| 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, 2021, filed with the SEC on April
15, 2022. 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 June 30, 2022, and the results
of its operations and its cash flows for the six months ended June 30, 2022 and 2021. The balance sheet as of December 31, 2021 is derived
from the Company’s audited financial statements. The results of operations for the six months ended
June 30, 2022 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31,
2022. 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 six months ended June 30, 2022, the Company recorded
a net loss of $ 10,057 16,330 As of June 30, 2022, we had a cash balance of $ 280 969 1,361 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. 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. During the first six months
of 2022, the Company continued to strengthen its supply chain, implement gross margin enhancement initiatives, drive efficiencies in transportation
and warehouse costs and reduce operating expenses. As noted above, the Company remains focused on driving
sales growth, improving margin, and reducing freight costs. The sales growth focus is on channel expansion, new product introduction and improved sales execution
resulting in increased sales velocity. The margin enhancement initiative is driven by co-packer upgrades, better leveraged purchasing
and improved efficiency. Underpinning these initiatives is a focus on strategically reducing operating costs particularly delivery and
handling expenses. During 2021, the Company experienced elevated transportation costs over the prior year and anticipates these costs
to remain elevated for the balance of 2022. Plans have been implemented to mitigate the impact of these costs. Recent Trends - Market Conditions During the period ended June
30, 2022, the COVID-19 pandemic continued to impact our operating results and the Company anticipates a residual effect for the balance
of the year. In addition, the pandemic could cause reduced demand for our products if, for example, the pandemic results in a recessionary
economic environment which negatively effects the consumers who purchase our products. Based on the recent increase in demand for our
products, we believe that over the long term, there will continue to be strong demand for our products. Although the U.S. economy
continued to grow during the first quarter of 2022, the continuing impact of the COVID-19 pandemic, higher inflation, the actions by the
Federal Reserve to address inflation, and rising energy prices create uncertainty about the future economic environment which will continue
to evolve and may impact our business in future periods. We have experienced supply chain challenges, including increased lead times,
as well as inflation of raw materials, logistics and labor costs due to availability constraints and high demand. 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. We expect
the inflationary trends and supply chain pressures to continue throughout the remainder of 2022. Through June 30, 2022, the
Company experienced elevated freight costs as a result of a higher transportation market as the capacity in the freight market has not kept up with
demand. The Company believes these challenges will continue throughout the year. In addition, the Company experienced increases in the
pricing of several of its raw materials and delays in procuring several of these items. However, mitigation plans have been implemented
to manage this risk. Additionally, the Company was negatively impacted by supply chain challenges impacting our ability to benefit from
strong demand for, and increased sales of our product. The disruption caused by labor shortages, significant raw material cost inflation,
logistics issues and increased freight costs, and ongoing port congestion, resulted in suppressed margins and net income. The Company
anticipates a continued impact throughout 2022. Our ability to operate without
significant incremental negative operational impact from the COVID-19 pandemic will in part depend on our ability to protect our employees
and protect our supply chain. The Company has endeavored to follow the recommended actions of government and health authorities to protect
our employees. Since the inception of the COVID-19 pandemic and through June 30, 2022, we maintained the consistency of our operations
during the onset of the COVID-19 pandemic. We will continue to innovate in managing our business, coordinating with our employees and
suppliers to do our part in the infection prevention and remain flexible in responding to our customers and suppliers. However, the uncertainty
resulting from the pandemic could result in an unforeseen disruption to our workforce and supply chain (for example an inability of a
key supplier or transportation supplier to source and transport materials) that could negatively impact our operations. We have not observed any
material impairments of our assets or a significant change in the fair value of our assets due to the COVID-19 pandemic. 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 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. Revenue Recognition The Company recognizes revenue in accordance with
Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers The Company does not allow for returns, except for
damaged products when the damage occurred pre-fulfilment. Damaged product returns have historically been insignificant. Because of this,
the stand-alone nature of 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 the computation when their effect is antidilutive. For the periods ended June 30, 2022 and 2021, the
calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive effect.
The potentially dilutive securities consisted of the following: Schedule of Potentially Dilutive Securities
June 30, 2022 June 30, 2021
Warrants 13,107,469 3,088,479
Options 9,801,201 12,173,607
Convertible Note Payable 22,457,782 -
Unvested restricted common stock 275,860 234,114
Series A Convertible Preferred stock 37,644 37,644
Total 45,679,956 15,533,844 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 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 June 30, 2022 and 2021, aggregated $ 111 353 423 702 Concentrations Net sales. 23 11 10 21 11 10 19 12 20 12 Accounts receivable. 29 10 18 Purchases from vendors. 14 14 13 12 13 12 Accounts payable. 11 10 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. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In August 2020, the Financial Accounting Standards
Board (“FASB”) issued ASU No. 2020-06 “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”).” ASU 2020-06 reduces the
number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. The
diluted net income per share calculation for convertible instruments will require the Company to use the if-converted method. For contracts
in an entity’s own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are
accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception.
This update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled
in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective
January 1, 2024, for the Company and the provisions of this update can be adopted using either the modified retrospective method or a
fully retrospective method. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year.
Effective January 1, 2021, the Company early adopted ASU 2020-06 and that adoption did not have an impact on our financial statements
and related disclosures. In May 2021, the FASB issued ASU 2021-04 “Earnings
Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718),
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications
or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU 2021-04”). ASU 2021-04 provides guidance
as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written
call option (i.e., a warrant) that remains equity classified after modification or exchange as an exchange of the original instrument
for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the
modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition
model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt
origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective
for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should
apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company
adopted ASU 2021-04 effective January 1, 2022. The adoption of ASU 2021-04 did not have any impact on the Company’s financial statement
presentation or disclosures. Recently Issued Accounting Pronouncements Not Yet
Adopted In June 2016, the FASB issued ASU 2016-13, Measurement
of Credit Losses on Financial Instruments Other recent accounting pronouncements issued by the
FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission
did not or are not believed by management to have a material impact on the Company’s present or future financial statements. |
