JSDA 10-Q
Jones Soda Co. (JSDA)
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
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 May 5, 2023, there were
JONES SODA CO.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED March 31, 2023
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.
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 or markets, adequacy of funds from operations, cash flows and financing, 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 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 financings completed during the first half of 2022;
● Our ability to execute our plans to continue 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;
● Our ability to manage our operating expenses and generate cash flow from operations, along with our ability to secure additional financing if our sales goals take longer to achieve than anticipated;
● Our ability to create and maintain brand name recognition and acceptance of our products, which is critical to our success in our competitive, brand-conscious industry;
● Our ability to compete successfully against much larger, well-funded, established companies currently operating in the beverage industry generally, including in the fountain business, particularly from other major beverage companies;
● Entrance into and increased focus on the craft beverage segment by other major beverage companies;
● Our ability to respond to changes in the consumer beverage marketplace, including potential reduced consumer demand due to health concerns (including obesity) and legislative initiatives against sweetened beverages (including the imposition of taxes);
● Our ability to successfully develop and launch new products that match consumer beverage trends, and to manage consumer response to such new products and new initiatives;
● Our ability to maintain brand image and product quality and avoid risks from product issues such as product recalls;
● Our ability to establish, maintain and expand distribution arrangements with independent distributors, retailers, brokers and national retail accounts, most of whom sell and distribute competing products, and upon whom we rely to employ sufficient efforts in managing and selling our products, including re-stocking the retail shelves with our products;
● Our ability to manage our inventory levels and to predict the timing and amount of our sales;
● Our reliance on third-party contract manufacturers of our products and the geographic locations of their facilities, which could make management of our distribution efforts inefficient or unprofitable;
●Our ability to secure a continuous supply and availability of raw materials, as well as our ability to effectively respond to factors that may adversely affect our supply chain, including increases in raw material costs, and the potential shortages of glass;
● Our ability to source our flavors on acceptable terms from our key flavor suppliers;
● Our ability to attract and retain key personnel, the loss of whom would directly affect our efficiency and operations and could materially impair our ability to execute our growth strategy;
● Our ability to protect our trademarks and trade secrets, the failure of which may prevent us from successfully marketing our products and competing effectively;
● Litigation or legal proceedings, which could expose us to significant liabilities and damage our reputation;
● Our ability to comply with the many regulations to which our business is subject;
● Our ability to maintain an effective information technology infrastructure;
●Failures or security breaches of our information technology systems could disrupt our operations and negatively impact our business;
● Fluctuations in fuel and freight costs;
● Fluctuations in currency exchange rates, particularly between the United States and Canadian dollars;
● Regional, national or global economic, political, social and other conditions that may adversely impact our business and results of operations;
● Our ability to maintain effective disclosure controls and procedures and internal control over financial reporting;
● Dilutive and other adverse effects on our existing shareholders and our stock price arising from future securities issuances; and
● Our ability to access the capital markets for any future equity financing, and any actual or perceived limitations to our common stock by being traded on the OTCQB Marketplace and the Canadian Stock Exchange, 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, 2022 filed with the Securities and Exchange Commission (“SEC”) on March 29, 2023 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
| FINANCIAL STATEMENTS |
JONES SODA CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, 2023 | December 31, 2022 | |||||||
|
| (In thousands, except share data) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance of $ and $, respectively | ||||||||
| Inventory | ||||||||
| Prefunded insurance premiums from financing | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Fixed assets, net of accumulated depreciation of $ and $, respectively | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Insurance premium financing | ||||||||
| Taxes payable | ||||||||
| Total current liabilities | ||||||||
| 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.
JONES SODA CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| (In thousands, except share data) |
||||||||
| Revenue |
$ | $ | ||||||
| Cost of goods sold |
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| Gross profit |
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| Operating expenses: |
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| Selling and marketing |
||||||||
| General and administrative |
||||||||
| Total operating expenses |
||||||||
| Loss from operations |
( |
) | ( |
) | ||||
| Interest income |
||||||||
| Interest expense |
( |
) | ||||||
| Other income, net |
( |
) | ||||||
| Loss before income taxes |
( |
) | ( |
) | ||||
| Income tax expense, net |
( |
) | ( |
) | ||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Net loss per share - basic and diluted |
$ | ( |
) | $ | ( |
) | ||
| Weighted average common shares outstanding - basic and diluted |
||||||||
See accompanying notes to condensed consolidated financial statements.
JONES SODA CO.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| Three months ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| (In thousands) |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Other comprehensive income: |
||||||||
| Foreign currency translation adjustment |
||||||||
| Total comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
See accompanying notes to condensed consolidated financial statements.
JONES SODA CO.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
| Common Stock | ||||||||||||||||||||
| Number | Amount | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Shareholders’ Equity | ||||||||||||||||
| (In thousands, except share data) | ||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Common stock issued upon conversion of notes payable | ||||||||||||||||||||
| Common stock and warrants issued, net of closing costs of $ | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Three months ended March 31, 2023 | ||||||||||||||||||||
| Balance as of | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Shares withheld for taxes upon RSU vesting | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
JONES SODA CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| (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 | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Prefunded insurance premiums from financing | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Other assets | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Taxes payable | ||||||||
| Other liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Purchase of fixed assets | ( | ) | ||||||
| Net cash from investing activities | ( | ) | ||||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of convertible notes, net | ||||||||
| Proceeds from 2022 convertible notes prior to close, net | ||||||||
| Repayments on insurance financing | ( | ) | ( | ) | ||||
| 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: | ||||||||
| Interest | $ | |||||||
| Income taxes | $ | |||||||
| Supplemental disclosure of non-cash transactions: | ||||||||
| Conversion of notes payable | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
JONES SODA CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| 1. | Nature of Operations and Summary of Significant Accounting Policies |
Jones Soda Co. develops, produces, markets and distributes premium beverages which it sells and distributes primarily in the United States and Canada through its network of independent distributors and directly to its national and regional retail accounts.
In addition, following the closing of the Plan of Arrangement (See note 4(d)), we have expanded our business to the production of cannabis-containing beverages and related products.
We are a Washington corporation and have six subsidiaries, Jones Soda Co. (USA) Inc., Jones Soda (Canada) Inc., Jones Soda Cannabis Inc., Mary Jones California, LLC, Mary Jones Michigan, LLC, and Pinestar Gold Inc. (Subsidiaries).
Basis of presentation, consolidation and use of estimates
The accompanying condensed consolidated balance sheet as of December 31, 2022, which has been derived from our audited consolidated financial statements, and unaudited interim condensed consolidated financial statements as of March 31, 2023, 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, 2022.
Liquidity
As of March 31, 2023 and December 31 2022, we had cash and cash-equivalents of approximately $
We did not receive any cash from the exercise of stock options as of March 31, 2023 or 2022. 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.
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.
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 $
See Note 1, on our most recently filed Form 10-K filed on March 29, 2023 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, 2023 and 2022, 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 March 31, 2023,
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 during the three months ended March 31, 2023 and 2022, outstanding stock options amounting to
Recent accounting pronouncements
No new accounting pronouncements issued or effective during 2022 had, or are expected to have, a material impact on the Company’s consolidated financial statements.
| 2. | Inventory |
Inventory consisted of the following (in thousands):
| March 31, 2023 | December 31, 2022 | |||||||
| 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 March 31, 2023 and 2022, we recorded obsolete inventory expenses of $
| 3. | Convertible Debentures |
2018 Convertible Subordinated Note Payable
On March 23, 2018, and April 18, 2018, we issued and sold an aggregate principal amount of $
The 2018 Convertible Notes had a -year term from the date of issuance and bear interest at
The 2018 Convertible Notes were 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.
The fair value of our common stock on the March 23, 2018, closing date for the issuance of the first tranche of the 2018 Convertible Notes was $
2021 Unsecured Convertible Debenture
On July 14, 2021, we issued a $
The closing of the of the statutory plan of arrangement under the Business Corporations Act (British Columbia) (the “Plan of Arrangement”) with Pinestar Gold Inc. (“Pinestar”) in February 2022 resulted in the automatic conversion of the 2021 Debenture into an aggregate of
2022 Unsecured Convertible Debenture
On February 9, 2022, we issued $
| 4. | Shareholders’ Equity |
On May 16, 2022, our shareholders approved the adoption of the Jones Soda Co. 2022 Omnibus Equity Incentive Plan (the "2022 Plan"), which replaced the 2011 Plan (defined below) and provides for the granting incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards to participants to acquire shares of Company common stock under the 2022 Plan. Under the terms of the 2022 Plan, the sum of (i)
Under the terms of the 2022 Plan, the Board may grant awards to employees, officers, directors, consultants, agents, advisors and independent contractors. 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. As of March 31, 2023, there were
| (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, 2023 | $ | |||||||
| Options granted | ||||||||
| Options forfeited/expired | ( | ) | ||||||
| Balance at March 31, 2023 | $ | |||||||
| Exercisable, March 31, 2023 | $ | |||||||
| Vested and expected to vest | $ | |||||||
| Outstanding Options | ||||||||
| Number of Shares | Weighted Average Exercise Price | |||||||
| Balance at January 1, 2022 | $ | |||||||
| Options granted | ||||||||
| Options forfeited/expired | ( | ) | ||||||
| Balance at March 31, 2022 | $ | |||||||
| Exercisable, March 31, 2022 | $ | |||||||
| Vested and expected to vest | $ | |||||||
| (b) | Restricted stock awards: |
Beginning on May 13, 2022 the Company’s board of directors (the “Board”) determined that it was in the best interests of the Company to periodically award restricted stock units as equity compensation for non-employee directors upon the recommendation of the Compensation and Governance Committee of the Board in lieu of stock options. Each restricted stock unit granted vests incrementally over the period in the specific award agreement, and certain restricted stock awards will immediately vest upon the occurrence of a "Change in Control" as defined in the 2022 Plan.
On December 30, 2022, the Company entered into rescission agreements (the “Rescission Agreements”) with the certain non-employee directors on the Board who were awarded restricted stock units during 2022 as well as the Company’s Chief Executive Officer and President who received restricted stock units during 2022 under the terms of his employment agreement with the Company. Under the terms of the Rescission Agreements, each of the Company and the applicable restricted stock unit grantee agreed to rescind and cancel for no consideration all currently outstanding restricted stock units previously granted to each such grantee during 2022 as well as all shares of the Company’s common stock previously issued to any such grantee as a result of the vesting of any restricted stock units in August 2022.
In February 2023, the Board determined that it was in the best interests of the Company to periodically award stock options as equity compensation for non-employee directors upon the recommendation of the Compensation and Governance Committee of the Board in lieu of restricted stock units. Each stock option granted vests incrementally over the period in the specific award agreement.
There was no restricted stock activity during the three months ended March 31, 2022. A summary of our restricted stock activity for the three months ended March 31, 2023 is as follows:
| Restricted Shares | Weighted-Average Grant Date Fair Value per share | Weighted-Average Contractual Life (years) | ||||||||||
| Non-vested restricted stock at January 1, 2023 | $ | - | ||||||||||
| Granted | ||||||||||||
| Vested | ( | ) | ||||||||||
| Non-vested restricted stock at March 31, 2023 | $ | |||||||||||
We withheld a total of
| (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, 2023, we had unrecognized compensation expense related to stock options of $
The following table summarizes the stock-based compensation expense (in thousands):
| Three months ended March 31, | ||||||
| 2023 | 2022 | |||||
| Stock options | $ | | $ | | ||
| Common stock award | | - | ||||
| Restricted stock | | - | ||||
| $ | | $ | | |||
| Income statement account: | ||||||
| Selling and marketing | $ | | $ | | ||
| General and administrative | | | ||||
| $ | | $ | | |||
The Company issued a common stock award of
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:
| Year Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| 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 March 31, 2023 was approximately $
| (d) | Closing of the Pinestar Gold Inc. - Plan of Arrangement: |
On February 15, 2022, Jones issued an aggregate of
In connection with the Plan of Arrangement, Pinestar completed a subscription receipt offering for aggregate net proceeds of $
The issuance of shares of our common stock 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.
The following table summarizes the Company's outstanding warrants as of March 31, 2023:
| Number Outstanding | Remaining Contractual Life (Years) | Exercise Price Per Share | Number Exercisable | ||||||||||||||
| Jones Special Warrants (1) | $ | USD | |||||||||||||||
| Pinestar Warrants (2) | CAD | ||||||||||||||||
(1) Upon conversion of the beforementioned 2021 Debenture,
(2) In connection with the beforementioned Plan of Arrangement,
| 5. | 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 March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue: | ||||||||
| United States | $ | $ | ||||||
| Canada | ||||||||
| Total revenue | $ | $ | ||||||
During the three months ended March 31, 2023 and 2022, of our customers (Lassonde) represented an aggregate of approximately
| 6. | Insurance Premium Financing |
Effective November 15, 2021, the Company entered into a one year financing agreement with IPFS Corporation to fund a portion of its insurance premiums in the amount of $
Effective November 15, 2022, the Company entered into a year financing agreement with IPFS Corporation to fund a portion of its insurance premiums in the amount of $
| 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 2022 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 29, 2023.
