What changed in this filing

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Item 1. Financial Statements

2024-08-13 compared with 2024-05-20 · 406 added, 341 removed, 217 unchanged (77% of the section changed)

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in thousands, except share amounts)

receivable, net of allowance of $ 258 and $ 860 , respectively

from former related party

expenses and other current assets

Current assets:

and equipment, net of accumulated depreciation of $ 1,136 and $ 1,068 , respectively

AND STOCKHOLDERS’ DEFICIT

line of credit, net of capitalized financing costs of $ 161 and $ 201 , respectively

to former related party

portion of convertible notes payable, net of debt discount of $ 509 and $ 424 , respectively

portion of lease liabilities

Accounts receivable, net of allowance of $ 210 and $ 860 , respectively

Receivable from former related party

Prepaid expenses and other current assets

Total current assets

Property and equipment, net of accumulated depreciation of $ 1,205 and $ 1,068 , respectively

Intangible assets

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:

SAFE agreements

note payable, net of debt discount of $ 45 and $ 148 , respectively, less current portion

Stockholders’

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 4,187,291 shares issued and outstanding, respectively

paid in capital

Accounts payable

Accrued expenses

Revolving line of credit, net of capitalized financing costs of $ 121 and $ 201 , respectively

Payable to former related party

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

Current portion of lease liabilities

Total current liabilities

SAFE investments

Convertible note payable, net of debt discount of $ 0 and $ 148 , respectively, less current portion

Total liabilities

Stockholders’ deficit:

liabilities and stockholders’ 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;

4,187,291 and 4,187,291 shares issued and outstanding, respectively

Additional paid in capital

Accumulated deficit

Total stockholders’ deficit

Total liabilities and stockholders’ deficit

accompanying notes are an integral part of these financial statements.

STATEMENTS OF OPERATIONS

the Three Months Ended March 31, 2024 and 2023

the Three and Six Months Ended June 30, 2024 and 2023

in thousands, except share and per share amounts)

of goods sold

and handling expense

and marketing expense

and administrative expense

Three Months Ended

Six Months Ended

Cost of goods sold

Operating expenses:

from operations

Delivery and handling expense

Selling and marketing expense

General and administrative expense

Total operating expenses

Loss from operations

Interest expense

Change in fair value of SAFE investments

Dividends on Series A Convertible Preferred Stock

Net Loss Attributable to Common Stockholders

Loss per share – basic and diluted

average number of shares outstanding – basic and diluted

Weighted average number of shares outstanding – basic and diluted

accompanying notes are an integral part of these condensed financial statements.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

the Three Months Ended March 31, 2024 and 2023

the Three and Six Months Ended June 30, 2024 and 2023

in thousands except share amounts)

Stockholders’

December 31, 2023

Preferred Stock

Additional Paid In

Total Stockholders’

Balance, March 31, 2024

$ ( 140,400 )

value of vested options

March 31, 2024

Fair value of vested options

Dividends on Series A Convertible Preferred Stock

Balance, June 30, 2024

$ ( 143,617 )

Stockholders’

December 31, 2022

Preferred Stock

Additional Paid In

Total Stockholders’

Balance, December 31, 2023

$ ( 138,727 )

Fair value of vested options

Dividends on Series A Convertible Preferred Stock

Balance, June 30, 2024

$ ( 143,617 )

value of vested options

value of vested restricted shares granted to officers

of common stock

shares issued for financing costs

March 31, 2023

Preferred Stock

Additional Paid In

Total Stockholders’

Balance, March 31, 2023

$ ( 127,556 )

Fair value of vested options

Dividends on Series A Convertible Preferred Stock

Common shares issued for cash, net of offering costs

Balance, June 30, 2023

$ ( 130,695 )

Preferred Stock

Additional Paid In

Total Stockholders’

Balance, December 31, 2022

$ ( 123,199 )

Fair value of vested options

Fair value of vested restricted shares granted to officers

Repurchase of common stock

Common shares issued for financing costs

Dividends on Series A Convertible Preferred Stock

Common shares issued for cash, net of offering costs

Balance, June 30, 2023

$ ( 130,695 )

accompanying notes are an integral part of these condensed financial statements.

