See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
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.
In addition, following the closing of the Plan of Arrangement, we intend to use the proceeds from our recent financings exclusively for the purpose of expanding our business to the production of cannabis-containing beverages and related products.
We are a Washington corporation and have four operating subsidiaries, Jones Soda Co. (USA) Inc., Jones Soda (Canada) Inc., Pinestar Gold Inc., and Mary Jones Holdings Inc., and Mary Jones California, LLC (Subsidiaries).
Basis of presentation, consolidation and use of estimates
The accompanying condensed consolidated balance sheet as of December 31, 2021, which has been derived from our audited consolidated financial statements, and unaudited interim condensed consolidated financial statements as of March 31, 2022, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the Securities and Exchange Commission (“SEC”) rules and regulations applicable to interim financial reporting. The condensed consolidated financial statements include our accounts and the accounts of our subsidiaries. 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, 2021.
Liquidity
As of March 31, 2022 and December 31 2021, we had cash and cash-equivalents of approximately $11.9 million and $4.7 million, respectively, and working capital of approximately $12.2 million and $6.0 million, respectively. Net cash used in operations during the three months ended March 31, 2022 and 2021 totaled approximately $2.3 million and $1.0 million, respectively. Net cash used in operations increased primarily due to the increase in inventory as of March 31, 2022 compared to December 31, 2021. Our cash flows vary throughout the year based on seasonality.
During the three months ended March 31, 2022, we issued $3,000,000 in Contingent Convertible Debentures (See note 4), that mature on February 9, 2023 (the “Maturity Date”) and shall begin to accrue interest at a rate of 3.00% commencing on April 1, 2022 and such interest shall become payable on the Maturity Date.
Additionally, upon the consummation of a statutory plan of arrangement under the Business Corporations Act (British Columbia) (the “Plan of Arrangement”) with Pinestar Gold Inc. (“Pinestar”) the Company received $7.1 million in net proceeds from a subscription receipt offering completed by Pinestar (the “Pinestar Subscription Receipt Offering”) prior to the Plan of Arrangement. The Plan of Arrangement resulted in issuance of an aggregate of 20,000,048 shares of the Company’s common stock (the “Jones Shares”) which were issued in exchange for all ofthe outstanding common shares of Pinestar (the “Pinestar Shares”), including the Pinestar Shares issued in connection with the Pinestar Subscription Receipt Offering, on a one-for-one basis.
During the three months ended March 31, 2022 and 2021, we received $0 and $9,000, respectively, from the cash exercise of stock options. From time to time, we may receive additional cash through the exercise of stock options or stock warrants. However, we cannot predict the timing or amount of cash proceeds we may receive from the exercise, if at all, of any of the outstanding stock options or warrants.
We intend to continually monitor and adjust our operating plan as necessary to respond to developments in our business, our markets and the broader economy. In addition, the continuation of the COVID-19 pandemic and uncertain supply chain conditions, may reduce demand for certain products, and may negatively impact our business.
As of the date of this Report, as a result of our cash on hand, we believe that our current cash and cash equivalents will be sufficient to meet the Company’s funding requirements for one year after these condensed consolidated financial statements are issued.
10
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 stock keeping units (“SKU”) selected or removed by our distributors and retail partners through the normal course of serving consumers in the dynamic, trend-oriented beverage industry. As a result, management believes that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results expected for the fiscal year.
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. Title and the significant risk and rewards of ownership are deemed to transfer when products are loaded onto a truck for shipment or Free on Board (“FOB”) shipping point. We primarily receive fixed consideration for sales of product, subject to adjustment as described below. Shipping and handling amounts paid by customers are primarily for online orders, and are included in revenue, and totaled $32,000 and $15,000 for the three months ended March 31, 2022 and 2021, respectively. Sales tax and other similar taxes are excluded from revenue.
See Note 1, on our most recently filed Form 10-K filed on March 14, 2022 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 March 31, 2022 and 2021, our revenue was reduced by $308,000 and $350,000, respectively, for slotting fees and promotion allowances.
