NOTES
TO CONDENSED FINANCIAL STATEMENTS
Three
and Nine Months Ended September 30, 2021 and 2020 (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, 2021, and the results of operations and cash flows for the three
and nine months ended September 30, 2021, and 2020. The balance sheet as of December 31, 2020, is derived from the Company’s audited
financial statements.
Certain
information and footnote disclosures normally included in financial statements that have been prepared in 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, 2020,
as filed with the Securities and Exchange Commission on March 30, 2021.
The
results of operations for the nine months ended September 30, 2021, are not necessarily indicative of the results of operations to be
expected for the full fiscal year ending December 31, 2021.
COVID-19
Considerations
During
the period ended September 30, 2021, the COVID-19 pandemic has impacted our operating results and the Company anticipates a continued
impact for the balance of the year. In addition, the pandemic may cause reduced demand for our products if, for example, the pandemic
results in a recessionary economic environment which negatively effects the consumers who purchase our products. Based on the recent
increase in demand for our products, we believe that over the long term, there will continue to be strong demand for our products.
Through
September 30, 2021, the Company has experienced higher transportation expenses as the capacity in the freight market has not kept up
with demand. The Company believes that costs will continue to increase throughout the year. In addition, the Company experienced increases
in the pricing of several of its raw materials and delays in procuring several of these items. However, mitigation plans are being implemented
to manage this risk. Additionally, the Company was negatively impacted by supply chain challenges impacting our ability to benefit
from strong demand for and increased sales of our product. The disruption caused by labor shortages, significant raw material cost inflation,
logistics issues and increased freight costs, and ongoing port congestion, resulted in suppressed margins and net income. The
Company anticipates a continued impact through mid-2022.
Our
ability to operate without significant incremental negative operational impact from the COVID-19 pandemic will in part depend on our
ability to protect our employees and our supply chain. The Company has endeavored to follow the recommended actions of government and
health authorities to protect our employees. Since the inception of the COVID-19 pandemic and through September 30, 2021, we maintained
the consistency of our operations during the onset of the COVID-19 pandemic. We will continue to innovate in managing our business, coordinating
with our employees and suppliers to do our part in the infection prevention and remain flexible in responding to our customers and suppliers.
However, the uncertainty resulting from the pandemic could result in an unforeseen disruption to our workforce and supply chain (for
example an inability of a key supplier or transportation supplier to source and transport materials) that could negatively impact our
operations.
Net
sales for the nine-month period ended September 30, 2021, were up 19% from the prior year period. Through September 30, 2021, we continue
to generate cash flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets. We have also
not observed any material impairments of our assets or a significant change in the fair value of our assets due to the COVID-19 pandemic.
Liquidity
The
accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption
contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
For
the nine months ended September 30, 2021, the Company recorded a net loss of $11,536 and used cash in operations of $15,305. As of September
30, 2021, we had a cash balance of $941 with borrowing capacity of $1,293, a stockholder’s equity of $8,177 and a working capital
of $7,102, compared to a cash balance of $595 with borrowing capacity of $5,166, stockholders’ equity of $10,404 and a working
capital of $9,528 at December 31, 2020. Notwithstanding the net loss for the nine months ended September 30, 2021, management projects
adequate cash from operations and available line of credit to ensure continuation of the Company as a going concern for at least one
year from the date these financial statements are issued.
Historically,
we have financed our operations through public and private sales of common stock, issuance of preferred and common stock, convertible
debt instruments, term loans and credit lines from financial institutions, and cash generated from operations. We have taken decisive
action to improve our margins, including fully outsourcing our manufacturing process, streamlining our product portfolio, negotiating
improved vendor contracts, and restructuring our selling prices.
2.
Significant Accounting Policies
Use
of 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 compensation expense.
Revenue
Recognition
The
Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers
(“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 does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain
no incentives or discounts that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed
before the customer obtains control of the goods and therefore represent a fulfilment activity rather than a promised service to the
customer. Revenue and costs of sales are recognized when control of the products transfers to our customer, which generally occurs upon
shipment from our facilities. The Company’s performance obligations are satisfied at that time.
All
of the Company’s products are offered for sale as finished goods only, and there are no performance obligations required post-shipment
for customers to derive the expected value from them.
The
Company does not allow for returns, except for damaged products when the damage occurred pre-fulfilment. Damaged product returns have
historically been insignificant. Because of this, the stand-alone nature of our products, and our assessment of performance obligations
and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations.
