10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2018

[  ] 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)

Delaware	35-2177773
(State of incorporation)	(I.R.S. Employer Identification No.)

201 Merritt 7, Norwalk, CT. 06851

(Address of principal executive offices) (Zip Code)

(800) 997-3337

(Registrant’s telephone number, including area code)

13000 South Spring St, Los Angeles CA 90061

(Former name, former address and former fiscal year, if changed since last report)

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 [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [X] 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):

Large Accelerated Filer [  ]	Accelerated Filer [  ]	Non-Accelerated Filer (do not check if Smaller Reporting Company) [  ]
Smaller Reporting Company [X]	Emerging Growth Company [  ]

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 [X]

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 25,711,809 shares of Common Stock outstanding as of October 31, 2018.

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report includes forward-looking statements. These statements involve known and unknown risks, 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.

In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “proposed,” “intended,” or “continue” or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other “forward-looking” information. There may be events in the future that we are not able to accurately predict or control. Before you invest in our securities, you should be aware that the occurrence of any of the events described in this Quarterly Report could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline and you could lose all or part of your investment. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report to conform these statements to actual results.

2

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION	F-1
Item 1. Condensed Financial Statements	F-1
Condensed Balance Sheets - September 30, 2018 (unaudited) and December 31, 2017	F-1
Condensed Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (unaudited)	F-2
Condensed Statement of Changes in Stockholders’ Deficit for the nine months ended September 30, 2018 (unaudited)	F-3
Condensed Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited)	F-4
Notes to Condensed Financial Statements (unaudited)	F-5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3. Quantitative and Qualitative Disclosures About Market Risk	14
Item 4. Controls and Procedures	14
PART II - OTHER INFORMATION	14
Item 1. Legal Proceedings	14
Item 1A. Risk Factors	14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3. Defaults Upon Senior Securities	14
Item 4. Mine Safety Disclosures	14
Item 5. Other Information	14
Item 6. Exhibits	15

3

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

REED’S INC.

CONDENSED BALANCE SHEETS

(Amounts in thousands, except share amounts)

	September 30, 2018			December 31, 2017
	(Unaudited)
ASSETS
Current assets:
Cash	$	188		$	12,127
Accounts receivable, net of allowance for doubtful accounts and returns and discounts of $564 and $601, respectively		4,436			2,691
Inventory, net of reserve for obsolescence of $635 and $509, respectively		7,041			5,931
Prepaid expenses and other current assets		438			199
Total Current Assets		12,103			20,948
Property and equipment, net of accumulated depreciation of $494 and $799, respectively		157			174
Equipment held for sale, net of impairment reserves of $5,925		1,921			2,549
Intangible assets		805			805
Total assets	$	14,986		$	24,476
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable	$	3,272		$	7,480
Accrued expenses		1,869			220
Advances from officers		50			277
Revolving line of credit		2,689			3,301
Current portion of capital leases payable		140			198
Current portion of long term financing obligation		231			222
Bank notes		6,040			6,947
Total current liabilities		14,291			18,645
Capital leases payable, less current portion		107			236
Long term financing obligation, less current portion, net of discount of $632 and $714, respectively		1,149			1,250
Convertible note to a related party		4,036			3,690
Warrant liability		133			36
Other long term liabilities		94			111
Total Liabilities		19,810			23,968
Stockholders’ equity (deficit):
Series A Convertible Preferred stock, $10 par value, 500,000 shares authorized, 9,411 shares issued and outstanding		94			94
Common stock, $.0001 par value, 40,000,000 shares authorized, 25,658,159 and 24,619,591 shares issued and outstanding, respectively		3			2
Common stock issuable, 616,602 and 400,000 shares, respectively		754			680
Additional paid in capital		52,096			49,833
Accumulated deficit		(57,771	)		(50,101	)
Total stockholders’ equity (deficit)		(4,824	)		508
Total liabilities and stockholders’ equity (deficit)	$	14,986		$	24,476

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

F-1

REED’S, INC.

CONDENSED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2018 and 2017

(Unaudited)

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

	Three Months Ended						Nine Months Ended
	2018			2017			2018			2017
Net Sales	$	10,796		$	10,887		$	28,473		$	28,046
Cost of goods sold		8,115			8,825		$	20,447			23,216
Gross profit		2,681			2,062			8,026			4,830
Operating expenses:
Delivery and handling expense		1,395			1,119			3,598			2,731
Selling and marketing expense		1,378			828			3,601			2,344
General and administrative expense		1,987			1,105			6,853			3,402
Impairment of assets		0			2,000			0			2,000
Total operating expenses		4,760			5,052			14,052			10,477
Loss from operations		(2,079	)		(2,990	)		(6,026	)		(5,647	)
Interest expense		(621	)		(757	)		(1,542	)		(2,270	)
Financing and warrant modification costs		0			(1,798	)		0			(2,776	)
Change in fair value of warrant liability		26			(72	)		(97	)		3,236
Net loss basic and diluted		(2,674	)		(5,617	)		(7,665	)		(7,457	)
Dividends on Series A Convertible Preferred Stock		-			-			(5	)		(5	)
Net loss attributable to common stockholders	$	(2,674	)	$	(5,617	)	$	(7,670	)	$	(7,462	)
Weighted average number of shares outstanding – basic and diluted		25,587,191			15,033,083			25,242,780			14,336,375
Loss per share – basic and diluted	$	(0.10	)	$	(0.37	)	$	(0.30	)	$	(0.52	)

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

F-2

REED’S, INC.

CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

For the Nine Months Ended September 30, 2018

(Unaudited)

(Amounts in thousands except share amounts)

	Common Stock				Preferred Stock				Common Stock Issuable						Additional Paid		Accumulated			Total Stockholders’ Equity
	Shares		Amount		Shares		Amount		Shares			Amount			In Capital		Deficit			(Deficit)
Balance, December 31, 2017		24,619,591	$	2		9,411	$	94		400,000		$	680		$	49,833	$	(50,101	)	$	508
Fair value of vested options		-		-		-		-		-			-			864		-			864
Shares granted to an Officer for services		37,052		-		-		-		-			-			100		-			100
Shares granted to Directors and Officers for services		-		-		-		-		854,592			655			-		-			655
Dividends on Series A Convertible Preferred Stock		1,734		-		-		-		-			-			5		(5	)		-
Common shares issued to Directors and Officers pursuant to previous grants		638,575		-		-		-		(638,575	)		(581	)		581		-			-
Exercise of warrants		361,207		1		-		-		-			-			713		-			714
Net Loss		-		-		-		-		-			-			-		(7,665	)		(7,665	)
Balance, September 30, 2018		25,658,159	$	3		9,411	$	94		616,017		$	754		$	52,096	$	(57,771	)	$	(4,824	)

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

F-3

REED’S, INC.

CONDENSED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)

(Amounts in thousands)

	September 30, 2018			September 30, 2017
Cash flows from operating activities:
Net loss	$	(7,665	)	$	(7,457	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		492			430
Amortization of discount on Long-term financing obligation		82			728
Loss on cancellation of capital leases		94			-
Stock options issued to employees for services		864			199
Common stock issuable for services		655			99
Common stock issued for services		100			-
(Decrease) increase in allowance for doubtful accounts		(37	)		122
Reserve for impairment on equipment held for sale		-			2,000
(Decrease) increase in inventory reserve		126			-
(Decrease) increase in fair value of warrant liability		97			(3,236	)
Fair value of warrants recorded as financing costs		-			908
Cost of warrant modification					1,868
Accrual of interest on Convertible note to a related party		346			-
Changes in operating assets and liabilities:
Accounts receivable		(1,707	)		(825	)
Inventory		(1,236	)		(930	)
Prepaid expenses and other assets		(239	)		199
Accounts payable		(4,100	)		1,033
Accrued expenses		1,648			176
Other long term obligations		(16	)		(43	)
Net cash used in operating activities		(10,496	)		(4,729	)
Cash flows from investing activities:
Proceeds from sale of property and equipment		52			-
Purchase of property and equipment		(102	)		(535	)
Net cash provided by (used in) investing activities		(50	)		(535	)
Cash flows from financing activities:
Borrowings on line of credit		13,495			38,355
Repayments of line of credit		(14,107	)		(37,586	)
Principal repayments on capital expansion loan		(907	)		(538	)
Principal repayments on long term financial obligation		(174	)		(139	)
Advances from officers		50			277
Repayment of amounts due to officers		(277	)		-
Principal repayments on capital lease obligation		(187	)		(141	)
Exercise of warrants		714			1,650
Proceeds from sale of common stock		-			200
Proceeds from issuance of convertible note		-			3,083
Net cash provided by (used in) financing activities		(1,393	)		5,161
Net decrease in cash		(11,939	)		(103	)
Cash at beginning of period		12,127			451
Cash at end of period	$	188		$	348
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	971		$	2,074
Non Cash Investing and Financing Activities:
Debt discount on note recognized as warrant liability	$	-		$	3,083
Property and equipment acquired through capital expansion loan	$	-		$	723
Preferred Stock dividends paid in Common Stock	$	5		$	5
Reclass of property to equipment held for sale	$	-		$	4,465
Extinguishment of warrant liability	$	-		$	2,634
Vendor credits issued for fixed asset purchase	$	108		$	-

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

F-4

REED’S, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)

(In thousands, except share and per share amounts)

1. 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 September 30, 2018 and the results of operations and cash flows for the three and nine months ended September 30, 2018 and 2017. The balance sheet as of December 31, 2017 is derived from the Company’s audited financial statements.

Certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. We believe that the disclosures contained in these condensed financial statements are adequate to make the information presented herein not misleading. For further information, refer to the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission on April 2, 2018.

The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2018.

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.

On October 4, 2018, the Company entered into a financing agreement with Rosenthal & Rosenthal, Inc., which replaced its existing credit facility with PMC. See Note 13. Management anticipates that the Company’s annual debt service requirements will be reduced by approximately $1,500 as a result of the refinancing. The new credit facility is for a term of 2.5 years, and provides for borrowings of up to $13,000. Concurrently with the execution of the financing agreement, all obligations to PMC under the Company’s existing credit facility were repaid in full in an aggregate amount of $8,758. Upon completion of these transactions on October 4, the Company had $1,300 of unused borrowing capacity under the financing agreement.

For the nine months ended September 30, 2018, the Company recorded a net loss of $7,665 and used cash in operations of $10,496. As of September 30, 2018, we had a cash balance of $188, a stockholder’s deficit of $4,824 and a working capital shortfall of $2,188 compared to a cash balance of $12,127, stockholder’s equity of $508 and working capital of $2,303 at December 31, 2017.

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. Beginning in June of 2017, we took decisive action to improve our profitability and operating cash flow, including increased outsourcing of our manufacturing process, streamlining our product portfolio, negotiating improved vendor contracts and restructuring our selling prices. The result was an 11 percentage point increase in gross margin for the nine months ended September 30, 2018, as compared to the same period of 2017.

In September of 2018, the Company completed the relocation of its headquarters to Norwalk, Connecticut. The Company’s move is consistent with its recent focus on a streamlined sales and marketing organization that is better positioned for future growth and enhanced profitability. The new Norwalk office serves as headquarters for the Company’s operations, business development, sales and marketing, finance, supply chain, HR and other corporate functions. With key leadership already based in the Tri-State area, including support agencies leading the Company’s marketing, advertising and public relations efforts, this will ensure a seamless transition.

The Company anticipates the exit of our Los Angeles plant to be completed in 2018, and in fiscal 2017 we recorded impairment charges aggregating $5,925 for fixed asset costs that we do not believe to be recoverable. Additionally, as a result of the move of our corporate headquarters, we recorded a charge of $642 for one-time severance and other employee termination costs in June of 2018. In September of 2018 we recorded charges aggregating $492 to revalue inventory that is no longer consistent with the Company’s strategic product focus.

F-5

We may incur additional charges including but not limited to additional cash-related expenses, non-cash impairment charges, discontinued operations and/or other costs in connection with exit and disposal activities. Such transactions will be recognized when appropriate and may require cash payments for obligations such as one-time employee involuntary termination benefits, lease and other contract termination costs, costs to close facilities, employee relocation costs and ongoing benefit arrangements.

If our sales goals do not materialize as planned, we believe the Company will be able to reduce its operating costs sufficiently to still achieve positive cash flow from operations. However, there can be no assurance that we will generate sufficient revenues from product sales in the future to achieve profitable operations. If we are not able to achieve profitable operations at some point in the future, we may have insufficient working capital to maintain our operations as we presently intend to conduct them or to fund our expansion, marketing, and product development plans.

2. Significant Accounting Policies

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company adopted ASC 606 effective January 1, 2018, and adoption of such standard had no effect on previously reported balances.

The Company previously recognized and continues to recognize revenue when risk of loss transfers to our customers and collection of the receivable is reasonably assured, which generally occurs when product is shipped. A written order from the customer must be received and credit acceptance procedures performed prior to shipment of product.

The Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer. Revenue and costs of sales are recognized when control of the products transfers to our customer, which generally occurs upon shipment from our 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-fulfillment. Damaged product returns have historically been insignificant. Because of this, the stand-alone nature of our products, and our assessment of performance obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.

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 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.

F-6

For the periods ended September 30, 2018 and 2017, 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:

	September 30, 2018		September 30, 2017
Convertible note to a related party		2,266,667		-
Warrants		6,951,173		1,908,616
Common stock equivalent of Series A Convertible Preferred Stock		37,644		37,644
Unvested restricted common stock		616,017		-
Options		3,440,904		714,500
Total		13,312,405		2,660,760

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

Use of estimates

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 instruments issued for services.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02”). ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest period presented in the financial statements. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.

In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” (“ASU 2017-11”). ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective approach. The adoption of ASU 2017-11 is not expected to have a material impact on the Company’s financial position, results of operations, and cash flows.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718); Improvements to Non-Employee Share-Based Payment Accounting” (“ASU 2018-07”). ASU 2018-07 generally aligns the measurement and classification of share-based awards to non-employees with that of share-based awards to employees. Non-employee equity awards will be measured at the fair value of the equity instruments to be issued, as of the grant date, and the resulting amount will be recognized as expense over the expected or contractual term of the award. The ASU applies to all share-based payments to nonemployees in exchange for goods or services used or consumed in an entity’s own operations. It does not apply to instruments issued to a lender or investor in a financing transaction, or to instruments granted when selling goods or services to customers. ASU 2018-07 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 amends certain disclosure requirements pertaining to fair value measurement, and is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of ASU 2018-13 is not expected to have a material impact on the Company’s 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 consolidated financial statements.

F-7

Concentrations

During the three months ended September 30, 2018, the Company’s largest two customers accounted for 22% and 18% of gross sales, respectively. During the nine months then ended, these customers accounted for 24% and 13% of gross sales, respectively.

During the three months ended September 30, 2017, the Company’s two largest customers accounted for 19% and 15% of gross sales, respectively. During the nine months ended September 30, 2017, two customers accounted for 21% and 11% of gross sales, respectively.

As of September 30, 2018, the Company had accounts receivable from three customers which comprised 20%, 16% and 12%, respectively, of its gross accounts receivable. As of December 31, 2017, accounts receivable from two customers comprised approximately 23% and 16% of gross accounts receivable, respectively.

During the three months ended September 30, 2018, the Company made 10% of its purchases from its largest vendor. During the nine months then ended, 15% of all purchases were made from this vendor.

During both the three and nine months ended September 30, 2017, a single vendor accounted for approximately 18% of all purchases.

As of September 30, 2018, the Company’s largest vendor accounted for 15% of the total accounts payable. As of December 31, 2017, this vendor accounted for 20% of total accounts payable.

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. Accounting Standards Codification Section 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.

As of September 30, 2018, and December 31, 2017, the Company’s balance sheets included warrant liabilities aggregating $133 and $36 respectively, measured at fair value based on Level 2 inputs.

3. Inventory

Inventory is valued at the lower of cost (first-in, first-out) or market, and net of reserves is comprised of the following (in thousands):

	September 30, 2018		December 31, 2017
Raw Materials and Packaging	$	3,674	$	2,670
Finished Goods		3,367		3,261
Total	$	7,041	$	5,931

The Company’s reserve for slow moving and obsolete inventory aggregated $635 and $509 as of September 30, 2018 and December 31, 2017, respectively. In September of 2018, the Company recognized a charge of $492 to revalue certain inventory that is no longer consistent with management’s strategic product focus.

F-8

4. Property and Equipment

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

	September 30, 2018			December 31, 2017
Vehicles	$	205		$	568
Computer hardware and software		446			404
Total cost		651			972
Accumulated depreciation		(494	)		(799	)
Net book value	$	157		$	174

Depreciation expense for the three months ended September 30, 2018 and 2017 was $155 and $171, respectively. Depreciation expense for the nine months then ended was $492 and $430, respectively.

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

	September 30, 2018			December 31, 2017
Equipment held for sale	$	4,184		$	4,370
Plant facility		3,672			4,104
Reserve		(5,935	)		(5,925	)
Net book value	$	1,921		$	2,549

During the year ended December 31, 2017, we recorded impairment charges aggregating $5,925 to reduce the carrying amount of our Los Angeles assets to the amount we believe to be recoverable.

During the period ended September 30, 2018, we reclassified all the assets of our Los Angeles manufacturing facility to Equipment Held for Sale, in keeping with management’s intention to complete our exit from the facility in 2018.

5. Intangible Assets and Impairment Policy

Intangible assets are comprised of brand names acquired. 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 measurement, there were no indications of impairment at September 30, 2018.

Intangible assets consist of the following (in thousands):

	September 30, 2018		December 31, 2017
Virgil’s		576	$	576
Sonoma Sparkler		229		229
Brand names	$	805	$	805

6. Advances from Related Parties

In 2017, Christopher Reed (the former Chief Executive Officer and current Chief Innovation Officer of the Company), Robert Reed (the brother of Christopher Reed), and Daniel Miles (former Chief Financial Officer of the Company), collectively advanced $571 to the Company for working capital uses. As of December 31, 2017, $277 of these advances remained outstanding. This balance was repaid during the quarter ended March 31, 2018 with a three percent fee. In June of 2018, production materials aggregating $50 were purchased by Christopher Reed in anticipation of our exit from the Los Angeles facility, and reimbursement is due him as of September 30, 2018. The Company anticipates reimbursing Mr. Reed for this expenditure in the fourth quarter of 2018.

7. Line of Credit and Bank Notes

As of September 30, 2018, the Company had a Loan and Security Agreement with PMC Financial Services Group, LLC (the “PMC Agreement”), which included a $6,000 Revolving Line of Credit, a $3,000 Term Loan, and a Capital Expansion Loan (“CAPEX Loan”). Amounts borrowed under the PMC Agreement were secured by substantially all the assets of the Company and became due in October 2018.

On October 4, 2018, the Company entered into a financing agreement with Rosenthal & Rosenthal, Inc., which replaced its existing credit facility with PMC. See Note 13. Concurrently with the execution of the new financing agreement, all obligations to PMC were repaid in full in an aggregate amount of $8,758.

F-9

Amounts outstanding under the PMC Agreement were as follows (in thousands):

	September 30, 2018		December 31, 2017
Revolving Line of Credit	$	2,689	$	3,301
Term Loans		3,000		3,000
CAPEX loan		3,040		3,947
	$	8,729	$	10,248

Interest Rates

Interest rates on borrowings under the PMC Agreement were generally calculated on a sliding scale based on our trailing six month EBITDA. If unused cash availability met pre-established thresholds, interest rates were generally reduced to a contractual base rate plus any increase in the prime rate. The Revolving Line of Credit also bore a monthly collateral monitoring fee of .45%.

8. Leases Payable

Future minimum payments on capital leases as of September 30, 2018 are as follows (in thousands).

Years Ending December 31,
2018	$	122
2019		30
2020		23
2021		78
Total payments	$	255
Less: Amount representing interest		7
Present value of net minimum lease payments	$	247
Less: Current portion		140
Non-current portion	$	107

In conjunction with the October 2018 execution of the Company’s new finance agreement, certain equipment lease obligations were repaid in full to PMC in the aggregate amount of $195. Accordingly, these obligations are included in 2018 minimum lease payments in the table above.

In September of 2018 the Company entered into an operating lease for 8,620 feet of office space in Norwalk, Connecticut. The term of the lease is 6.5 years with monthly payments of $9 during the first 30 months, after which they adjust to $18 per month.

9. Long-term Financing Obligation

Our Long-term financing obligation is comprised of the following (in thousands):

	September 30, 2018			December 31, 2017
Financing obligation	$	2,012		$	2,186
Unamortized valuation discount		(632	)		(714	)
Net financing obligation	$	1,380		$	1,472
Less current portion		(231	)		(222	)
Long term financing obligation	$	1,149		$	1,250

F-10

As the result of a 2009 sale-leaseback transaction, the Company leases two buildings and certain of its brewery equipment (the majority of the assets of our Los Angeles plant). The transaction was accounted for as a long-term financing arrangement, and the proceeds from the sale were recorded as a financing obligation in the initial amount of $3,056. Monthly payments of approximately $35 under the arrangement are recorded as a reduction in the financing obligation and as interest expense at an implicit rate of 9.9%.

In connection with the financing obligation and subsequent amendments, the Company issued 200,000 warrants to purchase its common stock. The 200,000 warrants were valued at an aggregate amount of $1,336 which was recorded as a valuation discount. The discount is being amortized over 15 years, the term of the purchase option. The balance of unamortized valuation discount at September 30, 2018 and December 31, 2017 was $632 and $714, respectively. Amortization of valuation discount was $82 during the nine month period ended September 30, 2018.

10. Convertible Note to a Related Party

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

	September 30, 2018		December 31, 2017
12% Convertible Note Payable	$	3,400	$	3,400
Accrued Interest		636		290
Total obligation	$	4,036	$	3,690

On April 21, 2017, pursuant to a Securities Purchase Agreement, the Company issued a Secured, Convertible, Subordinated, Non-Redeemable Note in the principal amount of $3,400 (the “Raptor Note”) and warrants to purchase 1,416,667 shares of common stock. The purchaser, Raptor/Harbor Reeds SPV LLC (“Raptor”), beneficially owned approximately 28% of the Company’s common stock at each of September 30, 2018 and December 31, 2017.

The 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 13). 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.

The warrant will expire on April 21, 2022 and has an adjusted exercise price of $1.50 per share as of September 30, 2018. 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-1. The investor was also granted the right to participate in future financing transactions of the Company for a term of two years.

In October of 2018, the Company entered into a new financing agreement to replace its existing agreement with PMC. In conjunction therewith, the Raptor Note was amended to provide for additional advances of up to $4,000 in the event that Raptor exercises a put option that was granted to it as part of the refinancing. In return, the exercise price of 750,000 of Raptor’s outstanding warrants was reduced to $1.10 per share. See Note 13.

11. Warrant Liability

Certain of the Company’s outstanding warrants require the Company to pay cash to the warrant holders, in the event of a fundamental transaction as defined. Such warrants are accounted for as liabilities in accordance with ASC 480. These liabilities are measured at fair value each reporting period and the change in the fair value is recognized in earnings in the accompanying Statements of Operations.

The fair value of the warrant liability was determined using the Black-Scholes-Merton option pricing model at September 30, 2018 and December 31, 2017, using the following assumptions:

	September 30, 2018			December 31, 2017
Stock Price	$	3.25		$	1.55
Risk free interest rate		2.46	%		1.74	%
Expected volatility		53.38	%		56.06	%
Expected life in years		2.67			3.42
Expected dividend yield		0	%		0	%
Fair Value - Warrants	$	133		$	36

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. The expected 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.

F-11

12. Stock Based Activity

Common stock issued

On January 10, 2018, the Compensation Committee of the Company’s Board of Directors (“Board”) awarded certain independent Directors an aggregate of 400,000 shares of restricted common stock pursuant to Reed’s 2017 Incentive Compensation Plan (“the Plan”). The shares were issued as compensation for services provided during 2017. Accordingly the Company recognized $680, the fair value of the shares, as compensation expense during the year ended December 31, 2017, and reflected this amount as common stock issuable. The shares were issued during the first quarter of 2018.

Stock Awards

The following table summarizes restricted stock activity during the nine months ended September 30, 2018:

	Number of Shares			Fair Value at Date of Issuance			Weighted Average Grant Date Fair Value
Non-vested, December 31, 2017		400,000		$	680			1.70
Granted		854,592			1,412			1.65
Vested		(638,575	)		(1,086	)		1.70
Forfeited		0			0			-
Non-vested, September 30, 2018		616,017		$	1,006			1.63

In the first quarter of 2018, the Compensation Committee granted an aggregate of 70,588 shares of restricted common stock to the Company’s independent Directors pursuant to the Plan. The shares vest in four equal installments during 2018, and the $120 fair value of the shares is being amortized ratably over that period. During the nine months ended September 30, 2018, 52,941 vested shares with a fair value of $90 were issued.

F-12

On January 10, 2018, pursuant to its employment agreement with Mr. Valentin Stalowir, Chief Executive Officer of the Company, dated June 28, 2017, the Compensation Committee granted to Mr. Stalowir an award of 371,268 shares of restricted common stock with a fair value of $631, pursuant to the Plan. The award vests over 18 months, and the fair value of the grant is being amortized to compensation expense through June 2019. During the nine months ended September 30, 2018, 185,634 shares of common stock with a fair value of $316 vested pursuant to the award and were issued to Mr. Stalowir.

On March 28, 2018, the Compensation Committee awarded Mr. Stalowir an additional 412,736 shares of restricted common stock with a fair value of $660 pursuant to the Plan. This award is subject to shareholder approval to increase the number of shares available under the Plan, and will not otherwise be issued until January 2019. The fair value of these shares is also being amortized to compensation expense through June 2019 when the shares vest.

On July 9, 2018, the Compensation Committee approved the grant of 37,052 shares of common stock to an Officer for services rendered, pursuant to the Plan. The shares vested immediately; accordingly the $100 fair value of the shares was recorded as compensation expense during the nine months ended September 30, 2018.

Restricted common stock issued pursuant to the Plan is subject to such restrictions as determined by the Compensation Committee of the Board, which may include restrictions on the sale of such shares or the right to receive dividends thereon. Additionally, the restricted common stock is subject to a risk of forfeiture, generally upon termination of employment or service during the vesting period. Vesting may be dependent upon the recipient’s continued relationship with the Company, or may depend upon the achievement of certain pre-established performance goals.

During the nine months ended September 30, 2018, an aggregate of $655 was recognized as compensation expense relative to these awards. As of September 30, 2018, the amount of unvested compensation related to issuances of restricted common stock awards was $754, which will be recognized as an expense in future periods as the shares vest.

Stock options

	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2017		677,500	$	4.31
Granted		3,285,954		1.86
Exercised		-		-
Unvested Forfeited or expired		406,300		2.65
Vested Forfeited or expired		116,250		4.22
Outstanding at September 30, 2018		3,440,904	$	2.17		8.63	$	4,172,877
Exercisable at September 30, 2018		636,209	$	3.01		5.38	$	517,419

The aggregate intrinsic value was calculated as the difference between the closing market price as of September 30, 2018, which was $3.25, and the exercise price of the outstanding stock options.

On January 10, 2018, pursuant to its employment agreement with Valentin Stalowir dated June 28, 2017, the Compensation Committee granted to Mr. Stalowir options to purchase 371,268 shares of stock, pursuant to the Plan. The options have an exercise price of $1.70, vest over 18 months, and have a 10 year life. The $370 fair value of the options is being amortized through June 2019.

On March 28, 2018, the Compensation Committee granted options to purchase 1,653,950 shares of common stock to certain current employees, officers and Directors pursuant to the Plan. One half of these options vest annually over a four-year period; the other half of these options will vest based on performance criteria to be established by the Board at its discretion. The $1,441 fair value of the options is being amortized through March 31, 2022.

F-13

Also, on March 28, 2018, Compensation Committee approved the repricing of 100,000 options issued to former Chief Financial Officer Dan Miles pursuant to the 2015 Plan to the market price of $1.60, and extended the option period an additional four years.

On March 28, 2018, the Compensation Committee awarded Mr. Stalowir options to purchase 412,736 shares of common stock, which are subject to shareholder approval to increase the number of shares available under the Plan, and are not otherwise issuable until January 2019. One half of these options will vest annually over a four-year period; the other half of these options will vest based on performance criteria to be established by the Board. The fair value of these options of $389 is being amortized through March 31, 2022.

On July 19, 2018, the Company issued options to purchase 748,000 shares of common stock to certain employees, officers and Directors pursuant to the Plan. The grant included 446,000 options issued to Iris Snyder, Chief Financial Officer of the Company, subject to shareholder approval to increase the number of shares available under the Plan. One half of these options vest annually over a four-year period; the other half of these options will vest based on performance criteria to be established by the Board at its discretion. The $957 fair value of the options is being amortized through July 31, 2022.

The fair value of the options granted was determined using the Black-Scholes-Merton option pricing model during the period ended September 30, 2018, using the following assumptions:

	Nine Months Ended
	September 30,
	2018			2017
Expected volatility		62	%		0	%
Expected dividends		—			—
Expected average term (in years)		6.00			0
Risk free rate - average		2.37% - 2.77	%		0
Forfeiture rate		0			0

During the three and nine months ended September 30, 2018, the Company recognized $394 and $864 of compensation expense relating to outstanding stock options. As of September 30, 2018, the amount of unvested compensation related to stock options was approximately $2,600 which will be recorded as an expense in future periods as the options vest.

As of September 30, 2018, the company has accrued $628 of compensation expense, consisting of amounts due Mr. Stalowir for anticipated performance bonuses earned through that date by the terms of his employment agreement with the Company, as well as the tax liability arising from the share-based awards described above.

Common Stock Purchase Warrants

The following table summarizes warrant activity for the nine months ended September 30, 2018:

	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value
Outstanding at December 31,2017		7,325,282	$	2.09		3.43
Granted
Exercised		374,109	$	-
Forfeited or expired		0
Outstanding at September 30, 2018		6,951,173	$	2.10		2.71	$	8,000
Exercisable at September 30, 2018		6,951,173	$	2.10		2.71	$	8,000

The intrinsic value was calculated as the difference between the closing market price as of September 30, 2018, which was $3.25, and the exercise price of the Company’s warrants to purchase common stock.

During the nine months ended September 30, 2018, warrants to acquire 374,109 shares of common stock were exercised, including 18,738 warrants that were exercised on a cashless basis, resulting in the issuance of 361,207 shares of common stock. Aggregate proceeds to the Company were $720.

In October of 2018, the Company entered into a new financing agreement to replace its existing agreement with PMC. In conjunction therewith, the exercise price of 750,000 of Raptor’s outstanding warrants to purchase the Company’s common stock was reduced from $1.50 to $1.10. See Note 13.

During October of 2018, 53,896 warrants for the purchase of the Company’s common stock were exercised, resulting in the issuance of 53,650 shares of common stock and proceeds to the Company of $108.

13. Subsequent Events

Financing Agreement

On October 4, 2018, the Company entered into a financing agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”), replacing its existing credit facility with PMC. The new credit facility is for a term of 2.5 years and provides for borrowings of up to $13,000. Borrowings are based upon eligible accounts receivable and inventory, plus up to $4,000 of additional borrowing beyond those amounts (the “Over-Advance”).

Borrowings under the new credit facility bear interest at the greater of prime or 4.75%, plus an additional 2% to 3.5% depending upon whether the borrowing is based upon receivables, inventory or is an Over-Advance. Additionally, the credit facility is subject to monthly facility and administration fees, and aggregate minimum monthly fees (including interest) of $4 thousand.

The credit facility is secured by substantially all of the assets of the Company. Additionally, the Over-Advance is 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. Mr. Doherty is also a member of the Company’s Board of Directors. In the event of a default under the financing agreement, Raptor has a put option to purchase from Rosenthal the entire amount of any outstanding Over-Advance plus accrued interest, prior to Rosenthal declaring an event of default under the financing agreement.

As part of the transaction, the Company issued an Amended and Restated Subordinated Convertible Non-Redeemable Secured Note to Raptor, a related party (see Note 10) to provide for additional advances of up to $4,000 in the event that Raptor exercises its put option described above. Consequently, the exercise price of 750,000 of Raptor’s outstanding warrants to purchase the Company’s common stock was reduced from $1.50 to $1.10.

Concurrently with the execution of the Agreement, all obligations to PMC under the Company’s existing credit facility were repaid in full in an aggregate amount of $8,758.

Management anticipates that the Company’s annual debt service requirements will be reduced by approximately $1,500 as a result of the transaction.

F-14

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes appearing elsewhere in this report. This discussion and analysis may contain forward-looking statements based on assumptions about our future business.

Overview

In order to strengthen our operations, position ourselves for the future, and develop the Company into a premier sales and marketing organization, we took the following actions beginning in June of 2017:

● We began concentrated efforts to move toward an asset light production model utilizing outsourced manufacturing to a greater degree, enabling us to focus more on sales, marketing and product innovation. We have substantially completed the relocation of our Company headquarters to the area where our key leadership is located, including support agencies leading the Company’s marketing, advertising and public relations efforts.

● We streamlined our portfolio of over one hundred separate SKUs to focus on the Reed’s and Virgil’s beverage brands with approximately thirty-five SKUs that together accounted for approximately 90% of 2018 year-to-date gross revenue. We were also able to further improve gross margins by negotiating improved raw material contracts and terms.

● We restructured our selling prices to offset several years of raw material price increases and to better reflect our consumers’ willingness to pay a premium for handcrafted, all-natural beverages with premium ingredients.

Price increases taken in the prior year and Cost of Goods Sold reductions led to our gross margin increasing to 25% from 19% over the same quarter in 2017. Absent the effect of a one-time revaluation of non-strategic inventory, gross profit increased to 29%.

Our operating expenses increased as planned as we invested in sales, marketing and brand refresh initiatives; added new marketing, finance and supply chain leadership talent; and compensated employees with non-cash performance-based equity awards and accrued for anticipated bonuses. We also accrued for severance as a result of the relocation of our headquarters to Norwalk, Connecticut.

On October 4, 2018, the Company entered into a financing agreement with Rosenthal & Rosenthal, Inc., which replaced its existing credit facility with PMC. The new credit facility is for a term of 2.5 years, and provides for borrowings of up to $13,000. Management anticipates that annual debt service requirements will be reduced by $1,500 as a result of the transaction.

4

Results of Operations – Three months ended September 30, 2018

The following table sets forth key statistics for the three months ended September 30, 2018 and 2017, respectively, in thousands.

	Three Months Ended September 30,						Pct.
	2018			2017			Change
Gross sales *	$	11,925		$	12,065			-1	%
Less: Promotional and other allowances **		1,129			1,178			-4	%
Net sales		10,796			10,887			-1	%
Cost of tangible goods sold		7,005			8,135			-14	%
As a percentage of:
Gross sales		59	%		67	%
Net sales		65	%		75	%
Cost of goods sold – idle capacity		1,110			690			61	%
As a percentage of net sales		10	%		6	%
Gross profit	$	2,681		$	2,062			30	%
Gross profit margin as a percentage of net sales		25	%		19	%
Expenses
Delivery and handling	$	1,395		$	1,119			25	%
Selling and marketing		1,378			828			66	%
General and administrative		1,987			1,105			80	%
Impairment reserve		-			2,000			-100	%
Total Operating expenses	$	4,760		$	5,052			-6	%
Loss from operations	$	(2,079	)	$	(2,990	)		-30	%
Interest expense and other expense		(595	)		(2,627	)		-77	%
Net loss to stockholders	$	(2,674	)	$	(5,617	)		-52	%
Weighted average shares outstanding		25,587,191			15,033,083			70	%
Net loss per share	$	(0.10	)	$	(0.37	)		-72	%

* Gross sales is used internally by management as an indicator of and to monitor operating performance, including sales performance of particular products, salesperson performance, product growth or declines and overall Company performance. The use of gross sales allows evaluation of sales performance before the effect of any promotional items, which can mask certain performance issues. We therefore believe that the presentation of gross sales provides a useful measure of our operating performance. Gross sales is not a measure that is recognized under GAAP and should not be considered as an alternative to net sales, which is determined in accordance with GAAP, and should not be used alone as an indicator of operating performance in place of net sales. Additionally, gross sales may not be comparable to similarly titled measures used by other companies, as gross sales has been defined by our internal reporting practices. In addition, gross sales may not be realized in the form of cash receipts as promotional payments and allowances may be deducted from payments received from certain customers.

** Although the expenditures described in this line item are determined in accordance with GAAP and meet GAAP requirements, the disclosure thereof does not conform to GAAP presentation requirements. Additionally, our definition of promotional and other allowances may not be comparable to similar items presented by other companies. Promotional and other allowances primarily include consideration given to the Company’s distributors or retail customers including, but not limited to the following: (i) reimbursements given to the Company’s distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; (ii) the Company’s agreed share of fees given to distributors and/or directly to retailers for in-store marketing and promotional activities; (iii) the Company’s agreed share of slotting, shelf space allowances and other fees given directly to retailers; (iv) incentives given to the Company’s distributors and/or retailers for achieving or exceeding certain predetermined sales goals; and (v) discounted or free products. The presentation of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and the spending levels incurred or correlated with such sales. Promotional and other allowances constitute a material portion of our marketing activities. The Company’s promotional allowance programs with its numerous distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, ranging from one week to one year.

5

Top Line Metrics

The following chart sets forth key statistics for the transition of the Company’s top line activity from the first quarter of 2017 through the third quarter of 2018.

	2017												2018
Volume	Q1			Q2			Q3			Q4			Q1			Q2			Q3
Reeds 12 ounce cases		282			287			288			248			261			276			254
Virgils 12 ounce cases		176			190			215			165			179			234			246
Core 12 ounce volume		458			477			503			413			440			510			500
Core Volume vs PY		-4	%		-11	%		-8	%		-4	%		-4	%		6.8	%		-0.7	%
Sales price
Core rev/case CY	$	17.6		$	17.9		$	18.3		$	18.7		$	18.6		$	18.9		$	19.0
Core rev/case PY	$	17.4		$	17.7		$	17.6		$	17.7		$	17.6		$	17.9		$	18.3
Core Beverage selling price vs PY		1	%		1	%		4	%		6	%		6	%		6	%		4	%
Cost of goods sold
Core cogs/case CY	$	11.8		$	11.8		$	11.7		$	11.3		$	10.8		$	10.4		$	10.6
Core cogs/case PY	$	11.4		$	11.2		$	11.2		$	11.6		$	11.8		$	11.8		$	11.7
Core Beverage COGS vs PY		4	%		5	%		4	%		-2	%		-9	%		-12	%		-9	%
Beverage profit
Reeds		1,540			1,660			1,775			1,661			1,930			2,337			2,184
Virgils		1,118			1,244			1,574			1,384			1,500			1,668			1,829
Core Gross Profit	$	2,658		$	2,904		$	3,349		$	3,045		$	3,430		$	4,005		$	4,013
Core Profit vs PY		-8	%		-16	%		-3	%		17	%		29	%		38	%		20	%
Other
Candy Gross Profit	$	139		$	75		$	254		$	152		$	131		$	90		$	89
Discounts	$	1,059		$	868		$	1,178		$	899		$	567		$	973		$	1,129
Idle Plant	$	788		$	588		$	690		$	866		$	676		$	392		$	1,110

As part of the Company’s ongoing initiative to simplify and streamline operations by reducing the number of SKUs that we offer, the Company has identified certain of its products on which to place its strategic focus. These core products consist of Reed’s and Virgil’s branded beverages. Non-core products consist primarily of discontinued Reed’s and Virgil’s skus, private label beverages and candy. Certain products that were formerly considered to be core products have been redefined as non-core. All periods presented have been adjusted to reflect the change.

Top Line Discussion

Sales

As a result of our decision to focus on the core Reed’s and Virgil’s beverage brands and simplify operations by reducing the overall number of SKUs that we offer, the Company’s core beverage volume for the quarter ended September 30, 2018 represents 80% of all beverage volume.

Core brand gross revenue increased 3% during the current quarter as compared to the year ago quarter, from $9,202 to $9,484. This increase was reduced by declines in non-core discontinued brands and private label sales timing. The result was a slight decrease in total gross revenue, to $11,925 from $12,065 during the year ago period. On a 12-ounce case basis, price on our core brands increased $0.66 per 12-ounce case or 4% year over year, while volume was essentially flat as compared to the year-ago quarter.

Net sales revenue was relatively flat in the third quarter of 2018 at $10,796, as compared to $10,887 in the same period in 2017.

Cost of Goods Sold and Produced

Cost of goods sold decreased $1,130 during the third quarter of 2018 as compared to the year-ago quarter. As a percentage of net sales, cost of goods sold decreased 10 percentage points in the third quarter of 2018, to 65% from 75% in the year-ago period.

On a 12-ounce case basis, cost of goods sold decreased to $10.6 from $11.7 or $1.10 per 12-ounce case. The main drivers of decrease were a reduction in packaging costs, mainly a reduction in glass, and productivity gains realized from the reduction in SKUs.

Cost of goods produced represents the cost of goods sold plus the costs associated with maintaining idle capacity in our Los Angeles manufacturing facility. Idle plant costs increased in the third quarter of 2018 to $1,110 from $690 in the same period in 2017, due to September 2018 one-time charges aggregating $492 to revalue inventory that is no longer consistent with the Company’s strategic product focus. Upon completion of the Company’s exit plan, substantially all of our idle plant costs will be eliminated.

6

Gross Margin

Our price restructuring, along with the significant reduction in cost of sales discussed above, resulted in a 6 percentage point increase in gross margin in the third quarter of 2018, to 25% compared to 19% in same quarter of 2017.

Operating Expense Discussion

Delivery and Handling Expenses

Delivery and handling expenses consist of delivery costs to customers and warehouse costs incurred for handling our finished goods after production. Delivery and handling expenses increased in the third quarter of 2018 to $1,395 from $1,119 in the same period in 2017. As a percentage of net sales, delivery costs were 13%, as compared to 10% in the year-ago period. This increase was due to an industry wide increase in freight rates, transition charges from and to new warehouse partners, and the effects of can production on the east coast. As we refine our processes and procedures around control of freight in light of our new business model, we expect to achieve a reduction in freight costs per case of as much as 5-10%.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of direct charges for staff compensation costs, advertising, design and public relations, sales support, broker fees, marketing programs and trade shows. Beginning in 2018 the Company began analyzing its sales and marketing efforts as two distinct expense categories. Marketing expenses consist of direct marketing, marketing labor and marketing support costs. Selling expenses consist of all other selling-related expenses.

Total selling and marketing expenses were $1,378 during the third quarter of 2018, compared to $828 during the year-ago period. As a percentage of net sales, selling and marketing costs increased to 13% during the three months ended September 30, 2018, as compared to 8% during the same period of the prior year, as a result of invest ahead activities during the 2018 quarter. The increased investment in sales and marketing is consistent with the Company’s strategy to refresh the brands, launch new products into the market, and lay the ground work to re-accelerate growth of the core brands.

Marketing expenses for the third quarter of 2018 aggregated $559. Marketing expenses were not tracked separately in the year-ago period. As a percentage of net sales, Marketing expenses equaled 5%.

General and Administrative Expenses

General and administrative expenses consist primarily of the cost of executive, administrative, and finance personnel, as well as professional fees. General and administrative expenses increased in the third quarter of 2018 to $1,987 from $1,105, an increase of $882 over the same period in 2017. Our administrative expenses increase was largely driven by non-cash performance-based equity awards of $369 and bonus accruals of $125, along with one-time transition costs relating to our move to Norwalk, Connecticut of $285.

Loss from Operations

During the third quarter of 2017, an impairment charge of $2,000 was recorded to revalue certain assets that were identified at that time as likely to be divested.

As a result of the changes discussed above, the loss from operations was $2,079 for the three months ended September 30, 2018, as compared to a loss of $2,990 in the same period of 2017.

Interest and Other Expense

Interest and other expense for the three months ended September 30, 2018 consisted of $621 of interest expense and a benefit from the change in fair market value of our warrant liability of $26. During the same period of 2017, interest expense was $757, financing and warrant modification costs totaled $1,798, and expense related to the change in fair value of our warrant liability was $72. The decrease in interest expense, to $621 during the current quarter from $757 during the year ago quarter, is the result of lower average borrowings during the current quarter.

On October 4, 2018, the Company entered into a financing agreement with Rosenthal & Rosenthal, Inc., which replaced its existing credit facility with PMC. Management anticipates that the Company’s annual debt service requirements will be reduced by approximately $1,500 as a result of the refinancing. See Note 13 of the Notes to Condensed Financial Statements.

7

Modified EBITDA

In addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance. However, Modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of liquidity. We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization, stock-based compensation, changes in fair value of warrant expense, and one-time restructuring-related costs including employee severance and asset impairment.

Management considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources that affect our underlying revenue and profit generating operations that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Modified EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Modified EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Set forth below is a reconciliation of net loss to Modified EBITDA for the three months ended September 30, 2018 and 2017 (unaudited; in thousands):

	Three Months Ended September 30,
	2018			2017
Net loss	$	(2,674	)	$	(5,617	)
Modified EBITDA adjustments:
Depreciation and amortization		155			161
Interest expense		621			757
Stock option and other noncash compensation		443			(20	)
Financing costs					1,798
Change in fair value of warrant liability		(26	)		72
Impairment and severance costs		-			2,000
Total EBITDA adjustments	$	1,193		$	4,768
Modified EBITDA	$	(1,481	)	$	(849	)

We present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Modified EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; and in making compensation decisions and in communications with our board of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes, among others, the following:

● Modified EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

● Modified EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

● Modified EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and

● Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Modified EBITDA does not reflect any cash requirements for such replacements.

8

Results of Operations – Nine months ended September 30, 2018

The following table sets forth key statistics for the nine months ended September 30, 2018 and 2017, respectively, in thousands:

	Nine Months Ended September 30,						Pct.
	2018			2017			Change
Gross sales *	$	31,141		$	31,151			0	%
Less: Promotional and other allowances**	$	2,668			3,105			-14	%
Net sales		28,473			28,046			2	%
Cost of tangible goods sold		18,269			21,149			-14	%
As a percentage of:
Gross sales		59	%		68	%
Net sales		64	%		75	%
Cost of goods sold – idle capacity		2,178			2,067			5	%
As a percentage of net sales		8	%		7	%
Gross profit	$	8,026		$	4,830			66	%
Gross profit margin as a percentage of net sales		28	%		17	%
Expenses
Delivery and handling	$	3,598		$	2,731			32	%
Selling and marketing		3,601			2,344			54	%
General and administrative		6,853			3,402			101	%
Impairment reserve		-			2,000
Total Operating expenses	$	14,052		$	10,477			34	%
Loss from operations	$	(6,026	)	$	(5,647	)		7	%
Interest expense and other expense		(1,639	)		(1,810	)		-9	%
Net loss to stockholders	$	(7,665	)	$	(7,457	)		3	%
Weighted average shares outstanding		25,242,780			14,336,375			76	%
Net loss per share	$	(0.30	)	$	(0.52	)		-42	%

* Gross sales is used internally by management as an indicator of and to monitor operating performance, including sales performance of particular products, salesperson performance, product growth or declines and overall Company performance. The use of gross sales allows evaluation of sales performance before the effect of any promotional items, which can mask certain performance issues. We therefore believe that the presentation of gross sales provides a useful measure of our operating performance. Gross sales is not a measure that is recognized under GAAP and should not be considered as an alternative to net sales, which is determined in accordance with GAAP, and should not be used alone as an indicator of operating performance in place of net sales. Additionally, gross sales may not be comparable to similarly titled measures used by other companies, as gross sales has been defined by our internal reporting practices. In addition, gross sales may not be realized in the form of cash receipts as promotional payments and allowances may be deducted from payments received from certain customers.

** Although the expenditures described in this line item are determined in accordance with GAAP and meet GAAP requirements, the disclosure thereof does not conform to GAAP presentation requirements. Additionally, our definition of promotional and other allowances may not be comparable to similar items presented by other companies. Promotional and other allowances primarily include consideration given to the Company’s distributors or retail customers including, but not limited to the following: (i) reimbursements given to the Company’s distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; (ii) the Company’s agreed share of fees given to distributors and/or directly to retailers for in-store marketing and promotional activities; (iii) the Company’s agreed share of slotting, shelf space allowances and other fees given directly to retailers; (iv) incentives given to the Company’s distributors and/or retailers for achieving or exceeding certain predetermined sales goals; and (v) discounted or free products. The presentation of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and the spending levels incurred or correlated with such sales. Promotional and other allowances constitute a material portion of our marketing activities. The Company’s promotional allowance programs with its numerous distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, ranging from one week to one year.

Top Line Discussion

Sales

As a result of our decision to focus on the core Reed’s and Virgil’s beverage brands and simplify operations by reducing the overall number of SKUs that we offer, the Company’s core beverage volume for the nine month period ended September 30, 2018 represents 88% of all beverage volume.

9

Gross sales revenue remained essentially flat at $31,141 during the nine months ended September 30, 2018 from $31,151 during the year-ago period. Core gross sales grew 6% over the year-ago period, driven by pricing and volume increases. On a core product 12 ounce case basis, price increased $0.90 per 12-ounce case or 5% year over year while volume increased 1% during the year-to-date period. The decrease in non-core revenue during the nine months ended September 30, 2018 was entirely offset by increased core revenue.

Net sales revenue increased during the nine months ended September 30, 2018, to $28,473 from $28,046 in the same period of 2017. The net sales increase was primarily the result of the Company’s 2017 price restructuring. As a percentage of gross revenues, promotional spending decreased to 9% during the nine-month period as compared to 10% in the same period of the prior year as the Company took steps to optimize its strategy and approach to investment against promotional programs.

Cost of Goods Sold and Produced

Cost of goods sold decreased during the nine months ended September 30, 2018 to $18,269 from $21,149 in the same period in 2017. The main driver of decrease was a reduction in packaging costs in glass and productivity gains realized from the reduction in SKUs.

Cost of goods produced represents the cost of goods sold plus the costs associated with maintaining idle capacity in our Los Angeles manufacturing facility. Idle plant costs aggregated $2,178 during the nine months ended September 30, 2018, compared to $2,067 in the same period in 2017. Idle plant costs for the current year to date period include September 2018 one-time charges aggregating $492 to revalue inventory that is no longer consistent with the Company’s strategic product focus.

Upon completion of the Company’s plan to exit its Los Angeles operation, substantially all of our idle plant costs will be eliminated.

Gross Margin

Our price restructuring, along with the significant reduction in cost of sales discussed above, resulted in gross margin increasing 11 percentage points during the nine months ended September 30, 2018, to 28% when compared to 17% in same period of 2017.

Operating Expense Discussion

Delivery and Handling Expenses

Delivery and handling expenses consist of delivery costs to customers and warehouse costs incurred for handling our finished goods after production. Delivery and handling expenses increased in the nine months ended September 30, 2018 to $3,598 from $2,731 in the same period of 2017. As a percentage of net sales, delivery costs were 13%, compared to 10% during the year-ago period. This increase was due to an industry wide increase in freight rates, transition charges from and to new warehouse partners, and the effects of can production on the east coast. As we refine our processes and procedures around control of freight in light of our new business model, we expect to achieve a reduction in freight costs per case of as much as 5-10%.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of direct charges for staff compensation costs, advertising, design and public relations, sales support, broker fees, marketing programs and trade shows. Beginning in 2018, the Company began analyzing its sales and marketing efforts as two distinct expense categories. Marketing expenses consist of direct marketing, marketing labor and marketing support costs. Selling expenses consist of all other selling-related expenses.

Total selling and marketing expenses increased during the nine months ended September 30, 2018, to $3,601 from $2,344 during the same period in 2017, primarily driven by increased investment in sales and marketing personnel and support agencies, new broker relationships and trade show activity. As a percentage of net sales, selling and marketing costs increased to 13%, compared to 8% during the nine months ended September 30, 2017, as a result of invest ahead activities during the period. The increased investment in sales and marketing is consistent with the Company’s strategy to refresh the brands, launch new products into the market, and lay the ground work to re-accelerate growth of the core brands.

Marketing expenses for the nine months ended September 30, 2018 aggregated $1,277. Marketing expenses were not tracked separately in the year-ago period. As a percentage of net sales, marketing costs equaled 4%.

General and Administrative Expenses

General and administrative expenses consist primarily of the cost of executive, administrative, and finance personnel, as well as professional fees. General and administrative expenses increased during the nine months ended September 30, 2018 to $6,853 from $3,402, an increase of $3,451 over the same period in 2017. The main drivers of the increase were non-cash stock option and restricted stock expense aggregating $1,619, bonus and tax expense accruals of $774, one-time severance accruals related to our move to Norwalk, Connecticut of $642, and transition costs related to the HQ move of $285.

10

Loss from Operations

During the third quarter of 2017, an impairment charge of $2,000 was recorded to revalue certain assets that were identified at that time as likely to be divested.

As a result of the changes discussed above, the loss from operations was $6,026 for the nine months ended September 30, 2018, as compared to a loss of $5,647 in the same period of 2017.

Interest and Other Expense

Interest and other expense for the nine months ended September 30, 2018 consisted of $1,542 of interest expense and the cost of a change in the fair market value of our warrant liability of $97. During the same period of 2017, interest expense aggregated $2,270 and we incurred financing and warrant modification costs of $2,776, which were partially offset by benefit of $3,236 from the change in fair value of our warrant liability. The decrease in interest expense, to $1,542 during the current nine-month period from $2,270 during the same period of the prior year, is the result of lower average borrowings during the current nine-month period.

On October 4, 2018, the Company entered into a financing agreement with Rosenthal & Rosenthal, Inc., which replaced its existing credit facility with PMC. Management anticipates that the Company’s annual debt service requirements will be reduced by approximately $1,500 as a result of the refinancing. See Note 13 of the Notes to Condensed Financial Statements.

Modified EBITDA

In addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance. However, Modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of liquidity. We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization, stock-based compensation, changes in fair value of warrant expense, , and one-time restructuring-related costs including employee severance and asset impairment.

