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:
(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)
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 ☐ No
As of May 15, 2025, there were shares of the registrant’s common stock issued and outstanding.
JONES SODA CO.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2025
TABLE OF CONTENTS
| 2 |
EXPLANATORY NOTE
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 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 raise capital to finance our operations; |
| ● | Our ability to execute our plans to continue to license 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; |
| 3 |
| ● | 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; |
| ● | 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; |
| ● | Tariffs affecting raw materials or finished goods transported between the United States and Canada; |
| ● | 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, 2024 filed with the Securities and Exchange Commission (“SEC”) on April 1, 2025 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.
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PART 1 – FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
JONES SODA CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
| March
31, 2025
(unaudited) | December 31, 2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net
of allowance of $ | ||||||||
| Inventories, net | ||||||||
| Prefunded insurance premiums from financing | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Other assets | ||||||||
| Fixed
assets, net of accumulated depreciation of $ | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Revolving credit facility | ||||||||
| Insurance premium financing | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 9) | ||||||||
| Shareholders’ equity: | ||||||||
| Common stock, | ||||||||
| 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.
| 5 |
JONES SODA CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net Revenue | $ | $ | ||||||
| Cost of goods sold | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling and marketing | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ( | ) | ( | ) | ||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expenses): | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ||||||
| Other expense | ( | ) | ( | ) | ||||
| Total other (expense) income | ( | ) | ||||||
| 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.
| 6 |
JONES SODA CO.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except per share data)
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive (loss) income) | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | ||
See accompanying notes to condensed consolidated financial statements.
| 7 |
JONES SODA CO.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share data)
| Common Stock | Accumulated Other Comprehensive | Accumulated | Total Shareholders’ | |||||||||||||||||
| Number | Amount | Income | Deficit | Equity | ||||||||||||||||
| Balance as of December 31, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
Other comprehensive income | - | |||||||||||||||||||
| Balance as of March 31, 2025 | ( | ) | ||||||||||||||||||
| Common Stock | Accumulated Other Comprehensive | Accumulated | Total Shareholders’ | |||||||||||||||||
| Number | Amount | Income | Deficit | Equity | ||||||||||||||||
| Balance as of December 31, 2023 | ( | ) | ||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Exercise of Pinestar Warrants | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of March 31, 2024 | ( | ) | ||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 8 |
JONES SODA CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands, except share data)
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash flows used in operating activities: | ||||||||
| Depreciation | ||||||||
| Stock-based compensation | ||||||||
| Change in allowance for credit losses | ( | ) | ( | ) | ||||
| Write-off of obsolete inventory | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prefunded insurance premiums from financing | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other assets | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Net cash from revolving credit facility | ||||||||
| Proceeds from the exercise of Pinestar Warrants | ||||||||
| Repayments on insurance financing | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net change in cash | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 9 |
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 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. In addition, during 2022, we developed and began to license THC infused cannabis products under the “Mary Jones” brand name in various U.S. states that permitted the sale of THC infused products. We also have a royalty-free license in perpetuity to intellectual property related to Mary Jones for us to license Mary Jones products for use only in Canada.
We are a Washington corporation and have the following subsidiaries: Jones Soda Co. (USA) Inc., Jones Soda (Canada) Inc., Mary Jones Holdings Inc., Mary Jones California, LLC, Mary Jones Michigan LLC, Pinestar Gold Inc., Mary Jones Washington LLC, Mary Jones Beverage LLC, Mary Jones Beverage (Michigan), LLC, Mary Jones Beverage (Canada) Inc. and Mary Jones Holdco 2, Inc. (collectively, the “Subsidiaries”).
Basis of presentation, consolidation and use of estimates
The unaudited interim condensed consolidated financial statements as of and for the period ending March 31, 2025, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial reporting. These condensed consolidated financial statements include our accounts and those of our subsidiaries, with all intercompany transactions eliminated in consolidation.
In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all material adjustments necessary for a fair presentation of our financial position, results of operations, and cash flows as of the dates and for the periods presented. These adjustments consist solely of normal and recurring items. The preparation of financial statements requires estimates and assumptions that impact the reported amounts of assets, liabilities, revenues, and expenses. Key areas subject to such estimates and assumptions include, but are not limited to, inventory valuation, depreciation 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 may differ from these estimates.
The operating results for interim periods are not necessarily indicative of expected results for the full fiscal year. These financial statements should be reviewed in conjunction with the audited financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Reclassifications
Certain amounts from prior periods have been reclassified to conform with the current period presentation.
Liquidity
As
of March 31, 2025, and December 31, 2024, the Company had cash of approximately $
For
the three months ended March 31, 2025, net cash provided by financing activities totaled approximately $
We
have experienced recurring losses from operations and negative cash flows from operating activities. These factors raise substantial
doubt regarding the Company’s ability to continue as a going concern. To address this issue, the Company recently changed its senior
leadership and is focusing on reducing its operating expenses while bringing products to market with higher margins and potentially
higher customer demand. Additionally, on February 5, 2025, the Company, through a wholly-owned subsidiary (the “Subsidiary”),
entered into loan agreement (the “Loan Agreement”) with Two Shores Capital Corp, pursuant to which the Subsidiary may borrow
a maximum aggregate amount of up to $
Based on management’s current operating plan, the Company believes its cash on hand, projected cash generated from product sales and funds received from under the Loan Agreement 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 . There is no assurance that management’s current operating plan will be successful.
| 10 |
Revenue recognition
The Company’s contracts have a single performance obligation, which is satisfied at the point in time when title and the significant risks and rewards of ownership of the product transfer to the customer. This transfer is deemed to occur when products are either loaded onto a truck for shipment or at the Free on Board (“FOB”) shipping point. The Company primarily receives fixed consideration for product sales, subject to adjustments as outlined below.
Shipping
and handling costs paid by customers, primarily related to online orders, are included in revenue and totaled approximately $
For further details on the Company’s revenue recognition policy, refer to Note 1 of the most recently filed Form 10-K, filed on April 1, 2025.
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 condensed consolidated balance sheets. Amounts
paid for slotting fees are recorded as prepaid expenses on the condensed consolidated balance sheets and amortized over the corresponding
term. For the three months ended March 31, 2025 and 2024, our revenue was reduced by $
Sales
to distributors and customers are generally final. However, in limited instances, the Company may accept product returns due to quality
issues or distributor terminations, resulting in variable consideration. Customers typically remit payment within 30 days of receiving
a valid invoice. The Company offers prompt payment discounts of up to
Accounts Receivable
The
accounts receivable balance primarily consists of trade receivables from distributors and retail customers. The Company’s
allowance for credit losses represents management’s best estimate of probable credit losses in existing accounts receivable, determined
primarily based on current trends and historical collection data. To account for potential credit losses, the Company reserves a percentage
of trade receivable balances based on collection history and prevailing economic conditions expected to impact credit risk over the life
of the receivables. These reserves are regularly re-evaluated and adjusted as necessary. Account balances deemed uncollectible are written
off against the allowance after all collection efforts have been exhausted and the likelihood of recovery is considered remote. As of
March 31, 2025, and December 31, 2024, allowances for credit losses were approximately $
As
of March 31, 2025, one of the Company’s independent customers accounted for approximately
Basic net loss per share is calculated using the weighted average number of common shares outstanding during the respective periods. Diluted earnings per share is computed by adjusting the weighted average number of common shares to reflect the potential net exercise or conversion of all dilutive securities. Due to the net loss incurred during the three months ended March 31, 2025 and 2024, the outstanding stock options of approximately and shares, respectively, and outstanding warrants of approximately and shares, respectively, were considered anti-dilutive.
| 11 |
Recent Accounting Guidance Not Yet Adopted
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09: Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance requires entities to provide more detailed disclosures about income tax expenses (or benefits), including components of the expense (or benefit) and the nature of significant reconciling items. Entities must also disclose information about unrecognized tax benefits, including a tabular reconciliation of beginning and ending balances of unrecognized tax benefits, and details about valuation allowances, including the nature and amount of valuation allowances recorded and released during the period. The guidance is effective for fiscal years beginning after December 15, 2025, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the updated standard on our consolidated financial statements and disclosures.
In March 2024, the FASB issued ASU 2024-01: Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. This update provides guidance on the scope application of profits interest and similar awards under Topic 718. The amendments improve clarity and understanding of paragraph 718-10-15-3, aiding entities in determining whether a profits interest award should be accounted for as a share-based payment arrangement or similar to a cash bonus or profit-sharing arrangement. For public business entities, the amendments are effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2025, and interim periods within those annual periods. Early adoption is permitted. We are currently evaluating the impact of the updated standard on our consolidated financial statements and disclosures.
In November 2024, the FASB issued ASU 2024-03: Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). This update requires entities to disaggregate income statement expenses. The guidance is effective for fiscal years beginning after December 15, 2025, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the updated standard on our consolidated financial statements and disclosures.
In December 2024, the FASB issued Accounting Standards Update (ASU) 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. This update provides guidance on accounting for induced conversions of convertible debt instruments, clarifying the criteria for determining whether settlements should be accounted for as an induced conversion. The amendments specify that an inducement offer must provide the debt holder with consideration meeting or exceeding the conversion privileges outlined in the instrument’s original terms. Additionally, the update addresses convertible debt instruments that are not currently convertible but included substantive conversion features at issuance and at the time of the inducement. The guidance is effective for fiscal years beginning after December 15, 2025, including interim periods within those fiscal years. Early adoption is permitted for entities that have adopted ASU 2020-06. We are currently evaluating the impact of adopting this guidance on our consolidated financial statements and disclosures.
| 2. | Inventory |
Inventory consisted of the following:
| March
31, 2025
(in thousands) | December
31, 2024
(in thousands) | |||||||
| Finished goods | $ | $ | ||||||
| Raw materials | ||||||||
| $ | $ | |||||||
Finished
goods primarily consist of products ready for shipment and promotional merchandise held for sale. Raw materials include ingredients,
concentrate, and packaging materials. For the three months ended March 31, 2025 and 2024 , the Company recorded obsolete inventory
expenses of approximately $
| 12 |
| 3. | Fixed Assets, net |
March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | |||||||
| Vehicles | $ | $ | ||||||
| Equipment | ||||||||
| Office and computer equipment | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| 4. | Accrued Expenses |
Accrued expenses consisted of the following as of March 31, 2025 and December 31, 2024:
March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | |||||||
| Employee benefits | $ | $ | ||||||
| Goods and services tax | ||||||||
| Legal settlement | ||||||||
| Sales and marketing | ||||||||
| Other accruals | ||||||||
| $ | $ | |||||||
| 5. | Revolving Credit Facility |
During
the year ended December 31, 2024, the Company entered into a Revolving Financing and Assignment Agreement (“RFAA”), which
provided a revolving credit facility of up to $
On
February 5, 2025, the Company, through its Subsidiary, entered into a Loan Agreement with Two Shores Capital Corp., pursuant to which
the Subsidiary may borrow up to an aggregate maximum amount of $
| 6. | Insurance Premium Financing |
Effective
November 15, 2024, the Company entered into a one-year
financing agreement with IPFS Corporation to fund a portion of its insurance premiums in the amount of $
| 7. | Membership Agreement Obligation |
On September 1, 2022, the Company entered into a revocable membership and licensing agreement with Saltbox Inc. for shared office and warehouse access in Seattle, WA. This agreement establishes a licensor-licensee relationship rather than a lease, and no lease liability or right-of-use asset is recorded. Initially, the agreement had a one-year term with monthly payments of $. Upon renewal, the Company opted for a month-to-month arrangement at $ per month. On February 28, 2025, the Company provided notice of its intent to exit the agreement after securing lower-cost facilities.
| 13 |
| 8. | Shareholders’ Equity |
On May 16, 2022, the Company’s shareholders approved the adoption of the Jones Soda Co. 2022 Omnibus Equity Incentive Plan (“2022 Plan”), replacing the 2011 Plan. The 2022 Plan provides for various stock-based awards, including stock options, stock appreciation rights, restricted stock, and restricted stock units.
The total shares authorized under the 2022 Plan initially included new shares, plus unissued shares transferred from the 2011 Plan, along with shares underlying forfeited awards, bringing the total authorized shares to .
The Board may grant awards to employees, officers, directors, consultants, agents, advisors, and independent contractors. Stock options are issued at the closing price on the grant date and generally have a ten-year term. As of March 31, 2025, shares remained available for future awards under the Plan.
| (a) | Stock options: |
| Outstanding Options | ||||||||||||||||
| March 31, 2025 | March 31, 2024 | |||||||||||||||
| Number of Shares | Weighted Average Exercise Price ($) (Per Share) | Number of Shares | Weighted Average Exercise Price ($) (Per Share)) | |||||||||||||
| Opening | ||||||||||||||||
| Granted | ||||||||||||||||
| Forfeited / Expired | ( | ) | ( | ) | ||||||||||||
| Closing | ||||||||||||||||
| Exercisable | ||||||||||||||||
| Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price Per Share | Number Exercisable | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price Per Share | ||||||||||||||||||
| $ to $ | ||||||||||||||||||||||||
| $ to $ | ||||||||||||||||||||||||
| $ to $ | ||||||||||||||||||||||||
| $ to $ | ||||||||||||||||||||||||
| (b) | Restricted stock awards: |
Beginning May 13, 2022, the Company’s Board of Directors determined that restricted stock units (RSUs) would be awarded as equity compensation for non-employee directors, replacing stock options, based on the recommendation of the Compensation and Governance Committee. RSUs vest incrementally per the award agreement, with certain awards vesting immediately upon a “Change in Control” as defined in the 2022 Plan.
Previously, from January 1, 2020, through February 15, 2022, non-employee directors received annual non-qualified stock option grants, which vested on the first anniversary of the grant date, subject to continued service. Grants were determined by dividing $ by the closing share price on the grant date. New directors joining the Board before February 15, 2022, received prorated stock option awards under similar terms. Stock option and RSU awards were governed by the 2011 Plan (prior to the 2022 Plan) and respective grant agreements.
On December 30, 2022, the Company entered into rescission agreements with certain non-employee directors and its Chief Executive Officer and President, rescinding and canceling all RSUs granted during 2022, including shares issued upon RSU vesting in August 2022, without consideration.
During the three months ended March 31, 2025 and 2024, RSUs were issued, vested, or canceled.
As of March 31, 2025, and December 31, 2024, the Company had RSUs outstanding.
| (c) | Stock-based compensation expense: |
Stock-based compensation expense is recognized using the straight-line attribution method over the employees’ requisite service period. 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 termination behavior. 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.
As of March 31, 2025, we had unrecognized compensation expense related to stock options of $ million to be recognized over a weighted-average period of years.
| Three months ended | ||||||||
| March 31, 2025 | March 31, 2024 | |||||||
| Stock options | $ | $ | ||||||
| Restricted stock | ||||||||
| $ | $ | |||||||
| Consolidated Statements of Operations account: | ||||||||
| Selling and marketing | $ | $ | ||||||
| General and administrative | ||||||||
| $ | $ | |||||||
| 14 |
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:
| March 31, 2025 | March 31, 2024 | |||||||
| Expected dividend yield | ||||||||
| Expected stock price volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (in years) | ||||||||
| Weighted-average grant date fair-value | $ | $ | ||||||
As of March 31, 2025, the aggregate intrinsic value of outstanding stock options was approximately $, while the intrinsic value of exercisable options was approximately $. Intrinsic value is calculated as the quoted market price of the stock at the balance sheet date less the exercise price of the option.
| (d) | Warrants |
During
the year ended December 31, 2024, the Company issued warrants, each with an exercise price of $
As of March 31, 2025 and December 31, 2024, these warrants remained outstanding.
The following table presents a summary of the Company’s outstanding warrants as of March 31, 2025:
| Expiry Date | Number Outstanding | Remaining Contractual Life (Years) | Exercise Price Per Share (in dollar) | Number Exercisable | ||||||||||||
| $ | ||||||||||||||||
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| 9. | Segment Information |
The Company’s operating and reportable segments consist of the following:
Beverages: This segment includes both Jones Soda’s traditional craft sodas, known for their unique flavors, pure cane sugar formulation, and consumer-driven branding as well as our modern soda’s such as Pop Jones, Fiesta Jones and hemp derived products such as HD9. The products are distributed through various channels, including retail stores, foodservice outlets, and direct-to-consumer platforms.
Cannabis-Derived (THC) Beverages: This segment features beverages and edibles infused with cannabis-derived THC compounds. These products cater to alternative lifestyle markets and are distributed through regulated channels such as licensed dispensaries. Each State in the US has specific regulations to the sales and distribution of these products. In Canada these products are federally regulated. Our distribution relationships typically involve licensing our THC formulated products to Cannabis companies that hold licenses in a specific state or province.
The Chief Operating Decision Maker (“CODM”) of the Company, who is also the Chief Executive Officer (“CEO”), is responsible for evaluating the performance of the Company’s operations. The evaluation focuses primarily on key financial metrics such as net operating revenues and operating income (loss). Based on this consolidated approach to assessing performance and allocating resources, the Company does not present additional segment information in its financial disclosures.
Details regarding the Company’s operations by reportable segment are presented as follows:
| (in thousands) | March 31, 2025 | March 31, 2024 | ||||||
| Segment Results – Net sales | ||||||||
| Beverages | $ | $ | ||||||
| Cannabis-Derived (THC) Beverages | ||||||||
| Total | $ | $ | ||||||
| Segment Results – Loss from operations | ||||||||
| Beverages | $ | ( | ) | $ | ( | ) | ||
| Cannabis-Derived (THC) Beverages | ||||||||
| Total | $ | ( | ) | $ | ( | ) | ||
Furthermore, in accordance with ASC 280, the Company provides the following entity-wide disclosures for the three months ended March 31, 2025 and 2024:
Net Sales by Geographic Location: The breakdown of the Company’s net sales by geographic location are as follows:
| (in thousands) | March 31, 2025 | March 31, 2024 | ||||||
| Segment Results – Net sales | ||||||||
| United States | $ | $ | ||||||
| Canada | ||||||||
| Total | $ | $ | ||||||
Net
sales generated in the United States accounted for
Loss from Operations by Geographic Location: The breakdown of the Company’s income (loss) from operations by geographic location is as follows:
| (in thousands) | March 31, 2025 | March 31, 2024 | ||||||
| Segment Results –Loss from operations | ||||||||
| United States | $ | ( |
$ | ( |
||||
| Canada | ||||||||
| Total | $ | ( |
$ | ( |
||||
Long-Lived Assets: All of the Company’s long-lived assets are located in the United States.
| 10. | Commitments and Contingencies |
Commitments
As
of March 31, 2025, we continue to have commitments to various suppliers of raw materials. Purchase obligations under these commitments
are expected to total $
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, other general liability claims and government and regulatory actions, 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.
| 11. | Subsequent Events |
On
May 2, 2025, the Company entered into a Promissory Note (the “Note”) with the Chairman of the Board of the Company
(the “Lender”) for a principal amount of $
In
addition to the principal and interest payments, the Company is required to pay a loan origination fee of $
| 16 |
| ITEM 2. | 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, 2024 included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (“SEC”) on April 1, 2025.
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. In addition, during 2022, we developed and began to license THC infused cannabis products under the “Mary Jones” brand name in various U.S. states that permitted the sale of THC infused products. We also have a royalty-free license in perpetuity to intellectual property related to Mary Jones for us to license Mary Jones products for use only in Canada.
Our company is a Washington corporation formed in 2000 as a successor to Urban Juice and Soda Company Ltd., a Canadian company formed in 1986. Our principal place of business is located at 1522 Western Ave, STE 24150, Seattle, WA 98101. Our telephone number is (206) 624-3357.
Products
Our strategy is to evolve from a craft soda company (Jones Soda) to a diverse beverage company covering additional growing market segments including modern soda (Pop Jones and Fiesta Jones) and the alternative adult beverages (Mary Jones). Our product line-up currently consists of the following:
Jones Soda
Jones Soda is our premium carbonated soft drink. We sell Jones Soda in premium glass bottles and cans, with labels featuring photos sent to us by our consumers. Over one million photos have been submitted to us. We believe this unique interaction with our consumers distinguishes our brand and offers a strong competitive advantage for Jones Soda. Additionally, we release various label campaigns that celebrate our consumers and the positive impact such consumers have on the world. Our products are made from high quality ingredients, including cane sugar and natural colors and flavors when possible. We also sell Jones Soda in more traditional flavors such as Cream Soda, Cola, Root Beer and Orange & Cream.
Pop Jones and Fiesta Jones (Modern Soda market segment)
We continue to see a growing market in our health focused soda brands, which we consider to be the “modern soda” market. Recent growth by industry competitors such as Poppi and Olipop have proven out the growing consumer demand for this market segment. In 2024, Jones launched its Pop Jones and Fiesta Jones product lines to capitalize on this growing market opportunity.
Mary Jones (Alternative Adult Beverages market segment)
In February 2024 we received approval to operate in Ontario, Canada, and have launched, in that province, 10mg Tetrahydrocannabinol (“THC”) infused sodas in a variety of flavors as well gummies and vapes. We also launched in British Columbia in 2024 where we launched 10mg Tetrahydrocannabinol (“THC”) infused sodas. We also recently received approval in the province of Alberta to launch in June 2025 10mg Tetrahydrocannabinol (“THC”) infused sodas in a variety of flavors as well as gummies and vapes. Manufacturing and distribution of Mary Jones products in Canada is intended to be done through Tilray Brands, Inc. The new Mary Jones products will continue Jones Soda’s tradition of using photographs submitted by consumers on their bottle labels and printing quotes from fans under the bottle caps.
We currently intend to expand both the products offered under the Mary Jones brand as well as the number of states and Canadian provinces we offer such cannabis infused products in.
Fountain (food services market segment)
Drawing inspiration from our traditional bottles, our fountain equipment and cups are branded with an engaging collage of consumer-submitted photos that are inspired by the business themes of our retail partners and the regions in which they are located. Our fountain offerings include traditional flavors such as Cane Sugar Cola, Sugar Free Cola, as well as cane sugar sweetened Ginger Ale, Orange & Cream, Root Beer and Lemon Lime. Rounding out the lineup are two of our most popular cane sugar flavors, Berry Lemonade and Green Apple. We have developed other products in select markets that include teas, lemonade, vitamin enhanced waters, hydration beverages, as well as naturally flavored sparkling waters.
We continue to see growing interest from larger quick service restaurants, corporate accounts, retailers, celebrity chefs and a variety of other outlets looking for differentiated offerings in their fountain soda. We feel that Jones on fountain enhances the consumer experience, while appealing to a broad demographic. We believe our national brand awareness and customer-centric approach make us unique compared to other craft soda competitors within this category.
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 business in the modern soda category through our Pop Jones and Fiesta Jones brands; | |
| ● | Expand our fountain program in the United States and Canada; and, | |
| ● | Grow the new Mary Jones brand of Tetrahydrocannabinol (THC) and cannabidiol (CBD)-infused beverages, edibles, and other related products through our Mary Jones brand as well as the number of states and Canadian provinces where such products are sold. |
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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, 2025 and 2024
| 2024 | 2023 | |||||||||||
| (Dollars in thousands) | (Dollars in thousands) | % Change | ||||||||||
| Revenue | $ | 4,608 | $ | 4,999 | (7.8 | %) | ||||||
| Cost of Goods Sold | (2,891 | ) | (3,107 | ) | (7.0 | %) | ||||||
| Gross Profit | 1,717 | 1,892 | (9.2 | %) | ||||||||
| % of Revenue | 37.3 | % | 37.8 | % | ||||||||
Quarter Ended March 31, 2025 Compared to Quarter Ended March 31, 2024
Revenue
For the quarter ended March 31, 2025, revenue decreased by approximately $0.4 million, or 7.8%, to approximately $4.6 million compared to approximately $5.0 million for the quarter ended March 31, 2024. The decrease in sales revenue was primarily the result of a large pipeline fill by a new distributor in Canada in the first quarter of 2024 that was not repeated in the current period. First quarter 2025 revenues included significantly higher sales of HD9 products compared to the prior period.
For the quarter ended March 31, 2025, trade spend and promotional allowances, which reduced the amount of revenue for the sales of our product, totaled approximately $0.7 million, an increase of approximately $0.3 million, or 75%, compared to approximately $0.4 million for the quarter ended March 31, 2024, mostly driven by timing of incentive and retailer programs.
Gross Profit
For the quarter ended March 31, 2024, gross profit decreased by approximately $0.2 million, or 9.2%, to approximately $1.7 million compared to approximately $1.9 million for the quarter ended March 31, 2024 as a result of lower sales revenue in the current quarter. For the quarter ended March 31, 2025, gross margin decreased slightly to 37.3% from 37.8% in the quarter ended March 31, 2024. The Company continues to look for opportunities to decrease its cost of goods sold with its co-manufacturers and our warehouse and freight providers.
Selling and Marketing Expenses
Selling and marketing expenses for the first quarter ended March 31, 2025 were approximately $1.2 million, a decrease of approximately $0.3 million, or 20%, from approximately $1.5 million for the first quarter ended March 31, 2024. This decrease was primarily a result of decreased online marketing spend and tradeshows and sponsorships for both the Jones Soda and Mary Jones brands in the first quarter of 2025 compared to the same quarter of 2024. Selling and marketing expenses as a percentage of revenue decreased to 25.8% in the first quarter ended March 31, 2025 from 29.8% in the same period in 2024. We intend to continue to look for clear return on investment from our selling and marketing expenses to drive profitable sales. For the three months ended March 31, 2025 and 2024, non-cash expenses included in selling and marketing expenses (stock compensation and depreciation) were approximately $17,000 and $26,000 , respectively.
General and Administrative Expenses
General and administrative expenses for the first quarter ended March 31, 2025 were approximately $1.2 million compared to $1.5 million in the first quarter ended March 31, 2024 or a reduction of $0.3 million. General and administrative expenses as a percentage of revenue decreased to 26.2% in the first quarter ended March 31, 2025 from 30.9% in the same quarter in 2024 or an approximately 5 percentage points decrease. We intend to continue to look for additional opportunities to reduce our G&A costs beyond the cost reductions achieved in the first quarter of 2025. For the three months ended March 31, 2025 and 2024, non-cash expenses included in general and administrative expenses (stock compensation and depreciation) were approximately $87,000 and $147,000 , respectively.
| 18 |
Income Tax Expense
We incurred approximately $nil and $10,000 of income tax expense during the quarter ended March 31, 2025 and 2024, respectively. 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 March 31, 2025 was approximately $0.9 million compared to net loss of approximately $1.2 million for the quarter ended March 31, 2024 or an improvement of $0.3 million. This decrease in net loss was primarily due to the decreases in selling and marketing expenses and general and administrative expenses in the first quarter of 2025 compared to the first quarter of 2024, being partially offset by reduced sales revenues in the current quarter compared to the same quarter last year.
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.
Liquidity and Capital Resources
As of March 31, 2025, and December 31, 2024, the Company had cash of approximately $0.7 million and $1.5 million, respectively, and working capital of approximately $1.3 million and $2.0 million, respectively. Net cash used in operating activities for the three months ended March 31, 2025 and 2024, was approximately $1.7 million and $1.0 million, respectively. The Company reported a net loss of approximately $0.8 million for the three months ended March 31, 2025, compared to a net loss of approximately $1.2 million for the three months ended March 31, 2024. As of March 31, 2025, the Company’s accumulated deficit increased to approximately $93.8 million, compared to approximately $92.9 million as of December 31, 2024.
For the three months ended March 31, 2025, net cash provided by financing activities totaled approximately $0.9 million, primarily driven by net proceeds of $1.3 million from the new credit facility, partially offset by a $0.3 million payment related to the termination of a prior credit facility and $0.1 million, reflecting repayments under the Company’s insurance financing agreement. In contrast, for the three months ended March 31, 2024, net cash used in financing activities amounted to approximately $0.1 million, reflecting repayments under the Company’s insurance financing agreement, partially offset by proceeds from the exercise of Pinestar warrants.
We have experienced recurring losses from operations and negative cash flows from operating activities. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. To address this issue, the Company recently changed its senior leadership and is focusing on reducing its operating expenses while bringing new products to market with higher margins and potentially higher customer demand. Additionally, on February 5, 2025, the Company, through a wholly-owned subsidiary (the “Subsidiary”), entered into loan agreement (the “Loan Agreement”) with Two Shores Capital Corp, pursuant to which the Subsidiary may borrow a maximum aggregate amount of up to $5 million, subject to satisfaction of certain conditions. All advances drawn under the Loan Agreement will bear interest at a rate of 13.75% per annum and all present and future obligations of the Subsidiary arising under the Loan Agreement are secured by a first priority security interest in all of the assets of the Company, the Subsidiary and the Company’s other United States subsidiaries. The Loan Agreement replaces the $2 million revolving credit facility entered into by the Company in March 2024 (the “2024 Credit Facility”). The borrowing base under the Loan Agreement expands the assets that can be financed against from only accounts receivable under the 2024 Credit Facility to accounts receivable, inventory and customer purchase orders.
Additionally, on May 7, 2025, the Company entered into a loan agreement with the Chairman of the Company’s Board of Directors in the amount of $450,000. The interest rate on this loan is 12% per annum. The principal, together with accrued interest and a loan fee of $22,000, is due and payable in full by October 10, 2025. A $22,000 loan fee is also due upon repayment. The proceeds from this loan are expected to be used for general working capital purposes.
Based on management’s current operating plan, the Company believes its cash on hand, projected cash generated from product sales and funds received from under the Loan Agreement 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. There is no assurance that management’s current operating plan will be successful.
Critical Accounting Policies and Estimates
See the information concerning our critical accounting policies and estimates included under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on April 1, 2025. There have been no material changes in our critical accounting policies during the three months ended March 31, 2025.
| 19 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
| ITEM 4. | 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, 2025.
(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 March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Based on our evaluation under the COSO framework, management concluded that, as of such date, our internal controls over financial reporting were not effective as of the end of the period covered by this interim report on Form 10-Q due to material weaknesses as describe herein. A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (United States) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following material weaknesses:
● The Company had key senior accounting personnel transitioned over the course of the year-end process from the end of 2024 through the beginning of 2025. As a result, adjustments to the year end balances were required to be made.
● During the transition period noted above the Company lacked sufficient resources with respect to the number of people employed in its accounting department and the adequacy of their training in relation to its financial reporting requirements.
Planned Remediation
● The Company announced a new experienced CFO in February, 2025. The Company hired additional CPA consultants to complete the year end audit.
● The Company is now through that transition and the new leadership team will ensure previously effective controls are followed by the time we report the second quarter interim results and reinforced adherence to the set of internal controls that Company has previously successfully abided by over the past years.
| 20 |
PART II – OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
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. 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.
| ITEM 1A. | 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, 2024.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, ISSUER PURCHASES OF EQUITY SECURITIES. |
None.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
None.
| ITEM 5. | OTHER INFORMATION |
None.
| ITEM 6. | EXHIBITS |
* 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.
| 21 |
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 15, 2025 | ||
| By: | /s/ Brian Meadows | |
Brian Meadows Chief Financial Officer | ||
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