What changed in this filing

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Item 1. Financial Statements

2021-05-17 compared with 2020-11-09 · 457 added, 544 removed, 103 unchanged (91% of the section changed)

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in thousands, except share amounts)

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

from related party

net of reserve for obsolescence of $ 224

expenses and other current assets

Current assets:

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

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

AND STOCKHOLDERS’ EQUITY

line of credit

portion of note payable

note to a related party

portion of leases payable

Accounts receivable, net of allowance for doubtful accounts and returns and discounts of $ 165 and $ 234 , respectively

Receivable from related party

Inventory, net of reserve for obsolescence of $ 174 and $ 194 , respectively

Prepaid expenses and other current assets

Total current assets

Property and equipment, net of accumulated depreciation of $ 379 and $ 361 , respectively

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

Intangible assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

payable, less current portion

note to a related party

Stockholders’

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

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

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

and outstanding, respectively

issuable, 350,000 shares at September 30, 2020

paid in capital

Accounts payable

Payable to related party

Accrued expenses

Revolving line of credit

Current portion of note payable

Current portion of leases payable

Total current liabilities

Leases payable, less current portion

Note payable, less current portion

Warrant liability

Total liabilities

Stockholders’ equity:

liabilities and stockholders’ equity

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

Common stock, $ .0001 par value, 120,000,000 shares authorized, 86,807,905 and 86,317,096 shares issued and outstanding, respectively

Additional paid in capital

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

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

STATEMENTS OF OPERATIONS

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

the Three Months Ended March 31, 2021 and 2020

in thousands, except share and per share amounts)

of goods sold

and handling expense

and marketing expense

and administrative expense

March 31, 2021

March 31, 2020

Cost of goods sold

Operating expenses:

from operations

in fair value of warrant liability

on Series A Convertible Preferred Stock

Loss Attributable to Common Stockholders

per share – basic and diluted

Weighted average

number of shares outstanding – basic and diluted

Delivery and handling expense

Selling and marketing expense

General and administrative expense

Total operating expenses

Loss from operations

Interest expense

Change in fair value of warrant liability

Net loss per share – basic and diluted

Weighted average number of shares outstanding – basic and diluted

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

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

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

the Three Months Ended March 31, 2021 and 2020

in thousands except share amounts)

Stock Issuable Shares

Stock Issuable Amount

Paid In Capital

Stockholders’ Equity (Deficit)

Stock Issuable

Stockholders’

June 30, 2020

value of vested options

shares issued on exercise of options

of shares for dividends on Series A Convertible Preferred Stock

Fair value of vested restricted shares

granted to officers for services

Fair value of vested restricted shares granted to

officers for services, shares

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

Common shares issued pursuant to the

rights offering, net of offering costs, shares

Shares granted to Directors for services

Shares granted to Directors for

services, shares

Exercise of warrants

September 30, 2020

Stockholders’

December 31, 2019

value of vested options

value of vested restricted shares granted to officers

on Series A Convertible Preferred Stock

shares issued on exercise of options

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

Exercise of warrants

September 30, 2020

Stockholders’

June 30, 2019

value of vested options

granted to Directors for services

value of vested restricted shares granted to an officer for services

September 30,2019

Stockholders’

December 31, 2018

value of vested options

granted to Directors for services

value of vested restricted shares granted to an officer for services

on Series A Convertible Preferred Stock

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

September 30, 2019

Preferred Stock

Common Stock Issuable

Additional Paid In

Stockholders’ Equity

Balance, December 31, 2020

Fair value of vested options

Fair value of vested restricted shares granted to officers

Common shares issued on exercise of options

Common shares issued for financing costs

Balance, March 31, 2021

Preferred Stock

Common Stock Issuable

Additional Paid In

Stockholders’ Equity

Balance, December 31, 2019

Fair value of vested options

Fair value of vested restricted shares granted to an officer

Balance, March 31, 2020

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

STATEMENTS OF CASH FLOWS

the Nine months Ended September 30, 2020 and 2019

the Three Months Ended March 31, 2021 and 2020

in thousands)

flows from operating activities:

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

on sale of property & equipment

on termination of leases

of debt discount

of right of use assets

value of vested options

value of vested restricted shares granted to officers

in allowance for doubtful accounts

(increase) in inventory reserve

in fair value of warrant liability

of interest on convertible note to a related party

in operating assets and liabilities:

expenses and other assets

cash used in operating activities

flows from investing activities:

from sale of property and equipment

of property and equipment

cash used in investing activities

flows from financing activities:

on line of credit

of line of credit

Capitalization

of financing costs

from note payable

of amounts due to/from officers

repayments on capital lease obligation

from sale of common stock

cash provided by financing activities

increase in cash

at beginning of period

at end of period

disclosures of cash flow information:

paid for interest

Cash Investing and Financing Activities

on Series A Convertible Preferred Stock

March 31, 2021

March 31, 2020

Cash flows from operating activities:

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

Gain on sale on termination of leases

Amortization of debt discount

Amortization of prepaid financing costs

Amortization of right of use assets

Fair value of vested options

Fair value of vested restricted shares granted to officers

Decrease in allowance for doubtful accounts

Decrease in inventory reserve

Change in fair value of warrant liability

Accrual of interest on convertible note to a related party

Lease liability

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other assets

Accounts payable

Accrued expenses

Net cash used in operating activities

Cash flows from investing activities:

Purchase of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Borrowings on line of credit

Repayments of line of credit

Amounts from related party

Principal repayments on capital lease obligation

Exercise of options

Net cash provided by financing activities

Net increase (decrease) in cash

Cash at beginning of period

Cash at end of period

Supplemental disclosures of cash flow information:

Cash paid for interest

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

TO CONDENSED FINANCIAL STATEMENTS

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

Months Ended March 31, 2021 and 2020 (Unaudited)

thousands, except share and per share amounts)

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

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

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

The balance sheet as

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

necessary to present fairly our financial position at March 31, 2021 and the results of operations and cash flows for the three months

ended March 31, 2021 and 2020.

The balance sheet as of December 31, 2020 is derived from the Company’s audited financial statements.

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

principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations

of the Securities and Exchange Commission regarding interim financial reporting.

We believe that the disclosures contained in

these condensed financial statements are adequate to make the information presented herein not misleading.

For further information,

refer to the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal

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

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

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

principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of

the Securities and Exchange Commission regarding interim financial reporting.

We believe that the disclosures contained in these condensed

financial statements are adequate to make the information presented herein not misleading.

For further information, refer to the financial

statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020,

as filed with the Securities and Exchange Commission on March 30, 2021.

results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results of operations to be expected

for the full fiscal year ending December 31, 2021.

Considerations

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

future, the pandemic may cause reduced demand for our products if, for example, the pandemic results in a recessionary economic

environment which negatively effects the consumers who purchase our products.

Based on the recent increase in demand for our products,

we believe that over the long term, there will continue to be strong demand for our products.

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

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.

For the six months ended September 30, 2020, we maintained the consistency of our

operations during the onset of the COVID-19 pandemic.

We will continue to innovate in managing our business, coordinating with

our employees and suppliers to do our part in the infection prevention and remain flexible in responding to our customers and

However, the uncertainty resulting from the pandemic could result in an unforeseen disruption to our workforce and

supply chain (for example an inability of a key supplier or transportation supplier to source and transport materials) that could

negatively impact our operations.

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

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

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

Through September 30, 2020, we continue

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

the period ended March 31, 2021, the COVID-19 pandemic has impacted our operating results and the Company anticipates a continued

impact for the balance of the year.

In addition, 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.

recent increase in demand for our products, we believe that over the long term, there will continue to be strong demand for our products.

Through March 31, 2021,

the Company has experienced higher transportation expenses as the capacity in the freight market has not kept up with demand.

believes that costs will continue to increase throughout the year.

However, mitigation plans are being implemented to manage this risk.

ability to operate without significant incremental 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 March 31, 2021, 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

Net sales for the period ended March 31, 2021 were up 28% from the prior year period.

Through March 31, 2021, we

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

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

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

Factors” in Part II, Item 1A of this Form 10-Q.

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

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

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

and used cash in operations of $ 6,768 .

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

with borrowing capacity of $ 3,037 ,

a stockholder’s equity of $ 558 and

a negative working capital of $ 207 ,

compared to a cash balance of $ 913

with borrowing capacity of $ 3,235 ,

stockholders’ equity of $ 1,147

and a working capital of $ 4,885

at December 31, 2019.

Such assumption

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

For the three months ended March

31, 2021, the Company recorded a net loss of $ 4,507 and used cash in operations of $ 5,059 .

As of March 31, 2021, we had a cash balance

of $ 155 with borrowing capacity of $ 2,513 , a stockholder’s equity of $ 6,770 and a working capital of $ 5,698 , compared to a cash

balance of $ 595 with borrowing capacity of $ 5,166 , stockholders’ equity of $ 10,404 and a working capital of $ 9,528 at December

Notwithstanding the net loss for the three months ended March 31, 2021, management projects adequate cash from operations and

available line of credit to ensure continuation of the Company as a going concern for at least one year from the date of this quarterly

Historically,

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preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at

the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

Actual results

could differ from those estimates.

Those estimates and assumptions include estimates for 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 that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date

of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ

from those estimates.

Those estimates and assumptions include estimates for 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.

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

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

to customers at the amount expected to be collected.

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

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

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

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

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

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 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

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.

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.

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

earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average

number of shares of common stock outstanding during the period.

Diluted earnings (loss) per share is computed by dividing the

net income applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional

common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock

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

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

dilutive securities would have had an anti-dilutive effect.

earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number

of shares of common stock outstanding during the period.

Diluted earnings (loss) per share is computed by dividing the net income applicable

to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would

have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method.

Potential common shares

are excluded from the computation when their effect is antidilutive.

the periods ended March 31, 2021 and 2020, the calculations of basic and diluted loss per share are the same because potential dilutive

securities would have had an anti-dilutive effect.

The potentially dilutive securities consisted of the following:

Schedule of Potentially Dilutive Securities

note to a related party

stock equivalent of Series A Convertible Preferred stock

stock issuable

restricted common stock

Convertible note to a related party

Common stock equivalent of Series A Convertible Preferred stock

Common stock issuable

Unvested restricted common stock

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

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

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

straight-line basis over the vesting period.

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

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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.

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

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.

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

Advertising costs for the three months ended

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

Advertising costs for the nine months ended September 30,

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

Advertising costs aggregated $ 349 and $ 302 for the

three months ended March 31, 2021 and 2020, respectively.

Concentrations

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

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

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

respectively.

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

During the three months ended March 31, 2021, the Company’s two largest customers accounted for 23 % and 12 % of gross

sales, respectively.

During the three months ended March 31, 2020, the Company’s two largest customers accounted for 22 % and 14 %

of gross sales, respectively.

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

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

accounts receivable.

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

gross accounts receivable.

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

As of March 31, 2021, the Company had accounts receivable from two customers which comprised 18 % and 10 % of its gross

accounts receivable, respectively.

As of December 31, 2020, the Company had accounts receivable from one customer which comprised 23 %

of its gross accounts receivable.

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

from vendors.

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

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

During the three months ended

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

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

vendors exceeded 10 % of all purchases in either period.

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

accounts payable.

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

total accounts payable.

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

During the three months ended March 31, 2021, the Company’s two largest vendor accounted for approximately 13 %

and 13 % of all purchases, respectively.

During the three months ended March 31, 2020, the Company’s largest vendor accounted for

approximately 10 % of all purchases.

No other vendors exceeded 10 % of all purchases in either periods.

As of March 31, 2021, the Company’s two largest vendors accounted for 19 % and 10 % of the total accounts payable, respectively.

As of December 31, 2020 the Company’s largest two vendors accounted for 12 % and 10 % of the total accounts payable, respectively.

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

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.

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

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

their fair value.

ASC 820 defines the following levels of subjectivity associated with the inputs:

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

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

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

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

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

on these obligations are based on prevailing market interest rates.

Accounting Pronouncements

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

ASU 2016-13 requires entities

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

types of financial instruments, including trade receivables.

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.

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

August 2020, the FASB issued ASU No.

2020-06 (“ASU 2020-06”) “ Debt—Debt with Conversion and Other Options

(Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible

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

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

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

compared with current GAAP.

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

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

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

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

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

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

will be effective for the Company January 1, 2024.

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

interim periods within that year.

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

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

for its convertible debt instruments.

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

at the time of adoption.

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

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

(in thousands):

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).” ASU 2020-06 reduces the number

of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models.

net income per share calculation for convertible instruments will require the Company to use the if-converted method.

For contracts in

an entity’s own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are

accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception.

This update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled

in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights.

ASU 2020-06 is

effective January 1, 2024, for the Company and the provisions of this update can be adopted using either the modified retrospective method

or a fully retrospective method.

Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that

Effective January 1, 2021, the Company early adopted ASU 2020-06 and that adoption did not have an impact on our financial statements

and related disclosures.

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 (in thousands):

Schedule of Inventory

materials and packaging

Raw materials and packaging

Finished products

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

The reserve at September 30, 2020, and December

31, 2019, was $ 224

respectively.

The reserve at March 31, 2021, and December 31, 2020,

was $ 174 and $ 194 , respectively.

Property and Equipment

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Schedule of Property and Equipment

assets under operating leases

assets under finance leases

hardware and software

and equipment

depreciation and amortization

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

Depreciation expense for the nine

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

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

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

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

Right-of-use assets under operating leases

Right-of-use assets under finance leases

Computer hardware and software

Machinery and equipment

Accumulated depreciation and amortization

Net book value

expense for the three months ended March 31, 2021 and 2020 was $ 32 and $ 12 , respectively, and amortization of right-of-use assets for

the three months ended March 31, 2021 and 2020 was $ 24 and $ 37 , respectively.

During the three months ended March 31, 2021, the Company

disposed of right-of-use assets under finance leases with a cost of $ 48 and accumulated amortization of $ 38 , and terminated $ 13 of related

finance leases payable (see Note 8).

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

Schedule of Equipment Held for Sale

held for sale

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

value, which management anticipates selling during 2020.

Equipment held for sale

Net book value

balance as of March 31, 2021, and December 31, 2020, consists of residual manufacturing equipment, at estimated net realizable value,

which management anticipates selling during 2021.

Intangible Assets

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.

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 measurement, there were

no indications of impairment at September 30, 2020.

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 assessment, there were no indications of impairment at March

the three months ended March 31, 2021, the Company capitalized costs of $ 2 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):

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Schedule of Amount Outstanding Under Credit Facilities

finance costs

Line of credit

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

1 unchanged sentence

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

The line of credit matures on March

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

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

The effective interest rate as of September

30, 2020 on outstanding borrowings was 7.2 %.

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

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

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 March 31, 2021,

the unused borrowing capacity under the financing agreement was $ 2,513 .

The line of credit matured 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 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.

The over-advance

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

Additionally, any over-advance is guaranteed by an irrevocable

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

issued by Daniel J.

The over-advance is secured

by all of Reed’s intellectual property collateral.

Additionally, any over-advance was guaranteed by an irrevocable stand-by letter

of credit in the amount of $ 1,500 , issued by Daniel J.

Doherty III and the Daniel J.

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

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

of the Company’s outstanding common stock and Mr.

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

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

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

declaring an event of default under the financing agreement.

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

Reeds SPV LLC (“Raptor”).

On March 11, 2021, the Company entered into an amendment to the financing agreement, releasing

that irrevocable standby letter of credit of $1,500 by Raptor with a $2,000 pledge of securities to Rosenthal by John J.

Bello and Nancy

Bello, as Co-Trustees of The John and Nancy Bello Revocable Living Trust.

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 collateral support, Mr.

Bello received 400,000 shares of Reed’s

restricted stock.