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 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; |
| ● |
Grow the new product line of Tetrahydrocannabinol (THC) and cannabidiol (CBD)-infused beverages, edibles, and other related products; and, |
| ● |
Increase distribution of Lemoncocco in the United States and Canada. |
Results of Operations
The following selected financial and operating data are derived from our condensed consolidated financial statements and should be read in conjunction with our condensed consolidated financial statements.
| Three months ended March 31, |
||||||||||||||||
| 2023 |
% of Revenue |
2022 |
% of Revenue |
|||||||||||||
| Consolidated statements of operations data: |
(Dollars in thousands, except per share data) |
|||||||||||||||
| Revenue |
$ | 3,870 | 100.0 | % |
$ | 4,523 | 100.0 | % |
||||||||
| Cost of goods sold |
(2,735 | ) | (70.7 | )% |
(3,286 | ) | (72.7 | )% |
||||||||
| Gross profit |
1,135 | 29.3 | % |
1,237 | 27.3 | % |
||||||||||
| Selling and marketing expenses |
(1,032 | ) | (26.7 | ) |
(1,143 | ) | (25.3 | ) |
||||||||
| General and administrative expenses |
(1,456 | ) | (37.6 | )% |
(1,522 | ) | (33.7 | )% |
||||||||
| Loss from operations |
(1,353 | ) | (35.0) | % | (1,428 | ) | (31.6 | )% |
||||||||
| Interest income |
- | 0.0 | % |
2 | 0.0 | % |
||||||||||
| Interest expense |
- | 0.0 | % |
(231 | ) | (5.1 | )% | |||||||||
| Other income, net |
(5 | ) | (0.1 | )% | - | 0.0 | ||||||||||
| Loss before income taxes |
(1,358 | ) | (35.1 | )% | (1,657 | ) | (36.6 | )% | ||||||||
| Income tax expense, net |
(5 | ) | (0.1 | )% | (7 | ) | (0.2 | )% | ||||||||
| Net loss |
$ | (1,363 | ) | (35.2 | )% | $ | (1,664 | ) | (36.8 | )% | ||||||
| Basic and diluted net loss per share |
$ | (0.01 | ) | $ | (0.03 | ) | ||||||||||
| As of |
||||||||
| March 31, 2023 |
December 31, 2022 |
|||||||
| Balance sheet data: |
(Dollars in thousands) |
|||||||
| Cash and cash equivalents and accounts receivable, net |
$ | 9,696 | $ | 11,141 | ||||
| Fixed assets, net |
125 | 127 | ||||||
| Total assets |
14,108 | 15,102 | ||||||
| Working capital |
10,486 | 11,640 | ||||||
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 or "SKUs" selected or removed by our distributors and retail partners through the normal course of serving consumers in the dynamic, trend-oriented beverage industry. As a result, management believes that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results expected for the fiscal year.
Quarter Ended March 31, 2023 Compared to Quarter Ended March 31, 2022
Revenue
For the quarter ended March 31, 2023, revenue decreased by approximately $653,000, or 14.4%, to approximately $3.9 million compared to approximately $4.5 million for the quarter ended March 31, 2022. The decrease in sales revenue in the first quarter of 2023 compared to the first quarter of 2022 was primarily the result of lower DSD and DTR core bottled soda sales in the United States and Canada in the current quarter compared to the same quarter of 2022. Core bottle soda sales in the first quarter of 2023 were lower than the first quarter of 2022 mostly as a result of a one-time inventory stocking event with one of our largest customers in 2022 resulting in higher sales revenues in that quarter.
For the quarter ended March 31, 2023, trade spend and promotion allowances, which reduced the amount of revenue for the sales of our product, totaled approximately $305,000, a decrease of approximately $3,000, or 1.0%, compared to approximately $308,000 for the quarter ended March 31, 2022, primarily due to the timing of incentive and retailer programs.
Gross Profit
For the quarter ended March 31, 2023, gross profit decreased by approximately $102,000, or 8.2%, to approximately $1.1 million compared to approximately $1.2 million for the quarter ended March 31, 2022 as a result of lower sales revenue in the current quarter. For the quarter ended March 31, 2023, gross margin increased to 29.3% from 27.3% for the quarter ended March 31, 2022. This increase was primarily driven by proactive pricing adjustments and lower freight costs during the current quarter.
Selling and Marketing Expenses
Selling and marketing expenses for the first quarter ended March 31, 2023 were approximately $1.0 million, a decrease of approximately $111,000, or 9.7%, from approximately $1.1 million for the first quarter ended March 31, 2022. This decrease was primarily a result of the decrease in marketing start-up costs associated with the launch of our cannabis products in 2022. We continue to invest in marketing our cannabis products, but our costs in in the first quarter of 2023 are less than the same quarter of 2022 mostly due to the start-up costs associated with the launch of such products becoming no longer necessary in 2023. Selling and marketing expenses as a percentage of revenue increased to 26.7% in the first quarter ended March 31, 2023 from 25.3% in the same period in 2022. We will continue to balance selling and marketing expenses with our working capital resources. For the three months ended March 31, 2023 and 2022, non-cash expenses included in selling and marketing expenses (stock compensation and depreciation) were approximately $27,000 and $103,000, respectively.
General and Administrative Expenses
General and administrative expenses for the first quarter ended March 31, 2023 were approximately $1.46 million, a decrease of approximately $66,000, or 4.3%, compared to approximately $1.52 for the first quarter ended March 31, 2022. This decrease was primarily a result of the decrease in general business start-up costs associated with the launch of our cannabis products in 2022. General and administrative expenses as a percentage of revenue increased to 37.6% in the first quarter ended March 31, 2023 from 33.7% in the same quarter in 2022. We will continue to carefully manage general and administrative expenses with our working capital resources. For the three months ended March 31, 2023 and 2022, non-cash expenses included in general and administrative expenses (stock compensation and depreciation) were approximately $247,000 and $182,000, respectively.
Interest Expense
We incurred no interest expense for the quarter ended March 31, 2023, compared to approximately $231,000 for the quarter ended March 31, 2022. This decrease was primarily related to the conversions of some of our outstanding convertible notes that occurred during the three months ended March 31, 2022 and that resulted in all capitalized costs associated with the issuance of these notes being fully expensed upon conversion. The interest expense incurred during the quarter ended March 31, 2022 was non-cash.
Income Tax Expense
We incurred approximately $5,000 and $7,000 of income tax expense during each of the quarters ended March 31, 2023 and 2022, 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 first quarter ended March 31, 2023 was approximately $1.4 million compared to net loss of approximately $1.7 million for the first quarter ended March 31, 2022. This decrease in net loss was primarily due to the decreased marketing and administrative costs associated with the launch of our cannabis products in 2022 and the decrease in interest expense being partially offset by reduced revenues in the first quarter of 2023 compared to the first quarter of 2022.
Liquidity and Capital Resources
As of March 31, 2023 and December 31 2022, we had cash and cash-equivalents of approximately $6.4 million and $8.0 million, respectively, and working capital of approximately $10.5 million and $11.6 million, respectively. Net cash used in operations during the three months ended March 31, 2023 and 2022 totaled approximately $1.3 million and $2.0 million, respectively. Net cash used in operations decreased in the first quarter of 2023 compared to the first quarter of 2022 primarily due to the decrease in cash used as start-up expenses related to the launch of the Company’s cannabis-containing beverages and related products during the three months ended March 31, 2023.
We did not receive any cash from the exercise of stock options as of March 31, 2023 or 2022. 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.
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.
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, 2022, filed with the SEC on March 29, 2023. There have been no material changes in our critical accounting policies during the three months ended March 31, 2023.
| 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 Chief 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 Chief 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 Chief Financial Officer concluded that these disclosure controls and procedures were effective as of March 31, 2023.
| (b) |
Changes in internal controls over financial reporting |
In response to the material weakness described in our most recently filed Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 29, 2023, with the oversight of the Audit Committee of our Board of Directors, management is currently evaluating our policies and procedures related to the accounting for short term financings and is working to implement adequate internal controls to ensure that (i) the liability associated with short-term financings are identified and recorded properly, and (ii) the associated asset with said financings are identified and recorded.
The remediation efforts are intended both to address the identified material weakness and to enhance our overall financial control environment. Management is committed to continuous improvement of the Company’s internal control over financial reporting and will continue to diligently review the Company’s internal control over financial reporting.
There were no other changes in our internal controls over financial reporting during the three months ended March 31, 2023 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, 2022.
| EXHIBITS |
| 3.1 |
|
| 3.2 |
|
| 3.3 |
|
| 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.
| JONES SODA CO. (Registrant) |
||
| May 11, 2023 |
||
| By: |
/s/ Joe Culp |
|
| Joe Culp |
||
| Interim Chief Financial Officer and Principal Financial Officer |
||