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    JSDA   US48023P1066

JONES SODA CO.

(JSDA)
Delayed OTC Markets  -  05/24 11:09:45 am EDT
0.2200 USD   -2.22%
05/16JONES SODA CO : Entry into a Material Definitive Agreement, Submission of Matters to a Vote of Security Holders, Financial Statements and Exhibits (form 8-K)
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05/13JONES SODA CO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)
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05/12Jones Soda Co Expands Core Bottled Soda Business to Alternative Channels
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JONES SODA CO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

05/13/2022 | 03:35pm EDT
You should read the following discussion and analysis in conjunction with our
unaudited condensed consolidated financial statements and related notes included
elsewhere in this Report and the 2021 audited consolidated financial statements
and notes thereto included in our Annual Report on Form 10-K, which was filed
with the Securities and Exchange Commission ("SEC") on March 14, 2022.



This Report contains forward-looking statements. These statements relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "believe," "expect,"
"intend," "anticipate," "estimate," "may," "will," "can," "plan," "predict,"
"could," "future," "continue," variations of such words, and similar
expressions. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined at the beginning of this
Report under "Cautionary Notice Regarding Forward-Looking Statements" and in
Item 1A of our most recent Annual Report on Form 10-K filed with the SEC, and in
our other reports we file with the SEC, including our periodic reports on Form
10-Q and current reports on Form 8-K. These factors may cause our actual results
to differ materially from any forward-looking statements. Except as required by
law, we undertake no obligation to publicly release any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.



Overview



We develop, produce, market and distribute premium beverages that we sell and
distribute primarily in the United States and Canada through our network of
independent distributors and directly to our national and regional retail
accounts. We also sell products in select international markets. Our products
are sold in grocery stores, convenience and gas stores, on fountain in
restaurants, "up and down the street" in independent accounts such as
delicatessens, sandwich shops and burger restaurants, as well as through our
national accounts with several large retailers. We refer to our network of
independent distributors as our direct store delivery ("DSD") channel, and we
refer to our national and regional accounts who receive shipments directly from
us as our direct to retail ("DTR") channel. We do not directly manufacture our
products, but instead outsource the manufacturing process to third-party
contract manufacturers. We also sell various products online, including soda
with customized labels, wearables, candy and other items, and we license our
trademarks for use on products sold by other manufacturers.



Our Focus: Sales Growth


Our focus is sales growth through execution of the following key initiatives:



    ?  Expand the Jones Soda glass bottle business in existing and new sales
       channels;




  ? Expand our fountain program in the United States and Canada;




    ?  Release and grow the new product line of Tetrahydrocannabinol (THC) and

cannabidiol (CBD)-infused beverages, edibles, and other related products;

       and,




  ? Increase distribution of Lemoncocco in the United States and Canada.




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Potential Transaction with Simply Better Brands Corp.




On April 16, 2022, the Company and Simply Better Brands Corp. ("SBBC") entered
into a binding offer to purchase (the "LOI") pursuant to which, SBBC agreed to
purchase 100% of the issued and outstanding shares of the Company's common stock
(the "Jones Shares") at a deemed value of $0.75 per Jones Share, payable in
fully paid and non-assessable common shares of SBBC ("SBBC Shares") based on a
price per SBBC Share equal to $3.65 (the "SBBC Transaction").



The SBBC Transaction is subject to a number of terms and conditions, including,
but not limited to, the parties entering into a definitive agreement with
respect to the Transaction on or before June 30, 2022 (such agreement to include
representations, warranties, conditions and covenants typical for a transaction
of this nature), mutually favorable tax and corporate structuring, the approval
by shareholders of both SBBC and the Company, and the approval of the TSX
Venture Exchange or such other recognized stock exchange as the SBBC Shares may
become listed after completion of the Transaction, and if applicable,
disinterested shareholder approval.



Each of the Company and SBBC is also subject to customary confidentiality, mutual exclusivity and standstill provisions pursuant to the terms of the LOI.




For a summary of the transaction, see Note 7 - Subsequent Events of the Notes to
Consolidated Financial Statements included in Part I, Item 1 of this Quarterly
Report on Form 10-Q and to our Form 8-K filed with the SEC on April 21, 2022.



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,
                                                2022        % of Revenue         2021        % of Revenue
                                                     (Dollars in thousands, except per share data)
Consolidated statements of operations data:
Revenue                                       $   4,523             100.0 %    $   2,857             100.0 %
Cost of goods sold                               (3,286 )           (72.7 )%      (2,089 )           (73.1 )%
Gross profit                                      1,237              27.3 %          768              26.9 %
Selling and marketing expenses                   (1,143 )           (25.3 )%        (661 )           (23.1 )%
General and administrative expenses              (1,522 )           (33.7 )%        (756 )           (26.5 )%
Loss from operations                             (1,428 )           (31.6 )%        (649 )           (22.7 )%
Interest income                                       2               0.0 %            1               0.0 %
Interest expense                                   (231 )            (5.1 )%         (60 )            (2.1 )%
Other income (expense), net                           -               0.0 %           (7 )            (0.2 )%
Loss before income taxes                         (1,657 )           (36.6 )%        (715 )           (25.0 )%
Income tax expense, net                              (7 )            (0.2 )%          (4 )            (0.1 )%
Net loss                                      $  (1,664 )           (36.8 )%   $    (719 )           (25.2 )%
Basic and diluted net loss per share          $   (0.02 )                      $   (0.01 )




                                                                         As of
                                                                               December 31,
                                                           March 31, 2022          2021
                                                                (Dollars in thousands)
Balance sheet data:
Cash and cash equivalents and accounts receivable, net     $        15,072     $       7,329
Fixed assets, net                                                      222               238
Total assets                                                        19,024            10,246
Long-term liabilities                                                  237             2,044
Working capital                                                     12,182             6,025





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.



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Quarter Ended March 31, 2022 Compared to Quarter Ended March 31, 2021



Revenue



For the quarter ended March 31, 2022, revenue increased by approximately $1.7
million, or 58.3%, to approximately $4.5 million compared to approximately $2.9
million for the quarter ended March 31, 2021. This increase was primarily a
result of increased DSD and DTR core bottled soda sales in the United States and
Canada.



For the quarter ended March 31, 2022, trade spend and promotion allowances,
which reduced the amount of revenue for the sales of our product, totaled
approximately $308,000, a decrease of approximately $42,000, or 12.0%, compared
to approximately $350,000 for the quarter ended March 31, 2021, primarily due to
the timing of incentive and retailer programs.



Gross Profit



For the quarter ended March 31, 2022, gross profit increased by approximately
$469,000, or 61.1%, to approximately $1.2 million compared to approximately
$768,000 for the quarter ended March 31, 2021 primarily due to the continued
shift to a more profitable product mix and further optimizing supply chain
costs. For the quarter ended March 31, 2022, gross margin increased to 27.3%
from 26.9% for the quarter ended March 31, 2021. This increase in gross margin
was for the same reasons as noted above.



Selling and Marketing Expenses




Selling and marketing expenses for the quarter ended March 31, 2022 were
approximately $1.1 million, an increase of approximately $482,000, or 72.9%,
from approximately $661,000 for the quarter ended March 31, 2021. Selling and
marketing expenses as a percentage of revenue increased to 25.3% in the quarter
ended March 31, 2022 from 23.1% in the same period in 2021. This increase was
primarily a result of marketing spend associated with our upcoming cannabis
product launch. This increase is also associated with increased social and
digital marketing expenditures incurred during the quarter in an effort to
expand customer engagement. Lastly, there was an increase in non-cash stock
compensation expense in the first quarter of 2022 primarily as a result of the
accelerated vesting of the Company's outstanding stock options in connection
with the closing of the Plan of Arrangement as described in note 5, which
increased selling and marketing expenses by $91,000 in the current quarter
compared to stock compensation expenses increasing selling and marketing
expenses by $19,000 in the same quarter of 2021. We will continue to balance
selling and marketing expenses with our working capital resources. For the three
months ended March 31, 2022 and 2021, non-cash expenses included in selling and
marketing expenses (stock compensation and depreciation) were approximately
$103,000 and $35,000, respectively.





General and Administrative Expenses




General and administrative expenses for the quarter ended March 31, 2022 were
approximately $1.5 million, an increase of approximately $766,000, or 101.3%,
compared to approximately $756,000 for the quarter ended March 31, 2021. General
and administrative expenses as a percentage of revenue increased to 33.7% in the
quarter ended March 31, 2022 from 26.5% in the same period in 2021. This
increase in general and administrative expenses was primarily due to the
administrative costs associated with our cannabis product launch. In addition,
we experienced an increase in insurance premiums of approximately $1.0 million
and there was an increase in non-cash stock compensation expense in the first
quarter of 2022 primarily as a result of  the accelerated vesting of the
Company's outstanding stock options in connection with  the closing of the Plan
of Arrangement as described in note 5, which increased general and
administrative expenses by $177,000 in the current quarter compared to stock
compensation expenses increasing general and administrative expenses by $34,000
in the same quarter of 2021. We will continue to carefully manage general and
administrative expenses with our working capital resources. For the three months
ended March 31, 2022 and 2021, non-cash expenses included in general and
administrative expenses (stock compensation and depreciation) were approximately
$182,000 and $43,000, respectively.



Interest Income


We earned approximately $2,000 of interest income for the quarter ended March 31, 2022, compared to $1,000 for the quarter ended March 31, 2021.



Interest Expense



We incurred approximately $231,000 of interest expense for the quarter ended
March 31, 2022, compared to approximately $60,000 for the quarter ended March
31, 2021. This increase was primarily related to the conversions of Convertible
Notes that occurred during the three months ended March 31, 2022 that resulted
in all capitalized costs associated with the issuance of these notes being fully
expensed upon conversion. The interest expense incurred during the quarters
ended March 31, 2022 and 2021 was non-cash.



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Income Tax Expense



We incurred approximately $7,000 of income tax expense for each of the quarters
ended March 31, 2022 and 2021, 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 March 31, 2022 was approximately $1.7 million
compared to net loss of approximately $719,000 for the quarter ended March 31,
2021. This increase was primarily due to the increase marketing and
administrative costs associated with our cannabis product launch, the increase
in interest expense, and the increase in stock compensation expense.



Liquidity and Capital Resources




As of March 31, 2022 and December 31 2021, we had cash and cash-equivalents of
approximately $11.9 million and $4.7 million, respectively, and working capital
of approximately $12.2 million and $6.0 million, respectively. Net cash used in
operations during the three months ended March 31, 2022 and 2021 totaled
approximately $2.3 million and $1.0 million, respectively. Net cash used in
operations increased primarily due to the increase in inventory as of March 31,
2022 compared to December 31, 2021. Our cash flows vary throughout the year
based on seasonality.



During the three months ended March 31, 2022, we issued $3,000,000 in Contingent
Convertible Debentures (See note 4), that mature on February 9, 2023 and shall
begin to accrue interest at a rate of 3.00% commencing on April 1, 2022 and such
interest shall become payable on the maturity date of such Contingent
Convertible Debentures.



Additionally, upon the consummation of the Plan of Arrangement (See note 5) the
Company received $7.1 million in net proceeds from the Pinestar Subscription
Receipt Offering completed prior to the Plan of Arrangement. The Plan of
Arrangement resulted in issuance of an aggregate of 20,000,048 Jones Shares in
exchange for all of the outstanding Pinestar Shares on a one-for-one basis.,
Based upon our near-term anticipated level of operations and expenditures,
management believes that cash on hand, is sufficient to enable us to fund
operations for 12 months from the date the financial statements included in this
Report are issued.



During the three months ended March 31, 2022 and 2021, we received $0 and
$9,000, respectively, from the cash exercise of stock options. From time to
time, we may receive additional cash through the exercise of stock options or
stock warrants. However, we cannot predict the timing or amount of cash proceeds
we may receive from the exercise, if at all, of any of the outstanding stock
options or warrants.



We intend to continually monitor and adjust our operating plan as necessary to
respond to developments in our business, our markets and the broader economy. In
addition, the continuation of the COVID-19 pandemic and uncertain supply chain
conditions, may reduce demand for certain products, and may negatively impact
our business.


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, 2021, filed with the SEC on March 14,
2022. There have been no material changes in our critical accounting policies
during the three months ended March 31, 2022.



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