, the Company entered into a Limited Waiver and Deferral Agreement with Whitebox.

Whitebox waived the Company’s

covenant violation of its Excess ABL Amount (see Note 7) at November 30, 2022, December 31, 2022, and January 31, 2023, and deferred

payment of the 10 % fee for the Excess ABL Amount until June 2023.

In addition, Whitebox also temporarily waived any requirement that

the Company repurchase of the Notes in the event of fundamental change (as defined in the Notes), through April 1, 2023, subject to the

terms and conditions contained therein.

an inducement, the company issued an aggregate of 82,438 shares of common stock to the holders with a fair value of $ 273 .

issued and the shares of common stock issuable upon conversion of the Option Notes are registrable and subject to that certain Registration

Rights Agreement dated May 9, 2023.

Agreements for Future Equity (“SAFE”) investments

the first quarter of 2024, the Company received $ 4.1

million in gross proceeds from two significant

Simple Agreements for Future Equity (“SAFE”) investments .

the first quarter of 2024, the company received $ 4.1

million in gross proceeds from three significant stockholders of the Company, D&D Source of Life Holding LTD

(“D&D”) and Union Square Park Partners LLP, and John J.

Bello, the Company’s Chairman, pursuant to Simple

Agreements for Future Equity (“SAFE”) agreements.

The SAFE investments will convert into the next equity financing of

Reed’s on the same terms and conditions as investors in Reed’s next equity financing at the lesser of $ 1.50

per share or the per share price in the financing.

Until such time as the SAFE investments convert to equity the approximately

million received is recorded as a liability.

D&D was given the right to designate a second independent director nominee to the

board of directors of Reed’s and the company agreed to limit the size of its board of directors to nine (9) for so long as

D&D owns 25% or more of the equity securities of the company.

Waiver, Deferral, and Amendment and Restatement of Secured Convertible Notes Payable

February 12, 2024, Reed’s entered into a Limited Waiver, Deferral, and Amendment and Restatement Agreement (the “Waiver and

Amendment”) with each holder of the Notes payable to Whitebox (see Note 7).

Subject to the Waiver and Amendment, the holders agreed

to temporarily waive certain events of default under the Notes, including the failure to pay Excess ABL Amounts and the failure to pay

amortization payments due December 1, 2023 to April 30, 2024, and to waive the maturity date of the Option Notes originally due through

November 28, 2023, to April 30, 2024.

addition, as of the date of these financial statements, the Company and Whitebox have tentatively agreed to amend and restate the Notes

in full to provide, among other things, the following:

conversion price of the Original Notes will be amended to be between 125% and 145% of the effective

price of the company’s subsequent equity offering, with the premium set based on the

aggregate gross proceeds realized by the company in the offering and the conversion price

subject to a cap of $7.50 per share.

portion of the outstanding ABL accrued fees will be satisfied through payment of $ 132 in

cash and the issuance of shares of the company’s common stock (up to the beneficial

ownership limitation applicable to each holder) at a value per share equal to the lesser

of $ 1.50 or the per share price of securities issued in the company’s subsequent equity

The remaining balance of any outstanding accrued ABL fees will be added to the

principal amount of the Notes.

The $ 132 has not been paid nor any shares issued as of the

date of these financial statements

● The maturity date of the Option Notes will be amended to March 31, 2025.

conversion price of the Option Notes will be amended to 120% of the arithmetic average of the

Daily VWAP for the five (5) VWAP Trading Days beginning on, and including, the VWAP Trading

Day immediately following the consummation of an

equity offering undertaken for purposes of satisfying the terms and conditions of the Waiver

and Amendment .

Option Notes shall bear interest at a rate of 10% per annum, with 5% per annum payable in

cash and 5% per annum payable “in kind” by adding such PIK interest

to the unpaid principal amount.

company shall have the right at any time prior to the date that is the 180 th day

from the effective date to prepay the amended and restated Option Notes, in whole or in part,

at a price equal to 102% of the principal amount plus all accrued and unpaid interest thereon

to the date of prepayment.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data