Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes appearing elsewhere in this report.

In addition to our United States generally accepted accounting principles ("U.S. GAAP") results, the following discussion includes EBITDA as a supplemental measure of our performance. We present 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 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. EBITDA is not a recognized measurement under U.S. GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flow from operating activities as a measure of liquidity. We define EBITDA as net income (loss), plus interest expense, tax expense, and depreciation and amortization.

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, 2026, the Company continued its focus on achieving profitable sales growth, improving gross margin, reducing freight costs, and optimizing selling, general and administrative expenses. The sales growth initiatives include improved sales execution, in-store promotions, product placements, and merchandising, channel expansion, and new product innovation. The gross margin enhancement initiatives include product portfolio optimization, equitable supplier negotiations, streamlining co-packer processes, and efficient inventory management. Underpinning these initiatives is a focus on optimizing delivery and handling and selling, general and administrative expenses.

During the year ended December 31, 2025, the Company began an expansion into new geographic markets in the Asia Pacific region. The Company formed a wholly owned subsidiary Reed's (Asia) Limited (BVI). Reed's (Asia) Limited subsequently formed five additional wholly owned subsidiaries, Reed's (Hong Kong) Limited, Reed's (Japan) Limited, Jiangzhi Beverage (Hainan) Co. Limited, Reed's Beverages (Singapore) PTE Limited, and Shenshen Jiangzi Beverage Co. Limited. These subsidiaries are an early part of the Company's strategic expansion in the Asia Pacific region. The Company expects continued investment in its Asia Pacific growth initiative. Reed's (Asia) Limited did not generate material sales in the period ended September 30, 2026 or 2025.

Recent Trends - Market Conditions

Although the U.S. economy continues to grow, inflation, actions by the Federal Reserve to address inflation, fluctuations in energy prices, and the potential impacts of tariffs, trade tensions and geopolitical events create uncertainty about the future economic environment which will continue to evolve and may impact 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 vendors 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 nine months ended September 30, 2026, the average cost of shipping and handling was $2.60 per case, as compared to $2.93 per case for the nine months ended September 30, 2025. We have experienced increases in freight costs and there remains a volatile pricing environment, including due to the armed conflict in Iran. We will continue to monitor pricing and availability in transportation and has implemented plans designed to manage this risk. In the past, we have been negatively impacted by supply chain challenges affecting our ability to benefit from strong demand for, and increased sales of our product. Any disruption caused by labor shortages, significant raw material cost inflation, logistics issues, increased freight costs, or port congestion, may adversely impact margins in the future.

Through September 30, 2026, we continued to finance our operations through existing cash balances, cash generated from operations, public and private issuance of common stock, and credit lines from financial institutions. As we seek additional financing, there can be no assurance that such financing will 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 operating performance and investor sentiment with respect to us and our industry.

Results of Operations - Three Months Ended September 30, 2026, as compared to September 30, 2025

The following table sets forth key statistics for the three months ended September 30, 2026 and 2025, respectively, in thousands.

		Three Months Ended September 30,								Pct.
		2026				2025				Change
Gross billing (A)		$	7,631			$	9,279				-18	%
Less: Promotional and other allowances (B)			1,118				2,246				-50	%
Net sales		$	6,513			$	7,033				-7	%
Cost of goods sold			4,878				5,809				-16	%
% of Gross billing			64	%			63	%
% of Net sales			75	%			83	%
Gross profit		$	1,635			$	1,224				34	%
% of Net sales			25	%			17	%
Expenses
Delivery and handling		$	989			$	1,100				-10	%
% of Net sales			15	%			16	%
Dollar per case ($)		$	2.69			$	2.60
Selling and marketing			1,191				1,366				-13	%
% of Net sales			18	%			19	%
General and administrative			2,411				2,861				-16	%
% of Net sales			37	%			41	%
Total operating expenses			4,591				5,327				-14	%
Loss from operations		$	(2,956	)		$	(4,103	)			-28	%
Interest expense and other expense		$	(214	)		$	121				-277	%
Net loss		$	(3,170	)		$	(3,982	)			-20	%
Loss per share - basic and diluted		$	(0.27	)		$	(0.48	)			-45	%
Weighted average shares outstanding - basic & diluted			11,847,086				8,248,157				44	%

(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 U.S. 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 that 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 U.S. GAAP and meet U.S. GAAP requirements, however the disclosure thereof does not conform to U.S. 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 2025 through the third quarter of 2026.

