This annual report contains information about future expectations, plans and prospects of the company which constitute forward-looking
statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements
include, for example, such words as “aims,” “anticipates,” likely,” “expects,” “believes,” “intends,” “plans,” “predicts,” “toward” or “should,” the
negatives of these words or similar words or expressions. Forward-looking statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those indicated by the forward-looking statements. Some of these risks and uncertainties are
described in this report and in the other documents we filed publicly with the Securities and Exchange Commission. Readers are cautioned not to
place undue reliance upon these forward-looking statements that speak only as to the date of this annual report. Except as required by law, we do
not assume any obligation to update the forward-looking statements we make herein.
September 14, 2012
Dear Fellow Shareholders:
I am glad to be back! My being hired as the new CEO of Jones Soda in June 2012 brings me full
circle, back into a company I believe in and love. I began with Jones Soda in 1995 in
Vancouver, Canada with the original launch of the Jones Soda brand and I spent the subsequent
10+ years in various roles as CFO, COO and Director building this incredible brand and
Company. My strengths lie in knowing and managing this business, but the most important
ingredient that I bring back to you is my passion for our brand, Jones Soda.
Since 1995, our mission has been to create a brand that emotionally connects with consumers in
a fun, positive way. We recently polled our consumers on Facebook, through emails and in
person, and the most common adjectives stated about our brand were “fun,” “colorful,”
“unique,” “flavorful,” “bubbly” and “independent” with “fun” the #1 most common adjective
used. Our mission from the time that we launched our brand is still very relevant today.
I feel fortunate to be able to come back to your Company and this amazing brand. I can clearly
see that the brand’s strong connection with our consumers has continued, and has strengthened
over the years. On a daily basis we witness the power of our brand – our recent achievement of
reaching 1 million Facebook fans, consumers from across Canada and the United States
travelling to visit our headquarters in Seattle, thousands upon thousands of photo submissions for
our labels, our distributor partners continuing to be excited with the brand’s sales and its
possibilities, and interest from companies that want to partner with us because of our unique
brand. The strength of our brand is undeniable.
Since returning to the Company, I have thoughtfully looked at the current business and our
future. I believe that over the past several years we did not focus enough on the Jones Soda
brand, while at the same time we invested in administrative expenses and corporate marketing
programs that did not sufficiently contribute to top-line growth. When our brand is on the shelf,
it sells. The problem is that we are not on enough shelves. Our number one criticism from our
loyal fans is that they cannot find Jones Soda in enough places.
In my opinion, our opportunities come down to distribution and focus. In my three months as
CEO, my focus has been on maintaining the quality of the Jones brand, building our distribution
relationships, and evaluating our product line-up for the future. In the new year, we will be
launching a natural soda with all of our great Jones packaging and look that is a “good for you”
soda containing fiber, less sugar and less calories. We are reducing our administrative expenses
and carefully managing sales and marketing expenses while investing the appropriate resources
on sales and distribution. Our focus is on getting closer to sustainability with the ultimate goal to
eventually get to profitability. This combination of growth and judicious expense management is
a delicate balance – bringing a disciplined approach to growing revenues, while living within our
means – and is one that I know is achievable.
What we offer with our products is a special treat that connects with our consumer in a fun and
positive way. Jones Soda is an experience like no other soda out there. It will be up to me to
guide your Company to getting Jones Soda onto more shelves and into the hands of many more
consumers!
I am pleased to be back and excited for the future. Thank you for your support!
Jennifer L. Cue
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-28820
_____________________________________________
JONES SODA CO.
(Exact name of registrant as specified in its charter)
Washington
(State or other jurisdiction of
incorporation or organization)
52-2336602
(I.R.S. Employer
Identification No.)
1000 First Avenue South, Suite 100
Seattle, WA 98134
(Address of principal executive offices)
(206) 624-3357
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class
Common Stock, no par value
Name of Each Exchange on Which Registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
No
No
No
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of the last business day of the second fiscal quarter, June 30, 2011, the aggregate market value of such common stock held by non-affiliates
No
(Do not check if a smaller reporting company)
was approximately $34,774,978 using the closing price on that day of $1.11.
As of March 27, 2012, there were 38,515,882 shares of the Company’s common stock issued and outstanding.
Documents Incorporated By Reference:
None.
EXPLANATORY NOTE
Unless otherwise indicated or the context otherwise requires, all references in this Annual Report on Form 10-K to “we,”
“us,” “our,” “Jones,” “Jones Soda,” and the “Company” are to Jones Soda Co.®, a Washington corporation, and our wholly-
owned subsidiaries Jones Soda Co. (USA) Inc. and Jones Soda (Canada) Inc., and two non-operating subsidiaries,
myJones.com, Inc. and Whoopass USA Inc.
In addition, unless otherwise indicated or the context otherwise requires, all references in this Annual Report to “Jones
Soda” refer to our premium soda sold under the trademarked brand name “Jones Soda Co.”
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This
Annual Report on Form 10-K (Report) contains a number of forward-looking statements that reflect management’s current
views and expectations with respect to our business, strategies, products, future results and events, and financial performance.
All statements made in this Report other than statements of historical fact, including statements that address operating
performance, the economy, events or developments that management expects or anticipates will or may occur in the future,
including statements related to volume growth, revenues, profitability, distributor channels, new products, adequacy of funds
from operations, cash flows and financing, our ability to continue as a going concern, potential strategic transactions,
statements regarding future operating results and non-historical information, are forward-looking statements. In particular, the
words such as “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” “can,” “plan,” “predict,” “could,” “future,”
"continue," variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive
means of identifying such statements and their absence does not mean that the statement is not forward-looking.
Readers should not place undue reliance on these forward-looking statements, which are based on management’s current
expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties
and assumptions and apply only as of the date of this Report. Our actual results, performance or achievements could differ
materially from historical results as well the results expressed in, anticipated or implied by these forward-looking statements.
Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as
a result of new information, future events or otherwise.
In particular, our business, including our financial condition and results of operations and our ability to continue as a
going concern may be impacted by a number of factors, including, but not limited to, the following:
• Our ability to successfully execute on our 2012 operating plan which streamlines operations and reduces operating
expenses;
• Our ability to establish, maintain and expand distribution arrangements with independent distributors, retailers,
brokers and national retail accounts, most of whom sell and distribute competing products, and whom we rely upon
to employ sufficient efforts in managing and selling our products, including re-stocking the retail shelves with our
products, on which our business plan and future growth are dependent in part;
• Our ability to successfully launch new products or our failure to achieve case sales goals with respect to existing
products;
• Our ability to generate sufficient cash flow from operations or secure additional financing if we are unable to
successfully execute on our 2012 operating plan;
• Our use of the net proceeds from current or future financings to improve our financial condition;
• Dilutive and other adverse effects on our existing shareholders and our stock price arising from future securities
issuances;
• Our ability to manage our inventory levels and to predict the timing and amount of our sales;
• Our reliance on third-party contract manufacturers of our products, which could make management of our
marketing and distribution efforts inefficient or unprofitable;
• Our ability to secure a continuous supply and availability of raw materials, as well as other factors affecting our
supply chain including rising raw material costs and shortages of glass in the supply chain;
• Rising fuel and freight costs may have an adverse impact on our results of operations;
• Our ability to source our flavors on acceptable terms from our key flavor suppliers;
• Our ability to maintain brand image and product quality and the risk that we may suffer other product issues such as
product recalls;
• Our ability to attract and retain key personnel, which would directly affect our efficiency and results of operations;
• Our inability to retain the services of our CEO, which could materially impair our business plan;
• Our inability to protect our trademarks and trade secrets, which may prevent us from successfully marketing our
products and competing effectively;
• Litigation or legal proceedings, which could expose us to significant liabilities and damage our reputation;
• Our ability to maintain effective disclosure controls and procedures and internal control over financial reporting;
• Our ability to build and sustain proper information technology infrastructure;
• Our inability to regain and maintain compliance with the continued listing requirements of The Nasdaq Capital
Market which may adversely affect our market price and liquidity;
• Our ability to create and maintain brand name recognition and acceptance of our products, which are critical to our
success in our competitive, brand-conscious industry;
• Our ability to compete successfully against much larger, well-funded, established companies currently operating in
the beverage industry;
• Our ability to continue developing new products to satisfy our consumers’ changing preferences;
• Global economic conditions that may adversely impact our business and results of operations; and
• Our ability to comply with the many regulations to which our business is subject.
For a discussion of some of the factors that may affect our business, results and prospects, see “Item 1A. Risk Factors.”
Readers are also urged to carefully review and consider the various disclosures made by us in this Report and in our other
reports we file with the Securities and Exchange Commission, including our periodic reports on Forms 10-Q and current
reports on Form 8-K, and those described from time to time in our press releases and other communications, which attempt to
advise interested parties of the risks and factors that may affect our business, prospects and results of operations.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011
JONES SODA CO.
Table of Contents
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . .
Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Directors, Executive Officers and Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Page
1
10
20
20
20
20
21
23
24
30
31
51
51
51
52
54
59
61
62
62
63
ITEM 1.
BUSINESS.
Overview
PART I
We develop, produce, market and distribute premium beverages, which currently consist of the following product lines
and extensions:
•
Jones® Soda, a premium carbonated soft drink;
Jones Zilch®, with zero calories (and an extension of the Jones® Soda product line);
• WhoopAss™ Energy Drink, an energy supplement drink; and
WhoopAss Zero™ Energy Drink, with zero sugar (and an extension of the WhoopAss™ Energy Drink product
line).
We sell and distribute our products primarily in North America through our network of independent distributors located
throughout the United States (U.S.) and Canada and directly to our national retail accounts. We refer to our network of
independent distributors as our direct store delivery (DSD) channel, and we refer to our national and regional accounts as our
direct to retail (DTR) channel. Additionally, in limited circumstances we sell concentrate for distribution or production of our
products. We do not directly manufacture our products but instead outsource the manufacturing process to third-party contract
manufacturers. We also sell various products on-line, which we refer to as our interactive channel, 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 are expanding our international business outside of North America and have secured distribution
through independent distributors in Ireland, the United Kingdom and Australia.
Our company is a Washington corporation formed in 2000 as a successor to Urban Juice and Soda Company Ltd., a
Canadian company formed in 1986. Our principal place of business is located at 1000 First Avenue South, Suite 100, Seattle,
Washington 98134. Our telephone number is (206) 624-3357.
Segment Information
We have one operating segment with operations primarily in the United States and Canada (see Note 14 in Item 8 of this
Report).
Products
As explained in further detail under “Industry Background,” below, we have realigned our strategy to focus on our two
brands within the sparkling beverage category. Our two beverage brands currently consist of the following:
Jones Soda
In November 1995, we launched Jones Soda, a premium carbonated soft drink. The classic Jones Soda presentation is a
12-ounce, clear long-neck bottle, with every bottle label featuring a photo sent to us by our consumers. Over 1,140,000 photos
have been submitted to us. We believe this unique interaction with the consumer distinguishes our brand and offers a strong
competitive advantage for Jones Soda. Equally differentiating is the bright, colorful look of our drinks, which have distinctive
names such as FuFu Berry Soda® and Blue Bubble gum. Jones Soda is made with the highest quality ingredients, including
pure cane sugar. We currently sell Jones Soda in nine flavors in the United States with additional flavors offered seasonally or
in certain markets.
In 2003, we launched a sugar-free version of our Jones Soda line providing an alternative for consumers to our regular
Jones Soda line. We have branded this line-up as Jones Zilch. We believe these sugar-free sodas, which are sweetened with
Splenda® and contain zero calories, are an important product extension, especially in light of the increasing consumer
preferences for zero and lower calorie options. We currently have four flavors of Jones Zilch, Black Cherry, Pomegranate,
Vanilla Bean and Cola.
In December 2009, we introduced new packaging for our core glass bottles, the first time our packaging had been
completely refreshed in almost 12 years. The new look is distinctly Jones Soda, updated with higher resolution printing
designed to provide improved shelf presence for our brand. We believe the packaging highlights our portfolio of flavors while
also delivering a cohesive, sustainable brand message to our consumers.
In October 2011, we announced our launch of a new format for Jones Soda specifically aimed at the convenience store
channel — a 16-ounce can, emblazoned with the bold black and white fan-submitted photos associated with our Jones Soda
1
bottles. We currently have three flavors available in the 16-ounce Jones Soda: Strawberry Lime, Green Apple and Berry
Lemonade.
WhoopAss Energy Drink
In September 2010, we announced the re-launch of our WhoopAss Energy Drink (originally launched a decade ago), in a
move that aims to make us a contender in the energy drink segment, featuring new edgy packaging, functional new ingredients
that boost energy and aid in post-workout recovery, as well as an updated flavor profile and color. WhoopAss comes in a tall,
all-black 16-ounce aluminum can featuring a gritty red and gray Iron Cross graphic that is a historic symbol representing
strength and courage and is popular among the skate, surf and mixed martial arts culture and contains the antioxidant power of
2.5 servings of vegetables with an exotic, subtle fruit flavor with notes of dragon fruit. In January 2011, we launched a sugar
free product extension, WhoopAss Zero Energy Drink, in a tall, all-white 16-ounce aluminum can. WhoopAss provides an
energy boost while also promoting workout recovery. Key ingredients include:
• Amino Acids including Taurine, L-Arginine, L-Carnitine, L-Lysine, which are protein building blocks crucial to
metabolism;
• Polyphenols and Catechins sourced from Yerba Mate, Grape extracts, and Green Tea; and
• Vitamin Blend of B2, B3, B6 and B12 to supply an energy boost.
Discontinued Products
We determined during 2010 that we would transition out of underperforming product lines, Jones Organics®, Jones
Naturals®, Jones 24C®and Jones GABA®, to focus our sales and marketing resources on our core products, including Jones
Soda and our re-launched WhoopAss Energy Drink.
Industry Background
Jones Soda and WhoopAss Energy Drink are classified in the sparkling beverage category, which encompasses the
carbonated soft drinks, energy drinks, and natural carbonated drinks (natural sparkling) segments. The sparkling beverage
category accounts for greater than $90 billion* in annual retail sales. The energy drink segment is the growth leader, currently
growing at greater than 16%* per year. Carbonated soft drinks (CSD), the largest segment in the sparkling beverage category,
declined 4.3%* in 2011 driven by reduced volume by the large CSD players. Within the CSD segment are craft and premium
sodas, which provide consumers with an alternative to the large corporate brands and is where our Jones Soda line competes. In
the U.S., the craft and premium sodas are typically distributed through the grocery, drug, mass, club, convenience and on-line
sales channels. We believe the optimum distribution channels for our Jones Soda glass bottle line are the grocery, mass and
club channels while the convenience channel provides the biggest opportunity for our Jones Soda 16-ounce cans and WhoopAss
Energy Drink.
_______________________________________
* According to Beverage Digest
Business Strategy
Over the last several years, we believe that we lost our focus on our core business and participated in too many
categories, which we believe contributed to our sustained losses and inability to grow our core brands. With the products we
discontinued in 2010, we have now exited the organic, juice drink, water and functional beverage categories. We intend to build
upon our sparking beverage portfolio and in March 2012, we announced our new product offering, Au Naturel, that we plan to
launch in the second quarter of 2012. Au Naturel is a new, more natural and lower calorie product in the natural sparkling
segment which we believe will round out our offerings within the sparkling beverage category so that we have product
representation over the three main subsets within the sparkling category (carbonated soft drinks, energy, and natural sparkling).
Our two main brands compete with beverage products of all types, including soft drinks, energy drinks and natural
sparkling beverages. While we intend to maintain our niche alternative positioning within the sparkling beverage market, we
also strive to expand our sources of growth by attempting to be within the consideration set of shoppers and drinkers of
mainstream brands so that it is easier for them to switch to our products. The primary focus of our business strategy is to
increase sales by expanding distribution of our products in new and existing markets (primarily within North America). Our
business strategy focuses on:
•
•
expanding points of distribution of Jones Soda throughout the entire U.S. in the grocery, mass and club channels;
growing our convenience and gas (C&G) distribution behind WhoopAss Energy Drink and our newly launched 16-
ounce Jones Soda can format;
2
•
•
expanding the stock-keeping unit (SKU) offerings and space in the grocery stores where we are already present; and
developing innovative beverage brands that will allow us to capture share in the growing natural carbonated drink
segment.
Distribution
Our two primary distribution channels historically have been our direct store delivery (DSD) channel (sales and
distribution through our network of independent distributors) and our direct to retail (DTR) channel (sale directly to national
retail accounts). We also have our interactive channel, for on-line sales of various products.
Our distribution landscape is evolving, with the majority of our case sales of our core products, Jones Soda and our re-
launched WhoopAss Energy Drink, being sold in recent years through our DSD channel. We are strategically building our
national and regional retailer network by focusing on the distribution system that will provide us the best top-line driver for our
products and optimize availability of our products. In building and expanding our international markets, we look for regions
that the data suggests a high affinity for CSD consumption.
Part of our strategy in building our distribution system is to blend our DSD and DTR distribution channels, delivering
different brands or SKUs through alternate channels. Additionally, in determining the most advantageous distribution channel,
we also consider what works best for the customer, allowing for better retail activation and in-store presence, including
placement on shelves that are normally restricted to national mainstream brands, thus providing us access to the important “take
home market.” We have been most successful in penetrating this space with the alternative, yet classic four-pack Jones Soda
glass package. While we decreased emphasis on the 12-ounce aluminum can multi-pack over the last couple of years as we
believe it had the unintended consequence of competing against our traditional glass packaging, we currently maintain national
distribution for this package for the Kroger Co.
For the year ended December 31, 2011, we experienced an improved balance of business across the U.S. and Canada as
we developed our distributor network in certain regions of those countries. Our top ten DSD distributors by revenue represent
approximately 41% of revenue, one of which, A. Lassonde Inc., a Canadian DSD distributor, represents 21%. We anticipate
that, as consumer awareness of our brands and products develops and increases, we will continue to upgrade and expand our
distributor network and DTR accounts, which may result in a decreased dependence on any one or more of our independent
distributors or national retail accounts.
We contract with independent trucking companies to have our product shipped from our contract manufacturers to
independent warehouses and then on to our distributors and national retail accounts. Distributors then sell and deliver our
products either to sub-distributors or directly to retail outlets. We recognize revenue upon receipt by our distributors and
national account customers of our products, net of discount and allowances, and all sales are final; however, in limited
instances, due to credit issues, quality or damage issues, or distributor changes, we may accept returned product, which to date,
have not been material.
DSD (direct store delivery): As of the date of this Report, we maintain a network of approximately 187 distributors in
50 states in the U. S. and nine provinces in Canada. We have also secured distribution with independent distributors in Ireland,
the United Kingdom and Australia and are evaluating other international opportunities for our products. We grant these
independent distributors the exclusive right in defined territories to distribute finished cases of one or more of our products
through written agreements. These agreements typically include invasion fee provisions to those distributors in the event we
provide product directly to one of our national retailers located in the distributor’s region. We are also obligated to pay
termination fees for cancellations of most of these written distributor agreements, which have terms generally ranging from one
to three years unless the termination is 'for cause'. We have chosen, and will continue to choose, our distributors based on our
determination of their perceived ability to build our brand franchise - in convenience stores, grocery stores, and up and down
the street in delicatessens and sandwich shops. We have obtained listings for Jones Soda and WhoopAss Energy Drink with
certain key retail grocery, convenience and mass merchandiser accounts, which are serviced through our independent
distributor network. As of the date of this Report, some of our accounts include the following:
3
Convenience
7-Eleven, Inc
Jacksons
Maverik
Mass
Kmart
Target Corporation Old Navy
Walmart
Specialty
Naked Pizza
US
Grocery
Albertsons
Cub Foods
Fry's
Giant Eagle
Harris Teeter
Hy-Vee, Inc.
Kroger
Meijer
Publix
Quality Food Centers (QFC)
Ralph's
Winn Dixie Stores, Inc.
Canada Grocery
Loblaw Companies Limited
Mac's
Overwaitea
Convenience
7-Eleven, Inc
Needs Convenience Stores
Real Canadian Wholesale Clubs
Mass
Walmart
Specialty
Starbucks
Product availability at a specific store location for any of the above named retailers is subject to the retailer, consumer
demand, and localized store variances. Our accounts listing changes from time to time, as new retail accounts are added and
others are canceled. To find a retailer that carries our products, our product locator is available on our website under "Buy
Jones-Product Locator".
DTR (direct to retail): Our direct to retail channel of distribution is an important part of our strategy to target large
national or regional restaurant chains, retail accounts, including mass merchandisers and premier food-service businesses.
Through these programs, we negotiate directly with the retailer to carry our products, and the account is serviced through the
retailer’s appointed distribution system. As of the date of this Report, our most significant DTR accounts are the following:
• Kroger — we offer six flavors of Jones Soda cans though the DTR channels (and we also offer Jones Soda glass
bottles to Kroger through our DSD channel);
•
Starbucks Canada — we offer two flavors of Jones Soda;
• Meijer — transitioned from DSD to our DTR channel in the first quarter of 2011, we offer eight flavors of Jones
Soda;
• Harris Teeter — we offer a variety of Jones Soda flavors; and
• U.S. Military Commissaries.
These arrangements are terminable at any time by these retailers or us, and contain no minimum purchase commitments.
Building our Brand
We believe we have built our brand to a large extent on our independent counter-culture image as well as by providing
unique and exciting flavors that appeal to consumers who prefer alternatives to the corporate CSD brands. This market is driven
by trendy, young consumers looking for a distinctive tonality in their beverage choices. While we believe we are known for our
unique and innovative flavors, we intend to begin emphasizing and featuring additional flavors that have a large base of
consumer appeal from which to source volume. Additionally, through the labels on our bottles and our invitation to consumers
to send in photographs to be featured on the Jones Soda labels, we focus on a coherent message and call to action, thus
escaping the uniformity that we believe plagues so many other brands. We select photos throughout the year to be placed on our
bottles and cans for distribution, and also invite consumers to celebrate special occasions and memories by creating their own
label through myJones.com. In that space, consumers have the ability to customize their own label and product with a photo and
short caption using a proprietary process that we license under a worldwide, non-exclusive, nontransferable, nonsublicenseable,
royalty-free, fully-paid, perpetual license, as explained in further detail under “Trademarks, Flavor Concentrate Trade Secrets
and Patent Licenses,” below. In addition to creative labeling on our products, we provide our distributors with point-of-sale
promotional materials and branded apparel items. We believe that our labeling, marketing and promotional materials are
important elements to creating and increasing distributor, retailer and consumer awareness of our brands and products. Further,
we believe our branding efforts have helped us achieve strong consumer awareness of our brand and affinity levels for our
products.
4
In-House Brand and Product Development
We understand the importance of creating new beverage items and enhancing our existing beverage items to meet the
ever changing consumer taste profile. We intend to build upon our sparkling beverage portfolio, and in March 2012, we
announced our new product offering, Au Naturel, that we plan to launch in the second quarter of 2012. Au Naturel is a new,
more natural and lower calorie product in the natural sparkling beverage market. Our strategy is to focus on innovative
products that will be accepted by retailers, distributors and consumers. We believe this is accomplished by keeping open dialog
with our retail and distributor partners to ensure we are current with consumer trends in the beverage industry.
We have developed and intend to continue to develop the majority of our brands and products in-house. We used a similar
process initially to create the Jones Soda brand, and we intend to continue utilizing this process to create our future brands and
products. This process primarily consists of the following steps:
Market Evaluation. We evaluate the strengths and weaknesses of certain categories and segments of the beverage
industry with a view to pinpointing potential opportunities.
Distributor Evaluation. We analyze existing and potential distribution channels, whether DSD, DTR or a blend of
these channels. This analysis addresses, among other things, which companies will distribute particular beverage brands
and products, where such companies may distribute such brands and products, and what will motivate these distributors
to distribute such brands and products.
Production Evaluation. We review all aspects of production of our beverages, including current contract packing
capacity, strategic production locations, and quality control, and prepare a cost analysis of the various considerations that
will be critical to producing our brands and products.
Image and Design. In light of our market, distributor and production evaluations, we create and develop the
concept for a beverage brand, product or product extension. Our technical services department then works with various
flavor concentrate houses to test, choose and develop product flavors for the brand.
We believe that the ongoing process of creating new brands, products and product extensions will be an important factor
in our long-term success.
Marketing and Sales
Marketing
Our marketing team has developed brand positioning and architecture frameworks that we believe enable us to have
disciplined control over our brand identity and other marketing parameters. These strategic frameworks steer us in the
development and selection of programs that allow direct consumer ownership and participation in management of the brand
while still maintaining brand integrity. We have also developed channel, package, price and promotion strategies designed to
allow the sales team to realize optimum price points.
We have a successful history of positioning ourselves in alternative outlets with the intent to be where national
mainstream brands are not sold. We also have a program of sponsoring alternative sport athletes to promote our products. We
have teamed up with Ultimate Fighting Championship fighter Ryan “Darth” Bader and Mixed Martial Arts fighter Jordan Mein
to promote our re-launched WhoopAss and with world snowboarding champion Lindsey Jacobellis along with K2 Skis to
pursue new snow-inspired initiatives. We also market in youth alternative sports such as surfing where we have teamed up with
surfer Brianna Cope, hockey, roller derby, and snowboard, skateboard and BMX bike arenas. We believe this effort to position
our products in alternative outlets has drawn a younger generation of customers that value their independence away from the
larger soft drink brands.
Another core marketing pillar is the open source access consumers have to define the brand through Jonessoda.com. We
invite our consumers to send us photos of their lives for use on our label. Every Jones Soda glass bottle and can has a picture
provided to us by a consumer.
We also maintain and utilize our website to allow our Jones Soda consumers to create personalized 12-packs of Jones
Soda (12-ounce bottles) with their own photos on the labels. The strategy of this program is to provide a personalized product
offering to our consumers as well as an innovative marketing opportunity for our Jones Soda brand. Consumers can upload
their photos through a web-based process and crop and create their own “myJones” labels. The personalized labels are
downloaded at our warehouse, applied to 12-packs of Jones Soda and delivered to the consumer. We believe this strategy has
increased awareness for, as well as provided for increased consumer interactivity with, the Jones Soda brand.
In 2002, we launched the yourJones program, which allows the customization of the front panel of the label of Jones
Soda in a manner similar to our myJones business, but on a larger, commercial scale. The premise behind yourJones is to create
5
customized Jones Soda bottles, with a personalized photo or brand image, for cross promotion and co-branding purposes or for
sale in retail accounts. Like myJones.com, the Jones Soda name always appears on the labels and customers add their own
photo/brand and words. We have negotiated arrangements with our co-packing facilities to create short-run productions for
these purposes. Examples of yourJones runs include limited edition soda featuring Buffy the Vampire Slayer as well as bacon-
flavored soda that we made in partnership with the popular Bacon Salt®.
We participate in blogs and several different social media campaigns as a way of live engagement with our consumers in
order to listen to their voice and better understand their needs and issues. Social media represents one of the largest shifts in
modern business away from static advertising and we have had success in creating social media hubs through forums such as
Facebook and Twitter. The Jones Soda consumer has responded by bringing us onto their pages and thus into their lives,
creating a personal connection that we hope helps ensure they are actively engaged with our brand and our products.
We use point-of-sale materials such as posters, stickers, hats and T-shirts to create and increase consumer awareness of
our proprietary products and brands. In response to consumer demand, we also sell our products and our wearables on our
website. In selected cities, we participate at a “grass roots” level at certain community and sporting events in an attempt to
create and increase brand awareness and loyalty. We use recreational vehicles, vans and independent distributor vehicles
painted with the Jones colors and logos to create consumer awareness and enthusiasm at these events and to assist distributors
as they open new retail accounts and markets. Additionally, with the strong summer seasonality of our product, we maximize
our presence throughout the U.S. and Canada by touring in our branded RV and engaging fans at consumer sampling and
summer events.
From time to time, we partner with companies that will manufacture Jones-related products that we feel extend and
enhance our Jones brand. We currently have a licensing arrangement Big Sky Brands, Inc. to manufacture and distribute Jones
Soda Flavor Booster hard candy. In addition to these marketing techniques, we also pursue cross-promotional campaigns with
other companies.
Sales
Our products are sold in 50 states in the U.S. and nine provinces in Canada, primarily in convenience stores, grocery
stores, and up and down the street in delicatessens and sandwich shops, as well as through our national accounts with several
large retailers. In 2011, sales in the U.S. represented approximately 75% of total sales, while sales in Canada represented
approximately 23%, and we had approximately 2% in other international sales. In 2010, sales in the U.S. represented
approximately 71% of total sales, while sales in Canada represented approximately 25%, and we had approximately 4% in
other international sales.
Competition
The beverage industry is highly competitive. Principal methods of competition in the beverage industry include:
•
•
•
•
•
•
•
•
•
•
•
distribution;
shelf-management;
sponsorships;
licensing;
brand name and image;
price;
labeling and packaging;
advertising;
product quality and taste;
trade and consumer promotions; and
development of new brands, products and product extensions.
We compete with other beverage companies not only for consumer acceptance but also for shelf space in retail outlets and
for marketing focus by our distributors, all of whom also distribute other beverage brands. Our products compete with all non-
alcoholic beverages, most of which are marketed by companies with substantially greater financial resources than ours. We also
compete with regional beverage producers and “private label” soft drink suppliers. Our direct competitors in the sparkling
beverage industry include Dr. Pepper Snapple (Stewarts and IBC), Boylans, Henry Weinhard’s, Thomas Kemper, and other
regional premium soft drink companies. We also compete against Coca Cola, Pepsi, Hansen’s, and other traditional soft drink
6
manufacturers and distributors, as well as against other category leaders such as Red Bull and Monster in the energy drink
category.
In order to compete effectively in the beverage industry, we believe that we must convince independent distributors that
Jones Soda and WhoopAss Energy Drink are leading brands in the premium soda and energy drink segments of the sparkling
beverage category. We believe our story is compelling as we perform well compared to our direct competitors in the premium
soda segment in sales per point of distribution. Additionally, as a means of maintaining and expanding our distribution network,
we introduce new products and product extensions, and when warranted, new brands. In October 2011, we announced our
launch of a new format for Jones Soda specifically aimed at the convenience store channel—a 16-ounce can, emblazoned with
the bold black and white fan-submitted photos associated with our Jones brand. In March 2012, we announced our new product
offering, Au Naturel, that we plan to launch in the second quarter 2012 to enhance our sparkling portfolio with a more natural
and lower calorie product. Although we believe that we will be able to continue to create competitive and relevant brands and
products to satisfy consumers’ changing preferences, there can be no assurance that we will be able to do so or that other
companies will not be more successful in this regard over the long term.
In addition, in light of the competition for product placement with independent distributors, we obtained several national
retail accounts as an additional distribution channel for our products. We believe that this diversification strategy is helpful in
alleviating the risk inherent in competition for independent distributors.
Pricing of the products is also important. We believe that our Jones Soda and WhoopAss Energy Drink products are
priced in the same price range or higher than competitive brands and products and compete on quality as they are premium
product offerings.
Production
Contract Packing Arrangements
We do not directly manufacture our products but instead outsource the manufacturing process to third party bottlers and
independent contract manufacturers (co-packers). For our bottle products, we purchase certain raw materials which are
delivered to our various third party co-packers. We currently use five primary co-packers located in Canada and the U.S. to
prepare and package our bottle and can products. Once the product is manufactured, we store the finished product at that
location or in nearby third party warehouses. Other than minimum case volume requirements per production run for most co-
packers, we do not have annual minimum production commitments with our co-packers. Our co-packers may terminate their
arrangements with us at any time, in which case we could experience disruptions in our ability to deliver products to our
customers. We continually review our contract packing needs in light of regulatory compliance and logistical requirements and
may add or change co-packers based on those needs.
Raw Materials
Substantially all of the raw materials used in the preparation, bottling and packaging of our bottle and can products are
purchased by us or by our contract manufacturers in accordance with our specifications. The raw materials used in the
preparation and packaging of our products consist primarily of concentrate, flavors, supplements, sugar, bottles, labels, trays,
caps and packaging. These raw materials are purchased from suppliers selected by us or by our contract manufacturers. We
believe that we have adequate sources of raw materials, which are available from multiple suppliers.
Currently, we purchase our flavor concentrate from three flavor concentrate suppliers. Generally, flavor suppliers own the
proprietary rights to the flavors. Consequently, we do not have the list of ingredients or formulas for our flavors, but we do
have the exclusive rights to flavor concentrates developed with our flavor concentrate suppliers. In connection with the
development of new products and flavors, independent suppliers bear a large portion of the expense for product development,
thereby enabling us to develop new products and flavors at relatively low cost. We anticipate that for future flavors and
additional products, we may purchase flavor concentrate from other flavor houses with the intention of developing other
sources of flavor concentrate for each of our products. If we have to replace a flavor supplier, we could experience disruptions
in our ability to deliver products to our customers, which could have a material adverse effect on our results of operations.
In addition, we utilize considerable quantities of pure cane sugar. We have two pure cane sugar suppliers and have
entered into one to two-year supply agreements that fix prices for 12-month periods. We also have a three-year a fixed price
supply agreement with our primary glass supplier which expires at the end of 2013. The price of glass increased in 2011
compared to 2010 exerting pressure on our 2011 gross margins. However, due to the shortage of available glass in the industry,
our supply agreement with our glass supplier has given us a competitive advantage.
We are still subject to freight and energy surcharges despite these agreements. We experienced lower surcharges in 2011;
however, we anticipate that these costs may increase in 2012 as fuel and energy prices increase.
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Quality Control
Our products are made from high quality ingredients and natural and artificial flavors. We seek to ensure that all of our
products satisfy our high quality standards. Contract manufacturers are selected and monitored by our own quality control
representatives in an effort to assure adherence to our production procedures and quality standards. Samples of our products
from each production run undertaken by each of our contract manufacturers are analyzed and categorized in a reference library.
For every run of product, our contract manufacturer undertakes extensive testing of product quality and packaging. This
includes testing levels of sweetness, carbonation, taste, product integrity, packaging and various regulatory cross checks. For
each product, the contract manufacturer must transmit all quality control test results to us for reference following each
production run.
Testing also includes microbiological checks and other tests to ensure the production facilities meet the standards and
specifications of our quality assurance program. Water quality is monitored during production and at scheduled testing times to
ensure compliance with beverage industry standards. The water used to produce our products is filtered and is also treated to
reduce alkalinity. Flavors are pre-tested before shipment to contract manufacturers from the flavor manufacturer. We are
committed to ongoing product improvement with a view toward ensuring the high quality of our product through a stringent
contract packer selection, training and communication program.
Regulation
The production and marketing of our proprietary beverages are subject to the rules and regulations of various federal,
provincial, state and local health agencies, including in particular Health Canada, Agriculture and Agri-Food Canada (AAFC)
and the U.S. Food and Drug Administration (FDA). The FDA and AAFC also regulate labeling of our products. From time to
time, we may receive notifications of various technical labeling or ingredient reviews with respect to our licensed products. We
believe that we have a compliance program in place to ensure compliance with production, marketing and labeling regulations.
Packagers of our beverage products presently offer non-refillable, recyclable containers in the U.S. and various other
markets. Legal requirements have been enacted in jurisdictions in the U.S. and Canada requiring that deposits or certain eco-
taxes or fees be charged for the sale, marketing and use of certain non-refillable beverage containers. The precise requirements
imposed by these measures vary. Other beverage container related deposit, recycling, eco-tax and/or product stewardship
proposals have been introduced in various jurisdictions in the U.S. and Canada. We anticipate that similar legislation or
regulations may be proposed in the future at local, state and federal levels, both in the U.S. and Canada.
Trademarks, Flavor Concentrate Trade Secrets and Patent Licenses
In the U.S., we own a number of trademark registrations (designated by the ® symbol) and pending trademark
applications (designated by the ™ symbol) for use in connection with our products, including “JONES®,” “JONES SODA
CO.®,” “JONES ZILCH®,” “JONES JUMBLE®,” “WHOOPASS™,” “WHOOPASS ZERO™”, “OPEN A CAN!™” and “AU
NATUREL™”.
In addition, we have trademark protection in the U.S. for a number of other trademarks for website, slogans and product
designs, including “RUN WITH THE LITTLE GUY!®,” “WWW.JONESSODA.COM®,” “MY JONES®,”
“WWW.MYJONES.COM®,” “ FUFU BERRY SODA®,” “ROADTRIP JONES®,” “FREE SODA FRIDAY®,” “KEEPING IT
REAL®,” “CORN IS FOR CARS . . . SUGAR IS FOR SODA®,” “I’VE GOT A JONES FOR A JONES®,” “CREATE SOME
CHANGE™” and “OFFICIAL SODA OF THE ROADTRIP®”.
We also own various foreign trademark registrations and pending trademark applications for several marks, including
“JONES™,” “JONES SODA CO.®,” “JONES ZILCH™,” “WHOOPASS™,” and “OPEN A CAN!™” in Canada, United
Kingdom, Ireland, Germany, Japan, Australia, and other foreign jurisdictions.
In general, trademark registrations expire 10 years from the filing date or registration date, with the exception in Canada,
where trademark registrations expire 15 years from the registration date. All trademark registrations may be renewed for a
nominal fee.
We have the exclusive rights to 37 flavor concentrates developed with our current flavor concentrate suppliers, which we
protect as trade secrets. We will continue to take appropriate measures, such as entering into confidentiality agreements with
our contract manufacturers and exclusivity arrangements with our flavor houses, to maintain the secrecy and proprietary nature
of our flavor concentrates.
Effective July 28, 2010, we sold to a third party the two patents and all rights thereto that covered our patented custom
label process. We retained a worldwide, non-exclusive, nontransferable, nonsublicenseable, royalty-free, fully-paid, perpetual
license in the patents, solely for use with respect to our products and services, which is not subject to termination for any
8
reason. Under the agreement, we also have the right to pre-approve any license or assignment of the patents for certain products
or services.
We consider our trademarks, trade secrets and the license right described above to be of considerable value and
importance to our business.
Seasonality
Our sales are seasonal and we experience fluctuations in quarterly results due to many factors. We historically have
generated a greater percentage of our revenues during the warm weather months of April through September. Timing of
customer purchases will vary each year and sales can be expected to shift from one quarter to another. 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.
Employees
As of the date of this Report, we have 40 employees, all of which were full-time. Of our 40 employees, 25 were
employed in sales and marketing capacities, 10 were employed in administrative capacities and 5 were employed in customer
service, manufacturing and quality control capacities. None of our employees are represented by labor unions.
Securities Exchange Act Reports and other Available Information
We make available on or through our website at www.jonessoda.com (under “Company — Jones Press — Investor
Information — SEC Filings”) certain reports and amendments to those reports that we file with or furnish to the Securities and
Exchange Commission (SEC) in accordance with the Securities Exchange Act of 1934, as amended (Exchange Act). These
include our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and Section 16
filings and amendments thereto. We make this information available on our website free of charge as soon as reasonably
practicable after we electronically file the information with, or furnish it to, the SEC.
In addition, the following corporate governance materials are also available on our website under “Company — Jones
Press — Investor Information — Corporate Governance:”
• Audit Committee Charter
• Compensation and Governance Committee Charter
• Nominating Committee Charter
• Code of Conduct applicable to all directors, officers and employees of Jones Soda Co.
• Code of Ethics for our CEO and senior financial officers.
A copy of any of the materials filed with or furnished to the SEC or copies of the corporate governance materials
described above are available free of charge and can be mailed to you upon request to Jones Soda Co., 1000 First Avenue
South, Suite 100, Seattle, Washington 98134.
9
ITEM 1A.
RISK FACTORS.
You should carefully consider the following risk factors that may affect our business, including our financial condition
and results of operations. The risks and uncertainties described below are not the only risks we face. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial also may impair our business. If any of the
following risks actually occur, our business could be harmed, the trading price of our common stock could decline and you
could lose all or part of your investment in us.
Risk Factors Relating to Our Company and Our Business
If we are not able to successfully execute on our 2012 operating plan, our financial condition and results of operation
may be materially adversely affected, and we may not be able to continue as a going concern.
We incurred net losses of $7.2 million and $6.1 million for the years ended December 31, 2011 and 2010, respectively,
and used a significant amount of our cash resources during these periods to fund our operations. As of December 31, 2011, we
had cash and cash-equivalents of approximately $1.7 million, compared to approximately $5.4 million as of December 31,
2010. Additionally, we had accumulated deficits of $53.2 million and $46.1 million as of December 31, 2011 and 2010,
respectively. Cash used in operations during the fiscal years ended December 31, 2011 and 2010 totaled $5.1 million and $3.5
million, respectively.
In June 2010, we entered into an equity line of credit arrangement (Equity Line) with Glengrove Small Cap Value, Ltd
(Glengrove), pursuant to which Glengrove committed to purchase, upon the terms and subject to the conditions of the purchase
agreement establishing the facility, up to $10 million worth of shares of our common stock, subject to a maximum aggregate
limit of 5,228,893 shares. During 2010 and 2011, we sold to Glengrove a total of 5,228,893 shares, which is the maximum
number of shares issuable under the terms of the Equity Line and the Equity Line by its terms automatically has terminated. No
further amounts are available to us under this Equity Line. (See Note 8 in Item 8 of this Report).
On December 27, 2011, we entered into a secured credit facility (Credit Facility) with Access Business Finance LLC
(Access), pursuant to which we, through two of our wholly owned subsidiaries, Jones Soda (Canada) Inc. and Jones Soda Co.
(USA) Inc., may borrow a maximum aggregate amount of up to $2.0 million, subject to satisfaction of certain conditions.
Under this Credit Facility we may periodically request advances for up to 75% of our eligible accounts receivable, bearing
interest at the prime rate plus 2%, but not be less than 5.25% per annum, with a minimum payment of $5,000 per month. The
Credit Facility has an initial one-year term, which will be automatically extended unless either party gives notice of non-
renewal. The Credit Facility is guaranteed by us and is secured by a first priority security interest in all of our assets. The Credit
Facility contains customary representations and warranties as well as affirmative and negative covenants. As of the date of this
Report, we are in compliance with all debt covenants and we have not drawn on the facility.
In January 2012, we entered into a placement agent agreement with Rodman & Renshaw, LLC (Rodman & Renshaw),
pursuant to which Rodman & Renshaw agreed to use its reasonable best efforts to arrange for the sale of our registered
securities. We agreed to pay Rodman & Renshaw an aggregate fee equal to 8% of the gross proceeds received in the offering
and agreed to customary representations, warranties, and indemnification by us.
In February 2012, we entered into a Securities Purchase Agreement with certain purchasers (Purchasers), arranged by
Rodman & Renshaw, pursuant to which we sold to the Purchasers in a registered offering 6,415,000 shares of our common
stock and warrants to purchase up to 3,207,500 shares of common stock. The securities were sold in units, consisting of one
share of common stock and a warrant to purchase 0.5 of a share of common stock, at a price of $0.50 per unit, for an aggregate
offering price of $3,207,500 (Offering). The warrants are not exercisable for six months following their issuance. After
deducting the placement agent fee and our estimated offering expenses, and excluding the proceeds, if any, from the exercise of
the warrants issued in the Offering, the net proceed were approximately $2.8 million. (See Notes 1 and 15 in Item 8 of this
Report).
Taking into account the net proceeds raised through our registered offering in February 2012, we believe that our current
cash and cash equivalents will be sufficient to meet our anticipated cash needs through December 31, 2012. Our 2012 operating
plan does not factor in the use of our Credit Facility, which we may use for inventory purchases. Additionally, as of the date of
this Report, our 2012 operating plan does not require us to obtain additional financing; however, we will require additional
financing to support our working capital needs beyond 2012. The amount of additional capital we will require, the timing of our
capital needs and the availability of financing to fund those needs will depend on a number of factors, including the
performance of our business and the market conditions for debt or equity financing. Additionally, the amount of capital required
will depend on our ability to meet our sales volume goals and otherwise successfully execute our operating plan, which is based
on our realigned product portfolio, including our re-launched WhoopAss Energy Drink in addition to our new product offering,
Au Naturel, that we plan to launch in the second quarter 2012 to enhance our sparkling portfolio. However, the introduction of
10
new products involves a number of risks, and there can be no assurance that we will achieve the sales level we expect or that
justify the costs associated with our growth plan. We believe it is imperative to meet these sales objectives and continue to
expand our distribution network and increase sales volume in order to lessen our reliance on external financing in the future.
We also plan to continue our efforts to reinforce and expand our distributor network by partnering with new distributors and
replacing underperforming distributors. It is critical that we meet our volume projections and continue to increase volume
going forward, as our operating plan already reflects prior significant cost containment measures, leaving us little room for
further reductions in such costs without affecting our ability to increase top-line growth.
Our operating plan factors in the use of cash to meet our contractual obligations. A substantial portion of these contractual
obligations consists of obligations to purchase raw materials, including sugar and glass under our supply agreements. We enter
into these supply agreements in order to fix the cost of these key raw materials, which we expect will be used in the ordinary
course of our business. Our contractual obligations also relate to payments for sponsorships, and have been reduced by
approximately $7.0 million through 2017 as the result of the termination of our sponsorship arrangement with the New Jersey
Nets (see "Contractual Obligations" in Item 7 of this Report).
We intend to continually monitor and adjust our business plan as necessary to respond to developments in our business,
our markets and the broader economy. In the event we require additional financing to support our working capital needs or to
fund strategic growth plans, we believe various debt and equity financing alternatives will be available to us. However, new
debt or equity financing arrangement may not be available to us when needed on acceptable terms, if at all. Additionally, 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 the Company and
our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, joint ventures
with one or more strategic partners, strategic acquisitions and other strategic alternatives; however, we may not enter into any
such agreements or transactions.
Further, our ability to access the capital markets for an equity financing may be impacted by the bid price deficiency for
continued listing of our common stock on the Nasdaq Capital Market. We may not be able to regain compliance with the
minimum bid price requirement or succeed in an appeal of a delisting determination to a Hearings Panel. Even if we regain
compliance or succeed in an appeal, we may not be able to continue to satisfy the minimum bid price requirement or any of the
other requirements for continued listing on the Nasdaq Capital Market. If we are delisted from the Nasdaq Capital Market,
trading of our common stock most likely would be conducted in the over-the-counter market (OTC) Bulletin Board market, an
electronic bulletin board established for unlisted securities. The level of trading activity of our common stock may decline if it
is no longer listed on the Nasdaq Capital Market and such delisting could cause our stock to be classified as "penny stock,"
which would adversely affect the market liquidity of our common stock.
The uncertainties relating to our ability to successfully execute our 2012 operating plan, combined with our inability to
implement further meaningful cost containment measures that do not jeopardize our growth plans and the difficult financing
environment with our bid price deficiency, continue to raise substantial doubt about our ability to continue as a going concern.
Our audited financial statements for the years ended December 31, 2011 and 2010 were prepared assuming we would continue
as a going concern, which contemplates that we will continue in operation for the foreseeable future and will be able to realize
assets and settle liabilities and commitments in the normal course of business. These financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and
classifications of liabilities that could result should we be unable to continue as a going concern.
We rely on our distributors, retailers and brokers, and this could affect our ability to efficiently and profitably distribute
and market our products, maintain our existing markets and expand our business into other geographic markets.
Our ability to establish a market for our products in new geographic distribution areas, as well as maintain and expand
our existing markets, is dependent on our ability to establish and maintain successful relationships with reliable distributors,
retailers and brokers strategically positioned to serve those areas. Most of our distributors, retailers and brokers sell and
distribute competing products, including non-alcoholic and alcoholic beverages, and our products may represent a small portion
of their business. To the extent that our distributors, retailers and brokers are distracted from selling our products or do not
employ sufficient efforts in managing and selling our products, including re-stocking the retail shelves with our products, our
sales and results of operations could be adversely affected. Our ability to maintain our distribution network and attract
additional distributors, retailers and brokers will depend on a number of factors, some of which are outside our control. Some
of these factors include:
•
•
the level of demand for our brands and products in a particular distribution area;
our ability to price our products at levels competitive with those of competing products; and
11
•
our ability to deliver products in the quantity and at the time ordered by distributors, retailers and brokers.
We may not be able to meet all or any of these factors in any of our current or prospective geographic areas of
distribution. Our inability to achieve any of these factors in a geographic distribution area will have a material adverse effect on
our relationships with our distributors, retailers and brokers in that particular geographic area, thus limiting our ability to
expand our market, which will likely adversely affect our revenues and financial results.
We incur significant time and expense in attracting and maintaining key distributors.
Our marketing and sales strategy depends in large part on the availability and performance of our independent
distributors. We will continue our efforts to reinforce and expand our distribution network by partnering with new distributors
and replacing underperforming distributors. We have entered into written agreements with many of our distributors in the
U.S. and Canada, with terms ranging from one to three years. We currently do not have, nor do we anticipate in the future that
we will be able to establish, long-term contractual commitments from some of our distributors. In addition, despite the terms of
the written agreements with many of our top distributors, there are no minimum levels of purchases required under some of
those agreements, and most of the agreements may be terminated at any time by us, generally with a termination fee. We may
not be able to maintain our current distribution relationships or establish and maintain successful relationships with distributors
in new geographic distribution areas. Moreover, there is the additional possibility that we may have to incur additional
expenditures to attract and maintain key distributors in one or more of our geographic distribution areas in order to profitably
exploit our geographic markets.
If we lose any of our key distributors or national retail accounts, our financial condition and results of operations could
be adversely affected.
In 2011, sales in the U.S. represented approximately 75% of total sales, sales in Canada represented approximately 23%,
and we had approximately 2% in other international sales. Our top ten DSD customers by revenue represent approximately
41% of revenue, one of which, A. Lassonde Inc., a Canadian DSD distributor, represents 21%. Although we anticipate that, as
consumer awareness of our brands develops and increases, we will continue to upgrade and expand our distributor network and
DTR accounts, we cannot be assured that we will be able to maintain our key distributor base which may result in an adverse
effect on our revenues and financial results, our ability to retain our relationships with our distributors and our ability to expand
our market and will place an increased dependence on any one or more of our independent distributors or national accounts.
Because our distributors are not required to place minimum orders with us, we need to manage our inventory levels, and
it is difficult to predict the timing and amount of our sales.
Our independent distributors are not required to place minimum monthly or annual orders for our products. In order to
reduce inventory costs, independent distributors endeavor to order products from us on a “just in time” basis in quantities, and
at such times, based on the demand for the products in a particular distribution area. Accordingly, there is no assurance as to the
timing or quantity of purchases by any of our independent distributors or that any of our distributors will continue to purchase
products from us in the same frequencies and volumes as they may have done in the past. In order to be able to deliver our
products on a timely basis, we need to maintain adequate inventory levels of the desired products, but we cannot predict the
number of cases sold by any of our distributors. If we fail to meet our shipping schedules, we could damage our relationships
with distributors and/or retailers, increase our shipping costs or cause sales opportunities to be delayed or lost, which would
unfavorably impact our future sales and adversely affect our operating results. In addition, if the inventory of our products held
by our distributors and/or retailers is too high, they will not place orders for additional products, which would also unfavorably
impact our future sales and adversely affect our operating results.
Our business plan and future growth depend in part on our re-launch of WhoopAss Energy Drink and our launch of a
natural sparkling beverage in 2012. If we are unable to successfully implement this strategy, the results of operations
and financial condition could be adversely affected.
Our financial condition and results of operation for 2012 will depend, in part, on the success of our current and
prospective products. This success depends in part on the continued momentum of the re-launch of WhoopAss Energy Drink
and our ability to successfully launch Au Naturel, a new, more natural and lower calorie product in the natural sparkling
beverage market, which we intend to launch in the second quarter of 2012. Much of our success will depend on our ability to
obtain retailer shelf space for these products, particularly in drug and convenience chains through our DSD channel for
WhoopAss and in the natural foods channel for Au Naturel. Our inability to successfully move our new products through
distribution channels and achieve competitive velocity in our case sales could have a material adverse effect on our
relationships with our distributors and retailers and could limit our ability to expand our market, which will adversely affect our
revenues and financial results.
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We rely on independent contract manufacturers of our products, and this dependence could make management of our
marketing and distribution efforts inefficient or unprofitable.
We do not own the plants or the majority of the equipment required to manufacture and package our beverage products,
and do not directly manufacture our products but instead outsource the manufacturing process to third party bottlers and
independent contract manufacturers (co-packers). We do not anticipate bringing the manufacturing process in-house in the
future. Currently, our bottle and can products are prepared and packaged by five primary co-packers. As a consequence, we
depend on independent contract manufacturers to produce our beverage products. Our ability to attract and maintain effective
relationships with contract manufacturers and other third parties for the production and delivery of our beverage products in a
particular geographic distribution area is important to the success of our operations within each distribution area. Competition
for contract manufacturers’ business is intense, especially in the western U.S., and this could make it more difficult for us to
obtain new or replacement manufacturers, or to locate back-up manufacturers, in our various distribution areas, and could also
affect the economic terms of our agreements with our manufacturers. Our contract manufacturers may terminate their
arrangements with us at any time, in which case we could experience disruptions in our ability to deliver products to our
customers. We may not be able to maintain our relationships with current contract manufacturers or establish satisfactory
relationships with new or replacement contract manufacturers, whether in existing or new geographic distribution areas. The
failure to establish and maintain effective relationships with contract manufacturers for a distribution area could increase our
manufacturing costs and thereby materially reduce profits realized from the sale of our products in that area. In addition, poor
relations with any of our contract manufacturers could adversely affect the amount and timing of product delivered to our
distributors for resale, which would in turn adversely affect our revenues and financial condition.
As is customary in the contract manufacturing industry for comparably sized companies, we are expected to arrange for
our contract manufacturing needs sufficiently in advance of anticipated requirements. We continually evaluate which of our
contract manufacturers to use, based on the cost structure and forecasted demand for the particular geographic area where our
contract manufacturers are located. To the extent demand for our products exceeds available inventory or the production
capacity of our contract manufacturing arrangements, or orders are not submitted on a timely basis, we will be unable to fulfill
distributor orders on demand. Conversely, we may produce more product than warranted by the actual demand for it, resulting
in higher storage costs and the potential risk of inventory spoilage. Our failure to accurately predict and manage our contract
manufacturing requirements may impair relationships with our independent distributors and key accounts, which, in turn,
would likely have a material adverse effect on our ability to maintain effective relationships with those distributors and key
accounts.
Our business and financial results depend on the continuous supply and availability of raw materials.
The principal raw materials we use include glass bottles, aluminum cans, labels and cardboard cartons, aluminum
closures, flavorings, sucrose/inverted pure cane sugar and sucralose, and fortification ingredients which include vitamins and
minerals. The costs of our ingredients are subject to fluctuation. If our supply of these raw materials is impaired or if prices
increase significantly, our business would be adversely affected.
Due to the increasing costs of energy and fuel, the prices of glass bottles increased during 2011 and availability of glass
supply diminished for companies not under contract. The price of pure cane sugar increased in 2010. In addition, certain of our
contract manufacturing arrangements allow such contract manufacturers to increase their charges based on certain of their own
cost increases. Although we believe we have mitigated this risk for 2012 through fixed-price purchase commitments for sugar
and glass, the prices of any of the above or any other raw materials or ingredients may continue to rise in the future and we may
not be able to pass any such increases on to our customers.
We may not correctly estimate demand for our products. Our ability to estimate demand for our products is imprecise,
particularly with new products, and may be less precise during periods of rapid growth, particularly in new markets. If we
materially underestimate demand for our products or are unable to secure sufficient ingredients or raw materials including, but
not limited to, glass, labels, flavors, supplements, and certain sweeteners, or sufficient packing arrangements, we might not be
able to satisfy demand on a short-term basis. Moreover, industry-wide shortages of certain concentrates, supplements and
sweeteners have been experienced and could, from time to time in the future, be experienced, which could interfere with and/or
delay production of certain of our products and could have a material adverse effect on our business and financial results.
Rising energy and freight costs may have an adverse impact on our sales and earnings.
Recent volatility in the global oil markets has resulted in rising fuel prices, which many shipping companies are passing
on to their customers by way of higher base pricing and/or increased fuel surcharges. The shipping rates, and fuel surcharges
we pay to our freight carriers have been increasing, and we expect these costs may continue to increase. Although we work
with suppliers to mitigate raw material price increases, energy surcharges on our raw materials may continue to increase as
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well. Due to the price sensitivity of our products, we do not anticipate that we will be able to pass all of these increased costs on
to our customers.
Disruption of our supply chain could have an adverse effect on our business, financial condition and results of
operations.
Our ability and that of our suppliers, business partners, contract manufacturers, independent distributors and retailers to
make, move and sell products (as applicable) is critical to our success. Damage or disruption to manufacturing or distribution
capabilities due to weather, natural disaster, fire or explosion, terrorism, pandemics such as influenza, strikes or other reasons,
could impair our ability to manufacture, distribute or sell our products. Failure to take adequate steps to mitigate the likelihood
or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business,
financial condition and results of operations, as well as require additional resources to restore our supply chain.
We rely upon our ongoing relationships with our key flavor suppliers. If we are unable to source our flavors on
acceptable terms from our key suppliers, we could suffer disruptions in our business.
Currently, we purchase our flavor concentrate from three flavor concentrate suppliers, and we anticipate that we will
purchase flavor concentrate from other flavor houses for future flavors and additional products, with the intention of
developing other sources of flavor concentrate for each of our products. The price of our concentrates is determined by our
flavor houses and us, and may be subject to change. Generally, flavor suppliers hold the proprietary rights to their flavors.
Consequently, although we have the exclusive rights to 37 flavor concentrates developed with our current flavor concentrate
suppliers, we do not have the list of ingredients or formulas for our flavors and concentrates and we may be unable to obtain
these flavors or concentrates from alternative suppliers on short notice. If we have to replace a flavor supplier, we could
experience disruptions in our ability to deliver products to our customers, which could have a material adverse effect on our
results of operations.
If we are unable to maintain brand image and product quality, or if we encounter other product issues such as product
recalls, our business may suffer.
Our success depends on our ability to maintain brand image for our existing products and effectively build up brand
image for new products and brand extensions. There can be no assurance, however, that additional expenditures and our
advertising and marketing will have the desired impact on our products’ brand image and on consumer preferences. Product
quality issues, real or imagined, or allegations of product contamination, even when false or unfounded, could tarnish the image
of the affected brands and may cause consumers to choose other products.
In addition, because of changing government regulations or implementation thereof, or allegations of product
contamination, we may be required from time to time to recall products entirely or from specific markets. Product recalls could
affect our profitability and could negatively affect brand image. Adverse publicity surrounding obesity concerns, water usage
and other concerns could negatively affect our overall reputation and our products’ acceptance by consumers.
The inability to attract and retain key personnel would directly affect our efficiency and results of operations.
Our success depends on our ability to attract and retain highly qualified employees in such areas as production,
distribution, sales, marketing and finance. We compete to hire new employees, and, in some cases, must train them and develop
their skills and competencies. Our operating results could be adversely affected by increased costs due to increased competition
for employees, higher employee turnover or increased employee benefit costs. Any unplanned turnover, particularly involving
our key personnel, could negatively impact our operations, financial condition and employee morale.
If we lose the services of our CEO, our operations could be disrupted and our business could be harmed.
Our business plan relies significantly on the continued services of our CEO William Meissner. If we were to lose the
services of Mr. Meissner, our ability to continue to execute our business plan could be materially impaired. Mr. Meissner hasn't
indicated he intends to leave our company, and we are not aware of any facts or circumstances that suggest he might leave us.
We do not have key man life insurance on Mr. Meissner.
Our inability to protect our trademarks and trade secrets may prevent us from successfully marketing our products and
competing effectively.
Failure to protect our intellectual property could harm our brand and our reputation, and adversely affect our ability to
compete effectively. Further, enforcing or defending our intellectual property rights, including our trademarks, copyrights,
licenses and trade secrets, could result in the expenditure of significant financial and managerial resources. We regard our
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intellectual property, particularly our trademarks and trade secrets to be of considerable value and importance to our business
and our success. We rely on a combination of trademark and trade secrecy laws, confidentiality procedures and contractual
provisions to protect our intellectual property rights. We are pursuing the registration of our trademarks in the U.S., Canada and
internationally. There can be no assurance that the steps taken by us to protect these proprietary rights will be adequate or that
third parties will not infringe or misappropriate our trademarks, trade secrets or similar proprietary rights. In addition, there can
be no assurance that other parties will not assert infringement claims against us, and we may have to pursue litigation against
other parties to assert our rights. Any such claim or litigation could be costly. In addition, any event that would jeopardize our
proprietary rights or any claims of infringement by third parties could have a material adverse effect on our ability to market or
sell our brands, profitably exploit our products or recoup our associated research and development costs.
As part of the licensing strategy of our brands, we enter into licensing agreements under which we grant our licensing
partners certain rights to use our trademarks and other designs. Although our agreements require that the licensing partner’s use
of our trademarks and designs is subject to our control and approval, any breach of these provisions, or any other action by any
of our licensing partners that is harmful to our brands, goodwill and overall image, could have a material adverse impact on our
business.
Litigation or legal proceedings could expose us to significant liabilities and damage our reputation.
We may become party to litigation claims and legal proceedings. Litigation involves significant risks, uncertainties and
costs, including distraction of management attention away from our current business operations. We evaluate litigation claims
and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential
losses. Based on these assessments and estimates, we establish reserves and/or disclose the relevant litigation claims or legal
proceedings, as appropriate. These assessments and estimates are based on the information available to management at the time
and involve a significant amount of management judgment. We caution you that actual outcomes or losses may differ
materially from those envisioned by our current assessments and estimates. Our policies and procedures require strict
compliance by our employees and agents with all United States and local laws and regulations applicable to our business
operations, including those prohibiting improper payments to government officials. Nonetheless, there can be no assurance that
our policies and procedures will always ensure full compliance by our employees and agents with all applicable legal
requirements. Improper conduct by our employees or agents could damage our reputation in the United States and
internationally or lead to litigation or legal proceedings that could result in civil or criminal penalties, including substantial
monetary fines, as well as disgorgement of profits.
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to
complex accounting matters could significantly affect our financial results.
U.S. generally accepted accounting principles and related pronouncements, implementation guidelines and interpretations
with regard to a wide variety of matters that are relevant to our business, such as, but not limited to, stock-based compensation,
trade promotions, and income taxes are highly complex and involve many subjective assumptions, estimates and judgments by
our management. Changes to these rules or their interpretation or changes in underlying assumptions, estimates or judgments
by our management could significantly change our reported results.
If we are unable to maintain effective disclosure controls and procedures and internal control over financial reporting,
our stock price and investor confidence in our Company could be materially and adversely affected.
We are required to maintain both disclosure controls and procedures and internal control over financial reporting that are
effective. Because of their inherent limitations, internal control over financial reporting, however well designed and operated,
can only provide reasonable, and not absolute, assurance that the controls will prevent or detect misstatements. Because of
these and other inherent limitations of control systems, there is only the reasonable assurance that our controls will succeed in
achieving their goals under all potential future conditions. The failure of controls by design deficiencies or absence of adequate
controls could result in a material adverse effect on our business and financial results.
If we are unable to build and sustain proper information technology infrastructure, our business could suffer.
We depend on information technology as an enabler to improve the effectiveness of our operations and to interface with
our customers, as well as to maintain financial accuracy and efficiency. If we do not allocate and effectively manage the
resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction errors,
processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to intellectual property through
security breach. Our information systems could also be penetrated by outside parties intent on extracting information,
corrupting information or disrupting business processes. Such unauthorized access could disrupt our business and could result
in the loss of assets.
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We face currency risks associated with fluctuating foreign currency valuations.
For the year ended December 31, 2011, approximately 23% of our sales were denominated in the Canadian dollar which
exposes us to foreign currency exchange rate risk with respect to our sales, expenses, profits, assets and liabilities. As of
December 31, 2011, we have not entered into foreign currency contracts or other derivatives to mitigate the potential impact of
foreign currency fluctuations. As a result, our reported earnings may be affected by changes in the Canadian dollar.
Climate change may negatively affect our business.
There is growing concern that a gradual increase in global average temperatures may cause an adverse change in weather
patterns around the globe resulting in an increase in the frequency and severity of natural disasters. While warmer weather has
historically been associated with increased sales of our products, changing weather patterns could have a negative impact on
agricultural productivity, which may limit availability and/or increase the cost of certain key ingredients such as sugar cane,
natural flavors and supplements used in our products. Also, increased frequency or duration of extreme weather conditions may
disrupt the productivity of our facilities, the operation of our supply chain or impact demand for our products. In addition, the
increasing concern over climate change may result in more regional, federal and/or global legal and regulatory requirements
and could result in increased production, transportation and raw material costs. As a result, the effects of climate change could
have a long-term adverse impact on our business and results of operations.
Risk Factors Related to Our Common Stock
The price of our common stock may be volatile, and a shareholder’s investment in our common stock could suffer a
decline in value.
There has been significant volatility in the volume and market price of our common stock, and this volatility may
continue in the future. In addition, factors such as quarterly variations in our operating results, litigation involving us, general
trends relating to the beverage industry, actions by governmental agencies, national economic and stock market considerations
as well as other events and circumstances beyond our control could have a significant impact on the future market price of our
common stock and the relative volatility of such market price.
If we are not able to achieve our objectives for our business, the value of an investment in our company could be
negatively affected.
In order to be successful, we believe that we must, among other things:
•
•
increase the sales volume and gross margins for our products;
achieve and maintain efficiencies in operations;
• manage our operating expenses to sufficiently support operating activities;
• maintain fixed costs at or near current levels; and
•
avoid significant increases in variable costs relating to production, marketing and distribution.
We may not be able to meet these objectives, which could have a material adverse affect on our results of operations. We
have incurred significant operating expenses in the past and may do so again in the future and, as a result, will need to increase
revenues in order to improve our results of operations. Our ability to increase sales will depend primarily on success in
expanding our current markets, improving our distribution base, entering into DTR arrangements with national accounts, and
introducing new brands, products or product extensions to the market. Our ability to successfully enter new distribution areas
and obtain national accounts will, in turn, depend on various factors, many of which are beyond our control, including, but not
limited to, the continued demand for our brands and products in target markets, the ability to price our products at competitive
levels, the ability to establish and maintain relationships with distributors in each geographic area of distribution and the ability
in the future to create, develop and successfully introduce one or more new brands, products, and product extensions.
Any future equity or debt issuances by us, including the exercise of outstanding warrants, may have dilutive or adverse
effects on our existing shareholders.
We may issue additional shares of common stock or convertible securities that could dilute your ownership in our
company and may include terms that give new investors rights that are superior to yours. Moreover, any issuances by us of
equity securities may be at or below the prevailing market price of our common stock and in any event may have a dilutive
impact on your ownership interest, which could cause the market price of our common stock to decline.
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We may not be able to maintain the listing of our common stock on the Nasdaq Capital Market, which would make it
more difficult for investors to sell shares of our common stock.
Our common stock is listed on the Nasdaq Capital Market. The Nasdaq Capital Market has several quantitative and
qualitative requirements with which companies must comply in order to maintain this listing, including a $1.00 per share
minimum bid price. On September 16, 2011, we received a deficiency letter from The Nasdaq Stock Market that, for the
previous 30 consecutive business days, the bid price for our common stock closed below the minimum $1.00 per share, and we
were provided an initial period of 180 calendar days (until March 14, 2012) to regain compliance. Although we failed to satisfy
the minimum bid price for our common stock by March 14, 2012, we were eligible under the Nasdaq rules for an additional
180 day compliance period (until September 10, 2012), because we met the continued listing requirement for market value of
publicly held shares set forth in Market Place Rule 5550(a) and all other initial listing standards for the Nasdaq Capital Market
set forth in Marketplace Rule 5505, with the exception of the bid price. We provided written notice to Nasdaq of our intention
to cure the bid price compliance deficiency during the second compliance period, by effecting a reverse stock split, if necessary.
On March 15, 2012, we received written notification from The Nasdaq Stock Market granting us an additional 180 days to
regain compliance. If we are unable to regain compliance by September 10, 2012, we would have an opportunity to appeal the
delisting determination to a Nasdaq Hearings Panel.
We may not be able to regain compliance with the minimum bid price requirement or succeed in an appeal of a delisting
determination to a Hearings Panel. Even if we regain compliance or succeed in an appeal, we may not be able to continue to
satisfy the minimum bid price requirement or any of the other requirements for continued listing on the Nasdaq Capital Market.
If we are delisted from the Nasdaq Capital Market, trading of our common stock most likely would be conducted in the
over-the-counter market (OTC) Bulletin Board market, an electronic bulletin board established for unlisted securities. The level
of trading activity of our common stock may decline if it is no longer listed on the Nasdaq Capital Market. As such, if our
common stock ceases to be listed for trading on the Nasdaq Capital Market for any reason, it may harm our stock price,
increase the volatility of our stock price, lead to decreases in investor demand and information available concerning trading
prices and volume, or make it more difficult for investors to buy or sell shares of our common stock. Further, we may no longer
qualify for exemptions from state securities registration requirements. Without an exemption from registration, we may need to
file time-consuming and costly registration statements for future securities transactions and issuances and amend our stock
option and stock purchase plans. Furthermore, if our common stock is delisted, we would be required to utilize the long-form
registration statement on SEC Form S-1 in order to register any future securities under the Securities Act either for sale by us or
for resale by investors who previously acquired securities from us in a private placement. The SEC Form S-1 requires more
information than SEC Form S-3 and will take longer and be more costly to prepare and keep current than SEC Form S-3. If our
common stock is delisted, there can be no assurance whether we will satisfy the standards for listing on an exchange or that an
exchange will approve our listing in the future.
In addition, if we fail to maintain the Nasdaq Capital Market listing for our common stock, such delisting could cause our
stock to be classified as "penny stock," which would adversely affect the market liquidity of our common stock. Under the
penny stock rule, any broker engaging in a transaction in our securities would be required to provide certain disclosure
documents to its customers prior to effecting the transaction. In addition, broker-dealers would be subject to certain sales
practice requirements. These rules could adversely affect the ability of broker-dealers and our shareholders to sell shares of our
common stock.
Risk Factors Relating to Our Industry
We compete in an industry that is brand-conscious, so brand name recognition and acceptance of our products are
critical to our success.
Our business is substantially dependent upon awareness and market acceptance of our products and brands by our target
market, trendy, young consumers looking for a distinctive tonality in their beverage choices. In addition, our business depends
on acceptance by our independent distributors and retailers of our brands as beverage brands that have the potential to provide
incremental sales growth. Although we believe that we have been relatively successful in establishing our brands as
recognizable brands in the sparkling beverage category, the product life cycle of these products and the ability to bring fresh
packaging and revitalization of our brand and product offerings are important elements in determining whether our products
and brand will achieve and maintain satisfactory levels of acceptance by independent distributors and retail consumers. We
believe that the success of the WhoopAss brand will also be substantially dependent upon acceptance of the Jones Soda brand.
Accordingly, any failure of our Jones Soda brand to maintain or increase acceptance or market penetration would likely have a
material adverse effect on our revenues and financial results.
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Competition from traditional non-alcoholic beverage manufacturers may adversely affect our distribution relationships
and may hinder development of our existing markets, as well as prevent us from expanding our markets.
The beverage industry is highly competitive. We compete with other beverage companies not only for consumer
acceptance but also for shelf space in retail outlets and for marketing focus by our distributors, all of whom also distribute other
beverage brands. Our products compete with a wide range of drinks produced by a relatively large number of manufacturers,
most of which have substantially greater financial, marketing and distribution resources than ours. Some of these competitors
are placing severe pressure on independent distributors not to carry competitive sparkling brands such as ours. We also compete
with regional beverage producers and “private label” soft drink suppliers.
Our direct competitors in the Sparkling beverage category include Dr. Pepper Snapple (Stewarts and IBC), Boylans,
Henry Weinhard’s, Thomas Kemper, and other regional premium soft drink companies. We also compete against Coca Cola,
Pepsi, Hansen’s and other traditional soft drink manufacturers and distributors. We compete against other category leaders such
as Red Bull and Monster for the energy drink category. These national and international competitors have advantages such as
lower production costs, larger marketing budgets, greater financial and other resources and more developed and extensive
distribution networks than ours. There can be no assurance that we will be able to grow our volumes or be able to maintain our
selling prices in existing markets or as we enter new markets.
Increased competitor consolidations, market-place competition, particularly among branded beverage products, and
competitive product and pricing pressures could impact our earnings, market share and volume growth. If, due to such pressure
or other competitive threats, we are unable to sufficiently maintain or develop our distribution channels, we may be unable to
achieve our current revenue and financial targets. As a means of maintaining and expanding our distribution network, we intend
to introduce product extensions and additional brands. There can be no assurance that we will be able to do so or that other
companies will not be more successful in this regard over the long term. Competition, particularly from companies with greater
financial and marketing resources than ours, could have a material adverse effect on our existing markets, as well as on our
ability to expand the market for our products.
We compete in an industry characterized by rapid changes in consumer preferences and public perception, so our ability
to continue developing new products to satisfy our consumers’ changing preferences will determine our long-term
success.
Failure to introduce new brands, products or product extensions into the marketplace as current ones mature and to meet
our consumers’ changing preferences could prevent us from gaining market share and achieving long-term profitability. Product
lifecycles can vary and consumers’ preferences change over time. Although we try to anticipate these shifts and innovate new
products to introduce to our consumers, there is no guarantee that we will succeed. In addition, customer preferences also are
affected by factors other than taste, such as health and nutrition considerations and obesity concerns, shifting consumer needs,
changes in consumer lifestyles, increased consumer information and competitive product and pricing pressures. Sales of our
products may be adversely affected by the negative publicity associated with these issues. If we do not adjust to respond to
these and other changes in customer preferences, our sales may be adversely affected.
Our results of operations may fluctuate from quarter to quarter for many reasons, including 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. Timing of
customer purchases will vary each year and sales can be expected to shift from one quarter to another. 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.
In addition, our operating results may fluctuate due to a number of other factors including, but not limited to:
• Our ability to maintain, develop and expand distribution channels for current and new products, develop favorable
arrangements with third party distributors of our products and minimize or reduce issues associated with engaging
new distributors and retailers, including, but not limited to, transition costs and expenses and down time resulting
from the initial deployment of our products in each new distributor’s network;
• Our ability to manage our operating expenses to sufficiently support general operating activities, slotting fees,
promotion and sales activities, and capital expansion, and our ability to sustain profitability;
• Our ability to meet the competitive response by much larger, well-funded and established companies currently
operating in the beverage industry, as we introduce new competitive products, such as a new, more natural and
lower calorie product in the natural sparkling beverage market;
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• Our ability to develop, expand and implement our direct-to-retail sales channels and national retail accounts, as well
as our “myJones” programs;
• Our ability to maintain and increase distribution and expand and manage distributor growth in the U.S. and Canada;
• Unilateral decisions by distributors, grocery store chains, specialty chain stores, club stores, mass merchandisers and
other customers to discontinue carrying all or any of our products that they are carrying at any time; and
• Competitive products and pricing pressures and our ability to gain or maintain share of sales in the marketplace as a
result of actions by competitors.
Due to these and other factors, our results of operations have fluctuated from period to period and may continue to do so
in the future, which could cause our operating results in a particular quarter to fail to meet market expectations.
Global economic conditions may continue to adversely impact our business and results of operations.
The beverage industry, and particularly those companies selling premium beverages like us, can be affected by macro
economic factors, including changes in national, regional, and local economic conditions, unemployment levels and consumer
spending patterns, which together may impact the willingness of consumers to purchase our products as they adjust their
discretionary spending. The recent disruptions in the overall economy and financial markets as a result of the global economic
downturn have adversely impacted our two primary markets: the U.S. and Canada. This reduced consumer confidence in the
economy, we believe, negatively affected consumers’ willingness to purchase our products as they reduced their discretionary
spending. Moreover, adverse economic conditions may adversely affect the ability of our distributors to obtain the credit
necessary to fund their working capital needs, which could negatively impact their ability or desire to continue to purchase
products from us in the same frequencies and volumes as they have done in the past. If we experience similar adverse economic
conditions in the future, sales of our products could be adversely affected, collectibility of accounts receivable may be
compromised and we may face obsolescence issues with our inventory, any of which could have a material adverse impact on
our operating results and financial condition.
We could be exposed to product liability claims for personal injury or possibly death.
Although we have product liability and recall insurance in amounts we believe are adequate, there can be no assurance
that the coverage will be sufficient to cover any or all product liability or product recall claims. To the extent our product
liability coverage is insufficient, a product liability claim would likely have a material adverse effect upon our financial
condition. In addition, any product liability claim successfully brought against us may materially damage the reputation and
brand image of our products, thus adversely affecting our ability to continue to market and sell that or other products.
Our business is subject to many regulations and noncompliance is costly.
The production, marketing and sale of our beverages, including contents, labels, caps and containers, are subject to the
rules and regulations of various federal, provincial, state and local health agencies. If a regulatory authority finds that a current
or future product or production run is not in compliance with any of these regulations, we may be fined, or production may be
stopped, thus adversely affecting our financial condition and results of operations. Similarly, any adverse publicity associated
with any noncompliance may damage our reputation and our ability to successfully market our products. Furthermore, the rules
and regulations are subject to change from time to time and while we closely monitor developments in this area, we have no
way of anticipating whether changes in these rules and regulations will impact our business adversely. Additional or revised
regulatory requirements, whether labeling, environmental, tax or otherwise, could have a material adverse effect on our
financial condition and results of operations.
Significant additional labeling or warning requirements may inhibit sales of affected products.
Various jurisdictions may seek to adopt significant additional product labeling or warning requirements relating to the
chemical content or perceived adverse health consequences of certain of our products. These types of requirements, if they
become applicable to one or more of our major products under current or future environmental or health laws or regulations,
may inhibit sales of such products. In California, a law requires that a specific warning appear on any product that contains a
component listed by the state as having been found to cause cancer or birth defects. This law recognizes no generally applicable
quantitative thresholds below which a warning is not required. If a component found in one of our products is added to the list,
or if the increasing sensitivity of detection methodology that may become available under this law and related regulations as
they currently exist, or as they may be amended, results in the detection of an infinitesimal quantity of a listed substance in one
of our beverages produced for sale in California, the resulting warning requirements or adverse publicity could affect our sales.
19
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.
PROPERTIES.
We sublease approximately 9,500 rentable square feet of retail/office space in Seattle, Washington for our principal
executive and administrative offices. The terms of the sublease is five years with an option to extend for up to three additional
five years terms. We do not own real property. We also lease approximately 900 square feet of warehouse/office space in
Seattle, Washington to fulfill our online "myJones" orders.
ITEM 3.
LEGAL PROCEEDINGS.
We are not currently involved in any material pending legal proceedings. We may be involved from time to time in
various claims and legal actions arising in the ordinary course of business, including proceedings involving product liability
claims and other employee claims, and tort and other general liability claims, for which we carry insurance, as well as
trademark, copyright, and related claims and legal actions. In the opinion of our management, the ultimate disposition of these
matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.
ITEM 4.
MINE SAFETY DISCLOSURES.
Not applicable
20
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock is currently traded on the NASDAQ Capital Market under the symbol “JSDA”.
The following table shows, for each quarter of fiscal 2011 and 2010, the high and low closing sales prices as reported by
the NASDAQ Capital Market.
2011:
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010:
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nasdaq Capital Market
High
Low
$
$
0.74
1.16
1.30
1.77
1.39
1.38
2.02
0.84
0.37
0.65
1.01
1.17
1.06
0.91
0.59
0.45
As of March 27, 2012, there were 38,515,882 shares of common stock issued and outstanding, held by approximately 298
holders of record, although there are a much larger number of beneficial owners. The last reported sale price per share on
March 27, 2012 was $0.46.
Our common stock is listed on the Nasdaq Capital Market. The Nasdaq Capital Market has several quantitative and
qualitative requirements with which companies must comply in order to maintain this listing, including a $1.00 per share
minimum bid price. On September 16, 2011, we received a deficiency letter from The Nasdaq Stock Market that, for the
previous 30 consecutive business days, the bid price for our common stock closed below the minimum $1.00 per share, and we
were provided an initial period of 180 calendar days (until March 14, 2012) to regain compliance. Although we failed to satisfy
the minimum bid price for our common stock by March 14, 2012, we were eligible under the Nasdaq rules for an additional
180 day compliance period (until September 10, 2012), because we met the continued listing requirement for market value of
publicly held shares set forth in Market Place Rule 5550(a) and all other initial listing standards for the Nasdaq Capital Market
set forth in Marketplace Rule 5505, with the exception of the bid price. We provided written notice to Nasdaq of our intention
to cure the bid price compliance deficiency during the second compliance period, by effecting a reverse stock split, if necessary.
On March 15, 2012, we received written notification from The Nasdaq Stock Market granting us an additional 180 days to
regain compliance. If we are unable to regain compliance by September 10, 2012, we would have an opportunity to appeal the
delisting determination to a Nasdaq Hearings Panel.
We may not be able to regain compliance with the minimum bid price requirement or succeed in an appeal of a delisting
determination to a Hearings Panel. Even if we regain compliance or succeed in an appeal, we may not be able to continue to
satisfy the minimum bid price requirement or any of the other requirements for continued listing on the Nasdaq Capital Market.
If we are delisted from the Nasdaq Capital Market, trading of our common stock most likely would be conducted in the
over-the-counter market (OTC) Bulletin Board market, an electronic bulletin board established for unlisted securities. The level
of trading activity of our common stock may decline if it is no longer listed on the Nasdaq Capital Market. As such, if our
common stock ceases to be listed for trading on the Nasdaq Capital Market for any reason, it may harm our stock price,
increase the volatility of our stock price, lead to decreases in investor demand and information available concerning trading
prices and volume, or make it more difficult for investors to buy or sell shares of our common stock. Further, we may no longer
qualify for exemptions from state securities registration requirements. Without an exemption from registration, we may need to
file time-consuming and costly registration statements for future securities transactions and issuances and amend our stock
option and stock purchase plans. Furthermore, if our common stock is delisted, we would be required to utilize the long-form
registration statement on SEC Form S-1 in order to register any future securities under the Securities Act either for sale by us or
for resale by investors who previously acquired securities from us in a private placement. The SEC Form S-1 requires more
information than SEC Form S-3 and will take longer and be more costly to prepare and keep current than SEC Form S-3. If our
21
common stock is delisted, there can be no assurance whether we will satisfy the standards for listing on an exchange or that an
exchange will approve our listing in the future.
In addition, if we fail to maintain the Nasdaq Capital Market listing for our common stock, such delisting could cause our
stock to be classified as "penny stock," which would adversely affect the market liquidity of our common stock. Under the
penny stock rule, any broker engaging in a transaction in our securities would be required to provide certain disclosure
documents to its customers prior to effecting the transaction. In addition, broker-dealers would be subject to certain sales
practice requirements. These rules could adversely affect the ability of broker-dealers and our shareholders to sell shares of our
common stock.
Dividends
We have never declared or paid any cash dividends with respect to our common stock. We do not anticipate paying cash
dividends on our common stock in the foreseeable future. Any future determination with regard to the payment of dividends
will be at the discretion of the Board of Directors and will be dependent upon our future earnings, financial condition,
applicable dividend restrictions and capital requirements and other factors deemed relevant by the Board of Directors.
Stock Repurchases
The following table contains information for shares repurchased during the fourth quarter of 2011:
Fiscal Period
Total Number of
Shares
Purchased (1)
Average Price
Paid per Share
(1)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar-
Value of Shares That
May Yet Be Purchased
Under the Plans or
Programs
(in $'000)
October 1 to October 31, 2011 . . . . . . . . . .
November 1 to November 30, 2011 . . . . . .
December 1 to December 31, 2011 . . . . . . .
Total
418
—
—
418
$
$
0.76
—
—
0.76
—
—
—
—
—
—
—
—
___________
(1) The number of shares reported above as purchased are attributable to shares withheld by us in satisfaction of withholding
taxes due in connection with the vesting of restricted stock awards under the Jones Soda Co. 2002 Stock Option and Restricted
Stock Plan. The average price paid per share reflects the average market value per share of the shares withheld for tax purposes.
See Note 9(c) in Item 8 of this Report.
Sales of Unregistered Securities
None.
22
ITEM 6.
SELECTED FINANCIAL DATA.
The following selected financial and operating data are derived from our consolidated financial statements and should be
read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our
consolidated financial statements.
Consolidated statements of operations data:
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . .
Write-down of excess GABA inventory and
impairment of fixed assets. . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Licensing revenue . . . . . . . . . . . . . . . . . . . . . . .
Promotion and selling expenses . . . . . . . . . . . .
General and administrative expenses . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . .
Income tax (expense) benefit, net . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted net loss per share. . . . . . . . . . $
Year Ended December 31,
2011
2010
2009
2008
2007
(Dollars in thousands, except per share data)
17,401
(13,120)
$
17,526
(12,978)
$
26,013
(19,875)
$
35,918
(28,551)
$
39,831
(30,387)
—
4,281
24
(6,296)
(5,235)
(7,226)
104
(7,122)
(32)
(7,154)
(0.22) $
(506)
4,042
31
(4,676)
(5,983)
(6,586)
142
(6,444)
338
(6,106)
(0.22) $
(2,248)
3,890
81
(7,820)
(6,596)
(10,445)
(30)
(10,475)
(72)
(10,547)
—
7,367
170
(12,292)
(10,661)
(15,416)
384
(15,032)
(203)
(15,235)
(0.40) $
(0.58) $
—
9,444
334
(11,857)
(8,893)
(10,972)
1,498
(9,474)
(2,155)
(11,629)
(0.45)
2011
2010
2009
2008
2007
As of December 31,
(Dollars in thousands)
Consolidated balance sheet data:
Cash and cash equivalents, short term
investments and accounts receivable. . . . . . . . . $
Fixed assets, net. . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,675
844
7,657
539
3,552
$
7,668
296
11,463
2
8,141
$
7,483
807
13,534
219
8,530
$
15,054
2,099
24,315
396
17,674
32,268
2,498
41,625
474
31,482
2011
2010
Year Ended December 31,
2009
2008
2007
Case sale data (288-ounce equivalent):
Finished products cases . . . . . . . . . . . . . . . . . . .
Concentrate cases . . . . . . . . . . . . . . . . . . . . . . .
Total cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,301,000
—
1,301,000
1,324,000
111,000
1,435,000
2,057,000
816,000
2,873,000
2,886,000
1,501,000
4,387,000
3,126,000
2,670,000
5,796,000
23
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
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.
Overview
We develop, produce, market and distribute premium beverages, which currently consist of the following product lines
and extensions:
•
Jones® Soda, a premium carbonated soft drink;
Jones Zilch®, with zero calories (and an extension of the Jones® Soda product line);
• WhoopAss™ Energy Drink, an energy supplement drink; and
WhoopAss Zero™ Energy Drink, with zero sugar (and an extension of the WhoopAss™ Energy Drink product
line).
We sell and distribute our products primarily in North America through our network of independent distributors located
throughout the U.S. and Canada and directly to our national retail accounts. We refer to our network of independent distributors
as our direct store delivery (DSD) channel, and we refer to our national and regional accounts as our direct to retail (DTR)
channel. Additionally, in limited circumstances we sell concentrate for distribution or production of our products. We do not
directly manufacture our products but instead outsource the manufacturing process to third-party contract manufacturers.
Our products are sold in 50 states in the U.S. and nine provinces in Canada, primarily in convenience stores, grocery
stores and up and down the street in delicatessens and sandwich shops, as well as through our national accounts with several
large retailers. We also sell various products on-line, which we refer to as our interactive channel, including soda with
customized labels, wearables, candy and other items. Our distribution landscape has changed over the past few years with the
majority of our case sales of our core products, including Jones Soda as well as our re-launched WhoopAss Energy Drink, sold
through our DSD channel. We are strategically building our national and regional retailer network by focusing on the
distribution system that we believe will provide us the best top-line driver for our products and optimize availability of our
products. We have focused our sales and marketing resources on the expansion and penetration of our products through our
independent distributor network and national and regional retail accounts in our core markets throughout the U.S. and Canada.
We also intend to initiate and enhance distributor relationships in international regions where we believe there may be
appropriate demand for our products. Our international business outside of North America is currently comprised of Ireland, the
United Kingdom and Australia.
Our business strategy is to increase sales by expanding distribution of our products in new and existing markets
(primarily within North America). Our business strategy focuses on:
•
•
•
•
expanding points of distribution of Jones Soda throughout the entire U.S. in the grocery, mass and club channels;
growing our convenience and gas (C&G) distribution behind WhoopAss Energy Drink and our newly launched 16-
ounce Jones Soda can format;
expanding the stock-keeping unit (SKU) offerings and space in the grocery stores where we are already present; and
developing innovative beverage brands that will allow us to capture share in the growing natural carbonated drink
segment.
In order to compete effectively in the beverage industry, we believe that we must convince independent distributors that
Jones Soda and WhoopAss Energy Drink are leading brands in the premium soda and energy drink segments of the sparkling
beverage category. We believe our story is compelling as we perform well compared to our direct competitors in the premium
soda segment in sales per point of distribution. Additionally, as a means of maintaining and expanding our distribution network,
we introduce new products and product extensions, and when warranted, new brands. In October 2011, we announced our
24
launch of a new format for Jones Soda specifically aimed at the convenience store channel — a 16-ounce can, emblazoned with
the bold black and white fan-submitted photos associated with our Jones brand. In March 2012, we announced our new product
offering, Au Naturel, that we plan to launch in the second quarter of 2012 to enhance our sparkling portfolio. Although we
believe that we will be able to continue to create competitive and relevant brands and products to satisfy consumers’ changing
preferences, there can be no assurance that we will be able to do so or that other companies will not be more successful in this
regard over the long term.
For purposes of the following Management's Discussion and Analysis, we use the following industry terms:
• We use “stock keeping units” or “SKUs” to refer to individual variants of our products. For example, for our Jones
Soda product line, each of our flavors is referred to as a different SKU.
• We use the phrase “sales velocity” to refer to the number of units of a particular SKU sold per point of distribution
within a specific period of time.
Results of Operations
Years Ended December 31, 2011 and 2010
Revenue
For the year ended December 31, 2011, revenue was approximately $17.4 million, a decrease of $125,000, or 0.7% from
$17.5 million in revenue for the year ended December 31, 2010. Our revenues and case sales in 2011 reflect the improvement
to our business that we implemented in the second half of 2010 as part of our strategic decision to refocus our business on our
higher-margin, core products. Beginning in 2010, we discontinued several of our underperforming product lines (Jones
Naturals®, Jones Organics ®, Jones 24C ® and Jones GABA®) and certain of our underperforming Jones Soda SKUs. The result
of this product line and SKU rationalization was a focus on Jones Soda SKUs that we believe have demonstrated strong sales
velocity at retail and our re-launched WhoopAss Energy Drink. As a result, for 2011 we experienced overall increases in
revenue and case sales for our core products, and we earned significantly less revenue from these discontinued products and
SKUs compared to the prior year.
The following table summarizes the case sales and revenue for the years ended December 31, 2011 and 2010
Core products - North America . . . . . . . . . . . . . .
Core products - International. . . . . . . . . . . . . . . .
Discontinued products . . . . . . . . . . . . . . . . . . . . .
Discontinued SKUs . . . . . . . . . . . . . . . . . . . . . . .
Concentrate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Case Sales (288-ounce equivalent)
Revenue (in thousands)
2011
1,260,000
27,000
12,700
1,300
—
1,301,000
2010
1,075,700
63,700
125,400
59,200
111,000
1,435,000
$
$
2011
2010
17,076
255
60
10
—
17,401
$
$
15,311
762
835
517
101
17,526
With respect to our core product offerings, we had a 10.1% ($1.8 million) increase in revenue in our North American
sales in 2011 compared to 2010. We believe this was the direct result of our efforts, beginning in the latter part of 2010, to
reinforce and expand our distributor network by partnering with new distributors and replacing underperforming distributors, in
addition to our transition out of underperforming products and SKUs to focus on our core product lines. This increase in North
American sales of our core products offset a 2.9% ($507,000) decrease in revenue from international sales. We believe that the
decrease in international sales was primarily due to our having to transition to a new distributor during the third quarter of
2011, to serve the Ireland market to replace our previous underperforming distributor who ultimately sought bankruptcy
protection. With our reinforced distributor network (both in North America and our international distributors) and our refocus
on our core products, we expect to see overall revenue growth for 2012 over 2011.
With respect to our discontinued product lines and SKUs, we had ongoing sales during 2011 as we sold off our remaining
inventory. For 2011 compared to 2010, we had a 7.3% ($1.3 million) decrease in revenue from sales of these discontinued
product lines and SKUs. We no longer have inventory relating to these discontinued products and SKUs, and we do not expect
revenue related to these discontinued products and SKUs will have a material effect in 2012.
We had no case sales of concentrate in 2011 compared to 111,000 cases in 2010. As part of our strategic refocus, in 2012
we intend to continue to emphasize our higher-margin core products, including Jones Soda and our WhoopAss Energy Drink,
with less emphasis on our concentrate soda channel, which is a lower margin business for us.
For the year ended December 31, 2011, promotion allowances and slotting fees, which are a reduction to revenue, totaled
$1.8 million, an increase of $209,000, or 12.8%, from $1.6 million a year ago. The increase in promotion allowances and
25
slotting fees was primarily attributable to a focus on more traditional trade spend strategies for core products through our DSD
channel in order to increase sales velocity, coupled with our expanding distribution network. For 2010, our promotion
allowances and slotting fees were significantly lower than in 2009 ($2.7 million) due to a decrease in promotion allowances in
our DTR channel and to a lesser extent, a decrease in our DSD channel due to pricing strategies that lowered the use of
promotion allowances in exchange for lower delivered pricing. This strategy was changed during the fourth quarter of 2010.
We expect promotion allowances and slotting fees to be higher in 2012 compared to 2011 as we continue to concentrate on
traditional trade spend strategies to increase distribution.
Gross Profit
Year Ended December 31,
2011
2010
% Change
(Dollars in thousands)
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
% of Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,281
24.6%
4,042
23.1%
5.9%
For the year ended December 31, 2011, gross profit increased by approximately $239,000 or 5.9%, to $4.3 million
compared to $4.0 million for the year ended December 31, 2010. This increase in gross profit was primarily a result of a
reduction in cost of goods sold during 2011 compared to 2010 as a result of our discontinuation of underperforming product
lines, which had a higher cost to produce. However, gross profit in 2011 was negatively impacted by an increase in glass prices
and rising fuel costs compared to 2010. The gross profit for 2010 reflects a $506,000 write-down of excess GABA inventory,
which negatively impacted gross profit for that year by 2.9%; in comparison, we had no similar write down in 2011. For the
year ended December 31, 2011, gross profit as a percentage of revenue increased to 24.6% from 23.1% for the year ended
December 31, 2010, despite the overall decrease in revenue for 2011 compared to 2010.
Licensing Revenue
Licensing revenue decreased 22.6%, or $7,000 to $24,000 for the year ended December 31, 2011, from $31,000 for the
year ended December 31, 2010, and consisted primarily of our exclusive licensing arrangements with Big Sky Brands for Jones
Soda Flavor Booster Hard Candy. We believe licensing revenue was down due to the negative impact on sales resulting from
the economic downturn. We do not expect licensing revenue to represent a material portion of our overall revenues in 2012.
Promotion and Selling Expenses
Promotion and selling expenses for the year ended December 31, 2011 were approximately $6.3 million, an increase of
$1.6 million, or 34.6%, from $4.7 million for the year ended December 31, 2010. Promotion and selling expenses as a
percentage of revenue increased to 36.2% for the year ended December 31, 2011, from 26.7% in 2010. The increase in
promotion and selling expenses was primarily due to an increase in selling expenses year over year of $1.2 million, to $3.8
million, or 21.8% of revenue, driven by additional sales personnel hired to support our growth strategy. Also contributing to the
increase in promotion expenses in 2011 was trade promotion and marketing expenses which grew $426,000 from $2.1 million
to $2.5 million (14.4% of revenue) for 2011, due primarily to a $350,000 charge in connection with the termination of our New
Jersey Nets sponsorship agreement in August 2011. In comparison, for 2010 our promotion and selling expense reflected
decreases in our sales personnel and a reduction of agency fees and sponsorships, in conjunction with cost containment efforts
taken during 2009.
We anticipate decreased promotion and selling expenses as a percentage of revenue during 2012 as we scale back the
sales and marketing investments made over the past year to support our strategy of securing and growing larger distributor and
national retail accounts, as well as growing our Jones Soda and WhoopAss Energy Drink core product lines.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2011 were $5.2 million, a decrease of $748,000 or
12.5%, compared to $6.0 million for the year ended December 31, 2010. General and administrative expenses as a percentage
of revenue decreased to 30.1% for the year ended December 31, 2011 from 34.1% in 2010. The decrease in general and
administrative expenses was primarily due to a decrease in salaries and benefits, due to fewer personnel, a decrease in stock-
based compensation, and decreases in professional fees and depreciation expense.
26
Income Tax (Expense) Benefit, Net
We had income tax expense of $32,000 in 2011, compared to income tax benefit of $338,000 in 2010. This tax expense
and benefit relates primarily to our Canadian operations, which reflects income from our Canadian operations in 2011 and a
non-recurring credit for 2010 due to a tax refund allowed. 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, 2011 increased to $7.2 million from a net loss of $6.1 million for the year
ended December 31, 2010. This was primarily, for the reasons discussed above, due to an increase in promotion and selling
expense of $1.6 million and a tax refund allowed in 2010 resulting from our Canadian operations as well as non-recurring
licensing proceeds of $125,000 relating to the sale of our patents in 2010, both of which reduced the net loss in the prior year.
Offsetting these increases to net loss was a decrease in general and administrative expense for 2011 of $748,000.
Liquidity and Capital Resources
As of December 31, 2011 and 2010, we had cash and cash-equivalents of approximately $1.7 million and $5.4 million,
respectively, and working capital of $3.6 million and $8.1 million, respectively. Cash used in operations during fiscal years
2011 and 2010 totaled $5.1 million and $3.5 million, respectively. Our cash flows vary throughout the year based on
seasonality. We traditionally use more cash in the first half of the year as we build inventory to support our historically
seasonally-stronger shipping months of April through September, and expect cash used by operating activities to decrease in the
second half of the year as we collect receivables generated during our stronger shipping months.
For the year ended December 31, 2011, net cash used in investing activities totaled approximately $956,000 due primarily
to investments in conjunction with tenant improvements for our new office lease and a related certificate of deposit. For the
year ended December 31, 2010, net cash provided by investing activities totaled approximately $344,000 due primarily to
redemption of the restricted certificate of deposit and in conjunction with the repayment of the note payable we issued in 2009.
Net cash provided by financing activities for the year ended December 31, 2011, totaled approximately $2.3 million, due to the
proceeds from our final draw down on our equity line, and to a lesser extent, proceeds from the capital lease obligation for the
financing of the purchased branded vehicles. This compares to net cash provided by financing activities for the year ended
December 31, 2010, which totaled approximately $3.6 million, due to the proceeds from the draw downs on our equity line,
offset by the repayment of the note payable. We incurred a net loss of $7.2 million for the year ended December 31, 2011. Our
accumulated deficit increased to $53.2 million as of December 31, 2011 compared to the prior year’s deficit of $46.1 million.
In June 2010, we entered into an equity line of credit arrangement (Equity Line) with Glengrove Small Cap Value, Ltd
(Glengrove), pursuant to which Glengrove committed to purchase, upon the terms and subject to the conditions of the purchase
agreement establishing the facility, up to $10 million worth of shares of our common stock, subject to a maximum aggregate
limit of 5,228,893 shares. During 2010 and 2011, we sold to Glengrove a total of 5,228,893 shares, which is the maximum
number of shares issuable under the terms of the Equity Line and the Equity Line by its terms automatically has terminated. No
further amounts are available to us under this Equity Line. (See Note 8 in Item 8 of this Report).
On December 27, 2011, we entered into a secured credit facility (Credit Facility) with Access Business Finance LLC
(Access), pursuant to which we, through two of our wholly owned subsidiaries, Jones Soda (Canada) Inc. and Jones Soda Co.
(USA) Inc., may borrow a maximum aggregate amount of up to $2.0 million, subject to satisfaction of certain conditions.
Under this Credit Facility, we may periodically request advances for up to 75% of our eligible accounts receivable, bearing
interest at the prime rate plus 2%, but not be less than 5.25% per annum, with a minimum payment of $5,000 per month. The
Credit Facility has an initial one-year term, which will be automatically extended unless either party gives notice of non-
renewal. The Credit Facility is guaranteed by us and is secured by a first priority security interest in all of our assets. The Credit
Facility contains customary representations and warranties as well as affirmative and negative covenants. As of the date of this
Report, we are in compliance with all debt covenants and we have not drawn on the facility.
In January 2012, we entered into a placement agent agreement with Rodman & Renshaw, LLC (Rodman & Renshaw),
pursuant to which Rodman & Renshaw agreed to use its reasonable best efforts to arrange for the sale of our registered
securities. We agreed to pay Rodman & Renshaw an aggregate fee equal to 8% of the gross proceeds received in the offering
and agreed to customary representations, warranties, and indemnification by us.
27
In February 2012, we entered into a Securities Purchase Agreement with certain purchasers (Purchasers), arranged by
Rodman & Renshaw, pursuant to which we sold to the Purchasers in a registered offering 6,415,000 shares of our common
stock and warrants to purchase up to 3,207,500 shares of common stock. The securities were sold in units, consisting of one
share of common stock and a warrant to purchase 0.5 of a share of common stock, at a price of $0.50 per unit, for an aggregate
offering price of $3,207,500 (Offering). The warrants are not exercisable for six months following their issuance. After
deducting the placement agent fee and our estimated offering expenses, and excluding the proceeds, if any, from the exercise of
the warrants issued in the Offering, the net proceeds were approximately $2.8 million. (See Notes 1 and 15 in Item 8 of this
Report).
Taking into account the net proceeds raised through our registered offering in February 2012, we believe that our current
cash and cash equivalents will be sufficient to meet our anticipated cash needs through December 31, 2012. Our 2012 operating
plan does not factor in the use of our Credit Facility, which we may use for inventory purchases. Additionally, as of the date of
this Report, our 2012 operating plan does not require us to obtain additional financing; however, we will require additional
financing to support our working capital needs beyond 2012. The amount of additional capital we will require, the timing of our
capital needs and the availability of financing to fund those needs will depend on a number of factors, including the
performance of our business and the market conditions for debt or equity financing. Additionally, the amount of capital required
will depend on our ability to meet our sales volume goals and otherwise successfully execute our operating plan, which is based
on our realigned product portfolio, including our re-launched WhoopAss Energy Drink in addition to our new product offering,
Au Naturel, that we plan to launch in the second quarter 2012 to enhance our sparkling portfolio. However, the introduction of
new products involves a number of risks, and there can be no assurance that we will achieve the sales level we expect or that
justify the costs associated with our growth plan. We believe it is imperative to meet these sales objectives and continue to
expand our distribution network and increase sales volume in order to lessen our reliance on external financing in the future.
We also plan to continue our efforts to reinforce and expand our distributor network by partnering with new distributors and
replacing underperforming distributors. It is critical that we meet our volume projections and continue to increase volume
going forward, as our operating plan already reflects prior significant cost containment measures, leaving us little room for
further reductions in such costs without affecting our ability to increase top-line growth.
Our operating plan factors in the use of cash to meet our contractual obligations. A substantial portion of these contractual
obligations consists of obligations to purchase raw materials, including sugar and glass under our supply agreements. We enter
into these supply agreements in order to fix the cost of these key raw materials, which we expect will be used in the ordinary
course of our business. Our contractual obligations also relate to payments for sponsorships, and have been reduced by
approximately $7.0 million through 2017 as the result of the termination of our sponsorship arrangement with the New Jersey
Nets (see "Contractual Obligations").
We intend to continually monitor and adjust our business plan as necessary to respond to developments in our business,
our markets and the broader economy. In the event we require additional financing to support our working capital needs or to
fund strategic growth plans, we believe various debt and equity financing alternatives will be available to us. However, new
debt or equity financing arrangements may not be available to us when needed on acceptable terms, if at all. Additionally, 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 the Company and
our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, joint ventures
with one or more strategic partners, strategic acquisitions and other strategic alternatives; however, we may not enter into any
such agreements or transactions.
Further, our ability to access the capital markets for an equity financing may be impacted by the bid price deficiency for
continued listing of our common stock on the Nasdaq Capital Market. We may not be able to regain compliance with the
minimum bid price requirement or succeed in an appeal of a delisting determination to a Hearings Panel. Even if we regain
compliance or succeed in an appeal, we may not be able to continue to satisfy the minimum bid price requirement or any of the
other requirements for continued listing on the Nasdaq Capital Market. If we are delisted from the Nasdaq Capital Market,
trading of our common stock most likely would be conducted in the over-the-counter market (OTC) Bulletin Board market, an
electronic bulletin board established for unlisted securities. The level of trading activity of our common stock may decline if it
is no longer listed on the Nasdaq Capital Market and such delisting could cause our stock to be classified as "penny stock,"
which would adversely affect the market liquidity of our common stock.
The uncertainties relating to our ability to successfully execute our 2012 operating plan, combined with our inability to
implement further meaningful cost containment measures that do not jeopardize our growth plans and the difficult financing
environment with our bid price deficiency, continue to raise substantial doubt about our ability to continue as a going concern.
Our audited financial statements for the years ended December 31, 2011 and 2010 were prepared assuming we would continue
as a going concern, which contemplates that we will continue in operation for the foreseeable future and will be able to realize
assets and settle liabilities and commitments in the normal course of business. These financial statements do not include any
28
adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and
classifications of liabilities that could result should we be unable to continue as a going concern.
Contractual Obligations
Please refer to the disclosure of contractual obligations in Notes 6, 7 and 11 in Item 8 of this Report.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements.
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 U.S. 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 and 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 in Item 8 of this Report.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed
or determinable and collectability is reasonably assured. Revenue is recorded net of provisions for discounts, slotting fees and
promotion allowances.
Our products are sold on various terms for cash or credit. Our credit terms, which are established in accordance with local
and industry practices, typically require payment within 30 days of delivery. We recognize revenue upon receipt of our products
by our distributors and retail customers in accordance with written sales terms, net of provisions for discounts and promotion
allowances. All sales to distributors and customers are final sales; however, in limited instances, due to product quality issues or
distributor terminations, we may accept returned product. To date, such returns have not been material, nor do we anticipate
them to be material in the future.
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 market, which is based on estimated 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
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.
29
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Item is inapplicable.
30
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Peterson Sullivan LLP, Independent Registered Public Accounting Firm. . . . . . . . . . . . . . . . . . . . . . .
Consolidated Financial Statements:
Consolidated balance sheets as of December 31, 2011 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated statements of operations for the years ended December 31, 2011 and 2010 . . . . . . . . . . . . . . . . . .
Consolidated statements of comprehensive loss for the years ended December 31, 2011 and 2010. . . . . . . . . . .
Consolidated statements of shareholders’ equity for the years ended December 31, 2011 and 2010 . . . . . . . . . .
Consolidated statements of cash flows for the years ended December 31, 2011 and 2010. . . . . . . . . . . . . . . . . .
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
32
33
34
35
36
37
38
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Jones Soda Co.
Seattle, Washington
We have audited the accompanying consolidated balance sheets of Jones Soda Co. and subsidiaries (“the Company”) as
of December 31, 2011 and 2010, and the related consolidated statements of operations, comprehensive loss, shareholders’
equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company has determined that it is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Jones Soda Co. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their
cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going
concern. As discussed in Note 1 to the consolidated financial statements, the Company has experienced recurring losses from
operations and negative cash flows from operating activities. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ PETERSON SULLIVAN LLP
Seattle, Washington
March 29, 2012
32
JONES SODA CO.
CONSOLIDATED BALANCE SHEETS
Current assets:
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts receivable, net of allowance of $102 and $166. . . . . . . . . . . . . . . . . . . . . . . . .
Taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets, net of accumulated depreciation of $1,648 and $2,973 . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
December 31,
2011
2010
(In thousands, except share data)
$
1,709
1,966
5
2,386
199
6,265
844
548
5,448
2,220
480
2,279
305
10,732
296
435
7,657
$
11,463
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent, current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations, current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities — other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note 11)
$
1,278
1,323
64
25
23
2,713
82
457
Shareholders’ equity:
Common stock, no par value:
Authorized — 100,000,000; issued and outstanding shares — 32,100,882 and
30,418,301 shares, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,090
7,116
420
(53,221)
4,405
Total liabilities and shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
7,657
$
853
1,592
146
—
—
2,591
—
2
47,917
6,570
450
(46,067)
8,870
11,463
See accompanying notes to consolidated financial statements.
33
JONES SODA CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of excess GABA inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Licensing revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Promotion and selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (expense) benefit, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended December 31,
2011
2010
(In thousands, except share data)
17,401
$
13,120
—
4,281
24
6,296
5,235
11,531
(7,226)
104
(7,122)
(32)
(7,154) $
17,526
12,978
506
4,042
31
4,676
5,983
10,659
(6,586)
142
(6,444)
338
(6,106)
Net loss per share - basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted average basic and diluted common shares outstanding. . . . . . . . . . . . . . . . . . . .
(0.22) $
31,896,848
(0.22)
27,172,697
See accompanying notes to consolidated financial statements.
34
JONES SODA CO.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years Ended December 31, 2011 and 2010
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive loss:
Foreign currency translation adjustment gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended December 31,
2011
2010
(In thousands, except share data)
(7,154) $
(6,106)
(30)
(7,184) $
32
(6,074)
See accompanying notes to consolidated financial statements.
35
JONES SODA CO.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Years Ended December 31, 2011 and 2010
Common Stock
Number
Amount
Additional
Paid-in Capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Shareholders’
Equity
(In thousands, except per share amounts)
Balance, December 31, 2009 . . . . . . . .
26,427,989
$
43,925
$
5,771
$
418
$
(39,961) $
10,153
Exercise of stock options . . . . . . . . . . .
Stock-based compensation. . . . . . . . . .
Equity line fees to Glengrove . . . . . . .
Common stock issued, net of offering
costs of $196 . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net . . . .
70,834
217,305
70,053
54
—
97
3,632,120
3,841
—
—
—
—
Balance, December 31, 2010 . . . . . . . .
30,418,301
47,917
Exercise of stock options . . . . . . . . . . .
Stock-based compensation. . . . . . . . . .
Common stock issued, net of offering
costs of $94 . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net. . . . . . .
25,288
60,520
17
—
1,596,773
2,156
—
—
—
—
—
799
—
—
—
—
6,570
—
546
—
—
—
—
—
—
—
—
32
—
—
—
—
(6,106)
—
450
(46,067)
—
—
—
—
(30)
—
—
—
(7,154)
—
Balance, December 31, 2011 . . . . . . . .
32,100,882
$
50,090
$
7,116
$
420
$
(53,221) $
54
799
97
3,841
(6,106)
32
8,870
17
546
2,156
(7,154)
(30)
4,405
See accompanying notes to consolidated financial statements.
36
JONES SODA CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2011
2010
(In thousands)
OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net loss to net cash used in operating activities:
(7,154) $
(6,106)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of excess GABA inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of fixed assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitment fee on equity financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-cash charges and credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTING ACTIVITIES:
Purchase of certificate of deposit, restricted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of certificate of deposit, restricted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . . . . . . . .
FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds of capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of note payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Supplemental disclosure:
Cash paid (received) during period for:
230
546
(64)
—
—
—
—
—
297
478
(115)
76
70
421
(263)
(81)
25
455
(5,079)
(183)
—
(776)
3
(956)
2,185
17
122
(17)
—
2,307
(3,728)
(11)
5,448
1,709
$
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(46) $
(451)
Non-cash financing activity:
Issuance of stock as commitment fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
See accompanying notes to consolidated financial statements.
379
799
79
506
168
68
2
7
178
(456)
1,252
211
(80)
(549)
5
72
—
—
(3,465)
—
376
(32)
—
344
3,841
54
—
—
(345)
3,550
429
44
4,975
5,448
4
1
97
37
JONES SODA CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010
1.
Nature of Operations and Summary of Significant Accounting Policies
Jones Soda Co. develops, produces, markets and distributes premium beverages, which currently consist of the following
product lines and extensions:
•
Jones® Soda, a premium carbonated soft drink;
Jones Zilch®, with zero calories (and an extension of the Jones® Soda product line);
• WhoopAss™ Energy Drink, an energy supplement drink; and
WhoopAss Zero™ Energy Drink, with zero sugar (and an extension of the WhoopAss™ Energy Drink product
line).
We sell and distribute our products primarily in North America through our network of independent distributors located
throughout the U.S. and Canada.
We are a Washington corporation and have two operating subsidiaries, Jones Soda Co. (USA) Inc. and Jones Soda
(Canada) Inc., and two non-operating subsidiaries, myJones.com, Inc. and Whoopass USA Inc.
Basis of presentation and consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP) and the Securities and Exchange Commission (SEC) rules and
regulations applicable to financial reporting. The consolidated financial statements include our accounts and accounts of our
wholly owned subsidiaries. All intercompany transactions between us and our subsidiaries have been eliminated in
consolidation.
Liquidity
As of December 31, 2011 and 2010, we had cash and cash-equivalents of approximately $1.7 million and $5.4 million,
respectively, and working capital of $3.6 million and $8.1 million, respectively. Cash used in operations during fiscal years
2011 and 2010 totaled $5.1 million and $3.5 million, respectively. Our cash flows vary throughout the year based on
seasonality. We traditionally use more cash in the first half of the year as we build inventory to support our historically
seasonally-stronger shipping months of April through September, and expect cash used by operating activities to decrease in the
second half of the year as we collect receivables generated during our stronger shipping months.
For the year ended December 31, 2011, net cash used in investing activities totaled approximately $956,000 due primarily
to investments in conjunction with tenant improvements for our new office lease and a related certificate of deposit. For the
year ended December 31, 2010, net cash provided by investing activities totaled approximately $344,000 due primarily to
redemption of the restricted certificate of deposit and in conjunction with the repayment of the note payable we issued in 2009.
Net cash provided by financing activities for the year ended December 31, 2011, totaled approximately $2.3 million due to the
proceeds from our final draw down on our equity line, and to a lesser extent, proceeds from the capital lease obligation for the
financing of the purchased branded vehicles. This compares to net cash used by financing activities for the year ended
December 31, 2010, which totaled approximately $3.6 million, due to the proceeds from the draw downs on our equity line,
offset by the repayment of the note payable. We incurred a net loss of $7.2 million for the year ended December 31, 2011. Our
accumulated deficit increased to $53.2 million as of December 31, 2011 compared to the prior year’s deficit of $46.1 million.
In June 2010, we entered into an equity line of credit arrangement (Equity Line) with Glengrove Small Cap Value, Ltd
(Glengrove), pursuant to which Glengrove committed to purchase, upon the terms and subject to the conditions of the purchase
agreement establishing the facility, up to $10 million worth of shares of our common stock, subject to a maximum aggregate
limit of 5,228,893 shares. During 2010 and 2011, we sold to Glengrove a total of 5,228,893 shares, which is the maximum
number of shares issuable under the terms of the Equity Line and the Equity Line by its terms automatically has terminated. No
further amounts are available to us under this Equity Line (see Note 8).
On December 27, 2011, we entered into a secured credit facility (Credit Facility) with Access Business Finance LLC
(Access), pursuant to which we, through two of our wholly owned subsidiaries, Jones Soda (Canada) Inc. and Jones Soda Co.
(USA) Inc., may borrow a maximum aggregate amount of up to $2.0 million, subject to satisfaction of certain conditions.
Under this Credit Facility, we may periodically request advances for up to 75% of our eligible accounts receivable, bearing
38
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JONES SODA CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
interest at the prime rate plus 2%, but not be less than 5.25% per annum, with a minimum payment of $5,000 per month. The
Credit Facility has an initial one-year term, which will be automatically extended unless either party gives notice of non-
renewal. The Credit Facility is guaranteed by us and is secured by a first priority security interest in all of our assets. The Credit
Facility contains customary representations and warranties as well as affirmative and negative covenants. As of the date of this
Report, we are in compliance with all debt covenants and we have not drawn on the facility.
In January 2012, we entered into a placement agent agreement with Rodman & Renshaw, LLC (Rodman & Renshaw),
pursuant to which Rodman & Renshaw agreed to use its reasonable best efforts to arrange for the sale of our registered
securities. We agreed to pay Rodman & Renshaw an aggregate fee equal to 8% of the gross proceeds received in the offering
and agreed to customary representations, warranties, and indemnification by us.
In February 2012, we entered into a Securities Purchase Agreement with certain purchasers (Purchasers), arranged by
Rodman & Renshaw, pursuant to which we sold to the Purchasers in a registered offering 6,415,000 shares of our common
stock and warrants to purchase up to 3,207,500 shares of common stock. The securities were sold in units, consisting of one
share of common stock and a warrant to purchase 0.5 of a share of common stock, at a price of $0.50 per unit, for an aggregate
offering price of $3,207,500 (Offering). The warrants are not exercisable for six months following their issuance. After
deducting the placement agent fee and our estimated offering expenses, and excluding the proceeds, if any, from the exercise of
the warrants issued in the Offering, the net proceed were approximately $2.8 million. (See Note 15).
Taking into account the net proceeds raised through our registered offering in February 2012, we believe that our current
cash and cash equivalents will be sufficient to meet our anticipated cash needs through December 31, 2012. Our 2012 operating
plan does not factor in the use of our Credit Facility, which we may use for inventory purchases. Additionally, as of the date of
this Report, our 2012 operating plan does not require us to obtain additional financing; however, we will require additional
financing to support our working capital needs beyond 2012. The amount of additional capital we will require, the timing of our
capital needs and the availability of financing to fund those needs will depend on a number of factors, including the
performance of our business and the market conditions for debt or equity financing. Additionally, the amount of capital required
will depend on our ability to meet our sales volume goals and otherwise successfully execute our operating plan, which is based
on our realigned product portfolio, including our re-launched WhoopAss Energy Drink in addition to our new product offering,
Au Naturel, that we plan to launch in the second quarter 2012 to enhance our sparkling portfolio. However, the introduction of
new products involves a number of risks, and there can be no assurance that we will achieve the sales levels we expect or that
justify the costs associated with our growth plan. We believe it is imperative to meet these sales objectives and continue to
expand our distribution network and increase sales volume in order to lessen our reliance on external financing in the future.
We also plan to continue our efforts to reinforce and expand our distributor network by partnering with new distributors and
replacing underperforming distributors. It is critical that we meet our volume projections and continue to increase volume going
forward, as our operating plan already reflects prior significant cost containment measures, leaving us little room for further
reductions in such costs without affecting our ability to increase top-line growth.
Our operating plan factors in the use of cash to meet our contractual obligations. A substantial portion of these contractual
obligations consists of obligations to purchase raw materials, including sugar and glass under our supply agreements. We enter
into these supply agreements in order to fix the cost of these key raw materials, which we expect will be used in the ordinary
course of our business. Our contractual obligations also relate to payments for sponsorships, and have been reduced by
approximately $7.0 million through 2017 as the result of the termination of our sponsorship arrangement with the New Jersey
Nets (see Note 11).
We intend to continually monitor and adjust our business plan as necessary to respond to developments in our business,
our markets and the broader economy. In the event we require additional financing to support our working capital needs or to
fund strategic growth plans, we believe various debt and equity financing alternatives will be available to us. However, new
debt or equity financing arrangements may not be available to us when needed on acceptable terms, if at all. Additionally, 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 the Company and
our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, joint ventures
with one or more strategic partners, strategic acquisitions and other strategic alternatives; however, we may not, enter into any
such agreements or transactions.
Further, our ability to access the capital markets for an equity financing may be impacted by the bid price deficiency for
continued listing of our common stock on the Nasdaq Capital Market. We may not be able to regain compliance with the
minimum bid price requirement or succeed in an appeal of a delisting determination to a Hearings Panel. Even if we regain
compliance or succeed in an appeal, we may not be able to continue to satisfy the minimum bid price requirement or any of the
other requirements for continued listing on the Nasdaq Capital Market. If we are delisted from the Nasdaq Capital Market,
39
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JONES SODA CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
trading of our common stock most likely would be conducted in the over-the-counter market (OTC) Bulletin Board market, an
electronic bulletin board established for unlisted securities. The level of trading activity of our common stock may decline if it
is no longer listed on the Nasdaq Capital Market and such delisting could cause our stock to be classified as "penny stock,"
which would adversely affect the market liquidity of our common stock.
The uncertainties relating to our ability to successfully execute our 2012 operating plan, combined with our inability to
implement further meaningful cost containment measures that do not jeopardize our growth plans and the difficult financing
environment with our bid price deficiency, continue to raise substantial doubt about our ability to continue as a going concern.
Our audited financial statements for the year ended December 31, 2011 and 2010 were prepared assuming we would continue
as a going concern, which contemplates that we will continue in operation for the foreseeable future and will be able to realize
assets and settle liabilities and commitments in the normal course of business. These financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and
classifications of liabilities that could result should we be unable to continue as a going concern.
