What changed in this filing

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Item 1. Financial Statements

2020-11-09 compared with 2020-08-10 · 401 added, 433 removed, 246 unchanged (77% of the section changed)

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in thousands, except share amounts)

receivable, net of allowance for doubtful accounts and returns and discounts of $ 194 and $ 375 , respectively

from related party

net of reserve for obsolescence of $ 224

expenses and other current assets

current assets

Accounts receivable, net of allowance

for doubtful accounts and returns and discounts of $ 259

Receivable from related party

Inventory, net of reserve for obsolescence

Prepaid expenses

and other current assets

Total current assets

Property and equipment, net of accumulated

depreciation of $ 501

Equipment held for sale, net of impairment

reserves of $ 96 and

Intangible assets

LIABILITIES AND STOCKHOLDERS’

and equipment, net of accumulated depreciation of $ 316 and $ 482 , respectively

held for sale, net of impairment reserves of $ 96 and $ 96 , respectively

AND STOCKHOLDERS’ EQUITY

line of credit

portion of note payable

note to a related party

portion of leases payable

current liabilities

Accounts payable

Accrued expenses

Revolving line of credit

Current portion of note payable

Convertible note to a related party

Current portion

of leases payable

Total current liabilities

Leases payable, less current portion

Convertible note to a related party

Warrant liability

payable, less current portion

note to a related party

Stockholders’

Series A Convertible Preferred stock,

value, 500,000 shares

authorized, 9,411 shares

issued and outstanding

Common stock, $ .0001

par value, 100,000,000

and 100,000,000

shares authorized, respectively;

and 47,595,206

shares issued and outstanding, respectively

Common stock issuable, 350,000

shares at June 30, 2020

Additional paid in capital

Accumulated deficit

A Convertible Preferred stock, $ 10 par value, 500,000 shares authorized, 9,411 shares issued and outstanding

stock, $ .0001 par value, 100,000,000 and 100,000,000 shares authorized, respectively;

62,960,570 and 47,595,206 shares issued

and outstanding, respectively

issuable, 350,000 shares at September 30, 2020

paid in capital

stockholders’ equity

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STATEMENTS OF OPERATIONS

the Three and Six Months Ended June 30, 2020 and 2019

the Three and Nine Months Ended September 30, 2020 and 2019

in thousands, except share and per share amounts)

Months Ended June 30,

Cost of goods

Operating expenses:

Delivery and handling expense

Selling and marketing expense

General and administrative expense

of goods sold

and handling expense

and marketing expense

and administrative expense

operating expenses

Loss from operations

Interest expense

Change in fair

value of warrant liability

from operations

in fair value of warrant liability

on Series A Convertible Preferred Stock

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per share – basic and diluted

Weighted average number of shares outstanding – basic and

Weighted average

number of shares outstanding – basic and diluted

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

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

the Three and Six months Ended June 30, 2020 and 2019

the Three and Nine months Ended September 30, 2020 and 2019

in thousands except share amounts)

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Stock Issuable

Stockholders’ Equity

Balance, March 31, 2020

Fair value of vested options

Dividends on Series A Convertible Preferred

Common shares issued pursuant to the

rights offering, net of offering costs

Shares granted to Directors for services

Shares granted to Directors for services, shares

Fair value of vested restricted shares granted to an

officer for services

Fair value of vested restricted shares granted to an

officer for services, shares

Fair value of vested restricted shares granted to officers

Fair value of vested restricted shares granted to an

officer for services, shares

Dividends on Series A Convertible Preferred Stock, shares

Exercise of warrants

Exercise of warrants, shares

Balance, June

Stockholders’

Balance, December 31, 2019

Fair value of vested options

June 30, 2020

value of vested options

shares issued on exercise of options

of shares for dividends on Series A Convertible Preferred Stock

Fair value of vested restricted shares

granted to officers

Dividends on Series A Convertible Preferred

granted to officers for services

Fair value of vested restricted shares granted to

officers for services, shares

Common shares issued pursuant to the rights offering, net of offering costs

Common shares issued pursuant to the

rights offering, net of offering costs

Balance, June

Stockholders’

Balance, March 31, 2019

Fair value of vested options

rights offering, net of offering costs, shares

Shares granted to Directors for services

Dividends on Series A Convertible Preferred

Fair value of vested restricted shares

granted to an officer for services

Shares granted to Directors for

services, shares

Exercise of warrants

Balance, June 30, 2019

September 30, 2020

Stockholders’

Balance, December 31, 2018

Fair value of vested options

Shares granted to Directors for services

Fair value of vested restricted shares

granted to an officer for services

Dividends on Series A Convertible Preferred

Common shares issued pursuant to the

rights offering, net of offering costs

December 31, 2019

value of vested options

value of vested restricted shares granted to officers

on Series A Convertible Preferred Stock

shares issued on exercise of options

shares issued pursuant to the rights offering, net of offering costs

Exercise of warrants

Balance, June

September 30, 2020

Stockholders’

June 30, 2019

value of vested options

granted to Directors for services

value of vested restricted shares granted to an officer for services

September 30,2019

Stockholders’

December 31, 2018

value of vested options

granted to Directors for services

value of vested restricted shares granted to an officer for services

on Series A Convertible Preferred Stock

shares issued pursuant to the rights offering, net of offering costs

September 30, 2019

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

STATEMENTS OF CASH FLOWS

the Six months Ended June 30, 2020 and 2019

the Nine months Ended September 30, 2020 and 2019

in thousands)

Cash flows from

operating activities:

Adjustments to reconcile

net loss to net cash used in operating activities:

(Gain)/loss on sale

of property & equipment

(Gain)/loss on termination

Amortization of

debt discount

Amortization of

right of use assets

Fair value of vested options

Fair value of vested

restricted shares granted to officers

Common stock issued

Decrease in allowance

for doubtful accounts

Decrease (increase)

in inventory reserve

Change in fair value

of warrant liability

Accrual of interest

on convertible note to a related party

Lease liability

Changes in operating

assets and liabilities:

Accounts receivable

Prepaid expenses

and other assets

Accounts payable

flows from operating activities:

to reconcile net loss to net cash used in operating activities:

on sale of property & equipment

on termination of leases

of debt discount

of right of use assets

value of vested options

value of vested restricted shares granted to officers

in allowance for doubtful accounts

(increase) in inventory reserve

in fair value of warrant liability

of interest on convertible note to a related party

in operating assets and liabilities:

expenses and other assets

cash used in operating activities

Cash flows from

investing activities:

Trademark costs

Proceeds from sale

of property and equipment

flows from investing activities:

from sale of property and equipment

of property and equipment

cash used in investing activities

Cash flows from

financing activities:

Borrowings on line

Repayments of line of credit

Proceeds from note

Repayment of amounts

due to/from officers

Principal repayments

on capital lease obligation

Exercise of warrants

flows from financing activities:

on line of credit

of line of credit

Capitalization

of financing costs

from note payable

of amounts due to/from officers

repayments on capital lease obligation

from sale of common stock

cash provided by financing activities

Net increase in cash

Cash at beginning of period

Cash at end of period

Supplemental disclosures

of cash flow information:

Cash paid for interest

Non Cash Investing

and Financing Activities

Dividends on Series

A Convertible Preferred Stock

increase in cash

at beginning of period

at end of period

disclosures of cash flow information:

paid for interest

Cash Investing and Financing Activities

on Series A Convertible Preferred Stock

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

TO CONDENSED FINANCIAL STATEMENTS

and Six months Ended June 30, 2020 and 2019 (Unaudited)

and Nine months Ended September 30, 2020 and 2019 (Unaudited)

thousands, except share and per share amounts)

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or “our”), are unaudited, but in the opinion of management contain all adjustments, including normal recurring adjustments,

necessary to present fairly our financial position at June 30, 2020 and the results of operations and cash flows for the three

and six months ended June 30, 2020 and 2019.

The balance sheet as of December 31, 2019 is derived from the Company’s audited

financial statements.

necessary to present fairly our financial position at September 30, 2020, the results of operations for the three and nine months

ended September 30, 2020 and 2019, and cash flows for the nine months ended September 30, 2020 and 2019.

The balance sheet as

of December 31, 2019 is derived from the Company’s audited financial statements.

information and footnote disclosures normally included in financial statements that have been prepared in accordance with accounting

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year ended December 31, 2019, as filed with the Securities and Exchange Commission on March 18, 2020 and amended on April 8, 2020.

results of operations for the six months ended June 30, 2020 are not necessarily indicative of the results of operations to be

expected for the full fiscal year ending December 31, 2020.

results of operations for the nine months ended September 30, 2020 are not necessarily indicative of the results of operations

to be expected for the full fiscal year ending December 31, 2020.

Considerations

the quarter ended June 30, 2020, the COVID-19 pandemic did not have a material net impact on our operating results.

In the future,

the pandemic may 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.

the quarter ended September 30, 2020, the COVID-19 pandemic did not have a material net impact on our operating results.

future, the pandemic may 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.

ability to operate without significant negative operational impact from the COVID-19 pandemic will in part depend on our ability

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health authorities to protect our employees.

For the three months ended June 30, 2020, 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.

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

June 30, 2020, the COVID-19 pandemic has not negatively impacted the Company’s liquidity position as of such date.

to customers in the second quarter were up 16% from the first quarter of the year.

Through June 30, 2020, we continue to generate

cash flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets.

We have also 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.

For the six months ended September 30, 2020, 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

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.

September 30, 2020, the COVID-19 pandemic has not negatively impacted the Company’s liquidity position as of such date.

Shipments to customers in the third quarter of 2020 were up 14% from the first quarter of 2020, and down slightly (2%) from the

second quarter of 2020 with fluctuations consistent with historical seasonal patterns.

Through September 30, 2020, we continue

to generate cash flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets.

also not observed any material impairments of our assets or a significant change in the fair value of our assets due to the COVID-19

additional information on risk factors related to the pandemic or other risks that could impact our results, please refer to “Risk

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assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

the six months ended June 30, 2020, the Company recorded a net loss of $ 4,330

the nine months ended September 30, 2020, the Company recorded a net loss of $ 6,920

and used cash in operations of $ 6,768 .

As of June 30, 2020, we had a cash balance of $ 1,112

As of September 30, 2020, we had a cash balance of $ 875

with borrowing capacity of $ 3,037 ,

a stockholder’s equity of $ 558 and

a working capital of $ 2,257 ,

a negative working capital of $ 207 ,

compared to a cash balance of $ 913

with borrowing capacity of $ 3,235 ,

stockholders’ equity of $ 1,147 and

a working capital of $ 4,885 at

December 31, 2019.

April 2020, the Company conducted a public offering of 15,333,334 shares of its common stock at $ 0.375 per share, resulting in

net proceeds to the Company of $ 5,310 .