				2026																Q3 vs				YTD vs				2025																Q3 Per Case								vs				YTD Per Case								vs
				Q1				Q2				Q3				YTD				PY				PY				Q1				Q2				Q3				YTD				2026				2025				PY				2026				2025				PY
Cases:
		Reed's			320				299				269				888				-6	%			-9	%			334				350				287				971
		Virgil's			115				137				99				351				-27	%			-29	%			179				182				136				497
		Total			435				436				368				1,239				-13	%			-16	%			513				532				423				1,468
Gross Billing:		Total		$	8,513			$	8,771			$	7,631			$	24,915				-18	%			-22	%		$	11,013			$	11,569			$	9,279			$	31,861			$	20.74			$	21.94				-5	%			20.11				21.70				-7	%
Discounts:		Total		$	(1,372	)		$	(1,282	)		$	(1,118	)		$	(3,772	)			-50	%			-29	%		$	(984	)		$	(2,046	)		$	(2,246	)		$	(5,276	)		$	(3.04	)		$	(5.31	)			-43	%		$	(3.04	)		$	(3.59	)			-15	%
COGS:		Total		$	(6,445	)		$	(5,699	)		$	(4,878	)		$	(17,022	)			-16	%			-20	%		$	(6,627	)		$	(8,716	)		$	(5,809	)		$	(21,152	)		$	(13.26	)		$	(13.73	)			-3	%		$	(13.74	)		$	(14.41	)			-5	%
Gross Margin:				$	696			$	1,790			$	1,635			$	4,121				34	%			-24	%		$	3,402			$	807			$	1,224			$	5,433			$	4.44			$	2.89				54	%		$	3.33			$	3.70				-10	%
as % Net Sales					10	%			24	%			25	%			19	%											34	%			8	%			17	%			20	%

Sales, Cost of Sales, and Gross Margins

Gross billing decreased by 18% to $7,631 during the three months ended September 30, 2026, compared to $9,279 during the prior year, primarily driven by Reed's volume decline of 6%, and Virgil's volume decline of 27%. Prices on our brands decreased 5% to $20.74 per case, primarily driven by liquidation of select slow-moving product.

Discounts as a percentage of gross sales were 15% during the three months ended September 30, 2026, compared to 24% in the prior year. Net sales decreased 7% during the three months ended September 30, 2026, to $6,513, compared to $7,033 in the prior year, primarily driven by lower volumes with recurring national customers, partially offset by lower promotional and other allowances.

Cost of Goods Sold

Cost of goods sold decreased $931 during the three months ended September 30, 2026, as compared to the prior year. As a percentage of net sales, cost of goods sold for the three months ended September 30, 2026, was 75% as compared to 83% for the prior year. The decrease in cost of goods sold was primarily driven by the net sales decrease discussed above and lower inventory write-offs. Inventory write-offs were $83 during the three months ended September 30, 2026 and $114 in the prior year period.

The total cost of goods per case decreased to $13.26 per case in the three months ended September 30, 2026, from $13.73 per case for the prior year.

Gross Margin

Gross margin was 25% for the three months ended September 30, 2026, compared to 17% for the prior 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 $111 in the three months ended September 30, 2026, to $989 from $1,100 in the prior year, primarily driven by the net sales decrease discussed above and continuing improvements in logistics efficiency and freight optimization. Delivery costs in the three months ended September 30, 2026, were 15% of net sales and $2.69 per case, compared to 16% of net sales and $2.60 per case during the prior 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 $1,191 during the three months ended September 30, 2026, compared to $1,366 during the prior year. The decrease was primarily driven by continuing efforts to optimize selling and marketing expenses. As a percentage of net sales, selling and marketing expenses were 18% of net sales during the three months ended September 30, 2026, as compared to 19% of net sales during the prior year.

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 were $2,411 during the three months ended September 30, 2026, a decrease of $450 over the prior year. The decrease was primarily driven by continuing efforts to optimize general and administrative expenses, offset by investments in personnel and related services to support our Asia growth initiative. As a percentage of net sales, general and administrative expenses were 37% during the three months ended September 30, 2026, as compared to 41% during the prior year.

Loss from Operations

The loss from operations was $2,956 for the three months ended September 30, 2026, as compared to a loss of $4,103 in the prior year, primarily driven by higher gross profit and lower operating expenses discussed above.

Interest and Other Expense

Interest and other expense for the three months ended September 30, 2026, consisted of $207 of interest expense and $7 of other expense. During the prior year, interest and other expense consisted of $274 of interest expense, offset by $395 of other income.

