JONES SODA CO - Quarter Report: 2021 March (Form 10-Q)

 

Table of Contents

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

___________________________________

Form 10-Q

 

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

For the Quarterly Period Ended March 31, 2021

OR

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

For the transition period from          to

Commission File Number: 000-28820

_____________________________________________

JONES SODA CO.

(Exact name of registrant as specified in its charter)

_____________________________________________

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

(206) 624-3357

(Registrant’s telephone number, including area code)

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

1.    Nature of Operations and Summary of Significant Accounting Policies

 

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

 

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

 

Basis of presentation, consolidation and use of estimates

 

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

 

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

 

Liquidity

 

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

 

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

 

 

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

 

Seasonality and other fluctuations

 

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

 

Revenue recognition

 

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

 

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

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

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

 

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

 

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

 

Our contracts have a single performance obligation which is satisfied at the point in time when the customer has title and the significant risks and rewards of ownership of the product. Effective March 1, 2021, title and the significant risk and rewards of ownership are deemed to transfer when products are loaded onto a truck for shipment or Free on Board (“FOB”) shipping point. Prior to March 1, 2021, shipping terms varied from customer to customer. We primarily receive fixed consideration for sales of product, subject to adjustment as described below. Shipping and handling amounts paid by customers are primarily for online orders, and are included in revenue, and totaled $15,000 and $7,000 for the three months ended March 31, 2021 and 2020, respectively. Sales tax and other similar taxes are excluded from revenue.

 

 

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

 

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

 

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

 

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

 

Net loss per share

 

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

 

Deferred financing costs

 

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

 

Operating leases

 

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

 

 

Recent accounting pronouncements

 

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

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments: Credit Losses (“ASU 2016-13”), which changes the impairment model for most financial instruments, including trade receivables from an incurred loss method to a new forward-looking approach, based on expected losses. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU is effective for us in the first quarter of 2023 and must be adopted using a modified retrospective transition approach. We are currently evaluating the potential impact that the adoption of ASU 2016-13 will have on our consolidated financial statements.

 

2.    Inventory

 

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 March 31, 2021 and March 31, 2020, we recorded obsolete inventory expenses of $8,000 and $9,000, respectively.

 

3.    Lease Obligations

 

We currently lease approximately 6,500 square feet of retail/office space in Seattle, Washington for our principal executive and administrative offices. The initial term of the lease was five years; in February 2020, we amended the lease to extend the term through February 28, 2025. As a result of the lease amendment, we recognized a lease liability and right-of-use asset of $556,000 which represents the remaining lease payments discounted at a rate of 4%. As of March 31, 2021, this lease had a remaining lease term of 3.92 years.

 

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

 

 

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

 

 

4.    Convertible Subordinated Notes Payable

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

5.    Shareholders’ Equity

 

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

 

Under the terms of the Plan, the Board may grant awards to employees, officers, directors, consultants, agents, advisors and independent contractors. Awards may consist of stock options, stock appreciation rights, stock awards, restricted stock, stock units, performance awards or other stock or cash-based awards. Stock options are granted with an exercise price equal to the closing price of our stock on the date of grant, and generally have a ten-year term and vest over a period of 48 months with the first 25% of the shares subject to the option vesting one year from the grant date and the remaining 75% of the shares subject to the option vesting in equal monthly increments over the subsequent 36 months. Restricted stock awards generally vest over one year. As of March 31, 2021, there were 6,497,192 shares of unissued common stock authorized and available for future awards under the Plan.

 

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

 

(a)	Stock options:

 

A summary of our stock option activity is as follows:

 

 

(b)        Restricted stock awards:

 

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

 

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

 

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

 

 

(c)    Stock-based compensation expense:

 

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

 

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

 

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

 

 

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

 

6.    Segment Information

 

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

 

 

 

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

 

7.    Paycheck Protection Program

 

On April 24, 2020, we received loan proceeds of $334,500 (the “PPP Loan”) under the Paycheck Protection Program (“PPP”). The PPP, established as part of the CARES Act, provided for loans to qualifying companies in amounts up to 2.5 times their average monthly payroll expenses. Our PPP Loan is evidenced by a promissory note, dated as of April 24, 2020 (the “Note”), between us and HomeStreet Bank (the “Lender”). The Note has a two-year term and bears interest at the rate of 1.0% per annum. No payments of principal or interest are due during the 10-month period beginning on the date of the Note (the “Deferral Period”). Furthermore, we received an extension of the first principal and interest payment date to 10 months after the last day of the Deferral Period. The initial principal and interest payments are now due on August 1, 2021.

 

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

 

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