10-Q: Jones Soda Q3 Sees Revenue Growth, Strategic Shifts

Jones Soda Co. reports improved Q3 net loss and gross profit, driven by new product lines and cost reductions, despite a nine-month revenue decline and ongoing liquidity concerns.

Summary

• Net revenue for the three months ended September 30, 2025, increased by 14.9% to $4.5 million, up from $3.9 million in the prior year.
• Gross profit for Q3 2025 surged by 76.7% to $1.3 million, compared to $0.7 million in Q3 2024, with gross margin improving to 28.9% from 18.8%.
• Net loss for Q3 2025 improved significantly to $(1.4) million from $(2.6) million in Q3 2024.
• For the nine months ended September 30, 2025, net revenue decreased by 10.1% to $13.6 million from $15.1 million in the prior year.
• The company reported a net income of $0.3 million for the nine months ended September 30, 2025, a substantial improvement from a net loss of $(5.3) million in the comparable period of 2024, primarily due to a $3.663 million gain on the disposition of cannabis subsidiaries.
• Selling and marketing expenses decreased by 33% in Q3 2025 and 30% for the nine months ended September 30, 2025, reflecting reduced online marketing, tradeshows, and sponsorships.
• General and administrative expenses decreased by 6% in Q3 2025 and 25% for the nine months ended September 30, 2025.
• Cash balance as of September 30, 2025, was $0.2 million, down from $1.3 million at December 31, 2024.
• Working capital decreased to $0.6 million as of September 30, 2025, from $2.0 million at December 31, 2024.
• The company sold its cannabis (THC) beverage business on June 19, 2025, for $3.0 million in promissory notes and inventory, and entered into a trademark license agreement for future licensing fees.
• A new $5.0 million revolving credit facility was secured on February 5, 2025, replacing a previous $2.0 million facility, with an interest rate of 13.75% per annum and secured by all company assets.
• Management identified material weaknesses in internal controls over financial reporting due to senior accounting personnel transitions and insufficient resources, but has taken corrective actions by hiring an experienced CFO and senior CPA.

Sentiment

Score: 6

Explanation: The company shows positive operational improvements in Q3, including revenue growth, significant gross margin expansion, and reduced operating expenses. Strategic shifts like the cannabis business sale and new credit facility are also positive. However, these are tempered by a nine-month revenue decline, ongoing negative cash flow from operations, a significant decrease in cash and working capital, and the explicit 'going concern' doubt. The substantial regulatory risk to the HD9 product line also adds considerable uncertainty.

Positives

• Q3 2025 net revenue increased by 14.9% to $4.5 million, driven by HD9 products, direct-to-consumer sales, fountain products, and Spiked Jones.
• Gross profit for Q3 2025 increased by 76.7% to $1.3 million, with gross margin improving significantly to 28.9% from 18.8% in Q3 2024, due to lower trade spend, product costs, freight, and warehousing charges.
• Net loss for Q3 2025 improved by $1.2 million, reducing to $(1.4) million from $(2.6) million in Q3 2024.
• The company achieved a net income of $0.3 million for the nine months ended September 30, 2025, a $5.7 million improvement from a net loss of $(5.4) million in the prior year, largely due to the gain on the sale of the cannabis business.
• Selling and marketing expenses decreased by 33% in Q3 2025 and 30% for the nine months ended September 30, 2025, indicating successful cost reduction efforts.
• General and administrative expenses decreased by 6% in Q3 2025 and 25% for the nine months ended September 30, 2025, further demonstrating cost control.
• The disposition of the cannabis business generated a gain of $3.663 million and provides ongoing licensing fee revenue.
• Secured a new $5.0 million revolving credit facility with Two Shores Capital Corp., expanding the borrowing base to include accounts receivable, inventory, and customer purchase orders, enhancing liquidity options.
• Management believes current cash, projected sales, and the new credit facility are sufficient to fund operations for at least 12 months.

Negatives

• Net revenue for the nine months ended September 30, 2025, decreased by 10.1% to $13.6 million, primarily due to a $3.7 million decrease in core soda sales.
• Gross profit for the nine months ended September 30, 2025, decreased by 6.3% to $4.3 million.
• Cash balance significantly decreased to $0.2 million as of September 30, 2025, from $1.3 million at December 31, 2024.
• Working capital decreased to $0.6 million as of September 30, 2025, from $2.0 million at December 31, 2024.
• The company experienced recurring losses from operations and negative cash flows from operating activities, raising substantial doubt about its ability to continue as a going concern.
• Core soda sales were negatively impacted by a large pipeline fill order in Q2 2024 that did not repeat in 2025.
• Identified material weaknesses in internal controls over financial reporting due to senior accounting personnel transitions and insufficient resources/training.

Risks

• Ability to successfully execute growth strategy and operating plans.
• Ability to continue to raise capital to finance operations.
• Ability to continue to license and market THC/CBD-infused and/or hemp-infused beverages and edibles, and comply with governing laws and regulations.
• Revenues from hemp-derived HD9 products could be negatively impacted if recent federal legislation prohibiting the unregulated sale of intoxicating hemp-based products is enacted into law (effective November 2026).
• Ability to manage operating expenses and generate cash flow from operations, along with securing additional financing if sales goals take longer to achieve.
• Ability to create and maintain brand name recognition and acceptance of products in a competitive, brand-conscious industry.
• Ability to compete successfully against much larger, well-funded, established companies in the beverage industry.
• Entrance into and increased focus on the craft beverage segment by other major beverage companies.
• Ability to maintain brand image and product quality and avoid risks from product issues such as recalls.
• Ability to establish, maintain, and expand distribution arrangements with independent distributors, retailers, brokers, and national retail accounts.
• Ability to manage inventory levels and predict the timing and amount of sales.
• Reliance on third-party contract manufacturers and the geographic locations of their facilities.
• Ability to secure a continuous supply and availability of raw materials, and other factors affecting the supply chain, including cost increases and potential glass shortages.
• Ability to source flavors on acceptable terms from key flavor suppliers.
• Ability to attract and retain key personnel.
• Ability to protect trademarks and trade secrets.
• Litigation or legal proceedings.
• Ability to comply with the many regulations to which the business is subject.
• Ability to maintain an effective information technology infrastructure, and risks from failures or security breaches.
• 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.
• Ability to maintain effective disclosure controls and procedures and internal control over financial reporting.
• Dilutive and other adverse effects on existing shareholders and stock price arising from future securities issuances.
• Ability to access capital markets for future equity financing, and actual or perceived limitations to common stock trading on the OTCQB Marketplace and Canadian Stock Exchange.

Future Outlook

Management is focusing on reducing operating expenses and bringing higher-margin products to market. They expect growth in Q4 2025 driven by Core Soda, direct-to-consumer, club, food service, and convenience store channels. The company believes its cash on hand, projected sales, and funds from the new $5 million credit facility are sufficient to fund operations for at least 12 months, though there is no assurance of success. The potential enactment of federal legislation in November 2026 could require significant reformulation or discontinuation of current hemp-derived HD9 product lines, impacting future revenues and increasing costs.

Management Comments

• "We intend to continue to look for clear return on investment from our selling and marketing expenses to drive profitable sales."
• "We intend to continue to look for additional opportunities to reduce our G&A costs beyond the cost reductions achieved in 2025."
• "Based on managements 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 Companys 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 managements current operating plan will be successful."

Industry Context

Jones Soda is actively evolving its strategy from a traditional craft soda company to a diverse beverage company, targeting growing market segments such as modern soda (Pop Jones, Fiesta Jones) and alternative adult beverages (Mary Jones hemp-derived, Spiked Jones hard craft sodas). This aligns with broader industry trends of consumer migration towards healthier, functional, and adult-oriented beverage options. The company's focus on consumer-driven branding and unique flavors aims to differentiate it in a competitive market dominated by larger players. However, the emerging hemp-derived product segment faces significant regulatory uncertainty, as evidenced by the recent federal legislation, which could reshape the landscape for intoxicating hemp-based products.

Comparison to Industry Standards

• The company notes that recent growth by industry competitors such as Poppi and Olipop demonstrates growing consumer demand for the modern soda market segment, which Jones Soda is targeting with its Pop Jones and Fiesta Jones product lines.
• Management believes its national brand awareness and customer-centric approach make it unique compared to other craft soda competitors within the fountain category.

Management Changes

Corporate Governance

Legal Proceedings

• The California Department of Public Health (CDPH) filed an amended complaint on June 27, 2025, in Los Angeles Superior Court against Jones Soda and other businesses regarding the sale and distribution of Mary Jones hemp-infused sodas in California. The company disputes the allegations and intends to file a counterclaim.
• A lawsuit was filed by a supplier on August 11, 2025, alleging breach of contract and unjust enrichment for $342,373. The company intends to file a counterclaim for an amount in excess of the alleged damages. The United States Central District Court of California dismissed the action without prejudice on October 27, 2025.

Related Party Transactions

• On May 2, 2025, the company entered into a Promissory Note with the Chairman of the Board for a principal amount of $0.45 million, carrying a fixed interest rate of 12% per annum and due by October 10, 2025. $0.3 million was repaid during the period.

Stakeholder Impact

• **Shareholders:** Potential for dilution from future securities issuances, stock price volatility due to 'going concern' doubt and regulatory risks, but also potential upside from strategic shifts and operational improvements. The gain on the cannabis business sale provided a one-time boost to net income.
• **Employees:** Changes in senior leadership and hiring of new financial personnel indicate a restructuring, which could impact existing employees. Stock-based compensation plans are in place to incentivize employees.
• **Customers:** New product lines (Pop Jones, Fiesta Jones, Spiked Jones, Mary Jones zero sugar) offer expanded choices. Potential discontinuation or reformulation of HD9 products due to regulatory changes could affect customers of those specific products.
• **Suppliers:** Commitments to various raw material suppliers totaling $2.3 million. Legal disputes with a supplier indicate potential strain on supplier relationships.
• **Creditors:** The new $5.0 million revolving credit facility provides additional liquidity but is secured by all company assets, increasing risk for unsecured creditors. The 13.75% interest rate reflects higher perceived risk.

Next Steps

• Continue to look for opportunities to decrease the cost of goods sold with co-manufacturers and warehouse/freight providers.
• Continue to look for clear return on investment from selling and marketing expenses to drive profitable sales.
• Continue to look for additional opportunities to reduce General and Administrative costs.
• Sustain an appropriate level of taxable income through improved U.S. operations to potentially reverse the full valuation allowance on U.S. net deferred tax assets.
• Address the material weaknesses in internal controls over financial reporting by ensuring previously effective controls are followed and reinforced by the new leadership team.
• Monitor the implementation of new federal legislation regarding hemp-derived products (effective November 2026) and potentially reformulate or discontinue current HD9 product lines.

Key Dates

Recommendation

Jones Soda Co. is in a transitional phase, showing mixed financial results. While Q3 2025 demonstrated strong operational improvements with increased revenue, significantly higher gross profit, and reduced operating expenses, the nine-month figures still reflect a revenue decline and the company continues to report recurring losses from operations and negative cash flows, leading to substantial doubt about its ability to continue as a going concern. The one-time gain from the cannabis business sale significantly boosted the nine-month net income, but this masks underlying operational challenges. The new $5 million credit facility provides much-needed liquidity, but the high interest rate and asset-backed nature indicate elevated risk. Furthermore, the significant regulatory risk surrounding the hemp-derived HD9 product line, which is a key growth area, poses a material threat to future revenues. For a seasoned investor, the current situation presents a high-risk, high-reward scenario. The strategic shifts and operational improvements are encouraging, but the severe liquidity issues and regulatory headwinds warrant caution. A 'hold' recommendation is appropriate for existing investors who are willing to tolerate significant risk and believe in management's ability to execute the turnaround strategy, while new investors might wait for clearer signs of sustained profitability and resolution of the going concern and regulatory risks.

Keywords

Jones Soda, Beverage Industry, Soft Drinks, Craft Soda, Hemp-Derived Products, HD9, Cannabis Beverages, Spiked Jones, Fountain Drinks, SEC Filing, 10-Q, Financial Results, Liquidity, Going Concern, Cost Reduction, Distribution Channels, Regulatory Risk, Capital Raise, Two Shores Capital Corp