What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-17 compared with 2020-11-09 · 237 added, 415 removed, 65 unchanged (91% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding

Forward-Looking Statements and Information

This Quarterly Report on Form 10-Q

as well as our other public filings or public statements include forward-looking statements within the meaning of the Private

Securities Litigation Reform Act of 1995.

Forward-looking statements are identified by terms and phrases such as “anticipate,”

“believe,” “continue,” “could,” “estimate,” “expect,” “intend,”

“may,” “plan,” “predict,” “project,” “should,” and “will”

and similar expressions and include references to assumptions and relate to our future prospects, developments and business strategies.

These forward-looking statements involve

known and unknown risks, assumptions and uncertainties and other factors that may cause our actual results, levels of activity,

performance or achievements to be materially different from any future results, levels of activity, performance, or achievements

expressed or implied by forward-looking statements.

These risks, assumptions and uncertainties include difficulty in marketing

Reed’s products and services, maintaining and protecting brand recognition, Reed’s ability to qualify for forgiveness

of the PPP loan, the need for significant capital, dependence on third party distributors, dependence on third party brewers,

increasing costs of fuel and freight, protection of intellectual property, competition and other factors, any of which could have

an adverse effect on the business plans of Reed’s, its reputation in the industry or its expected financial return from

operations and results of operations.

These risks, assumptions and uncertainties are not necessarily all of the important factors

that could cause actual results to differ materially from those expressed in any of our forward-looking statements.

We undertake no obligation to update

or revise the forward-looking statements included in this report, whether as a result of new information, future events or otherwise,

after the date of this report.

Our actual results, performance or achievements could differ materially from the results expressed

in, or implied by, these forward-looking statements.

following discussion and analysis of our financial condition and results of operations should be read in conjunction with our

financial statements and the related notes appearing elsewhere in this report.

This discussion and analysis may contain forward-looking

statements based on assumptions about our future business.

the third quarter of 2020, the Company fully utilized their expanded network of co-packers and implemented an upgraded set of

quality protocols.

In addition to our

traditional sales channels, the Company is utilizing their ecommerce platform that includes their branded web sites and Amazon

to offer its line of shots, ginger candy and drinks packaged in cans.

public equity offering, which closed on April 20, 2020, provided the Company with funds for working capital and general corporate

These funds enabled us to initiate the implementation of our 2020 strategy that included driving growth while

strategically reducing operating costs.

the first quarter of 2021, the Company fully utilized their expanded network of co-packers and continues to adhere to strict set of quality

In addition to our traditional sales channels, the Company is expanding in the drug, convenience and ecommerce channels including

their branded web sites and Amazon to offer its line of shots, ginger candy and drinks packaged in cans.

Company remains focused on driving sales growth and improving margin.

The sales growth focus is on channel expansion, new product

introduction and improved sales execution.

The margin enhancement initiative is driven by co-packer upgrades, better leveraged

purchasing and improved efficiency.

The sales growth focus is on channel expansion, new product introduction

and improved sales execution.

The margin enhancement initiative is driven by co-packer upgrades, better leveraged purchasing and improved

Underpinning these initiatives is a focus on strategically reducing operating costs.

However, the Company experienced elevated

transportation costs over the prior year and anticipates these costs to remain elevated for the balance of the year.

Plans have been

developed to mitigate the impact of these costs.

Considerations

the quarter ended September 30, 2020, the COVID-19 pandemic did not have a material net impact on our operating results.

future, the pandemic may cause reduced demand for our products if, for example, the pandemic results in a recessionary economic

environment which negatively effects the consumers who purchase our products.

Based on the recent increase in demand for our products,

we believe that over the long term, there will continue to be strong demand for our products.

ability to operate without significant negative operational impact from the COVID-19 pandemic will in part depend on our ability

to protect our employees and our supply chain.

The Company has endeavored to comply with the recommended actions of government

and health authorities to protect our employees.

For the six months ended September 30, 2020, we maintained the consistency of

our operations during the onset of the COVID-19 pandemic.

the period ended March 31, 2021, the COVID-19 pandemic has impacted our operating results and the Company anticipates a continued impact

for the balance of the year.

In addition, the pandemic may cause reduced demand for our products if, for example, the pandemic results

in a recessionary economic environment which negatively effects the consumers who purchase our products.

Based on the recent increase

in demand for our products, we believe that over the long term, there will continue to be strong demand for our products.

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

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

However, mitigation plans are being implemented

to manage this risk.

ability to operate without significant incremental negative operational impact from the COVID-19 pandemic will in part depend on our

ability to protect our employees and our supply chain.

The Company has endeavored to follow the recommended actions of government and

health authorities to protect our employees.

Since the inception of the COVID-19 pandemic and through March 31, 2021, we maintained the

consistency of our operations during the onset of the COVID-19 pandemic.

We will continue to innovate in managing our business, coordinating

with our employees and suppliers to do our part in the infection prevention and remain flexible in responding to our customers

and suppliers.

However, the uncertainty resulting from the pandemic could result in an unforeseen disruption to our workforce

and supply chain (for example an inability of a key supplier or transportation supplier to source and transport materials) that

could negatively impact our operations.

September 30, 2020, in part due to our innovative response to the COVID-19 pandemic, the COVID-19 pandemic has not negatively

impacted the Company’s liquidity position as of such date.

Shipments to customers in the third quarter were up 14% from

the first quarter of the year and down slightly (2%) from the Second quarter of 2020, with fluctuations consistent with historical

seasonal patterns.

Through September 30, 2020, we continue to generate cash flows to meet our short-term liquidity needs,

and we expect to maintain access to the capital markets.

We have also not observed any material impairments of our assets or a

significant change in the fair value of our assets due to the COVID-19 pandemic.

additional information on risk factors related to the pandemic or other risks that could impact our results, please refer to “Risk

Factors” in Part II, Item 1A of this Form 10-Q.

of Operations – Three months ended September 30, 2020

following table sets forth key statistics for the three months ended September 30, 2020 and 2019, respectively, in thousands.

Three Months Ended September 30,

with our employees and suppliers to do our part in the infection prevention and remain flexible in responding to our customers and suppliers.

However, the uncertainty resulting from the pandemic could result in an unforeseen disruption to our workforce and supply chain (for

example an inability of a key supplier or transportation supplier to source and transport materials) that could negatively impact our

sales for the period ended March 31, 2021 were up 28% from the prior year period.

Through March 31, 2021, we continue to generate cash

flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets.

We have also not observed any

material impairments of our assets or a significant change in the fair value of our assets due to the COVID-19 pandemic.

of Operations – Three Months Ended March 31, 2021 as compared to March 31, 2020

following table sets forth key statistics for the three months ended March 31, 2021 and 2020, respectively, in thousands.

Three Months Ended March 31,

Gross sales (A)

Promotional and other allowances (B)

Cost of goods produced (C)

Cost of goods sold

% of Gross sales

13 unchanged sentences

Weighted average shares outstanding - basic & diluted

Gross sales are used internally by management as an indicator of and to monitor operating performance, including sales performance

of particular products, salesperson performance, product growth or declines and overall Company performance.

The use of gross

sales allows evaluation of sales performance before the effect of any promotional items, which can mask certain performance issues.

We therefore believe that the presentation of gross sales provides a useful measure of our operating performance.

are not a measure that is recognized under GAAP and should not be considered as an alternative to net sales, which is determined

in accordance with GAAP, and should not be used alone as an indicator of operating performance in place of net sales.

Additionally,

gross sales may not be comparable to similarly titled measures used by other companies, as gross sales have been defined by our

internal reporting practices.

In addition, gross sales may not be realized in the form of cash receipts as promotional payments

and allowances may be deducted from payments received from certain customers.

Although the expenditures described in this line item are determined in accordance with GAAP and meet GAAP requirements, the disclosure

thereof does not conform to GAAP presentation requirements.

Additionally, our definition of promotional and other allowances may

not be comparable to similar items presented by other companies.

Promotional and other allowances primarily include consideration

given to the Company’s distributors or retail customers including, but not limited to the following:

(i) reimbursements

given to the Company’s distributors for agreed portions of their promotional spend with retailers, including slotting, shelf

space allowances and other fees for both new and existing products;

(ii) the Company’s agreed share of fees given to distributors

and/or directly to retailers for in-store marketing and promotional activities;

(iii) the Company’s agreed share of slotting,

shelf space allowances and other fees given directly to retailers;

(iv) incentives given to the Company’s distributors and/or

retailers for achieving or exceeding certain predetermined sales goals;

(A) The Company considers Gross Sales to be

a key performance indicator in our Management's Discussion and Analysis (MD&A).

Gross Sales is a non-GAAP measure.

We define Gross

Sales as the total sales for the Company unadjusted for costs related to generating those sales.

Gross Sales is calculated from the commonly

understood GAAP amount, Net Sales, and adjusted to remove the reduction (i.e.

adds back) promotional expense in the period the related

revenue is recorded, with the resulting performance amount labeled Gross Sales.

Management utilizes gross sales as an indicator of and

to monitor operating performance of products and salespersons before the effect of any promotional or other allowances, which are determined

in accordance with GAAP, and can mask certain performance issues.

We believe that the presentation of gross sales provides a useful measure

of our operating performance.

Additionally, gross sales may not be comparable to similarly titled measures used by other companies, as

gross sales have been defined by our internal reporting practices.

We define promotional and other allowances as costs deducted from gross sales which are associated with generating those sales.

utilizes promotional and other allowances as an indicator of and to monitor operating performance of products, salespersons, and customer

We believe that the presentation of promotional and other allowances provides a useful measure of our operating performance.

The presentation of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and

the spending levels incurred or correlated with such sales.

The expenditures described in this line item are determined in accordance

with GAAP and meet GAAP requirements, the disclosure thereof does not conform to GAAP presentation requirements.

Additionally, our definition

of promotional and other allowances may not be comparable to similar items presented by other companies.

Promotional and other allowances

primarily include consideration given to the Company’s distributors or retail customers including, but not limited to the following:

(i) reimbursements given to the Company’s distributors for agreed portions of their promotional spend with retailers, including

slotting, shelf space allowances and other fees for both new and existing products;

(ii) the Company’s agreed share of fees given

to distributors and/or directly to retailers for in-store marketing and promotional activities;

(iii) the Company’s agreed share

of slotting, shelf space allowances and other fees given directly to retailers;

(iv) incentives given to the Company’s distributors

and/or retailers for achieving or exceeding certain predetermined sales goals;

and (v) discounted or free products.

The presentation

of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and the spending

levels incurred or correlated with such sales.

Promotional and other allowances constitute a material portion of our marketing

The Company’s promotional allowance programs with its numerous distributors and/or retailers are executed through

separate agreements in the ordinary course of business.

These agreements generally provide for one or more of the arrangements

described above and are of varying durations, ranging from one week to one year.

Cost of goods produced:

Cost of goods produced consists of the costs of raw materials and packaging utilized in the manufacture

of products, co-packing fees, repacking fees, in-bound freight charges, inventory adjustments, as well as certain internal transfer

Cost of goods produced is used internally by management to measure the direct costs of goods sold, aside from unallocated

Cost of goods produced is not a measure that is recognized under GAAP and should not be considered as an alternative

to cost of goods sold, which is determined in accordance with GAAP, and should not be used alone as an indicator of operating

performance in place of cost of goods sold.

Promotional and other

allowances constitute a material portion of our marketing activities.

The Company’s promotional allowance programs with its numerous

distributors and/or retailers are executed through separate agreements in the ordinary course of business.

These agreements generally

provide for one or more of the arrangements described above and are of varying durations, ranging from one week to one year.

Cost of Sales, and Gross Margins

following chart sets forth key statistics for the transition of the Company’s top line activity through the third quarter

of 2020 and 2019.

part of the Company’s ongoing initiative to simplify and streamline operations by reducing the number of SKUs, the Company

has identified core products on which to place its strategic focus.

These core products consist of Reed’s and Virgil’s

branded beverages.

following chart sets forth key statistics for the transition of the Company’s top line activity from the first quarter of 2020

through the first quarter of 2021.

Gross Margin:

as % Net Sales

part of the Company’s ongoing initiative to simplify and streamline operations by reducing the number of SKUs, the Company has

identified core products on which to place its strategic focus.

These core products consist of Reed’s and Virgil’s branded

Beginning in 2020, our Wellness Shots are captured in Non-core products.

Non-core products for 2019 consist

primarily of slower selling discontinued Reed’s and Virgil’s SKUs.

a result of our decision to focus on the core Reed’s and Virgil’s beverage brands and simplify operations by reducing

the overall number of SKUs that we offer, the Company’s core beverage volume for the quarter ended September 30, 2020, represents

Non-core products for 2020 consist primarily of slower

selling discontinued Reed’s and Virgil’s SKUs.

a result of our decision to focus on the core Reed’s and Virgil’s beverage brands and simplify operations by reducing the

overall number of SKUs that we offer, the Company’s core beverage volume for the three months ended March 31, 2021, represents

98% of all beverage volume.

brand gross revenue increased by 18% to $11,622 compared to the same period last year, driven by Reed’s volume growth of

The result is an increase in total gross revenue of 18%, to $11,896 from $10,112 during the same period last year.

on our core brands increased $0.19 per case or 1% year over year, while volume grew 17% as compared to the same period last year.

as a percentage of gross sales decreased to 11% in the third quarter of 2020 from 14% in the same period last year.

net sales revenue grew 21% in the third quarter of 2020 to $10,562, compared to $8,740 in the same period last year.

of Goods Sold and Produced

Cost of goods sold increased $938 during

the third quarter of 2020 as compared to the same period last year.

As a percentage of net sales, cost of goods sold in the third

quarter of 2020 improved to 68% as compared to 71% for the same period last year.

The total cost of goods per case decreased

to $11.24 per case in the third quarter of 2020 from $11.34 per case for the same period last year.

The cost of goods sold

per case on core brands was $11.11 during the third quarter of 2020, compared to $11.29 and the third quarter of 2019.

Gross margin increased to 32% for the

third quarter of 2020, compared to 29% during the same period last year.

brand gross revenue increased by 27% to $12,955 compared to the same period last year, driven by Reed’s volume growth of 37% and

Virgil’s volume growth of 29%.

The result is an increase in total gross revenue of 26%, to $13,281 in the three months ended March

31, 2021, from $10,551 during the three months ended March 31, 2020.

Price on our core brands decreased 5% to $17.65 per case due to

a shift in mix to lower priced, higher margin products.

as a percentage of gross sales decreased to 9% from 10% in the same period last year.

As a result, net sales revenue grew 28% in the

three months ended March 31, 2021 to $12,146, compared to $9,523 in the same period last year.

of Goods Sold

of goods sold increased $1,640 during the three months ended March 31, 2021 as compared to the same period last year.

As a percentage

of net sales, cost of goods sold for the three months ended March 31, 2021 was 68% as compared to 70% for the same period last year.

total cost of goods per case decreased to $11.18 per case in the three months ended March 31, 2021 from $11.23 per case for the same

period last year.

The cost of goods sold per case on core brands was $11.07 during the year months ended March 31, 2021, compared to

$11.11 for the same period last year.

margin increased to 32% for the three months ended March 31, 2021, compared to 30% for the same period last year.

and Handling Expenses

and handling expenses consist of delivery costs to customers and warehousing costs incurred for handling our finished goods after

Delivery and handling expenses increased by $306 in the third quarter of 2020 to $2,207 from $1,902 in the same period

last year, driven by increased volumes.

Delivery costs in the third quarter of 2020 were 21% of net sales and $3.45 per case,

compared to 22% of net sales and $3.46 per case during the same period last year.

and Marketing Expenses

expenses consist of direct marketing, marketing labor, and marketing support costs.

Selling expenses consist of all other selling-related

expenses including personnel and contractor support.

selling and marketing expenses were $1,872 during the third quarter of 2020, compared to $2,508 during the same period last year.

As a percentage of net sales, selling and marketing costs decreased to 18% during the third quarter of 2020, as compared to 29%

during the same period last year.

The decrease represents a lapping of the “Fooled Your Mom” campaign in the third

quarter of 2019 and a lower level of digital advertising, event sampling and agency fees.

In addition, personnel and travel related

costs declined.

and Administrative Expenses

and administrative expenses consist primarily of the cost of executive, administrative, and finance personnel, as well as professional

General and administrative expenses decreased in the third quarter of 2020 to $1,583 from $2,470, a decrease of $887 over

and handling expenses consist of delivery costs to customers and warehousing costs incurred for handling our finished goods after production.

Delivery and handling expenses increased by $2,023 in the three months ended March 31, 2021 to $3,286 from $1,263 in the same period

last year, driven by increased volumes, ecommerce fulfillment costs, and increasing freight rates due to Covid-19.

Delivery costs in

the three months ended March 31, 2021 were 27% of net sales and $4.43 per case, compared to 13% of net sales and $2.26 per case during

the same period last year.

Decrease was driven by a $643 decrease in severance expense, $214 decrease in stock option expense,

and a $74 decrease in professional and consulting fees, partially offset by a $44 increase in other general and administrative

from Operations

The loss from operations was $2,276

for the third quarter of 2020, as compared to a loss of $4,378 in the same period last year driven by increase gross profit and

reductions in operating expenses discussed above.

and Other Expense

and other expense for the third quarter of 2020, consisted of $322 of interest expense offset by the change in fair value of our

warrant liability of $8.

During the same period last year, interest and other expense consisted of $318 of interest expense offset

by the change in fair value of our warrant liability of $131.

addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance.

However, Modified EBITDA

is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations

or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities

as a measure of liquidity.

We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization,

stock-based compensation, changes in fair value of warrant expense, and one-time restructuring-related costs including employee

severance and asset impairment.

considers our core operating performance to be that which our managers can affect in any particular period through their management

of the resources that affect our underlying revenue and profit generating operations during that period.

Non-GAAP adjustments

to our results prepared in accordance with GAAP are itemized below.

You are encouraged to evaluate these adjustments and the reasons

we consider them appropriate for supplemental analysis.

In evaluating Modified EBITDA, you should be aware that in the future

we may incur expenses that are the same as or similar to some of the adjustments in this presentation.

Our presentation of Modified

EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

forth below is a reconciliation of net loss to Modified EBITDA for the three months ended September 30, 2020 and 2019 (unaudited;

in thousands):

Months Ended September 30,

EBITDA adjustments:

and amortization

option and other noncash compensation

in fair value of warrant liability

EBITDA adjustments

present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods

on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

we use Modified EBITDA in developing our internal budgets, forecasts and strategic plan;

in analyzing the effectiveness of our

business strategies in evaluating potential acquisitions;

making compensation decisions;

and in communications with our board

of directors concerning our financial performance.

Modified EBITDA has limitations as an analytical tool, which includes, among

others, the following:

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

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

EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments,

on our debts;

depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced

in the future, and Modified EBITDA does not reflect any cash requirements for such replacements.

of Operations – Nine months ended September 30, 2020

following table sets forth key statistics for the nine months ended September 30, 2020 and 2019, respectively, in thousands.

Nine Months Ended September 30,

Gross sales (A)

Promotional and other allowances (B)

Cost of goods produced (C)

% of Gross sales

% of Net sales

Cost of goods sold – idle capacity (D)

% of Net sales

Delivery and handling

% of Net sales

Dollar per case ($)

Selling and marketing

% of Net sales

General and administrative

% of Net sales

Total Operating expenses

Loss from operations

Interest expense and other expense

Loss per share – basic and diluted

Weighted average shares outstanding - basic & diluted

Gross sales are used internally by management as an indicator of and to monitor operating performance, including sales performance

of particular products, salesperson performance, product growth or declines and overall Company performance.

The use of gross

sales allows evaluation of sales performance before the effect of any promotional items, which can mask certain performance issues.

We therefore believe that the presentation of gross sales provides a useful measure of our operating performance.

are not a measure that is recognized under GAAP and should not be considered as an alternative to net sales, which is determined

in accordance with GAAP, and should not be used alone as an indicator of operating performance in place of net sales.

Additionally,

gross sales may not be comparable to similarly titled measures used by other companies, as gross sales have been defined by our

internal reporting practices.

In addition, gross sales may not be realized in the form of cash receipts as promotional payments

and allowances may be deducted from payments received from certain customers.

Although the expenditures described in this line item are determined in accordance with GAAP and meet GAAP requirements, the disclosure

thereof does not conform to GAAP presentation requirements.

Additionally, our definition of promotional and other allowances may

not be comparable to similar items presented by other companies.

Promotional and other allowances primarily include consideration

given to the Company’s distributors or retail customers including, but not limited to the following:

(i) reimbursements

given to the Company’s distributors for agreed portions of their promotional spend with retailers, including slotting, shelf

space allowances and other fees for both new and existing products;

(ii) the Company’s agreed share of fees given to distributors

and/or directly to retailers for in-store marketing and promotional activities;

(iii) the Company’s agreed share of slotting,

shelf space allowances and other fees given directly to retailers;

(iv) incentives given to the Company’s distributors and/or

retailers for achieving or exceeding certain predetermined sales goals;

and (v) discounted or free products.

The presentation

of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and the spending

levels incurred or correlated with such sales.

Promotional and other allowances constitute a material portion of our marketing

The Company’s promotional allowance programs with its numerous distributors and/or retailers are executed through

separate agreements in the ordinary course of business.

These agreements generally provide for one or more of the arrangements

described above and are of varying durations, ranging from one week to one year.

Cost of goods produced:

Cost of goods produced consists of the costs of raw materials and packaging utilized in the manufacture

of products, co-packing fees, repacking fees, in-bound freight charges, inventory adjustments, as well as certain internal transfer

Cost of goods produced is used internally by management to measure the direct costs of goods sold, aside from unallocated

Cost of goods produced is not a measure that is recognized under GAAP and should not be considered as an alternative

to cost of goods sold, which is determined in accordance with GAAP, and should not be used alone as an indicator of operating

performance in place of cost of goods sold.

Cost of goods sold – idle capacity:

Cost of goods sold – idle capacity consists of direct production costs in excess

of charges allocated to our finished goods in production.

Plant costs in excess of production allocations are expensed in the

period incurred rather than added to the cost of finished goods produced.

Plant costs include labor costs, production supplies,

repairs and maintenance, and inventory write-off.

Our charges for labor and overhead allocated to our finished goods are determined

on a market cost basis, which is lower than our actual costs incurred.

Cost goods sold – idle capacity is not a measure

that is recognized under GAAP and should not be considered as an alternative to cost of goods sold, which is determined in accordance

with GAAP, and should not be used alone as an indicator of operating performance in place of cost of goods sold.

Cost of Sales, and Gross Margins

part of the Company’s ongoing initiative to simplify and streamline operations by reducing the number of SKUs, the Company

has identified core products on which to place its strategic focus.

These core products consist of Reed’s and Virgil’s

branded beverages.

Beginning in 2020, our Wellness Shots are captured in Non-core products.

Non-core products for 2019 consist

primarily of slower selling discontinued Reed’s and Virgil’s SKUs.

a result of our decision to focus on the core Reed’s and Virgil’s beverage brands and simplify operations by reducing

the overall number of SKUs that we offer, the Company’s core beverage volume for the first nine months of 2020, represents

98% of all beverage volume.

brand gross revenue increased by 15% to $33,737 compared to the same period last year, driven by Reed’s volume growth of

The result is an increase in total gross revenue of 14%, to $34,677 from $30,391 during the same period last year.

on our core brands increased $0.26 per case or 1% year over year, while volume grew 13% as compared to the same period last year.

as a percentage of gross sales decreased to 11% in the first nine months of 2020 from 12% in the same period last year.

in our promotions was driven by lower promotional activity primarily due to the impacts of COVID-19 as promotional execution became

a lower priority at retail.

As a result, net sales revenue grew 16% in the first nine months of 2020 to $30,938, compared to $26,669

in the same period last year.

of Goods Sold and Produced

Cost of goods sold increased $2,304

during the first nine months of 2020 as compared to the same period last year.

As a percentage of net sales, cost of goods sold

in the first nine months of 2020 improved to 70% as compared to 73% for the same period last year.

The total cost of goods per case increased

to $11.73 per case in the first nine months of 2020 from $11.67 per case in the same period last year.

The increase is

driven by utilization of higher costed inventory remaining from 2019 in the first quarter and a $198 reserve recorded related

to packaging material from transition to the FDA mandated nutritional fact requirements disclosure.

The cost of goods sold per

case on core brands increased to $11.57 during the first nine months of 2020, from the $11.42 for the same period

We are continuing to work with suppliers and co-packers to improve our processes and maximize cost efficiencies.

margin increased to 30% for the first nine months of 2020, compared to 27% during the same period last year.

and Handling Expenses

and handling expenses consist of delivery costs to customers and warehousing costs incurred for handling our finished goods after

Delivery and handling expenses increased by $581 in the first nine months of 2020 to $4,950 from $4,369 in the same

period last year, driven by increased volumes.

Delivery costs in the nine months of 2020 were 16% of net sales and $2.68 per case,

compared to 16% of net sales and $2.63 per case during the same period last year.

The per case rate increase was driven by market

forces impacted by COVID-19.

and Marketing Expenses

2 unchanged sentences

expenses including personnel and contractor support.

selling and marketing expenses were $5,382 during the first nine months of 2020, compared to $7,718 during the same period last

As a percentage of net sales, selling and marketing costs decreased to 17% during the first nine months of 2020, as compared

selling and marketing expenses were $2,215 during the three months ended March 31, 2021, compared to $1,925 during the same period last

As a percentage of net sales, selling and marketing costs decreased to 18% during the three months ended March 31, 2021, as compared

to 20% during the same period last year.

The decrease represents a lapping of the “Fooled Your Mom” campaign which

ran in the second quarter of 2019 as well as the Catalina retail register coupon program, which has yet to be used in 2020 and

a lower level of digital advertising, event sampling and agency fees.

In addition, personnel and travel related costs declined.

The increase was driven by an increase in sales force headcount and consumer facing marketing

costs partially offset by reduced expenditures on trade shows and sponsorships and lower stock compensation.

and Administrative Expenses

and administrative expenses consist primarily of the cost of executive, administrative, and finance personnel, as well as professional

General and administrative expenses decreased in the first nine months of 2020 to $4,872 from $6,557, a decrease of $1,685

over the same period last year.

The decrease was driven by lower severance of $682, forfeiture/expiration of options in the amount

of $580, the lapping of a $220 one-time final transition cost incurred in 2019 related to our plant sale and a reduction professional

fees and consultants of $70, and lower personnel and travel related costs.

General and administrative expenses increased in the three months ended March 31, 2021 to $2,603 from $1,932, an

increase of $671 over the same period last year.

The increase was driven by legal settlements, employee costs, consulting

fees, public company and licensing costs, partially offset by lower stock compensation.

from Operations

The loss from operations was $5,960

for the first nine months of 2020, as compared to a loss of $11,365 in the same period last year driven by increase gross profit

and reductions in operating expenses discussed above.

loss from operations was $4,251 for the three months ended March 31, 2021, as compared to a loss of $2,250 in the same period last year

driven by increased gross profit offset by increases in operating expenses discussed above.

and Other Expense

and other expense for the first nine months of 2020, consisted of $961 of interest expense offset by the change in fair value

of our warrant liability of $1.

During the same period last year, interest and other expense consisted of $947 of interest expense

offset by the change in fair value of our warrant liability of $23.

and other expense for the three months ended March 31, 2021, consisted of $256 of interest expense.

During the same period last year,

interest and other expense consisted of $336 of interest expense offset by the change in fair value of our warrant liability of $6.

addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance.

However, Modified EBITDA

is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations

or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities

as a measure of liquidity.

We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization,

stock-based compensation, changes in fair value of warrant expense, and one-time restructuring-related costs including employee

severance and asset impairment.

considers our core operating performance to be that which our managers can affect in any particular period through their management

of the resources that affect our underlying revenue and profit generating operations during that period.

Non-GAAP adjustments

to our results prepared in accordance with GAAP are itemized below.

You are encouraged to evaluate these adjustments and the reasons

we consider them appropriate for supplemental analysis.

In evaluating Modified EBITDA, you should be aware that in the future

we may incur expenses that are the same as or similar to some of the adjustments in this presentation.

Our presentation of Modified

EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

forth below is a reconciliation of net loss to Modified EBITDA for the nine months ended September 30, 2020 and 2019 (unaudited;

However, Modified EBITDA is not

a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other

performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of liquidity.

We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization, stock-based compensation, changes

in fair value of warrant expense, legal settlements, and one-time restructuring-related costs including employee severance and

asset impairment.

considers our core operating performance to be that which our managers can affect in any particular period through their management of

the resources that affect our underlying revenue and profit generating operations during that period.

Non-GAAP adjustments to our results

prepared in accordance with GAAP are itemized below.

You are encouraged to evaluate these adjustments and the reasons we consider them

appropriate for supplemental analysis.

In evaluating Modified EBITDA, you should be aware that in the future we may incur expenses that

are the same as or similar to some of the adjustments in this presentation.

Our presentation of Modified EBITDA should not be construed

as an inference that our future results will be unaffected by unusual or non-recurring items.

forth below is a reconciliation of net loss to Modified EBITDA for the three months ended March 31, 2021 and 2020 (unaudited;

in thousands):

Nine Months Ended September 30,

Three Months Ended March 31

Modified EBITDA adjustments:

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Change in fair value of warrant liability

Legal settlements

Total EBITDA adjustments

Modified EBITDA

present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods

on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

we use Modified EBITDA in developing our internal budgets, forecasts and strategic plan;

in analyzing the effectiveness of our

business strategies in evaluating potential acquisitions;

present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on

a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

In addition, we use Modified

EBITDA in developing our internal budgets, forecasts and strategic plan;

in analyzing the effectiveness of our business strategies in

evaluating potential acquisitions;

making compensation decisions;

and in communications with our board

of directors concerning our financial performance.

Modified EBITDA has limitations as an analytical tool, which includes, among

others, the following:

and in communications with our board of directors concerning our financial

Modified EBITDA has limitations as an analytical tool, which includes, among others, the following:

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

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

EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments,

on our debts;

depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced

in the future, and Modified EBITDA does not reflect any cash requirements for such replacements.

EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments, on

depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in

the future, and Modified EBITDA does not reflect any cash requirements for such replacements.

and Capital Resources

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

assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

For the nine months ended September 30, 2020,

the Company recorded a net loss of $6,920 and used cash in operations of $6,768.

As of September 30, 2020, we had a cash

balance of $875 with borrowing capacity of $3,037, a stockholder’s equity of $558 and a negative working capital

of $207, compared to a cash balance of $913 with borrowing capacity of $3,235, stockholders’ equity of $1,147 and

a working capital of $4,885 at December 31, 2019.