STATEMENTS OF CASH FLOWS

the Three Months Ended March 31, 2024 and 2023

the Six Months Ended June 30, 2024 and 2023

in thousands)

flows from operating activities:

to reconcile net loss to net cash provided by (used in) operating activities:

of debt discount

value of vested options

value of vested restricted shares granted to officers

in allowance for doubtful accounts

in operating assets and liabilities:

expenses and other assets

in right of use assets

cash provided by (used in) operating activities

flows from investing activities:

of property and equipment

cash used in investing activities

flows from financing activities:

from line of credit

on line of credit

from convertible note payable, net of expenses

from SAFE agreement

Payment of cost recorded as debt discount

of common stock

from former related party, net

cash provided by (used in) financing activities

increase (decrease) in cash

at beginning of period

at end of period

disclosures of cash flow information:

paid for interest

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Loss on disposal of property and equipment

Amortization of debt discount

Fair value of vested options

Fair value of vested restricted shares granted to officers

Change in the fair value of SAFE investments

Change in allowance for doubtful accounts

Inventory write-downs

Accrued interest

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other assets

Decrease in right of use assets

Accounts payable

Accrued expenses

Lease liabilities

Net cash used in operating activities

Cash flows from investing activities:

Trademark costs

Purchase of property and equipment

Sale of property and equipment

Net cash provided by in investing activities

Cash flows from financing activities:

Proceeds from line of credit

Payments on line of credit

Proceeds from convertible note payable, net of expenses

Payment of convertible note payable

Proceeds from sale of common stock

Proceeds from SAFE agreement

Repurchase of common stock

Payment of cash recorded as debt discount

Amounts from former related party, net

Net cash provided by financing activities

Net decrease in cash

Cash at beginning of period

Cash at end of period

Supplemental disclosures of cash flow information:

Cash paid for interest

Non-cash investing and financing activities:

Reclass of prepaid expenses and accounts payable

Dividends on Series A Convertible Preferred Stock

accompanying notes are an integral part of these condensed financial statements.

TO CONDENSED FINANCIAL STATEMENTS

Months Ended March 31, 2024 and 2023 (Unaudited)

and Six Months Ended June 30, 2024 and 2023 (Unaudited)

thousands, except share and per share amounts)

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contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position as

of March 31, 2024, and the results of its operations and its cash flows for the three months ended March 31, 2024 and 2023.

sheet as of December 31, 2023 is derived from the Company’s audited financial statements.

results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results of operations to be expected

of June 30, 2024, and the results of its operations and its cash flows for the six months ended June 30, 2024 and 2023.

The balance sheet

as of December 31, 2023 is derived from the Company’s audited financial statements.

results of operations for the six months ended June 30, 2024, are not necessarily indicative of the results of operations to be expected

for the full fiscal year ending December 31, 2024.

For the three months ended March 31, 2024, the Company

recorded a net loss of $1,673 and used cash in operations of $2,395.

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 $ 314 , which includes $ 4,100 of additional cash received during the three months ended March 31, 2024, from investments

with significant stockholders plus expected cash from operations, 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.

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 six months ended June 30, 2024, the Company recorded a net loss of $ 4,885 ,

and utilized $ 3,307

of cash in operations and at June 30, 2024, had a working capital deficiency of $ 19,378

and a stockholders’ deficit of $ 23,849 .

As of June 30, 2024, the Company borrowed $ 9,124 on its line of credit and owed $ 18,821 on its Notes (See Note 5 and Note

6 for further detail).

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 issued.

The financial statements do not include any adjustments related to the recoverability and classification of recorded

asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going

of June 30, 2024, we had a cash balance of $ 326 ,

no availability under our line of credit and $ 3,876

of additional borrowing capacity from the credit facility assuming there is availability under the terms.

On July 26, 2024, Norman E.

Snyder Jr, CEO of the Company, provided a personal

guaranty for a $ 500 over advance on our existing line of credit with ACS.

On August 1, 2024, the Company funded $ 1,400 pursuant to an

option exercise by Whitebox under the Option Notes.

Historically,

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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, strategic transactions or through obtaining credit from financial institutions.

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

The Company is continuing to discuss restructuring of debt with existing

lenders and is exploring new financing opportunities to address the line of credit which comes due in March 2025 (see Note 5) and the

portion of the debt under the Notes which comes due on December 15, 2024 (see Note 6).

