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 March 31, 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 4,187,291 shares outstanding as of May 10^th, 2024.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION		F-1

Item 1. Condensed Financial Statements		F-1

Condensed Balance Sheets - March 31, 2024 (Unaudited) and December 31, 2023		F-1

Condensed Statements of Operations for the three months ended March 31, 2024 and 2023 (Unaudited)		F-2

Condensed Statements of Changes in Stockholders’ Deficit for the three months ended March 31, 2024 and 2023 (Unaudited)		F-3

Condensed Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (Unaudited)		F-4

Notes to Condensed Financial Statements three months ended March 31, 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		6

Item 4. Controls and Procedures		6

PART II – OTHER INFORMATION		7

Item 1. Legal Proceedings		7

Item 1A. Risk Factors		7

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		7

Item 3. Defaults Upon Senior Securities		7

Item 4. Mine Safety Disclosures		7

Item 5. Other Information		7

Item 6. Exhibits		7

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.

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

REED’S, INC,

CONDENSED BALANCE SHEETS

(Amounts in thousands, except share amounts)

	March 31, 2024			December 31, 2023
	(Unaudited)
ASSETS
Current assets:
Cash	$	314		$	603
Accounts receivable, net of allowance of $258 and $860, respectively		3,251			3,571
Inventory		12,017			11,300
Receivable from former related party		264			259
Prepaid expenses and other current assets		2,332			2,028
Total current assets		18,178			17,761

Property and equipment, net of accumulated depreciation of $1,136 and $1,068, respectively		441			493
Intangible assets		631			629
Total assets	$	19,250		$	18,883

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	8,484		$	9,133
Accrued expenses		872			1,096
Revolving line of credit, net of capitalized financing costs of $161 and $201, respectively		7,844			9,758
Payable to former related party		331			259
Current portion of convertible notes payable, net of debt discount of $509 and $424, respectively		7,339			6,737
Current portion of lease liabilities		155			207
Total current liabilities		25,025			27,190

SAFE agreements		4,097			-
Convertible note payable, net of debt discount of $45 and $148, respectively, less current portion		10,853			10,874
Total liabilities		39,975			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; 4,187,291 and 4,187,291 shares issued and outstanding, respectively		-			-
Additional paid in capital		119,581			119,452
Accumulated deficit		(140,400	)		(138,727	)
Total stockholders’ deficit		(20,725	)		(19,181	)
Total liabilities and stockholders’ deficit	$	19,250		$	18,883

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

F-1

REED’S, INC.

CONDENSED STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2024 and 2023

(Unaudited)

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

	March 31, 2024			March 31, 2023
Net Sales	$	9,595		$	11,157
Cost of goods sold		6,182			8,459
Gross profit		3,413			2,698

Operating expenses:
Delivery and handling expense		1,502			2,120
Selling and marketing expense		1,093			1,447
General and administrative expense		1,468			1,709
Total operating expenses		4,063			5,276

Loss from operations		(650	)		(2,578	)

Interest expense		(1,023	)		(1,779	)

Net loss	$	(1,673	)	$	(4,357	)

Net loss per share – basic and diluted	$	(0.40	)	$	(1.70	)

Weighted average number of shares outstanding – basic and diluted		4,187,291			2,559,855

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 Months Ended March 31, 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, December 31, 2023		4,187,291	$	-		9,411	$	94	$	119,452	$	(138,727	)	$	(19,181	)
Fair value of vested options		-		-		-		-		129		-			129
		-		-		-		-		-		-			-
Net loss		-		-		-		-		-		(1,673	)		(1,673	)
Balance, March 31, 2024		4,187,291	$	-		9,411	$	94	$	119,581	$	(140,400	)	$	(20,725	)

	Common Stock					Preferred Stock				Additional Paid In			Accumulated			Total Stockholders’
	Shares			Amount		Shares		Amount		Capital			Deficit			Equity
Balance, December 31, 2022		2,519,485		$	-		9,411	$	94	$	114,635		$	(123,199	)	$	(8,470	)
Balance		2,519,485		$	-		9,411	$	94	$	114,635		$	(123,199	)	$	(8,470	)

Fair value of vested options		-					-				229						229
Fair value of vested restricted shares granted to officers		750					-				4						4
Repurchase of common stock		(274	)				-				(1	)					(1	)
Common shares issued for financing costs		82,438					-				273						273
Net loss		-			-		-		-		-			(4,357	)		(4,357	)
Balance, March 31, 2023		2,602,399		$	-		9,411	$	94	$	115,140		$	(127,556	)	$	(12,322	)
Balance		2,602,399		$	-		9,411	$	94	$	115,140		$	(127,556	)	$	(12,322	)

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

F-3

REED’S, INC.

CONDENSED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2024 and 2023

(Unaudited)

(Amounts in thousands)

	March 31, 2024			March 31, 2023
Cash flows from operating activities:
Net loss	$	(1,673	)	$	(4,357	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		29			47
Amortization of debt discount		144			281
Fair value of vested options		129			229
Fair value of vested restricted shares granted to officers		-			4
Change in allowance for doubtful accounts		(601	)		(39	)
Inventory write-downs		(783	)		(228	)
Accrued interest		564			1,113
Changes in operating assets and liabilities:
Accounts receivable		922			1,044
Inventory		66			1,102
Prepaid expenses and other assets		(1,305	)		338
Decrease in right of use assets		39			32
Accounts payable		351			1,360
Accrued expenses		(225	)		235
Lease liabilities		(52	)		(44	)
Net cash provided by (used in) operating activities		(2,395	)		1,117
Cash flows from investing activities:
Trademark costs		(2	)		-
Purchase of property and equipment		(16	)		-
Net cash used in investing activities		(18	)		-
Cash flows from financing activities:
Proceeds from line of credit		8,285			8,699
Payments on line of credit		(10,239	)		(12,120	)
Proceeds from convertible note payable, net of expenses		-			2,405
Proceeds from SAFE agreement		4,097			-
Payment of cost recorded as debt discount		(86	)
Repurchase of common stock		-			(1	)
Amounts from former related party, net		67			(166	)
Net cash provided by (used in) financing activities		2,124			(1,183	)