April 2020, the Company conducted a public offering of 15,333,334 shares of its common stock at $0.375 per share, resulting in

net proceeds to the Company of $5,310.

April 20, 2020, the Company received loan proceeds in the amount of $770 pursuant to the Paycheck Protection Program under the

Coronavirus Aid, Relief and Economic Security Act (the “Cares Act”) (see Note 8).

PPP loan agreement is dated April 20, 2020, matures on April 20, 2022, bears interest at a rate of 1% per annum, with the first

six months of interest deferred, is payable monthly commencing on November 2020, and is unsecured and guaranteed by the U.S.

Business Administration.

The loan term may be extended to April 20, 2025, if mutually agreed to by the Company and lender.

applied ASC 470, Debt , to account for the PPP loan.

The PPP loan may be prepaid at any time prior to maturity with no prepayment

Funds from the PPP loan may only be used for qualifying expenses as described in the CARES Act, including qualifying

payroll costs, qualifying group health care benefits, qualifying rent and debt obligations, and qualifying utilities.

intends to use the entire loan amount for qualifying expenses.

Under the terms of the PPP, certain amounts of the loan may be

forgiven if they are used for qualifying expenses.

The Company intends to apply for forgiveness of the PPP loan with respect to

these qualifying expenses, however, we cannot assure that such forgiveness of any portion of the PPP loan will occur.

potential loan forgiveness, once the PPP loan is, in part or wholly, forgiven and a legal release is received, the liability would

be reduced by the amount forgiven and a gain on extinguishment would be recorded.

The terms of the PPP loan provide for customary

events of default including, among other things, payment defaults, breach of representations and warranties, and insolvency events.

The Company was in compliance with the terms of the PPP loan as of September 30, 2020.

Such assumption

contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

the three months ended March 31, 2021, the Company recorded a net loss of $4,507 and used cash in operations of $5,059.

As of March 31,

2021, we had a cash balance of $155 with borrowing capacity of $2,513, a stockholder’s equity of $6,770 and a working capital of

$5,698, compared to a cash balance of $595 with borrowing capacity of $5,166, stockholders’ equity of $10,404 and a working capital

of $9,528 at December 31, 2020.

Notwithstanding the net loss for the three months ended March 31, 2021, management projects adequate

cash from operations and available line of credit to ensure continuation of the Company as a going concern for at least one year from

the date of this quarterly report.

Historically,

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Accounting Policies and Estimates

preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at

the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

Actual results

could differ from those estimates.

Those estimates and assumptions include estimates for reserves of uncollectible accounts, inventory

obsolescence, depreciable lives of property and equipment, analysis of impairments of recorded long-term tangible and intangible

assets, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments

issued for services.

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

The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services

to customers at the amount expected to be collected.

ASC 606 creates a five-step model that requires entities to exercise judgment

when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying

our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction

price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.

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.

of Estimates and Assumptions.

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

Actual results could differ from those estimates.

Those estimates and assumptions include estimates for reserves of uncollectible

accounts receivables, assumptions used in valuing inventories at net realizable value, impairment testing of recorded long-term tangible

and intangible assets, the valuation allowance for deferred tax assets, accruals for potential liabilities, assumptions made in valuing

stock instruments issued for services, and assumptions used in valuing warrant liabilities, and assumptions used in the determination

of the Company’s liquidity.

Accounts receivable are recorded at the invoiced amounts.

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.

Inventory is stated at the lower of cost or net realizable value.

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.

Recognition .

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.

of the Company’s products are offered for sale as finished goods only, and there are no performance obligations required

post-shipment for customers to derive the expected value from them.

Company does not allow for returns, except for damaged products when the damage occurred pre-fulfillment.

Damaged product returns

have historically been insignificant.

Because of this, the stand-alone nature of our products, and our assessment of performance

obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance

for obligations.

We assess our contracts and the reasonableness of our conclusions on a quarterly basis.

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.

Compensation Expense .

The Company periodically issues stock options and restricted stock awards to employees and non-employees in

non-capital raising transactions for services and for financing costs.

The Company accounts for such grants issued and vesting based

on ASC 718, Compensation-Stock Compensation whereby the value of the award is measured on the date of grant and recognized as compensation

expense on the straight-line basis over the vesting period.

The Company recognizes the fair value of stock-based compensation within

its Statements of Operations with classification depending on the nature of the services rendered.

Accounting Pronouncements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis