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REED:SecuritiesPurchaseAgreementMember
REED:RaptorMember
2017-04-21
0001140215
REED:SecuritiesPurchaseAgreementMember
REED:RaptorMember
2017-04-20
2017-04-21
iso4217:USD
xbrli:shares
iso4217:USD
xbrli:shares
xbrli:pure
REED:Segment
2018-12-31
false
Non-accelerated Filer
714000
1250000
222000
--12-31
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Property and equipment is comprised of the
following (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%"><font style="font-size: 10pt">Right-of-use assets under operating leases</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">934</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">569</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Computer hardware and software</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">304</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">404</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Total cost</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1,238</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">973</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Accumulated depreciation</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(342</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(799</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Net book value</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">896</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">174</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
REED
REED'S, INC.
10-K
2000
-3275000
0.0000
0.00
0.00
P6Y
P2Y
4666666
1416667
7325282
6897277
1416667
210111
512560
87745
750000
1906925
138762
138762
803909
200000
200000
125000
125000
10000
10000
50000
50000
72703
72703
66059
66059
784549
784549
87745
87745
512560
512560
4238661
4666666
750000
750000
766667
350000
60000
750000
1416667
1472000
3000000
2.35
2.10
0.0277
0.0237
0.0147
0.0165
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Stock option activity consists of the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Weighted-Average Exercise Price</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Weighted-Average Remaining Contractual Terms (Years)</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Aggregate Intrinsic Value</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 40%"><font style="font-size: 9pt">Outstanding at December 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 9pt">1,048,500</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 9pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 9pt">4.68</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"> </td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">60,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">2.20</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Exercised</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 9pt">Forfeited or expired</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">(431,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 9pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 9pt">4.88</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Outstanding at December 31, 2017</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">677,500</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">4.35</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">4.14</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">3,596,954</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">1.88</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Exercised</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Unvested Forfeited or expired</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">(406,300</font></td>
<td><font style="font-size: 9pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">2.65</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 9pt">Vested Forfeited or expired</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">(123,750</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 9pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">4.26</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.5pt"><font style="font-size: 9pt">Outstanding at December 31, 2018</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">3,744,404</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">2.16</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">8.53</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">1,026</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 9pt">Exercisable at December 31, 2018</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">678,059</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">3.03</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">5.20</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">116</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
0.0001
0.0001
40000000
70000000
24619591
25729461
0.62
0.52
0.5375
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Equipment held for sale consists of the following
(in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%"><font style="font-size: 10pt">Equipment held for sale</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">200</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">8,474</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Reserve</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(118</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(5,925</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Net book value</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">82</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">2,549</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
24619591
25729461
7733750
0001140215
6000000
3301000
7657000
0.1200
0.12
0.12
1.50
0.12
10248000
7657000
1.88
2.20
1.70
2.20
4000
3301000
10248000
6980000
6980000
-0.41
-1.24
25357566
14775828
400000
3690000
3690000
4161000
4161000
2666667
1333333
750000
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The potentially dilutive securities
consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2018</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2017</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Convertible note to a related party</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 20%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">2,266,667</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 20%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">2,266,667</font></td>
<td style="width: 1%; line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">6,897,277</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,325,282</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Common stock equivalent of Series A Convertible Preferred Stock</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">37,644</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">37,644</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Unvested restricted common stock</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">598,370</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Options</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,744,404</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">677,500</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Total</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">13,544,362</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">10,307,093</font></td>
<td style="line-height: 107%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Intangible assets consist of trademarks for
the Company’s brand names (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%"><font style="font-size: 10pt">Virgil’s</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">576</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">576</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Sonoma Sparkler</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">229</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Brand names</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">576</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">805</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
FY
-10325000
-10325000
-18373000
-18373000
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>(1)</b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>Operations and Liquidity</b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>A)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Nature of Operations</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Reed’s Inc. (the “Company”)
is the owner and maker of both Reed Craft Ginger Beer and Virgil’s Handcrafted Sodas. <font style="background-color: white">Established
in 1989, Reed’s is America’s best-selling Ginger Beer brand and has been the leader and innovator in the ginger beer
category for decades. Virgil’s is America’s best-selling independent, full line of natural craft sodas. The Reed’s
Inc. portfolio is sold in over 30,000 retail doors nationwide. Reed’s Ginger Beers are unique due to the proprietary process
of using fresh ginger root combined with a Jamaican inspired recipe of natural spices and fruit juices. The Company uses this same
handcrafted approach in its award-winning Virgil’s line of great tasting, bold flavored craft sodas.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In 2017, the Company performed a complete
operational review and developed a detailed action plan to capture performance improvements, drive core brand growth, and become
a premier “asset-light” sales and marketing organization. On December 31, 2018, this culminated in the sale of the
Company’s Los Angeles manufacturing facility (see Note 3), marking a fundamental shift in the nature of the Company’s
operations and the completion of all major initiatives under the action plan.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>B</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Cash and Liquidity </i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">For the year ended December 31, 2018,
the Company recorded a net loss of $10,325 and used cash in operations of $9,258. As of December 31, 2018, we had a cash balance
of $624, a stockholder’s deficit of $6,743 and a working capital shortfall of $3,297, compared to a cash balance of $12,127,
stockholder’s equity of $508 and working capital of $2,303 at December 31, 2017.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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. During 2017, 2018 and subsequently, the Company has
taken a number of steps to improve its cash and liquidity position.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In September of 2018, the Company completed
the relocation of its headquarters to Norwalk, Connecticut. The Company’s move is consistent with its 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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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
7. The Company’s annual debt service requirements, on an annualized basis, were 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. As of December 31, 2018, the Company has $1,201 of unused borrowing capacity under the
financing agreement.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 31, 2018, we completed the
sale of substantially all of the assets of our Los Angeles manufacturing facility (the “Plant Sale”). See Note 3. We
received $1,250 in cash, and the buyer assumed our lease obligation on the California property, relieving us of annual lease payments
of approximately $420. The Plant Sale also effectively eliminates our costs associated with excess manufacturing capacity. With
the sale of our plant, all of the Company’s production is subcontracted to co-packers, which assemble our products and charge
us a fee, generally by the case, for the products they produce. Management believes that we begin 2019 solidly positioned as an
asset light Company, able to focus all of our attention and resources on driving accelerated growth and building our brands, with
capital flexibility, a reduced need for capital expenditures, and an optimized operating model.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 15, 2019, the Company entered
into an agreement for an underwritten public offering of 7,733,750 shares of its common stock, at $2.10 per share, including an
overallotment option for 1,008,750 shares that was exercised in full. Proceeds of the offering, net of the underwriting discount
and other transaction costs, aggregated $14,905. The proceeds will be used to fund our sales and marketing efforts, to develop
and launch new products, and for general working capital purposes.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>(2)</b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>Significant Accounting Policies</b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>A)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Use of Estimates</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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 assets and intangibles, realization of deferred tax assets,
accruals for potential liabilities and assumptions made in valuing stock instruments issued for services.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>B)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Accounts Receivable</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company evaluates the collectability
of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s
inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces
the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer
identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall
assessment of past due trade accounts receivable outstanding.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The allowance for doubtful accounts
and returns and discounts is established through a provision reducing the carrying value of receivables. At December 31, 2018 and
2017, the allowance for doubtful accounts and returns and discounts was $623 and $601, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>C)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Inventory</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventory is stated at the lower of
cost or the current estimated market value of the inventory. We regularly review our inventory quantities on hand and record a
provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and our ability to sell
the product(s) concerned. Demand for our products can fluctuate significantly. Factors that could affect demand for our products
include unanticipated changes in consumer preferences, general market conditions or other factors, which may result in cancellations
of advance orders or a reduction in the rate of reorders placed by customers. Additionally, our management’s estimates of
future product demand may be inaccurate, which could result in an understated or overstated provision required for excess and obsolete
inventory. At December 31, 2018 and 2017, the reserve for inventory obsolescence aggregated $197 and $509, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">  </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>D)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Property and Equipment and Related Depreciation</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Property and equipment is stated at
cost. Expenditures for major renewals and improvements that extend the useful lives of property and equipment or increase production
capacity are capitalized, and expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is calculated
using accelerated and straight-line methods over the estimated useful lives of the assets as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 50%; line-height: 107%; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Property and Equipment Type</u></font></td>
<td style="width: 1%; text-align: justify; line-height: 107%"> </td>
<td style="width: 49%; line-height: 107%; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Years of Depreciation </u></font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Building</font></td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">39 years</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Machinery and equipment</font></td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5-12 years</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Vehicles</font></td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5 years</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Office equipment</font></td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5-7 years</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Management assesses the carrying value
of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the
asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized
to write down the asset to its estimated fair value.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In anticipation of the sale of our Los
Angeles facility (see Note 3), we reclassified all the assets of the facility to Equipment Held for Sale. 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 estimated amount we believed to be recoverable.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>E)</i></b></font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Intangible Assets and Impairment Policy</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Intangible assets are comprised of indefinite-lived
brand names acquired, so classified because we anticipate that these brand names will contribute cash flows to the Company perpetually.
Indefinite-lived intangible assets are not amortized but are assessed for impairment annually and evaluated annually to determine
whether the indefinite useful life is appropriate. As part of our impairment test, we first assess qualitative factors to determine
whether it is more likely than not the asset is impaired. If further testing is necessary, we compare the estimated fair value
of our asset with its book value. If the carrying amount of the asset exceeds its fair value, as determined by its discounted cash
flows, an impairment loss is recognized in an amount equal to that excess.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During our December 31, 2018 impairment
testing, we determined that our Sonoma Sparkler trademark is unlikely to provide future benefit to the Company, because we do not
currently offer Sonoma Sparkler products and we do not anticipate doing so in the foreseeable future. Accordingly, we reduced the
book value of this asset to zero as of December 31, 2018, by recording an impairment charge of $229. No impairments were noted
during the year ended December 31, 2017.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>F)</i></b></font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Concentrations</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company’s cash balances on
deposit with banks are guaranteed by the Federal Deposit Insurance Corporation up to $250. Generally, the Company’s policy
is to minimize borrowing costs by immediately applying cash receipts to borrowings against its credit facility. From time to time,
however, the Company may be exposed to risk for the amounts of funds held in bank accounts in excess of the insurance limit. To
minimize the risk, the Company’s policy is to maintain cash balances with high quality financial institutions.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the year ended December 31, 2018,
the Company had two customers that accounted for approximately 24% and 17% of its sales, respectively; and during the year ended
December 31, 2017, the Company had two customers that accounted for 23% and 16% of its sales, respectively. No other customer accounted
for more than 10% of sales in either year.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">As of December 31, 2018, the Company
had accounts receivable from two customers that comprised 36% and 19% of total accounts receivable, respectively. As of December
31, 2017, the Company had accounts receivable from two customers that comprised 25% and 14% of its total accounts receivable, respectively.
