JONES SODA CO. 10-K

ITEM 9A. CONTROLS AND PROCEDURES.   Disclosure Control and Procedures   Under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act"). Based on this evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that because of the material weakness in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of December 31, 2022 to provide reasonable assurance that information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such disclosure controls and procedures that, by their nature, can only provide reasonable assurance regarding management's control objectives.    Management has concluded that, notwithstanding the material weakness described below, the company’s consolidated financial statements in this Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with U.S. GAAP.   Management ’ s Report on Internal Control Over Financial Reporting   Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles; (iii) provide reasonable assurance that our receipts and expenditures are made in accordance with management authorization; and (iv) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.   Because of its inherent limitations, internal control over financial reporting, however well designed and operated can provide only reasonable, and not absolute, assurance that the controls will prevent or detect misstatements. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only the reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.   Management, under the supervision and with the participation of our Chief Executive Officer and Principal Financial Officer, conducted an evaluation of our internal control over financial reporting as of December 31, 2022, based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).    As a result of this assessment, management concluded that we did not design and maintain effective controls over the completeness and accuracy of the accounting for, and disclosure of, short-term financings. Specifically, we did not design appropriate controls to identify and reconcile prepaid assets and associated short-term liabilities. This material weakness resulted in material error in connection with our IPFS Corporation Financing Agreement that was corrected through the restatement of the consolidated financial statements as of and for the year ended December 31, 2021, and the correction of the unaudited quarterly financial information for period endings March 31, 2022 and June 30, 2022. Additionally, this material weakness could result in misstatements to the aforementioned account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.   Management's Plan for Remediation of the Material Weakness   In response to the material weakness described above, with the oversight of the Audit Committee of our Board of Directors, management is currently evaluating our policies and procedures related to the accounting for short term financings and is working to implement adequate internal controls to ensure that (i) the liability associated with short-term financings are identified and recorded properly, and (ii) the associated asset with said financings are identified and recorded.   The remediation efforts are intended both to address the identified material weakness and to enhance our overall financial control environment. Management is committed to continuous improvement of the Company’s internal control over financial reporting and will continue to diligently review the Company’s internal control over financial reporting.      56 Table of Contents   Other than the changes described above in “Management's Plan for Remediation of the Material Weakness”, there were no changes in our internal control over financial reporting (as such term is defined in the Exchange Act) during the year ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.   This Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Additionally, management’s report was not subject to attestation by our registered public accounting firm pursuant to the permanent exemption from Section 404(b) of the Sarbanes-Oxley Act of 2002 for non-accelerated filers.   ITEM 9B. OTHER INFORMATION   Not applicable.   ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS   Not applicable.   PART   III   ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.   Information regarding our Code of Ethics is included in Item 1 of Part I, and that information is incorporated by reference herein.   The other information called for by Part III, Item 10, will be included in our proxy statement relating to our 2023 Annual Meeting of Shareholders (our “2023 Proxy Statement”), and is incorporated herein by reference to the sections captioned “Nominees,” “Compliance with Section 16(a),” “Board Meetings and Committees,” “Audit Committee,” “Director Nomination Process,” and “Executive Officers.” Our 2022 Proxy Statement will be filed within 120 days of December 31, 2022, our fiscal year end.   ITEM 11. EXECUTIVE COMPENSATION.   Information called for by Part III, Item 11, will be included in our 2023 Proxy Statement, and is incorporated herein by reference to the sections captioned “Executive Compensation” and “Director Compensation.” Our 2023 Proxy Statement will be filed within 120 days of December 31, 2022, our fiscal year end.   ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.   Certain information called for by Part III, Item 12, will be included in our 2022 Proxy Statement, and is incorporated herein by reference to the section captioned “Security Ownership Of Certain Beneficial Owners And Management.” Our 2022 Proxy Statement will be filed within 120 days of December 31, 2022, our fiscal year end.   Equity Compensation Plan Information   The following table gives information as of December 31, 2022, the end of the most recently completed fiscal year, about shares of common stock that may be issued pursuant to currently outstanding stock options granted under Jones Soda Co. 2011 Incentive Plan, as well as shares of common stock issuable pursuant to awards granted under the Jones Soda Co. 2022 Omnibus Equity Incentive Plan.     Plan Category   (a) No. of Shares to be Issued Upon Exercise or Vesting of Outstanding Stock Options, RSUs     (b) Weighted Average Exercise Price of Outstanding Stock Options, Warrants and Rights     (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities (a))     Equity Compensation Plans Approved by Shareholders     3,589,783     $ 0.36       6,972,192  (1)   Equity Compensation Plans Not Approved by Shareholders     N/A       N/A       N/A     TOTAL     3,589,783     $ 0.36       6,972,192  (1)     (1) On May 16, 2022, our shareholders approved the adoption of the Jones Soda Co. 2022 Omnibus Equity Incentive Plan (the "2022 Plan"), which replaced the Jones Soda Co. 2011 Incentive Plan (the “2011 Plan”) 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.   57 Table of Contents     ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   Information called for by Part III, Item 13, will be included in our 2023 Proxy Statement, and is incorporated herein by reference to the sections captioned “Transactions with Related Persons” and “Independence of Board of Directors.” Our 2023 Proxy Statement will be filed within 120 days of December 31, 2022, our fiscal year end.   ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.   Information called for by Part III, Item 14, will be included in our 2023 Proxy Statement, and is incorporated herein by reference to the sections captioned “Policy for Approval of Audit and Permitted Non-Audit Services” and “Audit and Audit-Related Fees.” Our 2023 Proxy Statement will be filed within 120 days of December 31, 2022, our fiscal year end.   PART   IV   ITEM 15. EXHIBITS   AND FINANCIAL STATEMENT SCHEDULES.   (a) Documents filed as part of this Report are as follows:     1) Financial Statements: The consolidated financial statements, related notes and report of independent registered public accounting firm are included in Item 8 of Part II of this Report.     2) Financial Statement Schedules: All schedules have been omitted because they are not applicable or not required, or the required information is included in the financial statements or notes thereto.     3) Exhibits: The required exhibits are included at the end of this Report and are described in the exhibit index.   ITEM 16. 10-K SUMMARY   Not applicable.   58 Table of Contents   EXHIBIT   INDEX   The following exhibits are filed as part of this Annual Report on Form 10-K or are incorporated herein by reference. Where an exhibit is incorporated by reference, the document to which it is cross referenced is made.   3.1 Articles of Incorporation of Jones Soda Co. (Previously filed as, and incorporated herein by reference to, Exhibit 3.1 to our annual report on Form 10-KSB for the fiscal year ended December 31, 2000, filed on March 30, 2001; File No. 333-75913). 3.2 Amended and Restated Bylaws of Jones Soda Co. (Previously filed with, and incorporated herein by reference to, Exhibit 3.1 to our quarterly report on Form 10-Q, filed on November 8, 2013; File No. 000-28820). 3.3 Articles of Amendment to Articles of Incorporation of Jones Soda Co. dated May 16, 2022. (Previously filed with, and incorporated herein by reference to, Exhibit 3.3 to our registration statement on Form S-1, filed on June 14, 2022; File No. 333-265598). 4.1 Description of Registrant's Securities (Filed herewith). 4.2 Form of Registration Rights Agreement ((Previously filed with, and incorporated herein by reference to, Exhibit 10.3 to our current report on Form 8-K, filed on March 27, 2018; File No. 000-28820). 4.3 Registration Rights Agreement dated July 14, 2021 between Jones Soda Co. and SOL Verano Blocker 1 LLC (Previously filed with, and incorporated herein by reference to, Exhibit 10.2 to our Current Report on Form 8-K, filed on July 20, 2021; File No. 000-28820). 4.4 Registration Rights Agreement dated February 9, 2022 between Jones Soda Co. and the holders of the Contingent Convertible Debentures (Previously filed with, and incorporated herein by reference to, Exhibit 10.2 to our Current Report on Form 8-K, filed on February 15, 2022; File No. 000-28820). 10.1* Jones Soda Co. 2011 Incentive Plan. (Previously filed with, and incorporated herein by reference to, Annex A to our Definitive Proxy Statement on Schedule 14A, filed on April 12, 2011, File No. 000-28820). 10.2* Form of Stock Option Grant Notice and Agreement under the 2011 Equity Incentive Plan, as readopted (Previously filed with, and incorporated herein by reference to, Exhibit 10.3 to our quarterly report on Form 10-Q, filed August 12, 2011; File No. 000-28820). 10.3* 2022 Omnibus Equity Incentive Plan (Previously filed with, and incorporated herein by reference to, Appendix B to our definitive proxy statement on Schedule 14A, filed April 1, 2022) 10.4* Form of Restricted Stock Unit Award Notice and Agreement under the 2022 Omnibus Equity Incentive Plan (Filed herewith). 10.5* Form of Stock Option Grant Notice and Agreement under the 2022 Omnibus Equity Incentive Plan (Filed herewith). 10.6 Form of Indemnification Agreement (Previously filed with, and incorporated herein by reference to, Exhibit 10.6 to our current report on Form 8-K, filed on July 12, 2019; File No. 000-28820). 10.7* Employment Agreement between Jones Soda Co. and Mark Murray dated effective May 27, 2022 (Previously filed with, and incorporated herein by reference to, our Current Report on Form 8-K, filed June 2, 2022; File No. 000-28820). 10.8* Rescission Agreement between Jones Soda Co. and Mark Murray dated December 30, 2022 Previously filed with, and incorporated herein by reference to, our Current Report on Form 8-K, filed January 6, 2023; File No. 000-28820).   59 Table of Contents   21.1 Subsidiaries of the Registrant   (Filed herewith). 23.1 Consent of Armanino LLP (Filed herewith). 31.1 Certification by Mark Murray, Chief Executive Officer, pursuant to Rule 13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith). 31.2 Certification by Joe Culp, Interim Chief Financial Officer, pursuant to Rule 13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith). 32.1 Certification by Mark Murray, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith). 32.2 Certification by Joe Culp, Interim Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith). 101.INS** Inline XBRL Instance Document. 101.SCH** Inline XBRL Taxonomy Extension Schema Document. 101.CAL** Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF** Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB** Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE** Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)   * Management contract or compensatory plan or arrangement. ** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.   60 Table of Contents   SIGNATURES   Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.   March 29, 2023 JONES SODA CO.     By:  /s/ Joe Culp         Director of Finance, Principal Financial Officer, and Interim Chief Financial Officer     POWER OF ATTORNEY   Each person whose individual signature appears below hereby authorizes and appoints Mark Murray and Jamie Colbourne and each of them, with full power of substitution and resubstitution and full power to act without the other, as his true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file, any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue thereof.   Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.   Signature Capacities Date       /s/ MARK MURRAY President and Chief Executive Officer ( Principal Executive Officer) March 29, 2023 Mark Murray           /s/ JOE CULP Interim Chief Financial Officer ( Principal Financial Officer and Principal Accounting Officer) March 29, 2023 Joe Culp           /s/JAMIE COLBOURNE Director March 29, 2023 Jamie Colbourne           /s/ CHAD BRONSTEIN Director March 29, 2023 Chad Bronstein           /s/ PAUL NORMAN Chairman of the Board, Director March 29, 2023 Paul Norman           /s/ CLIVE SIRKIN Director March 29, 2023 Clive Sirkin           /s/ GREGG REICHMAN Director March 29, 2023 Gregg Reichman       61