UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
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:
JONES SODA CO.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
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| (Address of principal executive offices) | (Zip Code) |
(
(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 |
| | | 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.
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).
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 ☐ | |
| | 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
As of October 25, 2021, there were
JONES SODA CO.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED September 30, 2021
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 recent financings; |
| ● |
Our ability to consummate the transactions contemplated by the Arrangement Agreement (as defined below) and to recognize the anticipated benefits of such transactions; |
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Our ability to execute our plans to develop and market THC/CBD-infused and/or cannabis-infused beverages and edibles, and comply with the laws and regulations governing cannabis, hemp or related products, and the timing and costs of the development of this new product line; |
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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; |
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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; |
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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; |
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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; |
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Entrance into and increased focus on the craft beverage segment by other major beverage companies; |
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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); |
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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; |
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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; |
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Our ability to manage our inventory levels and to predict the timing and amount of our sales; |
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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; |
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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; |
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Our ability to source our flavors on acceptable terms from our key flavor suppliers; |
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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; |
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Our ability to protect our trademarks and trade secrets, the failure of which may prevent us from successfully marketing our products and competing effectively; |
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Litigation or legal proceedings, which could expose us to significant liabilities and damage our reputation; |
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Our ability to comply with the many regulations to which our business is subject; |
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Our ability to maintain an effective information technology infrastructure; |
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Fluctuations in fuel and freight costs; |
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Fluctuations in currency exchange rates, particularly between the United States and Canadian dollars; |
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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; |
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Our ability to maintain effective disclosure controls and procedures and internal control over financial reporting; |
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Dilutive and other adverse effects on our existing shareholders and our stock price arising from future securities issuances; and |
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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.
PART 1 – FINANCIAL INFORMATION
| ITEM 1. |
FINANCIAL STATEMENTS |
JONES SODA CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2021 | December 31, 2020 | |||||||
|
| ||||||||
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| (In thousands, except share data) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance of and | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Fixed assets, net of accumulated depreciation of and | ||||||||
| Other assets | ||||||||
| Right of use lease asset | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Lease liability, current portion | ||||||||
| Accrued expenses | ||||||||
| Taxes payable | ||||||||
| Current portion of convertible subordinated notes payable, net | ||||||||
| Current portion of accrued interest expense | ||||||||
| Current portion of SBA Loan | ||||||||
| Total current liabilities | ||||||||
| Net convertible subordinated notes payable, net of current portion | ||||||||
| Accrued interest expense, net of current portion | ||||||||
| SBA loan, net of current portion | ||||||||
| Lease liability, net of current portion | ||||||||
| Total liabilities | ||||||||
| Shareholders’ equity: | ||||||||
| Common stock, par value: | ||||||||
| Authorized — ; issued and outstanding shares — shares and shares, respectively | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (In thousands, except share data) | (In thousands, except share data) | |||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ( | ) | ||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average basic and diluted common shares outstanding | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| (In thousands) |
(In thousands) |
|||||||||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive income (loss): |
||||||||||||||||
| Foreign currency translation adjustment |
( |
) | ( |
) | ( |
) | ||||||||||
| Total comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
See accompanying notes to condensed consolidated financial statements.
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 September 30, 2020 | ||||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Share based payment activity | 308,080 | |||||||||||||||||||
| Beneficial conversion feature on paid-in-kind interest | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Three months ended September 30, 2021 | ||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Share based payment activity | - | |||||||||||||||||||
| Common stock issuance on conversion of notes payable | ||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Nine months ended September 30, 2020 | ||||||||||||||||||||
| Balance as of | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Share based payment activity | ||||||||||||||||||||
| Beneficial conversion feature on paid-in-kind interest | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Nine months Ended September 30, 2021 | ||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | ) | $ | |||||||||||||||
| Share based payment activity | - | |||||||||||||||||||
| Common stock issuance on conversion of notes payable | ||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||
| Beneficial conversion feature on paid-in-kind interest | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash flows from operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Change in allowance for doubtful accounts | ||||||||
| Forgiveness of PPP SBA loan | ( | ) | ||||||
| Loss on sale of fixed asset | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Taxes payable | ( | ) | ||||||
| Other liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Sale of fixed assets | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Proceeds from issuance of convertible notes, net | ||||||||
| Proceeds from PPP SBA loan | ||||||||
| Payment of taxes on RSU withholding | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosure: | ||||||||
| Cash paid during period for: | ||||||||
| Income taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash transactions: | ||||||||
| Conversion of notes payable | $ | $ | ||||||
| Recognition of lease liability and right-of-use asset | ||||||||
| Beneficial conversion feature on convertible notes and accrued interest | ||||||||
See accompanying notes to condensed consolidated financial statements.
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 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 September 30, 2021, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the Securities and Exchange Commission (“SEC”) rules and regulations applicable to interim financial reporting. The 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 September 30, 2021, we had cash and cash-equivalents of approximately $
We have experienced recurring losses from operations and negative cash flows from operating activities. This situation creates uncertainties about our ability to execute our business plan, finance operations, and indicates substantial doubt about the Company’s ability to continue as a going concern. On July 14, 2021, we received net proceeds of $
We believe that the recent financing helps alleviate the conditions which initially indicated substantial doubt about our ability to continue as a going concern. However, we have experienced and continue to experience negative cash flows from operations, as well as an ongoing requirement for additional capital to support working capital needs. Therefore, even with these proceeds, we may require additional financing to support our working capital needs in the future. The amount of additional capital we may require, the timing of our capital needs and the availability of financing to fund those needs will depend on a number of factors, including the receipt of any proceeds from the planned Concurrent Offering (defined below) as well as from any other financing we complete in connection with the Arrangement (defined below), our strategic initiatives and operating plans, our ability to execute our plans to develop and market cannabis-infused beverages and edibles and the timing and costs of the development of this new product line, our estimates of the size of the markets for our potential cannabis products, the performance of our business and the market conditions for available debt or equity financing. Additionally, the amount of capital required will depend on our ability to meet our sales goals and otherwise successfully execute our operating plan. We believe it is imperative that we meet these sales objectives in order to lessen our reliance on external financing in the future. We intend to continually monitor and adjust our operating plan as necessary to respond to developments in our business, our markets and the broader economy. In addition, the continuation of the COVID-19 pandemic and uncertain market conditions may limit our ability to access capital, may reduce demand for certain products, and may negatively impact our supply chain.
Although we believe various debt and equity financing alternatives will be available to us to support our working capital needs, financing arrangements on acceptable terms may not be available to us when needed. In addition, the terms of the Convertible Debenture restrict, among other things, the amount of additional debt the Company can incur, as well as the number of shares of common stock the Company may issue, without the consent of the debentureholder. Moreover, any debt or equity financing alternatives may require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives may not provide us with sufficient funds to meet our long-term capital requirements. If necessary, we may explore strategic transactions, in addition to the Arrangement, Concurrent Financing and any related financings that we consider to be in the best interest of our company and our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, a rights offering, and other strategic alternatives; however, these options may not ultimately be available or feasible when needed.
As of the date of this Report, as a result of our cash on hand as well as the issuance of the Convertible Debenture, we believe that our current cash and cash equivalents will be sufficient to meet the Company’s funding requirements for one year after these consolidated financial statements are issued.
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
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 $
See Note 1, on our most recently filed Form 10-K filed on March 24, 2021 for our revenue recognition policy.
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 September 30, 2021 and 2020, our revenue was reduced by $
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
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 $
As of September 30, 2021, A. Lassonde Inc. (“Lassonde”), of our independent distributors, made up
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 September 30, 2021 and 2020, outstanding stock options amounting to
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):
| September 30, 2021 | December 31, 2020 | |||||||
| Finished goods | $ | $ | ||||||
| Raw materials | ||||||||
| $ | $ | |||||||
Finished goods primarily include product ready for shipment, as well as promotional merchandise held for sale. Raw materials primarily include ingredients, concentrate and packaging. For the three months ended September 30, 2021 and 2020, we recorded obsolete inventory expenses of $
| 3. | Lease Obligations |
We currently lease approximately
During the quarters ended September 30, 2021 and 2020, we incurred rental expenses of $
Management fees and other operational expenses were immaterial. Cash payments on our operating lease are presented as operating cash outflows in the condensed consolidated statements of cash flows. As of September 30, 2021, our scheduled lease payments excluding management fees and other operational expenses for the remainder of the lease term for the years ending December 31 will be as follows (in thousands):
| 2021 (remaining) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total remaining lease liability | $ |
| 4. | Convertible Subordinated Notes Payable |
On March 23, 2018, and April 18, 2018, we issued and sold an aggregate principal amount of $
The Convertible Notes have a -year term from the date of issuance and bear interest at
The Convertible Notes are subordinated in right of payment to the prior payment in full of all of our senior indebtedness, which is defined as amounts due in connection with our indebtedness for borrowed money to banks, commercial finance lenders, or other lending institutions regularly engaged in the business of lending money, with certain restrictions.
During the quarter ended September 30, 2021, Convertible Notes in the aggregate principal amount of $
The fair value of our common stock on March 23, 2018, the initial closing date for the issuance of the Convertible Notes, was $
Principal payment obligations on the Convertible Notes are as follows for the following years ending December 31 (in thousands):
| 2021 (remaining) | $ | |||
| 2022 | ||||
| $ |
| 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)
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 -year term and vest over a period of
In March 2021, the Board approved the readoption of the Plan to extend the expiration date thereof from April 1, 2021 to April 1, 2023 and obtained shareholder approval of such readoption at the annual meeting of shareholders held on May 13, 2021.
On September 30, 2021, our board of directors, upon the recommendation of our compensation committee, approved an amendment to the Plan to decrease the number of shares of common stock available for issuance pursuant to future awards under the Plan from
| (a) | Stock options: |
A summary of our stock option activity is as follows:
| Outstanding Options | ||||||||
| Number of Shares | Weighted Average Exercise Price (Per Share) | |||||||
| Balance at January 1, 2021 | $ | |||||||
| Options granted | ||||||||
| Options exercised | ( | ) | ||||||
| Options forfeited/expired | ( | ) | ||||||
| Balance at September 30, 2021 | $ | |||||||
| Exercisable, September 30, 2021 | $ | |||||||
| Vested and expected to vest | $ | |||||||
| (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 $
There was no restricted stock activity during the three and nine months ended September 30, 2021 and unvested restricted stock awards at September 30, 2021. During the nine months ended September 30, 2020,
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 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 $
| (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 September 30, 2021, we had unrecognized compensation expense related to stock options of $
The following table summarizes the stock-based compensation expense (in thousands):
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Type of awards: | ||||||||||||||||
| Stock options | $ | $ | $ | $ | ||||||||||||
| Restricted stock | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Income statement account: | ||||||||||||||||
| Selling and marketing | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
We employ the following key weighted-average assumptions in determining the fair value of stock options, using the Black-Scholes option pricing model and the simplified method to estimate the expected term of “plain vanilla” options:
| Nine months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Expected dividend yield | ||||||||
| Expected stock price volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (in years) | ||||||||
| Weighted-average grant date fair-value | $ | $ | ||||||
The aggregate intrinsic value of stock options outstanding at September 30, 2021 was approximately $
| 6. | Segment Information |
We have 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 September 30, | Year Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue: | ||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| Canada | ||||||||||||||||
| Other countries | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
During the three months ended September 30, 2021 and 2020, of our customers (Lassonde) represented an aggregate of approximately
| 7. | Paycheck Protection Program |
On April 24, 2020, we received loan proceeds of $
Under the terms of the CARES Act, the principal and accrued interest under the Note was forgivable after 24 weeks if we used the PPP Loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and otherwise complied with PPP requirements. In May 2021, we received full forgiveness of our PPP Loan and recorded the gain on debt forgiveness in the amount of $
| 8. | 2021 Unsecured Convertible Debenture |
On July 14, 2021, we issued a $
The Convertible Debenture matures on the earlier of July 14, 2023 or 60 days after either any agreement between Pinestar Gold Inc. (“Pinestar”) and us respecting the planned statutory plan of arrangement under the Business Corporations Act (British Columbia) (the “Arrangement”) is terminated or the debentureholder receives notice from either Pinestar or us that the Plan of Arrangement is unlikely to occur within seven months of the date of the Convertible Debenture (the “Maturity Date”), and accrues interest a rate of
The terms of the Convertible Debenture restrict, amongst other things, the amount of additional debt we can incur, as well as the number of Jones Shares we can issue, without the consent of the debentureholder. The terms of the Convertible Debenture also provide that we shall use the principal amount of the Convertible Debenture exclusively for the costs and expenses associated with pursuing and completing the Plan of Arrangement, and for the purpose of expanding our business to the production of cannabis-containing beverages and related products.
| 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.
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 Tetrahydrocannabinol (THC) and cannabidiol (CBD)-infused beverages, and plan to use the proceeds of the Convertible Debenture and transactions outlined in the Term Sheet (each as described below) exclusively for transaction costs and the expansion our business to the production and sale of cannabis-containing beverages, edibles and related products.
Results of Operations
The following selected financial and operating data are derived from our condensed consolidated financial statements and should be read in conjunction with our condensed consolidated financial statements.
| Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||||||||||||||||||
| 2021 |
% of Revenue |
2020 |
% of Revenue |
2021 |
% of Revenue |
2020 |
% of Revenue |
|||||||||||||||||||||||||
|
|
(Dollars in thousands, except per share data) |
(Dollars in thousands, except per share data) |
||||||||||||||||||||||||||||||
| Consolidated statements of operations data: | ||||||||||||||||||||||||||||||||
| Revenue |
$ | 4,565 | 100.0 | % |
$ | 3,541 | 100.0 | % |
$ | 11,880 | 100.0 | % |
$ | 9,431 | 100.0 | % |
||||||||||||||||
| Cost of goods sold |
(3,102 | ) | (68.0 | %) |
(2,619 | ) | (74.0 | %) |
(8,255 | ) | (69.5 | %) |
(7,341 | ) | (77.8 | %) |
||||||||||||||||
| Gross profit |
1,463 | 32.0 | % |
922 | 26.0 | % |
3,625 | 30.5 | % |
2,090 | 22.2 | % |
||||||||||||||||||||
| Selling and marketing expenses |
(733 | ) | (16.1 | %) |
(642 | ) | (18.1 | %) |
(2,104 | ) | (17.7 | %) |
(1,924 | ) | (20.4 | %) |
||||||||||||||||
| General and administrative expenses |
(716 | ) | (15.7 | %) |
(674 | ) | (19.0 | %) |
(2,147 | ) | (18.1 | %) |
(2,136 | ) | (22.6 | %) |
||||||||||||||||
| Income (loss) from operations |
14 | 0.3 | % |
(394 | ) | (11.1 | %) |
(626 | ) | (5.3 | %) |
(1,970 | ) | (20.9 | %) |
|||||||||||||||||
| Interest income |
1 | 0.0 | % |
2 | 0.1 | % |
3 | 0.0 | % |
23 | 0.2 | % |
||||||||||||||||||||
| Interest expense |
(76 | ) | (1.7 | %) |
(40 | ) | (1.1 | %) |
(160 | ) | (1.3 | %) |
(116 | ) | (1.2 | %) |
||||||||||||||||
| Other income (expense), net |
10 | 0.2 | % |
(11 | ) | (0.3 | %) |
338 | 2.8 | % |
3 | 0.0 | % |
|||||||||||||||||||
| Loss before income taxes |
(51 | ) | (1.1 | %) |
(443 | ) | (12.5 | %) |
(445 | ) | (3.7 | %) |
(2,060 | ) | (21.8 | %) |
||||||||||||||||
| Income tax expense, net |
(8 | ) | (0.2 | %) |
(7 | ) | (0.2 | %) |
(24 | ) | (0.2 | %) |
(19 | ) | (0.2 | %) |
||||||||||||||||
| Net loss |
$ | (59 | ) | (1.3 | %) |
$ | (450 | ) | (12.7 | %) |
$ | (469 | ) | (3.9 | %) |
$ | (2,079 | ) | (22.0 | %) |
||||||||||||
| Basic and diluted net loss per share |
$ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.03 | ) | ||||||||||||||||||||
| As of |
||||||||
| September 30, 2021 |
December 31, 2020 |
|||||||
|
|
(Dollars in thousands) |
|||||||
| Balance sheet data: | ||||||||
| Cash and cash equivalents and accounts receivable, net |
$ | 8,608 | $ | 6,195 | ||||
| Fixed assets, net |
261 | 305 | ||||||
| Total assets |
11,052 | 9,053 | ||||||
| Long-term liabilities |
2,056 | 2,188 | ||||||
| Working capital |
7,284 | 5,758 | ||||||
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 September 30, 2021 Compared to Quarter Ended September 30, 2020
Revenue
For the quarter ended September 30, 2021, revenue increased by approximately $1.0 million, or 29%, to approximately $4.6 million compared to approximately $3.5 million for the quarter ended September 30, 2020. This increase was primarily a result of increased DSD and DTR core bottled soda sales in the United States and Canada. Additionally, our fountain business returned to growth through increased sales in the food service channel.
For the quarter ended September 30, 2021, trade spend and promotion allowances, which offset revenue, totaled approximately $377,000, a decrease of approximately $149,000, or 28%, compared to approximately $526,000 for the quarter ended September 30, 2020, due to the timing of incentive and retailer programs.
Gross Profit
For the quarter ended September 30, 2021, gross profit increased by approximately $541,000, or 59%, to approximately $1.5 million compared to approximately $922,000 for the quarter ended September 30, 2020 due to higher revenues in the quarter ended September 30, 2021, the continued shift to a more profitable product mix and our ongoing efforts to optimize supply chain and promotional costs. For the quarter ended September 30, 2021, gross margin increased to 32% from 26% for the quarter ended September 30, 2020. This increase in gross margin was for the same reasons as noted above.
Selling and Marketing Expenses
Selling and marketing expenses for the quarter ended September 30, 2021 were approximately $733,000, an increase of approximately $91,000, or 14%, from approximately $642,000 for the quarter ended September 30, 2020. Selling and marketing expenses as a percentage of revenue decreased to 16% in the quarter ended September 30, 2021 from 18% in the same period in 2020 due to the increase in revenue during the 2021 period. This increase in total selling and marketing expenses was primarily a result of the launch of multiple marketing programs, including our new augmented reality “Reel Label” series, multiple special release flavors, and additional digital marketing efforts such as the new Jones Soda phone application and an increase in paid social media, search engine optimization, influencer and email marketing efforts. We will continue to balance selling and marketing expenses with our working capital resources. For the three months ended September 30, 2021 and 2020, non-cash expenses included in selling and marketing expenses (stock compensation and depreciation) were approximately $21,000 and $57,000, respectively.
General and Administrative Expenses
General and administrative expenses for the quarter ended September 30, 2021 were approximately $716,000, an increase of approximately $42,000, or 6.2%, compared to approximately $674,000 for the quarter ended September 30, 2020. General and administrative expenses as a percentage of revenue decreased to 15.7% in the quarter ended September 30, 2021 from 18.1% in the same period in 2020. We will continue to carefully manage general and administrative expenses with our working capital resources. For the three months ended September 30, 2021 and 2020, non-cash expenses included in general and administrative expenses (stock compensation and depreciation) were approximately $27,000 and $25,000, respectively.
Interest Income
We earned approximately $1,000 of interest income for the quarter ended September 30, 2021, compared to $2,000 for the quarter ended September 30, 2020. This decrease was related to a decrease in interest rates for interest-bearing money market accounts.
Interest Expense
We incurred approximately $76,000 of interest expense for the quarter ended September 30, 2021, compared to approximately $40,000 for the quarter ended September 30, 2020. This increase was primarily related to the accrued interest associated with the Convertible Debenture entered into in July 2021.
Income Tax Expense
We incurred approximately $8,000 and $7,000 of income tax expense for the quarters ended September 30, 2021 and 2020, respectively, primarily related to the tax provision on income from our Canadian operations. We have not recorded any tax benefit for the loss in our U.S. operations as we have recorded a full valuation allowance on our U.S. net deferred tax assets. We expect to continue to record a full valuation allowance on our U.S. net deferred tax assets until we sustain an appropriate level of taxable income through improved U.S. 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 September 30, 2021 was approximately $59,000 compared to net loss of approximately $450,000 for the quarter ended September 30, 2020. This decrease in net loss was primarily due to the increase in revenues and gross profit.
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Revenue
For the nine months ended September 30, 2021, revenue increased by approximately $2.4 million, or 26%, to approximately $11.9 million compared to approximately $9.4 million for the nine months ended September 30, 2020. This increase was primarily a result of increased DSD and DTR core bottled soda sales in the United States and Canada. Additionally, our fountain business returned to growth through increased sales in the food service channel.
For the nine months ended September 30, 2021, trade spend and promotion allowances, which offset revenue, totaled approximately $1.2 million, a decrease of approximately $49,000, or 4%, compared to approximately $1.2 million for the nine months ended September 30, 2020, due to the timing of incentive and retailer programs.
Gross Profit
For the nine months ended September 30, 2021, gross profit increased by approximately $1.5 million, or 73.4%, to approximately $3.6 million compared to approximately $2.1 million for the nine months ended September 30, 2020 due to higher revenues in the quarter ended September 30, 2021, the continued shift to a more profitable product mix and ongoing efforts to optimize supply chain and promotional costs. For the nine months ended September 30, 2021, gross margin increased to 30.5% from 22.2% for the nine months ended September 30, 2020. This increase in gross margin was for the same reasons as noted above.
Selling and Marketing Expenses
Selling and marketing expenses for the nine months ended September 30, 2021 were approximately $2.1 million, an increase of approximately $180,000, or 9.4%, from approximately $1.9 million for the nine months ended September 30, 2020. Selling and marketing expenses as a percentage of revenue decreased to 17.7% for the nine months ended September 30, 2021 from 20.4% in the same period in 2020 due to the increase in revenue during the 2021 period. This increase in total selling and marketing expenses was primarily a result of the launch of multiple marketing programs, including our new augmented reality “Reel Label” series, multiple special release flavors, and additional digital marketing efforts such as the new Jones Soda phone application and an increase in paid social media, search engine optimization, influencer and email marketing efforts. We will continue to balance selling and marketing expenses with our working capital resources. For the nine months ended September 30, 2021 and 2020, non-cash expenses included in selling and marketing expenses (stock compensation and depreciation) were approximately $80,000 and $92,000, respectively.
General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2021 were approximately $2.1 million, an increase of approximately $11,000, or 0.5%, compared to approximately $2.1million for the nine months ended September 30, 2020. General and administrative expenses as a percentage of revenue decreased to 18.1% in the nine months ended September 30, 2021 from 22.6% in the same period in 2020. We will continue to carefully manage general and administrative expenses with our working capital resources. For the nine months ended September 30, 2021 and 2020, non-cash expenses included in general and administrative expenses (stock compensation and depreciation) were approximately $97,000 and $83,000, respectively.
Interest Income
We earned approximately $3,000 of interest income for the nine months ended September 30, 2021, compared to $23,000 for the nine months ended September 30, 2020. This decrease was related to a significant decrease in interest rates for interest-bearing money market accounts.
Interest Expense
We incurred approximately $160,000 of interest expense for the nine months ended September 30, 2021, compared to approximately $116,000 for the nine months ended September 30, 2020. This increase was primarily related to the accrued interest associated with the Convertible Debenture entered into in July 2021.
Income Tax Expense
We incurred approximately $24,000 and $19,000 of income tax expense for the nine months ended September 30, 2021 and 2020, respectively, primarily related to the tax provision on income from our Canadian operations. We 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.
Other income (expense)
We incurred approximately $338,000 and $3,000 of other income during the nine months ended September 30, 2021 and 2020, respectively. This increase in other income is due to our recognition of gain on debt forgiveness related to the full forgiveness of our PPP Loan in the principal amount of $334,500 during the nine months ended September 30, 2021.
Net loss
Net loss for the nine months ended September 30, 2021 was approximately $469,000 compared to net loss of approximately $2.1 million for the nine months ended September 30, 2020. This decrease in loss was primarily due to the increase in gross profit, increase in revenue, and forgiveness of our PPP loan that occurred during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
Liquidity and Capital Resources
As of September 30, 2021, we had cash and cash-equivalents of approximately $5.9 million and working capital of approximately $7.3 million. Net cash used in operations during the nine months ended September 30, 2021 and 2020 totaled approximately $702,000 and $1.9 million, respectively.
During the nine months ended September 30, 2021 and 2020, we received $295,000 and $0, respectively, from the cash exercise of stock options. From time to time, we may receive additional cash through the exercise of stock options. However, we cannot predict the timing or amount of cash proceeds we may receive from the exercise, if at all, of any of the outstanding stock options or warrants.
We have experienced recurring losses from operations and negative cash flows from operating activities. This situation creates uncertainties about our ability to execute our business plan, finance operations, and indicates substantial doubt about the Company’s ability to continue as a going concern. On July 14, 2021, we received net proceeds of $1.7 million in connection with the Convertible Debenture described below under “Recent Developments”. We believe that this recent financing will help alleviate the conditions which we believed initially indicated substantial doubt about our ability to continue as a going concern. However, we have experienced and continue to experience negative cash flows from operations, as well as an ongoing requirement for additional capital to support working capital needs. Therefore, even with the proceeds of this financing, we may require additional financing to support our working capital needs in the future. The amount of additional capital we may require, the timing of our capital needs and the availability of additional financing to fund those needs will depend on a number of factors, including the receipt of any proceeds from the planned Concurrent Offering (defined below) as well as from any other financing we complete in connection with the Arrangement (defined below), our strategic initiatives and operating plans, our ability to execute our plans to develop and market cannabis-infused beverages and edibles and the timing and costs of the development of this new product line, our estimates of the size of the markets for our potential cannabis products, the performance of our business and the market conditions for available debt or equity financing. Additionally, the amount of capital required will depend on our ability to meet our sales goals and otherwise successfully execute our operating plan. We believe it is imperative that we meet these sales objectives in order to lessen our reliance on external financing in the future. We intend to continually monitor and adjust our operating plan as necessary to respond to developments in our business, our markets and the broader economy. In addition, the continuation of the COVID-19 pandemic and uncertain market conditions may limit our ability to access capital, may reduce demand for certain products, and may negatively impact our supply chain.
Although we believe various debt and equity financing alternatives will be available to us to support our working capital needs, financing arrangements on acceptable terms may not be available to us when needed. In addition, the terms of the Convertible Debenture restrict, among other things, the amount of additional debt we can incur, as well as the number of shares of common stock we may issue, without the consent of the debentureholder. Moreover, any debt or equity financing alternatives may require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives may not provide us with sufficient funds to meet our long-term capital requirements. If necessary, we may explore strategic transactions in addition to the Arrangement, Concurrent Financing and any related financings that we consider to be in the best interest of our company and our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, a rights offering, and other strategic alternatives; however, these options may not ultimately be available or feasible when needed.
As of the date of this Quarterly Report, as a result of our cash on hand as well as the issuance of the Convertible Debenture, we believe that our current cash and cash equivalents will be sufficient to meet the Company’s funding requirements for one year after these consolidated financial statements are issued.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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 nine months ended September 30, 2021.
Recent Developments
As previously disclosed in a Current Report on Form 8-K filed on October 22, 2021, on October 18, 2021, we entered into the Arrangement Agreement with Pinestar pursuant to which we agreed to acquire all of the issued and outstanding shares of Pinestar on the basis of one share of our common stock (each, a “Jones Share”) for each common share of Pinestar (each, a “Pinestar Share”) (after Pinestar completes a consolidation of the Pinestar Shares whereby 10.031 pre-consolidated Pinestar Shares are consolidated into one consolidated Pinestar Share (the “Consolidation”)) by way of a court approved plan of arrangement under the Business Corporations Act (British Columbia) (the “Arrangement”). Additionally, Pinestar currently has outstanding 16,800,000 existing common share purchase warrants (the “Pinestar Warrants”) and, as a result of the Consolidation, the exercise price of, and the number of Pinestar Shares issuable pursuant to the Pinestar Warrants shall be adjusted in accordance with their terms to account for the Consolidation, resulting in an aggregate of approximately 1,674,808 post-Consolidated Pinestar Warrants, subject to rounding, each exercisable for the purchase of one post-Consolidation Pinestar Share at a price of Cdn$0.06 per share. As part of the Arrangement, an aggregate of 700,000 post-Consolidation Pinestar Warrants will be transferred to us for no consideration (and subsequently cancelled), and the obligations in respect of each remaining post-Consolidated Pinestar Warrant will be assumed by us and each such remaining post-Consolidated Pinestar Warrant will become exercisable into one Jones Share at a price of Cdn$0.06 per share.
In connection with the Arrangement, Pinestar agreed to complete an offering expected to be for subscription receipts (“Subscription Receipts”) for minimum aggregate gross proceeds of US$8,000,000, at a price per Subscription Receipt equal to US$0.50 (the “Concurrent Offering”). The Arrangement Agreement provides that each Subscription Receipt will automatically convert into one Pinestar Share and one new common share purchase warrant of Pinestar, which will then be immediately exchanged for, or adjusted into, Jones Shares and share purchase special warrants of our company in accordance with a 1:1 exchange ratio as part of the Arrangement.
The Arrangement Agreement also provides that upon the closing of the Arrangement, our board of directors will consist of Jamie Colbourne, Mark Murray, Clive Sirkin, Paul Norman, Alex Spiro and an additional director to be determined by us.
The Arrangement is subject to a number of conditions being satisfied or waived by one or both of us and Pinestar at or prior to closing of the Arrangement, including approval of the Arrangement by Pinestar’s shareholders, completion of the Consolidation, the surrender of the 700,000 post-Consolidation Pinestar Warrants discussed above, and the receipt of all necessary regulatory and court approvals and the satisfaction of certain other closing conditions customary for a transaction of this nature, including completion of the Concurrent Offering, and the conditional approval of the listing of the Jones Shares on the Canadian Securities Exchange. The Arrangement Agreement also includes customary provisions, including non-solicitation, right-to-match and fiduciary out provisions, as well as certain representations, covenants and conditions that are customary for a transaction of this nature. A termination fee of US$200,000 may be payable by either party in the case of certain terminating events.
The issuance of the Jones Shares to the holders of Pinestar Shares (including Pinestar Shares to be received upon the exercise of Subscription Receipts) in the Arrangement are intended to be exempt from the registration requirements under the United States Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 3(a)(10) of the Securities Act.
As previously disclosed, our former independent registered public accounting firm, BDO USA, LLP, resigned as our independent registered public accounting firm effective as of September 9, 2021. On September 30, 2021, through and with the approval of our audit committee, we appointed Armanino LLP as our independent registered public accounting firm.
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
| 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 September 30, 2021.
| (b) |
Changes in internal controls |
There were no changes in our internal controls over financial reporting during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
| 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.
| 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, except as set forth below:
The recent resignation of our independent accounting firm could delay our future SEC filings and adversely affect our business.
As previously disclosed, on September 9, 2021, BDO USA, LLP resigned as our independent registered public accounting firm, and on September 30, 2021, through and with the approval of our audit committee, we appointed Armanino LLP as our new independent registered public accounting firm. The process of engaging and onboarding a new accounting firm can be costly and time consuming for management. While we do not expect the change in auditors to delay our future filings with the SEC, such a delay is possible if we are unable to timely engage and onboard the new accounting firm. These events could adversely affect our financial condition and results of operations or impact our ability to obtain financing.
There can be no assurance that we will be able to consummate the transactions described in the Arrangement Agreement and any such failure would have a material adverse impact on our financial condition, business results and prospects.
As previously disclosed, we recently entered into the Arrangement Agreement with Pinestar and we intend to consummate the Arrangement with Pinestar, and Pinestar intends to consummate an offering of Subscription Receipts. There are no assurances that the proposed Arrangement and/or corresponding offering of Subscription Receipts will be consummated. There are many conditions to the closing of the Arrangement, many of which are outside of the parties’ control and it cannot be predicted whether these conditions will be satisfied. There are no assurances when or if closing will occur, and there are many factors that may cause the closing to not occur. In addition, the parties may not recognize the anticipated benefits of the Arrangement, which may be affected by, among other things, the ability to meet the listing standards of any Canadian stock exchange following the consummation of the Arrangement, costs related to the proposed Arrangement, the timing of the completion of the Arrangement, our ability to execute our plans to develop and market cannabis-infused beverages and edibles and the timing and costs of the development of this new product line, our estimates of the size of the markets for our potential cannabis products, potential litigation involving the company, global economic conditions, geopolitical events and regulatory changes, and access to additional financing. Other factors include the possibility that the Arrangement does not close, including due to the failure to receive required security holder and/or court approvals, or the failure of other closing conditions. Any failure of the Arrangement and offering of Subscription Receipts to close would have a material adverse impact on our financial condition, business results and prospects.
The terms of the Arrangement Agreement require changes in our board of directors, which may have a material adverse impact on our operations.
The Arrangement Agreement provides that upon the closing of the Arrangement, our board of directors will consist of Jamie Colbourne, Mark Murray, Clive Sirkin, Paul Norman, Alex Spiro and an additional director to be determined by us. This represents a material change in the composition of our board. Leadership transitions may cause disruption to our business, result in operational and administrative inefficiencies and added costs, and adversely affect our corporate governance, internal controls, enterprise risk management, business models and strategic priorities. In addition, we may experience a loss of institutional knowledge about our company and historical operations, which could have a material adverse impact on our business condition.
The terms of the Convertible Debenture limit our ability to take certain actions.
Under the terms of the Convertible Debenture, we are subject to certain affirmative covenants, including the requirement that we make payments in a timely manner, perform the other covenants under the Convertible Debenture, maintain our corporate existence, conduct our business in material compliance with applicable laws, use the proceeds for the costs and expenses related to the Arrangement and to pursue the production of cannabis-containing beverages and related products, maintain our books and records, pay our taxes, maintain our insurance, provide notice of any event of default, and reserve and keep available sufficient shares for issuance upon the conversion of the Convertible Debenture and the warrants issued in connection with the Convertible Debenture. In addition, we agreed not to take certain actions without the approval of the debentureholder. Such actions include (a) amending our articles of incorporation or bylaws; (b) except for certain shares authorized under the Convertible Debenture, offering or selling any equity or debt securities, including options, warrants or convertible securities; (c) except for a potential secured credit facility in an amount not to exceed $2 million, incurring indebtedness; (d) changing the strategy or principal lines of our business; (e) liquidating, dissolving or winding up our affairs; (f) entering into any transaction with any affiliate, officer, director, employee or holder of more than five percent (5%) of our capital stock, calculated on a fully diluted basis; (g) making any single expenditure or series of related expenditure using the proceeds from the Convertible Debenture that exceeds $25,000, individually or in the aggregate; (h) selling, transferring or otherwise disposing of any property other than certain exceptions set forth in the Convertible Debentures; or (i) making any investment in any other person. If requested by us, the debentureholder may elect not to allow us to take these actions. In the event that we are unable to take these actions, our interests and those of our shareholders may be materially and adversely affected.
We may default on our obligations under the Convertible Debenture, which may accelerate our repayment obligations or otherwise limit our access to future financing.
If we fail to make any payments under the Convertible Debenture when due, fail to perform any of our covenants or obligations under the Convertible Debenture, file for bankruptcy or become insolvent, fail to convert the Convertible Debenture in accordance with its terms, default under any of our other indebtedness or extend any loan to any officer, director, employee or holder of more than ten percent (10%) of our common stock, we will be in default of such obligations. Any such default will increase the applicable interest rate under the Convertible Debenture from five percent (5%) to eighteen percent (18%) and could result in acceleration of the debt outstanding under the Convertible Debenture and entitle the debentureholder to bring suit for the enforcement thereof or exercise other remedies provided thereunder. If that should occur, we may not be able to pay all such debt or to borrow sufficient funds to refinance it. Even if new financing were then available, it may not be on terms that are acceptable to us. Any such default would have a material adverse effect on our cash flows, competitive position, financial condition or results of operations and we may not be able to continue operations. If we cannot continue operations, our shareholders would likely lose most or all of their investment in us.
Our repayment obligations under the Convertible Debenture would be accelerated if the Arrangement is not completed.
If for whatever reason the Arrangement is terminated, or either we or Pinestar gives notice to the debentureholder that the Arrangement is unlikely to occur within seven months from the date of the Convertible Debenture, all outstanding principal and accrued and unpaid interest under the Convertible Debenture becomes due and payable within 60 days of such termination/notification date. Since completion of the Arrangement will be subject to several conditions, many of which are outside our control, there is a significant risk that the Arrangement will not be consummated, which would require us to repay the entire principal amount of the Convertible Debenture on an accelerated basis. We may not have sufficient cash reserves or have access to sufficient liquid funds to be able to cover such an obligation within such accelerated timeline, which would materially adversely affect our business and impact our ability to continue our operations. Even if sufficient funds were then available, making such a large payment could materially adversely affect our financial condition or results of operations and we may not be able to continue operations. If we cannot continue operations, our shareholders would likely lose most or all of their investment in us.
Companies that operate in the cannabis industry face unique and evolving risks
If we expand our business to the production or sale of cannabis containing beverages, edibles and related products as currently planned, we and our operations may be adversely effected by the risks faced by companies operating in the cannabis industry, including but not limited to, the following:
Marijuana remains illegal under United States federal law
Marijuana is a Schedule-I controlled substance under the Controlled Substances Act, or CSA, and is illegal under federal law. It remains illegal under United States federal law to grow, cultivate, sell or possess marijuana for any purpose or to assist or conspire with those who do so. Additionally, 21 U.S.C. 856 a.1. states that it shall be unlawful to “knowingly open, lease, rent, use, or maintain any place, whether permanently or temporarily, for the purpose of manufacturing, distributing, or using any controlled substance.” Even in those states in which the use of marijuana has been authorized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana is not preempted by state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely adversely affect demands for any cannabis products we develop.
Uncertainty of federal enforcement
On January 4, 2018, former Attorney General Sessions rescinded the previously issued memoranda (known as the Cole Memorandum) from the U.S. Department of Justice (“DOJ”) that had de-prioritized the enforcement of federal law against marijuana users and businesses that comply with state marijuana laws, adding uncertainty to the question of how the federal government will choose to enforce federal laws regarding marijuana. Former Attorney General Sessions issued a memorandum to all United States Attorneys in which the DOJ affirmatively rescinded the previous guidance as to marijuana enforcement, calling such guidance “unnecessary.” This one-page memorandum was vague in nature, stating that federal prosecutors should use established principles in setting their law enforcement priorities. Under previous administrations, the DOJ indicated that those users and suppliers of medical marijuana who complied with state laws, which required compliance with certain criteria, would not be prosecuted. On November 7, 2018, Jeff Sessions resigned from his position as Attorney General. The current Attorney General, Merrick Garland, has not indicated any change in enforcement priority for state-compliant marijuana businesses, however, substantial uncertainty regarding federal enforcement remains. Regardless, the federal government has always reserved the right to enforce federal law regarding the sale and disbursement of medical or recreational marijuana, even if state law sanctioned such sale and disbursement. Although the rescission of the Cole Memorandum does not necessarily indicate that marijuana industry prosecutions are now affirmatively a priority for the DOJ, there can be no assurance that the federal government will not enforce such laws in the future. As a result, it is now unclear if the DOJ will seek to enforce the CSA against those users and suppliers who comply with state marijuana laws.
In 2014, Congress passed a spending bill, or the 2015 Appropriations Bill, containing a provision , or the Appropriations Rider, blocking federal funds and resources allocated under the 2015 Appropriations Bill from being used to “prevent such States from implementing their own State medical marijuana law.” The Appropriations Rider provided a budgetary constraint on the federal government from interfering with the ability of states to administer their medical marijuana laws, although it did not codify federal protections for medical marijuana patients and producers. Moreover, despite the Appropriations Rider, the DOJ maintains that it can still prosecute violations of the federal marijuana ban and continue cases already in the courts. However, the Ninth Circuit Court of Appeals and other courts have interpreted the language to mean that the DOL cannot prosecute medical marijuana operators complying strictly with state medical marijuana laws. Additionally, the Appropriations Rider must be re-enacted every year. The Appropriations Rider was renewed on December 20, 2019 through the signing of the fiscal year 2020 omnibus spending bill, effective through September 30, 2020, continued re-authorization of the Appropriations Rider cannot be guaranteed. Subsequently, the Appropriations Rider was extended through a series of stopgap spending bills on October 1, December 11, December 18, December 20 and December 22, 2020. On December 27, 2020 the Appropriations Rider was included in the fiscal year 2021 omnibus spending bill and will remain in effect through September 30, 2021. If the Appropriation Rider is not extended in the future, the risk of federal enforcement and override of state medical marijuana laws would increase.
Despite the rescission of the Cole Memorandum, the Department of the Treasury, Financial Crimes Enforcement Network, has not rescinded the “FinCEN Memo” dated February 14, 2014, which de-prioritizes enforcement of the Bank Secrecy Act against financial institutions and marijuana-related businesses which utilize them. This memo appears to be a standalone document and is presumptively still in effect. At any time, however, the Department of the Treasury, Financial Crimes Enforcement Network, could elect to rescind the FinCEN Memo. This would make it more difficult for us and our clients and potential clients to access the U.S. banking systems and conduct financial transactions, which would adversely affect our operations.
We could become subject to racketeering laws
The Racketeer Influenced Corrupt Organizations Act (“RICO”) is a federal statute providing criminal penalties in addition to a civil cause of action for acts performed as part of an ongoing criminal organization. Under RICO, it is unlawful for any person who has received income derived from a pattern of racketeering activity (which includes most felonious violations of the CSA), to use or invest any of that income in the acquisition of any interest, or the establishment or operation of, any enterprise which is engaged in interstate commerce. RICO also authorizes private parties whose properties or businesses are harmed by such patterns of racketeering activity to initiate a civil action against the individuals involved. Although RICO suits against the cannabis industry are rare, a few cannabis businesses have been subject to a civil RICO action. Any violation of RICO could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings conducted by either the federal government or private citizens or criminal charges, including but not limited to, seizure of assets, disgorgement of profits, cessation of our business activities or divestiture.
Banking regulations could limit access to banking services and expose us to risk
In February 2014, the FCEN of the U.S. Department of the Treasury issued the FCEN Memo. The FCEN Memo states that in some circumstances, it may not be appropriate to prosecute banks that provide services to marijuana-related businesses for violations of federal money laundering laws. It refers to supplementary guidance that Deputy Attorney General Cole issued to federal prosecutors relating to the prosecution of money laundering offenses predicated on cannabis-related violations of the CSA. It is unclear at this time whether the current administration will follow the guidelines of the FCEN Memo. Under U.S. federal law, banks or other financial institutions that provide a cannabis-related business with a checking account, debit or credit card, small business loan, or any other service could be found guilty of money laundering, aiding and abetting, or conspiracy. As a result, any cannabis operations we develop may have the effect of limiting our access to banking or other financial services in the United States. The inability or limitation on our ability to open or maintain bank accounts in the United States, to obtain other banking services and/or accept credit card and debit card payments may make it difficult to operate and conduct our business. Although multiple legislative reforms related to cannabis and cannabis-related banking are currently being considered by the federal government in the United States, such as the Strengthening the Tenth Amendment Through Entrusting States Act, the Marijuana Opportunity, Reinvestment and Expungement Act and the Secure and Fair Enforcement Banking Act, there can be no assurance that any of these pieces of legislation will become law in the United States.
Further legislative development beneficial to our operations is not guaranteed
The success of our planned business expansion into cannabis products will depend on the continued development of the cannabis industry and the activity of commercial business and government regulatory agencies within the industry. The continued development of the cannabis industry is dependent upon continued legislative and regulatory authorization of cannabis at the state level and a continued laissez-faire approach by federal enforcement agencies. Any number of factors could slow or halt progress in this area. Further regulatory progress beneficial to the industry cannot be assured. While there may be ample public support for legislative action, numerous factors impact the legislative and regulatory process, including election results, scientific findings or general public events. Any one of these factors could slow or halt progressive legislation relating to cannabis and the current tolerance for the use of cannabis by consumers, which could adversely affect the demand for our product and operations.
Changing legislation and evolving interpretations of the law
Laws and regulations affecting the medical and adult-use marijuana industry are constantly changing, which could detrimentally affect our planned cannabis operations. Local, state, and federal marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with modification of operations to ensure compliance. In addition, violations of these laws, or allegations of such violations, could disrupt our planned cannabis business and result in a material adverse effect on our operations. We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our operations.
Dependence on client licensing
Our planned cannabis business will be dependent on us obtaining various licenses from various municipalities and state licensing agencies. There can be no assurance that any or all licenses necessary for us to operate our planned cannabis businesses will be obtained, retained or renewed. If a licensing body were to determine that we had violated applicable rules and regulations, there is a risk the license granted to us could be revoked, which could adversely affect our operations.
Insurance risks
In the United States, many marijuana-related businesses are subject to a lack of adequate insurance coverage. In addition, many insurance companies may deny claims for any loss relating to marijuana or marijuana-related operations based on their illegality under federal law, noting that a contract for an illegal transaction is unenforceable.
The cannabis industry is an evolving industry and we must anticipate and respond to changes.
The cannabis industry is not yet well-developed, and many aspects of this industry’s development and evolution cannot be accurately predicted. While we have attempted to identify any risks specific to the cannabis industry that would be applicable to our planned cannabis operations, you should carefully consider that there are other risks that cannot be foreseen or are not described in this Quarterly Report, which could materially and adversely affect the development of our cannabis business and our future financial performance. We expect that the cannabis market and our business will evolve in ways that are difficult to predict. Our long-term success will depend on our ability to successfully adjust our strategy to meet the changing market dynamics. If we are unable to successfully adapt to changes in the cannabis industry, our operations could be adversely affected.
| EXHIBITS |
| 3.1 |
|
| 3.2 |
|
| 10.1 |
Arrangement Agreement dated October 18, 2021 between the Company and Pinestar Gold Inc. (Previously filed with, and incorporated herein by reference to, Exhibit 10.1 to our Current Report on Form 8-K, filed on October 22, 2021). |
| 31.1 |
|
| 31.2 |
|
| 32.1 |
|
| 32.2 |
|
| 101.INS* |
Inline XBRL Instance Document. |
| 101.SCH* |
Inline XBRL Taxonomy Extension Schema Document. |
| 101.CAL* |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF* |
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB* |
Inline XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE* |
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* 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.
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.
November 10, 2021
| JONES SODA CO. (Registrant) |
|||
| By: |
/s/ Joe Culp |
||
| Joe Culp |
|||
| Controller, Principal Financial Officer, and Principal Accounting Officer |
|||
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: November 10, 2021 |
/s/ Mark Murray |
|
Mark Murray |
|
|
President and Chief Executive Officer |
|
| (Principal Executive Officer) |
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. |
Date: November 10, 2021
|
/s/ Joe Culp |
|
|
Joe Culp |
|
|
Principal Financial Officer |
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 September 30, 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. |
| November 10, 2021 |
/s/ Mark Murray |
|
|
Mark Murray |
||
|
President and Chief Executive Officer |
||
| (Principal Executive Officer) |
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 September 30, 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. |
| November 10, 2021 |
/s/ Joe Culp |
|
| Joe Culp | ||
|
Principal Financial Officer |
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ / shares in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Accounts receivable, allowance | $ 99,000 | $ 93,000 |
| Fixed assets, accumulated depreciation | $ 605,000 | $ 554,000 |
| 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) | 67,837,191 | 61,975,748 |
| Common stock, shares outstanding (in shares) | 67,837,191 | 61,975,748 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Revenue | $ 4,565 | $ 3,541 | $ 11,880 | $ 9,431 |
| Cost of goods sold | 3,102 | 2,619 | 8,255 | 7,341 |
| Gross profit | 1,463 | 922 | 3,625 | 2,090 |
| Operating expenses: | ||||
| Selling and marketing | 733 | 642 | 2,104 | 1,924 |
| General and administrative | 716 | 674 | 2,147 | 2,136 |
| Total operating expenses | 1,449 | 1,316 | 4,251 | 4,060 |
| Income (loss) from operations | 14 | (394) | (626) | (1,970) |
| Interest income | 1 | 2 | 3 | 23 |
| Interest expense | (76) | (40) | (160) | (116) |
| Other income (expense), net | 10 | (11) | 338 | 3 |
| Loss before income taxes | 51 | 443 | 445 | 2,060 |
| Income tax expense, net | (8) | (7) | (24) | (19) |
| Net loss | $ (59) | $ (450) | $ (469) | $ (2,079) |
| Net loss per share - basic and diluted (in dollars per share) | $ (0.00) | $ (0.01) | $ (0.01) | $ (0.03) |
| Weighted average basic and diluted common shares outstanding (in shares) | 64,550,554 | 61,857,555 | 64,768,258 | 61,730,684 |
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Net loss | $ (59) | $ (450) | $ (469) | $ (2,079) |
| Other comprehensive income (loss): | ||||
| Foreign currency translation adjustment | (65) | 25 | (22) | (14) |
| Total comprehensive loss | $ (124) | $ (425) | $ (491) | $ (2,093) |
Note 1 - Nature of Operations and Summary of Significant Accounting Policies |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2021 | |||
| Notes to Financial Statements | |||
| Significant Accounting Policies [Text Block] |
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 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 September 30, 2021, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the Securities and Exchange Commission (“SEC”) rules and regulations applicable to interim financial reporting. The 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 September 30, 2021, we had cash and cash-equivalents of approximately $5.9 million and working capital of approximately $7.3 million. Net cash used in operations during the nine months ended September 30, 2021 and 2020 totaled approximately $702,000 and $1.9 million, respectively.
We have experienced recurring losses from operations and negative cash flows from operating activities. This situation creates uncertainties about our ability to execute our business plan, finance operations, and indicates substantial doubt about the Company’s ability to continue as a going concern. On July 14, 2021, we received net proceeds of $1.7 million in connection with the issuance of an unsecured convertible debenture to SOL Verano Blocker 1 LLC (the “Convertible Debenture”).
We believe that the recent financing helps alleviate the conditions which initially indicated substantial doubt about our ability to continue as a going concern. However, we have experienced and continue to experience negative cash flows from operations, as well as an ongoing requirement for additional capital to support working capital needs. Therefore, even with these proceeds, we may require additional financing to support our working capital needs in the future. The amount of additional capital we may require, the timing of our capital needs and the availability of financing to fund those needs will depend on a number of factors, including the receipt of any proceeds from the planned Concurrent Offering (defined below) as well as from any other financing we complete in connection with the Arrangement (defined below), our strategic initiatives and operating plans, our ability to execute our plans to develop and market cannabis-infused beverages and edibles and the timing and costs of the development of this new product line, our estimates of the size of the markets for our potential cannabis products, the performance of our business and the market conditions for available debt or equity financing. Additionally, the amount of capital required will depend on our ability to meet our sales goals and otherwise successfully execute our operating plan. We believe it is imperative that we meet these sales objectives in order to lessen our reliance on external financing in the future. We intend to continually monitor and adjust our operating plan as necessary to respond to developments in our business, our markets and the broader economy. In addition, the continuation of the COVID-19 pandemic and uncertain market conditions may limit our ability to access capital, may reduce demand for certain products, and may negatively impact our supply chain.
Although we believe various debt and equity financing alternatives will be available to us to support our working capital needs, financing arrangements on acceptable terms may not be available to us when needed. In addition, the terms of the Convertible Debenture restrict, among other things, the amount of additional debt the Company can incur, as well as the number of shares of common stock the Company may issue, without the consent of the debentureholder. Moreover, any debt or equity financing alternatives may require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives may not provide us with sufficient funds to meet our long-term capital requirements. If necessary, we may explore strategic transactions, in addition to the Arrangement, Concurrent Financing and any related financings that we consider to be in the best interest of our company and our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, a rights offering, and other strategic alternatives; however, these options may not ultimately be available or feasible when needed.
As of the date of this Report, as a result of our cash on hand as well as the issuance of the Convertible Debenture, we believe that our current cash and cash equivalents will be sufficient to meet the Company’s funding requirements for one year after these consolidated financial statements are issued.
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
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 $36,000 and $18,000 for the three months ended September 30, 2021 and 2020, respectively, and $91,000 and $54,000 for the nine months ended September 30, 2021 and 2020, respectively. Sales tax and other similar taxes are excluded from revenue.
See Note 1, on our most recently filed Form 10-K filed on March 24, 2021 for our revenue recognition policy.
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 September 30, 2021 and 2020, our revenue was reduced by $377,000 and $526,000, respectively, and for the nine months ended September 30, 2021 and 2020, each by $1.2 million, in each case for slotting fees and promotion allowances.
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 $99,000 and $93,000 as of September 30, 2021 and December 31, 2020, respectively, were netted against accounts receivable. No impairment losses were recognized as of September 30, 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 September 30, 2021, A. Lassonde Inc. (“Lassonde”), 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 September 30, 2021 and 2020, outstanding stock options amounting to 3,199,573 and 3,355,689 shares, shares issuable upon the conversion of the Convertible Notes (as defined in note 4) of 416,341 and 5,302,778, shares issuable upon the conversion of the Convertible Debenture (as defined in note 8) of 4,000,000 and 0, in each case at September 30, 2021 and 2020, respectively, were anti-dilutive.
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. |
Note 2 - Inventory |
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| Inventory Disclosure [Text Block] |
Inventory consisted of the following (in thousands):
Finished goods primarily include product ready for shipment, as well as promotional merchandise held for sale. Raw materials primarily include ingredients, concentrate and packaging. For the three months ended September 30, 2021 and 2020, we recorded obsolete inventory expenses of $9,000 and $1,000, respectively. For the nine months ended September 30, 2021 and 2020, we recorded obsolete inventory expenses of $25,000 and $72,000, respectively. |
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Note 3 - Lease Obligations |
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| Lessee, Operating Leases [Text Block] |
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 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 September 30, 2021, this lease had a remaining lease term of 3.42 years.
During the quarters ended September 30, 2021 and 2020, we incurred rental expenses of $42,000 in each respective period, and during the nine months ended September 30, 2021 and 2020, we incurred rental expenses of $122,000 and $120,000, respectively. During the quarters ended September 30, 2021 and 2020, we made cash payments of $41,000 and $40,000, respectively and during the nine months ended September 30, 2021 and 2020, we made cash payments of $119,000 and $117,000, respectively.
Management fees and other operational expenses were immaterial. Cash payments on our operating lease are presented as operating cash outflows in the condensed consolidated statements of cash flows. As of September 30, 2021, our scheduled lease payments excluding management fees and other operational expenses for the remainder of the lease term for the years ending December 31 will be as follows (in thousands):
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Note 4 - Convertible Subordinated Notes Payable |
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| Convertible Subordinated Notes Payable [Text Block] |
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 -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 September 30, 2021, Convertible Notes in the aggregate principal amount of $590,000 and related accrued interest were converted into an aggregate of 2,216,479 shares of common stock in accordance with the original terms of the Convertible Notes. As a result, the carrying amount of the converted principal amount of such Convertible Notes, along with the converted accrued interest, in an aggregate amount of $372,729, was credited to common stock and unamortized discounts in an amount equal to $11,000 were recognized as interest expense for the three months ended September 30, 2021. During the period from January 1, 2021 through September 30, 2021, Convertible Notes in the aggregate principal amount of $1.4 million and related accrued interest were converted into an aggregate of 5,064,137 shares of common stock in accordance with the original terms of the Convertible Notes. As a result, the carrying amount of the converted principal amount of such Convertible Notes, along with the converted accrued interest, in an aggregate amount of $801,000, was credited to common stock and unamortized discounts in an amount equal to $36,000 were recognized as interest expense for the nine months ended September 30, 2021. There were Convertible Notes converted during the three or nine months ended September 30, 2020.
The fair value of our common stock on March 23, 2018, the initial closing date for the issuance of the Convertible Notes, was $0.36 per share; therefore, the Convertible Notes contained a beneficial conversion feature with an aggregate intrinsic value of $350,000. The fair value of our common stock on April 18, 2018, the second closing date for the issuance of the Convertible Notes, was $0.30 per share, which did not result in an additional beneficial conversion feature. The 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 $1,000 and $88,000 at September 30, 2021 and December 31, 2020, respectively. The principal balance of notes payable to related parties amounted to $10,000 at September 30, 2021 and December 31, 2020.
Principal payment obligations on the Convertible Notes are as follows for the following years ending December 31 (in thousands):
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Note 5 - Shareholders' Equity |
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| Stockholders' Equity Note Disclosure [Text Block] |
Under the terms of our 2011 Incentive Plan (the “Plan”), the number of shares authorized under the Plan may be increased each January 1st by an amount equal to the lesser of (a) 1,300,000 shares, (b) 4.0% of our outstanding common stock as of the end of our immediately preceding fiscal year, and (c) a lesser amount determined by the Board of Directors (the “Board”), provided that the number of shares that may be granted pursuant to awards in a single year may not exceed 10% of our outstanding shares of common stock on a fully diluted basis as of the end of the immediately preceding fiscal year. As of September 30, 2021, the total number of shares of common stock authorized under the Plan was 12,084,032 shares.
Under the terms of 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 -year term and vest over a period of 48 months with the first 25% of the shares subject to the option vesting 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 year. As of September 30, 2021, there were 4,785,597 shares of unissued common stock authorized and available for future awards under the Plan.
In March 2021, the Board approved the readoption of the Plan to extend the expiration date thereof from April 1, 2021 to April 1, 2023 and obtained shareholder approval of such readoption at the annual meeting of shareholders held on May 13, 2021.
On September 30, 2021, our board of directors, upon the recommendation of our compensation committee, approved an amendment to the Plan to decrease the number of shares of common stock available for issuance pursuant to future awards under the Plan from 4,785,597 shares of common stock to 2,500,000 shares of common stock. As of such date, there were outstanding awards exercisable into an aggregate of 3,194,573 shares of common stock previous granted under the Plan; after such amendment, there is an aggregate of 5,694,573 shares of common stock reserved for issuance under the Plan. In addition, the Board approved an amendment to the outstanding awards previously granted under the Plan to provide that upon the closing of the Arrangement (as defined below), the vesting of such awards shall be accelerated, and such awards shall thereafter become immediately vested in full and the restrictions thereon shall lapse. If the Arrangement is not consummated, there shall be no accelerated vesting and the awards shall continue to vest in accordance with their original terms.
A summary of our stock option activity is as follows:
Prior to December 31, 2019, equity compensation for non-employee director service consisted of an annual restricted stock unit award that vested over one year, with the number of shares underlying such award being determined by dividing $15,000 by the closing stock price on the date of grant (which was the first business day in January in each calendar year); when joining the Board each non-employee director received an initial restricted stock unit award that vested over one year, the number of shares underlying such award being determined by dividing $15,000 by our closing stock price on the date of grant (which was the first trading day following the date on which such director was appointed), prorated based on the date on which such director was appointed.
There was no restricted stock activity during the three and nine months ended September 30, 2021 and unvested restricted stock awards at September 30, 2021. During the nine months ended September 30, 2020, 149,824 restricted stock awards vested, less 17,928 shares withheld as payment for taxes due in connection with the vesting of restricted stock awards.
Commencing as of January 1, 2020, equity compensation for non-employee director service consists of the grant of an annual non-qualified stock option award that vests on the 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.
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 September 30, 2021, we had unrecognized compensation expense related to stock options of $138,000 to be recognized over a weighted-average period of 2.8 years.
The following table summarizes the stock-based compensation expense (in thousands):
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:
The aggregate intrinsic value of stock options outstanding at September 30, 2021 was approximately $2.1 million and for options exercisable was $1.0 million. The intrinsic value of outstanding and exercisable stock options is calculated as the quoted market price of the stock at the balance sheet date less the exercise price of the option. There were 797,306 options exercised with an aggregate intrinsic value of $435,000 during the nine months ended September 30, 2021. There were options exercised during the nine months ended September 30, 2020. |
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Note 6 - Segment Information |
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| Segment Reporting Disclosure [Text Block] |
We have 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):
During the three months ended September 30, 2021 and 2020, of our customers (Lassonde) represented an aggregate of approximately 20% and 29% of our revenue, respectively. During the nine months ended September 30, 2021 and 2020, of our customers (Lassonde) represented an aggregate of approximately 21% and 25% of our revenue, respectively. |
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Note 7 - Paycheck Protection Program |
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| Long-term Debt [Text Block] |
On April 24, 2020, we received loan proceeds of $334,500 (the “PPP Loan”) under the Paycheck Protection Program (“PPP”). The PPP, established as part of the CARES Act, provided for loans to qualifying companies in amounts up to 2.5 times their average monthly payroll expenses. Our PPP Loan was evidenced by a promissory note, dated as of April 24, 2020 (the “Note”), between us and HomeStreet Bank (the “Lender”). The Note had a two-year term and accrued interest at the rate of 1.0% per annum. No payments of principal or interest were due during the 10-month period beginning on the date of the Note (the “Deferral Period”). Furthermore, we received an extension of the first principal and interest payment date to 10 months after the last day of the Deferral Period.
Under the terms of the CARES Act, the principal and accrued interest under the Note was forgivable after 24 weeks if we used the PPP Loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and otherwise complied with PPP requirements. In May 2021, we received full forgiveness of our PPP Loan and recorded the gain on debt forgiveness in the amount of $334,500 in earnings, which was presented as “other income” on our condensed consolidated statements of operations for the nine months ended of September 30, 2021. |
Note 8 - 2021 Unsecured Convertible Debenture |
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| Subsequent Events [Text Block] |
On July 14, 2021, we issued a $2,000,000 unsecured convertible debenture to SOL Verano Blocker 1 LLC (the “Convertible Debenture”) that is convertible into units of the company (each a “Jones Unit”) at a conversion price of $0.50 per Jones Unit (the “Conversion Price”), with each Jones Unit consisting of one share of our common stock (each a “Jones Share”) and one share purchase special warrant of Jones (each a “Jones Special Warrant”). Each Jones Special Warrant will be exercisable into Jones Share at a price of $0.625 per Jones Share for a period of 24 months from the date of issuance, conditional upon us increasing our authorized capital to an amount to cover the Jones Shares issuable pursuant to all of the outstanding Jones Special Warrants as well as the other Jones Shares issuable pursuant to our then-outstanding convertible/exercisable securities. Pursuant to the terms of the Convertible Debenture, upon satisfaction or waiver of the conditions precedent to the closing of the Arrangement (defined below), the entire principal amount on the Convertible Debenture and all accrued interest thereon shall automatically convert into Jones Units at the Conversion Price.
The Convertible Debenture matures on the earlier of July 14, 2023 or 60 days after either any agreement between Pinestar Gold Inc. (“Pinestar”) and us respecting the planned statutory plan of arrangement under the Business Corporations Act (British Columbia) (the “Arrangement”) is terminated or the debentureholder receives notice from either Pinestar or us that the Plan of Arrangement is unlikely to occur within seven months of the date of the Convertible Debenture (the “Maturity Date”), and accrues interest a rate of 5.00% (which will increase to 18% if an Event of Default (as defined in the Convertible Debenture) occurs or in the event that the Plan of Arrangement does not occur within seven months of the date of Convertible Debenture) that is payable on the last day of December in each year commencing on December 31, 2021, as well as the Maturity Date, and the date on which all or any portion of the Convertible Debenture is converted or repaid.
The terms of the Convertible Debenture restrict, amongst other things, the amount of additional debt we can incur, as well as the number of Jones Shares we can issue, without the consent of the debentureholder. The terms of the Convertible Debenture also provide that we shall use the principal amount of the Convertible Debenture exclusively for the costs and expenses associated with pursuing and completing the Plan of Arrangement, and for the purpose of expanding our business to the production of cannabis-containing beverages and related products.
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Significant Accounting Policies (Policies) |
9 Months Ended |
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Sep. 30, 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 September 30, 2021, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the Securities and Exchange Commission (“SEC”) rules and regulations applicable to interim financial reporting. The 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.
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| Going Concern [Policy Text Block] | Liquidity
As of September 30, 2021, we had cash and cash-equivalents of approximately $5.9 million and working capital of approximately $7.3 million. Net cash used in operations during the nine months ended September 30, 2021 and 2020 totaled approximately $702,000 and $1.9 million, respectively.
We have experienced recurring losses from operations and negative cash flows from operating activities. This situation creates uncertainties about our ability to execute our business plan, finance operations, and indicates substantial doubt about the Company’s ability to continue as a going concern. On July 14, 2021, we received net proceeds of $1.7 million in connection with the issuance of an unsecured convertible debenture to SOL Verano Blocker 1 LLC (the “Convertible Debenture”).
We believe that the recent financing helps alleviate the conditions which initially indicated substantial doubt about our ability to continue as a going concern. However, we have experienced and continue to experience negative cash flows from operations, as well as an ongoing requirement for additional capital to support working capital needs. Therefore, even with these proceeds, we may require additional financing to support our working capital needs in the future. The amount of additional capital we may require, the timing of our capital needs and the availability of financing to fund those needs will depend on a number of factors, including the receipt of any proceeds from the planned Concurrent Offering (defined below) as well as from any other financing we complete in connection with the Arrangement (defined below), our strategic initiatives and operating plans, our ability to execute our plans to develop and market cannabis-infused beverages and edibles and the timing and costs of the development of this new product line, our estimates of the size of the markets for our potential cannabis products, the performance of our business and the market conditions for available debt or equity financing. Additionally, the amount of capital required will depend on our ability to meet our sales goals and otherwise successfully execute our operating plan. We believe it is imperative that we meet these sales objectives in order to lessen our reliance on external financing in the future. We intend to continually monitor and adjust our operating plan as necessary to respond to developments in our business, our markets and the broader economy. In addition, the continuation of the COVID-19 pandemic and uncertain market conditions may limit our ability to access capital, may reduce demand for certain products, and may negatively impact our supply chain.
Although we believe various debt and equity financing alternatives will be available to us to support our working capital needs, financing arrangements on acceptable terms may not be available to us when needed. In addition, the terms of the Convertible Debenture restrict, among other things, the amount of additional debt the Company can incur, as well as the number of shares of common stock the Company may issue, without the consent of the debentureholder. Moreover, any debt or equity financing alternatives may require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives may not provide us with sufficient funds to meet our long-term capital requirements. If necessary, we may explore strategic transactions, in addition to the Arrangement, Concurrent Financing and any related financings that we consider to be in the best interest of our company and our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, a rights offering, and other strategic alternatives; however, these options may not ultimately be available or feasible when needed.
As of the date of this Report, as a result of our cash on hand as well as the issuance of the Convertible Debenture, we believe that our current cash and cash equivalents will be sufficient to meet the Company’s funding requirements for one year after these consolidated financial statements are issued.
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| 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.
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| Revenue from Contract with Customer [Policy Text Block] | Revenue recognition
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 $36,000 and $18,000 for the three months ended September 30, 2021 and 2020, respectively, and $91,000 and $54,000 for the nine months ended September 30, 2021 and 2020, respectively. Sales tax and other similar taxes are excluded from revenue.
See Note 1, on our most recently filed Form 10-K filed on March 24, 2021 for our revenue recognition policy.
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 September 30, 2021 and 2020, our revenue was reduced by $377,000 and $526,000, respectively, and for the nine months ended September 30, 2021 and 2020, each by $1.2 million, in each case for slotting fees and promotion allowances.
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 $99,000 and $93,000 as of September 30, 2021 and December 31, 2020, respectively, were netted against accounts receivable. No impairment losses were recognized as of September 30, 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 September 30, 2021, A. Lassonde Inc. (“Lassonde”), 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.
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| 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 September 30, 2021 and 2020, outstanding stock options amounting to 3,199,573 and 3,355,689 shares, shares issuable upon the conversion of the Convertible Notes (as defined in note 4) of 416,341 and 5,302,778, shares issuable upon the conversion of the Convertible Debenture (as defined in note 8) of 4,000,000 and 0, in each case at September 30, 2021 and 2020, respectively, were anti-dilutive.
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| 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. |
Note 2 - Inventory (Tables) |
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| Schedule of Inventory, Current [Table Text Block] |
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Note 3 - Lease Obligations (Tables) |
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Note 4 - Convertible Subordinated Notes Payable (Tables) |
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| Schedule of Maturities of Long-term Debt [Table Text Block] |
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Note 5 - Shareholders' Equity (Tables) |
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| Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block] |
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Note 6 - Segment Information (Tables) |
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Note 2 - Inventory (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
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| Inventory Write-down | $ 9,000 | $ 1,000 | $ 25,000 | $ 72,000 |
Note 2 - Inventory - Inventory (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Finished goods | $ 855 | $ 1,142 |
| Raw materials | 628 | 714 |
| Inventory, Net, Total | $ 1,483 | $ 1,856 |
Note 3 - Lease Obligations (Details Textual) |
3 Months Ended | 9 Months Ended | ||||
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Sep. 30, 2021
USD ($)
ft²
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Sep. 30, 2020
USD ($)
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Sep. 30, 2021
USD ($)
ft²
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Sep. 30, 2020
USD ($)
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Dec. 31, 2020
USD ($)
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Feb. 28, 2020
USD ($)
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| Operating Lease, Right-of-Use Asset | $ 392,000 | $ 392,000 | $ 471,000 | |||
| Operating Lease, Expense | 42,000 | $ 42,000 | 122,000 | $ 120,000 | ||
| Operating Lease, Payments | $ 41,000 | $ 40,000 | $ 119,000 | $ 117,000 | ||
| Retail / Office Space in Seattle, Washington [Member] | ||||||
| Area of Real Estate Property (Square Foot) | ft² | 6,500 | 6,500 | ||||
| Lessee, Operating Lease, Term of Contract (Year) | 5 years | |||||
| Operating Lease, Right-of-Use Asset | $ 556,000 | |||||
| Lessee, Operating Lease, Discount Rate | 4.00% | 4.00% | ||||
| Operating Lease, Weighted Average Remaining Lease Term (Year) | 3 years 5 months 1 day | 3 years 5 months 1 day | ||||
Note 3 - Lease Obligations - Annual Payments Excluding Management Fees and Other Operations Expenses (Details) $ in Thousands |
Sep. 30, 2021
USD ($)
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| 2021 (remaining) | $ 30 |
| 2022 | 122 |
| 2023 | 126 |
| 2024 | 130 |
| 2025 | 22 |
| Total lease payments | 430 |
| Less: imputed interest | (29) |
| Total remaining lease liability | $ 401 |
Note 4 - Convertible Subordinated Notes Payable - Principal Payments (Details) - Convertible Notes [Member] $ in Thousands |
Sep. 30, 2021
USD ($)
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| 2021 (remaining) | $ 0 |
| 2022 | 110 |
| Long-term Debt, Total | $ 110 |
Note 5 - Shareholders' Equity - Stock-based Compensation Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
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| Stock-based compensation expense | $ 26 | $ 57 | $ 107 | $ 130 |
| Selling and Marketing Expense [Member] | ||||
| Stock-based compensation expense | 5 | 36 | 30 | 52 |
| General and Administrative Expense [Member] | ||||
| Stock-based compensation expense | 21 | 21 | 77 | 78 |
| Share-based Payment Arrangement, Option [Member] | ||||
| Stock-based compensation expense | 26 | 55 | 107 | 118 |
| Restricted Stock [Member] | ||||
| Stock-based compensation expense | $ 0 | $ 2 | $ 0 | $ 12 |
Note 5 - Shareholders' Equity - Weighted-average Assumptions (Details) - Share-based Payment Arrangement, Option [Member] - $ / shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
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| Expected dividend yield | 0.00% | 0.00% |
| Expected stock price volatility | 73.90% | 73.10% |
| Risk-free interest rate | 0.70% | 0.70% |
| Expected term (in years) (Year) | 5 years 9 months 18 days | 5 years 4 months 24 days |
| Weighted-average grant date fair-value (in dollars per share) | $ 0.23 | $ 0.14 |
Note 6 - Segment Information (Details Textual) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
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| Number of Operating Segments | 1 | |||
| Revenue from Contract with Customer Benchmark [Member] | Customer Concentration Risk [Member] | ||||
| Number of Major Customers | 1 | 1 | 1 | 1 |
| Revenue from Contract with Customer Benchmark [Member] | Customer Concentration Risk [Member] | One Customer [Member] | ||||
| Concentration Risk, Percentage | 20.00% | 29.00% | 21.00% | 25.00% |
Note 6 - Segment Information - Geographic Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
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| Revenue | $ 4,565 | $ 3,541 | $ 11,880 | $ 9,431 |
| UNITED STATES | ||||
| Revenue | 3,496 | 2,354 | 8,978 | 6,783 |
| CANADA | ||||
| Revenue | 1,033 | 1,134 | 2,808 | 2,577 |
| Other Countries [Member] | ||||
| Revenue | $ 36 | $ 53 | $ 94 | $ 71 |
Note 7 - Paycheck Protection Program (Details Textual) - USD ($) |
1 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Apr. 24, 2020 |
May 31, 2021 |
Sep. 30, 2021 |
Sep. 30, 2020 |
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| Proceeds from Notes Payable, Total | $ 0 | $ 335,000 | ||
| Gain (Loss) on Extinguishment of Debt, Total | $ 335,000 | $ (0) | ||
| Paycheck Protection Program CARES Act [Member] | ||||
| Proceeds from Notes Payable, Total | $ 334,500 | |||
| Gain (Loss) on Extinguishment of Debt, Total | $ 334,500 | |||
Note 8 - 2021 Unsecured Convertible Debenture (Details Textual) - USD ($) |
9 Months Ended | ||
|---|---|---|---|
Jul. 14, 2021 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Proceeds from Convertible Debt | $ 1,700,000 | $ 1,741,000 | |
| Jones Special Warrant [Member] | |||
| Class of Warrant or Right, Number of Securities Called by Each Warrant or Right (in shares) | 1 | ||
| Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ 0.625 | ||
| Warrants and Rights Outstanding, Term (Month) | 24 months | ||
| Unsecured Convertible Debenture to SOL Verano Blocker 1 LLC [Member] | |||
| Proceeds from Convertible Debt | $ 2,000,000 | ||
| Debt Instrument, Convertible, Conversion Price (in dollars per share) | $ 0.50 | ||
| Convertible Debt Common Shares Issuable per Unit (in shares) | 1 | ||
| Convertible Debt Warrants Issuable per Unit (in shares) | 1 | ||
| Debt Instrument, Interest Rate, Stated Percentage | 5.00% | ||
| Debt Instrument, Covenant, Event of Default, Interest Rate | 18.00% | ||