No other customer accounted for more than 10% of accounts receivable in either year.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the years ended December 31,
2018 and 2017, respectively, the Company utilized three separate co-packers for most its production and bottling of beverage products
in the eastern United States. With the December 31, 2018 Plant Sale, the Company no longer conducts a manufacturing operation,
accordingly it utilizes co-packers to produce 100% of its products as of that date. The Company has long-standing relationships
with two different co-packers, and in conjunction with the Plant Sale we entered into a third co-packing agreement with California
Custom Beverage LLC (“CCB”), the purchaser of the plant (see Note 3). CCB is 100% owned by Chris Reed, founder of the
Company and current Chief Information Officer and director. Although there are other packers, a change in co-packers may cause
a delay in the production process, which could ultimately affect operating results.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the years ended December 31,
2018, the Company’s two largest vendors accounted for 16% and 13% of its purchases, respectively. During the year ended December
31, 2017, the Company made 20%, of its purchases from a single vendor. At December 31, 2018 and 2017, accounts payable to the Company’s
largest vendor comprised 24% and 20% of our total accounts payable, respectively. No other account was more than 10% of our accounts
payable in either year.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>G)</i></b></font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Fair Value of Financial Instruments</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company uses various inputs in determining
the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the
balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. Accounting
Standards Codification Section 820 defines the following levels directly related to the amount of subjectivity associated with
the inputs:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Level 1—Quoted prices in active
markets for identical assets or liabilities.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Level 2—Inputs, other than the
quoted prices in active markets, that are observable either directly or indirectly.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Level 3—Unobservable inputs based
on the Company’s assumptions.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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 lease
obligations and long-term financing obligations approximate their fair values since the interest rates on these obligations are
based on prevailing market interest rates.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">As of December 31, 2018, and December
31, 2017, the Company’s balance sheets included warrant liabilities aggregating $38 and $36 respectively, measured at fair
value based on Level 2 inputs.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>H)</i></b></font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Segments</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company operates in one segment
for the manufacture and distribution of our products. In accordance with the “Segment Reporting” Topic of the ASC,
the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews
operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance,
which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly
and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity
holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting”
due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement,
manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment
Reporting” can be found in the accompanying financial statements</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>I)</i></b></font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Cost of Goods Sold</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Cost of goods sold is comprised of the
costs of raw materials and packaging utilized in the manufacture of products, co-packing fees, repacking fees, in-bound freight
charges, as well as certain internal transfer costs. Additionally, cost of goods sold includes direct production costs in excess
of charges allocated to finished goods in production. Plant costs include labor costs, production supplies, repairs and maintenance,
direct inventory write-off charges and adjustments to the inventory reserve. Charges for labor and overhead allocated to finished
goods are determined on a market cost basis, which may be lower than the actual costs incurred. Plant costs in excess of production
allocations are expensed in the period incurred rather than added to the cost of finished goods produced. Expenses not related
to the production of our products are classified as operating expenses.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company terminated its manufacturing
operation effective with the December 31, 2018 Plant Sale. See Note 3.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>J)</i></b></font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Delivery and Handling Expense</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Shipping and handling costs are comprised
of purchasing and receiving, inspection, warehousing, transfer freight, and other costs associated with product distribution after
manufacture and are included as part of operating expenses.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>K)</i></b></font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Income Taxes</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company uses an asset and liability
approach for accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based upon
the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided
for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more
likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility
is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax
expense.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>L)</i></b></font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Revenue Recognition</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for certain sales
incentives to customers, including slotting fees, as a reduction of gross sales. These sales incentives for the years ended December
31, 2018 and 2017 were approximately $3,872 and $4,004, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>M)</i></b></font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Net Loss Per Share</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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 (loss) 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 if their effect is antidilutive.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">For the years ended December 31, 2018
and 2017, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an
anti-dilutive effect. The potentially dilutive securities consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2018</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2017</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Convertible note to a related party</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 20%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">2,266,667</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 20%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">2,266,667</font></td>
<td style="width: 1%; line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">6,897,277</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,325,282</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Common stock equivalent of Series A Convertible Preferred Stock</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">37,644</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">37,644</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Unvested restricted common stock</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">598,370</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Options</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,744,404</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">677,500</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Total</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">13,544,362</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">10,307,093</font></td>
<td style="line-height: 107%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>N)</i></b></font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Advertising Costs</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Advertising costs are expensed as incurred
and are included in selling and marketing expense. Advertising costs aggregated $300 and $285 for the years ended December 31,
2018 and 2017, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>O)</i></b></font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Stock Compensation Expense</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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 to employees based on ASC 718, whereby the value of the award is
measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. Such grants
issued and vesting to non-employees are valued on the measurement date as determined at either a) the date at which a performance
commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Awards
granted to non-employees are revalued each reporting period to determine the amount to be recorded as an expense in the respective
period. As the awards vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value
already recorded and the then current value on the date of vesting. In certain circumstances where there are no future performance
requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded
in the period of the measurement date.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The fair value of the Company’s
stock option and restricted stock grants 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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>P)</i></b></font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Warrant Liabilities</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Various stock sales made by the Company
to finance operations have been accompanied by the issuance of warrants. Some of these warrant agreements contain fundamental transaction
provisions which may give rise to an obligation of the Company to pay cash to the warrant holders. For accounting purposes, in
accordance with <i>ASC 480, Distinguishing Liabilities from Equity</i>, those warrants with fundamental transaction terms are accounted
for as liabilities given the terms may give rise to an obligation of the Company to the warrant holders. These liabilities are
measured at fair value at each reporting period and the change in the fair value is recognized in earnings in the accompanying
Statements of Operations.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Fair value is estimated using the Black-Scholes-Merton
Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of
the stock options or restricted stock, and future dividends. Expense is recorded based upon the value derived from the Black-Scholes-Merton
Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could
materially affect the amount of expense recorded in future periods.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i> </i></b></p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Q)</i></b></font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Leases</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i> </i></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In February 2016, the FASB issued ASU
No. 2016-02, Leases. 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 twelve 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 leases existing at, or entered into after, the beginning of the earliest period presented in the financial statements.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company adopted ASU 2016-02 effective
October 1, 2018. As a result, we recorded right-of-use assets aggregating $862, and lease liabilities of the same amount, as of
that date. In accordance with ASU 2016-02, the right-of-use assets are being depreciated over the life of the underlying leases,
and monthly lease payments are being recorded as reductions to the lease liability and imputed interest expense. See Note 9 for
additional information.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>R)</i></b></font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Recent Accounting Pronouncements </i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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. A company will recognize the value of a down round feature only when it is triggered,
and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat
the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing
basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities
will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. 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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Other recent accounting pronouncements
issued by the FASB, including 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.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>(4)</b></font></td>
<td style="font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>Inventory</b></font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventory is valued at the lower of cost (first-in,
first-out) or market, and is comprised of the following (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%"><font style="font-size: 10pt">Raw Materials and Packaging</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">3,053</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">2,670</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Finished Goods</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">4,327</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">3,261</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Total</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">7,380</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">5,931</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has recorded an obsolescence reserve
for potentially slow moving and obsolete inventory. The reserve at December 31, 2018 and 2017, totaled $197 and $509, respectively.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>(5)</b></font></td>
<td style="font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>Property and Equipment</b></font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Property and equipment is comprised of the
following (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%"><font style="font-size: 10pt">Right-of-use assets under operating leases</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">934</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">569</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Computer hardware and software</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">304</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">404</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Total cost</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1,238</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">973</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Accumulated depreciation</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(342</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(799</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Net book value</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">896</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">174</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Depreciation expense for the years ended December
31, 2018 and 2017 totaled $86 and $551, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 31, 2018, the Company completed
the sale of its Los Angeles manufacturing facility. See Note 3. The sale included substantially all machinery, equipment, furniture
and fixtures of the facility. In anticipation of the sale, we reclassified all the assets of the facility to Equipment Held for
Sale. During the year ended December 31, 2017, we recorded impairment charges aggregating $5,925 to reduce the carrying amount
of these assets to the amount we estimated to be recoverable.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Equipment held for sale consists of the following
(in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%"><font style="font-size: 10pt">Equipment held for sale</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">200</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">8,474</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Reserve</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(118</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(5,925</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Net book value</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">82</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">2,549</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The balance as of December 31, 2018 consists
of residual manufacturing equipment, at estimated net realizable value, which management anticipates selling during 2019.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>(6)</b></font></td>
<td style="font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>Intangible Assets</b></font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Intangible assets consist of trademarks for
the Company’s brand names (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%"><font style="font-size: 10pt">Virgil’s</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">576</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">576</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Sonoma Sparkler</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">229</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Brand names</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">576</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">805</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Our brand names are deemed to have indefinite
lives and are not amortized, but are tested for impairment annually. During our December 31, 2018 impairment testing, we determined
that our Sonoma Sparkler trademark is unlikely to provide future benefit to the Company, because we do not currently offer Sonoma
Sparkler products and we do not anticipate doing so in the foreseeable future. Accordingly, we reduced the book value of this
asset to zero as of December 31, 2018, by recording an impairment charge of $229. No impairments were noted during the year ended
December 31, 2017.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>(9)</b></font></td>
<td style="font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>Leases Payable</b></font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company adopted ASU 2016-02, Leases, effective
October 1, 2018. The Standard requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception
of the lease, initially measured at the present value of the lease payments. As a result, we recorded right-of-use assets aggregating
$862 as of October 1, 2018, utilizing a discount rate of 12.6%. That amount consists of new leases on the Company’s Norwalk
office and certain office equipment of $730, and existing capitalized leases reclassified to right of use assets of $132. The amount
of such reclassification as of December 31, 2017 was $569.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">ASU 2016-02 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. Had ASU 2016-02 been adopted as of the beginning of the earliest period presented, such rent expense for the
years ended December 31, 2018 and 2017 would have aggregated $45 and $82, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In accordance with ASU 2016-02, the right-of-use
assets are being amortized over the life of the underlying leases. Had ASU 2016-02 been adopted as of the beginning of the earliest
period presented, amortization of right of use asset would have aggregated $49 and $182 during the years ended December 31, 2018
and 2017, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Future minimum lease payments under the leases
are as follows (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify"><font style="font-size: 10pt"><b>Years Ending December 31,</b></font></td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 73%"><font style="font-size: 10pt">2019</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 23%; text-align: right"><font style="font-size: 10pt">185</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">2020</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">169</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">2021</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">202</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">2022</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">229</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">2023</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">233</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">thereafter</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">248</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Total payments</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1,266</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Less: Amount representing interest </font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(414</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Present value of net minimum lease payments</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">852</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Less: Current portion</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">51</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Non-current portion</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">801</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>(8) </b></font></td>
<td style="font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>Financing Obligation</b></font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Our financing obligation is comprised of the
following (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 48%; text-align: justify"><font style="font-size: 10pt">Financing obligation</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 22%; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 24%; text-align: right"><font style="font-size: 10pt">2,186</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Unamortized valuation discount</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(714</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Net financing obligation</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">1,472</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Less current portion</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(222</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Long term financing obligation</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">1,250</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As the result of a 2009 sale-leaseback transaction,
the Company leased 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 were recorded as a reduction
in the financing obligation and as interest expense at an implicit rate of 9.9%.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In connection with the financing obligation
and subsequent amendments, the Company issued an aggregate of 600,000 warrants to purchase its common stock. The 600,000 warrants
were valued at an initial aggregate amount of $1,336, which was recorded as a valuation discount at the date of issuance. The discount
was being amortized over fifteen years, the term of the purchase option. The balance of the unamortized valuation discount at December
31, 2017 was $714. Amortization of valuation discount was $110 for each of the years ended December 31, 2018 and 2017.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 31, 2018, the Company completed
its Plant Sale (see Note 3). As part of the transaction the buyer assumed our financing obligation, which aggregated $1.3 million,
net of unamortized valuation discount of $604, as of that date. By the terms of the sale CCB assumed the monthly payments on the
obligation effective immediately upon closing of the sale. Our release from the obligation by the lessor, however, is dependent
upon CCB’s deposit of $1.2 million of security with the lessor no later than December 31, 2019. Mr. Reed has placed 800,000
of his shares of Reed’s stock in escrow, to be sold by him during 2019 for the purpose of funding the required security
deposit.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>(10)</b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>Convertible Note to a Related Party</b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Convertible Note to a Related Party
consists of the following (in thousands):</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2017</b></font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 48%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">12% Convertible Note Payable</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 24%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,400</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 22%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,400</font></td>
<td style="width: 1%; line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Accrued Interest</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">761</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">290</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Total obligation</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">4,161</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,690</font></td>
<td style="line-height: 107%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On April 21, 2017, pursuant to a Securities
Purchase Agreement, the Company issued to Raptor a Secured, Convertible, Subordinated, Non-Redeemable Note (the “Note”)
in the original principal amount of $3,400 and warrants to purchase 1,416,667 shares of common stock. See Note 11 for further information
regarding the warrants. </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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 (see Note 7). 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. Net of transaction costs, the Company received proceeds from the Note
of $3,083. The principal balance of the Note was $3,400 at December 31, 2018 and 2017.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The fair value of the warrants was initially
determined to be $3,302 using the Black-Scholes-Merton option pricing model. Of this amount, $3,083 was recorded as a valuation
discount, and the $219 excess of the fair value of the warrant liability at the issuance date over the amount allocated to valuation
discount was accounted for as a financing cost. The Company recognized a total debt discount at issuance of $3,400 consisting of
the fair value of the warrant liability of $3,083 and cash offering costs of $317. The debt discount was being amortized over the
term of the note. Amortization of the note discount through December 12, 2017 was $1,191 and the unamortized debt discount at that
date was $2,209.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 12, 2017, in connection
with the reduction of the offering price in the Rights Offering (see Note 12) to $1.50, the Company amended the Note, reducing
the conversion price from $3.00 to $1.50. The Company determined that, under the provisions of ASC Topic 470-50, such modification
resulted in a change of more than 10% of the fair value of the Note, and the transaction should be recorded as an extinguishment.
Accordingly, we removed the $3,400 original Note and $2,209 of unamortized discount from our Balance Sheet, and recorded the new
note at fair value. The Company retained an independent third-party valuation firm to calculate the fair value of the new note.
Using discounted cash flow and Black-Scholes methods the fair value was determined to be $4,823. Accordingly, a new obligation
in the amount of $3,400 was recorded and the corresponding premium of $1,423, representing the excess of the fair value over the
face value of the Note, was reflected as an increase in additional paid in capital. A loss of $3,632 was realized in connection
with the extinguishment and was included in the Statement of Operations.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On October 4, 2018, in connection with
the execution of the Rosenthal financing agreement (see Note 7), the Company issued an Amended and Restated Subordinated Convertible
Non-Redeemable Secured Note to Raptor, to provide for additional advances of up to $4,000 (see Note 7). In consideration therefore,
the exercise price of 750,000 of Raptor’s outstanding warrants was reduced from $1.50 to $1.10, resulting in an increase
in the fair value of the warrants, determined in accordance with the Black-Scholes-Merton option pricing model, of $161. This amount
will be amortized as interest expense over the life of the Rosenthal financing agreement.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">See Note 11 for further information
regarding the warrants.</p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>(13) Share-Based Compensation</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Management believes that the ability to issue
equity compensation, in order to incentivize performance by employees, directors, and consultants, is essential to the Company’s
growth strategy.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 29, 2017, the 2017 Compensation
Plan (the “Plan”) was approved by our shareholders. Initially it provided for the issuance of up to 3,000,000 shares.
On December 13, 2018 our shareholders approved a 3,500,000 share increase in the number of shares issuable under the Plan. Options
issued and forfeited under the 2017 plan contain an Evergreen provision and cannot be re-priced without shareholder approval.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of December 31, 2018, 1,947,715 shares are
issuable under the Plan, and 27,500 shares remain issuable under the Company’s predecessor 2015 Compensation Plan.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The plans permit the grant of options and stock
awards to our employees, directors and consultants. The options may constitute either “incentive stock options” within
the meaning of Section 422 of the Internal Revenue Code or “non-qualified stock options”. The Plan is currently administered
by the board of directors. The exercise price of an option granted under the plan cannot be less than 100% of the fair market value
per share of common stock on the date of the grant of the option. Options may not be granted under the plan on or after the tenth
anniversary of the adoption of the plan. Incentive stock options granted to a person owning more than 10% of the combined voting
power of the common stock cannot be exercisable for more than five years. When an option is exercised, the purchase price of the
underlying stock is received in cash, except that the plan administrator may permit the exercise price to be paid in any combination
of cash, shares of stock having a fair market value equal to the exercise price, or as otherwise determined by the plan administrator.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Stock Options </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Stock option activity consists of the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Weighted-Average Exercise Price</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Weighted-Average Remaining Contractual Terms (Years)</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Aggregate Intrinsic Value</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 40%"><font style="font-size: 9pt">Outstanding at December 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 9pt">1,048,500</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 9pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 9pt">4.68</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"> </td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">60,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">2.20</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Exercised</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 9pt">Forfeited or expired</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">(431,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 9pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 9pt">4.88</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Outstanding at December 31, 2017</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">677,500</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">4.35</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">4.14</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">3,596,954</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">1.88</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Exercised</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Unvested Forfeited or expired</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">(406,300</font></td>
<td><font style="font-size: 9pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">2.65</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 9pt">Vested Forfeited or expired</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">(123,750</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 9pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">4.26</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.5pt"><font style="font-size: 9pt">Outstanding at December 31, 2018</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">3,744,404</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">2.16</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">8.53</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">1,026</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 9pt">Exercisable at December 31, 2018</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">678,059</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">3.03</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">5.20</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">116</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The aggregate intrinsic value was calculated
as the difference between the closing market price as of December 31, 2018, which was $2.07, and the exercise price of the outstanding
stock options.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 17, 2018, options to purchase 311,000
shares of common stock were issued to certain employees of the Company pursuant to the Plan. One half of these options vest annually
over a four-year period; the other half of will vest based on performance criteria to be established by the Board at its discretion.
The $386 fair value of the options is being amortized through December 31, 2022.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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. 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 $1,190 fair value of the options is being amortized through July 31, 2022.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 $1,540 fair value of the options is being amortized through March
31, 2022.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Also, on March 28, 2018, the 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Also on March 28, 2018, pursuant to its employment
agreement with Valentin Stalowir dated June 28, 2017, 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On January 10, 2018, the Compensation Committee
granted to Mr. Stalowir options to purchase 371,268 shares of stock, pursuant to the Plan and his employment agreement with the
Company. 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the year ended December 31, 2017, the
Company granted 60,000 options, with a fair value of $39, to purchase the Company’s common stock at a weighted average exercise
price of $2.20, to certain employees of the Company.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The fair value of each option award is estimated
on the date of grant using the Black-Scholes-Merton option pricing model using the assumptions noted in the following table. For
purposes of determining the expected life of the option, an average of the estimated holding period is used. The risk-free rate
for periods within the contractual life of the options is based on the U. S. Treasury yield in effect at the time of the grant.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Year Ended December 31,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 58%"><font style="font-size: 10pt">Expected volatility</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 18%; text-align: right"><font style="font-size: 10pt">62</font></td>
<td style="width: 1%"><font style="font-size: 10pt">%</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 18%; text-align: right"><font style="font-size: 10pt">52</font></td>
<td style="width: 1%"><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Expected dividends</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Expected average term (in years)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">6.00</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2.00</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Risk free rate - average</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2.37% - 2.77</font></td>
<td><font style="font-size: 10pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1.47</font></td>
<td><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Forfeiture rate</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">0</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">0</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Compensation cost resulting from option
issuances aggregated $1,161 and $276 during the years ended December 31, 2018 and 2017, respectively. As of December 31,
2018, the aggregate value of unvested options was $2,691 which will be amortized to compensation expense as the options vest,
over one to four years.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Additional information regarding options outstanding
and exercisable as of December 31, 2018, is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="10" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Options Outstanding</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Options Exercisable</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt">Range of Exercise Price</font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt">Number of Shares Outstanding</font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt">Weighted Average Exercise Price</font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt">Weighted Average Remaining Contractual Life (years)</font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt">Number of Shares Exercisable</font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt">Weighted Average Exercise Price</font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 30%"><font style="font-size: 10pt">$1.60-2.19  </font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">2,573,954</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">1.67</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">9.15</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">285,609</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">1.67</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">$2.20-$3.74</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">940,450</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2.81</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">8.72</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">202,450</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">3.22</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">$3.75 to $5.04  </font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">230,000</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">4.90</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">0.87</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">190,000</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">4.88</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">3,744,404</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">2.16</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">8.53</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">678,059</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">3.03</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Restricted Stock</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table summarizes restricted stock
activity during the years ended December 31, 2018 and 2017:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Unvested Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Issuable Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Fair Value at Date of Issuance</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Weighted Average Grant Date Fair Value</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Balance, December 31, 2016</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 40%; padding-left: 10pt"><font style="font-size: 10pt">Granted</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 10pt">400,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 10pt">680</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 10pt">1.70</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Vested</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(400,000</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">400,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1.70</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Issued</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Balance, December 31, 2017</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">400,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">680</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1.70</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">854,592</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1,412</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1.65</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Vested</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(256,222</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">256,222</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Issued</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(656,222</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(1,500</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Balance, December 31, 2018</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">598,370</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">592</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">1.63</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On March 28, 2018, in accordance with his employment
agreement with the Company, the Compensation Committee awarded Mr. Stalowir 412,736 shares of restricted common stock with a fair
value of $660 pursuant to the Plan. The fair value of these shares is being amortized to compensation expense through June 2019
when the shares vest.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On January 10, 2018, Mr. Stalowir was awarded
371,268 shares of restricted common stock with a fair value of $631, pursuant to the Plan and in accordance with his employment
agreement with the Company. The award vests over eighteen months, and the fair value of the grant is being amortized to compensation
expense through June 2019. During the year ended December 31, 2018, 185,634 shares of common stock with a fair value of $316 vested
and were issued to Mr. Stalowir.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 vested and were issued in four equal installments during 2018, and the $120 fair value of the shares was
amortized to compensation expense ratably over that period.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the year ended December 31, 2018, an
aggregate of $820 was recognized as compensation expense relative to restricted stock awards. As of December 31, 2018, the amount
of unvested compensation related to restricted stock awards was $592, which will be recognized as an expense in future periods
as the shares vest.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>M)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Net Loss Per Share</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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 (loss) 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 if their effect is antidilutive.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">For the years ended December 31, 2018
and 2017, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an
anti-dilutive effect. The potentially dilutive securities consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2018</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2017</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Convertible note to a related party</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 20%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">2,266,667</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 20%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">2,266,667</font></td>
<td style="width: 1%; line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">6,897,277</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,325,282</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Common stock equivalent of Series A Convertible Preferred Stock</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">37,644</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">37,644</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Unvested restricted common stock</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">598,370</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Options</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,744,404</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">677,500</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Total</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">13,544,362</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">10,307,093</font></td>
<td style="line-height: 107%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>A)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Use of Estimates</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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 assets and intangibles, realization of deferred
tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>R)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Recent Accounting Pronouncements </i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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. A company will recognize the value of a down round feature only when it is triggered,
and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat
the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing
basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities
will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. 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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Other recent accounting pronouncements
issued by the FASB, including 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.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>F)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Concentrations</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company’s cash balances on
deposit with banks are guaranteed by the Federal Deposit Insurance Corporation up to $250. Generally, the Company’s policy
is to minimize borrowing costs by immediately applying cash receipts to borrowings against its credit facility. From time to time,
however, the Company may be exposed to risk for the amounts of funds held in bank accounts in excess of the insurance limit. To
minimize the risk, the Company’s policy is to maintain cash balances with high quality financial institutions.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the year ended December 31, 2018,
the Company had two customers that accounted for approximately 24% and 17% of its sales, respectively; and during the year ended
December 31, 2017, the Company had two customers that accounted for 23% and 16% of its sales, respectively. No other customer accounted
for more than 10% of sales in either year.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">As of December 31, 2018, the Company
had accounts receivable from two customers that comprised 36% and 19% of total accounts receivable, respectively. As of December
31, 2017, the Company had accounts receivable from two customers that comprised 25% and 14% of its total accounts receivable, respectively.
No other customer accounted for more than 10% of accounts receivable in either year.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the years ended December 31,
2018 and 2017, respectively, the Company utilized three separate co-packers for most its production and bottling of beverage products
in the eastern United States. With the December 31, 2018 Plant Sale, the Company no longer conducts a manufacturing operation,
accordingly it utilizes co-packers to produce 100% of its products as of that date. The Company has long-standing relationships
with two different co-packers, and in conjunction with the Plant Sale we entered into a third co-packing agreement with California
Custom Beverage LLC (“CCB”), the purchaser of the plant (see Note 3). CCB is 100% owned by Chris Reed, founder of the
Company and current Chief Information Officer and director. Although there are other packers, a change in co-packers may cause
a delay in the production process, which could ultimately affect operating results.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the years ended December 31,
2018, the Company’s two largest vendors accounted for 16% and 13% of its purchases, respectively. During the year ended
December 31, 2017, the Company made 20%, of its purchases from a single vendor. At December 31, 2018 and 2017, accounts payable
to the Company’s largest vendor comprised 24% and 20% of our total accounts payable, respectively. No other account was
more than 10% of our accounts payable in either year.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>G)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Fair Value of Financial Instruments</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company uses various inputs in determining
the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the
balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. Accounting
Standards Codification Section 820 defines the following levels directly related to the amount of subjectivity associated with
the inputs:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Level 1—Quoted prices in active
markets for identical assets or liabilities.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Level 2—Inputs, other than the
quoted prices in active markets, that are observable either directly or indirectly.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Level 3—Unobservable inputs based
on the Company’s assumptions.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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 lease
obligations and long-term financing obligations approximate their fair values since the interest rates on these obligations are
based on prevailing market interest rates.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">As of December 31, 2018, and December
31, 2017, the Company’s balance sheets included warrant liabilities aggregating $38 and $36 respectively, measured at fair
value based on Level 2 inputs.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventory is valued at the lower of cost (first-in,
first-out) or market, and is comprised of the following (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%"><font style="font-size: 10pt">Raw Materials and Packaging</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">3,053</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">2,670</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Finished Goods</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">4,327</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">3,261</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Total</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">7,380</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">5,931</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Future minimum lease payments under the leases
are as follows (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify"><font style="font-size: 10pt"><b>Years Ending December 31,</b></font></td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 73%"><font style="font-size: 10pt">2019</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 23%; text-align: right"><font style="font-size: 10pt">185</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">2020</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">169</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">2021</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">202</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">2022</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">229</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">2023</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">233</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">thereafter</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">248</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Total payments</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1,266</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Less: Amount representing interest </font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(414</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Present value of net minimum lease payments</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">852</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Less: Current portion</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">51</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Non-current portion</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">801</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Our financing obligation is comprised of the
following (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 48%; text-align: justify"><font style="font-size: 10pt">Financing obligation</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 22%; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 24%; text-align: right"><font style="font-size: 10pt">2,186</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Unamortized valuation discount</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(714</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Net financing obligation</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">1,472</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Less current portion</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(222</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Long term financing obligation</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">1,250</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Convertible Note to a Related Party
consists of the following (in thousands):</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2017</b></font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 48%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">12% Convertible Note Payable</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 24%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,400</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 22%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,400</font></td>
<td style="width: 1%; line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Accrued Interest</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">761</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">290</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Total obligation</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">4,161</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,690</font></td>
<td style="line-height: 107%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The fair value of the warrant liability was
determined at the following reporting, issuance, and modification dates using the Black-Scholes-Merton option pricing model and
the following assumptions:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>As of</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31,</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2016</b></p></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Upon</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Issuance</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>April 21, 2017</b></p></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Upon</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Modification</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>April 21, 2017</b></p></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Upon</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Modification</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>July 13, 2017</b></p></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>As of</b></font><font style="font-size: 10pt"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31,</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2017</b></p></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>As of</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31, </b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2018</b></p></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>(1) </b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>(2)</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>(3)</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>(4)</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 10pt"><b>(5)</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>(6)</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 16%"><font style="font-size: 8pt">Stock Price</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">4.10</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 8pt">4.75</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 8pt">4.75</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 8pt">2.35</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">1.55</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">2.07</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Risk free interest rate</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">1.58</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">1.51</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">1.51</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">1.65</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">1.74</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">2.69</font></td>
<td><font style="font-size: 8pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Expected Volatility</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">54.71</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">49.33</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">49.33</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">53.75</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">56.06</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">50.07</font></td>
<td><font style="font-size: 8pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Expected life in years</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">4.42</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">5.00</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">5.00</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt"> 4.77 to 4.89 </font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">3.42</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">2.42</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Expected dividend yield</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">0</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">0</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">0</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">0</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">0</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">2.69</font></td>
<td><font style="font-size: 8pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Number of Warrants</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">418,909</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">1,626,778</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">280,147</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">1,906,925</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">138,762</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">138,762</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Fair Value of Warrants</font></td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">775</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">3,873</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">187</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">1,109</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">36</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">38</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">(1) Warrant valuation on December 31, 2016
for 418,909 warrants containing fundamental transaction provisions.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">(2) April 21, 2017 grant to Raptor of warrants
to purchase 1,416,667 shares of the Company’s common stock in connection with the Company’s issuance of the Convertible
Note to a Related Party (valued at $3,302) and April 19, 2017, grant of 210,111 warrants to three accredited investors that are
party to a Securities Purchase Agreement dated May 26, 2016 and hold participation rights in the Company’s financing transactions
(valued at $571).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">(3) April 19, 2017, the three accredited investors
referred to above waived their participation rights with regard to the April 21, 2017 financing. The Company increased the terms
of their outstanding 280,147 warrants by one year and reduced the exercise price from $4.25 to $3.00. The incremental change in
the warrants’ fair value of $187 on the modification date was reported as an increase to the warrant liability and a cost
of warrant modification.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">(4) July 13, 2017 warrant exercise agreements
with Raptor and the three accredited investors to reprice warrants to purchase a total of 1,906,925 shares of our common stock.
The incremental cost before and after the modification of the warrants resulted in a charge against earnings of $1,109. The warrants
were also changed to modify language pertaining to a “fundamental transaction,” eliminating the need to classify the
warrants as a warrant liability.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Upon modification, the investors exercised
warrants for 1,122,376 shares of common stock at the repriced $1.50 per share, resulting in proceeds to the Company of $1,650.
The fair value of the warrant liability at the date of exercise was $1,601, which was reclassified from the warrant liability to
additional paid in capital as a result of the exercise. At the same time, the Company and the holders of the remaining 784,549
warrants agreed to modify the language of the fundamental transaction clause to require board approval, thus eliminating the need
for the liability classification of the warrants. Accordingly, the fair value of these warrants, totaling $1,033, was reclassified
from the warrant liability to additional paid in capital.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">(5) Warrant valuation on December 31, 2017
for 138,762 warrants containing fundamental transaction provisions. The decrease in the fair value of the warrant liability was
$3,275 for the year ended December 31, 2017.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">(6) Warrant valuation on December 31, 2018
for 138,762 warrants containing fundamental transaction provisions. The increase in the fair value of the warrant liability was
$2 for the year ended December 31, 2018.</p>
3596954
60000
1122376
414857
2.65
P8Y6M10D
P10Y
P8Y6M10D
P4Y1M20D
P9Y1M24D
P8Y8M19D
P10M14D
P5Y2M12D
3744404
677500
1048500
678059
2.16
4.35
4.68
3.03
5000
5000
406300
2018
99000
99000
100000
90000
120000
62365
37057
62365
70588
2691000
2608000
2608000
199000
131000
20948000
10938000
18864000
24476000
12492000
20418000
277000
198000
51000
51000
6947000
18645000
14235000
7255000
236000
801000
111000
23968000
19235000
12255000
94000
94000
94000
2000
3000
4000
-680000
49833000
53591000
68496000
-50101000
-60431000
-60431000
24476000
12492000
20418000
601000
623000
509000
197000
10
10
500000
500000
9411
9411
9411
9411
38102000
37714000
27424000
30821000
200000
10678000
6893000
5489000
3942000
4879000
3021000
8383000
5754000
18800000
18642000
-8122000
-11749000
2201000
3491000
2776000
-10330000
-18378000
508000
2000
94000
49833000
-50101000
680000
-6743000
3000
94000
53591000
-60431000
-1657000
1000
94000
29971000
-31723000
8163000
24619591
9411
400000
25729461
9411
0
13982230
9411
1161000
1161000
276000
276000
832000
1000
831000
1650000
1650000
414857
1122376
86000
551000
110000
1379000
1191000
312000
-394000
908000
471000
290000
-61000
551000
1157000
-560000
-68000
-301000
-1762000
1521000
1190000
34000
28000
49000
51000
159000
813000
942000
-813000
-3947000
-725000
253000
191000
200000
277000
472000
240000
312000
187000
832000
1650000
1150000
828000
1650000
1150000
3083000
4000000
-3187000
15911000
-11503000
11676000
12127000
624000
451000
8550000
1351000
1806000
3083000
723000
108000
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr>
<td style="width: 34px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>(17)</b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>Subsequent Events</b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During 2019, our independent directors
will be issued restricted common stock valued at $30,000 pursuant to the 2017 plan, in quarterly installments.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 15, 2019, the Company entered
into an agreement for an underwritten public offering of 7,733,750 shares of its common stock, at $2.10 per share, including an
overallotment option for 1,008,750 shares that was exercised in full. Proceeds of the offering, net of the underwriting discount
and other transaction costs, aggregated $14,906. The proceeds will be used to fund our sales and marketing efforts, to develop
and launch new products, and for general working capital purposes.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table presents an unaudited
pro forma balance sheet for Reed’s, Inc. assuming the public offering described above occurred on December 31, 2018 (in thousands):</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Actual</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31, 2018</b></p></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Adjustment (1)</b></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Pro Forma</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31, 2018</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>(unaudited)</b></p></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="text-align: center; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>ASSETS</b></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Current assets:</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 43%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Cash</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">624</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 16%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,926</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">8,550</font></td>
<td style="width: 1%; line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Accounts receivable, net</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">2,608</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">2,608</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Inventory, net</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">195</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">195</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Other current assets</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,511</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,511</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Total Current Assets</i></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">10,938</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,926</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">18,864</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Property and equipment, net</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">896</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">896</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Equipment held for sale and intangible assets</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">658</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">658</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Total assets</b></font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">12,492</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,926</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">20,418</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)</b></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Current Liabilities:</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Accounts payable</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5,721</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5,721</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Accrued expenses</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">1,483</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">1,483</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Line of credit</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">6,980</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(6,980</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Current portion of leases payable</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">51</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">51</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Total current liabilities</i></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">14,235</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(6,980</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,255</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Leases payable, less current portion</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">801</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Convertible note to a related party</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">4,161</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Warrant liability and other long term liabilities</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">38</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Total Liabilities</b></font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">19,235</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(6,980</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">12,255</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Stockholders’ equity (deficit):</b></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Series A Convertible Preferred stock</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">94</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">94</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Common stock</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">1</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">4</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Common stock issuable</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Additional paid in capital</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">53,591</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">14,905</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">68,496</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Accumulated deficit</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(60,431</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"> -</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(60,431</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Total stockholders’ equity (deficit)</b></font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(6,743</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">14,906</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">8,163</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Total liabilities and stockholders’ equity (deficit)</b></font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">12,492</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,926</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">20,418</font></td>
<td style="line-height: 107%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px"> </td>
<td style="width: 24px; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(1)</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Adjustment reflects the sale of 7,733,750 shares of the Company’s common stock for net proceeds of $14,906, of which $6,980 was used to repay the outstanding balance on the line of credit.</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="margin: 0pt"></p>
2670000
3053000
3261000
4327000
5931000
7380000
86000
551000
973000
1238000
304000
404000
934000
569000
799000
342000
174000
896000
2300000
896000
8474000
200000
2549000
82000
576000
805000
229000
576000
576000
3000000
3947000
852000
2186000
2.025
4.25
1.50
1.50
1.50
3.00
3.00
3.00
2.00
1.55
2.07
1.50
5.600
5.600
4.100
4.100
3.900
3.900
4.100
4.100
3.740
3.740
4.250
4.250
1.500
1.500
1.550
1.550
2.000
2.000
2.025
2.030
1.100
1.500
2.025
3400000
3400000
290000
761000
412736
371268
70588
660000
631000
316000
120000
30000000
256222
185634
400000
820000
371268
311000
748000
1653950
100000
412736
60000
The exercise price of an option granted under the plan cannot be less than 100% of the fair market value per share of common stock on the date of the grant of the option. Options may not be granted under the plan on or after the tenth anniversary of the adoption of the plan. Incentive stock options granted to a person owning more than 10% of the combined voting power of the common stock cannot be exercisable for more than five years.
1161000
276000
0.099
P15Y
1026
116
13000000
13000000
5000
5000
0.0045
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table summarizes restricted stock
activity during the years ended December 31, 2018 and 2017:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Unvested Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Issuable Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Fair Value at Date of Issuance</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Weighted Average Grant Date Fair Value</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Balance, December 31, 2016</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 40%; padding-left: 10pt"><font style="font-size: 10pt">Granted</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 10pt">400,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 10pt">680</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 10pt">1.70</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Vested</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(400,000</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">400,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1.70</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Issued</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Balance, December 31, 2017</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">400,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">680</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1.70</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">854,592</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1,412</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1.65</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Vested</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(256,222</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">256,222</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Issued</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(656,222</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(1,500</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Balance, December 31, 2018</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">598,370</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">592</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">1.63</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
598370
854592
400000
1.63
1.70
1.70
1.65
1.70
592000
680000
1412000
680000
true
false
false
5925000
118000
229000
5925000
100000
100000
5000
-5000
5000
-5000
1734
1640
-94000
-1161000
-276000
5925000
1868000
161000
7480000
5721000
5721000
220000
1483000
1483000
13087000
4370000
2634000
2634000
P2Y6M
714000
3400000
604000
2209000
138762
138762
750000
280147
9333333
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The fair value of each option award is estimated
on the date of grant using the Black-Scholes-Merton option pricing model using the assumptions noted in the following table. For
purposes of determining the expected life of the option, an average of the estimated holding period is used. The risk-free rate
for periods within the contractual life of the options is based on the U. S. Treasury yield in effect at the time of the grant.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Year Ended December 31,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 58%"><font style="font-size: 10pt">Expected volatility</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 18%; text-align: right"><font style="font-size: 10pt">62</font></td>
<td style="width: 1%"><font style="font-size: 10pt">%</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 18%; text-align: right"><font style="font-size: 10pt">52</font></td>
<td style="width: 1%"><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Expected dividends</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Expected average term (in years)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">6.00</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2.00</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Risk free rate - average</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2.37% - 2.77</font></td>
<td><font style="font-size: 10pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1.47</font></td>
<td><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Forfeiture rate</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">0</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">0</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
0.00
0.00
2019-09-30
2019-09-30
2021-05-31
2021-05-31
2021-10-31
2021-10-31
2021-11-30
2021-11-30
2021-06-30
2021-06-30
2021-06-30
2021-06-30
2022-04-30
2022-04-30
2022-07-31
2022-07-31
2022-07-31
2022-07-31
2020-12-31
2020-12-31
2022-12-31
2022-12-31
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0">Warrant activity during the years ended December 31, 2018 and 2017
is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Weighted-Average Exercise Price</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Weighted-Average Remaining Contractual Terms (Years)</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Aggregate Intrinsic Value</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 44%"><font style="font-size: 10pt">Outstanding at December 31,2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">803,909</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">4.50</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">4.00</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">26</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">7,643,749</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1.95</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Exercised</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(1,122,376</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1.50</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Forfeited or expired</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Outstanding at December 31,2017</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">7,325,282</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">2.09</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">3.43</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Exercised</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">428,005</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">2.03</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Forfeited or expired</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">0</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Outstanding at December 31, 2018</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">6,897,277</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">$</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 10pt">2.06</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 10pt">2.42</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">$</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 10pt">1,447</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Exercisable at December 31, 2018</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">6,897,277</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">$</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 10pt">2.06</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 10pt">2.42</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">$</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 10pt">1,447</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
43204000
39438000
8758000
8758000
6980000
35000
3056000
1336000
No
No
Yes
false
33496297
52479350
195000
3632000
-680000
680000
400000
-400000
117647
7733750
1008750
400000
7733750
1008750
200000
200000
680000
12887000
1000
12886000
680000
680000
400000
1423000
1423000
689000
689000
37057
256222
206368
206368
185634
185634
820000
820000
161000
161000
229000
180000
180000
-3632000
22000
75000
161000
730000
1050000
1250000
591000
3000000
-9258000
-3422000
2303000
3297000
4000000
1250000
14906000
250000
0.20
0.23
0.20
0.16
0.24
0.17
0.36
0.13
0.24
0.19
0.25
0.14
0.16
1.00
36000
38000
1
3872000
4004000
300000
285000
862000
862000
P39Y
P5Y
P12Y
P5Y
P5Y
P7Y
13544362
6897277
37644
37644
677500
10307093
3744404
598370
2266667
2266667
7325282
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>(3)</b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>Plant Sale to a Related Party</b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On March 24, 2018, the Company received
a letter of intent from California Custom Beverage, LLC, (“CCB”); an entity owned by Chris Reed, founder, CIO and board
member of Reed’s; for the purchase of substantially all of the assets of the Company’s Los Angeles plant (the “Plant
Sale”). Based on the terms of the offer, the Company recorded impairment charges totaling $5,925 in 2017, the difference
between the offer terms and the net book value of the assets to be sold, reducing the assets to estimated net realizable value.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 31, 2018, the Plant Sale
was completed. The Plant Sale included substantially all machinery, equipment, furniture and fixtures of the facility, with a net
book value of $2,300 after 2017 impairment charges. Additionally, all contracts, permits, intellectual property and inventory pertaining
to our non-strategic private label business were included in the sale. These private label assets were internally developed by
the Company and had nominal book value as of the date of sale. The sales price consisted of $1,250 in cash, and CCB assumed our
lease obligation on the California real property, which aggregated $1,300 at December 31, 2018. The Company recognized a gain of
$180 on the sale, net of transaction costs and other customary adjustments.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">By the terms of the sale CCB assumed
the monthly payments on our lease obligation (see Note 8) effective immediately upon closing of the sale. Our release from the
obligation by the lessor, however, is dependent upon CCB’s deposit of $1.2 million of security with the lessor no later than
December 31, 2019. Mr. Reed has placed 800,000 of his shares of Reed’s stock in escrow, to be sold by him during 2019 for
the purpose of funding the required security deposit.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">We will receive a 5% royalty on CCB’s
private label sales to existing customers for three years and a 5% referral fee on CCB’s private label sales to referred
customers for three years. Additionally, we have entered into a three year co-packing agreement with CCB, whereby it will produce
Reed’s beverages in glass bottles at prevailing West Coast market rates.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">By the terms of the sale, CCB reimbursed
the Company for certain costs such as sales tax arising from the transaction and prepayments as of December 31. Such costs aggregated
$195, which is reflected as Receivable from Related Party on the accompanying balance sheet as of December 31, 2018. Additionally,
we have agreed to provide at cost certain transitional services to CCB during the month of January 2019, including procurement
of inventory, insurance coverage, and transitional services with respect to payroll. The cost of these services is expected to
aggregate approximately $200.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Mr. Reed has agreed to continue on as
our Chief Innovation Officer and a member of our board of directors.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In connection with the Plant Sale,
we granted registration rights to a group of our current shareholders, including Chairman John Bello and certain institutional
investors, with respect to an aggregate of 350,000 shares of our common stock. We agreed to use our commercially reasonable best
efforts to register those 350,000 shares for resale with the SEC, and we have not yet done so. The shares may be sold pursuant
to Rule 144 beginning July 1, 2019.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>(7)</b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>Lines of Credit</b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Amounts outstanding under the Company’s
credit facilities are as follows (in thousands):</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2017</b></font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 50%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Rosenthal Line of Credit</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 22%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,657</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 22%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="width: 1%; line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">PMC Revolving Line of Credit</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,301</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Term Loans</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,000</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">CAPEX loan</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,947</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,657</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">10,248</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Capitalized finance costs</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(677</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Net balance</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">6,980</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">10,248</font></td>
<td style="line-height: 107%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On October 4, 2018, the Company entered
into a financing agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”), for a line of credit to replace its
existing credit facility. The Rosenthal line of credit 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”).</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Borrowings under the Rosenthal financing
agreement 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. The effective interest rate as of December 31, 2018 on outstanding borrowings
was 8.3%. Additionally, the line of credit is subject to monthly facility and administration fees, and aggregate minimum monthly
fees (including interest) of $4.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company incurred $752 of direct
costs of the transaction, consisting primarily of broker, bank and legal fees, and the $161 cost of the warrant modification discussed
below and in Note 10. These costs have been capitalized and are being amortized over the 2.5 year life of the Rosenthal agreement.
Amortization was $75 for the year ended December 31, 2018.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The line of credit 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/Harbor
Reeds SPV LLC (“Raptor”). Raptor beneficially owns 27.1% of the Company’s outstanding common stock as of December
31, 2018. Mr. Doherty is a member of the Company’s Board of Directors. In the event of a default under the financing agreement,
Raptor has a put option to purchase from Rosenthal the entire amount of any outstanding Over-Advance plus accrued interest, prior
to Rosenthal declaring an event of default under the financing agreement.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">As part of the transaction, the Company
issued an Amended and Restated Subordinated Convertible Non-Redeemable Secured Note to Raptor, 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, resulting
in an increase in the fair value of the warrants of $161. This amount has been reflected as a capitalized finance cost, and is
being amortized over the life of the financing agreement. See Note 10.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The financing agreement with Rosenthal
includes customary <font style="background-color: white">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</font>. 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. As of December 31, 2018 we did not meet the working capital and tangible net worth requirements.
Rosenthal granted us a waiver for the December 31, 2018 violation, and as a result of our February 2019 public offering (see Note
17) the violation was cured prior to the next measurement date of March 31, 2019. In all other respects, we were in compliance
with the terms of our agreement with Rosenthal.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Prior to execution of the financing
agreement with Rosenthal, 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”). Upon execution of the financing agreement with Rosenthal, all obligations under the PMC Agreement were repaid in
full in an aggregate amount of $8,758.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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%.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Interest expense on the Company’s
credit facilities aggregated $1,153 and $1,458 for the years ended December 31, 2018 and 2017.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>(11) </b></font></td>
<td style="font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>Warrants and Warrant Liability</b></font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0">Warrant activity during the years ended December 31, 2018 and 2017
is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Weighted-Average Exercise Price</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Weighted-Average Remaining Contractual Terms (Years)</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Aggregate Intrinsic Value</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 44%"><font style="font-size: 10pt">Outstanding at December 31,2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">803,909</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">4.50</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">4.00</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">26</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">7,643,749</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1.95</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Exercised</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(1,122,376</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1.50</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Forfeited or expired</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Outstanding at December 31,2017</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">7,325,282</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">2.09</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">3.43</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Exercised</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">428,005</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">2.03</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Forfeited or expired</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">0</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Outstanding at December 31, 2018</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">6,897,277</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">$</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 10pt">2.06</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 10pt">2.42</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">$</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 10pt">1,447</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Exercisable at December 31, 2018</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">6,897,277</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">$</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 10pt">2.06</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 10pt">2.42</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">$</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 10pt">1,447</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Warrants outstanding at December 31, 2018 and
2017, and their respective exercise price and expiration dates, are as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td colspan="9" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="9" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>December 31, 2017</b></font></td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Number</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Price</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Expiration Dates</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Number</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Price</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Expiration Dates</b></font></td></tr>
<tr style="vertical-align: bottom">
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 1%"> </td>
<td style="width: 14%; text-align: right"><font style="font-size: 9pt">200,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 9pt">$</font></td>
<td style="width: 8%; text-align: right"><font style="font-size: 9pt">5.600</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 24%"><font style="font-size: 9pt">September 2019</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 14%; text-align: right"><font style="font-size: 9pt">200,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 9pt">$</font></td>
<td style="width: 8%; text-align: right"><font style="font-size: 9pt">5.600</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 19%"><font style="font-size: 9pt">September 2019</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">125,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">4.100</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">May 2021</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">125,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">4.100</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">May 2021</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">10,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">3.900</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">October 2021</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">10,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">3.900</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">October 2021</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">50,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">4.100</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">November 2021</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">50,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">4.100</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">November 2021</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">72,703</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">3.740</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">June 2021</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">72,703</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">3.740</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">June 2021</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">66,059</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">4.250</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">June 2021</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">66,059</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">4.250</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">June 2021</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">784,549</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">1.500</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">April 2022</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">784,549</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">1.500</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">April 2022</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">87,745</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">1.550</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">July 2022</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">87,745</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">1.550</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">July 2022</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">512,560</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">2.000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">July 2022</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">512,560</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">2.000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">July 2022</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">4,238,661</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">2.025</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">December 2020</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">4,666,666</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">2.030</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">December 2020</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">750,000</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">1.100</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 9pt">December 2022</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">750,000</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">1.500</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 9pt">December 2022</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">6,897,277</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td> </td>
<td style="text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">7,325,282</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td> </td>
<td style="text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Various financing transactions and stock sales
made by the Company have been accompanied by the issuance of warrants. Generally, we record the fair market value of the warrants,
as determined using the Black-Scholes-Merton option pricing model, as a financing cost at date of issuance. Such financing costs
aggregated $0 and $1,480 during the years ended December 31, 2018 and 2017, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Certain of our warrant agreements, however,
contain fundamental transaction provisions which may give rise to an obligation of the Company to pay cash to the warrant holders.
For accounting purposes, in accordance with <i>ASC 480, Distinguishing Liabilities from Equity</i>, warrants with such fundamental
transaction provisions are accounted for as liabilities. A summary of transactions that impacted our warrant liabilities is provided
below under “<i>Warrant Liability</i>”.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><i>Warrant Transactions</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0">The aggregate intrinsic value of outstanding and exercisable warrants
is calculated as the difference between the exercise price of the warrant and the market price of the Company’s common stock
as of December 31, 2018, which was $2.07. Warrants for which the exercise price is higher than $2.07 have no intrinsic value as
of December 31, 2018.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On April 21, 2017, in conjunction with the
issuance of a Convertible Note to Related Party (see Note 10), the Company issued warrants for the purchase of 1,416,667 shares
of common stock to Raptor. The warrants contain fundamental transaction provisions which may give rise to an obligation of the
Company to pay cash to the warrant holders, accordingly these warrants are accounted for as liabilities. The fair value of the
warrants was determined to be $3,302 using the Black-Scholes-Merton option pricing model. Of this amount, $3,083 was recorded as
a debt valuation discount, and the $219 excess of the fair value of the warrant liability at the issuance date over the amount
allocated to valuation discount was accounted for as a financing cost.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On April 19 2017, in anticipation of the April
21 transaction, warrants to purchase an additional 210,111 shares of the Company’s common stock at the exercise price of
$3.00 were granted to three accredited investors that are party to a Securities Purchase Agreement dated May 26, 2016 and hold
participation rights in the Company’s financing transactions. The warrants contain customary anti-dilution provisions and
include fundamental transaction provisions resulting in the fair value of $571 to be classified as an increase to the warrant liability.
Fair value was determined using the Black-Scholes-Merton option pricing model.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The three accredited investors referred to
above agreed to waive their participation rights with regard to the April 21, 2017 financing. In consideration, these investors’
participation rights, expiring in May 2017, were extended for a period of two years. In addition, on April 21, 2017, the Company
increased the terms of their outstanding 280,147 warrants by one year and reduced the exercise price from $4.25 to $3.00. The incremental
change in the warrants’ fair value of $187 on the modification date was reported as an increase to the warrant liability
and a cost of warrant modification.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On July 13, 2017, the Company entered into
warrant exercise agreements with Raptor and the three accredited investors, by which the Company repriced previously issued warrants
as an inducement to exercise. A total of 1,906,925 warrants were repriced, including those issued in April 2017. The warrants’
exercise prices were lowered from $3.00 and $4.00 per share to $1.50 per share, and the incremental cost before and after the modification
of the warrants resulted in a charge against earnings of $1,109.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Upon modification, the investors exercised
warrants for 1,122,376 shares of common stock at the repriced $1.50 per share, resulting in proceeds to the Company of $1,650.
The fair value of the warrants at the date of exercise was $1,601, which was reclassified from the warrant liability to additional
paid in capital as a result of the exercise. At the same time, the Company and the holders of the remaining 784,549 warrants agreed
to modify the language of the fundamental transaction provision to require board approval, thus eliminating the need for the liability
classification of the warrants. Accordingly, the fair value of these warrants, totaling $1,033, was reclassified from the warrant
liability to additional paid in capital.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Pursuant to the July 13 warrant exercise agreements,
the Company issued to the investors, pro rata based on the number of shares each investor exercised, a second tranche of warrants
to purchase 512,560 shares of our common stock and on July 19, 2017 a third tranche of warrants to purchase 87,745 shares of our
common stock. The second tranche of warrants have a term of 5 years, may be exercised commencing six months after issuance and
have an exercise price of $2.00. The third tranche of warrants were exercisable immediately upon issuance for a term of five years
and have an exercise price of $1.55. The newly issued warrants contain customary anti-dilution provisions. The aggregate fair value
of the new warrants totaling $689 was determined using the Black-Scholes-Merton option pricing model with a volatility of 53.75%
an interest free rate of 1.65% and a stock price of $2.35. The fair value of the warrants was reported as a financing cost on their
respective issuance dates.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In December 2017, in accordance with a December
28, 2017 Rights Offering, the Company sold warrants to purchase 4,666,666 shares of common stock, at an exercise price of $2.025
per share. Additionally, as compensation for a definitive backstop commitment from Raptor, the Company issued to Raptor 750,000
five-year warrants. See Note 12 for additional information regarding the Rights Offering and backstop commitment.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On October 4, 2018, in connection with the
execution of the Rosenthal financing agreement (see Note 7), the Company issued an Amended and Restated Subordinated Convertible
Non-Redeemable Secured Note to Raptor, to provide for additional advances of up to $4,000 (see Note 7). In consideration therefore,
the exercise price of 750,000 of Raptor’s outstanding warrants was reduced from $1.50 to $1.10, resulting in an increase
in the fair value of the warrants, determined in accordance with the Black-Scholes-Merton option pricing model, of $161. This amount
will be amortized to financing cost over the life of the Rosenthal financing agreement.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the year ended December 31, 2018, a
total of 428,005 warrants were exercised, including cashless exercises, resulting in the issuance of 414,857 shares of our common
stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><i>Warrant Liability</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As stated above, certain of our warrant agreements
contain fundamental transaction provisions which may give rise to an obligation of the Company to pay cash to the warrant holders.
Such warrants are accounted for as liabilities at fair value. The fair value is remeasured at each reporting period, and the change
in the fair value is recognized in earnings in the accompanying Statements of Operations. Following is a summary of the transactions
described above that impacted our warrant liability.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The fair value of the warrant liability was
determined at the following reporting, issuance, and modification dates using the Black-Scholes-Merton option pricing model and
the following assumptions:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>As of</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31,</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2016</b></p></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Upon</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Issuance</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>April 21, 2017</b></p></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Upon</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Modification</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>April 21, 2017</b></p></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Upon</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Modification</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>July 13, 2017</b></p></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>As of</b></font><font style="font-size: 10pt"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31,</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2017</b></p></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>As of</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31, </b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2018</b></p></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>(1) </b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>(2)</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>(3)</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>(4)</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 10pt"><b>(5)</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>(6)</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 16%"><font style="font-size: 8pt">Stock Price</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">4.10</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 8pt">4.75</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 8pt">4.75</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 8pt">2.35</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">1.55</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">2.07</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Risk free interest rate</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">1.58</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">1.51</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">1.51</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">1.65</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">1.74</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">2.69</font></td>
<td><font style="font-size: 8pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Expected Volatility</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">54.71</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">49.33</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">49.33</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">53.75</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">56.06</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">50.07</font></td>
<td><font style="font-size: 8pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Expected life in years</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">4.42</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">5.00</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">5.00</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt"> 4.77 to 4.89 </font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">3.42</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">2.42</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Expected dividend yield</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">0</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">0</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">0</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">0</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">0</font></td>
<td><font style="font-size: 8pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">2.69</font></td>
<td><font style="font-size: 8pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Number of Warrants</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">418,909</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">1,626,778</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">280,147</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">1,906,925</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">138,762</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">138,762</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Fair Value of Warrants</font></td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">775</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">3,873</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">187</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">1,109</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">36</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">38</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">(1) Warrant valuation on December 31, 2016
for 418,909 warrants containing fundamental transaction provisions.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">(2) April 21, 2017 grant to Raptor of warrants
to purchase 1,416,667 shares of the Company’s common stock in connection with the Company’s issuance of the Convertible
Note to a Related Party (valued at $3,302) and April 19, 2017, grant of 210,111 warrants to three accredited investors that are
party to a Securities Purchase Agreement dated May 26, 2016 and hold participation rights in the Company’s financing transactions
(valued at $571).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">(3) April 19, 2017, the three accredited investors
referred to above waived their participation rights with regard to the April 21, 2017 financing. The Company increased the terms
of their outstanding 280,147 warrants by one year and reduced the exercise price from $4.25 to $3.00. The incremental change in
the warrants’ fair value of $187 on the modification date was reported as an increase to the warrant liability and a cost
of warrant modification.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">(4) July 13, 2017 warrant exercise agreements
with Raptor and the three accredited investors to reprice warrants to purchase a total of 1,906,925 shares of our common stock.
The incremental cost before and after the modification of the warrants resulted in a charge against earnings of $1,109. The warrants
were also changed to modify language pertaining to a “fundamental transaction,” eliminating the need to classify the
warrants as a warrant liability.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Upon modification, the investors exercised
warrants for 1,122,376 shares of common stock at the repriced $1.50 per share, resulting in proceeds to the Company of $1,650.
The fair value of the warrant liability at the date of exercise was $1,601, which was reclassified from the warrant liability to
additional paid in capital as a result of the exercise. At the same time, the Company and the holders of the remaining 784,549
warrants agreed to modify the language of the fundamental transaction clause to require board approval, thus eliminating the need
for the liability classification of the warrants. Accordingly, the fair value of these warrants, totaling $1,033, was reclassified
from the warrant liability to additional paid in capital.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">(5) Warrant valuation on December 31, 2017
for 138,762 warrants containing fundamental transaction provisions. The decrease in the fair value of the warrant liability was
$3,275 for the year ended December 31, 2017.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">(6) Warrant valuation on December 31, 2018
for 138,762 warrants containing fundamental transaction provisions. The increase in the fair value of the warrant liability was
$2 for the year ended December 31, 2018.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The risk-free interest rate used in the valuation
calculations was based on rates established by the Federal Reserve Bank. The Company used the historical volatility of its common
stock to estimate the expected volatility. The expected life of the warrants was determined by the remaining contractual life
of the warrant instrument. The expected dividend yield was determined to be zero since the Company has not paid dividends to its
common stockholders in the past and does not expect to pay dividends to its common stockholders in the foreseeable future.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>(12)</b></font></td>
<td style="font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>Stockholders’ Equity</b></font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Series A Convertible Preferred Stock</i></b><i>
- </i>Series A Convertible Preferred Stock (the “Preferred Stock”) consists of $10 par value, 5% non-cumulative, non-voting,
participating preferred stock, with a liquidation preference of $10.00 per share. 500,000 shares are authorized. As of December
31, 2018 and 2017, there were 9,411 shares outstanding. Each share of Preferred Stock can be converted into four shares of the
Company’s common stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Dividends are payable at the rate of 5% annually,
pro-rata and non-cumulative. The dividend can be paid in cash or, at the discretion of our board of directors, in shares of common
stock based on its then fair market value. The Company cannot declare or pay any dividend on shares of our securities common stock
until the holders of the Preferred Stock have received their annual dividend. In addition, the holders of the Preferred Stock are
entitled to receive pro rata distributions of dividends on an “as converted” basis with the holders of our common stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In the event of any liquidation, dissolution
or winding up of the Company, or if there is a change of control event as defined, the holders of the Preferred Stock are entitled
to receive, prior to distributions to the holders of common stock, $10.00 per share plus all accrued and unpaid dividends. Thereafter,
all remaining assets are distributed pro rata among all security holders. Since June 30, 2008, the Company has the right, but not
the obligation, to redeem all or any portion of the Preferred Stock at $10.00 per share, the original issue price, plus all accrued
and unpaid dividends.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Preferred Stock may be converted at any
time, at the option of the holder, into four shares of common stock, subject to adjustment in the event of stock splits, reverse
stock splits, stock dividends, recapitalization, reclassification, and similar transactions. The Company is obligated to reserve
authorized but unissued shares of common stock sufficient to affect the conversion of all outstanding shares of Preferred Stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Except as provided by law, the holders of the
Preferred Stock do not have the right to vote on any matters, including the election of directors. However, so long as any shares
of Preferred Stock are outstanding, the Company shall not, without the approval of a majority of the preferred stockholders, authorize
or issue any equity security having a preference over the Preferred Stock with respect to dividends, liquidation, redemption or
voting, including any other security convertible into or exercisable for any senior preferred stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the years ended December 31, 2018 and
2017, the Company <font style="background-color: white">paid dividends </font>on the Preferred Stock through the issuance of 1,734
and 1,640 shares of its common stock, respectively, which based upon the then-current market price of the stock equated to dividends
of $5 in each of the years. No shares of Series A preferred stock were converted into common stock in 2018 and 2017.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Common Stock</i></b><i> - </i>The Company’s
common stock has a par value of $.0001. On December 13, 2018 our shareholders approved an increase in the authorized number of
common shares from 40,000,000 to 70,000,000. As of December 31, 2018 and 2017, 70,000,000 and 40,000,000 shares were authorized,
respectively. As of December 31, 2018 and 2017, 25,729,461 and 24,619,591 shares were outstanding, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Common Stock Issued in Connection with a
Rights Offering – </i>In December 2017, the Company conducted a public offering of rights to purchase up to $14 million of
units, each unit consisting of one share of the Company’s common stock and one-half warrant to purchase one share of common
stock (the “Rights Offering”). Pursuant to the Rights Offering, the Company sold an aggregate of 9,333,333 units consisting
of 9,333,333 shares of common stock and warrants to purchase 4,666,666 shares of common stock, with each warrant exercisable for
one share of common stock at an exercise price of $2.025 per share. The net proceeds to the Company were $12,887 after deducting
all offering costs, dealer-manager fees of $830, and expenses.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 6, 2017, the Company entered into
a definitive backstop commitment agreement (“Backstop Agreement”) with Raptor whereby Raptor agreed to purchase a minimum
of $6 million of unregistered units not subscribed in the Rights Offering in a private placement, subject to customary terms and
conditions. Raptor had the right to exercise its basic subscription right and over-subscription privilege as a rights holder in
the Rights Offering (subject to pro-ration) but had no obligation to do so.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As compensation for the backstop commitment
the Company issued to Raptor five-year warrants to purchase a minimum of 750,000 shares of the Company’s common stock. The
offering was oversubscribed; accordingly Raptor did not purchase any unregistered units in a private placement under the provisions
of the Backstop Agreement. In connection with the offering, the Company also agreed to register the shares of common stock underlying
the units (including shares of common stock underlying the warrants contained in the units) and shares of common stock underlying
the backstop warrants. The Company registered the shares in February 2018.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Private Sale to a Director - </i>During
the year ended December 31, 2017, the Company sold 117,647 shares of its common stock to a member of the board of directors at
$1.70 per share with total proceeds of $200.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Common Stock Issued to Directors and Officers
for Services Rendered – </i>During the year ended December 31, 2018 the Company issued 37,057 shares of its common stock
to an officer of the Company as compensation for services rendered. The shares had an aggregate value on date of issuance of $100,
which was recorded as compensation expense during the year ended December 31, 2018<i>.</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the year ended December 31, 2017, the
Company issued 62,365 shares of its common stock to certain directors and officers of the Company as compensation for services
rendered. The shares had an aggregate value of $90 at dates of issuance.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Exercises of Warrants – </i>During
the years ended December 31, 2018 and 2017, the Company issued 414,857 and 1,122,376 shares of its common stock, respectively,
upon the exercise of outstanding warrants, resulting in cash proceeds to the Company of $828 and $1,150, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Common Stock Issuable – </i>On March
28, 2018, the Company awarded 412,736 shares of restricted common stock with an aggregate fair value of $660 to Valentin Stalowir,
Chief Executive Officer of the Company, pursuant to his employment agreement with the Company. The shares are subject to vesting
requirements; accordingly they are reflected Common Stock Issuable as of December 31, 2018. Half of the award, or 206,368 shares,
will vest during 2019 and the remaining 206,368 shares will vest during 2020.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On January 10, 2018, Mr. Stalowir was awarded
371,268 shares of restricted common stock with an aggregate fair value of $631, pursuant to his employment agreement with the Company.