We assess our contracts and the reasonableness of our conclusions on a quarterly basis.
Loss
per Common Share
Basic
earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number
of shares of common stock outstanding during the period. 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, 2021, and 2020, the calculations of basic and diluted loss per share are the same because potential dilutive
securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following:
Schedule of Potentially Dilutive Securities
|
|
|
September
30,
2021
|
|
|
September
30,
2020
|
|
|
Unvested
restricted common stock
|
|
|
172,639
|
|
|
|
244,740
|
|
|
Options
|
|
|
11,260,876
|
|
|
|
4,716,357
|
|
|
Warrants
|
|
|
3,098,479
|
|
|
|
6,413,782
|
|
|
Common
stock equivalent of Series A Convertible Preferred stock
|
|
|
37,644
|
|
|
|
37,644
|
|
|
Convertible
note to a related party
|
|
|
-
|
|
|
|
2,266,667
|
|
|
Common
stock issuable
|
|
|
-
|
|
|
|
350,000
|
|
|
Total
|
|
|
14,569,638
|
|
|
|
14,029,190
|
|
The
Series A Convertible Preferred Stock is convertible into Common shares at the rate of 1:4.
Stock
Compensation Expense
The
Company periodically issues stock options and restricted stock awards to employees and non-employees in non-capital raising transactions
for services and for financing costs. The Company accounts for such grants issued and vesting based on ASC 718, Compensation-Stock
Compensation whereby the value of the award is measured on the date of grant and recognized for employees as compensation expense
on the straight-line basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner
as if the Company had paid cash for the services. The Company recognizes the fair value of stock-based compensation within its Statements
of Operations with classification depending on the nature of the services rendered.
The
fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing model, which uses certain
assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock, and future
dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model and based
on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense
recorded in future periods.
Advertising
Costs
Advertising
costs are expensed as incurred and are included in selling and marketing expense. Advertising costs for the three months ended September
30, 2021, and 2020, aggregated $347 and $536, respectively. Advertising costs for the nine months ended September 30, 2021, and 2020,
aggregated $1,050 and $1,141, respectively.
Concentrations
Sales.
During the three months ended September 30, 2021, one customer accounted for 24% of gross billing, and during the nine months ended
September 30, 2021, two customers accounted for 21% and 11% of gross billing, respectively. During the three months ended September 30,
2020, two customers accounted for 24% and 12% of gross sales, respectively, and during the nine months ended September 30, 2020, two
customers accounted for 25% and 13% of gross sales, respectively. No other customers exceeded 10% of sales in either period.
Accounts
receivable. As of September 30, 2021, the Company had accounts receivable from one customer which comprised 27% of its gross accounts
receivable. As of December 31, 2020, the Company had accounts receivable from one customer which comprised 23% of its gross accounts
receivable. No other customers exceeded 10% of gross accounts receivable in either period.
Purchases
from vendors. During the three months ended September 30, 2021, two vendors accounted for 13% and 12% of all purchases, respectively.
During the nine months ended September 30, 2021, two vendors accounted for 12% and 12% of all purchases, respectively. During the three
months ended September 30, 2020, two vendors accounted for 13% and 11% of all purchases. During the nine months ended September 30, 2020,
two vendors accounted for 11% and 11% of all purchases. No other vendors exceeded 10% of all purchases in either period.
Accounts
payable. As of September 30, 2021, the Company’s three largest vendors accounted for 13%, 10% and 10% of the total accounts
payable, respectively. As of December 31, 2020, the Company’s largest two vendors accounted for 12% and 10% of the total accounts
payable, respectively. No other vendors exceeded 10% of gross accounts payable in either period.
Fair
Value of Financial Instruments
The
Company uses various inputs in determining the fair value of its financial assets and liabilities and measures these assets on a recurring
basis. Financial assets recorded at fair value are categorized by the level of subjectivity associated with the inputs used to measure
their fair value. ASC 820 defines the following levels of subjectivity associated with the inputs:
Level
1—Quoted prices in active markets for identical assets or liabilities.
Level
2—Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
Level
3—Unobservable inputs based on the Company’s assumptions.
The
carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, short-term bank loans,
accounts payable, notes payable and other payables, approximate their fair values because of the short maturity of these instruments.
