UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30,March 31, 20212022

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number: 001-32501

REED’S, INC.

(Exact name of registrant as specified in its charter)

201 Merritt 7, Norwalk, CT. 06851

(Address of principal executive offices) (Zip Code)

(800) 997-3337

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: There were a total of 93,667,855112,652,320 shares of Common Stock outstanding as of August 10, 2021.May 11, 2022.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

TABLE OF CONTENTS

Cautionary Note Regarding Forward Looking StatementsCAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION

This Quarterly Report on Form 10-Q as well as our other public filings or public statements include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified by terms and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” and “will” and similar expressions and include references to assumptions and relate to our future prospects, developments, and business strategies.

These forward-looking statements involve known and unknown risks, assumptions and uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by forward-looking statements. These risks, assumptions and uncertainties include difficulty in marketing Reed’s products and services, maintaining and protecting brand recognition, the need for significant capital, our significant debt obligations, dependence on third party distributors, dependence on third party brewers, increasing costs of fuel and freight, protection of intellectual property, competition and other factors, any of which could have an adverse effect on the business plans of Reed’s, its reputation in the industry or its expected financial return from operations and results of operations. These risks, assumptions and uncertainties are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements.

We undertake no obligation to update or revise the forward-looking statements included in this report, whether as a result of new information, future events or otherwise, after the date of this report. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements.

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

REED’S, INC.INC,

CONDENSED BALANCE SHEETS

(Amounts in thousands, except share amounts)

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

REED’S, INC.

CONDENSED STATEMENTS OF OPERATIONS

For the Three and Six Months Ended June 30,March 31, 2022 and 2021 and 2020

(Unaudited)

(Amounts in thousands, except share and per share amounts)

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

REED’S, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

For the Three and Six Months Ended June 30,March 31, 2022 and 2021 and 2020

(Unaudited)

(Amounts in thousands except share amounts)

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

REED’S, INC.

CONDENSED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2022 and 2021

(Unaudited)

(Amounts in thousands)

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

REED’S, INC.

CONDENSED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2021 and 2020

(Unaudited)

(Amounts in thousands)

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

REED’S, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

Three and Six Months Ended June 30,March 31, 2022 and 2021 and 2020 (Unaudited)

(In thousands, except share and per share amounts)

1. Summary of Significant Accounting Policies

Basis of Presentation and Liquidity

The accompanying interim condensed financial statements of Reed’s, Inc. (the “Company”, “we”, “us”, or “our”), are unaudited, but in the opinion of management contain all adjustments, including normal recurring adjustments, necessary to present fairly our financial position at June 30, 2021 and the results of operations and cash flows for the three and six months ended June 30, 2021 and 2020. The balance sheet as of December 31, 2020 is derived from the Company’s audited financial statements.

Certain information and footnote disclosures normally included in financial statements that have been prepared in accordanceconformity with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to(“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures contained in these condensed financial statements are adequate to make the information presented herein not misleading. For further information, refer toThese condensed financial statements should be read in conjunction with the financial statements and the notes thereto includedcontained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as2021, filed with the SecuritiesSEC on April 15, 2022. The accompanying condensed financial statements are unaudited, but in the opinion of management contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position as of March 31, 2022, and Exchange Commission onthe results of its operations and its cash flows for the three months ended March 30,31, 2022 and 2021. The balance sheet as of December 31, 2021 is derived from the Company’s audited financial statements.

The results of operations for the sixthree months ended June 30, 2021March 31, 2022 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2021.2022.

COVID-19 ConsiderationsGoing 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 three months ended March 31, 2022, the Company recorded a net loss of $4,980 and used cash in operations of $2,207. 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. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2021, financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. 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 March 31, 2022, we had a cash balance of $122, with no current availability, and $5,100 of additional borrowing capacity, stockholders’ equity of $4,616 and a working capital of $3,402.

On May 9, 2022 the Company issued $11,250 of secured convertible notes to certain institutional investors. The convertible notes mature May 9, 2025, bear interest at 10% per annum, and are secured by substantially all of the Company’s assets. The initial conversion rate of the convertible notes is 4.1503 shares of the Company’s common stock per one dollar of principal amount converted (See Note 11).

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. Our ability 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.

During the first quarter of 2022, the Company continued to strengthen its supply chain, implement gross margin enhancement initiatives, drive efficiencies in transportation and warehouse costs and reduce operating expenses.

The Company remains focused on driving sales growth and improving margin. The sales growth focus is on channel expansion, new product introduction and improved sales execution. The margin enhancement initiative is driven by co-packer upgrades, better leveraged purchasing and improved efficiency. Underpinning these initiatives is a focus on strategically reducing operating costs, particularly delivery and handling expenses. During 2021, the Company experienced elevated transportation costs over the prior year and anticipates these costs to remain elevated for the balance of 2022. Plans have been implemented to mitigate the impact of these costs.

COVID-19 Considerations

During the period ended June 30, 2021,March 31, 2022, the COVID-19 pandemic has impactedcontinued to impact our operating results and the Company anticipates a continued impactresidual effect for the balance of the year. In addition, the pandemic maycould 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.

Through June 30, 2021,March 31, 2022, the Company has experiencedwas able to lower its freight costs despite a higher transportation expensesmarket as the capacity in the freight market has not kept up with demand. The Company believes that coststhese challenges 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 beinghave been 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. The Company anticipates a continued impact throughout 2022.

Our 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 protect 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 June 30, 2021,March 31, 2022, 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.

Net sales for the six month period ended June 30, 2021 were up 15% from the prior year period. Through June 30, 2021, we continue to generate cash flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets.

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

Liquidity

The accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the six months ended June 30, 2021, the Company recorded a net loss of $7,649 and used cash in operations of $10,309. As of June 30, 2021, we had a cash balance of $654 with borrowing capacity of $4,343, a stockholder’s equity of $11,566 and a working capital of $10,470, compared to a cash balance of $595 with borrowing capacity of $5,166, stockholders’ equity of $10,404 and a working capital of $9,528 at December 31, 2020. Notwithstanding the net loss for the six months ended June 30, 2021, management projects adequate cash from operations and available line of credit to ensure continuation of the Company as a going concern for at least one year from the date these financial statements are issued.

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.

2. Significant Accounting Policies

Use of estimatesEstimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include estimates for reserves of uncollectible accounts, inventory obsolescence, depreciable lives of property and equipment, analysis of impairments of recorded long-term tangible and intangible assets, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock compensation expense.instruments issued for services.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (“ASC 606”). Revenue and costs of sales are recognized when control of the products transfers to our customer, which generally occurs upon shipment from our facilities. The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying ourCompany’s 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.

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 fulfilment activity rather than a promised service to the customer. Revenue and costs of sales are recognized when control of the products transfers to our customer, which generally occurs upon shipment from our facilities. The Company’s performance obligations are satisfied at that time.

All 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 allow for returns, except for damaged products when the damage occurred pre-fulfilment. 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.

Loss per Common Share

Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period.year, excluding shares of unvested restricted common stock. Shares of restricted stock are included in the basic weighted average number of common shares outstanding from the time they vest. 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. Shares of restricted stock are included in the diluted weighted average number of common shares outstanding from the date they are granted. Potential common shares are excluded from the computation when their effect is antidilutive.

For the periods ended June 30,March 31, 2022 and 2021, and 2020, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following:

 Schedule of Potentially Dilutive Securities

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

Stock Compensation Expense

The Company periodically issues stock options and restricted stock awards to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting 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.

The 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.

Advertising Costs

Advertising costs are expensed as incurred and are included in selling and marketing expense. Advertising costs aggregated $312 and $349for the three months ended June 30,March 31, 2022 and 2021, and 2020, aggregated $353 and $303, respectively. Advertising costs for the six months ended June 30, 2021 and 2020, aggregated $702 and $606, respectively.

Concentrations

Sales. Net sales.During the three months ended June 30, 2021,March 31, 2022, the Company’s two largest customers accounted for 1918%% and 1212%% of gross billing, respectively, and during the six months ended June 30, 2021, two customers accounted for 20% and 12% of gross billing,net sales, respectively. During the three months ended June 30, 2020,March 31, 2021, the Company’s two largest customers accounted for 2623%% and 1312%% of gross billing, respectively, and during the six months ended June 30, 2020, two customers accounted for 25% and 14% of gross billing,net sales, respectively. No other customers exceeded 10%10% of net sales in either period.

Accounts receivable. As of June 30,March 31, 2022, the Company had accounts receivable from one customer which comprised 23% of its gross accounts receivable. As of December 31, 2021, the Company had accounts receivable from one customer which comprised 1218%% of its gross accounts receivable. As of December 31, 2020, the Company had accounts receivable from one customer which comprised 23% of its gross accounts receivable. No other customers exceeded 10%10% of gross accounts receivable in either period.

