| 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, 2022, filed with the SEC on May 15, 2023. 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, 2023, and the results of its operations and its cash flows for the six months ended June 30, 2023 and 2022. The balance sheet
as of December 31, 2022 is derived from the Company’s audited financial statements. The
results of operations for the six months ended June 30, 2023 are not necessarily indicative of the results of operations to be expected
for the full fiscal year ending December 31, 2023. 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, 2023, the Company recorded a net loss of $ 7,491 11,463 As
of June 30, 2023, we had a cash balance of $ 447 0 6,158 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. 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 During
the period ended December 31, 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 affects 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 second quarter of 2023, 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. We expect the inflationary
trends and supply chain pressures to continue throughout 2023. During
the three and six month period ended June 30, 2023, the Company experienced moderation from the elevated freight costs experienced in
2022. The average cost of shipping and handling for the three month period ended June 30, 2023, was $ 3.04 5.00 3.26 4.47 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, 2023, 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 to be responsible to our employees and business partners 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. Reverse
Stock Split At
a special meeting of shareholders held on January 24, 2023, the Company’s shareholders granted the Company’s board of directors
the discretion to effect a reverse stock split of the common stock through an amendment to the Company’s Certificate of Incorporation,
as amended, at a ratio of any ratio not less than 1-for-6 and not more than 1-for-50 1-for-50 reverse stock split 0.0001 The
authorized number of shares of common stock were not affected by the reverse stock split. No fractional shares were issued in connection
with the reverse stock split, as all fractional shares were rounded up to the next whole share. Accordingly, all share and per share
amounts presented herein with respect to common stock have been retroactively adjusted to reflect the above-described reverse stock split
for all periods presented. 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,
and assumptions used in valuing warrant liabilities, 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 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, 2023 and 2022, 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, 2023 June
30, 2022
Warrants 549,292 262,149
Options 152,035 196,024
Convertible
note payable 1,415,826 449,156
Unvested restricted
common stock - 5,517
Common
stock equivalent of Series A Convertible Preferred stock 753 753
Total 2,117,906 913,599
Antidilutive
Securities 2,117,906 913,599 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,
2023 and 2022, aggregated $ 27 111 83 423 Concentrations Net
sales. 18% 12% 12% 18% 12% 23% 11% 10% 21% 11% 10% Accounts
receivable. 17% 16% 11% 19% 11% The Company utilizes co-packers to produce 100%
of its products. Purchases
from vendors. 11% 10% 14% 14% Accounts
payable. 10% 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 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. In
September 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments 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. |
