What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-03-30 compared with 2020-03-18 · 11 added, 458 removed, 8 unchanged (98% of the section changed)

4 unchanged sentences

close on May 9, 2019 and that trading began on the Nasdaq Capital Market at market open on May 10, 2019 under the stock symbol

“REED”.

December 16, 2019, the shareholders of the Company approved an increase in the number of authorized shares of common stock

from 70 million to 100 million.

As of December 31, 2019, there were approximately 5,000 holders of

record of the common stock (including only non-objecting beneficial owners of record) and 47,595,206 outstanding shares

of common stock.

December 21, 2020, our shareholders approved an increase in the number of authorized shares of common stock from 100 million to

As of December 31, 2020, there were approximately 5,000 holders of record of the common stock (including only non-objecting

beneficial owners of record) and 86,317,096 outstanding shares of common stock.

We currently have no expectation to pay cash dividends to holders

of our common stock in the foreseeable future.

Sales of Equity Securities

the year ended December 31, 2019, we paid dividends on Series A Preferred Stock through the issuance of 4,254 shares

of common stock.

the year ended December 31, 2020, we paid dividends on Series A Preferred Stock through the issuance of 4,530 shares of common

These equity securities were not registered under the Securities Act.

Authorized for Issuance under Equity Compensation Plans

Stock Option Plan, 2015 Incentive and Non-statutory and Stock Option Plan, and the Second Amended and Restated 2017 Incentive

Compensation plan

October 8, 2007, our board of directors adopted the 2007 Stock Option Plan for 1,500,000 shares and the plan was approved by our

stockholders on November 19, 2007.

On December 30, 2015, the 2015 Incentive and Non-statutory Stock Option Plan for 500,000 shares

was approved by our shareholders.

Options issued and subsequently forfeited under the 2015 plan cannot be reissued.

2007 plan expired, and no new options will be granted under the plan.

On September 29, 2017, the 2017 Compensation Plan for 3,000,000

shares was approved by our shareholders.

On December 13, 2018 the Amended and Restated 2017 Incentive Compensation Plan was

approved by our shareholders increasing the number of shares issuable by 3,500,000 to 6,500,000.

On December 16,

2019, the Second Amended and Restated 2017 Incentive Compensation Plan was approved by our shareholders, increasing the number

of shares issuable by 1,000,000 to 7,500,000.

Options issued and forfeited under the Second Amended and Restated 2017

Incentive Compensation Plan contain an evergreen provision and cannot be re-priced without shareholder approval.

plans permit the grant of options and stock awards to our employees, directors and consultants.

The options may constitute either

“incentive stock options”

within the meaning of Section 422 of the Internal Revenue Code or “non-qualified stock

options”.

The primary difference between “incentive stock options”

and “non-qualified stock options”

is that once an option is exercised, the stock received under an “incentive stock option”

has the potential of being

taxed at the more favorable long-term capital gains rate, while stock received by exercising a “non-qualified stock option”

is taxed according to the ordinary income tax rate schedule.

plans are currently administered by the compensation committee of the board of directors.

The plan administrator has full

and final authority to select the individuals to receive options and to grant such options as well as a wide degree of flexibility

in determining the terms and conditions of options, including vesting provisions.

exercise price of an option granted under the plan cannot be less than 100% of the fair market value per share of common stock

on the date of the grant of the option.

The exercise price of an incentive stock option granted to a person owning more than 10%

of the total combined voting power of the common stock must be at least 110% of the fair market value per share of common stock

on the date of the grant.

Options may not be granted under the plan on or after the tenth anniversary of the adoption of the plan.

Incentive stock options granted to a person owning more than 10% of the combined voting power of the common stock cannot be exercisable

for more than five years.

an option is exercised, the purchase price of the underlying stock will be paid in cash, except that the plan administrator may

permit the exercise price to be paid in any combination of cash, shares of stock having a fair market value equal to the exercise

price, or as otherwise determined by the plan administrator.

an optionee ceases to be an employee, director, or consultant with us, other than by reason of death, disability or retirement,

all vested options must be exercised within three months following such event.