Management considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources that affect our underlying revenue and profit generating operations that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Modified EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Modified EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Set forth below is a reconciliation of net loss to Modified EBITDA for the nine months ended September 30, 2018 and 2017 (unaudited; in thousands):

	Nine Months Ended September 30,
	2018			2017
Net loss	$	(7,665	)	$	(7,457	)
Modified EBITDA adjustments:
Depreciation and amortization		492			441
Interest expense		1,542			2,270
Stock option and other noncash compensation		1,619			298
Financing costs including warrant modification		0			2,776
Change in fair value of warrant liability		97			(3,236	)
Impairment and severance costs		642			2,000
Total EBITDA adjustments	$	4,392		$	4,549
Modified EBITDA	$	(3,273	)	$	(2,908	)

11

We present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Modified EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; and in making compensation decisions and in communications with our board of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes, among others, the following:

● Modified EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

● Modified EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

● Modified EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and

● Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Modified EBITDA does not reflect any cash requirements for such replacements.

Liquidity and Capital Resources

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.

On October 4, 2018, the Company entered into a financing agreement with Rosenthal & Rosenthal, Inc., which replaced its existing credit facility with PMC. See Note 13 of the Notes to Condensed Financial Statements. Management anticipates that the Company’s annual debt service requirements will be reduced by approximately $1,500 as a result of the refinancing. The financing agreement is for a term of 2.5 years, and provides for borrowings of up to $13,000. Concurrently with the execution of the financing agreement, all obligations to PMC under the Company’s existing credit facility were repaid in full in an aggregate amount of $8,758. Upon completion of these transactions on October 4, the Company had $1,300 of unused borrowing capacity under the financing agreement.

For the nine months ended September 30, 2018, the Company recorded a net loss of $7,665 and used cash in operations of $10,496. As of September 30, 2018, we had a cash balance of $188, a stockholder’s deficit of $4,824 and a working capital shortfall of $2,188 compared to a cash balance of $12,127, stockholder’s equity of $508 and working capital of $2,303 at December 31, 2017.

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. Beginning in June of 2017, we took decisive action to improve our profitability and operating cash flow, including increased outsourcing of our manufacturing process, streamlining our product portfolio, negotiating improved vendor contracts and restructuring our selling prices. The result was an 11 percentage point increase in gross margin for the nine months ended September 30, 2018, as compared to the same period of 2017.

12

In September of 2018, the Company completed the relocation of its headquarters to Norwalk, Connecticut. The Company’s move is consistent with its recent focus on a streamlined sales and marketing organization that is better positioned for future growth and enhanced profitability. The new Norwalk office serves as headquarters for the Company’s operations, business development, sales and marketing, finance, supply chain, HR and other corporate functions. With key leadership already based in the Tri-State area, including support agencies leading the Company’s marketing, advertising and public relations efforts, this will ensure a seamless transition.

The Company anticipates the exit of our Los Angeles plant to be completed in 2018, and in fiscal 2017 we recorded impairment charges aggregating $5,925 for fixed asset costs that we do not believe to be recoverable. Additionally, as a result of the move of our corporate headquarters, we recorded a charge of $642 for one-time severance and other employee termination costs in June of 2018. In September of 2018 we recorded charges aggregating $492 to revalue inventory that is no longer consistent with the Company’s strategic product focus.

We may incur additional charges including but not limited to additional cash-related expenses, non-cash impairment charges, discontinued operations and/or other costs in connection with exit and disposal activities. Such transactions will be recognized when appropriate and may require cash payments for obligations such as one-time employee involuntary termination benefits, lease and other contract termination costs, costs to close facilities, employee relocation costs and ongoing benefit arrangements.

If our sales goals do not materialize as planned, we believe the Company will be able to reduce its operating costs sufficiently to still achieve positive cash flow from operations. However, there can be no assurance that we will generate sufficient revenues from product sales in the future to achieve profitable operations. If we are not able to achieve profitable operations at some point in the future, we may have insufficient working capital to maintain our operations as we presently intend to conduct them or to fund our expansion, marketing, and product development plans.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. GAAP requires us to make estimates and assumptions that affect the reported amounts in our financial statements including various allowances and reserves for accounts receivable and inventories, the estimated lives of long-lived assets and trademarks and trademark licenses, as well as claims and contingencies arising out of litigation or other transactions that occur in the normal course of business. The following summarizes our most significant accounting and reporting policies and practices:

Revenue Recognition On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC 606”). Under ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products or services to our customers based on written sales terms, which is also when control is transferred. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products or services to a customer.

The Company previously recognized and continues to recognize revenue when risk of loss transfers to our customers and collection of the receivable is reasonably assured, which generally occurs when product is shipped. A written order from the customer must be received and credit acceptance procedures performed prior to shipment of product.

The Company does not allow for returns, except for damaged products when the damage occurred pre-fulfillment. Damaged product returns have historically been insignificant. Because of this, the standalone 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 at this time for obligations. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.

Amounts paid by customers for shipping and handling costs are included in sales. The Company reimburses its wholesalers and retailers for promotional discounts, samples and certain advertising and promotional activities used in the promotion of the Company’s products. The accounting treatment for the reimbursements for samples and discounts to wholesalers results in a reduction in the net revenue line item. Reimbursements to wholesalers and retailers for certain advertising activities are included in selling and marketing expenses.

Long-Lived Assets. Our management regularly reviews property, equipment and other long-lived assets, including identifiable amortizing intangibles, for possible impairment. This review occurs quarterly or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If there is indication of impairment of property and equipment or amortizable intangible assets, then management prepares an estimate of future cash flows (undiscounted and without interest charges) 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.

13

The fair value is estimated at the present value of the future cash flows discounted at a rate commensurate with management’s estimates of the business risks. Preparation of estimated expected future cash flows is inherently subjective and is based on management’s best estimate of assumptions concerning expected future conditions. No impairments were identified during the nine months ended September 30, 2018.

Management believes that the accounting estimates related to assessing impairment of our long lived assets, including our trademark license and trademarks, are “critical accounting estimates” because: (1) they are highly susceptible to change from period to period because it requires estimates of fair value, based on assumptions about cash flows and discount rates; and (2) the impact of an impairment could be material. Management’s assumptions about cash flows and discount rates require significant judgment because actual revenues and expenses have fluctuated in the past and we expect they will continue to do so.

Recent Accounting Pronouncements

See Note 2 of the Notes to Condensed Financial Statements for a discussion of recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

A smaller reporting company is not required to provide the information required by this Item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Securities and Exchange Act of 1934 Rules 13a-15(f). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2018.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to various legal proceedings from time to time in the ordinary course of business, none of which are required to be disclosed under this Item 1.

Item 1A. Risk Factors

A smaller reporting company is not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

14

Item 6. Exhibits

Exhibit No.	Description
4.1	Amendment to Warrant Agreement by and between Reed’s, Inc. and Raptor/Harbor Reeds SPV LLC dated October 4, 2018*
4.2	Amended and Restated Subordinated Convertible Non-Redeemable Secured Note issued October 4, 2018 by Reed’s Inc. in favor of Raptor/Harbor Reeds SPV LLC*
10.1	Financing Agreement by and between Reed’s Inc. and Rosenthal & Rosenthal Inc. dated October 4, 2018*
10.2	Inventory Security Agreement by and between Reed’s Inc. and Rosenthal & Rosenthal Inc. dated October 4, 2018*
10.3	Intellectual Property Security Agreement by and between Reed’s Inc. and Rosenthal & Rosenthal Inc. dated October 4, 2018*
10.4	Security Interest (short form) by Reed’s Inc. in favor of Rosenthal & Rosenthal Inc. dated October 4, 2018*
10.5	Subordination Agreement by and among Rosenthal & Rosenthal Inc., Raptor/Harbor Reeds SPV LLC and Reed’s Inc. dated October 4, 2018*
10.6	First Amendment to Securities Purchase Agreement and Transaction Documents by and between Raptor/Harbor Reeds SPV LLC and Reed’s Inc. dated October 4, 2018*
10.7	Sublease Agreement by and between Reed’s Inc., Merritt 7 Venture L.L.C., and GE Capital US Holdings, Inc., dated September 1, 2018*
10.8	Separation, Settlement and Release of Claims Agreement by and between Reed’s Inc. and Daniel V. Miles dated August 15, 2018* +
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

*filed herewith

+ Management Compensatory Agreement

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

Furnished herewith, XBRL (Extensive Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

15

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Reed’s, Inc. (Registrant)
Date: November 14, 2018	/s/ Valentin Stalowir
	Valentin Stalowir
	Chief Executive Officer
	(Principal Executive Officer)
Date: November 14, 2018	/s/ Iris Snyder
	Iris Snyder
	Chief Financial Officer
	(Principal Financial Officer)

16

EX-4.1

AMENDMENT TO WARRANT AGREEMENT

AMENDMENT TO WARRANT AGREEMENT (this “Amendment”), dated as of October 4, 2018, is by and between Reed’s, Inc., a Delaware corporation (the “Company”) and Raptor/Harbor Reeds SPV LLC, a Delaware limited liability company (“Raptor”).

RECITALS

WHEREAS, Raptor is the holder of a warrant to purchase 750,000 shares of common stock of Reed’s, Inc. (“Warrant”), which Warrant was issued on December 22, 2017 pursuant to that certain Backstop Commitment Agreement by and between the parties dated December 6, 2017, as amended.

WHEREAS, the Company is refinancing its first priority secured debt pursuant to that certain Finance Agreement by and between the Company and Rosenthal & Rosenthal, Inc. of even date herewith (“Transaction”);

WHEREAS, Raptor is facilitating the Transaction by causing one or more of its affiliates to issue an irrevocable stand-by-letter of credit in favor of Rosenthal, naming Rosenthal as beneficiary, in amount not less than one million five hundred thousand dollars ($1,500,000) (“LC”); and

WHEREAS, in consideration for the LC, the Company has agreed to amend the Warrant, upon the terms and subject to the conditions set forth herein.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Amendment, and for good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and Raptor agree as follows:

AGREEMENT

I. AMENDMENT TO WARRANT. Subject to the closing of the Transaction on or before October 5, 2018, the Exercise Price (as defined in the Warrant) is hereby changed from $1.50 to $1.10. If the Transaction is not consummated by October 5, 2018, this Amendment shall be null and void.

II. MISCELLANEOUS.

(a) Entire Agreement. The terms and conditions of this Amendment shall be incorporated by reference in the Warrant as though set forth in full in the Warrant. In the event of any inconsistency between the provisions of this Amendment and any other provision of the Warrant, the terms and provisions of this Amendment shall govern and control. Except to the extent specifically amended or superseded by the terms of this Amendment, all of the provisions of the Warrant shall remain in full force and effect to the extent in effect on the date of this Amendment. The Warrant, as modified by this Amendment, constitutes the complete agreement among the parties and supersedes any prior written or oral agreements, writings, communications or understandings of the parties with respect to the subject matter the Warrant.

(b) Headings. Section headings used in this Amendment are for convenience of reference only, are not part of this Amendment, and are not to be taken into consideration in interpreting this Amendment.

(c) Recitals. The recitals set forth at the beginning of this Amendment are true and correct, and such recitals are incorporated into and are a part of this Amendment.

(d) Effect. Upon the effectiveness of this Amendment, from and after the date of this Amendment, each reference in the Warrant to “this Warrant,” “hereunder,” “hereof,” or words of like import shall mean and be a reference to the Warrant as amended by this Amendment.

(e) No Novation. Except as expressly provided in Section I above, the execution, delivery, and effectiveness of this Amendment shall not (a) limit, impair, constitute a waiver of, or otherwise affect any right, power, or remedy of Raptor under the Warrant, (b) constitute a waiver of any provision in the Warrant, or (c) alter, modify, amend, or in any way affect any of the terms, conditions, obligations, covenants, or agreements contained in the Warrant all of which are ratified and affirmed in all respects and shall continue in full force and effect.

(f) Counterparts. This Amendment may be executed in identical counterpart copies, each of which shall be an original, but all of which shall constitute one and the same agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized signatories as of the date first indicated above.

REED’S INC.,
a Delaware corporation
/s/ Valentin Stalowir
By:	Valentin Stalowir
Its:	Chief Executive Officer
RAPTOR/ HARBOR REED’S SPV, LLC,
a Delaware limited liability company
/s/ Daniel J. Doherty III
By:	Daniel J. Doherty III
Its:	Authorized Signatory

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EX-4.2

AMENDED AND RESTATED

SUBORDINATED CONVERTIBLE NON-REDEEMABLE SECURED NOTE

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS REGISTERED UNDER THE SECURITIES ACT, OR IN A TRANSACTION WHICH IS EXEMPT FROM OR NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. ADDITIONALLY, THE TRANSFER OF THIS NOTE IS SUBJECT TO THE CONDITIONS SPECIFIED IN THIS NOTE, AND MAKER HEREOF RESERVES THE RIGHT TO REFUSE THE TRANSFER OF THIS NOTE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER.

THIS NOTE IS SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT, DATED AS OF THE DATE HEREOF, BY AND BETWEEN RAPTOR/HARBOR REEDS SPV LLC AND ROSENTHAL & ROSENTHAL, INC. AND PAYMENT HEREUNDER IS SUBORDINATE TO THE PAYMENT OF ALL SENIOR LENDER INDEBTEDNESS (AS DEFINED IN THE SUBORDINATION AGREEMENT) AS SET FORTH IN SUCH SUBORDINATION AGREEMENT.

REED’S, Inc.

Amended and Restated Subordinated Convertible Non-Redeemable Secured Note

Issuance Date: October 4, 2018 Maximum Principal Amount: U.S. $7,400,000

FOR VALUE RECEIVED, Reed’s, Inc., a Delaware corporation (the “Company”), hereby promises to pay to Raptor/Harbor Reeds SPV LLC, a Delaware limited liability company, or its registered assigns (“Holder”) (i) the Subscription Amount (as defined in the Securities Purchase Agreement) (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise) plus (ii) any additional amounts advanced by Holder as a Credit Support Advance (as defined in the Securities Purchase Agreement) up to an aggregate principal amount not to exceed Maximum Principal Amount (all such amounts, collectively, the “Principal”) when due, whether upon the Maturity Date, or upon acceleration or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the applicable Interest Rate (as defined below) from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due and payable, whether upon the Maturity Date, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Amended and Restated Subordinated Convertible Non-Redeemable Secured Note (including all Subordinated Convertible Non-Redeemable Secured Notes issued in exchange, transfer or replacement hereof, this “Note”) is issued on the First Amendment Closing Date pursuant to (i) the Securities Purchase Agreement, (ii) the Security Agreement and (iii) the Registration Rights Agreement. Certain capitalized terms used herein are defined in Section 31.

1. MATURITY. The Principal, accrued unpaid Interest and accrued and unpaid Late Charges are due and payable to Holder on the earlier of (i) April 21, 2021 and (ii) the date that all of the outstanding Principal shall become due and payable in full, whether by acceleration or otherwise (“Maturity Date”). Other than as specifically permitted by this Note, the Company may not prepay any portion of the outstanding Principal, accrued and unpaid Interest or accrued or unpaid Late Charges.

2. INTEREST; INTEREST RATE. Interest on this Note shall (i) accrue at the Interest Rate, (ii) commence accruing on the Issuance Date, (iii) be computed on the basis of a 360-day year and twelve 30-day months, (iv) shall compound on the first calendar day of each calendar month and (v) shall be payable on the Maturity Date or the Conversion Date, as applicable, in cash only, in accordance with the terms of this Note.

3. CONVERSION OF NOTES. This Subscription Amount portion of the Principal of this Note is convertible into validly issued, fully paid and non-assessable shares of Common Stock (as defined below), on the terms and conditions set forth in this Section 3.

(a) Conversion Right. Subject to the provisions of Section 3(d), at any time or times on or after the date hereof, the Holder shall be entitled to convert any portion of the outstanding Conversion Amount (as defined below) into validly issued, fully paid and non-assessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all transfer, stamp, issuance and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount.

(b) Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the “Conversion Rate”).

(i) “Conversion Amount” means the portion of the Subscription Amount to be converted with respect to which this determination is being made.

(ii) “Conversion Price” means, as of any Conversion Date (as defined below) or other date of determination, $1.50 per share, subject to adjustment as provided herein.

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(c) Mechanics of Conversion.

(i) Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a “Conversion Date”), the Holder shall (A) deliver (whether via facsimile or otherwise), for receipt on or prior to 11:59 p.m., New York time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B) if required by Section 3(c)(iii), surrender this Note to a nationally recognized overnight delivery service for delivery to the Company (or an indemnification undertaking with respect to this Note in the case of its loss, theft or destruction as contemplated by Section 19(b)). On or before the first (1^st) Trading Day following the date of receipt of a Conversion Notice, the Company shall transmit by facsimile an acknowledgment of confirmation, in the form attached hereto as Exhibit II, of receipt of such Conversion Notice to the Holder, and the Company’s transfer agent (the “Transfer Agent”). On or before the third (3^rd) Trading Day following the date of receipt of a Conversion Notice, the Company shall (1) provided that the Transfer Agent is participating in The Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer Program and (A) there is an effective registration statement permitting the issuance of the Conversion Shares to or resale of the Warrant Shares by the Holder or (B) the Conversion Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal at Custodian system or (2) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program or the shares are restricted, issue and deliver (via reputable overnight courier) to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. If this Note is physically surrendered for conversion as required by Section 3(c)(iii) and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three (3) Trading Days after receipt of this Note and at its own expense, issue and, following authentication of such new Note, deliver to the Holder (or its designee) a new Note (in accordance with Section 19(d)) representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

(ii) Company’s Failure to Timely Convert. If the Company shall fail, for any reason or for no reason, to issue to the Holder within three (3) Trading Days after the Company’s receipt of a Conversion Notice (whether via facsimile or otherwise) (the “Share Delivery Deadline”), a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s share register or to credit the Holder’s or its designee’s balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion of any Conversion Amount (as the case may be) (a “Conversion Failure”) and if on or after such Share Delivery Deadline the Holder (or any other Person in respect, or on behalf, of the Holder) purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of all or any portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock, issuable upon such conversion that the Holder so anticipated receiving from the Company, then, in addition to all other remedies available to the Holder, the Company shall, within three (3) Business Days after receipt of the Holder’s written request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including, without limitation, by any other Person in respect, or on behalf, of the Holder) (the “Buy-In Price”), at which point the Company’s obligation to so issue and deliver such certificate or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion hereunder (as the case may be) (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to so issue and deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion hereunder (as the case may be) and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock multiplied by (B) the lowest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date of the applicable Conversion Notice and ending on the date of such issuance and payment under this clause (ii).

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(iii) Records; Physical Surrender of Note Not Required. Notwithstanding anything to the contrary set forth in this Section 3, following conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note for all such amounts not converted. The Holder and the Company shall maintain records showing the Principal, if any, converted and/or paid (as the case may be) and the dates of such conversions and/or payments (as the case may be) or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion.

4. RIGHTS UPON EVENT OF DEFAULT.

(a) Event of Default. Each of the following events shall constitute an “Event of Default”:

(i) the Company’s notice, written or oral, to any holder of the Notes or Warrants, including, without limitation, by way of public announcement or through any of its agents, at any time, of its intention not to comply, as required, with a request for conversion of any Notes into shares of Common Stock that is requested in accordance with the provisions of the Notes, other than pursuant to Section 3(d), or a request for exercise of any Warrants for shares of Common Stock in accordance with the provisions of the Warrants;

(ii) the Company’s failure to pay to the Holder any amount of Principal, Interest, Late Charges or other amounts when and as due under this Note or any other Transaction Document (as defined in the Securities Purchase Agreement) or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby;

(iii) the occurrence of any default under, redemption of or acceleration prior to maturity of Indebtedness (as defined in the Securities Purchase Agreement) of the Company in an individual or aggregate principal amount of $300,000 or more;

(iv) bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or against the Company and, if instituted against the Company by a third party, shall not be dismissed within thirty (30) days of their initiation;

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(v) the commencement by the Company or of a voluntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in respect of the Company in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, state or foreign law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts, or the occurrence of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability to pay its debts generally as they become due, the taking of corporate action by the Company in furtherance of any such action or the taking of any action by any Person to commence a Uniform Commercial Code foreclosure sale or any other similar action under federal, state or foreign law;

(vi) the entry by a court of (i) a decree, order, judgment or other similar document in respect of the Company of a voluntary or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or (ii) a decree, order, judgment or other similar document adjudging the Company as bankrupt or insolvent, or approving as properly filed a petition seeking liquidation, reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable federal, state or foreign law or (iii) a decree, order, judgment or other similar document appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and, the continuance of any such decree, order, judgment or other similar document or any such other decree, order, judgment or other similar document unstayed and in effect for a period of thirty (30) consecutive days;

(vii) a final judgment, judgments, any arbitration or mediation award or any settlement of any litigation or any other satisfaction of any claim made by any Person pursuant to any litigation, as applicable, (each a “Judgment”, and collectively, the “Judgments”) with respect to the payment of cash, securities and/or other assets with an aggregate fair value in excess of $300,000 are rendered against, agreed to or otherwise accepted by, the Company and which Judgments are not, within thirty (30) days after the entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within thirty (30) days after the expiration of such stay; provided, however, any Judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the amount set forth above so long as the Company provides the Holder a written statement from such insurer or indemnity provider (which written statement shall be reasonably satisfactory to the Holder) to the effect that such Judgment is covered by insurance or an indemnity and the Company will receive the proceeds of such insurance or indemnity within thirty (30) days of the issuance of such Judgment;

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(viii) the Company either (i) fails to pay, when due, or within any applicable grace period, any payment with respect to any Indebtedness in excess of $300,000 due to any third party (other than, with respect to unsecured Indebtedness only, payments contested by the Company in good faith by proper proceedings and with respect to which adequate reserves have been set aside for the payment thereof in accordance with GAAP) or is otherwise in breach or violation of any agreement for monies owed or owing in an amount in excess of $300,000, which breach or violation permits the other party thereto to declare a default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist any other circumstance or event that would, with or without the passage of time or the giving of notice, result in a default or event of default under any agreement binding the Company, which default or event of default would or is likely to have a Material Adverse Change on the business, assets, operations (including results thereof), liabilities, properties, condition (including financial condition) or prospects of the Company;

(ix) other than as specifically set forth in another clause of this Section 4(a), the Company breaches any representation, warranty, covenant or other term or condition of any Transaction Document (as defined in the Securities Purchase Agreement);

(x) any breach or failure in any respect by the Company to comply with any provisions of Section 11 or 14 of this Note;

(xi) a Change of Control shall occur;

(xii) the Company shall contest the validity or perfection of any lien in any collateral purported to be covered in the Security Agreement; or

(xi) any provision of any Transaction Document (shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against the parties thereto, or the validity or enforceability thereof shall be contested by any party thereto, or a proceeding shall be commenced by the Company or any governmental authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof, or the Company shall deny in writing that it has any liability or obligation purported to be created under any Transaction Document to which it is a party.

(b) Acceleration. (i) Upon the occurrence of any Event of Default (other than any Event of Default described in Section 4(a)(iv), 4(a)(v) and 4(a)(vi)), upon notice to the Company by the Holder and (ii) upon the occurrence of any Event of Default described in Section 4(a)(iv), 4(a)(v) and 4(a)(vi)), automatically:

(A) all obligations under this Note, including the Principal, accrued unpaid Interest and accrued and unpaid Late Charges, shall become due and payable immediately, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company; and

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(B) subject to the terms of the Subordination Agreement, the Holder may exercise any and all of its other rights and remedies under applicable law or at equity, hereunder and under the other Transaction Documents.

5. RIGHTS UPON FUNDAMENTAL TRANSACTION.

(a) Assumption. The Company shall not consummate a Fundamental Transaction unless the Successor Entity (if different than the Company) assumes in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 5(a), including agreements to deliver to each holder of Notes in exchange for such Notes a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal amount and interest rate equal to the principal amounts then outstanding and the interest rates of the Notes held by such holder, having similar conversion rights as the Notes and having similar ranking to the Notes. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of a Fundamental Transaction, the Successor Entity (if different than the Company) shall deliver to the Holder confirmation that there shall be issued upon conversion of this Note at any time after the consummation of such Fundamental Transaction, in lieu of the shares of the Company’s Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 66, which shall continue to be receivable thereafter) issuable upon the conversion of the Notes prior to such Fundamental Transaction, such shares of the common stock (or their equivalent) of the Successor Entity (including its Parent Entity) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Note been converted immediately prior to such Fundamental Transaction (without regard to any limitations on the conversion of this Note, except to the extent prohibited by the rules and regulations of the Trading Market), as adjusted in accordance with the provisions of this Note. Notwithstanding the foregoing, the Holder may elect, at its sole option, by delivery of written notice to the Company to waive this Section 5(a) to permit the Fundamental Transaction without the assumption of this Note. The provisions of this Section 5 shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion of this Note.

6. RIGHTS UPON OTHER CORPORATE EVENTS. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Note in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the Required Holders. The provisions of this Section 6 shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion or redemption of this Note.

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7. RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

(a) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. Without limiting any provision of Section 5, if the Company at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. Without limiting any provision of Section 5, if the Company at any time on or after the Subscription Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment pursuant to this Section 7(a) shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 7(a) occurs during the period that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event.

(b) Other Events. In the event that the Company shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect the Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s board of directors shall in good faith determine and implement an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder, provided that if the Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution (subject to compliance with New York Stock Exchange Rule 312.03), then the Company’s board of directors and the Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees and expenses shall be borne by the Company.

(c) Calculations. All calculations under this Section 7 shall be made by rounding to the nearest cent or the nearest 1/100^th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

8. SECURITY. The Company hereby grants to Holder a continuing second priority security interest in and Lien on, second only to the Liens of Senior Lender, all of the properties, assets, and rights of the Company, wherever located and whether now owned or hereafter acquired or arising, and all proceeds and products thereof (all such properties, assets, rights, proceeds and products hereinafter sometimes called, collectively, the “Collateral”). This security interest and Lien shall be evidenced by the Security Agreement and the Subordination Agreement, the terms of which are incorporated herein by reference. Upon the request of Holder, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out and perfect the security interest granted hereby.

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9. SUBORDINATION.

(a) Subordination of this Note. Holder agrees that, until such time as all amounts owing by the Company under the Senior Debt have been converted into equity of the Company or paid in full in cash, any Lien it may acquire against any assets or property of the Company to secure any obligations of the Company to Holder in connection herewith shall be subordinate and inferior to the Liens of Senior Lender under the Senior Debt Documents. The priorities set forth in this section are applicable irrespective of the order or time of attachment, or the order, time or manner of perfection, or the order or time of filing or recordation of any document or instrument, or other method of perfecting the Lien.

(b) Subordination of Other Indebtedness. The Company agree that until such time as all amounts owing by the Company under this Note have been indefeasibly converted into equity of the Company or paid in full in cash, the Junior Debt will subordinate in priority and subject in right and priority of payment to the prior performance of any and all obligations of the Company to Holder or its successor or assignee, pursuant to this Note.

10. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its certificate of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note. Without limiting the generality of the foregoing, the Company (i) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the conversion of this Note, and (ii) shall, so long as any of the Notes are outstanding, take all action reasonably necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Notes, the maximum number of shares of Common Stock as shall from time to time be necessary to effect the conversion of the Notes then outstanding (without regard to any limitations on conversion).

11. RESERVATION OF AUTHORIZED SHARES.

(a) Reservation. The Company shall initially reserve out of its authorized and unissued Common Stock and for so long as any of the Notes are outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, such number of shares of Common Stock for the Notes equal to 100% of the maximum number of Conversion Shares issued and issuable pursuant to the Notes

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(b) Insufficient Authorized Shares. If, notwithstanding Section 11(a), and not in limitation thereof, at any time while any of the Notes remain outstanding the Company does not have a sufficient number of authorized and otherwise unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes at least a number of shares of Common Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall immediately take all action reasonably necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than 120 days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its reasonable best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal. In the event that the Company is prohibited from issuing shares of Common Stock upon any conversion due to the failure by the Company to have sufficient shares of Common Stock available out of the authorized but unissued shares of Common Stock (such unavailable number of shares of Common Stock, the “Authorization Failure Shares”), in lieu of delivering such Authorization Failure Shares to the Holder, the Company shall pay cash (each, an “Authorized Failure Share Cancellation Amount”) in exchange for the redemption of such portion of the Conversion Amount convertible into such Authorized Failure Shares at an amount equal to the sum of (i) the product of (x) such number of Authorization Failure Shares and (y) the greatest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date the Holder delivers the applicable Conversion Notice with respect to such Authorization Failure Shares to the Company and ending on the date of such issuance and payment under this Section 11(b) and (ii) to the extent the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of Authorization Failure Shares, any brokerage commissions and other out-of-pocket expenses, if any, of the Holder incurred in connection therewith. Nothing contained in Section 10(a) or this Section 11(b) shall limit any obligations of the Company under any provision of the Securities Purchase Agreement.

12. RESTRICTIONS. The Holder acknowledges that the Conversion Shares acquired upon the conversion of this Note, if not registered, will have transferability restrictions imposed by state and federal securities laws as set forth in Section 4.1 of the Securities Purchase Agreement.

13. VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by law (including, but not limited to, the Delaware General Corporation Law), and as expressly provided in this Note.

14. COVENANTS. Until all of the Notes have been converted or otherwise satisfied in accordance with their terms:

(a) Change in Nature of Business. The Company shall not directly or indirectly, engage in any material line of business substantially different from those lines of business conducted by the Company on the First Amendment Closing Date or any business substantially related or incidental thereto.

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(b) Preservation of Existence, Etc. The Company shall maintain and preserve its existence, rights and privileges, and become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary.

(c) Maintenance of Properties, Etc. The Company shall maintain and preserve all of its properties which are necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted, and comply at all times with the provisions of all leases to which it is a party as lessee or under which it occupies property, so as to prevent any loss or forfeiture thereof or thereunder.

(d) Maintenance of Insurance. The Company shall maintain insurance with responsible and reputable insurance companies or associations (including, without limitation, comprehensive general liability, hazard, rent and business interruption insurance) with respect to its properties (including all real properties leased or owned by it) and business, in such amounts and covering such risks as is required by any governmental authority having jurisdiction with respect thereto and as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated.

(e) Books and Records. The Company will keep proper books of record and accounts in which full, true and correct entries in conformity in all material respects with GAAP shall be made of all dealings and transactions in relation to its business and activities.

(f) Compliance with Laws. The Company will comply with the requirements of all applicable federal, state, local and foreign statutes, laws, judicial decisions, regulations, guidances, guidelines, ordinances, rules, judgments, orders, decrees, codes, plans, injunctions, permits, concessions, grants, franchises, governmental agreements and governmental restrictions, whether now or hereafter in effect (including all environmental laws).

(g) Financial Statements and Other Reports. The Company will deliver to the Holder: (i) within 30 days after the end of each month, beginning with the first month ending after the First Amendment Closing Date, the consolidated balance sheet of the Company and its subsidiaries as at the end of such month and the related consolidated (and with respect to statements of income, consolidating) statements of income, stockholders’ equity and cash flows of the Company and its subsidiaries for such month, all in reasonable detail, together with a certification by the chief financial officer of the Company with respect thereto; (ii) as soon as available, and in any event within 120 days after the end of each fiscal year of the Company, (A) the consolidated balance sheets of the Company and its subsidiaries as at the end of such fiscal year and the related consolidated (and with respect to statements of income, consolidating) statements of income, stockholders’ equity and cash flows of the Company and its subsidiaries for such fiscal year, in reasonable detail, together with a certification by the chief financial officer of the Company with respect thereto; and (B) with respect to quarterly consolidated financial statements a report thereon of an independent certified public accountants of recognized regional or national standing selected by the Company and reasonably satisfactory to the Holder, which report shall be unqualified as to going concern and scope of audit, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of the Company and its subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements); provided, the filing by the Company of a Form 10-K (or any successor or comparable form) with the Securities and Exchange Commission as at the end of and for any applicable fiscal year shall be deemed to satisfy the obligations under this Section 15(g) to deliver financial statements with respect to such fiscal year; (iii) promptly upon receipt thereof, copies of all final management letters submitted by the independent certified public accountants referred to in sub-clause (ii) above in connection with each annual, interim or special audit or review of any type of the financial statements or related internal control systems of the Company or its subsidiaries made by such accountants; and (iv) promptly upon their becoming available, copies of such other information and data with respect to the Company or any of its subsidiaries as from time to time may be reasonably requested by the Holder.

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(h) Payment of Taxes and Claims. The Company will, and will cause each of its subsidiaries to, pay all applicable taxes imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty or fine accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by applicable law have or may become a lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, no such tax or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as adequate reserve or other appropriate provision, as shall be required in conformity with GAAP shall have been made therefor.

(i) Inspections. The Company will, and will cause each of its subsidiaries to, permit the Holder and any authorized representatives designated by the Holder to visit and inspect any of the properties of the Company and any of its subsidiaries, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested at the Company’s expense; provided, so long as no Event of Default has occurred and is continuing, the Company shall only be obligated to reimburse the Holder and any such authorized representative for the expenses of two such visit and inspection per calendar year.

(j) Further Assurances. At any time or from time to time upon the request of the Holder, the Company will, at its expense, promptly execute, acknowledge and deliver such further documents and do such other acts and things as the Holder may reasonably request in order to effect fully the purposes of the Transaction Documents.

(k) Indebtedness. The Company shall not, nor shall it permit any of its subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except as permitted under the Senior Debt Document in effect on the First Amendment Closing Date.

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(l) Liens. The Company shall not, nor shall it permit any of its subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of the Company or any of its subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the Uniform Commercial Code of any state or under any similar recording or notice statute, except as permitted under the Senior Debt Document in effect on the First Amendment Closing Date.

(m) Restricted Payments. The Company shall not, nor shall it permit any of its subsidiaries to, directly or indirectly, declare, order, pay, make or set apart, or agree to declare, order, pay, make or set apart, any sum for any Restricted Payment except as permitted under the Senior Debt Document in effect on the First Amendment Closing Date.

(n) Investments. The Company shall not, nor shall it permit any of its subsidiaries to, directly or indirectly, make or own any Investment in any Person except Investments permitted under the Senior Debt Document in effect on the First Amendment Closing Date.

(o) Fundamental Changes; Disposition of Assets; Acquisitions. The Company shall not, nor shall it permit any of its subsidiaries to, enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, license, exchange, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, assets or property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, whether now owned or hereafter acquired, leased or licensed or acquire by purchase or otherwise (other than purchases or other acquisitions of inventory, materials and equipment and the licensing of intellectual property, in each case, in the ordinary course of business) the business, property or fixed assets of, or equity interests in, any Person or any division or line of business or other business unit of any Person, except as permitted under the Senior Debt Document in effect on the First Amendment Closing Date.

(p) Sales and Lease-Backs. The Company shall not, nor shall it permit any of its subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease of any property (whether real, personal or mixed), whether now owned or hereafter acquired, which the Company (a) has sold or transferred or is to sell or to transfer to any other Person, or (b) intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by the Company to any Person in connection with such lease.

(q) Transactions with Affiliates. The Company shall not, nor shall it permit any of its subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company, on terms that are less favorable to the Company or that subsidiary, as the case may be, than those that might be obtained at the time from a Person who is not such an Affiliate, except as permitted under the Senior Debt Document in effect on the First Amendment Closing Date.

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(r) Amendments or Waivers of Certain Documents. The Company shall not, nor shall it permit any of its subsidiaries to, agree to any material amendment, restatement, supplement or other modification to, or waiver of, any of its Organizational Documents to which it is a party, in each case, in a manner materially adverse to the Holder.

(s) Amendments or Waivers of Certain Indebtedness. The Company shall not, nor shall it permit any of its subsidiaries to, agree to any amendment, restatement, supplement or other modification to, or waiver of, any of the terms of the Senior Debt Document, or make any payment consistent with such amendment, restatement, supplement or other modification to, or waiver of, in each case, other than as permitted under the Subordination Agreement.

16. The Note and the Warrants (as both terms are defined in the Securities Purchase Agreement) shall not be convertible or exercisable, as appropriate, into more than 2,794,660 shares of the Company’s Common Stock (as the same may be adjusted on a pro rate basis to take into account stock splits, stock dividends recapitalizations and similar events) in the aggregate. The Company covenants that the Company has at least 13,974,000 shares of Common Stock outstanding on the First Amendment Date.

17. AMENDING THE TERMS OF THIS NOTE. The prior written consent of the Holder shall be required for any change or amendment to this Note.

18. WAIVER OF USURY, STAY OR EXTENSION LAWS. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Note; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Company, but will suffer and permit the execution of every such power as though no such law had been enacted.

19. REISSUANCE OF THIS NOTE.

(a) Transfer. If this Note is to be transferred, the Holder shall surrender this Note to the Company along with a duly executed copy of the transfer instrument attached hereto as Exhibit III, whereupon the Company will forthwith issue and, following authentication of such new Note, deliver upon the order of the Holder a new Note (in accordance with Section 19(c)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred, a new, duly authenticated Note (in accordance with Section 19(c)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) following conversion or redemption of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note.

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(b) Lost, Stolen or Mutilated Note. Upon receipt of an executed lost note affidavit in form and substance satisfactory to the Company regarding the loss, theft, destruction, or mutilation of this Note or, in the case of any such mutilation, upon surrender and cancellation of this Note, the Company will issue a new Note in accordance with Section 19(c), of like tenor, in the amount of unpaid principal of this Note, in lieu of such lost, stolen, destroyed or mutilated Note.

(c) Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 19(a), the Principal designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, (v) shall represent accrued and unpaid Interest and Late Charges on the Principal and Interest of this Note, from the Issuance Date.

20. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual damages for any failure by the Company to comply with the terms of this Note. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Note (including, without limitation, compliance with Section 7).

21. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors’ rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys’ fees and disbursements.

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22. CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note.

23. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.

24. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Conversion Price, the Closing Bid Price, the Closing Sale Price or fair market value (as the case may be) or the arithmetic calculation of the Conversion Rate or the applicable Redemption Price (as the case may be), the Company or the Holder (as the case may be) shall submit the disputed determinations or arithmetic calculations (as the case may be) via facsimile (i) within two (2) Business Days after receipt of the applicable notice giving rise to such dispute to the Company or the Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after the Holder learned of the circumstances giving rise to such dispute (including, without limitation, as to whether any issuance or sale or deemed issuance or sale was an issuance or sale or deemed issuance or sale of Excluded Securities). If the Holder and the Company are unable to agree upon such determination or calculation within two (2) Business Days of such disputed determination or arithmetic calculation (as the case may be) being submitted to the Company or the Holder (as the case may be), then the Company shall, within two (2) Business Days, submit via facsimile (a) the disputed determination of the Conversion Price, the Closing Bid Price, the Closing Sale Price or fair market value (as the case may be) to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or any Redemption Price (as the case may be) to the Company’s independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant (as the case may be) to perform the determinations or calculations (as the case may be) and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives such disputed determinations or calculations (as the case may be). Such investment bank’s or accountant’s determination or calculation (as the case may be) shall be binding upon all parties absent demonstrable error.

25. NOTICES; CURRENCY; PAYMENTS.

(a) Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 5.4 of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) promptly upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record with respect to any determination of rights to vote with respect to any Fundamental Transaction, dissolution or liquidation; provided that in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

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(b) Currency. All principal, interest and other amounts owing under this Note or any Transaction Document that, in accordance with their terms, are paid in cash, shall be paid in United States Dollars (“U.S. Dollars”). All amounts denominated in other currencies shall be converted to the U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. “Exchange Rate” means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Note, the U.S. Dollar exchange rate as published in the Wall Street Journal on the relevant date of calculation (it being understood and agreed that where an amount is calculated with reference to, or over, a period of time, the date of calculation shall be the final date of such period of time).

(c) Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, unless otherwise expressly set forth herein, such payment shall be made in lawful money of the United States of America by a certified check drawn on the account of the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing (which address, in the case of each of the Buyers (as defined in the Securities Purchase Agreement), shall initially be as set forth on the Schedule of Buyers attached to the Securities Purchase Agreement), provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Holder’s wire transfer instructions. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day. Any amount of Principal or other amounts due under the Transaction Documents which is not paid when due (other than any amounts due hereunder that are otherwise accruing interest at the Default Rate) shall result in a late charges being incurred and payable by the Company in an amount equal to interest on such amount at the rate of sixteen percent (16%) per annum from the date such amount was due until the same is paid in full (“Late Charge”).

26. CANCELLATION. After all Principal, accrued Interest, Late Charges and other amounts at any time owed on this Note have been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.

27. WAIVER OF NOTICE. To the extent permitted by law, the Company hereby irrevocably waives demand, notice, presentment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Securities Purchase Agreement.

28. GOVERNING LAW. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder to realize on any collateral or any other security for such obligations or to enforce a judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

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29. AMENDMENT AND RESTATEMENT. This Note is issued in replacement of that certain Subordinated Convertible Non-Redeemable Secured Note issued as of April 21, 2017 in the principal amount of $3,400,000.00 executed by the Company in favor of the Holder (the “Prior Note”). This Note is not a repayment or novation of the Prior Note. Nothing in this Note shall be construed to release, cancel, terminate or otherwise adversely affect all or any part of any lien, assignment, security interest or other encumbrance heretofore granted to or for the benefit of the payee of the Prior Note which has not otherwise been expressly released.

30. DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to the Company, the Company shall within one (1) Business Day after any such receipt or delivery publicly disclose such material, non-public information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company, the Company so shall indicate to such Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, non-public information relating to the Company. Nothing contained in this Section 30 shall limit any obligations of the Company, or any rights of the Holder, under Section 4(i) of the Securities Purchase Agreement.

31. CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings:

“Bloomberg” means Bloomberg, L.P.

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“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

“Change of Control” means any Fundamental Transaction other than (i) a strategic merger or acquisition transaction approved by the majority of independent directors of the Company (ii) any merger, reorganization, recapitalization or reclassification of the shares of Common Stock in which holders of the Company’s voting power immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities and, directly or indirectly, are, in all material respects, the holders of the voting power of the surviving entity (or entities with the authority or voting power to elect the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities) after such reorganization, recapitalization or reclassification, (iii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company or (iv) any sale (whether by merger, asset sale or otherwise) which does not constitute all or substantially all of the assets of the Company.

“Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Trading Market, as reported by Bloomberg, or, if the Trading Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Trading Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 22. All such determinations shall be appropriately adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transaction during such period.

“Common Stock” means (i) the Company’s shares of common stock, $0.0001 par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.

“Convertible Securities” means any capital stock or securities (other than Options) directly or indirectly, convertible into, or exercisable or exchangeable for, shares of Common Stock.

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“Eligible Market” means The New York Stock Exchange, the NYSE MKT, the Nasdaq Global Select Market, the Nasdaq Global Market or the Trading Market.

“First Amendment Closing Date” has the meaning set forth in the Securities Purchase Agreement.

“Fundamental Transaction” means that (i) the Company, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company is the surviving corporation) any other Person, or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other Person, or (3) allow any other Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 20% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other Person whereby such other Person acquires more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder), other than Christopher J. Reed and Judy Holloway Reed, is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 20% of the aggregate ordinary voting power represented by issued and outstanding Voting Stock of the Company.

“GAAP” means United States generally accepted accounting principles, consistently applied.

“Interest Rate” means twelve percent (12%) per annum.

“Investment” means (i) any direct or indirect purchase or other acquisition by the Company or any of its subsidiaries of, or of a beneficial interest in, any of the securities of any other Person; (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, by the Company or any of its subsidiaries from any Person, of any equity interests of such Person; and (iii) any direct or indirect loan, advance or capital contribution by the Company or any of its subsidiaries to any other Person, including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business.

“Junior Debt” means any obligations of the Company under the Junior Debt Documents.

“Junior Debt Documents” means any and all other documents or instruments evidencing or further guarantying or securing, directly or indirectly, any of the Junior Debt, whether now existing or hereafter amended or created.

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“Lien” means a mortgage, deed of trust, pledge, hypothecation, assignment, security interest, encumbrance, lien or other security interest or security agreement of any kind or nature whatsoever.

“Material Adverse Change” shall mean any set of circumstances or events which occur, arise or otherwise take place from and after the Issuance Date which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of this Note or any other Transaction Document, (b) is or could reasonably be expected to be material and adverse to the business properties, assets, financial condition, results of operations or prospects of the Company on a collective basis, (c) impairs materially or could reasonably be expected to impair materially the ability of the Company to duly and punctually pay or perform any its obligations under this Note or any other Transaction Document, or (d) materially impairs or could reasonably be expected to materially impair the ability of Holder, to the extent permitted, to enforce its legal rights and remedies pursuant to this Note or any other Transaction Document.

“Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

“Organizational Documents” means (i) with respect to any corporation, its certificate or articles of incorporation or organization and its by-laws; (ii) with respect to any limited partnership, its certificate of limited partnership and its partnership agreement; (iii) with respect to any general partnership, its partnership agreement; and (iv) with respect to any limited liability company, its articles of organization and its operating agreement.

“Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

“Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.

“Restricted Payment” means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of equity interests of the Company or any of its subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of equity interests to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of equity interests of the Company or any of its subsidiaries now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of equity interests of the Company or any of its subsidiaries now or hereafter outstanding and (iv) management, consulting, monitoring, advisory, transactional or similar fees and expense payable to any Affiliate of the Company.

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“Senior Debt Document” means the Financing Agreement dated as of the First Amendment Date, by and between the Company and Senior Lender, as amended from time to time.

“Senior Lender” means Rosenthal and Rosenthal, Inc., a New York corporation.

“Securities Purchase Agreement” means that certain securities purchase agreement, dated as of April 21, 2017, by and among the Company and the initial holder of the Note pursuant to which the Company issued the Notes and the Warrants, as amended by that certain First Amendment to Securities Purchase Agreement and Other Transaction Documents dated as of the First Amendment Date, as the same may be further amended, modified or supplemented from time to time.

“Security Agreement” means that certain Second Lien Security Agreement, dated as of April 21, 2017, by and among the Company and the Holder, as amended by that certain First Amendment to Securities Purchase Agreement and Other Transaction Documents dated as of the First Amendment Date.

“Subordination Agreement” means that certain subordination agreement, dated as of the First Amendment Date, by and between the Senior Lender and the Holder, as may be amended, modified or supplemented from time to time.

“Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

“Trading Day” means any day on which the Common Stock is traded on the Trading Market, or, if the Trading Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York City time) unless such day is otherwise designated as a Trading Day in writing by the Holder.

“Trading Market” means the NYSE MKT.

“Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers, trustees or other similar governing body of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

“Warrants” has the meaning ascribed to such term in the Securities Purchase Agreement, and shall include all warrants issued in exchange therefor or replacement thereof.

“Warrant Shares” has the meaning ascribed to such term in the Securities Purchase Agreement.

[signature page follows]

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance Date set out above.

REEDS, INC.
By:	/s/ Valentin Stalowir
Name:	Valentin Stalowir
Title:	Chief Executive Officer

Attest:

By:

Name:

Title:

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EXHIBIT I

REED’S, Inc.
CONVERSION NOTICE

Reference is made to the Amended and Restated Subordinated Convertible Note (the “Note”) issued to the undersigned by Reed’s, Inc. (the “Company”). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock, $0.0001 par value per share (the “Common Stock”), of the Company, as of the date specified below.

Date of Conversion:

Aggregate Principal to be converted:

AGGREGATE CONVERSION AMOUNT TO BE CONVERTED:

Please confirm the following information:

Conversion Price:

Number of shares of Common Stock to be issued:

Please issue the Common Stock into which the Note is being converted in the following name and to the following address:

Issue to:

Facsimile Number:

Holder:

By:

Title:

Dated:

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EXHIBIT II

ACKNOWLEDGMENT

The Company hereby acknowledges this Conversion Notice and hereby directs _________________ to issue the above indicated number of shares of Common Stock.

REEDS, INC.

By:

Name:

Title:

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EXHIBIT III

FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto [NAME OF ASSIGNEE] the within instrument of REED’S, INC. and does hereby irrevocably constitute and appoint [_________] Attorney to transfer said instrument on the books of the within-named Company, with full power of substitution in the premises.

Please Insert Social Security or Other Identifying Number of Assignee: ________________________

Dated: ______________ ____, ___

By:

Name:

Title:

NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement or any change whatever.

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EX-10.1

EXECUTION VERSION

Rosenthal & Rosenthal, Inc.

Financing Agreement

AGREEMENT dated October 4, 2018 between Reed’s Inc. (“Borrower”), a Corporation duly organized and presently existing in good standing under the laws of the State of Delaware whose chief executive office is at 201 Merritt 7 Corporate Park, Norwalk, Connecticut 06851, and ROSENTHAL & ROSENTHAL, INC. (“Lender”), a New York corporation with an address at 1370 Broadway, New York NY 10018.

Borrower desires to obtain loans and other financial accommodations from Lender on a revolving basis upon the security of the Collateral (as herein defined). Now, therefore, Borrower and Lender agree as follows.

1. DEFINITIONS

As used in this Agreement, these terms shall have the following meanings which shall be applicable to both the singular and plural forms of such terms.

1.1. “Account Debtor” shall mean the account debtor with respect to a Receivable and any other person who is obligated on such Receivable.

1.2. “Affiliate” of a party shall mean any entity controlling, controlled by, or under common control with, the party, and the term “controlling” and such variations thereof shall mean ownership of a majority of the voting power of a party.

1.3. “Business Day” shall mean a day on which Lender and major banks in New York City are open for the regular transaction of business.

1.4. “Closing Date” shall mean the date set forth in the first paragraph of this Agreement.

1.5. “Collateral” shall have the meaning provided in Section 4.1 hereof.

1.6. “Collateral Documents” shall mean any and all security agreements, deposit account control agreements, mortgages and other documents executed and delivered to Lender to secure the Obligations including but not limited to the LC.

1.7. “Default” shall have the meaning provided in Section 9.1 hereof.

1.8. “Effective Rate” shall have the meaning provided in Section 3.1 hereof.

1.9. “Eligible Inventory” shall mean Inventory owned by Borrower in the ordinary course of its business in which Lender holds a perfected security interest pursuant to the terms hereof, ranking prior to free and clear of all interests, claims and rights of others, and has received agreements executed by any landlords and bailees where such Inventory may be located in accordance with Section 6.15 hereof, and which is and at all times shall continue to be acceptable to Lender in all respects. Standards of eligibility may be fixed and revised from time to time solely by Lender in its commercially reasonable judgment. In determining eligibility, Lender may, but need not, rely on certificates of inventory and reports furnished by Borrower, but reliance thereon by Lender from time to time shall not be deemed to limit Lender’s right to revise standards of eligibility at any time. In general, Inventory shall not be deemed eligible unless it complies in all respects with the representations, covenants and warranties hereinafter set forth, made by Borrower with respect thereto and meets all standards meets all standards imposed by any governmental agency or authority.

1.10. “Eligible Receivables” shall mean Receivables created by Borrower in the ordinary course of its business which have been validly assigned to Lender and in which Lender holds a perfected security interest pursuant to the terms hereof ranking prior to and free and clear of all interests, claims, and rights of others and which are and at all times shall continue to be acceptable to Lender in all other respects. Standards of eligibility may be fixed and revised from time to time solely by Lender in its commercially reasonable judgment. In determining eligibility Lender may, but need not, rely on agings, reports and schedules of Receivables furnished by Borrower, but reliance thereon by Lender from time to time shall not be deemed to limit Lender’s right to revise standards of eligibility at any time. In general, a Receivable shall not be deemed eligible unless the Receivable complies with the Minimum Receivable Eligibility Requirements and the Account Debtor on such Receivable is and at all times continues to be acceptable to Lender and unless each Receivable complies in all respects with the representations, covenants and warranties hereinafter set forth and meets all standards imposed by any governmental agency or authority.

1.11. “Equipment” shall mean equipment as now or hereafter defined in Article 9 of the UCC.

1.12. “ERISA” shall mean the Employee Retirement Income Security Act.

1.13. “Insolvency Proceeding” shall mean any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, or comparable state statute, as amended, or under any other Bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

1.14. “Intercreditor Agreement” shall mean (a) the Intercreditor Agreement of even date herewith and/or (b) letter agreement regarding (among other things) the purchase of intellectual property rights of Borrower in consideration for the payment in full of the Permitted Indebtedness by and between Raptor/Harbor Reed’s SPV LLC and Lender.

1.15. “Inventory” shall mean inventory as now or hereafter defined in Article 9 of the UCC.

1.16. “Inventory Availability” shall have the meaning provided in Section 2.1 hereof.

1.17. “LC” shall have the meaning provided in Section 2.1 hereof.

1.18. “Lease” and “Leased Premises” shall have the meanings provided in Section 9.1 hereof.

1.19. “Loan Account” shall mean the Loan Account as described in Section 2.2 hereof.

1.20. “Loan Availability” shall have the meaning provided in Section 2.1 hereof.

1.21. “Loan Documents” shall mean, collectively, this Agreement, the Intercreditor Agreement, the LC, the Collateral Documents, and each guaranty, certificate, agreement, or document now or hereafter executed by Borrower or any of its future guarantors and delivered to Lender in connection with the foregoing or as they may be amended.

1.22. “Margin” shall mean two percent (2%) per annum.

1.23. “Maximum Credit Facility” shall mean $13,000,000.

1.24. “Maximum Rate” shall have the meaning provided in Section 10.2 hereof.

1.25. “Minimum Receivable Eligibility Requirements” shall have the meaning provided in Section 2.3 hereof.

1.26. “Net Amount of Eligible Receivables” shall mean the gross amount of Eligible Receivables less sales, excise or similar taxes, returns, discounts, claims, credits and allowances of any nature at any time issued, owing, granted, outstanding or claimed, and less (without duplication) all amounts payable by any Account Debtor on Eligible Receivables of such Account Debtor that are unpaid more than 60 days following its invoice date.

