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REED Reeds Inc (QX)

0.703375
-0.10265 (-12.73%)
04 Dec 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type
Reeds Inc (QX) USOTC:REED OTCMarkets Common Stock
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -0.102645 -12.73% 0.703375 0.435 0.912 0.91154 0.55 0.91154 7,096 21:19:19

Form 10-Q - Quarterly report [Sections 13 or 15(d)]

14/11/2024 9:00pm

Edgar (US Regulatory)


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2024

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

 

For the transition period from _______ to _______

 

Commission file number: 001-32501

 

REED’S, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   35-2177773
(State of
incorporation)
  (I.R.S. Employer
Identification No.)

 

201 Merritt 7, Norwalk, CT. 06851

(Address of principal executive offices) (Zip Code)

 

(800) 997-3337

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of Each Class   Trading Symbol   Names of each exchange on which registered
         

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: There were a total of 4,187,291 shares of Common Stock outstanding as of May 10, 2024.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large Accelerated Filer ☐ Accelerated Filer ☐ Non-Accelerated Filer
Smaller Reporting Company Emerging Growth Company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

There are 8,187,291 shares outstanding as of November 13, 2024.

 

 

 

 

 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION F-1
   
Item 1. Condensed Financial Statements F-1
   
Condensed Balance Sheets - September 30, 2024 (Unaudited) and December 31, 2023 F-1
   
Condensed Statements of Operations for the three and nine months ended September 30, 2024 and 2023 (Unaudited) F-2
   
Condensed Statements of Changes in Stockholders’ Deficit for the three and nine months ended September 30, 2024 and 2023 (Unaudited) F-3
   
Condensed Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (Unaudited) F-4
   
Notes to Condensed Financial Statements three and nine months ended September 30, 2024 and 2023 (Unaudited) F-5
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 1
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
   
Item 4. Controls and Procedures 11
   
PART II – OTHER INFORMATION 11
   
Item 1. Legal Proceedings 11
   
Item 1A. Risk Factors 11
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 11
   
Item 3. Defaults Upon Senior Securities 11
   
Item 4. Mine Safety Disclosures 11
   
Item 5. Other Information 12
   
Item 6. Exhibits 12

 

i
 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION

 

This report contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (Reform Act). Statements that constitute forward-looking statements within the meaning of the Reform Act are generally identified through the inclusion of words such as “aim,” “anticipate,” “believe,” “drive,” “estimate,” “expect,” “expressed confidence,” “forecast,” “future,” “goal,” “guidance,” “intend,” “may,” “objective,” “outlook,” “plan,” “position,” “potential,” “project,” “seek,” “should,” “strategy,” “target,” “will” or similar statements or variations of such words and other similar expressions. All statements addressing our future operating performance, and statements addressing events and developments that we expect or anticipate will occur in the future, are forward-looking statements within the meaning of the Reform Act. These forward-looking statements are based on currently available information, operating plans and projections about future events and trends. They inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in any such forward-looking statement. These risks and uncertainties include, but are not limited to, those described in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“2023 Form 10-K”) as updated by “Part II, Item 1A” of this report should be considered when evaluating our trends and future results. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. The discussion of risks in this report is by no means all-inclusive but is designed to highlight what we believe are important factors to consider when evaluating our future performance.

 

ii
 

 

Part I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

REED’S, INC.

CONDENSED BALANCE SHEETS

(Amounts in thousands, except share amounts)

 

   September 30,
2024
   December 31,
2023
 
    (Unaudited)      
ASSETS          
Current assets:          
Cash  $306   $603 
Accounts receivable, net of allowance of $577 and $860, respectively   2,770    3,571 
Inventory   9,251    11,300 
Receivable from former related party   259    259 
Prepaid expenses and other current assets   1,476    2,028 
Total current assets   14,062    17,761 
           
Property and equipment, net of accumulated depreciation of $1,277 and $1,068, respectively   335    493 
Intangible assets   636    629 
Total assets  $15,033   $18,883 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current liabilities:          
Accounts payable  $8,313   $9,133 
Accrued expenses   1,274    1,096 
Revolving line of credit, net of capitalized financing costs of $81 and $201, respectively   5,390    9,758 
Payable to former related party   211    259 
Current portion of convertible notes payable, net of debt discount of $459 and $572, respectively   21,751    6,737 
Current portion of lease liabilities   47    207 
Total current liabilities   36,986    27,190 
           
Convertible note payable, net of debt discount of $0 and $148, respectively, less current portion   -    10,874 
Total liabilities   36,986    38,064 
           
Stockholders’ deficit:          
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, 180,000,000 shares authorized; 8,187,291 and 4,187,291 shares issued and outstanding, respectively   1    - 
Additional paid in capital   125,719    119,452 
Accumulated deficit   (147,767)   (138,727)
Total stockholders’ deficit   (21,953)   (19,181)
Total liabilities and stockholders’ deficit  $15,033   $18,883 

 

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

 

F-1
 

 

REED’S, INC.

CONDENSED STATEMENTS OF OPERATIONS

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

(Unaudited)

(Amounts in thousands, except share and per share amounts)

 

   2024   2023   2024   2023 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2024   2023   2024   2023 
Net Sales  $6,752   $11,856   $28,221   $33,018 
Cost of goods sold   5,537    7,823    19,762    23,778 
Gross profit   1,215    4,033    8,459    9,240 
                     
Operating expenses:                    
Delivery and handling expense   1,279    1,908    4,204    5,714 
Selling and marketing expense   1,283    861    3,473    3,567 
General and administrative expense   1,791    1,407    5,239    4,427 
Total operating expenses   4,353    4,176    12,916    13,708 
                     
Loss from operations   (3,138)   (143)   (4,457)   (4,468)
                     
Interest expense   (2,405)   (1,293)   (4,578)   (4,459)
Change in fair value of SAFE investments   1,393    -    -    - 
                     
Net loss   (4,150)   (1,436)   (9,035)   (8,927)
                     
Dividends on Series A Convertible Preferred Stock   -    -    (5)   (5)
                     
Net Loss Attributable to Common Stockholders  $(4,150)  $(1,436)  $(9,040)  $(8,932)
                     
Loss per share – basic and diluted  $(0.82)  $(0.34)  $(2.02)  $(2.69)
                     
Weighted average number of shares outstanding – basic and diluted   5,066,412    4,169,131    4,483,587    3,322,959 

 

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

 

F-2
 

 

REED’S, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

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

(Unaudited)

(Amounts in thousands except share amounts)

 

   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
   Common Stock   Preferred Stock   Additional Paid In   Accumulated   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
Balance, June 30, 2024   4,187,291   $    -    9,411   $94   $119,674   $(143,617)  $(23,849)
Fair value of vested options                       46         46 
Common shares issued for cash   1,268,795                   1,903         1,903 
Common shares issued upon conversion of SAFE agreement   2,731,205    

1

              4,096         4,097 
Net loss             -    -    -    (4,150)   (4,150)
Balance, September 30, 2024   8,187,291   $

1

    9,411   $94   $125,719   $(147,767)  $(21,953)

 

   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
   Common Stock   Preferred Stock   Additional Paid In   Accumulated   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
Balance, December 31, 2023   4,187,291   $   -    9,411   $94   $119,452   $(138,727)  $(19,181)
Fair value of vested options                       268         268 
Dividends on Series A Convertible Preferred Stock   -    -         -         (5)   (5)
Common shares issued for cash   

1,268,795

                   

1,903

         

1,903

 

Common shares issued upon conversion of SAFE agreement

   2,731,205    

1

         -    4,096         4,097 
Net loss             -    -    -    (9,035)   (9,035)
Balance, September 30, 2024   8,187,291   $

1

    9,411   $94   $125,719   $(147,767)  $(21,953)

 

   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
   Common Stock   Preferred Stock   Additional Paid In   Accumulated   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
Balance, June 30, 2023   4,169,131   $   -    9,411   $94   $119,138   $(130,695)  $(11,463)
Fair value of vested options   -    -              139         139 
Net loss   -    -    -    -    -    (1,436)   (1,436)
Balance, September 30, 2023   4,169,131   $-    9,411   $94   $119,277   $(132,131)  $(12,760)

 

   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
   Common Stock   Preferred Stock   Additional Paid In   Accumulated   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
Balance, December 31, 2022   2,519,485   $     -    9,411   $94   $114,635   $(123,199)  $(8,470)
Fair value of vested options                       351         351 
Fair value of vested restricted shares granted to officers   750                   3         3 
Repurchase of common stock   (274)                  (1)        (1)
Common shares issued for financing costs   82,438                   273         273 
Dividends on Series A Convertible Preferred Stock   -    -         -         (5)   (5)
Common shares issued for cash, net of offering costs   1,566,732    -              4,016         4,016 
Net loss             -    -    -    (8,927)   (8,927)
Balance, September 30, 2023   4,169,131   $-    9,411   $94   $119,277   $(132,131)  $(12,760)

 

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

 

F-3
 

 

REED’S, INC.

CONDENSED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2024 and 2023

(Unaudited)

(Amounts in thousands)

 

   September 30,
2024
   September 30,
2023
 
Cash flows from operating activities:          
Net loss  $(9,035)  $(8,927)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   88    112 
Loss on disposal of property and equipment        9 
Amortization of debt discount   568    958 
Fair value of vested options   268    351 
Fair value of vested restricted shares granted to officers   

-

    3 
Product quality hold write-down   (29)     
Change in allowance for doubtful accounts   (282)   262 
Inventory write-downs   (825)   (205)
Accrued interest   3,141    2,483 
Changes in operating assets and liabilities:          
Accounts receivable   1,084    142 
Inventory   2,903    417 
Prepaid expenses and other assets   (449)   450 
Decrease in right of use assets   121    102 
Accounts payable   180   (738)
Accrued dividend   -    (5)
Accrued expenses   173    639 
Lease liabilities   (160)   (137)
Net cash used in operating activities   (2,254)   (4,084)
Cash flows from investing activities:          
Trademark costs   (7)   (1)
Purchase of property and equipment   (51)   (84)
Sale of property and equipment   -    68 
Net cash used in investing activities   (58)   (17)
Cash flows from financing activities:          
Proceeds from line of credit   24,878    32,686 
Payments on line of credit   (29,367)   (34,085)
Proceeds from convertible note payable, net of expenses   -    3,797 
Payment of accrued interest on convertible note payable   (513)   (268)
Proceeds from sale of common stock   1,903    4,016 
Proceeds from convertible notes   1,400    - 
Proceeds from issuance of SAFE agreement   

4,097

    (1)
Payment of cash recorded as debt discount   (335)   - 
Amounts from former related party, net   (48)   (1,573)
Net cash provided by financing activities   2,015    4,572 
           
Net decrease in cash   (297)   471 
Cash at beginning of period   603    533 
Cash at end of period  $306   $1,004 
           
Supplemental disclosures of cash flow information:          
Cash paid for interest  $238   $548 
Non-cash investing and financing activities:          
Dividends on Series A Convertible Preferred Stock  $5   $5 
Reclass of prepaid expenses and accounts payable   1,000      

 

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

 

F-4
 

 

REED’S, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

Three and Nine Months Ended September 30, 2024 and 2023 (Unaudited)

(In thousands, except share and per share amounts)

 

1. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying condensed financial statements of Reed’s, Inc. (the “Company”, “we”, “us”, or “our”), have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures contained in these condensed financial statements are adequate to make the information presented herein not misleading. These condensed financial statements should be read in conjunction with the financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 1, 2024. The accompanying condensed financial statements are unaudited, but in the opinion of management, contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position as of September 30, 2024, and the results of its operations and its cash flows for the nine months ended September 30, 2024 and 2023. The balance sheet as of December 31, 2023 is derived from the Company’s audited financial statements.

 

The 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.

 

Going Concern

 

The 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 September 30, 2024, had a working capital deficiency of $22,923 and a stockholders’ deficit of $21,953. 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 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 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.

 

As 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, we have financed our operations through public and private sales of common stock, issuance of preferred and common stock, convertible debt instruments, term loans and credit lines from financial institutions, and cash generated from operations. To alleviate these conditions, management is currently evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity, mezzanine or debt securities, through arrangements with strategic partners or through obtaining credit from financial institutions. 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). 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.

 

F-5
 

 

We have also taken decisive action to improve our margins, including fully outsourcing our manufacturing process, streamlining our product portfolio, negotiating improved vendor contracts and restructuring our selling prices.

 

Recent Trends - Market Conditions

 

Although the U.S. economy continued to grow throughout 2023 and into Q3 2024, the higher inflation, the actions by the Federal Reserve to address inflation, and rising energy prices create uncertainty about the future economic environment which will continue to evolve and may impact our business in future periods. We have experienced supply chain challenges, including increased lead times, as well as inflation of raw materials, logistics and labor costs due to availability constraints and high demand. Although we regularly monitor companies in our supply chain, and use alternative suppliers when necessary and available, supply chain constraints could cause a disruption in our ability to obtain raw materials required to manufacture our products and adversely affect our operations.

 

During the three months ending September 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 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. The Company has been negatively impacted by supply chain challenges affecting our ability to benefit from strong demand for, and increased sales of our product. The disruption caused by labor shortages, significant raw material cost inflation, logistics issues and increased freight costs, and ongoing port congestion, resulted in suppressed margins. The Company has experienced moderation in inflation and anticipates this continuing throughout 2024.

 

Use of Estimates

 

The 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.

 

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 our customer, which generally occurs upon shipment from our 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 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.

 

F-6
 

 

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, excluding shares of unvested restricted common stock. Shares of restricted stock are included in the basic weighted average number of common shares outstanding from the time they vest. 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. Shares of restricted stock are included in the diluted weighted average number of common shares outstanding from the date they are granted. Potential common shares are excluded from computation when their effect is antidilutive.

 

For 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. The potentially dilutive securities consisted of the following:

 

   September 30,
2024
   September 30,
2023
 
Warrants   549,292    549,292 
Options   128,309    145,012 
Convertible note payable   1,844,829    1,475,725 
Common stock equivalent of Series A Convertible Preferred stock   753    753 
Total   2,523,183    2,170,782 

 

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 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.

 

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.

 

Advertising Costs

 

Advertising costs are expensed as incurred and are included in selling and marketing expense. Advertising costs for the three months ended September 30, 2024, and 2023, aggregated $8 and $22, respectively. Advertising costs for the nine months ended September 30, 2024, and 2023, aggregated $38 and $82, respectively.

 

Concentrations

 

Net sales. 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.

 

F-7
 

 

Accounts receivable. As of September 30, 2024, the Company had accounts receivable from two customers which comprised 32% and 13% of its gross accounts receivable, respectively. As of December 31, 2023, the Company had accounts receivable from three customers which comprised 24%, 15% and 11% of its gross accounts receivable, respectively. No other customers exceeded 10% of gross accounts receivable in either period.

 

The Company utilizes co-packers to produce 100% of its products. 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 LLC (“CCB”), a former related party (see Note 11). Although there are other packers, a change in co-packers may cause a delay in the production process, which could ultimately affect operating results.

 

Purchases from vendors. 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 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.

 

Accounts payable. 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 period.

 

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. ASC 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 based on the Company’s assumptions.

 

The carrying amounts of financial assets and liabilities, such as 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 maturity of these 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.

 

The fair value of our liability under our SAFE investments were determined using level 3 inputs. (Note 8)

 

Reclassifications

 

Certain prior year amounts have been reclassified for consistency with the current period presentation. Collection from customers amounting to $1,217 that was previously presented as a deduction from prepaid expenses at December 31, 2023 have been reclassed as an offset against accounts receivable. This reclassification had no effect on the reported results of operations or cash flows.

 

Recent Accounting Pronouncements

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense categories that are regularly provided to the chief operating decision maker and included in each reported measure of a segment’s profit or 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.

 

F-8
 

  

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.

 

2. Inventory

 

Inventory 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 thousands):

 

   September 30,
2024
   December 31,
2023
 
Raw materials and packaging  $6,143   $6,445 
Finished products   3,108    4,855 
Total  $9,251   $11,300 

 

3. Property and Equipment

 

Property and equipment are comprised of the following (in thousands):

 

   September 30,
2024
   December 31,
2023
 
Right-of-use assets under operating leases  $724   $724 
Computer hardware and software   400    400 
Machinery and equipment   352    352 
Construction in progress   136    85 
Total cost   1,612    1,561 
Accumulated depreciation and amortization   (1,277)   (1,068)
Net value  $335   $493 

 

Depreciation 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.

 

4. Intangible Assets

 

Intangible assets consist of the following (in thousands):

 

   September 30,
2024
   December 31,
2023
 
Brand names  $576   $576 
Trademarks   60    53 
Total  $636   $629 

 

F-9
 

 

5. Line of Credit

 

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

   September 30,
2024
   December 31,
2023
 
Line of credit – Alterna Capital Solutions  $5,471   $9,959 
Less: capitalized financing costs   (81)   (201)
Total  $5,390   $9,758 

 

In March, 2022, the Company entered into a financing agreement for a line of credit with Alterna Capital Solutions (“ACS”). The ACS line of credit is for a term of 3 years, provides for borrowings of up to $13,000, and is secured by eligible accounts receivable and inventory, and are subject to a collateral sharing agreement with Whitebox, another secured lender (see Note 6). An over advance rider provides for up to $500 of additional borrowing above the collateralized base (the “Over Advance”) up to a total borrowing of $13,500. As of September 30, 2024, there was no remaining availability under the line of credit, and $7,529 of borrowing capacity available.

 

Borrowings 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 31, 2023). 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 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.

 

The Company incurred $483 of direct costs of the transaction, consisting primarily of broker, bank and legal fees. These costs have been capitalized and are being amortized over the 3-year life of the ACS agreement. The unamortized debt discount balance was $201 at December 31, 2023. For the 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.

 

On July 26, 2024, Norman E. 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.

 

6. Secured Notes Payable

 

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

 

  

September 30,

2024

  

December 31,

2023

 
Secured Convertible “Original” Notes Payable (A)  $10,250   $10,250 
Secured “Option” Notes Payable (B)   6,504    4,050 
           
Accrued interest   2,222    1,059 
Accrued interest on excess debt borrowing   3,234    2,824 
Capitalized financing costs   (459)   (572)
Total  $21,751   $17,611 

 

F-10
 

 

Secured Notes

 

  (A)

In 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.

 

Upon conversion or early payment, holders of the Original Notes are entitled to receive an interest make-whole payment, as defined, equal to the sum of the remaining scheduled payments of interest on the Original Notes that would be due at maturity, payable, at the Company’s option, in cash or in shares of common stock. On August 1, 2022, the Original Notes were amended to add a 10% fee (“Excess ABL Fee’) commencing with the fiscal month ending October 31, 2022 for the amount that the Company’s line of credit with ACS exceeds (i) (x) prior to November 30, 2024, $9,500 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; provided 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).

 

The 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 October 2023 monthly amortization payments on the Original Notes. The November 2023 amortization payment of $200 principal was paid, and the amortization payment for December 2023 to May 2024 was waived. The amortization period resumed on June 1, 2024.

 

  (B) 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. Pursuant to the Exercise and Amendment Agreement, holders of the Original Notes exercised an option to purchase an aggregate of approximately $6,504 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 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.

 

 

F-11
 

 

Pursuant 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.

 

Waiver of Default

 

On August 1, 2024, the Whitebox waived the specified events of default under the Original Notes and Option Notes (collectively referred to herein as the “Notes”) and temporarily waived any requirement that the Company conduct a repurchase of Original Notes in the event of a Make-Whole Fundamental Change (as defined in the Original Notes) through December 15, 2024 (See Note 13).

 

Accrued Interest

 

At December 31, 2023, the balance of accrued interest was $3,883. 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 and $1,054 was added to the principal of the Option Notes. At September 30, 2024, the balance of accrued interest was $5,456.

 

Debt Discount

 

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

 

7. Leases Liabilities

 

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

 

As of December 31, 2023, operating lease liabilities totaled $207. During the nine months ended September 30, 2024, the Company made payments of $160 towards its operating lease liability. As of September 30, 2024, operating lease liabilities totaled $47.

 

As of September 30, 2024, the weighted average remaining lease terms for an operating lease are 0.25 years. As of September 30, 2024, the weighted average discount rate on the operating lease is 12.60%.

 

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. In 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.

 

F-12
 

 

8. Issuance of Common Stock

 

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

 

On 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.

 

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.

 

9. Stock-Based Compensation

 

Stock Options

 

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

 

   Shares   Weighted-
Average
Exercise Price
   Weighted-
Average
Remaining
Contractual
Terms
(Years)
   Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2023   143,000   $45.09    6.75   $     - 
Granted   -   $-           
Exercised   -   $-           
Unvested forfeited   (5,178)  $16,61           
Vested forfeited   (9,513)  $44.98           
Outstanding at September 30, 2024   128,309   $46.18    5.97   $- 
Exercisable at September 30, 2024   112,447   $50.06    5.70   $- 

 

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

 

As 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.

 

F-13
 

 

10. Stock Warrants

 

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

 

   Shares   Weighted-
Average
Exercise
Price
   Weighted-
Average
Remaining
Contractual
Terms
(Years)
   Aggregate
Intrinsic
Value
 
                 
Outstanding at December 31, 2023   549,292   $8.77    2.84   $     - 
Granted   -    -    -      
Exercised   -    -    -      
Forfeited   -    -    -      
Outstanding at September 30, 2024   549,292   $8.77    2.34   $- 
Exercisable at September 30, 2024   549,292   $8.77    2.34   $- 

 

As 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.

 

11. Transactions with California Custom Beverage, LLC, former related party

 

In December 2018, the Company signed a co-packing agreement with California Custom Beverage, LLC’s (“CCB”), an entity owned by Christopher J. Reed, 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.

 

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

 

   September 30,
2024
   December 31,
2023
 
Accounts receivable, net of provision of $1,123 and $1,123 at September 30, 2024 and December 31, 2023, respectively   259    259 
Accounts payable   (211)   (259)
Net (payable) receivable   48    - 

 

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

 

12. Commitments and Contingencies

 

During 2023, the firm engaged an investment bank to explore financing options for the Company. We have a maximum obligation of $1.2M in fees so far in this engagement. These fees will be recognized on a success basis and will be paid out only if a transaction is finalized.

 

In 2018, CCB assumed the monthly payments on our lease obligation for a Los Angeles manufacturing plant for payments through September 2024, and our release from the obligation by the lessor, however, is dependent upon CCB’s deposit of $1,200 of security with the lessor. As of 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.

 

F-14
 

 

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.

 

We believe that there are no material litigation matters at the current time. Although the result of such litigation matters and claims cannot be predicted with certainty, we believe that the final outcome of such claims and proceedings will not have a material adverse impact on our financial position, liquidity, or results of operations.

 

13. Subsequent Events

 

  a) 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, D&D. 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).

 

  b) Board of Directors

 

On 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. Mr. 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. Mr. 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.

 

F-15
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Our discussion and analysis is intended to help the reader understand our results of operations and financial condition and is provided as an addition to, and should be read in connection with, our condensed financial statements and the accompanying notes. Cautionary statements on page [ii] of this report and in “Part I, Item 1A. Risk Factors” of our 2023 Form 10-K as updated by “Part II, Item 1A” of this report, should be considered when evaluating our trends and future results.

 

In addition to our GAAP results, the following discussion includes Modified EBITDA as a supplemental measure of our performance. We present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Modified EBITDA in developing our internal budgets, forecasts, and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; making compensation decisions; and in communications with our board of directors concerning our financial performance. Modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of liquidity. We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization, stock-based compensation, changes in fair value of warrant expense, and one-time restructuring-related costs including employee severance and asset impairment.

 

The following discussion also includes the use of gross billing, a key performance indicator and metric. Gross billing represents invoiced amounts to distributors and retailers, excluding sales adjustments. Gross billing may include deductions from MSRP or “list price”, where applicable, and excludes promotional costs of generating such sales. Management utilizes gross billing to monitor operating performance of products and salespersons, which performance can be masked by the effect of promotional or other allowances. Management believes that the presentation of gross billing provides a useful measure of Reed’s operating performance.

 

Amounts presented in the discussion below are in thousands, except share and per share amounts.

 

Results of Operations

 

Overview

 

During the nine months ended September 30, 2024, the Company continued to focus on strengthening its supply chain, implement gross margin enhancement initiatives, drive efficiencies in transportation and warehouse costs and reduce operating expenses. In addition, it continues to build its innovation pipeline with sustained growth in Reed’s Real Ginger Ale, Virgil’s Zero Sugar handcrafted sodas, Reed’s Classic and Stormy Mule, and Reed’s Hard Ginger Ale.

 

The Company remains engaged on driving sales growth, improving gross margin, and reducing freight costs. The sales growth focus is on channel expansion, increase in store placements, new product introduction and improved sales execution. The margin enhancement initiative is driven by packaging savings, co-packer upgrades, and better leveraged purchasing and improved efficiency. Underpinning these initiatives is a focus on strategically reducing operating costs particularly delivery and handling expenses. In addition, the Company continues to augment its co-packer network to drive further efficiencies and build proper levels of inventory at the appropriate location to maximize delivery metrics.

 

Recent Trends – Market Conditions

 

Although the U.S. economy continued to grow throughout 2023 and into Q3 2024, the higher inflation, the actions by the Federal Reserve to address inflation, and rising energy prices create uncertainty about the future economic environment which will continue to evolve and may impact our business in future periods. We have experienced supply chain challenges, including increased lead times, as well as inflation of raw materials, logistics and labor costs due to availability constraints and high demand. Although we regularly monitor companies in our supply chain, and use alternative suppliers when necessary and available, supply chain constraints could cause a disruption in our ability to obtain raw materials required to manufacture our products and adversely affect our operations.

 

1
 

 

During the three months ending September 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 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. The Company has been negatively impacted by supply chain challenges affecting our ability to benefit from strong demand for, and increased sales of our product. The disruption caused by labor shortages, significant raw material cost inflation, logistics issues and increased freight costs, and ongoing port congestion, resulted in suppressed margins. The Company has experienced moderation in inflation and anticipates this to continue throughout 2024.

 

Results of Operations – Three Months Ended September 30, 2024, as compared to Three Months Ended September 30, 2023

 

The following table sets forth key statistics for the three months ended September 30, 2024 and 2023, respectively, in thousands.

 

  

Three Months Ended

September 30,

   Pct. 
   2024   2023   Change 
Gross billing (A)  $8,901   $13,219    -33%
Less: Promotional and other allowances (B)   2,149    1,363    58%
Net sales  $6,752   $11,856    -43%
                
Cost of goods sold   5,537    7,823    -29%
% of Gross billing   62%   59%     
% of Net sales   82%   66%     
Gross profit  $1,215   $4,033    -70%
% of Net sales   18%   34%     
                
Expenses               
Delivery and handling  $1,279   $1,908    -33%
% of Net sales   19%   16%     
Dollar per case ($)  $2.99   $2.98      
Selling and marketing   1,283    861    49%
% of Net sales   19%   7%     
General and administrative   1,791    1,407    27%
% of Net sales   27%   12%     
Total operating expenses   4,353    4,176    4%
                
Loss from operations  $(3,138)  $(143)   2,094%
                
Interest expense and other income (expense)  $(1,012)  $(1,293)   -22%
                
Net loss  $(4,150)  $(1,436)   189%
                
Loss per share – basic and diluted  $(0.82)  $(0.34)   138%
                
Weighted average shares outstanding - basic & diluted   5,066,412    4,169,131    22%

 

2
 

 

(A) We define gross billing as the total sales for the Company unadjusted for costs related to generating those sales. Management utilizes gross billing as an indicator of and to monitor operating performance of products and salespersons before the effect of any promotional or other allowances, which are determined in accordance with GAAP, and can mask certain performance issues. We believe that the presentation of gross billing provides a useful measure of our operating performance. Additionally, gross billing may not be comparable to similarly titled measures used by other companies, as gross billing has been defined by our internal reporting practices.

 

(B) We define promotional and other allowances as costs deducted from gross billing which are associated with generating those sales. Management utilizes promotional and other allowances as an indicator of and to monitor operating performance of products, salespersons, and customer agreements. We believe that the presentation of promotional and other allowances provides a useful measure of our operating performance. The presentation of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and the spending levels incurred or correlated with such sales. The expenditures described in this line item are determined in accordance with GAAP and meet GAAP requirements, the disclosure thereof does not conform to GAAP presentation requirements. Additionally, our definition of promotional and other allowances may not be comparable to similar items presented by other companies. Promotional and other allowances primarily include consideration given to the Company’s distributors or retail customers including, but not limited to the following: (i) reimbursements given to the Company’s distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; (ii) the Company’s agreed share of fees given to distributors and/or directly to retailers for in-store marketing and promotional activities; (iii) the Company’s agreed share of slotting, shelf space allowances and other fees given directly to retailers; (iv) incentives given to the Company’s distributors and/or retailers for achieving or exceeding certain predetermined sales goals; and (v) discounted or free products. Promotional and other allowances constitute a material portion of our marketing activities. The Company’s promotional allowance programs with its numerous distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, ranging from one week to one year.

 

Sales, Cost of Sales, and Gross Margins

 

The following chart sets forth key statistics for the transition of the Company’s top line activity from the third quarter of 2023 through the third quarter of 2024.

 

      2024       2023       Q3 Per Case       Sept YTD Per Case     
      Q1   Q2   Q3   YTD   Q3 vs PY   YTD vs PY   Q1   Q2   Q3   YTD   2024   2023   vs PY   2024   2023   vs PY 
Cases:                                                                                   
   Reed’s   348    413    253    1,014    -37%   -10%   370    355    402    1,127                               
   Virgil’s   151    239    175    565    -26%   -16%   241    197    238    676                               
   Total Core   499    652    428    1,579    -33%   -12%   611    552    640    1,803                               
   Non Core   -    -    -    -    -%   -100%   2    -    -    2                               
   Total   499    652    428    1,579    -33%   -13%   613    552    640    1,805                               
                                                                                    
Gross Billing:                                                                                   
   Core  $10,377   $13,584   $8,901   $32,862    -33%   -10%  $12,333   $11,095   $13,197   $36,626   $20.8   $20.6    1%  $20.8   $20.3    2%
   Non Core   2    -    -    2    -100%   -99%   120    69    22    211   $-   $-    -%   -    .1    -99%
   Total  $10,379   $13,584   $8,904   $32,864    -33%   -11%  $12,453   $11,164   $13,219   $36,837   $20.8   $20.7    1%   20.8    20.4    2%
                                                                                    
Discounts:  Total  $(784)  $(1,710)  $(2,149)  $(4,643)   58%   22%  $(1,296)  $(1,159)  $(1,363)  $(3,819)  $(5.0)  $(2.1)   136%  $(2.9)  $(2.1)   39%
                                                                                    
COGS:                                                                                   
   Core  $(6,182)  $(8,043)  $(5,537)  $(19,762)   -29%   -16%  $(8,422)  $(7,408)  $(7,820)  $(23,650)  $(12.9)  $(12.2)   6%  $(12.5)  $(13.1)   -5%
   Non Core   -    -    -    -    -100%   -100%   (87)   (88)   (3)   (128)   -    -    -%   -    .1    -5%
   Total  $(6,182)  $(8,043)  $(5,530)  $(19,762)   -29%   -17%  $(8,459)  $(7,496)  $(7,823)  $(23,778)  $(12.9)  $(12.2)   6%  $(12.5)  $(13.2)   -5%
                                                                                    
Gross Margin:     $3,413   $3,831   $1,215   $8,459    -70%   7%  $2,698   $2,509   $4,033   $9,240   $2.9   $6.3    -55%  $5.4   $5.1    5%
as % Net Sales      36%   32%   18%   30%             24%   25%   34%   28%                              

 

3
 

 

Sales, Cost of Sales, and Gross Margins

 

As part of the Company’s ongoing initiative to simplify and streamline operations, the Company has identified core products on which to place its strategic focus. These core products consist of Reed’s and Virgil’s branded beverages. Non-core products consist primarily of Wellness Shots, candy and slower selling discontinued Reed’s and Virgil’s SKUs.

 

Core beverage volume for the three months ended September 30, 2024, represents 100% of all beverage volume.

 

Core brand gross billing decreased by 33% to $8,901 compared to $13,197 during the same period last year, driven by a Reed’s volume decrease of 37% and Virgil’s volume decrease of 26%. The result is a decrease in total gross billing of 33%, to $8,901 during the three months ended September 30, 2023, from $13,219 in the same period last year. Prices on our core brands increased 1% to $20.79 per case. The lower gross billings was a result of volume declines that have impacted the carbonated soft drink segment as a result of price increases coupled with the Company’s inability to produce sufficient levels of inventory to meet current demand as a result of tighter credit terms from suppliers.

 

Discounts as a percentage of gross sales was 24% compared to 10% in the same period last year. As a result, net sales revenue decreased 43% in the three months ended September 30, 2024, to $6,752, compared to $11,856 in the same period last year driven by lower sales and elevated trade spend.

 

Cost of Goods Sold

 

Cost of goods sold decreased $2,286 during the three months ended September 30, 2024, as compared to the same period last year. As a percentage of net sales, cost of goods sold for the three months ended September 30, 2024, was 82% as compared to 66% for the same period last year. The decline as a percentage of net sales, was driven by elevated trade spend, partially offset by lower supply chain and input costs.

 

The total cost of goods per case increased to $12.91 per case in the three months ended September 30, 2024, from $12.22 per case for the same period last year.

 

Gross Margin

 

Gross margin was 18% for the three months ended September 30, 2024, compared to 34% for the same period last year.

 

Operating Expenses

 

Delivery and Handling Expenses

 

Delivery and handling expenses consist of delivery costs to customers and warehousing costs incurred for handling our finished goods after production. Delivery and handling expenses decreased by $629 in the three months ended September 30, 2024, to $1,279 from $1,908 in the same period last year, driven by our efforts to mitigate inflationary costs. Delivery costs in the three months ended September 30, 2024, were 19% of net sales and $2.99 per case, compared to 16% of net sales and $2.98 per case during the same period last year.

 

Selling and Marketing Expenses

 

Marketing expenses consist of direct marketing, marketing labor, and marketing support costs. Selling expenses consist of all other selling-related expenses including personnel and contractor support. Total selling and marketing expenses were $1,283 during the three months ended September 30, 2024, compared to $861 during the same period last year, an increase of $422. As a percentage of net sales, selling and marketing costs was 19% during the three months ended September 30, 2024, as compared to 7% during the same period last year. The increase was primarily driven by higher employee related costs, marketing spend, and higher service fees related to e-commerce sales.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of the cost of executive, administrative, and finance personnel, as well as professional fees. General and administrative expenses increased in the three months ended September 30, 2024 to $1,791 from $1,407, an increase of $384 over the same period last year. As a percentage of net sales, general and administrative expenses were 27% during the three months ended September 30, 2024, as compared to 12% during the same period last year. The increase was driven by higher professional fees, bad debt expense, investor related costs and employee related costs.

 

4
 

 

Loss from Operations

 

The loss from operations was $3,138 for the three months ended September 30, 2024, as compared to a loss of $143 in the same period last year driven by decreased gross profit and an increase in operating expenses discussed above.

 

Interest and Other Expense

 

Interest and other expense for the three months ended September 30, 2024, consisted of $1,012 of interest expense. During the same period last year, interest and other expense consisted of $1,293 of interest expense.

 

Modified EBITDA

 

In addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance. However, Modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of liquidity. We define Modified EBITDA as net income (loss), plus interest expense, tax expense, depreciation and amortization, stock-based compensation, changes in fair value of warrant expense, change in fair value of SAFE agreements, legal and insurance settlements, non-recurring professional fees inventory write-offs associated with exited categories and major packaging and formula changes, one-time changes in policy, impact of changes to accounting methodology and one-time restructuring-related costs including employee severance and asset impairment.

 

Management considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Modified EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Modified EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

 

Set forth below is a reconciliation of net loss to Modified EBITDA for the three months ended September 30, 2024 and 2023 (unaudited; in thousands):

 

  

Three Months Ended

September 30

 
   2024   2023 
Net loss  $(4,150)  $(1,436)
           
Modified EBITDA adjustments:          
Depreciation and amortization   71    68 
Tax expense   (8)   - 
Interest expense   2,405    1,293 
Change in fair value of SAFE investments   (1,393)   - 
Production quality hold write-down   15    - 
Stock option and other noncash compensation   46    139 
Professional fees   -    - 
Severance   16    85 
Legal settlements   -    12 
Total EBITDA adjustments  $1,152   $1,597 
           
Modified EBITDA  $(2,998)  $161 

 

5
 

 

We present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Modified EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; making compensation decisions; and in communications with our board of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes, among others, the following:

 

  Modified EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
     
  Modified EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
     
  Modified EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and
     
  Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Modified EBITDA does not reflect any cash requirements for such replacements.

 

Results of Operations – Nine months ended September 30, 2024, as compared to Nine Months Ended September 30, 2023

 

The following table sets forth key statistics for the nine months ended September 30, 2024 and 2023, respectively, in thousands.

 

   Nine Months Ended September 30,   Pct. 
   2024   2023   Change 
Gross billing (A)  $32,864   $36,837    -11%
Less: Promotional and other allowances (B)   4,643    3,819    22%
Net sales  $28,221   $33,018    -15%
                
Cost of goods sold   19,762    23,778    -17%
% of Gross billing   60%   65%     
% of Net sales   70%   72%     
Gross profit  $8,459   $9,240    -8%
% of Net sales   30%   28%     
                
Expenses               
Delivery and handling  $4,204   $5,714    -26%
% of Net sales   15%   17%     
Dollar per case ($)   2.66    3.17      
Selling and marketing   3,473    3,567    -3%
% of Net sales   12%   11%     
General and administrative   5,239    4,427    18%
% of Net sales   19%   13%     
Total operating expenses   12,916    13,708    -6%
                
Loss from operations  $(4,457)  $(4,468)   0%
                
Interest expense and other income (expense)   (4,578)   (4,459)   3%
                
Net loss  $(9,035)  $(8,927)   1%
                
Loss per share – basic and diluted  $(2.02)  $(2.69)   -25%
                
Weighted average shares outstanding - basic & diluted   4,483,587    3,322,959    35%

 

6
 

 

  (A) We define gross billing as the total sales for the Company unadjusted for costs related to generating those sales. Management utilizes gross billing as an indicator of and to monitor operating performance of products and salespersons before the effect of any promotional or other allowances, which are determined in accordance with GAAP, and can mask certain performance issues. We believe that the presentation of gross billing provides a useful measure of our operating performance. Additionally, gross billing may not be comparable to similarly titled measures used by other companies, as gross billing have been defined by our internal reporting practices.
     
  (B) We define promotional and other allowances as costs deducted from gross billing which are associated with generating those sales. Management utilizes promotional and other allowances as an indicator of and to monitor operating performance of products, salespersons, and customer agreements. We believe that the presentation of promotional and other allowances provides a useful measure of our operating performance. The presentation of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and the spending levels incurred or correlated with such sales. The expenditures described in this line item are determined in accordance with GAAP and meet GAAP requirements, the disclosure thereof does not conform to GAAP presentation requirements. Additionally, our definition of promotional and other allowances may not be comparable to similar items presented by other companies. Promotional and other allowances primarily include consideration given to the Company’s distributors or retail customers including, but not limited to the following: (i) reimbursements given to the Company’s distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; (ii) the Company’s agreed share of fees given to distributors and/or directly to retailers for in-store marketing and promotional activities; (iii) the Company’s agreed share of slotting, shelf space allowances and other fees given directly to retailers; (iv) incentives given to the Company’s distributors and/or retailers for achieving or exceeding certain predetermined sales goals; and (v) discounted or free products. Promotional and other allowances constitute a material portion of our marketing activities. The Company’s promotional allowance programs with its numerous distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, ranging from one week to one year.

 

Sales, Cost of Sales, and Gross Margins

 

As part of the Company’s ongoing initiative to simplify and streamline operations the Company has identified core products on which to place its strategic focus. These core products consist of Reed’s and Virgil’s branded beverages. Non-core products consist primarily of Wellness Shots, candy and slower selling discontinued Reed’s and Virgil’s SKUs.

 

Core beverage volume for the nine months ended September 30, 2024, represents 100% of all beverage volume.

 

Core brand gross billing decreased by 10% to $32,864 compared to $36,626 during the same period last year, driven by Reed’s volume decline of 10% and Virgil’s volume decline of 16%. The result is a decrease in total gross billing of 11%, to $32,864 during the nine months ended September 30, 2024, from $36,837 in the same period last year. Price on our core brands increased 1% to $20.81 per case. The lower gross billings was a result of volume declines that have impacted the carbonated soft drink segment as a result of price increases coupled with the Company’s inability to produce sufficient levels of inventory to meet current demand as a result of tighter credit terms from suppliers.

 

Discounts as a percentage of gross sales was 14% compared to 10% in the same period last year. As a result, net sales revenue decreased 15% in the nine months ended September 30, 2024, to $28,221, compared to $33,018 in the same period last year driven by lower sales and elevated trade spend.

 

7
 

 

Cost of Goods Sold

 

Cost of goods sold decreased $4,016 during the nine months ended September 30, 2024, as compared to the same period last year. As a percentage of net sales, cost of goods sold for the nine months ended September 30, 2024, was 70% as compared to 72% for the same period last year. The decrease was driven by lower supply chain and input costs.

 

The total cost of goods per case decreased to $12.52 per case in the nine months ended September 30, 2024, from $13.17 per case for the same period last year. The cost of goods sold per case on core brands was $12.51 during the nine months ended September 30, 2024, compared to $13.11 for the same period last year.

 

Gross Margin

 

Gross margin increased to 30% for the nine months ended September 30, 2024, compared to 28% for the same period last year.

 

Operating Expenses

 

Delivery and Handling Expenses

 

Delivery and handling expenses consist of delivery costs to customers and warehousing costs incurred for handling our finished goods after production. Delivery and handling expenses decreased by $1,510 in the nine months ended September 30, 2024, to $4,204 from $5,714 in the same period last year, driven by our efforts to mitigate inflationary costs. Delivery costs in the nine months ended September 30, 2024, were 15% of net sales and $2.66 per case, compared to 17% of net sales and $3.17 per case during the same period last year.

 

Selling and Marketing Expenses

 

Marketing expenses consist of direct marketing, marketing labor, and marketing support costs. Selling expenses consist of all other selling-related expenses including personnel and contractor support. Total selling and marketing expenses were $3,473 during the nine months ended September 30, 2024, compared to $3,567 during the same period last year. As a percentage of net sales, selling and marketing expenses were 12% of net sales during the nine months ended September 30, 2024, as compared to 11% of net sales during the same period last year. The decrease was driven by lower co-op advertising fees, employee related costs and marketing spend partially offset by higher broker fees and e-commerce delivery costs.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of the cost of executive, administrative, and finance personnel, as well as professional fees. General and administrative expenses increased in the nine months ended September 30, 2024, to $5,239 from $4,427, an increase of $812 over the same period last year. The increase was driven by higher employee related costs, legal settlement related costs, professional fees, and quality assurance costs spending partially offset by lower public company costs.

 

Loss from Operations

 

The loss from operations was $4,457 for the nine months ended September 30, 2024, as compared to a loss of $4,468 in the same period last year driven by increased gross profit and decreased operating expenses discussed above.

 

Interest and Other Expense

 

Interest and other expense for the nine months ended September 30, 2024, consisted of $4,578 of interest expense. During the same period last year, interest and other expense consisted of $4,459 of interest expense.

 

8
 

 

Modified EBITDA

 

In addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance. However, Modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of liquidity. We define Modified EBITDA as net income (loss), plus interest expense, tax expense, depreciation and amortization, stock-based compensation, changes in fair value of warrant expense, change in fair value of SAFE agreements, legal and insurance settlements, non-recurring professional fees inventory write-offs associated with exited categories and major packaging and formula changes, one-time changes in policy, impact of changes to accounting methodology and one-time restructuring-related costs including employee severance and asset impairment.

 

Management considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Modified EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Modified EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

 

Set forth below is a reconciliation of net loss to Modified EBITDA for the nine months ended September 30, 2024 and 2023 (unaudited; in thousands):

 

   Nine Months Ended September 30, 
   2024   2023 
Net loss  $(9,035)  $(8,927)
           
Modified EBITDA adjustments:          
Depreciation and amortization   209    214 
Income taxes   67    - 
Interest expense   4,578    4,459 
Product quality hold write-down   44    - 
Stock option and other noncash compensation   268    354 
Professional fees   334    - 
Severance expense   42    177 
Legal settlements   170    12 
Total EBITDA adjustments  $5,712   $5,216 
           
Modified EBITDA  $(3,323)  $(3,711)

 

We present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Modified EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; making compensation decisions; and in communications with our board of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes, among others, the following:

 

  Modified EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
     
  Modified EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

9
 

 

  Modified EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and
     
  Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Modified EBITDA does not reflect any cash requirements for such replacements.

 

Going Concern

 

The 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 September 30, 2024, had a working capital deficiency of $22,923 and a stockholders’ deficit of $21,953. As of September 30, 2024, the Company borrowed $5,390 on its line of credit and owed $21,751 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 concern.

 

As 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.

 

On July 26, 2024, Norman E. Snyder Jr, CEO of the Company, provided a personal guaranty for a $500 over advance on our existing line of credit with ACS. On August 1, 2024, the Company funded $1,400 pursuant to an option exercise by Whitebox under the Option Notes.

 

Historically, we have financed our operations through public and private sales of common stock, issuance of preferred and common stock, convertible debt instruments, term loans and credit lines from financial institutions, and cash generated from operations. To alleviate these conditions, management is currently evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity, mezzanine or debt securities, through arrangements with strategic partners or through obtaining credit from financial institutions. The Company is continuing to discuss the 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 debt under the Notes that is 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.

 

We have also taken decisive action to improve our margins, including fully outsourcing our manufacturing process, streamlining our product portfolio, negotiating improved vendor contracts and restructuring our selling prices.

 

Notes Payable and Existing Financing

 

Please refer to Notes 5 and 6 in the accompanying condensed financial statements for a description of our existing line of credit agreement and outstanding notes payable.

 

Critical Accounting Policies and Estimates

 

The preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates include those related to assumptions used in estimates for reserves of uncollectible accounts, inventory obsolescence, depreciable lives of property and equipment, analysis of impairments of recorded long-term tangible and intangible assets, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services. There were no changes to our critical accounting policies described in the condensed financial statements included in our 2023 10-K that impacted our condensed financial statements and related notes included herein.

 

10
 

 

Recent Accounting Pronouncements

 

See Note 2 of the Notes to Condensed Financial Statements for a discussion of recent accounting pronouncements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2024, to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are currently, and from time to time, may be continue to be subject to a variety of variety of litigation, claims, legal or regulatory proceedings, inquiries and investigations from time to time in the ordinary course of business. Management evaluates, and periodically re-evaluates, whether the final result of any of the foregoing may be expected to have a material adverse effect on our financial condition, results of operations or cash flows. Management has determined that no disclosure is required under this Item 1.

 

Item 1A. Risk Factors

 

There have been no material changes with respect to the risk factors disclosed in our 2023 Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None that have not been previously disclosed in a Current Report on Form 8-K.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

11
 

 

Item 5. Other Information

 

Trading Plans

 

During the fiscal quarter ended September 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Act) informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408 of Regulation S-K.

 

Item 6. Exhibits

 

See Exhibit Index on page. 13.

 

INDEX TO EXHIBITS

ITEM 15(a)(3)

 

The following is a list of the exhibits filed as part of this Form 10-Q. The documents incorporated by reference can be viewed on the SEC’s website at http://www.sec.gov.

 

Exhibit

 

3(i) Certificate of Incorporation of Reeds, Inc. which is incorporated herein by reference to exhibit 3(iv) to Form 10-K filed with SEC on May 15, 2023.
3(ii) Amended and Restated Bylaws of Reed’s, Inc. which is incorporated by reference to Exhibit 3.8 to Form 10-K/A filed with the SEC on April 8, 2020.
4.1 Form of Option Note in favor of Wilmington Savings Fund Society, FSB dated August 1, 2024, which is incorporated by reference to Exhibit 4.1 to Form 10-Q filed with the SEC on August 13, 2024
10.1 Option Exercise and Sixth Amendment to the 10% Secured Convertible Notes by and between Reed’s, Inc. and each holder and Wilmington Savings Fund Society, FSB, holder representative and collateral agent dated August 1, 2024, which is incorporated by reference to Exhibit 10.1 to Form 10-Q filed with the SEC on August 13, 2024.
10.2

Securities Purchase Agreement by and between Reed’s, Inc. and investors dated September 9, 2024, which is incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on September 13, 2024.

10.3

Registration Rights Agreement by and between Reed’s, Inc. and investors dated September 9, 2024, which is incorporated by reference to Exhibit 10.2 to Form 8-K filed with the SEC on September 13, 2024.
31 Certification of our Chief Executive Officer and our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of our Chief Executive Officer and our Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 The following materials from Reed’s, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Operations, (iii) the Condensed Statements of Changes in Stockholders (Deficit), (iv) the Condensed Statements of Cash Flows, and (v) Notes to Condensed Financial Statements.
104 The cover page from the Reed’s, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL and contained in Exhibit 101.

 

12
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Reed’s, Inc.
  (Registrant)
   
Date: November 14, 2024 /s/ Norman E. Snyder, Jr.
  Norman E. Snyder, Jr.
  Chief Executive Officer
  (Principal Executive Officer)
   
Date: November 14, 2024 /s/ Joann Tinnelly
  Joann Tinnelly
  Chief Financial Officer
  (Principal Financial Officer)

 

13

 

 

EXHIBIT 31

 

Certification of Principal Executive Officer

 

I, Norman E. Snyder, Jr., certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Reed’s, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 14, 2024

 

  /s/ Norman E. Snyder, Jr.
  Name: Norman E. Snyder, Jr.
  Title:

Chief Executive Officer

(Principal Executive Officer)

 

 
 

 

Certification of Principal Financial Officer

 

I, Joann Tinnelly, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Reed’s, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 14, 2024

 

  /s/ Joann Tinnelly
  Name: Joann Tinnelly
  Title:

Chief Financial Officer

(Principal Financial Officer)


 

 

 

 

EXHIBIT 32

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Norman E. Snyder, Jr., the Chief Executive Officer of Reed’s, Inc. (the “Company”), hereby certify, that, to my knowledge:

 

1. The Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024 (the “Report”) of the Company fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 14, 2024

 

  /s/ Norman E. Snyder, Jr.
  Name: Norman E. Snyder, Jr.
  Title:

Chief Executive Officer

(Principal Executive Officer)

 

 
 

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Joann Tinnelly, the Chief Financial Officer of Reed’s, Inc. (the “Company”), hereby certify, that, to my knowledge:

 

1. The Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024 (the “Report”) of the Company fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 14, 2024

 

  /s/ Joann Tinnelly
  Name: Joann Tinnelly
  Title:

Chief Financial Officer

(Principal Financial Officer)

 

 

 

v3.24.3
Cover - shares
9 Months Ended
Sep. 30, 2024
Nov. 13, 2024
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Sep. 30, 2024  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2024  
Current Fiscal Year End Date --12-31  
Entity File Number 001-32501  
Entity Registrant Name REED’S, INC.  
Entity Central Index Key 0001140215  
Entity Tax Identification Number 35-2177773  
Entity Incorporation, State or Country Code DE  
Entity Address, Address Line One 201 Merritt 7  
Entity Address, City or Town Norwalk  
Entity Address, State or Province CT  
Entity Address, Postal Zip Code 06851  
City Area Code (800)  
Local Phone Number 997-3337  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   8,187,291
v3.24.3
Condensed Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Current assets:    
Cash $ 306 $ 603
Accounts receivable, net of allowance of $577 and $860, respectively 2,770 3,571
Inventory 9,251 11,300
Prepaid expenses and other current assets 1,476 2,028
Total current assets 14,062 17,761
Property and equipment, net of accumulated depreciation of $1,277 and $1,068, respectively 335 493
Intangible assets 636 629
Total assets 15,033 18,883
Current liabilities:    
Accounts payable 8,313 9,133
Accrued expenses 1,274 1,096
Revolving line of credit, net of capitalized financing costs of $81 and $201, respectively 5,390 9,758
Current portion of convertible notes payable, net of debt discount of $459 and $572, respectively 21,751 6,737
Current portion of lease liabilities 47 207
Total current liabilities 36,986 27,190
Convertible note payable, net of debt discount of $0 and $148, respectively, less current portion 10,874
Total liabilities 36,986 38,064
Stockholders’ deficit:    
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, 180,000,000 shares authorized; 8,187,291 and 4,187,291 shares issued and outstanding, respectively 1
Additional paid in capital 125,719 119,452
Accumulated deficit (147,767) (138,727)
Total stockholders’ deficit (21,953) (19,181)
Total liabilities and stockholders’ deficit 15,033 18,883
Related Party [Member]    
Current assets:    
Receivable from former related party 259 259
Current liabilities:    
Payable to former related party $ 211 $ 259
v3.24.3
Condensed Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Statement of Financial Position [Abstract]    
Accounts receivable, net of allowance $ 577 $ 860
Property and equipment, accumulated depreciation 1,277 1,068
Capitalized financing costs 81 201
Debt discount current 459 572
Debt discount, noncurrent $ 0 $ 148
Series A convertible preferred stock, par value $ 10 $ 10
Series A convertible preferred stock, shares authorized 500,000 500,000
Series A convertible preferred stock, shares issued 9,411 9,411
Series A convertible preferred stock, shares outstanding 9,411 9,411
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 180,000,000 180,000,000
Common stock, shares issued 8,187,291 4,187,291
Common stock, shares outstanding 8,187,291 4,187,291
v3.24.3
Condensed Statements of Operations (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Income Statement [Abstract]        
Net Sales $ 6,752 $ 11,856 $ 28,221 $ 33,018
Cost of goods sold 5,537 7,823 19,762 23,778
Gross profit 1,215 4,033 8,459 9,240
Operating expenses:        
Delivery and handling expense 1,279 1,908 4,204 5,714
Selling and marketing expense 1,283 861 3,473 3,567
General and administrative expense 1,791 1,407 5,239 4,427
Total operating expenses 4,353 4,176 12,916 13,708
Loss from operations (3,138) (143) (4,457) (4,468)
Interest expense (2,405) (1,293) (4,578) (4,459)
Change in fair value of SAFE investments 1,393
Net loss (4,150) (1,436) (9,035) (8,927)
Dividends on Series A Convertible Preferred Stock (5) (5)
Net Loss Attributable to Common Stockholders $ (4,150) $ (1,436) $ (9,040) $ (8,932)
Loss per share - basic $ (0.82) $ (0.34) $ (2.02) $ (2.69)
Loss per share - diluted $ (0.82) $ (0.34) $ (2.02) $ (2.69)
Weighted average number of shares outstanding - basic 5,066,412 4,169,131 4,483,587 3,322,959
Weighted average number of shares outstanding - diluted 5,066,412 4,169,131 4,483,587 3,322,959
v3.24.3
Condensed Statements of Changes in Stockholders' Deficit (Unaudited) - USD ($)
$ in Thousands
Common Stock [Member]
Preferred Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Total
Balance at Dec. 31, 2022 $ 94 $ 114,635 $ (123,199) $ (8,470)
Balance, shares at Dec. 31, 2022 2,519,485 9,411      
Fair value of vested options     351   351
Common shares issued for cash, net of offering costs   4,016   4,016
Common shares issued for cash, net of offering costs, shares 1,566,732        
Net loss   (8,927) (8,927)
Dividends on Series A Convertible Preferred Stock   (5) (5)
Fair value of vested restricted shares granted to officers     3   3
Fair value of vested restricted shares granted to officers, shares 750        
Repurchase of common stock     (1)   (1)
Repurchase of common stock, shares (274)        
Common shares issued for financing costs     273   273
Common shares issued for financing costs, shares 82,438        
Balance at Sep. 30, 2023 $ 94 119,277 (132,131) (12,760)
Balance, shares at Sep. 30, 2023 4,169,131 9,411      
Balance at Jun. 30, 2023 $ 94 119,138 (130,695) (11,463)
Balance, shares at Jun. 30, 2023 4,169,131 9,411      
Fair value of vested options   139   139
Net loss (1,436) (1,436)
Balance at Sep. 30, 2023 $ 94 119,277 (132,131) (12,760)
Balance, shares at Sep. 30, 2023 4,169,131 9,411      
Balance at Dec. 31, 2023 $ 94 119,452 (138,727) (19,181)
Balance, shares at Dec. 31, 2023 4,187,291 9,411      
Fair value of vested options     268   268
Common shares issued for cash, net of offering costs     1,903   1,903
Common shares issued upon conversion of SAFE agreement $ 1 4,096   4,097
Common shares issued upon conversion of SAFE agreement, shares 2,731,205        
Net loss   (9,035) (9,035)
Dividends on Series A Convertible Preferred Stock   (5) (5)
Balance at Sep. 30, 2024 $ 1 $ 94 125,719 (147,767) (21,953)
Balance, shares at Sep. 30, 2024 8,187,291 9,411      
Balance at Jun. 30, 2024 $ 94 119,674 (143,617) (23,849)
Balance, shares at Jun. 30, 2024 4,187,291 9,411      
Fair value of vested options     46   46
Common shares issued for cash, net of offering costs     1,903   1,903
Common shares issued for cash, net of offering costs, shares 1,268,795        
Common shares issued upon conversion of SAFE agreement $ 1   4,096   4,097
Common shares issued upon conversion of SAFE agreement, shares 2,731,205        
Net loss   (4,150) (4,150)
Balance at Sep. 30, 2024 $ 1 $ 94 $ 125,719 $ (147,767) $ (21,953)
Balance, shares at Sep. 30, 2024 8,187,291 9,411      
v3.24.3
Condensed Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Cash flows from operating activities:    
Net loss $ (9,035) $ (8,927)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation 88 112
Loss on disposal of property and equipment   9
Amortization of debt discount 568 958
Fair value of vested options 268 351
Fair value of vested restricted shares granted to officers 3
Product quality hold write-down (29)  
Change in allowance for doubtful accounts (282) 262
Inventory write-downs (825) (205)
Accrued interest 3,141 2,483
Changes in operating assets and liabilities:    
Accounts receivable 1,084 142
Inventory 2,903 417
Prepaid expenses and other assets (449) 450
Decrease in right of use assets 121 102
Accounts payable 180 (738)
Accrued dividend (5)
Accrued expenses 173 639
Lease liabilities (160) (137)
Net cash used in operating activities (2,254) (4,084)
Cash flows from investing activities:    
Trademark costs (7) (1)
Purchase of property and equipment (51) (84)
Sale of property and equipment 68
Net cash used in investing activities (58) (17)
Cash flows from financing activities:    
Proceeds from line of credit 24,878 32,686
Payments on line of credit (29,367) (34,085)
Proceeds from convertible note payable, net of expenses 3,797
Payment of accrued interest on convertible note payable (513) (268)
Proceeds from sale of common stock 1,903 4,016
Proceeds from convertible notes 1,400
Proceeds from issuance of SAFE agreement 4,097 (1)
Payment of cash recorded as debt discount (335)
Amounts from former related party, net (48) (1,573)
Net cash provided by financing activities 2,015 4,572
Net decrease in cash (297) 471
Cash at beginning of period 603 533
Cash at end of period 306 1,004
Supplemental disclosures of cash flow information:    
Cash paid for interest 238 548
Non-cash investing and financing activities:    
Dividends on Series A Convertible Preferred Stock 5 $ 5
Reclass of prepaid expenses and accounts payable $ 1,000  
v3.24.3
Pay vs Performance Disclosure - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Pay vs Performance Disclosure [Table]        
Net Income (Loss) $ (4,150) $ (1,436) $ (9,035) $ (8,927)
v3.24.3
Insider Trading Arrangements
3 Months Ended
Sep. 30, 2024
Insider Trading Arrangements [Line Items]  
Non-Rule 10b5-1 Arrangement Adopted false
Non-Rule 10b5-1 Arrangement Terminated false
v3.24.3
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2024
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

1. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying condensed financial statements of Reed’s, Inc. (the “Company”, “we”, “us”, or “our”), have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures contained in these condensed financial statements are adequate to make the information presented herein not misleading. These condensed financial statements should be read in conjunction with the financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 1, 2024. The accompanying condensed financial statements are unaudited, but in the opinion of management, contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position as of September 30, 2024, and the results of its operations and its cash flows for the nine months ended September 30, 2024 and 2023. The balance sheet as of December 31, 2023 is derived from the Company’s audited financial statements.

 

The 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.

 

Going Concern

 

The 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 September 30, 2024, had a working capital deficiency of $22,923 and a stockholders’ deficit of $21,953. 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 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 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.

 

As 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, we have financed our operations through public and private sales of common stock, issuance of preferred and common stock, convertible debt instruments, term loans and credit lines from financial institutions, and cash generated from operations. To alleviate these conditions, management is currently evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity, mezzanine or debt securities, through arrangements with strategic partners or through obtaining credit from financial institutions. 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). 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.

 

 

We have also taken decisive action to improve our margins, including fully outsourcing our manufacturing process, streamlining our product portfolio, negotiating improved vendor contracts and restructuring our selling prices.

 

Recent Trends - Market Conditions

 

Although the U.S. economy continued to grow throughout 2023 and into Q3 2024, the higher inflation, the actions by the Federal Reserve to address inflation, and rising energy prices create uncertainty about the future economic environment which will continue to evolve and may impact our business in future periods. We have experienced supply chain challenges, including increased lead times, as well as inflation of raw materials, logistics and labor costs due to availability constraints and high demand. Although we regularly monitor companies in our supply chain, and use alternative suppliers when necessary and available, supply chain constraints could cause a disruption in our ability to obtain raw materials required to manufacture our products and adversely affect our operations.

 

During the three months ending September 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 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. The Company has been negatively impacted by supply chain challenges affecting our ability to benefit from strong demand for, and increased sales of our product. The disruption caused by labor shortages, significant raw material cost inflation, logistics issues and increased freight costs, and ongoing port congestion, resulted in suppressed margins. The Company has experienced moderation in inflation and anticipates this continuing throughout 2024.

 

Use of Estimates

 

The 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.

 

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 our customer, which generally occurs upon shipment from our 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 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.

 

 

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, excluding shares of unvested restricted common stock. Shares of restricted stock are included in the basic weighted average number of common shares outstanding from the time they vest. 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. Shares of restricted stock are included in the diluted weighted average number of common shares outstanding from the date they are granted. Potential common shares are excluded from computation when their effect is antidilutive.

 

For 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. The potentially dilutive securities consisted of the following:

 

   September 30,
2024
   September 30,
2023
 
Warrants   549,292    549,292 
Options   128,309    145,012 
Convertible note payable   1,844,829    1,475,725 
Common stock equivalent of Series A Convertible Preferred stock   753    753 
Total   2,523,183    2,170,782 

 

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 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.

 

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.

 

Advertising Costs

 

Advertising costs are expensed as incurred and are included in selling and marketing expense. Advertising costs for the three months ended September 30, 2024, and 2023, aggregated $8 and $22, respectively. Advertising costs for the nine months ended September 30, 2024, and 2023, aggregated $38 and $82, respectively.

 

Concentrations

 

Net sales. 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.

 

 

Accounts receivable. As of September 30, 2024, the Company had accounts receivable from two customers which comprised 32% and 13% of its gross accounts receivable, respectively. As of December 31, 2023, the Company had accounts receivable from three customers which comprised 24%, 15% and 11% of its gross accounts receivable, respectively. No other customers exceeded 10% of gross accounts receivable in either period.

 

The Company utilizes co-packers to produce 100% of its products. 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 LLC (“CCB”), a former related party (see Note 11). Although there are other packers, a change in co-packers may cause a delay in the production process, which could ultimately affect operating results.

 

Purchases from vendors. 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 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.

 

Accounts payable. 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 period.

 

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. ASC 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 based on the Company’s assumptions.

 

The carrying amounts of financial assets and liabilities, such as 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 maturity of these 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.

 

The fair value of our liability under our SAFE investments were determined using level 3 inputs. (Note 8)

 

Reclassifications

 

Certain prior year amounts have been reclassified for consistency with the current period presentation. Collection from customers amounting to $1,217 that was previously presented as a deduction from prepaid expenses at December 31, 2023 have been reclassed as an offset against accounts receivable. This reclassification had no effect on the reported results of operations or cash flows.

 

Recent Accounting Pronouncements

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense categories that are regularly provided to the chief operating decision maker and included in each reported measure of a segment’s profit or 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.

 

  

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.

 

v3.24.3
Inventory
9 Months Ended
Sep. 30, 2024
Inventory Disclosure [Abstract]  
Inventory

2. Inventory

 

Inventory 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 thousands):

 

   September 30,
2024
   December 31,
2023
 
Raw materials and packaging  $6,143   $6,445 
Finished products   3,108    4,855 
Total  $9,251   $11,300 

 

v3.24.3
Property and Equipment
9 Months Ended
Sep. 30, 2024
Property, Plant and Equipment [Abstract]  
Property and Equipment

3. Property and Equipment

 

Property and equipment are comprised of the following (in thousands):

 

   September 30,
2024
   December 31,
2023
 
Right-of-use assets under operating leases  $724   $724 
Computer hardware and software   400    400 
Machinery and equipment   352    352 
Construction in progress   136    85 
Total cost   1,612    1,561 
Accumulated depreciation and amortization   (1,277)   (1,068)
Net value  $335   $493 

 

Depreciation 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.

 

v3.24.3
Intangible Assets
9 Months Ended
Sep. 30, 2024
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

4. Intangible Assets

 

Intangible assets consist of the following (in thousands):

 

   September 30,
2024
   December 31,
2023
 
Brand names  $576   $576 
Trademarks   60    53 
Total  $636   $629 

 

 

v3.24.3
Line of Credit
9 Months Ended
Sep. 30, 2024
Line Of Credit  
Line of Credit

5. Line of Credit

 

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

   September 30,
2024
   December 31,
2023
 
Line of credit – Alterna Capital Solutions  $5,471   $9,959 
Less: capitalized financing costs   (81)   (201)
Total  $5,390   $9,758 

 

In March, 2022, the Company entered into a financing agreement for a line of credit with Alterna Capital Solutions (“ACS”). The ACS line of credit is for a term of 3 years, provides for borrowings of up to $13,000, and is secured by eligible accounts receivable and inventory, and are subject to a collateral sharing agreement with Whitebox, another secured lender (see Note 6). An over advance rider provides for up to $500 of additional borrowing above the collateralized base (the “Over Advance”) up to a total borrowing of $13,500. As of September 30, 2024, there was no remaining availability under the line of credit, and $7,529 of borrowing capacity available.

 

Borrowings 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 31, 2023). 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 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.

 

The Company incurred $483 of direct costs of the transaction, consisting primarily of broker, bank and legal fees. These costs have been capitalized and are being amortized over the 3-year life of the ACS agreement. The unamortized debt discount balance was $201 at December 31, 2023. For the 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.

 

On July 26, 2024, Norman E. 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.

 

v3.24.3
Secured Notes Payable
9 Months Ended
Sep. 30, 2024
Debt Disclosure [Abstract]  
Secured Notes Payable

6. Secured Notes Payable

 

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

 

  

September 30,

2024

  

December 31,

2023

 
Secured Convertible “Original” Notes Payable (A)  $10,250   $10,250 
Secured “Option” Notes Payable (B)   6,504    4,050 
           
Accrued interest   2,222    1,059 
Accrued interest on excess debt borrowing   3,234    2,824 
Capitalized financing costs   (459)   (572)
Total  $21,751   $17,611 

 

Secured Notes

 

  (A)

In 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.

 

Upon conversion or early payment, holders of the Original Notes are entitled to receive an interest make-whole payment, as defined, equal to the sum of the remaining scheduled payments of interest on the Original Notes that would be due at maturity, payable, at the Company’s option, in cash or in shares of common stock. On August 1, 2022, the Original Notes were amended to add a 10% fee (“Excess ABL Fee’) commencing with the fiscal month ending October 31, 2022 for the amount that the Company’s line of credit with ACS exceeds (i) (x) prior to November 30, 2024, $9,500 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; provided 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).

 

The 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 October 2023 monthly amortization payments on the Original Notes. The November 2023 amortization payment of $200 principal was paid, and the amortization payment for December 2023 to May 2024 was waived. The amortization period resumed on June 1, 2024.

 

  (B) 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. Pursuant to the Exercise and Amendment Agreement, holders of the Original Notes exercised an option to purchase an aggregate of approximately $6,504 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 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.

 

 

Pursuant 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.

 

Waiver of Default

 

On August 1, 2024, the Whitebox waived the specified events of default under the Original Notes and Option Notes (collectively referred to herein as the “Notes”) and temporarily waived any requirement that the Company conduct a repurchase of Original Notes in the event of a Make-Whole Fundamental Change (as defined in the Original Notes) through December 15, 2024 (See Note 13).

 

Accrued Interest

 

At December 31, 2023, the balance of accrued interest was $3,883. 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 and $1,054 was added to the principal of the Option Notes. At September 30, 2024, the balance of accrued interest was $5,456.

 

Debt Discount

 

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

 

v3.24.3
Leases Liabilities
9 Months Ended
Sep. 30, 2024
Leases Liabilities  
Leases Liabilities

7. Leases Liabilities

 

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

 

As of December 31, 2023, operating lease liabilities totaled $207. During the nine months ended September 30, 2024, the Company made payments of $160 towards its operating lease liability. As of September 30, 2024, operating lease liabilities totaled $47.

 

As of September 30, 2024, the weighted average remaining lease terms for an operating lease are 0.25 years. As of September 30, 2024, the weighted average discount rate on the operating lease is 12.60%.

 

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. In 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.

 

 

v3.24.3
Issuance of Common Stock
9 Months Ended
Sep. 30, 2024
Equity [Abstract]  
Issuance of Common Stock

8. Issuance of Common Stock

 

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

 

On 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.

 

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.

 

v3.24.3
Stock-Based Compensation
9 Months Ended
Sep. 30, 2024
Share-Based Payment Arrangement [Abstract]  
Stock-Based Compensation

9. Stock-Based Compensation

 

Stock Options

 

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

 

   Shares   Weighted-
Average
Exercise Price
   Weighted-
Average
Remaining
Contractual
Terms
(Years)
   Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2023   143,000   $45.09    6.75   $     - 
Granted   -   $-           
Exercised   -   $-           
Unvested forfeited   (5,178)  $16,61           
Vested forfeited   (9,513)  $44.98           
Outstanding at September 30, 2024   128,309   $46.18    5.97   $- 
Exercisable at September 30, 2024   112,447   $50.06    5.70   $- 

 

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

 

As 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.

 

 

v3.24.3
Stock Warrants
9 Months Ended
Sep. 30, 2024
Stock Warrants  
Stock Warrants

10. Stock Warrants

 

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

 

   Shares   Weighted-
Average
Exercise
Price
   Weighted-
Average
Remaining
Contractual
Terms
(Years)
   Aggregate
Intrinsic
Value
 
                 
Outstanding at December 31, 2023   549,292   $8.77    2.84   $     - 
Granted   -    -    -      
Exercised   -    -    -      
Forfeited   -    -    -      
Outstanding at September 30, 2024   549,292   $8.77    2.34   $- 
Exercisable at September 30, 2024   549,292   $8.77    2.34   $- 

 

As 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.

 

v3.24.3
Transactions with California Custom Beverage, LLC, former related party
9 Months Ended
Sep. 30, 2024
Related Party Transactions [Abstract]  
Transactions with California Custom Beverage, LLC, former related party

11. Transactions with California Custom Beverage, LLC, former related party

 

In December 2018, the Company signed a co-packing agreement with California Custom Beverage, LLC’s (“CCB”), an entity owned by Christopher J. Reed, 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.

 

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

 

   September 30,
2024
   December 31,
2023
 
Accounts receivable, net of provision of $1,123 and $1,123 at September 30, 2024 and December 31, 2023, respectively   259    259 
Accounts payable   (211)   (259)
Net (payable) receivable   48    - 

 

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

 

v3.24.3
Commitments and Contingencies
9 Months Ended
Sep. 30, 2024
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

12. Commitments and Contingencies

 

During 2023, the firm engaged an investment bank to explore financing options for the Company. We have a maximum obligation of $1.2M in fees so far in this engagement. These fees will be recognized on a success basis and will be paid out only if a transaction is finalized.

 

In 2018, CCB assumed the monthly payments on our lease obligation for a Los Angeles manufacturing plant for payments through September 2024, and our release from the obligation by the lessor, however, is dependent upon CCB’s deposit of $1,200 of security with the lessor. As of 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.

 

We believe that there are no material litigation matters at the current time. Although the result of such litigation matters and claims cannot be predicted with certainty, we believe that the final outcome of such claims and proceedings will not have a material adverse impact on our financial position, liquidity, or results of operations.

 

v3.24.3
Subsequent Events
9 Months Ended
Sep. 30, 2024
Subsequent Events [Abstract]  
Subsequent Events

13. Subsequent Events

 

  a) 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, D&D. 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).

 

  b) Board of Directors

 

On 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. Mr. 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. Mr. 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.

v3.24.3
Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2024
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

 

The accompanying condensed financial statements of Reed’s, Inc. (the “Company”, “we”, “us”, or “our”), have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures contained in these condensed financial statements are adequate to make the information presented herein not misleading. These condensed financial statements should be read in conjunction with the financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 1, 2024. The accompanying condensed financial statements are unaudited, but in the opinion of management, contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position as of September 30, 2024, and the results of its operations and its cash flows for the nine months ended September 30, 2024 and 2023. The balance sheet as of December 31, 2023 is derived from the Company’s audited financial statements.

 

The 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.

 

Going Concern

Going Concern

 

The 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 September 30, 2024, had a working capital deficiency of $22,923 and a stockholders’ deficit of $21,953. 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 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 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.

 

As 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, we have financed our operations through public and private sales of common stock, issuance of preferred and common stock, convertible debt instruments, term loans and credit lines from financial institutions, and cash generated from operations. To alleviate these conditions, management is currently evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity, mezzanine or debt securities, through arrangements with strategic partners or through obtaining credit from financial institutions. 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). 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.

 

 

We have also taken decisive action to improve our margins, including fully outsourcing our manufacturing process, streamlining our product portfolio, negotiating improved vendor contracts and restructuring our selling prices.

 

Recent Trends - Market Conditions

Recent Trends - Market Conditions

 

Although the U.S. economy continued to grow throughout 2023 and into Q3 2024, the higher inflation, the actions by the Federal Reserve to address inflation, and rising energy prices create uncertainty about the future economic environment which will continue to evolve and may impact our business in future periods. We have experienced supply chain challenges, including increased lead times, as well as inflation of raw materials, logistics and labor costs due to availability constraints and high demand. Although we regularly monitor companies in our supply chain, and use alternative suppliers when necessary and available, supply chain constraints could cause a disruption in our ability to obtain raw materials required to manufacture our products and adversely affect our operations.

 

During the three months ending September 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 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. The Company has been negatively impacted by supply chain challenges affecting our ability to benefit from strong demand for, and increased sales of our product. The disruption caused by labor shortages, significant raw material cost inflation, logistics issues and increased freight costs, and ongoing port congestion, resulted in suppressed margins. The Company has experienced moderation in inflation and anticipates this continuing throughout 2024.

 

Use of Estimates

Use of Estimates

 

The 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.

 

Revenue Recognition

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 our customer, which generally occurs upon shipment from our 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 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.

 

 

Loss per Common Share

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, excluding shares of unvested restricted common stock. Shares of restricted stock are included in the basic weighted average number of common shares outstanding from the time they vest. 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. Shares of restricted stock are included in the diluted weighted average number of common shares outstanding from the date they are granted. Potential common shares are excluded from computation when their effect is antidilutive.

 

For 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. The potentially dilutive securities consisted of the following:

 

   September 30,
2024
   September 30,
2023
 
Warrants   549,292    549,292 
Options   128,309    145,012 
Convertible note payable   1,844,829    1,475,725 
Common stock equivalent of Series A Convertible Preferred stock   753    753 
Total   2,523,183    2,170,782 

 

Stock Compensation Expense

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 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.

 

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.

 

Advertising Costs

Advertising Costs

 

Advertising costs are expensed as incurred and are included in selling and marketing expense. Advertising costs for the three months ended September 30, 2024, and 2023, aggregated $8 and $22, respectively. Advertising costs for the nine months ended September 30, 2024, and 2023, aggregated $38 and $82, respectively.

 

Concentrations

Concentrations

 

Net sales. 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.

 

 

Accounts receivable. As of September 30, 2024, the Company had accounts receivable from two customers which comprised 32% and 13% of its gross accounts receivable, respectively. As of December 31, 2023, the Company had accounts receivable from three customers which comprised 24%, 15% and 11% of its gross accounts receivable, respectively. No other customers exceeded 10% of gross accounts receivable in either period.

 

The Company utilizes co-packers to produce 100% of its products. 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 LLC (“CCB”), a former related party (see Note 11). Although there are other packers, a change in co-packers may cause a delay in the production process, which could ultimately affect operating results.

 

Purchases from vendors. 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 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.

 

Accounts payable. 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 period.

 

Fair Value of Financial Instruments

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. ASC 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 based on the Company’s assumptions.

 

The carrying amounts of financial assets and liabilities, such as 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 maturity of these 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.

 

The fair value of our liability under our SAFE investments were determined using level 3 inputs. (Note 8)

 

Reclassifications

Reclassifications

 

Certain prior year amounts have been reclassified for consistency with the current period presentation. Collection from customers amounting to $1,217 that was previously presented as a deduction from prepaid expenses at December 31, 2023 have been reclassed as an offset against accounts receivable. This reclassification had no effect on the reported results of operations or cash flows.

 

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense categories that are regularly provided to the chief operating decision maker and included in each reported measure of a segment’s profit or 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.

 

  

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.

v3.24.3
Summary of Significant Accounting Policies (Tables)
9 Months Ended
Sep. 30, 2024
Accounting Policies [Abstract]  
Schedule of Potentially Dilutive Securities

   September 30,
2024
   September 30,
2023
 
Warrants   549,292    549,292 
Options   128,309    145,012 
Convertible note payable   1,844,829    1,475,725 
Common stock equivalent of Series A Convertible Preferred stock   753    753 
Total   2,523,183    2,170,782 
v3.24.3
Inventory (Tables)
9 Months Ended
Sep. 30, 2024
Inventory Disclosure [Abstract]  
Schedule of Inventory

Inventory 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 thousands):

 

   September 30,
2024
   December 31,
2023
 
Raw materials and packaging  $6,143   $6,445 
Finished products   3,108    4,855 
Total  $9,251   $11,300 
v3.24.3
Property and Equipment (Tables)
9 Months Ended
Sep. 30, 2024
Property, Plant and Equipment [Abstract]  
Schedule of Property and Equipment

Property and equipment are comprised of the following (in thousands):

 

   September 30,
2024
   December 31,
2023
 
Right-of-use assets under operating leases  $724   $724 
Computer hardware and software   400    400 
Machinery and equipment   352    352 
Construction in progress   136    85 
Total cost   1,612    1,561 
Accumulated depreciation and amortization   (1,277)   (1,068)
Net value  $335   $493 
v3.24.3
Intangible Assets (Tables)
9 Months Ended
Sep. 30, 2024
Goodwill and Intangible Assets Disclosure [Abstract]  
Summary of Intangible Assets

Intangible assets consist of the following (in thousands):

 

   September 30,
2024
   December 31,
2023
 
Brand names  $576   $576 
Trademarks   60    53 
Total  $636   $629 
v3.24.3
Line of Credit (Tables)
9 Months Ended
Sep. 30, 2024
Line Of Credit  
Schedule of Amount Outstanding Under Credit Facilities

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

   September 30,
2024
   December 31,
2023
 
Line of credit – Alterna Capital Solutions  $5,471   $9,959 
Less: capitalized financing costs   (81)   (201)
Total  $5,390   $9,758 
v3.24.3
Secured Notes Payable (Tables)
9 Months Ended
Sep. 30, 2024
Debt Disclosure [Abstract]  
Schedule of Secured Convertible Notes Payable

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

 

  

September 30,

2024

  

December 31,

2023

 
Secured Convertible “Original” Notes Payable (A)  $10,250   $10,250 
Secured “Option” Notes Payable (B)   6,504    4,050 
           
Accrued interest   2,222    1,059 
Accrued interest on excess debt borrowing   3,234    2,824 
Capitalized financing costs   (459)   (572)
Total  $21,751   $17,611 

 

Secured Notes

 

  (A)

In 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.

 

Upon conversion or early payment, holders of the Original Notes are entitled to receive an interest make-whole payment, as defined, equal to the sum of the remaining scheduled payments of interest on the Original Notes that would be due at maturity, payable, at the Company’s option, in cash or in shares of common stock. On August 1, 2022, the Original Notes were amended to add a 10% fee (“Excess ABL Fee’) commencing with the fiscal month ending October 31, 2022 for the amount that the Company’s line of credit with ACS exceeds (i) (x) prior to November 30, 2024, $9,500 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; provided 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).

 

The 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 October 2023 monthly amortization payments on the Original Notes. The November 2023 amortization payment of $200 principal was paid, and the amortization payment for December 2023 to May 2024 was waived. The amortization period resumed on June 1, 2024.

 

  (B) 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. Pursuant to the Exercise and Amendment Agreement, holders of the Original Notes exercised an option to purchase an aggregate of approximately $6,504 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 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.

 

 

Pursuant 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.

v3.24.3
Stock-Based Compensation (Tables)
9 Months Ended
Sep. 30, 2024
Share-Based Payment Arrangement [Abstract]  
Schedule of Stock Option Activity

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

 

   Shares   Weighted-
Average
Exercise Price
   Weighted-
Average
Remaining
Contractual
Terms
(Years)
   Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2023   143,000   $45.09    6.75   $     - 
Granted   -   $-           
Exercised   -   $-           
Unvested forfeited   (5,178)  $16,61           
Vested forfeited   (9,513)  $44.98           
Outstanding at September 30, 2024   128,309   $46.18    5.97   $- 
Exercisable at September 30, 2024   112,447   $50.06    5.70   $- 
v3.24.3
Stock Warrants (Tables)
9 Months Ended
Sep. 30, 2024
Stock Warrants  
Schedule of Warrant Activity

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

 

   Shares   Weighted-
Average
Exercise
Price
   Weighted-
Average
Remaining
Contractual
Terms
(Years)
   Aggregate
Intrinsic
Value
 
                 
Outstanding at December 31, 2023   549,292   $8.77    2.84   $     - 
Granted   -    -    -      
Exercised   -    -    -      
Forfeited   -    -    -      
Outstanding at September 30, 2024   549,292   $8.77    2.34   $- 
Exercisable at September 30, 2024   549,292   $8.77    2.34   $- 
v3.24.3
Transactions with California Custom Beverage, LLC, former related party (Tables)
9 Months Ended
Sep. 30, 2024
Related Party Transactions [Abstract]  
Schedule of Related Parties

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

 

   September 30,
2024
   December 31,
2023
 
Accounts receivable, net of provision of $1,123 and $1,123 at September 30, 2024 and December 31, 2023, respectively   259    259 
Accounts payable   (211)   (259)
Net (payable) receivable   48    - 
v3.24.3
Schedule of Potentially Dilutive Securities (Details) - shares
9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Total 2,523,183 2,170,782
Warrant [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Total 549,292 549,292
Equity Option [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Total 128,309 145,012
Convertible Notes Payable [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Total 1,844,829 1,475,725
Common Stock Equivalent of Series A Convertible Preferred Stock [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Total 753 753
v3.24.3
Summary of Significant Accounting Policies (Details Narrative)
$ in Thousands
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2024
USD ($)
Sep. 30, 2023
USD ($)
Sep. 30, 2024
USD ($)
Sep. 30, 2023
USD ($)
Dec. 31, 2023
USD ($)
Jun. 30, 2024
USD ($)
Jun. 30, 2023
USD ($)
Dec. 31, 2022
USD ($)
Product Information [Line Items]                
Net Income (Loss) Attributable to Parent $ 4,150 $ 1,436 $ 9,035 $ 8,927        
Cash in operations     2,254 4,084        
Working capital deficiency 22,923   22,923          
Equity, Attributable to Parent 21,953 12,760 21,953 12,760 $ 19,181 $ 23,849 $ 11,463 $ 8,470
Line of credit 5,471   5,471          
Convertible notes payable 22,210   22,210          
Cash 306   306   603      
Additional borrowing capacity 7,529   7,529          
Advertising costs $ 8 $ 22 $ 38 $ 82        
Collection from customers         $ 1,217      
Customer One [Member] | Revenue Benchmark [Member] | Product Concentration Risk [Member]                
Product Information [Line Items]                
Concentration risk, percentage 18.00% 22.00% 18.00% 19.00%        
Customer One [Member] | Accounts Receivable [Member] | Customer Concentration Risk [Member]                
Product Information [Line Items]                
Concentration risk, percentage     32.00%   24.00%      
Customer Two [Member] | Revenue Benchmark [Member] | Product Concentration Risk [Member]                
Product Information [Line Items]                
Concentration risk, percentage 15.00% 14.00% 15.00% 13.00%        
Customer Two [Member] | Accounts Receivable [Member] | Customer Concentration Risk [Member]                
Product Information [Line Items]                
Concentration risk, percentage     13.00%   15.00%      
Customer Three [Member] | Revenue Benchmark [Member] | Product Concentration Risk [Member]                
Product Information [Line Items]                
Concentration risk, percentage   12.00% 11.00%          
Customer Three [Member] | Accounts Receivable [Member] | Customer Concentration Risk [Member]                
Product Information [Line Items]                
Concentration risk, percentage         11.00%      
Vendor One [Member] | Revenue Benchmark [Member] | Product Concentration Risk [Member]                
Product Information [Line Items]                
Concentration risk, percentage     11.00% 9.00%        
Vendor One [Member] | Accounts Payable [Member] | Customer Concentration Risk [Member]                
Product Information [Line Items]                
Concentration risk, percentage     10.00%   10.00%      
Vendor Two [Member] | Revenue Benchmark [Member] | Product Concentration Risk [Member]                
Product Information [Line Items]                
Concentration risk, percentage     10.00%          
Vendor Two [Member] | Accounts Payable [Member] | Customer Concentration Risk [Member]                
Product Information [Line Items]                
Concentration risk, percentage         10.00%      
Shipping and Handling [Member]                
Product Information [Line Items]                
Average cost 2.99 2.98 2.66 3.17        
v3.24.3
Schedule of Inventory (Details) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Inventory Disclosure [Abstract]    
Raw materials and packaging $ 6,143 $ 6,445
Finished products 3,108 4,855
Total $ 9,251 $ 11,300
v3.24.3
Schedule of Property and Equipment (Details) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Property, Plant and Equipment [Line Items]    
Total cost $ 1,612 $ 1,561
Accumulated depreciation and amortization (1,277) (1,068)
Net value 335 493
Right of Use Assets Under Operating Leases [Member]    
Property, Plant and Equipment [Line Items]    
Total cost 724 724
Computer Hardware and Software [Member]    
Property, Plant and Equipment [Line Items]    
Total cost 400 400
Machinery and Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Total cost 352 352
Construction in Progress [Member]    
Property, Plant and Equipment [Line Items]    
Total cost $ 136 $ 85
v3.24.3
Property and Equipment (Details Narrative) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Property, Plant and Equipment [Abstract]    
Depreciation $ 88 $ 112
Amortization of right-of-use assets $ 121 $ 102
v3.24.3
Summary of Intangible Assets (Details) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Goodwill and Intangible Assets Disclosure [Abstract]    
Brand names $ 576 $ 576
Trademarks 60 53
Total $ 636 $ 629
v3.24.3
Schedule of Amount Outstanding Under Credit Facilities (Details) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Line of Credit Facility [Line Items]    
Total $ 5,390 $ 9,758
Capitalized financing costs (81) (201)
Alterna Capital Solutions [Member]    
Line of Credit Facility [Line Items]    
Total $ 5,471 $ 9,959
v3.24.3
Line of Credit (Details Narrative) - USD ($)
$ in Thousands
1 Months Ended 9 Months Ended
Jul. 26, 2024
Mar. 31, 2022
Sep. 30, 2024
Sep. 30, 2023
Dec. 31, 2023
Line of Credit Facility [Line Items]          
Borrowing capacity     $ 7,529    
Line of credit     5,471    
Amortization of debt discount     568 $ 958  
Norman E Snyder [Member]          
Line of Credit Facility [Line Items]          
Over advance for line of credit $ 500        
Alterna Capital Solutions [Member]          
Line of Credit Facility [Line Items]          
Line of credit term   3 years      
Borrowing capacity   $ 13,000 7,529    
Over advance for line of credit   500      
Remaining line of credit     $ 0    
Line of credit description     Borrowings 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 31, 2023). 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 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    
Line of credit     $ 1,500    
Monitoring fee     1    
Direct operating costs     $ 483    
Amortization of line of credit period     3 years    
Remaining unamortization of debt discount     $ 81   $ 201
Amortization of debt discount     $ 120    
Whitebox Another Secured Lender [Member]          
Line of Credit Facility [Line Items]          
Borrowing capacity   $ 13,500      
v3.24.3
Schedule of Secured Convertible Notes Payable (Details) - USD ($)
$ in Thousands
Aug. 01, 2024
Sep. 30, 2024
Dec. 31, 2023
Notes Payable A [Member]      
Short-Term Debt [Line Items]      
Principal balance of original notes $ 6,504 $ 10,250 $ 10,250
Notes Payable B [Member]      
Short-Term Debt [Line Items]      
Principal balance of original notes $ 4,050 6,504 4,050
Debt Instrument, Maturity Date, Description 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 the Company that is junior in right of payment to its Note obligations.    
Secured Convertible Notes Payable [Member]      
Short-Term Debt [Line Items]      
Accrued interest   2,222 1,059
Accrued interest on excess debt borrowing   3,234 2,824
Capitalized financing costs   (459) (572)
Total   $ 21,751 $ 17,611
v3.24.3
Schedule of Secured Convertible Notes Payable (Details) (Parenthetical) - USD ($)
1 Months Ended 10 Months Ended 12 Months Ended
Aug. 01, 2024
Aug. 01, 2022
Nov. 30, 2023
May 31, 2022
Oct. 31, 2023
Dec. 31, 2024
Sep. 30, 2024
Dec. 31, 2023
Short-Term Debt [Line Items]                
Line of credit facility commitment fee percentage   10.00%            
Line of credit facility description   (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; provided 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)            
Aggregate principal amount             $ 5,471,000  
Notes Payable A [Member]                
Short-Term Debt [Line Items]                
Principal balance of original notes $ 6,504,000           10,250,000 $ 10,250,000
Cash proceeds 1,400              
Finance cost 1,054,000              
Convertible Notes Payable [Member] | Whitebox Advisors, LLC [Member]                
Short-Term Debt [Line Items]                
Principal balance of original notes             1,054,000  
Principal payment     $ 200,000          
Notes Payable B [Member]                
Short-Term Debt [Line Items]                
Principal balance of original notes $ 4,050,000           $ 6,504,000 $ 4,050,000
[custom:OutstandingPrincipalAmountRate] 11.13%              
[custom:DebtInstrumentPenaltyAmount-0] $ 1,400,000              
Note Purchase Agreement [Member]                
Short-Term Debt [Line Items]                
Principal balance of original notes       $ 11,250,000        
Debt instrument, interest rate terms, description       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        
Debt Instrument, Maturity Date       Sep. 30, 2025        
Principal payment         $ 200,000      
Weighted average interest         90.00%      
Aggregate principal amount       $ 12,000,000        
Outstanding amount           $ 4,050,000    
v3.24.3
Secured Notes Payable (Details Narrative) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Dec. 31, 2023
Short-Term Debt [Line Items]          
Interest on convertible notes $ 2,405 $ 1,293 $ 4,578 $ 4,459  
Amortization of debt discount     568 $ 958  
Whitebox Advisors, LLC [Member] | Convertible Notes Payable [Member]          
Short-Term Debt [Line Items]          
Accrued interest 5,456   5,456   $ 3,883
Interest on convertible notes     3,141    
Interest expenses     1,832    
Excess of asset base loan fees     1,309    
Accrued interest 514   514    
Principal balance of original notes 1,054   1,054    
Unamortized debt discount amount 459   459   $ 572
Incurred costs for aforementioned waivers $ 335   335    
Amortization of debt discount     $ 448    
v3.24.3
Leases Liabilities (Details Narrative) - USD ($)
$ in Thousands
9 Months Ended
May 10, 2024
Sep. 30, 2024
Sep. 30, 2023
Dec. 31, 2023
Leases Liabilities        
Lease cost   $ 89 $ 67  
Operating leases liability   47   $ 207
Payments of operating lease liability   $ 160    
Operating Lease, Weighted Average Remaining Lease Term   3 months    
Operating Lease, Weighted Average Discount Rate, Percent 3.60% 12.60%    
Operating leases liability $ 8,590      
Payments for rent 7,409      
Operating lease payments $ 2,129      
v3.24.3
Issuance of Common Stock (Details Narrative) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 09, 2024
Sep. 30, 2024
Mar. 31, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Jun. 30, 2024
Change in fair value of SAFE investments   $ 1,393    
Total consideration   1,903     1,903 $ 4,016  
Securities Purchase Agreement [Member]              
Number of shares issued 4,000,000,000            
Total consideration $ 6,000            
Total capital raise, shares 2,731,205            
Total capital raise, value $ 4,097            
Conversion of shares, value 1,903,000            
Securities Purchase Agreement [Member] | D&D Source of Life Holding Ltd [Member]              
Conversion of shares, value 1,268,795            
Simple Agreements For Future Equity Investments [Member]              
SAFE investments             $ 5,490
Change in fair value of SAFE investments   $ 1,393     $ 1,393    
Simple Agreements For Future Equity Investments [Member] | Stockholders [Member]              
Proceeds from Related Party Debt     $ 4,097        
Share Price     $ 1.50        
v3.24.3
Schedule of Stock Option Activity (Details) - USD ($)
9 Months Ended 12 Months Ended
Sep. 30, 2024
Dec. 31, 2023
Share-Based Payment Arrangement [Abstract]    
Shares Outstanding, Beginning balance 143,000  
Weighted-Average Exercise Price, Outstanding $ 45.09  
Weighted-Average Remaining Contractual Terms (Years), Outstanding 5 years 11 months 19 days 6 years 9 months
Aggregate Intrinsic Value, Shares Outstanding  
Shares, Granted  
Weighted-Average Exercise Price, Granted  
Shares, Exercised  
Weighted-Average Exercise Price, Exercised  
Shares, Unvested forfeited (5,178)  
Weighted-Average Exercise Price, Unvested forfeited $ 16.61  
Shares, Vested forfeited (9,513)  
Weighted-Average Exercise Price, Vested forfeited $ 44.98  
Shares Outstanding, Ending balance 128,309 143,000
Weighted-Average Exercise Price, Outstanding $ 46.18 $ 45.09
Aggregate Intrinsic Value, Shares Outstanding
Shares, Exercisable 112,447  
Weighted-Average Exercise Price, Exercisable $ 50.06  
Weighted-Average Remaining Contractual Terms (Years), Exercisable 5 years 8 months 12 days  
Aggregate Intrinsic Value  
v3.24.3
Stock-Based Compensation (Details Narrative) - Share-Based Payment Arrangement, Option [Member] - USD ($)
$ / shares in Units, $ in Thousands
9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]    
Fair value of vested stock option $ 268 $ 351
Aggregate value of unvested compensation $ 105  
Stock price $ 1.39  
v3.24.3
Schedule of Warrant Activity (Details) - Warrant [Member] - USD ($)
9 Months Ended 12 Months Ended
Sep. 30, 2024
Dec. 31, 2023
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]    
Shares outstanding, Beginning balance 549,292  
Weighted average exercise price, outstanding $ 8.77  
Weighted average remaining contractual terms (years), outstanding 2 years 4 months 2 days 2 years 10 months 2 days
Aggregate intrinsic value shares outstanding beginning  
Shares, granted  
Weighted average exercise price, granted  
Shares, exercised  
Weighted average exercise price, exercised  
Shares, forfeited  
Weighted average exercise price, forfeited  
Shares outstanding, Ending balance 549,292 549,292
Weighted average exercise price, outstanding ending balance $ 8.77 $ 8.77
Aggregate intrinsic value shares outstanding
Shares exercisable 549,292  
Weighted average exercise price, exercisable $ 8.77  
Weighted average remaining contractual terms (years), exercisable 2 years 4 months 2 days  
Aggregate intrinsic value shares exercisable  
v3.24.3
Stock Warrants (Details Narrative)
Sep. 30, 2024
$ / shares
Securities Purchase Agreement [Member]  
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]  
Warrants exerice price $ 1.39
v3.24.3
Schedule of Related Parties (Details) - Related Party [Member] - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Related Party Transaction [Line Items]    
Accounts receivable, net of provision of $1,123 and $1,123 at September 30, 2024 and December 31, 2023, respectively $ 259 $ 259
Accounts payable (211) (259)
Net (payable) receivable $ 48
v3.24.3
Schedule of Related Parties (Details) (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Related Party [Member]    
Related Party Transaction [Line Items]    
Net of provision $ 1,123 $ 1,123
v3.24.3
Transactions with California Custom Beverage, LLC, former related party (Details Narrative) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Dec. 31, 2018
California Custom Beverage, LLC [Member]      
Related Party Transaction [Line Items]      
Due to related party $ 452 $ 452  
Christopher J. Reed [Member] | California Custom Beverage, LLC [Member]      
Related Party Transaction [Line Items]      
Royalty percentage     5.00%
v3.24.3
Commitments and Contingencies (Details Narrative) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2024
Sep. 30, 2023
Dec. 31, 2023
Dec. 31, 2018
Loss Contingencies [Line Items]          
Common stock value $ 1,903 $ 1,903 $ 4,016    
Common Stock [Member]          
Loss Contingencies [Line Items]          
Common stock placed, shares 1,268,795   1,566,732    
Common stock value        
Chris Reed [Member] | California Custom Beverage, LLC [Member]          
Loss Contingencies [Line Items]          
Deposit of security with lessor $ 800 800     $ 1,200
Common stock value   $ 10      
Chris Reed [Member] | California Custom Beverage, LLC [Member] | Common Stock [Member]          
Loss Contingencies [Line Items]          
Common stock placed, shares   7,260      
Maximum [Member]          
Loss Contingencies [Line Items]          
Maximum obligation       $ 1,200  
v3.24.3
Subsequent Events (Details Narrative) - Subsequent Event [Member]
$ in Millions
Nov. 14, 2024
USD ($)
Subsequent Event [Line Items]  
Debt Instrument, Face Amount $ 10
Long-Term Debt, Percentage Bearing Variable Interest, Percentage Rate 8.00%

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