What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-31 compared with 2025-04-01 · 122 added, 124 removed, 112 unchanged (69% of the section changed)

27 unchanged sentences

In addition, we currently market

and license several cannabis and hemp infused beverages and syrups in several states through third party manufacturers and distributors.

We plan to expand our cannabis and hemp product offerings and the states and provinces in which we offer such products.

hemp infused beverages in several states through third party manufacturers and distributors.

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

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

our sales in the health conscious modern soda market; and

the new licensing revenue through Mary Jones product lines of Tetrahydrocannabinol (THC)

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

Expand the Jones Soda glass

bottle business in existing and new sales channels;

Expand our sales in the

health conscious modern soda market; and

Expand our sales in the

Alternative Adult market with our Spiked Jones brands

of Operations

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compared to approximately $17.8 million in revenue for the year ended December 31, 2024.

This growth in net sales revenue was

primarily driven by a higher beverage segment sales volume of 15% growth year over year and 9%

growth in our Cannabis (THC) business in the US and Canada.

The percentage of our revenues generated in Canada for 2024 and 2023 was 18%

and 18%, respectively.

the year ended December 31, 2024, trade spending and promotional allowances, which reduced our gross revenue from product sales,

totaled approximately $4.1 million.

This represents an increase of approximately $2.5 million, or 156%, compared to approximately

$1.6 million for the year ended December 31, 2023.

This increase was mainly attributable to promotional and pricing programs related

to Mary Jones products and core Jones Soda sales in Canada, mostly due to the transition to a new distributor in Canada.

the year ended December 31, 2024, gross profit decreased by $0.8 million, or 16.1%, to approximately $4.1 million compared to approximately

$4.9 million for the year ended December 31, 2023, driven by one time inventory impairment charges of $1.2 million in the fourth quarter

of 2024 due to slow moving new products launched in 2024.

The Company launched several innovative products in 2024, some of which have

been slow moving in the Mary Jones (Adult Beverages market) and one in its Core soda business.

As a result for the year ended December

31, 2024, gross margin decreased to 21.3% from 29.1% for the year ended December 31, 2023.

The impairment charges discussed above reduced

gross margin by 6.5% in 2024.

The Company has subsequently rationalized its product set and is focused on smaller production runs on

a focused product set for its core soda business, the modern soda category and the adult beverages category.

This growth in net sales revenue was driven

by new core soda sales through the club channel, incremental Direct to Consumer (DTC) sales, increased Food Service sales, increases

in Modern Soda sales and increased HD9 sales.

The percentage of our revenues generated in Canada for 2025 and 2024 was 11.2% and 17.3%,

respectively.

the year ended December 31, 2025, trade spending and promotional allowances, which reduced our gross revenue from product sales, totaled

approximately $2.8 million.

This represents a decrease of approximately $1.6 million, or 36.3%, compared to approximately $4.4 million

for the year ended December 31, 2024.

The primary reason for the decrease was driven by a higher mix of sales with lower trade spend

(club and DTC channels).

These two channels accounted for 35% of 2025 gross sales compared to 5.6% in 2024.

the year ended December 31, 2025, gross profit increased by $3.1 million, or 84.8%, to approximately $6.8 million compared to approximately

$3.7 million for the year ended December 31, 2024 driven by the increase in net sales, and lower trade spend driven by product mix in

the current year compared to the prior year.

The Company made improvements in inventory management in 2025;

however, it still had material

inventory impairment charges related to the HD9 business driven by legislative changes made by the Federal Government in November 2025.

and Marketing Expenses

and marketing expenses for the year ended December 31, 2024, were approximately $6.1 million, an increase of $1.7 million, or 39.5%,

from approximately $4.4 million for the year ended December 31, 2023.

This increase was primarily driven by higher online marketing expenditure

for both the Jones Soda and Mary Jones brands.

Additionally, we expanded our marketing initiatives with companies involved in action

sports, including an agreement with Thrill One Sports & Entertainment, in the year ended December 31, 2024, which did not occur

in the year ended December 31, 2023.

a result, selling and marketing expenses as a percentage of revenue increased to 31.9% in the year ended December 31, 2024, from 26.3%

and marketing expenses for the year ended December 31, 2025, were approximately $5.3 million, a decrease of $0.3 million, or 5.4%, from

approximately $5.6 million for the year ended December 31, 2024.

There were large increases to license fees paid ($0.6 million) on Fallout

licensed products and increases to brokerage fees ($0.1 million) that were offset by decreases in advertising and promotions ($0.4 million),

trade shows and sponsorships ($0.3 million), decreases to consulting ($0.1 million), and decreases to travel ($0.2 million).

a result, selling and marketing expenses as a percentage of revenue decreased to 21.0% in the year ended December 31, 2025, from 31.4%

in the year ended December 31, 2024.

We intend to manage selling and marketing expenses with our working capital resources and it is

a major management focus to reduce this % of revenue in the coming quarters.

We intend to continue to manage selling and marketing expenses with our working capital resources

and it is a major management focus to continue to reduce this % of revenue in the coming quarters.

and Administrative Expenses

General and administrative expenses

for the year ended December 31, 2024 were approximately $7.9 million, an increase of $2.5 million, or 46.9%, compared to approximately

$5.4 million for the year ended December 31, 2023.

This increase was primarily a result of increased legal and regulatory expenditures

related to our Mary Jones business and the Litigation Matters.

In addition, there was increased travel expenditures related to the development

of a new supply chain and meeting with sponsorship partners.

In February 2025, a confidential settlement agreement was entered into between

all the parties to the Litigation Matters, which has resulted in the settlement and/or dismissal of both Litigation Matters.

the Company is focused on reducing travel expenses in 2025.

General and administrative expenses as a percentage of revenue increased to

41.1% for the year ended December 31, 2024, from 32.1% for the year ended December 31, 2023.

We intend to carefully manage general and

administrative expenses in line with our working capital resources and it is a major management focus to reduce this % of revenue in the

coming quarters.

and administrative expenses for the year ended December 31, 2025 were approximately $6.3 million, a decrease of $1.5 million, or 19.2%,

compared to approximately $7.8 million for the year ended December 31, 2024.

This decrease was a result of decreased legal and regulatory

expenditures related to our Mary Jones business and the Litigation Matters ($0.9 million), travel decreases ($0.3 million), rent decreases

($0.1 million), insurance decreases ($0.3 million), professional services decreases ($0.1 million) and other ($0.2 million) which was

offset by increases in salaries and wages ($0.4 million).

We intend to carefully manage general and administrative expenses in line with

our working capital resources and it is a major management focus to reduce this % of revenue in the coming quarters.

income (expense)

earned approximately $22,000 of interest income for the year ended December 31, 2024, compared to $52,000 for the year ended December

We incurred $11,000 in interest expenses for the year ended December 31, 2024 compared to nil for the year ended December 31,

had income tax expense of approximately $25,000 and $33,000 for the years ended December 31, 2024 and 2023, respectively, primarily

related to the tax provision on income from our Canadian operations.

income (expense) was $3.1 million for the years ended December 31, 2025 compared to other income (expense) of $12,000 for the years ended

December 31, 2024.

The increase of $3.1 million was due to the gain on the sale of the Company’s Cannabis business of $3.9 million

which was offset by other expenses of $0.8 million.

had income tax expense of approximately $8,000 and $25,000 for the years ended December 31, 2025 and 2024, 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.

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.

Our effective tax rate is based on recurring factors, including the overall consolidated pretax loss,

state and foreign income taxes, forecasted mix of income before taxes in various jurisdictions, estimated permanent differences and

the recording of a full valuation allowance on our U.S.

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.

Our effective tax rate is based on recurring factors, including the overall consolidated pretax loss, state and foreign income taxes,

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.

loss for the year ended December 31, 2024 increased to approximately $9.9 million from a net loss of $4.9 million for the year ended

December 31, 2023 or an increase of $5 million.

The majority of the increase in net loss in 2024 compared to 2023 was primarily driven by inventory

impairment charges of $1.2 million discussed above, increased sales and marketing expenditures of $1.7 million and increased legal and

travel costs of $1.5 million.

The Company is focused on tighter management of inventory, legal and sales and marketing expenditures in

loss for the year ended December 31, 2025 decreased to approximately $1.8 million from a net loss of $9.9 million for the year ended

December 31, 2024 or a decrease of $8.1 million.

The majority of the decrease in net loss in 2025 compared to 2024 was primarily driven

by the gain on the sale of the Company’s Cannabis business ($3.9 million) and a decrease in the loss from operations ($5.0 million).

and Capital Resources

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capital of approximately ($0.5) million and $2.0 million, respectively.

Net cash used in operations during fiscal years 2024 and 2023 totaled

approximately $5.9 million and $3.8 million, respectively.

The $2.3 million increase in cash used in operations in fiscal 2024, was driven

by an increase in net loss after adjusting for non-cash items of $3.7 compared to the prior year which was offset by an increase in cash

generated from non cash working capital of $1.7 million compared to the prior year.

We incurred a net loss of approximately $9.9 million

for the year ended December 31, 2024 compared to a net loss of approximately $4.9 million for the year ended December 31, 2023.

Net cash used in continuing operations during fiscal years 2025

and 2024 totaled approximately $1.3 million and $6.2 million, respectively which is an improvement of $4.9 million for the year ended

December 31, 2025.

the year ended December 31, 2025, cash used in operating activities decreased by approximately $4.9 million compared to the prior year.

This change was primarily driven by an improvement in net loss after adjusting for non-cash items, which decreased by approximately $4.7

million relative to 2024.

Cash generated from changes in non-cash working capital compared to the prior year was improved by $0.2 million.

We incurred a net loss of approximately $1.7 million from continuing operations in 2025, compared to a net loss of approximately $9.7

million in 2024, reflecting the lower operating loss as well as the impact of the gain on the disposition of subsidiaries.

Our accumulated

deficit increased to $92.9 million as of December 31, 2024 compared to an accumulated deficit of $83.1 million as of December 31, 2023.

the year ended December 31, 2024, net cash inflow from financing activities totaled approximately $3.7 million, compared to a net cash

outflow of $0.2 million during the year ended December 31, 2023.

During 2024, the Company completed a private placement offering, resulting

in net cash proceeds of $3.6 million (Note 7), net proceeds from the revolving credit facility of $0.3 million and $0.1 million proceeds

received from the exercise of warrants and options.

This was offset by repayment on the insurance financing agreement amounting to $0.2

million and withholding taxes related to the RSUs of $0.2 million.

The cash outflow in 2023 was primarily due to repayments on our insurance

financing agreement, partially offset by proceeds received from the exercise of outstanding warrants.

deficit increased to $94.7 million as of December 31, 2025, compared to $92.9 million as of December 31, 2024.

activities provided net cash inflows of approximately $2.5 million for the year ended December 31, 2025, compared to net cash inflows

of $3.7 million in 2024.

The 2025 inflows were primarily attributable to proceeds from new loan financing and the issuance of promissory

notes, partially offset by repayments on existing debt and insurance financing arrangements.

In contrast, the 2024 inflows were driven

largely by the completion of a private placement offering, which generated net proceeds of $3.6 million, along with net borrowings under

the revolving credit facility and proceeds from the exercise of warrants and stock options.

These inflows were offset by repayments on

the insurance financing agreement and withholding taxes related to restricted share units.

activities provided net cash of approximately $0.4 million in 2025, compared to cash used of $27 thousand in 2024.

The increase was primarily

due to proceeds received from the disposal of a subsidiary, net of cash disposed, along with the proceeds from the sale of property,

plant and equipment.

have experienced recurring losses from operations and negative cash flows from operating activities.

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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 bring 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 $5,000,000, 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.

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 Consolidated Financial

There is no assurance that management’s current operating plan will be successful.

To address this issue, in the first quarter of fiscal year

2025, the Company 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 19, 2025, the Company, through a wholly-owned subsidiary

(the “Subsidiary”), entered into loan agreement (the “Loan Agreement”) with Two Shores Capital Corp (“Two

Shores”), 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.

The Loan Agreement was amended on December 1, 2025 to increase the facility to $10

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 Consolidated Financial Statements.

There is no assurance that management’s current

operating plan will be successful.

sales are seasonal and we experience fluctuations in quarterly results as a result of many factors.

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hold raw materials and finished goods inventories, which are manufactured and procured based on our sales forecasts.

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.

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

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

Spend and Promotion Expenses

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the following:

the tax position is not “more likely than not” to be sustained,

the tax position is “more likely than not” to be sustained, but for a lesser amount, or

the tax position is “more likely than not” to be sustained, but not in the financial period in which the tax position

was originally taken.

the tax position is not

“more likely than not” to be sustained,

the tax position is “more

likely than not” to be sustained, but for a lesser amount, or

the tax position is “more

likely than not” to be sustained, but not in the financial period in which the tax position was originally taken.

liability for uncertain tax positions contains uncertainties because management is required to make assumptions and to apply judgment

11 unchanged sentences

may be recognized as a reduction in our effective tax rate in the period of resolution.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

QUANTITATIVE AND

QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis