What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-29 compared with 2022-03-14 · 526 added, 288 removed, 418 unchanged (66% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

Report of Armanino LLP, Independent Registered Public Accounting Firm  

Consolidated Financial Statements:

Consolidated balance sheets as of December 31, 2021 and 2020

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

Consolidated balance sheets as of December  

31, 2022 and 2021

Consolidated statements of operations for the years ended December  

31, 2022 and 2021

Consolidated statements of comprehensive loss for the years ended December 31, 2022 and 2021

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

Consolidated statements of shareholders ’

equity (deficit) for the years ended December  

31, 2022 and 2021

Consolidated statements of cash flows for the years ended December  

31, 2022 and 2021

Notes to consolidated financial statements

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Opinion on the Consolidated Financial Statements

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.

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

and its subsidiaries (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive loss, shareholders' equity, and cash flows for each of the two years ended December 31, 2022, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

Restatement of Previously Issued Consolidated Financial Statements

As discussed in Note 1 to the consolidated financial statements, the 2021 consolidated financial statements have been restated to correct misstatements.

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.

The Company's management is responsible for these consolidated financial statements.

Our responsibility is to express an opinion on the Company's consolidated financial statements.

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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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

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.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. 

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. 

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 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.

Our audits of the consolidated financial statements 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.

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

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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.

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.

These estimates are made using various information including historical and forecasted data.

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 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 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;

Testing the completeness and accuracy of the estimate by:

(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/ Armanino 

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

The communication of a 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 they relate.

Promotional Allowances —

 Refer to Note 1 to the Consolidated Financial Statements

Critical Audit Matter Description

As described in Note 1 to the 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.  These estimates are made using various information including historical and forecasted data.

Significant judgment is exercised by the Company in determining the promotional allowances accrual, and includes the following:

●         Determination of the completeness of the various promotional allowances with customers and the forecasted sales volume for the period.

●         Assessing the estimate of promotional allowances that are expected to be redeemed subsequent to period end.

Given these factors, the related audit effort in evaluating management's judgments in determining promotional allowances for these customer agreements was extensive and required a high degree of auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the Company's promotional allowances for these customer agreements included the following:

●         We selected a sample of promotional allowance claims and performed the following procedures:

o         Obtained tested the source documents for each selection, including promotional campaign and other documents that were part of the agreement to identify significant terms.

o         Traced a sample of promotional allowance claims to a listing of promotional campaigns during the period for completeness Assessed the terms in the promotional campaign and evaluated the appropriateness of management's application of their accounting policies, along with their use of estimates, in the determination of promotional allowance conclusions.

●         We analyzed the customer base and historical promotional allowances offered to customers.

●         We evaluated the reasonableness and accuracy of management's judgements and estimates used in accounting for promotional allowances.

This included testing management's estimate of calculating expected claims based on historical data, comparing the estimate to revenue in the current period, current promotional offer redemptions to historical estimates, and comparing actual promotional allowances applied subsequent to December 31, 2022 to the promotional allowances as of December 31, 2022.

/s/ Armanino LLP

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

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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

Accounts receivable, net of allowance of $110 and $114, respectively

Prefunded insurance premiums - Financing

Prepaid expenses and other current assets

Total current assets

Fixed assets, net of accumulated depreciation of $627 and $554

Fixed assets, net of accumulated depreciation of $309 and $627, respectively

Right-of-use lease asset

Other assets  

$ 10,246  

$ 9,053  

LIABILITIES AND SHAREHOLDERS ’

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Accounts payable

$ 1,239  

$ 1,385  

Accrued expenses

Lease liability, current portion  

Insurance premium financing

Lease liability, current portion

Taxes payable

2 unchanged sentences

2022 Financing Proceeds Received, Net of Closing Costs

Current portion of SBA Loan

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

Total liabilities

Commitment and contingencies (Note 9)  

Shareholders’

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Authorized —

100,000,000 ;

800,000,000 issued and outstanding shares —

100,263,135 shares and 67,840,941 shares, respectively

76,017  

73,953  

Accumulated other comprehensive income

Accumulated deficit

( 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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Loss from operations

( 1,907 )  

Interest income

Interest expense

( 225 )  

Other income (expense), net

Other income, net

Loss before income taxes

( 1,784 )  

Income tax expense, net

( 27 )  

$ ( 1,811 )  

Net loss per share - basic and diluted

$ ( 0.03 )  

Weighted average common shares outstanding - basic and diluted

65,542,609  

61,792,285  

Income tax expense

Net income (loss) per share - basic and diluted

Weighted average common shares outstanding - basic and diluted

See accompanying notes to consolidated financial statements.

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(In thousands)

$ ( 1,811 )  

Other comprehensive income (loss):

Other comprehensive loss:

Foreign currency translation adjustment

( 15 )  

Total comprehensive loss

$ ( 1,826 )  

See accompanying notes to consolidated financial statements.

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31, 2022 and 2021

Accumulated Other Comprehensive Income

Accumulated Deficit

Total Shareholders ’

(In thousands, except share data)

Other Comprehensive Income

Shareholders ’

Balance as of December 31, 2020

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$ 4,379  

Share based compensation

Stock-based compensation expense

Common stock issued upon conversion of notes payable

5,064,137  

Beneficial conversion feature on paid-in-kind interest

Issuance of common stock upon exercise of stock options

801,056  

( 1,811 )  

Other comprehensive income

( 15 )  

Balance as of December 31, 2021

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$ 4,617  

Share based compensation

Stock-based compensation expense

1,950,000  

Common stock issued upon conversion of notes payable

10,472,146  

Issuance of common stock upon exercise of stock options  

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

20,000,048  

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Forgiveness of PPP SBA loan

Loss (gain) on sale of fixed asset

( 31 )  

Loss on sale of fixed asset

Gain on insurance claim

( 23 )  

Changes in operating assets and liabilities:

2 unchanged sentences

( 714 )  

Prefunded insurance premiums from financing  

Prepaid expenses and other current assets

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Other liabilities

( 10 )  

Net cash used in operating activities

1 unchanged sentence

INVESTING ACTIVITIES:

Sale of fixed assets

Proceeds from insurance claim on property damage

Proceeds from sale of fixed assets

Purchase of fixed assets

( 29 )  

Net cash used in investing activities

( 31 )  

Net cash from investing activities

FINANCING ACTIVITIES:

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Proceeds from 2022 convertible notes prior to close, net

Proceeds from PPP SBA loan

Payment of taxes on RSU withholding

Repayments on Insurance financing, net of additional financing  

( 292 )  

Additional financing for insurance premiums, net of repayments  

Proceeds from issuance of common stock and warrants, net

Net cash provided by financing activities

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Effect of exchange rate changes on cash

( 53 )  

Cash and cash equivalents, beginning of period

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$ 5,147  

Recognition of lease liability and right-of-use asset

$ 1,621  

Beneficial conversion feature on convertible notes and accrued interest

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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. 

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).

In addition, following the closing of the Plan of Arrangement (See note 7 (d)), 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 five subsidiaries, Jones Soda Co.

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

Basis of presentation and consolidation

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Net cash used in operations during fiscal years 2022 and 2021 totaled approximately $ 6.0 million and $ 3.4 million, respectively.

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

Net cash used in operations increased primarily due to the increase in net loss in 2022.

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.

For the year ended December 31, 2022, net cash provided by financing activities totaled approximately $ 9.2 million due to the issuance of $ 3,000,000 in Contingent Convertible Debentures (See note 5 ), that fully converted into 6,022,192 shares of common stock on May 16, 2022.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 which were issued in exchange for all of the 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.

We incurred a net loss of approximately $ 6.4 million for the year ended December 31, 2022 compared to a net loss of approximately $ 1.8 million for the year ended December 31, 2021.

Our accumulated deficit increased to $ 78.2 million as of December 31, 2022 compared to an accumulated deficit of $ 71.8 million as of December 31, 2021.

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.

During 2022 and 2021, we received $ 0 and $ 296,000 , 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.

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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, 

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.

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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 from the beforementioned financings, 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.

Restatement of Previously Issued Consolidated Financial Statements for Errors surrounding short-term financing

As part of preparing our 

consolidated financial statements as at and for the year ended December 31, 2022, an error was identified in the accounting for a short-term financing agreement that had an impact on the financial statements for the year ended December 31, 2021, which had been previously filed.