EBITDA

In addition to our U.S. GAAP results, we present EBITDA as a supplemental measure of our performance. However, EBITDA is not a recognized measurement under U.S. GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flow from operating activities as a measure of liquidity. We define EBITDA as net income (loss), plus interest expense, tax expense, and depreciation and amortization.

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 U.S. GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating 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 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 EBITDA for the three months ended September 30, 2026 and 2025:

		Three Months Ended September 30,
		2026				2025
Net loss		$	(3,170	)		$	(3,982	)
EBITDA adjustments:
Interest expense			207				274
Tax expense			58				37
Depreciation and amortization			30				64
Total EBITDA adjustments		$	295			$	375
EBITDA		$	(2,875	)		$	(3,607	)

We present 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 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. EBITDA has limitations as an analytical tool, which includes, among others, the following:

	●	EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
	●	EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
	●	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 EBITDA does not reflect any cash requirements for such replacements.

Results of Operations - Nine Months Ended September 30, 2026, as compared to Nine Months Ended September 30, 2025

The following table sets forth key statistics for the nine months ended September 30, 2026 and 2025, respectively, in thousands.

		Nine Months Ended September 30,								Pct.
		2026				2025				Change
Gross billing (A)		$	24,915			$	31,861				-22	%
Less: Promotional and other allowances (B)			3,772				5,276				-29	%
Net sales		$	21,143			$	26,585				-20	%
Cost of goods sold			17,022				21,152				-20	%
% of Gross billing			68	%			66	%
% of Net sales			81	%			80	%
Gross profit		$	4,121			$	5,433				-24	%
% of Net sales			19	%			20	%
Expenses
Delivery and handling		$	3,216			$	4,299				-25	%
% of Net sales			15	%			16	%
Dollar per case ($)			2.60				2.93
Selling and marketing			4,647				4,139				12	%
% of Net sales			22	%			16	%
General and administrative			9,493				8,633				10	%
% of Net sales			45	%			32	%
Total operating expenses			17,356				17,071				2	%
Loss from operations		$	(13,325	)		$	(11,638	)			14	%
Interest expense and other income (expense)			(672	)			(423	)			59	%
Net loss		$	(13,907	)		$	(12,061	)			15	%
Loss per share - basic and diluted		$	(1.17	)		$	(1.54	)			-24	%
Weighted average shares outstanding - basic & diluted			11,841,376				7,848,471				51	%

(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 that 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

Gross billing decreased by 22% to $24,915 during the nine months ended September 30, 2026, compared to $31,861 during the prior year, primarily driven by Reed's volume decline of 9%, and Virgil's volume decline of 29%. Prices on our brands decreased 7% to $20.11 per case, primarily driven by liquidation of select slow-moving product.

Discounts as a percentage of gross sales were 15% during the nine months ended September 30, 2026, compared to 17% in the prior year. Net sales decreased 20% during the nine months ended September 30, 2026, to $21,143, compared to $26,585 in the prior year, primarily driven by lower volumes with recurring national customers, partially offset by lower promotional and other allowances.

Cost of Goods Sold

Cost of goods sold decreased to $17,022 during the nine months ended September 30, 2026, as compared to $21,152 in the prior year. As a percentage of net sales, cost of goods sold for the nine months ended September 30, 2026, was 81% as compared to 80% for the prior year. The decrease in cost of goods sold was primarily driven by the net sales decrease discussed above and lower inventory write-offs. Inventory write-offs were $913 during the nine months ended September 30, 2026 and $1,775 in the prior year period.

The total cost of goods per case decreased to $13.74 per case in the nine months ended September 30, 2026, from $14.41 per case for the prior year.

Gross Margin

Gross margin was 19% for the nine months ended September 30, 2026, compared to 20% for the prior 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 $1,083 in the nine months ended September 30, 2026, to $3,216 from $4,299 in the prior year, primarily driven by the net sales decrease discussed above and continuing improvements in logistics efficiency and freight optimization. Delivery costs in the nine months ended September 30, 2026, were 15% of net sales and $2.60 per case, compared to 16% of net sales and $2.93 per case during the prior 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 $4,647 during the nine months ended September 30, 2026, compared to $4,139 during the prior year. The increase was primarily driven by higher sales broker and marketing expenses. As a percentage of net sales, selling and marketing expenses were 22% of net sales during the nine months ended September 30, 2026, as compared to 16% of net sales during the prior year.

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 were $9,493 during the nine months ended September 30, 2026, an increase of $860 over the prior year. The increase was primarily driven by investments in personnel and related services to support our Asia growth initiative, offset by lower legal settlements and continuing efforts to optimize general and administrative expenses.

As a percentage of net sales, general and administrative expenses were 45% during the nine months ended September 30, 2026, as compared to 32% during the prior year.

Loss from Operations

The loss from operations was $13,325 for the nine months ended September 30, 2026, as compared to a loss of $11,638 in the prior year, primarily driven by lower gross profit and higher operating expenses discussed above.

Interest and Other Expense

Interest and other expense for the nine months ended September 30, 2026, consisted of $615 of interest expense and $57 of other expense. During the prior year, interest and other expense consisted of $864 of interest expense, offset by $441 of other income.

EBITDA

In addition to our U.S. GAAP results, we present EBITDA as a supplemental measure of our performance. However, EBITDA is not a recognized measurement under U.S. GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flow from operating activities as a measure of liquidity. We define EBITDA as net income (loss), plus interest expense, tax expense, and depreciation and amortization.

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 U.S. GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating 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 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 EBITDA for the nine months ended September 30, 2026 and 2025:

		Nine Months Ended September 30,
		2026				2025
Net loss		$	(13,907	)		$	(12,061	)
EBITDA adjustments:
Interest expense			615				864
Tax expense			168				85
Depreciation and amortization			109				156
Total EBITDA adjustments		$	892			$	1,105
EBITDA		$	(13,015	)		$	(10,956	)

We present 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 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. EBITDA has limitations as an analytical tool, which includes, among others, the following:

	●	EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
	●	EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
	●	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 EBITDA does not reflect any cash requirements for such replacements.

Liquidity and 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. For the nine months ended September 30, 2026, the Company recorded a net loss of $13,907, used cash in operations of $8,329, and as of September 30, 2026, had a stockholders' deficiency of $4,655. As of September 30, 2026, the Company had a cash balance of $2,095, principal amount outstanding on the Senior Secured Loan of $9,250, no remaining availability under the Senior Secured Loan, and a maturity date on the Senior Secured Loan of June 30, 2027.

On September 30, 2026, the Company entered into a Second Amended Loan Agreement (see Note 6 Senior Secured Loan).

On November 6, 2026, the Company entered into a Third Amended Loan Agreement (see Note 6 Senior Secured Loan).

On November 9, 2026, the Company completed a private placement with D&D Source of Life Holding, Ltd. ("D&D"), the Company's majority stockholder (a related party), as sole investor, pursuant to which the Company issued and sold an aggregate of 17,421,602 shares of common stock for total gross proceeds of $10,000 (see Note 13 Subsequent Events).

In accordance with Accounting Standards Codification ("ASC") 205-40, Going Concern, these factors, considered in the aggregate, raise substantial doubt about our 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 we be unable to continue as a going concern.

Historically, we have financed our operations through existing cash balances, cash generated from operations, public and private issuance of common stock, preferred stock, convertible debt instruments, term loans and credit lines from financial institutions.

To alleviate any funding considerations, management periodically evaluates various funding alternatives and may seek to raise additional funds through the issuance of equity, mezzanine or debt securities, through arrangements with strategic partners, strategic transactions, or through obtaining credit from financial institutions. As we seek additional sources of financing, there can be no assurance that such financing will 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 are also continuing to take actions to improve our operating performance and cash generated from operations, including product portfolio optimization, implementing strategies to achieve profitable sales growth, streamlining operations, improving supply chains, negotiating equitable vendor contracts, and managing product price architecture. However, we may be unsuccessful in executing these actions in a timely manner or at all.

If we are unable to raise additional capital whenever necessary or otherwise improve our operating performance or generation of cash from operations, we may be forced to decelerate or curtail certain of our operations until such time as additional capital becomes available.

Cash Flows

Net cash used in operating activities totaled $8,329 for the nine months ended September 30, 2026, compared to $13,230 for the nine months ended September 30, 2025. The decrease in net cash used in operating activities was primarily driven by lower working capital, partially offset by investment in strategic growth initiatives.

Net cash used in investing activities totaled $0 for the nine months ended September 30, 2026, compared to $172 for the nine months ended September 30, 2025. The decrease in net cash used in investing activities was primarily driven by no purchases of property and equipment.

Net cash provided by financing activities totaled $0 for the nine months ended September 30, 2026, compared to $7,147 for the nine months ended September 30, 2025. The decrease in net cash provided by financing activities was primarily driven by no proceeds from the sale of common shares.

Critical Accounting Policies and Estimates

The preparation of the Company's financial statements in conformity with 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 consolidated financial statements included in our 2025 Form 10-K that impacted our condensed financial statements and related notes included herein.

Recent Accounting Pronouncements

See Note 2 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.