Net increase (decrease) in cash		(289	)		(66	)
Cash at beginning of period		603			533
Cash at end of period	$	314		$	467

Supplemental disclosures of cash flow information:
Cash paid for interest	$	318		$	390
Non-cash investing and financing activities:
Reclass of prepaid expenses and accounts payable	$	1,000		$	0

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

F-4

REED’S, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

Three Months Ended March 31, 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 March 31, 2024, and the results of its operations and its cash flows for the three months ended March 31, 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 three months ended March 31, 2024 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2024.

Liquidity

For the three months ended March 31, 2024, the Company recorded a net loss of $1,673 and used cash in operations of $2,395. In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company’s management has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the accompanying financial statements were issued. As of the issuance date of these financial statements, management expects that the Company’s existing cash of $314, which includes $4,100 of additional cash received during the three months ended March 31, 2024, from investments with significant stockholders plus expected cash from operations, will be sufficient to fund the Company’s current operating plan for at least twelve months from the date of issuance of these financial statements. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Historically, 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, strategic transactions 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

Although the U.S. economy continued to grow throughout 2023 and into Q1 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 ended March 31, 2024, the Company experienced moderation from the elevated freight costs experienced in 2023. The average cost of shipping and handling for the three months ended March 31, 2024, was $3.01 per case, as compared to $3.46 per case for the three months ended March 31, 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.

F-5

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 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 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 March 31, 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:

	March 31, 2024		March 31, 2023
Warrants		549,292		235,946
Options		141,869		174,460
Convertible note payable		1,557,066		1,257,491
Unvested restricted common stock		-		710
Common stock equivalent of Series A Convertible Preferred stock		753		753
Total		2,248,980		1,669,360

Stock Compensation Expense

The Company periodically issues stock options and restricted stock awards to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting based on ASC 718, Compensation-Stock Compensation whereby the value of the award is measured on the date of grant and recognized for employees as compensation expense on the straight-line basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services. The Company recognizes the fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the services rendered.

F-6

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 aggregated $17 and $55 for the three months ended March 31, 2024 and 2023, respectively.

Concentrations

Net sales. During the three months ended March 31, 2024, the Company’s two largest customers accounted for 17% and 16% of net sales, respectively. During the three months ended March 31, 2023, the Company’s two largest customers accounted for 18% and 12% of net sales, respectively. No other customers exceeded 10% of net sales in either period.

Accounts receivable. As of March 31, 2024, the Company had accounts receivable from one customer which comprised 29% of its gross accounts receivable. 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 three months ended March 31, 2024 and the year ended December 31, 2023, the Company utilized six separate co-packers for most its production and bottling of beverage products in the United States. 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 three months ended March 31, 2024, the Company’s largest vendor accounted for approximately 10% of all purchases. During the three months ended March 31, 2023, the Company’s largest vendor accounted for approximately 11% of all purchases. No other vendors exceeded 10% of all purchases in either period.

Accounts payable. As of March 31, 2024, one vendor accounted for 11% 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.

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 have been reclassed as an offset against accounts receivable. These reclassifications 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 will be effective for the Company on January 1, 2024 and interim periods beginning in fiscal year 2025, with early adoption permitted. The updates required by this standard should be applied retrospectively to all periods presented in the financial statements. The Company does not expect this standard to have a material impact on its results of operations, financial position or cash flows.

F-7

In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The ASU requires buyers to disclose information about their supplier finance programs. Interim and annual requirements include the disclosure of outstanding amounts under the obligations as of the end of the reporting period, and annual requirements include a roll-forward of those obligations for the annual reporting period, as well as a description of payment and other key terms of the programs. This update is effective for annual periods beginning after December 15, 2022, and interim periods within those fiscal years, except for the requirement to disclose roll-forward information, which is effective for fiscal years beginning after December 15, 2023. The Company adopted ASU 2022-04 on January 1, 2023, and there was no material impact on our financial statements.

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):

Schedule of Inventory

	March 31, 2024		December 31, 2023
Raw materials and packaging	$	6,766	$	6,445
Finished products		5,251		4,855
Total	$	12,017	$	11,300

3. Property and Equipment

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

Schedule of Property and Equipment

	March 31, 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		101			85
Total cost		1,577			1,561
Accumulated depreciation and amortization		(1,136	)		(1,068	)
Net book value	$	441		$	493

F-8

Depreciation expense for the three months ended March 31, 2024 and 2023 was $29 and $47, respectively, and amortization of right-of-use assets for the three months ended March 31, 2024 and 2023 was $39 and $32, respectively.

4. Intangible Assets

Intangible assets consist of the following (in thousands):

Summary of Intangible Assets

	March 31, 2024		December 31, 2023
Brand names	$	576	$	576
Trademarks		55		53
Total	$	631	$	629

5. Line of Credit

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

	March 31, 2024			December 31, 2023
Line of credit – Alterna Capital Solutions	$	8,005		$	9,959
Less: capitalized financing costs		(161	)		(201	)
Total	$	7,844		$	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 $400 of additional borrowing above the collateralized base (the “Over Advance”) up to a total borrowing of $13,000. As of March 31, 2024, there was no remaining availability under the line of credit, and $4,995 of borrowing capacity available.

SEC Form 10-Q filed by Reeds Inc.