The following discussion of our financial condition and results of operations
contains forward-looking statements that involve risks and uncertainties, such
as statements of our plans, objectives, expectations and intentions. As
described at the beginning of this Annual Report on Form 10-K, our actual
results could differ materially from those anticipated in these forward-looking
statements. Factors that could contribute to such differences include those
discussed at the beginning of this Report, below in this section and in the
section above entitled "Risk Factors." You should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
Report. Except as required by law, we undertake no obligation to update any
forward-looking statements to reflect new information, events or circumstances
after the date of this Report, or to reflect the occurrence of unanticipated
events. You should read the following discussion and analysis in conjunction
with our consolidated financial statements and the accompanying notes thereto
included elsewhere in this Report.
We have restated our financial statements for 2021 due to the correction of an
error in the accounting for a financing agreement as discussed in Note 1,
"Nature of Operations and Summary of Significant Accounting
Policies." Accordingly, the Management's Discussion and Analysis of Financial
Condition and Results of Operations set forth below reflects the effects of the
restatements on our balance sheet and statement of cash flow figures.
Overview
We develop, produce, market and distribute premium beverages that we sell and
distribute primarily in North America through our network of independent
distributors and directly to our national and regional retail accounts. We also
sell premium soda beverage products in select international markets and sell
cannabis infused beverages and syrups in California. Our premium soda beverage
products are sold primarily in grocery stores, convenience and gas stores, on
fountain in restaurants, "up and down the street" in independent accounts such
as delicatessens, sandwich shops and burger restaurants, as well as through our
national accounts with several large retailers. We refer to our network of
independent distributors as our direct store delivery ("DSD") channel, and we
refer to our national and regional accounts who receive shipments directly from
us as our direct to retail ("DTR") channel. We do not directly manufacture any
of our premium soda beverage products, but instead outsource the manufacturing
process to third-party contract manufacturers. We also sell various premium
beverage soda products online, including soda with customized labels, wearables,
candy and other items, and we license our trademarks for use on products sold by
other manufacturers. In addition, we currently market and sell several cannabis
infused beverages and syrups in California through third party manufacturers and
distributors. We plan to expand our cannabis product offerings and the states in
which we offer such products.
Our Focus: Sales Growth
Our focus is sales growth through execution of the following key initiatives:
? Expand the Jones Soda glass bottle business in existing and new sales
channels;
? Expand our fountain program in the United States and Canada;
? Grow the new Mary Jones 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.
Results of Operations
Years Ended December 31, 2022 and 2021
Revenue
For the year ended December 31, 2022, revenue was approximately $19.1 million,
an increase of $4.3 million, or 29.0%, from approximately $14.8 million in
revenue for the year ended December 31, 2021. This increase was primarily a
result of increased core bottled soda sales in the United States and Canada.
Additionally, sales revenues from our fountain business were $2.0 million during
2022 compared to $1.5 million during 2021, mostly as a result of increased sales
in the food service channel. We also received an aggregate of $353,000 in sales
revenues from our cannabis infused beverages and syrups sold during 2022. For
the year ended December 31, 2022, promotion allowances and slotting fees, which
offset revenue, totaled approximately $1.6 million, an increase of approximately
$121,000, or 8.4%, from approximately $1.5 million in 2021.
.
During 2022 and 2021, the percentage of our revenues generated in Canada was 19%
and 22%, respectively.
Gross Profit
Year Ended December 31,
2022 2021 % Change
(Dollars in thousands)
Gross Profit $ 5,143 $ 4,398 16.9 %
% of Revenue 26.9 % 29.7 %
28
--------------------------------------------------------------------------------
Table of Contents
For the year ended December 31, 2022, gross profit increased by $745,000, or
16.9%, to approximately $5.1 million compared to approximately $4.4 million for
the year ended December 31, 2021, driven primarily by higher revenue during the
year ended December 31, 2022 as compared to the year ended December 31, 2021.
For the year ended December 31, 2022, gross margin decreased to 26.9% from 29.7%
for the year ended December 31, 2021. This decrease was primarily driven by the
impacts of inflation, mostly driven by increased material and freight costs, and
the overall impacts of product mix.
Selling and Marketing Expenses
Selling and marketing expenses for the year ended December 31, 2022 were
approximately $5.0 million, an increase of $2.0 million, or 65.3%, from
approximately $3.0 million for the year ended December 31, 2021. This increase
was primarily a result of non-cash stock consideration paid by the Company in
connection with two sponsorship agreements entered into by the Company during
the third quarter of 2022. Additionally, the increase in marketing expenses
during the current quarter compared to 2021 can also be attributed to marketing
expenses associated with the launch of the Company's cannabis products in 2022
combined with increased social and digital marketing expenses incurred during
the year in an effort to expand customer engagement.. As revenue continues to
increase, we expect that selling and marketing expenses will increase to support
this growth. Selling and marketing expenses as a percentage of revenue increased
to 26.0% for the year ended December 31, 2022 from 20.3% in 2021. We will
continue to work on balancing selling and marketing expenses with our working
capital resources.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2022 were
approximately $6.3 million, an increase of $3.0 million, or 89.9%, compared to
approximately $3.3 million for the year ended December 31, 2021. This increase
in general and administrative expenses was primarily due to the start-up
administrative costs associated with the cannabis product launch. General and
administrative expenses as a percentage of revenue increased to 32.9% for the
year ended December 31, 2022 from 22.3% in 2021. We will continue work on
balancing general and administrative expenses with our working capital
resources.
Interest Expense
We incurred approximately $377,000 of interest expense for the year ended
December 31, 2022, compared to approximately $225,000 for the year ended
December 31, 2021 which was the result of the Contingent Convertible Debentures
and Convertible Notes (each as defined in Note 5) that were outstanding and
accruing interest during the year ended December 31, 2021. Since all of the
outstanding Continent Convertible Debentures and Convertible Notes were either
converted into shares of our common stock or matured pursuant to their terms
during the first half of 2022, the Company did not incur accrued interest since
the second quarter of 2022. The interest expense incurred during the years ended
December 31, 2022 and December 31, 2021 was non-cash.
Interest Income
We earned approximately $6,000 of interest income for the year ended December
31, 2022, compared to $4,000 for the year ended December 31, 2021.
Income Tax Expense
We had income tax expense of $28,000 and $27,000 for the years ended December
31, 2022 and 2021, respectively, primarily related to the tax provision on
income from our Canadian operations. We have not recorded any tax benefit for
the loss in our U.S. operations as we have recorded a full valuation allowance
on our U.S. net deferred tax assets. We expect to continue to record a full
valuation allowance on our U.S. net deferred tax assets until we sustain an
appropriate level of taxable income through improved U.S. operations. Our
effective tax rate is based on recurring factors, including the forecasted mix
of income before taxes in various jurisdictions, estimated permanent differences
and the recording of a full valuation allowance on our U.S. net deferred tax
assets.
Net Loss
Net loss for the year ended December 31, 2022 increased to approximately $6.4
million from a net loss of $1.8 million for the year ended December 31, 2021.
The increase in net loss was primarily due to the increase marketing and
administrative costs associated with the launch of our cannabis infused beverage
and syrups in 2022 and the beforementioned non-cash stock consideration paid by
the Company in connection with two sponsorship agreements entered into by the
Company during the third quarter of 2022.
29
--------------------------------------------------------------------------------
Table of Contents
Liquidity and Capital Resources
As of December 31, 2022 and 2021, we had cash and cash-equivalents of
approximately $8.0 million and $4.7 million, respectively, and working capital
of approximately $11.6 million and $6.0 million, respectively. Net cash used in
operations during fiscal years 2022 and 2021 totaled approximately $6.0 million
and $3.4 million, respectively. Net cash used in operations increased primarily
due to the increase in net loss in 2022. Our cash flows vary throughout the year
based on seasonality.
For the year ended December 31, 2022, net cash provided by financing activities
totaled approximately $9.2 million due to the issuance of $3,000,000 in
Contingent Convertible Debentures (See note 5), that fully converted into
6,022,192 shares of common stock on May 16, 2022.Additionally, upon the
consummation of a statutory plan of arrangement under the Business Corporations
Act (British Columbia) (the "Plan of Arrangement") with Pinestar Gold Inc.
("Pinestar") the Company received $7.1 million in net proceeds from a
subscription receipt offering completed by Pinestar (the "Pinestar Subscription
Receipt Offering") prior to the Plan of Arrangement. The Plan of Arrangement
resulted in issuance of an aggregate of 20,000,048 shares of the Company's
common stock which were issued in exchange for all of the outstanding common
shares of Pinestar (the "Pinestar Shares"), including the Pinestar Shares issued
in connection with the Pinestar Subscription Receipt Offering, on a one-for-one
basis.