However, if an optionee’s employment or consulting

relationship with us terminates for cause, or if a director of ours is removed for cause, all unexercised options will terminate

If an optionee ceases to be an employee or director of, or a consultant to us, by reason of death, disability, or

retirement, all vested options may be exercised within one year following such event or such shorter period as is otherwise provided

in the related agreement.

the 2015 plan, when a stock option expires or is terminated before it is exercised, the shares are canceled and cannot be reissued.

For the Second Amended and Restated 2017 Incentive Compensation Plan, when a stock option expires or is terminated

before it is exercised, the shares are not replenished.

The option strike price cannot be re-priced without shareholder approval.

option can be granted under any plan after ten years following the earlier of the date the plan was adopted by the board of directors

or the date the plan was approved by our stockholders.

Compensation Plan

following table provides information, as of December 31, 2019, with respect to equity securities authorized for issuance

under compensation plans:

of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights

Weighted-Average

Exercise Price of Outstanding Options, Warrants and Rights

of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities

compensation plans approved by security holders

compensation plans not approved by security holders

2020, our independent directors are expected to be issued restricted stock awards valued at $25,000

pursuant to the Second Amended and Restated 2017 Incentive Compensation Plan, in quarterly installments.

Compensation Plans

to the SEC’s Regulation S-K Compliance and Disclosure Interpretation 106.01, the information required by this Item pursuant

to Item 201(d) of Regulation S-K relating to securities authorized for issuance under the Corporation’s equity compensation

plans is located in Item 12 of Part III of this Annual Report and is incorporated herein by reference.

Selected Financial Data

a smaller reporting company, Reed’s is not required to provide the information required by this Item 6.

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

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 Annual Report.

This discussion and analysis may contain

forward-looking statements based on assumptions about our future business.

Our actual results could differ materially from those

anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under

“Risk Factors”

and elsewhere in this Annual Report.

presented in the discussion below are in thousands, except share and per share amounts.

of Operations

began 2019 positioned as an asset-light company, with a significantly enhanced sales and marketing infrastructure

capable of driving accelerated growth.

The Company is better positioned to focus on driving growth and building

its brands, with capital flexibility, a reduced need for capital expenditures, and an improved operating model.

equity offerings, which closed on February 20, 2019 and October 25, 2019, respectively, provided the Company with funds to invest

in additional sales support and marketing initiatives as well as working capital to drive brand awareness and support accelerated

growth as the Company’s expands its co-packing capabilities and flexibility.

Reed’s first ever, fully integrated marketing

campaign and accelerated new product innovation has driven incremental demand, and the company is now focused on broadening its

supply chain capabilities to support the increased demand and improve fulfillment rates.

Company continues to focus on increasing core brands’

sales and improved gross margins through both pricing and COGS reduction.

Reed’s launched several new SKUs in the 3 rd quarter of 2019 such as Reed’s cans and Zero Sugar Reed’s

in both cans and bottles.

of Operations –

Year Ended December 31, 2019

following table sets forth key statistics for the years ended December 31, 2019 and 2018, in thousands:

Ended December 31,

Promotional and other allowances (B)

of goods produced (C)

of Gross sales

of goods sold –

idle capacity (D)

and marketing

and administrative

on sales of assets

Operating expenses

from operations

expense and other expense

per share –

basic and diluted

Weighted average

shares outstanding - basic & diluted

Gross sales are used internally by management as an indicator of and to monitor operating performance, including sales performance

of particular products, salesperson performance, product growth or declines and overall Company performance.

The use of gross

sales allows evaluation of sales performance before the effect of any promotional items, which can mask certain performance issues.

We therefore believe that the presentation of gross sales provides a useful measure of our operating performance.

are not a measure that is recognized under GAAP and should not be considered as an alternative to net sales, which is determined

in accordance with GAAP, and should not be used alone as an indicator of operating performance in place of net sales.

