What changed in this filing

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Item 1. Financial Statements

2022-05-13 compared with 2021-11-10 · 192 added, 340 removed, 350 unchanged (60% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2021

March 31, 2022

December 31, 2021

18 unchanged sentences

$ 1,239  

Lease liability, current portion

Accrued expenses

Lease liability, current portion

Taxes payable

1 unchanged sentence

Current portion of accrued interest expense

Current portion of SBA Loan

2022 Financing Proceeds Received, Net of Closing Costs

Total current liabilities

Net convertible subordinated notes payable, net of current portion

Accrued interest expense, net of current portion

SBA loan, net of current portion

Lease liability, net of current portion

12 unchanged sentences

Total shareholders’

12,513  

Total liabilities and shareholders’

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended September 30,

Nine months ended September 30,

(In thousands, except share data)

Three months ended March 31,

(In thousands, except share data)

$ 4,565  

$ 3,541  

$ 11,880  

$ 9,431  

Cost of goods sold

3 unchanged sentences

Total operating expenses

Income (loss) from operations

( 394 )  

( 626 )  

Loss from operations

Interest income

Interest expense

( 76 )  

( 40 )  

( 160 )  

Other income (expense), net

( 11 )  

Loss before income taxes

( 51 )  

( 443 )  

( 445 )  

Income tax expense, net

( 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  

Weighted average common shares outstanding - basic and diluted

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three months ended September 30,

Nine months ended September 30,

(In thousands)

Three months ended March 31,

(In thousands)

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’

Common Stock  

Accumulated Other Comprehensive Income

2 unchanged sentences

(In thousands, except share data)

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

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

643,035  

( 59 )  

Other comprehensive loss

( 65 )  

Balance as of September 30, 2021

67,837,191  

$ 75,979  

$ ( 70,454 )  

Three months ended March 31, 2021

Balance as of December 31, 2020

61,975,748  

Nine months ended September 30, 2020

Balance as of

December 31, 2019

$ 73,953  

1 unchanged sentence

$ 4,379  

Share based compensation

25,000  

Share based payment activity

Common stock issued upon conversion of notes payable

2,385,058  

Issuance of common stock upon exercise of stock options

Beneficial conversion feature on paid-in-kind interest

( 719 )  

Other comprehensive loss

( 14 )  

Balance as of September 30, 2020

Other comprehensive income

Balance as of March 31, 2021

64,385,806  

2 unchanged sentences

$ 4,495  

Nine months Ended September 30, 2021

Three months Ended March 31, 2022

Balance as of December 31, 2021

3 unchanged sentences

$ 4,617  

Share based payment activity

Common stock issuance on conversion of notes payable

Share based compensation

Common stock issued upon conversion of notes payable

4,411,199  

Exercise of stock options

Common stock and warrants issued, net of closing costs of $ 848

20,000,048  

Beneficial conversion feature on paid-in-kind interest

( 1,664 )  

Other comprehensive loss

( 22 )  

Balance as of September 30, 2021

Balance as of March 31, 2022

92,252,188  

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended September 30,

Three months ended March 31,

(In thousands)

OPERATING ACTIVITIES:

$ ( 469 )  

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

Adjustments to reconcile net loss to net cash flows from

operating activities:

Depreciation and amortization

1 unchanged sentence

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

( 1,142 )  

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

( 35 )  

Net cash used in investing activities

( 31 )  

FINANCING ACTIVITIES:

1 unchanged sentence

Proceeds from issuance of convertible notes, net

Proceeds from PPP SBA loan

Payment of taxes on RSU withholding

Proceeds from issuance of common stock and warrants, net

Net cash provided by financing activities

3 unchanged sentences

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

6 unchanged sentences

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 wholly-owned 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 have four operating subsidiaries, Jones Soda Co.

(USA) Inc., Jones Soda (Canada) Inc., Pinestar Gold Inc., and Mary Jones Holdings Inc., and Mary Jones California, LLC (Subsidiaries). 

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 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 accompanying condensed consolidated balance sheet as of December 31, 2021, which has been derived from our audited consolidated financial statements, and unaudited interim condensed consolidated financial statements as of March 31, 2022, 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, 2021.

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 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.

However, we have experienced and continue to experience negative cash flows from operations, as well as an ongoing requirement for additional capital to support working capital needs.

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 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.

As of March 31, 2022 and December 31 2021, we had cash and cash-equivalents of approximately $ 11.9 million and $ 4.7 million, respectively, and working capital of approximately $ 12.2 million and $ 6.0 million, respectively.

Net cash used in operations during the three months ended March 31, 2022 and 2021 totaled approximately $ 2.3 million and $ 1.0 million, respectively.

Net cash used in operations increased primarily due to the increase in inventory as of March 31, 2022 compared to December 31, 2021.

Our cash flows vary throughout the year based on seasonality.

During the three months ended March 31, 2022, we issued $ 3,000,000 in Contingent Convertible Debentures (See note 4 ), that mature on February 9, 2023 ( the “Maturity Date”) and shall begin to accrue interest at a rate of 3.00 % commencing on April 1, 2022 and such interest shall become payable on the Maturity Date.

Additionally, upon the consummation of a statutory plan of arrangement under the Business Corporations Act (British Columbia) (the “Plan of Arrangement”) with Pinestar Gold Inc.

(“Pinestar”) the Company received $ 7.1 million in net proceeds from a subscription receipt offering completed by Pinestar (the “Pinestar Subscription Receipt Offering”) prior to the Plan of Arrangement.

The Plan of Arrangement resulted in issuance of an aggregate of 20,000,048 shares of the Company’s common stock (the “Jones Shares”) which were issued in exchange for all ofthe outstanding common shares of Pinestar (the “Pinestar Shares”), including the Pinestar Shares issued in connection with the Pinestar Subscription Receipt Offering, on a one -for- one basis.

During the three months ended March 31, 2022 and 2021, we received $ 0  and $ 9,000 , 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 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.

Although we believe various debt and equity financing alternatives will be available to us to support our working capital needs, financing arrangements on acceptable terms may not be available to us when needed.

In addition, the terms of the Convertible Debenture restrict, among other things, the amount of additional debt the Company can incur, as well as the number of shares of common stock the Company may issue, without the consent of the debentureholder. 

Moreover, any debt or equity financing alternatives may require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders.

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, 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 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.

In addition, the continuation of the COVID- 19 pandemic and uncertain supply chain conditions, may reduce demand for certain products, and may negatively impact our business.

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

Seasonality and other fluctuations

3 unchanged sentences

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.

Sales results may also fluctuate based on the number of stock keeping units (“SKU”) selected or removed by our distributors and retail partners through the normal course of serving consumers in the dynamic, trend-oriented beverage industry.

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.

1 unchanged sentence

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.

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.

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 $ 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.

Shipping and handling amounts paid by customers are primarily for online orders, and are included in revenue, and totaled $ 32,000 and $ 15,000  for the three months ended March 31, 2022 and 2021, respectively.

Sales tax and other similar taxes are excluded from revenue.

8 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 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.

For the quarters ended March 31, 2022 and 2021, our revenue was reduced by $ 308,000 and $ 350,000 , respectively, 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 $ 99,000 and $ 93,000 as of September 30, 2021 

Allowances for doubtful accounts of $ 111,000 and $ 114,000 as of March 31, 2022 

and December 31, 2021, respectively, were netted against accounts receivable.

No impairment losses were recognized as of September 30, 2021 

No impairment losses were recognized as of March 31, 2022 

and December 31, 2021.

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 September 30, 2021, A.

As of March 31, 2022 and December 31, 2021, A.

Lassonde Inc.

(“Lassonde”), one of our independent distributors, made up 19 % of our outstanding accounts receivable.

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

Net loss per share

(“Lassonde”), one of our independent distributors, made up 19 % of our outstanding accounts receivable for each period.