Half of the award, or 185,634 shares vested and were issued during 2018. The remaining 185,634 shares will vest in 2019.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Also on January 10, 2018, the Company’s
independent directors were awarded a total of 70,588 shares of restricted common stock, with an aggregate fair value of $120, as
compensation for services rendered during 2018. The shares vested and were issued at the rate of 25% per quarter during each fiscal
quarter of 2018.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Effective December 31, 2017, the Company issued
to its independent directors an aggregate of 400,000 shares of common stock valued at $1.70 per share, or $680 in total, for services
provided in 2017. These shares were reflected as Common Stock Issuable at December 31, 2017, and were issued during 2018.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Subsequent to December 31, 2018, the Company
entered into an agreement for an underwritten public offering of its common stock. See Note 17.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>14) Income Taxes</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">At December 31, 2018 and 2017, the Company
had available Federal and state net operating loss carryforwards (“NOL”s) to reduce future taxable income. For Federal
purposes the amounts available were approximately $42,000 million and $35,000, respectively. For state purposes approximately $18,000
was available at December 31, 2018 and 2017. The Federal carryforward expires on various dates through 2035 and the state carryforward
expires in 2019. Given the Company’s history of net operating losses, management has determined that it is more likely than
not that the Company will not be able to realize the tax benefit of the carryforwards. Accordingly, the Company has not recognized
a deferred tax asset for this benefit.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Due to the restrictions imposed by Internal
Revenue Code Section 382 regarding substantial changes in ownership of companies with loss carryforwards, the utilization of the
Company’s NOL may be limited as a result of recent change in stock ownership. NOLs incurred subsequent to the latest change
in control are not subject to the limitation.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recognizes tax benefits from uncertain
tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position is
measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
As of December 31, 2018 and 2017, the Company did not have a liability for unrecognized tax benefits.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recognizes as income tax expense,
interest and penalties on uncertain tax provisions. As of December 31, 2018, and 2017, the Company has not accrued interest or
penalties related to uncertain tax positions. Tax years 2011 through 2018 remain open to examination by the major taxing jurisdictions
to which the Company is subject.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Upon the attainment of taxable income by the
Company, management will assess the likelihood of realizing the tax benefit associated with the use of the NOLs and will recognize
the appropriate deferred tax asset at that time.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Significant components of the Company’s
deferred income tax assets are as follows (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Deferred income tax asset:</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 50%"><font style="font-size: 10pt">Net operating loss carryforwards</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 22%; text-align: right"><font style="font-size: 10pt">10,429</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 22%; text-align: right"><font style="font-size: 10pt">8,927</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Accounts receivable allowances</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">162</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">227</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Inventory reserves</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">51</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">148</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Deferred finance costs</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(176</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Reserve for asset impairment</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">31</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">655</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Total deferred tax asset</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">10,496</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">9,957</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Valuation allowance</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(10,496</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(9,957</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Net book value</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Reconciliation of the effective income tax
rate to the U.S. statutory rate is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 50%"><font style="font-size: 10pt">Federal statutory tax rate</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 22%; text-align: right"><font style="font-size: 10pt">(21</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)%</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 22%; text-align: right"><font style="font-size: 10pt">(34</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">State rate, net of federal benefit</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(5</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)%</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(5</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)%</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(26</font></td>
<td><font style="font-size: 10pt">)%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(39</font></td>
<td><font style="font-size: 10pt">)%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Effect of change in tax rate</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">10</font></td>
<td><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Valuation allowance</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">26</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">%</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">29</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Effective tax rate</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr>
<td style="width: 34px; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>(15)</b></font></td>
<td style="font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt"><b>Commitments and Contingencies</b></font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Customer Commitments</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has entered into contracts with
customers with clauses committing the Company to pay fees if the Company terminates the agreement early or without cause. The contracts
call for the customer to have the right to distribute the Company’s products to a defined type of retailer within a defined
geographic region. If the Company should terminate the contract or not automatically renew the agreements without cause, amounts
would be due to the customer. As of December 31, 2018 and 2017, the Company has no plans to terminate or not renew any agreement
with any of their customers; accordingly, no such fees have been accrued in the accompanying financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Legal Proceedings</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">From time to time, we are a party to claims
and legal proceedings arising in the ordinary course of business. Our management evaluates our exposure to these claims and proceedings
individually and in the aggregate and provides for potential losses on such litigation if the amount of the loss is estimable and
the loss is probable.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We believe there are no material litigation
matters as of December 31, 2018. Although the results of such litigation matters and claims cannot be predicted with certainty,
we believe the final outcome of such claims and proceedings will not have a material adverse impact on our financial position,
liquidity, or results of operations.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr>
<td style="width: 34px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>(16)</b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>Related Party Activity</b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company paid Judy Reed, who is the
Corporate Secretary and the wife of Chris Reed, to document minutes for the Board of Directors’ meetings. Amounts paid for
her services during each of the years ended December 31, 2018 and 2017 aggregated less than approximately $1 thousand.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Winston Stalowir, son of Valentin Stalowir,
Chief Executive Officer of the Company, was employed as a sales, merchandising and demo intern during the year ended December 31,
2018. He was paid approximately $2 thousand for his services.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Lisa Cohane, wife of Neal Cohane, our
Senior Vice President of Sales, performed administrative and office management services for the Company during the year ended December
31, 2018. She was paid approximately $34 thousand for her services.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Lindsay Martin, daughter of a director
of the Company, was employed as Vice President of Marketing during the year ended December 31, 2018. She was paid approximately
$162 thousand for her services.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In 2017, Chris Reed (the former Chief
Executive Officer and current Chief Innovation Officer), Robert Reed (the brother of Chris Reed), and Dan Miles (former Chief Financial
Officer), collectively advanced approximately $571 thousand to the Company for working capital uses. In 2017, the Company repaid
approximately $240 thousand of this amount and the remaining balance was repaid in January of 2018.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">From time to time, the Company issues
stock-based awards to employees, officers, and other related parties as compensation for services rendered. See Note 13 for information
as to such transactions during the years ended December 31, 2018 and 2017.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 31, 2018, the Company sold
its Los Angeles manufacturing facility to California Custom Beverage, LLC (“CCB”), an entity 100% owned by Chris Reed,
the Company’s founder and Chief Innovation Officer (the “Plant Sale”). See Note 3.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the years ended December 31,
2018 and 2017, the Company entered into the following transactions with Raptor:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On April 21, 2017, pursuant to a securities
purchase agreement, Reed’s issued a secured convertible subordinated non-redeemable note to Raptor in the principal amount
of $3,400, and warrants to purchase 1,416,667 shares of common stock. See Note 10. 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 (see Note 7). 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. Net of transaction costs, the Company received proceeds from the Note of $3,083.
In connection with the issuance of the note, the Company reimbursed Raptor direct costs totaling $157 incurred to issue the note.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On July 13, 2017, the Company entered
into a warrant exercise agreement with Raptor to induce Raptor to purchase 766,667 shares of our common stock. The warrants’
exercise prices were lowered from $3.00 and $4.00 per share to $1.50 per share. Upon modification, Raptor exercised the warrants
at the repriced $1.50 per share, resulting in proceeds to the Company of $1,150. The Company also issued to Raptor an additional
second tranche of warrants to purchase up to 350,000 shares of our common stock and a third tranche of warrants to purchase up
to 60,000 shares of our common stock. Second tranche warrants have a term of five years, may be exercised commencing six months
from the date of issuance and have an exercise price equal to $2.00. The third tranche warrants were exercisable immediately upon
issuance for a term of five-years, with an exercise price equal to $1.55. Raptor was also granted the right to appoint a non-voting
observer to our board of directors for so long as Raptor or its affiliates is a beneficial owner of our stock. As of the date hereof,
Raptor SPV LLC has not made such an appointment. </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Pursuant to a December 6, 2017 Rights
Offering (see Note 12), Raptor exercised its rights to purchase 2,666,667 units, thereby acquiring 2,666,667 shares of common stock
and warrants to purchase up to 1,333,333 shares of common stock for an aggregate purchase price of $4,000.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 6, 2017, the Company entered
into a definitive backstop commitment agreement (“Backstop Agreement”) with Raptor whereby Raptor agreed to purchase
a minimum of $6 million of unregistered units not subscribed in the Rights Offering in a private placement, subject to customary
terms and conditions. Raptor had the right to exercise its basic subscription right and over-subscription privilege as a rights
holder in the Rights Offering (subject to pro-ration) but had no obligation to do so. As compensation for the backstop commitment
the Company issued to Raptor five-year warrants to purchase a minimum of 750,000 shares of the Company’s common stock. The
offering was oversubscribed; accordingly Raptor did not purchase any unregistered units in a private placement under the provisions
of the Backstop Agreement.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On October 4, 2018, in connection with
the execution of the Rosenthal financing agreement (see Note 7), the Company issued an Amended and Restated Subordinated Convertible
Non-Redeemable Secured Note to Raptor, to provide for additional advances of up to $4,000 (see Note 7). In consideration therefore,
the exercise price of the 750,000 warrants issued to Raptor on December 6, 2017 was reduced from $1.50 to $1.10, resulting in an
increase in the fair value of the warrants, determined in accordance with the Black-Scholes-Merton option pricing model, of $161.
This amount will be amortized against earnings over the life of the Rosenthal financing agreement.</p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>B)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Accounts Receivable</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company evaluates the collectability
of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s
inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces
the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer
identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall
assessment of past due trade accounts receivable outstanding.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The allowance for doubtful accounts
and returns and discounts is established through a provision reducing the carrying value of receivables. At December 31, 2018
and 2017, the allowance for doubtful accounts and returns and discounts was $623 and $601, respectively.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>C)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Inventory</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventory is stated at the lower of
cost or the current estimated market value of the inventory. We regularly review our inventory quantities on hand and record a
provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and our ability to sell
the product(s) concerned. Demand for our products can fluctuate significantly. Factors that could affect demand for our products
include unanticipated changes in consumer preferences, general market conditions or other factors, which may result in cancellations
of advance orders or a reduction in the rate of reorders placed by customers. Additionally, our management’s estimates of
future product demand may be inaccurate, which could result in an understated or overstated provision required for excess and
obsolete inventory. At December 31, 2018 and 2017, the reserve for inventory obsolescence aggregated $197 and $509, respectively.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>D)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Property and Equipment and Related Depreciation</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Property and equipment is stated at
cost. Expenditures for major renewals and improvements that extend the useful lives of property and equipment or increase production
capacity are capitalized, and expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is calculated
using accelerated and straight-line methods over the estimated useful lives of the assets as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 50%; line-height: 107%; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Property and Equipment Type</u></font></td>
<td style="width: 1%; text-align: justify; line-height: 107%"> </td>
<td style="width: 49%; line-height: 107%; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Years of Depreciation </u></font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Building</font></td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">39 years</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Machinery and equipment</font></td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5-12 years</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Vehicles</font></td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5 years</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Office equipment</font></td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5-7 years</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Management assesses the carrying value
of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the
asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized
to write down the asset to its estimated fair value.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In anticipation of the sale of our
Los Angeles facility (see Note 3), we reclassified all the assets of the facility to Equipment Held for Sale. 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 estimated amount we believed to be recoverable.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>E)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Intangible Assets and Impairment Policy</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Intangible assets are comprised of indefinite-lived
brand names acquired, so classified because we anticipate that these brand names will contribute cash flows to the Company perpetually.
Indefinite-lived intangible assets are not amortized but are assessed for impairment annually and evaluated annually to determine
whether the indefinite useful life is appropriate. As part of our impairment test, we first assess qualitative factors to determine
whether it is more likely than not the asset is impaired. If further testing is necessary, we compare the estimated fair value
of our asset with its book value. If the carrying amount of the asset exceeds its fair value, as determined by its discounted cash
flows, an impairment loss is recognized in an amount equal to that excess.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During our December 31, 2018 impairment
testing, we determined that our Sonoma Sparkler trademark is unlikely to provide future benefit to the Company, because we do
not currently offer Sonoma Sparkler products and we do not anticipate doing so in the foreseeable future. Accordingly, we reduced
the book value of this asset to zero as of December 31, 2018, by recording an impairment charge of $229. No impairments were noted
during the year ended December 31, 2017.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>H)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Segments</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company operates in one segment
for the manufacture and distribution of our products. In accordance with the “Segment Reporting” Topic of the ASC,
the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews
operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance,
which is based on a management approach to segment reporting, establishes requirements to report selected segment information
quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which
the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment
Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services;
and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information
required by “Segment Reporting” can be found in the accompanying financial statements</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>I)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Cost of Goods Sold</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Cost of goods sold is comprised of the
costs of raw materials and packaging utilized in the manufacture of products, co-packing fees, repacking fees, in-bound freight
charges, as well as certain internal transfer costs. Additionally, cost of goods sold includes direct production costs in excess
of charges allocated to finished goods in production. Plant costs include labor costs, production supplies, repairs and maintenance,
direct inventory write-off charges and adjustments to the inventory reserve. Charges for labor and overhead allocated to finished
goods are determined on a market cost basis, which may be lower than the actual costs incurred. Plant costs in excess of production
allocations are expensed in the period incurred rather than added to the cost of finished goods produced. Expenses not related
to the production of our products are classified as operating expenses.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company terminated its manufacturing
operation effective with the December 31, 2018 Plant Sale. See Note 3.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>J)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Delivery and Handling Expense</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Shipping and handling costs are comprised
of purchasing and receiving, inspection, warehousing, transfer freight, and other costs associated with product distribution after
manufacture and are included as part of operating expenses.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>K)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Income Taxes</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company uses an asset and liability
approach for accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based upon
the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided
for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more
likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility
is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax
expense.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>L)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Revenue Recognition</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for certain sales
incentives to customers, including slotting fees, as a reduction of gross sales. These sales incentives for the years ended December
31, 2018 and 2017 were approximately $3,872 and $4,004, respectively.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>N)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Advertising Costs</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Advertising costs are expensed as incurred
and are included in selling and marketing expense. Advertising costs aggregated $300 and $285 for the years ended December 31,
2018 and 2017, respectively.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>O)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Stock Compensation Expense</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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 to employees based on ASC 718, whereby the value of the award is
measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. Such grants
issued and vesting to non-employees are valued on the measurement date as determined at either a) the date at which a performance
commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Awards
granted to non-employees are revalued each reporting period to determine the amount to be recorded as an expense in the respective
period. As the awards vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value
already recorded and the then current value on the date of vesting. In certain circumstances where there are no future performance
requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded
in the period of the measurement date.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The fair value of the Company’s
stock option and restricted stock grants 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.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>P)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Warrant Liabilities</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Various stock sales made by the Company
to finance operations have been accompanied by the issuance of warrants. Some of these warrant agreements contain fundamental transaction
provisions which may give rise to an obligation of the Company to pay cash to the warrant holders. For accounting purposes, in
accordance with <i>ASC 480, Distinguishing Liabilities from Equity</i>, those warrants with fundamental transaction terms are accounted
for as liabilities given the terms may give rise to an obligation of the Company to the warrant holders. These liabilities are
measured at fair value at each reporting period and the change in the fair value is recognized in earnings in the accompanying
Statements of Operations.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Fair value is estimated using the Black-Scholes-Merton
Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of
the stock options or restricted stock, and future dividends. Expense is recorded based upon the value derived from the Black-Scholes-Merton
Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could
materially affect the amount of expense recorded in future periods. </p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Q)</i></b></font></td>
<td style="font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Leases</i></b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i> </i></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In February 2016, the FASB issued ASU
No. 2016-02, Leases. 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 twelve 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 leases existing at, or entered into after, the beginning of the earliest period presented in the financial statements.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company adopted ASU 2016-02 effective
October 1, 2018. As a result, we recorded right-of-use assets aggregating $862, and lease liabilities of the same amount, as of
that date. In accordance with ASU 2016-02, the right-of-use assets are being depreciated over the life of the underlying leases,
and monthly lease payments are being recorded as reductions to the lease liability and imputed interest expense. See Note 9 for
additional information. </p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Depreciation is calculated using accelerated
and straight-line methods over the estimated useful lives of the assets as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 50%; line-height: 107%; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Property and Equipment Type</u></font></td>
<td style="width: 1%; text-align: justify; line-height: 107%"> </td>
<td style="width: 49%; line-height: 107%; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Years of Depreciation </u></font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Building</font></td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">39 years</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Machinery and equipment</font></td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5-12 years</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Vehicles</font></td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5 years</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Office equipment</font></td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5-7 years</font></td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Amounts outstanding under the Company’s
credit facilities are as follows (in thousands):</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2017</b></font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 50%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Rosenthal Line of Credit</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 22%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,657</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 22%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="width: 1%; line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">PMC Revolving Line of Credit</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,301</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Term Loans</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,000</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">CAPEX loan</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,947</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,657</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">10,248</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Capitalized finance costs</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(677</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Net balance</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">6,980</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">10,248</font></td>
<td style="line-height: 107%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Additional information regarding options outstanding
and exercisable as of December 31, 2018, is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="10" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Options Outstanding</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Options Exercisable</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt">Range of Exercise Price</font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt">Number of Shares Outstanding</font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt">Weighted Average Exercise Price</font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt">Weighted Average Remaining Contractual Life (years)</font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt">Number of Shares Exercisable</font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt">Weighted Average Exercise Price</font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 30%"><font style="font-size: 10pt">$1.60-2.19  </font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">2,573,954</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">1.67</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">9.15</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">285,609</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">1.67</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">$2.20-$3.74</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">940,450</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2.81</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">8.72</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">202,450</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">3.22</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">$3.75 to $5.04  </font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">230,000</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">4.90</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">0.87</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">190,000</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">4.88</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">3,744,404</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">2.16</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">8.53</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">678,059</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">3.03</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Warrants outstanding at December 31, 2018 and
2017, and their respective exercise price and expiration dates, are as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td colspan="9" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="9" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>December 31, 2017</b></font></td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Number</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Price</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Expiration Dates</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Number</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Price</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Expiration Dates</b></font></td></tr>
<tr style="vertical-align: bottom">
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 1%"> </td>
<td style="width: 14%; text-align: right"><font style="font-size: 9pt">200,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 9pt">$</font></td>
<td style="width: 8%; text-align: right"><font style="font-size: 9pt">5.600</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 24%"><font style="font-size: 9pt">September 2019</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 14%; text-align: right"><font style="font-size: 9pt">200,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 9pt">$</font></td>
<td style="width: 8%; text-align: right"><font style="font-size: 9pt">5.600</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 19%"><font style="font-size: 9pt">September 2019</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">125,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">4.100</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">May 2021</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">125,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">4.100</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">May 2021</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">10,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">3.900</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">October 2021</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">10,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">3.900</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">October 2021</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">50,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">4.100</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">November 2021</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">50,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">4.100</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">November 2021</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">72,703</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">3.740</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">June 2021</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">72,703</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">3.740</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">June 2021</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">66,059</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">4.250</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">June 2021</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">66,059</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">4.250</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">June 2021</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">784,549</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">1.500</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">April 2022</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">784,549</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">1.500</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">April 2022</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">87,745</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">1.550</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">July 2022</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">87,745</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">1.550</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">July 2022</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">512,560</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">2.000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">July 2022</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">512,560</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">2.000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">July 2022</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">4,238,661</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">2.025</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">December 2020</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">4,666,666</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">2.030</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 9pt">December 2020</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">750,000</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">1.100</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 9pt">December 2022</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">750,000</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td><font style="font-size: 9pt">$</font></td>
<td style="text-align: right"><font style="font-size: 9pt">1.500</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 9pt">December 2022</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">6,897,277</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td> </td>
<td style="text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">7,325,282</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td> </td>
<td style="text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Significant components of the Company’s
deferred income tax assets are as follows (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Deferred income tax asset:</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 50%"><font style="font-size: 10pt">Net operating loss carryforwards</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 22%; text-align: right"><font style="font-size: 10pt">10,429</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 22%; text-align: right"><font style="font-size: 10pt">8,927</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Accounts receivable allowances</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">162</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">227</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Inventory reserves</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">51</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">148</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Deferred finance costs</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(176</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Reserve for asset impairment</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">31</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">655</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Total deferred tax asset</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">10,496</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">9,957</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Valuation allowance</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(10,496</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(9,957</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Net book value</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Reconciliation of the effective income tax
rate to the U.S. statutory rate is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 50%"><font style="font-size: 10pt">Federal statutory tax rate</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 22%; text-align: right"><font style="font-size: 10pt">(21</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)%</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 22%; text-align: right"><font style="font-size: 10pt">(34</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">State rate, net of federal benefit</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(5</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)%</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(5</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)%</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(26</font></td>
<td><font style="font-size: 10pt">)%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(39</font></td>
<td><font style="font-size: 10pt">)%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Effect of change in tax rate</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">10</font></td>
<td><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Valuation allowance</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">26</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">%</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">29</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Effective tax rate</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table presents an unaudited
pro forma balance sheet for Reed’s, Inc. assuming the public offering described above occurred on December 31, 2018 (in thousands):</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Actual</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31, 2018</b></p></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Adjustment (1)</b></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Pro Forma</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31, 2018</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>(unaudited)</b></p></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="text-align: center; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>ASSETS</b></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Current assets:</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 43%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Cash</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">624</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 16%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,926</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">8,550</font></td>
<td style="width: 1%; line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Accounts receivable, net</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">2,608</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">2,608</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Inventory, net</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">195</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">195</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Other current assets</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,511</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,511</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Total Current Assets</i></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">10,938</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,926</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">18,864</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Property and equipment, net</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">896</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">896</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Equipment held for sale and intangible assets</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">658</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">658</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Total assets</b></font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">12,492</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,926</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">20,418</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)</b></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Current Liabilities:</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Accounts payable</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5,721</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5,721</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Accrued expenses</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">1,483</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">1,483</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Line of credit</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">6,980</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(6,980</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Current portion of leases payable</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">51</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">51</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Total current liabilities</i></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">14,235</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(6,980</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,255</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Leases payable, less current portion</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">801</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Convertible note to a related party</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">4,161</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Warrant liability and other long term liabilities</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">38</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Total Liabilities</b></font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">19,235</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(6,980</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">12,255</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Stockholders’ equity (deficit):</b></font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Series A Convertible Preferred stock</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">94</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">94</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Common stock</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">1</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">4</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Common stock issuable</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Additional paid in capital</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">53,591</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">14,905</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">68,496</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Accumulated deficit</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(60,431</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"> -</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(60,431</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Total stockholders’ equity (deficit)</b></font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(6,743</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">14,906</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">8,163</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Total liabilities and stockholders’ equity (deficit)</b></font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">12,492</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">7,926</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">20,418</font></td>
<td style="line-height: 107%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px"> </td>
<td style="width: 24px; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(1)</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Adjustment reflects the sale of 7,733,750 shares of the Company’s common stock for net proceeds of $14,906, of which $6,980 was used to repay the outstanding balance on the line of credit.</font></td></tr>
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5925000
-5000
63000
1200000
800000
117647
9333333
0.05
0.05
195000
350000
752000
P2Y6M
75000
1500000
0.271
1153000
1458000
-677000
1300000
730000
132000
45000
82000
49000
182000
414000
1266000
248000
233000
229000
202000
169000
185000
3083000
3400000
3400000
3083000
3083000
219000
219000
3083000
317000
4823000
3400000
1423000
3632000
2000
3275000
Expiring in May 2017, were extended for a period of two years
Reduced from $1.50 to $1.10
Warrants by one year and reduced the exercise price from $4.25 to $3.00.
The warrants' exercise prices were lowered from $3.00 and $4.00 per share to $1.50 per share.
428005
1033000
1601000
1033000
P5Y
P5Y
P5Y
P5Y
187000
1109000
10.00
0.05
0.05
5000
6000000
6000000
14000000
14905000
12887000
1.70
200000
14906000
0.25
2.10
1.70
3000000
3500000
2.07
1.60
P4Y
P1Y
P18M
P4Y
P4Y
P4Y
P4Y
P4Y
370000
386000
1190000
1540000
389000
39000
2019-06-30
2022-12-31
2022-07-31
2022-03-31
2022-03-31
2691000
592000
-123750
4.26
431000
4.88
-1500000
1.60
2.20
3.75
2.19
3.74
5.04
3744404
2573954
940450
230000
2.16
1.67
2.81
4.90
678059
285609
202450
190000
3.03
1.67
3.22
4.88
35000000
42000000
18000000
18000000
2035
2019
8927000
10429000
227000
162000
148000
51000
655000
31000
10496000
10496000
0.21
0.34
-0.05
-0.05
0.26
0.29
0.00
0.00
-176000
0.00
0.10
-0.26
-0.39
1.00
3.00
4.00
1.50
1.50
1.10
2.00
1.55
P5Y
P5Y
P5Y
161000
7511000
7511000
658000
658000
38000
195000
195000
820000
680000
100000
99000
22000
345000
47560000
38355000
420000
4000000
569000
571000
256222
400000
400000
-656222
0.0475
0.035
0.02
0.083
0.126
1201000
1.00
1300000
4000
1.10
600000
4666666
750000
2549000
82000
110000
110000
5925000
118000
0
571000
784549
0
1480000
2.07
2000
34000
162000
1000
1000
571000
7643749
428005
-1122376
0
2.09
2.06
4.50
1.95
2.03
1.50
2.06
6897277
P3Y5M5D
P4Y
P2Y5M1D
P3Y5M5D
P2Y5M1D
1447000
26000
1447000
2000
161000
3302000
689000
418909000
Company conducted a public offering of rights to purchase up to $14 million of units, each unit consisting of one share of the Company's common stock and one-half warrant to purchase one share of common stock (the "Rights Offering"). Pursuant to the Rights Offering, the Company sold an aggregate of 9,333,333 units consisting of 9,333,333 shares of common stock and warrants to purchase 4,666,666 shares of common stock, with each warrant exercisable for one share of common stock at an exercise price of $2.025 per share
830000
1500000
4000000
161000
1734
1640
1947715
27500
2021-04-21
2021-04-21
3083000
3400000
3400000
157000
3302000
(1) Warrant valuation on December 31, 2016 for 418,909 warrants containing fundamental transaction provisions.
(2) April 21, 2017 grant to Raptor of warrants to purchase 1,416,667 shares of the Company's common stock in connection with the Company's issuance of the Convertible Note to a Related Party (valued at $3,302) and April 19, 2017, grant of 210,111 warrants to three accredited investors that are party to a Securities Purchase Agreement dated May 26, 2016 and hold participation rights in the Company's financing transactions (valued at $571).
(3) April 19, 2017, the three accredited investors referred to above waived their participation rights with regard to the April 21, 2017 financing. The Company increased the terms of their outstanding 280,147 warrants by one year and reduced the exercise price from $4.25 to $3.00. The incremental change in the warrants' fair value of $187 on the modification date was reported as an increase to the warrant liability and a cost of warrant modification.
(4) July 13, 2017 warrant exercise agreements with Raptor and the three accredited investors to reprice warrants to purchase a total of 1,906,925 shares of our common stock. The incremental cost before and after the modification of the warrants resulted in a charge against earnings of $1,109. The warrants were also changed to modify language pertaining to a "fundamental transaction," eliminating the need to classify the warrants as a warrant liability. Upon modification, the investors exercised warrants for 1,122,376 shares of common stock at the repriced $1.50 per share, resulting in proceeds to the Company of $1,650. The fair value of the warrant liability at the date of exercise was $1,601, which was reclassified from the warrant liability to additional paid in capital as a result of the exercise. At the same time, the Company and the holders of the remaining 784,549 warrants agreed to modify the language of the fundamental transaction clause to require board approval, thus eliminating the need for the liability classification of the warrants. Accordingly, the fair value of these warrants, totaling $1,033, was reclassified from the warrant liability to additional paid in capital.
(5) Warrant valuation on December 31, 2017 for 138,762 warrants containing fundamental transaction provisions. The decrease in the fair value of the warrant liability was $3,275 for the year ended December 31, 2017.
(6) Warrant valuation on December 31, 2018 for 138,762 warrants containing fundamental transaction provisions. The increase in the fair value of the warrant liability was $2 for the year ended December 31, 2018.