We incurred a net loss of approximately $6.4 million for the year ended December
31, 2022 compared to a net loss of approximately $1.8 million for the year ended
December 31, 2021. Our accumulated deficit increased to $78.2 million as of
December 31, 2022 compared to an accumulated deficit of $71.8 million as of
December 31, 2021.
During 2022 and 2021, we received $0 and $296,000, 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 may require additional financing to support our working capital needs in the
future. The amount of additional capital we may require, the timing of our
capital needs and the availability of financing to fund those needs will depend
on a number of factors, including our strategic initiatives and operating plans,
the performance of our business and the market conditions for available debt or
equity financing. Additionally, the amount of capital required will depend on
our ability to meet our sales goals and otherwise successfully execute our
operating plan. We believe it is imperative that we meet these sales objectives
in order to lessen our reliance on external financing in the future. 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 uncertain market conditions may limit our ability to access capital, may
reduce demand for certain products, and may negatively impact our supply chain.
Although we believe various debt and equity financing alternatives will be
available to us to support our working capital needs, financing arrangements on
acceptable terms may not be available to us when needed. Moreover, these
alternatives may require significant cash payments for interest and other costs
or could be highly dilutive to our existing shareholders. Any such financing
alternatives may not provide us with sufficient funds to meet our long-term
capital requirements. If necessary, we may explore strategic transactions that
we consider to be in the best interest of our company and our shareholders,
which may include, without limitation, public or private offerings of debt or
equity securities, a rights offering, and other strategic alternatives; however,
these options may not ultimately be available or feasible when needed.
Seasonality
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 ("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.
30
--------------------------------------------------------------------------------
Table of Contents
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates based on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form our basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions, or if management made
different judgments or utilized different estimates. Many of our estimates or
judgments are based on anticipated future events or performance, and as such are
forward-looking in nature, and are subject to many risks and uncertainties,
including those discussed below and elsewhere in this Report. We do not
undertake any obligation to update or revise this discussion to reflect any
future events or circumstances.
There are certain critical accounting estimates that we believe require
significant judgment in the preparation of our consolidated financial
statements. We have identified below our accounting policies that we use in
arriving at key estimates that we consider critical to our business operations
and the understanding of our results of operations. This is not a complete list
of all of our accounting policies, and there may be other accounting policies
that are significant to us. For a detailed discussion on the application of
these and our other accounting policies, see Note 1 to Consolidated Financial
Statements of this Report.
Revenue Recognition
We recognize revenue under Accounting Standards Codification ("ASC") 606,
Revenue from Contracts with Customers ("ASC 606"). The core principle of the
revenue standard is that a company should recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects
the consideration to which the company expects to be entitled in exchange for
those goods or services. We only apply the five-step model (as described in Note
1 to the Consolidated Financial Statements of this Report) to contracts when it
is probable that we will collect the consideration it is entitled to in exchange
for the goods and services transferred to the customer.
Inventory
We hold raw materials and finished goods inventories, which are manufactured and
procured based on our sales forecasts. We value inventory at the lower of cost
or net realizable value and include adjustments for estimated obsolete or excess
inventory, on a first in-first out basis. These valuations are subject to
customer acceptance, planned and actual product changes, demand for the
particular products, and our estimates of future realizable values based on
these forecasted demands. We regularly review inventory detail to determine
whether a write-down is necessary. We consider various factors in making this
determination, including recent sales history and predicted trends, industry
market conditions and general economic conditions. The amount and timing of
write-downs for any period could change if we make different judgments or use
different estimates. We also determine whether a provision for obsolete or
excess inventory is required on products that are over 12 months from production
date or any changes related to market conditions, slow-moving inventory or
obsolete products.
Trade Spend and Promotion Expenses
Throughout the year, we run trade spend and promotional programs with
distributors and retailers to help promote on- shelf discounts to our consumers.
Additionally, in more limited instances, we enter into customer marketing
agreements or various other slotting arrangements. The provisions for discounts,
slotting fees and promotion allowances is recorded as an offset to revenue and
shown net on the consolidated statement of operations. Estimates are made to
accrue for amounts that have not yet been invoiced in the month that the program
occurs, or in the case of slotting, when the commitment is made.
© Edgar Online, source Glimpses