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1.27. “Obligations” shall mean all obligations, liabilities and indebtedness of Borrower to Lender or an Affiliate of Lender, however evidenced, arising under this Agreement, any other Loan Document (whether by reason of extension of credit, guaranty, indemnity or otherwise), or under any other or supplemental financing provided to Borrower by Lender or an Affiliate of Lender, or independent hereof or thereof, whether now existing or incurred from time to time hereafter and whether before or after termination hereof, absolute or contingent, joint or several, matured or unmatured, direct or indirect, primary or secondary, liquidated or unliquidated, and whether arising directly or acquired from others (whether acquired outright, by assignment unconditionally or as collateral security from another and including participations or interest of Lender in obligations of Borrower to others), and including (without limitation) all of Lender’s charges, commissions, fees, interest, expenses, costs and attorneys’ fees chargeable to Borrower in connection therewith.

1.28. “Over-advance” shall mean any portion of all loans and advances which on any day exceeds the Loan Availability.

1.29. “Permitted Liens” shall mean the liens of Lender granted under the Loan Documents and any other liens, if any, described on the attached Exhibit A.

1.30. “Permitted Overadvance” shall have the meaning provided in Section 2.1.

1.31. “Person” shall mean any person, firm, corporation, partnership, limited liability company, association, company, trust, estate, custodian, nominee or other individual or entity.

1.32. “Pledgor” shall have the meaning specified in Section 9.1.

1.33. “Prime Rate” shall mean the prime rate from time to time publicly announced in New York City by JPMorgan Chase Bank.

1.34. “Receivables” shall mean all obligations to Borrower for the payment of money arising out of the sale of goods by Borrower, now existing or hereafter arising, however evidenced, including all accounts, contract rights, general intangibles, documents, chattel paper and instruments (as each of such terms is now or hereafter defined in the UCC).

1.35. “Receivable Availability” shall have the meaning specified in Section 2.1 hereof.

1.36. “UCC” shall mean the Uniform Commercial Code as in effect from time to time in the State of New York, provided, however, that in the event by reason of mandatory provisions of law, any of the attachment, perfection, or priority of Lender’s security interest in any of the Collateral is governed by the Uniform Commercial Code as in effect in any jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions.

2. LOANS; Eligibility of Receivables

2.1. Lender shall, in its commercially reasonable discretion, make loans to Borrower from time to time, at Borrower’s request, which loans in the aggregate shall not exceed the up to the lesser of (A) the Maximum Credit Facility; or (B) the Loan Availability, which means (a) the Receivable Availability equal to up to eighty percent (80%) of the Net Amount of Eligible Receivables; plus (b) the Inventory Availability, which means the lesser of (A) (i) up to sixty-five percent (65%) of the lower of cost or market value of Eligible Inventory consisting of finished goods, but in no event more than up to eighty-five percent (85%) of the orderly appraised net liquidation value, as set forth in an appraisal obtained at Borrower’s expense and issued by an appraiser satisfactory to Lender; plus (ii) the lesser of (x) up to thirty-five percent (35%) of Eligible Inventory consisting of raw materials, but in no event more than up to eighty-five percent 85% of the net orderly liquidation value; or (y) one million dollars ($1,000,000), or (B) six million dollars ($6,000,000); plus a Permitted Overadvance (the “Permitted Overadvance”) not to exceed four million dollars ($4,000,000), based upon (x) a percentage of the net orderly liquidation value of Borrower’s registered and acceptable trademarks, which Lender has determined by appraisal to be two million five hundred thousand dollars ($2,500,000); plus (y) an amount equal to one hundred percent (100%) of an irrevocable stand-by-letter of credit effective through and including the Renewal Date (or any extension permitted under Section 10.1 hereof) in favor of Lender naming Lender as irrevocable beneficiary, with terms and conditions and issued by a bank satisfactory to Lender in amount not less than one million five hundred thousand dollars ($1,500,000) (“LC”), minus such reserves as Lender may deem, in its sole discretion, to be necessary from time to time.

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2.2. The making of any loan in excess of the percentages set forth above shall not be deemed to modify such percentages or create any obligation to make any further such loan. All loans (and all other amounts chargeable to Borrower under this Agreement or any supplement hereto) shall be charged to a Loan Account in Borrower’s name on Lender’s books. Lender shall render to Borrower each month a statement of the Loan Account (and all credits and charges thereto) which shall be considered correct and accepted by Borrower and conclusively binding upon Borrower as an account stated except to the extent that Lender receives a written notice by registered mail of Borrower’s exceptions within 30 days after such statement has been rendered to Borrower.

2.3. A Receivable meets the Minimum Receivable Eligibility Requirements if 1) the Receivable arose from bona fide completed transactions and has not remained unpaid for more than the number of days after the invoice date set forth in Section 1.26; 2) the amount of the Receivable reported to Lender is absolutely owing to Borrower and payment is not conditional or contingent, (such as consignments, guaranteed sales or right of return or other similar terms); 3) the Receivable did not arise from progress billings, retainages or bill and hold sales; 4) there are no contra relationships, setoffs, counterclaims or disputes existing with respect thereto and there are no other facts existing or threatened which would impair or delay the collectibility of all or any portion thereof; 5) the goods giving rise thereto were not at the time of the sale subject to any liens except those permitted in this Agreement; 6) the Account Debtor is not an Affiliate of Borrower; 7) there has been compliance with the Assignment of Claims Act or similar State or local law, if applicable, if the Account Debtor is the United States or any domestic governmental unit; 8) Borrower has delivered to Lender such documents as Lender may have requested pursuant to Section 4.2 hereof in connection with such Receivable and Lender shall have received verifications of such Receivable, satisfactory to it, if sent to the Account Debtor or any other obligors or any bailees; 9) there are no facts existing or threatened which might in Lender’s commercially reasonable discretion result in any adverse change in the Account Debtor’s financial condition; 10) not more than 50% of the Receivables of the Account Debtor or its Affiliates owed to Borrower are more than 60 days past their invoice date or fail to otherwise constitute Eligible Receivables; 11) the total indebtedness to Borrower of the Account Debtor does not exceed the amount of any customer credit limits as established from time to time on notice to Borrower; 12) the Account Debtor is deemed creditworthy at all times by Lender; and 13) all representations and warranties in this Agreement or any other Loan Document with respect to such Receivable are true and correct.

3. LENDER’S CHARGES

3.1. Borrower agrees to pay to Lender each month interest (computed on the basis of the actual number of days elapsed over a year of 360 days) (a) on that portion of the average daily balances in the Loan Account during the preceding month which does not exceed the Receivable Availability at a rate per annum equal to the Prime Rate plus the Margin (the “Effective Rate”); (b) on that portion of the average daily balances in the Loan Account during the preceding month, that exceeds the Inventory Availability but does not exceed the Loan Availability, at a rate per annum equal to the Prime Rate plus two and one half percent (2.5%) per annum (the “Inventory Rate”); (c) on the Permitted Overadvances, if any, at a per annum rate equal to three and one half percent (3.5%) above the Prime Rate (the “Permitted Overadvance Rate”); and (d) on any other Over-advances at a rate of three percent (3%) above the Permitted Overadvance Rate. Any change in the effective interest rates due to a change in the Prime Rate shall take effect on the date of such change in the Prime Rate provided, that, with respect to Lender’s charges, no decrease in the Prime Rate below 4.75% per annum shall be given any effect.

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3.2. Borrower shall pay to Lender a facility fee payable on the Closing Date in the amount of 1.00% of the Maximum Credit Facility and on the anniversary of such date in each succeeding year, in the amount of 1.00% of the Maximum Credit Facility.

3.3. Borrower shall pay to Lender monthly an administration fee of $1,000 payable in arrears on the first day of each month with respect to the prior month for the stated term of this Agreement.

3.4. A statement of all of Lender’s charges shall accompany each monthly statement of the Loan Account and such charges shall be payable by Borrower within 5 days after receipt of such statement. In lieu of the separate payment of charges, Lender at its option, shall have the right to debit the amount of such charges to Borrower’s Loan Account, which charges shall be deemed to be first paid by amounts subsequently credited to the Loan Account. Borrower agrees that the minimum charges payable by Borrower to Lender each month under Section 3.1 hereof shall be $4,000. As more fully provided in Section 10.2 hereof, in no event shall the interest charges hereunder exceed the Maximum Rate.

4. SECURITY INTEREST IN COLLATERAL

4.1. As security for the prompt performance, observance and payment in full of all of the Obligations, Borrower grants to Lender a security interest in, a continuing lien upon and a right of setoff against, and Borrower hereby assigns, transfers, pledges and sets over to Lender (collectively, including any other assets of Borrower in which Lender may be granted a security interest under any Loan Document, the “Collateral”): (i) all Receivables (whether or not Eligible Receivables and whether or not specifically listed on any schedules, assignments or reports furnished to Lender) (ii) all of Borrower’s property, and the proceeds thereof, now or hereafter held or received by or in transit to Lender or held by others for Lender’s account, including any and all deposits, balances, sums and credits of Borrower with, and any and all claims of Borrower against, Lender, at any time existing, (iii) all credit insurance policies, and all other insurance and all guarantees relating to the Receivables or other Collateral, (iv) all books, records and other general intangibles evidencing or relating to Receivables or other Collateral and the computer hardware and software and media containing such books and records; all deposits, or other security for the obligation of any person under or relating to Receivables, all of the Borrower’s rights and remedies of whatever kind or nature it may hold or acquire for the purpose of securing or enforcing Receivables; all right, title and interest of the Borrower in and to all goods relating to, or which by sale have resulted in, Receivables, including goods returned by or reclaimed or repossessed from Account Debtors and all goods described in copies of invoices delivered by Borrower to Lender; all rights of stoppage in transit, replevin, repossession and reclamation and all other rights and remedies of an unpaid vendor or lienor, and all proceeds of any Letter of Credit naming Borrower as beneficiary and which provides for, guarantees or assures the payment of any Receivable; (v) all accounts, instruments, chattel paper, documents, general intangibles, deposit accounts, investment property, the LC and all letter of credit rights, whether or not arising out of the sale of goods or rendition of services, and including choses in action, causes of action, tax refunds (and claims), and reversions from terminated pension plans; (vi) all of Borrower’s Inventory and Equipment; and (vii) all proceeds of such Collateral, in any form, including cash, non-cash items, checks, notes, drafts and other instruments for the payment of money all of which now existing or hereafter arising. Such security interest in favor of Lender shall continue during the term of this Agreement and until indefeasible payment in full of all Obligations, whether or not this Agreement shall have sooner terminated. Notwithstanding anything contained herein to the contrary, the Collateral will not include property, plant and equipment currently being liquidated by Borrower as part of its exit from its manufacturing plant and related business of producing and bottling branded and private label beverages located at Los Angeles, California.

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4.2. At Lender’s request, Borrower will provide Lender with confirmatory assignment schedules in form satisfactory to Lender, copies of customers’ invoices, evidence of shipment or delivery, and such further information as Lender may require. Borrower will take any and all steps and observe such formalities as Lender may request from time to time to create and maintain in Lender’s favor a valid and first lien upon, security interest in and pledge of all of Borrower’s Receivables and all other Collateral, including executing all documents that may be requested by Lender to maintain such security interest in and pledge of the Collateral. Borrower hereby authorizes Lender to file any Financing Statements under the UCC, and renewals and amendments thereof, naming Borrower as debtor, that are necessary to perfect and maintain the perfection of Lender’s security interest in the Collateral. Borrower agrees to take all steps necessary to allow Lender to comply with any Federal or state statute, which, in Lender’s judgment, if not complied with, might afford to any Person an interest in the Collateral that would be superior to Lender’s security interest in the Collateral. Lender’s security interest in Borrower’s intellectual property is subject to release pursuant to the terms and conditions of the Intercreditor Agreement.

5. CUSTODY AND INSPECTION OF COLLATERAL AND RECORDS;

COLLECTION AND HANDLING OF COLLATERAL

5.1. As to all moneys so collected, including all prepayments by customers, Borrower shall on the day received remit all such collections to Lender in the form received by depositing such collections into an account of Lender specified by Lender and maintained at Borrower’s expense. All amounts collected on Receivables when received by Lender shall be credited to Borrower’s Loan Account, adding 1 Business Days for collection and clearance of remittances sent by wire transfer and 3 Business Days for collection and clearance of all other remittances. Such credits shall be conditional upon final payment to Lender. Nothing contained in this Section 5.1, or otherwise in this Agreement, shall be deemed to limit Lender’s rights and powers pursuant to Section 7 of this Agreement.

5.2. All records, ledger sheets, correspondence, contracts, documentation and computer hardware and software and media relating to or evidencing Receivables or containing information relating to the Receivables shall, until delivered to Lender or removed by Lender from Borrower’s premises, be kept on Borrower’s premises, without cost to Lender, in appropriate containers in safe places. Lender shall at all reasonable times have full access to and the right to examine and make copies of Borrower’s books and records, and shall have full access to Borrower’s computer information systems, to confirm and verify all Receivables assigned to Lender and to do whatever else Lender deems necessary to protect its interest. Lender may at any time remove from Borrower’s premises, or require Borrower to deliver certified copies of any contracts, documentation, files and records relating to Receivables, and any computer hardware, software and media containing information relating to the Receivables or Lender may, without cost or expense to Lender, use such of Borrower’s personnel, supplies, computer information systems and space at Borrower’s places of business as may be reasonably necessary for collection of Receivables.

5.3. Borrower will immediately upon obtaining knowledge thereof report to Lender all reclaimed, repossessed or returned merchandise, Account Debtor claims and any other matter affecting the value, enforceability or collectibility of Receivables. Any merchandise reclaimed or repossessed by or returned to Borrower, after the occurrence and during the continuation of a Default will, at the cost and expense of Borrower, be set aside marked with the name of the Lender and will be held by Borrower for the account of Lender and subject to Lender’s security interest. All claims and disputes relating to Receivables are to be promptly adjusted by Borrower within a reasonable time, at its own cost and expense. Lender may, at its option, settle, adjust or compromise claims and disputes relating to Receivables which are not adjusted by Borrower within a reasonable time. Following and during the continuance of a Default, Lender may, at its option, revoke Borrower’s authority to settle or adjust disputes or to further communicate with Account Debtors.

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5.4 Borrower shall reimburse Lender on demand for all costs of collection incurred by Lender in efforts to enforce payment of Receivables, recovery of or realization upon any other Collateral, including attorneys’ fees and the fees and commissions of collection agencies. All and any fees, costs and expenses, of whatever kind and nature, including taxes of any kind, which Lender may incur in filing public notices, obtaining appraisals of the Collateral, and the reasonable charges of any attorney whom Lender may engage in preparing and filing documents, making title or lien examinations and rendering opinion letters, as well as all fees, costs and expenses incurred by Lender (including all attorneys’ fees and including Lender’s out of pocket expenses in conducting periodic field examinations of Borrower and the Collateral (including any costs of third-party examiners) plus Lender’s prevailing per diem charge for each of its examiners in the field and office, now $950 per person per day), in administering this Agreement, protecting, preserving, enforcing or foreclosing any security interests or rights granted to Lender hereunder, whether through judicial proceedings or otherwise (including advertising costs), enforcing or collecting the Receivables or enforcing the Loan Documents, recovery of or realization upon any other Collateral, or in defending or prosecuting any actions or proceedings arising out of or related to its transactions with Borrower, including actions or proceedings that may involve any person asserting a priority or claim with respect to the Collateral, shall be borne and paid for by Borrower on demand, shall constitute part of the Obligations and may at Lender’s option be charged to Borrower’s Loan Account. Borrower’s obligations under this section shall survive termination of this Agreement for any reason.

6. REPRESENTATIONS, COVENANTS AND WARRANTIES

As an inducement to Lender to enter into this Agreement, Borrower represents, covenants and warrants (which shall survive the execution and delivery of this Agreement) that:

6.1. Borrower is and at all times during the term of this Agreement shall be a Corporation duly organized and presently existing in good standing under the laws of the State of Delaware and is and at all times during the term of this Agreement shall be duly qualified and existing in good standing in every other state in which the nature of Borrower’s business requires it to be qualified. Borrower is not aware, and will upon becoming aware promptly notify Lender, of any person organizing under its name in another state.

6.2. The execution, delivery and performance of this Agreement are within the corporate powers of Borrower, have been duly authorized by appropriate corporate action and are not in contravention of the terms of Borrower’s charter or by-laws or of any indenture, agreement or undertaking to which Borrower is a party or by which it may be bound. Borrower is not now the subject of any pending governmental investigation or proceeding or of any insolvency proceeding. No receiver or custodian has been appointed for any of the property of Borrower. No consent, approval or authorization of any person, including stockholders of Borrower or any governmental or regulatory authority, that has not been obtained, is required in connection with the execution, delivery and performance by Borrower of this Agreement. Borrower warrants that all financial statements and other reports provided to Lender prior to the Closing Date are true and correct in all material respects.

6.3. There are no pending suits, Federal or state tax liens, or judgment liens against Borrower or affecting its assets, except for claims set forth on Schedule 6.3 and Permitted Liens. No assets of Borrower are subject to any liens or encumbrances except for Permitted Liens. Borrower has no employee benefit plans subject to ERISA that have accumulated funding deficiencies or liquidity shortfalls as defined and calculated under ERISA or with respect to which Borrower presently has withdrawal liability.

6.4. Borrower is and shall be, with respect to all Inventory, Equipment, intellectual property collateral, cash collateral and other Collateral, the owner thereof free from any lien, security interest or encumbrance of any kind, except for Permitted Liens, subject to release of security interest in intellectual property pursuant to the terms and conditions of the Intercreditor Agreement. No Receivable or any other Collateral has been or shall hereafter be assigned, pledged or transferred to any person other than the Lender or in any way encumbered or subject to a security interest except to Lender, and except for Permitted Liens, and Borrower shall defend the same against the claims of all persons.

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6.5. Borrower’s books and records relating to the Receivables and Collateral are and shall be maintained at the office referred to below. Except as otherwise stated below, the principal executive office of Borrower is located at such address and has been so located on a continuous basis for not less than six months. Borrower shall not change such location without Lender’s prior written consent, and, upon making any such change, Lender shall be authorized to file any additional financing statements or other documents or notices which may be necessary under the UCC or other applicable law and Borrower shall execute and deliver to Lender any such documents requiring Borrower’s signature, failing which Lender shall be authorized to sign such documents on behalf of Borrower as Borrower’s attorney-in-fact. The listing of offices on Schedule 6.5 hereto represents all of Borrower’s places of business. Borrower shall notify Lender of the existence of any additional places of business within 5 Business Days after any such place of business is established.

6.6. All loans and advances requested by Borrower under this Agreement shall be used for the general corporate and business purposes of Borrower and in no event shall Borrower request Lender to remit a loan or advance to an account of Borrower that is used for the specific purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Federal Reserve Board) or to extend credit to others for the purpose of purchasing or carrying any such margin stock in contravention of Regulation T, U or X of the Federal Reserve Board; or to the extent that any loans and advances requested by Borrower under this Agreement shall be used for paying wages of the employees of Borrower, Borrower hereby represents and warrants that it shall withhold and pay over to the applicable tax authorities any amount thereof as it shall be so required by applicable law.

6.7. Borrower shall maintain its shipping forms, invoices and other related documents in a form satisfactory to Lender and shall maintain its books, records and accounts in accordance with sound accounting practice. Borrower shall furnish to Lender accounts receivable agings, accounts receivable roll forward reports (in the form attached hereto as Exhibit B), reconciliations of accounts receivable collateral and the loan balance on the monthly statements provided by Lender to Borrower’s records, accounts payable ageing reports, and inventory designations, monthly, not later than (10) days after the end of each month, covering the previous month. Borrower shall furnish to Lender such other information regarding the business affairs and financial condition of Borrower as Lender may, from time to time, reasonably request, including (a) audited financial statements prepared at the end of and for each fiscal year of Borrower, as soon as practical and in any event within one hundred twenty (120) days after the end of each such fiscal year, including a balance sheet, a statement of income, a statement of cash flows and notes, prepared by independent Certified Public Accountants reasonably acceptable to Lender; and concurrently with such financial statements, a written statement signed by such independent public accountants to the effect that, (i) in making the examination necessary for their opinion of such financial statements, they have not obtained any knowledge of the existence of any Default (form 10-K and the form of auditor letter provided to Lender are acceptable in lieu of the foregoing), or (ii) if such independent public accountants shall have obtained from such examination any such knowledge, they shall disclose in such written statement the Default and the nature thereof, (b) financial statements prepared internally as at the end of and for each of the first, second and third fiscal quarterly period of Borrower, as soon as practical and in any event within forty-five (45) days after the end of each such fiscal quarter of Borrower, in such detail and scope as Lender may reasonably require including without limitation, a balance sheet, a statement of income, a statement of cash flows and notes, (form 10-Q is acceptable in lieu of the foregoing) certified by the Chief Financial Officer of Borrower (“CFO”); and concurrently with such financial statements, a written statement signed by the CFO to the effect that, (i) CFO has not obtained any knowledge of the existence of any Default, or (ii) if such CFO has obtained from such examination any such knowledge, such CFO shall disclose in such written statement the Default and the nature thereof and (c) such other information regarding the business affairs and financial condition of Borrower as Lender may, from time to time, request. All such statements and information shall fairly present the financial condition of Borrower, and the results of its operations as of the dates and for the periods, for which the same are furnished.

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6.8. Borrower shall duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against it or its properties or assets prior to the date on which penalties attach thereto. Borrower shall be liable for any tax (excluding a tax imposed on the overall net income of Lender) imposed upon any transaction under this Agreement or giving rise to the Receivables or which Lender may be required to withhold or pay for any reason and Borrower agrees to indemnify and hold Lender harmless with respect thereto, and to repay Lender on demand the amount thereof. Until paid by Borrower, Borrower’s liability under this paragraph shall be added to the Obligations secured hereunder, and may at Lender’s option be charged to Borrower’s Loan Account but shall nonetheless be independent hereof and continue notwithstanding any termination hereof.

6.9. With respect to each Receivable, Borrower hereby represents and warrants that: each Receivable represents a valid and legally enforceable indebtedness based upon an actual and bona fide sale and delivery of property in the ordinary course of Borrower’s business which has been completed and finally accepted by the Account Debtor and for which the Account Debtor is unconditionally liable to make payment of the amount stated in each invoice, document or instrument evidencing the Receivable in accordance with the terms thereof, without offset, defense or counterclaim; each Receivable will be paid in full at maturity; no Receivables have arisen from sales on bill and hold terms; all statements made and all unpaid balances appearing in any invoices, documents, instruments and statements of account describing or evidencing the Receivables are true and correct and are in all respects what they purport to be and all signatures and endorsements that appear thereon are genuine and all signatories and endorsers have full capacity to contract; the Account Debtor owing the Receivable and each validity guarantor, endorser or surety of such Receivable is solvent and financially able to pay in full the Receivable when it matures; and all recording, filing and other requirements of giving public notice under any applicable law have been duly complied with.

6.10. Prior to the making of any loans hereunder: 1) Lender shall have received an opinion of Borrower’s counsel in the form, and as to the matters, required by Lender; 2) Lender shall have received Good standing Certificates and other certifications with respect to Borrower and any other Person liable on the Obligations from such governmental authorities as Lender shall require; 3) Lender or its agents shall have completed such examinations and appraisals of the Collateral and such searches with regard to Borrower and its assets, as Lender shall require, all at Borrower’s expense; 4) Lender shall have received a payoff letter duly executed and delivered by PMC Financial Services Group and Borrower or other evidence of such termination in form and substance satisfactory to Lender, and any other evidence Lender may require that on the Closing Date there shall be no Liens on the Collateral other than Permitted Liens; 5) a lockbox or deposit account complying with Section 5.1 shall have been established which is satisfactory to Lender; 6) Lender shall have received evidence, in form satisfactory to Lender, that Borrower has obtained; 7) the Loan Availability shall be in an amount equal to or greater than $250,000 plus the sum of all amounts required to be disbursed at closing for the purpose of paying Lender’s expenses and attorney’s fees chargeable to Borrower hereunder and all amounts required to be paid to creditors to induce them to release any liens in the Collateral that are not Permitted Liens; and 8) Lender shall have received evidence that it is filed and has a perfected first and only security interest in all Collateral. Notwithstanding the foregoing, the parties hereto acknowledge the subordinate security interest of Raptor/Harbor Reeds SPV LLC which is subject to the terms of the Subordination Agreement executed contemporaneously herewith.

6.11. During the term of this Agreement, including online sales, Borrower shall not make any sales to customers by accepting a credit card issued to such customers unless Borrower has prior thereto entered into a merchant agreement with a processor, relating to sales made using such credit card, on terms that are acceptable to Lender, and such processor has agreed to remit the proceeds of such sales to an account of Borrower with respect to which Lender has control in accordance with Section 9-104 of the UCC.

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6.12. Attached as Exhibit C is a listing of all of Borrower’s patents, trademarks and copyrights. So long as any Obligations remain outstanding, Lender is hereby irrevocably authorized to use any of Borrower’s patents, trademarks and copyrights for the purpose of enforcing Lender’s security interest in the Collateral and disposing of any of the Collateral, subject to the terms and conditions of the Intercreditor Agreement.

6.13. So long as any Obligations remain outstanding, Borrower shall (i) advise Lender of the existence of any commercial tort claims in favor of Borrower, which advice shall be given to Lender in writing no later than 10 days after Borrower becomes aware of existence of such a claim in its favor; (ii) within 5 Business Days after Lender’s request therefor, provide Lender with a listing of all deposit accounts and securities accounts maintained by Borrower and a listing of all letters of credit issued and outstanding in favor of Borrower as beneficiary and, if requested by Lender, arrange for the execution by each depository bank and financial intermediary of a control agreement in Lender’s favor with respect to such accounts, and by each letter of credit issuer of a consent to an assignment of the proceeds of such letter of credit to Lender, in each case in form and content satisfactory to Lender; (iii) maintain in effect in favor of Lender, agreements (in form satisfactory to Lender) executed by the landlords of Borrower’s places of business and the bailees of its property, pursuant to which Lender is granted access to such places of business and such bailees are directed to honor Lender’s instructions with respect to the disposition of such property.

6.14. Until indefeasible payment in full of the Obligations, Borrower shall not (i) make any loans or advances to officers, directors, shareholders or Affiliates (except through participation in equity-based incentive compensation pursuant to which participants place shares of stock awarded under a compensation program into a trust which uses the shares as collateral for a loan to such employee participants from an independent lender); (ii) engage in any other transactions with Affiliates except on terms similar to those that would be in effect in transactions between unrelated parties (iii) incur or repay indebtedness for borrowed money or guaranty the obligations of Affiliates or other Persons; (iv) sell, transfer or otherwise dispose of any assets except for sales of Inventory in the normal course other than sale or liquidation of property, plant and equipment comprising Borrower’s manufacturing plant and related production and bottling business for branded and private label products in Los Angeles, California; (v) declare any cash dividends, redeem or repurchase any stock, or make any other distributions in respect of its stock (other than dividends paid in-kind or through issuance of common stock and distributions of non-cash rights or entitlements to stockholders); or (vi) enter into any agreements to buy or sell goods on consignment terms; or (vi) merge with or into any entity or undergo any other restructuring or reorganization including reorganizations that would result in Borrower being organized under the laws of a state other than Delaware.

6.15. Borrower shall not (i) conduct any business or engage in any transaction or dealing with any Blocked Person (as hereafter defined), including the making or receiving of any contribution of funds, goods or services to or for the benefit of any Blocked Person; (ii) deal in, or otherwise engage in any transaction relating to any property or interests in property blocked pursuant to Executive Order No. 13224; or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order No. 13224, the USA Patriot Act or any other Anti-Terrorism Law. Borrower shall deliver to Lender any certification or other evidence requested from time to time by Lender in its sole discretion, confirming Borrower’s compliance with this Section. Borrower is not in violation of any Anti-Terrorism Law and Borrower is not a Person (a “Blocked Person”) that (a) is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224; (b) is owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224; (c) any financial institution is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law; (d) commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224; (e) is named as a “specially designated national” on the most current list published by the U.S. Treasury Department Office of Foreign Asset Control at its official website or any replacement website or other replacement official publication of such list, or is affiliated or associated with a person or entity listed above; (f) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224.

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For purposes of this Section 6.15, (i) “Anti-Terrorism Laws” shall mean any laws, regulations, rules, orders and directives relating to terrorism or money laundering, including Executive Order No. 13224, the USA Patriot Act, the Laws comprising or implementing the Bank Secrecy Act, and the Law administered by the United States Treasury Department’s Office of Foreign Asset Control (as any of the foregoing laws, regulations, rules, orders and directives may from time to time be amended, renewed, extended, or replaced); (ii) “Executive Order No. 13224” shall mean Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced; and (iii) “USA Patriot Act” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

6.16. Borrower shall deliver to Lender within 5 days of any of Borrower’s senior officers obtaining knowledge of any condition or event which constitutes, or might reasonably be expected to constitute, a Default or that any Person has given notice to Borrower or any Affiliates of Borrower or taken any other action with respect to a claimed Default, Borrower shall deliver to Lender an officer’s certificate describing the same and the period of existence thereof and specifying what action Borrower has taken, are taking and propose to take with respect thereto.

6.17. Borrower shall until payment in full of all Obligations to Lender and termination of this Agreement: (a) cause to be maintained at the end of each of its fiscal quarters, Tangible Net Worth in an amount not less than negative $1,500,000 and Working Capital of not less than negative $2,500,000.

7. BORROWER’S INSURANCE

7.1. Borrower covenants and agrees that, on and after the date hereof, until payment in full of the Obligations and termination of this Agreement, Borrower shall obtain and maintain in effect, at Borrower’s sole expense, policies of insurance as more specifically set forth on Exhibit D annexed hereto, in form and substance satisfactory to Lender, each of which shall have ratings of at least “A-VIII” by A.M. Best Company, and shall otherwise be approved by Lender.

7.2. Borrower hereby directs all insurers under such policies of insurance to pay all proceeds of insurance policies directly to Lender. Borrower irrevocably makes, constitutes and appoints Lender (and each officer, employee or agent designated by Lender) as Borrower’s true and lawful attorney-in-fact for the purpose of (i) making, settling and adjusting such claims under all such policies of insurance if Borrower fails to make such claim within fifteen (15) days after any casualty or fails to diligently prosecute such claim, (ii) endorsing the name of Borrower on any check, draft, instrument or other item of payment pertaining to the Collateral received by Borrower or Lender pursuant to any such policies of insurance, and (iii) making all determinations and decisions with respect to such policies of insurance as they relate to the Collateral. Borrower agrees to provide Lender with prompt written notice of any change, amendment or modification to any insurance policy.

7.3. Lender is authorized to collect all casualty insurance proceeds and, at Lender’s option: (i) apply (A) such proceeds against the outstanding principal amount of the Obligations, or (ii) allow Borrower to use such proceeds, or a part thereof, to repair any damage or restore, replace or rebuild the Collateral that was the subject of such proceeds. Notwithstanding anything herein to the contrary, at any time when a Default has occurred and is continuing, if Lender receives proceeds of insurance or is holding proceeds of insurance theretofore received by Lender, Lender may apply the same to the Obligations at any time and from time to time as it may determine in its discretion. If no Default has occurred and is continuing and Borrower has been permitted to apply insurance proceeds to repair, restore, replace or rebuild property, then Lender will return any insurance proceeds to Borrower which Lender continues to hold after any such repair, restoration, replacement or rebuilding of such property is completed to Lenders’ satisfaction as determined reasonably in its discretion.

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7.4. If Borrower fails to provide Lender with evidence of the insurance coverage required by this Agreement, Lender may purchase insurance, at Borrower’s expense, to protect Lender’s interests in the Collateral. This insurance may, but need not, protect the interests of Borrower. The coverage that Lender purchases may not pay any claim that Borrower may make or any claim that is made against Borrower in connection with the Collateral. Borrower may later cancel any insurance purchased by Lender, but only after providing Lender with evidence that Borrower has obtained insurance as required by this Agreement. If Lender purchases insurance for the Collateral, Borrower will be responsible for the costs of that insurance, including interest and any other charges that may be imposed in connection with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance. The costs of the insurance shall be added to the Obligations. The costs of the insurance may be more than the cost of insurance that Borrower may be able to obtain on its own.

8. SPECIFIC POWERS OF LENDER

8.1. Borrower hereby constitutes Lender or its agent, or any other person whom Lender may designate, as Borrower’s attorney, at Borrower’s own cost and expense to exercise at any time all or any of the following powers which, being coupled with an interest, shall be irrevocable until all Obligations have been paid in full: (a) to receive, take, endorse, assign, deliver, accept and deposit, in Lender’s or Borrower’s name, any and all checks, notes, drafts, remittances and other instruments and documents relating to Receivables and proceeds thereof; (b) to receive, open and dispose of all mail addressed to Borrower and to notify, following the occurrence and during the continuation of an alleged event of Default, postal authorities to change the address for delivery thereof to such address as Lender may designate; (c) Following the occurrence and during the continuation of an alleged event of Default, to transmit to Account Debtors indebted on Receivables notice of Lender’s interest therein and to request from such Account Debtors at any time, in Borrower’s name or in Lender’s or that of Lender’s designee, information concerning the Receivables and the amounts owing thereon; (d) Following the occurrence and during the continuation of an alleged event of Default, to notify Account Debtors to make payment directly to Lender, including by sending the letter attached hereto as Annex A; and (e) to take or bring, in Borrower’s name or Lender’s, all steps, actions, suits or proceedings deemed by Lender necessary or desirable to effect collection of the Receivables. In addition, to the extent permitted by law, Lender may file one or more financing statements, naming Borrower as debtor and Lender as secured party and indicating therein the types or describing the items of Collateral. Without limitation of any of the powers enumerated above, Lender is hereby authorized to accept and to deposit all collections in any form, relating to Receivables, received from or for the account of Account Debtors (whether such collections are remitted directly to Lender by Account Debtors or are forwarded to Lender by Borrower), including remittances which may reflect deductions taken by Account Debtors, regardless of amount, the Loan Account of Borrower to be credited only with amounts actually collected on Receivables in accordance with Section 5.1. Borrower hereby releases (i) any bank, trust company or other firm receiving or accepting such collections in any form, and (ii) Lender and its officers, employees and designees, from any liability arising from any act or acts hereunder or in furtherance hereof, whether of omission or commission, and whether based upon any error of judgment or mistake of law or fact; provided however, Borrower’s release does not extend to acts of gross negligence or willful misconduct.

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9. LENDER’S REMEDIES

9.1. Borrower agrees that all of the loans and advances made by Lender under the terms of this Agreement, together with all Obligations of Borrower as defined herein (unless otherwise provided in any instrument evidencing the same or agreement relating thereto), shall be payable by Borrower at Lender’s demand at the office of Lender in New York, New York. In addition, all Obligations shall be, at Lender’s option, due and payable without notice or demand upon termination of this Agreement or upon the occurrence of any one or more of the following events of default (“Default”): (1) if Borrower shall fail to pay to Lender when due any amounts owing to Lender under any Obligation, or if there shall occur a Default or breach by Borrower or any Affiliate of Borrower of any of the terms, covenants, conditions or provisions of this Agreement, any Loan Document or any other agreement by or among Borrower or any of its Affiliates and Lender or any of its Affiliates or if Borrower shall fail to pay when due any indebtedness for borrowed money; (2) if any person who has pledged, granted, issued or arranged collateral security or the LC for the Obligations (a “Pledgor”), shall die, terminate or attempt to terminate its obligations; or if any such person shall breach any of the terms, covenants, conditions or provisions of any agreement or if a material portion of any tangible Collateral for the Obligations is destroyed or lost or rendered valueless or no longer subject to insurance; (3) if any representation, warranty, or statement of fact made to Lender or an Affiliate of Lender at any time by or on behalf of Borrower or an Affiliate of Borrower is false or misleading in any material respect at the time it is made; (4) if an Insolvency Proceeding is commenced by Borrower or any Pledgor or if an Insolvency Proceeding is commenced against Borrower or any Pledgor and is not dismissed or stayed within sixty (60) days (provided that no advances will be made prior to the dismissal of such Insolvency Proceeding) or if a judgment, levy, attachment or distraint against Borrower remains unpaid, unstayed or undismissed for a period of more than five days, or if Borrower discontinues doing business for any reason, or if a custodian, receiver or trustee of any kind is appointed for it or any of its property; (5) if at any time Lender shall, in its sole discretion, reasonably exercised, consider the Obligations insecure or any part of the Receivables unsafe, insecure or insufficient and Borrower shall not on demand furnish other collateral or make payment on account, satisfactory to Lender; (6) if (x) Borrower shall default under or breach the terms of any present or future lease (each a “Lease”) of any premises now or hereafter leased by Borrower (“Leased Premises”) or (y) Lender shall receive notice from any lessor of any Leased Premises that a default has occurred under any Lease, or that any Lease has been terminated; (7) any employee benefit plan of Borrower subject to ERISA is completely or partially terminated or the Pension Benefit Guaranty Corporation commences proceedings for the purpose of effecting any such termination or an event or circumstance occurs which could result in any such termination; or (8) if a claim is made or threatened, or a proceeding is commenced, by any governmental agency or authority against Borrower or any Affiliate of Borrower under any environmental protection laws; or (9) if there is a default or breach of any provision of any Intercreditor Agreement; or (10) or upon any Event of Default as defined or alleged with respect to any indebtedness or obligation evidenced by or referred to in any Increditor Agreement, including but not limited to a certain April 21, 2017 Subordinated Convertible Non-Redeemable Secured Note (or any replacement) payable to Raptor/Harbor Reeds SPV LLC; or (11) the LC is terminated, cancelled or no longer in favor of Lender prior to a Renewal Date and $1,500,000 of the Permitted Overadvance has not been paid to Lender immediately thereafter; or (12) if the LC is not extended or renewed to Lender’s satisfaction within ninety (90) days prior to any Renewal Date. Upon the occurrence of any Default, (i) Borrower shall pay to Lender, as liquidated damages and as part of the Obligations, in addition to amounts payable under Section 10.1 hereof, a charge at the rate of two percent per month upon the outstanding balance of the Obligations from the date of Default until the date of full payment of the Obligations, which charge shall be in lieu of compensation payable under Section 3.1 from such date; provided, that in no event shall such rate exceed the Maximum Rate and (ii) Lender shall have the right (in addition to any other rights Lender may have under this Agreement or otherwise) without further notice or demand to Borrower, to enforce payment of any Receivables or Collateral, to settle, compromise, or release in whole or in part, any amounts owing on Receivables or Collateral, to prosecute any action, suit or proceeding with respect to Receivables or Collateral, to extend the time of payment of any and all Receivables or Collateral, to make allowances and adjustments with respect thereto, to issue credits in Lender’s name or Borrower’s, to demand payment under the LC (subject to the Subordination Agreement with Raptor/Harbor Reeds SPV LLC executed contemporaneously herewith) to sell, assign and deliver the Receivables or Collateral (or any part thereof) and any returned, reclaimed or repossessed merchandise or other property held by Lender or by Borrower for Lender’s account, at public or private sale, at broker’s board, for cash, upon credit or otherwise, at Lender’s sole option and discretion, and Lender may bid or become purchaser at any such sale if public, free from any right of redemption which is hereby expressly waived. Borrower agrees that the giving of five days’ notice by Lender, sent by ordinary mail, postage prepaid, to the mailing address of Borrower set forth in this Agreement, designating the place and time of any public sale or the time after which any private sale or other intended disposition of the Receivables or Collateral or any other security held by Lender is to be made, shall be deemed to be reasonable notice thereof and Borrower waives any other notice with respect thereto. The net cash proceeds resulting from the exercise of any of the foregoing rights or remedies shall be applied by Lender to the payment of the Obligations in such order as Lender may elect, and Borrower shall remain liable to Lender for any deficiency. Notwithstanding anything to the contrary contained in this section, (i) to the extent that an event or occurrence described in this section consists of Borrower’s failure to take, do or perform an act or action, then such failure shall not constitute a Default if no other Default has occurred and if such act or action is taken, done or performed by Borrower within 5 Business Days after Borrower’s receipt of written notice from Lender that the act or action is required to be taken, done or performed by Borrower and has not been taken, done or performed; and (ii) to the extent that an event or occurrence described in this section consists of the commencement of a proceeding against Borrower under Federal or state law or the appointment of a receiver or custodian under Federal or state law, then the commencement of such proceeding or the appointment of such receiver or custodian shall not constitute a Default if no other Default has occurred and if such proceeding or appointment is contested by Borrower within the time period and in the manner required by law and is dismissed, terminated or vacated within ten (10) Business Days after such commencement or appointment.

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9.2. The enumeration of the foregoing rights and remedies is not intended to be exhaustive, and such rights and remedies are in addition to and not by way of limitation of any other rights or remedies Lender may have under the UCC or other applicable law. Lender shall have the right, in its sole discretion, to determine which rights and remedies, and in which order any of the same, are to be exercised, and to determine which Receivables or Collateral are to be proceeded against and in which order, and the exercise of any right or remedy shall not preclude the exercise of any others, all of which shall be cumulative. No act, failure or delay by Lender shall constitute a waiver of any of its rights and remedies. No single or partial waiver by Lender of any provision of this Agreement, or breach or default thereunder, or of any right or remedy which Lender may have shall operate as a waiver of any other provision, breach, default, right or remedy or of the same provision, breach, default, right or remedy on a future occasion. Borrower waives presentment, notice of dishonor, protest and notice of protest of all instruments included in or evidencing any of the Obligations or the Receivables or Collateral and any and all notices or demands whatsoever (except as expressly provided herein). Lender may, at all times, proceed directly against Borrower to enforce payment of the Obligations or any other rights and remedies in the Loan Documents and shall not be required to first enforce its rights in the Receivables or Collateral or any other security granted to it. Lender shall not be required to take any action of any kind to preserve, collect or protect its or Borrower’s rights in the Receivables or any other security granted to it.

9.3. BORROWER HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY IN THE EVENT OF ANY LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THIS AGREEMENT, THE OBLIGATIONS, THE RECEIVABLES, OR ANY OTHER TRANSACTION BETWEEN THE PARTIES AND BORROWER HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF ANY FEDERAL COURT LOCATED IN SUCH STATE IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE OBLIGATIONS. IN ANY SUCH LITIGATION BORROWER WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS AND AGREES THAT SERVICE THEREOF MAY BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO BORROWER AT ITS PLACE OF BUSINESS SET FORTH ABOVE.

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9.4. Borrower hereby agrees to indemnify Lender and hold Lender harmless from and against any liability, loss, damage, suit or proceeding ever suffered or incurred by Lender (including attorneys’ fee) as a result of Borrower’s failure to observe, perform or discharge Borrower’s duties hereunder or as a result of Borrower’s breach of any of the representations, warranties and covenants of this Agreement. This indemnity shall survive termination of this Agreement for any reason.

10. EFFECTIVE DATE, CONTROLLING LAW AND TERMINATION

10.1. This Agreement shall become effective upon acceptance by Lender at its office in the State of New York, and shall continue in full force and effect until March 30, 2021 (the “Renewal Date”) and from year to year thereafter, unless sooner terminated as herein provided. Borrower may terminate this Agreement on the Renewal Date or on the anniversary of the Renewal Date in any year by giving Lender not less than sixty (60) days prior written notice by registered or certified mail, return receipt requested, and in addition to its other rights hereunder, Lender shall have the right to terminate this Agreement at any time by giving Borrower one hundred fifty (150) days’ prior written notice. Should a Default occur hereunder, this Agreement will be terminable by Lender at any time and Borrower shall, upon any such termination by Lender, pay to Lender, as liquidated damages and as part of the Obligations, in addition to amounts payable under Section 9.1 hereof, an amount equal to (a) three percent (3%) of the Maximum Credit Facility then in effect, if such termination occurs on or prior to the first anniversary of the Closing Date; (b) two percent (2%) of the Maximum Credit Facility then in effect, if such termination occurs after the first anniversary of the Closing Date but on or prior to the second anniversary of the Closing Date; and (c) one percent (1%) of the Maximum Credit Facility then in effect if such termination occurs after the second anniversary of the Closing Date. In the event that Lender shall permit termination of this Agreement by Borrower other than as provided herein, as a condition to such termination, Borrower shall pay to Lender such additional liquidated damages in addition to performance of any other conditions to such termination. No termination of this Agreement, however, shall relieve or discharge Borrower of its duties, obligations and covenants hereunder until such time as all Obligations have been paid in full, and the continuing security interest in Receivables and other Collateral granted to Lender hereunder or under any other agreement shall remain in effect until such Obligations have been indefeasibly paid and performed in full and any provision hereof that by its terms survives termination of this Agreement shall survive pursuant to such terms. No provision hereof shall be modified or amended orally or by course of conduct but only by a written instrument expressly referring hereto signed by both parties. This Agreement and the Loan Documents embodies the entire agreement between Lender and Borrower as to the subject matter hereof and supersedes all prior agreements (whether oral or written) as to the subject matter hereof. This Agreement shall be binding upon and inure to the benefit of Borrower and Lender and their respective heirs, executors, administrators, successors and assigns, provided, however, that Borrower may not assign this Agreement or its rights hereunder without Lender’s prior written consent. Borrower consents to Lender’s sale of participations in the loans made under this Agreement.

15

10.2. ALL LOANS SHALL BE DISBURSED BY LENDER FROM ITS OFFICE IN THE STATE OF NEW YORK, SHALL BE PAYABLE BY BORROWER AT SUCH OFFICE, AND THIS AGREEMENT AND ALL TRANSACTIONS THEREUNDER SHALL BE DEEMED TO BE CONSUMMATED IN SUCH STATE AND SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THAT STATE. If any part or provision of this Agreement is invalid or in contravention of the applicable laws or regulations of any controlling jurisdiction, such part or provision shall be severable without affecting the validity of any other part or provision of this Agreement. Notwithstanding any provision herein or in any related document, Lender shall never be entitled to receive, collect, or apply, as interest on the Loan Account, any amount in excess of the maximum rate of interest (“Maximum Rate”) permitted to be charged from time to time by applicable law (if such law imposes any maximum rate), and in the event Lender ever receives, collects, or applies as interest, any amount in excess of the Maximum Rate, such amount shall be deemed and treated as a partial prepayment of the principal of the Loan Account; and, if the principal of the Loan Account and all other of Lender’s charges other than interest are paid in full, any remaining excess shall be paid to Borrower.

11. Miscellaneous

11.1. Unless otherwise specifically provided in this Agreement, any notices, requests, demands or other communications permitted or required to be given under this Agreement shall be in writing and shall be sent by facsimile, hand delivery or by a nationally recognized overnight delivery service, to the addresses and facsimile numbers of the parties set forth below (or to such other address or facsimile number as a party may hereafter designate by a notice to the other that complies with this section) and shall be deemed given (a) in the case of a notice sent by facsimile, when received by the recipient if the sending party receives a confirmation of delivery from its own facsimile machine; and (b) in the case of a notice that is hand delivered or sent by such overnight courier, when delivered (provided that the sending party retains a confirmation of delivery). Any notice which, pursuant to the terms hereof must be sent by Borrower by certified or registered mail shall be deemed given and effective when received by Lender, or Borrower, as the case may be.

If to Lender:	If to Borrower:
Rosenthal & Rosenthal, Inc.	Reed’s Inc.
1370 Broadway	201 Merritt 7 Corporate Park
New York NY 10018	Norwalk, Connecticut 06851
Attn: Robert Miller	Attn: Valentin Stalowir
Facsimile: (212) 356-0989	Facsimile:
with a copy to
Wilentz, Goldman & Spitzer, P.A.
Paul H. Shur, Esq.
110 William Street
26th Floor
New York, NY 10038-0958
Email: pshur@wilentz.com

11.2. Nothing contained herein shall impose on Lender any liability for any contracts, undertakings or other obligations of Borrower to others, including obligations of Borrower to any Account Debtor for breach of the terms of any contract of sale between Borrower and the Account Debtor.

11.3. Wherever in this Agreement (i) the term “including” appears, such term shall be deemed to mean “including without limitation”; (ii) the term “satisfactory” or “acceptable” to Lender appears, such terms shall be deemed to mean “acceptable” or “satisfactory” to Lender and its counsel in their commercially reasonable discretion; and (iii) the terms “in the opinion” or “in the judgment” of Lender appear, such terms shall be deemed to mean commercially reasonably determined “in the sole opinion” and “in the sole judgment” of Lender and its counsel.

16

11.4. Terms used in this Agreement that are not defined in this Agreement but are defined in the UCC shall have the meanings given in the UCC.

11.5. DRAFTING PRESUMPTION. In the event of any ambiguity or dispute regarding the definition or meaning of any word, phrase, or other verbiage, or the construction of any provision in this Agreement, there shall be no presumption favoring the definition, meaning or construction propounded by a particular party based upon which party (or which party’s attorney) drafted the word, verbiage or provision at issue, and same will be deemed mutually drafted.

IN WITNESS WHEREOF, Lender and Borrower have caused this Agreement to be executed by their respective corporate officers thereto duly authorized as of the day and year first above written.

REED’S INC.
By:	/s/ Valentin Stalowir
Name:	Valentin Stalowir
Title:	Chief Executive Officer

Accepted:
ROSENTHAL & ROSENTHAL, INC.
By:	/s/ Robert L. Martucci
Name:	Robert L. Martucci
Title:	Senior Vice President

17

STATE OF CONNECTICUT )

:SS.

COUNTY OF ___________)

BE IT REMEMBERED, that on this ____________ day of September, 2018, before me the subscriber, an officer duly authorized to take acknowledgments for use in the State of Connecticut, personally appeared Valentin Stalowir, who I am satisfied is the person who executed the within document as Chief Executive Officer of Reed’s, Inc., and I having first made known to him the contents thereof, he did thereupon acknowledge that said document is the voluntary act and deed of Reed’s, Inc., made by virtue of authority from Reed’s, Inc.’s By-Laws for the uses and purposes therein expressed.

Name:

Title:

My Commission expires:

Exhibit A

PERMITTED LIENS

(a) the security interests and liens of Lender;

(b) liens securing the payment of taxes, assessments or other governmental charges or levies either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to such Borrower or Subsidiary, as the case may be and with respect to which adequate reserves have been set aside on its books;

(c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of such Borrower’s business to the extent: (i) such liens secure indebtedness which is not overdue or (ii) such liens secure indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to such Borrower, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books;

(d) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of real property which do not interfere in any material respect with the use of such real property or ordinary conduct of the business of such Borrower as presently conducted thereon or materially impair the value of the real property which may be subject thereto;

(e) purchase money security interests in machinery and equipment (including capital leases);

(f) pledges and deposits of cash by any Borrower after the date hereof in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security benefits consistent with the current practices of such Borrower as of the date hereof;

(g) pledges and deposits of cash by Borrower after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of Borrower as of the date hereof; provided, that, in connection with any performance bonds issued by a surety or other person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Lender;

(h) liens arising from (i) operating leases and the precautionary UCC financing statement filings (satisfactory to Lender) in respect thereof and (ii) equipment or other materials which are not owned by Borrower located on the premises of such Borrower (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of such Borrower and the precautionary UCC financing statement filings (satisfactory to Lender) in respect thereof;

(i) judgments and other similar liens arising in connection with court proceedings that do not constitute a Default, provided, that, (i) such liens are being contested in good faith and by appropriate proceedings diligently pursued, (ii) adequate reserves or other appropriate provision, if any, as are required by GAAP have been made therefor, and (iii) a stay of enforcement of any such liens is in effect; and

(j) any other liens to which Lender has consented in writing, including but not limited to Raptor/Harbor Reed’s SPV LLC secured note.

Schedule 6.3

Litigation, Liens and Judgments

As disclosed in the Los Angeles County litigation search dated 9/13/18

Schedule 6.5

Other locations of Borrower

a.	Cano Logistics – 13100 South Broadway, Los Angeles, CA 90061 (Inventory)
b.	Global Freight – 13171 Charles Willard, Carson, CA 90746 (Inventory)
c.	Henningsen Cold Storage – 229 Maple Street, Scranton, PA 18504 (Inventory)
d.	LAGROU DES PLAINES, INC. – 1800 South Wolf Road, Des Plaines, IL 60018 (Inventory)
e.	Lion Brewery -700 N Pennsylvania Avenue, Wilkes-Barre, PA 18705 (Inventory)
f.	Odom Corporation – 1825 Raymond Avenue, Renton, WA 98057 (Inventory)
g.	PRI-PAK – 200 Schenley Place, Greendale, IN 47025 (Inventory)
h.	RC Moore, Inc. – 301 Oak Street, Pittson, PA 18640 (Inventory)
i.	States Logistics Services Inc. – 5590 E. Francis Street, Ontario, CA 91761 (Inventory)
j.	201 Merritt 7 Corporate Park, Norwalk, CT 06840
k.	13000 South Spring Street, Los Angeles, CA 90061

ANNEX A

TO ALL CUSTOMERS OF: REED’S INC.

Attention: Accounts Payable Supervisor

All accounts receivables of REED’S INC. have been assigned and are payable to Rosenthal & Rosenthal, Inc. Accordingly, payment of all accounts receivables arising from sales made or services rendered by REED’S INC. to you whether now existing or hereafter arising are to be made directly and only to:

Rosenthal & Rosenthal, Inc.

1370 Broadway

New York, NY 10018

Attn:

or pursuant to such other instructions as Rosenthal & Rosenthal, Inc. may hereafter provide.

This notification of assignment of accounts receivables is being given to you in accordance with the provisions of the Uniform Commercial Code. If you should make payment to REED’S INC. or anyone else other than Rosenthal & Rosenthal, Inc., unless otherwise instructed by Rosenthal & Rosenthal, Inc. hereafter such payment will not constitute payment of the account receivable, and may subject you to double liability for the sums due in connection therewith.

Very truly yours,

REED’S INC.