April 20, 2020, the Company received loan proceeds in the amount of $ 770

pursuant to the Paycheck Protection Program

under the Coronavirus Aid, Relief and Economic Security Act (the “Cares Act”)

(see Note 8).

stockholders’ equity of $ 1,147

and a working capital of $ 4,885

at December 31, 2019.

Historically,

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issued for services.

Company recognizes revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC 606”).

The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount

expected to be collected.

ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms

of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations

in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance

obligations, and (5) recognizing revenue as each performance obligation is satisfied.

Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers

The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services

to customers at the amount expected to be collected.

ASC 606 creates a five-step model that requires entities to exercise judgment

when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying

our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction

price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.

Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers

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Potential common shares are excluded from the computation when their effect is antidilutive.

the periods ended June 30, 2020 and 2019, the calculations of basic and diluted loss per share are the same because potential

the periods ended September 30, 2020 and 2019, the calculations of basic and diluted loss per share are the same because potential

dilutive securities would have had an anti-dilutive effect.

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Schedule of Potentially Dilutive Securities

June 30, 2020

June 30, 2019

Convertible note to a related party

Common stock equivalent of Series A Convertible Preferred stock

Common stock issuable

Unvested restricted common stock

note to a related party

stock equivalent of Series A Convertible Preferred stock

stock issuable

restricted common stock

Series A Convertible Preferred Stock is convertible into Common shares at the rate of 1:4.

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for services and for financing costs.

The Company accounts for such grants issued and vesting based on ASC 718, whereby the value

of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting

The Company recognizes the fair value of stock-based compensation within its Statements of Operations with classification

depending on the nature of the services rendered.

The 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 as compensation expense on the

straight-line basis over the vesting period.

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.

fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing model, which uses certain

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Advertising costs for the three months ended

June 30, 2020 and 2019, aggregated $ 303 and $ 1,227 , respectively.

Advertising costs for the six months ended June 30, 2020 and

2019, aggregated $ 606 and $ 1,533 , respectively.

September 30, 2020 and 2019, aggregated $ 536 and $ 661 , respectively.

Advertising costs for the nine months ended September 30,

2020 and 2019, aggregated $ 1,141 and $ 2,194 , respectively.

Concentrations

During the three months ended June 30, 2020, two customers accounted for 26 % and 13 % of gross sales, respectively,

and during the six months ended June 30, 2020, two customers accounted for 25 % and 14 % of gross sales, respectively.

three months ended June 30, 2019, two customers accounted for 29 % and 14 % of gross sales, respectively, and during the six months

ended June 30, 2019, two customers accounted for 28 % and 12 % of gross sales, respectively.

No other customers exceeded 10 % of

sales in either period.

As of June 30, 2020, the Company had accounts receivable from one customer which comprised 23 % of its gross accounts

As of December 31, 2019, the Company had accounts receivable from one customer which comprised 14 % of its gross accounts

During the three months ended September 30, 2020, two customers accounted for 24 % and 12 % of gross sales, respectively, and

during the nine months ended September 30, 2020, two customers accounted for 25 % and 13 % of gross sales, respectively.

the three months ended September 30, 2019, the Company’s largest two customers accounted for 15 % and 12 % of gross sales,

respectively.

During the nine months ended September 30, 2019, these customers accounted for 23 % and 13 % of gross sales, respectively.

No other customers exceeded 10 % of sales in either period.

As of September 30, 2020, the Company had accounts receivable from one customer which comprised 23 % of its gross

accounts receivable.

As of December 31, 2019, the Company had accounts receivable from one customer which comprised 14 % of its

gross accounts receivable.

No other customer exceeded 10 % of accounts receivable in either period.

from vendors.

During the three months ended June 30, 2020, no vendor exceeded 10 % of all purchases.

During the six months

ended June 30, 2020, one vendor accounted for 11 % of all purchases.

During the three months ended June 30, 2019, each of the Company’s

two largest vendors accounted for approximately 10 % of all purchases.

During the six months ended June 30, 2019, one vendor accounted

for 13 % of all purchases and another accounted for 10 % of all purchases.

No other vendors exceeded 10 % of all purchases in either

As of June 30, 2020, of the Company’s three largest vendors, two each accounted for 12 %,of the total accounts

payable and the third, 11 %.

As of December 31, 2019, of the Company’s largest three vendors, one accounted for 19 % of the

total accounts payable, the second, 15 %, and the third, 14 %.

During the three months ended September 30, 2020, two vendors accounted for 13 % and 11 % of all purchases.

the nine months ended September 30, 2020, two vendors accounted for 11 % and 11 % of all purchases.

During the three months ended

September 30, 2019, the Company’s largest three vendors accounted for approximately 13 %, 11 % and 10 % of all purchases, respectively.

During the nine months ended September 30, 2019, two vendors accounted for 12 % and 10 % of all purchases, respectively.

vendors exceeded 10 % of all purchases in either period.

As of September 30, 2020, of the Company’s two largest vendors, each accounted for 18 % and 11 % of the total

accounts payable.

As of December 31, 2019, of the Company’s three largest vendors, accounted for 19 %, 15 %, and 14 % of the

total accounts payable.

No other vendors exceeded 10 % of accounts payable in either period.

Value of Financial Instruments

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because interest rates on these obligations are based on prevailing market interest rates.

of June 30, 2020, and December 31, 2019, the Company’s balance sheets included Level 2 liabilities comprised of the fair

value of warrant liabilities aggregating $ 15 and $ 8 , respectively (see Note 10).

of September 30, 2020, and December 31, 2019, the Company’s balance sheets included Level 2 liabilities comprised of the

fair value of warrant liabilities aggregating $ 7 and $ 8 , respectively (see Note 10).

Accounting Pronouncements

June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments .

ASU 2016-13 requires entities to

use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain

ASU 2016-13 requires entities

to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain

types of financial instruments, including trade receivables.

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of operations and cash flows.

August 2020, the FASB issued ASU No.

2020-06 (“ASU 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):

Accounting for Convertible

Instruments and Contracts in an Entity’s Own Equity .” ASU 2020-06 will simplify the accounting for convertible

instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock.

the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as

compared with current GAAP.

Convertible instruments that continue to be subject to separation models are (1) those with embedded

conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and

that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial

premiums for which the premiums are recorded as paid-in capital.

ASU 2020-06 also amends the guidance for the derivatives scope

exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.

will be effective for the Company January 1, 2024.

Early adoption is permitted, but no earlier than January 1, 2021, including

interim periods within that year.

Management is currently evaluating the effect of the adoption of ASU 2020-06 on the consolidated

financial statements, but currently does not believe ASU 2020-06 will have a significant impact on the Company’s accounting

for its convertible debt instruments.

The effect will largely depend on the composition and terms of the financial instruments

at the time of adoption.

recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public

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Schedule of Inventory

Raw materials and packaging

Finished products

materials and packaging

Company has recorded a reserve for slow moving and potentially obsolete inventory.

The reserve at June 30, 2020, and December

31, 2019, was $ 437 and $ 646 , respectively.

The reserve at September 30, 2020, and December

31, 2019, was $ 224

respectively.

Property and Equipment

and equipment is comprised of the following (in thousands):

Schedule of Property and

Right-of-use assets under

operating leases

Right-of-use assets under finance leases

Computer hardware and software

Machinery and

Accumulated depreciation

and amortization

Net book value

expense for the three months ended June 30, 2020 and 2019 was $ 12 and $ 12 , respectively.

Depreciation expense for the six months

then June 30, 2020 and 2019 was $ 24 and $ 25 , respectively.

During the six months ended June 30, 2020, the Company disposed of

right-of-use assets under finance leases with a net book value of $ 45 , and terminated $ 51 of related finance leases (see Note

9), resulting in a gain on sale of assets of $ 6 .

Schedule of Property and Equipment

assets under operating leases

assets under finance leases

hardware and software

and equipment

depreciation and amortization

expense for the three months ended September 30, 2020 and 2019 was $ 35 and $ 8 , respectively.

Depreciation expense for the nine

months ended September 30, 2020 and 2019 was $ 56 and $ 12 , respectively.

During the nine months ended September 30, 2020, the Company

disposed of right-of-use assets under finance leases with a net book value of $ 45 , and terminated $ 51 of related finance leases

(see Note 9), resulting in a gain on lease termination of $ 6 .

held for sale consists of the following (in thousands):

Schedule of Equipment Held for Sale

Equipment held for sale

Net book value

balance as of June 30, 2020, and December 31, 2019, consists of residual manufacturing equipment, at estimated net realizable

held for sale

balance as of September 30, 2020, and December 31, 2019, consists of residual manufacturing equipment, at estimated net realizable

value, which management anticipates selling during 2020.

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Based on management’s measurement, there were

no indications of impairment at June 30, 2020.

assets consists of the following (in thousands):

no indications of impairment at September 30, 2020.

assets consist of the following (in thousands):

Summary of Intangible Assets

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Schedule of Amount Outstanding Under Credit Facilities

Line of Credit

Capitalized finance

finance costs

October 4, 2018, the Company entered into a financing agreement with Rosenthal & Rosenthal, Inc.

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a maximum borrowing capacity of $ 13,000 .

Borrowings are based on a formula of eligible accounts receivable and inventories (the “permitted borrowings”) plus

advances (an “over-advance” of up to $ 4,000 )

in excess of permitted borrowings.

At June 30, 2020, the unused borrowing capacity under the financing agreement was $ 6,704 .

Borrowings are based on a formula of eligible accounts receivable and inventories (the

“permitted borrowings”) plus advances (an “over-advance” of up to $ 4,000 ) in excess of permitted borrowings.

At September 30, 2020, the unused borrowing capacity under the financing agreement was $ 3,037 .

The line of credit matures on March

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on whether the borrowing is based upon receivables, inventory or is an over-advance.

The effective interest rate as of June

The effective interest rate as of September

30, 2020 on outstanding borrowings was 7.2 %.

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fees, and aggregate minimum monthly fees (including interest) of $ 4 .

The line of credit is secured by substantially

all of the assets excluding intellectual property of the Company.

The over-advance is secured by all of Reed’s intellectual

property collateral.

Additionally, any over-advance is guaranteed by an irrevocable stand-by letter of credit in the amount of

line of credit is secured by substantially all of the assets excluding intellectual property of the Company.

The over-advance

is secured by all of Reed’s intellectual property collateral.

Additionally, any over-advance is guaranteed by an irrevocable

stand-by letter of credit in the amount of $ 1,500 ,

issued by Daniel J.

Doherty III and the Daniel J.

Doherty, III 2002 Family Trust, affiliates of Raptor/Harbor Reeds SPV

LLC (“Raptor”).

As of June 30, 2020, Raptor beneficially owns 11.6 % of the Company’s outstanding common stock

Doherty is a member of the Company’s Board of Directors.

In the event of a default under the financing agreement,

Raptor has a put option to purchase from Rosenthal the entire amount of any outstanding over-advance plus accrued interest, prior

to Rosenthal declaring an event of default under the financing agreement.

Doherty, III 2002 Family Trust, affiliates of Raptor/Harbor Reeds SPV LLC (“Raptor”).

As of September 30, 2020, Raptor beneficially owns 11.5 %

of the Company’s outstanding common stock and Mr.

is a member of the Company’s Board of Directors.

In the event of a default under the financing agreement, Raptor has a put

option to purchase from Rosenthal the entire amount of any outstanding over-advance plus accrued interest, prior to Rosenthal

declaring an event of default under the financing agreement.

financing agreement with Rosenthal includes customary restrictions that limit our ability to engage in certain types of transactions,

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the end of each quarter.

We were in compliance with the terms of our agreement with Rosenthal as of June 30, 2020.

of debt discount was $ 193 and $ 150 for the six months ended June 30, 2020 and 2019, respectively.

We were in compliance with the terms of our agreement with Rosenthal as of September 30, 2020.

Company annually incurs an additional $ 130 of fees from the bank, which is equal to 1 % of the $13,000 borrowing limit.

have been capitalized and recorded as a debt discount and are amortized over the remaining life of the Rosenthal agreement.

2020 fee will be amortized over 0.5 years and the 2019 fee is being amortized over 1.5 years.

Amortization of debt discount was

$ 290 and $ 225 for the nine months ended September 30, 2020 and 2019, respectively.

Convertible Note to a Related Party

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Convertible Note Payable

Accrued Interest

Total obligation

On April 21, 2017, the Company issued a secured,

convertible, subordinated, non-redeemable note in the principal amount of $ 3,400 and warrants to purchase 1,416,667 shares of

common stock to Raptor.

Raptor beneficially owned approximately 11.6 % and 14.9 % of the Company’s common stock at

June 30, 2020 and December 31, 2019, respectively.

The Raptor Note bears interest at a rate of

12 % per annum, compounded monthly, and is secured by the Company’s assets, subordinate to the first priority security

interest of Rosenthal & Rosenthal (see Note 6).

The note may not be prepaid and matures on April 21, 2021 .

It may be converted,

at any time and from time to time, into shares of common stock of the Company, at a revised conversion price of $ 1.50 .

The warrants expire on April 21, 2022 ,

and have an adjusted exercise price of $ 1.50 per share.

The note and warrants contain customary anti-dilution

provisions, and the shares of common stock issuable upon conversion of the note and exercise of the warrants have been

registered on Form S-3.

On April 20, 2020, the Company was granted

a loan (the “PPP loan”) from City National Bank in the aggregate amount of $ 770 , pursuant to the Paycheck Protection

Program (the “PPP”) under the CARES Act.

The PPP loan agreement is dated April 20,

2020, matures on April

20, 2022 , bears interest at a rate of 1 %

per annum, with the first six months of interest deferred, is payable monthly commencing on November 2020, and is unsecured

and guaranteed by the U.S.

Small Business Administration.

The loan term may be extended to April 20, 2025, if mutually agreed

to by the Company and lender.

We applied ASC 470, Debt , to account for the PPP loan.

The PPP loan may be prepaid at any

time prior to maturity with no prepayment penalties.

Funds from the PPP loan may only be used for qualifying expenses as described

in the CARES Act, including qualifying payroll costs, qualifying group health care benefits, qualifying rent and debt obligations,

and qualifying utilities.

The Company intends to use the entire loan amount for qualifying expenses.

Under the terms of the PPP,

certain amounts of the loan may be forgiven if they are used for qualifying expenses.

The Company intends to apply for forgiveness

of the PPP loan with respect to these qualifying expenses, however, we cannot assure that such forgiveness of any portion of the

PPP loan will occur.

As for the potential loan forgiveness, once the PPP loan is, in part or wholly, forgiven and a legal release

is received, the liability would be reduced by the amount forgiven and a gain on extinguishment would be recorded.

the PPP loan provide for customary events of default including, among other things, payment defaults, breach of representations

and warranties, and insolvency events.

The Company was in compliance with the terms of the PPP loan as of June 30, 2020.

April 21, 2017, the Company issued a secured, convertible, subordinated, non-redeemable note in the principal amount of $ 3,400

and warrants to purchase 1,416,667

shares of common stock to Raptor.

beneficially owned approximately 11.5 %

of the Company’s common stock at September 30, 2020 and December 31, 2019, respectively.

Raptor Note bears interest at a rate of 12 % per annum, compounded monthly, and is secured by the Company’s assets, subordinate

to the first priority security interest of Rosenthal & Rosenthal (see Note 6).

The note may not be prepaid and matures on

April 21, 2021 .

It may be converted, at any time and from time to time, into shares of common stock of the Company, at a revised

conversion price of $ 1.50 .

warrants expire on April 21, 2022 and have an adjusted exercise price of $ 1.50 per share.

The note and warrants contain customary

anti-dilution provisions, and the shares of common stock issuable upon conversion of the note and exercise of the warrants have

been registered on Form S-3.

April 20, 2020, the Company was granted a loan (the “PPP loan”) from City National Bank in the aggregate amount of

$ 770 , pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act.

PPP loan agreement is dated April 20, 2020, matures on April 20, 2022 , bears interest at a rate of 1 % per annum, with the first

six months of interest deferred, is payable monthly commencing on November 2020, and is unsecured and guaranteed by the U.S.

