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)
| | |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
| | |
| | |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address and fiscal year, if changed since last report)
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 (§232.405 of this chapter) 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.
| 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 November 13, 2024, there were
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
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,” 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
This Report contains certain forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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, the negative of these terms 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. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Report or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission could materially and adversely affect our business, prospects, financial condition and results of operations. 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. Any public statements or disclosures by us following this Report that modify or impact any of the forward-looking statements contained in this Report will be deemed to modify or supersede such statements in this Report.
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 quarter ended September 30, 2024; |
| ● |
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 other factors that may adversely affect our supply chain, including increases in raw material costs, and the potential shortages of glass in the supply chain; |
| ● |
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; |
| ● |
Our ability to comply with applicable regulatory requirements and effectively address investigations and administrative actions by government regulators with jurisdiction over our products; |
| ● |
Failures or security breaches of our information technology systems that 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, 2023 filed with the Securities and Exchange Commission (“SEC”) on April 1, 2024 and in our other reports we file with the SEC, including our Quarterly 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 Quarterly 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.
This Report may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third-party sources.
PART 1 – FINANCIAL INFORMATION
| FINANCIAL STATEMENTS |
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2024 | December 31, 2023 | |||||||
| (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 | ||||||||
| Other 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.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (In thousands, except share data) |
(In thousands, except share data) |
|||||||||||||||
| Revenue |
$ | $ | $ | $ | ||||||||||||
| Cost of goods sold |
||||||||||||||||
| Gross profit |
||||||||||||||||
| Operating expenses: |
||||||||||||||||
| Selling and marketing |
||||||||||||||||
| General and administrative |
||||||||||||||||
| Total operating expenses |
||||||||||||||||
| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Interest income |
||||||||||||||||
| Interest expense |
( |
) | ( |
) | ||||||||||||
| Other income (expense), net |
( |
) | ( |
) | ( |
) | ||||||||||
| Loss before income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income tax expense, net |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss per share - basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average common shares outstanding - basic and diluted |
||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (In thousands) |
(In thousands) |
|||||||||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive income (loss): |
||||||||||||||||
| Foreign currency translation adjustment |
( |
) | ( |
) | ||||||||||||
| Total comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
| Common Stock |
||||||||||||||||||||
| Number |
Amount |
Accumulated Other Comprehensive Income |
Accumulated Deficit |
Total Shareholders’ Equity |
||||||||||||||||
| (In thousands, except share data) |
||||||||||||||||||||
| Three months ended September 30, 2023 |
||||||||||||||||||||
| Balance as of June 30, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Stock-based compensation |
||||||||||||||||||||
| Exercise of Pinestar Warrants |
||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||
| Other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||
| Balance as of September 30, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Three months ended September 30, 2024 |
||||||||||||||||||||
| Balance as of June 30, 2024 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Stock-based compensation |
||||||||||||||||||||
| Shares withheld for taxes upon RSU vesting |
( |
) | ( |
) | ( |
) | ||||||||||||||
| Private Placement Offering |
||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||
| Other comprehensive gain |
- | |||||||||||||||||||
| Balance as of September 30, 2024 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Nine months ended September 30, 2023 |
||||||||||||||||||||
| Balance as of December 31, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Stock-based compensation |
||||||||||||||||||||
| Shares withheld for taxes upon RSU vesting |
( |
) | ( |
) | ( |
) | ||||||||||||||
| Exercise of Pinestar Warrants |
||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||
| Other comprehensive gain |
- | |||||||||||||||||||
| Balance as of September 30, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Nine months ended September 30, 2024 |
||||||||||||||||||||
| Balance as of December 31, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Stock-based compensation |
||||||||||||||||||||
| Shares withheld for taxes upon RSU vesting |
( |
) | ( |
) | ( |
) | ||||||||||||||
| Exercise of Pinestar Warrants |
||||||||||||||||||||
| Private Placement Offering |
||||||||||||||||||||
| Exercise of Stock Options |
||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||
| Other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||
| Balance as of September 30, 2024 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine months ended September 30, |
||||||||
| 2024 |
2023 |
|||||||
| (In thousands) |
||||||||
| OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Stock-based compensation |
||||||||
| Change in allowance for credit losses |
( |
) | ||||||
| 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 |
( |
) | ||||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| INVESTING ACTIVITIES: |
||||||||
| Purchase of fixed assets |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| FINANCING ACTIVITIES: |
||||||||
| Proceeds from the exercise of Pinestar Warrants |
||||||||
| Proceeds from the exercise of stock options |
||||||||
| Net Proceeds from Private Placement Offering |
||||||||
| Payment of taxes on RSU withholding |
( |
) | ||||||
| Repayments on insurance financing |
( |
) | ( |
) | ||||
| Net cash provided by (used in) financing activities |
( |
) | ||||||
| Net change in cash and cash equivalents |
( |
) | ( |
) | ||||
| Effect of exchange rate changes on cash |
( |
) | ( |
) | ||||
| Cash and cash equivalents, beginning of period |
||||||||
| Cash and cash equivalents, end of period |
$ | $ | ||||||
| Supplemental disclosure: |
||||||||
| Cash paid during period for: |
||||||||
| Income taxes |
$ | $ | ||||||
| Interest |
$ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| 1. | Nature of Operations and Summary of Significant Accounting Policies |
Jones Soda Co. develops, produces, markets and distributes premium beverages which it sells and distributes primarily in the United States and Canada through its network of independent distributors and directly to its national and regional retail accounts.
We are a Washington corporation and have nine subsidiaries; Jones Soda Co. (USA) Inc., Jones Soda (Canada) Inc., Mary Jones Holdings Inc., Mary Jones California, LLC, Mary Jones Michigan, LLC, Mary Jones Beverage LLC, Mary Jones Beverage (Michigan), LLC, Mary Jones Beverage (Canada) Inc., and Pinestar Gold Inc. (Subsidiaries).
Basis of presentation, consolidation and use of estimates
The accompanying condensed consolidated balance sheet as of December 31, 2023, which has been derived from our audited consolidated financial statements, and unaudited interim condensed consolidated financial statements as of September 30, 2024, 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, accounts receivable credit loss reserve, 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, 2023.
Liquidity
As of September 30, 2024 and December 31, 2023, we had cash and cash-equivalents of approximately $
For the nine months ended September 30, 2024, net cash provided by financing activities totaled approximately $
We have experienced recurring losses from operations and negative cash flows from operating activities. These factors initially raised substantial doubt regarding the Company’s ability to continue as a going concern. On May 17, 2024, the Company signed a financing agreement from a creditor to provide the Company with a $
Based on management's current operating plan, the Company believes its cash and cash equivalents on hand, projected cash generated from product sales, proceeds from Private Placement, and funds available from the revolving credit facility are sufficient to fund the Company's operations for a period of at least 12 months subsequent to the issuance of the accompanying condensed consolidated financial statements and alleviates the conditions that initially raised substantial doubt regarding the Company's ability to continue as a going concern.
During the nine months ended September 30, 2024 and 2023, we received $
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, to the 12/31/2023 audited financial statements included in our most recently filed Annual Report on Form 10-K filed with the SEC on April 1, 2024 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 promotional allowances. Discounts, slotting fees and promotional allowances vary the consideration we are entitled to in exchange for the sale of products to distributors. We estimate these discounts, slotting fees and promotional allowances in the same period that the revenue is recognized for product sales to customers. These estimates are based on contract terms and our historical experience with similar programs and require management judgement with respect to estimating customer participation and performance levels. Differences between estimated expense and actual costs are normally insignificant and are recognized in earnings in the period such differences are determined. The amount of revenue recognized represents the amount that will not be subject to a significant future reversal of revenue. The liability for promotional allowances is included in accrued expenses on the consolidated balance sheets. Amounts paid for slotting fees are recorded as prepaid expenses on the consolidated balance sheets and amortized over the corresponding term. For the quarters ended September 30, 2024 and 2023, 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 credit losses is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance for credit losses based primarily on current trends and estimates. The Company reserves a percentage of trade receivable balances based on collection history and current economic trends that the Company expects will impact the level of credit losses over the life of the receivables. These reserves are re-evaluated on a regular basis and adjusted as needed. 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 credit losses of $
As of September 30, 2024 and December 31, 2023, there were customers that accounted for a material concentration amount of our 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 during the three and nine months ended September 30, 2024 and 2023, outstanding stock options amounting to
Recently adopted accounting pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU was effective for us in the first quarter of 2023, however the impact on the Company’s consolidated financial statements was immaterial, and thus no material changes were made to the Company’s consolidated financial statements as of September 30, 2024 and December 31, 2023.
Recent accounting pronouncements
In June 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Accounting for Segment Reporting Improvements. The amendments in ASU 2023-07 are effective for all public entities for fiscal years beginning after December 15, 2023 (for calendar year-end companies, this would be the fiscal year 2024), and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 simplifies segment aggregation requirements and introduces other enhancements to segment reporting disclosures.
Management is currently evaluating the impact of ASU 2023-07 on the Company’s consolidated financial statements. Although the standard will not become effective until fiscal year 2024 (and for interim periods within fiscal years beginning after December 15, 2024), the Company is proactively reviewing its segment reporting structure to ensure compliance with the new requirements. As of the date of this report, management has not identified any significant changes to the segment disclosures, but will continue to assess any potential impacts as it prepares for the adoption of this standard.
| 2. | Inventory |
Inventory consisted of the following (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| Finished goods | $ | $ | ||||||
| Raw materials | ||||||||
| $ | $ | |||||||
Finished goods primarily include product ready for shipment, as well as promotional merchandise held for sale. Raw materials primarily include ingredients, concentrate and packaging. For the three months ended September 30, 2024 and 2023, we recorded obsolete inventory expenses of $
| 3. | 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 September 30, 2024, 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, 2024 | $ | |||||||
| Options granted | ||||||||
| Options exercised | ( | ) | ||||||
| Options forfeited/expired | ( | ) | ||||||
| Balance at September 30, 2024 | $ | |||||||
| Exercisable, September 30, 2024 | $ | |||||||
| Vested and expected to vest | $ | |||||||
| Outstanding Options | ||||||||
| Number of Shares | Weighted Average Exercise Price | |||||||
| Balance at January 1, 2023 | $ | |||||||
| Options granted | ||||||||
| Options forfeited/expired | ( | ) | ||||||
| Balance at September 30, 2023 | $ | |||||||
| Exercisable, September 30, 2023 | $ | |||||||
| Vested and expected to vest | $ | |||||||
| (b) | Restricted stock awards: |
In May 2023, the Board of Director compensation structure consisted of an annual grant of
In 2024, the Board determined that it was in the best interests of the Company to revise the Board of Director compensation plan. It was determined that each director shall receive compensation consisting of restricted stock unit (“RSU”) grants, with the value of each RSU calculated based on the five day volume-weighted average price of the Company’s shares common stock on the OTCQB during the five trading days immediately preceding January 1, 2024. Based on this value of each RSU, the total grant will consist of (i) a $
A summary of our restricted stock activity for the nine months ended September 30, 2024 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, 2024 | $ | - | ||||||||||
| Granted | ||||||||||||
| Vested | ( | ) | ||||||||||
| Cancelled/expired | ||||||||||||
| Non-vested restricted stock at September 30, 2024 | $ | |||||||||||
| (c) | Stock-based compensation expense: |
Stock-based compensation expense is recognized using the straight-line attribution method over the employees’ requisite service period, or the non-employee's service period based on the term of the contract. We recognize compensation expense for only the portion of stock options or restricted stock expected to vest. Therefore, we apply estimated forfeiture rates that are derived from historical employee attrition. If the actual number of forfeitures differs from those estimated by management, additional adjustments to stock-based compensation expense may be required in future periods.
At September 30, 2024, we had unrecognized compensation expense related to stock options of $
The following table summarizes the stock-based compensation expense (in thousands):
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Stock options | $ | $ | $ | $ | ||||||||||||
| Warrants | ||||||||||||||||
| Common stock award | ||||||||||||||||
| Restricted stock | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Income statement account: | ||||||||||||||||
| Selling and marketing | $ | $ | ( | ) | $ | $ | ||||||||||
| General and administrative | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
In 2023, 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:
| Nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Expected dividend yield | ||||||||
| Expected stock price volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (in years) | ||||||||
| Weighted-average grant date fair-value | ||||||||
The aggregate intrinsic value of stock options outstanding at September 30, 2024 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.
There are
| (e) | Private Placement Offering: |
The Company issued
In connection with the offering, the Company paid Dominari Securities LLC (“Dominari”), who acted as exclusive placement agent for the offering, an aggregate of $
The Units were offered and sold in the offering: (i) in the United States to accredited investors in reliance on Rule 506(b) of Regulation D under the Securities Act; and (ii) outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act.
In connection with the issuance of the Units, the Company signed a registration rights agreement with each of the purchasers of the Units. Pursuant to the terms of this registration rights agreement, the Company is required to file a registration statement with the SEC within 30 days of July 26, 2024, that registers for resale the Common Shares issued in the offering as well as the Common Shares issuable of upon the exercise of the Warrants. The failure on the part of the Company to file the registration statement with the SEC within this timeframe may subject the Company to payment of certain monetary penalties. The Company filed a registration statement on Form S-1 with the SEC on August 23, 2024, to register for resale the Common Shares and Warrant Shares issued in the offering, and such registration statement was declared effective by the SEC on August 30, 2024.
There were
| 4. | Segment Information |
We have operating segment with operations primarily in the United States and Canada. Sales are assigned to geographic locations based on the location of customers. Sales by geographic location are as follows (in thousands):
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue: | ||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| Canada | ||||||||||||||||
| Other countries | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
During the three months ended September 30, 2024, our customers represented a material concentration of our revenue. During the three months ended September 30, 2023, of our customers (Lassonde) represented an aggregate of approximately
| 5. | Insurance Premium Financing |
Effective November 15, 2023, the Company entered into a 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 $
| 6. | Line of Credit |
On May 17, 2024, the Company entered into a Revolving Financing and Assignment Agreement (the “Line of Credit”) with Amerisource Funding Inc. (the "Lender"), pursuant to which the Company, through of its wholly owned subsidiary, Jones Soda Co. (USA) Inc. (the "Subsidiary"), may borrow a maximum aggregate amount of up to $
As of September 30, 2024, our outstanding Line of Credit balance was $
| 7. | Commitments and Contingencies |
On March 25, 2024, our indirect wholly owned subsidiary, Mary Jones Michigan LLC ("MJM"), received a Notice of Claims for arbitration (the “Core Claim”) from Core for an arbitration proceeding to be held in Columbus, Ohio, unless otherwise agreed to by the parties. The Core Claim alleges that MJM breached the terms of the agreement entered into between MJM and Core on August 24, 2023 (the “Core Agreement”). The Core Agreement provided that Core was to manufacture a line of Hemp derived Delta-9 THC craft sodas for MJM. Previous to the Core Claim, MJM sent a Notice of Material Breaches by Core Manufacturing and Demand for Audit dated February 1, 2024, which claimed that Core was in breach of its commitments under the Core Agreement. In the Core Claim, Core is seeking to enforce the break-up fee provision in the Core Agreement (which Core calculates to be $
MJM is also seeking from P3 Capital Partner LLC (“P3”), an entity related to Core, the return of a $
| 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 our audited consolidated financial statements and notes thereto for the year ended December 31, 2023 included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (“SEC”) on April 1, 2024.
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, the negative of these terms 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 Quarterly 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 North America through our network of independent distributors and directly to our national and regional retail accounts. We also currently sell premium soda beverage products in select international markets and license cannabis infused beverages and syrups in California, Washington and Canada. Our premium soda beverage products are sold primarily 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 any of our premium soda beverage products, but instead outsource the manufacturing process to third-party contract manufacturers. We also sell various premium beverage soda 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. In addition, we currently market and license several cannabis infused beverages and syrups in California, Canada, and Washington through third party manufacturers and distributors. We plan to expand our cannabis product offerings (including the development of hemp-derived Delta-9 THC products) and the states in which we offer such products.
Our Focus: Sales Growth
Our focus is sales growth through execution of the following key initiatives:
| ● |
Expand the Jones Soda glass bottle and canned products in existing and new sales channels; |
| ● |
Expand our fountain and food service program in the United States and Canada; and |
| ● |
Grow the Mary Jones brand, which includes Tetrahydrocannabinol (THC) and cannabidiol (CBD)-infused beverages, edibles, and other related products; |
Results of Operations
The following selected financial and operating data are derived from our condensed consolidated financial statements and should be read in conjunction with our condensed consolidated financial statements.
| Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||||||||||||||||||
| 2024 |
% of Revenue |
2023 |
% of Revenue |
2024 |
% of Revenue |
2023 |
% of Revenue |
|||||||||||||||||||||||||
| (Dollars in thousands, except per share data) |
(Dollars in thousands, except per share data) |
|||||||||||||||||||||||||||||||
| Consolidated statements of operations data: |
||||||||||||||||||||||||||||||||
| Revenue |
$ | 4,211 | 100.0 | % | $ | 4,497 | 100.0 | % | $ | 16,367 | 100.0 | % | $ | 13,173 | 100.0 | % | ||||||||||||||||
| Cost of goods sold |
(3,317 | ) | (78.8 | )% | (3,017 | ) | (67.1 | )% | (11,020 | ) | (67.3 | )% | (8,999 | ) | (68.3 | )% | ||||||||||||||||
| Gross profit |
894 | 21.2 | % | 1,480 | 32.9 | % | 5,347 | 32.7 | % | 4,174 | 31.7 | % | ||||||||||||||||||||
| Selling and marketing expenses |
(1,644 | ) | (39.0 | )% | (1,154 | ) | (25.7 | )% | (5,064 | ) | (30.9 | )% | (3,266 | ) | (24.8 | )% | ||||||||||||||||
| General and administrative expenses |
(1,867 | ) | (44.3 | )% | (1,270 | ) | (28.2 | )% | (5,636 | ) | (34.4 | )% | (4,234 | ) | (32.1 | )% | ||||||||||||||||
| Loss from operations |
(2,617 | ) | (62.1 | )% | (944 | ) | (21.0 | )% | (5,353 | ) | (32.7 | )% | (3,326 | ) | (25.2 | )% | ||||||||||||||||
| Interest income |
7 | 0.2 | % | 20 | 0.4 | % | 18 | 0.1 | % | 38 | 0.3 | % | ||||||||||||||||||||
| Interest expense |
(10 | ) | (0.2 | )% | - | 0.0 | % | (17 | ) | (0.1 | )% | - | 0.0 | % | ||||||||||||||||||
| Other income (expense), net |
(3 | ) | (0.1 | )% | (2 | ) | (0.0 | )% | 30 | 0.2 | % | (3 | ) | (0.0 | )% | |||||||||||||||||
| Loss before income taxes |
(2,623 | ) | (62.3 | )% | (926 | ) | (20.6 | )% | (5,322 | ) | (32.5 | )% | (3,291 | ) | (25.0 | )% | ||||||||||||||||
| Income tax expense, net |
(5 | ) | (0.1 | )% | (8 | ) | (0.2 | )% | (26 | ) | (0.2 | )% | (30 | ) | (0.2 | )% | ||||||||||||||||
| Net loss |
$ | (2,628 | ) | (62.4 | )% | $ | (934 | ) | (20.8 | )% | $ | (5,348 | ) | (32.7 | )% | $ | (3,321 | ) | (25.2 | )% | ||||||||||||
| Basic and diluted net loss per share |
$ | (0.02 | ) | $ | (0.01 | ) | $ | (0.05 | ) | $ | (0.03 | ) | ||||||||||||||||||||
| As of |
||||||||
| September 30, 2024 |
December 31, 2023 |
|||||||
| (Dollars in thousands) |
||||||||
| Balance sheet data: |
||||||||
| Cash and cash equivalents and accounts receivable, net |
$ | 5,536 | $ | 5,985 | ||||
| Fixed assets, net |
122 | 137 | ||||||
| Total assets |
11,868 | 9,906 | ||||||
| Long-term liabilities |
- | - | ||||||
| Working capital |
6,584 | 7,239 | ||||||
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 September 30, 2024 Compared to Quarter Ended September 30, 2023
Revenue
For the quarter ended September 30, 2024, revenue decreased by approximately $286,000, or 6.36%, to approximately $4.2 million compared to approximately $4.4 million for the quarter ended September 30, 2023. The decrease in sales revenue was primarily the result of increased trade spend and promotion allowances during the current quarter, being partially offset by increased Mary Jones sales and increased Food Service revenue as well.
For the quarter ended September 30, 2024, trade spend and promotion allowances, which reduced the amount of revenue for the sales of our product, totaled approximately $1.5 million, an increase of approximately $941,000, or 174.9%, compared to approximately $538,000 for the quarter ended September 30, 2023, primarily due to promotional and pricing programs related to our Mary Jones products and core Jones Soda sales in Canada due to a transition to a new distributor.
Gross Profit
For the quarter ended September 30, 2024, gross profit decreased by approximately $586,000, or 39.6% to approximately $894,000 compared to approximately $1.5 million for the quarter ended September 30, 2023. For the quarter ended September 30, 2024, gross margin decreased to 21.2% from 32.9% for the quarter ended September 30, 2023. This decrease was primarily driven by increased trade spend and allowances, especially in Canada, combined with increased cost of goods sold in the current quarter compared to the previous quarter mostly as a result of increased warehousing costs.
Selling and Marketing Expenses
Selling and marketing expenses for the quarter ended September 30, 2024 were approximately $1.6 million, an increase of approximately $490,000 or 42.5% compared to approximately $1.2 million for the quarter ended September 30, 2023. This increase was primarily a result of an increase in online marketing spend for both the Jones Soda and Mary Jones brands. Additionally, we increased our marketing initiatives with companies involved with action sports, including a partnership with Thrill One Sports & Entertainment, in the quarter ended September 30, 2024 that did not occur in the quarter ended September 30, 2023. Selling and marketing expenses as a percentage of revenue increased to 39.0% in the third quarter ended September 30, 2024 from 25.7% in the same period in 2023. We intend to continue to balance selling and marketing expenses with our working capital resources. For the three months ended September 30, 2024 and 2023, non-cash expenses included in selling and marketing expenses (stock compensation and depreciation) were approximately $37,000 and ($13,000), respectively.
General and Administrative Expenses
General and administrative expenses for the third quarter ended September 30, 2024 were approximately $1.9 million, an increase of approximately $597,000, or 47.0%, compared to approximately $1.3 million for the quarter ended September 30, 2023. This increase was primarily a result of increased legal expenditures related to our Mary Jones business, in addition to increased travel expenditures in connection with the Company’s growth plan that includes new supply chain and sponsorship partners. General and administrative expenses as a percentage of revenue increased to 44.3% in the third quarter ended September 30, 2024 from 28.2% in the same quarter in 2023. We intend to continue to carefully manage general and administrative expenses with our working capital resources. For the three months ended September 30, 2024 and 2023, non-cash expenses included in general and administrative expenses (stock compensation and depreciation) were approximately $345,000 and $96,000, respectively. The increase in non-cash expenses included in general and administrative expenses in the third quarter of 2024 was primarily due to the restricted stock units granted to members of the Company’s Board of Directors in the second quarter of 2024 resulting in a higher expense in the third quarter of 2024 than the expense associated with the stock options granted to members of the Company’s Board of Directors in 2023.
Interest Expense
We incurred $10,000 in interest expense for the quarter ended September 30, 2024 compared to no interest expenses in the third quarter of 2023, due to the line of credit balance that was outstanding in July 2024 prior to paying off the entire outstanding balance so that as of September 30, 2024 we had no outstanding amounts under our line of credit.
Income Tax Expense
We incurred approximately $5,000 and $8,000 of income tax expense during the quarters ended September 30, 2024 and 2023, respectively, primarily related to the tax provision on income from our Canadian operations. We have not recorded any tax benefit for the loss in our U.S. operations as we have recorded a full valuation allowance on our U.S. net deferred tax assets. We expect to continue to record a full valuation allowance on our U.S. net deferred tax assets until we sustain an appropriate level of taxable income through improved U.S. operations. Our effective tax rate is based on recurring factors, including the forecasted mix of income before taxes in various jurisdictions, estimated permanent differences and the recording of a full valuation allowance on our U.S. net deferred tax assets.
Net loss
Net loss for the quarter ended September 30, 2024 was approximately $2.6 million compared to net loss of approximately $934,000 for the quarter ended September 30, 2023. This increase in net loss was primarily due to the increased sales and marketing and general and administrative costs associated with the development of new products and other operating expenses to support Company's growth plans, in addition to the decrease in gross profit.
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
Revenue
For the nine months ended September 30, 2024, sales revenue increased by approximately $3.2 million, or 24.2%, to approximately $16.4 million compared to approximately $13.2 million for the nine months ended September 30, 2023. The increase in sales revenue was primarily the result of an increase in sales volume of the Mary Jones branded products, an increase in our Nuka Cola sales online, and an increase in revenue related to core Jones Soda sales in Canada, being partially offset by increased trade spend and promotional allowances.
For the nine months ended September 30, 2024, trade spend and promotion allowances, which reduced the amount of revenue for the sales of our product, totaled approximately $3.1 million, an increase of approximately $1.8 million, or 148.9%, compared to approximately $1.2 million for the nine months ended September 30, 2023, primarily due to promotional and pricing programs related to Mary Jones products and core Jones Soda sales in Canada due to a transition to a new distributor.
Gross Profit
For the nine months ended September 30, 2024, gross profit increased by approximately $1.2 million, or 28.1%, to approximately $5.3 million compared to approximately $4.2 million for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, gross margin increased to 32.7% from 31.7% for the nine months ended September 30, 2023. This increase was primarily driven by proactive pricing adjustments, supply chain optimization, and increased sales of our Mary Jones branded products which generally have higher margins than our other products, being partially offset by increased trade spend and allowances, especially in Canada, as well as increased cost of goods sold in the current period compared to the same period last year mostly as a result of increased warehousing costs.
Selling and Marketing Expenses
Selling and marketing expenses for the nine months ended September 30, 2024 increased by approximately $1.8 million to $5.1 million in comparison to approximately $3.3 million for the nine months ended September 30, 2023. This increase was primarily a result of an increase in online marketing spend for both the Jones Soda and Mary Jones brands. Additionally, we increased our marketing initiatives with companies involved with action sports, including a partnership with Thrill One Sports & Entertainment, in the nine months ended September 30, 2024 that did not occur in the nine months ended September 30, 2023. Selling and marketing expenses as a percentage of revenue increased to 30.9% in the nine months ended September 30, 2024 from 24.8% in the same period in 2023. We intend to continue to balance selling and marketing expenses with our working capital resources. For the nine months ended September 30, 2024 and 2023, non-cash expenses included in selling and marketing expenses (stock compensation and depreciation) were approximately $101,000 and $42,000, respectively.
General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2024 were approximately $5.6 million, an increase of approximately $1.4 million, or 33.1%, compared to approximately $4.2 million for the nine months ended September 30, 2023. This increase was primarily a result of increased legal expenditures related to our Mary Jones business, in addition to increased travel expenditures in connection with the Company’s growth plan that includes new supply chain and sponsorship partners. General and administrative expenses as a percentage of revenue increased to 34.4% in the nine month period ended September 30, 2024 from 32.1% in the same period in 2023. We will continue to carefully manage general and administrative expenses with our working capital resources. For the nine months ended September 30, 2024 and 2023, non-cash expenses included in general and administrative expenses (stock compensation and depreciation) were approximately $927,000 and $611,000, respectively. The increase in non-cash expenses included in general and administrative expenses in 2024 was primarily due to restricted stock units granted to members of the Company’s Board of Directors in 2024 which were not granted in 2023, being partially offset by fewer stock options granted to officers and directors in this period compared to the same period in the prior year.
Interest Expense
We incurred $17,000 in interest expense for the nine months ended September 30, 2024 due to our current line of credit, compared to no interest expense for the nine months ended September 30, 2023.
Income Tax Expense
We incurred approximately $26,000 and $30,000 of income tax expense during the nine months ended September 30, 2024 and 2023, 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 nine months ended September 30, 2024 was approximately $5.3 million compared to net loss of approximately $3.3 million for the nine months ended September 30, 2023. This increase in net loss was primarily due to the increased sales and marketing and general and administrative costs associated with the development of new products and other operating expenses to support the Company's growth plans.
Liquidity and Capital Resources
As of September 30, 2024 and December 31, 2023, we had cash and cash equivalents of approximately $2.7 million and $3.9 million, respectively, and working capital of approximately $6.6 million and $7.2 million, respectively. Net cash used in operations during the nine months ended September 30, 2024 and 2023 totaled approximately $4.4 million and $2.1 million, respectively. We incurred a net loss of approximately $5.3 million for the nine months ended September 30, 2024 compared to a net loss of approximately $3.3 million for the nine months ended September 30, 2023. Our accumulated deficit increased to $88.4 million as of September 30, 2024 compared to an accumulated deficit of $83.1 million as of December 31, 2023.
For the nine months ended September 30, 2024, net cash provided by financing activities totaled approximately $3.3 million, most significantly due to the proceeds from our issuance of common stock from the Private Placement (as defined below) described in Note 3 in Part I, Item 1 Financial Statements. For the nine months ended September 30, 2023, net cash used in financing activities totaled $603,000 due to repayments on our insurance financing agreement.
We have experienced recurring losses from operations and negative cash flows from operating activities. These factors initially raised substantial doubt regarding the Company’s ability to continue as a going concern. On May 17, 2024, the Company signed a financing agreement from a creditor to provide the Company with a $2 million revolving credit facility for working capital needs (See Note 7 in Part I, Item 1 Financial Statements, for additional information). Additionally, during the quarter ended September 30, 2024, the Company closed a private placement equity raise for net proceeds of $3.7 million, after deducting placement agency fees and other offering expenses (the “Private Placement”) (See Note 3 in Part I, Item 1 Financial Statements, for additional information).
Based on management's current operating plan, the Company believes its cash and cash equivalents on hand, projected cash generated from product sales, proceeds from Private Placement, and funds available from the revolving credit facility are sufficient to fund the Company's operations for a period of at least 12 months subsequent to the issuance of the accompanying condensed consolidated financial statements and alleviates the conditions that initially raised substantial doubt regarding the Company's ability to continue as a going concern.
During the nine months ended September 30, 2024 and 2023, we received $37,000 and nil, 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.
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, 2023, filed with the SEC on April 1, 2024. There have been no material changes in our critical accounting policies during the three months ended September 30, 2024.
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.
| 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 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 Interim Chief Executive Officer and Interim Chief Financial Officer concluded that these disclosure controls and procedures were effective as of September 30, 2024.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
| (b) |
Changes in internal controls over financial reporting |
There were no other changes in our internal controls over financial reporting during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
| LEGAL PROCEEDINGS |
On March 25, 2024, our indirect wholly owned subsidiary, Mary Jones Michigan LLC ("MJM"), received a Notice of Claims for arbitration (the “Core Claim”) from Core for an arbitration proceeding to be held in Columbus Ohio, unless otherwise agreed to by the parties. The Core Claim alleges that MJM breached the terms of the agreement entered into between MJM and Core on August 24, 2023 (the “Core Agreement”). The Core Agreement provided that Core was to manufacture a line of Hemp derived Delta-9 THC craft sodas for MJM. Previous to the Core Claim, MJM sent a Notice of Material Breaches by Core Manufacturing and Demand for Audit dated February 1, 2024, which claimed that Core was in breach of its commitments under the Core Agreement. In the Core Claim, Core is seeking to enforce the break-up fee provision in the Core Agreement (which Core calculates to be $7,220,357), as well as obtain other damages arising from MJM’s alleged failure to comply with the Core Agreement. We dispute the allegations of Core in the Core Claim and intend to defend ourselves vigorously in this matter. On April 16, 2024, MJM filed an Answer to the Core Claim asserting multiple affirmative defenses to the two breach of contract claims and asserted in its own Counterclaim causes of action against Core for breach of contract, fraud, and negligent misrepresentation. The arbitration is in its early stages but an arbitrator has been selected.
MJM is also seeking from P3 Capital Partner LLC (“P3”), an entity related to Core, the return of a $155,700 deposit previous paid to P3 in connection with the license and manufacturing agreement between MJM and P3. MJM filed for litigation in Michigan federal court asserting claims for fraud, conversion, and breach of contract against P3.
Other than the above, we are not currently involved in any material legal proceedings. We 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.
| 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, 2023, filed with the SEC on April 1, 2024.
| UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, ISSUER PURCHASES OF EQUITY SECURITIES. |
None.
| OTHER INFORMATION |
During the fiscal quarter ended September 30, 2024, of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(a) of Regulation S-K.
| EXHIBITS |
| 3.1 |
|
| 3.2 |
|
| 3.3 |
|
| 4.1 |
Form of Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 1, 2024) |
| 10.1 |
Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 1, 2024) |
| 31* |
|
| 32** |
|
| 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) |
*Filed herewith.
** Furnished herewith. This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Exchange Act and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
*** Furnished herewith. 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 or Section 18 of the Exchange Act and otherwise are not subject to liability under those sections.
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) |
|
|
| November 14, 2024 |
|
|
|
|
|
By: |
/s/ Paul Norman |
|
|
|
|
Paul Norman |
|
|
|
|
Interim Chief Executive Officer and Interim Chief Financial Officer |
|