Net loss  

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.

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. 

Due to the net loss in the quarters ended March 31, 2022 and 2021, outstanding stock options amounting to 3,957,085 and 4,563,233  shares, shares issuable upon the conversion of the Convertible Notes (as defined in note 4 ) of 38,662 and 3,040,707 , shares issuable upon the conversion of the Convertible Debenture (as defined in note 4 ) of 4,000,000  and 0, in each case at March 31, 2022 and 2021, respectively, were anti-dilutive. 

Recent accounting pronouncements

13 unchanged sentences

Inventory consisted of the following (in thousands):

September 30, 2021

March 31, 2022

December 31, 2021

Finished goods

$ 1,142  

Raw materials

$ 1,483  

$ 1,856  

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

Raw materials primarily include ingredients, concentrate and packaging.

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.

For the three months ended March 31, 2022 and 2021, we recorded obsolete inventory expenses of $ 12,000 and $ 8,000 , 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 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.

As of March 31, 2022, this lease had a remaining lease term of 2.92 years.

During the quarters ended March 31, 2022 and 2021, we incurred rental expenses of $ 43,000 and $ 42,000 , respectively.

During the quarters ended March 31, 2022 and 2021, we made cash payments of $ 43,000 and $ 40,000 .

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 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)

As of March 31, 2022, 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):

Total lease payments

1 unchanged sentence

Total remaining lease liability

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, 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, as applicable.

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”).

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 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;

therefore, the Convertible Notes contained a beneficial conversion feature with an aggregate intrinsic value of $ 350,000 .

The fair value of our common stock on April 18, 2018, the second closing date for the issuance of the Convertible Notes, was $ 0.30 per share, which did not result in an additional beneficial conversion feature.

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 quarter ended March 31 2022, 2018 Convertible Notes in the aggregate principal amount of $ 100,000 and related accrued interest were converted into an aggregate of 386,164 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 $ 124,000 , was credited to common stock and unamortized discounts in an amount equal to $ 24,000 were recognized as interest expense for the quarter ended March 31, 2022.

During the quarter ended March 31, 2021, Convertible Notes in the aggregate principal amount of $ 650,000 and related accrued interest were converted into an aggregate of 2,385,058 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 $ 763,000 , was credited to common stock and unamortized discounts in an amount equal to $ 22,000 were recognized as interest expense for the three months ended March 31, 2021.

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 .

The fair value of our common stock on the April 18, 2018, closing date for the issuance of the 2018 Convertible Notes was $ 0.30 per share, which did not result in an additional beneficial conversion feature.

The resulting debt discount for the 2018 Convertible Notes issued on March 23, 2018 is presented as a direct deduction from the carrying value of the 2018 Convertible Notes and was recorded with an increase to additional paid-in capital.

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 $ 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):

2021 (remaining)

The discount along with the related closing costs amounting to $ 137,000 are amortized through interest expense over the term of the 2018 Convertible Notes.

The balance of notes payable is presented net of unamortized discounts amounting to $ 1,000 and $ 47,000 at March 31, 2022 and 2021, respectively.

The principal balance of notes payable to related parties amounted to $ 10,000 , and $ 824,000 at March 31, 2022 and 2021.

As of March 31, 2022, $ 10,000 of principal payments are due in April of 2022.

2021 Unsecured Convertible Debenture

July 14, 2021, 

we issued a $ 2,000,000  

5.00 % unsecured convertible debenture due July 14, 2023 ( the “2021 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 

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 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.

As a result, the carrying amount of the converted principal amount of such 2021 Unsecured Convertible Debenture, in an aggregate amount of $ 2,000,000 , was credited to common stock.

2022 Unsecured Convertible Debenture

On February 9, 2022, we issued $ 3,000,000 in aggregate principal amount of 3.00 % unsecured convertible debentures due February 9, 2023 ( the “Contingent Convertible Debentures”), which are convertible into Jones Units of Jones at a conversion price of $0.50 per Jones Unit.

