What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-12 · 229 added, 248 removed, 191 unchanged (71% of the section changed)

2 unchanged sentences

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

addition to our GAAP results, the following discussion includes Modified EBITDA as a supplemental measure of our performance.

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 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.

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

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.

Company remains focused on driving sales growth and improving margin.

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However, the Company experienced elevated

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

raw material and 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.

During the third quarter of 2021, the Company

increased output through more efficient utilization of their expanded network of co-packers while adhering to strict set of quality protocols.

In addition, the company is implementing several measures to increase capacity and to offset inflationary pressure from increased pricing

of raw material inputs and transportation.

Considerations

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.

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.

June 30, 2021, the Company has experienced higher transportation expenses as the capacity in the freight market has not kept up with

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

impact for the balance of the year.

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

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

Based on the recent

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

September 30, 2021, the Company has experienced higher transportation expenses as the capacity in the freight market has not kept up

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

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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.

However, mitigation plans are being implemented

to manage this risk.

Additionally, the Company was negatively impacted by supply chain challenges limiting our ability to benefit from

strong demand for and increased sales of our product.

The disruption caused by labor shortages, significant raw material cost inflation,

logistics issues and increased freight costs, and ongoing port congestion, resulted in suppressed margins and net income.

Company anticipates a continued impact through mid-2022.

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 June 30, 2021, we maintained the

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

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

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

We will continue to innovate in managing our business, coordinating

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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 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.

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 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)

sales for the nine months ended September 30, 2021, were up 19% from the prior year period.

Through September 30, 2021, we continue to

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

We have also not

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

of Operations – Three months ended September 30, 2021

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

Months Ended September 30,

Promotional and other allowances (B)

Cost of goods sold

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

and marketing

and administrative

operating expenses

from operations

expense and other income (expense)

per share – basic and diluted

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 has been defined by our

internal reporting practices .

Management 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.

We believe 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.

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.

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.

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 from the second quarter of 2020

through the second quarter of 2021.

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

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.

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.

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

brand gross billing increased by 22% to $14,199 compared to the same period last year, driven by Reed’s volume growth of 34% and

Virgil’s volume growth of 16%.

The result is an increase in total gross billing of 22%, to $14,538 in the three months ended September

30, 2021, from $11,897 during the three months ended September 30, 2020.

Price on our core brands decreased 2% to $17.95 per case due

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

as a percentage of gross billing were 8% and 11% for the three months ended September 30, 2021 and 2020, respectively.

Net sales revenue

grew 27% in the three months ended September 30, 2021, to $13,402, compared to $10,562 in the same period last year.

of Goods Sold

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.

of goods sold increased $2,354 during the three months ended September 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 September 30, 2021, was 71% as compared to 68% for the same period last year.

The increase is primarily due to increased costs associated with on-going supply chain challenges.

total cost of goods per case increased to $11.97 per case in the three months ended September 30, 2021, from $11.25 per case for the

same period last year.

The cost of goods sold per case on core brands was $11.85 during the three months ended September 30, 2021, compared

to $11.11 for the same period last year.

margin decreased to 29% for the three months ended September 30, 2021, compared to 32% for the same period last year.

This decrease is

primarily related to increased costs associated with on-going supply chain challenges.

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 $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.

Delivery and handling expenses increased by $886 in the three months ended September 30, 2021, to $3,093 from $2,207 in the same period

last year, driven by increased volumes, ecommerce fulfilment costs, and increasing freight rates due to on-going supply chain challenges.

Delivery costs in the three months ended September 30, 2021, were 23% of net sales and $3.89 per case, compared to 21% of net sales and

$3.46 per case during the same period last year.

and Marketing Expenses

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expenses including personnel and contractor support.

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

Total selling and marketing expenses were $2,644 during the three months ended September

30, 2021, compared to $1,872 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.

20% during the three months ended September 30, 2021, as compared to 18% during the same period last year.

The increase was driven by

an increase in sales force headcount, distributor buy outs, stock compensation, and travel expenses

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.

General and administrative expenses increased in the three months ended September 30, 2021, to $1,788 from $1,583, an increase

of $205 over the same period last year.

The increase was primarily driven by higher employee costs, stock compensation and public company

costs, partially offset by lower professional fees.

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.

loss from operations was $3,653 for the three months ended September 30, 2021, as compared to a loss of $2,276 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.

and other income for the three months ended September 30, 2021, consisted of $234 of interest expense, as compared to $322 of interest

expense in the same period of the last year, and the change in fair value of our warrant liability of $8.

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

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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

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

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

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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)

of Operations – Nine months ended September 30, 2020

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

Months Ended September 30,

Promotional and other allowances (B)

Cost of goods sold

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

and marketing

and administrative

operating expenses

from operations

expense and other income (expense)

per share – basic and diluted

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 .

Management 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.

We believe 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;

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.

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.

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

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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.

Non-core products consist

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

beverage volume for the nine months ended September 30, 2021, represents 99% of all beverage volume.

brand gross billing increased by 17% to $40,445 compared to the same period last year, driven by Reed’s volume growth of 25% and

Virgil’s volume growth of 19%.

The result is an increase in total gross billing of 17%, to $40,445 in the nine months ended September

30, 2021, from $34,677 during the nine months ended September 30, 2020.

Price on our core brands decreased 4% to $17.99 per case due

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

as a percentage of gross billing decreased to 9% 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.

As a result, net sales revenue grew 19% in the

nine months ended September 30, 2021, to $36,818, compared to $30,938 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.

of goods sold increased $4,130 during the nine months ended September 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.

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

total cost of goods per case decreased to $11.49 per case in the nine months ended September 30, 2021, from $11.73 per case for the same

period last year.

The cost of goods sold per case on core brands was $11.39 during the nine months ended September 30, 2021, compared

to $11.57 for the same period last year.

margin was 30% for the nine months ended September 30, 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 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.

Delivery and handling expenses increased by $3,938 in the nine months ended September 30, 2021, to $8,888 from $4,950 in the same period

last year, driven by increased volumes, ecommerce fulfilment costs, and increasing freight rates due to on-going supply chain challenges.

Delivery costs in the nine months ended September 30, 2021, were 24% of net sales and $3.95 per case, compared to 16% of net sales and

$2.68 per case during the same period last year.

and Marketing Expenses

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expenses including personnel and contractor support.

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.

Total selling and marketing expenses increased $2,111 to $7,493 during the nine

months ended September 30, 2021, compared to $5,382 during the same period last year.

As a percentage of net sales, selling and marketing

costs increased to 20% during the nine months ended September 30, 2021, as compared to 17% during the same period last year.

was driven by an increase in sales force headcount, stock compensation, distributor buy outs and travel expenses.

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 six months ended June 30, 2021 to $4,439 from $3,289 an increase of $1,150

General and administrative expenses increased in the nine months ended September 30, 2021, to $6,227 from $4,872 an increase of

$1,355 over the same period last year.

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

public company costs.

The increase was driven by, higher employee costs, consulting fees, legal settlements, public

company costs, stock compensation, and travel expenses, partially offset by lower professional fees.

from Operations

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.

loss from operations was $11,614 for the nine months ended September 30, 2021, as compared to a loss of $5,960 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 six months ended June 30, 2021, consisted of $458 of interest expense offset by $770 gain on forgiveness of

and other income for the nine months ended September 30, 2021, consisted of $692 of interest expense offset by $770 gain on forgiveness

During the same period last year, interest and other expense consisted of $961 of interest expense and the change in fair value

16 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 six months ended June 30, 2021 and 2020 (unaudited;

in thousands):

Six 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

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

Months Ended September 30,

EBITDA adjustments:

and amortization

option and other noncash compensation

in fair value of warrant liability

on forgiveness of PPP note payable

EBITDA adjustments

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

16 unchanged sentences

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

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,

the nine months ended September 30, 2021, the Company recorded a net loss of $11,536 and used cash in operations of $15,305.

As of September

30, 2021, we had a cash balance of $941 with borrowing capacity of $1,293, a stockholder’s equity of $8,177 and a working capital

1 unchanged sentence

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

the date of this quarterly report.

Notwithstanding the net loss for the nine months ended September 30, 2021, management projects

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

year from the date these financial statements are issued.

Historically,

56 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