What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-05-15 compared with 2022-04-15 · 206 added, 189 removed, 114 unchanged (78% of the section changed)

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and elsewhere in this Annual Report.

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

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 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 settlement, and one-time restructuring-related costs including employee severance and asset impairment.

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.

presented in the discussion below are in thousands, except share and per share amounts.

of Operations

the year ended December 31, 2021, the Company expanded its retail footprint outside of grocery and natural channels that

historically represent the majority of our products sold.

The Company continued to expand growth in its 12-ounce can product line

led by Ginger Ale and Ginger Beer growth, fully utilizing its expanded network of co-packers to support this

In addition to our traditional sales channels, the Company is utilizing its 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 during the year ended December 31, 2021, provided the Company with funds for working capital and

general corporate purposes.

These funds enabled us to initiate the implementation of our 2021 strategy that included driving growth while

strategically reducing operating costs.

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

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

Considerations

the year ended December 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.

December 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.

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

the year ended December 31, 2022, the Company continued to strengthen its supply chain, implement gross margin enhancement initiatives,

drive efficiencies in transportation and warehouse costs and reduce operating expenses.

In addition, it continues to build its innovation

pipeline with sustained growth in Reed’s Real Ginger Ale and Reed’s Classic Mule.

At the end of the first quarter, the Company

shipped its rebranded Virgil’s zero sugar line in 12 oz.

sleek cans and produced its new line of Reed’s Hard Ginger Ale.

Company remains focused on driving sales growth, improving gross margin, and reducing freight costs.

The sales growth focus is on channel

expansion, increase in store placements, new product introduction and improved sales execution.

The margin enhancement initiative is

driven by packaging savings, co-packer upgrades, and better leveraged purchasing and improved efficiency.

Underpinning these initiatives

is a focus on strategically reducing operating costs particularly delivery and handling expenses.

Trends – Market Conditions

the year ended December 31, 2022, the COVID-19 pandemic continued to impact our operating results and the Company anticipates a residual

effect for the balance of the year.

In addition, the pandemic could 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.

economy continued to grow during the first quarter of 2022, the continuing impact of the COVID-19 pandemic, higher inflation,

the actions by the Federal Reserve to address inflation, and rising energy prices create uncertainty about the future economic environment

which will continue to evolve and may impact our business in future periods.

We have experienced supply chain challenges, including increased

lead times, as well as inflation of raw materials, logistics and labor costs due to availability constraints and high demand.

we regularly monitor companies in our supply chain, and use alternative suppliers when necessary and available, supply chain constraints

could cause a disruption in our ability to obtain raw materials required to manufacture our products and adversely affect our operations.

We expect the inflationary trends and supply chain pressures to continue throughout 2023.

the year ended December 31, 2022, the Company experienced moderation from elevated freight costs.

While the average cost of shipping

and handling for the year ended December 31, 2022, was $3.95 per case, which is the same as the $3.95 per case for the year ended December

31, 2021, it was significantly higher during the first half of the year, however, was significantly reduced during the second half of

The Company believes these challenges will continue throughout the year.

In addition, the Company experienced increases in

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

However, mitigation plans have been implemented

to manage this risk.

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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.

ability to protect our employees and protect 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 December 31, 2022, we maintained

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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

sales for the year ended December 31, 2021, were up 19% from the prior year period.

Through December 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.

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

Factors” in Part I, Item 1A of this Form 10-K.

with our employees and suppliers to do our part to be responsible to our employees and business partners 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.

have not observed any material impairments of our assets or a significant change in the fair value of our assets due to the COVID-19

the year ended December 31, 2022, the Ukraine conflict did not have a direct material impact on our financial position, results of operations

and liquidity.

of Operations – Year Ended December 31, 2022

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% of Net sales

Provision for receivable with former related party

% of Net sales

Total Operating expenses

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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.

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

Management utilizes

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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.

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.

define promotional and other allowances as costs deducted from gross billing 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 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.

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;

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;

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 through the years ended December

Gross Billing:

Gross Margin:

as % Net Sales

Cost of Sales, and Gross Margins

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beverage volume for the year ended December 31, 2022, represents 95% of all beverage volume.

brand gross billing increased by 18% to $53,263 compared to the same period last year, driven by Reed’s volume growth of

28% and Virgil’s volume growth of 15%.

The result is an increase in total gross billing of 17%, to $54,658 in the year ended

December 31, 2021, from $46,801 during the year ended December 31, 2020.

Price on our core brands decreased 3% to $17.80 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.

brand gross billing increased by 3% to $54,613 compared to the same period last year, driven by Reed’s volume decline of 1% and

Virgil’s volume decline of 13%.

The result is an increase in total gross billing of 9%, to $59,464 in the year ended December 31,

2022, from $54,658 during the year ended December 31, 2021.

Price on our core brands increased 10.0% to $19.57 per case due to a shift

in mix to lower priced, higher margin products.

as a percentage of gross billing increased to 11% from 9% in the same period last year.

As a result, net sales revenue grew 7% in the

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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 $5,083 in the years ended December 31, 2021, to $11,939 from $6,856 in the

same period last year, driven by increased volumes, ecommerce fulfilment costs, and increasing freight rates due to market conditions.

Delivery costs in the year ended December 31, 2021, were 24% of net sales and $3.95 per case, compared to 16% of net sales and $2.76

per case during the same period last year.

Delivery and handling expense decreased by $336 in the years ended December 31, 2022, to $11,603 from $11,939 in the same period last

year, driven by decreased volumes, ecommerce fulfilment costs, and decreasing freight rates due to market conditions.

Delivery costs

in the year ended December 31, 2022, were 22% of net sales and $3.95 per case, compared to 24% of net sales and $3.95 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 increased $2,162 to $9,665 during the year

ended December 31, 2021, compared to $7,503 during the same period last year.

As a percentage of net sales, selling and marketing costs

increased to 19% during the year ended December 31, 2021, as compared to 18% during the same period last year.

The increase was driven

by staffing costs, stock compensation, and distributor buyout.

Marketing expenses consist of direct marketing, marketing

labor, and marketing support costs.

Selling expenses consist of all other selling-related expenses including personnel and contractor

Total selling and marketing expenses decreased $2,349 to $7,316 during the year ended December 31, 2022, compared to $9,665 during

the same period last year.

As a percentage of net sales, selling and marketing costs decreased to 14% during the year ended December 31,

2022, as compared to 19% during the same period last year.

The decrease was driven by lower employee related costs, stock compensation,

distributor buyouts and reduced sampling and marketing spend partially offset by higher broker fees.

and Administrative Expenses

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

as professional fees.

General and administrative expenses increased in the year ended December 31, 2021, to $7,965 from $7,023

an increase of $942 over the same period last year.

The increase was driven by higher legal settlements, liquor licensing fees,

loss on sale of assets, recycling fees, postage, public company costs, travel expenses, depreciation, and bad debt, partially

offset by lower stock compensation.

from Operations

loss from operations was $15,971 for the year ended December 31, 2021, as compared to a loss of $8,616 in the same period last

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

General and administrative expenses consist primarily

of the cost of executive, administrative, operations and finance personnel, as well as professional fees.

General and administrative expenses

decreased in the year ended December 31, 2022, to $7,489 from $7,965, a decrease of $476 over the same period last year.

As a percentage

of net sales, general and administrative expenses decreased to 14% during the year ended December 31, 2022, as compared to 16% during

the same period last year.

The decrease was driven by lower legal settlements, stock compensation and employee related costs, and bad

debt expense, partially offset by higher public company costs and co-packer downtime charges.

Provision for Receivable with Former Related

At December 31, 2022, the Company had a receivable

due from California Custom Beverage, LLC’s (“CCB”), an entity owned by Christopher J.

Reed, a former related party.

At December 31, 2022, CCB disputes that it owes $1,043 recorded as receivable

by the Company.

The Company believes that it will prevail in this dispute, however, as of December 31, 2022, due to the uncertainty about

the ultimate amount that will be settled, the Company has provided a reserve for $538 based on management’s estimate.

Loss from Operations

The loss from operations was $14,834 for the year

ended December 31, 2022, as compared to a loss of $15,971 in the same period last year driven by decreased gross profit partially offset

by decreases in operating expenses discussed above.

and Other Income (Expense)

and other income for the year ended December 31, 2021, consisted of $1,201 of interest expense offset by $770 gain on forgiveness of

During the same period last year, interest and other expense consisted of $1,307 of interest expense, loss on extinguishment of

debt of $262, offset by 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.

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.

and other income for the year ended December 31, 2022, consisted of $5,223 of interest expense.

During the same period last year, interest

and other expense consisted of consisted of $1,201 of interest expense offset by $770 gain on forgiveness of debt.

In 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, legal settlement,

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

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Stock option and other noncash compensation

Provision for receivable with former related party

Gain on extinguishment of debt

Legal settlement

Loss on extinguishment of debt

Change in fair value of warrant liability

Impairment and severance costs

Severance costs

Total EBITDA adjustments

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Capital Resources and Going Concern

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

year from the date these financial statements are issued.

Such assumption contemplates the realization of assets and

satisfaction of liabilities in the normal course of business.

For the year ended December 31, 2021, the

Company recorded a net loss of $16,402 and used cash in operations of $17,589.

These conditions raise substantial doubt

regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of these financial

In addition the Company’s independent registered public accounting firm, in their report on the Company’s December 31, 2021,

audited financial statements, raised substantial doubt about the Company’s ability to continue as a going concern.

2021, the Company conducted public offerings and sold 6.7 million of its common shares and received net proceeds of $7,327.

On March 10, 2022, the

Company entered into a Securities Purchase Agreement (“Purchase Agreement”) with certain institutional and accredited investors

(the “Purchasers”) pursuant to which the Purchasers agreed to purchase, and the Company agreed to issue and sell to the Purchasers

in a private placement, an aggregate of 18,594,571 shares (“Shares”) of the Company’s common stock, $0.0001 par value

(“Common Stock”), and warrants (“Warrants”) to purchase an aggregate of 9,297,289 shares of Common Stock (the

“Private Placement”).

The purchase price per share of common stock and associated warrant was $0.28 for the investors (other

than officers and directors of the Company) and $0.3502 for the officers and directors of the Company in compliance with the rules of

the Nasdaq Stock Market.

Each whole warrant entitles the holder to purchase one share of common stock at an exercise price of $0.2877

The warrants are exercisable at a per share exercise price of $0.2877 for a period of five years commencing six months from

the closing date.

Officers and directors of the Company purchased approximately $1.1 million of the securities in the offering.

The gross proceeds to the Company, after deducting placement agent fees and other offering expenses, are approximately $5.1 million.

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

from the date these financial statements are issued.

Such assumption contemplates the realization of assets and satisfaction of liabilities

in the normal course of business.

the year ended December 31, 2022, the Company recorded a net loss of $20,057 and used cash in operations of $15,530.

As of December 31,

2022, we had a cash balance of $533, with $110 of current availability, and $1,633 of additional borrowing capacity, a stockholder’s

deficit of $8,470 and negative working capital of $1,563, compared to a cash balance of $49 with

borrowing capacity of $109, stockholders’ equity of $4,203 and working capital of $2,981 at December 31, 2021 .

the year ended December 31, 2022, the Company entered into a note purchase agreement with Whitebox Advisors, LLC and agreed to issue

$13,750 of secured convertible promissory notes (the “Notes”).

The net proceeds from the issuance of the Notes, after deducting

placement agent fees and other debt issuance costs, was approximately $12,430.

Notes will mature on May 9, 2025, bear interest at a rate of 10% per annum (with 5% per annum payable in cash and 5% per annum payable

“in kind” by adding such accrued interest to the principal amount of the Notes).

The Notes are secured by substantially all

of the Company’s assets (including all of its intellectual property) and are subject to a collateral sharing agreement with ACS,

the Company’s existing secured lender (see Note 5).

During the year ended December 31, 2022, principal payments of $800 were made,

and accrued interest of $1,052 was added to the principal balance, leaving a balance owed of $11,502 at December 31, 2022.

Historically,

we have financed our operations through public and private sales of common stock, issuance of preferred and common stock,

convertible debt instruments, term loans and credit lines from financial institutions, and cash generated from operations.

is currently evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity,

mezzanine or debt securities, through arrangements with strategic partners or through obtaining credit from financial

institutions.

In addition, we have taken decisive action to improve our margins, including fully outsourcing our manufacturing

process, streamlining our product portfolio, negotiating improved vendor contracts and restructuring our selling prices.

we have financed our operations through public and private sales of common stock, issuance of preferred and common stock, convertible

debt instruments, term loans and credit lines from financial institutions, and cash generated from operations.

To alleviate these conditions,

management is currently evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity,

mezzanine or debt securities, through arrangements with strategic partners or through obtaining credit from financial institutions.

we seek additional sources of financing, there can be no assurance that such financing would be available to us on favorable terms or

Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market

and economic conditions, our performance and investor sentiment with respect to us and our industry.

have taken decisive action to improve our margins, including fully outsourcing our manufacturing process, streamlining our product portfolio,

negotiating improved vendor contracts and restructuring our selling prices.

Accounting Policies and Estimates

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

preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States

GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities

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

Some of those judgments can

be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in

relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments

about the carrying values of assets and liabilities that are not readily apparent from other sources.

Management regularly evaluates

the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances,

historical experience and reasonable assumptions.

After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

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.

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.

Significant estimates include those related to assumptions used in 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.

There were no changes to our critical accounting policies described in the consolidated financial

statements included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2021, that impacted our condensed consolidated

financial statements and related notes included herein.

Accounting Pronouncements

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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-K

Item 7. Management’s Discussion and Analysis