What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-04-15 compared with 2021-03-30 · 897 added, 925 removed, 179 unchanged (91% of the section changed)

Financial Statements

of Independent Registered Public Accounting Firm

Sheets as of December 31, 2020 and December 31, 2019

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

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

to Financial Statements for the years ended December 31, 2020 and 2019

of Independent Registered Public Accounting Firm (PCAOB Firm ID:

Balance Sheets as of December 31, 2021 and December 31, 2020

Statements of Operations for the years ended December 31, 2021 and 2020

Statements of Changes in Stockholders’ Equity for the years ended December 31, 2021 and 2020

Statements of Cash Flows for the years ended December 31, 2021 and 2020

Notes to Financial Statements for the years ended December 31, 2021 and 2020

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

2 unchanged sentences

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.

(the “Company”) as of December 31, 2021 and 2020, the

related statements of operations, changes in stockholders’ equity, 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, 2021 and 2020, 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.

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

As discussed in

Note 1 to the financial statements, during the year ended December 31, 2021, the Company incurred a net loss and utilized cash in

These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans to alleviate these conditions are also described in Note 1.

The financial statements do not include any

adjustments that might result from the outcome of this uncertainty.

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.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission

and the PCAOB.

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.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit

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.

Those standards require that we plan and perform the audit to obtain

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

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

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

error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

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

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

or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding

the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits

provide a reasonable basis for our opinion.

critical audit matter communicated below is a matter 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) relates 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.

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 matter below, providing a separate opinion on the critical audit matter or on the

accounts or disclosures to which it relates.

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.

Management considers historical usage, forecasted demand in relation

to inventory on hand, market conditions, and other factors when estimating net realizable value.

identified management’s estimation of the net realizable value of inventory as a critical audit matter, because of the significant

judgments made by management in estimating future demand and market conditions which are used to arrive at the net realizable value.

This required a high degree of auditor judgment and increased auditor effort in auditing such assumptions.

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.

obtained an understanding of management’s process for estimating net realizable value.

assessed the reasonableness of management’s forecasted product demand and tested the completeness and accuracy of the underlying

data used in the analyses and whether they were consistent with the historical data and evidence obtained in other areas of the audit.

evaluated management’s product demand forecast for reasonableness considering historical sales by product, comparing prior

period estimates to actual results of the same period, and considering trends within the industry that could impact the movement

of the products provided by the Company.

developed an independent expectation of the net realizable value of inventory using historic inventory activity and compared our

independent expectation to the amount recorded in the financial statements.

have served as the Company’s auditor since 2004.

Weinberg & Company, P.A.

& Company, P.A.

Angeles, California

in thousands, except share amounts)

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

from related party

net of reserve for obsolescence of $ 194 and $ 646 , respectively

expenses and other current assets

December 31, 2021

December 31, 2020

Current assets:

and equipment, net of accumulated depreciation of $ 361 and $ 482 , respectively

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

AND STOCKHOLDERS’ EQUITY

to related party

line of credit

portion of note payable

portion of lease liabilities

Accounts receivable, net of allowance of $ 215 and $ 234 , respectively

Receivable from related party

Prepaid expenses and other current assets

Total current assets

Property and equipment, net of accumulated depreciation of $ 561 and $ 361 , respectively

Equipment held for sale

Intangible assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

liabilities, less current portion

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, 120,000,000 and 100,000,000 shares authorized, respectively;

Accounts payable

Accrued expenses

Revolving line of credit

Payable to related party

Current portion of note payable

Current portion of lease liabilities

Total current liabilities

Lease liabilities, less current portion

Note payable, less current portion

Total liabilities

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, 180,000,000 and 120,000,000

shares authorized, respectively;

and 86,317,096 shares issued

and outstanding, respectively

paid in capital

stockholders’ equity

liabilities and stockholders’ equity

Additional paid in capital

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

accompanying notes are an integral part of these financial statements.

2 unchanged sentences

in thousands, except share and per share amounts)

Ended December 31,

of goods sold

and handling expense

and marketing expense

and administrative expense

Year Ended December 31,

Cost of goods sold

Operating expenses:

from operations

on extinguishment of debt

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

Loss on extinguishment of debt

Gain on extinguishment of PPP note payable

Interest expense

Change in fair value of warrant liability

Dividends on Series A Convertible Preferred Stock

Net loss attributable to common stockholders

Loss per share – basic and diluted

Weighted average number of shares outstanding – basic and diluted

accompanying notes are an integral part of these financial statements.

OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

OF CHANGES IN STOCKHOLDERS’ EQUITY

the Years Ended December 31, 2021 and 2020

in thousands except share amounts)

Preferred Stock

Additional Paid In

Stockholders’ Equity

December 31, 2018

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 pursuant to the rights offerings, net of offering costs

Balance, December 31, 2019

Fair value of vested options

Fair value of warrants issued as financing costs

Fair value of vested restricted shares granted to officers

Fair value of vested restricted shares granted to officers,

Fair value of vested restricted shares granted to Directors for services

Fair value of warrants issued on extinguishment of debt

Dividends on Series A Convertible Preferred Stock

Repurchase of common stock

Repurchase of common stock,

Common shares issued for financing costs

Common shares issued for financing costs, shares

Common shares issued pursuant to a rights offerings, net of offering costs

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

Balance, December 31, 2020

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

Beginning balance, value

Fair value of vested options

Fair value of warrants issued as financing costs

Fair value of vested restricted shares granted to officers

Dividends on Series A Convertible Preferred Stock

Repurchase of common stock

Common shares issued on exercise of options

Common shares issued for financing costs

Common shares issued pursuant to a rights offerings, net of offering costs

Balance, December 31, 2021

$ ( 103,137 )

Ending balance, value

$ ( 103,137 )

accompanying notes are an integral part of these financial statements.

2 unchanged sentences

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

on extinguishment of debt

of debt discount

of right of use assets

value of vested options

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

in accounts receivable allowance

(decrease) 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:

Intangible asset trademark

from sale of property and equipment

of property and equipment

cash used in investing activities

flows from financing activities:

under revolving line of credit

of revolving line of credit

Capitalization

of financing costs

from loan payable

from related party

of convertible note payable

repayments on finance lease obligation

from sale of common stock

cash provided by financing activities

increase (decrease) in cash

at beginning of period

at end of period

disclosures of cash flow information:

paid for interest

investing and financing activities:

accounts receivable related party and accounts payable related party

on Series A Convertible Preferred Stock

December 31, 2021

December 31, 2020

Cash flows from operating activities:

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

Loss on disposal of property & equipment

Gain on termination of leases

Gain on extinguishment of PPP note payable

Loss on extinguishment of debt

Amortization of debt discount

Amortization of prepaid financing costs

Fair value of vested options

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

Decrease in accounts receivable allowance

Inventory write-off

Decrease 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

Decrease in right of use assets

Accounts payable

Accrued expenses

Net cash used in operating activities

Cash flows from investing activities:

Intangible asset trademark costs

Purchase of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Borrowings under revolving line of credit

Repayments of revolving line of credit

Capitalization of financing costs

Proceeds from loan payable

Amounts from related party

Repayment of convertible note payable

Principal repayments on finance lease obligation

Exercise of options

Repurchase of common stock

Proceeds from sale of common stock

Net cash provided by financing activities

Net decrease in cash

Cash at beginning of period

Cash at end of period

Supplemental disclosures of cash flow information:

Cash paid for interest

Non-cash investing and financing activities:

Offset accounts receivable related party and accounts payable related party

Dividends on Series A Convertible Preferred Stock

Fair value of warrant recorded to prepaid expenses

Common Shares issued for financing costs

Note Payable principal extinguished

accompanying notes are an integral part of these financial statements.

3 unchanged sentences

Operations and Liquidity

(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.

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

and Virgil’s Handcrafted Sodas.

Reed’s, Inc, The Company was established in 1989 and is incorporated in the state of Delaware.

Going Concern

The accompanying financial statements have been

prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in

the normal course of business.

As reflected in the accompanying financial statements, for the year ended December 31, 2021, the Company

recorded a net loss of $ 16,402 and used cash in operations of $ 17,589 .

These factors raise substantial doubt about the Company’s

ability to continue as a going concern within one year of the date that the financial statements are issued.

The financial statements

do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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

of $ 49 with borrowing capacity of $ 109 , stockholders’ equity of $ 4,203 and a working capital of $ 2,981 .

On March 10, 2022, the

Company issued 18,594,571 shares of common stock and warrants to purchase 9,297,289 shares of common stock in a private placement.

net proceeds to the Company, after deducting placement agent fees and other offering expenses, are approximately $ 5,100 (see Note 15).

Historically, we have financed our operations

through public and private sales of common stock, issuance of preferred and common stock, convertible debt instruments, term loans and

credit lines from financial institutions, and cash generated from operations.

To alleviate these conditions, management is currently

evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity, mezzanine or debt securities,

through arrangements with strategic partners or through obtaining credit from financial institutions.

As we seek additional

sources of financing, there can be no assurance that such financing would be available to us on favorable terms or at all.

to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions,

our performance and investor sentiment with respect to us and our industry.

We have also taken decisive action to

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

vendor contracts and restructuring our selling prices.

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 year ended December 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.

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.

December 31, 2021, the Company has experienced higher transportation expenses as the capacity in the freight market has not kept up with

The Company believes that costs will continue to increase throughout the year.

In addition, the Company experienced increases

in the pricing of several of its raw materials and delays in procuring several of these items.

However, mitigation plans are being implemented

to manage this risk.

Additionally, the Company was negatively impacted by supply chain challenges impacting our ability to benefit from

strong demand for and increased sales of our product.

The disruption caused by labor shortages, significant raw material cost inflation,

logistics issues and increased freight costs, and ongoing port congestion, resulted in suppressed margins and net income.

anticipates a continued impact throughout 2022.

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 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.

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

sales for the year ended December 31, 2021, were up 19% from the prior year period.

3 unchanged sentences

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, 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,

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

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

We have taken decisive

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

improved vendor contracts and restructuring our selling prices.

Significant Accounting Policies

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

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.

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 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.

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.

At December 31, 2021

and 2020, the allowance was $ 215 and $ 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.

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.

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, 2021 and 2020, inventory has been reduced by cumulative write-downs for inventory aggregating

respectively.

and Equipment

and equipment is stated at cost.

Expenditures for major renewals and improvements that extend the useful lives of property and

equipment or increase production capacity are capitalized, and expenditures for repairs and maintenance are charged to expense

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

Expenditures for major renewals and improvements that extend the useful lives of property and equipment

or increase production capacity are capitalized, and expenditures for repairs and maintenance are charged to expense as incurred.

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

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

3 unchanged sentences

and equipment

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

may not be recoverable.

If there is indication of impairment, management prepares an estimate of future cash flows expected to

result from the use of the asset and its eventual disposition.

If these cash flows are less than the carrying amount of the asset,

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

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

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

not be recoverable.

If there is indication of impairment, management prepares an estimate of future cash flows expected to result from

the use of the asset and its eventual disposition.

If these cash flows are less than the carrying amount of the asset, an impairment

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

For the years ended December 31, 2021 and 2020, 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.

For the years ended December 31, 2021 and 2020, 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.

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

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

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.

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.

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

of goods sold is comprised of the costs of raw materials and packaging utilized in the manufacture of products, co-packing fees,

repacking fees, in-bound freight charges, as well as certain internal transfer costs.

Additionally, cost of goods sold includes

direct production costs in excess of charges allocated to finished goods in production.

Plant costs include labor costs, production

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.

of goods sold is comprised of the costs of raw materials and packaging utilized in the manufacture of products, co-packing fees, repacking

fees, in-bound freight charges, as well as certain internal transfer costs.

Additionally, cost of goods sold includes direct production

costs in excess of charges allocated to finished goods in production.

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.

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

and Handling Expense

and handling costs are comprised of purchasing and receiving, inspection, warehousing, transfer freight, and other costs associated

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

and handling costs are comprised of purchasing and receiving, inspection, warehousing, transfer freight, and other costs associated 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.

Advertising costs aggregated $ 1,418 and $ 1,518 for

the years ended December 31, 2021 and 2020, respectively.

Compensation Expense

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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 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.

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

of deferred tax assets based upon the likelihood of realization of tax benefits in future years.

Under the asset and liability

approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets

and liabilities for financial reporting purposes and the amounts used for income tax purposes.

A valuation allowance is provided

for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their

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.

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.

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

deferred tax assets based upon the likelihood of realization of tax benefits in future years.

Under the asset and liability approach,

deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for

financial reporting purposes and the amounts used for income tax purposes.

A valuation allowance is provided for deferred tax assets

if it is more likely than not these items will either expire before the Company is able to realize their 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.

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 year.

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 years ended December 31, 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 year.

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 years ended December 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:

of Potentially Dilutive Securities

note to a related party

stock equivalent of Series A Convertible Preferred Stock

restricted common stock

Schedule of Potentially Dilutive Securities

Common stock equivalent of Series A Convertible Preferred Stock

Unvested restricted common stock

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

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:

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.

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.

1 unchanged sentence

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.

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.

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.

Existing 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.

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, 2021, the Company’s largest two customers accounted for 19 % and 11 % of gross sales,

respectively.

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

respectively.

As of December 31, 2021, the Company had accounts receivable from one customer which comprised 18 % of its gross accounts

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

the years ended December 31, 2021 and 2020, the Company utilized six separate co-packers for most its production and bottling of beverage

products in the United States.

The Company utilizes co-packers to produce 100 %

of its products.

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).

owned by Chris Reed, founder of the Company and formerly Chief Executive Officer, Chairman, director, and most recently, Chief

Innovation Officer.

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, 2021, the Company’s largest two vendors accounted for approximately 13 % and

10 % of all purchases, respectively.

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.

As of December 31, 2021, no vendor accounted for more than 10 % the total accounts payable.

As of December 31, 2020, the

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

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 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):

materials and packaging

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

The reserve at December 31, 2020 and 2019 was

$ 194 and $ 646 , respectively.

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 is comprised of the following (in thousands):

Raw materials

and packaging

Property and Equipment

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

of Property and Equipment

assets under operating leases

assets under finance leases

hardware and software

and equipment

depreciation and amortization

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

Schedule of Property and Equipment

December 31, 2021

December 31, 2020

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 years ended December 31, 2021 and 2020 was $ 143 and $ 88 , respectively, and amortization of right-of-use assets for the

years ended December 31, 2021 and 2020 was $ 100 and $ 116 , respectively.

During the year ended December 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).

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 8).

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 with zero net book value.

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

of Equipment Held for Sale

held for sale

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

management anticipates selling during 2021.

Schedule of Equipment Held for Sale

Equipment held for sale

Net book value

the year ended December 31, 2021, the Company disposed the equipment held for sale and recorded a loss on disposal of $ 67 .

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 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.

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 December

the year ended December 31, 2021, the Company capitalized costs of $ 9 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

Summary of Intangible Assets

December 31, 2021

December 31, 2020

Line of Credit

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

of Amount Outstanding Under Credit Facilities

finance costs

Schedule of Amount Outstanding Under Credit Facilities

December 31, 2021

December 31, 2020

Line of Credit

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.

(“Rosenthal”).

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, 2021, the unused borrowing capacity under the financing agreement was $ 109 .

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

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 .

The line of credit automatically renews each year until terminated.

The line of credit matured on March 30, 2022 and was automatically

renewed to mature 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.

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

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.

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.

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

beneficial owner of Reed’s common stock.

As consideration for the collateral support, Mr.

Bello received 400,000

shares of Reed’s restricted stock.

Company determined the fair value of the 400,000 restricted stock to be $ 472

which was recorded as a prepaid financing costs

of which $ 75 remains in prepaid expenses and other current assets on the balance sheet at December 31, 2021.

financing fee is to be amortized over a twelve-month period.

During the year ended December 31, 2021, the company amortized $ 397

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.

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 December 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.

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 $ 452 for the year ended December 31, 2021, and 2020, respectively.

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unamortized debt discount of $ 65 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.

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 .

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 .

warrant will expire on April 21, 2022 and has an adjusted exercise price of $ 1.50 per share.

The note and warrant contain customary

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

been registered on Form S-3.

The investor was also granted the right to participate in future financing transactions of the Company

for a term of two years.

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.

On April 20, 2020, the Company was granted a loan

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

“PPP”) under the CARES Act.

At December 31, 2020, the note payable balance was $ 770 .

During the year ended December 31, 2021,

the Company was notified that its PPP loan forgiveness application was approved in full, and the Company recorded the loan forgiveness

as a gain on extinguishment of $ 770 .

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.

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.

The 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, 2021 and 2020, lease costs totaled $ 179 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

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

During the year ended December 31, 2021, the Company terminated $ 13 of finance leases, and made payments of $ 2 towards its finance

lease liability and $ 78 towards its operating lease liability.

As of December 31, 2021, operating lease liabilities totaled $ 555 .

of December 31, 2021, the weighted average remaining lease terms for an operating lease are 3.00 years.

As of December 31, 2021, the

weighted average discount rate for operating lease is 12.60 %.

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

of Future Minimum Lease Payments Under Leases

Ending December 31,

Years Ending December 31,

Total payments

Amount representing interest

value of net minimum lease payments

Present 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

December 31, 2019, using the following assumptions:

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 year ended

December 31, 2020 and 2019:

of Warrant Liability

in fair value

Stockholders’ Equity

Non-current portion

Stockholders’

A Convertible Preferred Stock

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there were 9,411 shares outstanding.

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

common stock.

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

are payable at the rate of 5 % annually, pro-rata and non-cumulative.

The dividend can be paid in cash or, at the discretion of

our board of directors, in shares of common stock based on its then fair market value.

The Company cannot declare or pay any dividend

on shares of our common stock until the holders of the Preferred Stock have received their annual dividend.

In addition, the holders

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.

the event of any liquidation, dissolution or winding up of the Company, or if there is a change of control event as defined, the

holders of the Preferred Stock are entitled to receive, prior to distributions to the holders of common stock, $10.00 per share

plus all accrued and unpaid dividends.

The dividend can be paid in cash or, at the discretion of our board

of directors, in shares of common stock based on its then fair market value.

The Company cannot declare or pay any dividend on shares

of our common stock until the holders of the Preferred Stock have received their annual dividend.

In addition, the holders of the Preferred

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

the event of any liquidation, dissolution or winding up of the Company, or if there is a change of control event as defined, the holders

of the Preferred Stock are entitled to receive, prior to distributions to the holders of common stock, $ 10.00 per share plus all accrued

and unpaid dividends.

Thereafter, all remaining assets are distributed pro rata among all security holders.

June 30, 2008, the Company has the right, but not the obligation, to redeem all or any portion of the Preferred Stock at $10.00

per share, the original issue price, plus all accrued and unpaid dividends.

Preferred Stock may be converted at any time, at the option of the holder, into four shares of common stock, subject to adjustment

in the event of stock splits, reverse stock splits, stock dividends, recapitalization, reclassification, and similar transactions.

The Company is obligated to reserve authorized but unissued shares of common stock sufficient to affect the conversion of all

outstanding shares of Preferred Stock.

as provided by law, the holders of the Preferred Stock do not have the right to vote on any matters, including the election of

However, so long as any shares of Preferred Stock are outstanding, the Company shall not, without the approval of a

majority of the preferred stockholders, authorize or issue any equity security having a preference over the Preferred Stock with

respect to dividends, liquidation, redemption or voting, including any other security convertible into or exercisable for any

senior preferred stock.

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.

Since June 30, 2008, the

Company has the right, but not the obligation, to redeem all or any portion of the Preferred Stock at $ 10.00 per share, the original

issue price, plus all accrued and unpaid dividends.

Preferred Stock may be converted at any time, at the option of the holder, into four shares of common stock, subject to adjustment in

the event of stock splits, reverse stock splits, stock dividends, recapitalization, reclassification, and similar transactions.

is obligated to reserve authorized but unissued shares of common stock sufficient to affect the conversion of all outstanding shares

of Preferred Stock.

as provided by law, the holders of the Preferred Stock do not have the right to vote on any matters, including the election of directors.

However, so long as any shares of Preferred Stock are outstanding, the Company shall not, without the approval of a majority of the preferred

stockholders, authorize or issue any equity security having a preference over the Preferred Stock with respect to dividends, liquidation,

redemption or voting, including any other security convertible into or exercisable for any senior preferred stock.

the year ended December 31, 2020, the Company paid dividends on the Preferred Stock through the issuance of 4,530 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.

the year ended December 31, 2021, the Company accrued dividends on the Preferred Stock of $ 5 and is included in accrued expenses in

the accompanying balance sheets.

No shares of Series A preferred stock were converted into common stock in 2021 and 2020.

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.

On December 30, 2021, our shareholders approved an increase in the authorized number of common shares from 120,000,000 to 180,000,000 .

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, 2021, there were 180,000,000 shares

authorized, and 93,733,975 shares

of common stock outstanding.

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

authorized with 86,317,096 shares of

common stock outstanding.

Stock Issuance

May 2021, the Company conducted a public offering of 6,680,000 shares of its common shares at a public offering price of $ 1.18 per share.

The net proceeds to the Company from this offering are $ 7,327 , after deducting underwriting discounts and commissions and other offering

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

$ 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

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 per

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

offering expenses.

stock repurchases

the year ended December 31, 2021, the Company repurchased 13,493 shares of common stock from an officer for $ 15 based on the market value

of share on the date repurchased.

The Company retired the shares.

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

3 unchanged sentences

for the issuance of up to 3,000,000 shares.

On December 13, 2018 our shareholders approved a 3,500,000 share increase in the number

of shares issuable under the 2017 Plan.

Options issued and forfeited under the 2017 Plan contain an Evergreen provision and cannot

be re-priced without shareholder approval.

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.

On December 13, 2018 our shareholders approved a 3,500,000 share increase in the number of

shares issuable under the 2017 Plan.

Options issued and forfeited under the 2017 Plan contain an Evergreen provision and cannot be re-priced

without shareholder approval.

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 .

The 2020 Plan provides

for the issuance of up to 8,500,000

Options issued and forfeited under the

2020 plan contain an Evergreen provision and cannot be re-priced without shareholder approval.

As of December 31, 2021, 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”.

The options may constitute either

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

The Plan is currently administered by the board of directors.

The exercise price of an option granted under

the plan cannot be less than 100% of the fair market value per share of common stock on the date of the grant of the option.

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

Incentive stock options granted

to a person owning more than 10% of the combined voting power of the common stock cannot be exercisable for more than five years.

When an option is exercised, the purchase price of the underlying stock is received in cash, except that the plan administrator

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

price, or as otherwise determined by the plan administrator.

The exercise price of an option granted under the plan cannot be less than

100% of the fair market value per share of common stock on the date of the grant of the option.

Options may not be granted under the

plan on or after the tenth anniversary of the adoption of the plan.

Incentive stock options granted to a person owning more than 10%

of the combined voting power of the common stock cannot be exercisable for more than five years .

When an option is exercised, the purchase

price of the underlying stock is received in cash, except that the plan administrator may permit the exercise price to be paid in any

combination of cash, shares of stock having a fair market value equal to the exercise price, or as otherwise determined by the plan administrator.

following table summarizes restricted stock activity during the years ended December 31, 2021 and 2020:

of Non-vested Restricted Stock Activity

December 31, 2018

December 31, 2019

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

Balance, December 31, 2019

Balance, December 31, 2020

Balance, December 31, 2021

the year ended December 31, 2021, the Company issued 245,900 restricted stock awards to five non-employee directors.

61,475 of these

restricted stock awards vested on February 1, 2021, 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.

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.

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.

shares vested immediately and the balance of 28,383 shares vested throughout 2019.

The aggregate fair value of the stock awards

was $ 132 based on the market price of our common stock on the dates of grant.

During the year ended December 31, 2019, the total

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

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

restricted common stock.

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

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.

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.

total fair value of restricted common stock vesting during the year ended December 31, 2021 and 2020 was $ 243 and $ 416 , respectively,

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

As of December 31, 2021, the amount

of unvested compensation related to issuances of restricted common stock was $ 54 , 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.

of December 31, 2021, the Company has issued stock options to purchase an aggregate of 10,522,995 shares of common stock.

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Terms (Years)

at December 31, 2018

forfeited or expired

( 1,571,794 )

forfeited or expired

Outstanding at December 31, 2019

Unvested forfeited or expired

Vested forfeited or expired

Outstanding at December 31, 2020

forfeited or expired

at December 31, 2020

Unvested forfeited or expired

( 2,052,954 )

Vested forfeited or expired

Outstanding at December 31, 2021

Exercisable at December 31, 2021

the year ended December 31, 2021, the Company received proceeds of $ 32 and issued 63,000 shares of common shares on the exercise of stock

the year ended December 31, 2021, the Company approved options exercisable into 3,386,882 shares to be issued pursuant to Reed’s

2020 Equity Incentive Plan.

3,386,882 options were issued to employees, 1,693,441 options vesting annually over a four -year vesting period,

and 1,693,441 options that will vest based on performance criteria to be established by the board of directors

stock options are exercisable at prices ranging from $ 0.98 to $ 1.18 per share and expire in ten years .

The total fair value of these

options at grant date was approximately $ 2,412 , which was determined using a Black-Scholes-Merton option pricing model with the following

average assumption:

stock price of $ 1.05 per share, expected term of six years , volatility of 79 %, dividend rate of 0 %, and weighted

average risk-free interest rate of 0.98 %.

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

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, 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.

6,558,752 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.

One half of these options vest annually over a four -year vesting

the other half of these options will vest based on performance criteria to be established by the board.

In addition, during

the year ended December 31, 2019, the Company granted options to purchase 113,330 shares of common stock to new board members.

Options granted to consultants, former employees, and board members vest at various periods.

On September 11, 2019, the Company

granted options to purchase 60,510 shares of common stock to certain consultants.

None of the options granted to the consultants

to purchase 60,510 shares of common stock vested and were forfeited, resulting in no compensation expense.

stock options are exercisable at a price ranging from $ 2.33 to $ 3.37 per share and expire in ten years.

Total fair value of these

options at grant date was approximately $ 911 , which was determined using the Black-Scholes-Merton option pricing model with the

following average assumption:

stock price ranging from $2.33 to $3.37 per share, expected term of seven years, volatility of 61 %,

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

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 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

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 measurement of stock options granted in 2021 and 2020, 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 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 year ended December 31, 2021 and 2020, the Company recognized $ 1,684 and $ 1,176 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.

As of December 31, 2021, the aggregate amount of unvested compensation related to stock options was approximately $ 2,833 which

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

of December 31, 2021, the outstanding options have no intrinsic value.

The aggregate intrinsic value was calculated as the difference

between the closing market price as of December 31, 2021, which was $ 0.36 , and the exercise price of the outstanding stock options.

information regarding options outstanding and exercisable as of December 31, 2021, is as follows:

of Information Regarding Stock Options

of Exercise Price

Options Outstanding

Options Exercisable

Range of Exercise Price

$ 0.50 - $ 0.88

$ 0.89 - $ 1.34

$ 1.60 - $ 2.40

$ 2.44 - $ 3.66

Stock Warrants

3 unchanged sentences

of Warrant Activity

Exercise Price

Weighted-Average

Remaining Contractual Terms (Years)

Intrinsic Value

at December 31, 2018

at December 31, 2019

-Average Exercise Price

Weighted-Average Remaining Contractual Terms (Years)

Aggregate Intrinsic Value

Outstanding at December 31, 2019

Forfeited or expired

( 4,051,541 )

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).

Outstanding at December 31, 2020

Forfeited or expired

Outstanding at December 31, 2021

Exercisable at December 31, 2021

November 24, 2021, the Company granted John Bello, current Chairman, significant shareholder and former Interim Chief Executive Officer of Reed’s, who is

a related party, a 5 -year

warrant to purchase 1,500,000

shares of the Company common stock with an exercise

price of $ 0.46 .

The fair value of the warrants granted was determined to be $ 458

The fair value of the

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

and was recorded as a prepaid financing

During the year ended December 31, 2021, the Company amortized $ 148 of prepaid financing costs to interest expense, leaving a

balance remaining of $ 310 to be amortized through July 2022.

The fair value of the warrant was calculated using the Black-Scholes option pricing model using the following assumptions – stock

price of $ 0.46 ;

exercise price of $ 0.44 ;

expected life of 5 years;

expected life of 5

volatility of 84.7 %;

dividend rate of 0 %

and discount rate of 0.77 %.

As of December 31, 2021, the outstanding warrants have no intrinsic value.

The 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.

life of the warrant is based upon its remaining contractual life.

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.

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 .

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 ;

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.

During the year ended December 31, 2020, warrants

to acquire 4,051,541 shares of common stock expired.

As of December 31, 2020, the outstanding warrants had no intrinsic value.

information regarding warrants outstanding and exercisable as of December 31, 2021, 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.

For Federal purposes the amounts available were approximately $ 66,000 and $ 58,000 , respectively.

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

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.

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

sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized

in the financial statements from such a position is measured based on the largest benefit that has a greater than fifty percent

likelihood of being realized upon ultimate settlement.

As of December 31, 2020 and 2019, the Company did not have a liability

for unrecognized tax benefits.

Company recognizes as income tax expense, interest and penalties on uncertain tax provisions.

As of December 31, 2020 and 2019,

the Company has not accrued interest or penalties related to uncertain tax positions.

Tax years 2016 through 2020 remain open

to examination by the major taxing jurisdictions to which the Company is subject.

the attainment of taxable income by the Company, management will assess the likelihood of realizing the tax benefit associated

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:

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:

lease right-of-use asset

finance costs

deferred tax liabilities

deferred tax asset (liability)

Reconciliation

of the effective income tax rate to the U.S.

Warrants Outstanding

Warrants Exercisable

Range of Exercise Price

$ 0.01 - $ 0.99

$ 1.00 - $ 1.99

the years ended December 31, 2021 and 2020, a reconciliation of the effective income tax rate to the U.S.

statutory rate is as follows:

1 unchanged sentence

Statutory Rate

statutory tax rate

rate, net of federal benefit

of change in tax rate

Related Party Transactions

December 31, 2021

December 31, 2020

Federal statutory tax rate

State rate, net of federal benefit

Effect of change in tax rate

Valuation allowance

Effective tax rate

of December 31, 2021 and 2020, significant components of the Company’s deferred tax assets and liabilities are as follows:

of Deferred Income Tax Assets

Deferred income tax asset:

Net operating loss carryforwards

Disqualified corporate interest expense

Stock-based compensation

Accounts receivable allowances

Inventory reserves

Operating lease liability

Reserve for asset impairment

Gross deferred tax assets

Valuation allowance

Total deferred tax assets

Deferred tax liabilities:

Operating lease right-of-use asset

Deferred finance costs

Total deferred tax liabilities

Net deferred tax asset (liability)

December 31, 2021 and 2020, the Company had available

Federal and state net operating loss carryforwards (“NOL”s) to reduce future taxable income.

For Federal purposes the amounts

available were approximately $ 63,000

and $ 66,000 ,

respectively.

For state purposes approximately $ 36,000

was available at December 31, 2021 and 2020,

respectively.

The Federal carryforward for NOLs arising in years prior to 2019 is approximately $ 44,000 ,

which expires on various dates through 2038 .

NOLs for 2019, 2020 and 2021 of approximately 19,000 ,

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 2041.

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.

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 sustained

on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the financial

statements from such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized

upon ultimate settlement.

As of December 31, 2021 and 2020, the Company did not have a liability for unrecognized tax benefits.

Company recognizes as income tax expense, interest and penalties on uncertain tax provisions.

As of December 31, 2021 and 2020, the Company

has not accrued interest or penalties related to uncertain tax positions.

Tax years 2017 through 2021 remain open to examination by the

major taxing jurisdictions to which the Company is subject.

the attainment of taxable income by the Company, management will assess the likelihood of realizing the tax benefit associated with the

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

Related Party

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.

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.

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

and his wife.

As of December 31, 2021, $ 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.

Reed has placed approximately 363,000 pledged

shares valued at $ 131 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, 2021 and 2020,

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.

the Company recorded royalty revenue from CCB of $ 72 and $ 98 ,

respectively.

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

During the year ended December 31, 2021, the Company

recorded royalty revenue receivable of $ 72 , and advanced expenses of $ 179 , leaving an aggregate receivable balance of $ 933 at December

December 31, 2021, and December 31, 2020, the Company had accounts payable due to CCB of $ 614 and $ 557 , 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.

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

31, 2020 and 2019, respectively.

Commitments and Contingencies

over-advance on the Company’s line of credit with Rosenthal was guaranteed by an irrevocable stand-by letter of credit in the amount

issued by Daniel J.

Doherty III and the Daniel J.

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

On March 11, 2020, the Company entered into an amendment to the financing agreement, releasing that irrevocable standby letter of credit

by Raptor with a $ 2,000

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.

Bello, current Chairman, significant

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

As consideration for the collateral support,

Bello received 400,000

shares of Reed’s restricted stock.

November 24, 2021, the Bello trust provided additional collateral support securing a $ 2,500,000 over-advance under the Financing Agreement,

Bello also provided a personal guarantee.

The additional collateral was released on March 17, 2022 along with the personal

The initial pledged collateral was released March 30, 2022 with the pay-off of the Rosenthal facility.

Martin, daughter of a director of the Company, was employed as Vice President of Marketing during the years ended December 31, 2021 and

Martin was paid approximately $ 181 and $ 215 , respectively, for her services during the years ended December 31, 2021 and 2020,

respectively.

and Contingencies

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.

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

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.

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.

March 10, 2022, the Company entered into a Securities Purchase Agreement with certain institutional and accredited investors

pursuant to which the investors agreed to purchase 18,594,571

shares of the Company’s common stock and warrants to purchase 9,297,289

shares of common stock in a private placement.

The warrants have an exercise price of $ 0.2877

per share for a period of five

years commencing six months from the closing date of March 11, 2022.

The purchase price per share of common stock and

associated warrant was $ 0.28

for certain investors and was $ 0.3502

for investors who are officers and directors of the Company in compliance with the rules of the Nasdaq Stock Market.

proceeds to the Company, after deducting placement agent fees and other offering expenses, was approximately $ 5.1 million.

officers and directors of the Company purchased approximately $ 1.1

million of the securities in the offering.

March 21, 2022, the Board of Directors of the Company, upon recommendation from its governance committee, expanded the board from six

to seven members and appointed Mr.

Zaltzman to serve as director.

Zaltzman is the founder

and managing member of Union Square Park Capital Management, LLC (“USPCM”), and is also the managing member of Union Square Park GP (“USPGP”).

USPCM and USPGP serve as the investment manager and general

partner to Union Square Park Partners, LP (“USPP Fund”), respectively.

Foregoing entities hereinafter collectively referred

to as the “Union Square Entities”.

Fund participated in the Company’s recent private placement of common stock and it acquired 10,714,286 shares

of common stock and warrants to purchase 5,357,143 shares

of common stock for $ 3,000 .

Prior to the private placement, Mr.

Zaltzman and the Union Square Entities beneficially owned approximately 7.79 % of

Reed’s common stock.

After the private placement, Mr.

Zaltzman and the Union Square Entities beneficially owned approximately 14.6 % of

Reed’s common stock.

March 28, 2022, the Company entered into a financing agreement with Alterna Capital Solutions (“ACS”), for a line of

credit to replace its existing credit facility.

The ACS line of credit is for a term of 3

years and provides for borrowings of up to $ 13,000 .

Borrowings are based upon eligible accounts receivable and inventory.

The line of credit is secured by eligible accounts receivable

and inventory of the Company.

Inventory collateral is set to a maximum of 100 % of

eligible accounts receivable.

An overadvance rider is in place which provides for up to $ 400 of

additional borrowing beyond those amounts (the “Over Advance”).

under the ACS financing agreement bear interest of prime plus 4.75% but not less than 8.0% on receivables.

Borrowings based on inventory

bear an interest of prime plus 5.25% but not less than 8.5%.

The additional overadvance rider bears a rate of prime plus 12.75%, but

not less than 16.00%.

Additionally, the line of credit is subject to monthly monitoring fee of $1 with a minimum usage requirement on

the credit facility.

A loan balance of less than $ 1,500

will bear interest at a rate in line with account receivables advances plus the monthly monitoring fee of $ 1 .

The Company incurred $ 503

of direct costs of the transaction, consisting primarily of broker, bank and legal fees.

These costs have been capitalized and are being

amortized over the 3 -year

life of the ACS agreement.

On March 30, 2022, the Company paid in full its outstanding

balance on its credit facility with Rosenthal & Rosenthal, Inc.

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