Additionally,

gross sales may not be comparable to similarly titled measures used by other companies, as gross sales have been defined by our

internal reporting practices.

In addition, gross sales may not be realized in the form of cash receipts as promotional payments

and allowances may be deducted from payments received from certain customers.

Although 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.

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.

Promotional and other allowances constitute a material portion of our marketing

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.

Cost of goods produced:

Cost of goods produced consists of the costs of raw materials and packaging utilized in the manufacture

of products, co-packing fees, repacking fees, in-bound freight charges, inventory adjustments, as well as certain internal transfer

Cost of goods produced is used internally by management to measure the direct costs of goods sold, aside from unallocated

Cost of goods produced is not a measure that is recognized under GAAP and should not be considered as an alternative

to cost of goods sold, which is determined in accordance with GAAP, and should not be used alone as an indicator of operating

performance in place of cost of goods sold.

Cost of goods sold –

idle capacity:

Cost of goods sold –

idle capacity consists of direct production costs in excess

of charges allocated to our finished goods in production.

Plant costs in excess of production allocations are expensed in the

period incurred rather than added to the cost of finished goods produced.

Plant costs include labor costs, production supplies,

repairs and maintenance, and inventory write-off.

Our charges for labor and overhead allocated to our finished goods are determined

on a market cost basis, which is lower than our actual costs incurred.

Cost of goods sold –

idle capacity is not a measure

that is recognized under GAAP and should not be considered as an alternative to cost of goods sold, which is determined in accordance

with GAAP, and should not be used alone as an indicator of operating performance in place of cost of goods sold.

Virgil’s

Gross Margin:

as % Net Sales

Cost of Sales, and Gross Margin

following chart sets forth key statistics for the transition of the Company’s top line activity from the year ending December

31, 2018 through the year ending December 31, 2019.

part of the Company’s ongoing initiative to simplify and streamline operations by reducing the number of SKUs, the Company

has identified core products to place its strategic focus on.

These core products consist of Reed’s and Virgil’s branded

Non-core products consist primarily of slower selling discontinued Reed’s and Virgil’s SKUs, discontinued

brands such as China Cola and Sonoma Sparklers, as well private label SKUs which were sold to California Custom Beverage as part

of the plant sale on December 31, 2018.

a result of our decision to focus on the core Reed’s and Virgil’s beverage brands and simplify operations by reducing

the overall number of SKUs that we offer, the Company’s core beverage volume for the year ended December 31, 2019 represented

approximately 96% of gross revenue.

brand gross revenue increased 9% during the year ended December 31, 2019 as compared to the year ended December 31, 2018,

to $37,769 from $34,746, driven by Virgil’s volume growth of 23%.

This increase was reduced by lapping

$3,757 of discontinued and private label sales which are no longer part of our portfolio.

The result is a decrease of total gross

revenue of 6%, to $39,300 from $41,974 during the prior year.

Our gross sales were impacted as we short shipped approximately

$2,751 of orders to customers during the year ended December 31, 2019 due to product availability challenges related

to lower than expected co-packer production and innovation production delays.

a 12-ounce case basis, price on our core brands remained flat year over year, while core volume grew 9% vs the year-ago

as a percentage of gross sales increased to 14% in the year ended December 31, 2019 from 9% in the prior year.

The increase in

our promotions was due to the activation of new promotions for our existing Reed’s and Virgil’s SKUs as well as the

incremental promotional and slotting spend related to product introduction of our innovation SKUs such as Reed’s Zero sugar

bottles and cans and Reed’s cans.

As a result, net sales revenue decreased 11% for the year ended December 31, 2019 to $33,820,

compared to $38,102 for the year ended December 31, 2018.

of Goods Sold and Produced

of goods sold decreased $1,480 during the year ended December 31, 2019 as compared to the prior year.