Purchases from vendors. During the three months ended June 30, 2021, two vendors accounted for 13% and 12% of all purchases, respectively. During the six months ended June 30, 2021, two vendors accounted for 13% and 12% of all purchases, respectively. During the three months ended June 30, 2020, no vendor exceeded 10% of all purchases. During the six months ended June 30, 2020, one vendor accounted for 11% of all purchases. No other vendors exceeded 10% of all purchases in either period.

Purchases from vendors. During the three months ended March 31, 2022, the Company’s largest vendor accounted for approximately 13% of all purchases. During the three months ended March 31, 2021, the Company’s two largest vendor accounted for approximately 13% and 13% of all purchases, respectively. No other vendors exceeded 10% of all purchases in either period.

Accounts payable. As of June 30, 2021,March 31, 2022, the Company’s fourtwo largest vendors accounted for 1311%%, 11%, 10% and 1010%% of the total accounts payable, respectively. As of December 31, 2020 the Company’s largest two vendors2021, no vendor accounted for more than 1210%% and 10% of the total accounts payable, respectively.payable. No other vendors exceeded 10%10% of gross accounts payable in either period.

Fair Value of Financial Instruments

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

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

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

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

The 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.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning January 1, 2023, and early adoption is permitted. The Company does not believe the potential impact of the new guidance and related codification improvements will be material to its financial position, results of operations and cash flows.Recently Adopted Accounting Pronouncements

In August 2020, the FASBFinancial Accounting Standards Board (“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) (“ASU 2020-06”).” ASU 2020-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. The diluted 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 year. 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.

In May 2021, the FASB issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company adopted ASU 2021-04 effective January 1, 2022. The adoption of ASU 2021-04 did not have any impact on the Company’s financial statement presentation or disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning January 1, 2023, and early adoption is permitted. The Company does not believe the potential impact of the new guidance and related codification improvements will be material to its financial position, results of operations and cash flows.

Other 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.

3.2. Inventory

Inventory is valued at the lower of cost (first-in, first-out) or net realizable value, and net of reserveswrite downs, and is comprised of the following (in thousands):

Schedule of Inventory

The Company has recorded a reserve for slow moving and potentially obsolete inventory. The reserve at June 30, 2021, and December 31, 2020, was $164 and $194, respectively.

4.3. Property and Equipment

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

 Schedule of Property and Equipment

Depreciation expense for the sixthree months ended June 30,March 31, 2022 and 2021 and 2020 was $4825 and $2432, respectively, and amortization of right-of-use assets for the sixthree months ended June 30,March 31, 2022 and 2021 and 2020 was $6927 and $6224, respectively. During the six months ended June 30, 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).

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

Schedule of Equipment Held for Sale

The balance as of June 30, 2021, and December 31, 2020, consists of residual manufacturing equipment, at estimated net realizable value, which management anticipates selling during 2021.

5.4. Intangible Assets

Intangible assets are comprised of brand names acquired, specifically Virgil’s, and costs related to trademarks. They have been assigned an indefinite life, as we currently anticipate that they will contribute cash flows to the Company perpetually. These indefinite-lived intangible assets are not amortized but are assessed for impairment annually and evaluated annually to determine whether the indefinite useful life remains appropriate. We first assess qualitative factors to determine whether it is more likely than not that the asset is impaired. If further testing is necessary, we compare the estimated fair value of our asset with its book value. 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 0 indications of impairment at June 30, 2021.

During the six months ended June 30, 2021, the Company capitalized costs of $6 pertaining to legal and other fees incurred in applying for international trademarks for Reeds and Virgil’s brands.

Intangible assets consist of the following (in thousands):

Summary of Intangible Assets

6.5. Line of Credit

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

 Schedule of Amount Outstanding Under Credit Facilities

Alterna Capital Solutions

On October 4,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, provides for borrowings of up to $13,000, and is secured by eligible accounts receivable and inventory. An over advance rider provides for up to $400 of additional borrowing beyond those amounts (the “Over Advance”). At March 31, 2022, no unused borrowing capacity was available under the financing agreement.

Borrowings based on receivables bears an interest of prime plus 4.75% but not less than 8.0%. Borrowings based on inventory bears an interest of prime plus 5.25% but not less than 8.5%. The additional over advance 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. For the three months ended March 31, 2022, amortization of debt discount was $33, and as of March 31, 2022, the remaining unamortized debt discount balance is $470.