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

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Trends - Market Conditions

economy continued to grow throughout 2023 and into Q1 2024, 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.

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.

Although 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

economy continued to grow throughout 2023 and into Q2 2024, 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.

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.

Although 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.

the three months ended March 31, 2024, the Company experienced moderation from the elevated freight

costs experienced in 2023.

During the three months ending June 30, 2024, the Company continued to

experience moderation from the elevated freight costs experienced in 2023.

The average cost of shipping and handling for the three months

ended March 31, 2024, was $ 3.01 per case, as compared to $ 3.46 per case for the three months

ended March 31, 2023.

Although the Company has experienced decreases in freight costs over

the last four quarters, in the Company’s opinion there remains a volatile environment

and the Company will continue to monitor pricing and availability in transportation.

ended June 30, 2024, was $ 2.18 as compared to $ 3.05 in the three months ended June 30, 2023.

the six months ended June 30, 2024, the average

cost of shipping and handling was $ 2.54 per case, as compared to $ 3.27 per case for the six months

ended June 30, 2023.

Although the Company has experienced decreases in freight costs over the last four 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 affecting our ability to benefit from strong demand for, and increased

sales of our product.

The Company has been negatively impacted by supply chain challenges affecting 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.

The Company has experienced moderation in inflation and anticipates

this to continue throughout 2024.

preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date

of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ

from those estimates.

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 valuation

allowance for deferred tax assets, accruals for potential liabilities, assumptions made in valuing stock instruments issued for services, and assumptions used in the determination of the Company’s liquidity.

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

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

preparation of financial statements in conformity with generally accepted accounting principles requires management to make

estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and

liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

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 valuation allowance for deferred tax assets, accruals for potential liabilities, assumptions

made in valuing stock instruments issued for services, assumptions in determining the fair value of our safe investments and

assumptions used in the determination of the Company’s liquidity.

Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers

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Potential common shares are excluded from the computation when their effect is antidilutive.

the periods ended March 31, 2024 and 2023, the calculations of basic and diluted loss per share are the same because potential dilutive

the periods ended June 30, 2024 and 2023, the calculations of basic and diluted loss per share are the same because potential dilutive

securities would have had an anti-dilutive effect.

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of Potentially Dilutive Securities

restricted common stock

stock equivalent of Series A Convertible Preferred stock

Convertible note payable

Common stock equivalent of Series A Convertible Preferred stock

Compensation Expense

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

Advertising costs aggregated $ 17 and $ 55 for the three

months ended March 31, 2024 and 2023, respectively.

Advertising costs for the three months ended June 30,

2024, and 2023, aggregated $ 13 and $ 27 , respectively.

Advertising costs for the six months ended June 30, 2024, and 2023, aggregated $ 30

and $ 83 , respectively.

Concentrations

During the three months ended March 31, 2024, the Company’s two largest customers accounted for 17 % and 16 % of net sales,

respectively.

During the three months ended March 31, 2023, the Company’s two largest customers accounted for 18 % and 12 % of net

sales, respectively.

No other customers exceeded 10% of net sales in either period.

As of March 31, 2024, the Company had accounts receivable from one customer which comprised 29 % of its gross accounts

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.

No other customers exceeded 10% of gross accounts receivable in either period.

During the three months ended June 30, 2024, three customers accounted for 20 %, 15 %, and 13 % of gross billing, respectively,

and during the six months ended June 30, 2024, three customers accounted for 18 %, 15 %, and 12 % of gross billing, respectively.

the three months ended June 30, 2023, three customers accounted for 18 %, 12 %, and 12 % of gross billing, respectively, and during the

six months ended June 30, 2023, two customers accounted for 18 % and 12 % of gross billing, respectively.

No other customers exceeded 10%

of sales in either period.

As of June 30, 2024, the Company had accounts receivable from two customers which comprised 31 % and 11 % of its gross

accounts receivable, respectively.

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.

No other customers exceeded 10% of gross accounts receivable in either

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

During the three months ended March 31, 2024 and the year ended December

During the six months ended June 30, 2024 and the year ended December

31, 2023, the Company utilized six separate co-packers for most its production and bottling of beverage products in the United States.

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from vendors.

During the three months ended March 31, 2024, the Company’s largest vendor accounted for approximately 10 % of

all purchases.

