What changed in this filing

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Item 1. Financial Statements

2021-11-10 compared with 2021-08-12 · 234 added, 215 removed, 456 unchanged (50% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2021

September 30, 2021

December 31, 2020

8 unchanged sentences

Total current assets

10,366  

Fixed assets, net of accumulated depreciation of $605 and $554

37 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(In thousands, except share data)

$ 4,565  

$ 3,541  

$ 11,880  

$ 9,431  

Cost of goods sold

4 unchanged sentences

Income (loss) from operations

( 394 )  

( 626 )  

Interest income

Interest expense

( 76 )  

( 40 )  

( 160 )  

Other income (expense), net

Income (loss) before income taxes

( 11 )  

Loss before income taxes

( 51 )  

( 443 )  

( 445 )  

Income tax expense, net

Net income (loss)

Net income (loss) per share - basic

Net income (loss) per share - diluted

Weighted average basic common shares outstanding

Weighted average diluted common shares outstanding

( 24 )  

$ ( 59 )  

$ ( 450 )  

$ ( 469 )  

Net loss per share - basic and diluted

$ ( 0.00 )  

$ ( 0.01 )  

Weighted average basic and diluted common shares outstanding

64,550,554  

61,857,555  

64,768,258  

61,730,684  

See accompanying notes to condensed consolidated financial statements.

JONES SODA CO.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three months ended June 30,

Six months ended June 30,

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three months ended September 30,

Nine months ended September 30,

(In thousands)

Net income (loss)

Other comprehensive income (loss):

Foreign currency translation adjustment

Total comprehensive income (loss)

Total comprehensive loss

See accompanying notes to condensed consolidated financial statements.

5 unchanged sentences

(In thousands, except share data)

Three months ended June 30, 2020

Balance as of March 31, 2020

Three months ended September 30, 2020

Balance as of June 30, 2020

61,667,668  

$ 73,846  

$ ( 68,617 )  

$ 5,532  

Share based payment activity

308,080  

Beneficial conversion feature on paid-in-kind interest

( 450 )  

Other comprehensive income

Balance as of September 30, 2020

61,975,748  

$ 73,906  

$ ( 69,067 )  

$ 5,167  

Three months ended September 30, 2021

Balance as of June 30, 2021

Three months ended June 30, 2021

Balance as of March 31, 2021

64,977,677  

$ 75,015  

$ ( 70,395 )  

$ 5,074  

Share based payment activity

Common stock issuance on conversion of notes payable

2,216,479  

Exercise of stock options

Beneficial conversion feature on paid-in-kind interest

Other comprehensive income

Balance as of June 30, 2021

Six months ended June 30, 2020

Balance as of December 31, 2019

643,035  

( 59 )  

Other comprehensive loss

( 65 )  

Balance as of September 30, 2021

67,837,191  

$ 75,979  

$ ( 70,454 )  

$ 5,914  

Nine months ended September 30, 2020

Balance as of

December 31, 2019

61,566,076  

$ 73,773  

$ ( 66,988 )  

$ 7,127  

Share based payment activity

409,672  

Beneficial conversion feature on paid-in-kind interest

( 2,079 )  

Other comprehensive loss

Balance as of June 30, 2020

Six months Ended June 30, 2021

( 14 )  

Balance as of September 30, 2020

61,975,748  

$ 73,906  

$ ( 69,067 )  

$ 5,167  

Nine months Ended September 30, 2021

Balance as of December 31, 2020

61,975,748  

$ 73,953  

$ (69,985 )  

$ 4,379  

Share based payment activity

Common stock issuance on conversion of notes payable

5,064,137  

Exercise of stock options

797,306  

Beneficial conversion feature on paid-in-kind interest

Other comprehensive income

Balance as of June 30, 2021

( 469 )  

Other comprehensive loss

( 22 )  

Balance as of September 30, 2021

67,837,191  

$ 75,979  

$ ( 70,454 )  

$ 5,914  

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended June 30,

Nine months ended September 30,

(In thousands)

OPERATING ACTIVITIES:

Adjustments to reconcile net loss to net cash flows from operating activities:

$ ( 469 )  

Adjustments to reconcile net loss to net cash flows from operating activities:

Depreciation and amortization

2 unchanged sentences

Forgiveness of PPP SBA loan

( 335 )  

Loss on sale of fixed asset

Changes in operating assets and liabilities:

Accounts receivable

( 1,142 )  

Prepaid expenses and other current assets

( 80 )  

Accounts payable

3 unchanged sentences

Net cash used in operating activities

( 702 )  

INVESTING ACTIVITIES:

Sale of fixed assets

Purchase of fixed assets

Net cash used in investing activities

( 35 )  

Net cash used in investing activities

( 31 )  

FINANCING ACTIVITIES:

Proceeds from exercise of stock options

Proceeds from issuance of convertible notes, net

Proceeds from PPP SBA loan

Payment of taxes on RSU withholding

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

Net cash provided by financing activities

Net change in cash and cash equivalents

Effect of exchange rate changes on cash

1 unchanged sentence

Cash and cash equivalents, end of period

$ 5,922  

$ 4,251  

Supplemental disclosure:

2 unchanged sentences

Conversion of notes payable

$ 1,621  

Recognition of lease liability and right-of-use asset

10 unchanged sentences

Basis of presentation, consolidation and use of estimates

The accompanying condensed consolidated balance sheet as of December 31, 2020, which has been derived from our audited consolidated financial statements, and unaudited interim condensed consolidated financial statements as of June 30, 2021, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the Securities and Exchange Commission (“SEC”) rules and regulations applicable to interim financial reporting.

The accompanying condensed consolidated balance sheet as of December 31, 2020, which has been derived from our audited consolidated financial statements, and unaudited interim condensed consolidated financial statements as of September 30, 2021, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the Securities and Exchange Commission (“SEC”) rules and regulations applicable to interim financial reporting.

The condensed consolidated financial statements include our accounts and the accounts of our subsidiaries.

6 unchanged sentences

These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10 -K for the fiscal year ended December 31, 2020.

As of June 30, 2021, we had cash and cash-equivalents of approximately $ 3.1 million and working capital of approximately $ 4.7 million.

Net cash used in operations during the six months ended June 30, 2021 and 2020 totaled approximately $ 1.6 million and $ 1.8 million, respectively.

As of September 30, 2021, we had cash and cash-equivalents of approximately $ 5.9 million and working capital of approximately $ 7.3 million.

Net cash used in operations during the nine months ended September 30, 2021 and 2020 totaled approximately $ 702,000  and $ 1.9 million, respectively.

We have experienced recurring losses from operations and negative cash flows from operating activities. 

This situation creates uncertainties about our ability to execute our business plan, finance operations, and indicates substantial doubt about the Company’s ability to continue as a going concern.

On July 14, 2021, we received proceeds of $ 2 million in connection with the issuance of an unsecured convertible debenture to SOL Verano Blocker 1 LLC (the “Convertible Debenture”).

On July 14, 2021, we received net proceeds of $ 1.7 million in connection with the issuance of an unsecured convertible debenture to SOL Verano Blocker 1 LLC (the “Convertible Debenture”).

We believe that the recent financing helps alleviate the conditions which initially indicated substantial doubt about our ability to continue as a going concern.

1 unchanged sentence

Therefore, even with these proceeds, we may require additional financing to support our working capital needs in the future.

The amount of additional capital we may require, the timing of our capital needs and the availability of financing to fund those needs will depend on a number of factors, including our strategic initiatives and operating plans, the performance of our business and the market conditions for available debt or equity financing.

The amount of additional capital we may require, the timing of our capital needs and the availability of financing to fund those needs will depend on a number of factors, including the receipt of any proceeds from the planned Concurrent Offering (defined below) as well as from any other financing we complete in connection with the Arrangement (defined below), 

our strategic initiatives and operating plans, our ability to execute our plans to develop and market cannabis-infused beverages and edibles and the timing and costs of the development of this new product line, our estimates of the size of the markets for our potential cannabis products, the performance of our business and the market conditions for available debt or equity financing.

Additionally, the amount of capital required will depend on our ability to meet our sales goals and otherwise successfully execute our operating plan.

6 unchanged sentences

Any such financing alternatives may not provide us with sufficient funds to meet our long-term capital requirements.

If necessary, we may explore strategic transactions that we consider to be in the best interest of our company and our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, a rights offering, and other strategic alternatives;

If necessary, we may explore strategic transactions, in addition to the Arrangement, Concurrent Financing and any related financings that we consider to be in the best interest of our company and our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, a rights offering, and other strategic alternatives;

however, these options may not ultimately be available or feasible when needed.

8 unchanged sentences

Revenue recognition

We recognize revenue under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, (“ASC 606”

The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.

We only apply the five -step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the goods and services transferred to the customer.

The following five steps are applied to achieve that core principle:

Identify the contract with the customer

Identify the performance obligations in the contract

Determine the transaction price

Allocate the transaction price to the performance obligations in the contract

Recognize revenue when the company satisfies a performance obligation

See Note 6, Segment Information, for information on revenue disaggregated by geographic area.

Because our agreements have an expected duration of one year or less, we have elected the practical expedient in ASC 606 - 10 - 50 - 14 (a) to not disclose information about our remaining performance obligations.

Our contracts have a single performance obligation which is satisfied at the point in time when the customer has title and the significant risks and rewards of ownership of the product.

2 unchanged sentences

We primarily receive fixed consideration for sales of product, subject to adjustment as described below.

Shipping and handling amounts paid by customers are primarily for online orders, and are included in revenue, and totaled $ 40,000 and $ 22,000 for the three months ended June 30, 2021 and 2020, respectively, and $ 55,000 and $ 38,000 for the six months ended June 30, 2021 and 2020, respectively.

Shipping and handling amounts paid by customers are primarily for online orders, and are included in revenue, and totaled $ 36,000 and $ 18,000  for the three months ended September 30, 2021 and 2020, respectively, and $ 91,000 and $ 54,000 for the nine months ended September 30, 2021 and 2020, respectively.

Sales tax and other similar taxes are excluded from revenue.

See Note 1, on our most recently filed Form 10 -K filed on March 24, 2021 for our revenue recognition policy. 

Revenue is recorded net of provisions for discounts, slotting fees payable by us to retailers to stock our products and promotion allowances.

6 unchanged sentences

Amounts paid for slotting fees are recorded as prepaid expenses on the consolidated balance sheets and amortized over the corresponding term.

For the quarters ended June 30, 2021 and 2020, our revenue was reduced by $ 454,000 and $ 407,000 , respectively, and for the six months ended June 30, 2021 and 2020, by $ 804,000 and $ 704,000 , respectively, in each case for slotting fees and promotion allowances.

For the quarters ended September 30, 2021 and 2020, our revenue was reduced by $ 377,000 and $ 526,000 , respectively, and for the nine months ended September 30, 2021 and 2020, each by $ 1.2 million, in each case for slotting fees and promotion allowances.

All sales to distributors and customers are generally final.

9 unchanged sentences

Account balances that are deemed uncollectible are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Allowances for doubtful accounts of $ 84,000 and $ 93,000 as of June 30, 2021 

Allowances for doubtful accounts of $ 99,000 and $ 93,000 as of September 30, 2021 

and December 31, 2020, respectively, were netted against accounts receivable.

No impairment losses were recognized as of June 30, 2021 

No impairment losses were recognized as of September 30, 2021 

and December 31, 2020.

Changes in accounts receivable are primarily due to the timing and magnitude of orders for products, the timing of when control of products is transferred to distributors and the timing of cash collections.

As of June 30, 2021, A.

As of September 30, 2021, A.

Lassonde Inc.

1 unchanged sentence

As of December 31, 2020, Lassonde made up 18 % of our outstanding accounts receivable.

Net income (loss) per share

The computation for basic and diluted earnings per share is as follows (in thousands, except share data):

Three months ended June 30,

Six months ended June 30,

Net income (loss)

$ ( 738 )  

$ ( 410 )  

Weighted average common shares outstanding:

64,550,554  

61,667,668  

63,857,185  

61,666,552  

Dilutive convertible notes

2,615,606  

Dilutive stock options

1,246,958  

68,413,118  

61,667,668  

63,857,185  

61,666,552  

Net income (loss) per share:

$ 0.00  

$ ( 0.01 )  

$ 0.00  

$ ( 0.01 )  

Net loss per share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the periods.

Diluted earnings per share is computed by adjusting the weighted average number of common shares by the effective net exercise or conversion of all dilutive securities. Outstanding stock options amounting to 219,750 were anti-dilutive and excluded from inclusion in diluted weighted shares outstanding for the three months ended June 30, 2021.

Due to the net loss in the three and six months ended June 30, 2020, outstanding stock options amounting to 3,592,913 shares, shares issuable upon the conversion of the Convertible Notes of 5,233,116, and stock warrants of 15,000,000 shares were anti-dilutive and excluded from inclusion in diluted weighted shares outstanding. Due to the net loss in the six months ended June 30, 2021, outstanding stock options amounting to 4,343,233 shares and shares issuable upon the conversion of the Convertible Notes of 2,615,606  were anti-dilutive and excluded from inclusion in diluted weighted shares outstanding. 

Deferred financing costs

We defer costs related to the issuance of debt which are included on the accompanying balance sheets as a deduction from the debt liability.

Deferred financing costs are amortized over the term of the related loan using the effective interest method and are included as a component of interest expense on the accompanying condensed consolidated statements of operations.

Operating leases

At lease commencement, we record a lease liability based on the present value of lease payments over the expected lease term.

We calculate the present value of lease payments using the discount rate implicit in the lease, unless that rate cannot be readily determined.

In that case, we use our incremental borrowing rate, which is the rate of interest that we would have to pay to borrow on a collateralized basis an amount equal to the lease payments over the expected lease term.

We record a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date. 

Diluted earnings per share is computed by adjusting the weighted average number of common shares by the effective net exercise or conversion of all dilutive securities.

Due to the net loss in the quarters ended September 30, 2021 and 2020, outstanding stock options amounting to 3,199,573 and 3,355,689  shares, shares issuable upon the conversion of the Convertible Notes (as defined in note 4 ) of 416,341 and 5,302,778 , shares issuable upon the conversion of the Convertible Debenture (as defined in note 8 ) of 4,000,000  and 0 , in each case at September 30, 2021 and 2020, respectively, were anti-dilutive. 

Recent accounting pronouncements

13 unchanged sentences

Inventory consisted of the following (in thousands):

June 30, 2021

September 30, 2021

December 31, 2020

1 unchanged sentence

$ 1,142  

Raw materials

3 unchanged sentences

Raw materials primarily include ingredients, concentrate and packaging.

For the three months ended June 30, 2021 and 2020, we recorded obsolete inventory expenses of $ 8,000 and $ 62,000 , respectively.

For the six months ended June 30, 2021 and 2020, we recorded obsolete inventory expenses of $ 16,000 and $ 71,000 , respectively.

For the three months ended September 30, 2021 and 2020, we recorded obsolete inventory expenses of $ 9,000 and $ 1,000 , respectively.

For the nine months ended September 30, 2021 and 2020, we recorded obsolete inventory expenses of $ 25,000 and $ 72,000 , respectively.

Lease Obligations

3 unchanged sentences

As a result of the lease amendment, we recognized a lease liability and right-of-use asset of $ 556,000 which represents the remaining lease payments discounted at a rate of 4 %.

As of June 30, 2021, this lease had a remaining lease term of 3.67 years.

During the quarters ended June 30, 2021 and 2020, we incurred rental expenses of $ 38,000 and $ 42,000 , respectively and during the six months ended June 30, 2021 and 2020, we incurred rental expenses of $ 80,000 and $ 79,000 , respectively.

During the quarters ended June 30, 2021 and 2020, we made cash payments of $ 38,000 and $ 39,000 , respectively and during the six months ended June 30, 2021 and 2020, we made cash payments of $ 78,000 and $ 77,000 , respectively.

As of September 30, 2021, this lease had a remaining lease term of 3.42 years.

During the quarters ended September 30, 2021 and 2020, we incurred rental expenses of $ 42,000 in each respective period, and during the nine months ended September 30, 2021 and 2020, we incurred rental expenses of $ 122,000 and $ 120,000 , respectively.

During the quarters ended September 30, 2021 and 2020, we made cash payments of $ 41,000 and $ 40,000 , respectively and during the nine months ended September 30, 2021 and 2020, we made cash payments of $ 119,000 and $ 117,000 , respectively.

Management fees and other operational expenses were immaterial.

Cash payments on our operating lease are presented as operating cash outflows in the condensed consolidated statements of cash flows.

As of June 30, 2021, our scheduled lease payments excluding management fees and other operational expenses for the remainder of the lease term for the years ending December 31 will be as follows (in thousands):

As of September 

30, 2021, our scheduled lease payments excluding management fees and other operational expenses for the remainder of the lease term for the years ending December 31 will be as follows (in thousands):

2021 (remaining)

9 unchanged sentences

The Convertible Notes are subordinated in right of payment to the prior payment in full of all of our senior indebtedness, which is defined as amounts due in connection with our indebtedness for borrowed money to banks, commercial finance lenders, or other lending institutions regularly engaged in the business of lending money, with certain restrictions.

During the quarter ended June 30, 2021, Convertible Notes in the aggregate principal amount of $ 124,000 and related accrued interest were converted into an aggregate of 462,600 shares of common stock in accordance with the original terms of the Convertible Notes.

As a result, the carrying amount of the converted principal amount of such Convertible Notes, along with the converted accrued interest, in an aggregate amount of $ 148,000 , was credited to common stock and unamortized discounts in an amount equal to $ 3,000 were recognized as interest expense for the three months ended June 30, 2021.

During the period from January 1, 2021 through June 30, 2021, Convertible Notes in the aggregate principal amount of $ 774,000 and related accrued interest were converted into an aggregate of 2,847,658 shares of common stock in accordance with the original terms of the Convertible Notes.

As a result, the carrying amount of the converted principal amount of such Convertible Notes, along with the converted accrued interest, in an aggregate amount of $ 911,000 , was credited to common stock and unamortized discounts in an amount equal to $ 25,000 were recognized as interest expense for the six months ended June 30, 2021.

There were no Convertible Notes converted during the three or six months ended June 30, 2020.

During the quarter ended September 30, 2021, Convertible Notes in the aggregate principal amount of $ 590,000 and related accrued interest were converted into an aggregate of 2,216,479 shares of common stock in accordance with the original terms of the Convertible Notes.

As a result, the carrying amount of the converted principal amount of such Convertible Notes, along with the converted accrued interest, in an aggregate amount of $ 372,729 , was credited to common stock and unamortized discounts in an amount equal to $ 11,000 were recognized as interest expense for the three months ended September 30, 2021.

During the period from January 1, 2021 through September 30, 2021, Convertible Notes in the aggregate principal amount of $ 1.4 million and related accrued interest were converted into an aggregate of 5,064,137 shares of common stock in accordance with the original terms of the Convertible Notes.

As a result, the carrying amount of the converted principal amount of such Convertible Notes, along with the converted accrued interest, in an aggregate amount of $ 801,000 , was credited to common stock and unamortized discounts in an amount equal to $ 36,000 were recognized as interest expense for the nine months ended September 30, 2021.

There were no Convertible Notes converted during the three or nine months ended September 30, 2020. 

The fair value of our common stock on March 23, 2018, the initial closing date for the issuance of the Convertible Notes, was $ 0.36 per share;

3 unchanged sentences

This discount, along with the related closing costs amounting to $ 137,000 , are amortized through interest expense over the term of the Convertible Notes.

The balance of notes payable is presented net of unamortized discounts amounting to $ 36,000 and $ 88,000 at June 30, 2021 and December 31, 2020, respectively.

The principal balance of notes payable to related parties amounted to $ 120,000 at June 30, 2021 and December 31, 2020.

The balance of notes payable is presented net of unamortized discounts amounting to $ 1,000 and $ 88,000 at September 30, 2021 and December 31, 2020, respectively.

The principal balance of notes payable to related parties amounted to $ 10,000 at September 

30, 2021 and December 31, 2020.

Principal payment obligations on the Convertible Notes are as follows for the following years ending December 31 ( in thousands):

2 unchanged sentences

Under the terms of our 2011 Incentive Plan (the “Plan”), the number of shares authorized under the Plan may be increased each January 1st by an amount equal to the lesser of (a) 1,300,000 shares, (b) 4.0 % of our outstanding common stock as of the end of our immediately preceding fiscal year, and (c) a lesser amount determined by the Board of Directors (the “Board”), provided that the number of shares that may be granted pursuant to awards in a single year may not exceed 10 % of our outstanding shares of common stock on a fully diluted basis as of the end of the immediately preceding fiscal year.

As of June 30, 2021, the total number of shares of common stock authorized under the Plan was 12,084,032 shares.

As of September 30, 2021, the total number of shares of common stock authorized under the Plan was 12,084,032 shares.

Under the terms of the Plan, the Board may grant awards to employees, officers, directors, consultants, agents, advisors and independent contractors.

2 unchanged sentences

Restricted stock awards generally vest over one year.

As of June 30, 2021, there were 6,587,921 shares of unissued common stock authorized and available for future awards under the Plan.

As of September 

30, 2021, there were 4,785,597 shares of unissued common stock authorized and available for future awards under the Plan.

In March 2021, the Board approved the readoption of the Plan to extend the expiration date thereof from April 1, 2021 to April 1, 2023 and obtained shareholder approval of such readoption at the annual meeting of shareholders held on May 13, 2021.

On September 30, 2021, our board of directors, upon the recommendation of our compensation committee, approved an amendment to the Plan to decrease the number of shares of common stock available for issuance pursuant to future awards under the Plan from 4,785,597 shares of common stock to 2,500,000 shares of common stock.

As of such date, there were outstanding awards exercisable into an aggregate of 3,194,573 shares of common stock previous granted under the Plan;

after such amendment, there is an aggregate of 5,694,573 shares of common stock reserved for issuance under the Plan.

In addition, the Board approved an amendment to the outstanding awards previously granted under the Plan to provide that upon the closing of the Arrangement (as defined below), the vesting of such awards shall be accelerated, and such awards shall thereafter become immediately vested in full and the restrictions thereon shall lapse.

If the Arrangement is not consummated, there shall be no accelerated vesting and the awards shall continue to vest in accordance with their original terms.

Stock options:

2 unchanged sentences

Number of Shares

Weighted Average Exercise

Weighted Average Exercise Price (Per Share)

Balance at January 1, 2021

7 unchanged sentences

( 596,354 )  

Balance at June 30, 2021

Balance at September 30, 2021

3,199,573  

$ 0.33  

Exercisable, June 30, 2021

Exercisable, September 30, 2021

1,685,462  

6 unchanged sentences

when joining the Board each non-employee director received an initial restricted stock unit award that vested over one year, the number of shares underlying such award being determined by dividing $15,000 by our closing stock price on the date of grant (which was the first trading day following the date on which such director was appointed), prorated based on the date on which such director was appointed.

There was no restricted stock activity during the three and six months ended June 30, 2021 and no unvested restricted stock awards at June 30, 2021.

During the six months ended June 30, 2020, 119,520 restricted stock awards vested, less 17,928 shares withheld as payment for taxes due in connection with the vesting of restricted stock awards.

There was no restricted stock activity during the three and nine months ended September 30, 2021 and no unvested restricted stock awards at September 30, 2021.

During the nine months ended September 30, 2020, 149,824 restricted stock awards vested, less 17,928 shares withheld as payment for taxes due in connection with the vesting of restricted stock awards.

Commencing as of January 1, 2020, equity compensation for non-employee director service consists of the grant of an annual non-qualified stock option award that vests on the first anniversary of the date of grant (subject to the director’s continuing service as of such anniversary date), with the number of shares underlying such award determined by dividing $ 25,000 by the closing stock price on the date of grant (which shall be the first trading day in January in each calendar year), and such stock option award shall have an exercise price equal to our closing stock price on the date of grant.

6 unchanged sentences

If the actual number of forfeitures differs from those estimated by management, additional adjustments to stock-based compensation expense may be required in future periods.

At June 30, 2021, we had unrecognized compensation expense related to stock options of $ 179,000 to be recognized over a weighted-average period of 2.9 years.

At September 30, 2021, we had unrecognized compensation expense related to stock options of $ 138,000 to be recognized over a weighted-average period of 2.8 years.

The following table summarizes the stock-based compensation expense (in thousands):

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Type of awards:

5 unchanged sentences

We employ the following key weighted-average assumptions in determining the fair value of stock options, using the Black-Scholes option pricing model and the simplified method to estimate the expected term of “plain vanilla”

Six months ended June 30,

Nine months ended September 30,

Expected dividend yield

Expected stock price volatility

73.9 %  

Risk-free interest rate

3 unchanged sentences

$ 0.14  

The aggregate intrinsic value of stock options outstanding at June 30, 2021 was approximately $ 702,000 and for options exercisable was $ 371,000 .

The aggregate intrinsic value of stock options outstanding at September 30, 2021 was approximately $ 2.1 million and for options exercisable was $ 1.0 million.

The intrinsic value of outstanding and exercisable stock options is calculated as the quoted market price of the stock at the balance sheet date less the exercise price of the option.

There were 154,271 options exercised with an aggregate intrinsic value of $ 21,000 during the six months ended June 30, 2021.

There were no options exercised during the six months ended June 30, 2020.

There were 797,306 options exercised with an aggregate intrinsic value of $ 435,000 during the nine months ended September 30, 2021.

There were no options exercised during the nine months ended September 30, 2020.

Segment Information

2 unchanged sentences

Sales by geographic location are as follows (in thousands):

Three months ended June 30,

Year Ended June 30,

Three months ended September 30,

Year Ended September 30,

United States

9 unchanged sentences

$ 9,431  

During the three  months ended June 30, 2021 and 2020, one of our customers (Lassonde) represented an aggregate of approximately 24 % and 22 % of our revenue, respectively. During the six months ended June 30, 2021 and 2020, one of our customers (Lassonde) represented an aggregate of approximately 24 % and 22 % of our revenue, respectively.

During the three  months ended September 30, 2021 and 2020, one of our customers (Lassonde) represented an aggregate of approximately 20 % and 29 % of our revenue, respectively. During the nine months ended September 30, 2021 and 2020, one of our customers (Lassonde) represented an aggregate of approximately 21 % and 25 % of our revenue, respectively.

Paycheck Protection Program

7 unchanged sentences

In May 2021, we received full forgiveness of our PPP Loan and recorded the gain on debt forgiveness in the amount of $ 334,500 in earnings, which was presented as “other income”

on our condensed consolidated statements of operations for the three and six months ended of June 30, 2021.

Subsequent Events

on our condensed consolidated statements of operations for the nine  months ended of September 30, 2021.

2021 Unsecured Convertible Debenture

On July 14, 2021, we issued a $ 2,000,000 unsecured convertible debenture to SOL Verano Blocker 1 LLC (the “Convertible Debenture”) that is convertible into units of the company (each a “Jones Unit”) at a conversion price of $ 0.50 per Jones Unit (the “Conversion Price”), with each Jones Unit consisting of one share of our common stock (each a “Jones Share”) and one share purchase special warrant of Jones (each a “Jones Special Warrant”).

Each Jones Special Warrant will be exercisable into one Jones Share at a price of $ 0.625 per Jones Share for a period of 24 months from the date of issuance, conditional upon us increasing our authorized capital to an amount to cover the Jones Shares issuable pursuant to all of the outstanding Jones Special Warrants as well as the other Jones Shares issuable pursuant to our then-outstanding convertible/exercisable securities.

Pursuant to the terms of the Convertible Debenture, upon satisfaction or waiver of the conditions precedent to the closing of the Plan of Arrangement (defined below), the entire principal amount on the Convertible Debenture and all accrued interest thereon shall automatically convert into Jones Units at the Conversion Price.

Pursuant to the terms of the Convertible Debenture, upon satisfaction or waiver of the conditions precedent to the closing of the Arrangement (defined below), the entire principal amount on the Convertible Debenture and all accrued interest thereon shall automatically convert into Jones Units at the Conversion Price.

The Convertible Debenture matures on the earlier of July 14, 2023 or 60 days after either any agreement between Pinestar Gold Inc.

(“Pinestar”) and us respecting the planned statutory plan of arrangement under the Business Corporations Act (British Columbia) (the “Plan of Arrangement”) is terminated or the debentureholder receives notice from either Pinestar or us that the Plan of Arrangement is unlikely to occur within seven months of the date of the Convertible Debenture (the “Maturity Date”), and accrues interest a rate of 5.00 % (which will increase to 18 % if an Event of Default (as defined in the Convertible Debenture) occurs or in the event that the Plan of Arrangement does not occur within seven months of the date of Convertible Debenture) that is payable on the last day of December in each year commencing on December 31, 2021, as well as the Maturity Date, and the date on which all or any portion of the Convertible Debenture is converted or repaid.