All sales to distributors and customers are generally final. 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 $111,000 and $114,000 as of March 31, 2022 and December 31, 2021, respectively, were netted against accounts receivable. No impairment losses were recognized as of March 31, 2022 and December 31, 2021. Changes in accounts receivable are primarily due to the timing and magnitude of orders for products, the timing of when control of products is transferred to distributors and the timing of cash collections.
As of March 31, 2022 and December 31, 2021, A. Lassonde Inc. (“Lassonde”), one of our independent distributors, made up 19% of our outstanding accounts receivable for each period.
Net loss per share
Basic net loss per share is computed using the weighted average number of common shares outstanding during the periods. Diluted earnings per share is computed by adjusting the weighted average number of common shares by the effective net exercise or conversion of all dilutive securities. Due to the net loss in the quarters ended March 31, 2022 and 2021, outstanding stock options amounting to 3,957,085 and 4,563,233 shares, shares issuable upon the conversion of the Convertible Notes (as defined in note 4) of 38,662 and 3,040,707, shares issuable upon the conversion of the Convertible Debenture (as defined in note 4) of 4,000,000 and 0, in each case at March 31, 2022 and 2021, respectively, were anti-dilutive.
11
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.
Inventory consisted of the following (in thousands):
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
Finished goods |
|
$ |
2,051 |
|
|
$ |
1,361 |
|
Raw materials |
|
|
856 |
|
|
|
562 |
|
|
|
$ |
2,907 |
|
|
$ |
1,923 |
|
Finished goods primarily include product ready for shipment, as well as promotional merchandise held for sale. Raw materials primarily include ingredients, concentrate and packaging. For the three months ended March 31, 2022 and 2021, we recorded obsolete inventory expenses of $12,000 and $8,000, respectively.
We currently lease approximately 6,500 square feet of retail/office space in Seattle, Washington for our principal executive and administrative offices. The initial term of the lease was five years; in February 2020, we amended the lease to extend the term through February 28, 2025. As a result of the lease amendment, we recognized a lease liability and right-of-use asset of $556,000 which represents the remaining lease payments discounted at a rate of 4%. As of March 31, 2022, this lease had a remaining lease term of 2.92 years.
During the quarters ended March 31, 2022 and 2021, we incurred rental expenses of $43,000 and $42,000, respectively. During the quarters ended March 31, 2022 and 2021, we made cash payments of $43,000 and $40,000.
Management fees and other operational expenses were immaterial. Cash payments on our operating lease are presented as operating cash outflows in the condensed consolidated statements of cash flows. As of March 31, 2022, our scheduled lease payments excluding management fees and other operational expenses for the remainder of the lease term for the years ending December 31 will be as follows (in thousands):
2022 |
|
$ |
92 |
|
2023 |
|
|
126 |
|
2024 |
|
|
130 |
|
2025 |
|
|
22 |
|
Total lease payments |
|
|
370 |
|
Less: imputed interest |
|
|
(22 |
) |
Total remaining lease liability |
|
$ |
348 |
|
4. |
Convertible Debentures |
2018 Convertible Subordinated Note Payable
On March 23, 2018, and April 18, 2018, we issued and sold an aggregate principal amount of $2,920,000 of convertible subordinated promissory notes (the “2018 Convertible Notes”) to institutional investors and our management team, and other individual investors.
The 2018 Convertible Notes have a four-year term from the date of issuance and bear interest at 6% per annum until maturity on March 23, 2022, and April 18, 2022. The holders can convert the 2018 Convertible Notes at any time into the number of shares of our common stock equal to the quotient obtained by dividing (i) the amount of the unpaid principal and interest on such 2018 Convertible Note by (ii) $0.32 (the “Conversion Price”). The Conversion Price is subject to anti-dilution adjustment on a broad-based, weighted average basis if we issue shares or equity-linked instruments at a conversion price below $0.32 per share. No payments of principal or interest are due until the maturity.
The 2018 Convertible Notes are subordinated in right of payment to the prior payment in full of all of our Senior Indebtedness, which is defined as amounts due in connection with our indebtedness for borrowed money to banks, commercial finance lenders, or other lending institutions regularly engaged in the business of lending money, with certain restrictions.
During the quarter ended March 31 2022, 2018 Convertible Notes in the aggregate principal amount of $100,000 and related accrued interest were converted into an aggregate of 386,164 shares of common stock in accordance with the original terms of the 2018 Convertible Notes. As a result, the carrying amount of the converted principal amount of such 2018 Convertible Notes, along with the converted accrued interest, in an aggregate amount of $124,000, was credited to common stock and unamortized discounts in an amount equal to $24,000 were recognized as interest expense for the quarter ended March 31, 2022. During the quarter ended March 31, 2021, Convertible Notes in the aggregate principal amount of $650,000 and related accrued interest were converted into an aggregate of 2,385,058 shares of common stock in accordance with the original terms of the Convertible Notes. As a result, the carrying amount of the converted principal amount of such Convertible Notes, along with the converted accrued interest, in an aggregate amount of $763,000, was credited to common stock and unamortized discounts in an amount equal to $22,000 were recognized as interest expense for the three months ended March 31, 2021.
The fair value of our common stock on the March 23, 2018, closing date for the issuance of the 2018 Convertible Notes was $0.36 per share, therefore, the 2018 Convertible Notes contained a beneficial conversion feature with an aggregate intrinsic value of $350,000. The fair value of our common stock on the April 18, 2018, closing date for the issuance of the 2018 Convertible Notes was $0.30 per share, which did not result in an additional beneficial conversion feature. The resulting debt discount for the 2018 Convertible Notes issued on March 23, 2018 is presented as a direct deduction from the carrying value of the 2018 Convertible Notes and was recorded with an increase to additional paid-in capital. The discount along with the related closing costs amounting to $137,000 are amortized through interest expense over the term of the 2018 Convertible Notes. The balance of notes payable is presented net of unamortized discounts amounting to $1,000 and $47,000 at March 31, 2022 and 2021, respectively. The principal balance of notes payable to related parties amounted to $10,000, and $824,000 at March 31, 2022 and 2021. As of March 31, 2022, $10,000 of principal payments are due in April of 2022.
2021 Unsecured Convertible Debenture
On July 14, 2021, we issued a $2,000,000 5.00% unsecured convertible debenture due July 14, 2023 (the “2021 Debenture”) to SOL Verano Blocker 1 LLC that was convertible into units of the Company (each a “Jones Unit”) at a conversion price of $0.50 per Jones Unit, with each Jones Unit consisting of one Jones Share and one share purchase special warrant of Jones (each a “Jones Special Warrant”). Each Jones Special Warrant will be exercisable into one Jones Share at a price of $0.625 per Jones Share for a period of 24 months from the date of issuance, conditional upon us increasing our authorized capital to an amount to cover the Jones Shares issuable pursuant to all of the outstanding Jones Special Warrants as well as the other Jones Shares issuable pursuant to our then-outstanding convertible/exercisable securities. The 2021 Debenture accrued interest at a rate of 5.00% and we had $47,000 of interest due to SOL Verano Blocker 1 LLC on December 31, 2021.
The closing of the Plan of Arrangement resulted in the automatic conversion of the 2021 Debenture into an aggregate of 4,025,035 Jones Shares and 4,025,035 Jones Special Warrants at a conversion price of $0.50 per Jones Share and Jones Special Warrant. As a result, the carrying amount of the converted principal amount of such 2021 Unsecured Convertible Debenture, in an aggregate amount of $2,000,000, was credited to common stock.
2022 Unsecured Convertible Debenture
On February 9, 2022, we issued $3,000,000 in aggregate principal amount of 3.00% unsecured convertible debentures due February 9, 2023 (the “Contingent Convertible Debentures”), which are convertible into Jones Units of Jones at a conversion price of $0.50 per Jones Unit. . The Contingent Convertible Debentures are automatically convertible into Jones Units upon Jones Soda increasing its authorized capital to an amount to cover the Jones Shares issuable pursuant to all of the outstanding Contingent Convertible Debentures as well as all of the other then outstanding convertible/exercisable securities of Jones (a “Conversion Event”). The Contingent Convertible Debentures are only convertible into Jones Units upon the occurrence of a Conversion Event. The Contingent Convertible Debentures mature on February 9, 2023 (the “Convertible Debenture Maturity Date”) and shall begin to accrue interest a rate of 3.00% commencing on April 1, 2022 and such interest shall become payable on the Convertible Debenture Maturity Date. Under the terms of the Contingent Convertible Debenture, the Company covenants to the holders of the Contingent Convertible Debentures that the Company will use their commercially reasonable efforts to cause the Conversion Event to occur as soon as practicable after the closing of the Plan of Arrangement . We received net proceeds of $538,000 prior to December 31, 2021 and the remaining of the total $3,000,000 during the quarter ended March 31, 2022. The related closing costs amounting to $108,000 are amortized through interest expense over the term of the Convertible Debenture.
13
Under the terms of our 2011 Incentive Plan (the “Plan”), the number of shares authorized under the Plan may be increased each January 1st by an amount equal to the lesser of (a) 1,300,000 shares, (b) 4.0% of our outstanding common stock as of the end of our immediately preceding fiscal year, and (c) a lesser amount determined by the Company’s Board of Directors (the “Board”), provided that the number of shares that may be granted pursuant to awards in a single year may not exceed 10% of our outstanding shares of common stock on a fully diluted basis as of the end of the immediately preceding fiscal year. As of March 31, 2022, the total number of shares of common stock authorized under the Plan was 9,798,435 shares.
Under the terms of the Plan, the Board may grant awards to employees, officers, directors, consultants, agents, advisors and independent contractors. Awards may consist of stock options, stock appreciation rights, stock awards, restricted stock, stock units, performance awards or other stock or cash-based awards. Stock options are granted with an exercise price equal to the closing price of our stock on the date of grant, and generally have a ten-year term and vest over a period of 48 months with the first 25% of the shares subject to the option vesting one year from the grant date and the remaining 75% of the shares subject to the option vesting in equal monthly increments over the subsequent 36 months. Restricted stock awards generally vest over one year. As of March 31, 2022, there were 1,737,488 shares of unissued common stock authorized and available for future awards under the Plan.
In March 2021, the Board approved the readoption of the Plan to extend the expiration date thereof from April 1, 2021 to April 1, 2023 and obtained shareholder approval of such readoption at the annual meeting of shareholders held on May 13, 2021.
On September 30, 2021, the Board, upon the recommendation of our compensation committee, approved an amendment to the Plan to decrease the number of shares of common stock available for issuance pursuant to future awards under the Plan from 4,785,597 shares of common stock to 2,500,000 shares of common stock. As of such date, there were outstanding awards exercisable into an aggregate of 3,194,573 shares of common stock previous granted under the Plan; 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:
|
|
Outstanding Options |
|
|
|
Number of Shares |
|
|
Weighted Average Exercise Price (Per Share) |
|
Balance at January 1, 2022 |
|
|
3,405,511 |
|
|
$ |
0.25 |
|
Options granted |
|
|
625,648 |
|
|
|
0.37 |
|
Options forfeited/expired |
|
|
(74,074 |
) |
|
|
0.45 |
|
Balance at March 31, 2022 |
|
|
3,957,085 |
|
|
$ |
0.27 |
|
Exercisable, March 31, 2022 |
|
|
3,085,511 |
|
|
$ |
0.22 |
|
Vested and expected to vest |
|
|
3,708,291 |
|
|
$ |
0.26 |
|
|
|
Number of Shares |
|
|
Weighted Average Exercise Price |
|
Balance at January 1, 2021 |
|
|
3,589,783 |
|
|
$ |
0.36 |
|
Options granted |
|
|
998,450 |
|
|
|
0.36 |
|
Options exercised |
|
|
(25,000 |
) |
|
|
0.34 |
|
Balance at March 31, 2021 |
|
|
4,563,233 |
|
|
$ |
0.36 |
|
Exercisable, March 31, 2021 |
|
|
2,880,121 |
|
|
$ |
0.39 |
|
Vested and expected to vest |
|
|
4,070,942 |
|
|
$ |
0.38 |
|
As mentioned above, our stock option plan does allow for the granting of restricted stock options. However, there was no restricted stock activity during the three months ended March 31, 2022 and 2021.
As of January 1, 2020, equity compensation for non-employee director service consists of the grant of an annual non-qualified stock option award that vests on the first anniversary of the date of grant (subject to the director’s continuing service as of such anniversary date), with the number of shares underlying such award determined by dividing $25,000 by the closing stock price on the date of grant (which shall be the first trading day in January in each calendar year), and such stock option award shall have an exercise price equal to our closing stock price on the date of grant. When joining the Board, each non-employee director shall be granted a non-qualified stock option award that vests on the first anniversary of the date of grant (subject to the director’s continuing service as of such anniversary date), with the number of shares underlying such award determined by dividing $25,000 by our closing stock price on the first trading day following the date on which such director is appointed), prorated based on the date on which such director is appointed, and which stock option shall be granted as of the first trading day following the date on which such director was appointed, and shall have an exercise price equal to our closing stock price on the date of grant.
14
(b) |
Stock-based compensation expense: |
Stock-based compensation expense is recognized using the straight-line attribution method over the employees’ requisite service period, or the non-employee's service period based on the term of the contract. We recognize compensation expense for only the portion of stock options or restricted stock expected to vest. Therefore, we apply estimated forfeiture rates that are derived from historical employee attrition. If the actual number of forfeitures differs from those estimated by management, additional adjustments to stock-based compensation expense may be required in future periods.
At March 31, 2022, we had unrecognized compensation expense related to stock options of $355,000 to be recognized over a weighted-average period of 2.9 years.
The following table summarizes the stock-based compensation expense (in thousands):
|
|
Three months ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
Stock options: |
|
$ |
268 |
|
|
$ |
53 |
|
|
|
|
|
|
|
|
|
|
Income statement account: |
|
|
|
|
|
|
|
|
Selling and marketing |
|
$ |
91 |
|
|
$ |
19 |
|
General and administrative |
|
|
177 |
|
|
|
34 |
|
|
|
$ |
268 |
|
|
$ |
53 |
|
We employ the following key weighted-average assumptions in determining the fair value of stock options, using the Black-Scholes option pricing model and the simplified method to estimate the expected term of “plain vanilla” options:
|
|
Three months ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
Expected dividend yield |
|
|
— |
|
|
|
— |
|
Expected stock price volatility |
|
|
78.3 |
% |
|
|
73.9 |
% |
Risk-free interest rate |
|
|
1.7 |
% |
|
|
0.7 |
% |
Expected term (in years) |
|
|
5.9 |
|
|
|
5.8 |
|
Weighted-average grant date fair-value |
|
$ |
0.37 |
|
|
$ |
0.23 |
|
The aggregate intrinsic value of stock options outstanding at March 31, 2022 was approximately $681,000 and for options exercisable was $662,000. The intrinsic value of outstanding and exercisable stock options is calculated as the quoted market price of the stock at the balance sheet date less the exercise price of the option. There were no options exercised during the three months ended March 31, 2022. There were 25,000 options exercised with an aggregate intrinsic value of $2,700 during the three months ended March 31, 2021.
(c) |
Closing of the Pinestar Gold Inc. - Plan of Arrangement: |
On February 15, 2022, Jones issued an aggregate of 20,000,048 Jones Shares in connection with the completion of the Plan of Arrangement whereby the outstanding Pinestar Shares were exchanged for newly issued Jones Shares on a one-for-one basis. The Plan of Arrangement had previously been approved by both Pinestar’s shareholders as well as by the Supreme Court of British Columbia after such court held a hearing on the fairness of the terms and conditions of the Plan of Arrangement at which all Pinestar shareholders had the right to appear.
In connection with the Plan of Arrangement, Pinestar completed the Pinestar Subscription Receipt Offering for aggregate net proceeds of $7,152,000, at a price per subscription receipt equal to $0.50. As part of the closing of the Plan of Arrangement, each such subscription receipt automatically converted into one Pinestar Share and one new common share purchase warrant of Pinestar, which were then immediately exchanged for Jones Shares and Jones Special Warrants, respectively, in accordance with a 1:1 exchange ratio.
The issuance of Jones Shares to the holders of Pinestar Shares (including Pinestar Shares received upon the conversion of the subscription receipts issued in the Pinestar Subscription Receipt Offering) in the Plan of Arrangement was exempt from the registration requirements under the United States Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 3(a)(10) of the Securities Act, which exempts from the registration requirements under the Securities Act any securities that are issued in exchange for one or more bona fide outstanding securities where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court expressly authorized by law to grant such approval.
We have one operating segment with operations primarily in the United States and Canada. Sales are assigned to geographic locations based on the location of customers. Sales by geographic location are as follows (in thousands):
|
|
Three months ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
Revenue: |
|
|
|
|
|
|
|
|
United States |
|
$ |
3,630 |
|
|
$ |
2,260 |
|
Canada |
|
|
893 |
|
|
|
580 |
|
Other countries |
|
|
- |
|
|
|
17 |
|
Total revenue |
|
$ |
4,523 |
|
|
$ |
2,857 |
|
During the three months ended March 31, 2022 and 2021, one of our customers (Lassonde) represented an aggregate of approximately 21% and 20% of our revenue, respectively.
On April 16, 2022, the Company and Simply Better Brands Corp. (“SBBC”) entered into a binding offer to purchase (the “LOI”) pursuant to which SBBC and the Company agreed to complete an arm’s length business combination through the acquisition by SBBC of all of the issued and outstanding common shares of the Company (the “SBBC Transaction”).
Pursuant to the terms of the LOI, SBBC agreed to purchase 100% of the issued and outstanding Jones Shares at a deemed value of $0.75 per Jones Share, payable in fully paid and non-assessable common shares of SBBC (“SBBC Shares”) based on a price per SBBC Share equal to $3.65. In addition, SBBC will assume all outstanding debt of the Company and exchange any dilutive securities of the Company for materially similar securities of SBBC based on an implied ratio of 0.20548 SBBC Shares for each one (1) Jones Share held, with the aggregate value of the Transaction being approximately $98,902,257 on a fully-diluted basis.
Each of the Company and SBBC agreed to conduct a due diligence investigation of the shares, share capital, prospects, business, assets, contracts, operations, records, rights, liabilities and obligations of the other, including financial, marketing, employee, legal, regulatory and environmental matters. (“Due Diligence Investigation”). Further, the Company and SBBC agreed that they will each have a 30-day, or a mutually agreed upon, period (“Due Diligence Period”) commencing on the execution of the LOI within which to complete their respective Due Diligence Investigations and receive acceptable tax analysis.
The SBBC Transaction is subject to a number of terms and conditions, including, but not limited to, the parties entering into a definitive agreement with respect to the SBBC Transaction on or before June 30, 2022 (such agreement to include representations, warranties, conditions and covenants typical for a transaction of this nature), mutually favorable tax and corporate structuring, the approval by shareholders of both SBBC and the Company, and the approval of the TSX Venture Exchange or such other recognized stock exchange as the SBBC Shares may become listed after completion of the SBBC Transaction, and if applicable, disinterested shareholder approval. The Company is also required to enter voting and support agreements with all officers, directors, and insiders holding in excess of 5% of the issued and outstanding Jones Shares, and SBBC is required to enter voting support agreements with any shareholder holding in excess of 15% of the issued and outstanding SBBC Shares.
Each of the Company and SBBC may terminate the LOI by written notice to the other in the following circumstances: (a) to accept an unsolicited bona fide written proposal from an arm’s length third party to acquire all outstanding shares or all or substantially all assets, where such offer did not result from or involve a breach of the mutual exclusivity provisions of the LOI; (b) if the Due Diligence Investigation on the other party results in a discovery of a material fact in respect of the other party which would reasonably be expected to have a material adverse effect on such other party, or (c) if either party receives corporate, securities or tax advice which makes the completion of the SBBC Transaction undesirable, or will result in a structure which is commercially unreasonable. If the LOI is terminated pursuant to the above, the party that terminates the LOI shall reimburse the other party upon demand for all of their out-of-pocket expenses, in an amount not to exceed $500,000, that shall have been incurred by them in connection with the proposed SBBC Transaction.
The LOI also contains customary confidentiality, mutual exclusivity and standstill provisions.
In accordance with the terms of the LOI, upon completion of the Transaction, SBBC intends to change its name to "Jones Soda" or some derivation thereof and the board of directors of the combined company is intended to consist of the members of the Company’s current board of directors plus an additional director to be named by SBBC.