The carrying values of capital lease obligations and long-term financing obligations approximate their fair values because interest rates
on these obligations are based on prevailing market interest rates.
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to
use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types
of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13
is effective for the Company beginning January 1, 2023, and early adoption is permitted. The Company does not believe the potential impact
of the new guidance and related codification improvements will be material to its financial position, results of operations and cash
flows.
In
August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06 reduces the number
of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. The diluted
net income per share calculation for convertible instruments will require the Company to use the if-converted method. For contracts in
an entity’s own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are
accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception.
This update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled
in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is
effective January 1, 2024, for the Company and the provisions of this update can be adopted using either the modified retrospective method
or a fully retrospective method. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that
year. Effective January 1, 2021, the Company early adopted ASU 2020-06 and that adoption did not have an impact on our financial statements
and related disclosures.
Other
recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s
present or future financial statements.
3.
Inventory
Inventory
is valued at the lower of cost (first-in, first-out) or net realizable value, and net of reserves is comprised of the following (in thousands):
Schedule of Inventory
|
|
|
September
30,
2021
|
|
|
December
31,
2020
|
|
|
Raw
materials and packaging
|
|
$
|
10,068
|
|
|
$
|
6,793
|
|
|
Finished
products
|
|
|
5,446
|
|
|
|
4,326
|
|
|
Total
|
|
$
|
15,514
|
|
|
$
|
11,119
|
|
The
Company has recorded a reserve for slow moving and potentially obsolete inventory. The reserve at September 30, 2021, and December 31,
2020, was $130 and $194, respectively.
4.
Property and Equipment
Property
and equipment is comprised of the following (in thousands):
Schedule of Property and Equipment
|
|
|
September
30,
2021
|
|
|
December
31,
2020
|
|
|
Right-of-use
assets under operating leases
|
|
$
|
724
|
|
|
$
|
724
|
|
|
Right-of-use
assets under finance leases
|
|
|
-
|
|
|
|
54
|
|
|
Computer
hardware and software
|
|
|
400
|
|
|
|
400
|
|
|
Machinery
and equipment
|
|
|
198
|
|
|
|
103
|
|
|
Total
cost
|
|
|
1,322
|
|
|
|
1,281
|
|
|
Accumulated
depreciation and amortization
|
|
|
(498
|
)
|
|
|
(361
|
)
|
|
Net
book value
|
|
$
|
824
|
|
|
$
|
920
|
|
Depreciation
expense for the nine months ended September 30, 2021, and 2020 was $106 and $56, respectively, and amortization of right-of-use assets
for the nine months ended September 30, 2021, and 2020 was $74 and $89, respectively. During the nine months ended September 30, 2021,
the Company disposed of right-of-use assets under finance leases with a cost of $48 and accumulated amortization of $38 and terminated
$13 of related finance leases payable (see Note 8).
Equipment
held for sale consists of the following (in thousands):
Schedule of Equipment Held for Sale
|
|
|
September
30,
2021
|
|
|
December
31,
2020
|
|
|
Equipment
held for sale
|
|
$
|
163
|
|
|
$
|
163
|
|
|
Reserve
|
|
|
(96
|
)
|
|
|
(96
|
)
|
|
Net
book value
|
|
$
|
67
|
|
|
$
|
67
|
|
The
balance as of September 30, 2021, and December 31, 2020, consists of residual manufacturing equipment, at estimated net realizable value,
which management anticipates selling during 2021.
5.
Intangible Assets
Intangible
assets are comprised of brand names acquired, specifically Virgil’s, and costs related to trademarks. They have been assigned an
indefinite life, as we currently anticipate that they will contribute cash flows to the Company perpetually. These indefinite-lived intangible
assets are not amortized but are assessed for impairment annually and evaluated annually to determine whether the indefinite useful life
remains appropriate. We first assess qualitative factors to determine whether it is more likely than not that the asset is impaired.
If further testing is necessary, we compare the estimated fair value of our asset with its book value. If the carrying amount of the
asset exceeds its fair value, as determined by the discounted cash flows expected to be generated by the asset, an impairment loss is
recognized in an amount equal to that excess. Based on management’s assessment, there were no indications of impairment at September
30, 2021.
During
the nine months ended September 30, 2021, the Company capitalized costs of $6 pertaining to legal and other fees incurred in applying
for international trademarks for Reeds and Virgil’s brands.