Effective November 15, 2021, the Company entered into a one year financing agreement with IPFS Corporation (“IPFS”) to fund a portion of its insurance premiums in the amount of $ 903,000 . Repayments were made quarterly on January 15, 2022, April 15, 2022, and July 15, 2022 under the terms of this financing agreement with IPFS, and the entirety of the financing  was paid off in full on July 15, 2022.

Since under the terms of the financing agreement with IPFS, IPFS funded a portion of our insurance premiums a prepaid asset was required to be recognized on our balance sheet for the year ended December 31, 2021, along with an associated liability or obligation to pay down this financing per the quarterly payment schedule noted above.

The Company did not record this beforementioned asset or liability on the Company’s balance sheet as of December 31, 2021, which was previously filed with the SEC. 

As a result of the identification of this error, we concluded that the previously issued consolidated financial statements as at and for the year ended December 31, 2021, were misstated.

Accordingly, we have restated our 

consolidated financial statements as at and for the year ended December 31, 2021, to increase current assets and current liabilities by $ 903,000 on the balance sheet.

Additionally, recorded the $ 903,000 change in prepaid asset in the operating activity portion on the statement of cash flows and the $ 903,000 liability in the financing activity portion of the statement of cash flows. 

This error did not have any impact on our consolidated statement of operations, consolidated statements of comprehensive loss, or consolidated statement of shareholders' equity. 

The impacts of this correction to fiscal year 2021  is as follows:

December 31, 2021

(In thousands)

Consolidated Balance Sheet:

Current assets:

Cash and cash equivalents

Accounts receivable, net of allowance of $ 114

Prefunded insurance premiums from financing

Prepaid expenses and other current assets

Total current assets

Current liabilities:

Accounts payable

Accrued expenses

Insurance Premium Financing

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

Total current liabilities

December 31, 2021

(In thousands)

Consolidated Statement of Cash flows:

OPERATING ACTIVITIES:

 (1,811)

Adjustments to reconcile net loss to net cash flows from

operating activities:

Depreciation and amortization 

Stock-based compensation 

Change in allowance for doubtful accounts 

Forgiveness of PPP SBA loan

Loss (gain) on sale of fixed asset

Changes in operating assets and liabilities:

Accounts receivable 

 (1,129)

Inventory 

Prefunded insurance premiums from financing

Prepaid expenses and other current assets 

Accounts payable 

Accrued expenses 

Taxes payable 

Other liabilities 

Net cash used in operating activities

 (2,528)

 (3,431)

FINANCING ACTIVITIES:

Proceeds from exercise of stock options 

Proceeds from issuance of convertible notes, net

Proceeds from 2022 convertible notes prior to close, net

Additional financing for insurance premiums, net of repayments

Net cash provided by financing activities

The impacts of this correction for the quarter-ending March 31, 2022 

is as follows:

March 31, 2022

(In thousands)

Consolidated Balance Sheet:

Current assets:

Cash and cash equivalents

Accounts receivable, net of allowance of $ 111

Prefunded insurance premiums from financing

Prepaid expenses and other current assets

Total current assets

Current liabilities:

Accounts payable

Accrued expenses

Insurance Premium Financing

Lease liability, current portion

Taxes payable

Current portion of convertible subordinated notes payable, net

Total current liabilities

Quarter Ended

March 31, 2022

(In thousands)

Consolidated Statement of Cash flows:

OPERATING ACTIVITIES:

 (1,664)

Adjustments to reconcile net loss to net cash flows from

operating activities:

Depreciation and amortization 

Stock-based compensation 

Change in allowance for doubtful accounts 

Changes in operating assets and liabilities:

Accounts receivable 

Inventory 

Prefunded insurance premiums from financing

Prepaid expenses and other current assets 

Accounts payable 

Accrued expenses 

Taxes payable 

Other liabilities 

Net cash used in operating activities

 (2,341)

 (2,035)

FINANCING ACTIVITIES:

Proceeds from issuance of convertible notes, net

Repayments on Insurance financing, net of additional financing 

Proceeds from issuance of common stock and warrants, net

Net cash provided by financing activities

The impacts of this correction for the six months ending June 30, 2022 

is as follows:

June 30, 2022

(In thousands)

Consolidated Balance Sheet:

Current assets:

Cash and cash equivalents

Accounts receivable, net of allowance of $ 119

Prefunded insurance premiums from financing

Prepaid expenses and other current assets

Total current assets

Current liabilities:

Accounts payable

Accrued expenses

Insurance Premium Financing

Lease liability, current portion

Taxes payable

Total current liabilities

Six months Ended

June 30, 2022

(In thousands)

Consolidated Statement of Cash flows:

OPERATING ACTIVITIES:

 (3,099)

Adjustments to reconcile net loss to net cash flows from

operating activities:

Depreciation and amortization 

Stock-based compensation 

Change in allowance for doubtful accounts 

Changes in operating assets and liabilities:

Accounts receivable 

 (1,428)

Inventory 

Prefunded insurance premiums from financing

Prepaid expenses and other current assets 

Accounts payable 

Accrued expenses 

Taxes payable 

Other liabilities 

Net cash used in operating activities

 (4,883)

 (4,269)

FINANCING ACTIVITIES:

Proceeds from issuance of convertible notes, net

Repayments on Insurance financing, net of additional financing 

Proceeds from issuance of common stock and warrants, net

Net cash provided by financing activities

The impacts of the restatement have been reflected throughout the financial statements, including the applicable footnotes, as appropriate.

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 “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 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 )  

Recoveries (write-offs)

Balance, end of year

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

As of December 31, 2022, two customers made up 22 % of our outstanding accounts receivable.

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

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

Net transaction loss was $ 7,000 for 2022 and a net transaction gain of $ 18,000 occurred in 2021.

Revenue recognition

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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.

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

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Advertising costs, which also include promotions and sponsorships, are expensed as incurred.

During the years ended December 31, 2021 and 2020, we incurred advertising costs of $ 731,000 and $ 557,000 , respectively.

During the years ended December 31, 2022 and 2021, we incurred advertising costs of $ 1.0 million and $ 731,000 , respectively.

We account for income taxes by recognizing the amount of taxes payable for the current year and deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements.

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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 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.

Due to the net loss in 2022 and 2021, outstanding stock options amounting to 3,369,332 and 3,405,511 shares, outstanding warrants of 

27,721,945 and 0 , and shares issuable upon the conversion of the 2018 Convertible Notes of 0 and 5,372,440 , respectively, were anti-dilutive.

Comprehensive loss

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Recent accounting guidance

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.

Early adoption is permitted.

The Company is evaluating the impact ASU 2020 - 06 could have on its consolidated financial statements.

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.

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

This ASU is effective for us in the first quarter of 2023 and must be adopted using a modified retrospective transition approach.

We are currently evaluating the potential impact that the adoption of ASU 2016 - 13 will have on our consolidated financial statements.

No  new accounting pronouncements issued or effective during 2022 had, or are expected to have, a material impact on the Company’s consolidated financial statements.

Inventory consisted of the following as of December 31 ( in thousands):

1 unchanged sentence

December 31, 2021

Finished goods

$ 1,361  

$ 1,142  

Raw materials

$ 1,923  

$ 1,856  

Finished goods 

Raw materials 

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

Raw materials primarily include ingredients, concentrate and packaging.

Fixed assets consisted of the following as of December 31 ( in thousands):

Leasehold improvements and equipment

Fixed Assets, net

Fixed assets, net consisted of the following as of December 31 ( in thousands):

Office and computer equipment

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( 309 )  

Depreciation expense was $ 66,000 and $ 93,000 , for the years ended December 31, 2022 and 2021, respectively.

Depreciation expense is primarily associated with the Company's equipment and vehicles.

The company recorded a gain on disposal of fixed assets of $ 54,000 during the year ended December 31, 2022. 

The company recorded a loss on disposal of fixed assets of $ 5,000 during the year ended December 31, 2022. 

Accrued Expenses

4 unchanged sentences

$ 1,644  

$ 1,544  

Convertible Debentures

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 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 .

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.

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 $ 88,000 at December 31, 2021 and 2020, respectively.

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

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

March 23, 2018, 

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.

2018  Convertible Notes had 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 could 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 was 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 were due until the maturity.

2018  Convertible Notes were 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.

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.

The discount along with the related closing costs amounting to $ 137,000  were amortized through interest expense over the term of the 

2018  Convertible Notes.

April 18, 2022 

all convertible notes have been converted into shares and the current balance of the 

2018  Convertible Subordinated Note Payable as of 

September 30, 2022 

Unsecured Convertible Debenture

July 14, 2021, 

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

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 

one  share of our common stock (each a “Jones Share”) and 

Jones Share and 

one  share purchase special warrant of Jones (each a “Jones Special Warrant”).

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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.

24  months from the date of issuance, which was 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.

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.

Unsecured Convertible Debenture

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 were converted into Jones Units of Jones at a conversion price of $ 0.50  per Jones Unit on 

May 16, 2022 .

 The Contingent Convertible Debentures were 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 were only convertible into Jones Units upon the occurrence of a Conversion Event. The Contingent Convertible Debentures were set to mature on 

February 9, 2023 ( the “Convertible Debenture Maturity Date”) and began accruing interest at a rate of 

3.00 % commencing on 

April 1, 2022 .

 Under the terms of the Contingent Convertible Debentures, 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  were amortized through interest expense over the term of the Contingent Convertible Debentures.

May 16, 2022 

all Contingent Convertible Debentures were converted into common stock, and the remaining unamortized capitalized closing costs were expensed, and the current balance of the Contingent Convertible Debentures as of 

September 30, 2022 

Lease Obligations

We currently lease approximately 6,500 square feet of retail/office space in Seattle, Washington for our principal executive and administrative offices.

During the year ended December 31, 2022 we terminated our lease of approximately 6,500 square feet of retail/office space in Seattle, Washington for our principal executive and administrative offices.

The initial term of the lease was five years;

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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 December 31, 2021, this lease had a remaining lease term of 3.17 years.

During the years ended December 31, 2021 and 2020, we incurred rental expenses of $ 164,000 and $ 162,000 respectively.

During the years ended December 31, 2021 and 2020, we made cash payments of $ 160,000 and $ 158,000 , respectively.

Management fees and other operational expenses were immaterial.

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

Under the lease amendment, the annual payments excluding management fees and other operations expenses will be as follows (in thousands):

Total lease payments

imputed interest

Total remaining lease liability

Due to the termination, we derecognized the Right-of-Use asset and total lease liabilities of $ 310,000 and $ 322,000 , respectively from our consolidated balance sheet.

The remaining difference of $ 12,000 was recorded as Other Income.

Additionally, we incurred a net termination fee of $ 41,000 upon execution of the termination agreement.

 On September 1, 2022 we entered into a membership/licensing agreement with Saltbox Inc.

This agreement gives us right to our portion of a shared office (“Suite”) and warehouse facility in Seattle, WA.

The structure of the agreement is a revocable license to access the suite and warehouse.

The relationship between Saltbox Inc.

and Jones Soda is that of a licensor and licensee only, and not a landlord-tenant or lessor-lessee relationship.

The agreement does not give right, title, interest, easement, or lien in or to Saltbox Inc’s business, the Suite, the Premises, or anything contained therein, nor will the Agreement be interpreted or construed as a lease.

Thus, we will not be recording a lease liability or right-of-use asset associated with this agreement.

The term of the agreement is for 1 year with an option to renew and 12 monthly payments of $ 6,000 payable each month.

During the year ended December 31, 2022 and 2021, we incurred rental expenses on the previous lease of $ 109,000 and $ 122,000 , respectively.

During the year ended December 31, 2022, we incurred licensing expenses for right to our suite and warehouse of $ 29,000 . 

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.

Awards may consist of stock options, stock appreciation rights, stock awards, restricted stock, stock units, performance awards or other stock or cash-based awards.

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.

May 16, 2022, 

our shareholders approved the adoption of the Jones Soda Co. 

2022  Omnibus Equity Incentive Plan (the 

" 2022  Plan"), which replaced the 

2011  Plan (defined below) and provides for the granting incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards to participants to acquire shares of Company common stock under the 

2022  Plan.

Under the terms of the 

2022  Plan, the sum of (i) 

10,000,000  shares of the Company’s common stock, plus (ii) the number of shares of common stock reserved, but unissued under the 

2011  Plan, plus (iii) the number of shares of common stock underlying forfeited awards under the 

2011  Plan are initially available for issuance as awards under the 

2022  Plan.

1,936,074  shares of common stock reserved under the terms of our 

2011  Incentive Plan (the 

“2011  Plan”) but unissued were transferred to the reserve for the 

2022  Plan.

Thus, the total number of shares of common stock authorized under the Plan was 

11,936,074  shares.

Under the terms of the 

2022  Plan, the Board 

grant awards to employees, officers, directors, consultants, agents, advisors and independent contractors.

Stock options are granted with an exercise price equal to the closing price of our stock on the date of grant, and generally have a 

ten -year term.

December 31, 2022, 

there were 

11,663,574  shares of unissued common stock authorized and available for future awards under the Plan.

Stock options:

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828,148  

Options exercised

( 797,306 )  

Options forfeited/expired

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Number of Shares

Weighted Average Exercise Price

Balance at January 1, 2020

Options granted 

Options cancelled/expired 

Weighted Average Exercise

Price (Per Share)

Balance at January 1, 2021

3,589,783  

$ 0.36  

Options granted

1,423,450  

Options exercised

( 797,306 )  

Options forfeited/expired

( 810,416 )  

Balance at December 31, 2021

3,405,511  

$ 0.38  

Exercisable, December 31, 2021

Vested and expected to vest 

1,616,439  

$ 0.34  

Vested and expected to vest

2,808,039  

$ 0.37  

The following table summarizes information about stock options outstanding and exercisable under our stock incentive plans at December 31, 2022:

Number Outstanding

Weighted Average Remaining Contractual

Remaining Contractual Life (Years)

Weighted Average

Exercise Price Per Share

Number Exercisable

Weighted Average Remaining Contractual

Average Exercise

Price Per Share

$0.15 to $ 0.50

Exercise Price Per

Remaining Contractual Life (Years)

Weighted Average

Exercise Price Per

to $ 0.50  

2,835,258  

2 unchanged sentences

$ 0.31  

$0.51 to $ 1.09

to $ 1.09  

529,074  

215,416  

$1.10 to $ 2.99

to $ 2.99  

3,369,332  

1 unchanged sentence

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.

Beginning on May 13, 2022 the Company’s board of directors (the “Board”) determined that it was in the best interests of the Company to periodically award restricted stock units as equity compensation for non-employee directors  upon the recommendation of the Compensation and Governance Committee of the Board in lieu of stock options.

Each restricted stock unit granted vests incrementally over the period in the specific award agreement, and certain restricted stock awards will immediately vest upon the occurrence of a "Change in Control" as defined in the 

For the period from January 1, 2020 through February 15, 2022, equity compensation for non-employee director service consisted of the grant of an annual non-qualified stock option award that vested 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 being determined by dividing $ 25,000 by the closing share price (as quoted on the OTCQB marketplace) on the date of grant (which was the first trading day in January in each calendar year), and such stock option award had an exercise price equal to our closing share price (as quoted on the OTCQB marketplace) on the date of grant.

Prior to February 15, 2022, when joining the Board, each non-employee director was previously granted a non-qualified stock option award that vested 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 being 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 had an exercise price equal to our closing share price (as quoted on the OTCQB marketplace) on the date of grant.

The stock option and restricted stock unit awards described above are governed by either the 2022 Plan or the 2011 Plan (if granted prior to the adoption of the 2022 Plan) and standard form of stock option grant notice and agreement and standard form of restricted stock unit grant notice and agreement.

On December 30, 2022, the Company entered into rescission agreements (the “Rescission Agreements”) with the certain non-employee directors on the Board who were awarded restricted stock units during 2022 as well as the Company’s Chief Executive Officer and President who received restricted stock units during 2022 under the terms of his employment agreement with the Company.

Under the terms of the Rescission Agreements, each of the Company and the applicable RSU grantee agreed to rescind and cancel for no consideration all currently outstanding restricted stock units previously granted to each such grantee during 2022 as well as all shares of the Company’s common stock previously issued to any such grantee as a result of the vesting of any restricted stock units in August 2022.

There was no restricted stock activity during 2021.

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Restricted Shares

Weighted-Average

Grant Date Fair Value

Weighted-Average

Contractual Life

Weighted-Average Grant

Date Fair Value per

Weighted-Average Contractual Life

Non-vested restricted stock at January 1, 2022

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( 70,000 )  

Cancelled/expired/rescinded

( 4,850,000 )  

Non-vested restricted stock at December 31, 2022

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.

Stock-based compensation expense:

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

Year Ended December 31,

Type of awards:

Stock options

Restricted stock

Year Ended  

 December 31,

Stock options 

Pinestar warrants (defined below)

Restricted stock 

Income statement account:

Selling and marketing

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”

Year Ended December 31,

Expected dividend yield

Expected stock price volatility

Risk-free interest rate

Expected term (in years)

Weighted-average grant date fair-value

Year Ended December 31,  

Expected dividend yield  

Expected stock price volatility  

79.3 %  

Risk-free interest rate  

Expected term (in years)  

Weighted-average grant date fair-value  

$ 0.35  

$ 0.32  

During the year ended December 31, 2022, no material modifications were made to outstanding stock options.

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 aggregate intrinsic value of stock options outstanding at December 31, 2022 and 2021 was $ 77,000 and $ 1.3 million, respectively and for options exercisable was $ 77,000 and $ 690,000 , 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, 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”).

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 .

The Company continues to use the proceeds for general working capital and other purposes, including sales and marketing, product development and capital expenditures for its legacy business and new business initiatives.

The Warrant expired on July 11, 2020 in accordance with its terms.

The relative fair value of the net proceeds allocated to the common stock was estimated to be $ 6,782,000 .

The relative fair value of the net proceeds allocated to the Warrant was estimated to be $ 2,035,000 as determined based on the relative fair value allocation of the proceeds received.

The Warrant was valued using the Black-Scholes option pricing model using the following variables:

market price of common stock - $ 0.517 per share;

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”) 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). 

The total intrinsic value of options exercised during the year ended December 31, 2022 and 2021 was zero and $ 435,000 , respectively.

During the years ended December 31, 2022 and 2021, there were zero and 

797,306 options exercised, respectively. The Company’s policy is to issue new shares upon exercise of options.

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. 

The following table summarizes the Company's outstanding warrants as of December 31, 2022:

Number Outstanding

Remaining Contractual Life (Years)

Exercise Price Per Share

Number Exercisable

Jones Special Warrants (1)

Pinestar Warrants (2)

Outstanding Warrants as of December 31, 2022  

( 1 ) Upon conversion of the beforementioned 

2021  Unsecured Convertible Debenture, 

4,025,035 Jones Special Warrants were issued.

In connection with the beforementioned Plan of Arrangement, Pinestar completed an offering for Subscription Receipts for aggregate gross proceeds of $ 8,000,000 .

Pursuant to the Plan of Arrangement, each Subscription Receipt automatically converted into 16,000,000 Jones Special Warrants.

Lastly, Upon conversion of the beforementioned 

2022  Unsecured Convertible Debenture, 

6,022,102 Jones Special Warrants were issued. 

( 2 ) In connection with the beforementioned Plan of Arrangement, Pinestar, Pinestar had outstanding 16,800,000 existing common share purchase warrants and as a result of the consolidation, and the number of Pinestar Shares issuable pursuant to the Pinestar warrants as adjusted in accordance with their terms to account for the consolidation ( 10.031 pre consolidation shares to 1 post 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 $ 0.06  CAD per share.

600,000 warrants were transferred to two Board of Director members for 2022 services, thus resulting in $ 76,000 in stock compensation expense incurred during the year ended December 31, 2022. 

Employee 401 (k) Plan

2 unchanged sentences

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, 2022 and 2021.

We did accrue and fund our employees’

401 (k) accounts in 2023 for matching contributions related to 2022 in the amount of $ 42,000 .

Commitments and Contingencies

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.

As of December 31, 2022, we continue to have commitments to various suppliers of raw materials.

Purchase obligations under these commitments are expected to total $ 1.5 million in 2023.

Legal proceedings

5 unchanged sentences

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:

1 unchanged sentence

Permanent differences

( 1.17 )  

Stock Compensation

( 0.85 )  

State income taxes, net of federal benefit

Change in valuation allowance

( 10.27 )  

( 19.30 )  

Provision for income taxes

5 unchanged sentences

Stock-based compensation

179.224  

Total deferred tax asset

7 unchanged sentences

deferred tax assets.

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

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, 2022 and December 31, 2021, the valuation allowance increased by $ 1.0 million, and $ 185,000 , 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.

3 unchanged sentences

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

There are no uncertain tax positions to recognize as of December 31, 2021 and 2020.

There are no uncertain tax positions to recognize as of December 31, 2022 

The tax years that remain open to examination by the taxing authorities are 2017 - 2021, generally.

1 unchanged sentence

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.

There was no financial statement impact related to the CARES Act for the years ended December 31, 2022 

Segment Information

10 unchanged sentences

$ 14,792  

Fixed assets:

United States

Total fixed assets

During the year ended December 31, 2022, one of our customers represented approximately 17 % of our revenues and during the year ended December 31, 2021 one  of our customers represented approximately 21 % 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”).

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 year ended of December 31, 2021. 

Subsequent Events

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.

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.

Insurance Premium Financing 

Restatement of Previously Issued Consolidated Financial Statements for Errors surrounding short-term financing

Prior year amounts have been restated to reflect the correction of the error discussed in Note 1, "Nature of Operations and Summary of Significant Accounting Policies."

Effective November 15, 2021, the Company entered into a one year financing agreement with IPFS Corporation to fund a portion of its insurance premiums in the amount of $ 903,000 .

Repayments are made quarterly on January 15, 2022, April 15, 2022, and by July 15, 2022, the entirety of the financing is paid off in full.

The interest rate is 4.75 % and there are no  covenants associated with this agreement. 

Effective November 15, 2022, the Company entered into a one year financing agreement with IPFS Corporation to fund a portion of its insurance premiums in the amount of $ 612,000 .

Repayments are made quarterly on January 15, 2023, April 15, 2023, and by July 15, 2023, the entirety of the financing is paid off in full.

The interest rate is 6.99 % and there are no  covenants associated with this agreement. 

Related party Transactions

On January 6, 2022 we executed a contract with Julianna Pena for Sponsorship services in which we paid Ms.

Pena $ 100,000 during 2022 along with a 10 % Royalty for the sale of the Julianna Pena “Crushed Melon”

Julianna Pena is considered a related party of the Company due to the direct interest of Ms.

Pena’s current Manger, a member of our Board Members, Chad Bronstein.

Pursuant to the beforementioned contract with Julianna Pena, we paid Ms.

Pena approximately $ 136,000 during the year ended December 31, 2022.

For the year ended December 31, 2021, except as set forth herein, we were not a party to any transactions in which the amount involved in the transaction in which was material.

On February 9, 2022, current director Chad Bronstein and former director Alexander Spiro purchased, prior to becoming directors on our Board of Directors, an aggregate principal amount of $ 100,000 and $ 400,000 , respectively, of 

3.00 % unsecured convertible debentures (“Contingent Convertible Debentures”) of the Company, which were convertible into units of our Company at a conversion price of $ 0.50 per unit, with each unit consisting of one share of our common stock and one  share purchase special warrant of our Company (“Jones Special Warrant”).

Each Jones Special Warrant will be exercisable into one share of our common stock at a price of $ 0.625 per share for a period of 24 months from the date of issuance.

The Contingent Convertible Debentures were automatically convertible into our units upon us increasing our authorized capital in May of 2022.

Jamie Colbourne, a director and the former Chairman of our Board of Directors and former Interim Chief Financial Officer, Mark Murray, our President and Chief Executive Officer and a member our Board of Directors, former director Jeffrey Anderson, current director Clive Sirkin and current Chairman of the Board Paul Norman, each acquired $ 200,000 in subscription receipts in Pinestar Gold Inc., and consequently each of these related persons acquired 400,000 shares of our common stock and 400,000 Jones Special Warrants (exercisable into shares of our common stock at an exercise price of $ 0.625 per share) in connection with the closing of the plan of arrangement under the Business Corporations Act (British Columbia) on February 15, 2022.

The issuance of our shares of common stock and the Jones Special Warrants to these related parties was approved by the Company’s Audit Committee.

Additionally, during the year ended December 31, 2022, 400,000 and 200,000 Pinestar Warrants, as described in Note 7  were transferred to Jamie Colbourne and Paul Norman, respectively.

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

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