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Item 8. Financial Statements and Supplementary Data

2022-03-14 compared with 2021-03-24 · 330 added, 320 removed, 376 unchanged (63% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of BDO USA LLP, Independent Registered Public Accounting Firm

Report of Armanino LLP, Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Financial Statements:

Consolidated balance sheets as of December 31, 2020 and 2019

Consolidated statements of operations for the years ended December 31, 2020 and 2019

Consolidated balance sheets as of December 31, 2021 and 2020

Consolidated statements of operations for the years ended December 31, 2021 and 2020

Consolidated statements of comprehensive loss for the years ended December 31, 2021 and 2020

Consolidated statements of shareholders’ equity (deficit) for the years ended December 31, 2020 and 2019

Consolidated statements of cash flows for the years ended December 31, 2020 and 20219

Consolidated statements of shareholders’ equity (deficit) for the years ended December 31, 2021 and 2020

Consolidated statements of cash flows for the years ended December 31, 2021 and 2020

Notes to consolidated financial statements

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Jones Soda Co.

(the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, shareholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has negative cash flows from operating activities that raise substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Change in Accounting Principle

As discussed in Note 6 to the consolidated financial statements, the Company has changed its method for accounting for leases during the year ended December 31, 2019 due to the adoption of Topic 842:

We have audited the accompanying balance sheets of Jones Soda Co.

(the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive loss, shareholders’

equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2021, 

and the related notes (collectively referred to as the consolidated financial statements).   

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

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The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Promotional allowances

As described in Note 1 to the Company’s consolidated financial statements, the Company’s revenue is recorded net of promotional allowances which includes discounts, slotting fees, and other allowances offered to customers.

As described in Note 1 to the Company’s consolidated financial statements, the Company’s revenue is recorded net of promotional allowances.

The recognition of these promotional allowances requires the Company to make estimates regarding the volume of sales, cost of the promotional allowances, and amount of the promotional allowances that are expected to be redeemed.

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We identified the estimation of promotional allowances as a critical audit matter.

In estimating the promotional allowances, management’s estimates include (i) determining the completeness of the various promotional allowances with customers and the forecasted sales volume for the period, and (ii) assessing the amount of promotional allowances that are expected to be redeemed subsequent to period end.

Auditing of this estimate involved especially challenging auditor judgment and additional audit effort due to the varying terms of the promotional allowances and the uncertainty of the timing and utilization of the promotional allowances.

Auditing of this estimate involves additional audit effort due to the varying terms of the promotional allowances and the uncertainty of the timing and utilization of the promotional allowances.

The primary procedures we performed to address this critical audit matter included:

Assessing management’s judgments and assumptions included in the estimation of the liability for promotional allowances by:

Assessing management’s judgment and assumptions included in the estimation of the liability for promotional allowances by:

(i) analyzing the customer base and historical promotional allowances offered to customers, and (ii) testing a sample of transactions with historical promotional offer redemptions;

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(i) reperforming calculations and agreeing to historical data, (ii) comparing the estimate to the revenue for the current period and current promotional offer redemptions to historical estimates, and (iii) comparing to actual promotional allowances applied subsequent to year end to the promotional allowance estimated as of year end.

/s/ BDO USA, LLP

/s/ Armanino 

We have served as the Company's auditor since 2021.

Seattle, Washington

Bellevue, Washington

March 14, 2022

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(In thousands, except share data)

ASSETS  

Current assets:

Cash and cash equivalents

$ 4,667  

$ 4,614  

Accounts receivable, net of allowance of $114 and $93

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Right of use lease asset

LIABILITIES AND SHAREHOLDERS ’ EQUITY (DEFICIT)

Other assets  

$ 10,246  

$ 9,053  

LIABILITIES AND SHAREHOLDERS ’

Current liabilities:

Accounts payable

Lease liability, current portion

$ 1,239  

$ 1,385  

Accrued expenses

Lease liability, current portion  

Taxes payable

Current portion of convertible subordinated notes payable, net

Current portion of accrued interest expense

2022 Financing Proceeds Received, Net of Closing Costs

Current portion of SBA Loan

Total current liabilities

Convertible subordinated notes payable, net

Accrued interest expense

Net convertible subordinated notes payable, net of current portion

Accrued interest expense, net of current portion

SBA loan, net of current portion

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Total liabilities

Shareholders’ equity (deficit):

Commitment and contingencies (Note 9)  

Shareholders’

Common stock, no par value:

Authorized — 100,000,000;

issued and outstanding shares — 61,975,748 shares and 61,566,076 shares, respectively

Authorized —

100,000,000 ;

issued and outstanding shares —

67,840,941 shares and 61,975,748 shares, respectively

76,017  

73,953  

Accumulated other comprehensive income

Accumulated deficit

Total shareholders’ equity

Total liabilities and shareholders’ equity

( 71,796 )  

Total shareholders’

Total liabilities and shareholders’

$ 10,246  

$ 9,053  

See accompanying notes to consolidated financial statements.

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(In thousands, except share data)

$ 14,792  

$ 11,895  

Cost of goods sold

10,394  

Operating expenses:

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Total operating expenses

Loss from operations

Loss from operations

( 1,907 )  

Interest income

Interest expense

Other expense, net

( 225 )  

Other income (expense), net

Loss before income taxes

( 1,784 )  

Income tax expense, net

( 27 )  

$ ( 1,811 )  

Net loss per share - basic and diluted

Weighted average basic and diluted common shares outstanding

$ ( 0.03 )  

Weighted average common shares outstanding - basic and diluted

65,542,609  

61,792,285  

See accompanying notes to consolidated financial statements.

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(In thousands)

Other comprehensive income:

$ ( 1,811 )  

Other comprehensive income (loss):

Foreign currency translation adjustment

( 15 )  

Total comprehensive loss

$ ( 1,826 )  

See accompanying notes to consolidated financial statements.

JONES SODA CO.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY (DEFICIT)

Years Ended December 31, 2020 and 2019

Comprehensive

Shareholders ’

CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’

Years Ended December  

31, 2021 and 2020

Accumulated Other Comprehensive Income

Accumulated Deficit

Total Shareholders ’

(In thousands, except share data)

Balance as of December 31, 2019

Share-based payment activity

Common stock issuance on conversion of notes payable

Common stock and warrants issued, net of offering costs of $183

Exercise of stock options

61,566,076  

$ 73,773  

$ ( 66,988 )  

$ 7,127  

Share based compensation

409,672  

Beneficial conversion feature on paid-in-kind interest

( 2,997 )  

Other comprehensive income

Balance as of December 31, 2020

Share-based payment activity

Beneficial conversion feature on paid-in-kind interest

Other comprehensive income

61,975,748  

$ 73,953  

$ ( 69,985 )  

$ 4,379  

Share based compensation

Common stock issued upon conversion of notes payable

5,064,137  

Issuance of common stock upon exercise of stock options  

801,056  

( 1,811 )  

Other comprehensive loss

( 15 )  

Balance as of December 31, 2021

67,840,941  

$ 76,017  

$ ( 71,796 )  

$ 4,617  

See accompanying notes to consolidated financial statements.

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OPERATING ACTIVITIES:

$ ( 1,811 )  

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

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Change in allowance for doubtful accounts

Forgiveness of PPP SBA loan

( 335 )  

Loss on sale of fixed asset

Changes in operating assets and liabilities:

Accounts receivable

( 1,129 )  

( 66 )  

Prepaid expenses and other current assets

( 164 )  

Accounts payable

( 147 )  

Accrued expenses

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Net cash used in operating activities

( 2,528 )  

INVESTING ACTIVITIES:

Sale of fixed assets

Purchase of fixed assets

( 35 )  

Net cash used in investing activities

( 31 )  

FINANCING ACTIVITIES:

Repayments on line of credit, net of proceeds

Proceeds from exercise of stock options

Proceeds from issuance of common stock and warrants, net

Proceeds from issuance of convertible notes, net

Proceeds from 2022 convertible notes prior to close, net

Proceeds from PPP SBA loan

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Net cash provided by financing activities

Net decrease in cash and cash equivalents

Net change in cash and cash equivalents

Effect of exchange rate changes on cash

1 unchanged sentence

Cash and cash equivalents, end of period

$ 4,667  

$ 4,614  

Supplemental disclosure:

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Conversion of notes payable

$ 1,621  

Recognition of lease liability and right-of-use asset

Beneficial conversion feature on convertible notes

Beneficial conversion feature on convertible notes and accrued interest

See accompanying notes to consolidated financial statements.

JONES SODA CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2021 and 2020

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Jones Soda Co.

develops, produces, markets and distributes premium beverages which it sells and distributes primarily in the United States and Canada through its network of independent distributors and directly to its national and regional retail accounts.

We are a Washington corporation and have two operating subsidiaries, Jones Soda Co.

and Jones Soda (Canada) Inc.

(Subsidiaries).

In addition, following the closing of the Plan of Arrangement, we intend to use the proceeds from our recent financings exclusively for the purpose of expanding our business to the production of cannabis-containing beverages and related products.

We are a Washington corporation and havethree operating subsidiaries, Jones Soda Co.

(USA) Inc., Jones Soda (Canada) Inc., and Jones Soda Cannabis Inc. (Subsidiaries).

Basis of presentation and consolidation

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Net cash used in operations during fiscal years 2021 and 2020 totaled approximately $ 2.5 million and $ 1.5 million, respectively.

The Company has experienced recurring losses from operations and negative cash flows from operating activities.

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

We continue to experience negative cash flows from operations, as well as an ongoing requirement for additional capital to support working capital needs.

Therefore, currently, based upon our near-term anticipated level of operations and expenditures, management believes that cash on hand, is not sufficient to enable us to fund operations for 12 months from the date the financial statements included in this Report are issued.

These conditions raise doubt as to our ability to continue as a going concern.

Our ability to continue operations is dependent upon achieving a profitable level of operations and on our ability to obtain necessary financing to fund ongoing operations.

The consolidated financial statements included in this Report do not give effect to any adjustments which will be necessary should we be unable to continue as a going concern and therefore be required to realize our assets and discharge our liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying consolidated financial statements.

Net cash used in operations increased primarily due to the timing of receivables and payables.

Our cash flows vary throughout the year based on seasonality.

For the year ended December 31, 2021, net cash provided by financing activities totaled approximately $ 2.6 million due to net proceeds we received of $ 1.7 million in connection with the issuance of an unsecured convertible debenture to SOL Verano Blocker 1 LLC (the “2021 Debenture”).

In addition, we received net proceeds of $ 538,000 prior to December 31, 2021 of the total $ 3,000,000 in aggregate principal amount of 3.00 % unsecured convertible debentures that closed on February 9, 2022 ( the “Contingent Convertible Debentures”).

For the year ended December 31, 2020, net cash provided by financing activities totaled approximately $ 329,000 due to the loan proceeds of approximately $ 335,000 under the Paycheck Protection Program, established as part of the Coronavirus Aid, Relief and Economic Security Act.

This loan was fully forgiven in May of 2021.

We incurred a net loss of approximately $ 1.8 million for the year ended December 31, 2021 compared to a net loss of approximately $ 3.0 million for the year ended December 31, 2020.

Our accumulated deficit increased to $ 71.8 million as of December 31, 2021 compared to an accumulated deficit of $ 70.0 million as of December 31, 2020.

In addition to the 2021 Debenture with SOL Verano Blocker 1 LLC, we received proceeds from two separate transactions subsequent to December 31, 2021 as described below and in Note 13.

Specifically, on February 9, 2022 we issued $3,000,000 in aggregate principal amount of the Contingent Convertible Debentures and on February 15, 2022, and upon the consummation of the Plan of Arrangement the Company received the $ 8,000,000 in gross proceeds from the Pinestar Subscription Receipt offering completed prior to the Plan of Arrangement. 

The Plan of Arrangement resulted in issuance of an aggregate of 20,000,048 Jones Shares in connection with the completion of the previously announced acquisition of all the issued and outstanding common shares of Pinestar by way of a statutory plan of arrangement whereby the outstanding Pinestar Shares were exchanged for newly issued Jones Shares on a one -for- one basis.

Therefore, currently, based upon our near-term anticipated level of operations and expenditures, management believes that cash on hand, is sufficient to enable us to fund operations for 12 months from the date the financial statements included in this Report are issued.

During 2021 and 2020, we received $ 296,000  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 or stock warrants.

However, we cannot predict the timing or amount of cash proceeds we may receive from the exercise, if at all, of any of the outstanding stock options or warrants.

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 debt or equity financing.

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

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

We intend to continually monitor and adjust our business plan as necessary to respond to developments in our business, our markets and the broader economy.

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.

We intend to continually monitor and adjust our operating plan as necessary to respond to developments in our business, our markets and the broader economy.

In addition, the continuation of the COVID- 19 pandemic and uncertain market conditions may limit our ability to access capital, may reduce demand for certain products, and may negatively impact our supply chain.

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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 our best interest and in the best interest of 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.

The uncertainties relating to our ability to successfully execute on our business plan and finance our operations continue to raise substantial doubt about our ability to continue as a going concern.

Our financial statements for the periods presented were prepared assuming we would continue as a going concern, which contemplates that we will continue in operation for the foreseeable future and will be able to realize assets and settle liability commitments in the normal course of business.

These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that could result should we be unable to continue as a going concern within one year after the date these consolidated financials were issued.

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;

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

Use of estimates

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The carrying amounts for cash and cash equivalents, receivables, and payables approximate fair value due to the short-term maturity of these instruments.

During the first half of 2018, we issued an aggregate principal amount of $2,920,000 of convertible subordinated promissory notes (the “Convertible Notes”).

During the first half of 2018, we issued an aggregate principal amount of $ 2,920,000 of convertible subordinated promissory notes (the “2018 Convertible Notes”).

The fair value remaining of 2018 Convertible Notes outstanding was approximately $ 110,000 and $ 1,483,000 as of December 31, 2021 and 2020, respectively.

The fair value of Convertible Notes was estimated using a discounted cash flow analysis based on current market interest rates, which represent level 2 inputs in the fair value hierarchy.

The fair value of the 2018 Convertible Notes was estimated using a discounted cash flow analysis based on current market interest rates, which represent level 2 inputs in the fair value hierarchy.

On July 14, 2021, we issued the 2021 Debenture to SOL Verano Blocker 1 LLC.

The fair value remaining of the 2021 Debenture outstanding was approximately $ 1,984,000 as of December 31, 2021.

The fair value of the 2021 Debenture was estimated using a discounted cash flow analysis based on current market interest rates, which represent level 2 inputs in the fair value hierarchy.

Accounts receivable

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Net charges to bad debt expense

( 21 )  

Balance, end of year

As of December 31, 2021, one customer made up 19 % of our outstanding accounts receivable.

As of December 31, 2019, two customers made up 26% of our outstanding accounts receivable.

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

Inventories consist of raw materials and finished goods and are stated at the lower of cost or net realizable value and include adjustments for estimated obsolete or excess inventory.

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A significant change in demand for certain products as compared to forecasted amounts may result in recording additional provisions for obsolete inventory.

Provisions for obsolete or excess inventory are recorded as cost of goods sold and totaled $5,000 and $9,000 as of December 31, 2020 and 2019, respectively.

Provisions for obsolete or excess inventory are recorded as cost of goods sold and totaled $ 27,000 and $ 77,000 for the years ended 

December 31, 2021 and 2020, respectively.

Fixed assets are recorded at cost less accumulated depreciation and are depreciated on the declining balance basis over the estimated useful lives of the assets as follows:

20 % to 30 %  

Vehicles and office and computer equipment

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The functional currency of our Canadian subsidiary is the Canadian dollar.

We translate assets and liabilities related to these operations to U.S.

dollars at the exchange rate in effect at the date of the consolidated balance sheet;

we convert revenues and expenses into U.S.

dollars using the average monthly exchange rates.

We translate assets and liabilities related to these operations to U.S. dollars at the exchange rate in effect at the date of the consolidated balance sheet;

we convert revenues and expenses into U.S. dollars using the average monthly exchange rates.

Translation gains and losses are reported as a separate component of accumulated other comprehensive income.

Transaction gains and losses arising from the transactions denominated in a currency other than the functional currency are included in other expense, net in the accompanying consolidated statement of operations.

Net transaction gains were $22,000 and $4,000 for 2020 and 2019, respectively.

Net transaction gain was $ 18,000 for 2021 and a net transaction loss of $ 22,000 for 2020.

Revenue recognition

The Company recognizes revenue under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers , (“ASC 606”).

The Company recognizes 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 the company expects to be entitled in exchange for those goods or services.

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See Note 11, Segment information, for information on revenue disaggregated by geographic area.

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

The Company’s performance obligations are satisfied at the point in time when products are received by the customer, which is when the customer has title and the significant risks and rewards of ownership.

Therefore, the Company’s contracts have a single performance obligation (delivery of product).

Because the Company’s agreements have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606 - 10 - 50 - 14 (a) to not disclose information about its 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.

Effective March 1, 2021, title and the significant risk and rewards of ownership are deemed to transfer when products are loaded onto a truck for shipment or Free on Board (“FOB”) shipping point.

Prior to March 1, 2021, shipping terms varied from customer to customer.

The Company primarily receives fixed consideration for sales of product, subject to adjustment as described below.

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Discounts, slotting fees and promotional allowances vary the consideration the Company is entitled to in exchange for the sale of products to distributors.

The Company estimates these discounts, slotting fees and promotional allowances in the same period that the revenue is recognized for product sales to customers.

These estimates are based on contract terms and our historical experience with similar programs and require management judgement with respect to estimating customer participation and performance levels.

Differences between estimated expense and actual costs are normally insignificant and are recognized in earnings in the period such differences are determined.

The amount of revenue recognized represents the amount that will not be subject to a significant future reversal of revenue.

The Company estimates these discounts, slotting fees and promotional allowances in the same period that the revenue is recognized for product sales to customers. These estimates are based on contract terms and our historical experience with similar programs and require management judgement with respect to estimating customer participation and performance levels.

Differences between estimated expense and actual costs are normally insignificant and are recognized in earnings in the period such differences are determined. The amount of revenue recognized represents the amount that will not be subject to a significant future reversal of revenue.

The liability for promotional allowances is included in accrued expenses on the consolidated balance sheets.

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

For the years ended December 31, 2020 and 2019, our revenue was reduced by approximately $1.6 million and $1.7 million, respectively, for slotting fees and promotion allowances.

For the years ended 

December 31, 2021 

2020, our revenue was reduced by approximately $ 1.4 million and $ 1.6 million, respectively, for slotting fees and promotion allowances.

All sales to distributors and customers are generally final.

In limited instances we may accept returned product due to quality issues or distributor terminations, and in such situations we would have variable consideration.

To date, returns have not been material.

The Company’s customers generally pay within 30 days from the receipt of a valid invoice.

To date, returns have not been material. The Company’s customers generally pay within 30 days from the receipt of a valid invoice.

The Company offers prompt pay discounts of up to 2 % to certain customers typically for payments made within 15 days.

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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 2020 and 2019, outstanding stock options amounting to 3,589,783 and 3,495,601, shares issuable upon the conversion of the Convertible Notes of 5,372,440 and 5,095,308, unvested restricted stock units of zero and 149,824, and stock warrants of zero and 15,000,000 at December 31, 2020 and 2019, respectively, were anti-dilutive.

Due to the net loss in 2021 and 2020, outstanding stock options amounting to 3,509,261 and 3,589,783  shares, and shares issuable upon the conversion of the 2018 Convertible Notes of 4,421,539 and 5,372,440 , respectively, were anti-dilutive.

Comprehensive loss

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We historically have generated a greater percentage of our revenues during the warm weather months of April through September.

Sales may fluctuate materially on a quarter to quarter basis or an annual basis when we launch a new product or fill the “pipeline” of a new distribution partner or a large retail partner.

Sales may fluctuate materially on a quarter to quarter basis or an annual basis when we launch a new product or fill the “pipeline”

of a new distribution partner or a large retail partner.

Sales results may also fluctuate based on the number of SKUs selected or removed by our distributors and retail partners through the normal course of serving consumers in the dynamic, trend-oriented beverage industry.

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Recent accounting guidance

In August, 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, “Debt-Debt with Conversion and other options” which simplifies the accounting for convertible debt instruments and convertible preferred stock.

In August, 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 

2020 - 06, “Debt-Debt with Conversion and other options”

which simplifies the accounting for convertible debt instruments and convertible preferred stock.

The ASU is effective for public companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

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In June 2016, the FASB issued ASU 2016 - 13, Financial Instruments:

Credit Losses (“ASU 2016-13”), which changes the impairment model for most financial instruments, including trade receivables from an incurred loss method to a new forward-looking approach, based on expected losses.

Credit Losses (“ASU 2016 - 13”

), which changes the impairment model for most financial instruments, including trade receivables from an incurred loss method to a new forward-looking approach, based on expected losses.

The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts.

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Finished goods

$ 1,361  

$ 1,142  

Raw materials

$ 1,923  

$ 1,856  

Finished goods primarily include product ready for shipment, as well as promotional merchandise held for sale.

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Accumulated depreciation

( 627 )  

Accrued Expenses

3 unchanged sentences

Other accruals

Convertible Subordinated Notes Payable

On March 23, 2018, and April 18, 2018, we issued and sold an aggregate principal amount of $2,920,000 of convertible subordinated promissory notes (the “Convertible Notes”) to institutional investors and our management team, and other individual investors.

The Convertible Notes have a four-year term from the date of issuance and bear interest at 6% per annum until maturity on March 23, 2022, and April 18, 2022.

The holders can convert the Convertible Notes at any time into the number of shares of our common stock equal to the quotient obtained by dividing (i) the amount of the unpaid principal and interest on such Convertible Note by (ii) $0.32 (the “Conversion Price”).

$ 1,544  

Convertible Debentures

2018 Convertible Subordinated Note Payable

On March 23, 2018, and April 18, 2018, we issued and sold an aggregate principal amount of $ 2,920,000 of convertible subordinated promissory notes (the “2018 Convertible Notes”) to institutional investors and our management team, and other individual investors.

The 2018 Convertible Notes have a four -year term from the date of issuance and bear interest at 6 % per annum until maturity on March 23, 2022, and April 18, 2022.

The holders can convert the 2018 Convertible Notes at any time into the number of shares of our common stock equal to the quotient obtained by dividing (i) the amount of the unpaid principal and interest on such 2018 Convertible Note by (ii) $ 0.32 (the “Conversion Price”).

The Conversion Price is subject to anti-dilution adjustment on a broad-based, weighted average basis if we issue shares or equity-linked instruments at a conversion price below $0.32 per share.

No payments of principal or interest are due until the maturity.

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 2020, no Convertible Notes were converted.

During 2019, Convertible Notes in the aggregate principal amount of $1.4 million and related accrued interest were converted into 4,868,079 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 $1,558,000, was credited to common stock and unamortized discounts in an amount equal to $262,000 were recognized as interest expense during 2019.

There were additional conversions of the Convertible Notes subsequent to December 31, 2020.

See Note 13 below.

The 2018 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 year ended December 31 2021, 2018 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 2018 Convertible Notes.

As a result, the carrying amount of the converted principal amount of such 2018 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 year ended December, 2021.

There were no 2018 Convertible Notes converted during the year ended December 31, 2020.

The fair value of our common stock on the March 23, 2018, closing date for the issuance of the 2018 Convertible Notes was $ 0.36 per share, therefore, the 2018 Convertible Notes contained a beneficial conversion feature with an aggregate intrinsic value of $ 350,000 .

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The principal balance of notes payable to related parties amounted to $ 10,000 at December 31, 2021 and 2020.

Principal payments are as follows for the years ending December 31 (in thousands):

As of December 31, 2021, $ 110,000 of principal payments are due in 2022.

2021 Unsecured Convertible Debenture

July 14, 2021, 

we issued the 2021 Debenture, which was a $ 2,000,000  unsecured convertible debenture to SOL Verano Blocker 

1  LLC that was convertible into units of the company (each a “Jones Unit”) at a conversion price of $ 0.50  per Jones Unit, 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.

The 2021 Debenture accrued interest at a rate of 5.00 % and we had $ 47,000 of interest due to SOL Verano Blocker 1 LLC on December 31, 2021.

The closing of the Plan of Arrangement (as defined below in Note 13 ) resulted in the automatic conversion of the 2021 Debenture into an aggregate of 4,025,035 Jones Shares and 4,025,035 Jones Special Warrants at a conversion price of $ 0.50 per Jones Share and Jones Special Warrant.

The terms of the 2021 Debenture restricted, 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 2021 Debenture also provided that we use the principal amount of the 2021 Debenture 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.

Lease Obligations

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Total remaining lease liability

On January 1, 2019, the Company adopted Topic 842:

Leases , which requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than twelve months on its balance sheets.

Upon adoption, the Company recorded a lease liability and right-of-use asset of $124,000 and $116,000, respectively, on the consolidated balance sheet as of January 1, 2019.

The adoption of ASC Topic 842 did not have a material impact on either the consolidated statement of operations or consolidated statement of cash flows for the year ended December 31, 2019.

Shareholders ’ Equity

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 least 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.

Effective January 1, 2021, the total number of shares of common stock authorized under the Plan was 12,084,032 shares.

Shareholders ’

Under the terms of our 2011 Equity Incentive Plan (the “Plan”), the number of shares authorized under the Plan may be increased each January 1st by an amount equal to the least 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.

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

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Stock options are granted at the closing price of our stock on the date of grant, and generally have a ten -year term and vest over a period of 48 months with the first 25.0 % cliff vesting one year from the grant date and monthly thereafter.

March 2021, 

the Board approved the readoption of the Plan to extend the expiration date thereof from 

April 1, 2021 

April 1, 2023 

and obtained shareholder approval of such readoption at the annual meeting of shareholders held on 

May 13, 2021.

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 was accelerated, and such awards became immediately vested in full and the restrictions thereon lapsed.

As of December 31, 2021, there were 2,389,062 shares of unissued common stock authorized and available for future awards under the Plan.

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Number of Shares

Weighted Average

Exercise Price

Weighted Average Exercise

Price (Per Share)

Balance at January 1, 2021

3,589,783  

$ 0.36  

Options granted

Options cancelled/expired

1,323,450  

Options exercised

( 797,306 )  

Options forfeited/expired

( 810,416 )  

Balance at December 31, 2021

3,305,511  

$ 0.38  

Exercisable, December 31, 2021

1,616,439  

$ 0.34  

Vested and expected to vest

2,808,039  

$ 0.37  

Outstanding Options

Number of Shares

Weighted Average Exercise Price

Balance at January 1, 2020

Options granted 

Options cancelled/expired 

Balance at December 31, 2020

Exercisable, December 31, 2020

Vested and expected to vest 

The following table summarizes information about stock options outstanding and exercisable under our stock incentive plans at December 31, 2021:

Number Outstanding

Contractual Life

Exercise Price

Contractual Life

Exercise Price

Weighted Average Remaining Contractual

Weighted Average

Exercise Price Per Share

Number Exercisable

Weighted Average Remaining Contractual

Average Exercise

Price Per Share

$0.15 to $ 0.50

2,920,511  

$ 0.31  

1,556,439  

$ 0.32  

$0.51 to $ 1.09

380,000  

60,000  

$1.10 to $ 2.99

3,305,511  

1,616,436  

Restricted stock awards:

Prior to December 31, 2019, equity compensation for non-employee director service consisted of an annual restricted stock unit award that vested over one year, with the number of shares underlying such award being determined by dividing $ 15,000 by the closing share price on the date of grant (which was the first business day in January in each calendar year);

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 the Company’s 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 2021.

A summary of our 2020 restricted stock activity is as follows:

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Non-vested restricted stock at January 1, 2020

149,824  

$ 0.33  

Non-vested restricted stock at December 31, 2020

We withheld a total of 17,928 shares as payment for withholding taxes due in connection with the vesting of restricted stock awards during the period ending December 31, 2020, and the average price paid per share of $ 0.31 reflects the average market value per share of the shares withheld for tax purposes.

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 (as quoted on the OTCQB marketplace) 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 (as quoted on the OTCQB marketplace) on the date of grant.

When joining our board of directors, each non-employee director shall be granted a 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 our closing stock price on the first trading day following the date on which such director is appointed), prorated based on the date on which such director is appointed, and which stock option shall be granted as of the first trading day following the date on which such director was appointed, and shall have an exercise price equal to our closing stock price (as quoted on the OTCQB marketplace) on the date of grant.

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 (as quoted on the OTCQB marketplace) 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 (as quoted on the OTCQB marketplace) on the date of grant.

Stock-based compensation expense:

Stock-based compensation expense is recognized using the straight-line attribution method over the employees’ requisite service period.

Stock-based compensation expense is recognized using the straight-line attribution method over the employees’

requisite service period.

We recognize compensation expense for only the portion of stock options or restricted stock expected to vest.

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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 December 31, 2020, we had unrecognized compensation expense related to stock options and non-vested stock of $76,000 to be recognized over a weighted-average period of 2.8 years.

At December 31, 2021, we had unrecognized compensation expense related to stock options and non-vested stock of $ 242,000 to be recognized over a weighted-average period of 2.9  years.

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

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General and administrative

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” options:

Year Ended December 31,

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Weighted-average grant date fair-value

$ 0.32  

$ 0.13  

During the year ended December 31, 2021, no material modifications were made to outstanding stock options.

The aggregate intrinsic value of stock options outstanding at December 31, 2020 and 2019 was $51,000 and $9,000, respectively and for options exercisable was $20,000 and $6,000, respectively.

The aggregate intrinsic value of stock options outstanding at December 31, 2021 and 2020 was $ 1.3 million and $ 51,000 , respectively and for options exercisable was $ 690,000 and $ 20,000 , respectively.

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.

The total intrinsic value of options exercised during the year ended December 31, 2020 and 2019 was zero and $21,000, respectively.

During the years ended December 31, 2020 and 2019, there were zero and 70,445 options exercised, respectively.

The Company’s policy is to issue new shares upon exercise of options.

The total intrinsic value of options exercised during the year ended December 31, 2021 and 2020 was 435,000 and zero, respectively.

During the years ended December 31, 2021 and 2020, there were 797,306 and 

zero options exercised, respectively. The Company’s policy is to issue new shares upon exercise of options.

Equity financing:

On July 11, 2019, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Heavenly Rx Ltd.

(the “Investor”) pursuant to which the Company sold to the Investor in a private placement (the “Financing”):

(a) 15,000,000 shares (the “Shares”) of common stock and (b) a warrant to purchase up to an additional 15,000,000 shares of common stock (the “Warrant”).

On July 11, 2019, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Heavenly Rx Ltd.

(the “Investor”) pursuant to which the Company sold to the Investor in a private placement (the “Financing”):

(a) 15,000,000 shares (the “Shares”) of common stock and (b) a warrant to purchase up to an additional 15,000,000 shares of common stock (the “Warrant”).

The aggregate purchase price for the Shares and the Warrant was $ 9,000,000 in cash, which was paid to the Company at the closing of the purchase and sale on July 11, 2019, and is presented net of offering costs of $ 183,000 .

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market price of common stock - $ 0.517 per share;

estimated volatility – 108.21%;

1-year risk free interest rate – 1.97%;

estimated volatility –

1 -year risk free interest rate –

expected dividend rate - 0 % and expected life - 1 year.

Services and Endorsement Agreement:

On July 27, 2020, the Board of Directors of the Company approved a Services and Endorsement Agreement (the “Services Agreement”) with Tony Hawk, Inc.

(“THI”) pursuant to which Tony Hawk (“Hawk”) shall provide certain marketing services on behalf of the Company.

The Services Agreement has a term commencing as of June 1, 2020 and terminating as of January 31, 2021.

Pursuant to the Services Agreement, the Company agreed to issue to THI that number of shares of the Company’s Common Stock as is valued at an aggregate of $25,000 as of the date of issuance, and to issue to The Skatepark Project (“TSP”), an affiliate of Hawk, that number of shares of Common Stock as is valued at an aggregate of $25,000 as of the date of issuance.

This issuance resulted in 138,888 shares to THI and 138,888 shares to TSP, for a total issuance of 277,776 shares.

On July 27, 2020, the Board of Directors of 

the Company approved a Services and Endorsement Agreement (the “Services Agreement”) with Tony Hawk, Inc.

(“THI”) pursuant to which Tony Hawk (“Hawk”) provided certain marketing services on behalf of the Company. 

The Services Agreement had a term commencing as of June 1, 2020 and terminating as of January 31, 2021. 

Pursuant to the Services Agreement, the Company issued to THI 138,888 shares of the Company’s Common Stock (which had an aggregate value of $ 25,000 as of the date of issuance), and issued to The Skatepark Project (“TSP”), an affiliate of Hawk, 138,888 shares of Common Stock (which had an aggregate value of $ 25,000 as of the date of issuance). 

Employee 401 (k) Plan

We have a 401 (k) plan whereby eligible employees who have completed at least one hour of service per month in three consecutive months of employment may enroll.

Employees can elect to contribute up to 100% of their eligible compensation to the 401(k) plan subject to Internal Revenue Service’s limitations.

Employees can elect to contribute up to 100 % of their eligible compensation to the 401 (k) plan subject to Internal Revenue Service’s limitations.

As currently established, we are not required to make and have not made any contributions to the 401 (k) plan during the years ended December 31, 2021 and 2020.

Commitments and Contingencies

As of December 31, 2020, we continue to have commitments to various suppliers of raw materials (primarily sugar and glass).

As of December 31, 2021, we continue to have commitments to various suppliers of raw materials (primarily glass).

Purchase obligations under these commitments are expected to total $ 651,000 in 2022, with no current commitments thereafter.

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United States

$ ( 1,881 )  

$ ( 1,784 )  

The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes are as follows:

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Change in valuation allowance

( 10.27 )  

( 19.30 )  

Provision for income taxes

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Federal and state net operating loss carryforwards

$ 14,896  

$ 14,721  

Stock-based compensation

179.224  

Total deferred tax asset

15,178  

14,993  

Valuation allowance

( 15,178 )  

Net deferred tax asset

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This is due to the fact that the relevant accounting guidance puts more weight on the negative objective evidence of cumulative losses in recent years than the positive subjective evidence of future projections of pretax income.

For the years ended December 31, 2020 and December 31, 2019, the valuation allowance increased by $530,000 and $592,000, respectively.

For the years ended December 31, 2021 and December 31, 2020, the valuation allowance increased by $ 185 thousand, and $ 533 thousand, respectively. 

We continually analyze the realizability of our deferred tax assets, but we reasonably expect to continue to record a full valuation allowance on future U.S tax benefits until we sustain an appropriate level of taxable income through improved U.S.

operations and tax planning strategies.

At December 31, 2020, we had net operating loss carryforwards for income tax purposes in the United States of $57.5 million which expire at various times commencing 2021.

We also had net operating loss carryforwards for income tax purposes in the United States of $7.6 million that may be carried forward indefinitely.

At December 31, 2021, we had net operating loss carryforwards for federal and state income tax purposes of $ 56.0 million, and $ 18.7 respectively, which expire at various times commencing 2022.

We also had net operating loss carryforwards for federal and state income tax purposes of $ 9.7 million, and $ 0.1 million, respectively, that may be carried forward indefinitely.

Net operating loss carryforwards may be subject to certain limitations under Section 382 of the Internal Revenue code.

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The net operating losses for prior years are subject to adjustment under examination to the extent they remain unutilized in an open year.

On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law.

There was no financial statement impact related to the CARES Act for the year ended December 31, 2020.

On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law.

There was no financial statement impact reated to the CARES Act for the years ended December 31, 2021 and 2020.

Segment Information

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United States

$ 11,385  

$ 8,442  

Other countries

Total revenue

$ 14,792  

$ 11,895  

Fixed assets:

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Total fixed assets

During the year ended December 31, 2020, one of our customers represented approximately 24% of our revenues and during the year ended December 31, 2019 three of our customers represented approximately 43% of revenues.

During the year ended December 31, 2021, one of our customers represented approximately 21 % of our revenues and during the year ended December 31, 2020 one  of our customers represented approximately 24 % of revenues.

Paycheck Protection Program

On April 24, 2020, we received loan proceeds of $334,500 (the “PPP Loan”) under the Paycheck Protection Program (“PPP”).

On April 24, 2020, we received loan proceeds of $ 334,500 (the “PPP Loan”) under the Paycheck Protection Program (“PPP”).

The PPP, established as part of the CARES Act, provided for loans to qualifying companies in amounts up to 2.5 times their average monthly payroll expenses.

Our PPP Loan is evidenced by a promissory note, dated as of April 24, 2020 (the “Note”), between us and HomeStreet Bank (the “Lender”).

The Note has a two-year term and bears interest at the rate of 1.0% per annum.

No payments of principal or interest are due during the 10-month period beginning on the date of the Note (the “Deferral Period”).

Our PPP Loan was evidenced by a promissory note, dated as of April 24, 2020 ( the “Note”), between us and HomeStreet Bank (the “Lender”).

The Note had a two -year term and accrued interest at the rate of 1.0% per annum.

No payments of principal or interest were due during the 10 -month period beginning on the date of the Note (the “Deferral Period”).

Furthermore, we received an extension of the first principal and interest payment date to 10 months after the last day of the Deferral Period.

The initial principal and interest payments are now due on August 1, 2021.

Under the terms of the CARES Act, the principal and accrued interest under the Note is forgivable after 24 weeks if we use the PPP Loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and otherwise comply with PPP requirements.

We must repay any unforgiven principal amount of the Note, with interest, on a monthly basis following the Deferral Period.

We intend to pursue forgiveness, although actions taken by us in connection with our previously disclosed restructuring or otherwise could cause some or all of the PPP Loan to be ineligible for forgiveness.

To the extent not forgiven, we will begin to pay principal and interest payments of approximately $19,000 every month following the Deferral Period.

The PPP Loan will be derecognized upon confirmation of forgiveness, or upon repayment of the PPP Loan in accordance with its terms.

In addition to the PPP Loan previously discussed, the CARES Act, among other things, includes provisions related to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.

We continue to examine the impacts and benefits that the CARES Act may have on our business.

Under the terms of the CARES Act, the principal and accrued interest under the Note was forgivable after 24 weeks if we used the PPP Loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and otherwise complied with PPP requirements.

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 year ended of December 31, 2021. 

Subsequent Events

Subsequent to December 31, 2020, Convertible Notes in the aggregate principal amount of $650,000 and related accrued interest were converted into 2,385,058 shares of common stock in accordance with the original terms of the Convertible Notes.

On February 9, 2022, we issued the Contingent Convertible Debentures, which are convertible into units of Jones (each a “Jones Unit”) at a conversion price of $ 0.50 per Jones Unit, with each Jones Unit consisting of one share of Jones 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 Jones increasing its 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 the then outstanding convertible/exercisable securities of Jones.

The Contingent Convertible Debentures are automatically convertible into Jones Units upon Jones Soda increasing its authorized capital to an amount to cover the Jones Shares issuable pursuant to all of the outstanding Contingent Convertible Debentures as well as all of the other then outstanding convertible/exercisable securities of Jones (a “Conversion Event”).

The Contingent Convertible Debentures are only convertible into Jones Units upon the occurrence of a Conversion Event.

The Contingent Convertible Debentures mature on February 9, 2023 ( the “Maturity Date”) and shall begin to accrue interest a rate of 3.00% commencing on April 1, 2022 and such interest shall become payable on the Maturity Date.

Under the terms of the Contingent Convertible Debenture, the Company covenants to the holders of the Contingent Convertible Debentures that the Company will use their commercially reasonable efforts to cause the Conversion Event to occur as soon as practicable after the closing of the Plan of Arrangement (defined below).

We received net proceeds of $ 538,000 prior to December 31, 2021 of the total $3,000,000 in aggregate principal amount which is classified on the consolidated balance sheet in current liabilities as of December 31, 2021 under 2022 Financing Proceeds Received, Net of Closing Costs. 

On February 15, 2022, Jones issued an aggregate of 20,000,048 Jones Shares in connection with the completion of the previously announced acquisition of all the issued and outstanding common shares (the “Pinestar Shares”) of Pinestar Gold Inc.

(the “Pinestar”) by way of a plan of arrangement under the Business Corporations Act (British Columbia) (the “Plan of Arrangement”) whereby the outstanding Pinestar Shares were exchanged for newly issued Jones Shares on a one -for- one basis.

The Plan of Arrangement had previously been approved by both Pinestar’s shareholders as well as by the Supreme Court of British Columbia after such court held a hearing on the fairness of the terms and conditions of the Plan of Arrangement at which all Pinestar shareholders had the right to appear.

In connection with the Plan of Arrangement, Pinestar completed an offering for subscription receipts (“Subscription Receipts”) for aggregate gross proceeds of $ 8,000,000 , at a price per Subscription Receipt equal to $ 0.50 .

As part of the closing of the Plan of Arrangement, each Subscription Receipt automatically converted into one Pinestar Share and one new common share purchase warrant of Pinestar, which were then immediately exchanged for Jones Shares and Jones Special Warrants, respectively, in accordance with a 1:1 exchange ratio.

The issuance of Jones Shares to the holders of Pinestar Shares (including Pinestar Shares received upon the conversion of the Subscription Receipts) in the Plan of Arrangement was 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, which exempts from the registration requirements under the Securities Act any securities that are issued in exchange for one or more bona fide outstanding securities where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court expressly authorized by law to grant such approval.

The closing of the Plan of Arrangement resulted in the automatic conversion of the 2021 Debenture previously issued to SOL Verano Blocker 1 LLC into an aggregate of 4,025,035 Jones Shares and 4,025,035 Jones Special Warrants at a conversion price of $ 0.50 per Jones Share and Jones Special Warrant.

The issuance of the Jones Shares and Jones Special Warrants upon the conversion of the 2021 Debenture was exempt from registration under the Securities Act, pursuant to Section 4 (a)( 2 ) of the Securities Act and Rule 506 (b) of Regulation D promulgated thereunder.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

CONTROLS AND PROCEDURES.

Disclosure Control and Procedures

We maintain disclosure controls and procedures (as such terms are defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management, under the supervision and with the participation of our Chief Executive Officer and Principal Financial Officer evaluated the effectiveness and design of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of December 31, 2020.

Based on that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that these disclosure controls and procedures were effective as of December 31, 2020.

Management ’ s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act).

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;

(ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles;

(iii) provide reasonable assurance that our receipts and expenditures are made in accordance with management authorization;

and (iv) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting, however well designed and operated can provide only reasonable, and not absolute, assurance that the controls will prevent or detect misstatements.

In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

Because of these and other inherent limitations of control systems, there is only the reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.

Management, under the supervision and with the participation of our Chief Executive Officer and Principal Financial Officer, conducted an evaluation of our internal control over financial reporting as of December 31, 2020, based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on our evaluation under the COSO framework, management concluded that our internal control over financial reporting was effective as of December 31, 2020.

There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

Additionally, management’s report was not subject to attestation by our registered public accounting firm pursuant to the permanent exemption from Section 404(b) of the Sarbanes-Oxley Act of 2002 for non-accelerated filers.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Information regarding our Code of Ethics is included in Item 1 of Part I, and that information is incorporated by reference herein.

The other information called for by Part III, Item 10, will be included in our proxy statement relating to our 2021 Annual Meeting of Shareholders (our “2021 Proxy Statement”), and is incorporated herein by reference to the sections captioned “Nominees,” “Delinquent Section 16(a) Reports,” “Board Meetings and Committees,” “Audit Committee,” “Director Nomination Process,” and “Executive Officers.” Our 2021 Proxy Statement will be filed within 120 days of December 31, 2020, our fiscal year end.

EXECUTIVE COMPENSATION.

Information called for by Part III, Item 11, will be included in our 2021 Proxy Statement, and is incorporated herein by reference to the sections captioned “Executive Compensation” and “Director Compensation.” Our 2021 Proxy Statement will be filed within 120 days of December 31, 2020, our fiscal year end.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.

Certain information called for by Part III, Item 12, will be included in our 2021 Proxy Statement, and is incorporated herein by reference to the section captioned “Security Ownership Of Certain Beneficial Owners And Management.” Our 2021 Proxy Statement will be filed within 120 days of December 31, 2020, our fiscal year end.

Equity Compensation Plan Information

The following table gives information as of December 31, 2020, the end of the most recently completed fiscal year, about shares of common stock that may be issued under our Jones Soda Co.

2011 Incentive Plan, our 2002 Equity Plan (which was terminated but has awards which remain outstanding in accordance with their existing terms).

Plan Category

of Shares to be

Issued Upon Exercise

or Vesting of

Outstanding Stock

Options, RSUs

(b) Weighted Average

Exercise Price of

Outstanding Stock

Options, Warrants and

Securities Remaining

Available for Future

Issuance Under Equity

Compensation Plans

(Excluding Securities

Equity Compensation Plans Approved by Shareholders

Equity Compensation Plans Not Approved by Shareholders

The Jones Soda Co.

2011 Incentive Plan includes a formula for an annual increase in the number of shares authorized under the 2011 Incentive Plan, as of January 1 of each year, 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, 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 January 1, 2021, the total number of shares of common stock authorized for issuance under the Plan was an aggregate of 12,084,032.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Information called for by Part III, Item 13, will be included in our 2021 Proxy Statement, and is incorporated herein by reference to the sections captioned “Transactions With Related Persons,” “Board Meetings and Committees” and “Independence of the Board of Directors.” Our 2021 Proxy Statement will be filed within 120 days of December 31, 2020, our fiscal year end.

PRINCIPAL ACCOUNTING FEES AND SERVICES.

Information called for by Part III, Item 14, will be included in our 2021 Proxy Statement and is incorporated herein by reference to the sections captioned “Policy for Approval of Audit and Permitted Non-Audit Services” and “Audit and Related Fees.” Our 2021 Proxy Statement will be filed within 120 days of December 31, 2020, our fiscal year end.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Documents filed as part of this Report are as follows:

Financial Statements:

The consolidated financial statements, related notes and report of independent registered public accounting firm are included in Item 8 of Part II of this Report.

Financial Statement Schedules:

All schedules have been omitted because they are not applicable or not required, or the required information is included in the financial statements or notes thereto.

The required exhibits are included at the end of this Report and are described in the exhibit index.

Not applicable.

EXHIBIT INDEX

The following exhibits are filed as part of this Annual Report on Form 10-K or are incorporated herein by reference.

Where an exhibit is incorporated by reference, the document to which it is cross referenced is made.

Articles of Incorporation of Jones Soda Co.

(Previously filed as, and incorporated herein by reference to, Exhibit 3.1 to our annual report on Form 10-KSB for the fiscal year ended December 31, 2000, filed on March 30, 2001;

Amended and Restated Bylaws of Jones Soda Co.

(Previously filed with, and incorporated herein by reference to, Exhibit 3.1 to our quarterly report on Form 10-Q, filed on November 8, 2013;

Description of Registrant's Securities (Filed herewith).

Form of Convertible Subordinated Promissory Note (Previously filed with, and incorporated herein by reference to, Exhibit 10.1 to our current report on Form 8-K, filed on March 27, 2018;

Form of Note Purchase Agreement (Previously filed with, and incorporated herein by reference to, Exhibit 10.2 to our current report on Form 8-K, filed on March 27, 2018;

Form of Registration Rights Agreement ((Previously filed with, and incorporated herein by reference to, Exhibit 10.3 to our current report on Form 8-K, filed on March 27, 2018;

Lease Agreement dated December 31, 2014, by and between 66 South Hanford Street Limited Partnership and Jones Soda Co.

(Previously filed with, and incorporated herein by reference to, Exhibit 10.1 to our current report on Form 8-K, filed on January 7, 2015;

First Amendment to Lease dated February 4, 2020 (Previously filed with, and incorporated herein by reference to, Exhibit 10.1 to our current report on Form 8-K, filed on February 20, 2020;

Form of Securities Purchase Agreement, dated as of February 1, 2012, by and among Jones Soda Co.

and the Purchasers (Previously filed with, and incorporated herein by reference to, Exhibit 10.1 to our current report on Form 8-K, filed February 2, 2012;

Jones Soda Co.

2002 Stock Option and Restricted Stock Plan (Previously filed with, and incorporated herein by reference to, Appendix B to our Definitive Proxy Statement on Schedule 14A, filed on April 18, 2007, File No.

Jones Soda Co.

2011 Incentive Plan.

(Previously filed with, and incorporated herein by reference to, Annex A to our Definitive Proxy Statement on Schedule 14A, filed on April 12, 2011, File No.

Form of Stock Option Grant Notice and Agreement under the Jones Soda Co.

2011 Incentive Plan (Previously filed with, and incorporated herein by reference to, Exhibit 10.3 to our quarterly report on Form 10-Q, filed August 12, 2011;

Form of Restricted Stock Award Notice and Agreement under the Jones Soda Co.

2011 Incentive Plan (Previously filed with, and incorporated herein by reference to, Exhibit 10.4 to our quarterly report on Form 10-Q, filed August 12, 2011;

Form of Restricted Stock Unit Award Notice and Agreement under the Jones Soda Co.

2011 Incentive Plan (Previously filed with, and incorporated herein by reference to, Exhibit 10.1 to our quarterly report on Form 10-Q, filed November 13, 2018;

Securities Purchase Agreement dated as of July 11, 2019, by and between Jones Soda Co.

and Heavenly Rx Ltd.

(Previously filed with, and incorporated herein by reference to, Exhibit 10.1 to our current report on Form 8-K, filed on July 12, 2019;

Warrant dated July 11, 2019 to purchase up to 15,000,000 shares of Common Stock (Previously filed with, and incorporated herein by reference to, Exhibit 10.2 to our current report on Form 8-K, filed on July 12, 2019;

Investor Rights Agreement dated as of July 11, 2019 by and among Jones Soda Co., Heavenly Rx Ltd.

and the shareholders named therein (Previously filed with, and incorporated herein by reference to, Exhibit 10.3 to our current report on Form 8-K, filed on July 12, 2019;

Standstill Agreement dated as of July 11, 2019 by and between Jones Soda Co.

and Heavenly Rx Ltd.

(Previously filed with, and incorporated herein by reference to, Exhibit 10.4 to our current report on Form 8-K, filed on July 12, 2019;

Standstill Agreement dated as of July 11, 2019 by and between Jones Soda Co.

and SOL Global Investments Corp.

(Previously filed with, and incorporated herein by reference to, Exhibit 10.5 to our current report on Form 8-K, filed on July 12, 2019;

Form of Indemnification Agreement (Previously filed with, and incorporated herein by reference to, Exhibit 10.6 to our current report on Form 8-K, filed on July 12, 2019;

Amended Compensation for Non-Employee Directors of Jones Soda Co.

(Previously filed with, and incorporated herein by reference to, our current report on Form 8-K, filed September 30, 2019;

Consulting and Separation Agreement between Jones Soda Co.

and Jennifer Cue dated as of April 6, 2020 (Previously filed with, and incorporated herein by reference to, our quarterly report on Form 10-Q, filed May 12, 2020;

Consulting Agreement between Jones Soda Co.

and Jamie Colbourne dated as of April 1, 2020 (Previously filed with, and incorporated herein by reference to, our quarterly report on Form 10-Q, filed May 12, 2020;

Promissory Note, dated April 24, 2020, by and between Jones Soda Co.

and HomeStreet Bank N.A.

(Previously filed with, and incorporated herein by reference to, our current report on Form 8-K, filed April 30, 2020;

Amended and Restated Employment Letter Agreement between Jones Soda Co.

and Mark Murray dated effective December 1, 2020 (Previously filed with, and incorporated herein by reference to, our current report on Form 8-K, filed December 2, 2020;

Subsidiaries of the Registrant (Filed herewith).

Consent of BDO LLP (Filed herewith).

Certification by Mark Murray, Chief Executive Officer, pursuant to Rule 13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).

Certification by Joe Culp, Principal Financial Officer, pursuant to Rule 13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).

Certification by Mark Murray, Chief Executive Officer, pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).

Certification by Joe Culp, Principal Financial Officer, pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).

XBRL Instance Document.

XBRL Taxonomy Extension Schema Document.

XBRL Taxonomy Extension Calculation Linkbase Document.

XBRL Taxonomy Extension Definition Linkbase Document.

XBRL Taxonomy Extension Label Linkbase Document.

XBRL Taxonomy Extension Presentation Linkbase Document.

Management contract or compensatory plan or arrangement.

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

March 24, 2021

JONES SODA CO.

Controller, Principal Financial Officer, and Principal Accounting Officer

POWER OF ATTORNEY

Each person whose individual signature appears below hereby authorizes and appoints Mark Murray and Jamie Colbourne and each of them, with full power of substitution and resubstitution and full power to act without the other, as his true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file, any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ MARK MURRAY

President and Chief Executive Officer ( Principal Executive Officer)

March 24, 2021

/s/JAMIE COLBOURNE

Director, Chairman of the Board

March 24, 2021

Jamie Colbourne

/s/ JEFFREY D.

March 24, 2021

/s/ MICHAEL M.

March 24, 2021

/s/ PAUL NORMAN

March 24, 2021

/s/ CLIVE SIRKIN

March 24, 2021

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 8. Financial Statements and Supplementary Data