The Company determined the fair value of the 400,000 restricted stock to be $ 472 which was recorded as a prepaid financing

costs and included in prepaid expenses and other current assets on the condensed balance sheet at March 31, 2021.

The prepaid financing

fee is to be amortized over a twelve month period.

During the three months ended March 31, 2021, the company amortized $ 25 of the prepaid

financing costs to interest expense.

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

including our ability to utilize tangible and intangible assets as collateral for other indebtedness.

Additionally, the agreement

contains a financial covenant that requires us to meet certain minimum working capital and tangible net worth thresholds as of

the end of each quarter.

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

Additionally, the agreement contains

a financial covenant that requires us to meet certain minimum working capital and tangible net worth thresholds as of the end of each

We were in compliance with the terms of our agreement with Rosenthal as of March 31, 2021.

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

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

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

Amortization of debt discount was

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

Convertible Note to a Related Party

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

Schedule of Convertible Notes

Convertible Note Payable

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

and warrants to purchase 1,416,667

shares of common stock to Raptor.

beneficially owned approximately 11.5 %

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

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

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

The note may not be prepaid and matures on

April 21, 2021 .

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

conversion price of $ 1.50 .

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

The note and warrants contain customary

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

been registered on Form S-3.

These costs have

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

On December 31,

2020, the remaining unamortized debt discount of $ 162 is included in prepaid expense and other current assets on the balance sheet.

of debt discount was $ 162 and $ 96 for the three months ended March 31, 2021 and 2020, respectively.

On March 31, 2021, no remaining unamortized

debt discount remained.

April 20, 2020, the Company was granted a loan (the “PPP loan”) from City National Bank in the aggregate amount of $ 770 ,

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

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

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

Business Administration.

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

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

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

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

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

intends to use the entire loan amount for qualifying expenses.

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

forgiven if they are used for qualifying expenses.

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

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

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

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

The terms of the PPP loan provide for customary

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

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

At September 30, 2020, the note payable

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

Leases Payable

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

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

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

The Company leases its headquarters office ,

and certain office equipment and automobiles.

The Company analyzes all leases at inception to determine if a right-of-use asset

and lease liability should be recognized.

Leases with an initial term of 12 months or less are not included on the condensed consolidated

balance sheets.

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

At December 31, 2020, the note payable balance

was $ 770 , of which $ 599 was reflected as the current portion of note payable.

At March 31, 2021, the note payable balance was $ 770 , of

which $ 727 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.

Small 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 expenses.

Under the terms of the PPP, certain

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

The Company was in compliance with the terms of the PPP

loan as of March 31, 2021.

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

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 accounts for leases under ASC 842, Leases .

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.

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

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

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

and $ 135 and

respectively.

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

lease liabilities of $ 697 .

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

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

As of September 30, 2020, lease

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

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

years, respectively.

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

finance lease.

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

Schedule of Future Minimum Lease Payments

Ending December 31,

Amount representing interest

value of net minimum lease payments

Current portion

Warrant Liability

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 September 30, 2020 and

December 31, 2019, using the following assumptions:

Schedule of Warrant Liability Using Assumptions

free interest rate

life in years

dividend yield

of Warrants containing fundamental transaction provisions

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

The Company uses the historical volatility

of its common stock to estimate its future volatility.

The expected life of the warrant is based upon its remaining contractual

The expected dividend yield reflects that the Company has not paid dividends to its common stockholders in the past and

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 nine months

ended September 30, 2020 and 2019:

Schedule of Warrant Liability

in fair value

Stockholders’ Equity

A Convertible Preferred Stock

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

The aggregate

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

stock issuance

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.

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

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

exercise of stock options.

Share-based payments

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

of Non-vested Restricted Stock Activity

During the three months ended March 31, 2021, the Company reflected amortization

of right of use asset of $ 24 related to these leases, resulting in a net asset balance of $ 730 as of March 31, 2021.

accordance with ASC 842, the right-of-use assets are being amortized over the life of the underlying leases.

of December 31, 2020, lease liabilities totaled $ 685 , made up of finance lease liabilities of $ 16 and operating lease liabilities of

During the three months ended March 31, 2021, the Company terminated $ 13 of finance leases, and made payments of $ 2 towards its

finance lease liability and $ 8 towards its operating lease liability.

As of March 31, 2021, lease liabilities totaled $ 663 , made up of

finance lease liability of $ 1 and operating lease liability of $ 662 .

of March 31, 2021, the weighted average remaining lease terms for operating lease and finance lease are 3.76 years and 0.50 years, respectively.

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

Stock-Based Compensation

following table summarizes restricted stock activity during the three months ended March 31, 2021:

Summary of Non-vested Restricted Stock Activity

Balance, December 31, 2020

September 30, 2020

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

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

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

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

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

The aggregate fair value of the stock awards was

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

is amortized as shares vest.

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

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

of operations.

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

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

When calculating basic loss per share, these

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

When calculating diluted net income

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

Balance, March 31, 2021

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.

In addition, the Company granted 245,900 restricted stock awards to five non-employee

61,475 of these restricted stock awards vested on February1, 2021.

The remaining 184,425 restricted stock awards will vest

equally on May 1, 2021, August 1, 2021, and November 1, 2021.

The aggregate fair value of the stock awards was $ 226 based on the market

price of our common stock price which was $ 0.92 per share on the date of grants and is amortized as shares vest.

total fair value of restricted common stock vesting during the three months ended March 31, 2021 and 2020 was $ 98

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

31, 2021, the amount of unvested compensation related to issuances of restricted common stock was $ 220 ,

which will be recognized as an expense in future periods as

the shares vest.

When calculating basic loss per share, these shares are included in weighted average common shares outstanding

from the time they vest.

When calculating diluted net income per share, these shares are included in weighted average common shares

outstanding as of their grant date.

following table summarizes stock option activity during the three months ended March 31, 2021:

Schedule of Stock Option Activity

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

Exercise Price

at December 31, 2019

forfeited or expired

at September 30, 2020

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

to Reed’s 2017 Incentive Compensation Plan.

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

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

criteria to be established by the board.

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

vest over various periods.

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

The total fair value of

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

the following average assumption:

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

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

The expected term represents the weighted-average

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

participant exercise behavior;

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

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

dividends in the future;

Outstanding at December 31, 2020

Unvested forfeited

Vested forfeited

Outstanding at March 31, 2021

Exercisable at March 31, 2021

the three months ended March 31, 2021, the Company received proceeds of $ 3 and issued 6,000 shares of common shares on the exercise of

stock options.

the three months ended March 31, 2021, the Company approved options exercisable into 1,939,700 shares to be issued pursuant to Reed’s

2020 Equity Incentive Plan.

1,939,700 options were issued to employees, 969,850 options vesting annually over a four -year vesting period,

and 969,850 options that will vest based on performance criteria to be established by the board of directors.

stock options are exercisable at a price of $ 1.01 per share and expire in ten years .

The total fair value of these options at grant date

was approximately $ 1,294 , which was determined using a Black-Scholes-Merton option pricing model with the following average assumption:

stock price of $1.01 per share, expected term of six years , volatility of 76 %, dividend rate of 0 %, and weighted average risk-free interest

rate of 0.94 %.

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

giving consideration to vesting schedules and historical participant exercise behavior;

the expected volatility is based upon historical

volatility of the Company’s common stock;

the expected dividend yield is based on the fact that the Company has not paid dividends

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

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

Treasury yield curve in effect at the time of measurement

corresponding with the expected term of the share option award.

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

options vest in future periods through May 20, 2024 .

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

vested stock options.

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

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

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

The aggregate intrinsic value was calculated as

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

Treasury yield curve

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

the three months ended March 31, 2021 and 2020, the Company recognized $ 300

of compensation expense relating to vested

stock options.

As of March 31, 2021, the aggregate amount of unvested compensation related to stock options was approximately

which will be recognized as an expense

as the options vest in future periods through March 28, 2025.

of March 31, 2021, the outstanding and exercisable options have an intrinsic value of $ 2,332 and $ 759 , respectively.

The aggregate intrinsic

value was calculated as the difference between the closing market price as of March 31, 2021, which was $ 1.17 , and the exercise price

of the outstanding stock options.

Stock Warrants

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

of March 31, 2021, the Company has issued warrants to purchase an aggregate of 3,362,241 shares of common stock.

The Company’s

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

of Warrant Activity

Exercise Price

Remaining Contractual Terms (Years)

at December 31, 2019

at September 30, 2020

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

As of September 30, 2020, the outstanding warrants

have no intrinsic value.

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

warrant activity during the three months ended March 31, 2021 is as follows:

Schedule of Warrant Activity

Average Exercise Price

Average Remaining Contractual Terms (Years)

Aggregate Intrinsic Value

Outstanding at December 31, 2020

Outstanding at March 31, 2021

Exercisable at March 31, 2021

were no warrant transactions during the three months ended March 31, 2021.

As of March 31, 2021, the outstanding and exercisable warrants

have an intrinsic value of $ 526 .

The intrinsic value was calculated as the difference between the closing market price as of March 31,

2021, which was $ 1.17 , and the exercise price of the Company’s warrants to purchase common stock.

2 unchanged sentences

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.

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

manufacturing plant.

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

with the lessor.

The deposit is secured by Mr.

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

personally by Mr.

Reed and his wife.

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

Reed has placed

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

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

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

During the nine months ended September 30, 2020,

the Company recorded royalty revenue from CCB of $ 26 .

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

revenue from CCB of $ 14 .

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

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

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

of $ 391 at September 30, 2020.

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

Reed’s pledge of common stock to the lessor and guaranteed personally by Mr.

and his wife.

As of March 31, 2021, $ 800 has been deposited with the lessor and Mr.

Reed has placed approximately 363,000 pledged shares

valued at $ 425 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 three months ended March 31, 2021 and 2020, the

Company recorded royalty revenue from CCB of $ 3 and $ 5 , respectively.

December 31, 2020, the Company had an aggregate receivable balance from CCB of $ 682 at December 3,1 2020.

During the quarter ended March

31, 2021, the Company recorded royalty revenue receivable of $ 3 , and advanced expenses of $ 16 , leaving an aggregate receivable balance

of $ 701 at March 31, 2021.

March 31, 2021 and December 31, 2020, the Company had accounts payable due to CCB of $ 557 and $ 1,034 , respectively.

Martin, daughter of a director of the Company, is employed as Vice President of Marketing.

Martin was paid approximately $ 87

and $ 42 , respectively, for her services during the three months ended March 31, 2021 and 2020, respectively.

Subsequent Events

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

May 5, 2021, the Company entered into a placement agency agreement with Roth Capital Partners, LLC (the “Placement Agent”)

and a securities purchase agreement with a certain purchaser for the purchase and sale of shares of the Company’s common stock,

par value $ 0.0001 per share, in an offering of securities registered under an effective registration statement filed with the Securities

and Exchange Commission (“SEC”) pursuant to the Securities Act of 1933, as amended (SEC File No.

In the offering,

the Company sold 6,680,000 shares of common stock, at a price of $ 1.18 per share (the “Offering”).

offering closed on May 7, 2021 .

a period of 90 days after the closing date of the sale of the shares of common stock, the provisions of the securities purchase agreement

generally prohibit the Company from issuing or agreeing to issue shares of common stock or common stock equivalents other than under

equity compensation plans, outstanding rights to acquire common stock or common stock equivalents, or in connection with certain acquisitions

or strategic transactions.

The placement agency agreement provides that the Company will indemnify the Placement Agent against certain

liabilities, including liabilities under the Securities Act of 1933, as amended.

The Placement Agent agreed to use reasonable best efforts

to arrange for the sale of the shares of common stock being issued and sold in the Offering.

The Placement Agent will be paid a total

cash fee at the closing of the Offering equal to 6.5% of the gross cash proceeds received by the Company from the sale of the shares

of common stock in the offering.

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

What changed 10-Q

Item 1. Financial Statements