(“Pinestar”) and us respecting the planned statutory plan of arrangement under the Business Corporations Act (British Columbia) (the “Arrangement”) is terminated or the debentureholder receives notice from either Pinestar or us that the Plan of Arrangement is unlikely to occur within seven months of the date of the Convertible Debenture (the “Maturity Date”), and accrues interest a rate of 5.00 % (which will increase to 18 % if an Event of Default (as defined in the Convertible Debenture) occurs or in the event that the Plan of Arrangement does not occur within seven months of the date of Convertible Debenture) that is payable on the last day of December in each year commencing on December 31, 2021, as well as the Maturity Date, and the date on which all or any portion of the Convertible Debenture is converted or repaid.

The terms of the Convertible Debenture restrict, amongst other things, the amount of additional debt we can incur, as well as the number of Jones Shares we can issue, without the consent of the debentureholder.

The terms of the Convertible Debenture also provide that we shall use the principal amount of the Convertible Debenture exclusively for the costs and expenses associated with pursuing and completing the Plan of Arrangement, and for the purpose of expanding our business to the production of cannabis-containing beverages and related products.

Subsequent to June 30, 2021, Convertible Notes in the aggregate principal amount of $ 329,000 and related accrued interest were converted into 1,236,968 shares of common stock in accordance with the original terms of the Convertible Notes (as discussed in Note 4, unrelated to the Convertible Debenture noted in this footnote).

MANAGEMENT ’

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Increase distribution of Lemoncocco in the United States and Canada.

In addition, we intend to pursue the development of new extensions to Jones products, including the potential commercialization of cannabidiol (CBD)-infused beverages, and plan to use the proceeds of the Convertible Debenture and transactions outlined in the Term Sheet (each as described below) exclusively for transaction costs and the expansion our business to the production and sale of cannabis-containing beverages, edibles and related products.

In addition, we intend to pursue the development of new extensions to Jones products, including the potential commercialization of Tetrahydrocannabinol (THC) and cannabidiol (CBD)-infused beverages, and plan to use the proceeds of the Convertible Debenture and transactions outlined in the Term Sheet (each as described below) exclusively for transaction costs and the expansion our business to the production and sale of cannabis-containing beverages, edibles and related products.

Results of Operations

The following selected financial and operating data are derived from our condensed consolidated financial statements and should be read in conjunction with our condensed consolidated financial statements.

Three months ended June 30,

Six months ended June 30,

Consolidated statements of operations data:

Three months ended September 30,

Nine months ended September 30,

(Dollars in thousands, except per share data)

Consolidated statements of operations data:

Cost of goods sold

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Income tax expense, net

Net income (loss)

Basic and diluted net loss per share

June 30, 2021

September 30, 2021

December 31, 2020

Balance sheet data:

(Dollars in thousands)

Balance sheet data:

Cash and cash equivalents and accounts receivable, net

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As a result, management believes that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results expected for the fiscal year.

Quarter Ended June 30, 2021 Compared to Quarter Ended June 30, 2020

For the quarter ended June 30, 2021, revenue increased by approximately $1.4 million, or 44%, to approximately $4.5 million compared to approximately $3.1 million for the quarter ended June 30, 2020.

Quarter Ended September 30, 2021 Compared to Quarter Ended September 30, 2020

For the quarter ended September 30, 2021, revenue increased by approximately $1.0 million, or 29%, to approximately $4.6 million compared to approximately $3.5 million for the quarter ended September 30, 2020.

This increase was primarily a result of increased DSD and DTR core bottled soda sales in the United States and Canada.

Additionally, our fountain business returned to growth through increased sales in the food service channel.

For the quarter ended June 30, 2021, trade spend and promotion allowances, which offset revenue, totaled approximately $454,000, an increase of approximately $47,000, or 11.5%, compared to approximately $407,000 for the quarter ended June 30, 2020, due to the timing of incentive and retailer programs.

For the quarter ended June 30, 2021, gross profit increased by approximately $808,000, or 138%, to approximately $1.4 million compared to approximately $586,000 for the quarter ended June 30, 2020 due to higher revenues in the quarter ended June 30, 2021, the continued shift to a more profitable product mix and our ongoing efforts to optimize supply chain costs.

For the quarter ended June 30, 2021, gross margin increased to 31.3% from 18.9% for the quarter ended June 30, 2020.

For the quarter ended September 30, 2021, trade spend and promotion allowances, which offset revenue, totaled approximately $377,000, a decrease of approximately $149,000, or 28%, compared to approximately $526,000 for the quarter ended September 30, 2020, due to the timing of incentive and retailer programs.

For the quarter ended September 30, 2021, gross profit increased by approximately $541,000, or 59%, to approximately $1.5 million compared to approximately $922,000 for the quarter ended September 30, 2020 due to higher revenues in the quarter ended September 30, 2021, the continued shift to a more profitable product mix and our ongoing efforts to optimize supply chain and promotional costs.

For the quarter ended September 30, 2021, gross margin increased to 32% from 26% for the quarter ended September 30, 2020.

This increase in gross margin was for the same reasons as noted above. 

Selling and Marketing Expenses

Selling and marketing expenses for the quarter ended June 30, 2021 were approximately $710,000, an increase of approximately $181,000, or 34.2%, from approximately $529,000 for the quarter ended June 30, 2020.

Selling and marketing expenses as a percentage of revenue decreased to 15.9% in the quarter ended June 30, 2021 from 17.1% in the same period in 2020 due to the increase in revenue during the 2021 period. 

Selling and marketing expenses for the quarter ended September 30, 2021 were approximately $733,000, an increase of approximately $91,000, or 14%, from approximately $642,000 for the quarter ended September 30, 2020.

Selling and marketing expenses as a percentage of revenue decreased to 16% in the quarter ended September 30, 2021 from 18% in the same period in 2020 due to the increase in revenue during the 2021 period. 

This increase in total selling and marketing expenses was primarily a result of the launch of multiple marketing programs, including our new augmented reality “Reel Label”

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We will continue to balance selling and marketing expenses with our working capital resources.

For the three months ended June 30, 2021 and 2020, non-cash expenses included in selling and marketing expenses (stock compensation and depreciation) were approximately $23,000 and $17,000, respectively.

For the three months ended September 30, 2021 and 2020, non-cash expenses included in selling and marketing expenses (stock compensation and depreciation) were approximately $21,000 and $57,000, respectively.

General and Administrative Expenses

General and administrative expenses for the quarter ended June 30, 2021 were approximately $675,000, a decrease of approximately $79,000, or 10.5%, compared to approximately $754,000 for the quarter ended June 30, 2020.

General and administrative expenses as a percentage of revenue decreased to 15.1% in the quarter ended June 30, 2021 from 24.3% in the same period in 2020.

This decrease in general and administrative expenses was due to a decrease in consulting expenses.

We will continue to carefully manage general and administrative expenses with our working capital resources.

For the three months ended June 30, 2021 and 2020, non-cash expenses included in general and administrative expenses (stock compensation and depreciation) were approximately $27,000 and $26,000, respectively.

General and administrative expenses for the quarter ended September 30, 2021 were approximately $716,000, an increase of approximately $42,000, or 6.2%, compared to approximately $674,000 for the quarter ended September 30, 2020.

General and administrative expenses as a percentage of revenue decreased to 15.7% in the quarter ended September 30, 2021 from 18.1% in the same period in 2020. We will continue to carefully manage general and administrative expenses with our working capital resources.

For the three months ended September 30, 2021 and 2020, non-cash expenses included in general and administrative expenses (stock compensation and depreciation) were approximately $27,000 and $25,000, respectively.

Interest Income

We earned approximately $1,000 of interest income for the quarter ended June 30, 2021, compared to $4,000 for the quarter ended June 30, 2020.

We earned approximately $1,000 of interest income for the quarter ended September 30, 2021, compared to $2,000 for the quarter ended September 30, 2020.

This decrease was related to a decrease in interest rates for interest-bearing money market accounts.

Interest Expense

We incurred approximately $24,000 of interest expense for the quarter ended June 30, 2021, compared to approximately $38,000 for the quarter ended June 30, 2020.

This decrease was primarily related to the lower Convertible Notes balance outstanding as of June 30, 2021 in comparison to the balance outstanding as of June 30, 2020, which resulted in a decrease in accrued interest.

The interest expense incurred during the quarters ended June 30, 2021 and 2020 was non-cash and primarily related to the amortization of the discount associated with the beneficial conversion feature on the Convertible Notes, along with the amortization of associated closing costs and interest related to the Convertible Notes.

We incurred approximately $76,000 of interest expense for the quarter ended September 30, 2021, compared to approximately $40,000 for the quarter ended September 30, 2020.

This increase was primarily related to the accrued interest associated with the Convertible Debenture entered into in July 2021. 

Income Tax Expense

We incurred approximately $12,000 and $8,000 of income tax expense for the quarters ended June 30, 2021 and 2020, respectively, primarily related to the tax provision on income from our Canadian operations.

We incurred approximately $8,000 and $7,000 of income tax expense for the quarters ended September 30, 2021 and 2020, respectively, primarily related to the tax provision on income from our Canadian operations.

We have not recorded any tax benefit for the loss in our U.S.

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Our effective tax rate is based on recurring factors, including the forecasted mix of income before taxes in various jurisdictions, estimated permanent differences and the recording of a full valuation allowance on our U.S. net deferred tax assets.

Other income (expense)

We incurred approximately $335,000 and $1,000 of other income for the quarters ended June 30, 2021 and 2020, respectively.

This increase in other income is due to our recognition of gain on debt forgiveness related to the full forgiveness of our PPP Loan in the principal amount of $334,500 during the quarter ended June 30, 2021.

Net income (loss)

Net income for the quarter ended June 30, 2021 was approximately $309,000 compared to net loss of approximately $738,000 for the quarter ended June 30, 2020.

This increase was primarily due to the increase in gross profit, decrease in operating expenses, and forgiveness of our PPP loan that occurred during the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

For the six months ended June 30, 2021, revenue increased by approximately $1.4 million, or 24.2%, to approximately $7.3 million compared to approximately $5.9 million for the six months ended June 30, 2020.

Net loss for the quarter ended September 30, 2021 was approximately $59,000 compared to net loss of approximately $450,000 for the quarter ended September 30, 2020.

This decrease in net loss was primarily due to the increase in revenues and gross profit.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

For the nine months ended September 30, 2021, revenue increased by approximately $2.4 million, or 26%, to approximately $11.9 million compared to approximately $9.4 million for the nine months ended September 30, 2020.

This increase was primarily a result of increased DSD and DTR core bottled soda sales in the United States and Canada.

Additionally, our fountain business returned to growth through increased sales in the food service channel.

For the six months ended June 30, 2021, trade spend and promotion allowances, which offset revenue, totaled approximately $804,000, an increase of approximately $100,000, or 14.2%, compared to approximately $704,000 for the six months ended June 30, 2020, due to the timing of incentive and retailer programs.

For the six months ended June 30, 2021, gross profit increased by approximately $994,000, or 85.1%, to approximately $2.2 million compared to approximately $1.2 million for the six months ended June 30, 2020 due to higher revenues in the quarter ended June 30, 2021, the continued shift to a more profitable product mix and ongoing efforts to optimize supply chain costs.

For the six months ended June 30, 2021, gross margin increased to 29.6% from 19.8% for the six months ended June 30, 2020.

For the nine months ended September 30, 2021, trade spend and promotion allowances, which offset revenue, totaled approximately $1.2 million, a decrease of approximately $49,000, or 4%, compared to approximately $1.2 million for the nine months ended September 30, 2020, due to the timing of incentive and retailer programs.

For the nine months ended September 30, 2021, gross profit increased by approximately $1.5 million, or 73.4%, to approximately $3.6 million compared to approximately $2.1 million for the nine months ended September 30, 2020 due to higher revenues in the quarter ended September 30, 2021, the continued shift to a more profitable product mix and ongoing efforts to optimize supply chain and promotional costs.

For the nine months ended September 30, 2021, gross margin increased to 30.5% from 22.2% for the nine months ended September 30, 2020.

This increase in gross margin was for the same reasons as noted above.

Selling and Marketing Expenses

Selling and marketing expenses for the six months ended June 30, 2021 were approximately $1.4 million, an increase of approximately $89,000, or 6.9%, from approximately $1.3 million for the six months ended June 30, 2020.

Selling and marketing expenses as a percentage of revenue decreased to 18.7% for the six months ended June 30, 2021 from 21.8% in the same period in 2020 due to the increase in revenue during the 2021 period.

Selling and marketing expenses for the nine months ended September 30, 2021 were approximately $2.1 million, an increase of approximately $180,000, or 9.4%, from approximately $1.9 million for the nine months ended September 30, 2020.

Selling and marketing expenses as a percentage of revenue decreased to 17.7% for the nine months ended September 30, 2021 from 20.4% in the same period in 2020 due to the increase in revenue during the 2021 period.

This increase in total selling and marketing expenses was primarily a result of the launch of multiple marketing programs, including our new augmented reality “Reel Label”

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We will continue to balance selling and marketing expenses with our working capital resources.

For the six months ended June 30, 2021 and 2020, non-cash expenses included in selling and marketing expenses (stock compensation and depreciation) were approximately $58,000 and $35,000, respectively.

For the nine months ended September 30, 2021 and 2020, non-cash expenses included in selling and marketing expenses (stock compensation and depreciation) were approximately $80,000 and $92,000, respectively.

General and Administrative Expenses

General and administrative expenses for the six months ended June 30, 2021 were approximately $1.4 million, an increase of approximately $31,000, or 2.1%, compared to approximately $1.5 million for the six months ended June 30, 2020.

General and administrative expenses as a percentage of revenue decreased to 19.6% in the six months ended June 30, 2021 from 24.8% in the same period in 2020.

This decrease in general and administrative expenses was due to a decrease in consulting expenses.

We will continue to carefully manage general and administrative expenses with our working capital resources.

For the six months ended June 30, 2021 and 2020, non-cash expenses included in general and administrative expenses (stock compensation and depreciation) were approximately $70,000 and $58,000, respectively.

General and administrative expenses for the nine months ended September 30, 2021 were approximately $2.1 million, an increase of approximately $11,000, or 0.5%, compared to approximately $2.1million for the nine months ended September 30, 2020.

General and administrative expenses as a percentage of revenue decreased to 18.1% in the nine months ended September 30, 2021 from 22.6% in the same period in 2020. We will continue to carefully manage general and administrative expenses with our working capital resources.

For the nine months ended September 30, 2021 and 2020, non-cash expenses included in general and administrative expenses (stock compensation and depreciation) were approximately $97,000 and $83,000, respectively.

Interest Income

We earned approximately $2,000 of interest income for the six months ended June 30, 2021, compared to $21,000 for the six months ended June 30, 2020.

We earned approximately $3,000 of interest income for the nine months ended September 30, 2021, compared to $23,000 for the nine months ended September 30, 2020.

This decrease was related to a significant decrease in interest rates for interest-bearing money market accounts.

Interest Expense

We incurred approximately $84,000 of interest expense for the six months ended June 30, 2021, compared to approximately $76,000 for the six months ended June 30, 2020.

This increase was primarily related to the conversion of Convertible Notes that occurred during the six months ended June 30, 2021 that resulted in a higher amortization of the discount associated with the beneficial conversion feature on the Convertible Notes.

The interest expense incurred during the six months ended June 30, 2021 and 2020 was non-cash and primarily related to the amortization of the discount associated with the beneficial conversion feature on the Convertible Notes, along with the amortization of associated closing costs and interest related to the Convertible Notes.

We incurred approximately $160,000 of interest expense for the nine months ended September 30, 2021, compared to approximately $116,000 for the nine months ended September 30, 2020.

This increase was primarily related to the accrued interest associated with the Convertible Debenture entered into in July 2021.

Income Tax Expense

We incurred approximately $16,000 and $12,000 of income tax expense for the six months ended June 30, 2021 and 2020, respectively, primarily related to the tax provision on income from our Canadian operations.

We incurred approximately $24,000 and $19,000 of income tax expense for the nine months ended September 30, 2021 and 2020, respectively, primarily related to the tax provision on income from our Canadian operations.

We have not recorded any tax benefit for the loss in our U.S.

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Other income (expense)

We incurred approximately $328,000 and $14,000 of other income during the six months ended June 30, 2021 and 2020, respectively.

This increase in other income is due to our recognition of gain on debt forgiveness related to the full forgiveness of our PPP Loan in the principal amount of $334,500 during the six months ended June 30, 2021.

Net loss for the six months ended June 30, 2021 was approximately $410,000 compared to net loss of approximately $1.6 million for the six months ended June 30, 2020.

This decrease in loss was primarily due to the increase in gross profit, decrease in operating expenses, and forgiveness of our PPP loan that occurred during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

We incurred approximately $338,000 and $3,000 of other income during the nine months ended September 30, 2021 and 2020, respectively.

This increase in other income is due to our recognition of gain on debt forgiveness related to the full forgiveness of our PPP Loan in the principal amount of $334,500 during the nine months ended September 30, 2021.

Net loss for the nine months ended September 30, 2021 was approximately $469,000 compared to net loss of approximately $2.1 million for the nine months ended September 30, 2020.

This decrease in loss was primarily due to the increase in gross profit, increase in revenue, and forgiveness of our PPP loan that occurred during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Liquidity and Capital Resources

As of June 30, 2021, we had cash and cash-equivalents of approximately $3.1 million and working capital of approximately $4.7 million.

Net cash used in operations during the six months ended June 30, 2021 and 2020 totaled approximately $1.6 million and $1.8 million, respectively.

During the six months ended June 30, 2021 and 2020, we received $67,000 and $0, respectively, from the cash exercise of stock options.

As of September 30, 2021, we had cash and cash-equivalents of approximately $5.9 million and working capital of approximately $7.3 million.

Net cash used in operations during the nine months ended September 30, 2021 and 2020 totaled approximately $702,000 and $1.9 million, respectively.

During the nine months ended September 30, 2021 and 2020, we received $295,000 and $0, respectively, from the cash exercise of stock options.

From time to time, we may receive additional cash through the exercise of stock options.

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This situation creates uncertainties about our ability to execute our business plan, finance operations, and indicates substantial doubt about the Company’s ability to continue as a going concern.

On July 14, 2021, we received proceeds of $2 million in connection with the Convertible Debenture described below under “Recent Developments”.

On July 14, 2021, we received net proceeds of $1.7 million in connection with the Convertible Debenture described below under “Recent Developments”.

We believe that this recent financing will help alleviate the conditions which we believed initially indicated substantial doubt about our ability to continue as a going concern.

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Therefore, even with the proceeds of this financing, we may require additional financing to support our working capital needs in the future.

The amount of additional capital we may require, the timing of our capital needs and the availability of additional financing to fund those needs will depend on a number of factors, including our strategic initiatives and operating plans, the performance of our business and the market conditions for available debt or equity financing.

Additionally, the amount of capital required will depend on our ability to meet our sales goals and otherwise successfully execute our operating plan.

The amount of additional capital we may require, the timing of our capital needs and the availability of additional financing to fund those needs will depend on a number of factors, including the receipt of any proceeds from the planned Concurrent Offering (defined below) as well as from any other financing we complete in connection with the Arrangement (defined below), our strategic initiatives and operating plans, our ability to execute our plans to develop and market cannabis-infused beverages and edibles and the timing and costs of the development of this new product line, our estimates of the size of the markets for our potential cannabis products, the performance of our business and the market conditions for available debt or equity financing.

Additionally, the amount of capital required will depend on our ability to meet our sales goals and otherwise successfully execute our operating plan. 

We believe it is imperative that we meet these sales objectives in order to lessen our reliance on external financing in the future.

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Any such financing alternatives may not provide us with sufficient funds to meet our long-term capital requirements.

however, these options may not ultimately be available or feasible when needed.

If necessary, we may explore strategic transactions in addition to the Arrangement, Concurrent Financing and any related financings that we consider to be in the best interest of our company and our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, a rights offering, and other strategic alternatives;

however, these options may not ultimately be available or feasible when needed. 

As of the date of this Quarterly Report, as a result of our cash on hand as well as the issuance of the Convertible Debenture, we believe that our current cash and cash equivalents will be sufficient to meet the Company’s funding requirements for one year after these consolidated financial statements are issued.

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in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 24, 2021.

There have been no material changes in our critical accounting policies during the six months ended June 30, 2021.

There have been no material changes in our critical accounting policies during the nine months ended September 30, 2021.

Recent Developments

As previously disclosed in a Current Report on Form 8-K filed on July 20, 2021, on July 14, 2021, we issued a $2,000,000 unsecured convertible debenture to SOL Verano Blocker 1 LLC (the “Convertible Debenture”) that is convertible into units of the Company (each a “Jones Unit”) at a conversion price of $0.50 per Jones Unit (the “Conversion Price”), with each Jones Unit consisting of one share of our common stock (each a “Jones Share”) and one share purchase special warrant (each a “Jones Special Warrant”).

Each Jones Special Warrant will be exercisable into one Jones Share at a price of $0.625 per Jones Share for a period of 24 months from the date of issuance, conditional upon us increasing our authorized capital to an amount to cover the Jones Shares issuable pursuant to all of the outstanding Jones Special Warrants as well as the other Jones Shares issuable pursuant to our then- outstanding convertible/exercisable securities.

The Convertible Debenture matures on the earlier of July 14, 2023 or 60 days after either any agreement between Pinestar Gold Inc.

(“Pinestar”) and us respecting the Plan of Arrangement (defined below) is terminated or the debentureholder receives notice from either Pinestar or us that the Plan of Arrangement is unlikely to occur within seven months of the date of the Convertible Debenture (the “Maturity Date”), and accrues interest a rate of 5.00% (which will increase to 18% if an Event of Default (as defined in the Convertible Debenture) occurs or in the event that the Plan of Arrangement does not occur within seven months of the date of Convertible Debenture) that is payable on the last day of December in each year commencing on December 31, 2021, as well as the Maturity Date, and the date on which all or any portion of the Convertible Debenture is converted or repaid.

The terms of the Convertible Debenture restrict, among other things, the amount of additional debt we can incur, as well as the number of Jones Shares we can issue, without the consent of the debentureholder.

The issuance of the Convertible Debenture was exempt from registration under the United States Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder.

In connection with the issuance of the Convertible Debenture, we also signed on July 14, 2021, a registration rights agreement with SOL Verano Blocker 1 LLC (the “Registration Rights Agreement”).

Pursuant to the terms of the Registration Rights Agreement, we are required to file a registration statement with the United States Securities and Exchange Commission (the “SEC”) within 30 days from the conversion of the Convertible Debenture that registers for resale the Jones Shares issued upon the conversion of the Convertible Debenture as well as the Jones Shares issuable upon the exercise of the Jones Special Warrants issued in connection with the conversion of the Convertible Debenture.

The failure on our part to file the registration statement with the SEC within this timeframe may subject us to payment of certain monetary penalties.

On July 14, 2021, in connection with the issuance of the Convertible Debenture, we entered into a non-binding term sheet (the “Term Sheet”) with Pinestar and SOL Global Investments Corp.

(“SOL”).

Under the terms of the Term Sheet, we intend to acquire all of the outstanding common shares of Pinestar (after a planned consolidation of such shares) and warrants exercisable into common shares of Pinestar in exchange for an aggregate of 4,000,000 Jones Shares and 1,674,808 warrants exercisable into Jones Shares as part of a statutory plan of arrangement (the “Plan of Arrangement”) under the Business Corporations Act (British Columbia) and in reliance on applicable exemptions from the prospectus and registration requirements under Canadian and United States securities laws.

The Term Sheet also provides that Pinestar intends to complete an offering of subscription receipts (“Subscription Receipts”) for minimum aggregate gross proceeds of $8,000,000, at a price per Subscription Receipt equal to $0.50.

The Subscription Receipts are intended to automatically convert into units of Pinestar (the “Pinestar Units”) on a one-for-one basis if certain conditions relating to the Plan of Arrangement are met, with each Pinestar Unit expected to consist of one common share of Pinestar and one new share purchase warrant of Pinestar, which are then expected to be immediately exchanged for, or adjusted into, Jones Units as part of the Plan of Arrangement in accordance with a 1:1 exchange ratio.

The proposed transactions outlined in the Term Sheet are subject to, among other conditions, due diligence by the parties, the negotiation and execution of a definitive agreement, approval of any applicable regulators, including any applicable securities exchanges, and approval by both the shareholders of Pinestar and the Supreme Court of British Columbia.

The Term Sheet is intended to express only a mutual indication of interest in the Plan of Arrangement and corresponding offering of Subscription Receipts and does not represent a legally binding commitment or obligation on the part of the parties, and there can be no assurances that either the Plan of Arrangement or the offering of Subscription Receipts will be consummated.

The terms of the Plan of Arrangement and corresponding offering of Subscription Receipts must be set forth in a definitive agreement.

There are no assurances that we will be successful in negotiating an acceptable definitive agreement, when or whether a definitive agreement will be reached between the parties, or that the proposed Plan of Arrangement and/or corresponding offering of Subscription Receipts will be consummated.

Even if a definitive agreement is executed, the terms of the proposed Plan of Arrangement and/or corresponding offering of Subscription Receipts may change materially from the terms set forth in the Term Sheet.

There will be many conditions to closing, many of which are outside of the parties’

control and it cannot be predicted whether these conditions will be satisfied.

There are no assurances when or if closing will occur, even if the parties successfully negotiate and sign a definitive agreement.

As previously disclosed in a Current Report on Form 8-K filed on October 22, 2021, on October 18, 2021, we entered into the Arrangement Agreement with Pinestar pursuant to which we agreed to acquire all of the issued and outstanding shares of Pinestar on the basis of one share of our common stock (each, a “Jones Share”) for each common share of Pinestar (each, a “Pinestar Share”) (after Pinestar completes a consolidation of the Pinestar Shares whereby 10.031 pre-consolidated Pinestar Shares are consolidated into one consolidated Pinestar Share (the “Consolidation”)) by way of a court approved plan of arrangement under the Business Corporations Act (British Columbia) (the “Arrangement”).

Additionally, Pinestar currently has outstanding 16,800,000 existing common share purchase warrants (the “Pinestar Warrants”) and, as a result of the Consolidation, the exercise price of, and the number of Pinestar Shares issuable pursuant to the Pinestar Warrants shall be adjusted in accordance with their terms to account for the Consolidation, resulting in an aggregate of approximately 1,674,808 post-Consolidated Pinestar Warrants, subject to rounding, each exercisable for the purchase of one post-Consolidation Pinestar Share at a price of Cdn$0.06 per share.

As part of the Arrangement, an aggregate of 700,000 post-Consolidation Pinestar Warrants will be transferred to us for no consideration (and subsequently cancelled), and the obligations in respect of each remaining post-Consolidated Pinestar Warrant will be assumed by us and each such remaining post-Consolidated Pinestar Warrant will become exercisable into one Jones Share at a price of Cdn$0.06 per share.

In connection with the Arrangement, Pinestar agreed to complete an offering expected to be for subscription receipts (“Subscription Receipts”) for minimum aggregate gross proceeds of US$8,000,000, at a price per Subscription Receipt equal to US$0.50 (the “Concurrent Offering”).

The Arrangement Agreement provides that each Subscription Receipt will automatically convert into one Pinestar Share and one new common share purchase warrant of Pinestar, which will then be immediately exchanged for, or adjusted into, Jones Shares and share purchase special warrants of our company in accordance with a 1:1 exchange ratio as part of the Arrangement.

The Arrangement Agreement also provides that upon the closing of the Arrangement, our board of directors will consist of Jamie Colbourne, Mark Murray, Clive Sirkin, Paul Norman, Alex Spiro and an additional director to be determined by us.

The Arrangement is subject to a number of conditions being satisfied or waived by one or both of us and Pinestar at or prior to closing of the Arrangement, including approval of the Arrangement by Pinestar’s shareholders, completion of the Consolidation, the surrender of the 700,000 post-Consolidation Pinestar Warrants discussed above, and the receipt of all necessary regulatory and court approvals and the satisfaction of certain other closing conditions customary for a transaction of this nature, including completion of the Concurrent Offering, and the conditional approval of the listing of the Jones Shares on the Canadian Securities Exchange.

The Arrangement Agreement also includes customary provisions, including non-solicitation, right-to-match and fiduciary out provisions, as well as certain representations, covenants and conditions that are customary for a transaction of this nature.

A termination fee of US$200,000 may be payable by either party in the case of certain terminating events.

The issuance of the Jones Shares to the holders of Pinestar Shares (including Pinestar Shares to be received upon the exercise of Subscription Receipts) in the Arrangement are intended to be exempt from the registration requirements under the United States Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 3(a)(10) of the Securities Act.

As previously disclosed, our former independent registered public accounting firm, BDO USA, LLP, resigned as our independent registered public accounting firm effective as of September 9, 2021.

On September 30, 2021, through and with the approval of our audit committee, we appointed Armanino LLP as our independent registered public accounting firm.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Item 1. Financial Statements