During the three months ended March 31, 2023, the Company’s largest vendor accounted for approximately 11 % of all

During the six months ended June 30, 2024, the Company’s two largest vendors accounted for approximately 11 %

and 11 % of all purchases.

During the six months ended June 30, 2023, the Company’s largest vendor accounted for approximately 11 %

of all purchases.

No other vendors exceeded 10% of all purchases in either period.

As of March 31, 2024, one vendor accounted for 11 % of total accounts payable.

As of June 30, 2024, one vendor accounted for 17 % of total accounts payable.

As of December 31, 2023, two vendors accounted

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on these obligations are based on prevailing market interest rates.

The fair value of our liability under our SAFE investments are determined

using level 3 inputs.

Reclassifications

Certain prior year amounts have been reclassified for consistency with

the current period presentation.

Collection from customers amounting to $ 1,217 that was previously presented as a deduction from prepaid

expenses have been reclassed as an offset against accounts receivable.

These reclassifications had no effect on the reported results of

operations or cash flows.

prior year amounts have been reclassified for consistency with the current period presentation.

Collection from customers amounting

that was previously presented as a deduction from prepaid expenses at December 31, 2023 have been reclassed as an offset against

accounts receivable.

This reclassification had no effect on the reported results of operations or cash flows.

Accounting Pronouncements

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 loss.

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.

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 loss.

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 became effective

for the Company on January 1, 2024.

to The adoption of 2023-7 did not have a material impact on the Company’s 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

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

materials and packaging

Raw materials and packaging

Finished products

Property and Equipment

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Schedule of Property and Equipment

assets under operating leases

hardware and software

and equipment

depreciation and amortization

expense for the three months ended March 31, 2024 and 2023 was $ 29

respectively, and amortization of right-of-use assets for the three months ended March 31, 2024 and 2023 was $ 39

respectively.

Right-of-use assets under operating leases

Computer hardware and software

Machinery and equipment

Construction in progress

Accumulated depreciation and amortization

Net book value

expense for the six months ended June 30, 2024 and 2023 was $ 58 and $ 79 , respectively, and amortization of right-of-use assets for the

six months ended June 30, 2024 and 2023 was $ 79 and $ 67 , respectively.

Intangible Assets

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of Amount Outstanding Under Credit Facilities

of credit – Alterna Capital Solutions

Line of credit – Alterna Capital Solutions

capitalized financing costs

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 6).

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 March 31, 2024, there was no

remaining availability under the line of credit,

of borrowing capacity available.

based on receivables bears an interest of prime plus 4.75% but not less than 8.0% (13.25% at March 31, 2024 and 13.25% at December 31,

Borrowings based on inventory bears an interest of prime plus 5.25% but not less than 8.5% (13.90% at March 31, 2024 and 13.90%

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 6).

An over advance

rider provides for up to $ 500 of additional borrowing above the collateralized base (the “Over Advance”) up to a total borrowing

of $ 13,400 .

As of June 30, 2024, there was no remaining availability under the line of credit, and $ 3,876 of borrowing capacity available.

based on receivables bears an interest of prime plus 4.75% but not less than 8.0% (13.25% at June 30, 2024 and 13.25% at December 31,

Borrowings based on inventory bears an interest of prime plus 5.25% but not less than 8.5% (13.90% at June 30, 2024 and 13.90%

at December 31, 2023).

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

The additional over advance rider bears a rate of prime plus 12.75%, but not less than 16.00% (25.00% at June

30, 2024 and 18.00% at December 31, 2023).

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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.

These costs have been capitalized and are being amortized over the 3 -year

life of the ACS agreement.

The unamortized debt discount balance was $ 201

at December 31, 2023.

For the three months ended

March 31, 2024, amortization of debt discount was $ 40 ,

and as of March 31, 2024, the remaining unamortized debt discount balance is $ 161 .

Secured Convertible Notes Payable

outstanding under the Company’s convertible notes payable are as follows (amounts in 000’s except share amounts):

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.

These costs have been

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

The unamortized debt discount balance was $ 201 at December

For the six months ended June 30, 2024, amortization of debt discount was $ 80 , and as of June 30, 2024, the remaining unamortized

debt discount balance is $ 121 .

July 26, 2024, Norman E.

Snyder Jr, CEO of the Company, provided a personal guaranty for a $ 500 over advance on our existing line of

The over advance is scheduled to be repaid by September 6, 2024.

Secured Notes Payable

outstanding under the Company’s secured convertible notes payable are as follows (amounts in 000’s except share

of Secured Convertible Notes Payable

Secured Convertible “Original” Notes Payable (A)

Secured Convertible “Option”” Notes Payable (B)

Secured “Option” Notes Payable (B)

Secured Convertible “Option” Notes Payable

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Capitalized financing costs

Convertible Notes

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

Alterna Capital (ACS), the Company’s existing secured lender.

The Original Notes mature

the earlier of March 31, 2025 or the scheduled maturity of any unsecured indebtedness incurred

by the Company that is junior in right of payment to Note obligations.

The Original Notes

together with the Option Notes are collectively referred to as the “Notes”.

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 exceeds $ 6,000 , as defined (the “Excess ABL Amount”).

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

At March 31,2024 and

December 31, 2023, the principal balance of the Original Notes was $ 10,250 .

Secured Notes

the Company issued $ 11,250

of convertible notes payable (the “Original Notes”) to entities affiliated with Whitebox Advisors, LLC (collectively,

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 Alterna

Capital (ACS), the Company’s existing secured lender.

The Original Notes mature the earlier of June

30, 2025 or the scheduled maturity of any unsecured indebtedness incurred by the Company that is junior in right of payment

to Note obligations.

At each of June 30, 2024 and December 31, 2023, the principal balance of the Original Notes was $ 10,250 .

Upon conversion

or early payment, holders of the Original 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 Original Notes that would be due at maturity, payable, at the Company’s

option, in cash or in shares of common stock.

On August 1, 2022, the Original Notes were amended to add a 10 %

fee (“Excess ABL Fee’) commencing with the fiscal month ending October 31, 2022 for the amount that the Company’s

line of credit with ACS exceeds (i)

(x) prior to November 30, 2024, $9,500,000 and (y) on and after November 30, 2024, $6,500,000, if the Company has not publicly

announced or is not actively pursuing a proposed transaction as a result of which the Company reasonably believes that its Common

Stock will be listed on a national securities exchange) or $9,500,000 otherwise, minus (ii) any amounts repaid to ACS pursuant to

the Option Notes (not to exceed $500,000) plus (iii) the aggregate principal amount of Original Notes voluntarily converted into

Conversion Consideration (as defined therein), in each case subject to the terms of the collateral sharing agreement;

provided that the sum of the amounts in clauses (i), (ii) and (ii) above shall not exceed $10,500,000 minus any amounts

repaid ACS as contemplated by the Option Notes (not to exceed $500,000).

Original Notes have an amortization feature which requires the Company to make monthly payments of principal of $ 200 plus accrued interest,

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and the amortization payment for December 2023 to May 2024 was waived.

The parties agreed that amortization period shall resume on

June 1, 2024.

terms of the Original Notes contained conversion terms that are expected to be amended, subject to satisfaction of certain conditions.

Under the revised terms, the conversion

price of the Original Notes will 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.

addition on February 12, 2024, subject to the satisfaction of certain conditions, the parties agreed that a 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 offering.

The remaining balance of any

outstanding accrued ABL fees will be added to the principal amount of the Notes.

has not been paid nor any shares issued as of the date of these financial statements.

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, initially were to bear

interest at 10% payable in cash, and were initially due four months after issuance.

12, 2024, the parties agreed to change the terms so that the 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.

In addition, the

parties agreed, subject to certain outstanding conditions, to amend the maturity date to the earlier of March 31, 2025 or the scheduled

maturity of any unsecured indebtedness incurred by the Company that is junior in right of

payment to Note obligations.

Once they are amended, the Company shall have the right at any time prior to the date

that is the 180th 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.

At March 31, 2024 and December 31, 2023,

the principal balance of the Option Notes was $ 4,050 .

terms of the Original Notes contained conversion terms that are expected to be amended , subject to the satisfaction of certain conditions by the Company.

Under the revised terms, the conversion

price of the Option Notes will be 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

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

Amendment”) with each holder (each an entity affiliated with Whitebox Advisors, LLC) of the Original and Option Notes payable to

Whitebox (the “Notes”).

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.

Subject to satisfaction of certain conditions by March 31, 2024, the parties further agreed to amend and restate the

Notes, to extend the maturity date of the Option Notes originally due November 28, 2023, to March 31, 2025 and to equitize certain interest

and fees owing on the Notes.

conversion rate under the amended and restated notes is to be based on the pricing and size of the Company’s proposed equity financing

of a minimum of $ 3 million (which will include conversion of approximately $ 4.1 million of previously funded SAFE investments into equity

of the Company).

Delays related to the Company’s evaluation of long term financing options have delayed the proposed financing.

On April 1, 2024 the parties executed the Amended Limited Waiver, Deferral, and Amendment and Restatement Agreement (“Amended Waiver”).

Subject to certain terms and conditions set forth in the Amended Waiver, the holders temporarily waived certain specified events of default

under the Notes to April 30, 2024 and extended the waiver of monthly amortization payments to April 30, 2024.

In addition, Reed’s

remitted a partial interest payment of $ 100 to the holders.

The amortization period resumed on June

the time of issuance of the Original Notes, the Company also granted the investors an option to purchase up to an additional $ 12,000,000

aggregate principal amount of “Option Notes”.

At June 30, 2024 and December 31, 2023, the principal balance of the Option

Notes was $ 4,050 .

On August 1, 2024, the principal balance of the Option Notes was $ 6,504 .

As of August 1, 2024, the

Option Notes mature on the earlier of December 15, 2024 , and ninety one days before the schedule maturity of any unsecured indebtedness

incurred by Reed’s that is junior in right of payment to its Note obligations.

The Option Notes bear interest in arrears on the

outstanding principal amount at a rate of 11.13% per annum, payable in cash.

The Option Notes may be prepaid without premium or penalty.

Unless $ 1,400 of the principal amount is prepaid, payment of any Option Note on the maturity date (or due to an acceleration (whether

declared or automatic)) shall be accompanied by an additional amount (such amount, the “MOIC Deficiency Amount”), if any,

sufficient to achieve a 1.13:1.00 multiple of invested capital from August 1, 2024 (the “MOIC”) on the aggregate Principal

Amount of the Option Notes being paid.

August 1, 2024, the Whitebox waived the specified events of default under the Original Notes and Option Notes (collectively referred

to herein as the “Notes”) and temporarily waived any requirement that the Company conduct a repurchase of Original Notes

in the event of a Make-Whole Fundamental Change (as defined in the Original Notes) through December 15, 2024 (See Note 13)

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

During the period ended March 31, 2024, the Company recorded interest

of $ 563 , made up of $ 398 of interest on the convertible notes, and $ 165 related to the excess ABL fees.

At March 31, 2024, the balance

of accrued interest was $ 4,446 .

During the period ended June 30, 2024, the Company recorded interest of $ 1,152 ,

made up of $ 743

of interest on the Notes, and $ 409

related to the excess ABL fees and made payments of $ 514 towards accrued interest At June 30, 2024, the balance of accrued interest was $ 4,521 .

December 31, 2023, the unamortized debt discount was $ 572 .

During the period ended March 31, 2024, the Company incurred $ 86 of costs

for the aforementioned waivers.

These costs have been capitalized and are being amortized over the term of the convertible notes or waiver

For the three months ended March 31, 2024, amortization of debt discount was $ 104 , and as of March 31, 2024, the remaining unamortized

During the period ended June 30, 2024, the Company incurred $ 152 of costs for

the aforementioned waivers.

These costs have been capitalized and are being amortized over the term of the Notes or waiver

For the six months ended June 30, 2024, amortization of debt discount was $ 310 , and as of June 30, 2024, the remaining unamortized

debt discount balance is $ 414 .

Leases Liabilities

the three months ended March 31, 2024 and 2023, lease costs totaled $ 39 and $ 32 , respectively.

the six months ended June 30, 2024 and 2023, lease costs totaled $ 89 and $ 67 , respectively.

of December 31, 2023, operating lease liabilities totaled $ 207 .

During the three months ended March 31, 2024, the Company made payments

During the six months ended June 30, 2024, the Company made payments

of $ 104 towards its operating lease liability.

As of March 31, 2024, operating lease liabilities totaled $ 155 .

of March 31, 2024, the weighted average remaining lease terms for an operating lease are 0.75 years.

As of March 31, 2024, the weighted

As of June 30, 2024, operating lease liabilities totaled $ 103 .

of June 30, 2024, the weighted average remaining lease terms for an operating lease are 0.50 years.

As of June 30, 2024, the weighted

average discount rate on the operating lease is 12.60 %.

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 LP, 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

Company’s SAFE Investments consisted of the following (in thousands):

Schedule of Simple Agreement for Future Equity

Fair value at issuance

Change in fair value during period

Fair value at end of period

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 LP, 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 $ 4.1 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.

Until such time as the SAFE investments convert to equity the approximately $ 4.1

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

As of June 30, 2024, we determined out SAFE investments had a value of $ 5,490

based on a Monte Carlo simulation with the following

● The probability of potential transactions

price of $ 1.67 as of valuation date

capitalization of $ 4.2 million

of 130 % based upon the observed historical volatilities of the Company and publicly traded

Risk-free rate of 5.47 % and 5.5 % based on US Treasury yields as of valuation

the six months ended June 30, 2024, the Company recorded a change in fair value of the SAFE investments of $ 1,393 ,

which was recorded as a component of other expense in the accompanying Condensed Statement of operations.

Stock-Based Compensation

following table summarizes stock option activity during the three months ended March 31, 2024:

following table summarizes stock option activity during the six months ended June 30, 2024:

of Stock Option Activity

Exercise Price

at December 31, 2023

at March 31, 2024

the three months ended March 31, 2024 and 2023, the Company recognized $ 129 and $ 229 of compensation expense relating to vested stock

As of March 31, 2024, the aggregate amount of unvested compensation related to stock options was approximately $ 314 which will

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

of March 31, 2024, the outstanding and exercisable options have no intrinsic value.

Outstanding at December 31, 2023

Unvested forfeited

Vested forfeited

Outstanding at June 30, 2024

Exercisable at June 30, 2024

the six months ended June 30, 2024 and 2023, the Company recognized $ 222 and $ 216 of compensation expense relating to vested stock options.

As of June 30, 2024, the aggregate amount of unvested compensation related to stock options was approximately $ 209 which will be recognized

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

of June 30, 2024, 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 March 31, 2024, which was $ 1.63 , and the exercise price of the outstanding stock options.

difference between the closing market price as of June 30, 2024, which was $ 1.67 , and the exercise price of the outstanding stock options.

Stock Warrants

Company’s warrant activity during the three months ended March 31, 2024 is as follows:

Company’s warrant activity during the six months ended June 30, 2024, is as follows:

of Warrant Activity

at December 31, 2023

at March 31, 2024

of March 31, 2024, the outstanding and exercisable warrants have no aggregate intrinsic value.

Outstanding at December 31, 2023

Outstanding at June 30, 2024

Exercisable at June 30, 2024

of June 30, 2024, the outstanding and exercisable warrants have no aggregate intrinsic value.

The aggregate intrinsic value was calculated

as the difference between the closing market price as of March 31, 2024, which was $ 1.63 , and the exercise price of the Company’s

as the difference between the closing market price as of June 30, 2024, which was $ 1.67 , and the exercise price of the Company’s

warrants to purchase common stock.

6 unchanged sentences

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

March 31, 2024 and 2023, accounts receivable due from and accounts payable due to CCB were as follows:

June 30, 2024 and 2023, accounts receivable due from and accounts payable due to CCB were as follows:

of Related Parties

receivable, net of provision of $ 1,123 and $ 1,123 at March 31, 2024 and December 31, 2023, respectively

(payable) receivable

Accounts receivable, net of provision of $ 1,123 and $ 1,123 at June 30, 2024 and December 31, 2023, respectively

Accounts payable

Net (payable) receivable

addition, on April 19, 2023, the Company received a letter from CCB demanding payment of various amounts, including the $ 452 and $ 452

outstanding at March 31, 2024 and December 31, 2023, respectively.

outstanding at June 30, 2024 and December 31, 2023, respectively.

The Company has determined that the probability of realizing any loss

1 unchanged sentence

Commitments and Contingencies

During 2023, the firm engaged an investment bank to explore financing options

for the Company.

We have a maximum obligation of $ 1.2 M in fees so far in this engagement.

These fees will be recognized on a success basis

and will be paid out only if a transaction is finalized.

2023, the firm engaged an investment bank to explore financing options for the Company.

We have a maximum obligation of $ 1.2 M in fees

so far in this engagement.

These fees will be recognized on a success basis and will be paid out only if a transaction is finalized.

2018, CCB assumed the monthly payments on our lease obligation for a Los Angeles manufacturing plant for payments through September 2024,

2024, 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 March 31, 2024, $ 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.

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 June 30, 2024, $ 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.

We are, and from

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

Our management evaluates our

6 unchanged sentences

Subsequent Events

Convertible Notes Payable

Company has not yet satisfied conditions required for issuance of the amended and restated Notes and equitization of certain

interest and fees owing on the Notes.

The conversion rate under the amended and restated Notes is to be based on the pricing and

size of the Company’s proposed equity financing of a minimum of $ 3

million (which will include conversion of approximately $ 4.1

million of previously funded SAFE investments into equity of the Company).

Delays related to the Company’s evaluation of long

term financing options have delayed the proposed financing.

On May 17, 2024, Reed’s entered into a Limited Waiver, Deferral,

and Amendment and Restatement Agreement (the “Waiver and Amendment”) with each holder.

The holders agreed to temporarily

waive certain specified events of default and the payment of Excess ABL Fees through June 10, 2024.

Further, the holders agreed to

waive the payment of monthly amortization payments through June 30, 2024.

Amortization payments are scheduled to

resume on July 1, 2024.

The Company further remitted $ 40

representing all interest (including default interest) to the holders and reimbursed the holders for certain fees and

Exercise and Amendment to Secured Notes

August 1, 2024, the Company entered into an Option Exercise and Sixth Amendment (“Exercise

and Amendment Agreement”) to the Notes with Whitebox.

to the Exercise and Amendment Agreement, holders of the Original Notes exercised an option to purchase an aggregate of approximately

Option Notes for an amount in cash equal to $ 1,400,000 ,

together with the exchange of all principal, interest, fees and other amounts owning with respect to the already outstanding Option

Notes in the aggregate amount of $ 5,104 .

Option Notes mature on the earlier of December 15, 2024, and ninety one days before the schedule maturity of any unsecured

indebtedness incurred by the Company that is junior in right of payment to its Note obligations.

The Option Notes bear

interest in arrears on the outstanding principal amount at a rate of 11.13 %

per annum, payable in cash.

The Option Notes may be prepaid without premium or penalty.

Unless $ 1,400

of the principal amount is prepaid, payment of any Option Note on the maturity date (or due to an acceleration (whether declared or

automatic)) shall be accompanied by an additional amount (such amount, the “MOIC Deficiency Amount”), if any, sufficient

to achieve a 1.13:1.00 multiple of invested capital since August 1, 2024 (the “MOIC”) on the aggregate principal amount

of the Option Notes being paid.

The MOIC Deficiency Amount shall be calculated based on (i) the sum of all fees, original issue

discount, interest, premiums, principal and other payments received in cash by the applicable holders in respect of the Option Notes

since August 1, 2024 (excluding any reimbursement of out-of-pocket costs or expenses reimbursed and any indemnification payments

made to the applicable Holders in respect of the Option Notes), as the numerator, and (ii) the aggregate principal amount of

the Option Notes on August 1, 2024, as the denominator.

to the Exercise and Amendment Agreement, Whitebox temporarily waived the specified events of default under the Notes and temporarily

waived any requirement that the Company conduct a repurchase of Original Notes in the event of a Make-Whole Fundamental Change (as

defined in the Original Notes), subject to the terms and conditions therein.

Line of Credit Over Advance Guaranty

On July 26, 2024, Norman E.

Snyder Jr., CEO of the

Company, provided a personal guaranty of $ 500

for an over advance on our existing line of credit (see note 5).

The over advance is scheduled to be repaid by September 6,

On May 10 2024, the Company entered into a new lease

with Merritt 7 Ventures LLC, for commercial office space for its corporate headquarters.

The lease has an 11 year term and is expected to commence in December

Aggregate monthly base rent for the first year of the lease shall be $ 8,590 .

Base rent shall increase incrementally on an

annual basis by approximately 3.6 %.

Customary tax and electricity rent assessments in addition to base rent are payable.

year one, the aggregate of these charges is $ 7,409 per month.

Total payments over the life of the lease are expected to be $ 2,129 .

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-Q

Item 1. Financial Statements