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 “Convertible Debenture 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 Convertible Debenture 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 .

We received net proceeds of $ 538,000 prior to December 31, 2021 and the remaining of the total $3,000,000 during the quarter ended March 31, 2022.

The related closing costs amounting to $ 108,000 are amortized through interest expense over the term of the Convertible Debenture.

Shareholders ’

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

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 Company’s 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 March 31, 2022, the total number of shares of common stock authorized under the Plan was 9,798,435 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 September 

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

As of March 31, 2022, there were 1,737,488 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.

On September 30, 2021, the Board, 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;

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Balance at January 1, 2022

3,589,783  

$ 0.36  

Options granted

1,003,450  

Options exercised

( 797,306 )  

Options forfeited/expired

( 596,354 )  

Balance at September 30, 2021

3,199,573  

$ 0.33  

Exercisable, September 30, 2021

1,685,462  

$ 0.37  

Balance at March 31, 2022

Exercisable, March 31, 2022

Vested and expected to vest

2,748,575  

$ 0.34  

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 stock 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 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 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.

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 on the date of grant.

Number of Shares

Weighted Average Exercise Price

Balance at January 1, 2021

Options granted

Options exercised

Balance at March 31, 2021

Exercisable, March 31, 2021

Vested and expected to vest

As mentioned above, our stock option plan does allow for the granting of restricted stock options.

However, there was no restricted stock activity during the three months ended March 31, 2022 and 2021.

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.

When joining the Board, 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 on the date of grant.

Stock-based compensation expense:

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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 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.

At March 31, 2022, we had unrecognized compensation expense related to stock options of $ 355,000 to be recognized over a weighted-average period of 2.9 years.

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

Three months ended September 30,

Nine months ended September 30,

Type of awards:

Three months ended March 31,

Stock options:

Restricted stock

Income statement account:

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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”

Nine months ended September 30,

Three months ended March 31,

Expected dividend yield

Expected stock price volatility

73.9 %  

Risk-free interest rate

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Weighted-average grant date fair-value

$ 0.23  

$ 0.14  

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 aggregate intrinsic value of stock options outstanding at March 31, 2022 was approximately $ 681,000 and for options exercisable was $ 662,000 .

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 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.

There were no options exercised during the three months ended March 31, 2022.

There were 25,000 options exercised with an aggregate intrinsic value of $ 2,700 during the three months ended March 31, 2021. 

Closing of the Pinestar Gold Inc.

- Plan of Arrangement:

On February 15, 2022, Jones issued an aggregate of 20,000,048 Jones Shares in connection with the completion of 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 the Pinestar Subscription Receipt Offering for aggregate net proceeds of $ 7,152,000 , at a price per subscription receipt equal to $ 0.50 .

As part of the closing of the Plan of Arrangement, each such 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 issued in the Pinestar Subscription Receipt Offering) 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.

Segment Information

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

Three months ended September 30,

Year Ended September 30,

Three months ended March 31,

United States

$ 3,496  

$ 2,354  

$ 8,978  

$ 6,783  

Other countries

Total revenue

$ 4,565  

$ 3,541  

$ 11,880  

$ 9,431  

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

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 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.

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 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 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 “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.

During the three  months ended March 31, 2022 and 2021, one of our customers (Lassonde) represented an aggregate of approximately 21 % and 20 % of our revenue, respectively. 

Subsequent Events

On April 16, 2022, the Company and Simply Better Brands Corp.

(“SBBC”) entered into a binding offer to purchase (the “LOI”) pursuant to which SBBC and the Company agreed to complete an arm’s length business combination through the acquisition by SBBC of all of the issued and outstanding common shares of the Company (the “SBBC Transaction”).

Pursuant to the terms of the LOI, SBBC agreed to purchase 100 % of the issued and outstanding Jones Shares at a deemed value of $ 0.75 per Jones Share, payable in fully paid and non-assessable common shares of SBBC (“SBBC Shares”) based on a price per SBBC Share equal to $ 3.65 .

In addition, SBBC will assume all outstanding debt of the Company and exchange any dilutive securities of the Company for materially similar securities of SBBC based on an implied ratio of 0.20548 SBBC Shares for each one ( 1 ) Jones Share held, with the aggregate value of the Transaction being approximately $ 98,902,257 on a fully-diluted basis.

Each of the Company and SBBC agreed to conduct a due diligence ‎‎investigation of the shares, ‎share capital, prospects, business, assets, ‎‎contracts, operations, records, rights, liabilities and ‎obligations of the ‎other, ‎including financial, marketing, employee, legal, regulatory and ‎‎environmental ‎matters.

(“Due Diligence Investigation”).

Further, the Company and SBBC agreed that they will each have a 30 -day, or a mutually agreed upon, period (‎‎“Due ‎Diligence Period”) ‎‎commencing on the execution of the LOI within ‎which to complete their respective Due Diligence ‎‎Investigations and receive acceptable tax analysis.

The SBBC Transaction is subject to a number of terms and conditions, including, but not limited to, the parties entering into a definitive agreement with respect to the SBBC Transaction on or before June 30, 2022 ( such agreement to include representations, warranties, conditions and covenants typical for a transaction of this nature), mutually favorable tax and corporate structuring, the approval by shareholders of both SBBC and the Company, and the approval of the TSX Venture Exchange or such other recognized stock exchange as the SBBC Shares may become listed after completion of the SBBC Transaction, and if applicable, disinterested shareholder approval.

The Company is also required to enter voting and support agreements with all officers, directors, and insiders holding in excess of 5% of the issued and outstanding Jones Shares, and SBBC is required to enter voting support agreements with any shareholder holding in excess of 15% of the issued and outstanding SBBC Shares.

Each of the Company and SBBC may terminate the LOI by written notice to the other in the following circumstances:

(a) to accept an unsolicited bona fide written proposal from an arm’s length third party to acquire all outstanding shares or all or substantially all assets, where such offer did not result from or involve a breach of the mutual exclusivity provisions of the LOI;

(b) if the Due Diligence Investigation on the other party results in a discovery of a material fact in respect of the other party which would reasonably be expected to have a material adverse effect on such other party, or (c) if either party receives corporate, securities or tax advice which makes the completion of the SBBC Transaction undesirable, or will result in a structure which is commercially unreasonable.

If the LOI is terminated pursuant to the above, the party that terminates the LOI shall reimburse the other party upon demand for all of their out-of-pocket expenses, in an amount not to exceed $ 500,000 , that shall have been incurred by them in connection with the proposed SBBC Transaction.

The LOI also contains customary confidentiality, mutual exclusivity and standstill provisions.

In accordance with the terms of the LOI, upon completion of the Transaction, SBBC intends to change its name to "Jones Soda" or some derivation thereof‎

and the board of directors of the combined company is intended to consist of the members of the Company’s current board of directors plus an additional director to be named by SBBC.

MANAGEMENT ’

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We also sell various products online, including soda with customized labels, wearables, candy and other items, and we license our trademarks for use on products sold by other manufacturers.

Our focus is sales growth through the execution of the following key initiatives:

Our focus is sales growth through execution of the following key initiatives:

Expand the Jones Soda glass bottle business in existing and new sales channels;

Expand our fountain program in the United States and Canada;

Release and grow the new product line of Tetrahydrocannabinol (THC) and cannabidiol (CBD)-infused beverages, edibles, and other related products;

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 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.

Potential Transaction with Simply Better Brands Corp.

On April 16, 2022, the Company and Simply Better Brands Corp.

(“SBBC”) entered into a binding offer to purchase (the “LOI”) pursuant to which, SBBC agreed to purchase 100% of the issued and outstanding shares of the Company’s common stock (the “Jones Shares”) at a deemed value of $0.75 per Jones Share, payable in fully paid and non-assessable common shares of SBBC (“SBBC Shares”) based on a price per SBBC Share equal to $3.65 (the “SBBC Transaction”).

The SBBC Transaction is subject to a number of terms and conditions, including, but not limited to, the parties entering into a definitive agreement with respect to the Transaction on or before June 30, 2022 (such agreement to include representations, warranties, conditions and covenants typical for a transaction of this nature), mutually favorable tax and corporate structuring, the approval by shareholders of both SBBC and the Company, and the approval of the TSX Venture Exchange or such other recognized stock exchange as the SBBC Shares may become listed after completion of the Transaction, and if applicable, disinterested shareholder approval.

Each of the Company and SBBC is also subject to customary confidentiality, mutual exclusivity and standstill provisions pursuant to the terms of the LOI.

For a summary of the transaction, see Note 7 - Subsequent Events of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and to our Form 8-K filed with the SEC on April 21, 2022.

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 September 30,

Nine months ended September 30,

(Dollars in thousands, except per share data)

Three months ended March 31,

(Dollars in thousands, except per share data)

3 unchanged sentences

General and administrative expenses

Income (loss) from operations

Loss from operations

Interest income

4 unchanged sentences

Basic and diluted net loss per share

September 30, 2021

March 31, 2022

December 31, 2021

10 unchanged sentences

of a new distribution partner or a large retail partner.

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

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 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 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”

series, multiple special release flavors, and additional digital marketing efforts such as the new Jones Soda phone application and an increase in paid social media, search engine optimization, influencer and email marketing efforts.

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

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 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 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 $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 $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.

operations as we have recorded a full valuation allowance on our U.S.

net deferred tax assets.

We expect to continue to record a full valuation allowance on our U.S.

net deferred tax assets until we sustain an appropriate level of taxable income through improved U.S.

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.

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.

Quarter Ended March 31, 2022 Compared to Quarter Ended March 31, 2021

For the quarter ended March 31, 2022, revenue increased by approximately $1.7 million, or 58.3%, to approximately $4.5 million compared to approximately $2.9 million for the quarter ended March 31, 2021.

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 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.

For the quarter ended March 31, 2022, trade spend and promotion allowances, which reduced the amount of revenue for the sales of our product, totaled approximately $308,000, a decrease of approximately $42,000, or 12.0%, compared to approximately $350,000 for the quarter ended March 31, 2021, primarily due to the timing of incentive and retailer programs.

For the quarter ended March 31, 2022, gross profit increased by approximately $469,000, or 61.1%, to approximately $1.2 million compared to approximately $768,000 for the quarter ended March 31, 2021 primarily due to the continued shift to a more profitable product mix and further optimizing supply chain costs.

For the quarter ended March 31, 2022, gross margin increased to 27.3% from 26.9% for the quarter ended March 31, 2021.

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

Selling and Marketing Expenses

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”

Selling and marketing expenses for the quarter ended March 31, 2022 were approximately $1.1 million, an increase of approximately $482,000, or 72.9%, from approximately $661,000 for the quarter ended March 31, 2021.

Selling and marketing expenses as a percentage of revenue increased to 25.3% in the quarter ended March 31, 2022 from 23.1% in the same period in 2021.

This increase was primarily a result of marketing spend associated with our upcoming cannabis product launch.

This increase is also associated with increased social and digital marketing expenditures incurred during the quarter in an effort to expand customer engagement.

Lastly, there was an increase in non-cash stock compensation expense in the first quarter of 2022 primarily as a result of the accelerated vesting of the Company’s outstanding stock options in connection with the closing of the Plan of Arrangement as described in note 5, which increased selling and marketing expenses by $91,000 in the current quarter compared to stock compensation expenses increasing selling and marketing expenses by $19,000 in the same quarter of 2021.

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

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.

For the three months ended March 31, 2022 and 2021, non-cash expenses included in selling and marketing expenses (stock compensation and depreciation) were approximately $103,000 and $35,000, respectively.

General and Administrative Expenses

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.

General and administrative expenses for the quarter ended March 31, 2022 were approximately $1.5 million, an increase of approximately $766,000, or 101.3%, compared to approximately $756,000 for the quarter ended March 31, 2021.

General and administrative expenses as a percentage of revenue increased to 33.7% in the quarter ended March 31, 2022 from 26.5% in the same period in 2021.

This increase in general and administrative expenses was primarily due to the administrative costs associated with our cannabis product launch.

In addition, we experienced an increase in insurance premiums of approximately $1.0 million and there was an increase in non-cash stock compensation expense in the first quarter of 2022 primarily as a result of  the accelerated vesting of the Company’s outstanding stock options in connection with  the closing of the Plan of Arrangement as described in note 5, which increased general and administrative expenses by $177,000 in the current quarter compared to stock compensation expenses increasing general and administrative expenses by $34,000 in the same quarter of 2021.

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

For the three months ended March 31, 2022 and 2021, non-cash expenses included in general and administrative expenses (stock compensation and depreciation) were approximately $182,000 and $43,000, respectively.

Interest Income

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.

We earned approximately $2,000 of interest income for the quarter ended March 31, 2022, compared to $1,000 for the quarter ended March 31, 2021.

Interest Expense

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.

We incurred approximately $231,000 of interest expense for the quarter ended March 31, 2022, compared to approximately $60,000 for the quarter ended March 31, 2021.

This increase was primarily related to the conversions of Convertible Notes that occurred during the three months ended March 31, 2022 that resulted in all capitalized costs associated with the issuance of these notes being fully expensed upon conversion.

The interest expense incurred during the quarters ended March 31, 2022 and 2021 was non-cash.

Income Tax Expense

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 incurred approximately $7,000 of income tax expense for each of the quarters ended March 31, 2022 and 2021, 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 $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.

Net loss for the quarter ended March 31, 2022 was approximately $1.7 million compared to net loss of approximately $719,000 for the quarter ended March 31, 2021.

This increase was primarily due to the increase marketing and administrative costs associated with our cannabis product launch, the increase in interest expense, and the increase in stock compensation expense.

Liquidity and Capital Resources

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.

As of March 31, 2022 and December 31 2021, we had cash and cash-equivalents of approximately $11.9 million and $4.7 million, respectively, and working capital of approximately $12.2 million and $6.0 million, respectively.

Net cash used in operations during the three months ended March 31, 2022 and 2021 totaled approximately $2.3 million and $1.0 million, respectively.

Net cash used in operations increased primarily due to the increase in inventory as of March 31, 2022 compared to December 31, 2021.

Our cash flows vary throughout the year based on seasonality.

During the three months ended March 31, 2022, we issued $3,000,000 in Contingent Convertible Debentures (See note 4), that mature on February 9, 2023 and shall begin to accrue interest at a rate of 3.00% commencing on April 1, 2022 and such interest shall become payable on the maturity date of such Contingent Convertible Debentures.

Additionally, upon the consummation of the Plan of Arrangement (See note 5) the Company received $7.1 million in net 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 exchange for all of the outstanding Pinestar Shares on a one-for-one basis., 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 the three months ended March 31, 2022 and 2021, we received $0 and $9,000, 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 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 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.

However, we have experienced and continue to experience negative cash flows from operations, as well as an ongoing requirement for additional capital to support working capital needs.

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 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.

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.

In addition, the terms of the Convertible Debenture restrict, among other things, the amount of additional debt we can incur, as well as the number of shares of common stock we may issue, without the consent of the debentureholder. 

Moreover, any debt or equity financing alternatives may require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders.

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 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.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

In addition, the continuation of the COVID-19 pandemic and uncertain supply chain conditions, may reduce demand for certain products, and may negatively impact our business.

Critical Accounting Policies

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in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 14, 2022.

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 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.

There have been no material changes in our critical accounting policies during the three months ended March 31, 2022.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

What changed 10-Q

Item 1. Financial Statements