Rosenthal & Rosenthal (paid off in full on March 30, 2022)

In 2018, the Company entered into a financing agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”). The financing agreement provides that provided a maximum borrowing capacity of $13,000. Borrowings are, based on a formula of eligible accounts receivable and inventories (the “permitted borrowings”) plus advances (an “over-advance” of up to $4,000) in excess of permitted borrowings. At June 30, 2021, the unused borrowing capacity under the financing agreement was $4,343. The line of credit automatically renews each year until terminated. The line of credit matured onOn March 30, 2021, and was automatically renewed to mature2022, the Company paid in full the outstanding balance on March 30, 2022.its credit facility with Rosenthal with proceeds from ACS discussed above.

Borrowings under the Rosenthal financing agreement bearbore interest at the greater of prime or 4.754.75%%, plus an additional 2.02.0%% to 3.53.5%% depending on whether the borrowing iswas based upon receivables, inventory or is an over-advance. Additionally, the Rosenthal line of credit iswas subject to monthly facility and administration fees, and aggregate minimum monthly fees (including interest) of $4.

The line of credit iswas secured by substantially all of the assets, excluding intellectual property, of the Company. The over-advance iswas secured by all of Reed’s intellectual property collateral. Additionally, any over-advance was guaranteed by an irrevocable stand-by letter of credit in the amount of $1,500, issued by Daniel J. Doherty III and the Daniel J. Doherty, III 2002 Family Trust, affiliates of Raptor/Harbor Reeds SPV LLC (“Raptor”). On March 11, 2021, the Company entered into an amendment to the financingRosenthal agreement releasing that irrevocableand replaced a standby letter of credit of $1,500$1,500 by Raptora guarantor 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.

John J. Bello, current Chairman and former Interim Chief Executive Officer of Reed’s, is a related party. He is also aparty, and greater than 55%% beneficial owner of Reed’s common stock. As consideration for the collateral support, Mr. Bello received 400,000 shares of Reed’s restricted stock. The Company determined thestock, with a fair value of the 400,000 restricted stock to be $472 which was recorded as a prepaid financing costs and included in prepaid expenses and other current assets on the condensed balance sheet at June 30, 2021. The prepaid financing fee is to be amortized over a twelve month period.cost. During the sixthree months ended June 30, 2021, the company amortizedMarch 31, 2022, $147121 of the prepaid financing costs to interest expense.

The financing agreement with Rosenthal includes customary restrictions that limit our ability to engage in certain types of transactions, including our ability to utilize tangiblecost was amortized, and intangible assets as collateral for other indebtedness. Additionally, the agreement contains a financial covenant that requires us to meet certain minimum working capital and tangible net worth thresholds as of the end of each quarter. We were in compliance with the terms of our agreement with Rosenthal as of June 30, 2021.March 31, 2022, there was no remaining unamortized prepaid finance cost balance.

The Company annually incurs an additional $130of fees from the bank, which is equal to 11% % of the $13,000borrowing limit. These costs have been capitalized and recorded as aAmortization of this debt discount was $65and are amortized over$162for the remaining life of the Rosenthal agreement. On Decemberthree months ended March 31, 2020, the2022, and 2021, respectively. At March 31, 2022, there was no remaining unamortized debt discount of $162 is included in prepaid expense and other current assets on the balance sheet. Amortization of debt discount was $162 and $193 for the six months ended June 30, 2021 and 2020, respectively. On June 30, 2021, 0 remaining unamortized debt discount remained.

7. Note Payable

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, of which $599 was reflected as the current portion of note payable. During the six months ended June 30, 2021, the Company was notified that its PPP loan forgiveness application was approved. The Company recorded the loan forgiveness as a gain on forgiveness of debt of $770, which is included in other income, leaving 0 remaining balance owed at June 30, 2021.balance.

8.6. Leases Liabilities

The Company accounts for leases under ASC 842, Leases. The standard requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception of the lease, initially measured at the present value of the lease payments.

ASC 842 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. During the sixthree months ended June 30,March 31, 2022 and 2021, the Company reflected amortization of right of use asset oflease costs totaled $4827 related to these leases, resulting in a net asset balance ofand $72424 as of June 30, 2021.

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

As of December 31, 2020, lease liabilities totalled $685, made up of finance lease liabilities of $16 and2021, operating lease liabilities oftotaled $669555. During the sixthree months ended June 30, 2021,March 31, 2022, the Company terminated $13 of finance leases, and made payments of $2 towards its finance lease liability and $4338 towards its operating lease liability. As of June 30, 2021,March 31, 2022, operating lease liabilities totalledtotaled $627518.

As of June 30, 2021,March 31, 2022, the weighted average remaining lease terms for an operating leaseslease are 3.512.76 years. TheAs of March 31, 2022, the weighted average discount rate foron the operating leaseslease is 12.612.60%%.

9.7. Common StockStockholder’s Equity

Common stock issuance

On May 5, 2021,March 10, 2022, the Company entered into a placement agency agreement with Roth Capital Partners, LLC (the “Placement Agent”) and a securities purchase agreement with a certain purchaser forinstitutional and accredited investors pursuant to which the investors agreed to purchase of 18,594,571 shares of the Company’s common stock par value $0.0001 per share, in an offering of securities registered under an effective registration statement filed with the Securities and Exchange Commission (“SEC”). In the offering, the Company soldwarrants to purchase 6,680,000 shares of common stock, at a price of $1.18 per share. The offering closed on May 7, 2021 and total proceeds received, net of fees, were $7,333. The Placement Agent was paid a total cash fee at the closing of the Offering equal to 6.5% of the gross cash proceeds received by the Company from the sale of the shares of common stock in the offering.

Common stock repurchases

During the six months ended June 30, 2021, the Company repurchased 13,9439,297,289 shares of common stock fromin a private placement (including 3,248,142 shares of the Company’s common stock and warrants to purchase 1,624,071 shares of common stock to investors who are officers and directors of the Company). The warrants have an officerexercise price of $0.2877 per share for $a period of 15five years based oncommencing six months from the market valueclosing date of March 11, 2022. The purchase price per share onof common stock and associated warrant was $0.28 for certain investors and was $0.3502 for investors who are officers and directors of the date repurchased.Company in compliance with the rules of the Nasdaq Stock Market. The net proceeds to the Company, retiredafter deducting placement agent fees and other offering expenses, was approximately $5.1 million. The officers and directors of the shares.Company purchased approximately $1.1

million of the securities in the offering.

9.

In January 2022, the Company issued 100,000 shares of common stock valued at $37 to John J. Bello and Nancy E. Bello, as Co-Trustees of The John and Nancy Bello Revocable Living Trust as consideration for the $2,000 pledge of securities to Rosenthal (see Note 5). John J. Bello, current Chairman and former Interim Chief Executive Officer of Reed’s, is a related party, and greater than 5% beneficial owner of Reed’s common stock.

8. Stock-Based Compensation

Restricted common stock

The following table summarizes restricted stock activity during the sixthree months ended June 30, 2021:March 31, 2022:

Summary of Non-vested Restricted Stock Activity 

On January 26, 2021,2022, 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 $50,000for fiscal 2021, payable quarterly in accordance with the company’s policies for non-employee director compensation. In addition, the Company granted 245,900401,720 restricted stock awards to five non-employee directors. 61,475100,430 of these restricted stock awards vested on February 1, 2021 and May 1, 2021.February1, 2022. The remaining 122,950301,290 restricted stock awards will vest equally on May 1, 2022, August 1, 2021,2022, and November 1, 2021.2022. The aggregate fair value of the stock awards was $226150 based on the market price of our common stock price which was $0.920.32 per share on the date of grants and is amortized as shares vest.

The total fair value of vested restricted common stock vesting during the sixthree months ended June 30,March 31, 2022 and 2021, and 2020 was $16966 and $28598, respectively, and is included in general and administrative expenses in the accompanying statements of operations. As of June 30, 2021,March 31, 2022, the amount of unvested compensation related to issuances of restricted common stock was $147138, 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.

Stock options

The following table summarizes stock option activity during the sixthree months ended June 30, 2021:March 31, 2022:

Schedule of Stock Option Activity 

During the sixthree months ended June 30, 2021, the Company received proceeds of $29 and issued 58,000 shares of common shares on the exercise of stock options.

During the six months ended June 30, 2021,March 31, 2022, the Company approved options exercisable into 3,288,700 60,000shares to be issued pursuant to Reed’s 2020 Equity Incentive Plan. 3,288,70060,000 options were issued to employees, 1,644,35030,000 options vesting annually over a four-year four-year vesting period, and 1,644,350 30,000options that will vestvesting based on performance criteria to be established by the board of directors.

The stock options are exercisable at prices ranging froma price of $0.980.29 to $1.18per share and expire in ten years. The total fair value of these options at grant date was approximately $2,34512, which was determined using a Black-Scholes-Merton option pricing model with the following average assumption: stock price of $1.060.29 per share, expected term of six years, volatility of 7982%, dividend rate of 0%, and weighted average risk-free interest rate of 0.981.72%. The expected term represents the weighted-average period of time that share option awards granted are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility is based upon historical volatility of the Company’s common stock; the expected dividend yield is based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future; and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of measurement corresponding with the expected term of the share option award.