By:

Name:

Title:

Exhibit B

MONTHLY ACCOUNTS RECEIVABLE ROLLFORWARD REPORT

SAMPLE FORM

		+	-	-	-	+	-	+
	Beginning	Gross		(Net		Debit	(Credit	Non A/R	Ending
Date	Balance	Sales	(Credits)	Collections)	(Discounts)	Adj	Adj)	Cash	Balance
8/31/2018					Enter opening aging balance here
9/1/2018	0.00								0.00
9/2/2018	0.00								0.00
9/3/2018	0.00								0.00
9/4/2018	0.00								0.00
9/5/2018	0.00								0.00
9/6/2018	0.00								0.00
9/7/2018	0.00								0.00
9/8/2018	0.00								0.00
9/9/2018	0.00								0.00
9/10/2018	0.00								0.00
9/11/2018	0.00								0.00
9/12/2018	0.00								0.00
9/13/2018	0.00								0.00
9/14/2018	0.00								0.00
9/15/2018	0.00								0.00
9/16/2018	0.00								0.00
9/17/2018	0.00								0.00
9/18/2018	0.00								0.00
9/19/2018	0.00								0.00
9/20/2018	0.00								0.00
9/21/2018	0.00								0.00
9/22/2018	0.00								0.00
9/23/2018	0.00								0.00
9/24/2018	0.00								0.00
9/25/2018	0.00								0.00
9/26/2018	0.00								0.00
9/27/2018	0.00								0.00
9/28/2018	0.00								0.00
9/29/2018	0.00								0.00
9/30/2018	0.00								0.00
	0.00								0.00

Balance per Aging
Calculated balance	0.00
	Variance

Exhibit C

PATENTS, TRADEMARKS AND COPYRIGHTS

Trademarks in the United States

Trademark	Serial/Reg. No.	Class
REED'S ORIGINAL GINGER BREW ALL-NATURAL JAMAICAN STYLE GINGER ALE	86035664/4513979
VIRGIL’S	78867175/3213043
DR. BETTER	85892888/4432318
BELIEVE THE UNBELIEVABLE	87836349
REED’S	87721630

Patents in United States

None

Copyrights in United States

None

Exhibit D

A. Specific Insurance Requirements.

(i) Property Insurance - An all risks property insurance policy, including coverage for fire, theft, collision, burglary, pilferage, loss in transit, explosion, spoilage, wind, hail, earthquake, flood, collapse, sinkhole and terrorism (domestic and foreign), for an amount not less than one hundred percent (100%) of the replacement cost of the Collateral (exclusive of costs for foundations, underground utilities and footings for any Collateral consisting of real property, if applicable) without deduction for physical depreciation. Earthquake coverage will be required for any Collateral consisting of real property, if applicable, if the locations PML/SEL exceeds 20% with a limit equal to the PML/SEL. Earthquake deductibles shall not be greater than five percent (5%) of the total insured value of the property. If all or any portion of the improvements at any real property Collateral is, at any time during the term of this Agreement, located in a special flood hazard area or such other area as Lender may determine its reasonable discretion, flood coverage in an amount equal to (1) the maximum amount of such insurance available through the National Flood Insurance Program and (2) such additional flood coverage in form and substance and in amounts as may be reasonably required by Lender. “All risks” shall provide coverage for all direct damage to property except as specifically excluded by the policy. Such all risks property insurance policy shall contain a 438 BFU endorsement, or an equivalent New York Standard Mortgagee (if applicable) and Lenders Loss Payable Endorsement (CG 12 18 06 95 provision “C” or its equivalent, and: (A) no coinsurance provision or an agreed amount endorsement waiving any coinsurance provisions; (B) a deductible not to exceed $50,000; (C) if applicable, ordinance or law coverage including (1) loss in value to the undamaged portion of the building(s) to full replacement value, (2) demolition costs with a limit per loss of ten percent (10%) of the value of the building(s) affected by loss, and (3) increased costs of construction with a limit per loss of ten percent (10%) of the value of the building(s) affected by loss; (D) if applicable, equipment breakdown coverage including, but not limited to, loss or damage from electrical injury, machinery and equipment breakdown, and explosion of steam boilers, air conditioning equipment, high pressure piping, pressure vessels or similar apparatus; and (E) business income and/or loss of rents coverage, if applicable, in amount equal to the estimated net operating income and continuing expenses for the property for a period of twelve (12) months, which may be increased from time to time by Lender, with a 180 Day Extended Period of Indemnity (or such other period of time as may be needed, in Lender’s commercially reasonable discretion, to return to normal operating levels);

(ii) Liability Insurance – (A) a commercial general liability policy insuring against claims for personal injury, bodily injury, death or property damage occurring upon, in or about Borrower’s premises, to be on an “occurrence” form, with limits not less than $1,000,000 per occurrence and $2,000,000 general aggregate; (B) if applicable, a business automobile liability policy with symbol 1 with limits not less than $1,000,000 per accident; and (C) if applicable, a workers compensation policy with limits not less than statutory requirements for workers compensation and an employer’s liability limit of not less than $1,000,000 each accident and $1,000,000 per employee and policy aggregate for bodily injury by disease. Each commercial general liability policy shall contain a per location general aggregate if covering multiple locations; (D) if applicable, Products Recall expense and indemnity policy with a limit not less than $5,000,000 per occurrence and annual aggregate, (E) if applicable, Cyber Liability insurance with a limit of not less than $1,000,000 per occurrence and annual aggregate, and (F) such additional liability coverages as deemed necessary during the lender’s loan due diligence process.

(iii) Umbrella or Excess Liability Insurance –A commercial umbrella or excess liability policy with limits not less than $5,000,000 which, at a minimum, shall schedule the following policies as “underlying”: commercial general & products liability, business automobile liability and employer’s liability.

(iv) if applicable, a “Blanket Crime” policy including employee dishonesty, forgery or alteration, theft, disappearance and destruction, robbery and safe burglary, property, and computer fraud coverage.

B. General Insurance Requirements.

(i) All insurance premiums on all policies must be paid as and when due and payable, consistent with the past practices of Borrower. All outstanding premiums for the current policy term are to be paid prior to the effective date of such policy;

(ii) No insurance policy required hereunder shall be permitted to provide for premium assessments to be made against Lender;

(iii) Borrower shall provide the following prior to the effective date of such policy: (i) an ACORD 25 or equivalent certificate of liability insurance and (ii) an ACORD 28 or equivalent certificate of property insurance;

(iv) Prior to the renewal date of each insurance policy required hereunder, Borrower shall provide certificates of insurance providing evidence that the policies have been renewed on forms ACORD 28 and ACORD 25;

(v) Borrower shall provide promptly upon Lender’s request complete copies of the insurance policies providing the coverage required hereunder;

(vi) Each property policy and to the extent possible, each liability policy shall contain a provision providing not less than thirty (30) days’ prior written notice to Lender of cancellation and not less than ten (10) days’ prior written notice to Lender of cancellation for non-payment of premium;

(vii) Lender is to be named (A) the first mortgagee (if applicable) and first lender loss payee with respect to the property insurance coverage, and (B) an additional insured with respect to general liability and umbrella or excess liability insurances, as follows: Rosenthal & Rosenthal, Inc., 1370 Broadway, New York, NY 10018.

(viii) A waiver of subrogation shall be provided on all liability policies of insurance waiving rights of recovery against Lender; and

(ix) The limits of insurance contained herein are minimum limits established by Lender and shall not be construed to mean that Lender represents or warrants that the required limits contained herein are adequate for protection to Borrower, nor limit the liability of Borrower to the limits stated herein.

EX-10.2

INVENTORY SECURITY AGREEMENT

New York, NY October 4, 2018

ROSENTHAL & ROSENTHAL, INC.

1370 Broadway

New York NY 10018

Ladies and Gentlemen:

We do hereby agree that the Financing Agreement between us dated October 4, 2018, as amended and supplemented, (the “Financing Agreement”) be and the same hereby is amended and supplemented by adding thereto the following clauses:

We hereby pledge, assign, consign, transfer and set over to you, and you shall at all times have a continuing general lien upon, and we hereby grant you a continuing security interest in, all of our Inventory and the proceeds thereof. “Inventory” shall include but not be limited to raw materials, work in process, finished merchandise and all wrapping, packing and shipping materials, wheresoever located, now owned or hereafter acquired, presently existing or hereafter arising, and all additions and accessions thereto, the resulting product or mass and any documents representing all or any part thereof. Upon your request after and during the continuation of a Default, we will at any time and from time to time, at our expense, deliver such Inventory to you or such person as you may designate, cause the same to be stored in your name at such place as you may designate, deliver to you documents of title representing the same or otherwise evidence your security interest in such manner as you may require. We constitute you, or any other entity or person whom you may designate as our attorney in fact, at our own cost and expense, at any time after and during the continuation of a Default, to sign and/or endorse our name on all remittances and all papers, bills of lading, receipts, instruments and documents relating to the Inventory and the transactions between us, or as you otherwise may require to enforce your rights under this agreement, including, without limitation, to take possession of any Inventory consigned to and/or located at the premises of any third party.

The aforementioned lien and security interest shall secure any and all of our Obligations to you, matured or unmatured, absolute or contingent, now existing or that may hereafter arise, and howsoever acquired by you, whether arising directly between us or acquired by you by assignment and whether relating to this agreement or independent hereof, together with all interest, charges, commissions, expenses, attorneys’ fees and other items chargeable against us in connection with any of said Obligations.

We agree, at our expense, to keep all Inventory insured to the full value thereof against such risks and by policies of insurance issued by such companies as you may designate or approve, and the policies evidencing such insurance shall be duly endorsed in your favor with a long form lender’s loss payable rider or such other document as you may designate and said policies shall be delivered to you. Should we fail for any reason to furnish you with such insurance, you shall have the right to effect the same and charge any costs in connection therewith to us. You shall have no risk, liability or responsibility in connection with payment or nonpayment of any loss, your sole obligation being to credit our account with the net proceeds of any such insurance payments received on account of any loss. Any and all assessments, taxes or other charges that may be assessed upon or payable with respect to the Inventory or any part thereof shall forthwith be paid by us, and we agree that you, in your discretion, may effect such payment and charge the amount thereof to us. We further agree that except for the lien and security interest granted to you hereby, we shall not permit said Inventory to otherwise become liened or encumbered nor shall we grant any security interest therein to any other party. We shall not, without your written consent first obtained, remove or dispose of any of such Inventory except to bona fide purchasers thereof in the ordinary course of our business. All such sales shall be reported to you promptly and the accounts or other proceeds thereof shall be subject to the security interests in your favor. You shall have the right at all times after and during the continuation of a Default to the immediate possession of all Inventory and its products and proceeds and we shall make such Inventory and all our records pertaining thereto available to you for inspection at any time requested by you. You shall have the right, in your discretion, to pay any liens or claims upon said Inventory, including, but not limited to, warehouse charges, dyeing, finishing and processing charges, landlords’ claims, etc. and the amount of any such payment shall be charged to our account and secured hereby. You shall not be liable for the safekeeping of any of the Inventory or for any loss, damage or diminution in the value thereof or for any act or default of any warehouseman, carrier or other person dealing in and with said Inventory, whether as your agent or otherwise, or for the collection of any proceeds thereof but the same shall at all times be at our sole risk. Notwithstanding the foregoing, the parties hereto acknowledge the subordinate security interest of Raptor/Harbor Reeds SPV LLC which is subject to the Subordination Agreement executed contemporaneously herewith.

Page 1 of 3

Prior to its sale to a bona fide purchaser in the ordinary course of business, Inventory shall at all times remain at our address specified below, and at 12930 S Spring Street, Los Angeles, CA 90061; 13100 South Broadway, Los Angeles, CA 90061; 5590 E Francis St, Ontario, CA 91761; 301 Oak St, Pittson, PA 18640; 700 N Pennsylvania Ave, Wilkes-Barre, PA 18705; 1 Passan Drive, Wilkes-Barre, PA 18702; 1825 Raymond Avenue, Renton, WA 98057; 1800 South Wolf Road, Des Plaines, IL 60018; 992 N South Road, Scranton, PA 18504; 229 Maple Street, Scranton, PA 18505; 200 Schenley Place, Greendale, IN 47025; and 1371 Charles Willirad, Carson, CA 90746 or to another of our present or future places of business as is or will be disclosed to you prior to our placing any goods in such places of business and shall not be removed therefrom without your prior written consent (not to be unreasonably withheld or delayed).

Upon Default, you shall have the right, upon reasonable notice to us, to sell all or any part of our Inventory, at public or private sale, or make other disposition thereof, at which sale or disposition you may be a purchaser whether for credit (by offsetting all or a portion of the amount of indebtedness owing by us to you or otherwise) cash or otherwise. We agree that written notice sent to us by postpaid mail, at least five days before the date of any intended public sale or the date after which any private sale or other intended disposition of the Inventory is to be made, shall be deemed to be reasonable notice thereof. We do hereby waive all notice of any such sale or other intended disposition if said Inventory is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. Upon Default, you may require us to assemble all or any part of the Inventory and make it available to you at a place to be designated by you, which is reasonably convenient to both parties. In addition, after and during the continuation of a Default you may peaceably, by your own means or with judicial assistance, enter our or any other premises and take possession of the Inventory and remove or dispose of it on our premises and we agree that we will not resist or interfere with any such action. We hereby expressly waive demand, notice of sale (except as herein provided), advertisement of sale and redemption before sale. The net proceeds of any such public or private sale or other disposition as far as needed shall be applied toward the payment and discharge of any and all of our Obligations to you, together with all interest thereon and all reasonable costs, charges, expenses and disbursements in connection therewith, including the reasonable fees of your attorneys; we, of course, continue to be liable therefor should there be any deficiency.

This agreement shall constitute a security agreement pursuant to the Uniform Commercial Code and, in addition to any and all of your other rights hereunder, you shall have all of the rights of a secured party pursuant to the provisions of the Uniform Commercial Code. We agree to execute a financing statement and any and all other instruments and documents that may now or hereafter be provided for by the Uniform Commercial Code or other law applicable thereto, reflecting the security interests granted to you hereunder. We do hereby authorize you to file a financing statement without our signature, signed only by you as secured party, to reflect the security interests granted to you hereunder. Capitalized terms that are not defined herein have the meanings given in the Financing Agreement.

[Remainder of Page Left Intentionally Blank - Signature Page Follows]

Page 2 of 3

Very Truly Yours,

REED’S INC.

By:	/s/ Valentin Stalowir
Name:	Valentin Stalowir
Title:	Chief Executive Officer

Address: 201 Merritt 7 Corporate Park, Norwalk, Connecticut 06851

ACCEPTED AND AGREED TO

ROSENTHAL & ROSENTHAL, INC.

By:	/s/ Robert L. Martucci
Name:	Robert L. Martucci
Title:	Senior Vice President

STATE OF CONNECTICUT )

:SS.

COUNTY OF _____________)

BE IT REMEMBERED, that on this ____________ day of September, 2018, before me the subscriber, an officer duly authorized to take acknowledgments for use in the State of Connecticut, personally appeared Valentin Stalowir, who I am satisfied is the person who executed the within document as Chief Executive Officer of Reed’s, Inc., and I having first made known to him the contents thereof, he did thereupon acknowledge that said document is the voluntary act and deed of Reed’s, Inc., made by virtue of authority from Reed’s, Inc.’s By-Laws for the uses and purposes therein expressed.

Name:

Title:

My Commission expires:

[Signature Page to Inventory Security Agreement]

Page 3 of 3

EX-10.3

EXECUTION VERSION

Rosenthal & Rosenthal, Inc.

1370 Broadway

New York, NY 10018

October 4, 2018

Reed’s Inc.

201 Merritt 7 Corporate Park

Norwalk, Connecticut 06851

Re: Intellectual Property Security Agreement

We have entered into a Financing Agreement as amended and/or supplemented effective as of October 4, 2018 among Rosenthal & Rosenthal, Inc., as Lender, and Reed’s Inc. (hereinafter referred to as “you”) pursuant to which you have incurred Obligations (as defined in the Financing Agreement).

As part of the inducement for us to extend additional credit to you under the Financing Agreement, you have agreed to execute this Intellectual Property Security Agreement covering the U.S. Trademarks and Domain Name listed on Schedule A, the U.S. Patents listed on Schedule B, the U.S. copyrights listed on Schedule C, the license agreements listed on Schedule D (the “Licenses”) and any future intellectual property registrations, applications, licenses you may enter into authorizing third parties to use your intellectual property and all Proceeds (as hereinafter defined) of such Licenses and any other intellectual property rights you now have or may obtain in the future.

1. DEFINED TERMS

As used in this Intellectual Property Security Agreement, terms defined in the Financing Agreement shall have their defined meanings and the following terms shall have the following meanings, unless the context otherwise requires:

“Code” shall mean the Uniform Commercial Code as the same may from time to time be in effect in the State of New York.

“Collateral” shall have the meaning assigned to it in Section 2 of this Intellectual Property Security Agreement.

“Copyrights” shall mean all copyrights in published and unpublished works, now or hereafter existing, all right, title and interest therein anywhere in the world, and all applications, registrations and recordings relating thereto filed in the United States Copyright Office or in any other government office or agency anywhere in the world, all whether now owned or hereafter created or acquired by you. “Copyrights” as used herein includes, without limitation, the right to print, reprint, publish, reproduce, sell, distribute, perform, display and make derivative works based on works presently or hereafter owned by or licensed to you, in whole or in part, and all other rights which you presently have or hereafter acquire pursuant to any contract that enables you to conduct its business anywhere in the world, including, without limitation, copyright assignments, exclusive and non-exclusive licenses; publishing agreements; printing agreements; distribution agreements; and agreements relating to translation rights, first and second serial rights, book club, paperback and secondary publishing rights, and stage, motion picture, television, home video, phonograph record, merchandising and all other entertainment or communication-related rights. “Copyrights” as used herein also includes, without limitation, all of your right, title and interest in all physical materials embodying works with respect to which you own any Copyrights, including, without limitation, plates, films, color separations, mechanical art, and original art and manuscripts.

“Default” shall mean, for purposes of this Intellectual Property Security Agreement, any event of default as defined in the Financing Agreement.

“General Intangibles” shall have the meaning assigned to it under Section 9-102 of the Code.

“Intellectual Property Security Agreement” shall mean this Intellectual Property Security Agreement, as the same may from time to time be amended or supplemented.

“Obligations” shall have the meaning assigned to that term in the Financing Agreement. The term “Obligations” shall also include any and all reasonable attorney’s fees, costs and other expenses incurred by us or on our behalf in the collection or enforcement of any of the Obligations and the perfection, presentation and enforcement of our rights and remedies hereunder and our security interest in the Collateral.

“Patents” shall mean any patent or patent application listed on Schedule B annexed hereto, all other U.S. patents, U.S. patent applications, foreign patents, foreign patent applications (including utility models) and international (PCT) patent applications owned by you, all parents, divisions, continuations, continuations-in-part, substitutions and changes of applications of any of the foregoing U.S., foreign or international patents or patent applications, whether related thereto directly or through one or more intervening U.S., foreign or international applications, all U.S. and foreign patents and patent applications (including utility models) corresponding to or claiming priority from the aforesaid patents and patent applications, including all patents of addition, issuing on or registered from any of the foregoing applications, and all reissues, reexaminations, renewals and extensions of any of the foregoing U.S. and foreign patents, all whether now owned or hereafter acquired by you, including, but not limited to, those described in Schedule B annexed hereto.

“Proceeds” shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guarantee payable to you from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to you from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.

“Trademarks” shall mean any trademark or domain name listed on Schedule A annexed hereto, prints and labels on which said trademark has appeared or appear, and all designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all right title and interest therein and thereto, and all registrations and recordings thereof, including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office or with any domain name registrar or in any country’s Patent and Trademark Office or in any similar office or agency of the United States or any other country, any State thereof, or any political subdivision thereof, all whether now owned or hereafter acquired by you, including, but not limited to, those described in Schedule A annexed hereto.

2. GRANT OF SECURITY INTEREST

As collateral security for your prompt and complete payment and performance of all Obligations under the Financing Agreement , you hereby pledge and hypothecate in favor of us, and grant to us a security interest in all of your right, title and interest (a) in and to the Trademarks and the good will of the business symbolized by the Trademarks, including, without limitation, all of your licenses, customer lists and other business records and that of your subsidiaries and affiliates relating to the Trademarks listed on Schedule A; and any and all proceeds of the foregoing, including, without limitation, any claims by you against third parties for infringement of the Trademarks; (b) in and to the Patents and the good will of the business symbolized by the Patents, including, without limitation, all of your licenses, lists of licensees and other business records and that of your subsidiaries and affiliates relating to the Patents; the patents and patent applications listed in Schedule B and all other patents and patent applications owned by you; and any and all proceeds of the foregoing, including, without limitation, any claims by you against third parties for infringement of the Patents; (c) in and to the Copyrights and the good will of the business symbolized by the copyrights including without limitation all of your licenses and other business records and that of your subsidiaries and affiliates relating to the Copyrights, the copyrights and copyright applications listed in Schedule C and all other copyrights and copyright applications owned by you; and any and all proceeds of the foregoing, including, without limitation, any claims by you against third parties for infringement of the Copyrights and (d) all of your right, title and interest in, to and under the following:

IP Security Agreement, pg. 2

(i) all Licenses;

(ii) all Accounts, General Intangibles and contract rights arising under or relating to each and every License (including, without limitation, (A) all monies due and to become due under any License, (B) any damages arising out of or for breach or default in respect of any such License, (C) all other amounts from time to time paid or payable under or in connection with any such License, and (D) your right to terminate any such License or to perform and to exercise all remedies thereunder);

(iii) to the extent not otherwise included, all Proceeds and products of any or all of the foregoing.

All of the property referred to in this paragraph 2 is hereinafter collectively called the “Collateral.”

3. OUR RIGHTS; LIMITATIONS ON OUR OBLIGATIONS

(a) It is expressly agreed by you that, anything herein to the contrary notwithstanding, you shall remain liable under each License to observe and perform all the conditions and obligations to be observed and performed by you thereunder, all in accordance with and pursuant to the terms and provisions of each such License. We shall not have any obligation or liability under any License by reason of or arising out of this Intellectual Property Security Agreement or its assignment to us or the receipt by us of any payment relating to any License, pursuant thereto, nor shall we be required or obligated in any manner to perform or fulfill any of your obligations under or pursuant to any License, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by us or the sufficiency of any performance by any party under any License, or to present or file any claim, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to us or to which we may be entitled at any time or times.

(b) Upon Default, we may at any time notify parties to the Licenses that we have a security interest in one or more of the Licenses and notify said parties that payments shall be made directly to us thereafter. Upon our request at any time, you will so notify such parties to the Licenses. We may in our own name or in the name of others communicate with parties to the Licenses in order to verify with them to our satisfaction the existence, amount and terms of any Licenses.

4. REPRESENTATIONS AND WARRANTIES

(a) Schedule A to this Intellectual Property Security Agreement contains a schedule of all the trade names, trademarks and service marks, and their registrations and pending applications, domain names owned by you or in which you have any rights and licenses for Trademarks. To the best of your knowledge, in the use of the Trademarks, domain names or otherwise, you and your affiliates and subsidiaries have not infringed, and are not now infringing on any trade name, trademark, service mark, domain name, copyright, patent, right of privacy or publicity, and are not competing unfairly with, or otherwise violating the rights of any other party. Except as set forth in Schedule D, you are not a party to any license, agreement or arrangement, whether as licensor, licensee or otherwise, with respect to any trademarks, service marks, trade names, or domain names, trade secrets, know-how, or confidential information.

(b) To the best of your knowledge, you and your affiliates and subsidiaries have not infringed, and are not now infringing on any patent or otherwise violating the patent rights of any other party, and have not misappropriated, and are not now misappropriating on any trade secret or otherwise violating the trade secrets rights of any other party. Except as set forth in Schedule D, you are not a party to any patent or trade secret license, agreement or arrangement, whether as licensor, licensee or otherwise.

(c) To the best of your knowledge, you and your affiliates and subsidiaries have not infringed, and are not now infringing on any copyright or otherwise violating the copyright rights of any other party. Except as set forth in Schedule D, you are not a party to any copyright license, agreement or arrangement, whether as licensor, licensee or otherwise.

(d) You own all the Trademarks, Patents and Copyrights listed on Schedules A, B and C for your business as now conducted by you and such use does not, to the best of your knowledge, and will not, conflict with, infringe on, or otherwise violate any rights of others and the Trademarks, Patents and Copyrights are valid and enforceable.

IP Security Agreement, pg. 3

(e) You are the owner of all the Trademarks, Patents and Copyrights listed on Schedules A, B and C for the goods and descriptions set forth on said Schedules throughout the United States, and no persons, other than the licensees identified in Schedule D, have the right to use the Trademarks, Patents or Copyrights in the United States.

(f) Other than as specifically noted on the Schedules, none of the Trademarks, Patents or Copyrights listed on Schedules A, B and C have been abandoned.

(g) Each License referred to in Schedule D is a bona fide, valid and legally enforceable obligation by you and the licensees thereto. All consents, approvals or authorizations required to be obtained, effected or given in connection with the execution, delivery and performance of each License by each party thereto and you have been duly obtained, effected or given, are in full force and effect and do not subject the scope of such License to any materially adverse limitation, either specific or general in nature. The rights and obligations of you as Licensor, shall also be for the benefit of us, as a secured lender, to you and to any subsequent purchaser of such Licenses from us.

(h) With respect to each License referred to in Schedule D, neither you nor any other party to such License is in default or, to the best of your knowledge, is likely to become in default in the performance or observance of any of the terms thereof. You have fully performed all of your material obligations under each License and your right, title and interest in any License is not subject to any defense, offset, counterclaim or claim, nor have any of the foregoing been asserted or alleged against you or your predecessor(s) as to any License.

(i) The Collateral now owned by you is valid and subsisting and in full force and effect and you have the sole, full and clear title thereto. You have the right and power to grant the security interest herein granted and the Collateral is not subject to any liens, claims, mortgages, assignments, licenses (other than the licensees set forth on Schedule D hereto) or security interests.

(j) No security agreement, financing statement, equivalent security or lien instrument or continuation statement covering all or any part of the Collateral is on file or of record in any public office, except such as may have been filed by you in favor of us pursuant to this Intellectual Property Security Agreement or to the Financing Agreement. Notwithstanding the foregoing, the parties hereto acknowledge the subordinate security interest of Raptor/Harbor Reeds SPV LLC which is subject to the terms of the Subordination Agreement executed contemporaneously herewith.

(k) This Intellectual Property Security Agreement constitutes a valid and continuing first lien on and first security interest in the Collateral in our favor, prior to all other liens, encumbrances, security interests and rights of others and is enforceable as such as against your creditors and customers. All action necessary or desirable to protect and perfect such security interest in each item of the Collateral has been duly taken.

(l) Your principal place of business and the place where your records concerning the Collateral are kept is the address set forth above and you will not change such principal place of business or remove such records without our express written consent.

(m) Except as set forth is Schedule D, you are not a party to any license, agreement or arrangement with respect to the Trademarks, Patents or Copyrights.

(n) You will promptly notify us of all license agreements covering the Trademarks, Patents and Copyrights executed after the date of this Intellectual Property Security Agreement.

IP Security Agreement, pg. 4

5. COVENANTS

You covenant and agree with us that from and after the date of this Intellectual Property Security Agreement and until the Obligations are fully satisfied:

(a) Further Documentation; Pledge of Instruments. At any time and from time to time, upon our written request, and at your sole expense, you will promptly and duly execute and deliver any and all such further instruments and documents and take such further action as we may reasonably deem desirable in obtaining the full benefits of this Intellectual Property Security Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the liens and security interest granted thereby. You also hereby authorize us to file any such financing or continuation statement pertaining to the Collateral without your signature to the extent permitted by applicable law. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note or other instrument, such note or instrument shall be immediately pledged to us hereunder, duly endorsed in a manner satisfactory to us.

(b) Maintenance of Records. You will keep and maintain at your own cost and expense satisfactory and complete records of the Collateral including, without limitation, a record of all payments received and all credits granted with respect to the Collateral and all other dealings with the Collateral. You will mark your books and records pertaining to the Collateral to evidence this Intellectual Property Security Agreement and the security interests granted hereby. For our further security, you agree that we shall have an interest in all of your books and records pertaining to the Collateral and you shall deliver and turn over copies of any such books and records to us or to our representatives at any time after the occurrence and during the continuation of a Default on our demand, along with a certificate from a duly authorized officer that the copies accurately reflect the originals.

(c) Maintenance of Trademarks, Patents and Copyrights. You will not do any act, or omit to do any act, whereby the Trademarks, Patents or Copyrights or their registrations thereof may become abandoned, invalidated, unenforceable, expired or will otherwise diminish the value of the Trademarks, Patents or Copyrights, and shall notify us immediately if you know of any reason or have reason to know of any ground under which this result may occur. Without in any way limiting the foregoing, you shall take appropriate action at your expense to halt the infringement of the Trademarks, Patents and Copyrights and shall properly exercise your duty to control the nature and quality of the goods and/or services offered by Licensees in connection with the Trademarks, Patents and Copyrights listed on Schedules A, B and C.

(d) Indemnification.

(A) You assume all responsibility and liability arising from the use of the Trademarks, Patents and Copyrights and you hereby agree to indemnify and hold us harmless from and against any claim, suit, loss, damage or expense (including reasonable attorneys’ fees) arising out of your business operations.

(B) Upon Default, in any suit, proceedings or action brought by us under any License for any sum owing thereunder, or to enforce any provisions of such License you will indemnify and keep us harmless from and against all expense, loss or damage suffered by reason of any defense, set off, counterclaim, recoupment or reduction or liability whatsoever of the obligee thereunder, arising out of a breach by you of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such obligee or its successors from you, and all of your such obligations shall be and remain enforceable against and only against you and shall not be enforceable against us.

(e) Compliance with Laws, etc. You will comply, in all material respects, with all acts, rules, regulations, orders, decrees, and directions of any governmental authority applicable to the Collateral or any part thereof or to the operation of your business; provided, however, that you may contest any act, regulation, order, decree or direction in any reasonable manner which shall not in our sole opinion exercised in good faith adversely affect our rights or the first priority of our security interest in the Collateral.

(f) Payment of Obligations. You will pay when due all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of its income or profits therefrom, as well as all claims of any kind (including claims for labor, materials and supplies), except that no such charge need be paid if (i) the validity thereof is being contested in good faith by appropriate proceedings, (ii) such proceedings do not involve any danger of the sale, forfeiture or loss of any of the Collateral or any interest therein and (iii) such charge is adequately reserved against in accordance with generally accepted accounting principles.

IP Security Agreement, pg. 5

(g) Compliance with Terms of Licenses, etc. You will perform and comply in all material respects with all obligations under the Licenses and all other agreements to which you are a party or by which you are bound relating to the Collateral.

(h) Limitation of Liens on Collateral. You will not create, permit or suffer to exist, and will defend the Collateral against and take such other action as is necessary to remove, any lien, security interest, encumbrance, claim or right, in or to the Collateral and will defend our right, title and interest in and to any of your rights under the Licenses and to the Proceeds thereof against the claims and demands of all persons whomsoever.

(i) Limitations on Modifications of Licenses. You will not (i) amend, modify, terminate or waive any provision of any License in any manner which could reasonably be expected to materially adversely affect the value of such License as Collateral without our prior written consent which consent will not be unreasonably withheld, (ii) fail to exercise promptly and diligently each and every material right which you may have under each License (other than any right of termination) or (iii) fail to deliver to us a copy of each material demand, notice or document sent or received by you relating in any way to any License.

(j) Further Identification of Collateral. You will furnish to us such reports in connection with the Collateral as we may reasonably request, all in reasonable detail.

(k) Notices. You will advise us promptly, in reasonable detail, (i) of any lien, or claim made or asserted against any of the Collateral, (ii) of any material change in the composition of the Collateral, and (iii) of the occurrence of any other event which would have a material effect on the aggregate value of the Collateral or on the security interest created hereunder.

(l) Right of Inspection. We shall at all times have full and free access during normal business hours to all of your books, correspondence and records, and we or our representatives, upon twenty four hours prior notice, may examine the same, take extracts therefrom and make photocopies thereof, and you agree to render to us, at your cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto.

(m) Additional Trademarks, Patents and Copyrights and Future Trademark, Patent and Copyright Applications. In no event shall you adopt or use any Trademark, Patent or Copyright or register or file an application for the registration of any Trademark, Patent or Copyright with the United States Patent and Trademark Office or Copyright Office, Domain Name Registrar or any other country’s Patent, Trademark or Copyright Office or Domain Name Registrar or any similar office or agency unless you promptly inform us, and, upon our request, you will execute and deliver any and all agreements, instruments, documents and papers as we may request to evidence our interest in your Trademarks, Patents and Copyrights and the goodwill and general intangibles relating thereto or represented thereby.

(n) Limitation on Further Uses of Trademarks, Patents and Copyrights. You will not assign, sell, mortgage, lease, transfer, pledge, hypothecate, grant a security interest in or lien upon, encumber, grant an exclusive or non-exclusive license, or otherwise dispose of any of the Collateral, without our prior written consent, and nothing in this Agreement shall be deemed a consent by us to any such action. Without in any way limiting the foregoing, we must approve any future license or use by you of the Trademarks, Patents, and Copyrights which consent will not be unreasonably withheld.

6. OUR APPOINTMENT AS ATTORNEY-IN-FACT

(a) You hereby irrevocably constitute and appoint us and any of our officers or agents, with full power of substitution, as your true and lawful attorney-in-fact with full irrevocable power and authority in your place and stead and in your name or in our own name, from time to time in our discretion, for the purpose of carrying out the terms of this Intellectual Property Security Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Intellectual Property Security Agreement and, without limiting the generality of the foregoing, hereby give us the power and right, on your behalf, without notice to or assent by you to do the following:

(i) Upon the occurrence and during the continuance of a Default, to ask, demand, collect, receive and give acquittance and receipts for any and all moneys due and to become due under any Licenses and, in your name or our own name or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Licenses and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by us for the purpose of collecting any and all such moneys due under any Licenses whenever payable;

IP Security Agreement, pg. 6

(ii) To pay or discharge taxes, liens, security interests or other encumbrances levied or placed on or threatened against the Collateral; and

(iii) Upon the occurrence and during the continuance of any Default, (A) to direct any party liable for any payment under any of the Licenses to make payment of any and all moneys due and to become due thereunder directly to us or as we shall direct; (B) to receive payment of and receipt for any and all moneys, claims and other amounts due and to become due at any time in respect of or arising out of any Collateral; (C) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (D) to defend any suit, action or proceeding brought against you with respect to any Collateral; (E) to settle, compromise, or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or release as we may deem appropriate; (F) to cause your corporate names and domain names and those of your affiliates and subsidiaries to be changed to names which do not include the Trademark or any term similar thereto, and neither you nor any of your affiliates or subsidiaries shall thereafter make any use of the Trademark or any mark similar thereto for any purpose; and (G) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though we were the absolute owner thereof for all purposes, and to do, at our option and your expense, at any time, or from time to time, all acts and things which we deem necessary to protect, preserve or realize upon the Collateral and our security interest therein, in order to effect the intent of this Intellectual Property Security Agreement, all as fully and effectively as you might do.

You hereby ratify all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. Notwithstanding the foregoing, you further agree to execute any additional documents which we may require in order to confirm this power of attorney, or which we may deem necessary to enforce any of our rights contained in this Intellectual Property Security Agreement.

(b) The powers conferred on us hereunder are solely to protect our interests in the Collateral and shall not impose any duty upon us to exercise any such powers. We shall be accountable only for amounts that we actually receive as a result of the exercise of such powers and neither we nor any of our officers, directors, employees or agents shall be responsible to you for any act or failure to act, except for our own gross negligence or willful misconduct.

(c) You also authorize us, at any time and from time to time to execute, in connection with the sale provided for in Section 9 of this Intellectual Property Security Agreement, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral.

7. EXECUTION OF POWER OF ATTORNEY

Concurrently with the execution and delivery hereof, you are executing and delivering to us, in the form of Exhibit E hereto, five (5) originals of a Power of Attorney for the implementation of the assignment, sale or other disposal of the Trademarks, Patents and Copyrights pursuant to paragraph 6 hereof.

8. PERFORMANCE BY US OF YOUR OBLIGATIONS

If you fail to perform or comply with any of your agreements contained herein and we, as provided for by the terms of this Intellectual Property Security Agreement, shall ourselves perform or comply, or otherwise cause performance or compliance, with such agreement, our expenses incurred in connection with such performance or compliance shall be payable by you to us on demand and shall constitute Obligations secured by.

IP Security Agreement, pg. 7

9. REMEDIES, RIGHTS UPON DEFAULT

(a) If a Default shall occur and be continuing:

(i) All payments received by you under or in connection with any of the Collateral shall be held by you in trust for us, shall be segregated from other funds of yours, and shall forthwith upon receipt by you, be turned over to us, in the same form as received by you (duly indorsed by you to us, if required); and

(ii) any and all such payments so received by us (whether from you or otherwise) may, in our sole discretion, be held by us as collateral security for, and/or then or at any time thereafter applied in whole or in part by us against all or any part of the Obligations in such order as we shall elect. Any balance of such payments held by us and remaining after payment in full of all the Obligations shall be paid over to you or to whomsoever may be lawfully entitled to receive the same.

(b) If any Default shall occur and be continuing, you agree and consent that we may succeed to the position of either Licensee or Licensor under the License Agreement, and receive all rights and benefits of such party under the License Agreement, including, without limitation, the right to enforce the Licenses and the right to sublicense the Trademarks and Patents.

(c) If any Default shall occur and be continuing, we may exercise in addition to all other rights and remedies granted to us in this Intellectual Property Security Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the Uniform Commercial Code. You shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which we are entitled, and you will be liable for the fees of any attorneys employed by us to collect such deficiency.

(d) You also agree to pay all of our costs, including attorneys’ fees, incurred with respect to the collection of any of the Obligations and the enforcement of any of our rights hereunder.

(e) You hereby waive presentment, demand, protest or any notice (to the extent permitted by applicable law and except as set forth in the Loan Agreement) of any kind in connection with this Intellectual Property Security Agreement or any Collateral.

10. LIMITATION ON OUR DUTY IN RESPECT OF COLLATERAL

Beyond the safe custody thereof, we shall not have any duty as to any Collateral in our possession or control or in the possession or control of any of our agents or nominees or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto.

11. NOTICES

Any notice to either party shall be deemed to have been validly served (a) upon the earlier of actual receipt or four (4) days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States mail as set forth in subsection (a) above; (b) one (1) business day after deposit with a reputable overnight courier with all charges prepaid; or (d) when hand-delivered and received by the party to be notified.

IP Security Agreement, pg. 8

Any notice shall be addressed as follows:
To:	Rosenthal & Rosenthal, Inc.
	1370 Broadway
	New York, NY 10018
	Attn: Robert Miller, EVP
	Facsimile No. (212) 356-0910
With a copy to:
	Paul H. Shur, Esq.
	Wilentz, Goldman & Spitzer, P.A.
	110 William Street
	26th Floor
	New York, New York 10038-3927
	Facsimile No. (212) 267-3828
To:	Reed’s Inc.
	201 Merritt 7 Corporate Park
	Norwalk, Connecticut 06851
	Attn: Valentin Stalowir
	Facsimile No. [xxx-xxx-xxxx]

12. SEVERABILITY

Any provision of this Intellectual Property Security Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

13. NO WAIVER; CUMULATIVE REMEDIES

We shall not by any act, delay, omission or otherwise be deemed to have waived any of our rights or remedies hereunder and no waiver shall be valid unless in writing, signed by us, and then only to the extent therein set forth. A waiver by us of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which we would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on our part, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Intellectual Property Security Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by us.

14. SUCCESSORS AND ASSIGNS; GOVERNING LAW

This Intellectual Property Security Agreement and all of your obligations hereunder shall be binding upon your successors and assigns, and shall, together with our rights and remedies hereunder, inure to our benefit and our successors and assigns. However, none of your rights or obligations under this Intellectual Property Security Agreement may be assigned without our prior written permission. This Intellectual Property Security Agreement shall be governed by, and be construed and interpreted in accordance with the laws of the State of New York.

IP Security Agreement, pg. 9

15. WAIVER OF TRIAL BY JURY; EXCLUSIVE JURISDICTION; SUBMISSION TO JURISDICTION; ANSWER TO SUMMONS TRIAL BY JURY IS HEREBY WAIVED BY EACH OF US IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF US AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP CREATED HEREBY. YOU HEREBY CONSENT TO THE JURISDICTION OF THE STATE COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, AND OF ANY FEDERAL COURT IN SUCH COUNTY AND STATE, FOR A DETERMINATION OF ANY DISPUTE AS TO ANY SUCH MATTERS. IN CONNECTION THEREWITH, YOU HEREBY WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS AND AGREE THAT SERVICE THEREOF MAY BE MADE BY REGISTERED OR CERTIFIED MAIL DIRECTED TO YOU AT YOUR ADDRESS SET FORTH ABOVE, OR SUCH OTHER ADDRESS AS SHALL HAVE PREVIOUSLY BEEN COMMUNICATED OT US BY REGISTERED OR CERTIFIED MAIL DIRECTED TO YOU AT YOUR ADDRESS SET FORTH ABOVE, OR SUCH OTHER ADDRESS AS SHALL HAVE PREVIOUSLY BEEN COMMUNICATED TO US BY REGISTERED OR CERTIFIED MAIL.

16. FURTHER INDEMNIFICATION

You agree to pay, and to save us harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Intellectual Property Security Agreement.

17. CONSTRUCTION WITH RESPECT TO MULTIPLE PARTIES

In construing this Agreement, references to “you” or “your” in this Agreement shall mean each of you singly, both of you jointly and either of you in the disjunctive, and shall be interpreted in each instance most favorably to us.

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK – SIGNATURE PAGE FOLLOWS]

IP Security Agreement, pg. 10

IN WITNESS WHEREOF, you have caused this Intellectual Property Security Agreement to be executed by one of your duly authorized officers on the date first set forth above.

ROSENTHAL & ROSENTHAL, INC.
By:	/s/ Robert L. Martucci
Name:	Robert L. Martucci
Title:	Senior Vice President

The foregoing is acknowledged,

accepted and agreed to:

REED’S INC.
By:	/s/ Valentin Stalowir
Name:	Valentin Stalowir
Title:	Chief Executive Officer

STATE OF CONNECTICUT )

:SS.

COUNTY OF _____________)

BE IT REMEMBERED, that on this ____________ day of October, 2018, before me the subscriber, an officer duly authorized to take acknowledgments for use in the State of Connecticut, personally appeared Valentin Stalowir, who I am satisfied is the person who executed the within document as Chief Executive Officer of Reed’s, Inc., and I having first made known to him the contents thereof, he did thereupon acknowledge that said document is the voluntary act and deed of Reed’s, Inc., made by virtue of authority from Reed’s, Inc.’s By-Laws for the uses and purposes therein expressed.

_______________________________________

(Signature and Office of Individual taking acknowledgment)

[NOTARY STAMP]

STATE OF New York)

ss:

COUNTY OF New York)

On the ____ day of ___________, in the year ____________, before me, the undersigned, personally appeared ___________________________________ personally known to me or proved to me on the basis of satisfactory evidence to the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity (ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument.

_______________________________________

(Signature and Office of Individual taking acknowledgment)

[NOTARY STAMP]

IP Security Agreement, pg. 11

SCHEDULE A

(Trademarks and Domain Names in the United States)

Trademark	Serial/Reg. No.	Filing Date
REED’S ORIGINAL GINGER BREW ALL-NATURAL JAMAICAN STYLE GINGER ALE	86035664/4513979	August 12, 2013
VIRGIL’S	78867175/3213043	April 21, 2006
DR. BETTER	85892888/4432318	April 2, 2013
BELIEVE THE UNBELIEVABLE!	87836349	March 15, 2018
REED’S	87721630	December 14, 2017

Domain Names

IP Security Agreement, pg. 12

SCHEDULE B

(Patents in United States)

Patent Serial No. Reg. No. Date Issued Expires

NONE

IP Security Agreement, pg. 13

SCHEDULE C

(Copyrights in United States)

NONE

IP Security Agreement, pg. 14

SCHEDULE D

Licenses

IP Security Agreement, pg. 15

SCHEDULE E

SPECIAL POWER OF ATTORNEY

STATE OF	)
	)	ss.:
COUNTY OF	)

KNOW ALL MEN BY THESE PRESENTS, that Reed’s Inc., a corporation formed under the laws of the State of Delaware, with its principal office at 201 Merritt 7 Corporate Park, Norwalk, Connecticut 06851 (hereinafter called the “Company”), hereby appoints and constitutes Rosenthal & Rosenthal, Inc., a New York corporation with offices at 1370 Broadway, New York, NY 10018 (hereafter called the “Lender”), its true and lawful attorney, with full power of substitution, and with full power and authority to perform the following acts on behalf of the Company:

1. To execute, endorse, register and record any and all documents, statements, certificates or other paper in the Company’s name that are necessary or advisable to properly and completely effect the transfer to Lender of all right, title and interest of the Company in and to any trademarks, service marks, trade names, licenses, copyrights, patents and domain names wherever located, and all applications and registrations thereof filed in any government or other office anywhere in the world (hereinafter, the “Intellectual Property Security Agreement”); and

2. To execute, endorse, register and record any and all documents, statements, certificates or other papers necessary or advisable in order to obtain the purposes described above as the Lender may in its sole discretion determine.

This Power of Attorney is made pursuant to an Intellectual Property Security Agreement, effective as of October 4, 2018 executed by the Company and may not be revoked until the payment in full of all Obligations as defined in such Intellectual Property Security Agreement.

REED’S INC.
By:	/s/ Valentin Stalowir
Name:	Valentin Stalowir
Title:	Chief Executive Officer

STATE OF CONNECTICUT )

:SS.

COUNTY OF _____________)

BE IT REMEMBERED, that on this ____________ day of October, 2018, before me the subscriber, an officer duly authorized to take acknowledgments for use in the State of Connecticut, personally appeared Valentin Stalowir, who I am satisfied is the person who executed the within document as Chief Executive Officer of Reed’s, Inc., and I having first made known to him the contents thereof, he did thereupon acknowledge that said document is the voluntary act and deed of Reed’s, Inc., made by virtue of authority from Reed’s, Inc.’s By-Laws for the uses and purposes therein expressed.

_______________________________________

(Signature and Office of Individual taking acknowledgment)

[NOTARY STAMP]

IP Security Agreement, pg. 16

EX-10.4

EXECUTION VERSION

Security Interest

WHEREAS, Reed’s Inc., located at 201 Merritt 7 Corporate Park, Norwalk, Connecticut 06851, corporation formed under the laws of the State of Delaware (the “Company”), has adopted, used and is using the marks annexed hereto as Schedule A (the “Marks”), and

WHEREAS, the Company is obligated to Rosenthal & Rosenthal, Inc. (the “Lender”) located at 1370 Broadway, New York, New York 10018, pursuant to a Financing Agreement dated October 4, 2018, as amended and/or supplemented (the “Financing Agreement”); and

WHEREAS, the Company is seeking to increase its credit extension pursuant to the Financing Agreement, and the Company is now granting to the Lender a security interest in the Marks, together with the good will of the business symbolized by the Marks;

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, the Company does hereby grant to the Lender a security interest in and to the Marks, together with the good will of the business symbolized by the Marks, which security interest shall secure all the Obligations as defined in the Financing Agreement and in accordance with the terms and provisions thereof.

The Company expressly acknowledges and affirms that the rights and remedies of the Lender with respect to the security interest granted hereby are more fully set forth in the Financing Agreement.

Dated: October 4, 2018	REED’S INC.
	By:	/s/ Valentin Stalowir
	Name:	Valentin Stalowir
	Title:	Chief Executive Officer

[notary page to follow]

STATE OF	)
	ss:
COUNTY OF	)

On the ____ day of ___________, in the year 2018, before me, the undersigned, personally appeared Valentin Stalowir personally known to me or proved to me on the basis of satisfactory evidence to the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity (ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument.

______________________________________

(Signature and Office of Individual taking acknowledgment)

[NOTARY STAMP]

STATE OF New York)

ss:

COUNTY OF New York)

On the ____ day of ___________, in the year ____________, before me, the undersigned, personally appeared _________________________ personally known to me or proved to me on the basis of satisfactory evidence to the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity (ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument.

_______________________________________

(Signature and Office of Individual taking acknowledgment)

[NOTARY STAMP]

IP Short Form, pg. 2

SCHEDULE A

(Trademarks and Domain Names in the United States)

Trademark	Serial/Reg. No.	Filing Date
REED’S ORIGINAL GINGER BREW ALL-NATURAL JAMAICAN STYLE GINGER ALE	86035664/4513979	August 12, 2013
VIRGIL’S	78867175/3213043	April 21, 2006
DR. BETTER	85892888/4432318	April 2, 2013
BELIEVE THE UNBELIEVABLE!	87836349	March 15, 2018
REED’S	87721630	December 14, 2017

Domain Names

IP Short Form, pg. 3

EX-10.5

SUBORDINATION AGREEMENT

THIS SUBORDINATION AGREEMENT, dated as of October 4, 2018, is entered into between ROSENTHAL & ROSENTHAL, INC., a New York corporation (“Senior Lender”) and RAPTOR/HARBOR REEDS SPV LLC, a Delaware limited liability company (“Junior Lender”). Certain capitalized terms which are used in this Agreement are defined in Section 1 of this Agreement.

RECITALS

WHEREAS, Junior Lender has entered into certain financing agreements with REEDS, INC., a Delaware corporation (“Borrower”) pursuant to which Junior Lender extended certain financial accommodations to Borrower;

WHEREAS, as security for the obligations of Borrower owing to Junior Lender, Borrower has granted to Junior Lender a security interest in the Collateral and IP Collateral;

WHEREAS, Borrower is simultaneously entering into the Financing Agreement with Senior Lender under which Senior Lender is extending certain financial accommodations to Borrower secured by a security interest in the Collateral and IP Collateral;

WHEREAS, pursuant to the terms of the Financing Agreement, Borrower is not permitted to incur indebtedness or grant a security interest in any of the Collateral or IP Collateral without the prior written consent of Senior Lender;

WHEREAS, Senior Lender is unwilling to consent to the financing arrangement with Borrower unless Junior Lender agrees to subordinate the indebtedness owed to it by Borrower and its security in the Collateral and, unless the Overadvance Put is consummated, the IP Collateral, to the indebtedness owed to Senior Lender by Borrower and Senior Lender’s security interest in the Collateral and, unless the Overadvance Put is consummated, the IP Collateral;

WHEREAS, Junior Lender has agreed to the required subordinations as requested by Senior Lender, subject to the terms and conditions of this Agreement;

NOW, THEREFORE, in order to clarify and confirm the relative priorities between Junior Lender and Senior Lender, Junior Lender and Senior Lender hereby agree as follows:

1. Definitions.

1.1 In addition to the definitions contained in the first paragraph and Recitals to this Agreement, the following capitalized terms shall have the following definitions for all purposes in this Agreement:

“Accounts” shall mean all of Borrower’s presently existing and hereafter arising accounts, contract rights, chattel paper, security agreements and debts secured thereby, documents, notes, drafts and instruments, and the proceeds of any of the foregoing, including cash and non-cash proceeds and returned and repossessed goods arising therefrom and all of the rights of an unpaid seller of such goods, and all of Borrower’s books and records relating to any of the foregoing.

“Affiliate” means, with respect to a Person, (a) any family member, officer, director, employee or managing agent of such Person, and (b) any other Person (i) that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such given Person, (ii) that, directly or indirectly beneficially owns or holds 10% or more of any class of voting stock or partnership or other interest of such Person or any subsidiary of such Person, or (iii) 10% or more of the voting stock, membership interests or partnership or other interest of which is directly or indirectly beneficially owned or held by such Person or a subsidiary of such Person. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or partnership or other interests, by contract or otherwise.

“Agreement” shall mean this Subordination Agreement and any concurrent or future extensions, supplements, amendments or modifications to this Subordination Agreement.

“Bankruptcy Code” means Title 11 of the United States Code.

“Code” shall mean the Uniform Commercial Code as adopted in the State of New York with respect to the Collateral and IP Collateral securing the Senior Lender Indebtedness and as adopted in the State of New York with respect to the Collateral and IP Collateral securing the Junior Lender Indebtedness; provided, if by reason of mandatory provisions of law, the perfection, the effect of perfection or non-perfection or the priority of the security interests of Senior Lender or the Junior Lender in any Collateral or IP Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, the term “UCC” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.

“Collateral” shall mean and collectively refer to the following, whether presently existing or hereafter arising:

A. all Accounts, Equipment, Financial Assets, Goods, General Intangibles other than the IP Collateral, Inventory and Negotiable Collateral;

B. all bank and depository accounts;

C. all chattel paper (whether tangible or electronic) and contract rights;

D. all guaranties, collateral, any Lien on real or personal property, leases, letters of credit, letter-of-credit rights, supporting obligations, and all other rights, agreements, and property securing or relating to payment of Accounts or any other Collateral;

E. all documents, books and records relating to any Collateral or to Borrower’s business;

F. all other property of Borrower’s now or hereafter in the possession or control of Senior Lender, the Junior Lender or any of their respective Affiliates (including cash, money, credits and balances of Borrower held by or on deposit with Senior Lender, the Junior Lender or any of their respective Affiliates);

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G. all of Borrower’s present and future commercial tort claims; and

H. all proceeds and products of all of the foregoing in any form, including amounts payable under any policies of insurance insuring all or any of the foregoing against loss or damage, all parts, accessories, attachments, special tools, additions, replacements, substitutions and accessions to or for all or any of the foregoing, all condemnation or requisition payments with respect to all or any of the foregoing and all increases and profits received from all or any of the foregoing.

For the avoidance of doubt, Collateral shall not include IP Collateral.

“DIP Financing” is defined in Section 6.3.

“Equipment” shall mean and refer to all of Borrower’s present and hereafter acquired machinery, equipment, furniture, fixtures, goods (other than Inventory), vehicles, and rolling stock, wherever located, together with any and all parts, additions, replacements, accessions, and substitutions thereto or therefor, all maintenance and warranty records relating thereto, and the proceeds and products of any of the foregoing.

“Financing Agreement” means that certain Financing Agreement, of even date between Borrower and Senior Lender, as it may be amended, modified, supplemented, and restated from time to time.

“Financial Assets” shall mean all of Borrower’s present and future investment property, financial assets, securities, security entitlements, securities accounts, commodity accounts and commodity contracts.

“First Amendment” means that certain First Amendment to Securities Purchase Agreement dated as of the date hereof executed by Borrower and Junior Lender.

“Full Payment of the Senior Lender Indebtedness” means the payment in full in cash of all of the outstanding Senior Lender Indebtedness and the termination of all Loan Documents.

“General Intangibles” shall mean and refer to all of Borrower’s present and future general intangibles and all other presently owned or hereafter acquired intangible personal property of Borrower (including, without limitation, any and all franchise rights, choses or things in action, goodwill, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, deposit accounts, tax refunds and tax refund claims) other than goods and Accounts, as well as Borrower’s books and records, computer programs, computer discs, computer tapes and reports relating to any of the foregoing. For purposes of this Agreement, General Intangibles shall not include any IP Collateral.

“Goods” means all of Borrower’s present and hereafter acquired goods, as defined in the Code, wherever located, including imbedded software to the extent included in “goods” as defined in the Code, manufactured homes, and standing timber that is cut and removed for sale.

3

“Insolvency Law” means the Bankruptcy Code and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws.

“Insolvency Proceeding” means a case under any chapter of the Bankruptcy Code and any other case or proceeding arising under any Insolvency Law.

“Inventory” shall mean and refer to all of Borrower’s presently existing and hereafter acquired inventory and goods held for sale or lease or to be furnished under a contract of service, including, without limitation, all raw materials, work in process, and finished goods, wherever located, together with all containers, packing, packaging, shipping and similar materials, and the products and proceeds of any of the foregoing.

“IP Collateral” means:

(a) all United States, and foreign copyrights, including but not limited to copyrights in software and all rights in and to databases, and all Mask Works (as defined under 17 U.S.C. §901 of the U.S. Copyright Act), whether registered or unregistered, moral rights, reversionary interests, termination rights, including, without limitation, artwork, industrial designs, websites, social media identifiers and pages, proprietary computer software, designs, patterns, drawings, technology, know-how, processes and techniques, specifications, formulas, ideas, work product, work-in-process, advertising and promotional materials, any government approvals, permits, authorizations and applications for any of the foregoing, owned, held, licensed, or used by Borrower in connection with the Borrower’s business operations, including, without limitation, all rights of Borrower in respect of the name “Reed’s” and any other brand name or fanciful name produced and/or sold by or on behalf of Borrower, and, with respect to any and all of the foregoing: (i) all registrations and applications therefor; (ii) all extensions and renewals thereof; (iii) all rights corresponding thereto throughout the world; (iv) all rights in any material which is copyrightable or which is protected by common law, United States or foreign laws, or the law of any State; (v) all rights to sue for past, present and future infringements thereof; (vi) all Proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages and proceeds of suit; and (vii) all tangible property embodying the copyrights or such copyrighted materials;

(b) all United States and foreign patents and certificates of invention, or similar industrial property, design or plant rights, for any of the foregoing, including, but not limited to: (i) all registrations, provisional and applications in connection therewith; (ii) all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations therefor; (iii) all rights corresponding thereto throughout the world; (iv) all inventions and improvements described therein; (v) all rights to sue for past, present and future infringements thereof; (vi) all licenses, claims, damages, and proceeds of suit arising therefrom; and (vii) all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages, and proceeds of suit (collectively, the “Patents”);

4

(c) all United States, and foreign trademarks, trade names, corporate names, company names, business names, fictitious business names, Internet domain names, service marks, certification marks, collective marks, logos, other source or business identifiers, designs and general intangibles of a like nature, all registrations and applications for any of the foregoing including, but not limited to (i) all registrations and applications in connection therewith, (ii) all extensions or renewals of any of the foregoing, (iii) all of the goodwill of the business associated with the use of and symbolized by the foregoing, (iv) the right to sue for past, present and future infringement or dilution of any of the foregoing or for any injury to goodwill, and (v) all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages, and proceeds of suit (collectively, the “Trademarks”);

(d) all trade secrets and all other confidential or proprietary information and know-how regardless of whether such trade secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating, or referring in any way to such Trade Secret, including but not limited to: (i) the right to sue for past, present and future misappropriation or other violation of any Trade Secret and to enjoin or collect damages for the actual or threatened misappropriation of any Trade Secret; and (ii) all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages, and proceeds of suit (collectively, the “Trade Secrets”); and

(e) All licenses or agreements, whether written or oral, providing for the grant by or to the Borrower of: (A) any right to use any Trademark or Trade Secret, (B) any right to manufacture, use, import, export, distribute, offer for sale or sell any invention covered in whole or in part by a Patent, and (C) any right under any Copyright including, without limitation, (i) the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright, (ii) the right to sue or otherwise recover for any and all past, present and future infringements and misappropriations of any of the foregoing, (iii) all income, royalties, damages and other payments now and hereafter due and/or payable with respect thereto (including, without limitation, payments under all licenses entered into in connection therewith, and damages and payments for past, present or future infringements thereof), (iv) all other rights of any kind whatsoever of the Borrower accruing thereunder or pertaining thereto, and (v) any and all proceeds of the foregoing.

“Junior Lender Indebtedness” shall mean all present Obligations owing to Junior Lender, including the Obligations under the Subordinated Note, Note Purchase Agreement and Second Lien Security Agreement.

“Lien” means any security interest, security title, mortgage, deed to secure debt, deed of trust, lien, pledge, charge, conditional sale or other title retention agreement, or other encumbrance of any kind in respect of any property, including the interest of each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or hereafter acquired and whether arising by agreement or operation of law.

5

“Loan Documents” means the Financing Agreement and all other agreements, documents and instruments entered into between Senior Lender and Borrower from time to time in connection with the Financing Agreement.

“Negotiable Collateral” means all of Borrower’s present and future letters of credit, advises of credit, notes, drafts, instruments, and documents, including, without limitation, bills of lading, leases, and chattel paper, and Borrower’s books and records relating to any of the foregoing.

“Note Purchase Agreement” means that certain Securities Purchase Agreement, dated April 21, 2017, between Borrower and Junior Lender as amended by the First Amendment.

“Obligations” in its broadest and most comprehensive sense shall mean all present and future indebtedness of Borrower which may be, from time to time, directly or indirectly, incurred by Borrower, including, but not limited to, any negotiable instruments evidencing the same, and all guarantees, debts, demands, monies, indebtedness, liabilities and obligations owed or to become owing, including interest (including interest accruing after the commencement of an Insolvency Proceeding), principal, costs, fees (including attorneys’ fees) and other charges, and all claims, rights, causes of action, judgments, decrees, remedies, security interests, or other obligations of any kind whatsoever and howsoever arising, whether voluntary, involuntary, absolute, contingent, or by operation of law.

“Overadvance Put” has the meaning ascribed to such term in Section 7.4.

“Overadvance Put Rejection” has the meaning ascribed to such term in Section 7.4.

“Person” means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other entity.

“Senior Lender Indebtedness” shall mean all present and future Obligations owing by Borrowers to Senior Lender, in connection with or in any way related to (including any DIP Financing) any of the Loan Documents (including, without limitation, any interest accruing thereon after maturity or after the filing of any Insolvency Proceeding relating to Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding.

“Second Lien Security Agreement” means a certain Second Lien Security Agreement dated April 21, 2017 executed by Borrower as security for the Subordinated Note.

“Subordinated Note” means that certain Amended and Restated Subordinated Convertible Non-Redeemable Secured Note, dated as of the date hereof, in the maximum principal amount of Seven Million Four Hundred Thousand and 00/100 Dollars ($7,400,000.00), issued by Borrower to the order of Junior Lender.

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1.2 Other Definitional Provisions. Terms which are defined in Division 8 or Division 9 of the Code, or Article 8 or Article 9 of the Code, as applicable, shall have the same definition when used in this Agreement unless specifically defined herein. References to “Sections” shall be to Sections of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1.1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. In this Agreement, words importing any gender include the other genders; the words “including,” “includes” and “include” shall be deemed to be followed by the words “without limitation”; references to agreements and other contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of this Agreement; references to any person includes their respective permitted successors and assigns or people succeeding to the relevant functions of such persons; and all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations.

2. Parties Intended to be Benefitted. All of the understandings, covenants and agreements contained herein are solely for the benefit of Junior Lender and Senior Lender, and there are no other parties (including Borrower) which are intended to be benefitted, in any way, by this Agreement.

3. No Limitation Intended. Nothing contained in this Agreement is intended to affect or limit, in any way, the security interests, liens and other interests that each of the parties hereto has or hereafter acquires in any and all of the assets, whether tangible or intangible, of Borrower insofar as the rights of Borrower and third parties are involved. Junior Lender and Senior Lender specifically reserve all of their respective rights, security interests, rights to assert security interests, and other interests against Borrower and third parties.

4. Consent to and Subordination of Obligations.

4.1 Senior Lender hereby consents to the transactions contemplated by the First Amendment and the granting by Borrower to Junior Lender of a security interest in the Collateral and IP Collateral of Borrower.

4.2 Any and all Junior Lender Indebtedness are hereby subordinated and subject to any and all Senior Lender Indebtedness, until Full Payment of the Senior Lender Indebtedness.

4.3 Until Full Payment of the Senior Lender Indebtedness, Junior Lender agrees: (i) except as permitted in Section 4.4 of this Agreement, not to collect, or to receive payment upon, by setoff or in any other manner, all or any portion of the Junior Lender Indebtedness now or hereafter existing and notwithstanding the fact that the Junior Lender Indebtedness may mature by its terms prior to the Senior Lender Indebtedness if such Senior Lender Indebtedness is extended; (ii) not to sell, assign, transfer, pledge, or give a security interest in the Junior Lender Indebtedness (except subject expressly to this Agreement, including, without limitation, Section 13); (iii) not to join in any petition for bankruptcy, assignment for the benefit of creditors, or creditors’ agreement; or (iv) not to incur any obligation to or receive any loans, advances or gifts from Borrower. Subject to the foregoing, Junior Lender may accelerate the amount of the Junior Lender Indebtedness upon the occurrence of (a) the acceleration of all of the Senior Lender Indebtedness; or (b) an Insolvency Proceeding with respect to the Borrower.

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4.4 All of the Senior Lender Indebtedness now or hereafter existing shall be first paid by Borrower before any payment shall be made by Borrower on the Junior Lender Indebtedness notwithstanding the fact that the Junior Lender Indebtedness will mature by its terms prior to the Senior Lender Indebtedness. This priority of payment shall apply at all times until Full Payment of the Senior Lender Indebtedness, and in the event of any assignment by Borrower for the benefit of Borrower’s creditors, of any bankruptcy proceedings instituted by or against Borrower, of the appointment of any receiver for Borrower or Borrower’s business or assets, or of any dissolution or other winding up of the affairs of Borrower or of Borrower’s business, and in all such cases respectively, the officers of Borrower and any assignee, trustee in bankruptcy, receiver, and other person or persons in charge, are hereby directed to pay to Senior Lender the full amount of the Senior Lender Indebtedness before making any payments to Junior Lender on account of the Junior Lender Indebtedness, including at maturity of the Junior Lender Indebtedness. Notwithstanding anything in the foregoing to the contrary, nothing contained in this Agreement shall prevent the accrual of payments and distributions that would, but for the provisions of this Agreement, be payable or deliverable in respect of the Junior Lender Indebtedness; provided, that no such accrued payments or distributions shall actually be paid or delivered until otherwise permitted by this Section 4.4 and further provided that, on the maturity date of the Junior Lender Indebtedness, the provisions of this Section shall continue to apply.

4.5 Junior Lender agrees that if part or all of the Junior Lender Indebtedness shall be evidenced by a promissory note or other instrument, Junior Lender shall place or cause to be placed on its face a legend stating that the payment thereof is subject to the terms of this Agreement and is subordinate to the payment of all of the Senior Lender Indebtedness. Junior Lender agrees to mark all books of account in such manner as to indicate that payment thereof is subordinated pursuant to the terms of this Agreement.

4.6 Junior Lender agrees that, subject to Section 7.1, Senior Lender shall have absolute power and discretion, without notice to Junior Lender, to deal in any manner with the Senior Lender Indebtedness, including, interests, costs and expenses payable by Borrower to Senior Lender, and any security and guarantees therefor including, but not by way of limitation, release, surrender, extension, renewal, acceleration, compromise or substitution.

4.7 Senior Lender shall have the right to discontinue the extension of credit to or on behalf of Borrower in accordance with the Loan Documents, including, without limitation, the right to discontinue extensions of credit as a result of any discretionary lending provisions.

5. Subordination of Security Interests. Subject to the conditions set forth in this Agreement:

5.1 Junior Lender hereby subordinates any and all security interests, including purchase money security interests, which Junior Lender now has or hereafter acquires in the Collateral and, unless and until the Overadvance Put is consummated, the IP Collateral to the security interests which Senior Lender has or may hereafter acquire in the Collateral and the IP Collateral. In this regard, Junior Lender agrees that it will not enforce or apply its security interests in any of the Collateral or, unless and until the Overadvance Put is consummated, the IP Collateral, unless and until Full Payment of the Senior Lender Indebtedness. To the extent the Overadvance Put is consummated, Senior Lender agrees that it shall release any and all Liens it has on the IP Collateral concurrently with the consummation of the Overadvance Put. If, notwithstanding the terms of this Agreement, the Senior Lender does not release such IP Collateral, the Senior Lender hereby irrevocably appoints Junior Lender as its attorney-in-fact with full authority in the place and stead of the Senior Lender and in the name of the Senior Lender or otherwise to execute and deliver any document or instrument that the Senior Lender may be required to deliver to release its Lien on the IP Collateral as required in this Section 5.1.

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5.2 Junior Lender hereby subordinates any and all security interests it has or may hereafter acquire in any and all of the proceeds of the Collateral and, unless and until the Overadvance Put is consummated, the IP Collateral, to the security interests of Senior Lender in any and all of the proceeds of the Collateral and, unless and until the Overadvance Put is consummated, the IP Collateral. In this regard, Junior Lender agrees that it will not seek to notify account debtors or other obligors of its subordinated security interests in the proceeds of the Collateral, nor will Junior Lender collect such proceeds or otherwise enforce or apply its security interest in the proceeds of the Collateral and, unless and until the Overadvance Put is consummated, the IP Collateral, unless and until Full Payment of the Senior Lender Indebtedness.

5.3 Junior Lender agrees that upon the request of Senior Lender it will release its Lien in Collateral and, to the extent an Overadvance Put Rejection has occurred, the IP Collateral, in connection with and in order to facilitate any orderly liquidation sale of Collateral and, if applicable, the IP Collateral, or any portion thereof, by Borrower or any representative for Borrower, and upon the request of Senior Lender, Junior Lender will, at Borrower’s expense, promptly execute and deliver such documents, instruments and agreements as are necessary to effectuate such release and to evidence such release in the appropriate public records, in each case, provided that (i) Senior Lender releases any of its liens in Collateral or, to the extent applicable, the IP Collateral, in connection with such sale, (ii) such sale occurs during the existence of an Event of Default (as defined in the Financing Agreement), or (iii) the cash proceeds thereof are applied to permanently reduce and pay in full the Senior Lender Indebtedness, and then applied on account of the Junior Lender Indebtedness in accordance with this Agreement.

5.4 Subject to the exception relating to IP Collateral set forth below, Junior Lender hereby agrees that until Full Payment of the Senior Lender Indebtedness it will not (A) commence, prosecute or participate in any lawsuit, action or proceeding, including but not limited to remedies under the Second Lien Security Agreement whether private, judicial equitable, administrative or otherwise (including any Insolvency Proceedings against Borrower, any guarantor or any grantor or their assets) restrain, hinder, limit delay for any material period or otherwise interfere with any sale, lease, exchange, transfer, or other disposition of the Collateral, whether by foreclosure or otherwise (B) contest, protest or object to the manner in which Senior Lender seeks to enforce or collect the Senior Lender Indebtedness or the liens granted in any of the Collateral, regardless of whether any action or failure to act by or on behalf of Senior Lender is adverse to the interest of the Junior Lender, including with respect to any foreclosure proceeding or action brought by Senior Lender, or the exercise of any right under any lockbox agreement, control agreement, landlord waiver or bailee’s letter or similar agreement or arrangement to which Junior Lender or any other junior lender is a party, or any other exercise by any such party, of any rights and remedies relating to the Collateral or otherwise, or (C) contest, protest or object to the forbearance by Senior Lender from bringing or pursuing any foreclosure proceeding or action or any other exercise of any rights or remedies relating to any of the Collateral; provided, that, the liens of the Junior Lender attach to the remaining proceeds of the Collateral upon any disposition. Notwithstanding anything in this Section 5.4 to the contrary, the Junior Lender shall not be prohibited from exercising remedies available to it under the Note Purchase Agreement, the Subordinated Note, the Second Lien Security Agreement or any other document evidencing the Junior Indebtedness to the extent such remedies are in connection with disposition of IP Collateral following the consummation of the Overadvance Put.

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6. Insolvency Proceeding. This Agreement shall be applicable both before and after the commencement of any Insolvency Proceeding and all converted or succeeding cases in respect thereof. Accordingly, the provisions of this Agreement are intended to be and shall be enforceable as a subordination agreement within the meaning of Section 510(a) of the Bankruptcy Code and all references herein to Borrower shall be deemed to apply to such Person as debtor-in-possession and to any trustee in bankruptcy for the estate of such Person. If Borrower becomes a party to an Insolvency Proceeding:

6.1 Filing of Claim. Junior Lender agrees to timely file a proof of claim for the amount of the Junior Lender Indebtedness, in form and substance reasonably approved by Senior Lender, and Senior Lender may file such a proof of claim on Junior Lender’s behalf if Junior Lender has not so filed as of the fifth (5th) day before the proof of claim may finally be submitted.

6.2 Adequate Protection. Junior Lender shall not object to Senior Lender’s request for adequate protection, or to Senior Lender’s objection to any proposed action based upon Senior Lender not having adequate protection.

6.3 Cash Collateral. Junior Lender shall not object to, and shall be deemed to have consented to, the use of cash collateral and to any debtor-in-possession financing (“DIP Financing”) supported by Senior Lender. Senior Lender agrees that it shall not object to the grant to Junior Lender of a Lien on all Collateral of Borrower (including proceeds thereof arising after the commencement of an Insolvency Proceeding) junior in priority to Senior Lender as existed prior to the commencement of the Insolvency Proceeding and junior in priority to any liens securing DIP Financing and Junior Lender may seek, without objection from Senior Lender, a replacement Lien on post-petition assets to the same extent as granted to secure DIP Financing, junior in priority to Senior Lender as existed prior to the commencement of the Insolvency Proceeding and junior in priority to any Liens securing DIP Financing. Junior Lender shall not provide or participate in any DIP Financing. Nothing herein shall limit Senior Lender’s right to consent to the use of cash collateral or to provide DIP Financing on terms that are not set forth herein. Senior Lender agrees that it shall not object to the grant to Junior Lender of a Lien on all IP Collateral of Borrower (including proceeds thereof arising after the commencement of an Insolvency Proceeding) which, (i) to the extent the Overadvance Put has not been consummated, shall be junior in priority to Senior Lender as existed prior to the commencement of the Insolvency Proceeding and junior in priority to any liens securing DIP Financing and (ii) to the extent the Overadvance Put has been consummated, shall be senior in priority to any Lien the Senior Lender may have on the IP Collateral.

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6.4 363 Sales. Junior Lender shall not object to a sale, or the procedures for conducting a sale, under Section 363 of the Bankruptcy Code which are supported by Senior Lender. Senior Lender shall not object to the grant to Junior Lender of a junior Lien on the proceeds of such sale subordinate to the Lien of Senior Lender on such proceeds (and to the liens securing any DIP Financing Described in Section 6.3), in accordance with, or on the same terms as, this Agreement.

6.5 Voting in Other Matters. Junior Lender shall not (i) propose or support any plan of reorganization involving Borrower that is inconsistent with the priorities of this Agreement or contravenes the other provisions of this Agreement or that does not provide for the full payment of the Senior Lender Indebtedness (except, in either case, any plan that is supported by Senior Lender), or (ii) vote in favor of any plan of reorganization involving Borrower that (A) provides for the invalidation, limitation, restriction, or subordination of any of the liens of Senior Lender in and to the Collateral, (B) provides for the invalidation, limitation, or disallowance of any of the claims of Senior Lender, (C) provides for the equitable subordination of all of any portion of the Senior Lender Indebtedness, or (D) results in the transfer to the estate of Borrower of any Lien securing all or any portion of the claims of Senior Lender.

6.6 Section 1111(b) of the Bankruptcy Code. Junior Lender shall not object to, oppose, support any objection, or take any other action to impede, the right of Senior Lender to make an election under Section 1111(b)(2) of the Bankruptcy Code. Junior Lender waives any claim it may hereafter have against any Senior Lender arising out of the election by Senior Lender of the application of Section 1111(b)(2) of the Bankruptcy Code.

6.7 Relief from the Automatic Stay. Until Full Payment of the Senior Lender Indebtedness, Junior Lender agrees not to (a) seek (or support any other third party seeking) relief from the automatic stay, without the prior written consent of Senior Lender, or (b) oppose any request by Senior Lender to seek relief from the automatic stay or any other stay in any Insolvency Proceeding in respect of the Collateral.

7. Amendments to the Loan Documents and the Subordinated Note; Purchase Right.

7.1 Amendments to the Loan Documents. Any of the Loan Documents may be amended, supplemented or otherwise modified in accordance with its terms, in each case, without notice to, or the consent of the Junior Lender, all without affecting the terms of this Agreement; provided, however, that any such amendment, supplement, modification shall not, without the consent of the Junior Lender: (i) increase the sum of (without duplication) the then outstanding aggregate principal amount of the Financing Agreement by more than One Million Three Hundred Thousand Dollars ($1,300,000); provided, however, that any DIP Financing supported by Senior Lender shall not be subject to this clause (i), or (ii) increase the interest rate, including by increasing the margin or similar component of the interest rate or by modifying the method of computing interest, by more than five percent (5%) above the greatest applicable rate therein provided (excluding increases resulting from the accrual of interest at the default rate); provided, that in no event shall the interest rate, together with the margin or similar component, exceed a usurious rate per annum.

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7.2 Amendments to the Subordinated Note. The Subordinated Note may be amended, supplemented or otherwise modified in accordance with its terms, in each case, without notice to, or the consent of Senior Lender, all without affecting the terms of this Agreement; provided that the amendments do not contravene the provisions of this Agreement; provided further, however, that any such amendment, supplement, modification shall not, without the consent of Senior Lender: (i) increase the sum of (without duplication) the then outstanding aggregate principal amount of the Subordinated Note by more by more than Seven Hundred Thousand Dollars ($700,000), (ii) increase the interest rate, including by increasing the margin or similar component of the interest rate or by modifying the method of computing interest, by more than five percent (5%) above the greatest applicable rate therein provided (excluding increases resulting from the accrual of interest at the default rate); provided, that in no event shall the interest rate, together with the margin or similar component, exceed a usurious rate per annum, (iii) change (to earlier dates) any dates upon which payments of principal or interest are due thereon, or (iv) contravene the provisions of this Agreement.

7.3 Purchase Right. Without prejudice to the enforcement of Senior Lender’s remedies, Senior Lender agrees at any time following an acceleration of the Senior Lender Indebtedness in accordance with the terms of the Loan Documents, Senior Lender will offer the Junior Lender the option to purchase the entire aggregate amount of outstanding Senior Lender Indebtedness at par plus accrued interest (without regard to any prepayment penalty or premium), without warranty or representation or recourse. The Junior Lender shall irrevocably accept or reject such offer within ten (10) business days of the receipt thereof and, if the offer is accepted, the parties shall close within ten (10) business days following the date Junior Lender issues to Senior Lender its acceptance. If the Junior Lender accepts such offer, it shall be exercised pursuant to documentation mutually acceptable to each of Senior Lender and the Junior Lender. If the Junior Lender rejects such offer (or does not so irrevocably accept such offer within the required timeframe), Senior Lender shall have no further obligations pursuant to this Section 7.3 and may take any further actions in their sole discretion in accordance with the Loan Documents and this Agreement. Nothing herein shall require Senior Lender to forbear or refrain from any of its rights and remedies set forth in the Loan Documents while awaiting the response of Junior Lender under this paragraph.

7.4 Overadvance Put. Without prejudice to the enforcement of Senior Lender’s remedies, Senior Lender agrees that, prior to (i) providing notice to the Borrower of its intention to terminate the Financing Agreement under Section 10.1 (or any successor provision) thereof; (ii) accelerating any of the Senior Lender Indebtedness; (iii) exercising any remedies available to the Senior Lender under the Financing Agreement, any other document delivered in connection with the Senior Lender Indebtedness or under applicable law; or (iv) making any claims upon the LC (as defined in the Financing Agreement) or presenting the LC for payment, Senior Lender will offer the Junior Lender the option to purchase the entire aggregate amount of the Permitted Overadvance (as defined in the Financing Agreement) outstanding under the Senior Lender Indebtedness at par plus accrued interest (without regard to any prepayment penalty or premium), without warranty or representation or recourse (such transaction, the “Overadvance Put”). The Junior Lender shall irrevocably accept or reject such offer within ten (10) business days of the receipt thereof and, if the offer is accepted, the parties shall close within ten (10) business days following the date Junior Lender issues to Senior Lender its acceptance. If the Junior Lender accepts such offer, it shall be exercised pursuant to documentation mutually acceptable to each of Senior Lender and the Junior Lender; provided, however, that such documentation shall include (i) the release of any Liens the Senior Lender has on the IP Collateral, (ii) an obligation on the part of the Senior Lender to cause the LC to be terminated concurrently therewith, and (iii) a grant to Senior Lender of a worldwide royalty-free license of all IP Collateral to the extent required by it to liquidate any Collateral or enforce its rights and remedies as to the Obligations until Full Payment of the Senior Lender Indebtedness. If the Junior Lender rejects such offer (or does not so irrevocably accept such offer within the required timeframe) (an “Overadvance Put Rejection”), Senior Lender shall have no further obligations pursuant to this Section 7.4 and may take any further actions in its sole discretion in accordance with the Loan Documents and this Agreement, including, without limitation, making claims upon the LC or presenting the LC for payment. The Senior Lender agrees that, while awaiting the response of Junior Lender under this paragraph, it shall refrain from exercising any remedies against the IP Collateral and the LC (including any presentment for payment thereof) without prejudice to any other rights and remedies against the Borrower or Collateral pursuant to the Financing Agreement, Loan Documents or applicable law.

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8. Effectiveness. The subordinations, agreements and priorities set forth hereinabove shall remain in full force and effect regardless of whether any party hereto in the future seeks to rescind, amend, terminate or reform, by litigation or otherwise, its respective agreements with Borrower. This Agreement, and the rights of Senior Lender hereunder shall terminate upon Full Payment of the Senior Lender Indebtedness.

9. Order of Attachment or Perfection. The subordinations and priorities specified herein are applicable, irrespective of the time or order of attachment or perfection of the security interests referred to herein, the time or order of filing of financing statements, or the acquisition of or time of giving or failing to give notice of the acquisition or expected acquisition of purchase money or other security interests.

10. Waiver of Marshaling. Each of the parties hereto hereby specifically waive and renounce any rights which they may have, whether at law or in equity, to require the other party hereto to marshal the Borrower’s assets, or any portion thereof, or to otherwise seek satisfaction from any particular assets of Borrower or from any third party. In this regard, each of the parties hereto expressly waives its rights, if any, under New York law or under any other similar provisions of the laws of any other jurisdiction deemed applicable to this Agreement, and agree that no party hereto shall derive any benefit therefrom.

11. Notice. Unless otherwise specifically provided herein, all notices and service of any process shall be in writing addressed to the respective party as set forth below and may be personally served, telecopied or sent by overnight courier service or United States mail and shall be deemed to have been given: (a) if delivered in person, when delivered; (b) if delivered by overnight courier, two days after delivery to such courier properly addressed; or (c) if by U.S. Mail, four Business Days after depositing in the United States mail, with postage prepaid and properly addressed.

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To Junior Lender:	RAPTOR/HARBOR REEDS SPV LLC 280 Congress Street, 12th Floor Boston, MA 02210
	Attention: Legal Department Fax Number: 617.737.0993
To Senior Lender:	ROSENTHAL & ROSENTHAL, INC. 1370 Broadway New York, NY 10018 Attention: Robert Martucci, Senior Vice President Fax Number: 212.356.3354

The parties hereto may change the address at which they are to receive notices and the fax number at which they are to receive faxes hereunder, by notice in writing in the foregoing manner given to the other.

12. Choice of Law, Venue and Attorneys’ Fees. The validity of this Agreement, its construction, interpretation and enforcement, and the rights of the parties hereunder shall be determined under, governed by, and construed in accordance with the laws of the State of New York. If suit is filed to enforce any rights under this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees and court costs. Any such suit may only be filed in a court of competent jurisdiction located in the State of New York.

13. Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of, the successors and assigns of each of the parties hereto, respectively. Junior Lender and Senior Lender each agree that this Agreement is enforceable in a case commenced under the Bankruptcy Code to the same extent that it is enforceable under applicable non-bankruptcy law. Notwithstanding any provision contained herein to the contrary, the Junior Lender may sell, assign, pledge, dispose of or otherwise transfer all or any portion of the Junior Lender Indebtedness or the Subordinated Note upon the satisfaction of the following conditions: (i) the Junior Lender shall provide prior written notice of such action to Senior Lender; and (ii) the transferee thereof shall execute and deliver to Senior Lender an agreement substantially identical to this Agreement.

14. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.

[Signatures on Next Page]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date hereinabove first set forth.

ROSENTHAL & ROSENTHAL, INC
By:	/s/ Robert Martucci
Name:	Robert Martucci
Title:	Senior Vice President
RAPTOR/HARBOR REEDS SPV LLC
By:	/s/ Daniel J. Doherty III
Name:
Title:

S-1

Subordination Agreement

CONSENT AND ACKNOWLEDGMENT

REEDS, INC., a Delaware corporation, referred to as “Borrower” in the foregoing Subordination Agreement (the “Agreement”), hereby acknowledges that it has received a copy of the Agreement and consents thereto, and agrees to recognize all priorities and other rights granted thereby to the parties thereto, and will do no act or perform no obligation which is not in accordance with the priorities and agreements set forth in the Agreement.

	REEDS, INC., a Delaware corporation
DATED: October 4, 2018
	By:	/s/ Valentin Stalowir
	Name:	Valentin Stalowir
	Title:	Chief Executive Officer

EX-10.6

FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT

AND TRANSACTION DOCUMENTS

THIS FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT AND TRANSACTION DOCUMENTS (this “Amendment”), dated as of October 4, 2018, is entered into by and between Reeds, Inc., a Delaware corporation (the “Company”) and Raptor/Harbor Reeds SPV LLC, a Delaware limited liability company (the “Purchaser”).

WHEREAS, the Purchaser and the Company are parties to (i) that certain Securities Purchase Agreement dated as of April 21, 2017 (the “Existing Purchase Agreement” and as the Existing Purchase Agreement is amended and modified by this Amendment, the “Amended Purchase Agreement”) and (ii) that certain Second Lien Security Agreement dated as of April 21, 2017 (the “Existing Security Agreement” and as the Existing Security Agreement is amended and modified by this Amendment, the “Amended Security Agreement” and together with the Amended Purchase Agreement, the “Amended Transaction Documents”);

WHEREAS, the Purchaser is entering a Financing Agreement (the “Financing Agreement”) with Rosenthal and Rosenthal, Inc., a New York corporation (the “New Lender”) pursuant to which the New Lender will make certain loans and other financial accommodations available to the Company for the purpose of, among other things, refinancing the indebtedness owing by the Company to PMC;

WHEREAS, as a condition to the New Lender’s agreement to make available the loans and other financial accommodations under the Financing Agreement, the New Lender is requiring that the Purchaser (i) cause a letter of credit to be issued for the benefit of the New Lender in the face amount of $1,500,000 (the “LOC”) and (ii) enter into a Subordination Agreement dated as of the date hereof between the New Lender and Purchaser (the “Subordination Agreement”) pursuant to which the Purchaser is granting the New Lender a put right on the Permitted Overadvance (as defined in the Financing Agreement) subject to the terms and conditions set forth therein (the “Overadvance Put”);

WHEREAS, the Purchaser and the Company have agreed that, to the extent the New Lender makes a draw on the LOC (an “LOC Draw”) or, without duplication, the Purchaser makes any payments in respect of the Overdavance Put (an “Overadvance Put Payment” and together with any LOC Draw, a “Credit Support Advance”) the amount of each such Credit Support Advance shall be added to the principal amount evidenced by the Note;

WHEREAS, the Purchaser and the Company have agreed to amend the Existing Purchase Agreement and other Transaction Documents in certain respects to reflect the foregoing on the terms, conditions, and provisions contained in this Waiver and Amendment.

NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1

INCORPORATION OF RECITALS; DEFINED TERMS

The Company acknowledge that the Whereas clauses set forth above are true and correct. The defined terms in the Whereas clauses set forth above are hereby incorporated into this Amendment by reference. All other capitalized terms used herein without definition shall have the same meanings herein ascribed to such terms have in the Existing Purchase Agreement.

SECTION 2

AMENDMENT TO EXISTING PURCHASE AGREEMENT

2.1 Amendment to Definitions.

(a) Additional Definitions. Section 1.1 of the Existing Purchase Agreement is hereby amended by adding the following definitions in proper alphabetical order:

“Credit Support Advance” means, without duplication, any amounts drawn on the LOC and/or all payments made in respect of the Overadvance Put.

“First Amendment Date” means September 28, 2018, the date on which the Company and the Purchaser entered into that certain First Amendment to Securities Purchase Agreement and other Transaction Documents.

“LOC” means a letter of credit issued in favor of the Senior Lender in the face amount of $1,500,000 as security for the Permitted Overadvance (as defined in the Intercreditor Agreement), as the same may be amended, extended, supplemented or otherwise modified from time to time.

“Overadvance Put” has the meaning ascribed to such term in the Intercreditor Agreement.

“Senior Lender” shall mean Rosenthal and Rosenthal, Inc., a New York corporation.

(b) Amended Definitions. The following definitions set forth in Section 1.1 of the Existing Purchase Agreement are hereby amended and restated in their entirety as follows:

“Intercreditor Agreement” means the Subordination Agreement among the Purchaser and Senior Lender to be dated as of the First Amendment Date, as amended, restated, supplemented or otherwise modified from time to time.

“Note” means the Amended and Restated Subordinated Convertible Non-Redeemable Secured Promissory Note in the Form attached hereto as Exhibit A.

(c) Deleted Definitions. The following definitions set forth in Section 1.1 of the Existing Purchase Agreement is hereby deleted in its entirety.

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“PMC”;

“PMC Consent”.

2.2 Addition of Credit Support Advances. Section 2.1 of the Existing Purchase Agreement is hereby amended by deleting the Section in its entirety and substituting the following therefor:

“2.1 Initial Closing; Subsequent Credit Support Advances. On April 21, 2017 (the “Closing Date”) the Company sold and the Purchaser purchased, in exchange for the Subscription Amount, the Prior Note (as defined in the Note) and Warrants. The Company acknowledges receipt of the purchase price for such Prior Note and Warrants equal to the Purchaser’s Subscription Amount on the Closing Date, and the Company has delivered to Purchaser an originally executed Prior Note and the Warrants, as determined pursuant to Section 2.2(a). The the Company and Purchaser have also delivered the other items set forth in Section 2.2 deliverable at the Closing. On the First Amendment Date, the Company has issued the Note (which shall not be deemed a novation of the Prior Note) to evidence any Credit Support Advances which may occur on or after the First Amendment Date. The Company agrees that any Credit Support Advance shall be treated as “Principal” under the Note as and when such Credit Support Advance occurs and all such Credit Support Advances shall be an obligation of the Company payable to the Purchaser under the terms of the Note which shall be secured by the Lien granted under the Security Agreement.”

2.3 Replacement Exhibit. Exhibit A to the Existing Purchase Agreement is hereby amended by deleting the Exhibit in its entirety and substituting the replacement Exhibit A attached to this Amendment as Attachment I therefor.

SECTION 3

AMENDMENT TO EXISTING SECURITY AGREEMENT

3.1 Amendment to Definitions. The following definition set forth in Section 1(c) of the Existing Security Agreement is hereby amended and restated in its entirety as follows:

“Second Priority” means, with respect to any lien and security interest purported to be created in any Collateral pursuant to this Agreement, such lien and security interest is the most senior lien to which such Collateral is subject (subject to the subordination of Secured Party’s lien and security interest only to Senior Lender’s lien and security interest under the Financing Agreement as provided in the Subordination Agreement (“Senior Lender’s First Priority”)).

3.2 Replacement of Senior Lender. All references to the terms “PMC” and “PMC’s First Priority” are hereby replaced with the terms “Senior Lender” and “Senior Lender’s First Priority”, respectively.

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SECTION 4

REPRESENTATIONS AND WARRANTIES

4.1 Due Authorization, etc. The execution and delivery of this Amendment and each of the documents required to be delivered under Section 4.1 to which the Company is a party, and the performance of the Company’s obligations under the Amended Transaction Documents and the other Transaction Documents are duly authorized by all necessary corporate action, do not require any filing or registration with or approval or consent of any governmental agency or authority, do not and will not conflict with, result in any violation of or constitute any default under any provision of the articles of incorporation or by-laws of the Company or any material agreement or other document binding upon or applicable to the Company (or any of its respective properties) or any material law or governmental regulation or court decree or order applicable to the Company, and will not result in or require the creation or imposition of any Lien in any of the Company’s properties pursuant to the provisions of any agreement binding upon or applicable to the Company.

4.2 Validity. This Amendment has been duly executed and delivered by the Company and, together with the Amended Transaction Documents and the other Transaction Documents, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms subject, as to enforcement only, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforceability of the rights of creditors generally.

4.3 Existing Representations and Warranties. The Company hereby represents and warrants to the Purchaser that, as of the date of this Amendment, the representations and warranties contained in the Amended Transaction Documents and the other Transaction Documents are true and correct on the date of this Amendment, except to the extent that such representations and warranties solely relate to an earlier date.

4.4 Absence of Defaults. The Company hereby represents and warrants to the Purchaser that, as of the date of this Amendment no Event of Default (as defined in the Note) has occurred and is continuing.

SECTION 5

CONDITIONS PRECEDENT

This Amendment shall become effective upon satisfaction of all of the following conditions precedent:

5.1 Receipt of Documents: The Purchaser shall have received all of the following, each in form and substance satisfactory to Purchaser:

(a) Amendment. A counterpart original of this Amendment duly executed by the parties hereto.

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(b) Financing Agreement. An executed copy of the Financing Agreement and evidence that the loans made available thereunder have been advanced by the New Lender to the Company.

(c) Warrant Amendment. An executed copy of an Amendment to Warrant Agreement executed by all parties thereto.

(d) Other. Such other documents as the Purchaser may reasonably request.

5.2 Other Conditions. No Event of Default shall have occurred and be continuing.

SECTION 6

MISCELLANEOUS

6.1 Documents Remain in Effect. The Existing Purchase Agreement, the Existing Security Agreement and the other Transaction Documents, as any of the foregoing have been amended hereby, and the other documents executed pursuant to such documents remain in full force and effect and the Company hereby ratifies, adopts and confirms its representations, warranties, agreements and covenants contained in, and obligations and liabilities thereunder.

6.2 Headings. Headings used in this Amendment are for convenience of reference only, and shall not affect the construction of this Amendment.

6.3 Counterparts. This Agreement may be executed in any number of counterparts, and by the parties hereto on the same or separate counterparts, and each such counterpart, when executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement.

6.4 Expenses. The Company agrees to pay on demand all costs and expenses of the Purchaser (including reasonable fees, charges and disbursements of the Purchaser’s attorneys) in connection with the preparation, negotiation, execution, delivery and administration of this Amendment and all other instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith. All obligations provided in this Section 6.4 shall survive any termination of this Amendment or the Amended Transaction Documents.

6.5 Release.

(a) The Company further acknowledges and agrees that as of the date hereof, it has no claim, defense or set-off right against the Purchaser of any nature whatsoever, whether sounding in tort, contract or otherwise, and has no claim, defense or set-off of any nature whatsoever to the enforcement of the full amount obligations of the Company under the Amended Transaction Documents and the other Transaction Documents.

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(b) Notwithstanding the foregoing, to the extent that any claim, cause of action, defense or set-off against the Purchaser or its enforcement of the Amended Transaction Documents or any other Transaction Document, of any nature whatsoever, known or unknown, fixed or contingent, does nonetheless exist or may exist on the date hereof, in consideration of the Purchaser’s entering into this Amendment, the Company hereby irrevocably and unconditionally waives and releases fully each and every such claim, cause of action, defense and set-off which exists or may exist on the date hereof.

(c) All obligations provided in this Section 6.5 shall survive any termination of this Amendment or the Amended Transaction Documents or the other Transaction Documents.

6.6 Governing Law; Certain Other Matters.

(a) This Amendment shall be a contract made under and governed by the internal laws of the State of Illinois. Wherever possible, each provision of this Amendment shall be interpreted in such manner as to be effective and valid under applicable laws, but if any provision of this Amendment shall be prohibited by or invalid under such laws, such provisions shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment.

(b) This Amendment and all other agreements and documents executed in connection herewith have been prepared through the joint efforts of all of the parties. Neither the provisions of this Amendment or any such other agreements and documents nor any alleged ambiguity shall be interpreted or resolved against any party on the ground that such party’s counsel drafted this Amendment or such other agreements and documents, or based on any other rule of strict construction. Each of the parties hereto represents and declares that such party has carefully read this Amendment and all other agreements and documents executed in connection herewith and therewith and that such party knows the contents thereof and signs the same freely and voluntarily. The parties hereby acknowledge that they have been represented by legal counsel of their own choosing in negotiations for and preparation of this Amendment and all other agreements and documents executed in connection therewith and that each of them has read the same and had their contents fully explained by such counsel and is fully aware of their contents and legal effect.

6.7 Successors. This Amendment shall be binding upon the Company, the Purchaser and their respective successors and assigns, and shall inure to the benefit of the Company, the Purchaser and the successors and assigns of the Purchaser.

6.8 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS WAIVER AND AMENDMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AMENDMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY HERETO HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS WAIVER AND AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATION IN THIS SECTION.

6.8 Conflict of Terms. In the event of a conflict between or among the terms, covenants, conditions or provisions of this Amendment, the Amended Transaction Documents, or the other Transaction Documents, the Purchaser may elect to enforce from time to time those provisions that would afford the Purchaser the maximum financial benefits and security for such obligations and liabilities thereunder and/or provide the Purchaser the maximum assurance of payment of such liabilities and obligations in full.

[signature page attached]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized and delivered as of the date first written above.

“Company”
REED’S, INC.
By :	/s/ Valentin Stalowir
Name :	Valentin Stalowir
Title:	Chief Executive Officer
“Purchaser”
Raptor/Harbor Reeds SPV LLC
By:	/s/ Daniel J. Doherty III
Name:
Title:

First Amendment to Securities Purchase Agreement and Transaction Documents

Attachment I

Replacement Exhibit A

[see attached]

First Amendment to Securities Purchase Agreement and Transaction Documents

Exhibit A

Amended and Restated Subordinated Convertible Non-Redeemable Secured Note

[see attached]

First Amendment to Securities Purchase Agreement and Transaction Documents

EX-10.7

MERRITT 7 VENTURE L.L.C.

c/o Marcus Partners Management

301 Merritt 7 Corporate Park

Norwalk, CT 06854

September 11, 2018

GE Capital US Holdings, Inc.

901 Main Avenue

Norwalk, CT 06851

Reed’s Inc.

13000 South Spring Street

Los Angeles, CA 90061

Re: Sublease dated as of September 1, 2018 (the “Sublease”) between GE Capital US Holdings, Inc. (“Sublessor”) and Reed’s Inc. (“Sublessee”) for a portion of the UL level (also known as the Upper Lobby Floor) of 201 Merritt 7 Corporate Park, Norwalk, CT (the “Sublet Premises”)

Ladies and Gentlemen:

Reference is made to that certain Lease dated October 25, 2012, as amended by First Amendment of Lease dated December I, 2012 and Second Amendment of Lease dated October 2014 (collectively, the “Lease”) between Merritt 7 Venture L.L.C. (“Landlord”), as landlord, and Sublessor, as assignee of General Electric Capital LLC (fonnerly General Electric Capital Corporation), as tenant, for the entire premises (the “Premises”) in the building known as 201 Merritt 7 Corporate Park, Norwalk, Connecticut 06851 (the “Building”).

Sublessor has requested Landlord’s consent to the Sublease. Landlord hereby consents to the subletting of the Sublet Premises by Sublessor to Sublessee, subject to the following terms and conditions:

I. Landlord’s granting of the within consent shall not be deemed a waiver of Landlord’s rights under and in accordance with the Lease to consent or refuse to consent to any (a) assignment of the Lease or the Sublease or (b) any further subletting of the Premises, the Sublet Premises or any portion thereof.

2. Nothing contained herein shall be deemed to constitute a release of Sublessor as tenant under the Lease from any of its obligations as tenant under the Lease, and Sublessor shall remain fully liable for the performance of all of the obligations of tenant under the Lease and shall be fully responsible and liable to Landlord for all acts or omissions of anyone claiming under or through Sublessor of the obligations of tenant under the Lease.

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3. Sublessor and Sublessee each hereby represents and warrants that (a) the Sublease constitutes the complete agreement between the parties with respect to the Sublet Premises, (b) a true and complete copy thereof is attached hereto as Exhibit A and (c) no rent or other consideration is being paid to Sublessor by Sublessee for the Sublease, or for the right to use or occupy the Sublet Premises, except as set forth in the Sublease. Any modification or amendment to the Sublease (except for a termination of the Sublease, a decrease in the length of the term thereof, or a de minimis modification or amendment not altering any of the material terms of the Sublease) without the prior written consent of Landlord in each instance shall be deemed to be a default by Sublessor as tenant under the Lease.

4. Nothing contained herein or in the Sublease shall be deemed to (a) increase, amend, modify or extend any of Landlord’s obligations under the Lease in any way whatsoever, and/or (b) diminish, restrict, limit, forfeit or waive any of Landlord’s rights under the Lease in any way whatsoever or (c) constitute a consent to any assignment of the Lease or the Sublease or further subletting of the Premises, the Sublet Premises or any portion thereof.

5. The Sublease shall be subject and subordinate at all times to all of the covenants, agreements, terms, provisions and conditions of the Lease and to the matters to which the Lease is or shall be subordinate.

6. Sublessee shall use and occupy the Sublet Premises for the uses permitted under the Lease and the Sublease and for no other purpose.

7. Although a copy of the Sublease is annexed hereto, Sublessor and Sublessee acknowledge and agree that Landlord is not a party thereto and is not bound by its provisions. Nothing contained herein shall be construed as a consent to. or approval or ratification by Landlord of, any of the particular provisions of the Sublease, or as a representation or warranty by Landlord, provided that this sentence shall not be construed as invalidating the consent by Landlord to the Sublease to Sublessee generally, as reflected herein.

8. Except as expressly set forth herein, no alterations, improvements or additions to the Sublet Premises, or any portion thereof, shall be made except in accordance with the provisions of the Lease.

9. Should Sublessee request that Landlord provide any building service for which Landlord imposes a separate charge, and should such service be provided by Landlord, such request for, and provision of, such services shall not serve to create any relationship of landlord and tenant between Landlord and Sublessee, and Sublessor shall remain primarily liable for payment of such charges. As an administrative convenience to Sublessee, Landlord may (but shall not obligated to) directly bill to Sublessor and/or Sublessee any charge respecting the provision of services by Landlord under the Lease or this consent with respect to the Sublet Premises, including, without limitation, charges for condenser water (if any), after hours HVAC or freight elevator usage, and other extra services requested by Sublessee (or by Sublessor on Sublessee’s behalf) and/or furnished to Sublessee. Sublessor authorizes such direct billing and understands and acknowledges that (a) Sublessor, as tenant under the Lease, shall remain primarily liable for all such charges and billings. Landlord shall notify Sublessor of any default by Sublessor or Sublessee in the payment of any such charges and billings and (b) despite such authorization from Sublessor. Landlord may choose to seek authorization from or bill Sublessor for, all such services requested by Sublessee.

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10. Upon the expiration or any earlier termination of the term of the Lease, or in case Landlord accepts surrender of the Lease by Sublessor, except as provided in the next sentence, tbe Sublease and its term shall expire and come to an end as of the effective date of such expiration, termination, or surrender and Sublessee shall vacate the Sublet Premises on or before such date. If the Lease shall expire or terminate during the term of the Sublease for any reason other than condemnation or destruction by fire or other cause, or if Sublessor shall surrender the Lease to Landlord during the term of the Sublease, Landlord, in its sole discretion, upon written notice given to Sublessor and Sublessee on or before the effective date of such expiration, termination or surrender, without any additional or further agreement of any kind on the part of Sublessee, may elect to continue the Sublease as a direct lease between Landlord and Sublessee (provided that the terms and provisions of the Lease shall be deemed incorporated in the Sublease to the same extent as if the Lease had not expired or terminated). ln that event, Sublessee shall attorn to Landlord and Landlord and Sublessee shall have the same rights, obligations and remedies under the Sublease as Sublessor and Sublessee, respectively, had thereunder prior to such effective date, except that Landlord shall not be (1) liable for any act, omission, or default of Sublessor under the Sublease, or (2) subject to any offsets, claims, or defenses that Sublessee had or might have against Sublessor, or (3) bound by any rent or additional rent or other payment paid by Sublessee to Sublessor for more than one month in advance, or (4) bound by any modification, amendment, or abridgment of the Sublease made without Landlord’s prior written consent. Upon expiration of the Sublease pursuant to the provisions of the first sentence of this Paragraph 10, if Sublessee shall fail to vacate the Sublet Premises as provided in the Lease, Landlord shall have against Sublessee all of the rights and remedies available against Sublessor under the Lease as well as the rights and remedies available generally to a landlord against a tenant holding over after the expiration of a lease term.

11. Sublessor and Sublessee each represents and warrants to Landlord that it has not dealt with any broker in connection with the Sublease or this consent, other than CBRE Inc. and Newmark of Connecticut, LLC (collectively, “Broker”). Sublessor and Sublessee shall each indemnify, defend and hold Landlord harmless from and against any and all claims, losses, liabilities, damages, judgments, fines, suits, demands, costs, interest and expenses of any kind or nature (including reasonable attorneys’ fees and disbursements) incurred in connection with any claim, proceeding or judgment and the defense thereof which Landlord may incur by reason of any claim of or liability to any broker (including, without limitation, Broker), finder or like agent arising out of any dealings claimed to have occurred between the indemnifying party and the claimant in connection with the Sublease or this consent, or the above representation being false.

12. Nothing contained in the Sublease shall be construed to create privity of estate or (except as expressly provided herein) of contract between Sublessee and Landlord.

13. This consent is further conditioned upon payment by Sublessor of Landlord’s legal fees and expenses incurred in connection with the review of the Sublease and the preparation and negotiation of this consent.

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14. This consent will for all purposes be construed in accordance with and governed by the laws of the State of Connecticut applicable to agreements made and to be perfonned wholly therein.

15. This consent shall not be effective until executed by all the parties hereto and may be executed in several counterparts, each of which will constitute an original instrument and all of which will together constitute one and the same instrument.

16. The terms and provisions of this consent shall bind and inure to the benefit of the parties hereto and their respective successors and assigns.

[REMAINDER OF PAGE INTENTIONALLY BLANK;

SIGNATURES FOLLOW ON NEXT PAGE]

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Please acknowledge your agreement with the foregoing by signing this consent where indicated below.

LANDLORD:

ACKNOWLEDGED AND AGREED:

SUBLESSOR:

GE CAPITAL US HOLDINGS, INC.

By:

Name:

Title:

SUBLESSEE:
REED’S INC.
By:
Name:	Valentin Stalowir
Title:	CEO

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SUBLEASE

THIS SUBLEASE is made and entered into as of September 1, 2018 (“Effective Date”), by and between GE Capital US Holdings, Inc., a Delaware corporation, having an office and place of business at 901 Main Avenue, Norwalk, Connecticut 06851, hereinafter called “Sublessor”, and Reed’s Inc., a Delaware corporation, having an office and principal place of business at 13000 South Spring Street, Los Angeles, CA 90061, hereinafter called “Sublessee”. Sublessor and Sublessee are collectively referred to herein as the “Parties” and individually as a “Party”.

WITNESSETH:

WHEREAS, by a certain written Amended and Restated Lease between Merritt 7 Venture L.L.C., a Delaware limited liability company, as landlord (hereinafter called “Owner”), and Sublessor, as assignee of General Electric Capital LLC (formerly General Electric Capital Corporation), as tenant, dated as of October 25, 2012, as amended by that certain First Amendment of Lease, dated December 1, 2013 and that certain Second Amendment of Lease dated October 2014 (said lease, as same has been so amended, supplemented and/ or extended, being hereinafter called the “Master Lease”) (a redacted copy of which Master Lease is attached hereto and made a part hereof as Exhibit “A”), Owner leased to Sublessor those certain premises consisting of the entire building (“Building”) with the right to use, in common with others, the walkways, driveways, and parking areas located on the land (“Property”) commonly known as 20 1 Merritt 7 Corporate Park, Norwalk, Connecticut which, together with such other improvements and appurtenances therein mentioned, are more particularly described in the Master Lease, which are located in the office park known as Merritt 7 Corporate Park (the “Park”); and

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WHEREAS, Sublessee desires to sublease and hire from Sublessor, and Sublessor is willing to sublet to Sublessee, a portion of the UL level of the Building, all of which are shown on the plan attached hereto and made a part hereof as Exhibit “B” (hereinafter called the “Sublease Premises”) on the terms and conditions more particularly hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants, conditions and agreements herein contained, Sublessor and Sublessee agree as follows:

1. Demise and Use. Sublessor, for and in consideration of the rents and covenants specified to be paid, performed and observed by Sublessee, does hereby let, sublet, lease and demise to Sublessee the Sublease Premises and Sublessee hereby subleases the Sublease Premises from Sublessor for the Term (as hereinafter defined) and according to the covenants and conditions contained herein. The Sublease Premises is deemed and agreed by the Parties to contain the following rentable square feet: (i) a portion of the UL level of the Building containing approximately Four Thousand Six Hundred Twenty (4,620) rentable square feet of space (sometimes referred to herein as “Sublease Premises A”) and (ii) a portion of the UL level of the Building containing approximately Four Thousand (4,000) rentable square feet of space (sometimes referred to herein as “Sublease Premises B”). Accordingly, the parties agree that the Sublease Premises shall be deemed to consist of Eight Thousand Six Hundred Twenty (8,620) rentable square feet. Sublessee shall use and occupy the Sublease Premises as permitted under the Master Lease and for no other purpose whatsoever. As used herein, the term “Sublease Premises” shall include such appurtenant rights to use the common areas of the Building, the Property and the Park, as applicable (including, without limitation, the fitness center, restrooms, elevators, outdoor plazas, parking areas and cafeteria), in common with the other tenants and occupants thereof as granted to Sublessor under the Master Lease to the extent required by Sublessee in connection with (i) the use of and access to the Sublease Premises and (ii) Sublessee’s business operations, all as contemplated hereby, including the Plaza area located outside the Sublease Premises for outdoor collaboration and meetings as may be permitted under the Master Lease. Sublessor represents and warrants that, as of the date on which Sublessor delivers possession of the Premises to Sublessee, the Building structure and Building systems serving the Premises shall be in good working order.

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Notwithstanding anything to the contrary contained in Section 5.01 of the Master Lease, but subject to the terms of Section 29 below (Pantry Space), Sublessee shall not be allowed to use any portion of the Sublease Premises as a fitness center or cafeteria; provided, however, notwithstanding anything in this Sublease to the contrary, Sublessee and it employees shall have the right to use any fitness center and cafeteria in the common areas of the Building as reasonably desired, subject to Sublessor’s reasonable rules and regulations related to management and operation of such facilities, which rules and regulations shall be applied to all users of such facilities in a non discriminatory manner (provided that with respect to the fitness center, each such employee who desires to use the fitness center (i) provides a waiver in the form attached hereto as Exhibit “H” or such other form as Sublessor may reasonably request from time to time for use by all fitness center members, and (ii) pays directly to the Sublessor (or fitness center manager, if so directed by Sublessor) the reasonable monthly fee charged for usage of said fitness center). Notwithstanding anything contained in this Sublease to the contrary, Sublessee shall not be required to pay Sublessor any fee or other amount in connection the use of the fitness center by Sublessee’s employees.

Sodexo is the current Cafeteria operator. In the event that annual Cafeteria and catering target sales reach a certain level at the Building (“Target Sales”) then Sodexo does not charge Sublessor for Cafeteria services. Sublessor represents to Sublesee that Sublessee’s share of the Target Sales amount for calendar year 2018 would have been Twelve Thousand Nine Hundred Fifty-Nine and No/ 100 Dollars ($12,959) for Sublease Premises A and Eleven Thousand Two Hundred Twenty and No/ 100 Dollars ($11,220) for Sublease Premises B. Target Sales for 2019 and future calendar years will be established at a later date. In the event that the annual Target Sales amount is not achieved then Sublessor is required to pay Sodexo Fifty-Two Cents ($0.52) for each dollar of any such shortfall (“Shortfall Amount”), e.g., a maximum of Six Thousand Seven Hundred Thirty-Nine and NojlOO Dollars ($6,739) for 2018 Target Sales applicable to Sublease Premises A and Five Thousand Eight Hundred Thirty-Four and Noj 100 Dollars ($5,834) for 2018 Target Sales applicable to Sublease Premises B. So long as Sublessee remains a user of the Cafeteria, Sublessee shall be responsible to Sublessor for (i) its Target Sales amount, and (ii) any Shortfall Amount resulting from Sublessee’s failure to reach its Target Sales amount. For avoidance of doubt, Sublease Premises B’s Target Sales requirement will be established in 2021 and commence on April 1, 2021. Until then, Sublessee is only responsible for the shortfall for Target Sales applicable to Sublease Premises A (beginning on the Sublease Premises A Commencement Date).

Sublessor shall have the right at any time to cease the operation of a Cafeteria without any liability to Sublessee and Sublessee shall have the right at any time with thirty (30) days’ prior written notice to Sublessor to cease using the Cafeteria and thereafter Sublessee shall not be obligated for any Target Sales or shortfall amounts so long as Sublessee’s employees do not use the Cafeteria.

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2. Term. Subject to Owner’s Consent described in Section 23 below, the term of this Sublease (the “Term”) shall commence on the date on which Sublessor delivers possession of the Sublease Premises to Sublessee in the condition required under this Sublease (the “Commencement Date”), which is estimated to occur on or about September 1, 20 18 for Sublease Premises A and April 1, 2021 for Sublease Premises B. This Sublease shall terminate and the Term shall end on December 15, 2024 (“Expiration Date”), unless the Term shall be sooner terminated in accordance with the provisions hereof. Any rights or options of Sublessor under the Master Lease to terminate the Master Lease, to extend the term of the Master Lease, to expand the Premises, or any rights offirst offer or refusal are hereby specifically excluded from this Sublease.

3. Early Access; Delivery of Possession. (a) Sublessor shall allow Sublessee access to the Sublease Premises at least fifteen (15) days prior to the Commencement Date to allow Sublessee to perform Sublessee’s Work and to install its fixtures, furniture, telephones, data lines and other telecommunications/IT equipment and cabling (the “Early Access Period”). Sublessee shall not be required to pay Base Rent or Additional Rent during the Early Access Period. However, during the Early Access Period, Sublessee shall comply with all of Sublessee’s indemnity obligations and insurance requirements set forth herein. The parties agree to comply with the following terms and conditions during the Early Access Period: (i) Sublessor shall continue to have control of the Sublease Premises for all purposes provided the same does not interfere with Sublessee’s performance of Sublessee’s Work, (ii) Sublessee shall provide Sublessor with a schedule relating to Sublessee’s Work prior to the time when any such work is to be performed in the Sublease Premises, and (iii) Sublessor shall reasonably cooperate with Sublessee in connection with Sublessee’s exercise of the foregoing rights. Sublessor shall deliver possession of the Sublease Premises to Sublessee on the Commencement Date in the condition required under this Sublease. Sublessor is not obligated to provide or pay for any improvement work related to the improvement of the Sublease Premises for Sublessee’s occupancy. Sublessee shall have access to the Sublease Premises seven (7) days per week, twenty-four (24) hours per day, 365 days per year and may install a card key or other security system to restrict access to the Sublease Premises.

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4. Rent. Commencing upon the applicable Commencement Date, Sublessee shall pay to Sublessor (at the address designated by prior written notice to Sublessee), in lawful money of the United States without any prior notice or demand therefor, a fixed monthly rent (the “Base Rent”) for the Sublease Premises as set forth on Exhibit “C” attached hereto and made a part hereof (subject to abatement as provided therein), in advance on the first day of each calendar month during the Term.

(b) In addition to the Base Rent due hereunder during the Term, Sublessee shall promptly pay to Sublessor its proportionate share of all additional rents payable to Owner pursuant to Section 2.02 of the Master Lease (“Proportionate Share”), except (i) those payments specifically excluded by the terms of this Sublease (including any penalties, costs and/ or fees in connection with Sublessor’s default under the Master Lease), and (ii) those payments which cover a period prior to the Commencement Date. provided, however, that Sublessee shall only be responsible for increases over the 2018 calendar base year for OpEx Additional Rent and increases over the 2018/2019 fiscal year for Tax Additional Rent (“Additional Rent”). The Proportionate Share for Sublease Premises A is One and Seventy-One One Hundredths percent (1.71%) and the Proportionate Share for Sublease Premises B is One and Forty-Eight One Hundredths percent ( 1.48%). Any such payments which Sublessee is herein required to make which cover a period of time both before and after the Commencement Date shall be prorated between the Parties as of the Commencement Date. Notwithstanding anything to the contrary contained in this Sublease or the Master Lease, the Proportionate Share shall not be increased during the Term of this Sublease. In addition, if the Master Lease requires the tenant to make payments of real estate taxes and/or utilities which are applicable to the Sublease Premises directly to the taxing authorities and/ or utility companies, as the case may be, Sublessee shall make such payments in a timely manner and promptly supply Sublessor with evidence thereof, and such shall be deemed to be Additional Rent hereunder. Sublessee shall pay the Additional Rent to Sublessor five (5) business days prior to when it is due under the Master Lease. Notwithstanding the foregoing, Sublessee hereby acknowledges and agrees that in the event Sublessee wishes to use any utility or service, the cost of which is not included in the base services provided by Owner under the terms of the Master Lease (e.g., HVAC use outside of Business Hours, as defined below, and other costs described in Section 3.02 of the Master Lease), Sublessee shall be solely responsible for the cost of any such utility or service utilized by Sublessee and the cost thereof shall be deemed Additional Rent. Sublessee agrees that Sublessor is not responsible for providing such services or utilities, and that Sublessee shall be solely responsible for requesting such services or utilities directly from Owner and for paying Owner for the same. Base Rent and all Additional Rent are hereinafter collectively called “Rent”. Sublessor’s right to recoup any expenses under this Sublease shall not be duplicative. Sublessor warrants and represents that the Building contains two hundred forty-one thousand five hundred eighty-nine (241,589) rentable square feet and based solely on Owner’s assertions the Building constitutes nineteen percent ( 19%) of the rentable square feet in the Park. For purposes of this Sublease, the term “Business Hours” shall mean Monday-Friday, from 8:00am to 8:00pm, and Saturday, from 9:00am to 1:00pm. The current after Business Hours HVAC rate is Two Hundred and NojlOO Dollars ($200) per hour.

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(c) All amounts due from Sublessee to Sublessor under this Sublease shall be paid by wire transfer of immediately available funds to an account designated in writing by Sublessor, or to such other place as Sublessor may designate in writing at least thirty (30) days prior to the due date, without any offset or deduction whatsoever except as provided elsewhere in this Sublease. The monthly Base Rent and Additional Rent payable on account of any partial calendar month during the Term, if any, shall be prorated on a per diem basis based on the number of actual days in such partial calendar month. Sublessee’s obligation to pay Rent owing and due for any period during the Term shall survive the expiration of the Term.

(d) The Parties hereto agree and acknowledge that no statement or letter accompanying any payment shall be deemed to be an accord and satisfaction and Sublessor may accept any such payment without prejudice to Sublessor’s right to recover the balance or pursue any other remedy provided in this Sublease or at law, and (ii) Sublessee shall be required to pay to Sublessor interest on any sum of money which Sublessee is required to pay to Sublessor pursuant to the terms of this Sublease that is not paid to Sublessor within five (5) days of the due date and that such interest shall be calculated at an annual rate of three percent (3%) above the so-called “prime rate” of Citibank, N.A. (or its successor), as announced from time to time, (or the maximum percent permitted by law, whichever is less) (“Interest Rate”) from the date that such sum becomes due until the date it is paid.

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5. Incorporation of Master Lease Terms. (a) The provisions, terms, covenants and conditions of the Master Lease are, except as otherwise herein specifically provided, hereby incorporated in this Sublease with the same effect as if entirely rewritten herein,except for the prov1s1ons as to base rent, additional rent and such other terms, covenants and conditions that are specifically inconsistent with the terms hereof. Words or terms which are capitalized but not defined herein shall have the meanings ascribed thereto in the Master Lease unless the context clearly requires otherwise. Sublessee acknowledges that it has read and examined the Master Lease attached hereto as Exhibit “A” and is fully familiar with the terms, provisions, covenants and conditions contained therein. Sublessee hereby covenants to perform the terms, provisions, covenants and conditions of Sublessor as tenant under the Master Lease to the extent the same are applicable to the Sublease Premises during the Term and are not otherwise expressly modified by the terms of this Sublease , and agrees not to do or permit to be done any act which shall result in a violation of any of the terms and conditions of the Master Lease. Except as otherwise specifically provided herein, Sublessee is to have the benefit of the covenants and undertakings of Owner as landlord in the Master Lease to the extent the same are applicable to the Sublease Premises during the Term. Sublessor does not assume any obligation to perform the terms, covenants and conditions contained in the Master Lease on the part of Owner to be performed as the same relates to providing Building services and utilities, and performing maintenance, repair, replacement, rebuilding, and restoration. It is further understood and agreed, therefore, that notwithstanding anything to the contrary contained in this Sublease, Sublessor shall not be in default under this Sublease for failure to render any of the services or perform any of the maintenance, repair, replacement, rebuilding, and restoration obligations required of Sublessor by the terms of this Sublease which are the responsibility of Owner as landlord under the Master Lease, but Sublessor agrees to timely take all commercially reasonable measures to insure that Owner performs such services and obligations. In addition to the foregoing, upon the request of Sublessee, Sublessor shall be obligated to exercise its self-help rights under Section 7.05 of the Master Lease on Sublessee’s behalf and if successful in doing so, then pass through to Sublessee its proportionate share of any benefits thereof. The term “commercially reasonable measures” shall not include legal action against Owner for its failure to so perform unless Sublessee agrees to pay all costs and expenses in connection therewith which shall be payable as Additional Rent. In addition to the foregoing, no such failure or default on the part of Owner shall constitute an actual or constructive total or partial eviction of Sublessee or entitle Sublessee to a reduction or abatement of Base Rent or Additional Rent hereunder, unless such failure or default would constitute an actual or constructive total or partial eviction of Sublessor or would entitle Sublessor to a reduction or abatement of Base Rent or Additional Rent (as such terms are used in the Master Lease) under the terms of the Master Lease or applicable law, if this Sublease did not exist. Notwithstanding the foregoing, if any utility, HVAC or elevator service (i.e. no elevators are functioning) is interrupted for a period of three (3) days or longer, and such interruption is not caused by Sublessee’s negligence or willful misconduct or a fire or other casualty, then the Rent payable under this Sublease shall be fully abated from the first day of such interruption on a per diem basis until such interruption is eliminated.

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(b) The Parties agree that the following provisions of the Master Lease are, for the purposes of this Sublease, hereby deleted: 1.01 (first paragraph only); 1.02; 2.01; 2.02 (paragraph titled “Tenant’s Pro Rata Share” only); 2.02(e); 2.03 (third sentence only); 3.02(b); 5.03 (last paragraph only); 6.01(b) (second sentence only); 6.01(c); 7.05; 8.01(b); 10.01; 10.03; 11.01; 11.02; 12.01; 13.01 (except (c) and (e)); 13.02; 13.03; 14.04; 15.02; 16.01; 18.01; 20.10 (except last sentence); 20.12; 20.13; 20.15; Article 21; 22.0 1; 23.01; 24.01-24.02; and All Exhibits except 3.02 and 5.04. The remaining provisions of the Master Lease shall, for the purposes of this Sublease and to the extent that same are applicable, remain in full force and effect as between Sublessor and Sublessee as provided in this Section 5 of this Sublease, except as said provisions have been otherwise amended or modified by this Sublease (or as otherwise set forth in Section 5(a) above).

(c) Notwithstanding the generality of clause (b) above, and except to the extent provided in this Sublease, for the purposes of incorporation of the terms, provisions, covenants and conditions contained in the Master Lease herein, the term “Tenant” in the Master Lease shall mean and refer to Sublessee hereunder; the term “Landlord” in the Master Lease shall mean and refer to Sublessor hereunder; the term “the Demised Premises” in the Master Lease shall mean and refer to the Sublease Premises hereunder; the term “Base Rent” in the Master Lease shall mean and refer to the Base Rent hereunder; the term “Additional Rent” in the Master Lease shall mean and refer to the Additional Rent hereunder; the term “this Lease” in the Master Lease shall mean and refer to this Sublease; the term “Commencement Date” in the Master Lease shall mean and refer to the Commencement Date hereunder; and the term “Expiration Date” in the Master Lease shall mean and refer to the Expiration Date hereunder.

(d) It is further understood and agreed that some of the provisions of the Master Lease incorporated herein by reference are hereby amended as follows:

(i) The word “Landlord” shall refer to both Owner and Sublessor in Section 5.03 of the Master Lease.

(ii) Sublessor shall have an additional five (5) business days for purposes of Sublessor’s delivery to Sublessee of the Reconciliation Notice and items related to the same as set forth in Section 2.02 of the Master Lease. If an excluded provision contains the definition of a defined term used in an incorporated provision or is specifically referenced in this Sublease, such definition in the excluded provision shall be deemed incorporated solely for such purpose.

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6. Holding Over. If Sublessee retains all or any portion of the Sublease Premises after the expiration or termination of the Term, then during such period Sublessee shall pay Sublessor the greater of: (i) two hundred percent (200%) of the Base Rent; and (ii) any amount charged to Sublessor under the terms of the Master Lease on account of such holdover. Sublessee shall also pay all damages, consequential as well as direct, sustained by Sublessor by reason of such retention (including, without limitation, any such damages payable to Owner under the terms of the Master Lease). Nothing in this Section 6 contained shall be construed or operate as a waiver of Sublessor’s right of re-entry or any other right of Sublessor.

7. Notices. All notices, requests, demands and other communications with respect to this Sublease, whether or not herein expressly provided for, shall be in writing and shall be deemed to have been duly given the next business day after being deposited (in time for delivery by such service on such business day) with Federal Express or another national courier service, for delivery to the Parties at the addresses listed below, or to such other address or addresses as may hereafter be designated by either party in writing for such purpose:

Sublessor:	GE Capital US Holdings, Inc.
	901 Main Avenue
	Norwalk, CT 06851
	Attn: Real Estate Leader
With a copy to:	GE Global Operations- Properties
	191 Rosa Parks Street
	Cincinnati, OH 45202
	Attn: Steve Copsinis
Sublessee:	Reeds’s Inc.
	20 1 Merritt 7
	Norwalk, CT 06851
	Attn: Iris Synder, CFO
With a copy to:	Libertas Law Group
	225 Santa Monica Blvd, 5th Floor
	Attn: Ruba Qashu

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8. Sublease Subject to Master Lease. (a) This Sublease is expressly made subject to all the terms and conditions of the Master Lease, except as specifically provided to the contrary in this Sublease or in the Owner’s Consent (as hereinafter defined). Sublessee hereby assumes, and covenants that it shall, throughout the Term, observe all of the terms, provisions, covenants and conditions of the Master Lease on the part of Sublessor to be performed as the tenant thereunder (except the provisions which are not incorporated herein), and that Sublessee will not do any act, matter or thing which will be, result in, or constitute a violation or breach of or a default under the Master Lease; any such violation, breach or default shall constitute the breach by Sublessee of a substantial obligation under this Sublease. Sublessee shall indemnify and hold Sublessor harmless from and against all claims, penalties and expenses, including reasonable out-of-pocket attorneys’ fees and disbursements, based upon any default by Sublessee, during the Term, in Sublessee’s performance of those terms, provisions, covenants and conditions of the Master Lease which are or shall be applicable to Sublessee, as above provided, and Sublessee shall pay to Sublessor as Additional Rent hereunder any and all sums which Sublessor is required to pay to Owner, which requirement is caused in whole or in part by Sublessee’s failure to perform or observe any of the terms, provisions, covenants and conditions of the Master Lease or by any act or omission described in the preceding sentence. In any case where the consent or approval of Owner shall be required pursuant to the Master Lease, Sublessor’s consent shall also be required hereunder.

(b) Except as specifically set forth in this Sublease, to the extent that any duty, requirement or obligation of Sublessee which is covered or addressed by any of the terms or provisions of this Sublease is also covered and/ or addressed by any of the terms or provisions of the Master Lease with respect to the Sublease Premises: (i) Sublessee shall comply with the terms and provisions of both this Sublease and the Master Lease, to the extent that such terms and provisions of this Sublease and those of the Master Lease are not in conflict, and (ii) to the extent that such terms and provisions of this Sublease and those ofthe Master Lease are in conflict, Sublessee shall (as between the terms and provisions of this Sublease and the terms and provisions of the Master Lease) comply with the terms and provisions of the Sublease.

(c) This Sublease is subject and subordinate to the Master Lease and to the matters to which the Master Lease is or shall be subordinate, and in the event of termination, re-entry or dispossess by Owner under the Master Lease, Sublessee shall, at Owner’s option, attorn to Owner pursuant to the then executory provisions of this Sublease, except that Owner shall not (i) be liable for any previous act or omission of Sublessor under this Sublease, (ii) be subject to any offset not expressly provided in this Sublease which shall have theretofore accrued to Sublessee against Sublessor, or (iii) be bound by any previous modification of this Sublease or by any previous prepayment of more than one (1) month’s Base Rent or Additional Rent.

(d) If any termination of the Master Lease is the result of a voluntary termination of the Master Lease by Sublessor or a default by Sublessor under the Master Lease and such default of Sublessor was not due to default by Sublessee of its obligations hereunder, Sublessor shall be liable to Sublessee for any and all damages (except for consequential and punitive damages) incurred by Sublessee as a result of such termination. In the event of any other expiration or earlier termination of the Master Lease, for any reason whatsoever, this Sublease shall automatically terminate on the date of the expiration or termination of the Master Lease; provided, however, that those terms and conditions of this Sublease which expressly survive expiration or termination of this Sublease, including, but not limited to, indemnity obligations, shall survive any such expiration or termination of this Sublease. Further, in the event of any damage to or destruction of the Premises or the Building or in the event that the Premises or the Building (or any portion thereof, including, any parking spaces allocated to Sublessor under the Master Lease) are taken for any public or quasi-public use in condemnation proceedings or by any right of eminent domain or sale in lieu of condemnation and if Sublessor or Owner elect to terminate the Master Lease as a result of such damage, destruction or condemnation, then this Sublease shall automatically terminate (provided, however, that if the damage, destruction or taking solely affects the Sublease Premises, Sublessor will not elect to terminate the Master Lease unless Sublessee has given its prior written consent to such termination). Upon any termination of this Sublease pursuant to the foregoing provisions of this Section 8(d) of this Sublease, Sublessee shall not have any right or claim against Sublessor on account of such termination other than as specifically provided herein.

9. Performance of Master Lease. (a) The respective terms, covenants, provisions and conditions of the Master Lease on the part of Owner to be performed, which have been incorporated herein by reference, are to be performed by Owner or its successors and assigns, and, subject to Section S(a) hereof, Sublessee shall look solely to Owner for such performance. Sublessor shall not be liable or responsible to Sublessee for any failure or default on the part of Owner, its successors or assigns, with respect to any of the terms, covenants, provisions and conditions of the Master Lease.

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(b) If Sublessee shall default in the payment of Rent hereunder or in the performance or observance of any of the terms, covenants or conditions of this Sublease on the part of Sublessee to be performed or observed, Sublessor shall have the right (but not the obligation) to exercise all of the same rights and remedies provided to or reserved by Owner in the Master Lease with respect to such default and at law and in equity; provided, however, the foregoing shall in no way be deemed to limit or impair the rights and privileges of Owner under the Master Lease, or to impose any obligations on the part of Sublessor by reason of the exercise by Owner of any of such rights or privileges with respect to the Sublease Premises or to the use and occupation thereof by Sublessee. Without limiting the foregoing, Sublessor shall have the same rights and remedies in the event of non-payment by Sublessee of Rent hereunder as are available to Owner under the Master Lease and at law and in equity for the non-payment of Rent and/ or of any installment thereof.

(c) Sublessee or Sublessor, as applicable, shall, within three (3) days after receipt thereof, notify the other Party of any notice applicable to the Sublease Premises served by Owner upon such Party. Wherever Owner requires Sublessor, as tenant under the Master Lease (except in respect of any provision which has not been incorporated herein), to take any action or to cure any default (other than a default in the payment of Base Rent or Additional Rent) applicable to the Sublease Premises within a period of time stated therein or in the Master Lease, Sublessee shall complete such action or cure such default not later than three (3) days prior to the expiration of such period and shall promptly furnish notice of compliance to Sublessor, unless the nature of such cure cannot reasonably be completed within five (5) business days, in which case, Sublessee shall have an additional time period to complete such cure (which shall not exceed a total of thirty (30) days), and Sublessee shall not be deemed to be in default or breach of its obligations under this Sublease unless Sublessee fails to cure such default within such thirty (30) day period.

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10. Subleases, Assignments, etc.

(a) Sublessee shall not by operation of law or otherwise, assign this Sublease or any interest therein or sublet any portion or all of the Sublease Premises (each, a “Transfer”) without Owner’s prior written consent as set forth in the Master Lease, and Sublessor’s prior written consent which may be granted or withheld in Sublessor’s sole discretion; provided, however, that commencing on the earlier of (i) the date upon which Sublessor has sublet the entire Premises or assigned the Master Lease, each to an unaffiliated third party for the remainder of the Term (as defined in the Master Lease) and (ii) the date that is twelve (12) months after the Commencement Date, Sublessor shall not unreasonably withhold its consent to any Transfer. Notwithstanding the foregoing, Sublessee shall not offer to make or enter into negotiations with respect to a Transfer to any of the following: (x) a tenant in the Building; (y) any party with whom Sublessor or any affiliate of Sublessor is then negotiating or has been negotiating in the then-prior six (6) months with respect to space in the Building; (z) any entity owned by, owning, or affiliated with, directly or indirectly, any tenant or party described in clauses (x) and (y) hereof, and it shall not be unreasonable for Sublessor to disapprove any proposed Transfer to such entities. Any Transfer in violation of the provisions of this Sublease shall, at the option of Sublessor, be void and of no force or effect, and, at the option of Sublessor, terminate this Sublease.

(b) No consent by Sublessor or Owner to any Transfer shall in any manner be considered to relieve Sublessee from obtaining Sublessor or Owner’s express written consent to any further Transfer.

(c) Without limitation of the foregoing, if this Sublease is assigned, or if the Sublease Premises or any part thereof is sublet or occupied by anyone other than Sublessee, Sublessor may, after default by Sublessee, collect Base Rent and Additional Rent from the assignee, subtenant or occupant, and apply the amount collected to the Base Rent and Additional Rent herein reserved, but no such assignment, subletting, occupancy or collection of Base Rent and Additional Rent shall be deemed a waiver of the covenants in this Section 10, nor shall it be deemed acceptance of the assignee, subtenant or occupant as a tenant, or a release of Sublessee from the full performance of all the terms, conditions and covenants of this Sublease.

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11. “As Is” Condition. Without limiting any representation or warranty or any other obligation of Sublessor under this Sublease, Sublessor warrants and represents that the Building systems that serve the Sublease Premises shall be in good working order and condition and to Sublessor’s actual knowledge all such Building systems are and shall be in compliance with all applicable laws and regulations, with the Sublease Premises being broom clean and vacant on the Commencement Date (exclusive of the Personal Property, as such term is hereinafter defined). Sublessee acknowledges that it has inspected the Sublease Premises demised hereunder, and, agrees to accept the Sublease Premises in “AS IS” “WHERE IS CONDITION” in reliance upon Sublessor’s warranty and representation set forth above in this Section, and without any obligation on Sublessor’s part to alter or reconfigure the Sublease Premises and subject to all applicable zoning, federal, state and local laws, ordinances and regulations governing and regulating the Sublease Premises, including but not limited to the Americans with Disabilities Act, and any covenants and restrictions of record and all matters disclosed thereby and by any exhibits attached to this Sublease; provided, however, Sublessee shall not be responsible for performing any improvements to cure any non-compliance with such laws except to the extent caused by its specific (and not general office) use of the Sublease Premises or any alteration made by Sublessee. Except as set forth above in this Section or elsewhere in this Sublease, Sublessee further acknowledges that neither Sublessor nor Owner has made any representations or warranties whatsoever with respect to the physical condition of the Sublease Premises or Personal Property, expressed and/ or implied, or arising by operation of law, including, but not limited to, any warranty of condition, habitability, merchantability or fitness for a particular purpose and Sublessee agrees that neither Sublessor or Owner have any obligation to alter or repair the Sublease Premises or to prepare the same in any way prior to the Commencement Date for Sublessee’s occupancy or use.

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12. Alterations. All alterations, changes, additions, improvements, repairs or replacements in, to, or about the Sublease Premises (collectively, “Sublessee Changes”), including, without limitation, Sublessee’s Work, shall be made in accordance with the provisions of the Master Lease applicable thereto. No Sublessee Changes shall be affected by Sublessee to the Sublease Premises without Sublessor’s prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned. All Sublessee Changes shall be subject to Owner’s consent if required by the terms of the Master Lease, and Sublessor makes no representations or warranties, and expresses no opinion, with respect to Owner’s consent to any Sublessee Changes. Sublessee shall reimburse: (i) Owner in accordance with the provisions in the Master Lease with respect to Sublessee Changes, and (ii) Sublessor for all actual, reasonable out-of-pocket costs and expenses incurred in connection with the review of proposed Sublessee Changes, including the plans with respect thereto, which shall not exceed $2,000 per request. Sublessee shall not be required to remove any such alteration from the Sublease Premises unless Owner or Sublessor requires such removal in writing at the time of granting its consent to Sublessee’s proposed alteration.

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13. Sublessee’s Work. Subject to the consent of Sublessor and Owner (i) to the Sublessee’s Preliminary Work described on Exhibit “E” attached hereto, and (ii) the Sublessee’s Final Work Plans (as hereinafter defined), Sublessee shall have the right to perform and complete at its sole cost and expense the work (“Sublessee’s Work”) as described in the Sublessee’s Final Work Plans, which when approved by Sublessor and Owner shall be made a part hereof and shall constitute Exhibit “E”; provided, however, by its execution of this Sublease, Sublessor shall be deemed to have consented to all of the work described in Exhibit “E”, except as may be otherwise expressly noted in said Exhibit. At its sole cost and expense, Sublessee shall remove Sublessee’s Work and restore the Sublease Premises to its pre-Sublessee’s Work condition on the Commencement Date at the expiration of the Term, normal wear and tear and casualty excepted; provided, however, Sublessor specifically agrees that if at the time Owner consents to Sublessee’s Work, Owner does not require the removal of Sublessee’s Work and restoration of the Sublease Premises to its pre-Sublessee’s Work condition on the Commencement Date by either Sublessor or Sublessee, Sublessee shall not be obligated to remove Sublessee’s Work nor to restore the Sublease Premises at the expiration of the Term. Sublessee shall construct all Sublessee’s Work in a good and workmanlike manner and in compliance with all federal, state and local laws, rules, regulations and ordinances, including, but not limited to, the Americans with Disabilities Act. Further, Sublessee shall comply with all terms and conditions of the Master Lease relating to alterations or changes to be made to the Sublease Premises and shall comply with Owner’s reasonable health, safety and security policies and procedures in so constructing the Sublessee’s Work, a copy of which shall be delivered to Sublessee prior to the execution of this Sublease. In addition, Sublessee shall indemnify, defend and hold harmless Sublessor and Owner against liability, loss, cost, damage, liens and expense imposed upon Sublessor or Owner arising out of the performance of such Sublessee’s Work by Sublessee, excluding, however, any such liability, loss, cost, damage, or lien resulting from the acts or omissions of Sublessor or Owner.

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14. Brokers. Sublessor and Sublessee each represent and warrant to the other that it has had no dealings with any real estate broker, finder or agent in connection with the negotiation of this Sublease or bringing about or consummating this Sublease, except CBRE, Inc. (“Sublessor’s Broker”) and Newmark of Connecticut, LLC (“Sublessee’s Broker”). Sublessor shall pay Sublessor’s Broker a commission pursuant to a separate written agreement and Sublessor’s Broker shall thereafter be solely responsible for any commissions owning to Sublessee’s Broker in connection with this Sublease. Other than Sublessor’s Broker and Sublessee’s Broker, the Parties know of no other real estate broker or agent who is or might be entitled to a commission in connection with this Sublease. Sublessor and Sublessee each agree to indemnify, defend and hold the other harmless from all costs and liabilities, including reasonable attorneys’ fees and costs, arising out of or in connection with claims made by any broker or individual who alleges that it is entitled to commissions or fees with regard to this Sublease as a result of dealings it had with the indemnifying party.

15. Indemnification.

(a) Sublessee shall indemnify and save harmless Sublessor and its officers, directors, agents and employees, against and from any and all liability, damage, expense, cause of action, suits, claims or judgments for injury or death to persons or damage to property sustained by anyone in and about the Sublease Premises or any part thereof, arising out of or in any way connected with Sublessee’s or its agents’, employees’, contractors’ or invitees’, use or occupation of the Sublease Premises or any breach of this Sublease or the Master Lease. Furthermore, all furnishings, fixtures, equipment, and property of every kind and description of Sublessee and of persons claiming by or through Sublessee which may be on the Sublease Premises shall be at the sole risk and hazard of Sublessee and no part or loss or damage thereto from whatever cause is to be charged to or borne by Sublessor.

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(b) Sublessor shall indemnify and save harmless Sublessee and its officers, directors, agents and employees, against and from any and all liability, damage, expense, cause of action, suits, claims or judgments for injury or death to persons or damage to property sustained by anyone in and about the Premises other than the Sublease Premises or any part thereof, arising out of or in any way connected with Sublessor’s or its agents’, employees’, contractors’ or invitees’, use or occupation of the Premises other than the Sublease Premises or any breach of this Sublease or the Master Lease. Furthermore, all furnishings, fixtures, equipment, and property of every kind and description of Sublessor and of persons claiming by or through Sublessor which may be on the Premises other than the Sublease Premises shall be at the sole risk and hazard of Sublessor and no part or loss or damage thereto from whatever cause is to be charged to or borne by Sublessee. In no event shall Sublessee be liable in any way for, and Sublessor and Owner each forever releases Sublessee from, any claim, loss, liability, damages and costs in connection with or arising out of or resulting from Sublessor’s default or breach under the Master Lease.

16. Damage, Destruction and Condemnation. If the Sublease Premises or any portion thereof shall be damaged by fire or other casualty or be condemned or taken in any manner for a public or quasi-public use, Sublessee agrees that it shall be the obligation of Owner and not of Sublessor to repair, restore or rebuild the Sublease Premises in accordance with the terms of the Master Lease. In the event of a casualty or condemnation in connection with all or any portion of the Building or Sublease Premises, this Sublease shall continue in full force and effect, unless in connection therewith Owner or Sublessor terminates the Master Lease pursuant to the provisions thereof. Base Rent and Additional Rent payable hereunder shall be abated in full pending the complete restoration of any damage caused by such casualty or taking of the Sublease Premises to the extent that such rents are abated pursuant to the Master Lease .. In the event of a condemnation or taking of the Sublease Premises, the Parties hereby agree that Sublessee shall be entitled to any award received by Sublessor pursuant to the Master Lease with respect to the Sublease Premises, less the reasonable costs of collection borne by Sublessor. Notwithstanding the foregoing, Sublessee shall have the right to terminate this Sublease if (i) the repair or restoration work cannot be completed within one hundred eighty (180) days following the date of casualty or condemnation, or (ii) if fewer than twelve ( 12) months remain in the Term of this Sublease. The Parties agree that this Section 16 constitutes an express agreement governing any case of damage, destruction or taking of the Sublease Premises or the Building by fire or other casualty or condemnation.

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17. Right of Sublessor to Perform Sublessee’s Covenants. If Sublessee shall have defaulted in the observance or performance of any term or covenant on Sublessee’s part to be observed or performed under or by virtue of any of the terms or provisions of this Sublease beyond applicable notice and cure periods, then, unless otherwise provided elsewhere in this Sublease, Sublessor may, after giving at least three (3) business days’ prior written notice to Sublessee (unless Sublessee’s failure to perform such obligation has created an emergency, which means an imminent threat to personal safety or property damage, in which event Sublessor shall give at least twenty four (24) hours’ prior written notice to Sublessee), perform the same for the account of Sublessee, and if Sublessor makes any expenditures or incurs any obligations for the payment of money in connection therewith, including, but not limited to, reasonable out-of-pocket attorneys’ fees and disbursements in instituting, prosecuting or defending any action or proceeding and any late charge to the extent Sublessor is charged by Owner as a result of such default by Sublessee, such sums paid or obligations incurred with interest at the Interest Rate, and such costs shall be deemed to be Additional Rent hereunder and shall be paid by Sublessee to Sublessor within thirty (30) days after Sublessee’s receipt of a reasonably detailed invoice or statement therefor, in addition to any documentation reasonably requested by Sublessee.

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18. Insurance. Sublessee shall maintain and keep in full force and effect during the Term, at its own cost and expense, the insurance policies required to be held by “Tenant” under the applicable provisions of Section 4.02 of the Master Lease and such policies shall comply with the requirements of Section 4.02 of the Master Lease but only to the extent of Sublessee’s interest in and to the the Sublease Premises. The foregoing shall in no way limit or otherwise diminish Sublessor’s obligations under the Master Lease, including the obligation to maintain insurance under Section 4.02 of the Master Lease with respect to the entire Premises. All commercial general liability insurance procured by Sublessee under this Section 18 shall name Owner, Sublessor, any superior lessor and any superior mortgagee, as their respective interests may appear as additional insureds (so long as Sublessor provides Sublessee prior written notice of the names and addresses of such superior mortgagees and/ or superior lessors). Sublessee shall include in each of its insurance policies (and, with respect to any equipment in the Sublease Premises owned by Sublessee, in the insurance policies covering such equipment carried by Sublessee or the lessors of such equipment) against loss, damage or destruction by fire or other insured casualty (except for earthquake and sprinkler coverage) a waiver of all of the insurer’s rights of subrogation against Sublessor, Owner, any superior lessor, mortgagee, managing agent and property manager.

19. End of Term. Upon the expiration or sooner termination of the Term, Sublessee shall vacate and surrender the Sublease Premises in accordance with Section 15.01 of the Master Lease; provided, however, that Sublessee shall not be required to remove any alterations installed by Sublessor at any time or alterations which existed and/ or were commenced prior to the Commencement Date, but shall reasonably cooperate with Sublessor to the extent that Sublessor is required to timely remove such alterations pursuant to the Master Lease. Removal of all furniture, trade fixtures, and moveable equipment and other personal items owned by Sublessee shall be the responsibility of Sublessee. Sublessor shall cooperate with Sublessee in Sublessee’s performance of its obligations under this Section.

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20. Signage. Sublessee shall be entitled to directory signage in the Building lobby and on the entrances to the Sublease Premises subject to Sublessor’s (and Owner’s if required) prior written consent, which shall not be unreasonably withheld, conditioned or delayed. Sublessor shall pay the costs and expenses of removing Sublessor’s signage and Sublessee shall pay the costs and expenses of installing, maintaining and repairing its signage.

21. Parking. During the Term, Sublessee shall be entitled to use 3 parking spaces per 1,000 rentable square feet of the Sublease Premises at no additional charge of Sublessor’s non-designated parking spaces in accordance with the terms of Section 20.10 of the Master Lease.

22. Miscellaneous. This Sublease and any Exhibits attached hereto:

(a) Contain the entire agreement among the Parties hereto with respect to the subject matter covered hereby;

(b) May not be amended or rescinded except by an instrument m writing executed by each of the Parties hereto;

(c) Shall inure to the benefit of and be binding upon the successors and assigns of the Parties hereto (to the extent permitted under this Sublease); and

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(d) May be executed in one or more counterparts, each of which, when so executed and delivered shall be deemed an original and all of which taken together shall constitute one and the same instrument;

(e) In the event that any covenant, condition or other provision herein contained is held to be invalid, void or illegal by any court of competent jurisdiction, the same shall be deemed severable from the remainder of this Sublease and shall in no way affect, impair or invalidate any other covenant, condition or other provision herein contained. If such condition, covenant or other provision shall be deemed invalid due to its scope or breadth, such covenant, condition or other provisions shall be deemed valid to the extent of the scope or breadth permitted by law;

(f) intentionally omitted;

(g) The waiver by Sublessor or Sublessee of any breach of any term, condition or covenant of this Sublease shall not be deemed to be a waiver of such provision or any subsequent breach of the same or any other term, condition or covenant of this Sublease. No covenant, term or condition of this Sublease shall be deemed to have been waived by Sublessor or Sublessee unless such waiver is in writing and signed by the waiving party;

(h) Sublessor may transfer the Sublease Premises and any of its rights under this Sublease or Master Lease without the consent of Sublessee. In the event that Sublessor, or any successor to the Sublessor’s interest in the Sublease Premises, shall sell, convey, transfer or assign the Sublease Premises, all liabilities and obligations on the part of Sublessor, or such successor, under this Sublease, shall thereupon and thereby be released, and thereupon all such liabilities and obligations shall be binding upon the new sublessor and Sublessee shall look solely to such new sublessor for the performance of any of Sublessor’s obligations hereunder; provided, however, to the extent such liabilities and obligations are of a continuing nature and have not been expressly assumed by the successor, Sublessor or such successor, as the case may be, shall remain liable therefor. This Sublease and Sublessee’s rights and obligations hereunder shall not otherwise be affected by any such sale, conveyance, transfer or assignment and Sublessee agrees to attorn to such new owner and execute any such documents evidencing such attornment;

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(i) The submission of this Sublease for examination or the negotiation of the transaction described herein or the execution of this Sublease by only one of the Parties shall not in any way constitute an offer to sublease on behalf of either Sublessor or Sublessee, and this Sublease shall not be binding on either Party until duplicate originals thereof, duly executed on behalf of both Parties, have been delivered to each of the Parties hereto;

U) This Sublease is made the state of Connecticut and shall be governed by and construed by the laws thereof;

U) Except with respect to Sublessee’s failure to vacate and surrender the Sublease Premises on or before the Expiration Date as provided in Section 6 of this Sublease, Sublessor and Sublessee agree that as to the other, Sublessor and Sublessee shall not have any right to sue for or collect, and Sublessor and Sublessee shall never have any liability or responsibility whatsoever for any consequential or indirect damages, whether proximately or remotely related to any default of the other under this Sublease or any act, omission or negligence of Sublessee or Sublessor or their respective agents, contractors or employees, as the case may be, and Sublessor and Sublessee hereby waive any all such rights; and

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(1) Both Parties hereto will maintain in confidence and not disclose to any third-party the existence of this Sublease and/or the specific terms of this Sublease, except (i) to said party’s corporate affiliates, legal counsel, auditors, lenders or contractors, (ii) to prospective assignees of the Sublease or subtenants of all or any portion of the Sublease Premises, (iii) as required in connection with any financing or proposed sale or transfer of any interest in the Sublease Premises by Sublessor, (iv) as required in connection with the sale of equity interests, or the merger or consolidation of either party hereto, (v) in order to enforce a party’s rights under this Sublease or the Master Lease, (vi) as specifically authorized to do so in writing by the other party, or (vii) as otherwise required by any applicable laws or pursuant to any litigation, arbitration or regulatory proceeding.

23. Owner’s Consent. This Sublease is subject to and conditioned upon the written consent of Owner to (i) this subletting as described in this Sublease, and to Sublessor’s Work, and (ii) the Sublessee’s Work and signage (if required), such consent to be given by Owner, per separate written agreement (“Owner’s Consent”). Sublessor shall (i) use commercially reasonable efforts to procure Owner’s Consent and (ii) promptly notify Sublessee of the receipt of Owner’s Consent and provide Sublessee with a copy thereof. In the event that Owner’s Consent as it relates to (i) above shall not have been obtained on or prior to the date that is two (2) months from the Effective Date, then Sublessor and Sublessee shall each have the right to terminate this Sublease effective upon notice to the other given in writing within five (5) days from the Effective Date, in which event this Sublease shall be of no further force or effect and the Parties will have no further obligations or liability hereunder.

24. Personal Property. Sublessor shall deliver the furniture, equipment and other personal property located at the Sublease Premises as of the Effective Date and listed on Exhibit “F” attached hereto and made a part hereof (“Personal Property”) to Sublessee on the Commencement Date for the purchase price of One Dollar ($1.00), subject to the provisions of this Section 24. On the Commencement Date, Sublessor shall deliver to Sublessee a Bill of Sale for the Personal Property in the form attached as Exhibit “G” hereto. During the Term, Sublessee shall have the right to use, remove or discard any or all Personal Property in any manner Sublessee desires.

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(a) Sublessee has inspected the Personal Property and determined that it is acceptable to Sublessee. Sublessor has not made, and shall not be bound by, any statements, agreement, or representations regarding the Personal Property not specifically set forth herein, unless the same are reduced to writing and signed by Sublessor.

(b) SUBLESSEE AGREES THAT EXCEPT AS EXPRESSLY PROVIDED ELSEWHERE IN THIS SUBLEASE, SUBLESSOR MAKES NO WARRANTIES, EXPRESSED AND IMPLIED AND ALL WARRANTIES OF ANY KIND, INCLUDING ANY EXPRESSED OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR PURPOSE, ARE HEREBY EXCLUDED BOTH AS TO THE PERSONAL PROPERTY AND AS TO MAINTENANCE OR REPAIR WORK PERFORMED BY SUBLESSOR ON THE PERSONAL PROPERTY.

25. Representations and Warranties. (a) Sublessee warrants and represents, for the benefit of Sublessor only, that (i) Sublessee is duly organized and existing under the laws of the State of Delaware, (ii) subject to obtaining the Owner’s Consent, Sublessee has full right and authority to execute, deliver and perform under this Sublease, (iii) the persons executing this Sublease on behalf of Sublessee were authorized to do so, (iv) to Sublessee’s actual knowledge, the execution, delivery and performance by Sublessee of this Sublease will not violate any provision of law or any order of any court or agency of government, or any agreement or other instrument to which Sublessee is a party or by which it or any of its property is bound and (v) this Sublease shall be a valid and binding obligation of Sublessee enforceable in accordance with its terms.

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(b) Sublessor warrants and represents, for the benefit of Sublessee only, that (i) Sublessor is duly organized and existing under the laws of the State of Delaware, (ii) subject to obtaining the Owner’s Consent, Sublessor has full right and authority to execute, deliver and perform under this Sublease, (iii) the persons executing this Sublease on behalf of Sublessor were authorized to do so, (iv) to Sublessor’s actual knowledge, the execution, delivery and performance by Sublessor of this Sublease will not violate any provision of law or any order of any court or agency of government, or any agreement or other instrument to which Sublessor is a party or by which it or any of its property is bound and (v) this Sublease shall be a valid and binding obligation of Sublessor enforceable in accordance with its terms.

26. Anti-Terrorism Representations. (a) Sublessor represents and warrants to Sublessee that (1) neither Sublessor, nor to the knowledge of Sublessor, any director, officer, employee or affiliate of the Sublessor (collectively, “Sublessor Parties”) are in violation of any law relating to terrorism or money laundering, including but not limited to, Executive Order No. 13224 on Terrorist Financing, the U.S. Bank Secrecy Act, as amended by the Patriot Act, the Trading with the Enemy Act, the International Emergency Economic Powers Act and all regulations promulgated thereunder, all as amended from time to time (collectively, “Anti-Terrorism Law”); (2) no action, proceeding, investigation, charge, claim, report, or notice has been filed, commenced, or threatened against Sublessor, or to the knowledge of Sublessor, any ofthe Sublessor Parties alleging any violation of any Anti-Terrorism Law; and (3) neither Sublessor nor, to the knowledge of Sublessor, any of the Sublessor Parties is a “Prohibited Person”. As used in this Sublease, “Prohibited Person” shall mean any (1) person or entity who is on the OFAC List or any “designated national,” “specially designated national,” “specially designated terrorist,” “specially designated global terrorist,” “foreign terrorist organization,” “blocked person,” or “specially designated narcotics trafficker,” within the definitions set forth in the Foreign Assets Control Regulations of the United States Treasury Department, 31 C.F.R., Subtitle B, Chapter V, as amended; (2) any government or entity against whom the United States maintains economic or other sanctions or embargoes under the Regulations of the United States Treasury Department, 31 C.F.R., Subtitle B, Chapter V, or the Export Administration Regulations of the United States Department of Commerce, 15 C.F.R. Subtitle B, Chapter VII, Subchapter C, each as amended, including, but not limited to, the “Government of Burma,” the “Government of Sudan,” the “Taliban,” and the “Government of Iran,” and person acting on behalf of such government or entity; (3) person or entity who is listed in the Annex to or is otherwise within the scope of Executive Order 13224- Blocking Property and Prohibiting Transactions with Persons who Commit, Threaten to Commit, or Support Terrorism, effective September 24, 2001; or (4) person or entity subject to additional restrictions imposed by any of the following statutes or Regulations and Executive Orders issued thereunder: the Trading with the Enemy Act, 50 U.S.C. Appendix,§§ 1 et seq.; the Iraq Sanctions Act, §§ 586 et seq. of Pub. L. 101-513, 104 Stat. 2047; the National Emergencies Act, 50 U.S.C. §§ 160 1 et seq.; the Anti-Terrorism and Effective Death Penalty Act of 1996, Pub. L. 104-132, 110 Stat. 1214; the International Emergency Economic Powers Act, 50 U.S. C. §§ 1701 et seq.; the United Nations Participation Act, 22 U.S.C. § 287c; the International Security and Development Cooperation Act, 22 U.S.C. § 2349aa-9; the Nuclear Proliferation Prevention Act of 1994, Pub. L. 103-236, 108 Stat. 507; the Foreign Narcotics Kingpin Designation Act, 21 U.S. C.§§ 1901 et seq.; the Iran and Libya Sanctions Act of 1996, Pub. L. 104-172, 110 Stat. 1541; the Cuban Democracy Act, 22 U.S.C. §§ 6001 et seq.; the Cuban Liberty and Democratic Solidarity Act, Pub. L. 104-114, 22 U.S.C. §§ 6021 et seq.; the Clean Diamonds Trade Act, Pub. L.108-19, 117 Stat. 631; the Burmese Freedom and Democracy Act, Pub. L. 108-61, 117 Stat. 864; the Foreign Operations, Export Financing and Related Programs Appropriations Act of 1997, § 570 of Pub. L. 104-208, 110 Stat. 3009; the Trade Sanctions Reform and Enhancement Act of 2000, Title IX of Pub. L. 106-387, 114 Stat. 1549; the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of2001, Pub. L. 107-56, 115 Stat. 272; or any other law of similar import as to any non-U.S. country, as each such Act or law has been or may be amended, adjusted, modified, or reviewed from time to time. Sublessor covenants that Sublessor shall not knowingly conduct any business or transaction or make or receive any contribution of funds, goods or services in violation of any Anti Terrorism Law or engage in or conspire to engage in any transaction that evades or avoids, has the purpose of evading or avoiding or attempts to violate any of the prohibitions of any Anti-Terrorism Law.

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(b) Sublessee represents and warrants to Sublessor that, as of the date hereof, (1) neither Sublessee, nor to the knowledge of Sublessee, any director, officer, employee or affiliate of the Sublessee (collectively, “Sublessee Parties”) are in violation of any Anti-Terrorism Law; (2) no action, proceeding, investigation, charge, claim, report, or notice has been filed, commenced, or threatened against Sublessee, or to the knowledge of Sublessee, any of the Sublessee Parties alleging any violation of any Anti-Terrorism Law; and (3) neither Sublessee nor, to the knowledge of Sublessee, any of the Sublessee Parties is a “Prohibited Person”. Sublessee covenants that Sublessee shall not knowingly conduct any business or transaction or make or receive any contribution of funds, goods or services in violation of any Anti-Terrorism Law or engage in or conspire to engage in any transaction that evades or avoids, has the purpose of evading or avoiding or attempts to violate any of the prohibitions of any Anti-Terrorism Law.

27. Quiet Enjoyment. Upon paying the Base Rent, Additional Rent and performing the terms, covenants, conditions and provisions of this Sublease, Sublessee may lawfully and quietly hold and enjoy the Sublease Premises during the Term, subject, however, to the terms, covenants, conditions, and provisions of this Sublease.

28. White Noise. The following provision relates to the system that provides white noise to the Premises (the “White Noise System”). The parties hereby agree that the Sublessor shall adjust the levels and settings of the White Noise System at the reasonable request of Sublessee (to the extent that White Noise System affects the Sublease Premises). Sublessor shall keep and maintain the White Noise System in good repair and working order and perform any and all required maintenance on the same (subject to reimbursement through Sublessee’s payment of Additional Rent). Sublessor shall reasonably consider Sublessee’s request for upgrades and alterations to the White Noise System to enhance service to the Sublease Premises. Any elective upgrades and/ or alterations to the White Noise System shall be borne by the party requesting the same. Sublessor’s obligation to provide the White Noise System in the Sublease Premises shall terminate if and when Sublessor no longer occupies the Building, however, Sublessor shall make reasonable efforts to cause another occupant of the Building to provide the same.

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29. Pantry Space. Notwithstanding anything contained in this Sublease to the contrary, Sublessee may, if Sublessee so elects, and for Sublessee’s sole use, install and operate within the Sublease Premises a pantry or lunch room containing microwave ovens, refrigerators, vending machines to dispense hot and cold beverages, ice cream, candy and food; provided, however, each such pantry or lunchroom shall be located in the existing pantry space designated as such on the floor plans constituting part of Exhibit “B” hereto, and the aforementioned machines and equipment shall be maintained in a neat and sanitary condition and shall comply with applicable laws and ordinances.

30. Sublessor’s Default. As between Sublessor and Sublessee, if Sublessor fails in the performance of any of its obligations under this Sublease and such failure continues for five (5) days after Sublessor’s receipt of written notice thereof from Sublessee (and an additional reasonable time after such receipt if (A) such failure cannot be cured within such five (5) day period, and (B) Sublessor commences curing such failure within such five (5) day period and thereafter diligently pursues the curing of such failure), then Sublessee shall be entitled to exercise any remedies that Sublessee may have at law or in equity.

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List of Exhibits

Exhibit A	Master lease
Exhibit B	Sublease Premises
Exhibit C	Rent
Exhibit D	Reserved
Exhibit E	Sublessee’s Work
Exhibit F	Personal Property
Exhibit G	Bill of Sale
Exhibit H	Fitness Center Waiver Form

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IN WITNESS WHEREOF, the Parties have duly executed this Sublease as of the Effective Date.

GE CAPITAL US HOLDINGS, INC., a Delaware corporation
By:
Name:	Ana M. Chadwick
Title:	Finance Leader
REED’S INC.,
a Delaware corporation
By:
Name:	Val Stalowir
Title:	CEO

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EXHIBIT “A”

MASTER LEASE

(Attached)

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EXHIBIT “B”
SUBLEASE PREMISES

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EXHIBIT “C”

BASE RENT SCHEDULE

Sublease Premises A

Period	Rent per RSF		Monthly Base Rent		Annual Base Rent
9/1/2018 - 8/31/2019	$	24.00	$	9,240.00	$	92,400	*
						* Prorated for 10 months
9/1/2019 - 8/31/2020	$	24.50	$	9,432.50	$	113,190
9/1/2020 - 8/31/2021	$	25.00	$	9,625.00	$	115,500
9/1/2021 - 8/31/2022	$	25.50	$	9,817.50	$	117,810
9/1/2022 - 8/31/2023	$	26.00	$	10,010.00	$	120,120
9/1/2023 - 8/31/2024	$	26.50	$	10,202.50	$	122,430
9/1/2024 - 12/15/2024	$	27.00	$	10,395.00	$	36,382.50	*
						* Prorated for 3.5 months

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EXHIBIT “C”

BASE RENT SCHEDULE Sublease Premises B

Period	Rent per RSF		Monthly Base Rent		Annual Base Rent
4/1/2021-3/31/2022	$	25.50	$	8,500.00	$	93,500	*
						* Prorated for 11 months
4/1/2021-3/31/2022	$	26.00	$	8,666.67	$	104,000
4/1/2021-3/31/2022	$	26.50	$	8,833.33	$	106,000
4/1/2021-3/31/2022	$	27.00	$	9,000.00	$	76,500	*
						* Prorated for 8.5 months

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EXHIBIT “D”

RESERVED

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EXHIBIT “E”

SUBLESSEE’S WORK

Painting of sublease premises

Wood furniture cleaning/polishing/touch up

Installation of services (Lightpath/ Optimum for wifi / high speed internet)

Installation of general office equipment (copier, printers, scanners, computers/monitors, phones, TV, etc)

Installation of server I networking equipment and cabling

Installation of new furniture and removal of some existing furniture

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EXHIBIT “F” PERSONAL PROPERTY

Premises A

8 office sets includes u-shape desk

8 desk chairs

16 guest chairs

8 2 draw file cabinet

8 2draw file cabinet with hutch

1 conference room table

6 conference room chairs

14 6x8 workstations

14 task chairs

9 file cabinets

1 Telepresence conference room with equipment and furniture

1 Pantry

1 copy room

Premises B

3 office sets includes u-shape desk

3 desk chairs

6 guest chairs

3 2 draw file cabinet

3 2 draw file cabinet with hutch

1 conference table

6 conference room chairs

15 6x8 workstations

15 task chairs

12 file cabinets

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EXHIBIT “G”

BILL OF SALE

This BILL OF SALE (the “Agreement”) is made and entered into as of __, 2018 (“Execution Date”), from GE Capital US Holdings, Inc. (“Seller”) to Reed’s Inc., a Delaware corporation (“Buyer”).

RECITALS

WHEREAS, Seller possesses various items of personal property in the Premises located at and commonly known as 201 Main Avenue, Norwalk, CT (“Premises”); and

WHEREAS, Such personal property is more particularly described on Exhibit “A” attached hereto and made a part hereof (the “Personal Property”); and

WHEREAS, Buyer seeks to take ownership of the Personal Property and Seller seeks to transfer ownership of the Personal Property as of the Effective Date.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, Seller and Buyer agree as follows:

TERMS AND CONDITIONS

1. CONSIDERATION

l.l. As consideration for the transfer of the Personal Property from Seller to Buyer, Buyer hereby agrees to pay to Seller the amount of One Dollar ($1.00) (“Purchase Price”) payable to Seller within thirty (30) days of the Execution Date. To the extent there shall be any obligation therefor, Buyer shall undertake the payment of any and all sales and use taxes and similar charges arising solely as a result of the sale and transfer of the Personal Property by Seller to Buyer including, but not limited to, value added taxes, personal property taxes or other direct taxes levied against or based upon the price or value of the Personal Property purchased hereunder or its use or operation, or any other taxes levied against and solely based upon this Agreement, or the execution, filing, recording or performance thereof. The term “direct taxes” as used herein, shall include all taxes (except taxes related to the income of Seller), charges and fees levied, assessed or charged by any local, state or federal taxing authority. Nothing contained herein shall be construed to impose any obligation upon Buyer with respect to any tax obligation relating to the Personal Property that accrued prior to the Execution Date.

2. WARRANTY OF TITLE, TRANSFER AND ASSIGNMENT

2.1.    Subject to the terms and provisions contained herein and Seller’s receipt of the Purchase Price, as of the Effective Date, Seller transfers and conveys to Buyer all of its right, title and interest, if any, in and to the Personal Property. Buyer accepts the transfer and conveyance of the right, title and interest of Seller in and to the Personal Property subject to the provisions contained herein.

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2.2.   SELLER, HEREBY REPRESENTS AND WARRANTS TO BUYER THAT SELLER HAS THE FULL RIGHT, POWER AND AUTHORITY TO SELL AND TRANSFER THE PERSONAL PROPERTY AND TO MAKE, EXECUTE AND DELIVERY THIS BILL OF SALE, AND THAT SELLER HOLDS TITLE TO ALL OF SUCH PERSONAL PROPERTY FREE AND CLEAR OF ALL LIENS, ENCUMBRANCES AND OTHER INTERESTS OF THIRD PARTIES. SELLER SHALL WARRANT AND DEFEND THE TITLE TO THE PERSONAL PROPERTY CONVEYED TO BUYER AGAINST THE LAWFUL CLAIMS AND DEMANDS OF ALL PERSONS.

3. INSPECTION OF THE PERSONAL PROPERTY

3.1.   Buyer has inspected the Personal Property and determined that it is acceptable to Buyer. Seller has not made, and shall not be bound by, any statements, agreement, or representations regarding the Personal Property not specifically set forth herein, unless the same are reduced to writing and signed by Seller.

4. NO WARRANTY FOR MERCHANTABILITY AND FITNESS

4.1.  EXCEPT AS EXPRESSLY PROVIDED ABOVE IN SECTION 2, BUYER AGREES THAT SELLER MAKES NO WARRANTIES, EXPRESSED AND IMPLIED AND ALL WARRANTIES OF ANY KIND, INCLUDING ANY EXPRESSED OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR PURPOSE OR CONDITION OF SAME, ARE HEREBY EXCLUDED BOTH AS TO THE PERSONAL PROPERTY AND AS TO MAINTENANCE OR REPAIR WORK PERFORMED BY SELLER, IF ANY, ON THE PERSONAL PROPERTY AND BUYER HEREBY ACCEPTS THE PERSONAL PROPERTY ON AN “AS IS” “WHEREIS” BASIS WITH ALL FAULTS. IT IS EXPRESSLY AGREED THAT SELLER SHALL HAVE NO RESPONSIBILITY TO REPAIR, MAINTAIN, REPLACE, OR OTHERWISE CARE FOR THE PERSONAL PROPERTY AFTER THE EFFECTIVE DATE. AS MAY BE REQUIRED BY LAW SELLER AND BUYER AGREE THAT THE DISCLAIMERS OF WARRANTIES AS CONTAINED IN THIS PARAGRAPH ARE CONSPICUOUS.

5. INDEMNIFICATION RELEASE AND COVENANT NOT TO SUE

5.1.  AS AN INDUCEMENT TO, AND AS FURTHER CONSIDERATION FOR SELLER AGREEING TO SELL THE PERSONAL PROPERTY TO BUYER UPON THE TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT, BUYER COVENANTS AND AGREES THAT IT SHALL FOREVER RELEASE SELLER, COVENANT NOT TO SUE FROM AND AGAINST ANY AND ALL CLAIMS, SUITS, DEBTS, DUES, SUMS OF MONEY, ACCOUNTS, COVENANTS, CONTRACTS, CONTROVERSIES, AGREEMENTS, PROMISES, DEMANDS, DAMAGES, ACTIONS, OR CAUSES OF ACTION WHATSOEVER ARISING OUT OF THE PERSONAL PROPERTY, INCLUDING, WITHOUT LIMITATION, ITS CONDITION OR USE REGARDLESS OF WHETHER SUCH CONDITION IS KNOWN OR UNKNOWN AND/OR WHETHER SUCH CONDITION IS LATENT OR PATENT OR WITH RESPECT TO BUYER’S RESPONSIBILITY UNDER PARAGRAPH 1 OF THIS AGREEMENT TO FILE AND PAY ANY TAXES AND FEES LEVIED AGAINST OR BASED UPON THE PRICE OR VALUE OF THE PERSONAL PROPERTY PURCHASED HEREUNDER OR ITS USE OR OPERATION, OR ANY OTHER TAXES LEVIED AGAINST OR BASED UPON THIS AGREEMENT, OR THE EXECUTION, FILING, RECORDING OR PERFORMANCE THEREOF. THE FOREGOING RELEASE AND COVENANT NOT TO SUE SHALL APPLY TO ALL CLAIMS AT LAW OR IN EQUITY, INCLUDING, BUT NOT LIMITED TO, CLAIMS OR CAUSES OF ACTION FOR PERSONAL INJURY OR DEATH, PERSONAL PROPERTY DAMAGE AND CLAIMS FOR CONTRIBUTION. AS MAY BE REQUIRED BY LAW SELLER AND BUYER AGREE THAT THE , RELEASE AND COVENANT NOT TO SUE AS CONTAINED IN THIS PARAGRAPH ARE CONSPICUOUS.

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6. HAZARDOUS SUBSTANCES

6.1. SELLER MAKES NO REPRESENTATIONS OR WARRANTIES REGARDING FACTS, CIRCUMSTANCES, OR CONDITIONS OF THE PAST OR PRESENT USE OF THE PERSONAL PROPERTY WITH RESPECT TO HAZARDOUS SUBSTANCES OR ENVIRONMENTAL LAWS.

7. ENTIRE AGREEMENT

7.1.  This Agreement constitutes the entire agreement between Seller and Buyer regarding the subject matter hereof and supersedes all oral statements and prior writings relating thereto. Except for those set forth in this Agreement, no representations, warranties, or agreements have been made by Seller or Buyer with respect to this Agreement or the obligations of Seller or Buyer in connection therewith.

8. SEVERABILITY

8.1.   If any provisions of this Agreement shall be held to be invalid, void or unenforceable, the remaining provisions hereof shall not be affected or impaired, and such remaining provisions shall remain in full force and effect.

9. VOLUNTARY AGREEMENT

9.1. The parties, hereto, and each of them, further represent and declare that they have carefully read this Agreement and know the contents thereof and that they sign the same freely and voluntarily. This Agreement and each provision of this Agreement was negotiated by the parties and therefore, neither this Agreement nor any provision of this Agreement shall be interpreted for or against any party on the basis such party or its attorney drafted the agreement or provision in question.

10. SUCCESSOR AND ASSIGNS

10.1. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, representatives, successors and permissible assigns.

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11. INDEPENDENT ADVICE OF COUNSEL

11.1. The parties hereto, and each of them, represent and declare that in executing this Agreement they rely solely upon their own judgment, belief and knowledge, and the advice and recommendations of their own independently selected counsel, concerning the nature, extent, and duration of their rights and claims, including, but not limited to, any claims arising under any Hazardous Substances or Environmental Laws and that they have not been influenced to any extent whatsoever in executing the same by any representations or statements covering any matters made by any of the parties hereto or by any person representing them or any of them.

12. NO OFFER

12.1. The submission of this Agreement for examination or the negotiation of the transaction described herein or the execution of this Agreement by only one of the parties shall not in any way constitute an offer to sell or purchase the Personal Property on behalf of either Seller or Buyer, and this Agreement shall not be binding on either party until duplicate originals thereof, duly executed on behalf of both parties, have been delivered to each of the parties hereto.

13. RELEASE AND COVENANTS NOT TO SUE, GENERALLY

13.1. The releases and covenants not to sue contained herein extend to, apply to, cover, and include all unknown, unforeseen, unanticipated, and unsuspected injuries, damages, losses, liability, and the consequences, as well as those known or suspected by any party hereto. The provisions of any state or federal law or statute providing in substance that releases or covenants not to sue shall not extend to claims, demands, injuries, or damages, which are unknown or unsuspected to exist at the time, to the persons executing this Agreement, are hereby expressly waived.

14. MISCELLANEOUS

14.1. Each of Buyer and Seller shall, at any time and from time to time after the date hereof, upon request of the other, execute, acknowledge and deliver all such further acts, deeds, assignments, transfers, conveyances and assurances, and take all such further actions generally consistent with the terms of this Bill of Sale, as shall be necessary or desirable to give effect to the transactions hereby consummated.

14.2. This Agreement and the covenants and agreements herein contained shall inure to the benefit of and shall bind the respective parties hereto and their respective successors and assigns.

14.3. This Agreement is to be governed by and construed in accordance with the laws of the State of Connecticut.

14.4. The paragraph captions utilized herein are in no way intended to interpret or limit the terms and conditions hereof; rather, they are intended for purposes of convenience only.

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14.5. This may be executed in separate, identical counterparts, each of which will be deemed an original, and all of which will be deemed one and the same instrument.

14.6. If either party commences litigation against the other for the specific performance of this Agreement, for damages for the breach hereof or otherwise for enforcement of any remedy hereunder, the parties hereto agree to and hereby do waive any right to a trial by jury and, in the event of any such commencement of litigation, the prevailing party shall be entitled to recover from the other party such costs and reasonable attorneys’ fees as may have been incurred.

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IN WITNESS WHEREOF Landlord and Tenant have executed and delivered this BILL OF SALE as of the date first written above.

SELLER:

GE Capital US Holdings, Inc.

By:

Name:

Title:

Date:

BUYER:

Reed’s Inc.

By:

Name:

Title:

Date:

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EXHIBIT “H”

FITNESS CENTER RELEASE AND WAIVER OF LIABILITY

I, , have registered voluntarily to engage in exercise, fitness activities, fitness classes, and use exercise equipment, fitness areas and related locker and locker room facilities (collectively, the “Fitness Activity”) available in the building located at 201 Main Avenue Norwalk, Connecticut.

I understand that this Fitness Activity, which is unsupervised, involves strenuous physical exertion and will require sound judgment at all times during my participation. I understand that GE Capital US Holdings, Inc. and its affiliates, employees, representatives, agents, contractors, successors and assigns (collectively, “GE”) is not providing any staff, medical personnel, fitness trainers, or other employees or contractors to supervise the Fitness Activity. I understand that by participating, I am at risk to suffer serious physical injury and possibly death. I understand and agree that I, alone, am responsible to determine my physical and mental fitness and my suitability to participate. I acknowledge that GE will not attempt to determine, nor will I hold GE liable to determine, my physical and mental fitness, suitability, or capability to participate either before I begin participation or at any time during my participation in the Fitness Activity.

I understand that GE and/ or the owners and/ or operators of any equipment involved in the Fitness Activity shall not be deemed to warrant or guarantee in any respect the condition of any of the facilities and equipment (wherever located) or the competency of physical condition of any instructors.

In consideration for the work performed by GE in making fitness equipment and facilities available, from which I receive value and benefit, I assume (i) all risks of injury or death related to participation in the Fitness Activity, and (ii) all risks of damage to, loss, or theft of personal property while using facilities associates with the Fitness Activity. I further expressly forever release and discharge, on behalf of myself, my spouse, children, heirs, personal representatives, executors, and assigns, GE and all of its affiliated entities, and I waive any claim that I might have or make, now or in the future, against GE, for any losses, costs, expenses, damages or liabilities of any nature other than those arising out of the gross negligence or willful misconduct of GE, including without limitation, bodily injury or death, theft or loss or damage to personal property arising directly or indirectly out of or relating to my participation in this Fitness Activity.

I understand and agree that the effect of signing this Fitness Center Release and Waiver of Liability is to give up certain legal rights to file any lawsuit or to recover any money damages against GE for any claim, liability, demand, injury, damage, theft, action or cause of action relating in any way to the Fitness Activity other than those arising out of the gross negligence or willful misconduct of GE.

Because participation in the Fitness Activity is voluntary, I have agreed to sign this Fitness Center Release and Waiver of Liability. I have been given the opportunity to read carefully all of the terms of this Fitness Center Release and Waiver of Liability and I understand fully the legal consequences of signing it.

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I understand that I will not be allowed to participate in the Fitness Activity unless I sign this Fitness Center Release and Waiver of Liability. I agree to this because I choose to participate in the Fitness Activity at my own risk, knowing that I have no legal right to seek recovery of damages or otherwise to make any claim against GE for any harm or injury, including death, that I may suffer as a result of my participation, other than those arising out of the gross negligence or willful misconduct of GE.

Name

Signature

Date

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EX-10.8

SEPARATION, SETTLEMENT AND RELEASE OF CLAIMS AGREEMENT

This Separation, Settlement and Release of Claims Agreement (“Agreement”) is entered into by and between Reed’s Inc., a Delaware corporation, (the “Employer”) and Daniel V. Miles (the “Employee”) (the Employer and the Employee are collectively referred to herein as the “Parties”) as of August 15, 2018 (the “Execution Date”).

The Employee’s last day of employment with the Employer is August 15, 2018 (the “Separation Date”). After the Separation Date, the Employee will not represent himself as being an employee, officer, attorney, agent or representative of the Employer for any purpose. Except as otherwise set forth in this Agreement, the Separation Date will be the employment termination date for the Employee for all purposes, meaning the Employee will no longer be entitled to any further compensation, monies or other benefits from the Employer, including coverage under any benefits plans or programs sponsored by the Employer, except as specifically provided in this Agreement.

1. Return of Property. By the Separation Date, the Employee must return all Employer property, including identification cards or badges, access codes or devices, keys, laptops, computers, telephones, mobile phones, hand-held electronic devices, credit cards, electronically stored documents or files, physical files and any other Employer property in the Employee’s possession.

2. Employer’s Waiver and Release and Employee Representations. The Employer expressly waives and releases any and all claims against the Employee that may be waived and released by law with the exception of claims arising out of or attributable to (a) events, acts or omissions taking place after the Parties’ execution of the Agreement and (b) the Employee’s breach of any terms and conditions of the Agreement. In exchange for the Employer’s waiver and release and the consideration described in Section 3, which the Employee acknowledges to be good and valuable consideration for his obligations hereunder, the Employee hereby represents that he intends to irrevocably and unconditionally fully and forever release and discharge any and all claims he may have, have ever had or may in the future have against the Employer that may lawfully be waived and released arising out of or in any way related to his hire, benefits, employment or separation from employment with the Employer. The Employee specifically represents, warrants and confirms that: (a) he has no claims, complaints or actions of any kind filed against the Employer with any court of law, or local, state or federal government or agency; and (b) he has been properly paid his salary for period worked for the Employer, and that all commissions, bonuses and other compensation due to him has been paid, including his final payroll check for his salary and any accrued but unused vacation/paid time off through and including the Separation Date above. The Employee specifically represents, warrants and confirms that he has not engaged in, and is not aware of, any unlawful conduct in relation to the business of the Employer. If any of these statements are not true, the Employee cannot sign this Agreement and must notify the Employer immediately, in writing, of the statements that are not true. Such notice will not automatically disqualify the Employee from receiving these benefits, but will require the Employer’s review and consideration.

3. Separation Benefits. In consideration for the Employee’s execution, non-revocation of, and compliance with this Agreement, including the waiver and release of claims in Section 4, the Employer agrees to provide the following:

(a) Accrued Obligations. On the Termination Date, Employer shall pay Employee (1) the net amount of $2,752.43, representing base salary earned but unpaid as of the Separation Date, after deduction of standard payroll taxes and deductions and (2) the net amount of $14,661.20, representing vacation earned but not taken prior to the Separation Date, after deduction of standard payroll taxes and deductions. The Employee acknowledges and agrees that as of the date hereof, he has made all requests for reimbursement of business expenses to which he may be entitled pursuant to the Employer’s reimbursement policy, and provided such substantiation as may be required thereunder, and shall hereafter not have any right to request reimbursement of any additional amounts.

(b) Severance. Installment payments equal to the Employee’s current salary and annual cash bonus for a period of twelve (12) months following the Separation Date (“Severance Period”), equaling a total of TWO HUNDRED THOUSAND DOLLARS ($207,200.00), before deduction of standard payroll taxes and deductions, to be paid in 24 equal increments bi-monthly starting on the first pay period following the Effective Date (“Severance Payment”). In the event Employee commences employment or a consulting position with a third party prior to August 15, 2019, Employee will notify Reed’s of his start date, amount of his new salary and/ or fees payable pursuant to any consulting engagement and direct costs to Employee of providing services pursuant to any such subsequent employment or engagement, including travel and housing expenses. The amount of Employee’s new salary (before deduction of standard payroll taxes and after deduction of costs incurred by Employee) and/ or fees paid pursuant to a consulting engagement received prior to August 15, 2019 (after deduction of costs incurred by Employee) will be deducted from Employee’s Severance Payment on the same periodic basis as payment by the new company/ employer Nothing contained herein shall be construed to require Employee to seek or accept employment during the Severance Period.

(c) [RESERVED]

(d) Settlement. A lump sum of TWO HUNDRED SEVEN THOUSAND AND TWO HUNDRED DOLLARS ($207,200.00) representing a settlement amount to be paid on the Effective Date, payable in cash, issuance of promissory note in the form attached hereto as Exhibit A (“Note”), or combination of cash and Note. The Note will mature on August 15, 2019, accrue simple interest at a rate of the lesser of 7.5% per annum or the maxim amount permitted by law.

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(e) Stock Options. Employee’s incentive stock options to purchase 100,000 shares of common stock of Reed’s Inc. granted to employee on May 8, 2015 pursuant to the Reed’s Inc. 2015 Incentive and Non-Statutory Stock Option Plan (as modified on March 29, 2018) will continue to be exercisable in full through May 8, 2024 at the exercise price of $1.60 per share and will otherwise be governed by the plan documents and an incentive stock option agreement evidencing the obligation (to the extent there is no conflict between such documents and this paragraph) Employee’s incentive stock option, to the extent not exercised within the time permitted by law for the exercise of incentive stock options following the Separation Date, shall convert automatically to a nonstatutory stock option and thereafter shall be exercisable as such to the extent exercisable by its terms until May 8, 2024.

(f) If the Employee timely and properly elects COBRA continuation coverage under Employer’s group health plan, the Company will pay 100% of Employee’s COBRA premiums until the earlier of August 15, 2019 or commencement of coverage sponsored by subsequent employer (if any). Commencing the first full month Employer is covered by a third party sponsored plan, Company will pay the lesser of Employee’s COBRA premium or active employee rates payable pursuant to the third party sponsored plan. If Employee’s COBRA coverage continues for the full twelve (12) month period, at the conclusion of twelve (12) month period, the Employee shall be eligible to continue his coverage, pursuant to COBRA, and shall be responsible for the entire COBRA premium for the remainder of the applicable COBRA continuation period.

(g) Upon the Employee’s signed request, the Employer will provide the Employee and/or a prospective employer written confirmation of the Employee’s employment with the Employer.

(h) The Employee understands, acknowledges and agrees that these benefits exceed what he is otherwise entitled to receive upon separation from employment, and that these benefits are in exchange for executing this Agreement. The Employee further acknowledges no entitlement to any additional payment or consideration not specifically referenced herein.

4. Release.

(a) General Release and Waiver of Claims

In exchange for the consideration provided in this Agreement, the Employee and his heirs, executors, representatives, agents, insurers, administrators, successors and assigns (collectively the “Releasors”) irrevocably and unconditionally fully and forever waive, release and discharge the Employer, including the Employer’s affiliates, predecessors, successors and assigns, and all of their respective officers, directors, employees, shareholders, in their corporate and individual capacities (collectively, the “Releasees”) from any and all claims, demands, actions, causes of actions, obligations, judgments, rights, fees, damages, debts, obligations, liabilities and expenses (inclusive of attorneys’ fees) of any kind whatsoever (collectively, “Claims”), whether known or unknown, from the beginning of time to the date of the Employee’s execution of this Agreement, including, without limitation, any claims any Claims under any federal, state, local or foreign law, that Releasors may have, have ever had or may in the future have arising out of, or in any way related to the Employee’s hire, benefits, employment, termination or separation from employment with the Employer and any actual or alleged act, omission, transaction, practice, conduct, occurrence or other matter, including, but not limited to (i) any and all claims under Title VII of the Civil Rights Act, as amended, the Americans with Disabilities Act, as amended, the Family and Medical Leave Act, as amended, the Fair Labor Standards Act, the Equal Pay Act, as amended, the Employee Retirement Income Security Act, as amended (with respect to unvested benefits), the Civil Rights Act of 1991, as amended, Section 1981 of U.S.C. Title 42, the Sarbanes-Oxley Act of 2002, as amended, the Worker Adjustment and Retraining Notification Act, as amended, the National Labor Relations Act, as amended, the Age Discrimination in Employment Act, as amended, the Genetic Information Nondiscrimination Act of 2008, the California Fair Employment and Housing Act, as amended, and/or any other Federal, state, local or foreign law (statutory, regulatory or otherwise) that may be legally waived and released; and (ii) any tort, contract and/or quasi- contract law, including but not limited to claims of wrongful discharge, defamation, emotional distress, tortious interference with contract, invasion of privacy, nonphysical injury, personal injury or sickness or any other harm. However, this general release of claims excludes, and the Employee does not waive, release or discharge (i) any right to file an administrative charge or complaint with the Equal Employment Opportunity Commission or other administrative agency; (ii) claims under state workers’ compensation or unemployment laws; or (iii) indemnification rights the Employee has against the Employer, and/or any other claims that cannot be waived by law.

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If the Employee applies for unemployment benefits, the employer shall not contest it. When so required, the Employer will answer any inquiries by the Department of Labor concerning the termination of the Employee’s employment in a truthful manner.

(b) Waiver of California Civil Code Section 1542

Employee understands that he may later discover Claims or facts that may be different than, or in addition to, those which Employee now knows or believes to exist with regards to the subject matter of this Agreement, and which, if known at the time of signing this release, may have materially affected this Agreement or Employee’s decision to enter into it. Nevertheless, the Releasors hereby waive any right or Claim that might arise as a result of such different or additional Claims or facts. The Releasors have been made aware of, and understand, the provisions of California Civil Code Section 1542 and hereby expressly waive any and all rights, benefits and protections of the statute, which provides, “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

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(c) Specific Release of ADEA Claims

In further consideration of the payments and benefits provided to the Employee in this Agreement, the Releasors hereby irrevocably and unconditionally fully and forever waive, release and discharge the Releasees from any and all Claims, whether known or unknown, from the beginning of time to the date of the Employee’s execution of this Agreement arising under the Age Discrimination in Employment Act (ADEA), as amended, and its implementing regulations. By signing this Agreement, the Employee hereby acknowledges and confirms that: (i) the Employee has read this Agreement in its entirety and understands all of its terms; (ii) the Employee has been advised of and has availed himself of hid right to consult with his attorney prior to executing this Agreement; (iii) the Employee knowingly, freely and voluntarily assents to all of the terms and conditions set out in this Agreement including, without limitation, the waiver, release and covenants contained herein; (iv) the Employee is executing this Agreement, including the waiver and release, in exchange for good and valuable consideration in addition to anything of value to which he is otherwise entitled; (v) the Employee was given at least forty- five (45) days to consider the terms of this Agreement and consult with an attorney of his choice, although he may sign it sooner if desired; (vi) the Employee understands that he has seven (7) days from the date he signs this Agreement to revoke the release in this paragraph by delivering notice of revocation to Valentin Stalowir, Chief Executive Officer, at the Employer, vstalowir@reedsinc.com, by e-mail, fax or overnight delivery before the end of such seven-day period; and (vii) the Employee understands that the release contained in this paragraph does not apply to rights and claims that may arise after the date on which the Employee signs this Agreement.

5. Knowing and Voluntary Acknowledgement. The Employee specifically agrees and acknowledges that: (i) the Employee has read this Agreement in its entirety and understands all of its terms; (ii) the Employee has been advised of and has availed himself of his right to consult with his attorney prior to executing this Agreement; (iii) the Employee knowingly, freely and voluntarily assents to all of its terms and conditions including, without limitation, the waiver, release and covenants contained herein; (iv) the Employee is executing this Agreement, including the waiver and release, in exchange for good and valuable consideration in addition to anything of value to which he is otherwise entitled; (v) the Employee is not waiving or releasing rights or claims that may arise after his execution of this Agreement; and (vi) the Employee understands that the waiver and release in this Agreement is being requested in connection with the cessation of his employment with the Employer.

The Employee further acknowledges receipt of Appendix A to this Agreement, listing the ages and job titles of employees who were and were not selected for termination and offered consideration for signing a waiver,

The Employee further acknowledges that he has had forty-five (45) days to consider the terms of this Agreement and consult with an attorney of his choice, although he may sign it sooner if desired. Further, the Employee acknowledges that he shall have an additional seven (7) under the ADEA by delivering notice of revocation to Valentin Stalowir, Chief Executive Officer, at the Employer, vstalowir@reedsinc.com, by e-mail, fax or overnight delivery before the end of such seven-day period. In the event of such revocation by the Employee, the Employer shall have the option of treating this Agreement as null and void in its entirety.

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This Agreement shall not become effective, until the eighth (8th) day after the Employee and the Employer execute this Agreement. Such date shall be the Effective Date of this Agreement. No payments due to the Employee hereunder shall be made or begin before the Effective Date.

6. Post-termination Obligations and Restrictive Covenants.

(a) Acknowledgment

The Employee understands and acknowledges that by virtue of his employment with the Employer, he had access to and knowledge of Confidential Information, was in a position of trust and confidence with the Employer, and benefitted from the Employer’s goodwill. The Employee understands and acknowledges that the Employer invested significant time and expense in developing the Confidential Information and goodwill. The Employee further understands and acknowledges that the services he provided to the Employer are unique, special or extraordinary.

The Employee further understands and acknowledges that the restrictive covenants below are necessary to protect the Employer’s legitimate business interests in its Confidential Information and goodwill and in the Employee’s unique, special or extraordinary services. The Employee further understands and acknowledges that the Employer’s ability to reserve these for the exclusive knowledge and use of the Employer is of great competitive importance and commercial value to the Employer and that the Employer would be irreparably harmed if the Employee violates the restrictive covenants below.

(b) Confidential Information.

(1) Confidential Agreement. Employee shall keep the terms of this Agreement confidential and shall not directly or indirectly disseminate any information (in any form) regarding this Agreement or his termination of employment to any person or entity except as may be agreed to in writing by Employer and except for any terms which are or become generally available to the public, other than as a result of unauthorized or improper disclosure by Employee. Notwithstanding the foregoing, Employee may disclose the information described herein, to the extent Employee is compelled to do so by lawful service of process, subpoena, court order, or as Employee is otherwise compelled to do by law, including full and complete disclosure in response thereto, in which event Employee agrees to provide Employer with a copy of the document(s) seeking disclosures of such information promptly upon receipt of such Employer may, upon notice to Employee, take such action as it deems to be necessary or appropriate in relation to such subpoena or request and Employee may not disclose any such information until Employer has had the opportunity to take such action.

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(2) Confidential Information. Employer’s “Confidential Information” is all confidential and/or proprietary knowledge, trade secrets, data or information of the Employer entrusted to Employee, whether in writing, in computer form, or conveyed orally, that is not generally available to others in the form in which such information is used by Employer and that gives Employer a competitive advantage over other companies who do not have access to this information. By way of illustration but not limitation, Confidential Information includes tangible and intangible information relating to formulations, products, processes, know-how, designs, formulas, methods, developmental or experimental work; clinical data; improvements; discoveries; plans for research; new products; marketing and selling; business plans; budgets; unpublished financial statements; licenses; prices and costs; suppliers; customers; customer needs and preferences (such as typical order quantities and composition, delivery requirements or schedules, particular pricing needs or discount arrangements, advertising allowances and methods of doing business); customer contracts, credit procedures and terms; supplier identities, key decision makers at each supplier, and supplier specialties; pricing strategies and rationale; contact information and information about compensation, specific capabilities, and performance evaluations of Employer personnel; and any information described above that the Employer obtains from its clients or any other third Party and that the Employer treats as confidential, whether or not owned or developed by the Employer.

(3) Employee understands that the above are simply examples of Employer’s Confidential Information, and not a complete list. Employee further understands that as part of his or her duties Employee may participate in developing Confidential Information for Employer, which then becomes Employer’s Confidential Information. If Employee is uncertain as to whether any particular information or materials constitutes Confidential Information, Employee shall ask his or her direct supervisor or, if Employee no longer works for Employer, Employer’s Chief Executive Officer or General Counsel.

(4) Employee agrees that he will not appropriate for his own use, use, disclose, divulge, furnish, or make available to any person any of the Employer’s Confidential Information; provided, that the term “Confidential Information” shall not include such information which is or becomes generally available to the public other than as a result of unauthorized or improper disclosure by Employee. Notwithstanding the foregoing, Employee may disclose Information to the extent he is compelled to do so by lawful service of process, subpoena, court order, or as he is otherwise compelled to do by law or the rules or regulations of any regulatory body to which he is subject, including full and complete disclosure in response thereto, in which event he agrees to provide Employer with a copy of the documents seeking disclosure of such information promptly upon receipt of such documents and prior to their disclosure of any such information, so that Employer may, upon notice to Employee, take such action as Employer deems appropriate in relation to such subpoena or request and Employee may not disclose any such information until Employer has had the opportunity to take such action.

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(c) Intellectual Property. Employee agrees that all right, title, and interest to all works of whatever nature generated in the course of his employment with the Employer resides with the Employer. Employee agrees that he will return to Employer, not later than the Termination Date, all property, in whatever form (including computer files and other electronic data), of the Employer in his possession, including without limitation, all copies (in whatever form) of all files or other information pertaining to the Employer, its officers, employees, directors, shareholders, customers, suppliers, vendors, or distributors and any business or business opportunity of the Employer.

(d) Non-Disparagement. During the Employee’s employment with the Employer and thereafter, Employee shall not take any action, including without limitation the making of disparaging statements concerning the Employer or its officers, directors or employees, that is reasonably likely to cause injury to the relationships between the Employer or any of its employees and any lessor, lessee, vendor, supplier, customer, distributor, employee, consultant or other business associate of the Employer.

(e) Acknowledgements Respecting Restrictive Covenants. With respect to the restrictive covenants set forth in this Section 6, the Parties acknowledge and agree that:

(1) Each of the restrictive covenants contained in this Section 6 shall be construed as a separate covenant with respect to each activity to which it applies, (B) if, in any judicial proceeding, a court shall deem any of the restrictive covenants invalid, illegal, or unenforceable because its scope is considered excessive, such restrictive covenant shall be modified so that the scope of the restrictive covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal, and enforceable, and (C) if any restrictive covenant (or portion thereof) is deemed invalid, illegal, or unenforceable in any jurisdiction, as to that jurisdiction such restrictive covenant (or portion thereof) shall be ineffective to the extent of such invalidity, illegality, or unenforceability, without affecting in any way the remaining restrictive covenants (or portion thereof) in such jurisdiction or rendering that or any other restrictive covenant (or portion thereof) invalid, illegal, or unenforceable in any other jurisdiction.

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(f) The Parties hereto hereby declare that it is impossible to measure in money the damages that will accrue to the Employer in the event that Employee breaches any of the restrictive covenants provided in this Section 6. In the event that Employee breaches any such restrictive covenant, the Employer shall be entitled to an injunction, a restraining order or such other equitable relief, including, but not limited to, specific performance (without the requirement to post bond) restraining such Employee from violating such restrictive covenant. If the Employer shall institute any action or proceeding to enforce the restrictive covenant, such Employee hereby waives the claim or defense that the Employer has an adequate remedy at law and agrees not to assert in any such action or proceeding the claim or defense that Employer has an adequate remedy at law. The foregoing shall not prejudice the Employer’s right to require such Employee to account for and pay over to the Employer, and such Employee hereby agrees to account for and pay over, the compensation, earnings, profits, monies, accruals, or other benefits derived or received by such Employee as a result of any transaction constituting a breach of any of the restrictive covenants provided in this Section 6, and the Parties hereby agree that the Employer shall be entitled to an equitable accounting of all such compensation, earnings, profits, monies, accruals, and other benefits.

(g) The remedies provided for in this Section 6(f) are cumulative and in addition to any other rights and remedies the Employer may have under law or in equity.

7. Cooperation. For the period commencing the Separation Date through August 15, 2019, Employee agrees to make himself available and to cooperate with the Employer, to the extent reasonably requested by the Employer, for the purpose of transitioning his duties and responsibilities.

Employee further agrees to cooperate with Employer with regard to any litigation relating to Employee’s period of employment for which Employer reasonably requests Employee’s participation. Employee’s agreement to consult respecting such litigation shall continue for the duration of any such litigation. If requested by Employer, such cooperation shall include, without limitation, (1) responding reasonably promptly to requests for information and documents in Employee’s possession concerning matters pertinent to any of the foregoing, (2) making himself reasonably available as a witness and testifying at trial, depositions, hearings, or other proceedings, as well as being reasonably available for adequate preparation for such testimony, and (3) participating at reasonable times in interviews and meetings with representatives of the Employer, representatives of governments or regulatory authorities, or others designated by Employer. Unless prohibited by applicable law or any rule of any applicable regulatory authority, Employee further agrees to notify Employer promptly of any request made to him by any Party to any such litigations for information or assistance with respect to such litigations, and the substance of Employee’s response to such request. Employee shall also provide Employer with a copy of such request and response, if in writing. Employee and Employer will each use good faith best efforts to reconcile and accommodate any scheduling conflicts. Without limitation of the foregoing, Employee agrees to reasonably cooperate (including attending meetings) with respect to any claim, arbitral hearing, lawsuit, action, or governmental or internal investigation relating to the business of the Employer prior to the Separation Date. Employee agrees to provide full and complete disclosure in response to any inquiry in connection with any such matters.

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Employer shall reimburse the Employee for reasonable expenses incurred in connection with cooperation under this Section 7 and Employer shall compensate the Employee at an hourly rate of $250.00 per hour. Employee will track hours expended in connection with such cooperation and will submit monthly invoices to Employer, which invoices will be paid within 30 days of receipt. 

8. Remedies. In the event of a breach or threatened breach by the Employee of any of the provisions of this Agreement, the Employee hereby consents and agrees that the Employer shall be entitled to seek, in addition to other available remedies, a temporary or permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction, without the necessity of showing any actual damages or that money damages would not afford an adequate remedy, and without the necessity of posting any bond or other security. The aforementioned equitable relief shall be in addition to, not in lieu of, legal remedies, monetary damages or other available forms of relief.

Should the Employee fail to abide by any of the terms of this Agreement or post- termination obligations contained herein, or if he revokes the ADEA release contained in Section 4(c) within the seven-day revocation period, the Employer may, in addition to any other remedies it may have, reclaim any amounts paid to the Employee under the provisions of this Agreement or terminate any benefits or payments that are later due under this Agreement, without waiving the releases provided herein.

9. Heirs and Assigns. This Agreement is binding on and is for the benefit of the Parties hereto and their respective successors, assigns, heirs, executors, administrators, and other legal representatives. Neither this Agreement nor any right or obligation hereunder may be assigned by Employee.

10. Integration. This Agreement constitutes the complete agreement between the Employer and Employee regarding the issues addressed in this Agreement. The terms of this Agreement may be changed, modified, or discharged only by an instrument in writing signed by the Parties hereto. A failure of the Employer or Employee to insist on strict compliance with any provision of this Agreement shall not be deemed a waiver of such provision or any other provision hereof. In the event that any provision of this Agreement is determined to be so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable.

11. Choice of Law. This Agreement shall be construed, enforced, and interpreted in accordance with and governed by the laws of the State of California, without regard to its choice of law provisions.

12. Withholding. The Employer may withhold from any and all amounts payable under this Agreement such federal, state, and local taxes or other withholdings as may be required to be withheld pursuant to any applicable law or regulation.

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13. Construction of Agreement. The Parties hereto acknowledge and agree that each Party has reviewed and negotiated the terms and provisions of this Agreement and has had the opportunity to contribute to its revision. Accordingly, the rule of construction to the effect that ambiguities are resolved against the drafting Party shall not be employed in the interpretation of this Agreement. Rather, the terms of this Agreement shall be construed fairly as to both Parties hereto and not in favor or against either Party.

14. Counterparts. This Agreement may be executed in any number of counterparts and by different Parties on separate counterparts, each of which counterpart, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement.

15. Notice. Any notice or other communication required or permitted under this Agreement shall be effective only if it is in writing and shall be deemed to be given when delivered personally or four days after it is mailed by registered or certified mail, postage prepaid, return receipt requested or one day after it is sent by a reputable overnight courier service and, in each case, addressed to the Employer, to its principal place of business and to Employee, to his address set forth on the signature page hereof, or to such other address as any Party hereto may designate by notice to the other.

16. Severability. The Parties hereto intend that the validity and enforceability of any provision of this Agreement shall not affect or render invalid any other provision of this Agreement.

17. Modification and Waiver. No provision of this Agreement may be amended or modified unless such amendment or modification is agreed to in writing and signed by the Employee and by Chief Executive Officer of the Employer. No waiver by either of the Parties of any breach by the other Party hereto of any condition or provision of this Agreement to be performed by the other Party hereto shall be deemed a waiver of any similar or dissimilar provision or condition at the same or any prior or subsequent time, nor shall the failure of or delay by either of the Parties in exercising any right, power or privilege hereunder operate as a waiver thereof to preclude any other or further exercise thereof or the exercise of any other such right, power or privilege.

18. Captions. Captions and headings of the sections and paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the caption or heading of any section or paragraph.

19. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

20. No Admission. Nothing in this Agreement shall be construed as an admission of wrongdoing or liability on the part of the Employer.

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21. Attorneys’ Fees. Should either Party breach any of the terms of this Agreement or the post-termination obligations herein, to the extent authorized by state law, the breaching Party will be responsible for payment of all reasonable attorneys’ fees and costs that the other Party incurred in the course of enforcing the terms of the Agreement, including demonstrating the existence of a breach and any other contract enforcement efforts.

22. Section 409A. This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (Section 409A) or an exemption thereunder and shall be construed and administered in accordance with Section 409A. Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each installment payment provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement upon a termination of employment shall only be made upon a “separation from service” under Section 409A. Notwithstanding the foregoing, the Employer makes no representations that the payments and benefits provided under this Agreement comply with Section 409A and in no event shall the Employer be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Employee on account of non-compliance with Section 409A.

23. Acknowledgment of Full Understanding. THE EMPLOYEE ACKNOWLEDGES AND AGREES THAT HE HAS FULLY READ, UNDERSTANDS AND VOLUNTARILY ENTERS INTO THIS AGREEMENT. THE EMPLOYEE ACKNOWLEDGES AND AGREES THAT HE HAS HAD AN OPPORTUNITY TO ASK QUESTIONS AND CONSULT WITH AN ATTORNEY OF HIS CHOICE BEFORE SIGNING THIS AGREEMENT. THE EMPLOYEE FURTHER ACKNOWLEDGES THAT HIS SIGNATURE BELOW IS AN AGREEMENT TO RELEASE REED’S INC. FROM ANY AND ALL CLAIMS.

[Signature page follows]

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IN WITNESS WHEREOF, the Parties have executed this Separation, Settlement and Release of Claims Agreement as of the Execution Date above.

REED’S INC.,
a Delaware corporation
By:	/s/ Valentin Stalowir
Name:	Valentin Stalowir
Title:	Chief Executive Officer

EMPLOYEE
Signature:	/s/ Daniel V. Miles
Name:	Daniel V. Miles

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APPENDIX A

OLDER WORKERS BENEFIT PROTECTION ACT DISCLOSURE NOTICE

The Older Workers Benefit Protection Act (OWBPA) requires that employers provide specific information to employees who are 40 years of age or older and asked to execute a release of claims in connection with a group termination program. This document provides this information.

The class, unit, or group of individuals covered by the program includes employees in the accounting/ finance and supply chain departments, who will be terminated. All employees in the accounting/ finance and supply chain departments that are being terminated are eligible for the program. The following is a list of the ages and job titles of employees who were and were not selected for termination and offered consideration for signing a waiver:

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EXHIBIT A

FORM OF CONVERTIBLE PROMISSORY NOTE

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE NOTE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN EXEMPTION THEREFROM, INCLUDING PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.

$ 207,200.00 Issuance Date: August 15, 2018

REED’S INC.

PROMISSORY NOTE

FOR VALUE RECEIVED, Reed’s, Inc., a Delaware corporation (“Company”), promises to pay to the order of Daniel V. Miles (“Holder”), or his permitted heirs and assigns, in lawful money of the United States of America the principal sum of TWO HUNDRED SEVEN THOUSAND AND TWO HUNDRED DOLLARS ($207,200.00), together with simple interest from the date of this Promissory Note (this “Note”) on the unpaid principal balance at a rate equal to the lesser of 7.5% per annum or the maximum amount allowed pursuant to applicable law (the “Interest Rate”), computed on the basis of the actual number of days elapsed and a year of 365 days (the “Obligations”). To the extent this Note has not been repaid, all unpaid principal, together with any then unpaid and accrued interest and other amounts payable hereunder, shall be due and payable on August 15, 2019 (the “Maturity Date”), or (ii) when, upon or after the occurrence of an Event of Default (as defined below), such amounts are declared due and payable by Holder. This Note is entered into pursuant to that certain Separation, Settlement And Release of Claims Agreement by and between Holder and the Company dated August 15, 2018 (“Separation Agreement”).

1. Interest. Unless provided otherwise hereunder, interest will accrue from the Issuance Date of this Note on the unpaid principal amount at the Interest Rate, until all Obligations under this Note are paid in full.

2. Payments. All payments hereunder shall be made in lawful money of the United States of America at such place or to such account as Holder may from time to time designate in writing to the Company. Payments will be credited first to accrued but unpaid interest and the remainder applied to principal.

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3. Events of Default. If any of the events specified in this Paragraph 3 shall occur (herein individually referred to as an “Event of Default”), the Holder may, so long as such condition exists, declare all Obligations hereunder immediately due and payable, by notice in writing to the Company:

(a) Default in the payment of the principal or unpaid accrued interest of this Note when due and payable;

(b) Default or breach under the Separation Agreement;

(c) The institution by the Company of proceedings to be adjudicated as bankrupt or insolvent, or the consent by it to institution of bankruptcy or insolvency proceedings against it or the filing by it of a petition or answer or consent seeking reorganization or release under the federal Bankruptcy Code, or any other applicable federal or state law, or the consent by it to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee or other similar official of the Company, or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the taking of corporate action by the Company in furtherance of any such action;

(d) If, within 60 days after the commencement of an action against the Company (and service of process in connection therewith on the Company) seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such action shall not have been resolved in favor of the Company or all orders or proceedings thereunder affecting the operations or the business of the Company stayed, or if the stay of any such order or proceeding shall thereafter be set aside, or if, within 60 days after the appointment without the consent or acquiescence of the Company of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, such appointment shall not have been vacated;

(e) A material breach by the Company of any of its representations or covenants contained herein; or

(f) Any declared default of the Company under any other material indebtedness that gives the holder thereof the right to accelerate such other indebtedness.

4. Transfer; Successors and Assigns. The terms and conditions of this Note will inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties.

5. Notices. Any notices or other communications required or permitted to be given under the terms of this Note that must be in writing will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided a confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); (iii) one day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same; (iv) upon receipt, when sent by email, provided a confirmation of receipt is emailed to sender from recipient.

6. Amendments and Waivers. Any terms of this Note may be amended, modified or waived only with the written consent of the Company and the Holder.

7. Governing Law. This Note and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto will be governed, construed, and interpreted in accordance with the laws of the State of California without giving effect to principles of conflicts of law.

16

IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the Issuance Date and Holder agrees to the terms and conditions of this Note.

COMPANY:		AGREED AND ACCEPTED BY HOLDER:
REED’S, INC.,		DANIEL V. MILES,
a Delaware corporation		an individual
By:		By:
Name:	Valentin Stalowir	Name:	Daniel V. Miles
Its:	Chief Executive Officer
Date:	August 15, 2018

17

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Valentin Stalowir, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Reed’s, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2018	/s/ Valentin Stalowir
	Valentin Stalowir
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Iris Snyder, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Reed’s, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2018	/s/ Iris Snyder
	Iris Snyder
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Reed’s, Inc., a Delaware corporation (the “Company”) for the period ending September 30, 2018 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), Valentin Stalowir, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	REED’S, INC.
Date: November 14, 2018	By:	/s/ Valentin Stalowir
		Valentin Stalowir
		Chief Executive Officer
		(Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Reed’s, Inc., a Delaware corporation (the “Company”) for the period ending September 30, 2018 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), Iris Snyder, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of her knowledge and belief:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	REED’S, INC.
Date: November 14, 2018	By:	/s/ Iris Snyder
		Iris Snyder
		Chief Financial Officer
		(Principal Financial Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Oct. 31, 2018
Document And Entity Information
Entity Registrant Name	REED'S, INC.
Entity Central Index Key	0001140215
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Small Business Flag	true
Entity Emerging Growth Company	false
Entity Ex Transition Period	false
Entity Common Stock, Shares Outstanding		25,711,809
Trading Symbol	REED
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2018

XML

Condensed Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Current assets:
Cash	$ 188	$ 12,127
Accounts receivable, net of allowance for doubtful accounts and returns and discounts of $564 and $601, respectively	4,436	2,691
Inventory, net of reserve for obsolescence of $635 and $509, respectively	7,041	5,931
Prepaid expenses and other current assets	438	199
Total Current Assets	12,103	20,948
Property and equipment, net of accumulated depreciation of $494 and $799, respectively	157	174
Equipment held for sale, net of impairment reserves of $5,925	1,921	2,549
Intangible assets	805	805
Total assets	14,986	24,476
Current Liabilities:
Accounts payable	3,272	7,480
Accrued expenses	1,869	220
Advances from officers	50	277
Revolving line of credit	2,689	3,301
Current portion of capital leases payable	140	198
Current portion of long term financing obligation	231	222
Bank notes	6,040	6,947
Total current liabilities	14,291	18,645
Capital leases payable, less current portion	107	236
Long term financing obligation, less current portion, net of discount of $632 and $714, respectively	1,149	1,250
Convertible note to a related party	4,036	3,690
Warrant liability	133	36
Other long term liabilities	94	111
Total Liabilities	19,810	23,968
Stockholders' equity (deficit):
Series A Convertible Preferred stock, $10 par value, 500,000 shares authorized, 9,411 shares issued and outstanding	94	94
Common stock, $.0001 par value, 40,000,000 shares authorized, 25,658,159 and 24,619,591 shares issued and outstanding, respectively	3	2
Common stock issuable, 616,602 and 400,000 shares, respectively	754	680
Additional paid in capital	52,096	49,833
Accumulated deficit	(57,771)	(50,101)
Total stockholders' equity (deficit)	(4,824)	508
Total liabilities and stockholders' equity (deficit)	$ 14,986	$ 24,476

XML

Condensed Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Accounts receivable, allowance for doubtful accounts and returns and discounts	$ 564	$ 601
Inventory, reserve for obsolescence net	635	509
Property and equipment, accumulated depreciation	494	799
Equipment, impairment reserves	5,925	5,925
Long term financing obligation, discount	$ 632	$ 714
Series A convertible preferred stock, par value	$ 10	$ 10
Series A convertible preferred stock, shares authorized	500,000	500,000
Series A convertible preferred stock, shares issued	9,411	9,411
Series A convertible preferred stock, shares outstanding	9,411	9,411
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	40,000,000	40,000,000
Common stock, shares issued	25,658,159	24,619,591
Common stock, shares outstanding	25,658,159	24,619,591
Common stock issuable shares	616,602	400,000

XML

Condensed Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income Statement [Abstract]
Net Sales	$ 10,796	$ 10,887	$ 28,473	$ 28,046
Cost of goods sold	8,115	8,825	20,447	23,216
Gross profit	2,681	2,062	8,026	4,830
Operating expenses:
Delivery and handling expense	1,395	1,119	3,598	2,731
Selling and marketing expense	1,378	828	3,601	2,344
General and administrative expense	1,987	1,105	6,853	3,402
Impairment of assets	0	2,000	0	2,000
Total operating expenses	4,760	5,052	14,052	10,477
Loss from operations	(2,079)	(2,990)	(6,026)	(5,647)
Interest expense	(621)	(757)	(1,542)	(2,270)
Financing and warrant modification costs	0	(1,798)	0	(2,776)
Change in fair value of warrant liability	26	(72)	(97)	3,236
Net loss basic and diluted	(2,674)	(5,617)	(7,665)	(7,457)
Dividends on Series A Convertible Preferred Stock			(5)	(5)
Net loss attributable to common stockholders	$ (2,674)	$ (5,617)	$ (7,670)	$ (7,462)
Weighted average number of shares outstanding - basic and diluted	25,587,191	15,033,083	25,242,780	14,336,375
Loss per share - basic and diluted	$ (0.10)	$ (0.37)	$ (0.30)	$ (0.52)

XML

Condensed Statement of Changes in Stockholders' Equity (Deficit) (Unaudited) - 9 months ended Sep. 30, 2018 - USD ($) $ in Thousands	Common Stock [Member]	Preferred Stock [Member]	Common Stock Issuable [Member]	Additional Paid In Capital [Member]	Accumulated Deficit [Member]	Total
Balance at Dec. 31, 2017	$ 2	$ 94	$ 680	$ 49,833	$ (50,101)	$ 508
Balance, Shares at Dec. 31, 2017	24,619,591	9,411	400,000
Fair value of vested options				864		864
Shares granted to an Officer for services				100		(100)
Shares granted to an Officer for services	37,052
Shares granted to Directors and Officers for services			$ 655			(655)
Shares granted to Directors and Officers for services, shares			854,592
Dividends on Series A Convertible Preferred Stock				5	(5)
Dividends on Series A Convertible Preferred Stock, shares	1,734
Common shares issued to Directors and Officers pursuant to previous grants			$ (581)	581
Common shares issued to Directors and Officers pursuant to previous grants, shares	638,575		(638,575)
Exercise of warrants	$ 1			713		714
Exercise of warrants, shares	361,207
Net loss					(7,665)	(7,665)
Balance at Sep. 30, 2018	$ 3	$ 94	$ 754	$ 52,096	$ (57,771)	$ (4,824)
Balance, Shares at Sep. 30, 2018	25,658,159	9,411	616,017

XML

Condensed Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities:
Net loss	$ (7,665)	$ (7,457)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	492	430
Amortization of discount on Long-term financing obligation	82	728
Loss on cancellation of capital leases	94
Stock options issued to employees for services	864	199
Common stock issuable for services	655	99
Common stock issued for services	100
(Decrease) increase in allowance for doubtful accounts	(37)	122
Reserve for impairment on equipment held for sale		2,000
(Decrease) increase in inventory reserve	126
(Decrease) increase in fair value of warrant liability	97	(3,236)
Fair value of warrants recorded as financing costs		908
Cost of warrant modification		1,868
Accrual of interest on Convertible note to a related party	346
Changes in operating assets and liabilities:
Accounts receivable	(1,707)	(825)
Inventory	(1,236)	(930)
Prepaid expenses and other assets	(239)	199
Accounts payable	(4,100)	1,033
Accrued expenses	1,648	176
Other long term obligations	(16)	(43)
Net cash used in operating activities	(10,496)	(4,729)
Cash flows from investing activities:
Proceeds from sale of property and equipment	52
Purchase of property and equipment	(102)	(535)
Net cash provided by (used in) investing activities	(50)	(535)
Cash flows from financing activities:
Borrowings on line of credit	13,495	38,355
Repayments of line of credit	(14,107)	(37,586)
Principal repayments on capital expansion loan	(907)	(538)
Principal repayments on long term financial obligation	(174)	(139)
Advances from officers	50	277
Repayment of amounts due to officers	(277)
Principal repayments on capital lease obligation	(187)	(141)
Exercise of warrants	720	1,650
Proceeds from sale of common stock		200
Proceeds from issuance of convertible note		3,083
Net cash provided by (used in) financing activities	(1,393)	5,161
Net decrease in cash	(11,939)	(103)
Cash at beginning of period	12,127	451
Cash at end of period	188	348
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	971	2,074
Non Cash Investing and Financing Activities:
Debt discount on note recognized as warrant liability		3,083
Property and equipment acquired through capital expansion loan		723
Preferred Stock dividends paid in Common Stock	5	5
Reclass of property to equipment held for sale		4,465
Extinguishment of warrant liability		2,634
Vendor credits issued for fixed asset purchase	$ 108

XML

Basis of Presentation and Liquidity

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Liquidity

1. 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 September 30, 2018 and the results of operations and cash flows for the three and nine months ended September 30, 2018 and 2017. The balance sheet as of December 31, 2017 is derived from the Company’s audited financial statements.

Certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. We believe that the disclosures contained in these condensed financial statements are adequate to make the information presented herein not misleading. For further information, refer to the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission on April 2, 2018.

The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2018.

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.

On October 4, 2018, the Company entered into a financing agreement with Rosenthal & Rosenthal, Inc., which replaced its existing credit facility with PMC. See Note 13. Management anticipates that the Company’s annual debt service requirements will be reduced by approximately $1,500 as a result of the refinancing. The new credit facility is for a term of 2.5 years, and provides for borrowings of up to $13,000. Concurrently with the execution of the financing agreement, all obligations to PMC under the Company’s existing credit facility were repaid in full in an aggregate amount of $8,758. Upon completion of these transactions on October 4, the Company had $1,300 of unused borrowing capacity under the financing agreement.

For the nine months ended September 30, 2018, the Company recorded a net loss of $7,665 and used cash in operations of $10,496. As of September 30, 2018, we had a cash balance of $188, a stockholder’s deficit of $4,824 and a working capital shortfall of $2,188 compared to a cash balance of $12,127, stockholder’s equity of $508 and working capital of $2,303 at December 31, 2017.

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. Beginning in June of 2017, we took decisive action to improve our profitability and operating cash flow, including increased outsourcing of our manufacturing process, streamlining our product portfolio, negotiating improved vendor contracts and restructuring our selling prices. The result was an 11 percentage point increase in gross margin for the nine months ended September 30, 2018, as compared to the same period of 2017.

In September of 2018, the Company completed the relocation of its headquarters to Norwalk, Connecticut. The Company’s move is consistent with its recent focus on a streamlined sales and marketing organization that is better positioned for future growth and enhanced profitability. The new Norwalk office serves as headquarters for the Company’s operations, business development, sales and marketing, finance, supply chain, HR and other corporate functions. With key leadership already based in the Tri-State area, including support agencies leading the Company’s marketing, advertising and public relations efforts, this will ensure a seamless transition.

The Company anticipates the exit of our Los Angeles plant to be completed in 2018, and in fiscal 2017 we recorded impairment charges aggregating $5,925 for fixed asset costs that we do not believe to be recoverable. Additionally, as a result of the move of our corporate headquarters, we recorded a charge of $642 for one-time severance and other employee termination costs in June of 2018. In September of 2018 we recorded charges aggregating $492 to revalue inventory that is no longer consistent with the Company’s strategic product focus.

We may incur additional charges including but not limited to additional cash-related expenses, non-cash impairment charges, discontinued operations and/or other costs in connection with exit and disposal activities. Such transactions will be recognized when appropriate and may require cash payments for obligations such as one-time employee involuntary termination benefits, lease and other contract termination costs, costs to close facilities, employee relocation costs and ongoing benefit arrangements.

If our sales goals do not materialize as planned, we believe the Company will be able to reduce its operating costs sufficiently to still achieve positive cash flow from operations. However, there can be no assurance that we will generate sufficient revenues from product sales in the future to achieve profitable operations. If we are not able to achieve profitable operations at some point in the future, we may have insufficient working capital to maintain our operations as we presently intend to conduct them or to fund our expansion, marketing, and product development plans.

XML

Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Significant Accounting Policies

2. Significant Accounting Policies

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company adopted ASC 606 effective January 1, 2018, and adoption of such standard had no effect on previously reported balances.

The Company previously recognized and continues to recognize revenue when risk of loss transfers to our customers and collection of the receivable is reasonably assured, which generally occurs when product is shipped. A written order from the customer must be received and credit acceptance procedures performed prior to shipment of product.

The Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer. Revenue and costs of sales are recognized when control of the products transfers to our customer, which generally occurs upon shipment from our 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-fulfillment. Damaged product returns have historically been insignificant. Because of this, the stand-alone nature of our products, and our assessment of performance obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.

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 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.

For the periods ended September 30, 2018 and 2017, 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:

	September 30, 2018		September 30, 2017
Convertible note to a related party		2,266,667		-
Warrants		6,951,173		1,908,616
Common stock equivalent of Series A Convertible Preferred Stock		37,644		37,644
Unvested restricted common stock		616,017		-
Options		3,440,904		714,500
Total		13,312,405		2,660,760

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

Use of estimates

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 instruments issued for services.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02”). ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest period presented in the financial statements. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.

In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” (“ASU 2017-11”). ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective approach. The adoption of ASU 2017-11 is not expected to have a material impact on the Company’s financial position, results of operations, and cash flows.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718); Improvements to Non-Employee Share-Based Payment Accounting” (“ASU 2018-07”). ASU 2018-07 generally aligns the measurement and classification of share-based awards to non-employees with that of share-based awards to employees. Non-employee equity awards will be measured at the fair value of the equity instruments to be issued, as of the grant date, and the resulting amount will be recognized as expense over the expected or contractual term of the award. The ASU applies to all share-based payments to nonemployees in exchange for goods or services used or consumed in an entity’s own operations. It does not apply to instruments issued to a lender or investor in a financing transaction, or to instruments granted when selling goods or services to customers. ASU 2018-07 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 amends certain disclosure requirements pertaining to fair value measurement, and is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of ASU 2018-13 is not expected to have a material impact on the Company’s 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 consolidated financial statements.

Concentrations

During the three months ended September 30, 2018, the Company’s largest two customers accounted for 22% and 18% of gross sales, respectively. During the nine months then ended, these customers accounted for 24% and 13% of gross sales, respectively.

During the three months ended September 30, 2017, the Company’s two largest customers accounted for 19% and 15% of gross sales, respectively. During the nine months ended September 30, 2017, two customers accounted for 21% and 11% of gross sales, respectively.

As of September 30, 2018, the Company had accounts receivable from three customers which comprised 20%, 16% and 12%, respectively, of its gross accounts receivable. As of December 31, 2017, accounts receivable from two customers comprised approximately 23% and 16% of gross accounts receivable, respectively.

During the three months ended September 30, 2018, the Company made 10% of its purchases from its largest vendor. During the nine months then ended, 15% of all purchases were made from this vendor.

During both the three and nine months ended September 30, 2017, a single vendor accounted for approximately 18% of all purchases.

As of September 30, 2018, the Company’s largest vendor accounted for 15% of the total accounts payable. As of December 31, 2017, this vendor accounted for 20% of total accounts payable.

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. Accounting Standards Codification Section 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.

As of September 30, 2018, and December 31, 2017, the Company’s balance sheets included warrant liabilities aggregating $133 and $36 respectively, measured at fair value based on Level 2 inputs.

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Inventory

9 Months Ended

Sep. 30, 2018

Inventory Disclosure [Abstract]

Inventory

3. Inventory

Inventory is valued at the lower of cost (first-in, first-out) or market, and net of reserves is comprised of the following (in thousands):

	September 30, 2018		December 31, 2017
Raw Materials and Packaging	$	3,674	$	2,670
Finished Goods		3,367		3,261
Total	$	7,041	$	5,931

The Company’s reserve for slow moving and obsolete inventory aggregated $635 and $509 as of September 30, 2018 and December 31, 2017, respectively. In September of 2018, the Company recognized a charge of $492 to revalue certain inventory that is no longer consistent with management’s strategic product focus.

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Property and Equipment

9 Months Ended

Sep. 30, 2018

Property, Plant and Equipment [Abstract]

Property and Equipment

4. Property and Equipment

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

	September 30, 2018			December 31, 2017
Vehicles	$	205		$	568
Computer hardware and software		446			404
Total cost		651			972
Accumulated depreciation		(494	)		(799	)
Net book value	$	157		$	174

Depreciation expense for the three months ended September 30, 2018 and 2017 was $155 and $171, respectively. Depreciation expense for the nine months then ended was $492 and $430, respectively.

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

	September 30, 2018			December 31, 2017
Equipment held for sale	$	4,184		$	4,370
Plant facility		3,672			4,104
Reserve		(5,935	)		(5,925	)
Net book value	$	1,921		$	2,549

During the year ended December 31, 2017, we recorded impairment charges aggregating $5,925 to reduce the carrying amount of our Los Angeles assets to the amount we believe to be recoverable.

During the period ended September 30, 2018, we reclassified all the assets of our Los Angeles manufacturing facility to Equipment Held for Sale, in keeping with management’s intention to complete our exit from the facility in 2018.

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Intangible Assets and Impairment Policy

9 Months Ended

Sep. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets and Impairment Policy

5. Intangible Assets and Impairment Policy

Intangible assets are comprised of brand names acquired. 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 measurement, there were no indications of impairment at September 30, 2018.

Intangible assets consist of the following (in thousands):

	September 30, 2018		December 31, 2017
Virgil’s		576	$	576
Sonoma Sparkler		229		229
Brand names	$	805	$	805

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Advances from Related Parties

9 Months Ended

Sep. 30, 2018

Related Party Transactions [Abstract]

Advances from Related Parties

6. Advances from Related Parties

In 2017, Christopher Reed (the former Chief Executive Officer and current Chief Innovation Officer of the Company), Robert Reed (the brother of Christopher Reed), and Daniel Miles (former Chief Financial Officer of the Company), collectively advanced $571 to the Company for working capital uses. As of December 31, 2017, $277 of these advances remained outstanding. This balance was repaid during the quarter ended March 31, 2018 with a three percent fee. In June of 2018, production materials aggregating $50 were purchased by Christopher Reed in anticipation of our exit from the Los Angeles facility, and reimbursement is due him as of September 30, 2018. The Company anticipates reimbursing Mr. Reed for this expenditure in the fourth quarter of 2018.

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Line of Credit and Bank Notes

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Line of Credit and Bank Notes

7. Line of Credit and Bank Notes

As of September 30, 2018, the Company had a Loan and Security Agreement with PMC Financial Services Group, LLC (the “PMC Agreement”), which included a $6,000 Revolving Line of Credit, a $3,000 Term Loan, and a Capital Expansion Loan (“CAPEX Loan”). Amounts borrowed under the PMC Agreement were secured by substantially all the assets of the Company and became due in October 2018.

On October 4, 2018, the Company entered into a financing agreement with Rosenthal & Rosenthal, Inc., which replaced its existing credit facility with PMC. See Note 13. Concurrently with the execution of the new financing agreement, all obligations to PMC were repaid in full in an aggregate amount of $8,758.

Amounts outstanding under the PMC Agreement were as follows (in thousands):

	September 30, 2018		December 31, 2017
Revolving Line of Credit	$	2,689	$	3,301
Term Loans		3,000		3,000
CAPEX loan		3,040		3,947
	$	8,729	$	10,248

Interest Rates

Interest rates on borrowings under the PMC Agreement were generally calculated on a sliding scale based on our trailing six month EBITDA. If unused cash availability met pre-established thresholds, interest rates were generally reduced to a contractual base rate plus any increase in the prime rate. The Revolving Line of Credit also bore a monthly collateral monitoring fee of .45%.

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Leases Payable

9 Months Ended

Sep. 30, 2018

Leases [Abstract]

Leases Payable

8. Leases Payable

Future minimum payments on capital leases as of September 30, 2018 are as follows (in thousands).

Years Ending December 31,
2018	$	122
2019		30
2020		23
2021		78
Total payments	$	255
Less: Amount representing interest		7
Present value of net minimum lease payments	$	247
Less: Current portion		140
Non-current portion	$	107

In conjunction with the October 2018 execution of the Company’s new finance agreement, certain equipment lease obligations were repaid in full to PMC in the aggregate amount of $195. Accordingly, these obligations are included in 2018 minimum lease payments in the table above.

In September of 2018 the Company entered into an operating lease for 8,620 feet of office space in Norwalk, Connecticut. The term of the lease is 6.5 years with monthly payments of $9 during the first 30 months, after which they adjust to $18 per month.

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Long-Term Financing Obligation

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Long-Term Financing Obligation

9. Long-term Financing Obligation

Our Long-term financing obligation is comprised of the following (in thousands):

	September 30, 2018			December 31, 2017
Financing obligation	$	2,012		$	2,186
Unamortized valuation discount		(632	)		(714	)
Net financing obligation	$	1,380		$	1,472
Less current portion		(231	)		(222	)
Long term financing obligation	$	1,149		$	1,250

As the result of a 2009 sale-leaseback transaction, the Company leases two buildings and certain of its brewery equipment (the majority of the assets of our Los Angeles plant). The transaction was accounted for as a long-term financing arrangement, and the proceeds from the sale were recorded as a financing obligation in the initial amount of $3,056. Monthly payments of approximately $35 under the arrangement are recorded as a reduction in the financing obligation and as interest expense at an implicit rate of 9.9%.

In connection with the financing obligation and subsequent amendments, the Company issued 200,000 warrants to purchase its common stock. The 200,000 warrants were valued at an aggregate amount of $1,336 which was recorded as a valuation discount. The discount is being amortized over 15 years, the term of the purchase option. The balance of unamortized valuation discount at September 30, 2018 and December 31, 2017 was $632 and $714, respectively. Amortization of valuation discount was $82 during the nine month period ended September 30, 2018.

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Convertible Note to a Related Party

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Convertible Note to a Related Party

10. Convertible Note to a Related Party

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

	September 30, 2018		December 31, 2017
12% Convertible Note Payable	$	3,400	$	3,400
Accrued Interest		636		290
Total obligation	$	4,036	$	3,690

On April 21, 2017, pursuant to a Securities Purchase Agreement, the Company issued a Secured, Convertible, Subordinated, Non-Redeemable Note in the principal amount of $3,400 (the “Raptor Note”) and warrants to purchase 1,416,667 shares of common stock. The purchaser, Raptor/Harbor Reeds SPV LLC (“Raptor”), beneficially owned approximately 28% of the Company’s common stock at each of September 30, 2018 and December 31, 2017.

The 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 13). 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.

The warrant will expire on April 21, 2022 and has an adjusted exercise price of $1.50 per share as of September 30, 2018. 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-1. The investor was also granted the right to participate in future financing transactions of the Company for a term of two years.

In October of 2018, the Company entered into a new financing agreement to replace its existing agreement with PMC. In conjunction therewith, the Raptor Note was amended to provide for additional advances of up to $4,000 in the event that Raptor exercises a put option that was granted to it as part of the refinancing. In return, the exercise price of 750,000 of Raptor’s outstanding warrants was reduced to $1.10 per share. See Note 13.

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Warrant Liability

9 Months Ended

Sep. 30, 2018

Warrant Liability

Warrant Liability

11. Warrant Liability

Certain of the Company’s outstanding warrants require the Company to pay cash to the warrant holders, in the event of a fundamental transaction as defined. Such warrants are accounted for as liabilities in accordance with ASC 480. These liabilities are measured at fair value each reporting period and the change in the fair value is recognized in earnings in the accompanying Statements of Operations.

The fair value of the warrant liability was determined using the Black-Scholes-Merton option pricing model at September 30, 2018 and December 31, 2017, using the following assumptions:

	September 30, 2018			December 31, 2017
Stock Price	$	3.25		$	1.55
Risk free interest rate		2.46	%		1.74	%
Expected volatility		53.38	%		56.06	%
Expected life in years		2.67			3.42
Expected dividend yield		0	%		0	%
Fair Value - Warrants	$	133		$	36

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. The expected 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.

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Stock Based Activity

9 Months Ended

Sep. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Based Activity

12. Stock Based Activity

Common stock issued

On January 10, 2018, the Compensation Committee of the Company’s Board of Directors (“Board”) awarded certain independent Directors an aggregate of 400,000 shares of restricted common stock pursuant to Reed’s 2017 Incentive Compensation Plan (“the Plan”). The shares were issued as compensation for services provided during 2017. Accordingly the Company recognized $680, the fair value of the shares, as compensation expense during the year ended December 31, 2017, and reflected this amount as common stock issuable. The shares were issued during the first quarter of 2018.

Stock Awards

The following table summarizes restricted stock activity during the nine months ended September 30, 2018:

	Number of Shares			Fair Value at Date of Issuance			Weighted Average Grant Date Fair Value
Non-vested, December 31, 2017		400,000		$	680			1.70
Granted		854,592			1,412			1.65
Vested		(638,575	)		(1,086	)		1.70
Forfeited		0			0			-
Non-vested, September 30, 2018		616,017		$	1,006			1.63

In the first quarter of 2018, the Compensation Committee granted an aggregate of 70,588 shares of restricted common stock to the Company’s independent Directors pursuant to the Plan. The shares vest in four equal installments during 2018, and the $120 fair value of the shares is being amortized ratably over that period. During the nine months ended September 30, 2018, 52,941 vested shares with a fair value of $90 were issued.

On January 10, 2018, pursuant to its employment agreement with Mr. Valentin Stalowir, Chief Executive Officer of the Company, dated June 28, 2017, the Compensation Committee granted to Mr. Stalowir an award of 371,268 shares of restricted common stock with a fair value of $631, pursuant to the Plan. The award vests over 18 months, and the fair value of the grant is being amortized to compensation expense through June 2019. During the nine months ended September 30, 2018, 185,634 shares of common stock with a fair value of $316 vested pursuant to the award and were issued to Mr. Stalowir.

On March 28, 2018, the Compensation Committee awarded Mr. Stalowir an additional 412,736 shares of restricted common stock with a fair value of $660 pursuant to the Plan. This award is subject to shareholder approval to increase the number of shares available under the Plan, and will not otherwise be issued until January 2019. The fair value of these shares is also being amortized to compensation expense through June 2019 when the shares vest.

On July 9, 2018, the Compensation Committee approved the grant of 37,052 shares of common stock to an Officer for services rendered, pursuant to the Plan. The shares vested immediately; accordingly the $100 fair value of the shares was recorded as compensation expense during the nine months ended September 30, 2018.

Restricted common stock issued pursuant to the Plan is subject to such restrictions as determined by the Compensation Committee of the Board, which may include restrictions on the sale of such shares or the right to receive dividends thereon. Additionally, the restricted common stock is subject to a risk of forfeiture, generally upon termination of employment or service during the vesting period. Vesting may be dependent upon the recipient’s continued relationship with the Company, or may depend upon the achievement of certain pre-established performance goals.

During the nine months ended September 30, 2018, an aggregate of $655 was recognized as compensation expense relative to these awards. As of September 30, 2018, the amount of unvested compensation related to issuances of restricted common stock awards was $754, which will be recognized as an expense in future periods as the shares vest.

Stock options

	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2017		677,500	$	4.31
Granted		3,285,954		1.86
Exercised		-		-
Unvested Forfeited or expired		406,300		2.65
Vested Forfeited or expired		116,250		4.22
Outstanding at September 30, 2018		3,440,904	$	2.17		8.63	$	4,172,877
Exercisable at September 30, 2018		636,209	$	3.01		5.38	$	517,419

The aggregate intrinsic value was calculated as the difference between the closing market price as of September 30, 2018, which was $3.25, and the exercise price of the outstanding stock options.

On January 10, 2018, pursuant to its employment agreement with Valentin Stalowir dated June 28, 2017, the Compensation Committee granted to Mr. Stalowir options to purchase 371,268 shares of stock, pursuant to the Plan. The options have an exercise price of $1.70, vest over 18 months, and have a 10 year life. The $370 fair value of the options is being amortized through June 2019.

On March 28, 2018, the Compensation Committee granted options to purchase 1,653,950 shares of common stock to certain current employees, officers and Directors pursuant to the Plan. One half of these options vest annually over a four-year period; the other half of these options will vest based on performance criteria to be established by the Board at its discretion. The $1,441 fair value of the options is being amortized through March 31, 2022.

Also, on March 28, 2018, Compensation Committee approved the repricing of 100,000 options issued to former Chief Financial Officer Dan Miles pursuant to the 2015 Plan to the market price of $1.60, and extended the option period an additional four years.

On March 28, 2018, the Compensation Committee awarded Mr. Stalowir options to purchase 412,736 shares of common stock, which are subject to shareholder approval to increase the number of shares available under the Plan, and are not otherwise issuable until January 2019. One half of these options will vest annually over a four-year period; the other half of these options will vest based on performance criteria to be established by the Board. The fair value of these options of $389 is being amortized through March 31, 2022.

On July 19, 2018, the Company issued options to purchase 748,000 shares of common stock to certain employees, officers and Directors pursuant to the Plan. The grant included 446,000 options issued to Iris Snyder, Chief Financial Officer of the Company, subject to shareholder approval to increase the number of shares available under the Plan. One half of these options vest annually over a four-year period; the other half of these options will vest based on performance criteria to be established by the Board at its discretion. The $957 fair value of the options is being amortized through July 31, 2022.

The fair value of the options granted was determined using the Black-Scholes-Merton option pricing model during the period ended September 30, 2018, using the following assumptions:

	Nine Months Ended
	September 30,
	2018			2017
Expected volatility		62	%		0	%
Expected dividends		—			—
Expected average term (in years)		6.00			0
Risk free rate - average		2.37% - 2.77	%		0
Forfeiture rate		0			0

During the three and nine months ended September 30, 2018, the Company recognized $394 and $864 of compensation expense relating to outstanding stock options. As of September 30, 2018, the amount of unvested compensation related to stock options was approximately $2,600 which will be recorded as an expense in future periods as the options vest.

As of September 30, 2018, the company has accrued $628 of compensation expense, consisting of amounts due Mr. Stalowir for anticipated performance bonuses earned through that date by the terms of his employment agreement with the Company, as well as the tax liability arising from the share-based awards described above.

Common Stock Purchase Warrants

The following table summarizes warrant activity for the nine months ended September 30, 2018:

	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value
Outstanding at December 31,2017		7,325,282	$	2.09		3.43
Granted
Exercised		374,109	$	-
Forfeited or expired		0
Outstanding at September 30, 2018		6,951,173	$	2.10		2.71	$	8,000
Exercisable at September 30, 2018		6,951,173	$	2.10		2.71	$	8,000

The intrinsic value was calculated as the difference between the closing market price as of September 30, 2018, which was $3.25, and the exercise price of the Company’s warrants to purchase common stock.

During the nine months ended September 30, 2018, warrants to acquire 374,109 shares of common stock were exercised, including 18,738 warrants that were exercised on a cashless basis, resulting in the issuance of 361,207 shares of common stock. Aggregate proceeds to the Company were $720.

In October of 2018, the Company entered into a new financing agreement to replace its existing agreement with PMC. In conjunction therewith, the exercise price of 750,000 of Raptor’s outstanding warrants to purchase the Company’s common stock was reduced from $1.50 to $1.10. See Note 13.

During October of 2018, 53,896 warrants for the purchase of the Company’s common stock were exercised, resulting in the issuance of 53,650 shares of common stock and proceeds to the Company of $108.

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Subsequent Events

9 Months Ended

Sep. 30, 2018

Subsequent Events [Abstract]

Subsequent Events

13. Subsequent Events

Financing Agreement

On October 4, 2018, the Company entered into a financing agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”), replacing its existing credit facility with PMC. The new credit facility is for a term of 2.5 years and provides for borrowings of up to $13,000. Borrowings are based upon eligible accounts receivable and inventory, plus up to $4,000 of additional borrowing beyond those amounts (the “Over-Advance”).

Borrowings under the new credit facility bear interest at the greater of prime or 4.75%, plus an additional 2% to 3.5% depending upon whether the borrowing is based upon receivables, inventory or is an Over-Advance. Additionally, the credit facility is subject to monthly facility and administration fees, and aggregate minimum monthly fees (including interest) of $4 thousand.

The credit facility is secured by substantially all of the assets of the Company. Additionally, the Over-Advance is 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. Mr. Doherty is also a member of the Company’s Board of Directors. In the event of a default under the financing agreement, Raptor has a put option to purchase from Rosenthal the entire amount of any outstanding Over-Advance plus accrued interest, prior to Rosenthal declaring an event of default under the financing agreement.

As part of the transaction, the Company issued an Amended and Restated Subordinated Convertible Non-Redeemable Secured Note to Raptor, a related party (see Note 10) to provide for additional advances of up to $4,000 in the event that Raptor exercises its put option described above. Consequently, the exercise price of 750,000 of Raptor’s outstanding warrants to purchase the Company’s common stock was reduced from $1.50 to $1.10.

Concurrently with the execution of the Agreement, all obligations to PMC under the Company’s existing credit facility were repaid in full in an aggregate amount of $8,758.

Management anticipates that the Company’s annual debt service requirements will be reduced by approximately $1,500 as a result of the transaction.

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Revenue Recognition

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company adopted ASC 606 effective January 1, 2018, and adoption of such standard had no effect on previously reported balances.

The Company previously recognized and continues to recognize revenue when risk of loss transfers to our customers and collection of the receivable is reasonably assured, which generally occurs when product is shipped. A written order from the customer must be received and credit acceptance procedures performed prior to shipment of product.

The Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer. Revenue and costs of sales are recognized when control of the products transfers to our customer, which generally occurs upon shipment from our 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-fulfillment. Damaged product returns have historically been insignificant. Because of this, the stand-alone nature of our products, and our assessment of performance obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.

Loss Per Common Share

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 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.

For the periods ended September 30, 2018 and 2017, 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:

	September 30, 2018		September 30, 2017
Convertible note to a related party		2,266,667		-
Warrants		6,951,173		1,908,616
Common stock equivalent of Series A Convertible Preferred Stock		37,644		37,644
Unvested restricted common stock		616,017		-
Options		3,440,904		714,500
Total		13,312,405		2,660,760

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

Use of Estimates

Use of estimates

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 instruments issued for services.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02”). ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest period presented in the financial statements. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.

In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” (“ASU 2017-11”). ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective approach. The adoption of ASU 2017-11 is not expected to have a material impact on the Company’s financial position, results of operations, and cash flows.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718); Improvements to Non-Employee Share-Based Payment Accounting” (“ASU 2018-07”). ASU 2018-07 generally aligns the measurement and classification of share-based awards to non-employees with that of share-based awards to employees. Non-employee equity awards will be measured at the fair value of the equity instruments to be issued, as of the grant date, and the resulting amount will be recognized as expense over the expected or contractual term of the award. The ASU applies to all share-based payments to nonemployees in exchange for goods or services used or consumed in an entity’s own operations. It does not apply to instruments issued to a lender or investor in a financing transaction, or to instruments granted when selling goods or services to customers. ASU 2018-07 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 amends certain disclosure requirements pertaining to fair value measurement, and is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of ASU 2018-13 is not expected to have a material impact on the Company’s 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 consolidated financial statements.

Concentrations

Concentrations

During the three months ended September 30, 2018, the Company’s largest two customers accounted for 22% and 18% of gross sales, respectively. During the nine months then ended, these customers accounted for 24% and 13% of gross sales, respectively.

During the three months ended September 30, 2017, the Company’s two largest customers accounted for 19% and 15% of gross sales, respectively. During the nine months ended September 30, 2017, two customers accounted for 21% and 11% of gross sales, respectively.

As of September 30, 2018, the Company had accounts receivable from three customers which comprised 20%, 16% and 12%, respectively, of its gross accounts receivable. As of December 31, 2017, accounts receivable from two customers comprised approximately 23% and 16% of gross accounts receivable, respectively.

During the three months ended September 30, 2018, the Company made 10% of its purchases from its largest vendor. During the nine months then ended, 15% of all purchases were made from this vendor.

During both the three and nine months ended September 30, 2017, a single vendor accounted for approximately 18% of all purchases.

As of September 30, 2018, the Company’s largest vendor accounted for 15% of the total accounts payable. As of December 31, 2017, this vendor accounted for 20% of total accounts payable.

Fair Value of Financial Instruments

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. Accounting Standards Codification Section 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.

As of September 30, 2018, and December 31, 2017, the Company’s balance sheets included warrant liabilities aggregating $133 and $36 respectively, measured at fair value based on Level 2 inputs.

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Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Schedule of Potentially Dilutive Securities

The potentially dilutive securities consisted of the following:

	September 30, 2018		September 30, 2017
Convertible note to a related party		2,266,667		-
Warrants		6,951,173		1,908,616
Common stock equivalent of Series A Convertible Preferred Stock		37,644		37,644
Unvested restricted common stock		616,017		-
Options		3,440,904		714,500
Total		13,312,405		2,660,760

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Inventory (Tables)

9 Months Ended

Sep. 30, 2018

Inventory Disclosure [Abstract]

Schedule of Inventory

Inventory is valued at the lower of cost (first-in, first-out) or market, and net of reserves is comprised of the following (in thousands):

	September 30, 2018		December 31, 2017
Raw Materials and Packaging	$	3,674	$	2,670
Finished Goods		3,367		3,261
Total	$	7,041	$	5,931

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Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2018

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment

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

	September 30, 2018			December 31, 2017
Vehicles	$	205		$	568
Computer hardware and software		446			404
Total cost		651			972
Accumulated depreciation		(494	)		(799	)
Net book value	$	157		$	174

Schedule of Equipment Held for Sale

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

	September 30, 2018			December 31, 2017
Equipment held for sale	$	4,184		$	4,370
Plant facility		3,672			4,104
Reserve		(5,935	)		(5,925	)
Net book value	$	1,921		$	2,549

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Intangible Assets and Impairment Policy (Tables)

9 Months Ended

Sep. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets Trademarks

Intangible assets consist of the following (in thousands):

	September 30, 2018		December 31, 2017
Virgil’s		576	$	576
Sonoma Sparkler		229		229
Brand names	$	805	$	805

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Line of Credit and Bank Notes (Tables)

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Schedule of Bank Notes

Amounts outstanding under the PMC Agreement were as follows (in thousands):

	September 30, 2018		December 31, 2017
Revolving Line of Credit	$	2,689	$	3,301
Term Loans		3,000		3,000
CAPEX loan		3,040		3,947
	$	8,729	$	10,248

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Leases Payable (Tables)

9 Months Ended

Sep. 30, 2018

Leases [Abstract]

Schedule of Future Minimum Lease Payments Under Capital Leases

Future minimum payments on capital leases as of September 30, 2018 are as follows (in thousands).

Years Ending December 31,
2018	$	122
2019		30
2020		23
2021		78
Total payments	$	255
Less: Amount representing interest		7
Present value of net minimum lease payments	$	247
Less: Current portion		140
Non-current portion	$	107

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Long-Term Financing Obligation (Tables)

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Schedule of Long-Term Financing Obligation

Our Long-term financing obligation is comprised of the following (in thousands):

	September 30, 2018			December 31, 2017
Financing obligation	$	2,012		$	2,186
Unamortized valuation discount		(632	)		(714	)
Net financing obligation	$	1,380		$	1,472
Less current portion		(231	)		(222	)
Long term financing obligation	$	1,149		$	1,250

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Convertible Note to a Related Party (Tables)

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Schedule of Convertible Notes

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

	September 30, 2018		December 31, 2017
12% Convertible Note Payable	$	3,400	$	3,400
Accrued Interest		636		290
Total obligation	$	4,036	$	3,690

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Warrant Liability (Tables)

9 Months Ended

Sep. 30, 2018

Warrant Liability

Schedule of Warrant Liability Using Assumptions

The fair value of the warrant liability was determined using the Black-Scholes-Merton option pricing model at September 30, 2018 and December 31, 2017, using the following assumptions:

	September 30, 2018			December 31, 2017
Stock Price	$	3.25		$	1.55
Risk free interest rate		2.46	%		1.74	%
Expected volatility		53.38	%		56.06	%
Expected life in years		2.67			3.42
Expected dividend yield		0	%		0	%
Fair Value - Warrants	$	133		$	36

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Stock Based Activity (Tables)

9 Months Ended

Sep. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary Non-vested Restricted Stock Activity

The following table summarizes restricted stock activity during the nine months ended September 30, 2018:

	Number of Shares			Fair Value at Date of Issuance			Weighted Average Grant Date Fair Value
Non-vested, December 31, 2017		400,000		$	680			1.70
Granted		854,592			1,412			1.65
Vested		(638,575	)		(1,086	)		1.70
Forfeited		0			0			-
Non-vested, September 30, 2018		616,017		$	1,006			1.63

Schedule of Stock Option Activity

Stock options

	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2017		677,500	$	4.31
Granted		3,285,954		1.86
Exercised		-		-
Unvested Forfeited or expired		406,300		2.65
Vested Forfeited or expired		116,250		4.22
Outstanding at September 30, 2018		3,440,904	$	2.17		8.63	$	4,172,877
Exercisable at September 30, 2018		636,209	$	3.01		5.38	$	517,419

Summary of Assumption Used to Estimate the Fair Value of Share Options Granted

The fair value of the options granted was determined using the Black-Scholes-Merton option pricing model during the period ended September 30, 2018, using the following assumptions:

	Nine Months Ended
	September 30,
	2018			2017
Expected volatility		62	%		0	%
Expected dividends		—			—
Expected average term (in years)		6.00			0
Risk free rate - average		2.37% - 2.77	%		0
Forfeiture rate		0			0

Schedule of Stock Warrants Activity

The following table summarizes warrant activity for the nine months ended September 30, 2018:

	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value
Outstanding at December 31,2017		7,325,282	$	2.09		3.43
Granted
Exercised		374,109	$	-
Forfeited or expired		0
Outstanding at September 30, 2018		6,951,173	$	2.10		2.71	$	8,000
Exercisable at September 30, 2018		6,951,173	$	2.10		2.71	$	8,000

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Basis of Presentation and Liquidity (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Net loss	$ 2,674	$ 5,617	$ 7,665	$ 7,457
Net cash provided by (used in) operating activities			10,496	4,729
Cash balance	188		188		$ 12,127
Stockholders' deficit	(4,824)		(4,824)		508
Working capital shortfall	2,188		$ 2,188		2,303
Increase in gross margin percentage			11.00%
Impairment charge			$ 0	$ 0	$ 5,925
Severance and other termination costs			642
Revalue inventory charges	492		492
October 4, 2018 [Member]
Debt service refinancing			$ 1,500
Debt instrument, term			2 years 6 months
Line of credit, borrowing capacity	13,000		$ 13,000
Bank payoff amount	8,758		8,758
Unused borrowing capacity	$ 1,300		$ 1,300

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Significant Accounting Policies (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Warrant liabilities	$ 133		$ 133		$ 36
Customer One [Member] | Sales Revenue, Net [Member]
Percentage of sale accounted to customer	22.00%	19.00%	24.00%	21.00%
Customer One [Member] | Accounts Receivable [Member]
Percentage of sale accounted to customer			20.00%		23.00%
Customer Two [Member] | Sales Revenue, Net [Member]
Percentage of sale accounted to customer	18.00%	15.00%	13.00%	11.00%
Customer Two [Member] | Accounts Receivable [Member]
Percentage of sale accounted to customer			16.00%		16.00%
Customer Three [Member] | Accounts Receivable [Member]
Percentage of sale accounted to customer			12.00%
Vendor One [Member]
Percentage of sale accounted to customer	10.00%	18.00%	15.00%	18.00%
Vendor One [Member] | Accounts Payable [Member]
Percentage of sale accounted to customer			15.00%		20.00%
Series A Convertible Preferred Stock [Member]
Convertible ratio, description			rate of 1:4

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Significant Accounting Policies - Schedule of Potentially Dilutive Securities (Details) - shares	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Potentially dilutive securities	13,312,405	2,660,760
Convertible Note [Member]
Potentially dilutive securities	2,266,667
Warrants [Member]
Potentially dilutive securities	6,951,173	1,908,616
Common Stock Equivalent of Series A Convertible Preferred Stock [Member]
Potentially dilutive securities	37,644	37,644
Unvested Restricted Common Stock [Member]
Potentially dilutive securities	616,017
Options [Member]
Potentially dilutive securities	3,440,904	714,500

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Inventory (Details Narrative) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2018	Dec. 31, 2017
Inventory Disclosure [Abstract]
Inventory reserve for obsolescence	$ 635	$ 635	$ 509
Revalue inventory charges	$ 492	$ 492

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Inventory - Schedule of Inventory (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Inventory Disclosure [Abstract]
Raw Materials and Packaging	$ 3,674	$ 2,670
Finished Goods	3,367	3,261
Inventory, total	$ 7,041	$ 5,931

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Property and Equipment (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Property, Plant and Equipment [Abstract]
Depreciation expense	$ 155	$ 171	$ 492	$ 430
Impairment charges	$ 5,925		$ 5,925		$ 5,925

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Property and Equipment - Schedule of Property and Equipment (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Property and equipment, total cost	$ 651	$ 972
Accumulated depreciation	(494)	(799)
Net book value	157	174
Vehicles [Member]
Property and equipment, total cost	205	568
Computer Hardware and Software [Member]
Property and equipment, total cost	$ 446	$ 404

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Property and Equipment - Schedule of Equipment Held for Sale (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Property, Plant and Equipment [Abstract]
Equipment held for sale	$ 4,184	$ 4,370
Plant facility	3,672	4,104
Reserve	(5,935)	(5,925)
Net book value	$ 1,921	$ 2,549

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Intangible Assets and Impairment Policy - Schedule of Intangible Assets Trademarks (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Brand names	$ 805	$ 805
Virgil's [Member]
Brand names	576	576
Sonoma Sparkler [Member]
Brand names	$ 229	$ 229

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Advances from Related Parties (Details Narrative) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended
	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2018	Dec. 31, 2017
Related Party Transactions [Abstract]
Advance to affiliate				$ 571
Advances from related party			$ 50	$ 277
Percentage for fees		3.00%
Purchase from related party	$ 50

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Line of Credit and Bank Notes (Details Narrative) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Term loan	$ 1,380	$ 1,472
Monthly management fee percentage	0.45%
October 4, 2018 [Member]
Repayment of line of credit	$ 8,758
PMC Financial Services Group, LLC [Member] | Loan and Security Agreement [Member]
Line of credit	6,000
Term loan	$ 3,000
Loan maturity date	October 2018

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Line of Credit and Bank Notes - Schedule of Bank Notes (Details) - Bank Notes [Member] - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Revolving Line of Credit	$ 2,689	$ 3,301
Term Loans	3,000	3,000
CAPEX loan	3,040	3,947
Net	$ 8,729	$ 10,248

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Leases Payable (Details Narrative) $ in Thousands	Sep. 30, 2018 USD ($) ft²
Operating lease, square feet | ft²	8,620
Operating lease, term	6 years 6 months
Lease, monthly payment	$ 9
Adjustment of monthly payment	18
October 2018 [Member]
Equipment lease obligations payoff amount	$ 195

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Leases Payable - Schedule of Future Minimum Lease Payments Under Capital Leases (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Leases [Abstract]
2018	$ 122
2019	30
2020	23
2021	78
Total payments	255
Less: Amount representing interest	7
Present value of net minimum lease payments	247
Less: Current portion	140	$ 198
Non-current portion	$ 107	$ 236

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Long-Term Financing Obligation (Details Narrative) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Sale leaseback transaction, monthly rental payment	$ 35
Percentage of interest expense and reduction in the financing obligation at implicit rate	9.90%
Unamortized valuation discount	$ 632		$ 714
Amortization of valuation discount	$ 82	$ 728
Warrants [Member] | Financing Obligation [Member]
Number of warrants to purchase of common stock	200,000
Actual fair value of warrant offered	$ 1,336
Valuation of discount amortized period	15 years
Los Angeles Plant [Member]
Initial amount of financing obligation	$ 3,056

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Long-Term Financing Obligation - Schedule of Long-Term Financing Obligation (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Debt Disclosure [Abstract]
Financing obligation	$ 2,012	$ 2,186
Unamortized valuation discount	(632)	(714)
Net long term financing obligation	1,380	1,472
Less current portion	(231)	(222)
Long term financing obligation	$ 1,149	$ 1,250

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Convertible Note to a Related Party (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands		9 Months Ended
	Apr. 21, 2017	Sep. 30, 2018	Dec. 31, 2017
October 4, 2018 [Member]
Additional advances of refinancing		$ 1,500
Raptor/Harbor Reeds SPV LLC [Member]
Ownership percentage		28.00%	28.00%
Raptor/Harbor Reeds SPV LLC [Member] | Reduced Price Per Share [Member]
Conversion price	$ 1.50
Securities Purchase Agreement [Member]
Secured convertible debt principal amount	$ 3,400
Number of warrants to purchase of common stock	1,416,667
Note bears interest rate	12.00%
Debt maturity date	Apr. 21, 2021
Warrant expired date		Apr. 21, 2022
Warrant exercise price		$ 1.50
New Financing Agreement [Member] | Raptor/Harbor Reeds SPV LLC [Member] | October 4, 2018 [Member]
Warrant exercise price		$ 1.10
Additional advances of refinancing		$ 4,000
Warrant outstanding shares		750,000

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Convertible Note to a Related Party - Schedule of Convertible Notes (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Convertible Note Payable, Net	$ 4,036	$ 3,690
Convertible Notes [Member]
12% Convertible Note Payable	3,400	3,400
Accrued Interest	636	290
Convertible Note Payable, Net	$ 4,036	$ 3,690

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Convertible Note to a Related Party - Schedule of Convertible Notes (Details) (Parenthetical)	9 Months Ended
	Sep. 30, 2018
Convertible Notes [Member]
Percentage of convertible note	12.00%

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Warrant Liability - Schedule of Warrant Liability Using Assumptions (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Fair Value - Warrants	$ (26)	$ 72	$ 97	$ (3,236)
Warrants [Member]
Risk free interest rate			2.46%		1.74%
Expected volatility			53.38%		56.06%
Expected life in years			2 years 8 months 2 days		3 years 5 months 1 day
Expected dividend yield			0.00%		0.00%
Fair Value - Warrants			$ 133		$ 36
Warrants [Member]
Stock Price	$ 3.25		$ 3.25		$ 1.55

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Stock Based Activity (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands					3 Months Ended		9 Months Ended
	Jul. 19, 2018	Jul. 09, 2018	Mar. 28, 2018	Jan. 10, 2018	Sep. 30, 2018	Mar. 31, 2018	Sep. 30, 2018	Sep. 30, 2017
Shares issued for compensation		37,052
Fair value of compensation expenses		$ 100					$ 100
Number of vested shares issued, shares							52,941
Compensation cost of stock awards							$ 90
Stock open market price per share					$ 3.25		$ 3.25
Stock-based compensation					$ 394		$ 864
Number of warrants to acquire shares of common stock					374,109		374,109
Number of warrants exercised on cashless basis					18,738		18,738
Issuance of common stock							361,207
Proceeds to warrant liability							$ 720	$ 1,650
October 2018 [Member]
Number of warrants to acquire shares of common stock					53,896		53,896
Issuance of common stock							53,650
Proceeds to warrant liability							$ 108
October 2018 [Member] | Maximum [Member]
Warrant exercise price					$ 1.50		$ 1.50
October 2018 [Member] | Minimum [Member]
Warrant exercise price					$ 1.10		$ 1.10
Employee Officers and Directors [Member]
Shares issued for compensation	748,000
Stock Options [Member]
Unvested compensation not yet recognized					$ 2,600		$ 2,600
Warrants [Member]
Stock open market price per share					$ 3.25		$ 3.25
Employment Agreement [Member] | Stock Options [Member]
Options to purchase shares of common stock				371,268
Number of option issued exercise price per share				$ 1.70
Stock option description				The options have an exercise price of $1.70, vest over 18 months, and have a 10 year life.
Fair value of options				$ 370
New Financing Agreement [Member] | Raptor/Harbor Reeds SPV LLC [Member] | October 4, 2018 [Member]
Warrant exercise price					$ 1.10		$ 1.10
Warrant outstanding shares					750,000		750,000
Restricted Stock [Member]
Number of vested shares issued, shares							638,575
Compensation cost of stock awards							$ 655
Unvested compensation not yet recognized					$ 754		$ 754
Mr Valentin Stalowir [Member] | Employment Agreement [Member]
Number of vested shares issued, shares							185,634
Compensation cost of stock awards							$ 316
Mr Valentin Stalowir [Member] | Restricted Stock [Member] | Employment Agreement [Member]
Number of restricted common stock issued, shares				371,268
Fair value of restricted shares				$ 631
Valentin Stalowir [Member]
Stock-based compensation							$ 628
Valentin Stalowir [Member] | Stock Options [Member]
Shares issued for compensation			412,736
Stock option description			One half of these options will vest annually over a four-year period
Fair value of options			$ 389
Iris Snyder [Member]
Fair value of options	$ 957
Number of options granted	446,000
2017 Incentive Compensation Plan [Member] | Independent Directors [Member]
Shares issued for compensation				400,000
Fair value of compensation expenses				$ 680
2017 Incentive Compensation Plan [Member] | Independent Directors [Member] | Restricted Stock [Member]
Number of restricted common stock issued, shares						70,588
Fair value of restricted shares						$ 120
2017 Incentive Compensation Plan [Member] | Valentin Stalowir [Member] | Restricted Stock [Member]
Number of restricted common stock issued, shares			412,736
Fair value of restricted shares			$ 660
2017 Incentive Compensation Plan [Member] | Employee Officers and Directors [Member]
Shares issued for compensation			1,653,950
Fair value of options			$ 1,441
2015 Plan [Member] | Mr. Miles [Member]
Number of vested shares issued, shares			100,000
Stock options at market price per share			$ 1.60

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Stock Based Activity - Summary Non-vested Restricted Stock Activity (Details) $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($) $ / shares shares
Number of Shares, Vested	(52,941)
Restricted Stock [Member]
Number of Shares Non-vested, beginning balance	400,000
Number of Shares, Granted	854,592
Number of Shares, Vested	(638,575)
Number of Shares, Forfeited	0
Number of Shares Non-vested, ending balance	616,017
Fair Value Non-vested, beginning balance | $	$ 680
Fair Value, Granted | $	1,412
Fair Value, Vested | $	(1,086)
Fair Value, Forfeited | $	0
Fair Value, Non-vested, ending balance | $	$ 1,006
Weighted Average Grant Date Fair Value, Non-vested beginning balance | $ / shares	$ 1.70
Weighted Average Grant Date Fair Value, Granted | $ / shares	1.65
Weighted Average Grant Date Fair Value, Vested | $ / shares	1.70
Weighted Average Grant Date Fair Value, Forfeited | $ / shares
Weighted Average Grant Date Fair Value, Non-vested ending balance | $ / shares	$ 1.63

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Stock Based Activity - Schedule of Stock Option Activity (Details) - Options [Member]	9 Months Ended
	Sep. 30, 2018 USD ($) $ / shares shares
Shares Outstanding, Beginning balance | shares	677,500
Shares, Granted | shares	3,285,954
Shares, Exercised | shares
Unvested forfeited or expired | shares	406,300
Shares,Vested forfeited or expired | shares	116,250
Shares Outstanding, Ending balance | shares	3,440,904
Shares Exercisable | shares	636,209
Weighted-Average Exercise Price, Outstanding, Beginning | $ / shares	$ 4.31
Weighted-Average Exercise Price, Granted | $ / shares	1.86
Weighted-Average Exercise Price, Exercised | $ / shares
Weighted-Average Exercise Price, Unvested forfeited or expired | $ / shares	2.65
Weighted-Average Exercise Price, Vested forfeited or expired | $ / shares	4.22
Weighted-Average Exercise Price, Outstanding, Ending | $ / shares	2.17
Weighted-Average Exercise Price, Exercisable | $ / shares	$ 3.01
Weighted-Average Remaining Contractual Terms (Years), Granted	0 years
Weighted-Average Remaining Contractual Terms (Years), Outstanding Ending	8 years 7 months 17 days
Weighted-Average Remaining Contractual Terms (Years), Exercisable	5 years 4 months 17 days
Aggregate Intrinsic Value, Share Outstanding, Ending | $	$ 4,172,877
Aggregate Intrinsic Value, Share Exercisable | $	$ 517,419

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Stock Based Activity - Summary of Assumption Used to Estimate the Fair Value of Share Options Granted (Details) - Stock Options [Member]	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Expected volatility	62.00%	0.00%
Expected dividends	0.00%	0.00%
Expected average term (in years)	6 years	0 years
Risk free rate - average		0.00%
Forfeiture rate	0.00%	0.00%
Minimum [Member]
Risk free rate - average	2.37%
Maximum [Member]
Risk free rate - average	2.77%

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Stock Based Activity - Schedule of Stock Warrants Activity (Details) - Warrants [Member] $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($) $ / shares shares
Shares Outstanding, Beginning Balance	7,325,282
Shares, Granted
Shares, Exercised	374,109
Shares, Forfeited or expired	0
Shares Outstanding, Ending Balance	6,951,173
Shares Exercisable, Ending Balance	6,951,173
Weighted-Average Exercise Price, Outstanding Beginning Balance | $ / shares	$ 2.09
Weighted-Average Exercise Price, Exercised | $ / shares
Weighted-Average Exercise Price, Outstanding Ending Balance | $ / shares	2.10
Weighted-Average Exercise Price, Exercisable Ending Balance | $ / shares	$ 2.10
Weighted-Average Remaining Contractual Terms (Years), Outstanding Beginning Balance	3 years 5 months 5 days
Weighted-Average Remaining Contractual Terms (Years), Outstanding Ending Balance	2 years 8 months 16 days
Weighted-Average Remaining Contractual Terms (Years), Exercisable Ending Balance	2 years 8 months 16 days
Aggregate Intrinsic Value Shares Outstanding Ending | $	$ 8,000
Aggregate Intrinsic Value Shares Exercisable | $	$ 8,000

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Subsequent Event - Financing Agreement (Details Narrative) - Subsequent Event [Member] $ / shares in Units, $ in Thousands	Oct. 04, 2018 USD ($) $ / shares shares
Bank payoff amount	$ 8,758
Annual debt service requirements reduced	1,500
Daniel J. Doherty [Member]
Letter of credit	$ 1,500
Rosenthal and Rosenthal, Inc. [Member]
Debt instrument, term	2 years 6 months
Line of credit, borrowing capacity	$ 13,000
Minimum monthly fees	$ 4
Line of credit, interest rate	4.75%
Rosenthal and Rosenthal, Inc. [Member] | Minimum [Member]
Line of credit, interest rate	2.00%
Rosenthal and Rosenthal, Inc. [Member] | Maximum [Member]
Line of credit, interest rate	3.50%
Raptor/Harbor Reeds SPV LLC [Member]
Additional advances of refinancing	$ 4,000
Warrant outstanding shares | shares	750,000
Raptor/Harbor Reeds SPV LLC [Member] | Minimum [Member]
Warrant exercise price | $ / shares	$ 1.10
Raptor/Harbor Reeds SPV LLC [Member] | Maximum [Member]
Warrant exercise price | $ / shares	$ 1.50