As a percentage of net sales,

cost of goods sold increased 5 percentage points during the year ended December 31, 2019, to 77% from 72% in the prior year.

and other costs were reduced to $309, down from $2,428 in the prior year.

The plant sale has significantly reduced our

idle costs, while the remaining other costs were related to completing the transition of the plant to California Custom Beverages.

We do not anticipate idle charges to be incurred going forward.

The increase in cost of goods sold was driven by an increase in

inventory obsolescence reserves and write offs related to our rebranding efforts and formulation enhancements, mostly offset by

the reduction in idle costs.

and other costs were reduced to $309, down from $2,428 in the prior year.

The plant sale has significantly reduced our

idle costs, while the remaining other costs were related to completing the transition of the plant to California Custom Beverages.

We do not anticipate any more idle plant costs now that we have exited the Los Angeles facility.

cost of goods per case increased from to $12.2 per case in the year ended December 31, 2019 from $11.8 per case

during the prior year driven by increased efficiencies having exited the Los Angeles facility.

We are continuing to work with

suppliers and co-packers to improve our processes and maximize cost efficiencies as the company’s new product offerings

continue to grow and scale.

impact of the increase in inventory obsolescence reserves and write offs resulted in a reduction in gross margin in the year ended

December 31, 2019, to 23% compared to 28% in the prior year.

and Handling Expenses

and handling expenses consist of delivery costs to customers and warehousing costs incurred for handling our finished goods after

Delivery and handling expenses increased by $504 in the year ended December 31, 2019 to $5,993 from $5,489 in the

prior year driven by increased volumes.

The increase in the rate per case to $2.8 per case this year from $2.4 per case

in the prior year is driven by additional freight required to rebalance inventory at the needed warehouse locations, shipping

innovation products produced in limited locations and higher than expected less than truck load shipments to support of the launch

of new retail accounts.

As we work to expand our copacker footprint and capabilities later this year, we anticipate transportation

costs to reduce.

and Marketing Expenses

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.

selling and marketing expenses were $9,188 during the year ended December 31, 2019, compared to $4,879 during the prior year.

As a percentage of net sales, selling and marketing costs increased to 27% during the year ended December 31, 2019, as compared

to 13% of net revenue during the prior year.

The increased investment in sales and marketing is consistent with the Company’s

strategy to refresh the brands, launch new products into the market, open new doors of distribution, create new communication

campaigns to increase core brands sales velocity and lay the groundwork to re-accelerate growth of the core brands.

is due to additional personnel and broker selling network, integrated marketing campaign creative and production, and innovation

development (product, research, and packaging).

and Administrative Expenses

and administrative expenses consist primarily of the cost of executive, administrative, and finance personnel, as well as professional

General and administrative expenses decreased in the year ended December 31, 2019 from $8,388 to $7,596, a

decrease of $792 from the prior year.

Our general and administrative expense decrease was largely driven by the exit of

the Los Angeles facility and reduction of office expenses, leases, and utilities.

from Operations

loss from operations was $14,856 for the year ended December 31, 2019, as compared to a loss of $8,122 in the prior year driven

by increase investment in sales and marketing initiatives as well as delivery and handling expenses.

and Other Expense

and other expense for the years ended December 31, 2019 and 2018 consisted of the following (in thousands):

in fair value of warrant liability

and other expense for the year ended December 31, 2019 consisted of $1,286 of interest expense as well as the income related to

the change in fair value of our warrant liability of $30.

During the prior year, interest expense was $2,201, and expense related

to the change in fair value of our warrant liability was $2.

The decrease in interest expense is the result of lower borrowings

as well as lower rates on our revolving line of credit.

addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance.

However, Modified EBITDA

is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations

or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities

as a measure of liquidity.

We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization,

stock-based compensation, changes in fair value of warrant expense, and one-time restructuring-related costs including employee

severance and asset impairment.

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 GAAP are itemized below.

You are encouraged to evaluate these adjustments and the reasons

we consider them appropriate for supplemental analysis.

In evaluating Modified 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 Modified

EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

forth below is a reconciliation of net loss to Modified EBITDA for the year ended December 31, 2019 and 2018 (in thousands):

Ended December 31,

EBITDA adjustments:

and amortization

option and other noncash compensation

in fair value of warrant liability

on Plant Sale

and severance costs

EBITDA adjustments

present Modified 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.

we use Modified 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.

Modified 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;

depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced

in the future, and Modified EBITDA does not reflect any cash requirements for such replacements.

and Capital Resources

accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern.

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

the year ended December 31, 2019, the Company recorded a net loss of $16,112 and used cash in operations of $18,161.

of December 31, 2019, we had a cash balance of $913 with borrowing capacity of $3,235, stockholders’

equity of $1,147

and a working capital of $4,885, compared to a cash balance of $624 stockholders’

deficit of $6,743 and working

capital shortfall of $3,297 at December 31, 2018.

Notwithstanding the loss for 2019, management projects adequate cash from

operations and available line of credit in 2020 to ensure continuation of the Company as a going concern.

February 20, 2019, the Company conducted a public offering of 7,733,750 shares of its common stock at $2.10 per share resulting

to net proceeds to the Company of $14,867.

In October 2019, the Company conducted a public offering of 13,416,667 shares of its

common stock at $0.60 per share resulting in net proceeds to the Company of $7,474.

Historically,

we have financed our operations through public and private sales of common stock, issuance of preferred and common stock, convertible

debt instruments, term loans and credit lines from financial institutions, and cash generated from operations.

We have taken decisive

action to improve our margins, including fully outsourcing our manufacturing process, streamlining our product portfolio, negotiating

improved vendor contracts and restructuring our selling prices.

Accounting Policies and Estimates

financial statements are prepared in accordance with accounting principles generally accepted in the United States of America,

GAAP requires us to make estimates and assumptions that affect the reported amounts in our financial statements including

various allowances and reserves for accounts receivable and inventories, the estimated lives of long-lived assets and trademarks

and trademark licenses, as well as claims and contingencies arising out of litigation or other transactions that occur in the

normal course of business.

The following summarizes our most significant accounting and reporting policies and practices:

The Company evaluates the collectability of its trade accounts receivable based on a number of factors.

In circumstances

where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific

reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes

will ultimately be collected.

In addition to specific customer identification of potential bad debts, bad debt charges are recorded

based on the Company’s historical losses and an overall assessment of past due trade accounts receivable outstanding.

Inventory is stated at the lower of cost or the current estimated market value of the inventory.

We regularly review our inventory

quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product

demand and our ability to sell the product(s) concerned.

Demand for our products can fluctuate significantly.

Factors that could

affect demand for our products include unanticipated changes in consumer preferences, general market conditions or other factors,

which may result in cancellations of advance orders or a reduction in the rate of reorders placed by customers.

Additionally,

our management’s estimates of future product demand may be inaccurate, which could result in an understated or overstated

provision required for excess and obsolete inventory.

Assets and Impairment Policy.

Intangible assets are comprised of indefinite-lived brand names acquired, so classified because

we anticipate that these brand names will contribute cash flows to the Company perpetually.

Indefinite-lived intangible assets

are not amortized but are assessed for impairment annually and evaluated annually to determine whether the indefinite useful life

is appropriate.

As part of our impairment test, we first assess qualitative factors to determine whether it is more likely than

not the asset is impaired.

If further testing is necessary, we compare the estimated fair value of our asset with its book value.

If the carrying amount of the asset exceeds its fair value, as determined by its discounted cash flows, an impairment loss is

recognized in an amount equal to that excess.

believes the accounting estimates related to impairment of our long lived assets, including our intangibles, are “critical

accounting estimates”

(1) they are highly susceptible to change from period to period because it requires an estimate

of fair value, which is based on assumptions about cash flows and discount rates;

and (2) the impact of an impairment on our balance

sheet and net income could be material.

Management’s assumptions about cash flows and discount rates require significant

judgment because actual revenues and expenses have fluctuated in the past and we expect they will continue to do so.

In estimating

future revenues, we use internal budgets.

Internal budgets are developed based on recent revenue data for existing product lines

and planned timing of future introductions of new products and their impact on our future cash flows.

Recognition .

The Company recognizes revenue when risk of loss transfers to our customers and collection of the receivable

is reasonably assured, which generally occurs when product is shipped.

A written order from the customer must be received and

credit acceptance procedures performed prior to shipment of product.

The Company does not have any significant contracts with

customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause

revenue to be allocated or adjusted over time.

Shipping and handling activities are performed before the customer obtains control

of the goods and therefore represent a fulfillment activity rather than a promised service to the customer.

Revenue and costs

of sales are recognized when control of the products transfers to our customer, which generally occurs upon shipment from our

The Company’s performance obligations are satisfied at that time.

The Company does not allow for returns, except

for damaged products when the damage occurred pre-fulfillment.

Damaged product returns have historically been insignificant.

of this, the stand-alone nature of our products, and our assessment of performance obligations and transaction pricing for our

sales contracts, we do not currently maintain a contract asset or liability balance for obligations.

We assess our contracts and

the reasonableness of our conclusions on a quarterly basis.

Compensation Expense .

The Company periodically issues stock options and restricted stock awards to employees and non-employees

in non-capital raising transactions for services and for financing costs.

The Company accounts for such grants issued and vesting

to employees 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 period.

The value of the stock compensation is based upon the measurement

date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary

performance to earn the equity instruments is complete.

On January 1, 2019, the Company adopted Accounting Standards Update

(ASU) 2018-07 which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services

from nonemployees.

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 adoption of the new standard had no cumulative effect on

previously reported amounts.

Awards granted to non-employees are revalued each reporting period to determine the amount to

be recorded as an expense in the respective period.

As the awards vest, they are valued on each vesting date and an adjustment

is recorded for the difference between the value already recorded and the then current value on the date of vesting.

circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested, and

the total stock-based compensation charge is recorded in the period of the measurement date.

fair value of the Company’s stock option and restricted stock grants is estimated using the Black-Scholes-Merton Option

Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock

options or restricted stock, and future dividends.

Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton

Option Pricing model and based on actual experience.

The assumptions used in the Black-Scholes-Merton Option Pricing model could

materially affect compensation expense recorded in future periods.

Various stock sales made by the Company to finance operations have been accompanied by the issuance of warrants.

Some of these warrant agreements contain fundamental transaction provisions which may give rise to an obligation of the Company

to pay cash to the warrant holders.

Those warrants with fundamental transaction terms are accounted for as liabilities given the

terms may give rise to an obligation of the Company to the warrant holders.

These liabilities are measured at fair value at each

reporting period and the change in the fair value is recognized in earnings in the accompanying Statements of Operations.

value is estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest

rates, expected volatility, expected life, and future dividends.

Expense is recorded based upon the value derived from the Black-Scholes-Merton

Option Pricing model and based on actual experience.

The assumptions used in the Black-Scholes-Merton Option Pricing model could

materially affect the amount of expense recorded in future periods.

believes the valuation of our warrant liabilities are “critical accounting estimates”

(1) they require estimates

of risk-free interest rates, expected volatility, expected life, and future dividends;

and (2) the impact of a change in these

estimates could be material to our balance sheet and net income.

Management’s assumptions about risk-free interest rates,

expected volatility, expected life, and future dividends are based upon historical experience, however future experience may fluctuate.

Accounting Pronouncements

Note 2 of the financial statements for a discussion of recent accounting pronouncements.

Quantitative and Qualitative Disclosures about Market Risk

a smaller reporting company, Reed’s is not required to provide the information required by this Item 7A.

a smaller reporting company, Reed’s is not required to provide the information required by this Item 6.

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-K

Item 5. Market for Registrant’s Common Equity