Business Administration.

The loan term may be extended to April 20, 2025, if mutually agreed to by the Company and lender.

applied ASC 470, Debt , to account for the PPP loan.

The PPP loan may be prepaid at any time prior to maturity with no prepayment

Funds from the PPP loan may only be used for qualifying expenses as described in the CARES Act, including qualifying

payroll costs, qualifying group health care benefits, qualifying rent and debt obligations, and qualifying utilities.

intends to use the entire loan amount for qualifying expenses.

Under the terms of the PPP, certain amounts of the loan may be

forgiven if they are used for qualifying expenses.

The Company intends to apply for forgiveness of the PPP loan with respect to

these qualifying expenses, however, we cannot assure that such forgiveness of any portion of the PPP loan will occur.

potential loan forgiveness, once the PPP loan is, in part or wholly, forgiven and a legal release is received, the liability would

be reduced by the amount forgiven and a gain on extinguishment would be recorded.

The terms of the PPP loan provide for customary

events of default including, among other things, payment defaults, breach of representations and warranties, and insolvency events.

The Company was in compliance with the terms of the PPP loan as of September 30, 2020.

At September 30, 2020, the note payable

balance was $ 770 , of which $ 470 were reflected as the current portion of note payable.

Leases Payable

Company adopted ASU 2016-02, Leases, effective October 1, 2018.

Company adopted ASC 842, Leases , effective October 1, 2018.

The standard requires a lessee to record a right-of-use asset

and a corresponding lease liability at the inception of the lease, initially measured at the present value of the lease payments.

The Company leases its Norwalk office ,

The Company leases its headquarters office ,

and certain office equipment and automobiles.

4 unchanged sentences

The lease liability is measured at the present value of future lease payments as of the lease commencement date.

2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is

allocated over the lease term, generally on a straight-line basis.

During the six months ended June 30, 2020, the Company disposed

of right-of-use assets of $ 45 , and reflected amortization of right of use asset of $ 62 related to these leases, resulting in a

net asset balance of $ 590 as of June 30, 2020.

of December 31, 2019, liabilities recorded under finance leases and operating leases were $ 89 and $ 697 , respectively.

six months ended June 30, 2020, the Company terminated $ 51 of finance leases, and made payments of $ 5 towards finance lease liability

and $ 13 towards operating lease liability.

As of June 30, 2020, liability under finance lease amounted to $ 33 and liability under

operating lease amounted to $ 684 , of which $ 56 and $ 33 were reflected as current due, under finance leases and operating leases,

respectively.

of June 30, 2020, the weighted average remaining lease terms for operating lease and finance lease are 4.51 years and 0.50 years,

842 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated

over the lease term, generally on a straight-line basis.

the three and nine months ended September 30, 2020 and 2019, lease costs totaled $ 45

and $ 135 and

respectively.

The weighted average discount rate for operating lease is 12.6 % and 9.0 % for finance lease.

of December 31, 2019, the Company’s lease liabilities totaled $ 786 , made up of finance lease liabilities of $ 89 and operating

lease liabilities of $ 697 .

During the nine months ended September 30, 2020, the Company terminated $ 51 of finance leases, and

made payments of $ 11 towards finance lease liability and $ 18 towards operating lease liability.

As of September 30, 2020, lease

liabilities totaled $ 706, made up of finance lease liabilities of $ 27 and operating lease liabilities of $ 679.

of September 30, 2020, the weighted average remaining lease terms for operating lease and finance lease are 4.25 years and 0.39

years, respectively.

As of September 30, 2020, the weighted average discount rate for operating lease is 12.6 % and 10.39 % for

finance lease.

minimum lease payments under the leases are as follows (in thousands):

Schedule of Future Minimum Lease Payments

Ending December 31,

Amount representing interest

value of net minimum lease payments

Current portion

Warrant Liability

8 unchanged sentences

fair value is recognized in earnings in the accompanying Statements of Operations.

fair value of the warrant liability was determined using the Black-Scholes-Merton option pricing model at June 30, 2020 and December

31, 2019, using the following assumptions:

Warrant Liability Using Assumptions

Risk free interest rate

Expected volatility

Expected life in years

Expected dividend yield

Number of Warrants containing fundamental

transaction provisions

Fair Value of Warrants

fair value of the warrant liability was determined using the Black-Scholes-Merton option pricing model at September 30, 2020 and

December 31, 2019, using the following assumptions:

Schedule of Warrant Liability Using Assumptions

free interest rate

life in years

dividend yield

of Warrants containing fundamental transaction provisions

risk-free interest rate is based on rates established by the Federal Reserve Bank.

4 unchanged sentences

does not expect to do so in the foreseeable future.

following table sets forth a summary of the changes in the estimated fair value of the warrant liability during the three months

ended June 30, 2020 and 2019:

following table sets forth a summary of the changes in the estimated fair value of the warrant liability during the nine months

ended September 30, 2020 and 2019:

Schedule of Warrant Liability

Beginning Balance

Change in fair

Ending balance

in fair value

Stockholders’ Equity

A Convertible Preferred Stock

July 2, 2020, the Company paid dividends on the Preferred Stock through the issuance of 4,530 of its common stock.

The aggregate

fair value of the common stock issued was $ 5 based on an average market price of $ 1.04 per share.

stock issuance

3 unchanged sentences

Proceeds from the offering will provide capital for working capital, and general corporate purposes.

the nine months ended September 30, 2020, the Company received proceeds of $ 14 , and issued 27,500 shares of common stock, on the

exercise of stock options.

Share-based payments

following table summarizes restricted stock activity during the six months ended June 30, 2020:

Summary of Non-vested Restricted Stock Activity

following table summarizes restricted stock activity during the nine months ended September 30, 2020:

of Non-vested Restricted Stock Activity

Balance, December

June 30, 2020

the six months ended June 30, 2020, the Company issued 500,000 shares of restricted stock to a director and two executive employees.

350,000 of these shares vested immediately, 75,000 shares will vest in increments of 18,750 each over four years from the date

of grant, and 75,000 shares will vest over four years based on performance criteria determined by the Board of Directors or Compensation

September 30, 2020

the nine months ended September 30, 2020, the Company issued 594,740 shares of restricted stock to a director and two executive

350,000 of these shares vested immediately, 94,740 shares will vest in increments of 47,370 each over a two month period

of October and November 2020, 75,000 shares will vest in increments of 18,750 each over four years from the date of grant, and

75,000 shares will vest over four years based on performance criteria determined by the Board of Directors or Compensation Committee.

Unvested shares remain subject to forfeiture if vesting conditions are not met.

The aggregate fair value of the stock

awards was $ 418 based on the market price of our common stock price which ranged from $ 0.81 to $ 0.89 per share on the dates of

grants and is amortized as shares vest.

The total fair value of restricted common stock vesting during the six months ended June

30, 2020 and 2019 was $ 285 and $ 331 , respectively, and is included in general and administrative expenses in the accompanying

statements of operations.

As of June 30, 2020, the amount of unvested compensation related to issuances of restricted common stock

was $ 133 , which will be recognized as an expense in future periods as the shares vest.

When calculating basic loss per share,

these shares are included in weighted average common shares outstanding from the time they vest.

When calculating diluted net

income per share, these shares are included in weighted average common shares outstanding as of their grant date.

following table summarizes stock option activity during the six months ended June 30, 2020:

The aggregate fair value of the stock awards was

$ 508 based on the market price of our common stock price which ranged from $ 0.81 to $ 0.95 per share on the dates of grants and

is amortized as shares vest.

The total fair value of restricted common stock vesting during the nine months ended September 30,

2020 and 2019 was $ 285 and $ 477 , respectively, and is included in general and administrative expenses in the accompanying statements

of operations.

As of September 30, 2020, the amount of unvested compensation related to issuances of restricted common stock was

$ 223 , which will be recognized as an expense in future periods as the shares vest.

When calculating basic loss per share, these

shares are included in weighted average common shares outstanding from the time they vest.

When calculating diluted net income

per share, these shares are included in weighted average common shares outstanding as of their grant date.

Schedule of Stock Option Activity

following table summarizes stock option activity during the nine months ended September 30, 2020:

Exercise Price

Outstanding at December 31, 2019

Unvested forfeited or expired

Vested forfeited

Outstanding at June 30, 2020

Exercisable at June 30, 2020

the six months ended June 30, 2020, the Company approved options exercisable into 2,067,800 shares to be issued pursuant to Reed’s

2017 Incentive Compensation Plan.

1,732,800 options were issued to employees including 582,800 options that vested immediately,

575,000 options vesting annually over a four-year vesting period , and 575,000 options that will vest based on performance criteria

to be established by the board.

In addition, 335,000 options granted to consultants, board members, and former employees vest

over various periods.

stock options are exercisable at a price ranging from $ 0.44

per share and expire in ten years .

total fair value of these options at grant date was approximately $ 1,168 ,

which was determined using a Black-Scholes-Merton option pricing model with the following average assumption:

stock price ranging

from $0.44 to $0.89 per share, expected term of seven

years , volatility of 120 %,

dividend rate of 0 %,

and risk-free interest rate ranging from 0.56 %

The expected term represents the weighted-average period of time that share option awards granted are expected to be outstanding

giving consideration to vesting schedules and historical participant exercise behavior;

the expected volatility is based upon

historical volatility of the Company’s common stock;

the expected dividend yield is based on the fact that the Company has

not paid dividends in the past and does not expect to pay dividends in the future;

and the risk-free interest rate is based on

Treasury yield curve in effect at the time of measurement corresponding with the expected term of the share option award.

The fair value of the options of $1,168 will be amortized as the options vest in future periods through May

the six months ended June 30, 2020 and 2019, the Company recognized $ 459 and $ 854 of compensation expense relating to vested stock

As of June 30, 2020, the aggregate amount of unvested compensation related to stock options was approximately $ 1,851

at December 31, 2019

forfeited or expired

at September 30, 2020

the nine months ended September 30, 2020, the Company approved options exercisable into 2,067,800 shares to be issued pursuant

to Reed’s 2017 Incentive Compensation Plan.

1,732,800 options were issued to employees including 582,800 options that vested

immediately, 575,000 options vesting annually over a four-year vesting period , and 575,000 options that will vest based on performance

criteria to be established by the board.

In addition, 335,000 options granted to consultants, board members, and former employees

vest over various periods.

stock options are exercisable at a price ranging from $ 0.44 to $ 0.89 per share and expire in ten years .

The total fair value of

these options at grant date was approximately $ 1,168 , which was determined using a Black-Scholes-Merton option pricing model with

the following average assumption:

stock price ranging from $0.44 to $0.89 per share, expected term of seven years , volatility

of 120 %, dividend rate of 0 %, and risk-free interest rate ranging from 0.56 % to 1.63 %.

The expected term represents the weighted-average

period of time that share option awards granted are expected to be outstanding giving consideration to vesting schedules and historical

participant exercise behavior;

the expected volatility is based upon historical volatility of the Company’s common stock;

the expected dividend yield is based on the fact that the Company has not paid dividends in the past and does not expect to pay

dividends in the future;

and the risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the time of measurement

corresponding with the expected term of the share option award.

The fair value of the options of $1,168 will be amortized as the

options vest in future periods through May 20, 2024 .

the nine months ended September 30, 2020 and 2019, the Company recognized $ 722 and $ 1,077 of compensation expense relating to

vested stock options.

As of September 30, 2020, the aggregate amount of unvested compensation related to stock options was approximately

$ 1,594 which will be recorded as an expense in future periods as the options vest.

of June 30, 2020, the outstanding options have an intrinsic value of $ 588 .

The aggregate intrinsic value was calculated as the

difference between the closing market price as of June 30, 2020, which was $ 0.96 , and the exercise price of the outstanding stock

of September 30, 2020, the outstanding options have an intrinsic value of $ 338 .

The aggregate intrinsic value was calculated as

the difference between the closing market price as of September 30, 2020, which was $ 0.93 , and the exercise price of the outstanding

stock options.

Stock Warrants

of June 30, 2020, the Company has issued warrants to purchase an aggregate of 6,413,782 shares of common stock.

of September 30, 2020, the Company has issued warrants to purchase an aggregate of 6,413,782 shares of common stock.

The Company’s

warrant activity during the six months ended June 30, 2020 is as follows:

Schedule of Warrant Activity

warrant activity during the nine months ended September 30, 2020 is as follows:

of Warrant Activity

Exercise Price

Remaining Contractual Terms (Years)

Outstanding at December 31, 2019

Outstanding at June 30, 2020

Exercisable at June 30, 2020

were no warrant transactions during the six months ended June 30, 2020.

As of June 30, 2020, the outstanding warrants have no

intrinsic value.

The intrinsic value was calculated as the difference between the closing market price as of June 30, 2020, which

was $ 0.96 , and the exercise price of the Company’s warrants to purchase common stock.

at December 31, 2019

at September 30, 2020

were no warrant transactions during the nine months ended September 30, 2020.

As of September 30, 2020, the outstanding warrants

have no intrinsic value.

The intrinsic value was calculated as the difference between the closing market price as of September

30, 2020, which was $ 0.93 , and the exercise price of the Company’s warrants to purchase common stock.

Related Party Activities

December 31, 2018, the Company completed the sale of its Los Angeles manufacturing plant to CCB, an entity owned by Chris Reed,

a related party, and CCB assumed the monthly payments on our lease obligation for the Los Angeles manufacturing plant.

from the obligation by the lessor, however, is dependent upon CCB’s deposit of $ 1,200 of security with the lessor.

June 30, 2020, $ 800 has been deposited with the lessor and Mr.

Reed has placed approximately 363,000 shares of the Company’s

common stock valued at $ 348 that he owns into escrow with the lessor.

Reed expects to deposit the proceeds from the sale of

the shares with the lessor in 2020, at which time we expect to be released from the lease obligation.

December 31, 2018, the Company completed the sale of its Los Angeles manufacturing plant to California Custom Beverage, LLC (“CCB”),

an entity owned by Christopher J.

Reed, a related party, and CCB assumed the monthly payments on our lease obligation for the

Los Angeles manufacturing plant.

Our release from the obligation by the lessor, however, is dependent upon CCB’s deposit

of $ 1,200 of security with the lessor.

The deposit is secured by Mr.

Reed’s pledge of common stock to the lessor and guaranteed

personally by Mr.

Reed and his wife.

As of September 30, 2020, $ 800 has been deposited with the lessor and Mr.

Reed has placed

approximately 363,000 pledged shares valued at $ 338 that remain in escrow with the lessor.

in 2019, we are to receive a 5 % royalty on CCB’s private label sales to existing customers for three years and a 5 % referral

fee on CCB’s private label sales to referred customers for three years.

During the six months ended June 30, 2020, the Company

recorded royalty revenue from CCB of $ 5 .

During the six months ended June 30, 2019, the Company did not record any royalty revenue

During the nine months ended September 30, 2020,

the Company recorded royalty revenue from CCB of $ 26 .

During the nine months ended September 30, 2019, the Company recorded royalty

revenue from CCB of $ 14 .

December 31, 2019, the Company had royalty revenue receivable from CCB of $ 128 .

3 unchanged sentences

31, 2019 was $ 356 .

During the six months ended June 30, 2020, the Company received payment of $ 126 , leaving an aggregate receivable

balance of $ 230 at June 30, 2020.

During the nine months ended September 30, 2020, the Company recorded additional royalty revenue receivable

of $ 26 , advance additional inventory and equipment of $ 138 , and received payments of $ 129 , leaving an aggregate receivable balance

of $ 391 at September 30, 2020.

September 30, 2020 and December 31, 2019, the Company had accounts payable due to CCB of $ 211 and $ 182 , respectively.

Subsequent Events

July 2, 2020, the Company issued 4,530 shares of common stock as a dividend to preferred shareholders.

The aggregate fair value

of the common stock issued was $ 5 based on an average market price of $ 1.04 per share.

to September 30, 2020, the Company issued 7,000 shares of common stock on the exercise of stock options.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements