REED'S, INC. 10-K

Item 7A. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Reed’s is not required to provide the information required by this Item 7A. 39 Item 8. Consolidated Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm (PCAOB Firm ID: 572 ) F-1 Financial Statements: Balance Sheets as of December 31, 2025 and December 31, 2024 F-3 Statements of Operations for the years ended December 31, 2025 and 2024 F-4 Statements of Changes in Stockholders’ Equity for the years ended December 31, 2025 and 2024 F-5 Statements of Cash Flows for the years ended December 31, 2025 and 2024 F-6 Notes to Financial Statements for the years ended December 31, 2025 and 2024 F-7 40 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Reed’s, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Reed’s, Inc. (the “Company”) as of December 31, 2025 and 2024, the related statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Inventory valuation As of December 31, 2025, the Company’s inventory totalled $8.0 million. As explained in Note 2 to the financial statements, inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. The Company assesses inventory at each reporting date in order to assert that it is recorded at net realizable value. In determining net realizable value, management considers historical usage, forecasted demand in relation to inventory on hand, market conditions, and other factors. We identified the evaluation of slow-moving and obsolete inventories at net realizable value as a critical audit matter because a high degree of auditor judgment and effort was required to evaluate the Company’s ability to sell certain products. F- 1 The primary procedures we performed to address this critical audit matter included: ● We obtained management’s analysis for estimated excess or obsolete inventories and evaluated the appropriateness of management’s approach. ● We developed an independent expectation of the net realizable value of inventory using historic inventory activity and compared our independent expectation to the amount recorded in the financial statements. Evaluation of the Company’s liquidity As discussed in Note 1 to the financial statements, the Company recorded a net loss of $15.8 million and used cash in operations of $17.0 million during the year ended December 31, 2025. Management believes that the Company’s ongoing business, existing cash and credit facilities, is sufficient to fund operations for twelve months from the date of issuance of these financial statements. We identified the evaluation of Management’s assessment of the Company’s ability fund its operations over the next twelve months as a critical audit matter due to the high degree of subjective auditor judgment required to evaluate the Company’s forecasted cash flows used in its liquidity analysis due to uncertainty in certain assumptions, specifically forecasted sales, gross profit margins, and feasibility of the Company’s expense management activities. The primary procedures we performed to address this critical audit matter included: ● We obtained management’s cash flow forecast and evaluated the reasonableness of the cash flow forecast by comparing it to historical operating results, considering management’s ability to accurately forecast and perform sensitivity analysis on revenue, cash expenditures, and commitments. ● We performed sensitivity analyses on the forecasted revenue and operating margins used in the Company’s cash flow forecast to evaluate the impact on the conclusions reached by management. ● We considered the Company’s historical ability to raise financing and re-finance its debt, if necessary. ● We assessed the appropriateness and sufficiency of the Company’s liquidity disclosures and compared to other audit evidence obtained to determine whether such information is consistent with the Company’s disclosures. We have served as the Company’s auditor since 2004. /s/ Weinberg & Company, P.A. Weinberg & Company, P.A. Los Angeles, California March 25, 2026 F- 2 REED’S, INC, CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share amounts) December 31, 2025 December 31, 2024 ASSETS Current assets: Cash $ 10,424 $ 10,391 Accounts receivable, net of allowance of $ 980 and $ 859 , respectively 2,317 3,979 Inventory, net 8,046 8,114 Receivable from former related party - 144 Prepaid expenses and other current assets 673 683 Total current assets 21,460 23,311 Property and equipment, net of accumulated depreciation of $ 785 and $ 636 , respectively 1,231 1,185 Intangible assets 650 644 Total assets $ 23,341 $ 25,140 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 3,496 $ 6,956 Accrued expenses 669 984 Senior secured loan, net of capitalized financing costs of $ 68 and $ 329 , respectively 9,182 9,571 Payable to former related party - 144 Current portion of lease liabilities 40 - Total current liabilities 13,387 17,655 Lease liabilities, less current portion 803 837 Total liabilities 14,190 18,492 Commitments and Contingencies 0 0 Stockholders’ equity: Series A Convertible Preferred stock, $ 10 par value, 500,000 shares authorized, 9,411 shares issued and outstanding 94 94 Common stock, $ .0001 par value, 60,000,000 shares authorized; 11,820,429 and 7,561,714 shares issued and outstanding, respectively 5 1 Additional paid in capital 176,783 158,437 Accumulated deficit ( 167,731 ) ( 151,884 ) Total stockholders’ equity 9,151 6,648 Total liabilities and stockholders’ equity $ 23,341 $ 25,140 The accompanying notes are an integral part of these consolidated financial statements. F- 3 REED’S, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2025 and 2024 (Amounts in thousands, except share and per share amounts) 2025 2024 Year Ended December 31, 2025 2024 Net Sales $ 34,065 $ 37,954 Cost of goods sold 25,090 26,301 Inventory write-offs 2,013 277 Total cost of goods sold 27,103 26,578 Gross profit 6,962 11,376 Operating expenses: Delivery and handling expense 5,374 5,863 Selling and marketing expense 5,271 4,405 General and administrative expense 11,296 9,109 Provision for receivable with former related party 169 115 Total operating expenses 22,110 19,492 Loss from operations ( 15,148 ) ( 8,116 ) Other Income 414 445 Interest expense, net ( 1,108 ) ( 5,481 ) Net loss ( 15,842 ) ( 13,152 ) Dividends on Series A Convertible Preferred Stock ( 5 ) ( 5 ) Net loss attributable to common stockholders $ ( 15,847 ) $ ( 13,157 ) Loss per share – basic and diluted $ ( 1.91 ) $ ( 9.81 ) Weighted average number of shares outstanding – basic and diluted 8,301,904 1,340,249 The accompanying notes are an integral part of these consolidated financial statements. F- 4 REED’S, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) For the Years Ended December 31, 2025 and 2024 (Amounts in thousands except share amounts) Shares Amount Shares Amount Capital Deficit (Deficit) Common Stock Preferred Stock Additional Paid In Accumulated Total Stockholders’ Equity Shares Amount Shares Amount Capital Deficit (Deficit) Balance, December 31, 2023 697,881 $ - 9,411 $ 94 $ 119,452 $ ( 138,727 ) $ ( 19,181 ) Fair value of vested options - - - - 528 - 528 Dividends on Series A Convertible Preferred Stock - - - - - ( 5 ) ( 5 ) Issuance of shares for conversion of convertible notes payable to related party 3,746,346 1 - - 20,231 - 20,232 Capital contribution upon conversion of notes payable - - - 2,248 - 2,248 Common shares issued for cash 2,662,446 - - - 11,882 - 11,882 Common shares issued upon conversion of SAFE agreement with related entities 455,041 4,096 4,096 Net Loss - - - - - ( 13,152 ) ( 13,152 ) Balance, December 31, 2024 7,561,714 1 9,411 94 158,437 ( 151,884 ) 6,648 Fair value of vested options - - - - 59 - 59 Dividends on Series A Convertible Preferred Stock - - - - - ( 5 ) ( 5 ) Retirement of common shares ( 25 ) - - - - - Common shares issued for cash in private placements 1,370,962 - - 8,000 - 8,000 Common shares issued for cash in public offerings 2,875,000 4 10,172 10,176 Common shares issued upon conversion of SAFE agreement with related entities 12,778 115 115 Net Loss - - - - - ( 15,842 ) ( 15,842 ) Balance, December 31, 2025 11,820,429 $ 5 9,411 $ 94 $ 176,783 $ ( 167,731 ) $ 9,151 The accompanying notes are an integral part of these consolidated financial statements. F- 5 REED’S, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2025 and 2024 (Amounts in thousands) December 31, 2025 December 31, 2024 Cash flows from operating activities: Net loss $ ( 15,842 ) $ ( 13,152 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 160 125 Gain on disposal of property & equipment ( 5 ) - Amortization of debt discount 295 1,057 Fair value of vested options 59 528 Allowance for estimated credit losses 980 859 Provision for receivable with former related party 169 115 Inventory write down 2,013 277 Accrued interest on convertible note - 3,409 Lease liability 6 ( 205 ) Changes in operating assets and liabilities: Accounts receivable 743 ( 1,267 ) Inventory ( 1,945 ) 2,909 Prepaid expenses and other assets ( 51 ) 561 Decrease in right of use assets 46 169 Accounts payable ( 3,345 ) ( 1,393 ) Accrued expenses ( 320 ) ( 116 ) Net cash used in operating activities ( 17,037 ) ( 6,124 ) Cash flows from investing activities: Intangible asset trademark costs ( 6 ) ( 15 ) Purchase of property and equipment ( 272 ) ( 152 ) Sale of property and equipment 25 - Net cash used in investing activities ( 253 ) ( 167 ) Cash flows from financing activities: Proceeds from line of credit - 29,195 Payments on the line of credit - ( 39,152 ) Proceeds from sale of common stock 18,176 11,882 Proceeds from senior secured loan payable, net of expenses - 9,524 Proceeds from convertible note payable, net of expenses - 1,400 Proceeds received from SAFE agreement 4,096 Payment of note payable ( 650 ) - Payment of convertible note payable ( 514 ) Amounts from former related party, net ( 169 ) ( 115 ) Payment of costs recorded as debt discount ( 34 ) ( 237 ) Net cash provided by financing activities 17,323 16,079 Net increase in cash 33 9,788 Cash at beginning of period 10,391 603 Cash at end of period $ 10,424 $ 10,391 Supplemental disclosures of cash flow information: Cash paid for interest $ 826 $ 870 Non-cash investing and financing activities: Dividends on Series A Convertible Preferred Stock $ 5 $ 5 Reclass SAFE agreement from accounts payable to equity $ 115 $ - Common Shares issued upon conversion of convertible notes payable $ - $ 22,480 Common Shares issued upon conversion of SAFE agreement $ - $ 4,096 Initial recognition of right of use asset and operating lease liability upon execution of new lease $ - $ 835 The accompanying notes are an integral part of these consolidated financial statements. F- 6 REED’S, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 2025 and 2024 (In thousands, except share and per share amounts) 1. Operations and Liquidity Reed’s, Inc., (the “Company”) is the owner and maker of Reed’s Craft Ginger Beer, Reed’s Real Ginger Ale, Reed’s Classic and Stormy Mules, Reed’s Hard Ginger Ales, and Virgil’s Handcrafted Sodas. The Company was established in 1989 and is incorporated in the state of Delaware. During the year ended December 31, 2025, the Company began an expansion into new geographic markets in the Asia Pacific region. The Company formed a wholly owned subsidiary Reed’s (Asia) Limited (BVI). Reed’s (Asia) Limited subsequently formed five additional wholly owned subsidiaries, Reed’s (Hong Kong) Limited, Reed’s (Japan) Limited, Jiangzhi Beverage (Hainan) Co. Limited, Reed’s Beverages (Singapore) PTE Limited, and Shenshen Jiangzi Beverage Co. Limited. These subsidiaries are an early part of the Company’s strategic expansion in the Asia Pacific region. The Company expects continued investment in its Asia Pacific growth initiative. Reed’s (Asia) Limited did not generate sales in the year ended December 31, 2025. Liquidity For the year ended December 31, 2025, the Company recorded a net loss of $ 15,842 and used cash in operations of $ 17,037 . Cash used in operations was primarily from the Company’s operating losses, working capital, and investment in strategic growth initiatives. As of December 31, 2025, the Company had a cash balance of $ 10,424 and no remaining availability under the Company’s Senior Secured Loan. 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 $ 10,424 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. Historically, the Company has financed its operations through existing cash balances, cash generated from operations, public and private issuance of common stock, preferred stock, convertible debt instruments, term loans and credit lines from financial institutions. Management expects that the Company’s existing cash of $ 10,424 , cash generated from operations, and access to committed financing will be sufficient to fund the Company’s operating plan, which was approved by the board of directors in February 2026, for at least twelve months from the date of issuance of the financial statements; however, if the Company’s management and board of directors approve additional growth initiatives and related investment in human resources, working capital, new geographic markets, information technology, and other uses of cash, the Company may require additional funding. To alleviate any funding considerations, management periodically evaluates 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. As the Company seeks additional sources of financing, there can be no assurance that such financing will be available to the Company on favorable terms or at all. The Company’s ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, the Company’s performance and investor sentiment with respect to the Company and its industry. The Company is also continuing to take actions to improve the Company’s operating performance and cash generated from operations, including product portfolio optimization, implementing strategies to increase sales, streamlining operations, improving supply chains, negotiating equitable vendor contracts, and managing product price architecture. However, the Company may be unsuccessful in executing these actions in a timely manner or at all. If the Company is unable to raise additional capital whenever necessary or otherwise improve its operating performance or generation of cash from operations, it may be forced to decelerate or curtail certain of its operations until such time as additional capital becomes available. Recent Trends – Market Conditions Inflation, actions by the Federal Reserve to address inflation, fluctuations in energy prices, and the potential impacts of tariffs, trade tensions and geopolitical events create uncertainty about the future economic environment which will continue to evolve and may impact the Company’s business in future periods. The Company has experienced supply chain challenges, including increased lead times, as well as inflation of raw materials, logistics and labor costs due to availability constraints and high demand. Although the Company regularly monitors vendors in its supply chain, and uses alternative suppliers when necessary and available, supply chain constraints could cause a disruption in the Company’s ability to obtain raw materials required to manufacture its products and adversely affect its operations. Consolidation and Basis of Presentation The accompanying consolidated financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of Reed’s Inc. and its wholly owned subsidiary Reed’s (Asia) Limited (BVI). Reed’s (Asia) Limited subsequently formed five additional wholly owned subsidiaries, Reed’s (Hong Kong) Limited, Reed’s (Japan) Limited, Jiangzhi Beverage (Hainan) Co. Limited, Reed’s Beverages (Singapore) PTE Limited, and Shenshen Jiangzi Beverage Co. Limited. All significant intercompany balances and transactions have been eliminated in consolidation. Reverse Stock Split On October 31, 2025, the Company effected a 1-for-6 reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of common stock. The Reverse Stock Split reduced the number of shares of the Company’s issued and outstanding common stock, as well as the number of shares subject to then-outstanding warrants and the exercise price thereof and the number of shares available for future issuance under the Company’s equity plans, the number of shares subject to such awards and purchase rights and the exercise and purchase price of, and other terms and conditions relating to, such awards and purchase rights. The conversion terms of the Preferred Stock have also been adjusted automatically such that each share of Series A Convertible Preferred Stock will be convertible into the number of shares of common stock that would have been issuable if all of the outstanding shares of Preferred Stock were converted into common stock immediately prior to the Reverse Stock Split. No fractional shares were distributed as a result of the Reverse Stock Split, and stockholders were entitled to a cash payment in lieu of fractional shares. The Reverse Stock Split did not affect the par value or total number of authorized shares of common stock. Accordingly, all share and per share amounts for all periods presented in the consolidated financial statements have been adjusted retroactively, where applicable, to reflect the Reverse Stock Split. 2. Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with U.S. GAAP 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 realizability of deferred tax assets and the related valuation allowance, accruals for potential liabilities, assumptions made in valuing stock instruments issued for services, and assumptions used in the determination of the Company’s liquidity. F- 7 Accounts Receivable Accounts receivable are generally recorded at the invoiced amounts net of an allowance for credit losses, which is an estimate of amounts that may not be collectible. The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for credit losses is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential credit losses, credit losses are recorded based on the Company’s historical losses and an overall assessment of past due trade accounts receivable outstanding. As of December 31, 2025 and December 31, 2024, the allowance for credit losses was $ 980 and $ 859 , respectively. Inventory Inventory is stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. The Company regularly reviews inventory quantities on hand and records a provision for excess and obsolete inventory based primarily on its estimated forecast of product demand and its ability to sell the product(s) concerned. Demand for the Company’s products can fluctuate significantly. Factors that could affect demand for the Company’s products include unanticipated changes in consumer preferences, general market conditions or other factors, which may result in cancellations of advance orders or a reduction in the rate of reorders placed by customers. Additionally, management’s estimates of future product demand may be inaccurate, which could result in an understated or overstated provision required for excess and obsolete inventory. During the years ended December 31, 2025, and 2024, inventory has been reduced by allowances for write-downs for inventory aggregating $ 2,013 and $ 277 , respectively. Property and Equipment Property and equipment are stated at cost. Expenditures for major renewals and improvements that extend the useful lives of property and equipment or increase production capacity are capitalized, and expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is calculated using accelerated and straight-line methods over the estimated useful lives of the assets as follows: Schedule of Estimated Useful Lives of Property and Equipment and Related Depreciation Property and Equipment Type Years of Depreciation Computer hardware and software 3 - 5 years Machinery and equipment 5 years Vehicles 5 years Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is an indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. For the years ended December 31, 2025 and 2024, the Company determined there were no indicators of impairment of its property and equipment. Intangible Assets Intangible assets are comprised of indefinite-lived brand names acquired, so classified because the Company anticipates that these brand names will contribute cash flows to the Company perpetually. Indefinite-lived intangible assets are not amortized but are assessed for impairment annually, or more frequently if events or circumstances indicate that assets might be impaired and evaluated annually to determine whether the indefinite useful life is appropriate. As part of its impairment test, the Company first assesses qualitative factors to determine whether it is more likely than not the asset is impaired. If further testing is necessary, the Company compares the estimated fair value of its asset with its book value. If the carrying amount of the asset exceeds its fair value, as determined by its discounted cash flows, an impairment loss is recognized in an amount equal to that excess. For the years ended December 31, 2025 and 2024, the Company determined there was no impairment of its indefinite-lived brand names. F- 8 Revenue Recognition The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (“ASC 606”). Revenue and costs of sales are recognized when control of the products transfers to the Company’s customer, which generally occurs upon shipment from the Company’s facilities. The Company’s performance obligations are satisfied at that time. The Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfilment activity rather than a promised service to the customer. All of the Company’s products are offered for sale as finished goods only, and there are no performance obligations required post-shipment for customers to derive the expected value from them. The 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 the Company’s products, and the Company’s assessment of performance obligations and transaction pricing for its sales contracts, the Company does not currently maintain a contract asset or liability balance for obligations. The Company assesses its contracts and the reasonableness of its conclusions on a quarterly basis. Cost of Goods Sold Cost of goods sold comprises the costs of raw materials and packaging utilized in the manufacture of products, co-packing fees, repacking fees, in-bound freight charges, as well as certain internal transfer costs. Additionally, cost of goods sold includes direct production costs in excess of charges allocated to finished goods in production. Charges for labor and overhead allocated to finished goods are determined on a market cost basis, which may be lower than the actual costs incurred. Plant costs in excess of production allocations are expensed in the period incurred rather than added to the cost of finished goods produced. Expenses not related to the production of the Company’s products are classified as operating expenses. Delivery and Handling Expense Shipping and handling costs comprise purchasing and receiving, inspection, warehousing, transfer freight, and other costs associated with product distribution after manufacture and are included as part of operating expenses. Advertising Costs Advertising costs are expensed as incurred and are included in selling and marketing expense. Advertising costs aggregated $ 126 and $ 63 for the years ended December 31, 2025 and 2024, respectively. Stock Compensation Expense The Company periodically issues stock options and restricted stock awards to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting based on ASC 718, Compensation-Stock Compensation whereby the value of the award is measured on the date of grant and recognized for employees as compensation expense 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 fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods. F- 9 Income Taxes The Company uses an asset and liability approach for accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. Loss per Common Share Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing the net income applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation when their effect is antidilutive. For the years ended December 31, 2025 and 2024, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following: Schedule of Potentially Dilutive Securities December 31, 2025 December 31, 2024 Warrants 2,963,215 91,549 Common stock equivalent of Series A Convertible Preferred Stock 125 125 Options 29,028 53,980 Total 2,992,368 145,654 Anti-dilutive Securities 2,992,368 145,654 Fair Value of Financial Instruments The Company uses various inputs in determining the fair value of its financial assets and liabilities and measures these assets on a recurring basis. Financial assets recorded at fair value are categorized by the level of subjectivity associated with the inputs used to measure their fair value. Accounting Standards Codification Section 820 defines the following levels of subjectivity associated with the inputs: Level 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly. Level 3—Unobservable inputs in which there is little or no market data for the asset or liability which requires the Company to develop its own assumptions. The Company believes the carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, short-term bank loans, accounts payable, notes payable and other payables, approximate their fair values because of the short-term nature of such instruments. The carrying values of capital lease obligations and long-term financing obligations approximate their fair values because interest rates on these obligations are based on prevailing market interest rates. Segments The Company’s President and Chief Executive Officer is the Company’s Chief Operating Decision Maker (“CODM”) and evaluates performance and makes operating decisions about allocating resources based on internal financial data. The Company has determined that it operates in a single reportable segment, which consists of manufacturing carbonated beverages under Reed’s and Virgil’s brand names and comprises the financial results of the Company. The required segment information, including significant segment expenses, is presented at Note 15 . F- 10 Concentrations The Company’s cash balances on deposit with banks are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $ 250 . Generally, the Company’s policy is to minimize borrowing costs by immediately applying cash receipts to borrowings against its credit facility. From time to time, however, the Company may be exposed to risk for the amounts of funds held in bank accounts in excess of the FDIC limit. To minimize the risk, the Company’s policy is to maintain cash balances with high quality financial institutions. Net sales. During the year ended December 31, 2025, the Company’s largest customers accounted for 21 %, 15 % and 14 % of net sales, respectively. During the year ended December 31, 2024, the Company’s largest customers accounted for 18 % and 17 % of net sales, respectively. For the years ending December 31, 2025 or 2024, no other customer accounted for more than 10% revenue. Accounts receivable. As of December 31, 2025, the Company had accounts receivable from three customers which comprised 35 %, 24 % and 11 % of its net accounts receivable, respectively. As of December 31, 2024, the Company had accounts receivable from two customers which comprised 20 % and 17 % of its net accounts receivable, respectively. At December 31, 2025 or 2024, no other customers accounted for more than 10% of accounts receivable. The Company utilizes co-packers to produce 100% of its products. During the year ended December 31, 2025 and 2024, the Company utilized seven separate co-packers for most its production and bottling of beverage products in the United States. The Company has established relationships with these co-packers, including a former related party (see Note 13). Although there are other co-packers available to the Company, a change in co-packers may cause a delay in the production process, which could adversely affect operating results. Purchases from vendors. During the year ended December 31, 2025, the Company’s largest vendor accounted for approximately 13 % of all purchases. During the year ended December 31, 2024, no vendor accounted for more than 10 % of all purchases. No other vendors exceeded 10% of all purchases in either period. Accounts payable. As of December 31, 2025 and December 31, 2024, no vendor accounted for more than 10 % of total accounts payable. Foreign Currency Cash denominated in Japanese Yen (JPY) with an aggregate US Dollar equivalent of $131 and $0 at December 31, 2025 and 2024, respectively , was held by the Company in accounts at a financial institution in Japan. The Company used the exchange rate in the following table to translate amounts denominated in non-USD currencies as of the periods noted: Schedule of Foreign Currency Exchange Rate December 31, 2025 December 31, 2024 JPY:USD 156.81 - Recent Accounting Pronouncements In November 2024, FASB issued ASU 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) Disaggregation of Income Statement Expenses. The guidance in ASU 2024-03 requires public business entities to disclose in the notes to the financial statements, among other things, specific information about certain costs and expenses including purchases of inventory; employee compensation; and depreciation and amortization expense for each caption on the income statement where such expenses are included. The update is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted, and the amendments may be applied prospectively to reporting periods after the effective date or retrospectively to all periods presented in the financial statements. The Company is currently evaluating the provisions of this guidance and assessing the potential impact on its financial statement disclosures. F- 11 Other recent accounting pronouncements and guidance issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements. 3. Inventory Inventory consisted of the following (in thousands): Schedule of Inventory December 31, 2025 December 31, 2024 Raw materials and packaging $ 3,951 $ 5,144 Finished products 4,095 2,970 Total $ 8,046 $ 8,114 As of December 31, 2025 and 2024, inventory was net of a reserve of $ 835 and $ 1,296 , respectively. During the year ended December 31, 2025, the Company incurred $ 2,013 of inventory charges related to changes in product portfolio optimization made by new management. During the year ended December 31, 2024 the Company incurred $ 277 of inventory charges related to inventory obsolescence. 4. Property and Equipment Property and equipment comprise the following (in thousands): Schedule of Property and Equipment December 31, 2025 December 31, 2024 Right-of-use assets under operating leases $ 832 $ 832 Leasehold improvements 164 84 Computer hardware and software 595 553 Machinery and equipment 275 352 Vehicles 68 - Construction in progress 82 - Total cost 2,016 1,821 Accumulated depreciation and amortization ( 785 ) ( 636 ) Net book value $ 1,231 $ 1,185 Depreciation expense for the years ended December 31, 2025, and 2024 was $ 160 and $ 125 , respectively, and amortization of right-of-use assets for the years ended December 31, 2025, and 2024 as $ 46 and $ 169 , respectively. During the year ended December 31, 2025, the Company sold certain equipment, with original cost of $ 77 and accumulated depreciation of $ 57 , for $ 25 . 5. Intangible Assets Intangible assets consisted of the following (in thousands): Schedule of Intangible Assets December 31, 2025 December 31, 2024 Brand names $ 576 $ 576 Trademarks 74 68 Total $ 650 $ 644 F- 12 Intangible assets consist of acquired brand names, specifically Virgil’s, and costs related to trademarks. They have been assigned an indefinite life, as the Company currently anticipates that they will contribute cash flows to the Company perpetually. These indefinite-lived intangible assets are not amortized but are assessed for impairment annually and evaluated annually to determine whether the indefinite useful life remains appropriate. The Company first assesses qualitative factors to determine whether it is more likely than not that the asset is impaired. If further testing is necessary, the Company compares the estimated fair value of its asset with its book value. If the carrying amount of the asset exceeds its fair value, as determined by the discounted cash flows expected to be generated by the asset, an impairment loss is recognized in an amount equal to that excess. Based on management’s assessment, there were no indications of impairment at December 31, 2025. During the years ended December 31, 2025, and 2024, the Company capitalized costs of $ 6 and $ 15 , respectively, pertaining to legal and other fees incurred in applying for international trademarks for Reeds and Virgil’s brands. 6. Senior Secured Loan Payable Schedule of Secured Notes Payable December 31, 2025 December 31, 2024 Secured Convertible Note Payable $ 9,250 $ 9,900 Capitalized financing costs ( 68 ) ( 329 ) Total $ 9,182 $ 9,571 On November 14, 2024, the Company entered into a Senior Secured Loan and Security Agreement (the “Loan Agreement”) with certain funds affiliated with Whitebox Advisors LLC (“Whitebox”), as lenders, and Cantor Fitzgerald Securities, as administrative agent and collateral agent. The Loan Agreement provided a revolving credit commitment in an aggregate amount of $ 10,000 (the “Senior Secured Loan”). On September 26, 2025, the Company entered into an Amended Loan Agreement. The Amended Loan Agreement (i) reduced the aggregate principal amount of the revolving credit commitment to $ 9,250 from $ 10,000 , (ii) changed interest payments on the revolving loan to be due monthly in arrears from quarterly in arrears, (iii) and extended the maturity date to September 30, 2026 . The Senior Secured Loan accrues interest at a per annum rate equal to 8.00 % on the principal amount outstanding, payable monthly in arrears. The Senior Secured Loan also accrues an unused fee at a rate per annum equal to 3.00% on the excess, if any, of the revolving credit commitment over the average principal amount outstanding from time to time during the preceding fiscal quarter, payable monthly in arrears. The Senior Secured Loan is secured by substantially all of the Company’s assets, including all intellectual property. In connection with the entry into the Amended Loan Agreement, the Company repaid $ 650 of the aggregate outstanding principal balance, plus accrued interest. As of December 31, 2025 and 2024, the principal amount outstanding on the Senior Secured Loan was $ 9,250 and $ 9,900 , respectively, and the remaining availability was $ 0 and $ 100 , respectively. The Amended Loan Agreement includes customary restrictions that limit the Company’s ability to engage in certain types of transactions. Additionally, the agreement contains a financial covenant that requires us to meet a certain minimum cash balance and liquidity threshold as of the end of each month. The Company was in compliance with the Amended Loan Agreement as of December 31, 2025 and 2024. The Company incurred $ 410 of direct costs associated with the Senior Secured Loan transaction, consisting primarily of broker, bank and legal fees. These costs have been deferred and are being amortized over the life of the agreement. The unamortized debt discount balance was $ 329 at December 31, 2024. For the year ended December 31, 2025, the Company incurred $ 34 of additional fees, and the amortization of debt discount was $ 295 . The unamortized debt discount balance was $ 68 at December 31, 2025. Additionally, in connection with the Amended Loan Agreement, the Company incurred $ 40 of direct costs, which were expensed. F- 13 7. Lease Liabilities The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company leases its headquarters office, and certain office equipment and automobiles. Leases with an initial term of 12 months or less are not included on the balance sheets. In May 2024, the Company entered into a long-term non-cancellable lease agreement for its new office facility that requires aggregate average monthly payments of $ 9 beginning December 2024. The lease terminates in November 2035. The Company classified the lease as an operating lease and determined that the value of the right of use asset and lease liability at the adoption date was $ 835 , using a discount rate of 8.00 %. During the year ended December 31, 2024, the Company made aggregate payments of $ 205 towards its operating lease liability. As of December 31, 2024, operating lease liabilities totaled $ 837 . During the year ended December 31, 2025, the Company made payments of $ 60 towards its operating lease liability. As of December 31, 2025, operating lease liabilities totaled $ 843 , of which $ 40 was current. The Company’s right of use assets are presented as part of property and equipment (see Note 3). During the years ended December 31, 2025, and 2024, lease costs totaled $ 46 and $ 134 , respectively. Future minimum lease payments under the leases are as follows (in thousands): Schedule of Future Minimum Lease Payments Under Leases Years Ending December 31, Amounts 2026 $ 98 2027 93 2028 96 2029 109 Thereafter 781 Total payments 1,177 Less: Amount representing interest ( 334 ) Present value of net minimum lease payments 843 Less: Current portion 40 Non-current portion $ 803 8. Issuance of Common Stock 2025 Transactions During 2024, the Company received $ 115 in gross proceeds from investors pursuant to Simple Agreements for Future Equity (“SAFE”) investments, which remained outstanding as of December 31, 2024. On April 3, 2025, the SAFE investments were converted to 12,778 shares of common stock. Private Placements On June 4, 2025, the Company completed a private placement with certain accredited investors, pursuant to which the Company issued and sold to the investors an aggregate of 537,632 shares of common stock for total consideration of $ 3,000 . D&D Source of Life Holding, Ltd. (“D&D”), the Company’s majority stockholder (a related party), served as lead investor, participating in this transaction in the amount of $ 1,000 . On September 15, 2025, the Company completed a private placement with certain accredited investors, pursuant to which the Company issued and sold to the investors an aggregate of 833,330 shares of common stock for total consideration of $ 5,000 . Public Offering On December 4, 2025, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with A.G.P./Alliance Global Partners, as representative of the underwriters (the “Underwriters”), pursuant to which the Company agreed to sell and issue to the Underwriters, in a public offering (the “Offering”), an aggregate of (i) 2,500,000 shares of common stock and (ii) warrants to purchase up to 2,500,000 shares of common stock. The Offering closed on December 8, 2025. Each share of common stock and accompanying warrant to purchase one share of common stock were sold together at a combined public offering price of $ 4.00 less underwriting discounts and commissions. Additionally, the Company granted the Underwriters a 45-day option (the “Overallotment Option”) to purchase up to an additional 375,000 shares of common stock and/or warrants at the public offering price, less underwriting discounts and commissions. In December 2025, the Underwriters notified the Company of their determination to fully exercise the Overallotment Option to purchase an aggregate of 375,000 shares of common stock and warrants to purchase an aggregate of 375,000 shares of additional common stock. All of the securities in the Offering, including the Overallotment Option, were sold by the Company. F- 14 The net proceeds to the Company from the Offering, including the partial exercise of the Overallotment Option, were approximately $ 10.2 million, after deducting underwriting discounts and commissions and certain offering expenses. The Company currently intends to use the net proceeds from the Offering, together with its existing cash and cash equivalents, to fund growth initiatives, working capital and other general corporate purposes, which may include repayment of debt. Each warrant issued in the Offering has an exercise price per share of common stock equal to $ 4.50 , subject to certain adjustments. The warrants are immediately exercisable upon issuance and will expire on December 8, 2030 (the “Expiration Date”), provided that the holder will be prohibited, subject to certain exceptions, from exercising the warrant for shares of the Company’s common stock to the extent that immediately after giving effect to such exercise, the holder, together with its affiliates and other attribution parties, would own more than 4.99% or 9.99% (as elected by the holder) of the total number of shares of the Company’s common stock then issued and outstanding, which percentage may be changed at the holder’s election to a higher or lower percentage not in excess of 9.99% upon 61 days’ prior notice from the holder to the Company subject to the terms of the warrants. If, and only if, there is no effective registration statement at the time of exercise, the warrants may be exercised cashlessly. D&D Source of Life Holding Ltd., the controlling stockholder of the Company, and its affiliated entities purchased approximately $ 5.0 million of securities issued in the Offering at the public offering price. The Offering was made pursuant to the Company’s registration statement on Form S-1 (File No. 333-291443) that was declared effective by the Securities and Exchange Commission on December 4, 2025 and a prospectus dated December 4, 2025. 2024 Transactions During 2024, the Company received $ 4,096 in gross proceeds from three significant stockholders of the Company, D&D, Union Square Park Partners LP, and John J. Bello, the Company’s former Chairman, pursuant to SAFE investments. The SAFE investments were to convert into the next equity financing of Reed’s at the lesser of $ 9.00 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 at $ 5,490 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 at that date. On September 9, 2024, the Company entered into a Securities Purchase Agreement with various purchasers for the issuance of 666,667 common shares for total consideration of $ 6,000 . The various purchasers also held Company SAFE investments. The total capital raise consisted of 455,201 shares of common stock valued at $ 4,096 upon conversion of the SAFE investments and 211,466 common shares issued to D&D for consideration of $ 1,904 . Upon 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 . F- 15 Other issuances of common stock for cash On December 30, 2024, the Company entered into a Securities Purchase Agreement with accredited investors. The Company issued 2,450,980 shares of common stock for aggregate net proceeds of $ 10 million. The average price per share was $ 4.08 . Common shares issued upon conversion of Notes Payable On November 19, 2024, the Company issued 3,746,345 shares of its common stock with a fair value of $ 20,232 to D&D upon conversion of outstanding convertible notes and in satisfaction of accrued interest of $ 22,480 . The excess of the converted value of the convertible notes and accrued interest over the fair value of the shares issued of $ 2,248 was treated as a capital contribution. 9. Series A Convertible Preferred Stock Series A Convertible Preferred Stock (the “Preferred Stock”) consists of $ 10 par value, 5 % non-cumulative, non-voting, participating preferred stock, with a liquidation preference of $ 10.00 per share. 500,000 shares are authorized. As of December 31, 2025, and 2024, there were 9,411 shares outstanding. Each share of Preferred Stock can be converted into 0.08 shares of the Company’s common stock. Dividends are payable at the rate of 5 % annually, pro-rata and non-cumulative. The dividend can be paid in cash or, at the discretion of the Company’s board of directors, in shares of common stock based on its then fair market value. The Company cannot declare or pay any dividend on shares of the Company’s common stock until the holders of the Preferred Stock have received their annual dividend. In addition, the holders of the Preferred Stock are entitled to receive pro rata distributions of dividends on an “as converted” basis with the holders of the Company’s common stock. In the event of any liquidation, dissolution or winding up of the Company, or if there is a change of control event as defined, the holders of the Preferred Stock are entitled to receive, prior to distributions to the holders of common stock, $ 10.00 per share plus all accrued and unpaid dividends. Thereafter, all remaining assets are distributed pro rata among all security holders. Since June 30, 2008, the Company has the right, but not the obligation, to redeem all or any portion of the Preferred Stock at $ 10.00 per share, the original issue price, plus all accrued and unpaid dividends. The Preferred Stock may be converted at any time, at the option of the holder, into 0.08 shares of common stock, subject to adjustment in the event of stock splits, reverse stock splits, stock dividends, recapitalization, reclassification, and similar transactions. The Company is obligated to reserve authorized but unissued shares of common stock sufficient to affect the conversion of all outstanding shares of Preferred Stock. Except as provided by law, the holders of the Preferred Stock do not have the right to vote on any matters, including the election of directors. However, so long as any shares of Preferred Stock are outstanding, the Company shall not, without the approval of a majority of the preferred stockholders, authorize or issue any equity security having a preference over the Preferred Stock with respect to dividends, liquidation, redemption or voting, including any other security convertible into or exercisable for any senior preferred stock. During the years ended December 31, 2025 and 2024, the Company accrued dividends on the Preferred Stock of $ 5 which is included in accrued expenses in the accompanying balance sheets. No shares of Series A preferred stock were converted into common stock in 2025 and 2024. 10. Share-Based Payments Management believes that the ability to issue equity compensation, in order to incentivize performance by employees, directors, and consultants, is essential to the Company’s growth strategy. On December 21, 2020, the 2020 Equity Incentive Plan (the “2020 Plan”) was approved by the Company’s shareholders. The 2020 Plan provides for the issuance of up to 50,000 shares. Options forfeited under the 2020 plan were returned to the share reserve. Options issued cannot be re-priced without shareholder approval. As of December 31, 2025, shares available for issuance under the 2020 Plan were 36,657 . F- 16 The 2020 Plan permits the grant of options and stock awards to the Company’s employees, directors and consultants. The options may constitute either “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code or “non-qualified stock options”. The Plan is currently administered by the board of directors. The exercise price of an option granted under the plan cannot be less than 100% of the fair market value per share of common stock on the date of the grant of the option. Options may not be granted under the plan on or after the tenth anniversary of the adoption of the plan. Incentive stock options granted to a person owning more than 10% of the combined voting power of the common stock cannot be exercisable for more than five years. When an option is exercised, the exercise is received in cash, except that the plan administrator may permit the exercise price to be paid in any combination of cash, shares of stock having a fair market value equal to the exercise price, or as otherwise determined by the plan administrator. On April 29, 2024, the 2024 Inducement Plan (the “2024 Plan”) was approved by the compensation committee of the Company’s board of directors. The 2024 Plan provides for the issuance of up to 41,667 shares. Options forfeited under the 2024 plan are returned to the share reserve for future issuance. Options issued cannot be re-priced without shareholder approval. As of December 31, 2025, shares available for issuance under the 2024 Plan were 27,350 . The 2024 Plan permits the grant of options and stock awards to the Company’s employees, directors and consultants. The options may constitute either “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code or “non-qualified stock options”. The Plan is currently administered by the board of directors. The exercise price of an option granted under the plan cannot be less than 100% of the fair market value per share of common stock on the date of the grant of the option. Options may not be granted under the plan on or after the tenth anniversary of the adoption of the plan. Incentive stock options granted to a person owning more than 10% of the combined voting power of the common stock cannot be exercisable for more than five years. When an option is exercised, the excise price is received in cash, except that the plan administrator may permit the exercise price to be paid in any combination of cash, shares of stock having a fair market value equal to the exercise price, or as otherwise determined by the plan administrator. Stock Options As of December 31, 2025, the Company had issued and outstanding stock options to purchase an aggregate of 29,028 shares of common stock. The Company’s stock option activity during the years ended December 31, 2025, and 2024 is as follows: Schedule of Stock Option Activity Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Terms (Years) Aggregate Intrinsic Value Outstanding at December 31, 2023 19,196 $ 260.75 6.75 $ - Issued 31,355 7.80 Exercised - - Unvested forfeited or expired ( 865 ) 99.75 Vested forfeited or expired ( 2,295 ) 277.67 Outstanding at December 31, 2024 47,391 $ 95.51 8.15 $ - Issued - - Exercised - - Unvested forfeited or expired ( 6,103 ) 7.80 Vested forfeited or expired ( 12,260 ) 40.43 Outstanding at December 31, 2025 29,028 $ 137.22 6.08 $ - Exercisable at December 31, 2025 27,005 $ 145.47 5.96 $ - F- 17 During the year ended December 31, 2024, the Company approved options exercisable into 31,355 shares to be issued pursuant to the 2024 Plan. The stock options are exercisable at a price of $ 7.80 per share and expire in ten years . The total fair value of these options at grant date was approximately $ 253 , which was determined using a Black-Scholes-Merton option pricing model with the following average assumption: stock price of $ 7.80 share, expected term of six years, volatility of 92 %, dividend rate of 0 %, and weighted average risk-free interest rate of 4.65 %. The expected term represents the weighted-average period of time that share option awards granted are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility is based upon historical volatility of the Company’s common stock; the expected dividend yield is based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future; and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of measurement corresponding with the expected term of the share option award. During the year ended December 31, 2025 and 2024, the Company recognized $ 59 and $ 528 of compensation expense relating to vested stock options. As of December 31, 2025, the aggregate amount of unvested compensation related to stock options was approximately $ 10 which will be recognized as an expense as the options vest in future periods through April 30, 2028. As of December 31, 2025, the outstanding and exercisable options have no intrinsic value. The aggregate intrinsic value was calculated as the difference between the closing market price as of December 31, 2025, which was $ 2.10 , and the exercise price of the outstanding stock options. Additional information regarding options outstanding and exercisable as of December 31, 2025, is as follows: Schedule of Information Regarding Stock Options Options Outstanding Options Exercisable Range of Exercise Price Number of Shares Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Number of Shares Exercisable Weighted Average Exercise Price $ 7.80 - $ 24.00 14,483 $ 7.99 8.31 13,228 $ 7.95 $ 27.00 - $ 40.50 656 27.00 7.05 410 27.00 $ 72.00 - $ 108.00 2,088 72.00 6.35 1,566 72.00 $ 150.00 - $ 225.00 1,199 191.43 3.79 1,199 191.43 $ 264.00 - $ 396.00 9,850 297.59 3.31 9,850 297.59 $ 480.00 - $ 720.00 154 560.18 2.64 154 560.18 $ 732.00 - $ 1,098.00 598 756.47 0.95 598 756.47 29,028 $ 137.22 6.08 27,005 $ 145.47 F- 18 11. Stock Warrants As of December 31, 2025, the Company has issued warrants to purchase an aggregate of 2,963,215 shares of common stock. The Company’s warrant activity during the years ended December 31, 2025, and 2024 is as follows: Schedule of Warrant Activity Shares Weighted -Average Exercise Price Weighted-Average Remaining Contractual Terms (Years) Aggregate Intrinsic Value Outstanding at December 31, 2023 91,549 $ 52.62 2.84 $ - Issued - - - Exercised - - - Forfeited or expired - - - Outstanding at December 31, 2024 91,549 52.62 1.84 $ - Issued 2,875,000 4.50 5.00 Exercised - - - Forfeited or expired ( 3,334 ) 193.20 - Outstanding at December 31, 2025 2,963,215 $ 5.77 4.82 $ - Exercisable at December 31, 2025 2,963,215 $ 5.77 4.82 $ - On December 4, 2025, the Company entered into the Underwriting Agreement with the Underwriters, pursuant to which the Company agreed to sell and issue to the Underwriters, in the Offering, an aggregate of (i) 2,500,000 shares of common stock and (ii) warrants to purchase up to 2,500,000 shares of common stock (See Note 8). Pursuant to the Overallotment Option, the company also sold and issued to the Underwriters an aggregate of 375,000 shares of common stock and warrants to purchase an aggregate of 375,000 shares of additional common stock. Each warrant issued in the Offering has an exercise price per share of common stock equal to $ 4.50 , subject to certain adjustments. The warrants are immediately exercisable upon issuance and will expire on December 8, 2030 (the “Expiration Date”), provided that the holder will be prohibited, subject to certain exceptions, from exercising the warrant for shares of the Company’s common stock to the extent that immediately after giving effect to such exercise, the holder, together with its affiliates and other attribution parties, would own more than 4.99% or 9.99% (as elected by the holder) of the total number of shares of the Company’s common stock then issued and outstanding, which percentage may be changed at the holder’s election to a higher or lower percentage not in excess of 9.99% upon 61 days’ prior notice from the holder to the Company subject to the terms of the warrants. If, and only if, there is no effective registration statement at the time of exercise, the warrants may be exercised cashlessly. As of December 31, 2025, the outstanding and exercisable warrants have no intrinsic value. The aggregate intrinsic value was calculated as the difference between the closing market price as of December 31, 2025, which was $ 2.10 , and the exercise price of the Company’s warrants to purchase common stock. Additional information regarding warrants outstanding and exercisable as of December 31, 2025, is as follows: Schedule of Warrants Outstanding and Exercisable Warrants Outstanding Warrants Exercisable Range of Exercise Price Number of Shares Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Number of Shares Exercisable Weighted Average Exercise Price $ 4.50 2,875,000 $ 4.50 4.94 2,875,000 $ 4.50 $ 15.51 52,224 $ 15.51 0.39 52,224 $ 15.51 $ 86.31 30,991 $ 86.31 1.70 30,991 $ 86.31 $ 138.00 5,000 $ 138.00 0.91 5,000 $ 138.00 2,963,215 $ 5.77 4.82 2,963,215 $ 5.77 F- 19 12. Income Taxes The Company is subject to taxation in the United States and various foreign jurisdictions. For the years ended December 31, 2025 and 2024, a reconciliation of the effective income tax rate to the U.S. statutory rate is as follows: Schedule of Reconciliation of Effective Income Tax Rate to U.S. Statutory Rate December 31, 2025 December 31, 2024 Federal statutory tax rate ( 21 )% ( 21 )% State rate, net of federal benefit ( 5 )% ( 5 )% Foreign tax rate differential ( 1 )% - % Total federal and state statutory tax rate ( 27 )% ( 26 )% Effect of change in tax rate - % - % Valuation allowance 27 % 26 % Effective tax rate $ - $ - As of December 31, 2025 and 2024, significant components of the Company’s deferred tax assets and liabilities are as follows: Schedule of Deferred Income Tax Assets December 31, 2025 December 31, 2024 Deferred income tax asset: Net operating loss carryforwards - US $ 28,288 $ 25,309 Net operating loss carryforwards - Foreign 240 - Disqualified corporate interest expense 4,876 4,642 Stock-based compensation 2,271 2,256 Accrued bonus and vacation 66 - Accounts receivable allowances 541 476 Inventory reserves 213 51 Operating lease liability 220 219 Other - - Asset impairment - 58 Gross deferred tax assets 36,715 33,011 Valuation allowance ( 36,277 ) ( 32,793 ) Total deferred tax assets 438 218 Deferred tax liabilities: Property and equipment $ ( 69 ) - Intangibles ( 165 ) - Operating lease right-of-use asset ( 204 ) ( 218 ) Deferred finance costs - Total deferred tax liabilities ( 438 ) ( 218 ) Net deferred tax asset (liability) $ - - $ - At December 31, 2025 and 2024, the Company had available Federal and state net operating loss carryforwards (“NOL”s) to reduce future taxable income. For Federal purposes the amounts available were approximately $ 117,000 and $ 105,000 , respectively. For state purposes approximately $ 73,000 and $ 59,000 was available at December 31, 2025 and 2024, respectively. Foreign net operating loss carryforwards are approximately $ 2,000 at December 31, 2025, with expiration dates ranging from 2035 to indefinite depending on the jurisdiction. The Federal carryforward for NOLs arising in years prior to 2018 is approximately $ 31,000 , which expires on various dates through 2037. NOLs originating after 2017 of approximately $ 86,000 , can be carried forward indefinitely, but are only able to offset 80% of taxable income in future years. The state carryforward expires on various dates through 2045 . Given the Company’s history of net operating losses, management has determined that it is more likely than not that the Company will not be able to realize the tax benefit of the carryforwards. Accordingly, the Company has not recognized a deferred tax asset for this benefit. Due to restrictions imposed by Internal Revenue Code Section 382 regarding substantial changes in ownership of companies with loss carryforwards, the utilization of the Company’s NOL may be limited as a result of changes in stock ownership. NOLs incurred subsequent to the latest change in control are not subject to the limitation. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of December 31, 2025 and 2024, the Company did not have a liability for unrecognized tax benefits. The Company recognizes as income tax expense, interest and penalties on uncertain tax provisions. As of December 31, 2025 and 2024, the Company has not accrued interest or penalties related to uncertain tax positions. As of the year ended December 31, 2025, the tax returns for 2022 through 2025 remain open to examination by the Internal Revenue Service and for 2021 to 2025 for various state taxing jurisdictions to which the Company is subject. Upon the attainment of taxable income by the Company, management will assess the likelihood of realizing the tax benefit associated with the use of the NOLs and will recognize the appropriate deferred tax asset at that time. F- 20 13. Transactions with California Custom Beverage, LLC, former related party In December 2018, the Company signed a co-packing agreement with California Custom Beverage, LLC’s (“CCB”), an entity owned by a former related party, pursuant to which CCB agreed to produce certain products for the Company for agreed fees. The co-packing agreement, as amended, includes certain provisions for product inputs, shrinkage, and quality assurance. Also beginning in 2019, CCB agreed to pay the Company a 5 % royalty through 2021 on certain private label sales made by CCB. In January 2024, CCB filed an arbitration demand alleging claims against the Company for various disputed amounts outstanding. Also in January 2024, the Company filed an arbitration demand alleging claims against CCB for various disputed amounts outstanding. The two cases were consolidated. In February 2026, the arbitration resulted in an interim award in favor of the Company. The interim award will become a final award after a final determination of the costs and prejudgment interest is made by the arbitrator. As of December 31, 2024, the Company recorded a receivable of $ 144 due from CCB and a corresponding payable due to CCB of $ 144 . Given the interim award, the Company has extinguished all amounts due from and to CCB. The Company will account for the award once the ruling is final and collectability of the award, if any, becomes probable. 14. Commitments and Contingencies On July 1, 2025, the Company entered into a settlement and release agreement (the “Settlement”) related to an engagement letter with an investment bank dated May 1, 2023. Pursuant to the engagement letter, the Company agreed to pay the investment bank certain fees for services rendered. Pursuant to the Settlement, the Company paid the investment bank $ 1,600 and, effective immediately upon receipt of payment, the Company was released from any and all liability. The Company has provided for the Settlement in the accompanying financial statements. From time to time, the Company is a party to claims and legal proceedings arising in the ordinary course of business. The Company’s management evaluates its 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. The Company believes that there are no material litigation matters at the current time. Although the results of such litigation matters and claims cannot be predicted with certainty, the Company believe that the final outcome of such claims and proceedings will not have a material adverse impact on the Company’s financial position, liquidity, or results of operations. 15. Segment Information The Company operates and manages its business as one reportable and operating segment as a manufacturer of carbonated beverages under Reed’s and Virgil’s brand names. The measure of segment assets is reported on the balance sheet as total assets. The Company’s CODM, the Company’s Chief Executive Officer, reviews financial information presented and decides how to allocate resources based on net income (loss). Net income (loss) is used for evaluating financial performance. F- 21 Significant segment expenses include research and development, salaries, insurance, and stock-based compensation. Operating expenses include all the remaining costs necessary to operate the Company’s business, which primarily include external professional services and other administrative expenses. The following table presents the significant segment expenses and other segment items regularly reviewed by the Company’s CODM. Schedule of Segment Information Year Ended December 31, 2025 2024 Operating expenses Salaries 5,547 3,740 Insurance 521 530 Stock-based compensation 59 528 Selling and marketing 3,254 4,405 Freight and delivery 4,220 4,544 Warehousing 1,154 1,320 Other operating expenses 7,355 4,425 Total operating expenses $ ( 22,110 ) $ ( 19,492 ) 16. Subsequent Events Not applicable. F- 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.