Intangible
assets consist of the following (in thousands):
Summary of Intangible Assets
|
|
|
September
30,
2021
|
|
|
December
31,
2020
|
|
|
Brand
names
|
|
$
|
576
|
|
|
$
|
576
|
|
|
Trademarks
|
|
|
45
|
|
|
|
39
|
|
|
Total
|
|
$
|
621
|
|
|
$
|
615
|
|
6.
Line of Credit
Amounts
outstanding under the Company’s credit facilities are as follows (in thousands):
Schedule of Amount Outstanding Under Credit Facilities
|
|
|
September
30,
2021
|
|
|
December
31,
2020
|
|
|
Line
of credit
|
|
$
|
8,255
|
|
|
$
|
-
|
|
On
October 4, 2018, the Company entered into a financing agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”). The financing
agreement provides a maximum borrowing capacity of $13,000. Borrowings are based on a formula of eligible accounts receivable and inventories
(the “permitted borrowings”) plus advances (an “over-advance” of up to $4,000) in excess of permitted borrowings.
At September 30, 2021, the unused borrowing capacity under the financing agreement was $1,293. The line of credit automatically renews
each year until terminated. The line of credit matured on March 30, 2021, and was automatically renewed to mature on March 30, 2022.
Borrowings
under the Rosenthal financing agreement bear interest at the greater of prime or 4.75%, plus an additional 2.0% to 3.5% depending on
whether the borrowing is based upon receivables, inventory or is an over-advance. Additionally, the line of credit is subject to monthly
facility and administration fees, and aggregate minimum monthly fees (including interest) of $4.
The
line of credit is secured by substantially all of the assets, excluding intellectual property, of the Company. The over-advance is secured
by all of Reed’s intellectual property collateral. Additionally, any over-advance was guaranteed by an irrevocable stand-by letter
of credit in the amount of $1,500, issued by Daniel J. Doherty III and the Daniel J. Doherty, III 2002 Family Trust, affiliates of Raptor/Harbor
Reeds SPV LLC (“Raptor”). On March 11, 2021, the Company entered into an amendment to the financing agreement, releasing
that irrevocable standby letter of credit of $1,500 by Raptor with a $2,000 pledge of securities to Rosenthal by John J. Bello and Nancy
E. Bello, as Co-Trustees of The John and Nancy Bello Revocable Living Trust.
John
J. Bello, current Chairman and former Interim Chief Executive Officer of Reed’s, is a related party. He is also a greater than
5% beneficial owner of Reed’s common stock. As consideration for the collateral support, Mr. Bello received 400,000 shares of Reed’s
restricted stock. The Company determined the fair value of the 400,000 restricted stock to be $472 which was recorded as a prepaid financing
costs and included in prepaid expenses and other current assets on the condensed balance sheet at September 30, 2021. The prepaid financing
fee is to be amortized over a twelve-month period. During the nine months ended September 30, 2021, the company amortized $272 of the
prepaid financing costs to interest expense.
The
financing agreement with Rosenthal includes customary restrictions that limit our ability to engage in certain types of transactions,
including our ability to utilize tangible and intangible assets as collateral for other indebtedness. Additionally, the agreement contains
a financial covenant that requires us to meet certain minimum working capital and tangible net worth thresholds as of the end of each
quarter. We were in compliance with the terms of our agreement with Rosenthal as of September 30, 2021.
The
Company annually incurs an additional $130 of fees from the bank, which is equal to 1% of the $13,000 borrowing limit. These costs have
been capitalized and recorded as a debt discount and are amortized over the remaining life of the Rosenthal agreement. On December 31,
2020, the remaining unamortized debt discount of $162 is included in prepaid expense and other current assets on the balance sheet. Amortization
of debt discount was $162 and $290 for the nine months ended September 30, 2021, and 2020, respectively. On September 30, 2021, no remaining
unamortized debt discount remained.
7.
Note Payable
On
April 20, 2020, the Company was granted a loan (the “PPP loan”) from City National Bank in the aggregate amount of $770,
pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act. At December 31, 2020, the note payable balance
was $770, of which $599 was reflected as the current portion of note payable. During the nine months ended September 30, 2021, the Company
was notified that its PPP loan forgiveness application was approved. The Company recorded the loan forgiveness as a gain on forgiveness
of debt of $770, which is included in other income, leaving no remaining balance owed at September 30, 2021.
8.
Leases Liabilities
The
Company accounts for leases under ASC 842, Leases. The standard requires a lessee to record a right-of-use asset and a corresponding
lease liability at the inception of the lease, initially measured at the present value of the lease payments.
ASC
842 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated
over the lease term, generally on a straight-line basis. During the nine months ended September 30, 2021, the Company reflected amortization
of right of use asset of $74 related to these leases, resulting in a net asset balance of $448 as of September 30, 2021.
In
accordance with ASC 842, the right-of-use assets are being amortized over the life of the underlying leases.
As
of December 31, 2020, lease liabilities totaled $685, made up of finance lease liabilities of $16 and operating lease liabilities of
$669. During the nine months ended September 30, 2021, the Company terminated $13 of finance leases, and made payments of $2 towards
its finance lease liability and $78 towards its operating lease liability. As of September 30, 2021, operating lease liabilities totaled
$592.
As
of September 30, 2021, the weighted average remaining lease terms for operating leases are 3.25 years. The weighted average discount
rate for operating leases is 12.6%.
9.
Common Stock
Common
stock issuance
On
May 5, 2021, the Company entered into a placement agency agreement with Roth Capital Partners, LLC (the “Placement Agent”)
and a securities purchase agreement with a certain purchaser for the purchase of shares of the Company’s common stock, par value
$0.0001 per share, in an offering of securities registered under an effective registration statement filed with the Securities and Exchange
Commission (“SEC”). In the offering, the Company sold 6,680,000 shares of common stock, at a price of $1.18 per share. The
offering closed on May 7, 2021, and total proceeds received, net of fees, were $7,327. The Placement Agent was paid a total cash fee
at the closing of the Offering equal to 6.5% of the gross cash proceeds received by the Company from the sale of the shares of common
stock in the offering.
Common
stock repurchases
During
the nine months ended September 30, 2021, the Company repurchased 13,493 shares of common stock from an officer for $15 based on the
market value of share on the date repurchased. The Company retired the shares.
10.
Stock-Based Compensation
Restricted
common stock
The
following table summarizes restricted stock activity during the nine months ended September 30, 2021:
Summary of Non-vested Restricted Stock Activity
|
|
|
Unvested
Shares
|
|
|
Issuable
Shares
|
|
|
Fair
Value
at Date of
Issuance
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Balance,
December 31, 2020
|
|
|
150,000
|
|
|
|
-
|
|
|
$
|
92
|
|
|
|
0.89
|
|
|
Granted
|
|
|
245,900
|
|
|
|
-
|
|
|
|
226
|
|
|
|
0.92
|
|
|
Vested
|
|
|
(221,252
|
)
|
|
|
221,252
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
(2,009
|
)
|
|
|
|
|
|
|
|
|
|
|
0.89
|
|
|
Issued
|
|
|
-
|
|
|
|
(221,252
|
)
|
|
|
(236
|
)
|
|
|
-
|
|
|
Balance,
September 30, 2021
|
|
|
172,639
|
|
|
|
-
|
|
|
$
|
82
|
|
|
$
|
0.89
|
|
On
January 26, 2021, the board of directors of Reed’s, pursuant to a joint recommendation from its governance and compensation committees,
set the cash compensation of its non-employee directors at $50,000 for fiscal 2021, payable quarterly in accordance with the company’s
policies for non-employee director compensation. In addition, the Company granted 245,900 restricted stock awards to five non-employee
directors. 61,475 of these restricted stock awards vested on February 1, 2021, May 1, 2021, August 1, 2021. The remaining 61,475 restricted
stock awards will vest equally on November 1, 2021. The aggregate fair value of the stock awards was $226 based on the market price of
our common stock price which was $0.92 per share on the date of grants and is amortized as shares vest.
The
total fair value of vested restricted common stock vesting during the nine months ended September 30, 2021, and 2020 was $226 and $285,
respectively, and is included in general and administrative expenses in the accompanying statements of operations. As of September 30,
2021, the amount of unvested compensation related to issuances of restricted common stock was $82, which will be recognized as an expense
in future periods as the shares vest. When calculating basic loss per share, these shares are included in weighted average common shares
outstanding from the time they vest. When calculating diluted net income per share, these shares are included in weighted average common
shares outstanding as of their grant date.
Stock
options
The
following table summarizes stock option activity during the nine months ended September 30, 2021: