What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-30 compared with 2020-03-18 · 768 added, 654 removed, 336 unchanged (81% of the section changed)

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of Operations for the years ended December 31, 2020 and 2019

of Changes in Stockholders’

Equity (Deficit) for the years ended December 31, 2019 and 2018

of Changes in Stockholders’ Equity for the years ended December 31, 2020 and 2019

of Cash Flows for the years ended December 31, 2020 and 2019

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OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Board of Directors and Stockholders

Reed’s,

the Stockholders and Board of Directors of Reed’s, Inc.

on the Financial Statements

have audited the accompanying balance sheets of Reed’s, Inc.

(the “Company”) as of December 31, 2019

and 2018, the related statements of operations, changes in stockholders’

equity (deficit), and cash flows for the

years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion,

the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019

and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles

generally accepted in the United States of America.

also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”),

the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal

Control –

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013

framework) and our report dated March 18, 2020 expressed an adverse opinion thereon.

financial statements are the responsibility of the Company’s management.

have audited the accompanying balance sheets of Reed’s, Inc.

(the “Company”) as of December 31, 2020 and 2019,

the related statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended,

and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements

present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results

of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in

the United States of America.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on

the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company

Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company

in accordance with the U.S.

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to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not

for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

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We believe that our audits provide a reasonable basis for our opinion.

have served as the Company’s auditor since 2004.

Audit Matters

critical audit matters communicated below are matters arising from the current period audit of the financial statements that was

communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material

to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of

critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by

communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or

disclosures to which they relate.

described in Notes 2 and 3 to the financial statements, the Company’s inventories are valued at the lower of cost or net

realizable value, determined on first-in, first-out (“FIFO”) basis.

The Company also determines a reserve for slow

moving and potentially obsolete inventory equal to the difference between the cost of the inventory and the estimated net realizable

value of the inventory based on estimated reserve percentages, which consider historical usage, known trends, inventory age, and

market conditions.

At December 31, 2020, the balance of inventory and inventory reserves were $11.3 million and $0.2, respectively

identified the reserve for slow moving and potentially obsolete inventory as a critical audit matter, because of the significant

judgment by management in estimating the slow moving and potentially obsolete inventory reserve, and the high degree of auditor

judgment, subjectivity and effort in performing procedures and evaluating the reasonableness of the significant assumptions used

in developing the reserve.

primary procedures we performed to address this critical audit matter included:

evaluated the reasonableness of the significant assumptions used by management including those related to forecasted inventory

usage by considering historic sales activity and sales forecast

tested the completeness, accuracy, and relevance of the underlying data used in management’s estimates of slow-moving

and potentially obsolete inventory.

tested the calculations and application of management’s methodologies related to the valuation estimates of slow-moving

and potentially obsolete inventory.

developed an independent expectation of the excess and potentially obsolete inventory reserve using historic inventory activity

and compared our independent expectation to the amount recorded in the financial statements.

evaluated management’s ability to accurately estimate the reserve by comparing actual write-off activity in the current

year to the excess and potentially obsolete reserve estimated by the Company in the prior year.

tested inventory write-off activity subsequent to December 31, 2020 to discern whether there were any indications that the

reserve for excess and potentially obsolete inventory may be understated.

described in Note 1 to the financial statements, Management believes, based on the Company’s operating plan, that projected

cash from operations and available line of credit financing is sufficient to fund operations for at least one year from the date

the Company’s December 31, 2020, financial statements are issued.

identified management’s evaluation of the Company’s liquidity as a critical audit matter due to the significant judgments

required by management in developing assumptions in preparing the Company’s forecasted cash flows.

Addressing the matter

involved especially challenging auditor judgment and effort in performing procedures and evaluating evidence supporting management’s

funding requirements.

primary procedures we performed to address this critical audit matter included:

Consideration

of positive and negative evidence impacting management’s forecasts, including market and industry trends.

Consideration

of the Company’s historical ability to raise capital.

the completeness and accuracy of the underlying data used by management in preparing the forecasted cash flows by comparison

to prior period forecasts to actual results.

the sufficiency of the Company’s liquidity disclosure.

have served as the Company’s auditor since 2004.

Weinberg & Company, P.A.

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in thousands, except share amounts)

receivable, net of allowance for doubtful accounts and returns and discounts of $375 and $623, respectively

receivable, net of allowance of $ 234 and $ 375 , respectively

from related party

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

AND STOCKHOLDERS’

EQUITY (DEFICIT)

AND STOCKHOLDERS’ EQUITY

to related party

line of credit

portion of leases payable

portion of note payable

portion of lease liabilities

current liabilities

liabilities, less current portion

payable, less current portion

note to a related party

Stockholders’

equity (deficit):

Stockholders’

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

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paid in capital

stockholders’

equity (deficit)

liabilities and stockholders’

equity (deficit)

stockholders’ equity

liabilities and stockholders’ equity

accompanying notes are an integral part of these financial statements.

REED’S,

OF OPERATIONS

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and administrative expense

on sale or disposal of equipment

on sale of manufacturing plant to related party

operating expenses

from operations

on extinguishment of debt

in fair value of warrant liability

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loss attributable to common stockholders

per share –

basic and diluted

per share – basic and diluted

Weighted average

number of shares outstanding –

basic and diluted

number of shares outstanding – basic and diluted

accompanying notes are an integral part of these financial statements.

REED’S,

OF CHANGES IN STOCKHOLDERS’

EQUITY (DEFICIT)

OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

the Years Ended December 31, 2020 and 2019

in thousands except share amounts)

Stock Issuable

Stockholders’

Stockholders’ Equity

December 31, 2018

value of vested options

value of shares granted to Officer for services

value of vested restricted shares granted to Directors and

Officers for services

of vested options

value of vested restricted shares granted to Directors for services

value of vested restricted shares granted to a former officer for services

Fair value of vested restricted shares granted to Directors and officers for services

Fair value of vested restricted shares granted to Directors and officers for services, shares

on Series A Convertible Preferred Stock

shares issued to Directors pursuant to previous grants

of modification of outstanding warrants

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

Fair value of warrants issued on extinguishment of debt

Common shares issued on conversion of note payable

Common shares issued on conversion of note payable, shares

Exercise of options

Exercise of options, shares

December 31, 2019

value of vested options

value of vested restricted shares granted to Directors for

value of vested restricted shares granted to a former officer for services

Balance, December 31, 2019

of vested options

value of vested restricted shares granted to Directors and officers for services

value of warrants issued on extinguishment of debt

on Series A Convertible Preferred Stock

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

shares issued on conversion of note payable

December 31, 2020

accompanying notes are an integral part of these financial statements.

REED’S,

OF CASH FLOWS

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on termination of leases

of discount on long-term financing obligation

of capitalized financing costs

on extinguishment of debt

of debt discount

of right of use assets

value of vested stock options issued to employees for

value of shares granted for services

value of vested restricted shares issued for services

(decrease) in allowance for doubtful accounts

value of vested options

value of vested restricted shares granted to directors and officers for services

in accounts receivable allowance

(decrease) in inventory reserve

(decrease) in fair value of warrant liability

in fair value of warrant liability

of interest on convertible note to a related party

off intangible asset

in operating assets and liabilities:

expenses and other assets

long-term obligations

cash used in operating activities

flows from investing activities:

Intangible asset trademark

from sale of property and equipment

of property and equipment

cash provided by (used in) investing activities

cash used in investing activities

flows from financing activities:

under line of credit

of line of credit

under revolving line of credit

of revolving line of credit

Capitalization

of financing costs

repayments on capital expansion loan

repayments on bank notes

repayments on long term financial obligation

from officers

of amounts due to officers

repayments on capital lease obligation

from loan payable

from related party

of convertible note payable

repayments on finance lease obligation

from sale of common stock

cash provided by (used in) financing activities

cash provided by financing activities

increase (decrease) in cash

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investing and financing activities:

accounts receivable related party and accounts payable related party

on Series A Convertible Preferred Stock

of lease asset and liability

credits issued for fixed asset purchase

value of warrant modification recorded as debt discount

accompanying notes are an integral part of these financial statements.

REED’S,

TO FINANCIAL STATEMENTS

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Operations and Liquidity

(the “Company”) is the owner and maker of both Reed Craft Ginger Beer and Virgil’s Handcrafted Sodas.

in 1989, Reed’s is America’s best-selling Ginger Beer brand and has been the leader and innovator in the ginger beer

category for decades.

Virgil’s is America’s best-selling independent, full line of natural craft sodas.

The Reed’s

portfolio is sold in over 30,000 retail stores nationwide.

Reed’s Ginger Beers are unique due to the proprietary

process of using fresh ginger root combined with a Jamaican inspired recipe of natural spices and fruit juices.

The Company uses

this same handcrafted approach in its award-winning Virgil’s line of great tasting, bold flavored craft sodas.

(the “Company”) is the owner and maker of both Reed Craft Ginger Beer and Reed’s Real Ginger

Ale and Virgil’s Handcrafted Sodas.

Established in 1989, Reed’s is America’s best-selling Ginger Beer

brand and has been the leader and innovator in the ginger beer category for decades.

Virgil’s is America’s

best-selling independent, full line of natural craft sodas.

The Reed’s Inc.

portfolio is sold in over 40,000

retail stores nationwide.

Reed’s Ginger Beers are unique due to the proprietary process of using fresh ginger root

combined with a Jamaican inspired recipe of natural spices and fruit juices.

Reed’s uses this same handcrafted

approach in its Reed’s Real Ginger Ale and Virgil’s line of great tasting, bold flavored craft sodas, including

its award-winning Virgil’s Root Beer.

Considerations

the year ended December 31, 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.

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

to protect our employees and our supply chain.

The Company has endeavored to follow the recommended actions of government and

health authorities to protect our employees.

Since the inception of the COVID-19 pandemic and through the year ended December

31, 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.

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.

December 31, 2020, the COVID-19 pandemic has not negatively impacted the Company’s liquidity position as of such date.

sales for the year ended December 31, 2020 were up 23% from the prior year period.

Through December 31, 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.

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.

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

As 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

Notwithstanding the net 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.

2017, the Company performed a complete operational review and developed a detailed action plan to capture performance improvements,

drive core brand growth, and become a premier “asset-light”

sales and marketing organization.

In September 2018, the

Company completed the relocation of its headquarters to Norwalk, Connecticut.

In December 2018, the Company sold its Los Angeles

manufacturing plant to a related party (see Note 13), marking a fundamental shift in the nature of the Company’s operations

and effectively eliminated our costs associated with excess manufacturing capacity.

With the sale of our manufacturing plant,

all of the Company’s production is subcontracted to co-packers, which assemble our products and charge us a fee, generally

by the case, for the products they produce.

October 2018, the Company entered into a financing agreement

with Rosenthal & Rosenthal, Inc., which replaced an existing credit facility (see Note 6).

The Company’s

annual debt service requirements, on an annualized basis, were reduced by approximately $1,500 as a result of the refinancing.

The current credit facility is for a term of 2.5 years, and provides for borrowings of up to $13,000.

As of December 31,

2019 and 2018, the Company had $3,235 and $1,201, respectively, of unused borrowing capacity under the financing agreement.

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

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

October 25, 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.

ended December 31, 2020, the Company recorded a net loss of $ 10,177

and used cash in operations of $ 9,496 .

As of December 31, 2020, we had a cash balance of $ 595 with

borrowing capacity of $ 5,166 ,

stockholders’ equity of $ 10,404

and a working capital of $ 9,528 .

Notwithstanding the net loss for 2020, management projects adequate cash from operations and available line of credit in 2021

to ensure continuation of the Company as a going concern for at least one year from the date the Company’s 2020 financial

statements are issued.

2020, the Company conducted public offerings and sold 36.9 million of its common shares and received net proceeds of $ 16,564 (see

Historically,

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could differ from those estimates.

Those estimates and assumptions include estimates for reserves of uncollectible accounts, inventory

obsolescence, depreciable lives of property and equipment, analysis of impairments of recorded long-term tangible and intangible

assets, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments

issued for services and assumptions used in valuing warrant liabilities.

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.

allowance for doubtful accounts and returns and discounts is established through a provision reducing the carrying value of receivables.

At December 31, 2019 and 2018, the allowance for doubtful accounts and returns and discounts was $375 and $623, respectively.

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.

At December 31, 2019 and 2018, the reserve for inventory obsolescence aggregated $646 and $197,

Those estimates and assumptions include estimates for reserves of uncollectible accounts

receivables, assumptions used in valuing inventories at net realizable value, impairment testing of recorded long-term tangible

and intangible assets, the valuation allowance for deferred tax assets, accruals for potential liabilities, assumptions made in

valuing stock instruments issued for services, and assumptions used in valuing warrant liabilities, and assumptions used in the

determination of the Company’s liquidity.

receivable are generally recorded at the invoiced amounts net of an allowance for expected losses.

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.

allowance for accounts receivable is established through a provision reducing the carrying value of receivables.

31, 2020 and 2019, the allowance was $ 234

respectively.

is stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis.

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.

At December 31, 2020 and 2019, the reserve for inventory obsolescence aggregated $ 194 and $ 646 , respectively.

and Equipment

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Depreciation is calculated using accelerated and straight-line methods over the estimated useful lives of the assets

Schedule of Estimated Useful Lives of Property and Equipment and Related Depreciation

and Equipment Type

of Depreciation

and office equipment

to the sale of its manufacturing plant on December 31, 2018 (see Note 13), the Company depreciated buildings over 39 years and

machinery over 5-12 years.

hardware and software

and equipment

assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value

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an impairment loss is recognized to write down the asset to its estimated fair value.

For the years ended December 31, 2019

and 2018, the Company determined there were no indicators of impairment of its property and equipment.

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.

For the years ended December 31, 2020 and

2019, the Company determined there were no indicators of impairment of its property and equipment.

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, or more frequently if events or circumstances indicate that assets might be impaired, 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.

the year ended December 31, 2019, the Company determined there was no impairment of its indefinite-lived brand names.

During our December 31, 2018 impairment testing, we determined that our Sonoma Sparkler trademark was unlikely to provide

future benefit to the Company, because we do not currently offer Sonoma Sparkler products and we do not anticipate doing so in

the foreseeable future.

Accordingly, we reduced the book value of this asset to zero as of December 31, 2018, by recording an

impairment charge of $229.

Concentrations

Company’s cash balances on deposit with banks are guaranteed by the Federal Deposit Insurance Corporation (FDIC)

Generally, the Company’s policy is to minimize borrowing costs by immediately applying cash receipts to borrowings

against its credit facility.

From time to time, however, the Company may be exposed to risk for the amounts of funds held in bank

accounts in excess of the FDIC limit.

To minimize the risk, the Company’s policy is to maintain cash balances with

high quality financial institutions.

During the year ended December 31, 2019, the Company’s largest two customers accounted for 12% and 11% of gross

sales, respectively.

During the year ended December 31, 2018, the largest two customers accounted for 24% and 17% of gross sales,

respectively.

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

accounts receivable.

As of December 31, 2018, accounts receivable from two customers comprised 36% and 19% of total accounts receivable,

respectively.

the years ended December 31, 2019 and 2018, respectively, the Company utilized four and three, respectively, separate,

co-packers for most its production and bottling of beverage products in the eastern United States.

With the December 31, 2018

sale of its manufacturing plant, the Company no longer conducts a manufacturing operation, accordingly it utilizes co-packers

to produce 100% of its products as of those dates.

The Company has long-standing relationships with two different co-packers,

and in conjunction with the sale of its manufacturing plant we entered into a third co-packing agreement with California

Custom Beverage LLC (“CCB”), the purchaser of the plant (see Note 13).

CCB is 100% owned by Chris Reed, founder

of the Company and current Chief Information Officer and director.

Although there are other packers, a change in co-packers may

cause a delay in the production process, which could ultimately affect operating results.

from vendors.

During the year ended December 31, 2019, the Company’s largest three vendors accounted for approximately

12%, 11%, and 10% of all purchases, respectively.

During the year ended December 31, 2018, the Company’s largest two vendors

accounted for 16% and 13% of all purchases, respectively.

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

payable, respectively.

As of December 31, 2018, one vendor accounted for 24% of total accounts payable.

Value of Financial Instruments

Company uses various inputs in determining the fair value of its financial assets and liabilities and measures these assets on

a recurring basis.

Financial assets recorded at fair value are categorized by the level of subjectivity associated with the inputs

used to measure their fair value.

Accounting Standards Codification Section 820 defines the following levels of subjectivity associated

with the inputs:

1—Quoted prices in active markets for identical assets or liabilities.

2—Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

3—Unobservable inputs based on the Company’s assumptions.

carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, short-term bank

loans, accounts payable, notes payable and other payables, approximate their fair values because of the short maturity of these

The carrying values of capital lease obligations and long-term financing obligations approximate their fair values

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

of December 31, 2019, and 2018, the Company’s balance sheets included Level 2 liabilities comprised of the fair value

of warrant liabilities aggregating $8 and $38, respectively (see Note 9).

Company operates in one segment for the manufacture and distribution of our products.

In accordance with the “Segment Reporting”

Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President,

who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company.

guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information

quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which

the entity holds material assets and reports revenue.

All material operating units qualify for aggregation under “Segment

Reporting”

due to their similar customer base and similarities in:

economic characteristics;

nature of products and services;

and procurement, manufacturing and distribution processes.

Since the Company operates in one segment, all financial information

required by “Segment Reporting”

can be found in the accompanying financial statements

its fair value, as determined by its discounted cash flows, an impairment loss is recognized in an amount equal to that

For the years ended December 31, 2020 and 2019, the Company determined there was no impairment

of its indefinite-lived brand names.

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 in the event that a fundamental transaction occurs (such as a merger or change in control of the Company) and such

cash payment is elected by the holder.

For accounting purposes, in accordance with ASC 480, Distinguishing Liabilities

from Equity , 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 of the stock options or restricted stock, 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.

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.

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

from our facilities.

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

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

contain no incentives or discounts that could cause revenue to be allocated or adjusted over time.

Shipping and handling activities

are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised

service to the customer.

of the Company’s products are offered for sale as finished goods only, and there are no performance obligations required

post-shipment for customers to derive the expected value from them.

Company does not allow for returns, except for damaged products when the damage occurred pre-fulfillment.

Damaged product returns

have historically been insignificant.

Because of this, the stand-alone nature of our products, and our assessment of performance

obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance

for obligations.

We assess our contracts and the reasonableness of our conclusions on a quarterly basis.

of Goods Sold

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Plant costs include labor costs, production

supplies, repairs and maintenance, direct inventory write-off charges and adjustments to the inventory reserve.

Charges for labor

and overhead allocated to finished goods are determined on a market cost basis, which may be lower than the actual costs incurred.

Plant costs in excess of production allocations are expensed in the period incurred rather than added to the cost of finished

goods produced.

supplies, repairs and maintenance, depreciation, direct inventory write-off charges and adjustments to the inventory reserve.

Charges for labor and overhead allocated to finished goods are determined on a market cost basis, which may be lower than the

actual costs incurred.

Plant costs in excess of production allocations are expensed in the period incurred rather than added to

the cost of finished goods produced.

Expenses not related to the production of our products are classified as operating expenses.

Company terminated its manufacturing operation effective with the December 31, 2018 sale of its manufacturing plant.

and Handling Expense

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with product distribution after manufacture and are included as part of operating expenses.

costs are expensed as incurred and are included in selling and marketing expense.

Advertising costs aggregated $ 1,518 and $ 2,570

for the years ended December 31, 2020 and 2019, respectively.

Compensation Expense

Company periodically issues stock options and restricted stock awards to employees and non-employees in non-capital raising transactions

for services and for financing costs.

The Company accounts for such grants issued and vesting based on ASC 718, Compensation-Stock

Compensation whereby the value of the award is measured on the date of grant and recognized for employees as compensation

expense on the straight-line basis over the vesting period.

Recognition of compensation expense for non-employees is in the

same period and manner as if the Company had paid cash for the services.

The Company recognizes the fair value of stock-based

compensation within its Statements of Operations with classification depending on the nature of the services rendered.

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

assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock,

and future dividends.

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

model and based on actual experience.

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

compensation expense recorded in future periods.

Company uses an asset and liability approach for accounting and reporting for income taxes that allows recognition and measurement

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benefits, or that future deductibility is uncertain.

The Company’s policy is to recognize interest and/or penalties related

to income tax matters in income tax expense.

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 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 facilities.

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

of the Company’s products are offered for sale as finished goods only, and there are no performance obligations required

post-shipment for customers to derive the expected value from them.

Company does not allow for returns, except for damaged products when the damage occurred pre-fulfillment.

Damaged product returns

have historically been insignificant.

Because of this, the stand-alone nature of our products, and our assessment of performance

obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance

for obligations.

We assess our contracts and the reasonableness of our conclusions on a quarterly basis.

per Common Share

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The potentially dilutive securities consisted of the following:

of Potentially Dilutive Securities

note to a related party

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

costs are expensed as incurred and are included in selling and marketing expense.

Advertising costs aggregated $2,570 and $300

for the years ended December 31, 2019 and 2018, respectively.

Compensation Expense

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.

Such grants issued and vesting to non-employees are valued on 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.

In prior periods, the Company accounted for stock option and warrant grants issued and vesting to

non-employees in accordance with the authoritative guidance of the FASB whereby 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 ASU 2018-07 had no cumulative effect on

previously reported amounts.

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

uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted

stock, and future dividends.

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

Pricing model and based on actual experience.

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

affect compensation expense recorded in future periods.

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

For accounting purposes, in accordance with ASC 480, Distinguishing Liabilities from Equity , 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 of the stock options or restricted stock, 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.

February 2016, the FASB issued ASU No.

2016-02, Leases.

ASU 2016-02 requires a lessee to record a right of use asset and a corresponding

lease liability on the balance sheet for all leases with terms longer than twelve months.

ASU 2016-02 is effective for all interim

and annual reporting periods beginning after December 15, 2018.

Early adoption is permitted.

A modified retrospective transition

approach is required for lessees for leases existing at, or entered into after, the beginning of the earliest period presented

in the financial statements.

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

As a result, we recorded right-of-use assets aggregating $862, and lease

liabilities of the same amount, as of that date.

In accordance with ASU 2016-02, the right-of-use assets are being depreciated

over the life of the underlying leases, and monthly lease payments are being recorded as reductions to the lease liability and

imputed interest expense.

See Note 7 for additional information.

Value of Financial Instruments

Company uses various inputs in determining the fair value of its financial assets and liabilities and measures these assets on

a recurring basis.

Financial assets recorded at fair value are categorized by the level of subjectivity associated with the inputs

used to measure their fair value.

Accounting Standards Codification Section 820 defines the following levels of subjectivity associated

with the inputs:

1—Quoted prices in active markets for identical assets or liabilities.

2—Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

3—Unobservable inputs based on the Company’s assumptions.

carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, short-term bank

loans, accounts payable, notes payable and other payables, approximate their fair values because of the short maturity of these

The carrying values of capital lease obligations and long-term financing obligations approximate their fair values

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

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

warrant liabilities aggregating $ 0 and $ 8 , respectively (see Note 10).

Company operates in one segment for the manufacture and distribution of our products.

In accordance with the “Segment Reporting”

Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President,

who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company.

guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information

quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which

the entity holds material assets and reports revenue.

All material operating units qualify for aggregation under “Segment

Reporting” due to their similar customer base and similarities in:

economic characteristics;

nature of products and services;

and procurement, manufacturing and distribution processes.

Since the Company operates in one segment, all financial information

required by “Segment Reporting” can be found in the accompanying financial statements.

Concentrations

Company’s cash balances on deposit with banks are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $ 250 .

Generally, the Company’s policy is to minimize borrowing costs by immediately applying cash receipts to borrowings against

its credit facility.

From time to time, however, the Company may be exposed to risk for the amounts of funds held in bank accounts

in excess of the FDIC limit.

To minimize the risk, the Company’s policy is to maintain cash balances with high quality financial

institutions.

During the year ended December 31, 2020, the Company’s largest two customers accounted for 25 % and 12 % of gross

sales, respectively.

During the year ended December 31, 2019, the Company’s largest two customers accounted for 12 % and

11 % of gross sales, respectively.

As of December 31, 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.

the years ended December 31, 2020 and 2019, respectively, the Company utilized six and four, respectively, separate, co-packers

for most its production and bottling of beverage products in the United States.

With the December 31, 2018 sale of its manufacturing

plant, the Company no longer conducts a manufacturing operation, accordingly it utilizes co-packers to produce 100 % of its products

as of those dates.

The Company has long-standing relationships with two different co-packers, and in conjunction with the sale

of its manufacturing plant we entered into a third co-packing agreement with California Custom Beverage LLC (“CCB”),

the purchaser of the plant (see Note 15).

CCB is 100 % owned by Chris Reed, founder of the Company and current Chief Information

Officer and director.

Although there are other packers, a change in co-packers may cause a delay in the production process, which

could ultimately affect operating results.

from vendors.

During the year ended December 31, 2020, the Company’s largest two vendors accounted for approximately

12 % and 11 % of all purchases, respectively.

During the year ended December 31, 2019, the Company’s largest three vendors

accounted for approximately 12 %, 11 %, and 10 % of all purchases, respectively.

As of December 31, 20120 the Company’s largest two vendors accounted for 12 % and 10 % of the total accounts

payable, respectively.

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

total accounts payable, respectively.

Accounting Pronouncements

June 2016, the FASB issued ASU No.

2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments

(“ASC 326”).

The standard significantly changes how entities will measure credit losses for most financial

assets, including accounts and notes receivables.

The standard will replace today’s “incurred loss”

with an “expected loss”

model, under which companies will recognize allowances based on expected rather than incurred

Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning

of the first reporting period in which the guidance is effective.

The standard is effective for interim and annual reporting

periods beginning after December 15, 2019.

The adoption of ASU 2016-13 is not expected to have a material impact on the

Company’s financial position, results of operations, and cash flows.

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

types of financial instruments, including trade receivables.

This may result in the earlier recognition of allowances for losses.

ASU 2016-13 is effective for the Company beginning January 1, 2023, and early adoption is permitted.

The Company does not believe

the potential impact of the new guidance and related codification improvements will be material to its financial position, results

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 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

Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on

the Company’s present or future financial statements.

is valued at the lower of cost (first-in, first-out) or net realizable value, and net of reserves is comprised of the following

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

of Property and Equipment

assets under operating leases

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hardware and software

and equipment

depreciation and amortization

expense for the years ended December 31, 2019 and 2018 was $24 and $86, respectively.

expense for the years ended December 31, 2020 and 2019 was $ 88

respectively, and amortization of right-of-use assets for the years ended December 31, 2020 and 2019 was $ 116

respectively.

During the year ended December 31, 2020, the Company disposed of right-of-use assets under finance leases with a net book

value of $ 51

and terminated $ 51

of related finance leases (see Note 9).

Additionally,

during the year ended December 31, 2020, the Company reclassified $ 6

of right-of-use assets under operating leases

to right-of-use assets under finance leases and disposed of fully depreciated computer hardware and software of $ 244

net book value.

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

of Equipment Held for Sale

held for sale

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Intangible Assets

December 31, 2019 and 2018, intangible assets of $576

are comprised of the Virgil’s brand name.

The brand name has been assigned an indefinite life, as we currently

anticipate that they will contribute cash flows to the Company perpetually.

These indefinite-lived intangible assets are not amortized

but are assessed for impairment annually and evaluated annually to determine whether the indefinite useful life remains appropriate.

We first assess qualitative factors to determine whether it is more likely than not that 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 the discounted cash flows expected to be generated by the asset, an impairment loss is recognized

in an amount equal to that excess.

Based on management’s measurement, there were no indications of impairment at December

assets are comprised of brand names acquired, specifically Virgil’s, and costs related to trademarks.

They have been assigned

an indefinite life, as we currently anticipate that they will contribute cash flows to the Company perpetually.

These indefinite-lived

intangible assets are not amortized but are assessed for impairment annually and evaluated annually to determine whether the indefinite

useful life remains appropriate.

We first assess qualitative factors to determine whether it is more likely than not that the

asset is impaired.

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

carrying amount of the asset exceeds its fair value, as determined by the discounted cash flows expected to be generated by the

asset, an impairment loss is recognized in an amount equal to that excess.

Based on management’s assessment, there

were no indications of impairment at December 31, 2020.

During the year ended December 31,

2020, the Company capitalized costs of $ 39 pertaining to legal and other fees incurred in applying for international trademarks

for Reeds and Virgil’s brands.

assets consist of the following (in thousands):

of Intangible Assets

Line of Credit

outstanding under the Company’s credit facilities are as follows (in thousands):

of Amount Outstanding Under Credit Facilities

finance costs

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

The financing agreement

provides 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 December 31, 2019, the unused borrowing capacity under the financing agreement

The line of credit matures on April 20, 2021.

The financing agreement provides

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 December 31, 2020, the unused borrowing capacity under the financing agreement was $ 5,166 .

The line of credit matures on March

30, 2021 , with automatic yearly renewals thereafter until terminated.

under the Rosenthal financing agreement bear interest at the greater of prime or 4.75 %, plus an additional 2.0 % to 3.5 % depending

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

The effective interest rate as of December

31, 2019 on outstanding borrowings was 7.1%.

Additionally, the line of credit is subject to monthly facility and administration

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

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

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

Additionally, the line of credit is subject

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

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

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

Additionally, any over-advance is guaranteed

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Doherty III and the Daniel J.

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

Raptor beneficially owns 14.9% of the

Company’s outstanding common stock as of December 31, 2019.

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.

part of the financing agreement in 2018, the Company amended and restated a subordinated convertible non-redeemable

secured note to Raptor, to provide for additional advances of up to $4,000 in the event that Raptor exercises its put option described

above (see Note 8).

Consequently, the exercise price of 750,000 of Raptor’s outstanding warrants to purchase the

Company’s common stock was reduced from $1.50 to $1.10, resulting in an increase in the fair value of the warrants of $161.

This amount has been reflected as a capitalized finance cost and is being amortized over the life of the financing agreement.

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

As of December 31, 2020, Raptor beneficially

owns 7.4 % of the Company’s outstanding common stock.

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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We were in compliance with the terms of our agreement with Rosenthal as of December 31, 2020.

2018, the Company incurred $882 of direct costs in conjunction with the initial financing agreement, consisting primarily of broker,

bank and legal fees, and $161 cost of warrant modification.

The Company annually incurs an additional $130 of fees from the bank,

which is equal to 1% of the $13,000 borrowing limit.

These costs have been capitalized and recorded as a debt discount and are

being amortized over the 2.5 year life of the Rosenthal agreement.

Amortization of debt discount was $323 for the year ended December

Leases Payable

Company adopted ASU 2016-02, 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.

As a result, we recorded right-of-use assets aggregating $862 as of October 1, 2018, utilizing a discount rate of 12.60%.

amount consists of new leases on the Company’s Norwalk office and certain office equipment of $730, and existing capitalized

leases reclassified to right of use assets of $132.

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.

As of December 31, 2019, the Company reflected accumulated

amortization of right of use asset of $211 related to these leases, resulting in a net asset balance of $698.

accordance with ASU 2016-02, the right-of-use assets are being amortized over the life of the underlying leases.

of December 31, 2018, liabilities recorded under finance leases and operating leases were $133 and $719, respectively.

the year ended December 31, 2019, the Company made payments of $44 towards finance lease liability and $22 towards operating lease

As of December 31, 2019, the liability under finance lease amounted to $89 and the liability under operating

lease amounted to $697, of which $21 and $28 (aggregate of $49) are reflected as the current portion of leases

payable on the accompanying balance sheet.

of December 31, 2019, the weighted average remaining lease terms for operating lease and finance lease are 5.01 years and 1.00

years, respectively.

The weighted average discount rate for operating lease is 12.60% and 6.93% for finance lease.

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

Ending December 31,

Amount representing interest

value of net minimum lease payments

Current portion

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.

of debt discount was $ 452 and $ 323 for the year ended December 31, 2020 and 2019, respectively.

On December 31, 2020, the remaining

unamortized debt discount of $ 162 is included in prepaid expense and other current assets on the balance sheet.

Convertible Note to a Related Party

Convertible Note to a Related Party consists of the following (in thousands):

of Convertible Notes

Convertible Note Payable

April 21, 2017, pursuant to a Securities Purchase Agreement, the Company issued a secured, convertible, subordinated, non-redeemable

note in the principal amount of $3,400 (the “Raptor Note”) and warrants to purchase 1,416,667 shares of common stock.

The purchaser, Raptor/Harbor Reeds SPV LLC (“Raptor”), beneficially owned approximately 14.9% and 27.1% of the Company’s

common stock at December 31, 2019 and 2018, respectively.

note in the principal amount of $ 3,400 (the “Raptor Note”) and warrants to purchase 1,416,667 shares of common stock.

Raptor Note bears interest at a rate of 12 % per annum, compounded monthly.

It 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.

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

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for a term of two years.

October 4, 2018, in connection with the execution of the Rosenthal financing agreement, the Company amended and restated the

subordinated convertible non-redeemable secured note to Raptor, to provide for additional advances of up to $4,000.

In consideration

therefore, the exercise price of 750,000 of Raptor’s outstanding warrants was reduced from $1.50 to $1.10, resulting in

an increase in the fair value of the warrants, determined in accordance with the Black-Scholes-Merton option pricing model, of

This amount was recorded as a debt discount to the Rosenthal line of credit and is being amortized as interest expense over

the life of the financing agreement (See Note 6).

Warrants and Warrant Liability

activity during the years ended December 31, 2019 and 2018 is as follows:

Weighted-Average

Exercise Price

Weighted-Average

Remaining Contractual Terms (Years)

Intrinsic Value

at December 31, 2017

at December 31, 2018

at December 31, 2019

outstanding at December 31, 2019 and 2018, and their respective exercise price and expiration dates, are as follows:

financing transactions and stock sales made by the Company have been accompanied by the issuance of warrants.

Generally, we record

the fair market value of the warrants, as determined using the Black-Scholes-Merton option pricing model, as a financing cost

at date of issuance.

There were no such financing costs recorded during the years ended December 31, 2019 and 2018,

respectively.

of our warrant agreements, however, contain fundamental transaction provisions which may give rise to an obligation of the Company

to pay cash to the warrant holders.

For accounting purposes, in accordance with ASC 480, Distinguishing Liabilities from Equity ,

warrants with such fundamental transaction provisions are accounted for as liabilities.

A summary of transactions that impacted

our warrant liabilities is provided below under “

Warrant Liability ”.

December 31, 2019, the aggregate intrinsic value of outstanding and exercisable warrants was zero.

The aggregate intrinsic value of outstanding and exercisable warrants is calculated as the difference between the exercise price

of the warrant and the market price of the Company’s common stock as of December 31, 2019, which was $0.91.

the year ended December 31, 2019, a total of 283,495 warrants were exercised, including 87,485 warrants that were exercised on

a cashless basis, resulting in the issuance of 223,037 shares of our common stock.

Aggregate proceeds to the Company were $365.

During the year ended December 31, 2019, warrants to acquire 200,000 shares of common stock expired.

the year ended December 31, 2018, a total of 428,005 warrants were exercised, including 5,978 warrants that were exercised on

a cashless basis, resulting in the issuance of 414,857 shares of our common stock.

Aggregate proceeds to the Company were $831.

During the year ended December 31, 2018, no warrants to acquire common stock expired.

stated above, certain of our warrant agreements contain fundamental transaction provisions which may give rise to an obligation

of the Company to pay cash to the warrant holders.

Such warrants are accounted for as liabilities at fair value.

The fair value

is remeasured at each reporting period, and the change in the fair value is recognized in earnings in the accompanying Statements

of Operations.

Following is a summary of the transactions described above that impacted our warrant liability.

December 11, 2020, the Company entered into a Satisfaction, Settlement and Release Agreement with Raptor satisfying all of its obligations

to Raptor as its junior secured lender.

In full satisfaction of the Raptor Note, including release of collateral, and termination of

related junior lender documentation, the Company (a) paid Raptor $ 4,250

in cash, (b) issued to Raptor a 5 -year

warrant with a fair value of $ 402

to purchase 1,000,000

shares of the Company common stock with

an exercise price of $ 0.64 4 per share, and (c) issued to Raptor 1,339,286

shares of Common Stock with a fair value of $ 857

upon conversion of $ 750

of the Raptor Note at a reduced per share conversion price of $ 0.56

The aggregate amount of the cash paid, the fair value of the warrants issued, and the fair value of shares issued

upon conversion of the Raptor Note was approximately $ 5,509 .

The carrying amount of the balance of the Raptor note, including accrued interest, was approximately $ 5,247 ,

resulting in a loss on extinguishment of debt of $ 262

recorded on the statements of operations during the year ended December 31, 2020.

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.

December 31, 2020, the note payable balance was $ 770 , of which $ 599 was reflected as the current portion of note payable.

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.

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

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 believes it used the entire loan amount for qualifying

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

Company was in compliance with the terms of the PPP loan as of December 31, 2020.

the conditions outlined in the PPP loan program are adhered to by the Company, all or part of such loan could be forgiven.

Company believes that all or a substantial portion of the PPP loan is eligible for forgiveness.

The Company applied for full forgiveness

of the PPP loan on March 17, 2021.

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.

However, the Company cannot provide any assurance whether the PPP loan will ultimately be forgiven by the SBA.

Leases Liabilities

Company determines whether a contract is, or contains, a lease at inception.

Right-of-use assets represent the Company’s

right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make

lease payments arising from the lease.

Right-of-use assets and lease liabilities are recognized at lease commencement based upon

the estimated present value of unpaid lease payments over the lease term.

Company leases its headquarters office , and certain office equipment

and automobiles.

Leases with an initial term of 12 months or less are not included on the balance sheets.

the years ended December 31, 2020 and 2019, lease costs totaled $ 181 and $ 181 , respectively.

of December 31, 2018, lease liabilities totaled $ 852 , made up of finance leases liabilities of $ 133 and operating

lease liabilities of $ 719 .

During the year ended December 31, 2019, the Company made payments of $ 44 towards its

finance lease liability and $ 22 towards its operating lease liability.

As 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 year

ended December 31, 2020, the Company terminated $ 51 of finance leases, and made payments of $ 22 towards its finance lease

liability and $ 28 towards its operating lease liability.

As of December 31, 2020, lease liabilities totaled $ 685 , made

up of finance lease liabilities of $ 16 and operating lease liabilities of $ 669 .

of December 31, 2020, the weighted average remaining lease terms for operating lease and finance lease are 4.00 years and 0.28

years, respectively.

As of December 31, 2020, the weighted average discount rate for operating lease is 12.60 % and 6.03 % for finance

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

of Future Minimum Lease Payments Under Leases

Ending December 31,

Amount representing interest

value of net minimum lease payments

Current portion

Warrant Liability

sales of common stock 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.

For accounting purposes, in accordance with ASC 480, Distinguishing Liabilities from Equity , 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.

fair value of the warrant liability was determined using the Black-Scholes-Merton option pricing model at December 31, 2020 and

2018, using the following assumptions:

December 31, 2019, using the following assumptions:

of Warrant Liability Using Assumptions

free interest rate

1 unchanged sentence

dividend yield

Warrants containing fundamental transaction provisions

of Warrants containing fundamental transaction provisions

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

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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 years ended

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

December 31, 2020 and 2019:

of Warrant Liability

in fair value

Stockholders’

Stockholders’ Equity

A Convertible Preferred Stock

A Convertible Preferred Stock (the “Preferred Stock”) consists of $10 par value, 5% non-cumulative, non-voting, participating

A Convertible Preferred Stock (the “Preferred Stock”) consists of $ 10 par value, 5 % non-cumulative, non-voting, participating

preferred stock, with a liquidation preference of $ 10.00 per share.

2 unchanged sentences

2019, there were 9,411 shares outstanding.

Each share of Preferred Stock can be converted into four shares of the Company’s

common stock.

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In addition, the holders

of the Preferred Stock are entitled to receive pro rata distributions of dividends on an “as converted”

of the Preferred Stock are entitled to receive pro rata distributions of dividends on an “as converted” basis with

the holders of our common stock.

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senior preferred stock.

the years ended December 31, 2019 and 2018, the Company paid dividends on the Preferred

Stock through the issuance of 4,254 and 1,734 shares of its common stock, respectively, which based upon the then-current market

price of the stock equated to dividends of $5 in each of the years.

No shares of Series A preferred stock were converted into

common stock in 2019 and 2018.

Company’s common stock has a par value of $.0001.

On October 20, 2019 our shareholders approved an increase in the authorized

number of common shares from 70,000,000 to 100,000,000.

As of December 31, 2019 and 2018, there were 100,000,000 and 70,000,000

shares authorized, respectively, and 47,595,206 and 25,729,461 shares of common stock outstanding, respectively.

Stock Issued in Connection with Rights Offerings

February 2019, the Company conducted a public offering of 7,733,750 shares of its common shares including 1,008,750 shares

sold pursuant to the underwriters’

full exercise of their option to purchase additional shares to cover over-allotments,

at a public offering price of $2.10 per share.

The net proceeds to the Company from this offering are $14,867, after deducting

underwriting discounts and commissions and other offering expenses.

Proceeds from the offering will provide capital to fund the

growth of our business, new products, sales and marketing efforts, working capital, and for general corporate purposes.

October 2019, the Company conducted a public offering of 13,416,667 shares of its common shares including 1,750,000 shares sold

pursuant to the underwriters’

full exercise of their option to purchase additional shares to cover over-allotments, at a

public offering price of $0.60 per share.

The net proceeds to the Company from this offering are $7,474, after deducting

underwriting discounts and commissions and other offering expenses.

Proceeds from the offering will provide capital to fund the

growth of our business, new products, sales and marketing efforts, working capital, and for general corporate purposes.

Stock Issuable

December 31, 2017, the Company issued to its independent directors an aggregate of 400,000 shares of common stock valued at $1.70

per share, or $680 in total, for services provided in 2017.

These shares were reflected as Common Stock Issuable at December 31,

2017, and were issued during 2018.

the years ended December 31, 2020 and 2019, the Company paid dividends on the Preferred Stock through the issuance of 4,530 and

4,254 shares of its common stock, respectively, which based upon the then-current market price of the stock equated to dividends

of $ 5 in each of the years.

No shares of Series A preferred stock were converted into common stock in 2020 and 2019.

Company’s common stock has a par value of $ .0001 .

On December 21, 2020, our shareholders approved an increase in the authorized number of common shares from 100,000,000

to 120,000,000 .

As of December 31, 2020, there were 120,000,000

shares authorized with 86,317,096

As of December 31,

2019, there were 100,000,000

shares authorized, and 47,595,206

shares of common stock outstanding.

Stock Issuance

November 2020, the Company conducted a public offering of 21,562,500 shares of its common shares at a public offering price of

$ 0.56 per share.

The net proceeds to the Company from this offering are $ 11,254 , after deducting underwriting discounts and commissions

and other offering expenses.

April 2020, the Company conducted a public offering of 15,333,334 shares of its common shares at a public offering price of $ 0.375

The net proceeds to the Company from this offering are $ 5,310 , after deducting underwriting discounts and commissions

and other offering expenses.

October 2019, the Company conducted a public offering of 13,416,667 shares of its common shares at a public offering price of

$ 0.60 per share.

The net proceeds to the Company from this offering are $ 7,474 , after deducting underwriting discounts and commissions

and other offering expenses.

February 2019, the Company conducted a public offering of 7,733,750 shares of its common shares at a public offering price of

$ 2.10 per share.

The net proceeds to the Company from this offering are $ 14,867 , after deducting underwriting discounts and commissions

and other offering expenses.

Share-Based Payments

believes that the ability to issue equity compensation, in order to incentivize performance by employees, directors, and consultants,

is essential to the Company’s growth strategy.

September 29, 2017, the 2017 Compensation Plan (the “Plan”) was approved by our shareholders.

is essential to the Company’s growth strategy.

September 29, 2017, the 2017 Compensation Plan (the “2017 Plan”) was approved by our shareholders.

Initially it provided

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be re-priced without shareholder approval.

of December 31, 2019 and 2018, shares issuable under the Plan were 3,436,864 and 1,975,215, respectively

As of December 31, 2020 and 2019, shares issuable under the 2017 Plan were 1,168,258

and 3,436,864 , respectively.

With the shareholder approval of the 2020 Equity Incentive Plan on December 21, 2020, no further

shares will be issued from the 2017 Compensation Plan.

December 21, 2020, the 2020 Equity Incentive Plan (the “2020 Plan”) was approved by our shareholders.

The 2020 Plan

provides for the issuance of up to 8,500,000 shares.

Options issued and forfeited under the 2020 plan contain an Evergreen provision

and cannot be re-priced without shareholder approval.

As of December 31, 2020, shares issuable under the 2020 Plan were 3,874,048 .

2020 Plan permits 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”.

either “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code or “non-qualified

stock options”.

The Plan is currently administered by the board of directors.

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price, or as otherwise determined by the plan administrator.

Stock Issued to Officer for Services Rendered

the year ended December 31, 2018, the Company issued 37,057 shares of its common stock to an officer of the Company as compensation

for services rendered.

The shares had an aggregate value on the date of issuance of $100, based on the market price of our common

stock on the date of grant, which was recorded as compensation expense during the year ended December 31, 2018 .

no issuances of common stock for services for the year ended December 31, 2019.

following table summarizes restricted stock activity during the years ended December 31, 2020 and 2019:

of Non-vested Restricted Stock Activity

December 31, 2018

1 unchanged sentence

December 31, 2019

January and March 2018, the Company awarded an aggregate of 784,004 shares of restricted common stock to Valentin Stalowir, former

Chief Executive Officer of the Company, pursuant to his employment agreement with the Company.

The 784,004 restricted shares had

an aggregate fair value of $1,291 based on the market price of our common stock on the dates of grant.

Of the 784,004 restricted

shares, 185,634 shares vested and were issued during 2018.

On October 31, 2019, the Company entered into a Separation, Settlement

and Release of Claims Agreement with Mr.

Stalowir in connection with his resignation as Chief Executive Officer and the subsequent

termination of his employment.

As part of the Agreement, 442,002 shares of restricted common stock issued in 2018 vested and were

issued, and the balance of 156,368 unvested shares of restricted common stock issued to Mr.

December 31, 2020

the year ended December 31, 2020, the Company issued 594,740 shares of restricted stock to a director and two executive employees.

350,000 of these shares vested immediately, 94,740 shares vested 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.

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

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 year ended December 31, 2020 and 2019 was $ 416

and $ 506 , respectively, and is included in general and administrative expenses in the accompanying statements of operations.

of December 31, 2020, the amount of unvested compensation related to issuances of restricted common stock was $ 92 , 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.

2018, the Company awarded an aggregate of 784,004 shares of restricted common stock to Valentin Stalowir, former Chief Executive

Officer of the Company, pursuant to his employment agreement with the Company.

The 784,004 restricted shares had an aggregate

fair value of $ 1,291 based on the market price of our common stock on the dates of grant.

Of the 784,004 restricted shares, 185,634

shares vested and were issued during 2018.

On October 31, 2019, the Company entered into a Separation, Settlement and Release

of Claims Agreement with Mr.

Stalowir in connection with his resignation as Chief Executive Officer and the subsequent termination

of his employment.

As part of the Agreement, 442,002 shares of restricted common stock issued in 2018 vested and were issued,

and the balance of 156,368 unvested shares of restricted common stock issued to Mr.

Stalowir in 2018 were forfeited.

the years ended December 31, 2019 and 2018, the Company recognized $374 and $667, respectively, as compensation expense related

to the fair value of vested restricted shares.

January 2018, the Company’s independent directors were awarded a total of 70,588 shares of restricted common stock, with

an aggregate fair value of $120, based on the market price of our common stock on the dates of grant.

The shares vested ratably

and were issued over four quarters in 2018 and the total of $120 was recognized as compensation expense in 2018.

During the year ended December 31, 2019, there was no compensation expense related to these shares.

year ended December 31, 2019, the Company recognized $ 374 as compensation expense related to the fair value of vested restricted

the year ended December 31, 2019, the Company issued 46,035 shares of restricted stock to members of the board of directors.

4 unchanged sentences

of 46,035 shares vested and were issued, and $ 132 was recognized as compensation expense.

the years ended December 31, 2019 and 2018, the Company recognized a total $506 and $820, respectively, as compensation expense

related to vesting of shares of restricted common stock.

of December 31, 2019, there are no unvested shares of restricted common stock.

option activity consists of the following:

the year ended December 31, 2019, the Company recognized a total $ 506 as compensation expense related to vesting of shares of

restricted common stock.

of December 31, 2020, the Company has issued stock options to purchase an aggregate of 9,417,898 shares of common stock.

The Company’s

stock option activity during the years ended December 31, 2020 and 2019 is as follows:

of Stock Option Activity

Exercise Price

2 unchanged sentences

forfeited or expired

( 1,571,794 )

forfeited or expired

at December 31, 2018

Outstanding at December

forfeited or expired

2 unchanged sentences

at December 31, 2020

aggregate intrinsic value was calculated as the difference between the closing market price as of December 31, 2019, which was

$0.91, and the exercise price of the outstanding stock options.

the year ended December 31, 2019, the Company approved options to be issued pursuant to Reed’s 2017 Incentive Compensation

the year ended December 31, 2020, the Company approved options exercisable into 4,625,952 shares to be issued pursuant to Reed’s

2020 Equity Incentive Plan, and 2,267,800 shares to be issued pursuant to Reed’s 2017 Incentive Compensation Plan.

options were issued to employees including 3,279,376 options that vest annually over a four -year vesting period, and 3,279,376

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 weighted average price $ 0.87 per share and expire in ten years.

The total fair value of these

options at grant date was approximately $ 3,561 , which was determined using a Black-Scholes-Merton option pricing model with the

following average assumption:

average stock price of $0.87 per share, weight average expected term of 5.91 years, weighted average

volatility ranging from 76 %, dividend rate of 0 %, and weighted average risk-free interest rate of 0.48 %.

The fair value of the

options of $3,561 will be amortized as the options vest over a weighted average period of 2.67 years.

the year ended December 31, 2019, the Company approved options to be issued pursuant to Reed’s 2017 Incentive Compensation

Plan to certain current employees totaling 1,258,000 shares.

14 unchanged sentences

dividend rate of 0 % and risk-free interest rate ranging from 1.39 % to 2.60 %.

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;

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;

and 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.

options issued in 2019 with a fair value of $911 which will be amortized in future periods through September 30, 2023.

During the year ended December 31, 2019, the Company recognized $790 of compensation expense relating to vested stock options.

As of December 31, 2019, the amount of unvested compensation related to stock options was approximately $1,492 which will be recorded

as an expense in future periods as the options vest.

the measurement of stock options granted in 2020 and 2019, 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;

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

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 year ended December 31, 2020 and 2019, the Company recognized $ 1,176 and $ 790 of compensation expense relating to vested stock

As of December 31, 2020, the aggregate amount of unvested compensation related to stock options was approximately $ 3,561

which will be recorded as an expense in future periods as the options vest.

of December 31, 2020, the outstanding options have an intrinsic value of $ 78 .

The aggregate intrinsic value was calculated as

the difference between the closing market price as of December 31, 2020, which was $ 0.59 , and the exercise price of the outstanding

stock options.

information regarding options outstanding and exercisable as of December 31, 2020, is as follows:

of Information Regarding Stock Options

of Exercise Price

$1.62 - $2.44

Stock Warrants

of December 31, 2020, the Company has issued warrants to purchase an aggregate of 3,362,241 shares of common stock.

The Company’s

warrant activity during the years ended December 31, 2020 and 2019 is as follows:

of Warrant Activity

Exercise Price

Weighted-Average

Remaining Contractual Terms (Years)

Intrinsic Value

at December 31, 2018

at December 31, 2019

( 4,051,541 )

December 31, 2019 and 2018, the Company had available Federal and state net operating loss carryforwards (“NOL”s)

at December 31, 2020

December 11, 2020, the Company issued to Raptor a 5 -year warrant to purchase 1,000,000 shares of the Company common stock with

an exercise price of $ 0.64 (see Note 7).

The fair value of the warrants granted was determined to be $ 402 .

The fair value of the

warrant was calculated using the Black-Scholes option pricing model using the following assumptions – stock price of $ 0.64 ;

exercise price of $ 0.64 ;

expected life of 5 years;

volatility of 79 %;

dividend rate of 0 % and discount rate of 0.51 %.

year ended December 31, 2020, warrants to acquire 4,051,541 shares of common stock expired.

As of December 31, 2020, the outstanding

warrants have no intrinsic value.

the year ended December 31, 2019, a total of 283,495 warrants were exercised, including 87,485 warrants that were exercised on

a cashless basis, resulting in the issuance of 223,037 shares of our common stock.

Aggregate proceeds to the Company were $ 365 .

During the year ended December 31, 2019, warrants to acquire 200,000 shares of common stock expired.

information regarding warrants outstanding and exercisable as of December 31, 2020, is as follows:

of Warrants Outstanding and Exercisable

of Exercise Price

December 31, 2020 and 2019, the Company had available Federal and state net operating loss carryforwards (“NOL”s)

to reduce future taxable income.

1 unchanged sentence

For state purposes approximately $ 42,000 and $ 34,000 was available at December 31, 2020 and 2019, respectively.

Federal carryforward expires on various dates through 2035 and the state carryforward expires in 2019.

Given the Company’s

history of net operating losses, management has determined that it is more likely than not that the Company will not be able to

realize the tax benefit of the carryforwards.

The Federal carryforward

for NOLs arising in years prior to 2018 is approximately $ 33,000 , which expires on various dates through 2037 .

NOLs for 2018,

2019 and 2020 of approximately 33,000 , can be carried forward indefinitely, but are only able to offset 80% of taxable income

in future years.

The state carryforward expires on various dates through 2040 .

Given the Company’s history of net operating

losses, management has determined that it is more likely than not that the Company will not be able to realize the tax benefit

of the carryforwards.

Accordingly, the Company has not recognized a deferred tax asset for this benefit.

to restrictions imposed by Internal Revenue Code Section 382 regarding substantial changes in ownership of companies with loss

carryforwards, the utilization of the Company’s NOL may be limited as a result of changes in stock ownership.

incurred subsequent to the latest change in control are not subject to the limitation.

carryforwards, the utilization of the Company’s NOL may be limited as a result of changes in stock ownership.

NOLs incurred

subsequent to the latest change in control are not subject to the limitation.

Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be

12 unchanged sentences

with the use of the NOLs and will recognize the appropriate deferred tax asset at that time.

components of the Company’s deferred tax assets and liabilities are as follows:

Deferred income tax asset:

Net operating loss carryforwards

Stock-based compensation

Accounts receivable allowances

Inventory reserves

Operating lease liability

asset impairment

Gross deferred tax assets

Total deferred tax assets

Deferred tax liabilities:

Operating lease right-of-use asset

Deferred finance costs

Total deferred

components of the Company’s deferred tax assets and liabilities are as follows:

of Deferred Income Tax Assets

income tax asset:

operating loss carryforwards

corporate interest expense

receivable allowances

lease liability

for asset impairment

deferred tax assets

tax liabilities:

tax asset (liability)

lease right-of-use asset

finance costs

deferred tax liabilities

deferred tax asset (liability)

Reconciliation

1 unchanged sentence

statutory rate is as follows:

of Reconciliation of Effective Income Tax Rate to U.S.

Statutory Rate

statutory tax rate

1 unchanged sentence

of change in tax rate

Related Party Activities

with California Custom Beverage, LLC, (“CCB”)

December 31, 2018, the Company completed the sale of the Company’s Los Angeles manufacturing plant to California Custom

Beverage, LLC, (“CCB”), an entity owned by Chris Reed, founder, Chief Innovation Officer and a member of our board

of directors of Reed’s.

The sales price consisted of $1,250 in cash, and CCB assumed our lease obligation on the California

real property, which aggregated $1,300 at December 31, 2018.

The Company recognized a gain of $180 on the sale, net of transaction

costs and other customary adjustments.

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

of $1,200 of security with the lessor (see Note 14).

By the terms of the sale, CCB was to reimburse the Company for certain costs

such as sales tax arising from the transaction and prepayments.

Such costs aggregated $195, which is reflected as Receivable from

Related Party on the accompanying balance sheet as of December 31, 2018, and was collected from CCB during the year ended December

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.

For the year ended December 31, 2019, the Company recorded royalty revenue from CCB of $128 which is recorded

as a receivable at December 31, 2019.

In addition, at December 31, 2019, the Company has outstanding receivable from CCB of $228

consisting of inventory advances to CCB.

2018, we entered into a three-year co-packing agreement with CCB, whereby CCB produces Reed’s beverages in glass bottles

at prevailing West Coast market rates.

During the year ended December 31, 2019, purchases from CCB under our co-packing agreement

amounted to $1,600, and at December 31, 2019, accounts payable to CCB totaled $182.

December 31, 2019, CCB owes the Company a net of $174.

amount will be collected or offset against purchases from CCB during 2020.

Related Party Transactions

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 December 31, 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 year ended December 31, 2020 and 2019,

the Company recorded royalty revenue from CCB of $ 98 and $ 128 , respectively.

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

In addition, at December 31, 2019, the Company

has outstanding receivable from CCB of $ 228 consisting of inventory advances to CCB.

The aggregate receivable from CCB at December

31, 2019 was $ 356 .

During the year ended December 31, 2020, the Company recorded royalty revenue receivable of $98, advanced inventory

and equipment of $ 381 , and reduced CCB receivable by $ 153 by offsetting CCB payable of $ 153 , leaving an aggregate receivable balance

of $ 682 at December 31, 2020.

December 31, 2020 and December 31, 2019, the Company had accounts payable due to CCB of $ 557 and $ 182 , respectively.

Martin, daughter of a director of the Company, was employed as Vice President of Marketing during the years ended December 31,

2020 and 2019.

She was paid approximately $161 and $162, respectively, for her services.

time to time, the Company issues stock-based awards to employees, officers, and other related parties as compensation for services

See Note 11 for information as to such transactions during the years ended December 31, 2019 and 2018.

Martin was paid approximately $ 215 and $ 161 , respectively, for her services during the years ended December

31, 2020 and 2019, respectively.

Commitments and Contingencies

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 (See Note 13).

The sale included substantially all machinery, equipment, furniture and fixtures of the manufacturing

CCB assumed the monthly payments on our lease obligation effective immediately upon closing of the sale.

Our release from

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

As of December

31, 2019, $800 has been deposited with the lessor and Mr.

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

common stock valued at $330 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.

From time to time, we are a party to claims

and legal proceedings arising in the ordinary course of business.

Our management evaluates our exposure to these claims and proceedings

individually and in the aggregate and provides for potential losses on such litigation if the amount of the loss is estimable

and the loss is probable.

We believe that there are no material litigation

matters at the current time.

Although the results of such litigation matters and claims cannot be predicted with certainty, we

believe that the final outcome of such claims and proceedings will not have a material adverse impact on our financial position,

liquidity, or results of operations.

time to time, we are a party to claims and legal proceedings arising in the ordinary course of business.

Our management evaluates

our exposure to these claims and proceedings individually and in the aggregate and provides for potential losses on such litigation

if the amount of the loss is estimable and the loss is probable.

believe that there are no material litigation matters at the current time.

Although the results of such litigation matters and

claims cannot be predicted with certainty, we believe that the final outcome of such claims and proceedings will not have a material

adverse impact on our financial position, liquidity, or results of operations.

Subsequent Events

November 12, 2019, Nasdaq Listing Qualifications notified the Company that its common stock failed to maintain a minimum bid price

of $1.00 over the previous 30 consecutive business days as required by the Listing Rules of The Nasdaq Stock Market.

23, 2020, Nasdaq Listing Qualifications notified the Company that it has determined that for 10 consecutive business days, from

January 8 to January 22, 2020, the closing bid price of the Company’s common stock was at $1.00 per share or greater.

the Company has regained compliance with Listing Rule 5550(a)(2) and the matter is now closed.

February 24, 2020, the Company appointed Norman E.

as the Company’s Chief Executive Officer effective March

Prior to being appointed, Mr.

Snyder was the Chief Operating Officer of the Company.

February 24, 2020, the Company issued Norman E.

Snyder, Jr., the Company’s newly appointed Chief Executive Officer, 150,000

restricted common shares which vested 100% on March 1, 2020.

In addition, on February 25, 2020, Mr.

Snyder was also

issued 446,000 options to purchase common stock of the Company, of which half are time based and vest 25% on each one year anniversary

of the grant date and the remaining options are performance based with up to 25% vesting at the end of the first quarter of each

fiscal year beginning in 2020.

March 3, 2020, the Company issued Thomas Spisak, the Company’s Chief Financial Officer, 150,000 restricted common shares

which vest in equal increments of 18,750 on each of the first four anniversaries of the grant date and the remainder will vest

based on performance criteria determined by the Board of Directors or Compensation Committee.

In addition, Mr.

also issued 150,000 options to purchase common stock of the Company, of which half will vest in equal increments of 18,750 on

each of the first four anniversaries of the grant date and the remainder will vest based on performance criteria determined by

the Board of Directors or Compensation Committee.

These options will expire on March 2, 2030.

March 11, 2021, the Company entered into an amendment to that certain Financing Agreement (see Note 6) dated October 4, 2018,

as amended or supplemented with its senior secured lender, Rosenthal & Rosenthal, Inc.

(“Rosenthal”) releasing

that irrevocable standby letter of credit by Daniel J.

Doherty, III and Daniel J.

Doherty, III 2002 Family Trust in the amount

of $ 1.5 million, which served as financial collateral for certain obligations of Reed’s under the Rosenthal credit facility,

with a $ 2 million dollar pledge of securities to Rosenthal by John J.

Bello and Nancy E.

Bello, as Co-Trustees of The John and

Nancy Bello Revocable Living Trust, under trust agreement dated December 3, 2012, evidenced by that certain Pledge Agreement to

Rosenthal (the “Bello Pledge”).

Bello, current Chairman and former Interim Chief Executive Officer of Reed’s, is a related party.

He is also a greater than

5% beneficial owner of Reed’s common stock.

As consideration for the Bello Pledge, Mr.

Bello received 400,000 shares

of Reed’s restricted stock.

Nasdaq Listing Qualifications Department notified the Company on December 2, 2020 that the bid price of our common stock has closed

at less than $ 1 per share over the previous 30 consecutive business days, and, as a result, did not comply with Listing Rule 5550(a)(2)

(“Bid Price Rule”).

On February 22, 2021, Nasdaq Listing Qualifications notified the Company, that for 10 consecutive

business days, from February 5, 2021 to February 19, 2021, the closing bid price of Reed’s common stock was $ 1.00 per share

Accordingly, Reed’s regained compliance with Listing Rule 550(a)(2) and the matter is now closed.

January 26, 2021, the board of directors of Reed’s, pursuant to a joint recommendation from its governance and compensation

committees, set the cash compensation of its non-employee directors at $ 50,000 for fiscal 2021, payable quarterly in accordance

with the company’s policies for non-employee director compensation and granted Restricted Stock Awards consisting of 49,180

shares of common stock to each of its non-employee directors.

The Restricted Stock Awards will vest in four equal increments on

a quarterly basis on each of February 1, 2021, May 1, 2021, August 1, 2021 and November 1, 2021, in accordance with the company’s

policies for non-employee director compensation.

to December 31, 2020, the Company issued 86,225 shares of common comprised of 6,000 shares issued on the exercise of stock options,

61,475 shares of restricted stock issued to directors, and 18,750 shares of restricted stock issued to an executive on vesting.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data