What changed in this filing

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Item 1. Financial Statements

2024-11-14 compared with 2024-08-13 · 306 added, 293 removed, 330 unchanged (64% of the section changed)

2 unchanged sentences

in thousands, except share amounts)

September 30,

Current assets:

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Total current liabilities

SAFE investments

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

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Total liabilities and stockholders’ deficit

accompanying notes are an integral part of these financial statements.

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

STATEMENTS OF OPERATIONS

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

the Three and Nine Months Ended September 30, 2024 and 2023

in thousands, except share and per share amounts)

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Cost of goods sold

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STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

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

the Three and Nine Months Ended September 30, 2024 and 2023

in thousands except share amounts)

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Total Stockholders’

Balance, March 31, 2024

Balance, June 30, 2024

$ ( 143,617 )

Fair value of vested options

Dividends on Series A Convertible Preferred Stock

Balance, June 30, 2024

Common shares issued for cash

Common shares issued upon conversion of SAFE agreement

Balance, September 30, 2024

$ ( 147,767 )

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Dividends on Series A Convertible Preferred Stock

Balance, June 30, 2024

Common shares issued for cash

shares issued upon conversion of SAFE agreement

Balance, September 30, 2024

$ ( 147,767 )

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Total Stockholders’

Balance, March 31, 2023

Balance, June 30, 2023

$ ( 130,695 )

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

Balance, September 30, 2023

$ ( 132,131 )

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Common shares issued for cash, net of offering costs

Balance, June 30, 2023

Balance, September 30, 2023

$ ( 132,131 )

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STATEMENTS OF CASH FLOWS

the Six Months Ended June 30, 2024 and 2023

the Nine Months Ended September 30, 2024 and 2023

in thousands)

September 30,

Cash flows from operating activities:

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Fair value of vested restricted shares granted to officers

Change in the fair value of SAFE investments

Product quality hold write-down

Change in allowance for doubtful accounts

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Accounts payable

Accrued dividend

Accrued expenses

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Sale of property and equipment

Net cash provided by in investing activities

Net cash used in investing activities

Cash flows from financing activities:

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Proceeds from convertible note payable, net of expenses

Payment of convertible note payable

Payment of accrued interest on convertible note payable

Proceeds from sale of common stock

Proceeds from SAFE agreement

Repurchase of common stock

Proceeds from convertible notes

Proceeds from issuance of SAFE agreement

Payment of cash recorded as debt discount

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Dividends on Series A Convertible Preferred Stock

Reclass of prepaid expenses and accounts payable

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

TO CONDENSED FINANCIAL STATEMENTS

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

and Nine Months Ended September 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 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.

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 ,

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

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

results of operations for the nine months ended September 30, 2024, are not necessarily indicative of the results of operations to be

expected for the full fiscal year ending December 31, 2024.

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 nine

months ended September 30, 2024, the Company recorded a net loss of $ 9,035 ,

and utilized $ 2,254

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

of cash in operations and at September 30, 2024,

had a working capital deficiency of $ 22,923

and a stockholders’ deficit of $ 21,953 .

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.

As of September 30, 2024, the Company borrowed $ 5,471

on its line of credit and owed $ 22,210 on its Notes (See Note 5 and Note 6 for further

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 concern.

The Company’s independent registered public accounting firm, in its report on the Company’s

consolidated financial statements for the year ended December 31, 2023, has also expressed substantial doubt about the Company’s ability

to continue as a going concern.

of September 30, 2024, we had a cash balance of $ 306 , no availability under our line of credit and $ 7,529 of additional borrowing capacity

from the credit facility assuming there is availability under the terms.

Historically,

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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

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.

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).

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.

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

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

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 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 disruption caused by labor shortages, significant raw material

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.

the three months ending September 30, 2024, the Company continued to experience moderation from the elevated freight costs experienced

The average cost of shipping and handling for the three months ended September 30, 2024, was $ 2.99 as compared to $ 2.98 in the

three months ended September 30, 2023.

During the nine months ended September 30, 2024, the average cost of shipping and handling was

$ 2.66 per case, as compared to $ 3.17 per case for the nine months ended September 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.

Mitigation plans have been implemented to manage this risk.

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 continuing 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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for customers to derive the expected value from them.

Company does not allow for returns, except for damaged products when the damage occurred pre-fulfilment.

Damaged product returns have

historically been insignificant.

Because of this, the stand-alone nature of our products, and our assessment of performance obligations

and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations.

We assess our contracts and the reasonableness of our conclusions on a quarterly basis.

Company does not allow for returns, except for damaged products when damage occurred pre-fulfilment.

Damaged product returns have historically

been insignificant.

Because of this, the stand-alone nature of our products, and our assessment of performance obligations and transaction

pricing for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations.

We assess our contracts

and the reasonableness of our conclusions on a quarterly basis.

per Common Share

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from the date they are granted.

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

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

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

the periods ended September 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

September 30,

Convertible note payable

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on the straight-line basis over the vesting period.

Recognition of compensation expense for non-employees is in the same period and manner

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.

Recognition of compensation expenses for non-employees is in the same period and

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

Advertising costs for the three months ended June 30,

Advertising costs for the three months ended September

30, 2024, and 2023, aggregated $ 8 and $ 22 , respectively.

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

Advertising costs for the nine months ended September 30, 2024, and 2023, aggregated

$ 38 and $ 82 , respectively.

Concentrations

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

During the three months ended September 30, 2024, two customers accounted for 18 % and 15 % of gross billing, respectively,

and during the nine months ended September 30, 2024, three customers accounted for 18 %, 15 %, and 11 % of gross billing, respectively.

During the three months ended September 30, 2023, three customers accounted for 22 %, 14 %, and 12 % of gross billing, respectively, and

during the nine months ended September 30, 2023, two customers accounted for 19 % and 13 % of gross billing, respectively.

No other customers

exceeded 10% of sales in either period.

As of September 30, 2024, the Company had accounts receivable from two customers which comprised 32 % and 13 % of its gross

accounts receivable, respectively.

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

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.

During the nine months ended September 30, 2024 and the year ended December

31, 2023, the Company utilized nine 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

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from vendors.

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

During the nine months ended September 30, 2024, the Company’s two largest vendors accounted for approximately

11 % and 10 % of all purchases.

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

During the nine months ended September 30, 2023, the Company’s largest vendor accounted for approximately

9 % of all purchases.

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

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

As of December 31, 2023, two vendors accounted

for 10 % and 10 % of total accounts payable, respectively.

No other vendors exceeded 10% of accounts payable in either period.

As of September 30, 2024, no vendor accounted for more than 10 % of total accounts payable.

As of December 31, 2023, two

vendors accounted for 10 % and 10 % of total accounts payable, respectively.

No other vendors exceeded 10% of accounts payable in either

Value of Financial Instruments

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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.

fair value of our liability under our SAFE investments were determined using level 3 inputs.

Reclassifications

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

Collection from customers amounting

Collection from customers amounting to

$ 1,217 that was previously presented as a deduction from prepaid expenses at December 31, 2023 have been reclassed as an offset against

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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 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

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.

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.

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

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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

September 30,

Raw materials and packaging

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Schedule of Property and Equipment

September 30,

Right-of-use assets under operating leases

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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.

expense for the nine months ended September 30, 2024 and 2023 was $ 88 and $ 112 , respectively, and amortization of right-of-use assets

for the nine months ended September 30, 2024 and 2023 was $ 121 and $ 102 , respectively.

Intangible Assets

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of Intangible Assets

September 30,

Line of Credit

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of Amount Outstanding Under Credit Facilities

September 30,

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

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

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

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of $ 13,500 .

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%

As of September 30, 2024, there was no remaining availability under the line of credit, and $ 7,529 of borrowing capacity

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

Borrowings based on inventory bears an interest of prime plus 5.25% but not less than 8.5% (13.90% at September 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% (25.00% at June

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

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 .

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

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

Additionally, the line of credit is subject to a 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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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 .

For the nine months ended September 30, 2024, amortization of debt discount was $ 120 , and as of September 30, 2024, the remaining

unamortized debt discount balance is $ 81 .

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.

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

The over advance was repaid by September 30, 2024.

Secured Notes Payable

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

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

of Secured Convertible Notes Payable

September 30,

Secured Convertible “Original” Notes Payable (A)

Secured “Option” Notes Payable (B)

Secured Convertible “Option” Notes Payable

Secured Convertible “Option”

Notes Payable

Accrued interest

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Capitalized financing costs

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

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 September 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 September 30, 2024 and December 31, 2023, the principal balance of the Original Notes

was $ 10,250 .

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).

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 and (y) on and after November 30, 2024, $6,500, 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 otherwise, minus (ii) any amounts repaid to ACS

pursuant to the Option Notes (not to exceed $500) 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;

that the sum of the amounts in clauses (i), (ii) and (ii) above shall not exceed $10,500 minus any amounts repaid ACS as contemplated

by the Option Notes (not to exceed $500) .

Original 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 2023, Whitebox waived the requirement for the Company to pay the December 2022 to

the Company’s common stock, as defined.

During 2023, Whitebox waived the requirement for the Company to pay the December 2022 to

October 2023 monthly amortization payments on the Original Notes.

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The amortization period resumed on June 1, 2024.

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

At the time of issuance of

the Original Notes, the Company also granted the investors an option to purchase up to an additional $ 12,000 aggregate principal

amount of “Option Notes”.

At December 31, 2023, the principal balance of the Option Notes was $ 4,050 .

On August 1, 2024, the Company

entered into an Option Exercise and Nineth 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, which consisted of (i) an exchange

of $ 4,050 of existing notes, (ii) additional cash proceeds to the Company of $ 1,400 ,

and (iii) an additional finance cost of $ 1,054 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.

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

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.

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.

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

2 unchanged sentences

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

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

During the period ended September 30, 2024, the Company recorded interest of $ 3,141 ,

made up of $ 1,832

of interest on the Notes, and $ 1,309

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 .

related to the excess ABL fees and made payments of $ 514

towards accrued interest and $ 1,054 was added to the principal of the Option Notes.

At September 30, 2024, the balance of accrued

interest was $ 5,456 .

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

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

During the period ended September 30, 2024, the Company incurred $ 335 of costs

for the aforementioned waivers.

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

For the nine months ended September 30, 2024, amortization of debt discount was $ 448 , and as of September 30, 2024, the remaining unamortized

debt discount balance is $ 459 .

Leases Liabilities

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

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

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

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

During the nine months ended September 30, 2024, the Company made payments

of $ 160 towards its operating lease liability.

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

As of September 30, 2024, operating lease liabilities totaled $ 47 .

of September 30, 2024, the weighted average remaining lease terms for an operating lease are 0.25

As of September 30, 2024, the weighted

average discount rate on the operating lease is 12.60 %.

Simple Agreements for Future Equity (“SAFE”) Investments

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

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 2024.

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.

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 .

Issuance of Common Stock

the first quarter of 2024, the Company received $ 4,097

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

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.

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 former Chairman, pursuant to Simple Agreements for Future

Equity (“SAFE”) investments.

The SAFE investments were to 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.

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.

The Company initially recorded the SAFE investments as a liability

which was reflected on its June 30, 2024 balance sheet, and reflected a loss from change in fair value of SAFE investments of $ 1,393 .

September 9, 2024, the Company entered into a Securities Purchase Agreement with various purchasers for the issuance of 4,000,000 common

shares for total consideration of $ 6,000 .

The various purchasers also held the investment in the Company’s SAFEs.

As part of the

total capital raise, 2,731,205 shares of common stock valued at $ 4,097 upon conversion of the SAFEs , an additional 1,268,795 common

shares were issued to D&D Source of Life Holding Ltd.

for consideration of $ 1,903 .

conversion of the SAFE instruments during the three months ended September 30, 2024, the Company recorded a gain from change in fair value of SAFE investments of $ 1,393 .

Stock-Based Compensation

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

following table summarizes stock option activity during the nine months ended September 30, 2024:

of Stock Option Activity

3 unchanged sentences

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 June 30, 2024, which was $ 1.67 , and the exercise price of the outstanding stock options.

Outstanding at September 30, 2024

Exercisable at September 30, 2024

the nine months ended September 30, 2024 and 2023, the Company recognized $ 268 and $ 351 of compensation expense relating to vested stock

As of September 30, 2024, the aggregate amount of unvested compensation related to stock options was approximately $ 105 which

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

of September 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 September 30, 2024, which was $ 1.39 , and the exercise price of the outstanding

stock options.

Stock Warrants

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

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

of Warrant Activity

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 June 30, 2024, which was $ 1.67 , and the exercise price of the Company’s

warrants to purchase common stock.

Outstanding at September 30, 2024

Exercisable at September 30, 2024

of September 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 September 30, 2024, which was $ 1.39 , and the exercise price of the

Company’s warrants to purchase common stock.

Transactions with California Custom Beverage, LLC, former related party

5 unchanged sentences

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

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

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

of Related Parties

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

September 30,

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

Accounts payable

1 unchanged sentence

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

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

outstanding at September 30, 2024 and December 31, 2023, 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

5 unchanged sentences

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.

As of September 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 $ 10 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

exposure to these claims and proceedings individually and in the aggregate and provides for potential losses on such litigation if the

amount of the loss is estimable and the loss is probable.

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 exposure to these claims and proceedings individually and in the aggregate and provides for potential losses on such litigation

if the amount of the loss is estimable and the loss is probable.

believe that there are no material litigation matters at the current time.

3 unchanged sentences

Subsequent Events

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 .

Convertible notes

On October 10, 2024, Whitebox sold and assigned its

entire interest in eight secured promissory notes (the “Notes”) (Note 6) of the Company to the Company’s majority stockholder,

The Notes contain customary affirmative and negative covenants and events of default.

The Notes were secured by substantially

all of the Company’s assets, including all intellectual property.

On November 14, 2024, the Company entered into a new

secured one-year term loan with a principal amount of $ 10 million with Whitebox.

The loan bears interest of 8 % which is payable quarterly.

The term loan is secured by substantially all of the Company’s assets, including all intellectual property.

The Company used part

of the proceeds to pay off and close its existing revolving line of credit (Note 5).

On November 14, 2024, in conjunction with the term

loan transaction, D&D and the Company amended the Notes.

D&D released all collateral under the Notes, deferred cash payments

thereunder and extended the maturity dates of all of the Notes to 181 days after the maturity of the revolving credit facility, which

is November 14, 2025 (with the maturity dates of the notes extended to May 14, 2026).

Board of Directors

October 21, 2024, the board of directors of the Company, upon recommendation from its governance committee, appointed Sam Van to serve

as a member of its board of directors.

Van is an independent director designee of D&D.

On October 28, John J.

Bello and Louis

Imbrogno, Jr.

resigned from the board of directors (“board”) of the Company.

Prior to resignation, Mr.

Bello had served as

the Chairman of the board and a member of its operating committee.

Imbrogno had served on the governance committee and audit committee

and as chair of the compensation committee

On October 29, Thomas W.

Kosler also resigned from the board.

He had served as chair of the

audit committee.

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