10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

Commission File Number: 000-28820

_____________________________________________

JONES SODA CO.

(Exact name of registrant as specified in its charter)

_____________________________________________

Washington	52-2336602
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
66 South Hanford Street, Suite 150
Seattle, Washington	98134
(Address of principal executive offices)	(Zip Code)

(206) 624-3357

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class	Trading Symbol	Name of exchange on which registered
Common Stock	JSDA	OTCQB

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒     No ☐

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒      No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company. or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ☐	Accelerated Filer ☐
Non-accelerated Filer ☒	Smaller Reporting Company ☒
Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐     No ☒

As of April 30, 2021, there were 64,455,077 shares of the registrant's common stock issued and outstanding.

JONES SODA CO.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

TABLE OF CONTENTS

	Page
Explanatory Note	3
Cautionary Notice Regarding Forward Looking Statements	3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
a) Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	5
b) Condensed Consolidated Statements of Operations – three months ended March 31, 2021 and 2020	6
c) Condensed Consolidated Statements of Comprehensive Income (Loss) – three months ended March 31, 2021 and 2020	7
d) Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2021 and 2020	8
e) Condensed Consolidated Statements of Cash Flows – three months ended March 31, 2021 and 2020	9
f) Notes to Condensed Consolidated Financial Statements	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3. Quantitative and Qualitative Disclosures about Market Risk	21
Item 4. Controls and Procedures	21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	22
Item 1A. Risk Factors	22
Item 6. Exhibits	22

EXPLANATORY NOTE

Unless otherwise indicated or the context otherwise requires, all references in this Quarterly Report on Form 10-Q (this “Report”) to “we,” “us,” “our,” “Jones,” “Jones Soda,” and the “Company” are to Jones Soda Co., a Washington corporation, and our wholly-owned subsidiaries, Jones Soda Co. (USA) Inc. and Jones Soda (Canada) Inc.

In addition, unless otherwise indicated or the context otherwise requires, all references in this Report to “Jones Soda” refer to our premium beverages, including Jones® Soda and Lemoncocco® sold under the trademarked brand name “Jones Soda Co.®”

CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This Report contains a number of forward-looking statements that reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this Report other than statements of historical fact, including statements that address operating performance, the economy, events or developments that management expects or anticipates will or may occur in the future, including statements related to case sales, revenues, profitability, distributor channels, new products, adequacy of funds from operations, cash flows and financing, our ability to continue as a going concern, potential strategic transactions, statements regarding future operating results and non-historical information, are forward-looking statements. In particular, the words such as “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” “can,” “plan,” “predict,” “could,” “future,” “continue,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking.

Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions and apply only as of the date of this Report. Our actual results, performance or achievements could differ materially from historical results as well as from the results expressed in, anticipated or implied by these forward-looking statements. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

In particular, our business, including our financial condition and results of operations and our ability to continue as a going concern may be impacted by a number of factors, including, but not limited to, the following:

● Our ability to successfully execute on our growth strategy and operating plans;

● Our ability to continue to effectively utilize the proceeds from our 2019 financing from Heavenly Rx;

● Our ability to manage our operating expenses and generate cash flow from operations, along with our ability to secure additional financing if our sales goals take longer to achieve than anticipated;

● Our ability to create and maintain brand name recognition and acceptance of our products, which is critical to our success in our competitive, brand-conscious industry;

● Our ability to effectively adjust and execute our marketing strategies in light of the various closures and event delays caused by the COVID-19 pandemic and the potential adverse impact on demand for our products caused by the COVID-19 pandemic;

● Our ability to compete successfully against much larger, well-funded, established companies currently operating in the beverage industry generally, including in the fountain business, particularly from other major beverage companies;

● Entrance into and increased focus on the craft beverage segment by other major beverage companies;

● Our ability to respond to changes in the consumer beverage marketplace, including potential reduced consumer demand due to health concerns (including obesity) and legislative initiatives against sweetened beverages (including the imposition of taxes);

● Our ability to successfully develop and launch new products that match consumer beverage trends, and to manage consumer response to such new products and new initiatives;

● Our ability to maintain brand image and product quality and avoid risks from product issues such as product recalls;

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● Our ability to establish, maintain and expand distribution arrangements with independent distributors, retailers, brokers and national retail accounts, most of whom sell and distribute competing products, and upon whom we rely to employ sufficient efforts in managing and selling our products, including re-stocking the retail shelves with our products;

● Our ability to manage our inventory levels and to predict the timing and amount of our sales;

● Our reliance on third-party contract manufacturers of our products and the geographic locations of their facilities, which could make management of our distribution efforts inefficient or unprofitable;

● Our ability to secure a continuous supply and availability of raw materials, as well as other factors that may adversely affect our supply chain, including increases in raw material costs, potential shortages of glass in the supply chain and the impact of the COVID-19 pandemic;

● Our ability to develop and commercialize CBD-infused beverages and comply with laws and regulations governing cannabis, hemp, or related products;

● Our ability to source our flavors on acceptable terms from our key flavor suppliers;

● Our ability to attract and retain key personnel, the loss of whom would directly affect our efficiency and operations and could materially impair our ability to execute our growth strategy;

● Our ability to protect our trademarks and trade secrets, the failure of which may prevent us from successfully marketing our products and competing effectively;

● Litigation or legal proceedings, which could expose us to significant liabilities and damage our reputation;

● Our ability to comply with the many regulations to which our business is subject;

● Our ability to maintain an effective information technology infrastructure;

● Fluctuations in fuel and freight costs;

● Fluctuations in currency exchange rates, particularly between the United States and Canadian dollars;

● Regional, national or global economic, political, social and other conditions that may adversely impact our business and results of operations, including the COVID-19 pandemic;

● Our ability to maintain effective disclosure controls and procedures and internal control over financial reporting;

● Dilutive and other adverse effects on our existing shareholders and our stock price arising from future securities issuances; and

● Our ability to access the capital markets for any future equity financing, and any actual or perceived limitations to our common stock by being traded on the OTCQB Marketplace, including the level of trading activity, volatility or market liquidity.

For a discussion of some of the factors that may affect our business, results and prospects, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on March 24, 2021 and in our other reports we file with the SEC, including our periodic reports on Form 10-Q and current reports on Form 8-K. Readers are also urged to carefully review and consider the various disclosures made by us in this Report and in our other reports we file with the SEC, including our periodic reports on Forms 10-Q and current reports on Form 8-K, and those described from time to time in our press releases and other communications, which attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.

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PART 1 – FINANCIAL INFORMATION

ITEM 1.         FINANCIAL STATEMENTS

JONES SODA CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2021		December 31, 2020
	(Unaudited)
	(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	3,577	$	4,614
Accounts receivable, net of allowance of $71 and $93		1,824		1,581
Inventory		1,774		1,856
Prepaid expenses and other current assets		266		193
Total current assets		7,441		8,244
Fixed assets, net of accumulated depreciation of $580 and $554		294		305
Other assets		33		33
Right of use lease asset		445		471
Total assets	$	8,213	$	9,053
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,123	$	1,385
Lease liability, current portion		104		102
Accrued expenses		888		853
Taxes payable		5		6
Current portion of convertible subordinated notes payable, net		665		-
Current portion of accrued interest expense		116		-
Current portion of SBA Loan		144		140
Total current liabilities		3,045		2,486
Net convertible subordinated notes payable, net of current portion		113		1,386
Accrued interest expense, net of current portion		20		232
SBA loan, net of current portion		191		195
Lease liability, net of current portion		349		375
Total liabilities		3,718		4,674
Shareholders’ equity:
Common stock, no par value:
Authorized — 100,000,000; issued and outstanding shares — 64,385,806 shares and 61,975,748 shares, respectively		74,780		73,953
Accumulated other comprehensive income		419		411
Accumulated deficit		(70,704)		(69,985)
Total shareholders’ equity		4,495		4,379
Total liabilities and shareholders’ equity	$	8,213	$	9,053

See accompanying notes to condensed consolidated financial statements.

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JONES SODA CO.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended March 31,
	2021		2020
	(In thousands, except share data)
Revenue	$	2,857	$	2,792
Cost of goods sold		2,089		2,210
Gross profit		768		582
Operating expenses:
Selling and marketing		661		753
General and administrative		756		708
Total operating expenses		1,417		1,461
Loss from operations		(649)		(879)
Interest income		1		17
Interest expense		(60)		(38)
Other income (expense), net		(7)		13
Loss before income taxes		(715)		(887)
Income tax expense, net		(4)		(4)
Net loss	$	(719)	$	(891)
Net loss per share - basic and diluted	$	(0.01)	$	(0.01)
Weighted average basic and diluted common shares outstanding		63,156,112		61,665,435

See accompanying notes to condensed consolidated financial statements.

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JONES SODA CO.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three months ended March 31,
	2021		2020
	(In thousands)
Net loss	$	(719)	$	(891)
Other comprehensive income (loss):
Foreign currency translation adjustment		8		(87)
Total comprehensive loss	$	(711)	$	(978)

See accompanying notes to condensed consolidated financial statements.

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JONES SODA CO.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

	Common Stock
	Number		Amount		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Shareholders’ Equity
	(In thousands, except share data)
Three months ended March 31, 2020
Balance as of December 31, 2019		61,566,076	$	73,773	$	342	$	(66,988)	$	7,127
Share based payment activity		101,592		35		-		-		35
Beneficial conversion feature on paid-in-kind interest		-		3		-		-		3
Net loss		-		-		-		(891)		(891)
Other comprehensive loss		-		-		(87)		-		(87)
Balance as of March 31, 2020		61,667,668	$	73,811	$	255	$	(67,879)	$	6,187
Three months ended March 31, 2021
Balance as of December 31, 2020		61,975,748	$	73,953	$	411	$	(69,985)	$	4,379
Share based payment activity		-		53		-		-		53
Common stock issuance on conversion of notes payable		2,385,058		763		-		-		763
Exercise of stock options		25,000		9						9
Beneficial conversion feature on paid-in-kind interest		-		2						2
Net loss		-		-		-		(719)		(719)
Other comprehensive income		-		-		8		-		8
Balance as of March 31, 2021		64,385,806	$	74,780	$	419	$	(70,704)	$	4,495

See accompanying notes to condensed consolidated financial statements.

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JONES SODA CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three months ended March 31,
	2021		2020
	(In thousands)
OPERATING ACTIVITIES:
Net loss	$	(719)	$	(891)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization		68		26
Stock-based compensation		53		41
Change in allowance for doubtful accounts		(22)		55
Changes in operating assets and liabilities:
Accounts receivable		(229)		(550)
Inventory		86		(526)
Prepaid expenses and other current assets		(72)		107
Accounts payable		(260)		680
Accrued expenses		51		37
Taxes payable		(1)		(8)
Other liabilities		2		(1)
Net cash used in operating activities		(1,043)		(1,030)
INVESTING ACTIVITIES:
Purchase of fixed assets		(14)		-
Net cash used in investing activities		(14)		-
FINANCING ACTIVITIES:
Proceeds from exercise of stock options		9		-
Payment of taxes on RSU withholding		-		(6)
Net cash provided by (used in) financing activities		9		(6)
Net decrease in cash and cash equivalents		(1,048)		(1,036)
Effect of exchange rate changes on cash		11		(29)
Cash and cash equivalents, beginning of period		4,614		5,969
Cash and cash equivalents, end of period	$	3,577	$	4,904
Supplemental disclosure:
Cash paid during period for:
Income taxes	$	6	$	6
Supplemental disclosure of non-cash transactions:
Conversion of notes payable	$	763	$	-
Recognition of lease liability and right-of-use asset		-		556
Beneficial conversion feature on convertible notes		2		3

See accompanying notes to condensed consolidated financial statements.

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JONES SODA CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    Nature of Operations and Summary of Significant Accounting Policies

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

We are a Washington corporation and have two wholly-owned operating subsidiaries, Jones Soda Co. (USA) Inc. and Jones Soda (Canada) Inc. (Subsidiaries).

Basis of presentation, consolidation and use of estimates

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

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments, consisting only of those of a normal and recurring nature, considered necessary for a fair presentation of our financial position, results of operations and cash flows at the dates and for the periods presented.  Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Significant items subject to such estimates and assumptions include, but are not limited to, inventory valuation, depreciable lives and valuation of capital assets, valuation allowances for receivables, trade promotion liabilities, stock-based compensation expense, valuation allowance for deferred income tax assets, contingencies, and forecasts supporting the going concern assumption and related disclosures. Actual results could differ from those estimates. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Liquidity

As of March 31, 2021, we had cash and cash-equivalents of approximately $3.6 million and working capital of approximately $4.4 million. Net cash used in operations during each of the three months ended March 31, 2021 and 2020 totaled approximately $1.0 million.

We continue to experience negative cash flows from operations and negative cash flows from operating activities, as well as an ongoing requirement for additional capital to support working capital needs. Therefore, currently, based upon our near-term anticipated level of operations and expenditures, management believes that cash on hand, is not sufficient to enable us to fund operations for 12 months from the date the condensed consolidated financial statements included in this Report are issued. These conditions raise substantial doubt as to our ability to continue as a going concern. Our ability to continue operations is dependent upon achieving a profitable level of operations and on our ability to obtain necessary financing to fund ongoing operations. 

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We may require additional financing to support our working capital needs in the future. The amount of additional capital we may require, the timing of our capital needs and the availability of financing to fund those needs will depend on a number of factors, including our strategic initiatives and operating plans, the performance of our business and the market conditions for debt or equity financing. Additionally, the amount of capital required will depend on our ability to meet our case sales goals and otherwise successfully execute our operating plan. We believe it is imperative to meet these sales objectives in order to lessen our reliance on external financing in the future. We intend to continually monitor and adjust our business plan as necessary to respond to developments in our business, our markets and the broader economy. In addition, the continuation of the COVID-19 pandemic and uncertain market conditions may limit our ability to access capital, may reduce demand for certain products, and may negatively impact our supply chain. Although we believe various debt and equity financing alternatives will be available to us to support our working capital needs, financing arrangements on acceptable terms may not be available to us when needed. Moreover, these alternatives may require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives may not provide us with sufficient funds to meet our long-term capital requirements. If necessary, we may explore strategic transactions that we consider to be in our best interest and in the best interest of our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, a rights offering, and other strategic alternatives; however, these options may not ultimately be available or feasible. The uncertainties relating to our ability to successfully execute on our business plan and finance our operations continue to raise substantial doubt about our ability to continue as a going concern. Our financial statements for the periods presented were prepared assuming we would continue as a going concern, which contemplates that we will continue in operation for the foreseeable future and will be able to realize assets and settle liability commitments in the normal course of business. These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that could result should we be unable to continue as a going concern within one year after the date these condensed consolidated financials were issued.

Seasonality and other fluctuations

Our sales are seasonal and we experience fluctuations in quarterly results as a result of many factors. We historically have generated a greater percentage of our revenues during the warm weather months of April through September. Sales may fluctuate materially on a quarter to quarter basis or an annual basis when we launch a new product or fill the “pipeline” of a new distribution partner or a large retail partner. Sales results may also fluctuate based on the number of SKUs selected or removed by our distributors and retail partners through the normal course of serving consumers in the dynamic, trend-oriented beverage industry. As a result, management believes that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results expected for the fiscal year.

Revenue recognition

We recognize revenue under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, (“ASC 606”). The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We only apply the five-step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when the company satisfies a performance obligation

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

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

Our contracts have a single performance obligation which is satisfied at the point in time when the customer has title and the significant risks and rewards of ownership of the product. 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. We primarily receive fixed consideration for sales of product, subject to adjustment as described below. Shipping and handling amounts paid by customers are primarily for online orders, and are included in revenue, and totaled $15,000 and $7,000 for the three months ended March 31, 2021 and 2020, respectively. Sales tax and other similar taxes are excluded from revenue.

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Revenue is recorded net of provisions for discounts, slotting fees payable by us to retailers to stock our products and promotion allowances. Discounts, slotting fees and promotional allowances vary the consideration we are entitled to in exchange for the sale of products to distributors. We estimate these discounts, slotting fees and promotional allowances in the same period that the revenue is recognized for product sales to customers. These estimates are based on contract terms and our historical experience with similar programs and require management judgement with respect to estimating customer participation and performance levels. Differences between estimated expense and actual costs are normally insignificant and are recognized in earnings in the period such differences are determined. The amount of revenue recognized represents the amount that will not be subject to a significant future reversal of revenue. The liability for promotional allowances is included in accrued expenses on the consolidated balance sheets. Amounts paid for slotting fees are recorded as prepaid expenses on the consolidated balance sheets and amortized over the corresponding term. For the quarters ended March 31, 2021 and 2020, our revenue was reduced by $350,000 and $297,000 respectively, for slotting fees and promotion allowances.

All sales to distributors and customers are generally final. In limited instances we may accept returned product due to quality issues or distributor terminations, and in such situations we would have variable consideration. To date, returns have not been material. Our customers generally pay within 30 days from the receipt of a valid invoice. We offer prompt pay discounts of up to 2% to certain customers typically for payments made within 15 days. Prompt pay discounts are estimated in the period of sale based on experience with sales to eligible customers. Early pay discounts are recorded as a deduction to the accounts receivable balance presented on the condensed consolidated balance sheets.

The accounts receivable balance primarily includes balances from trades sales to distributors and retail customers. The allowance for doubtful accounts is the best estimate of the amount of probable credit losses in existing accounts receivable. We determine the allowance for doubtful accounts based primarily on historical write-off experience. Account balances that are deemed uncollectible are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Allowances for doubtful accounts of $71,000 and $93,000 as of March 31, 2021 and December 31, 2020, respectively, were netted against accounts receivable. No impairment losses were recognized as of March 31, 2021 and December 31, 2020. Changes in accounts receivable are primarily due to the timing and magnitude of orders for products, the timing of when control of products is transferred to distributors and the timing of cash collections.

As of March 31, 2021, A. Lassonde Inc. (“Lassonde”), one of our independent distributors, made up 19% of our outstanding accounts receivable. As of December 31, 2020, Lassonde made up 18% of our outstanding accounts receivable.

Net loss per share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the periods. Diluted earnings per share is computed by adjusting the weighted average number of common shares by the effective net exercise or conversion of all dilutive securities. Due to the net loss in the quarters ended March 31, 2021 and 2020, outstanding stock options amounting to 4,563,233 and 3,969,952 shares, respectively, shares issuable upon the conversion of the Convertible Notes of 3,040,707 and 5,164,212 shares, respectively, and stock warrants of zero and 15,000,000 shares respectively, were anti-dilutive and excluded from inclusion in diluted weighted shares outstanding. 

Deferred financing costs

We defer costs related to the issuance of debt which are included on the accompanying balance sheets as a deduction from the debt liability. Deferred financing costs are amortized over the term of the related loan using the effective interest method and are included as a component of interest expense on the accompanying condensed consolidated statements of operations.

Operating leases

At lease commencement, we record a lease liability based on the present value of lease payments over the expected lease term. We calculate the present value of lease payments using the discount rate implicit in the lease, unless that rate cannot be readily determined. In that case, we use our incremental borrowing rate, which is the rate of interest that we would have to pay to borrow on a collateralized basis an amount equal to the lease payments over the expected lease term. We record a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date. 

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Recent accounting pronouncements

In August, 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, “Debt-Debt with Conversion and other options” (“ASU 2020-06”), which simplifies the accounting for convertible debt instruments and convertible preferred stock. This ASU is effective for public companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact ASU 2020-06 could have on our 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.

2.    Inventory

Inventory consisted of the following (in thousands):

	March 31, 2021		December 31, 2020
Finished goods	$	1,063	$	1,142
Raw materials		711		714
	$	1,774	$	1,856

Finished goods primarily include product ready for shipment, as well as promotional merchandise held for sale. Raw materials primarily include ingredients, concentrate and packaging. For the three months ended March 31, 2021 and March 31, 2020, we recorded obsolete inventory expenses of $8,000 and $9,000, respectively.

3.    Lease Obligations

We currently lease 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; in February 2020, we amended the lease to extend the term through February 28, 2025. 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 March 31, 2021, this lease had a remaining lease term of 3.92 years.

During the quarters ended March 31, 2021 and 2020, we incurred rental expenses of $42,000 and $37,000, respectively. During the quarters ended March 31, 2021 and 2020, we made cash payments of $40,000 and $38,000, respectively.

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Management fees and other operational expenses were immaterial. Cash payments on our operating lease are presented as operating cash outflows in the condensed consolidated statements of cash flows. As of March 31, 2021, our scheduled lease payments excluding management fees and other operational expenses for the remainder of the lease term for the years ending December 31 will be as follows (in thousands):

2021 (remaining)	$	90
2022		122
2023		126
2024		130
2025		22
Total lease payments		490
Less: imputed interest		(37)
Total remaining lease liability	$	453

4.    Convertible Subordinated Notes Payable

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

The Convertible Notes have a four-year term from the date of issuance and bear interest at 6% per annum until maturity on March 23, 2022 and April 18, 2022, as applicable. The holders can convert the Convertible Notes at any time into the number of shares of our common stock equal to the quotient obtained by dividing (i) the amount of the unpaid principal and interest on such Convertible Note by (ii) $0.32 (the “Conversion Price”). The Conversion Price is subject to anti-dilution adjustment on a broad-based, weighted average basis if we issue shares or equity-linked instruments at a conversion price below $0.32 per share. No payments of principal or interest are due until the maturity.

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

During the quarter ended March 31, 2021, Convertible Notes in the aggregate principal amount of $650,000 and related accrued interest were converted into an aggregate of 2,385,058 shares of common stock in accordance with the original terms of the Convertible Notes. As a result, the carrying amount of the converted principal amount of such Convertible Notes, along with the converted accrued interest, in an aggregate amount of $763,000, was credited to common stock and unamortized discounts in an amount equal to $22,000 were recognized as interest expense for the three months ended March 31, 2021.There were no Convertible Notes converted during the three months ended March 31, 2020.

The fair value of our common stock on March 23, 2018, the initial closing date for the issuance of the Convertible Notes, was $0.36 per share; therefore, the Convertible Notes contained a beneficial conversion feature with an aggregate intrinsic value of $350,000. The fair value of our common stock on April 18, 2018, the second closing date for the issuance of the Convertible Notes, was $0.30 per share, which did not result in an additional beneficial conversion feature. The resulting debt discount for the Convertible Notes issued on March 23, 2018 is presented as a direct deduction from the carrying value of the Convertible Notes and was recorded with an increase to additional paid-in capital. This discount, along with the related closing costs amounting to $137,000, are amortized through interest expense over the term of the Convertible Notes. The balance of notes payable is presented net of unamortized discounts amounting to $47,000 and $88,000 at March 31, 2021 and December 31, 2020, respectively. The principal balance of notes payable to related parties amounted to $120,000 at March 31, 2021 and December 31, 2020.

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

2021 (remaining)	$	-
2022		824
	$	824

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5.    Shareholders’ Equity

Under the terms of our 2011 Incentive Plan (the “Plan”), the number of shares authorized under the Plan may be increased each January 1st by an amount equal to the lesser of (a) 1,300,000 shares, (b) 4.0% of our outstanding common stock as of the end of our immediately preceding fiscal year, and (c) a lesser amount determined by the Board of Directors (the “Board”), provided that the number of shares that may be granted pursuant to awards in a single year may not exceed 10% of our outstanding shares of common stock on a fully diluted basis as of the end of the immediately preceding fiscal year. As of March 31, 2021, the total number of shares of common stock authorized under the Plan was 12,084,032 shares.

Under the terms of the Plan, the Board may grant awards to employees, officers, directors, consultants, agents, advisors and independent contractors. 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 with an exercise price equal to 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% of the shares subject to the option vesting one year from the grant date and the remaining 75% of the shares subject to the option vesting in equal monthly increments over the subsequent 36 months. Restricted stock awards generally vest over one year. As of March 31, 2021, there were 6,497,192 shares of unissued common stock authorized and available for future awards under the Plan.

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

(a) Stock options:

A summary of our stock option activity is as follows:

	Outstanding Options
	Number of Shares		Weighted Average Exercise Price
Balance at January 1, 2021		3,589,783	$	0.36
Options granted		998,450		0.36
Options exercised		(25,000)		0.34
Balance at March 31, 2021		4,563,233	$	0.36
Exercisable, March 31, 2021		2,880,121	$	0.39
Vested and expected to vest		4,070,942	$	0.37

(b)        Restricted stock awards:

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

There was no restricted stock activity during the three months ended March 31, 2021 and no unvested restricted stock awards at March 31, 2021. During the three months ended March 31, 2020, 119,520 restricted stock awards vested, less 17,928 shares withheld as payment for taxes due in connection with the vesting of restricted stock awards.

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

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(c)    Stock-based compensation expense:

Stock-based compensation expense is recognized using the straight-line attribution method over the employees’ requisite service period, or the non-employee's service period based on the term of the contract. We recognize compensation expense for only the portion of stock options or restricted stock expected to vest. Therefore, we apply estimated forfeiture rates that are derived from historical employee attrition. If the actual number of forfeitures differs from those estimated by management, additional adjustments to stock-based compensation expense may be required in future periods.

At March 31, 2021, we had unrecognized compensation expense related to stock options of $210,000 to be recognized over a weighted-average period of 3.0 years.

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

	Three months ended March 31,
	2021		2020
Type of awards:
Stock options	$	53	$	36
Restricted stock		-		5
	$	53	$	41
Income statement account:
Selling and marketing	$	19		9
General and administrative		34		32
	$	53	$	41

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

	Three months ended March 31,
	2021			2020
Expected dividend yield		—			—
Expected stock price volatility		73.9	%		65.4	%
Risk-free interest rate		0.7	%		2.6	%
Expected term (in years)		5.8	years		6.0	years
Weighted-average grant date fair-value	$	0.23		$	0.17

The aggregate intrinsic value of stock options outstanding at March 31, 2021 was approximately $709,000 and for options exercisable was $374,000. The intrinsic value of outstanding and exercisable stock options is calculated as the quoted market price of the stock at the balance sheet date less the exercise price of the option. There were 25,000 options exercised with an aggregate intrinsic value of $2,700 during the three months ended March 31, 2021. There were no options exercised during the three months ended March 31, 2020.

6.    Segment Information

We have one operating segment with operations primarily in the United States and Canada. Sales are assigned to geographic locations based on the location of customers. Sales by geographic location are as follows (in thousands):

	Three months ended March 31,
	2021		2020
Revenue:
United States	$	2,260	$	2,151
Canada		580		624
Other countries		17		17
Total revenue	$	2,857	$	2,792

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During the three months ended March 31, 2021 and 2020, one (Lassonde) of our customers represented an aggregate of approximately 20% and 22% of our revenue, respectively.

7.    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 is evidenced by a promissory note, dated as of April 24, 2020 (the “Note”), between us and HomeStreet Bank (the “Lender”). The Note has a two-year term and bears interest at the rate of 1.0% per annum. No payments of principal or interest are due during the 10-month period beginning on the date of the Note (the “Deferral Period”). Furthermore, we received an extension of the first principal and interest payment date to 10 months after the last day of the Deferral Period. The initial principal and interest payments are now due on August 1, 2021.

Under the terms of the CARES Act, the principal and accrued interest under the Note is forgivable after 24 weeks if we use the PPP Loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and otherwise comply with PPP requirements. We must repay any unforgiven principal amount of the Note, with interest, on a monthly basis following the Deferral Period. We intend to pursue forgiveness, although actions taken by us in connection with our previously disclosed restructuring or otherwise could cause some or all of the PPP Loan to be ineligible for forgiveness. To the extent not forgiven, we will begin to pay principal and interest payments of approximately $19,000 every month following the Deferral Period. The PPP Loan will be derecognized upon confirmation of forgiveness, or upon repayment of the PPP Loan in accordance with its terms.

In addition to the PPP Loan previously discussed, the CARES Act, among other things, includes provisions related to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. On March 11, 2021, President Biden signed an additional coronavirus relief package entitled the American Rescue Plan Act of 2021, which included, among other things, provisions relating to stimulus payments to some Americans, extension of several CARES Act relief programs, expansion of the child tax credit, funding for vaccinations and other COVID-19 related assistance programs. The CARES Act and the American Rescue Plan Act has not had a material impact on the Company as of March 31, 2021; however, we will continue to examine the impacts that the CARES Act and the American Rescue Plan Act,  as well as any future economic relief legislation, may have on our business.

ITEM 2.         MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion and analysis in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Report and the 2020 audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (“SEC”) on March 24, 2021.

This Report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” “can,” “plan,” “predict,” “could,” “future,” “continue,” variations of such words, and similar expressions. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined at the beginning of this Report under “Cautionary Notice Regarding Forward-Looking Statements” and in Item 1A of our most recent Annual Report on Form 10-K filed with the SEC, and in our other reports we file with the SEC, including our periodic reports on Form 10-Q and current reports on Form 8-K. These factors may cause our actual results to differ materially from any forward-looking statements. Except as required by law, we undertake no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Overview

We develop, produce, market and distribute premium beverages that we sell and distribute primarily in the United States and Canada through our network of independent distributors and directly to our national and regional retail accounts. We also sell products in select international markets. Our products are sold in grocery stores, convenience and gas stores, on fountain in restaurants, “up and down the street” in independent accounts such as delicatessens, sandwich shops and burger restaurants, as well as through our national accounts with several large retailers. We refer to our network of independent distributors as our direct store delivery (“DSD”) channel, and we refer to our national and regional accounts who receive shipments directly from us as our direct to retail (“DTR”) channel. We do not directly manufacture our products, but instead outsource the manufacturing process to third-party contract manufacturers. We also sell various products online, including soda with customized labels, wearables, candy and other items, and we license our trademarks for use on products sold by other manufacturers.

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Our Focus: Sales Growth

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

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

● Expand our fountain program in the United States and Canada; and

● Increase distribution of Lemoncocco in the United States and Canada.

In addition, we intend to pursue the development of new extensions to Jones products, including the potential commercialization of cannabidiol (CBD)-infused beverages.

Results of Operations

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

	Three months ended March 31,
	2021		% of Revenue			2020		% of Revenue
Consolidated statements of operations data:	(Dollars in thousands, except per share data)
Revenue	$	2,857		100.0	%	$	2,792		100.0	%
Cost of goods sold		(2,089)		(73.1)	%		(2,210)		(79.2)	%
Gross profit		768		26.9	%		582		20.8	%
Selling and marketing expenses		(661)		(23.1)	%		(753)		(27.0)	%
General and administrative expenses		(756)		(26.5)	%		(708)		(25.4)	%
Loss from operations		(649)		(22.7)	%		(879)		(31.5)	%
Interest income		1		0.0	%		17		0.6	%
Interest expense		(60)		(2.1)	%		(38)		(1.4)	%
Other income (expense), net		(7)		(0.2)	%		13		0.5	%
Loss before income taxes		(715)		(25.0)	%		(887)		(31.8)	%
Income tax expense, net		(4)		(0.1)	%		(4)		(0.1)	%
Net loss	$	(719)		(25.2)	%	$	(891)		(31.9)	%
Basic and diluted net loss per share	$	(0.01)				$	(0.01)

	As of
	March 31, 2021		December 31, 2020
	(Dollars in thousands)
Balance sheet data:
Cash and cash equivalents and accounts receivable, net	$	5,401	$	6,195
Fixed assets, net		294		305
Total assets		8,213		9,053
Long-term liabilities		673		2,188
Working capital		4,396		5,758

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Seasonality and Other Fluctuations

Our sales are seasonal and we experience fluctuations in quarterly results as a result of many factors. We historically have generated a greater percentage of our revenues during the warm weather months of April through September. Sales may fluctuate materially on a quarter to quarter basis or an annual basis when we launch a new product or fill the “pipeline” of a new distribution partner or a large retail partner. Sales results may also fluctuate based on the number of SKUs selected or removed by our distributors and retail partners through the normal course of serving consumers in the dynamic, trend-oriented beverage industry. As a result, management believes that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results expected for the fiscal year.

Quarter Ended March 31, 2021 Compared to Quarter Ended March 31, 2020

Revenue

For the quarter ended March 31, 2021, revenue increased by approximately $65,000, or 2.3%, to approximately $2.9 million compared to approximately $2.8 million for the quarter ended March 31, 2020. This increase was primarily a result of increased DSD and DTR core bottled soda sales in the United States and Canada.

For the quarter ended March 31, 2021, trade spend and promotion allowances, which offset revenue, totaled approximately $350,000, an increase of approximately $53,000, or 17.8%, compared to approximately $297,000 for the quarter ended March 31, 2020, due to the timing of incentive and retailer programs.

Gross Profit

For the quarter ended March 31, 2021, gross profit increased by approximately $186,000, or 32%, to approximately $768,000 compared to approximately $582,000 for the quarter ended March 31, 2020 due to the continued shift to a more profitable product mix and further optimizing supply chain costs. For the quarter ended March 31, 2021, gross margin increased to 26.9% from 20.8% for the quarter ended March 31, 2020. This increase in gross margin was for the same reasons as noted above.

Selling and Marketing Expenses

Selling and marketing expenses for the quarter ended March 31, 2021 were approximately $661,000, a decrease of approximately $92,000, or 12.2%, from approximately $753,000 for the quarter ended March 31, 2020. Selling and marketing expenses as a percentage of revenue decreased to 23.1% in the quarter ended March 31, 2021 from 27.0% in the same period in 2020. This decrease was primarily a result of reduced sales expenditures as a result of less travel and trade show expenses due to the COVID-19 related lockdowns. We will continue to balance selling and marketing expenses with our working capital resources. For the three months ended March 31, 2021 and 2020, non-cash expenses included in selling and marketing expenses (stock compensation and depreciation) were approximately $35,000 and $18,000, respectively.

General and Administrative Expenses

General and administrative expenses for the quarter ended March 31, 2021 were approximately $756,000, an increase of approximately $48,000, or 6.8%, compared to approximately $708,000 for the quarter ended March 31, 2020. General and administrative expenses as a percentage of revenue increased to 26.5% in the quarter ended March 31, 2021 from 25.4% in the same period in 2020. This increase in general and administrative expenses was due to an increase in insurance premiums. We will continue to carefully manage general and administrative expenses with our working capital resources. For the three months ended March 31, 2021 and 2020, non-cash expenses included in general and administrative expenses (stock compensation and depreciation) were approximately $43,000 and $32,000, respectively.

Interest Income

We earned approximately $1,000 of interest income for the quarter ended March 31, 2021, compared to $17,000 for the quarter ended March 31, 2020. This decrease was related to a significant decrease in interest rates for interest-bearing money market accounts.

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Interest Expense

We incurred approximately $60,000 of interest expense for the quarter ended March 31, 2021, compared to approximately $38,000 for the quarter ended March 31, 2020. This increase was primarily related to the conversion of Convertible Notes that occurred during the three months ended March 31, 2021 that resulted in a higher amortization of the discount associated with the beneficial conversion feature on the Convertible Notes. The interest expense incurred during the quarters ended March 31, 2021 and 2020 was non-cash and primarily related to the amortization of the discount associated with the beneficial conversion feature on the Convertible Notes, along with the amortization of associated closing costs and interest related to the Convertible Notes.

Income Tax Expense

We incurred approximately $4,000 of income tax expense for each of the quarters ended March 31, 2021 and 2020, primarily related to the tax provision on income from our Canadian operations. We have not recorded any tax benefit for the loss in our U.S. operations as we have recorded a full valuation allowance on our U.S. net deferred tax assets. We expect to continue to record a full valuation allowance on our U.S. net deferred tax assets until we sustain an appropriate level of taxable income through improved U.S. operations. Our effective tax rate is based on recurring factors, including the forecasted mix of income before taxes in various jurisdictions, estimated permanent differences and the recording of a full valuation allowance on our U.S. net deferred tax assets.

Net loss

Net loss for the quarter ended March 31, 2021 was approximately $719,000 compared to net loss of approximately $891,000 for the quarter ended March 31, 2020. This decrease was primarily due to the increase in gross profit and decrease in operating expenses during the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020.

Liquidity and Capital Resources

As of March 31, 2021, we had cash and cash-equivalents of approximately $3.6 million and working capital of approximately $4.4 million. Net cash used in operations during each of the quarters ended March 31, 2021 and 2020 totaled approximately $1.0 million.

We continue to experience negative cash flows from operations and negative cash flows from operating activities, as well as an ongoing requirement for additional capital to support working capital needs. Therefore, currently, based upon our near-term anticipated level of operations and expenditures, management believes that cash on hand, is not sufficient to enable us to fund operations for 12 months from the date the condensed consolidated financial statements included in this Report are issued. These conditions raise substantial doubt as to our ability to continue as a going concern. Our ability to continue operations is dependent upon achieving a profitable level of operations and on our ability to obtain necessary financing to fund ongoing operations.

During the three months ended March 31, 2021 and 2020, we received $9,000 and $0, respectively, from the cash exercise of stock options. From time to time, we may receive additional cash through the exercise of stock options. However, we cannot predict the timing or amount of cash proceeds we may receive from the exercise, if at all, of any of the outstanding stock options or warrants.

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We may require additional financing to support our working capital needs in the future. The amount of additional capital we may require, the timing of our capital needs and the availability of financing to fund those needs will depend on a number of factors, including our strategic initiatives and operating plans, the performance of our business and the market conditions for available debt or equity financing. Additionally, the amount of capital required will depend on our ability to meet our sales goals and otherwise successfully execute our operating plan. We believe it is imperative that we meet these sales objectives in order to lessen our reliance on external financing in the future. We intend to continually monitor and adjust our operating plan as necessary to respond to developments in our business, our markets and the broader economy. In addition, the continuation of the COVID-19 pandemic and uncertain market conditions may limit our ability to access capital, may reduce demand for certain products, and may negatively impact our supply chain. 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. Moreover, these alternatives may require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives may not provide us with sufficient funds to meet our long-term capital requirements. If necessary, we may explore strategic transactions that we consider to be in the best interest of our company and our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, a rights offering, and other strategic alternatives; however, these options may not ultimately be available or feasible when needed.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies

See the information concerning our critical accounting policies included under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation – Critical Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 24, 2021. There have been no material changes in our critical accounting policies during the three months ended March 31, 2021.

ITEM 3.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.          CONTROLS AND PROCEDURES.

(a) Evaluation of disclosure controls and procedures

We maintain disclosure controls and procedures (as such terms are defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management, under the supervision and with the participation of our Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that these disclosure controls and procedures were effective as of March 31, 2021.

(b) Changes in internal controls

There were no changes in our internal controls over financial reporting during the three months ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1.            LEGAL PROCEEDINGS

We are or may be involved from time to time in various claims and legal actions arising in the ordinary course of business, including proceedings involving employee claims, contract disputes, product liability and other general liability claims, as well as trademark, copyright, and related claims and legal actions. In the opinion of our management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

ITEM 1A           RISK FACTORS

There have been no material changes in the risk factors set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

ITEM 6.             EXHIBITS

3.1	Articles of Incorporation of Jones Soda Co. (previously filed with, 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).
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 for the quarterly period ended September 30, 2013, filed on November 8, 2013).
31.1	Certification of Chief Executive Officer, pursuant to Rules 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certification of Principal Financial Officer, pursuant to Rules 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification of 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 of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.

* 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.

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SIGNATURES

Pursuant to the requirements 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.

May 13, 2021

JONES SODA CO. (Registrant)
By:	/s/  Joe Culp
	Joe Culp
	Controller, Principal Financial Officer, and Principal Accounting Officer

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EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER

PURSUANT TO RULES 13(a)-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Mark Murray, certify that:

1. I have reviewed this report on Form 10-Q of Jones Soda Co.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2021

/s/ Mark Murray

Mark Murray

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO RULES 13(a)-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Joe Culp, certify that:

1. I have reviewed this report on Form 10-Q of Jones Soda Co.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Joe Culp

Joe Culp

Principal Financial Officer

Date: May 13, 2021

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Jones Soda Co. (the “Company”) on Form 10-Q for the fiscal quarter ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, Mark Murray,  President and Chief Executive Officer of the Company, hereby certify that, to my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Mark Murray

Mark Murray

President and Chief Executive Officer

(Principal Executive Officer) 

May 13, 2021

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Jones Soda Co. (the “Company”) on Form 10-Q for the fiscal quarter ended May 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, Joe Culp, Principal Financial Officer of the Company, hereby certify that, to my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002:

(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Joe Culp

Joe Culp

Principal Financial Officer

May 13, 2021

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2021	Apr. 30, 2021
Document Information [Line Items]
Entity Registrant Name	JONES SODA CO
Entity Central Index Key	0001083522
Trading Symbol	jsda
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		64,455,077
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Mar. 31, 2021
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Amendment Flag	false
Title of 12(g) Security	Common Stock

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 3,577	$ 4,614
Accounts receivable, net of allowance of $71 and $93	1,824	1,581
Inventory	1,774	1,856
Prepaid expenses and other current assets	266	193
Total current assets	7,441	8,244
Fixed assets, net of accumulated depreciation of $580 and $554	294	305
Other assets	33	33
Right of use lease asset	445	471
Total assets	8,213	9,053
Current liabilities:
Accounts payable	1,123	1,385
Lease liability, current portion	104	102
Accrued expenses	888	853
Taxes payable	5	6
Current portion of convertible subordinated notes payable, net	665
Current portion of accrued interest expense	116
Current portion of SBA Loan	144	140
Total current liabilities	3,045	2,486
Net convertible subordinated notes payable, net of current portion	113	1,386
Accrued interest expense, net of current portion	20	232
SBA loan, net of current portion	191	195
Lease liability, net of current portion	349	375
Total liabilities	3,718	4,674
Shareholders’ equity:
Common stock, no par value: Authorized — 100,000,000; issued and outstanding shares — 61,975,748 shares and 61,566,076 shares, respectively	74,780	73,953
Accumulated other comprehensive income	419	411
Accumulated deficit	(70,704)	(69,985)
Total shareholders’ equity	4,495	4,379
Total liabilities and shareholders’ equity	$ 8,213	$ 9,053

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ / shares in Thousands, $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Accounts receivable, allowance	$ 71	$ 93
Fixed assets, accumulated depreciation	$ 580	$ 554
Common stock, no par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares issued (in shares)	64,385,806	61,975,748
Common stock, shares outstanding (in shares)	64,385,806	61,975,748

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Revenue	$ 2,857	$ 2,792
Cost of goods sold	2,089	2,210
Gross profit	768	582
Operating expenses:
Selling and marketing	661	753
General and administrative	756	708
Total operating expenses	1,417	1,461
Loss from operations	(649)	(879)
Interest income	1	17
Interest expense	(60)	(38)
Other income (expense), net	(7)	13
Loss before income taxes	(715)	(887)
Income tax expense, net	(4)	(4)
Net loss	$ (719)	$ (891)
Net loss per share - basic and diluted (in dollars per share)	$ (0.01)	$ (0.01)
Weighted average basic and diluted common shares outstanding (in shares)	63,156,112	61,665,435

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Net loss	$ (719)	$ (891)
Other comprehensive income (loss):
Foreign currency translation adjustment	8	(87)
Total comprehensive loss	$ (711)	$ (978)

XML

Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock Including Additional Paid in Capital [Member]	AOCI Attributable to Parent [Member]	Retained Earnings [Member]	Total
Balance (in shares) at Dec. 31, 2019	61,566,076
Balance at Dec. 31, 2019	$ 73,773	$ 342	$ (66,988)	$ 7,127
Share based payment activity (in shares)	101,592
Share based payment activity	$ 35			35
Beneficial conversion feature on paid-in-kind interest	3			3
Net loss			(891)	(891)
Other comprehensive income (loss)		(87)		$ (87)
Exercise of stock options (in shares)				0
Balance (in shares) at Mar. 31, 2020	61,667,668
Balance at Mar. 31, 2020	$ 73,811	255	(67,879)	$ 6,187
Balance (in shares) at Dec. 31, 2020	61,975,748			61,975,748
Balance at Dec. 31, 2020	$ 73,953	411	(69,985)	$ 4,379
Share based payment activity (in shares)
Share based payment activity	$ 53			53
Beneficial conversion feature on paid-in-kind interest	2			2
Net loss			(719)	(719)
Other comprehensive income (loss)		8		8
Common stock issuance on conversion of notes payable (in shares)	2,385,058
Common stock issuance on conversion of notes payable	$ 763			$ 763
Exercise of stock options (in shares)	25,000			25,000
Exercise of stock options	$ 9			$ 9
Balance (in shares) at Mar. 31, 2021	64,385,806			64,385,806
Balance at Mar. 31, 2021	$ 74,780	$ 419	$ (70,704)	$ 4,495

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
OPERATING ACTIVITIES:
Net loss	$ (719)	$ (891)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization	68	26
Stock-based compensation	53	41
Change in allowance for doubtful accounts	(22)	55
Changes in operating assets and liabilities:
Accounts receivable	(229)	(550)
Inventory	86	(526)
Prepaid expenses and other current assets	(72)	107
Accounts payable	(260)	680
Accrued expenses	51	37
Taxes payable	(1)	(8)
Other liabilities	2	(1)
Net cash used in operating activities	(1,043)	(1,030)
INVESTING ACTIVITIES:
Purchase of fixed assets	(14)
Net cash used in investing activities	(14)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options	9
Payment of taxes on RSU withholding		(6)
Net cash provided by (used in) financing activities	9	(6)
Net decrease in cash and cash equivalents	(1,048)	(1,036)
Effect of exchange rate changes on cash	11	(29)
Cash and cash equivalents, beginning of period	4,614	5,969
Cash and cash equivalents, end of period	3,577	4,904
Supplemental disclosure:
Income taxes	6	6
Supplemental disclosure of non-cash transactions:
Conversion of notes payable	763
Recognition of lease liability and right-of-use asset		556
Beneficial conversion feature on convertible notes	$ 2	$ 3

XML

Note 1 - Nature of Operations and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2021

Notes to Financial Statements

Significant Accounting Policies [Text Block]

1.

    

Nature of Operations and Summary of Significant Accounting Policies

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

We are a Washington corporation and have

two

wholly-owned operating subsidiaries, Jones Soda Co. (USA) Inc. and Jones Soda (Canada) Inc. (Subsidiaries).

Basis of presentation, consolidation and use of estimates

The accompanying condensed consolidated balance sheet as of

December 31, 2020,

which has been derived from our audited consolidated financial statements, and unaudited interim condensed consolidated financial statements as of

March 31, 2021,

have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the Securities and Exchange Commission (“SEC”) rules and regulations applicable to interim financial reporting. The condensed consolidated financial statements include our accounts and the accounts of our subsidiaries. All intercompany transactions between us and our subsidiaries have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments, consisting only of those of a normal and recurring nature, considered necessary for a fair presentation of our financial position, results of operations and cash flows at the dates and for the periods presented.  Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Significant items subject to such estimates and assumptions include, but are

not

limited to, inventory valuation, depreciable lives and valuation of capital assets, valuation allowances for receivables, trade promotion liabilities, stock-based compensation expense, valuation allowance for deferred income tax assets, contingencies, and forecasts supporting the going concern assumption and related disclosures. Actual results could differ from those estimates. The operating results for the interim periods presented are

not

necessarily indicative of the results expected for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form

10

-K for the fiscal year ended

December 31, 2020.

Liquidity

As of

March 31, 2021,

we had cash and cash-equivalents of approximately

$3.6

million and working capital of approximately

$4.4

million. Net cash used in operations during each of the

three

months ended

March 31, 2021

and

2020

totaled approximately

$1.0

million.

We continue to experience negative cash flows from operations and negative cash flows from operating activities, as well as an ongoing requirement for additional capital to support working capital needs. Therefore, currently, based upon our near-term anticipated level of operations and expenditures, management believes that cash on hand, is

not

sufficient to enable us to fund operations for

12

months from the date the condensed consolidated financial statements included in this Report are issued. These conditions raise substantial doubt as to our ability to continue as a going concern. Our ability to continue operations is dependent upon achieving a profitable level of operations and on our ability to obtain necessary financing to fund ongoing operations. 

We

may

require additional financing to support our working capital needs in the future. The amount of additional capital we

may

require, the timing of our capital needs and the availability of financing to fund those needs will depend on a number of factors, including our strategic initiatives and operating plans, the performance of our business and the market conditions for debt or equity financing. Additionally, the amount of capital required will depend on our ability to meet our case sales goals and otherwise successfully execute our operating plan. We believe it is imperative to meet these sales objectives in order to lessen our reliance on external financing in the future. We intend to continually monitor and adjust our business plan as necessary to respond to developments in our business, our markets and the broader economy. In addition, the continuation of the COVID-

19

pandemic and uncertain market conditions

may

limit our ability to access capital,

may

reduce demand for certain products, and

may

negatively impact our supply chain. Although we believe various debt and equity financing alternatives will be available to us to support our working capital needs, financing arrangements on acceptable terms

may

not

be available to us when needed. Moreover, these alternatives

may

require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives

may

not

provide us with sufficient funds to meet our long-term capital requirements. If necessary, we

may

explore strategic transactions that we consider to be in our best interest and in the best interest of our shareholders, which

may

include, without limitation, public or private offerings of debt or equity securities, a rights offering, and other strategic alternatives; however, these options

may

not

ultimately be available or feasible. The uncertainties relating to our ability to successfully execute on our business plan and finance our operations continue to raise substantial doubt about our ability to continue as a going concern. Our financial statements for the periods presented were prepared assuming we would continue as a going concern, which contemplates that we will continue in operation for the foreseeable future and will be able to realize assets and settle liability commitments in the normal course of business. These financial statements do

not

include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that could result should we be unable to continue as a going concern within

one

year after the date these condensed consolidated financials were issued.

Seasonality and other fluctuations

Our sales are seasonal and we experience fluctuations in quarterly results as a result of many factors. We historically have generated a greater percentage of our revenues during the warm weather months of

April

through

September.

Sales

may

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

may

also fluctuate based on the number of SKUs selected or removed by our distributors and retail partners through the normal course of serving consumers in the dynamic, trend-oriented beverage industry. As a result, management believes that period-to-period comparisons of results of operations are

not

necessarily meaningful and should

not

be relied upon as any indication of future performance or results expected for the fiscal year.

Revenue recognition

We recognize revenue under Accounting Standards Codification (“ASC”)

606,

Revenue from Contracts with Customers, (“ASC

606”

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

five

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

five

steps are applied to achieve that core principle:

Step

1:

Identify the contract with the customer

Step

2:

Identify the performance obligations in the contract

Step

3:

Determine the transaction price

Step

4:

Allocate the transaction price to the performance obligations in the contract

Step

5:

Recognize revenue when the company satisfies a performance obligation

See Note

6,

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

Because our agreements have an expected duration of

one

year or less, we have elected the practical expedient in ASC

606

-

10

-

50

-

14

(a) to

not

disclose information about our remaining performance obligations.

Our contracts have a single performance obligation which is satisfied at the point in time when the customer has title and the significant risks and rewards of ownership of the product. 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. We primarily receive fixed consideration for sales of product, subject to adjustment as described below. Shipping and handling amounts paid by customers are primarily for online orders, and are included in revenue, and totaled

$15,000

and

$7,000

for the

three

months ended

March 31, 2021

and

2020,

respectively. Sales tax and other similar taxes are excluded from revenue.

Revenue is recorded net of provisions for discounts, slotting fees payable by us to retailers to stock our products and promotion allowances. Discounts, slotting fees and promotional allowances vary the consideration we are entitled to in exchange for the sale of products to distributors. We estimate these discounts, slotting fees and promotional allowances in the same period that the revenue is recognized for product sales to customers. These estimates are based on contract terms and our historical experience with similar programs and require management judgement with respect to estimating customer participation and performance levels. Differences between estimated expense and actual costs are normally insignificant and are recognized in earnings in the period such differences are determined. The amount of revenue recognized represents the amount that will

not

be subject to a significant future reversal of revenue. The liability for promotional allowances is included in accrued expenses on the consolidated balance sheets. Amounts paid for slotting fees are recorded as prepaid expenses on the consolidated balance sheets and amortized over the corresponding term. For the quarters ended

March 31, 2021

and

2020,

our revenue was reduced by

$350,000

and

$297,000

respectively, for slotting fees and promotion allowances.

All sales to distributors and customers are generally final. In limited instances we

may

accept returned product due to quality issues or distributor terminations, and in such situations we would have variable consideration. To date, returns have

not

been material. Our customers generally pay within

30

days from the receipt of a valid invoice. We offer prompt pay discounts of up to

2%

to certain customers typically for payments made within

15

days. Prompt pay discounts are estimated in the period of sale based on experience with sales to eligible customers. Early pay discounts are recorded as a deduction to the accounts receivable balance presented on the condensed consolidated balance sheets.

The accounts receivable balance primarily includes balances from trades sales to distributors and retail customers. The allowance for doubtful accounts is the best estimate of the amount of probable credit losses in existing accounts receivable. We determine the allowance for doubtful accounts based primarily on historical write-off experience. Account balances that are deemed uncollectible are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Allowances for doubtful accounts of

$71,000

and

$93,000

as of

March 31, 2021 

and

December 31, 2020,

respectively, were netted against accounts receivable.

No

impairment losses were recognized as of

March 31, 2021 

and

December 31, 2020.

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

As of

March 31, 2021,

A. Lassonde Inc. (“Lassonde”),

one

of our independent distributors, made up

19%

of our outstanding accounts receivable. As of

December 31, 2020,

Lassonde made up

18%

of our outstanding accounts receivable.

Net loss per share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the periods. Diluted earnings per share is computed by adjusting the weighted average number of common shares by the effective net exercise or conversion of all dilutive securities. Due to the net loss in the quarters ended

March 31, 2021

and

2020,

outstanding stock options amounting to

4,563,233

and

3,969,952

shares, respectively, shares issuable upon the conversion of the Convertible Notes of

3,040,707

and

5,164,212

shares, respectively, and stock warrants of

zero

and

15,000,000

shares respectively, were anti-dilutive and excluded from inclusion in diluted weighted shares outstanding. 

Deferred financing costs

We defer costs related to the issuance of debt which are included on the accompanying balance sheets as a deduction from the debt liability. Deferred financing costs are amortized over the term of the related loan using the effective interest method and are included as a component of interest expense on the accompanying condensed consolidated statements of operations.

Operating leases

At lease commencement, we record a lease liability based on the present value of lease payments over the expected lease term. We calculate the present value of lease payments using the discount rate implicit in the lease, unless that rate cannot be readily determined. In that case, we use our incremental borrowing rate, which is the rate of interest that we would have to pay to borrow on a collateralized basis an amount equal to the lease payments over the expected lease term. We record a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date. 

Recent accounting pronouncements

In

August, 2020,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2020

-

06,

“Debt-Debt with Conversion and other options” (“ASU

2020

-

06”

), which simplifies the accounting for convertible debt instruments and convertible preferred stock. This ASU is effective for public companies for fiscal years beginning after

December 15, 2023,

including interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact ASU

2020

-

06

could have on our 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.

XML

Note 2 - Inventory

3 Months Ended

Mar. 31, 2021

Notes to Financial Statements

Inventory Disclosure [Text Block]

2.

    

Inventory

Inventory consisted of the following (in thousands):

	March 31, 2021		December 31, 2020
Finished goods	$	1,063	$	1,142
Raw materials		711		714
	$	1,774	$	1,856

Finished goods primarily include product ready for shipment, as well as promotional merchandise held for sale. Raw materials primarily include ingredients, concentrate and packaging. For the

three

months ended

March 31, 2021

and

March 31, 2020,

we recorded obsolete inventory expenses of

$8,000

and

$9,000,

respectively.

XML

Note 3 - Lease Obligations

3 Months Ended

Mar. 31, 2021

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

3.

    

Lease Obligations

We currently lease 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; in

February 2020,

we amended the lease to extend the term through

February 28, 2025.

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

March 31, 2021,

this lease had a remaining lease term of

3.92

years.

During the quarters ended

March 31, 2021

and

2020,

we incurred rental expenses of

$42,000

and

$37,000,

respectively. During the quarters ended

March 31, 2021

and

2020,

we made cash payments of

$40,000

and

$38,000,

respectively.

Management fees and other operational expenses were immaterial. Cash payments on our operating lease are presented as operating cash outflows in the condensed consolidated statements of cash flows. As of

March 31, 2021,

our scheduled lease payments excluding management fees and other operational expenses for the remainder of the lease term for the years ending

December 31

will be as follows (in thousands):

2021 (remaining)	$	90
2022		122
2023		126
2024		130
2025		22
Total lease payments		490
Less: imputed interest		(37)
Total remaining lease liability	$	453

XML

Note 4 - Convertible Subordinated Notes Payable

3 Months Ended

Mar. 31, 2021

Notes to Financial Statements

Convertible Subordinated Notes Payable [Text Block]

4.

    

Convertible Subordinated Notes Payable

On

March 23, 2018,

and

April 18, 2018,

we issued and sold an aggregate principal amount of

$2,920,000

of convertible subordinated promissory notes (the “Convertible Notes”) to institutional investors, our management team, and other individual investors.

The Convertible Notes have a

four

-year term from the date of issuance and bear interest at

6%

per annum until maturity on

March 23, 2022

and

April 18, 2022,

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

$0.32

(the “Conversion Price”). The Conversion Price is subject to anti-dilution adjustment on a broad-based, weighted average basis if we issue shares or equity-linked instruments at a conversion price below

$0.32

per share.

No

payments of principal or interest are due until the maturity.

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

During the quarter ended

March 31, 2021,

Convertible Notes in the aggregate principal amount of

$650,000

and related accrued interest were converted into an aggregate of

2,385,058

shares of common stock in accordance with the original terms of the Convertible Notes. As a result, the carrying amount of the converted principal amount of such Convertible Notes, along with the converted accrued interest, in an aggregate amount of

$763,000,

was credited to common stock and unamortized discounts in an amount equal to

$22,000

were recognized as interest expense for the

three

months ended

March 31,

2021.There

were

no

Convertible Notes converted during the

three

months ended

March 31, 2020.

The fair value of our common stock on

March 23, 2018,

the initial closing date for the issuance of the Convertible Notes, was

$0.36

per share; therefore, the Convertible Notes contained a beneficial conversion feature with an aggregate intrinsic value of

$350,000.

The fair value of our common stock on

April 18, 2018,

the

second

closing date for the issuance of the Convertible Notes, was

$0.30

per share, which did

not

result in an additional beneficial conversion feature. The resulting debt discount for the Convertible Notes issued on

March 23, 2018

is presented as a direct deduction from the carrying value of the Convertible Notes and was recorded with an increase to additional paid-in capital. This discount, along with the related closing costs amounting to

$137,000,

are amortized through interest expense over the term of the Convertible Notes. The balance of notes payable is presented net of unamortized discounts amounting to

$47,000

and

$88,000

at

March 31, 2021

and

December 31, 2020,

respectively. The principal balance of notes payable to related parties amounted to

$120,000

at

March 31, 2021

and

December 31, 2020.

Principal payment obligations on the Convertible Notes are as follows for the following years ending

December 31 (

in thousands):

2021 (remaining)	$	-
2022		824
	$	824

XML

Note 5 - Shareholders' Equity

3 Months Ended

Mar. 31, 2021

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

5.

    

Shareholders

'

Equity

Under the terms of our

2011

Incentive Plan (the “Plan”), the number of shares authorized under the Plan

may

be increased each

January

1st

by an amount equal to the lesser of (a)

1,300,000

shares, (b)

4.0%

of our outstanding common stock as of the end of our immediately preceding fiscal year, and (c) a lesser amount determined by the Board of Directors (the “Board”), provided that the number of shares that

may

be granted pursuant to awards in a single year

may

not

exceed

10%

of our outstanding shares of common stock on a fully diluted basis as of the end of the immediately preceding fiscal year. As of

March 31, 2021,

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

12,084,032

shares.

Under the terms of the Plan, the Board

may

grant awards to employees, officers, directors, consultants, agents, advisors and independent contractors. 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 with an exercise price equal to 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%

of the shares subject to the option vesting

one

year from the grant date and the remaining

75%

of the shares subject to the option vesting in equal monthly increments over the subsequent

36

months. Restricted stock awards generally vest over

one

year. As of

March 31, 2021,

there were

6,497,192

shares of unissued common stock authorized and available for future awards under the Plan.

In

March 2021,

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

April 1, 2021

to

April 1, 2023

and is seeking shareholder approval of such readoption at the annual meeting of shareholders to be held on

May 13, 2021.

(a) Stock options:

A summary of our stock option activity is as follows:

	Outstanding Options
	Number of Shares		Weighted Average Exercise Price
Balance at January 1, 2021		3,589,783	$	0.36
Options granted		998,450		0.36
Options exercised		(25,000)		0.34
Balance at March 31, 2021		4,563,233	$	0.36
Exercisable, March 31, 2021		2,880,121	$	0.39
Vested and expected to vest		4,070,942	$	0.37

(b)

        Restricted stock awards:

Prior to

December 31, 2019,

equity compensation for non-employee director service consisted of an annual restricted stock unit award that vested over

one

year, with the number of shares underlying such award being determined by dividing

$15,000

by the closing stock price on the date of grant (which was the

first

business day in

January

in each calendar year); when joining the Board each non-employee director received an initial restricted stock unit award that vested over

one

year, the number of shares underlying such award being determined by dividing

$15,000

by our closing stock price on the date of grant (which was the

first

trading day following the date on which such director was appointed), prorated based on the date on which such director was appointed.

There was

no

restricted stock activity during the

three

months ended

March 31, 2021

and

no

unvested restricted stock awards at

March 31, 2021.

During the

three

months ended

March 31, 2020,

119,520

restricted stock awards vested, less

17,928

shares withheld as payment for taxes due in connection with the vesting of restricted stock awards.

Commencing as of

January 1, 2020,

equity compensation for non-employee director service consists of the grant of an annual non-qualified stock option award that vests on the

first

anniversary of the date of grant (subject to the director's continuing service as of such anniversary date), with the number of shares underlying such award determined by dividing

$25,000

by the closing stock price on the date of grant (which shall be the

first

trading day in

January

in each calendar year), and such stock option award shall have an exercise price equal to our closing stock price on the date of grant. When joining our board of directors, each non-employee director shall be granted a non-qualified stock option award that vests on the

first

anniversary of the date of grant (subject to the director's continuing service as of such anniversary date), with the number of shares underlying such award determined by dividing

$25,000

by our closing stock price on the

first

trading day following the date on which such director is appointed), prorated based on the date on which such director is appointed, and which stock option shall be granted as of the

first

trading day following the date on which such director was appointed, and shall have an exercise price equal to our closing stock price on the date of grant.

(c)

   

Stock-based compensation expense:

Stock-based compensation expense is recognized using the straight-line attribution method over the employees' requisite service period, or the non-employee's service period based on the term of the contract. We recognize compensation expense for only the portion of stock options or restricted stock expected to vest. Therefore, we apply estimated forfeiture rates that are derived from historical employee attrition. If the actual number of forfeitures differs from those estimated by management, additional adjustments to stock-based compensation expense

may

be required in future periods.

At

March 31, 2021,

we had unrecognized compensation expense related to stock options of

$210,000

to be recognized over a weighted-average period of

3.0

years.

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

	Three months ended March 31,
	2021		2020
Type of awards:
Stock options	$	53	$	36
Restricted stock		-		5
	$	53	$	41
Income statement account:
Selling and marketing	$	19		9
General and administrative		34		32
	$	53	$	41

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

	Three months ended March 31,
	2021			2020
Expected dividend yield		—			—
Expected stock price volatility		73.9	%		65.4	%
Risk-free interest rate		0.7	%		2.6	%
Expected term (in years)		5.8	years		6.0	years
Weighted-average grant date fair-value	$	0.23		$	0.17

The aggregate intrinsic value of stock options outstanding at

March 31, 2021

was approximately

$709,000

and for options exercisable was

$374,000.

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

25,000

options exercised with an aggregate intrinsic value of

$2,700

during the

three

months ended

March 31, 2021.

There were

no

options exercised during the

three

months ended

March 31, 2020.

XML

Note 6 - Segment Information

3 Months Ended

Mar. 31, 2021

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

6.

    

Segment Information

We have

one

operating segment with operations primarily in the United States and Canada. Sales are assigned to geographic locations based on the location of customers. Sales by geographic location are as follows (in thousands):

	Three months ended March 31,
	2021		2020
Revenue:
United States	$	2,260	$	2,151
Canada		580		624
Other countries		17		17
Total revenue	$	2,857	$	2,792

During the

three

months ended

March 31, 2021

and

2020,

one

(Lassonde) of our customers represented an aggregate of approximately

20%

and

22%

of our revenue, respectively.

XML

Note 7 - Paycheck Protection Program

3 Months Ended

Mar. 31, 2021

Paycheck Protection Program CARES Act [Member]

Notes to Financial Statements

Long-term Debt [Text Block]

7

.

    

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 is evidenced by a promissory note, dated as of

April 24, 2020 (

the “Note”), between us and HomeStreet Bank (the “Lender”). The Note has a

two

-year term and bears interest at the rate of

1.0%

per annum.

No

payments of principal or interest are due during the

10

-month period beginning on the date of the Note (the “Deferral Period”). Furthermore, we received an extension of the

first

principal and interest payment date to

10

months after the last day of the Deferral Period. The initial principal and interest payments are now due on

August 1, 2021.

Under the terms of the CARES Act, the principal and accrued interest under the Note is forgivable after

24

weeks if we use the PPP Loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and otherwise comply with PPP requirements. We must repay any unforgiven principal amount of the Note, with interest, on a monthly basis following the Deferral Period. We intend to pursue forgiveness, although actions taken by us in connection with our previously disclosed restructuring or otherwise could cause some or all of the PPP Loan to be ineligible for forgiveness. To the extent

not

forgiven, we will begin to pay principal and interest payments of approximately

$19,000

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

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

March 11, 2021,

President Biden signed an additional coronavirus relief package entitled the American Rescue Plan Act of

2021,

which included, among other things, provisions relating to stimulus payments to some Americans, extension of several CARES Act relief programs, expansion of the child tax credit, funding for vaccinations and other COVID-

19

related assistance programs. The CARES Act and the American Rescue Plan Act has

not

had a material impact on the Company as of

March 31, 2021;

however, we will continue to examine the impacts that the CARES Act and the American Rescue Plan Act,  as well as any future economic relief legislation,

may

have on our business.

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of presentation, consolidation and use of estimates

The accompanying condensed consolidated balance sheet as of

December 31, 2020,

which has been derived from our audited consolidated financial statements, and unaudited interim condensed consolidated financial statements as of

March 31, 2021,

have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the Securities and Exchange Commission (“SEC”) rules and regulations applicable to interim financial reporting. The condensed consolidated financial statements include our accounts and the accounts of our subsidiaries. All intercompany transactions between us and our subsidiaries have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments, consisting only of those of a normal and recurring nature, considered necessary for a fair presentation of our financial position, results of operations and cash flows at the dates and for the periods presented.  Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Significant items subject to such estimates and assumptions include, but are

not

limited to, inventory valuation, depreciable lives and valuation of capital assets, valuation allowances for receivables, trade promotion liabilities, stock-based compensation expense, valuation allowance for deferred income tax assets, contingencies, and forecasts supporting the going concern assumption and related disclosures. Actual results could differ from those estimates. The operating results for the interim periods presented are

not

necessarily indicative of the results expected for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form

10

-K for the fiscal year ended

December 31, 2020.

Going Concern [Policy Text Block]

Liquidity

As of

March 31, 2021,

we had cash and cash-equivalents of approximately

$3.6

million and working capital of approximately

$4.4

million. Net cash used in operations during each of the

three

months ended

March 31, 2021

and

2020

totaled approximately

$1.0

million.

We continue to experience negative cash flows from operations and negative cash flows from operating activities, as well as an ongoing requirement for additional capital to support working capital needs. Therefore, currently, based upon our near-term anticipated level of operations and expenditures, management believes that cash on hand, is

not

sufficient to enable us to fund operations for

12

months from the date the condensed consolidated financial statements included in this Report are issued. These conditions raise substantial doubt as to our ability to continue as a going concern. Our ability to continue operations is dependent upon achieving a profitable level of operations and on our ability to obtain necessary financing to fund ongoing operations. 

We

may

require additional financing to support our working capital needs in the future. The amount of additional capital we

may

require, the timing of our capital needs and the availability of financing to fund those needs will depend on a number of factors, including our strategic initiatives and operating plans, the performance of our business and the market conditions for debt or equity financing. Additionally, the amount of capital required will depend on our ability to meet our case sales goals and otherwise successfully execute our operating plan. We believe it is imperative to meet these sales objectives in order to lessen our reliance on external financing in the future. We intend to continually monitor and adjust our business plan as necessary to respond to developments in our business, our markets and the broader economy. In addition, the continuation of the COVID-

19

pandemic and uncertain market conditions

may

limit our ability to access capital,

may

reduce demand for certain products, and

may

negatively impact our supply chain. Although we believe various debt and equity financing alternatives will be available to us to support our working capital needs, financing arrangements on acceptable terms

may

not

be available to us when needed. Moreover, these alternatives

may

require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives

may

not

provide us with sufficient funds to meet our long-term capital requirements. If necessary, we

may

explore strategic transactions that we consider to be in our best interest and in the best interest of our shareholders, which

may

include, without limitation, public or private offerings of debt or equity securities, a rights offering, and other strategic alternatives; however, these options

may

not

ultimately be available or feasible. The uncertainties relating to our ability to successfully execute on our business plan and finance our operations continue to raise substantial doubt about our ability to continue as a going concern. Our financial statements for the periods presented were prepared assuming we would continue as a going concern, which contemplates that we will continue in operation for the foreseeable future and will be able to realize assets and settle liability commitments in the normal course of business. These financial statements do

not

include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that could result should we be unable to continue as a going concern within

one

year after the date these condensed consolidated financials were issued.

Seasonal Nature of Business [Policy Text Block]

Seasonality and other fluctuations

Our sales are seasonal and we experience fluctuations in quarterly results as a result of many factors. We historically have generated a greater percentage of our revenues during the warm weather months of

April

through

September.

Sales

may

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

may

also fluctuate based on the number of SKUs selected or removed by our distributors and retail partners through the normal course of serving consumers in the dynamic, trend-oriented beverage industry. As a result, management believes that period-to-period comparisons of results of operations are

not

necessarily meaningful and should

not

be relied upon as any indication of future performance or results expected for the fiscal year.

Revenue from Contract with Customer [Policy Text Block]

Revenue recognition

We recognize revenue under Accounting Standards Codification (“ASC”)

606,

Revenue from Contracts with Customers, (“ASC

606”

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

five

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

five

steps are applied to achieve that core principle:

Step

1:

Identify the contract with the customer

Step

2:

Identify the performance obligations in the contract

Step

3:

Determine the transaction price

Step

4:

Allocate the transaction price to the performance obligations in the contract

Step

5:

Recognize revenue when the company satisfies a performance obligation

See Note

6,

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

Because our agreements have an expected duration of

one

year or less, we have elected the practical expedient in ASC

606

-

10

-

50

-

14

(a) to

not

disclose information about our remaining performance obligations.

Our contracts have a single performance obligation which is satisfied at the point in time when the customer has title and the significant risks and rewards of ownership of the product. 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. We primarily receive fixed consideration for sales of product, subject to adjustment as described below. Shipping and handling amounts paid by customers are primarily for online orders, and are included in revenue, and totaled

$15,000

and

$7,000

for the

three

months ended

March 31, 2021

and

2020,

respectively. Sales tax and other similar taxes are excluded from revenue.

Revenue is recorded net of provisions for discounts, slotting fees payable by us to retailers to stock our products and promotion allowances. Discounts, slotting fees and promotional allowances vary the consideration we are entitled to in exchange for the sale of products to distributors. We estimate these discounts, slotting fees and promotional allowances in the same period that the revenue is recognized for product sales to customers. These estimates are based on contract terms and our historical experience with similar programs and require management judgement with respect to estimating customer participation and performance levels. Differences between estimated expense and actual costs are normally insignificant and are recognized in earnings in the period such differences are determined. The amount of revenue recognized represents the amount that will

not

be subject to a significant future reversal of revenue. The liability for promotional allowances is included in accrued expenses on the consolidated balance sheets. Amounts paid for slotting fees are recorded as prepaid expenses on the consolidated balance sheets and amortized over the corresponding term. For the quarters ended

March 31, 2021

and

2020,

our revenue was reduced by

$350,000

and

$297,000

respectively, for slotting fees and promotion allowances.

All sales to distributors and customers are generally final. In limited instances we

may

accept returned product due to quality issues or distributor terminations, and in such situations we would have variable consideration. To date, returns have

not

been material. Our customers generally pay within

30

days from the receipt of a valid invoice. We offer prompt pay discounts of up to

2%

to certain customers typically for payments made within

15

days. Prompt pay discounts are estimated in the period of sale based on experience with sales to eligible customers. Early pay discounts are recorded as a deduction to the accounts receivable balance presented on the condensed consolidated balance sheets.

The accounts receivable balance primarily includes balances from trades sales to distributors and retail customers. The allowance for doubtful accounts is the best estimate of the amount of probable credit losses in existing accounts receivable. We determine the allowance for doubtful accounts based primarily on historical write-off experience. Account balances that are deemed uncollectible are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Allowances for doubtful accounts of

$71,000

and

$93,000

as of

March 31, 2021 

and

December 31, 2020,

respectively, were netted against accounts receivable.

No

impairment losses were recognized as of

March 31, 2021 

and

December 31, 2020.

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

As of

March 31, 2021,

A. Lassonde Inc. (“Lassonde”),

one

of our independent distributors, made up

19%

of our outstanding accounts receivable. As of

December 31, 2020,

Lassonde made up

18%

of our outstanding accounts receivable.

Earnings Per Share, Policy [Policy Text Block]

Net loss per share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the periods. Diluted earnings per share is computed by adjusting the weighted average number of common shares by the effective net exercise or conversion of all dilutive securities. Due to the net loss in the quarters ended

March 31, 2021

and

2020,

outstanding stock options amounting to

4,563,233

and

3,969,952

shares, respectively, shares issuable upon the conversion of the Convertible Notes of

3,040,707

and

5,164,212

shares, respectively, and stock warrants of

zero

and

15,000,000

shares respectively, were anti-dilutive and excluded from inclusion in diluted weighted shares outstanding. 

Deferred Charges, Policy [Policy Text Block]

Deferred financing costs

We defer costs related to the issuance of debt which are included on the accompanying balance sheets as a deduction from the debt liability. Deferred financing costs are amortized over the term of the related loan using the effective interest method and are included as a component of interest expense on the accompanying condensed consolidated statements of operations.

Lessee, Leases [Policy Text Block]

Operating leases

At lease commencement, we record a lease liability based on the present value of lease payments over the expected lease term. We calculate the present value of lease payments using the discount rate implicit in the lease, unless that rate cannot be readily determined. In that case, we use our incremental borrowing rate, which is the rate of interest that we would have to pay to borrow on a collateralized basis an amount equal to the lease payments over the expected lease term. We record a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date. 

New Accounting Pronouncements, Policy [Policy Text Block]

Recent accounting pronouncements

In

August, 2020,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2020

-

06,

“Debt-Debt with Conversion and other options” (“ASU

2020

-

06”

), which simplifies the accounting for convertible debt instruments and convertible preferred stock. This ASU is effective for public companies for fiscal years beginning after

December 15, 2023,

including interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact ASU

2020

-

06

could have on our 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.

XML

Note 2 - Inventory (Tables)

3 Months Ended

Mar. 31, 2021

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	March 31, 2021		December 31, 2020
Finished goods	$	1,063	$	1,142
Raw materials		711		714
	$	1,774	$	1,856

XML

Note 3 - Lease Obligations (Tables)

3 Months Ended

Mar. 31, 2021

Notes Tables

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

2021 (remaining)	$	90
2022		122
2023		126
2024		130
2025		22
Total lease payments		490
Less: imputed interest		(37)
Total remaining lease liability	$	453

XML

Note 4 - Convertible Subordinated Notes Payable (Tables)

3 Months Ended

Mar. 31, 2021

Notes Tables

Schedule of Maturities of Long-term Debt [Table Text Block]

2021 (remaining)	$	-
2022		824
	$	824

XML

Note 5 - Shareholders' Equity (Tables)

3 Months Ended

Mar. 31, 2021

Notes Tables

Share-based Payment Arrangement, Option, Activity [Table Text Block]

	Outstanding Options
	Number of Shares		Weighted Average Exercise Price
Balance at January 1, 2021		3,589,783	$	0.36
Options granted		998,450		0.36
Options exercised		(25,000)		0.34
Balance at March 31, 2021		4,563,233	$	0.36
Exercisable, March 31, 2021		2,880,121	$	0.39
Vested and expected to vest		4,070,942	$	0.37

Share-based Payment Arrangement, Expensed and Capitalized, Amount [Table Text Block]

	Three months ended March 31,
	2021		2020
Type of awards:
Stock options	$	53	$	36
Restricted stock		-		5
	$	53	$	41
Income statement account:
Selling and marketing	$	19		9
General and administrative		34		32
	$	53	$	41

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Three months ended March 31,
	2021			2020
Expected dividend yield		—			—
Expected stock price volatility		73.9	%		65.4	%
Risk-free interest rate		0.7	%		2.6	%
Expected term (in years)		5.8	years		6.0	years
Weighted-average grant date fair-value	$	0.23		$	0.17

XML

Note 6 - Segment Information (Tables)

3 Months Ended

Mar. 31, 2021

Notes Tables

Revenue from External Customers by Geographic Areas [Table Text Block]

	Three months ended March 31,
	2021		2020
Revenue:
United States	$	2,260	$	2,151
Canada		580		624
Other countries		17		17
Total revenue	$	2,857	$	2,792

XML

Note 1 - Nature of Operations and Summary of Significant Accounting Policies (Details Textual)	3 Months Ended		12 Months Ended
	Mar. 31, 2021 USD ($) shares	Mar. 31, 2020 USD ($) shares	Dec. 31, 2020 USD ($)
Number of Operating Subsidiaries	2
Cash and Cash Equivalents, at Carrying Value, Ending Balance	$ 3,577,000		$ 4,614,000
Working Capital (Deficit)	4,400,000
Net Cash Provided by (Used in) Operating Activities, Total	(1,043,000)	$ (1,030,000)
Revenues, Total	2,857,000	2,792,000
Slotting Fees and Promotional Allowances	$ 350,000	$ 297,000
Maximum Discount for Customers, Payment Made Within 15 Days	2.00%
Accounts Receivable, Allowance for Credit Loss, Current	$ 71,000		93,000
Tangible Asset Impairment Charges, Total	$ 0		$ 0
Share-based Payment Arrangement, Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | shares	4,563,233	3,969,952
Convertible Debt Securities [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | shares	3,040,707	5,164,212
Restricted Stock Units (RSUs) [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | shares	0
Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | shares		15,000,000
Customer Concentration Risk [Member] | Accounts Receivable [Member]
Number of Major Customers	1
Customer Concentration Risk [Member] | Accounts Receivable [Member] | One Customer [Member]
Concentration Risk, Percentage	19.00%		18.00%
Shipping and Handling [Member]
Revenues, Total	$ 15,000	$ 7,000

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Note 2 - Inventory (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Inventory Write-down	$ 8,000	$ 9,000

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Note 2 - Inventory - Inventory (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Finished goods	$ 1,063	$ 1,142
Raw materials	711	714
Inventory, Net, Total	$ 1,774	$ 1,856

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Note 3 - Lease Obligations (Details Textual)	3 Months Ended
	Mar. 31, 2021 USD ($) ft²	Mar. 31, 2020 USD ($)	Dec. 31, 2020 USD ($)	Feb. 28, 2020 USD ($)
Operating Lease, Right-of-Use Asset	$ 445,000		$ 471,000
Operating Lease, Liability, Total	453,000
Operating Lease, Expense	42,000	$ 37,000
Operating Lease, Payments	$ 40,000	$ 38,000
Retail / Office Space in Seattle, Washington [Member]
Area of Real Estate Property (Square Foot) | ft²	6,500
Lessee, Operating Lease, Term of Contract (Year)				5 years
Operating Lease, Right-of-Use Asset				$ 556,000
Operating Lease, Liability, Total				$ 556,000
Lessee, Operating Lease, Discount Rate	4.00%
Operating Lease, Weighted Average Remaining Lease Term (Year)	3 years 335 days

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Note 3 - Lease Obligations - Annual Payments Excluding Management Fees and Other Operations Expenses (Details) $ in Thousands	Mar. 31, 2021 USD ($)
2021 (remaining)	$ 90
2022	122
2023	126
2024	130
2025	22
Total lease payments	490
Less: imputed interest	(37)
Total remaining lease liability	$ 453

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Note 4 - Convertible Subordinated Notes Payable (Details Textual) - USD ($)			3 Months Ended
	Apr. 18, 2018	Mar. 23, 2018	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Debt Conversion, Original Debt, Amount			$ 763,000
Stock Issued During Period, Value, Conversion of Convertible Securities			763,000
Share Price (in dollars per share)	$ 0.30	$ 0.36
Notes Payable, Related Parties			120,000		$ 120,000
Conversion of Convertible Notes into Common Stock [Member]
Debt Conversion, Original Debt, Amount			$ 650,000	$ 0
Debt Conversion, Converted Instrument, Shares Issued (in shares)			2,385,058
Convertible Notes [Member]
Convertible Subordinated Debt, Total	$ 2,920,000	$ 2,920,000
Debt Instrument, Term (Year)	4 years
Debt Instrument, Interest Rate, Stated Percentage	6.00%
Debt Instrument, Convertible, Conversion Price (in dollars per share)	$ 0.32
Stock Issued During Period, Value, Conversion of Convertible Securities			$ 763,000
Interest Expense, Debt, Total			22,000
Debt Instrument, Convertible, Beneficial Conversion Feature		$ 350,000
Debt Issuance Costs, Gross	$ 137,000
Debt Instrument, Unamortized Discount (Premium), Net, Total			$ 47,000		$ 88,000

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Note 4 - Convertible Subordinated Notes Payable - Principal Payments (Details) - Convertible Notes [Member] $ in Thousands	Mar. 31, 2021 USD ($)
2021 (remaining)
2022	824
Long-term Debt, Total	$ 824

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Note 5 - Shareholders' Equity (Details Textual) - USD ($)			3 Months Ended
	Jan. 01, 2020	Jan. 01, 2018	Mar. 31, 2021	Mar. 31, 2020
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value			$ 709,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value			$ 374,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period (in shares)			25,000	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value			$ 2,700
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance (in shares)			0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period (in shares)				119,520
Share-based Payment Arrangement, Shares Withheld for Tax Withholding Obligation (in shares)				17,928
Restricted Stock [Member] | Non-employee Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Month)		1 year
Restricted Stock Units (RSUs) [Member] | Non-employee Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Month)	1 year
Share-based Payment Arrangement, Expensed and Capitalized, Amount, Total	$ 25,000	$ 15,000
Stock Options and Non-vested Stock [Member]
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total			$ 210,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)			3 years
The 2011 Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized (in shares)			1,300,000
Share-based Compensation Arrangement by Share-based Payment Award, Additional Shares Authorized, Percentage of Outstanding Stock			4.00%
Share-based Compensation Arrangement by Share-based Payment Award, Percentage of Outstanding Stock Maximum			10.00%
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)			12,084,032
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares)			6,497,192
The 2011 Incentive Plan [Member] | Share-based Payment Arrangement, Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period (Year)			10 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Month)			4 years
The 2011 Incentive Plan [Member] | Share-based Payment Arrangement, Option [Member] | Cliff Vesting [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Month)			1 year
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage			25.00%
The 2011 Incentive Plan [Member] | Share-based Payment Arrangement, Option [Member] | In Equal Monthly [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Month)			3 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage			75.00%

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Note 5 - Shareholders' Equity - Summary of Stock Option Activity (Details) - $ / shares	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Balance, number of shares (in shares)	3,589,783
Balance, weighted average exercise price (in dollars per share)	$ 0.36
Options granted, number of shares (in shares)	998,450
Options granted, weighted average exercise price (in dollars per share)	$ 0.36
Options exercised, number of shares (in shares)	(25,000)	0
Options exercised, weighted average exercise price (in dollars per share)	$ 0.34
Balance, number of shares (in shares)	4,563,233
Balance, weighted average exercise price (in dollars per share)	$ 0.36
Exercisable, number of shares (in shares)	2,880,121
Exercisable, weighted average exercise price (in dollars per share)	$ 0.39
Vested and expected to vest, number of shares (in shares)	4,070,942
Vested and expected to vest, weighted average exercise price (in dollars per share)	$ 0.37

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Note 5 - Shareholders' Equity - Stock-based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Stock-based compensation expense	$ 53	$ 41
Selling and Marketing Expense [Member]
Stock-based compensation expense	19	9
General and Administrative Expense [Member]
Stock-based compensation expense	34	32
Share-based Payment Arrangement, Option [Member]
Stock-based compensation expense	53	36
Restricted Stock [Member]
Stock-based compensation expense		$ 5

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Note 5 - Shareholders' Equity - Weighted-average Assumptions (Details) - Share-based Payment Arrangement, Option [Member] - $ / shares	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Expected dividend yield
Expected stock price volatility	73.90%	65.40%
Risk-free interest rate	0.70%	2.60%
Expected term (in years) (Year)	5 years 292 days	6 years
Weighted-average grant date fair-value (in dollars per share)	$ 0.23	$ 0.17

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Note 6 - Segment Information (Details Textual)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Number of Operating Segments	1
Revenue from Contract with Customer Benchmark [Member] | Customer Concentration Risk [Member]
Number of Major Customers	1	1
Concentration Risk, Percentage	20.00%	22.00%

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Note 6 - Segment Information - Geographic Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Revenue	$ 2,857	$ 2,792
UNITED STATES
Revenue	2,260	2,151
CANADA
Revenue	580	624
Other Countries [Member]
Revenue	$ 17	$ 17

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Note 7 - Paycheck Protection Program (Details Textual) - Paycheck Protection Program CARES Act [Member]	Apr. 24, 2020 USD ($)
Proceeds from Notes Payable, Total	$ 334,500
Debt Instrument, Periodic Payment, Total	$ 19,000