What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-12 compared with 2021-05-17 · 284 added, 147 removed, 155 unchanged (74% 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.

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.

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.

In addition to our GAAP results, the following

discussion includes Modified EBITDA as a supplemental measure of our performance.

We present Modified EBITDA because we believe it assists

investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not

believe are indicative of our core operating performance.

In addition, we use Modified EBITDA in developing our internal budgets, forecasts

and strategic plan;

in analyzing the effectiveness of our business strategies in evaluating potential acquisitions;

making compensation

and in communications with our board of directors concerning our financial performance.

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.

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.

The following discussion also includes the

use of gross billing, a key performance indicator and metric.

Gross billing represents invoiced amounts to distributors and retailers,

excluding sales adjustments.

Gross billing may include deductions from MSRP or “list price”, where applicable, and excludes

promotional costs of generating such sales.

Management utilizes gross billing to monitor operating performance of products and salespersons,

which performance can be masked by the effect of promotional or other allowances.

Management believes that the presentation of gross

billing provides a useful measure of Reed’s operating performance.

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

quality protocols.

In addition to our traditional sales channels, the Company is expanding in the club, 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.

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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.

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

Plans have been developed to mitigate the impact of these costs.

Considerations

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

the period ended June 30, 2021, the COVID-19 pandemic has impacted our operating results and the Company anticipates a continued impact

for the balance of the year.

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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

June 30, 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.

In addition, the Company experienced increases

in the pricing of several of its raw materials and delays in procuring several of these items.

However, mitigation plans are being

implemented to manage this risk.

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

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health authorities to protect our employees.

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

Since the inception of the COVID-19 pandemic and through June 30, 2021, we maintained the

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

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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

sales for the six months ended June 30, 2021 were up 15% from the prior year period.

Through June 30, 2021, we continue to generate cash

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

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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)

of Operations – Three months ended June 30, 2021

following table sets forth key statistics for the three months ended June 30, 2021 and 2020, respectively, in thousands.

Three Months Ended June 30,

Gross billing (A)

Promotional and other allowances (B)

Cost of goods sold

% of Gross sales

% of Gross billing

% of Net sales

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Loss from operations

Interest expense and other expense

Interest expense and other income (expense)

Loss per share – basic and diluted

Weighted average shares outstanding - basic & diluted

(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.

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.

We define gross billing as the total sales for the Company unadjusted for costs related to generating those sales.

utilizes gross billing 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.

that the presentation of gross billing provides a useful measure of our operating performance.

Additionally, gross billing

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

internal reporting practices .

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

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

and customer agreements.

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

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.

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;

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.

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

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 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 2020 consist primarily of slower

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

through the second quarter of 2021.

Cost of Sales, and Gross Margins

As part of the Company’s ongoing initiative

to simplify and streamline operations, 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.

Non-core products consist primarily of Wellness Shots, candy and 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 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.

beverage volume for the three months ended June 30, 2021, represents 99% of all beverage volume.

brand gross billing increased by 2% to $12,200 compared to the same period last year, driven by Reed’s volume growth of

5% and Virgil’s volume growth of 13%.

The result is an increase in total gross billing of 3%, to $12,626 in the three months

ended June 30, 2021, from $12,229 during the three months ended June 30, 2020.

Price on our core brands decreased 6% to $17.43 per case

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

as a percentage of gross billing were 11% for the three months ended June 30, 2021 and 2020.

Net sales revenue grew 4% in the

three months ended June 30, 2021 to $11,270, compared to $10,853 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.

of goods sold increased $136 during the three months ended June 30, 2021 as compared to the same period last year.

As a percentage of

net sales, cost of goods sold for the three months ended June 30, 2021 was 71% as compared to 72% for the same period last year.

total cost of goods per case decreased to $11.27 per case in the three months ended June 30, 2021 from $12.08 per case for the same period

The cost of goods sold per case on core brands was $11.22 during the three months ended June, 2021, compared to $11.93 for

the same period last year.

margin increased to 29% for the three months ended June 30, 2021, compared to 28% 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 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

Delivery and handling expenses increased by $1,028 in the three months ended June 30, 2021 to $2,508 from $1,480 in the same period last

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

Delivery costs in the three

months ended June 30, 2021 were 22% of net sales and $3.53 per case, compared to 14% of net sales and $2.27 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.

Total selling and marketing expenses were $2,634 during the three months ended June

30, 2021, compared to $1,585 during the same period last year.

As a percentage of net sales, selling and marketing costs increased to

23% during the three months ended June 30, 2021, as compared to 15% during the same period last year.

The increase was driven by an increase

in sales force headcount and 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 increased in the three months ended June 30, 2021 to $1,836 from $1,357, an increase of $479

over the same period last year.

The increase was primarily driven by higher employee costs and stock compensation.

from Operations

loss from operations was $3,709 for the three months ended June 30, 2021, as compared to a loss of $1,434 in the same period last year

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

and Other Income (Expense)

and other income for the three months ended June 30, 2021, consisted of $202 of interest expense offset by $770 gain on forgiveness of

During the same period last year, interest and other expense consisted of $303 of interest expense and by the change in fair value

of our warrant liability of $13.

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 June 30, 2021 and 2020 (unaudited;

in thousands):

Three Months Ended June 30,

Modified EBITDA adjustments:

Depreciation and amortization

Interest expense

Stock option and other noncash compensation

Change in fair value of warrant liability

Gain on forgiveness of PPP note payable

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.

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

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

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 – Six months ended June 30, 2020

following table sets forth key statistics for the six months ended June 30, 2021 and 2020, respectively, in thousands.

Six Months Ended June 30,

Gross billing (A)

Promotional and other allowances (B)

Cost of goods sold

% of Gross billing

% 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 income (expense)

Loss per share – basic and diluted

Weighted average shares outstanding - basic & diluted

We define gross billing as the total sales for the Company unadjusted for costs related to generating those sales.

utilizes gross billing 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.

that the presentation of gross billing provides a useful measure of our operating performance.

Additionally, gross billing

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

reporting practices .

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

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

and customer agreements.

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

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.

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

part of the Company’s ongoing initiative to simplify and streamline operations 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.

products consist primarily of Wellness Shots, candy and slower selling discontinued Reed’s and Virgil’s SKUs.

beverage volume for the six months ended June 30, 2021, represents 99% of all beverage volume.

brand gross billing increased by 14% to $25,155 compared to the same period last year, driven by Reed’s volume growth of

20% and Virgil’s volume growth of 20%.

The result is an increase in total gross billing of 14%, to $25,907 in the six months

ended June 30, 2021, from $22,781 during the six months ended June 30, 2020.

Price on our core brands decreased 5% to $17.54 per

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

as a percentage of gross billing decreased to 10% from 11% in the same period last year.

As a result, net sales revenue grew 15%

in the six months ended June 30, 2021 to $23,416, compared to $20,376 in the same period last year.

of Goods Sold

of goods sold increased $1,776 during the six months ended June 30, 2021 as compared to the same period last year.

As a percentage

of net sales, cost of goods sold for the six months ended June 30, 2021 was 70% as compared to 71% for the same period last year.

total cost of goods per case decreased to $11.22 per case in the six months ended June 30, 2021 from $11.99 per case for the same period

The cost of goods sold per case on core brands was $11.14 during the six months ended June 30, 2021, compared to $11.81 for

the same period last year.

margin was 30% for the six months ended June 30, 2021, compared to 29% 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 production.

Delivery and handling expenses increased by $3,052 in the six months ended June 30, 2021 to $5,795 from $2,743 in the same period

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

Delivery costs in the

six months ended June 30, 2021 were 25% of net sales and $3.99 per case, compared to 13% of net sales and $2.27 per case during the same

period last year.

and Marketing Expenses

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expenses including personnel and contractor support.

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 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.

Total selling and marketing expenses increased $1,339 to $4,849 during the six months

ended June 30, 2021, compared to $3,510 during the same period last year.

As a percentage of net sales, selling and marketing costs increased

to 21% during the six months ended June 30, 2021, as compared to 17% during the same period last year.

The increase was driven by an

increase in sales force headcount and 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 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.

General and administrative expenses increased in the six months ended June 30, 2021 to $4,439 from $3,289 an increase of $1,150

over the same period last year.

The increase was driven by legal settlements, employee costs, stock compensation, consulting fees, and

public company costs.

from Operations

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

loss from operations was $7,961 for the six months ended June 30, 2021, as compared to a loss of $3,684 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 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.

and Other Income (Expense)

and other income for the six months ended June 30, 2021, consisted of $458 of interest expense offset by $770 gain on forgiveness of

During the same period last year, interest and other expense consisted of $639 of interest expense and the change in fair value

of our warrant liability of $7.

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

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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.

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

8 unchanged sentences

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;

forth below is a reconciliation of net loss to Modified EBITDA for the six months ended June 30, 2021 and 2020 (unaudited;

in thousands):

Three Months Ended March 31

Six Months Ended June 30,

Modified EBITDA adjustments:

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Change in fair value of warrant liability

Gain on forgiveness of PPP note payable

Legal settlements

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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

the six months ended June 30, 2021, the Company recorded a net loss of $7,649 and used cash in operations of $10,309.

As of June 30,

2021, we had a cash balance of $654 with borrowing capacity of $4,343, a stockholder’s equity of $11,566 and a working capital

of $10,470, compared to a cash balance of $595 with borrowing capacity of $5,166, stockholders’ equity of $10,404 and a working

capital of $9,528 at December 31, 2020.

Notwithstanding the net loss for the six months ended June 30, 2021, management projects adequate

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

44 unchanged sentences

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.

obtains control of the goods and therefore represent a fulfilment activity rather than a promised service to the customer.

Compensation Expense .

11 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis