10-K: Jones Soda Co. Reports Full Year 2023 Results, Navigates Market Challenges and Strategic Shifts

Jones Soda Co. experienced a decrease in revenue for 2023, alongside strategic changes in distribution and a focus on new product lines.

Summary

• Jones Soda Co. reported a full year revenue of approximately $16.7 million for 2023, a decrease of $2.4 million or 12.7% compared to 2022.
• The decrease in revenue was primarily due to a one-time inventory stocking event in 2022 that did not repeat in 2023, as well as decreased fountain and food service sales.
• This was partially offset by an increase of approximately $950,000 in licensing revenues from the Mary Jones brand.
• Gross profit decreased by 5.6% to approximately $4.9 million, but gross margin increased to 29.1% from 26.9% in 2022 due to improved supply chain management and pricing adjustments.
• The company experienced a net loss of approximately $4.9 million for 2023, compared to a net loss of $6.4 million in 2022.
• Operating expenses decreased, with selling and marketing expenses down by 11.8% and general and administrative expenses down by 14.6%.
• The company had cash and cash equivalents of approximately $3.9 million and working capital of approximately $7.2 million as of December 31, 2023.
• Net cash used in operations was approximately $3.8 million for 2023.
• The company is restructuring its customer distribution channels and has partnered with DOT Foods Canada, which is expected to improve margins in 2024.
• A $2 million revolving credit facility has been secured to support working capital needs.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While the company has reduced its net loss and improved gross margins, the decrease in revenue and ongoing challenges in the beverage and cannabis markets temper the positive aspects. The securing of a credit facility is a positive sign, but the company still faces significant risks.

Positives

• Gross margin improved to 29.1% due to better supply chain management and pricing adjustments.
• Net loss decreased significantly from $6.4 million in 2022 to $4.9 million in 2023.
• Operating expenses were reduced, with both selling and marketing and general and administrative costs decreasing.
• The company secured a $2 million revolving credit facility to support working capital needs.
• The company is focusing on higher margin product mixes and customer channels.

Negatives

• Total revenue decreased by 12.7% compared to the previous year.
• The company experienced recurring losses from operations and negative cash flows from operating activities.
• The company is transitioning away from its top distributor, Lassonde, which may impact revenue in the short term.
• The company has an accumulated deficit of $83.1 million as of December 31, 2023.

Risks

• The company faces competition from larger, well-funded beverage companies.
• The company's success depends on maintaining brand image and developing new products to meet changing consumer preferences.
• The company relies on third-party contract manufacturers, which could lead to supply chain disruptions.
• The company is subject to fluctuations in raw material costs, particularly glass, which could impact profitability.
• The company's cannabis operations face regulatory uncertainty and competition.
• The company is subject to litigation, including a claim for $7.2 million from Core Manufacturing.
• The company's stock is traded on the OTCQB Marketplace and the Canadian Stock Exchange, which may have an unfavorable impact on stock price and liquidity.

Future Outlook

The company is focused on sales growth through expanding its core business, fountain program, and the Mary Jones brand. They are also restructuring distribution channels and have secured a revolving credit facility to support working capital needs. The company believes its cash on hand, projected cash generated from product sales and funds received from the committed revolving credit facility are sufficient to fund the Company's operations for a period of at least 12 months.

Management Comments

• 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.
• Management believes it is imperative that the company meets its annual sales revenue objectives in order to lessen its reliance on external financing in the future.

Industry Context

The company operates in the competitive sparkling beverage industry, which includes both traditional carbonated soft drinks and craft sodas. The company is also expanding into the cannabis-infused beverage market, which is subject to evolving regulations and competition. The company is focusing on its core brand, Jones Soda, while also investing in additional initiatives including fountain related beverages and the Mary Jones brand for cannabis infused sodas, edibles, and syrups.

Comparison to Industry Standards

• The craft soda industry was estimated at $641.24 million in 2021 and is anticipated to rise to $768.08 million by 2027, according to Research and Markets.
• Jones Soda competes with both large beverage manufacturers and regional premium soft drink companies.
• The company's direct competitors in the cannabis industry include Keef Brands, Cann Social Tonics, and Tonik Beverages, none of which are national consumer packaged goods brands in the United States.
• The company's gross margin of 29.1% is a key metric to compare against industry averages, which can vary significantly based on product type and distribution model.
• The company's focus on premium ingredients and unique branding is a common strategy among craft soda companies.

Management Changes

Legal Proceedings

• On March 25, 2024, Mary Jones Michigan LLC received a Notice of Claims for arbitration from Core Manufacturing, LLC, seeking $7.2 million in damages for breach of contract.

Related Party Transactions

• During the year ended December 31, 2023, 200,000 Pinestar Warrants were exercised by a Board member, Paul Norman.
• The company has a royalty agreement with Julianna Pena, a related party due to her manager being a board member.

Stakeholder Impact

• Shareholders may be concerned about the decrease in revenue and ongoing losses.
• Employees may be affected by the restructuring of distribution channels.
• Customers may see changes in product availability due to distribution changes.
• Suppliers may be impacted by changes in the company's manufacturing and distribution strategies.

Next Steps

• The company intends to expand its distributor network and DTR accounts.
• The company plans to grow the Mary Jones brand of THC and CBD-infused products.
• The company will continue to monitor and adjust its operating plan as necessary to respond to developments in its business, markets and the broader economy.

Key Dates

Keywords

Jones Soda, beverage industry, cannabis, Mary Jones, distribution, financial results, revenue, gross margin, operating expenses, net loss, stock options, warrants, supply chain, contract manufacturing, OTCQB, Canadian Stock Exchange