Use of estimates
The preparation of the consolidated financial statements requires management to make a number of estimates and
assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.
Significant items subject to such estimates and assumptions include, but are not limited to, inventory valuation, depreciable
lives and valuation of capital assets, valuation allowances for receivables, trade promotion liabilities, stock-based compensation
expense, valuation allowance for deferred income tax assets, contingencies, and forecasts supporting the going concern
assumption and related disclosures. Actual results could differ from those estimates.
Cash and cash equivalents
We consider all highly liquid short-term investments with an original or remaining maturity of three months or less at the
date of purchase to be cash equivalents.
Fair value of financial instruments
The carrying amounts for cash and cash equivalents, receivables and payables approximate fair value due to the short-
term maturity of these instruments. The carrying value of other long-term liabilities approximated fair values because the
underlying interest rates approximate market rates at the balance sheet dates.
Accounts receivable
Our accounts receivable balance includes balances from trade sales. The allowance for doubtful accounts is our best
estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance for doubtful
accounts based primarily on historical write-off experience. Account balances that are deemed uncollectible, are charged off
against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Allowances for doubtful accounts of $102,000 and $166,000 as of December 31, 2011 and 2010, respectively, are netted against
accounts receivable. Activity in the allowance for doubtful accounts consists of the following for the years ended December 31
(in thousands):
Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net charges to bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2011
2010
166
211
(275)
102
$
$
87
182
(103)
166
Inventories
Inventories consist of raw materials and finished goods and are stated at the lower of cost or market and include
adjustments for estimated obsolete or excess inventory. Cost is based on actual cost on a first-in first-out basis. Raw materials
that will be used in production in the next twelve months are recorded in inventory, and amounts to be used in production
beyond twelve months, if any, are considered long-term assets and are recorded in other assets. The provisions for obsolete or
excess inventory are based on estimated forecasted usage of inventories. A significant change in demand for certain products as
compared to forecasted amounts may result in recording additional provisions for obsolete inventory. Provisions for obsolete or
40
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JONES SODA CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
excess inventory are recorded as cost of goods sold. We recorded a charge for the write-down of excess GABA inventory during
the year ended December 31, 2010 (see Note 12).
Fixed assets
Fixed assets are recorded at cost less accumulated depreciation and depreciated on the declining balance basis over the
estimated useful lives of the assets as follows:
Asset
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles and office and computer equipment . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment under capital lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate
20% to 30%
30%
Shorter of useful life or lease term
Lease term which approximates its useful life
Impairment of long-lived assets
Long-lived assets, which include capital and intangible assets, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be
generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the assets. The fair value of the assets is estimated
using the higher of discounted future cash flows of the assets or estimated net realizable value. Long-lived assets are grouped at
the lowest level for which there are identifiable cash flows when evaluating for impairment. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell. There are no outstanding intangible assets as of
December 31, 2011 and 2010.
Foreign currency translation
The functional currency of our Canadian subsidiary is the Canadian dollar. We translate assets and liabilities related to
these operations to U.S. dollars at the exchange rate in effect at the date of the consolidated balance sheet; we convert revenues
and expenses into U.S. dollars using the average monthly exchange rates. Translation gains and losses are reported as a separate
component of accumulated other comprehensive income.
Revenue recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed
or determinable and collectability is reasonably assured. Revenue is recorded net of provisions for discounts, slotting fees and
promotion allowances. For the years ended December 31, 2011 and 2010, our revenue was reduced by $1.8 million and $1.6
million, respectively, for slotting fees and promotion allowances. All sales to distributors and customers are final; however, in
limited instances, due to product quality issues or distributor terminations, we may accept returned product. To date, such
returns have not been material.
Licensing revenue is recorded when we receive a sale confirmation from the third party.
Shipping and handling costs
Shipping and handling amounts paid to us by customers are included in revenue and total $339,000 and $397,000 for the
years ended December 31, 2011 and 2010. The actual costs of shipping and handling paid by us are included in cost of sales.
Advertising costs
Advertising costs, which also include promotions and sponsorships, are expensed as incurred. During the years ended
December 31, 2011 and 2010, we incurred advertising costs of $2.1 million and $1.1 million, respectively.
In August 2011, we announced that we agreed to terminate the Amended Sponsorship Agreement with the New Jersey
Nets, dated October 29, 2007, ending the agreement five years early. In connection with the termination, we agreed to pay
$500,000, which included a $150,000 payment owed under the Amended Sponsorship Agreement in connection with annual
sponsorship fees for the year ended December 31, 2010 and the first half of 2011, and a termination fee of $350,000 payable in
three installments ending March 1, 2012 (see Note 11).
41
Table of Contents
Income taxes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
JONES SODA CO.
We account for income taxes by recognizing the amount of taxes payable for the current year and deferred tax assets and
liabilities for future tax consequences of events at enacted tax rates that have been recognized in our financial statements or tax
returns. We perform periodic evaluations of recorded tax assets and liabilities and maintain a valuation allowance, if considered
necessary. The determination of taxes payable for the current year includes estimates. We believe that we have appropriate
support for the income tax positions taken, and to be taken, on our tax returns and that our accruals for tax liabilities are
adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law
applied to the facts of each matter. No reserves for an uncertain income tax position have been recorded for the years ended
December 31, 2011 or 2010.
Net loss per share
Basic net loss per share is computed using the weighted average number of common shares outstanding during the
periods, excluding reacquired stock and common stock held in escrow that is subject to cancellation if certain criteria are not
achieved. Diluted earnings per share is computed by adjusting the weighted average number of common shares by the effective
net exercise or conversion of all dilutive securities. In 2011 and 2010, due to the net loss, all outstanding equity options are anti-
dilutive.
Comprehensive loss
Comprehensive loss is comprised of net loss and other adjustments, including items such as non-U.S. currency translation
adjustments. We do not provide income taxes on currency translation adjustments, as the historical earnings from our Canadian
subsidiary is considered to be indefinitely reinvested.
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. Timing of
customer purchases will vary each year and sales can be expected to shift from one quarter to another. 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.
Recent accounting pronouncements
In June 2011, the FASB issued Accounting Standard Update (ASU) 2011-05, Presentation of Comprehensive Income.
ASU 2011-05 changes the way other comprehensive income (OCI) is presented within the financial statements. Our financial
statements will be required to reflect net loss, OCI and total comprehensive loss in one continuous statement or in two separate
but consecutive statements. In December 2011, the FASB issued ASU 2011-12 that deferred the provisions of ASI 2011-05
relating to the requirement to report reclassification adjustments between OCI and net earnings in the statement of earnings.
However, we have early implemented ASU2011-05, and the accompanying consolidated financial statements show net loss,
OCI and total comprehensive loss in two separate, but consecutive statements.
2.
Inventory
Inventory consisted of the following as of December 31 (in thousands):
Finished goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2011
2010
1,819
567
2,386
$
$
1,695
584
2,279
Finished goods primarily include product ready for shipment, as well as promotional merchandise held for sale. Raw
materials primarily include ingredients, concentrate and packaging.
42
Table of Contents
3.
Fixed Assets
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
JONES SODA CO.
Fixed assets consisted of the following as of December 31 (in thousands):
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Leasehold improvements and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office and computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4.
Accrued Expenses
Accrued expenses consisted of the following as of December 31 (in thousands):
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Promotion and selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5.
Line of Credit
2011
2010
527
933
1,032
2,492
(1,648)
844
$
$
390
1,430
1,449
3,269
(2,973)
296
2011
2010
297
683
343
1,323
$
$
420
725
447
1,592
In December 2011, we entered into a secured credit facility with Access Business Finance LLC (Access), pursuant to
which we, through two of our wholly owned subsidiaries, Jones Soda (Canada) Inc. and Jones Soda Co. (USA) Inc., may
borrow a maximum aggregate amount of up to $2.0 million, subject to satisfaction of certain conditions.
Under this facility, we may periodically request advances for up to 75% of our eligible accounts receivable. The interest
rate on the facility is the prime rate plus 2%, but may not be less than 5.25% per annum, with a minimum facility payment of
$5,000 per month. The facility has an initial one-year term, which will be automatically extended unless either party gives
notice of non-renewal. The facility is guaranteed by us and is secured by a first priority security interest in all of our assets. The
credit facility contains customary representations and warranties as well as affirmative and negative covenants. We were in
compliance with all debt covenants as of December 31, 2011.
For the year ended December 31, 2011, we did not borrow on this credit facility.
In connection with the execution of the credit facility, we paid a $20,000 fee. Additionally, upon our initial borrowing on
the facility, we will issue Access a warrant to purchase $50,000 in shares of our common stock with an exercise price equal to
the 20 day trailing average closing price from the date of the initial borrowing.
6.
Capital Lease
In January 2011, we entered into capital lease agreements totaling $122,000 for the lease of two branded vehicles used for
marketing. The leases are payable over a 60-month period at 6.99% interest. Our remaining scheduled lease payments, which
include $16,000 in interest, are $29,000 for each of the years 2012 through 2015, and $5,000 for 2016.
7.
Lease Obligations
In June 2011, we entered into an office building sublease for use as our principal headquarters, as our previous lease expired
in August 2011 and did not include an option to renew. The term of the sublease is five years with an option to extend for up to
three additional five year terms. Under the terms of the sublease, we received a rent abatement period and a build out allowance
that is being amortized over 10 years, the initial 5 year term plus one additional 5 year renewal period, which is the reasonably
assured rental period given the economic consequences of an earlier move. The resulting deferred rent of $480,000 is included in
Deferred Rent, current and Long-term liabilities - other in the accompanying consolidated balance sheets. During the initial term,
there is an annual rent escalation which we would expect to continue in the renewal periods.
Also, under the terms, we were required to deliver a Letter of Credit (LOC) issued by KeyBank National Association for a
portion of the Subtenant Improvement Allowance (as defined in the sublease agreement), or $183,000, which will be released
after year three of the sublease term, provided we have not been late in the payment of rent more than five times during such
period. As a condition of and to secure the LOC, KeyBank National Association required us to place $183,000 in an interest bearing
43
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JONES SODA CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
restricted reserve account, invested in a certificate of deposit which is recorded in other assets in the accompanying consolidated
balance sheets. We have accrued for all rent expense that has been incurred but not paid.
Our scheduled payments, at December 31, 2011 were as follows (in thousands):
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Lease
201
206
211
216
127
961
$
During the years ended December 31, 2011 and 2010, we incurred rental expenses of $209,000 and $192,000,
respectively.
8.
Equity Financing
In June 2010, we entered into an equity line of credit arrangement (Equity Line) with Glengrove Small Cap Value, Ltd
(Glengrove), pursuant to which Glengrove committed to purchase, upon the terms and subject to the conditions of the purchase
agreement establishing the facility, up to $10 million worth of shares of our common stock, subject to a maximum aggregate
limit of 5,228,893 shares. The facility provided that we may, from time to time, over the 24-month term of the facility and at
our sole discretion, present Glengrove with draw down notices to purchase our common stock at a price equal to the daily
volume weighted average price of our common stock on each date during the draw down period on which shares are purchased,
less a discount of 6.0%. During 2010, we completed draw downs and sales under the facility of an aggregate of
3,632,120 shares for net proceeds of approximately $4.0 million. On February 1, 2011, we completed our final draw down and
sale of 1,596,773 shares for net proceeds of approximately $2.2 million. We sold to Glengrove a total of 5,228,893 shares,
which is the maximum number of shares issuable under the terms of the Equity Line and the Equity Line by its terms
automatically has terminated.
9.
Shareholders’ Equity
At our 2011 Annual Meeting held on May 25, 2011, our shareholders approved the Jones Soda Co. 2011 Incentive Plan
(2011 Plan). As a result, the 2002 Stock Option and Restricted Stock Plan (2002 Plan) was terminated, and equity awards
granted after the 2011 Annual Meeting will be made under the 2011 Plan. Awards outstanding under the 2002 Plan will remain
outstanding in accordance with their existing terms.
The 2011 Plan authorizes the issuance of 3,000,000 shares of our common stock. Starting in 2012, the number of shares
authorized under the 2011 Plan also may be increased each January 1st by an amount equal to the least of (a) 1,300,000 shares,
(b) 4.0% of our outstanding common stock as of the end of our immediately preceding fiscal year, and (c) a lesser amount
determined by the Board of Directors (the Board), provided that the number of shares that may be granted pursuant to awards
in a single year may not exceed 10% of our outstanding shares of common stock on a fully diluted basis as of the end of the
immediately preceding fiscal year.
Under the terms of the 2011 Plan, the Board may grant awards to employees, officers, directors, consultants, agents,
advisors and independent contractors. Awards may consist of stock options, stock appreciation rights, stock awards, restricted
stock, stock units, performance awards or other stock or cash-based awards. Stock options are granted at the closing price of
our stock on the date of grant for a ten-year term, and generally vest over a period of 48 months with the first 25% cliff vesting
one year from the grant date and monthly thereafter. As of December 31, 2011, there were 2,604,374 shares of unissued
common stock authorized and available for issuance under the 2011 Plan.
(a) Stock options:
A summary of our stock option activity is as follows:
44
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JONES SODA CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Balance at January 1, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options cancelled/expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options cancelled/expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable, December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested and expected to vest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Options
Number of
Shares
1,389,496
877,000
(70,834)
(405,878)
1,789,784
792,000
(25,288)
(402,384)
2,154,112
1,218,756
2,106,590
Weighted
Average Exercise
Price
$
$
$
$
$
2.96
0.89
0.76
2.45
1.96
1.13
0.68
2.91
1.49
1.85
1.50
The following table summarizes information about stock options outstanding and exercisable under our stock incentive
plans at December 31, 2011:
Weighted
Average
Remaining
Contractual
Life (Years)
8.94
8.61
7.59
6.36
0.19
7.56
Number
Outstanding
214,855
1,089,506
675,714
124,287
49,750
2,154,112
Weighted
Average
Exercise Price
0.39
$
0.83
1.31
3.29
18.67
1.49
Number
Exercisable
112,860
678,289
253,570
124,287
49,750
1,218,756
Weighted
Average
Remaining
Contractual
Life (Years)
2.31
3.75
5.71
6.36
0.19
6.40
Weighted
Average
Exercise Price
0.37
$
0.81
1.28
3.29
18.67
1.85
$0.25 to $0.50 . . . . . . . . . . . . . . . .
$0.51 to $1.09 . . . . . . . . . . . . . . . .
$1.10 to $2.99 . . . . . . . . . . . . . . . .
$3.00 to $3.99 . . . . . . . . . . . . . . . .
$4.00 to $18.67 . . . . . . . . . . . . . . .
(b) Restricted stock awards:
During the year ended December 31, 2011, the Board granted 108,626 shares of restricted stock to employees and board
members under the 2011 Plan. Restricted stock is valued at the grant date market price of the underlying securities. No
monetary payment is required from the employees upon receipt of restricted stock.
A summary of our restricted stock activity is as follows:
Non-vested restricted stock at January 1, 2010 . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled/expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested restricted stock at January 1, 2011 . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled/expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested restricted stock at December 31, 2011 . . . . . . . . . . . . . . . . .
Restricted
Shares
33,833
231,875
(86,413)
(20,714)
158,581
108,626
(178,114)
(48,486)
40,607
Weighted-
Average Grant
Date Fair Value
6.06
$
1.12
1.69
3.05
1.52
0.63
1.19
1.44
0.68
$
$
Weighted-
Average
Contractual Life
8.01 yrs
9.44 yrs
9.69 yrs
We withheld a total of 47,770 shares as payment for withholding taxes due in connection with the vesting of restricted
stock awards issued under the 2002 Plan for the year ended December 31, 2011 and the average price paid per share of $1.31
reflects the average market value per share of the shares withheld for tax purposes. We withheld a total of 3,338 shares as a
payment for withholding taxes due in connection with the vesting of restricted stock awards issued under the 2002 plan for the
year ended December 31, 2010 and the average price paid per share was $2.61.
45
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JONES SODA CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(c) Stock-based compensation expense:
Stock-based compensation expense is recognized using the straight-line attribution method over the employees’ requisite
service period. We recognize compensation expense for only the portion of stock options or restricted stock that are expected to
vest. Therefore, we apply estimated forfeiture rates that are derived from historical employee termination behavior. If the actual
number of forfeitures differs from those estimated by management, additional adjustments to stock-based compensation
expense may be required in future periods.
At December 31, 2011, we had unrecognized compensation expense related to stock options and non-vested restricted
stock of $567,000 and $20,000, respectively, to be recognized over weighted-average periods of 2.3 years and 1.2 years,
respectively.
The following table summarizes the stock-based compensation expense (in thousands):
Type of awards:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income statement account:
Promotion and selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2011
2010
400
146
546
142
404
546
$
$
$
$
521
278
799
165
634
799
We employ the following key weighted-average assumptions in determining the fair value of stock options, using the
Black-Scholes option pricing model and the provisions of Staff Accounting Bulletin (SAB) 107 and 110, which allow the
simplified method to estimate the expected term of "plain vanilla" options:
Twelve Months Ended December 31,
2011
2010
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected stock price volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average grant date fair-value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
—
99.2%
2.1%
5.9 years
0.86
$
—
93.0%
2.6%
5.7 years
0.67
During the year ended December 31, 2011, no material modifications were made to outstanding stock options.
The aggregate intrinsic value of stock options outstanding at December 31, 2011 and 2010 was $0 and $264,000 and for
options exercisable was $0 and $241,000, respectively. The intrinsic value of outstanding and exercisable stock options is
calculated as the quoted market price of the stock at the balance sheet date less the exercise price of the option. The total
intrinsic value of options exercised during the year ended December 31, 2011 and 2010 was $14,000 and $60,000. There was
no intrinsic value of restricted stock vested during the year ended December 31, 2011 and 2010.
(d) Employee Stock Purchase Plan:
In May 2007, our shareholders approved our 2007 Employee Stock Purchase Plan (ESPP) which allows eligible
employees to acquire shares of our common stock at a discount. The ESPP includes 300,000 shares available for issuance, and
no amounts have been issued under the ESPP through December 31, 2011.
10.
Employee 401(k) Plan
We have a 401(k) plan whereby eligible employees who have completed one hour of service per month in three
consecutive months of employment may enroll. Employees can elect to contribute up to 100% of their eligible compensation to
the 401(k) plan subject to Internal Revenue Service's limitations. Beginning January 1, 2009, we instituted an employee match
under our safe harbor 401(k) plan and match employee contributions up to 4% of the employee’s compensation at the rate of
100% for the first 3% contributed and at the rate of 50% for the next 2%. During the years ended December 31, 2011 and 2010,
the total matching contributions were $78,000 and $58,000, respectively.
46
Table of Contents
JONES SODA CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11.
Commitments and Contingencies
Commitments
In August 2011, we announced that we agreed to terminate the Amended Sponsorship Agreement with the New Jersey
Nets, dated October 29, 2007, ending the agreement five years early. In connection with the termination, we agreed to pay
$500,000, which included a $150,000 payment owed under the Amended Sponsorship Agreement in connection with annual
sponsorship fees for the year ended December 31, 2010 and the first half of 2011, and a termination fee of $350,000 payable in
three installments ending March 1, 2012. As of December 31, 2011, the unpaid portion of the termination fee totaled $100,000
and is recorded in accounts payable.
With the conclusion of our sponsorship with the Portland Trailblazers effective June 30, 2011, our remaining
sponsorships are comprised of several individual athlete sponsorships and other sponsorships.
These obligations vary in terms. Purchase obligations (raw materials, primarily including sugar and glass) in future
periods under these commitments are expected to occur as follows (in thousands):
Purchase obligations . . . . . . . . . . . . . . . . . . . . . . . $
Sponsorships . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$
2,127
300
2,427
$
$
2,127
150
2,277
$
$
Total
2012
2013
2014 and Thereafter
—
—
—
— $
150
150
$
Legal proceedings
We are or may be involved from time to time in various claims and legal actions arising in the ordinary course of
business, including proceedings involving product liability claims and other employee claims, and tort and other general
liability claims, for which we carry insurance, as well as trademark, copyright, and related claims and legal actions. In the
opinion of our management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated
financial position, results of operations or liquidity.
12. Write-down of Excess GABA Inventory
Write-down of excess GABA inventory consisted of the following as of December 31 (in thousands):
Write-down of excess GABA raw material inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Write-down of excess GABA finished goods inventory. . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2011
2010
— $
—
— $
241
265
506
During 2010, and upon the decision to discontinue GABA in the fourth quarter in conjunction with difficulties we
encountered with finding markets to sell the remaining inventory, we wrote-down the remaining excess GABA inventory.
13.
Income Taxes
The provision (benefit) for income taxes consisted of the following for the years ended December 31 (in thousands):
47
Table of Contents
Current
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
JONES SODA CO.
Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred
Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2011
2010
— $
12
(25)
(13)
—
—
45
45
32
$
(68)
11
(281)
(338)
—
—
—
—
(338)
Loss before provision (benefit) for income taxes was as follows for the years ended December 31 (in thousands):
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2011
2010
(7,354) $
232
(7,122) $
(6,636)
192
(6,444)
The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for
income taxes are as follows:
Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of:
Permanent differences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-recurring credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit (provision) for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
34.00 %
34.00%
(0.68)
1.54
(37.49)
1.95
0.24
(0.44)%
(2.66)
(0.10)
(37.63)
10.53
1.11
5.25%
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our
deferred income taxes were as follows (in thousands):
2011
2010
Deferred tax assets
Net operating loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Capital assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory adjustment and reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Classified as current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
17,311
(5)
144
90
1,257
106
18,903
(18,903)
— $
(2)
(2)
—
(2) $
13,899
15
189
833
1,147
151
16,234
(16,234)
—
(2)
(2)
—
(2)
48
Table of Contents
JONES SODA CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We continue to experience significant losses in our U.S. operations that are material to our decision to maintain a full
valuation allowance against our net U.S. deferred tax assets. This is due to the fact that the relevant accounting guidance puts
more weight on the negative objective evidence of cumulative losses in recent years than the positive subjective evidence of
future projections of pretax income. As of December 31, 2010, the valuation allowance increased by $2.4 million. The amount
of the excess tax deductions from stock based compensation arrangements that is allocated to contributed capital if the future
tax benefits are subsequently recognized is $3.5 million. As of December 31, 2011, the valuation allowance increased by
$2.7 million.
We continually analyze the realizability of our deferred tax assets, but we reasonably expect to continue to record a full
valuation allowance on future U.S. tax benefits until we sustain an appropriate level of taxable income through improved
U.S. operations and tax planning strategies.
No valuation allowance was recorded for deferred tax assets recorded in the Canadian subsidiary, as this subsidiary
remains profitable.
At December 31, 2011, we had net operating loss carry-forwards for income tax purposes in the United States of
$51.5 million which expire at various times commencing in 2019. Net operating loss carry-forwards may be subject to certain
limitations under Section 382 of the Internal Revenue Code.
There are no uncertain tax positions to recognize as of December 31, 2011 and 2010.
The tax years that remain open to examination by the taxing authorities are 2007 — 2011, generally. The net operating
losses from prior years are subject to adjustment under examination to the extent they remain unutilized in an open year.
A provision had not been made at December 31, 2011 and 2010, for the U.S. or additional foreign withholding taxes on
undistributed earnings from the Canadian subsidiary. It is the present intention of management to reinvest the undistributed
earnings indefinitely in foreign operations. Generally, such earnings become subject to U.S. tax upon the remittance of
dividends and under certain other circumstances. If we were to declare a dividend for the cumulative earnings of the Canadian
subsidiary as of December 31, 2011, the resulting withholding tax provision would not be material to our financial condition or
results of operations.
14.
Segment Information
We have one operating segment with operations primarily in the United States and Canada. Sales are assigned to
geographic locations based on the location of customers. Geographic information for the years ended December 31 is as
follows (in thousands):
2011
2010
Revenue:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
13,115
4,031
255
17,401
Fixed assets:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
844
—
844
2011
$
$
$
$
12,428
4,336
762
17,526
2010
296
—
296
During the years ended December 31, 2011 and 2010, three of our customers represented approximately 32% and 31%,
respectively of revenues, one of which, A. Lassonde Inc., a Canadian DSD distributor, represented approximately 21% and
21%, respectively of revenue.
15.
Subsequent Events
In January 2012, we entered into a placement agent agreement with Rodman & Renshaw, LLC (Rodman & Renshaw),
pursuant to which Rodman & Renshaw agreed to use its reasonable best efforts to arrange for the sale of our registered
49
Table of Contents
JONES SODA CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
securities. We agreed to pay Rodman & Renshaw an aggregate fee equal to 8% of the gross proceeds received in the offering
and agreed to customary representations, warranties, and indemnification by us.
In February 2012, we entered into a Securities Purchase Agreement with certain purchasers, arranged by Rodman &
Renshaw, pursuant to which we sold to the Purchasers in a registered offering 6,415,000 shares of our common stock and
warrants to purchase up to 3,207,500 shares of common stock (Warrants). The securities were sold in units, consisting of one
share of common stock and a warrant to purchase 0.5 of a share of common stock, at a price of $0.50 per unit, for an aggregate
offering price of $3,207,500 (Offering). The warrants are not exercisable for six months following their issuance. After
deducting the placement agent fee and our estimated offering expenses, and excluding the proceeds, if any, from the exercise of
the Warrants issued in the Offering, the net proceeds were approximately $2.8 million. The Offering closed on February 7,
2012.
Each Warrant will have an exercise price of $0.70 per share, for total potential additional proceeds to us of up to
approximately $2,245,250 upon exercise of the Warrants. The Warrants are exercisable at any time on or after the six-month
anniversary of the closing date and have a five-year term. The Warrants are exercisable for cash or, solely in the absence of an
effective registration statement, by cashless exercise. The exercise price of the Warrants is subject to adjustment in the case of
stock splits, stock dividends, combinations of shares and similar recapitalization transactions, and also upon any distributions to
Company shareholders, business combinations, sale of substantially all assets and other fundamental transactions. The exercise
of the Warrants is subject to certain beneficial ownership and other limitations set forth in the Warrants.
16.
Selected Quarterly Financial Information (unaudited)
Summarized quarterly financial information for fiscal years 2011 and 2010 is as follows (dollars in thousands, except per
share data):
2011 quarter:
Q1
Q2
Q3
Q4
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations. . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted loss per share . . . . . . . . . . . . . . . .
$
4,087
1,000
(1,755)
(1,670)
(0.05)
$
4,914
1,417
(1,762)
(1,820)
(0.06)
$
4,973
1,171
(1,661)
(1,684)
(0.05)
3,427
693
(2,048)
(1,980)
(0.06)
Q1
Q2
Q3
Q4
2010 quarter:
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Write-down of excess GABA inventory . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations. . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted loss per share . . . . . . . . . . . . . . . .
$
3,893
—
808
(2,090)
(2,132)
(0.08)
$
5,365
(178)
1,293
(1,522)
(1,554)
(0.06)
$
5,125
(166)
1,384
(974)
(578)
(0.02)
3,143
(162)
557
(2,000)
(1,842)
(0.06)
50
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A.
CONTROLS AND PROCEDURES.
Disclosure Control and Procedures
We maintain disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended).
Management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial
Officer evaluated the effectiveness and design of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15
(b) as of December 31, 2011. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded
that these disclosure controls and procedures were effective as of December 31, 2011.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Exchange Act Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is a process to
provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for
external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control
over financial reporting includes those policies and procedures that: (i) in reasonable detail accurately and fairly reflect our
transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial
statements; (iii) provide reasonable assurance that our receipts and expenditures are made in accordance with management
authorization; and (iv) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting, however well designed and operated can
provide only reasonable, and not absolute, assurance that the controls will prevent or detect misstatements. In addition, the
design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these
and other inherent limitations of control systems, there is only the reasonable assurance that our controls will succeed in
achieving their goals under all potential future conditions.
Management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial
Officer conducted an evaluation of our internal control over financial reporting as of December 31, 2011, based on the
framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on our evaluation under the COSO framework, management concluded that our internal control
over financial reporting was effective as of December 31, 2011.
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2011
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
This Report does not include an attestation report of our registered public accounting firm regarding internal control over
financial reporting. Additionally management’s report was not subject to attestation by our registered public accounting firm
pursuant to the permanent exemption from Section 404(b) of the Sarbanes-Oxley Act of 2002 for non-accelerated filers.
ITEM 9B.
OTHER INFORMATION.
None.
51
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors
The members of our Board of Directors, as of March 27, 2012, were as follows:
Director
Mills A. Brown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard V. Cautero . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard S. Eiswirth Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael M. Fleming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Matthew K. Kellogg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William R. Meissner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Susan A. Schreter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Age
59
56
43
63
46
45
50
Director Since
December 2008
December 2011
August 2006
April 1997
June 2008
April 2011
June 2008
Mills A. Brown is one of the founding principals of MainSpring Capital Group (a real estate investment and development
company) and its affiliated brokerage company, Ross Brown Partners, Inc., since MainSpring’s inception in 2000. Mr. Brown is
also co-owner and co-operator of a new car franchise in the Phoenix metropolitan area. Mr. Brown received a business degree
from Arizona State University. We believe Mr. Brown is qualified to serve on our Board of Directors because his experience as
a business cofounder, co-owner and co-operator contributes extensive business management and business development
experience.
Richard V. Cautero is President and Managing Director of Executive Advisory Services, an advisory and consulting firm,
where he has performed consulting and interim executive assignments in the consumer products, consumer distribution,
manufacturing, and technology sectors since 2006. Prior to that, he held numerous executive positions in Consumer Packaged
Goods (CPG) roles with Kraft Foods and its former parent, The Altria Group. Mr. Cautero has both a Bachelor and Masters of
Business Administration from Hofstra University. We believe Mr. Cautero is qualified to serve on our Board of Directors
because of his deep understanding and experience in our industry sector as well as his track record of improving operating
performance in the companies where he has worked.
Richard S. Eiswirth, Jr. currently serves as the Chairman of the Board of Directors. He has served as the Chief Financial
Officer of Alimera Sciences, Inc., an ophthalmic pharmaceutical company, since 2005, and as its Chief Operating Officer since
2010. Prior to that, Mr. Eiswirth was the Chief Financial Officer and Senior Executive Vice President of Netzee, Inc., a
provider of internet banking solutions to community banks, from 1999 to 2002. He is also the founder of Black River Holdings,
Inc., a consulting practice. He received an accounting degree from Wake Forest University in 1991. Mr. Eiswirth also served on
the Board of Directors and was Chairman of the Audit Committee for Color Imaging, Inc., a toner manufacturing company,
from 2003 until 2007. We believe Mr. Eiswirth is qualified to serve on our Board of Directors because his service as Chief
Financial Officer and Chief Operating Officer of other companies, as well as his past service as Chairman of the Audit
Committee for Color Imaging Inc. contribute management experience and financial and accounting expertise.
Michael M. Fleming has been an attorney with the law firm of Lane Powell PC in Seattle, Washington, specializing in real
estate, dispute resolution, securities and environmental matters, since 2000. Mr. Fleming also serves on the Board of Directors
of S&W Seed Co., an agricultural products company, where he has served as Chairman of the Audit Committee. Mr. Fleming
has served on the Board of Directors of Big Brothers and Big Sisters of Puget Sound since 2002 and was Chairman of the
Board of Directors for 2008/2009. He has also been the President and owner of Kidcentre, Inc., a company in the business of
providing child care services in Seattle, Washington, since 1988. Since 1985, he has also been the President and owner of
Fleming Investment Co., an investment company. Mr. Fleming holds a Bachelor of Arts degree from University of Washington
and a law degree from the University of California, Hastings College of the Law. We believe Mr. Fleming is qualified to serve
on our Board of Directors because his experience as President and owner of two businesses as well as his legal background
contribute legal expertise in matters of business and securities law.
Matthew K. Kellogg is currently the managing member of Canal Investments LLC, an investment firm, serving in such
capacity since 2003. Mr. Kellogg previously served as a director of the Company from 1999 to 2006 and as Corporate
Secretary (in a nonemployee capacity) from March 2006 to August 2006; he returned to our Board of Directors in 2008. In
2008, Mr. Kellogg co-founded Point32 Development Company, a real estate development firm, where he currently serves as a
principal. Mr. Kellogg co-owns Tutta Bella Neapolitan Pizzeria, a regional casual restaurant chain. From 2002 to 2003, Mr.
Kellogg was the manager of Kingfisher Capital LLC, an investment firm. Mr. Kellogg holds a Bachelor of Science degree from
52
Skidmore College. We believe Mr. Kellogg is qualified to serve on our Board of Directors because his experience as a business
co-owner as well as his investment experience contribute extensive business management and business development expertise.
William R. Meissner has served as our President and Chief Executive Officer since April 2010 and as Director since April
2011. Prior to joining Jones Soda, he served as President of Talking Rain Beverage, Inc. from October 2008 until April 2010.
From 2004 to 2008, Mr. Meissner was Chief Marketing Officer of Fuze Beverages, a division of Coca Cola North America.
Prior to that, from 2002 to 2004, Mr. Meissner was Vice President of Marketing and Sales of SoBe Chocolate, and from 1999 to
2002, he was Brand Director and Director of Brand Development with SoBe Beverages, a division of Pepsi Cola North
America. Mr. Meissner began his career with Tetra Pak Inc., a private multinational consumer beverage packaging firm based
in Lausanne, Switzerland, where he worked as a Category Manager and Regional Account Manager from 1994 to 1999. Mr.
Meissner earned a Bachelor of Arts degree from Michigan State University and a Masters of Business Administration degree
from the University of Pittsburgh. We believe Mr. Meissner is qualified to serve on our Board of Directors because, through his
service as Jones Soda’s Chief Executive Officer, he brings intimate knowledge of the Company’s day-to-day operations to our
Board. In addition, through his prior executive and management experience at various other beverage companies, Mr. Meissner
has a broad understanding of the operational, financial, and strategic issues facing companies such as ours.
Susan A. Schreter is the founder of TakeCommand Information Media, Inc., an online entrepreneurial education and
membership organization for small business owners, and has served as its managing editor and Chief Executive Officer since
2006. In addition, she is a contributor to online and print publications in the areas of small business finance. She served as the
Chief Executive Officer and Chairman of the Board of First Transaction Management, Inc., a general business and strategic
planning consulting firm, from 1999 to 2008 and is currently on the Board of Directors of Heyou Entertainment Inc., a private
company. Ms. Schreter received a Bachelor of Arts degree and is an honors graduate of Smith College. We believe Ms. Schreter
is qualified to serve on our Board of Directors because her experience as Chief Executive Officer and Chairman of the Board of
other companies and her background in the business and entrepreneurial fields contribute experience and knowledge in
business finance and strategic planning.
Executive Officers
Our executive officers as of March 27, 2012 are as follows:
Name
William R. Meissner . . . . . . . . . . . . . . . . . . . .
James P. Stapleton . . . . . . . . . . . . . . . . . . . . . .
Carrie L. Traner . . . . . . . . . . . . . . . . . . . . . . . .
Age
Position
45
48
38
Chief Executive Officer
Chief Financial Officer
Vice President of Finance
Officer Since
April 2010
February 2012
December 2011
Mr. Meissner joined Jones Soda in April 2010 as President and Chief Executive Officer and was appointed to our Board
of Directors in April 2011. Please refer to his full biography in the preceding section "Directors."
Mr. Stapleton joined Jones Soda in February 2012 as Chief Financial Officer. Prior to joining Jones Soda, he served as a
consultant and advisor to small publicly traded companies and private companies and has participated in strategic business
consulting, due diligence reviews for investors, and financial advising. From May 2005 to June 2007, Mr. Stapleton was the
CFO of Bionovo, Inc, a clinical stage drug discovery and development company. Prior to that, from January 2003 to April
2005, he served as the Chief Financial Officer of Auxillo, Inc., a print management services company to the healthcare industry.
Mr. Stapleton earned a Bachelor of Arts degree in Business Administration from University of Washington and a Masters in
Business Administration from the University of California, Irvine.
Ms. Traner joined Jones Soda in November 2008 as the Controller, and on December 1, 2011 was promoted to Vice
President of Finance and Principal Accounting Officer. Previously, Ms Traner served as Controller of Pyramid Breweries Inc, a
craft beer brewery, from October 2005 until October 2008. Ms. Traner began her financial career with Deloitte & Touche LLP,
a professional services firm. Ms. Traner earned a Bachelor of Arts degree in Business Administration with a concentration in
accounting from University of Washington. She is a certified public accountant.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and
persons who own more than 10% of our common stock (collectively, “Reporting Persons”) to file with the Securities and
Exchange Commission (SEC) initial reports of ownership and reports of changes in ownership of our common stock. Reporting
Persons are also required by SEC regulations to furnish us with copies of all such ownership reports they file. SEC regulations
also require us to identify in this Report any Reporting Person who failed to file any such report on a timely basis.
53
Based solely on our review of the copies of such reports received or written communications from certain Reporting
Persons, we believe that all Reporting Persons complied with all applicable Section 16(a) filing requirements for fiscal year
2011.
Code of Ethics
We have adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Vice President of
Finance and other senior financial officers and personnel. Information regarding our Code of Ethics and where to find it is
included in Item 1 of Part I, and that information is incorporated by reference herein. If we waive any material provision of our
Code of Conduct or Code of Ethics for our CEO and senior financial officers and personnel or substantively change the codes,
we will disclose that fact on our website within four business days.
Audit Committee
The Audit Committee represents the Board of Directors in discharging its responsibilities relating to our accounting,
reporting, financial and internal control practices. The committee has general responsibility for reviewing with management the
financial and internal controls and the accounting, auditing and reporting activities of our Company and our subsidiaries. The
committee annually reviews the qualifications and objectivity of our independent auditors; is responsible for selecting,
retaining or replacing our independent auditors; reviews the scope, fees and result of their audit; reviews and approves any non-
audit services and related fees; is informed of their significant audit findings and management's responses thereto; and annually
reviews the status of significant current and potential legal matters. The Audit Committee reviews the quarterly and annual
financial statements and recommends their acceptance to the Board of Directors. The Audit Committee has a written charter,
which is posted on our website at www.jonessoda.com under “Company — Jones Press — Investor Information — Corporate
Governance.”
During 2011, the Audit Committee consisted of Messrs. Eiswirth, Fleming and Kellogg and Ms. Schreter. In April 2011,
Mr. Kellogg resigned from the committee, and for the balance of 2011 and through the date of this Report, the Audit Committee
consists of Messrs. Eiswirth, Fleming and Ms. Schreter. The Board of Directors has determined that Mr. Eiswirth qualifies as an
“audit committee financial expert” within the meaning of SEC rules. All of the directors on the Audit Committee qualify as
“independent directors” within the meaning of SEC rules and the listing standards of The Nasdaq Stock Market.
ITEM 11.
EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table shows all compensation awarded, earned by or paid to our Named Executive Officers for the fiscal
years ended December 31, 2011 and 2010, to the extent applicable.
Name and Principal Position
William R. Meissner . . . . . . . . . . . . .
President, Chief Executive Officer
and Director . . . . . . . . . . . . . . . . . . . .
Carrie L. Traner (3) . . . . . . . . . . . . .
Vice President of Finance and
Corporate Secretary . . . . . . . . . . . . . .
Jennifer Cue (4). . . . . . . . . . . . . . . . .
Interim Chief Financial Officer . . . . .
Michael R. O'Brien (5) . . . . . . . . . . .
Former Chief Financial Officer and
Corporate Secretary . . . . . . . . . . . . . .
____________
Year
2011
2010
2011
2010
2011
2010
2011
Salary ($)
Bonus
($)
Stock
Awards
($)(1)
Option
Awards
($)(1)
All Other
Compensation
($)(2)
Total ($)
$ 250,000
$ — $ — $280,700
$
16,437
$ 547,137
181,890
111,333
93,750
13,063
— 211,860
8,560
23,310
7,475
11,000
110,000
55,074
—
164,049
—
—
6,104
10,274
—
23,676
24,416
—
—
—
— 487,500
— 156,266
— 134,579
65,348
—
—
— 187,725
— 274,416
2010
200,000
50,000
54
(1) Represents the aggregate grant date fair value for awards granted in 2011 and 2010, as applicable, in accordance
with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718”). See
Note 10 of the consolidated financial statements in this Report regarding the assumptions underlying the valuation of
equity awards.
Includes amounts paid to Mr. Meissner as follows: $6,000 car allowance, $10,017 contributions paid by us under our
401(k) plan, and $420 wellness benefit.
(2)
(3) Ms. Traner served as Controller until December 1, 2011 when she was promoted to Vice President of Finance.
(4) Ms. Cue served as Interim Chief Financial Officer from September 13, 2011 to December 14, 2011.
(5) Mr. O'Brien resigned from the Company effective September 13, 2011.
Narrative Disclosure to Summary Compensation Table
The following describes the material factors necessary to understand the compensation disclosed in the Summary
Compensation Table.
William R. Meissner. Mr. Meissner serves as our President and Chief Executive Officer pursuant to an employment
agreement that was effective on April 9, 2010. Pursuant to the employment agreement, Mr. Meissner receives an annual base
salary of $250,000 and, based on the achievement of performance metrics established by the Compensation and Governance
Committee of our Board of Directors, he will have the opportunity to increase his annual base salary by up to 10%. In addition,
the employment agreement provides that Mr. Meissner is eligible to receive (a) an annual performance bonus of 50% of his
base salary, which may be taken in either cash or stock, based on 100% achievement of performance targets to be agreed upon
by us and Mr. Meissner subject to approval by the Compensation and Governance Committee. Pursuant to his employment
agreement, in 2011 Mr. Meissner was granted a stock option to purchase 250,000 shares of common stock pursuant to our 2002
Stock Option and Restricted Stock Plan, as amended (the “2002 Equity Plan”), with an exercise price equal to the closing price
of our common stock on the date of the grant. This option vests over a period of forty-two months with the first 1/7th vesting
six months from the grant date and the balance vesting in equal amounts every six months thereafter. Also pursuant to the
employment agreement, in 2010 Mr. Meissner was granted a fully vested stock option to purchase 100,000 shares of common
stock pursuant to our 2002 Equity Plan, which has an exercise price equal to the closing price of our common stock on the date
of the grant. Mr. Meissner was also granted an additional stock option to purchase 250,000 shares of common stock pursuant to
the 2002 Equity Plan, with an exercise price equal to the closing price of our common stock on the date of the grant and which
will vest in equal installments every six months over forty-two months from the date of grant subject to his continued
employment. Beginning in 2014, Mr. Meissner will be eligible, subject to the annual review and achievement of performance
metrics established by the Compensation and Governance Committee, to annually receive a stock option to purchase 100,000
shares of our common stock. The employment agreement also contained certain restrictive covenants, including the
requirement that Mr. Meissner execute a confidentiality agreement.
Under the employment agreement, if Mr. Meissner is terminated without Cause in connection with a Corporate
Transaction, he will be entitled to receive a lump sum payment equal to three months of his then current base salary.
For purposes of Mr. Meissner’s employment agreement, the following terms are defined as follows:
• “Cause” includes (i) conviction of any felony or misdemeanor; (ii) breach of our Code of Ethics or Insider Trading
Policy or Regulation FD policies, as now in effect or as modified in the future; (iii) theft or embezzlement from us; or (iv)
attempt to obstruct or failure to cooperate with any investigation authorized by us or any governmental or self-regulatory
entity.
• “Corporate Transaction” is any of the following events: (a) consummation of any merger or consolidation in which we
are not the continuing or surviving corporation, or pursuant to which shares of our common stock are converted into cash,
securities or other property, if following such merger or consolidation the holders of our outstanding voting securities
immediately prior to such merger or consolidation own less than 50% of the outstanding voting securities of the surviving
corporation; (b) consummation of any sale, lease, exchange or other transfer in one transaction, or a series of related
transactions, of all or substantially all of our assets other than a transfer of our assets to a majority-owned subsidiary
corporation of the Company; or (c) approval by the holders of our common stock of any plan or proposal for the
liquidation or dissolution of the Company.
Carrie L. Traner. Ms. Traner serves as our Vice President of Finance pursuant to an employment agreement that was
effective on December 1, 2011. Pursuant to the employment agreement, Ms. Traner receives an annual base salary of $126,000.
In addition, the employment agreement provides that Ms. Traner is eligible to receive an annual performance bonus of 25% of
her actual base salary based on 100% achievement of objectives to be agreed upon by the Company and Ms. Traner, with
higher bonus amounts possible if objectives are exceeded (all subject to approval by the Compensation and Governance
Committee). Pursuant to her employment agreement, in 2011 Ms. Traner was granted a stock option to purchase 70,000 shares
55
of common stock, with an exercise price equal to the closing price of our common stock on the date of the grant. This option
vests at a rate of 25% on December 1, 2012 and an additional 1/48th will vest each additional one-month period thereafter until
December 1, 2015. The employment agreement also contains certain restrictive covenants, including the requirement that Ms.
Traner execute a confidentiality agreement.
Under the employment agreement, if Ms. Traner was terminated without Cause in connection with a Change of Control,
she will be entitled to receive a lump sum severance payment equal to three months of her current base salary, payable within
two and one-half months following her termination date.
Jennifer Cue. Ms. Cue served as our Interim Chief Financial Officer pursuant to an independent contractor agreement
(Contractor Agreement) effective September 13, 2011, with her service relationship beginning on September 12, 2011. The
Contractor Agreement provided for a minimum term of ten weeks and terminated on December 14, 2011. As compensation for
her services during the term of the Contractor Agreement, Ms. Cue was paid $4,110 per week. In addition, the Company
reimbursed Ms. Cue for commuter travel to the Company's executive offices in Seattle, Washington and related business
incidentals (including hotel accommodations) of up to $850 per week. In connection with her appointment, Ms. Cue was
granted a stock option to purchase 10,000 shares of our common stock, which has an exercise price equal to the closing price of
the our common stock on the date of grant and will vest in full on the first anniversary of her appointment. In addition, under
the terms of the Contractor Agreement, Ms. Cue was granted an additional stock option to purchase 10,000 shares of our
common stock upon the achievement of certain strategic objectives established by the Board of Directors which also has an
exercise price equal to the closing price of the our common stock on the date of grant and will vest in full one year from the
date of grant.
Michael R. O’Brien. Mr. O’Brien served as our Chief Financial Officer pursuant to an employment agreement that was
effective on September 2, 2008, as amended on December 29, 2008. He resigned from his position as our Chief Financial
Officer, effective September 13, 2011. Pursuant to the employment agreement, Mr. O’Brien received an annual base salary of
$200,000. In addition, the employment agreement provided that Mr. O’Brien was eligible to receive (a) an annual performance
bonus of 35% of his base salary based on 100% achievement of objectives to be agreed upon by us and Mr. O’Brien, with
higher bonus amounts possible if objectives were exceeded (all subject to approval by the Compensation and Governance
Committee) and (b) an option to purchase 40,000 shares of common stock annually and a one-time restricted stock grant of
2,000 shares (which was issued to him in 2008) (all subject to the approval of the Compensation and Governance Committee).
The employment agreement also contained certain restrictive covenants, including the requirement that Mr. O’Brien execute a
confidentiality agreement.
Under the employment agreement, if Mr. O’Brien was terminated without Cause after September 2, 2009 or if he was
terminated without Cause in connection with a Corporate Transaction, he would be entitled to receive 12 months of his then
current base salary, payable in equal installments during the 12 month period immediately following his termination, plus a
lump sum payment equal to the last target bonus paid to Mr. O’Brien, COBRA coverage for 12 months for Mr. O’Brien and his
family, and immediate vesting of the unvested portion of his stock options and restricted stock grants.
On September 13, 2011, Mr. O'Brien resigned from his employment with us. Pursuant to the Separation Agreement and
General Release between Mr. O'Brien and us, we agreed to extend the length of time for Mr. O'Brien to exercise his vested
stock options until 18 months after his date of termination. No severance payments or other benefits were due to him as a result
of his resignation.
Bonus Payments in 2012 for 2011 Performance. The Compensation and Governance Committee established a
discretionary bonus plan for 2011 for Messrs. Meissner and O’Brien. This bonus plan was also the basis under which Ms.
Traner's bonus was established as per her employment agreement. Based on Mr. O'Brien's resignation effective September 13,
2011, he was not eligible for a bonus payment. Under the bonus plan, Mr. Meissner’s target bonus was set at 50% of his annual
base salary and Ms. Traner's target bonus was set at 25% of her base salary. After the end of the fiscal year, the Compensation
and Governance Committee reviewed our fiscal 2011 results, evaluated the performance of each of the executives in 2011 and
considered the proposed bonus payments in the context of each executive officer’s overall compensation package. Based on
these evaluations, the Compensation and Governance Committee determined that Mr. Meissner should not receive any of his
target bonus amount, especially in light of our financial performance in 2011, but awarded Ms. Traner 95% of her key
performance criteria bonus amount, or $13,063, paid entirely in cash. The Compensation and Governance Committee did
determine however, to award Mr. Meissner a stock option grant and on March 16, 2012, granted him a stock option to purchase
50,000 shares of our common stock with an exercise price equal to the closing price of our common stock on the date of the
grant. This option vests at a rate of 25% on March 16, 2013 and an additional 1/48th will vest each additional one-month period
thereafter until March 16, 2016.
56
Outstanding Equity Awards at Fiscal Year-End 2011 Table
The following table presents information about outstanding equity awards held by each of the Named Executive Officers
as of December 31, 2011.
Option Awards
Stock Awards
Name
William R. Meissner . . . .
Grant Date
2/18/2011
Exercisable Unexercisable(1)
214,286
35,714
Number of Securities
Underlying Unexercised
Options (#)
Carrie L. Traner (3) . . . . .
4/12/2010
4/12/2010
12/1/2011
9/8/2011
4/12/2010
3/16/2009
Jennifer Cue (4)(5) . . . . . 12/13/2011
9/12/2011
2/18/2011
4/12/2010
4/6/2009
3/16/2009
12/9/2008
Michael R. O'Brien(6) . . .
100,000
107,142
—
—
4,285
10,716
—
—
5,714
11,420
11,432
34,296
34,285
—
142,858
70,000
—
5,715
4,284
10,000
10,000
—
—
—
—
—
Option
Exercise
Price
($)
$ 1.42
0.81
0.81
0.42
—
0.81
0.80
0.49
0.83
1.42
0.81
0.84
0.80
0.37
Option
Expiration
Date
2/18/2021
4/12/2020
4/12/2020
12/1/2021
—
4/12/2020
3/16/2019
12/13/2021
9/12/2021
3/13/2013
3/13/2013
3/13/2013
3/13/2013
3/13/2013
Number of
Shares or
Units of Stock
That Have
Not Vested
Market Value
of Shares or
Units of Stock
That Have
Not Vested
(#)(1)
($)(2)
— $
—
$
—
—
—
12,500
—
—
—
—
—
—
—
—
—
—
—
—
4,625
—
—
—
—
—
—
—
—
—
____________
(1) Unless otherwise noted below, these options and restricted stock awards vest over a period of 42 months, with
14.29% vesting on each six-month anniversary of the grant date.
(2) The closing price of our common stock on December 31, 2011 was $0.37 per share.
(3) Ms. Traner's 12/1/2011 option grant was issued under the 2011 Incentive Plan and vests over a period of 48 months,
with 25% vesting after one year and an additional 1/48th each one-month period of continuous service completed
thereafter.
(4) Ms. Cue served as Interim Chief Financial Officer from September 13, 2011 to December 14, 2011.
(5) Ms. Cue's 9/12/2011 and 12/13/2011 option grants were issued under the 2011 Incentive Plan and vest in full one
year from date of grant.
(6) Mr. O'Brien resigned as of September 13, 2011, and as part of his separation agreement, the expiration date for his
vested stock options was extended to 18 months from the date of his resignation.
Additional Narrative Disclosure
As described above under “Narrative Disclosure to Summary Compensation Table,” we entered into employment
agreements with each of our Named Executive Officers, which provide for certain benefits in the event of termination or
change of control.
In addition, both our 2002 Equity Plan and our 2011 Incentive Plan provide for accelerated vesting of all unvested awards
upon a corporate transaction, irrespective of the scheduled vesting date for these awards, unless the awards are assumed or
substituted for by the successor company. For purposes of each plan, a “corporate transaction” means any of the following
events:
2002 Equity Plan
• Consummation of any merger or consolidation in which we are not the continuing or surviving corporation, or pursuant
to which shares of our common stock are converted into cash, securities or other property and our shareholders
(immediately prior to such merger or consolidation) own less than 50% of the outstanding voting securities of the
surviving corporation after the merger or consolidation;
• Consummation of any sale, lease, exchange or other transfer in one transaction, or a series of related transactions, of all
or substantially all of our assets; or
57
• Shareholder approval of any plan or proposal for our liquidation or dissolution.
2011 Incentive Plan:
• Consummation of a merger or consolidation of the Company with or into any other company;
• Consummation of a statutory share exchange pursuant to which our outstanding shares are acquired or a sale in one
transaction or a series of transactions undertaken with a common purpose of at least 50% of our outstanding voting
securities; or
• Consummation of a sale, lease, exchange or other transfer in one transaction or a series of related transactions
undertaken with a common purpose of all or substantially all of our assets.
Director Compensation
We use a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve
on the Board of Directors. In setting director compensation, the Board of Directors considers the significant amount of time that
directors expend in fulfilling their duties as well as the skill level required of members of the Board of Directors.
In addition to cash and stock-based compensation, non-employee directors are reimbursed for their out-of-pocket
expenses, in accordance with our reimbursement policies, incurred in attending meetings of the Board of Directors and
committee meetings and conferences with our senior management. We also maintain liability insurance on all of our directors
and executive officers. Directors who are our employees receive no compensation for their service as directors.
2011 Standard Cash Compensation
Under the compensation structure effective February 18, 2011, each non-employee director is entitled to receive the
following compensation for his or her service in 2011:
Position
Non-employee (“NE”) Director Annual Retainer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NE Director Board Meeting Attendance Fee (telephonic) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NE Director Audit Committee Meeting Attendance Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NE Director Committee Meeting Attendance Fee other than Audit Committee - live or telephonic . . .
Chair of Board of Directors Annual Retainer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chair of Audit Committee Annual Retainer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chair of Compensation and Governance Committee Annual Retainer. . . . . . . . . . . . . . . . . . . . . . . . . .
Chair of Nominating Committee Annual Retainer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
$12,000
1,000 (500)
1,000
500
10,000
3,500
2,000
2,000
2011 Standard Equity Compensation
Beginning from March 3, 2009, each non-employee director receives an annual stock option grant for 20,000 shares of
common stock, with an exercise price equal to the fair market value of the common stock on the date of grant and a term of ten
years, or an equivalent grant of shares of restricted stock. Stock options and restricted stock awards granted prior to March 3,
2009 vest over a period of 42 months, with 14.29% vesting on each six-month anniversary of the grant date. Effective March 3,
2009, the Board of Directors adopted a new vesting schedule for option awards and restricted stock grants made to non-
employee directors, with the grants to vest in full one year from the date of grant.
2011 Non-Standard Compensation
In June 2010, the Board of Directors, upon the recommendation of the Compensation and Governance Committee,
approved a revision to our director compensation practices to allow non-employee directors to receive a portion of their fees in
the form of shares of our fully vested common stock in lieu of cash. All of our non-employee directors can elect to receive their
payments in cash, stock or a combination of both.
58
2011 Director Compensation Table
The following table presents information about compensation earned by or paid to non-employee directors during 2011.
Name
Mills A. Brown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard V. Cautero . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard S. Eiswirth, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael M. Fleming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Matthew K. Kellogg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Susan A. Schreter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
____________
Fees Earned or
Paid in Cash
($)(1)
Option Awards
($)(2)
Total ($)
$
$
23,500
1,113
38,000
20,000
24,500
25,000
$
18,398
—
18,398
18,398
18,398
18,398
41,898
1,113
56,398
38,398
42,898
43,398
(1)
Includes fees received in the form of shares of fully vested common stock, as follows: Mr. Brown, $12,000; Mr.
Eiswirth, $9,625; Mr. Fleming, $5,520; Mr. Kellogg, $13,000; and Ms. Schreter, $12,500.
(2) Represents the aggregate grant date fair value for awards granted in 2011 in accordance with ASC Topic 718. See
Note 9 of the consolidated financial statements in this Report regarding the assumptions underlying the valuation of
equity awards. As of December 31, 2011, each non-employee director had the following number of options
outstanding: Mr. Brown, 60,000; Mr. Cautero, none; Mr. Eiswirth, 85,000; Mr. Fleming, 85,000; Mr. Kellogg,
175,000; and Ms. Schreter, 75,000.
Stock Ownership Guidelines
In August 2007, the Board of Directors implemented stock ownership guidelines for its non-employee directors to further
align their interests with those of shareholders. For non-employee directors, stock ownership guidelines are set at a value equal
to three times their annual cash retainer and other Board fees paid to such director over the prior twelve months. Under these
guidelines, non-employee directors are encouraged to increase their ownership of our common stock to meet these ownership
requirements within three years of becoming a director, or within three years of the adoption of the guidelines, whichever is
later. The required ownership level for each director is re-calculated as of June 30 of every third year. Shares that count toward
these ownership guidelines include:
• shares of common stock purchased on the open market;
• common stock obtained and held through stock option exercises; and
• vested restricted stock and in-the-money vested stock options.
For as long as a director continues to serve on the Board, he or she may sell no more than 33% of his or her vested stock
holdings in any one quarter. However, directors may sell enough shares to cover their income tax liability on vested grants. The
Board may approve exceptions to these guidelines on a case-by-case basis.
The earliest compliance deadline under the guidelines was in August 2010. Our directors were subject to an extended
Company-imposed trading blackout period for all of fiscal 2009 through the announcement of our financial results for the
quarter ended June 30, 2010. This blackout period limited the directors’ ability to acquire our common stock on the open
market. As of the date of this Report, one nonemployee director met the ownership level under the stock ownership guidelines
based on the ownership level established as of June 30, 2010 (compared to four nonemployee directors meeting the ownership
level a year ago). The decline in our stock price negatively impacted the calculation in the current year.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS.
The following table sets forth as of March 27, 2012 certain information regarding the beneficial ownership of our
outstanding common stock by the following persons or groups:
• each person who, to our knowledge, beneficially owns more than 5% of our common stock;
•
the Named Executive Officers identified in the Summary Compensation Table above;
• each of our current directors; and
• all of our current directors and executive officers as a group.
59
As of March 27, 2012, there were 38,515,882 shares of common stock issued and outstanding, held by approximately
298 holders of record, although there are a much larger number of beneficial owners. Unless otherwise indicated, each
person's address is c/o Jones Soda Co., 1000 First Avenue South, Suite #100, Seattle, WA 98134.
Beneficial ownership is determined in accordance with SEC rules and includes shares over which the indicated
beneficial owner exercises voting and/or investment power. Shares of common stock subject to options or warrants
currently exercisable or exercisable within 60 days of March 27, 2012 are deemed outstanding for computing the percentage
ownership of the person holding the options or warrants, but are not deemed outstanding for computing the percentage
ownership of any other person. Except as otherwise indicated and subject to community property laws where applicable, we
believe the beneficial owners of the common stock listed below, based on information furnished by them, have sole voting
and investment power with respect to the shares listed opposite their names.
Name and Address of Beneficial Owner
Named Executive Officers and Directors
William R. Meissner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James P. Stapleton. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carrie L. Traner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mills A. Brown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard V. Cautero . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard S. Eiswirth, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael M. Fleming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Matthew K. Kellogg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Susan A. Schreter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jennifer Cue(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael R. O'Brien(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All current directors and executive officers as a group (9 persons) .
Other Principal Shareholders (5)(6)
____________
Beneficial Ownership of Common Stock(1)
Options/
Warrants
Currently
Exercisable or
Within 60 Days
No. of Shares
(2)
Total
Beneficial
Ownership(2)
Percent
of Total
18,700
—
28,652
430,186
9,600
57,035
27,995
140,697
57,677
23,025
4,153
797,720
—
314,285
—
18,573
60,000
—
75,000
75,000
175,000
75,000
—
97,147
890,005
—
332,985
—
47,225
490,186
9,600
132,035
102,995
315,697
132,677
23,025
101,300
1,687,725
—
*
*
*
1.3%
*
*
*
*
*
*
*
4.4%
Less than one percent
Includes shares of unvested restricted stock as follows: Ms. Traner, 12,500.
*
(1) The table is based upon information supplied by such principal shareholders, executive officers and directors.
(2)
(3) Ms. Cue served as Interim Chief Financial Officer from September 13, 2011 to December 14, 2011.
(4) Mr. O'Brien resigned from the Company effective September 13, 2011.
(5) Excludes Archon Capital Management LLC and Constantinos Christofilis, Managing Member of Archon Capital
Management LLC, who filed a Schedule 13G on February 14, 2012 reporting beneficial ownership of 1,751,983
shares. Based on our shares outstanding as of March 27, 2012, this represents 4.55% of our outstanding common
stock.
(6) Excludes BlackRock, Inc. which filed a Schedule 13G on February 13, 2012, reporting beneficial ownership of
1,712,333 shares. Based on our shares outstanding as of March 27, 2012, this represents 4.45% of our outstanding
common stock.
Equity Compensation Plan Information
The following table gives information as of December 31, 2011, the end of the most recently completed fiscal year,
about shares of common stock that may be issued under our Jones Soda Co. 2011 Incentive Plan, our 2002 Equity Plan
(which was terminated but has awards which remain outstanding in accordance with their existing terms), and 2007
Employee Stock Purchase Plan, all of which have been approved by shareholders. To date, no amounts have been issued
under the 2007 Employee Stock Purchase Plan.
60
Plan Category
Equity Compensation Plans Approved by Shareholders . . . . . . .
Equity Compensation Plans Not Approved by Shareholders. . . .
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a)
No. of
Shares to be
Issued Upon
Exercise of
Outstanding
Stock Options,
Warrants and
Rights
(b)
Weighted
Average
Exercise
Price of
Outstanding
Stock Options,
Warrants and
Rights
(c)
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column
(a))
2,154,112
N/A
2,154,112
$
$
1.49
N/A
1.49
2,904,374 (1)
N/A
2,904,374 (1)
_______________________________________
(1) Includes 2,604,374 shares available for issuance under the Jones Soda Co. 2011 Incentive Plan, under which we may
grant restricted stock awards in addition to stock options. Each non-employee director receives an annual stock option
grant of up to 20,000 shares of common stock, or an equivalent grant of shares of restricted stock, pursuant to a program
administered under our Jones Soda Co. 2011 Incentive Plan. Also includes 300,000 shares available for issuance under
the 2007 Employee Stock Purchase Plan.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
There have been no related person transactions required to be disclosed pursuant to Item 404(a) or Item 404(d)(1) of
Regulation S-K since the beginning of fiscal year 2010.
The Board of Directors, upon the recommendation of the Audit Committee, adopted a written policy for the review and
approval or ratification of related person transactions. Under the policy, our directors and executive officers are expected to
disclose to our Chief Financial Officer (or, if the transaction involves the Chief Financial Officer, to the Chief Executive
Officer) (either, as applicable, the “Designated Officer”) the material facts of any transaction that could be considered a related
person transaction promptly upon gaining knowledge of the transaction. A related person transaction is generally defined as any
transaction required to be disclosed under Item 404(a) of Regulation S-K, the SEC's related person transaction disclosure rule,
except that our policy does not contain a dollar threshold for a transaction to be considered a related person transaction.
If the Designated Officer determines that the transaction is a related person transaction under SEC's rules, the Designated
Officer will notify the Chair of the Audit Committee and submit the transaction to the Audit Committee, which will review and
determine whether to approve or ratify the transaction.
When determining whether to approve or ratify a related person transaction, the Audit Committee will review relevant
facts regarding the related person transaction, including:
• The extent of the related person's interest in the transaction;
• Whether the terms are comparable to those generally available in arm's-length transactions; and
• Whether the related person transaction is consistent with the best interests of the Company.
The related person involved in the related person transaction may participate in the approval/ratification process only to
provide additional information as needed for the Audit Committee's review. If any Related Person Transaction is not approved
or ratified by the Committee, the Committee may take such action in respect of the transaction as it may deem necessary or
desirable in our best interests and our shareholders. If any related person transaction is ongoing or is part of a series of
transactions, the Audit Committee may establish guidelines as necessary to appropriately review the ongoing related person
transaction. After initial approval/ratification of the transaction, the Audit Committee will review the related person transaction
on a regular basis (at least annually).
The Audit Committee is authorized to administer our related person transactions policy, and may amend, modify and
interpret the policy as it deems necessary or desirable. Any material amendments or modifications to the policy will be reported
to the full Board at its next regularly scheduled meeting. In addition the Audit Committee will conduct an annual review and
assessment of the policy.
Independence of the Board of Directors
The Board of Directors has reviewed the relationships between us and each of our directors and has determined that the
following directors are “independent” within the meaning of the listing standards of The Nasdaq Stock Market: Mills Brown,
Richard Cautero, Richard Eiswirth, Jr., Michael Fleming, Matthew Kellogg, and Susan Schreter. In making its independence
determinations, the Board of Directors considered all relationships between our directors and us.
61
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Peterson Sullivan has audited our financial statements for the years ended December 31, 2011 and 2010.
Policy for Approval of Audit and Permitted Non-Audit Services
All audit, audit-related and tax services were pre-approved by the Audit Committee, which concluded that the provision
of such services by our independent registered public accounting firm was compatible with the maintenance of that firm's
independence in the conduct of its auditing functions. The Audit Committee's charter requires that the Committee review the
scope and extent of audit services to be provided, including the engagement letter, prior to the annual audit, and review and pre-
approve all audit fees to be charged by the independent auditors. In addition, the charter requires the Committee to pre-approve
all additional non-audit matters to be provided by the independent auditors.
Audit and Related Fees
The following table sets forth the aggregate fees billed by Peterson Sullivan for professional services rendered in fiscal
years ended December 31, 2011 and 2010.
Audit Fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Audit-Related Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
____________
2011
2010
$
153,950
—
20,000
—
152,920
—
20,000
—
(1) “Audit Fees” represent fees for professional services provided in connection with the audit of our annual financial
statements and review of our quarterly financial statements included in our reports on Form 10-Q, and audit services
provided in connection with other statutory or regulatory filings.
(2) “Audit-Related Fees” generally represent fees for assurance and related services reasonably related to the
performance of the audit or review of our financial statements.
(3) “Tax Fees” generally represent fees for tax advice.
All the above services were pre-approved by the Audit Committee.
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Documents filed as part of this Report are as follows:
1) Financial Statements: The consolidated financial statements, related notes and report of independent
registered public accounting firm are included in Item 8 of Part II of this Report.
2) Financial Statement Schedules: All schedules have been omitted because they are not applicable or not
required, or the required information is included in the financial statements or notes thereto.
3) Exhibits: The required exhibits are included at the end of this Report and are described in the exhibit index.
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
JONES SODA CO.
By:
/s/ William R. Meissner
William R. Meissner
President and Chief Executive Officer
Dated: March 29, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Capacities
Date
/s/ WILLIAM R. MEISSNER
President, Chief Executive Officer and Director
March 29, 2012
William R. Meissner
/s/ JAMES P. STAPLETON
James P. Stapleton
/s/ CARRIE L. TRANER
Carrie L. Traner
/s/ MILLS A. BROWN
Mills A. Brown
/s/ RICHARD V. CAUTERO
Richard V. Cautero
/s/ RICHARD S. EISWIRTH, JR.
Rick Eiswirth, Jr.
/s/ MICHAEL M. FLEMING
Michael M. Fleming
/s/ MATTHEW K. KELLOGG
Matthew K. Kellogg
/s/ SUSAN A. SCHRETER
Susan A. Schreter
Chief Financial Officer (Principal Financial Officer)
March 29, 2012
Vice President of Finance and Secretary (Principal Accounting
Officer)
March 29, 2012
March 29, 2012
March 29, 2012
March 29, 2012
March 29, 2012
March 29, 2012
March 29, 2012
Director
Director
Director
Director
Director
Director
63
The following exhibits are filed as part of this Annual Report on Form 10-K or are incorporated herein by reference.
Where an exhibit is incorporated by reference, the document to which it is cross referenced is made.
EXHIBIT INDEX
3.1
3.2
10.1++
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
Articles of Incorporation of Jones Soda Co. (Previously filed with, and incorporated herein by reference
to, Exhibit 3.1 to our annual report on Form 10-KSB for the fiscal year ended December 31, 2000, filed
on March 30, 2001; File No. 333-75913.)
Bylaws of Jones Soda Co. (Previously filed with, and incorporated herein by reference to, Exhibit 3.2 to
our annual report on Form 10-KSB for the fiscal year ended December 31, 2000, filed on March 30,
2001; File No. 333-75913.)
Sublease Agreement dated June 13, 2011, between 1000 Master Tenant LLC and Jones Soda Co.
(Previously filed with, and incorporated herein by reference to, Exhibit 10.1 to our quarterly report on
Form 10-Q, filed on August 12, 2011; File No. 000-28820.)
Loan and Security Agreement dated as of December 27, 2011, by and between Jones Soda Co. (USA)
Inc. and Access Business Finance LLC (Previously filed with, and incorporated herein by reference to,
Exhibit 10.1 to our current report on Form 8-K, filed January 3, 2012; File No. 000-28820.)
Loan and Security Agreement dated as of December 27, 2011, by and between Jones Soda (Canada) Inc.
and Access Business Finance LLC (Previously filed with, and incorporated herein by reference to,
Exhibit 10.2 to our current report on Form 8-K, filed January 3, 2012; File No. 000-28820.)
Guaranty and Security Agreement dated as of December 27, 2011, made by Jones Soda Co. with respect
to Jones Soda Co. (USA) Inc., in favor of Access Business Finance LLC (Previously filed with, and
incorporated herein by reference to, Exhibit 10.3 to our current report on Form 8-K, filed January 3,
2012; File No. 000-28820.)
Guaranty and Security Agreement dated as of December 27, 2011, made by Jones Soda Co. with respect
to Jones Soda (Canada) Inc., in favor of Access Business Finance LLC (Previously filed with, and
incorporated herein by reference to, Exhibit 10.4 to our current report on Form 8-K, filed January 3,
2012; File No. 000-28820.)
Guaranty and Security Agreement dated as of December 27, 2011, made by Jones Soda Co. (USA) Inc. in
favor of Access Business Finance LLC (Previously filed with, and incorporated herein by reference to,
Exhibit 10.5 to our current report on Form 8-K, filed January 3, 2012; File No. 000-28820.)
Guaranty and Security Agreement dated as of December 27, 2011, made by Jones Soda (Canada) Inc. in
favor of Access Business Finance LLC (Previously filed with, and incorporated herein by reference to,
Exhibit 10.6 to our current report on Form 8-K, filed January 3, 2012; File No. 000-28820.)
Placement Agent Agreement, dated as of January 26, 2012, by and among the Company and Rodman &
Renshaw, LLC (Previously filed with, and incorporated herein by reference to, Exhibit 1.1 to our current
report on Form 8-K, filed February 2, 2012; File No. 000-28820.)
Form of Securities Purchase Agreement, dated as of February 1, 2012, by and among the Company and
the Purchasers (Previously filed with, and incorporated herein by reference to, Exhibit 10.1 to our current
report on Form 8-K, filed February 2, 2012; File No. 000-28820.)
Jones Soda Co. 2002 Stock Option and Restricted Stock Plan. (Previously filed with, and incorporated
herein by reference to, Appendix B to our Definitive Proxy Statement for our 2007 Annual Meeting of
Shareholders, filed on April 18, 2007, File No. 000-28820.)
Jones Soda Co. 2011 Incentive Plan. (Previously filed with, and incorporated herein by reference to,
Annex A to our Definitive Proxy Statement, filed on April 12, 2011, File No. 000-28820.)
Form of Stock Option Grant Notice and Agreement under the Jones Soda Co. 2011 Incentive Plan
(Previously filed with, and incorporated herein by reference to, Exhibit 10.3 to our quarterly report on
Form 10-Q, filed August 12, 2011; File No. 000-28820.)
Form of Restricted Stock Award Notice and Agreement under the Jones Soda Co. 2011 Incentive Plan
(Previously filed with, and incorporated herein by reference to, Exhibit 10.4 to our quarterly report on
Form 10-Q, filed August 12, 2011; File No. 000-28820.)
Form of Restricted Stock Unit Notice and Agreement under the Jones Soda Co. 2011 Incentive Plan
(Previously filed with, and incorporated herein by reference to, Exhibit 10.5 to our quarterly report on
Form 10-Q, filed August 12, 2011; File No. 000-28820.)
Jones Soda Co. 2007 Employee Stock Purchase Plan. (Previously filed with, and incorporated herein by
reference to, the Company’s definitive proxy statement on Schedule 14A, filed on April 18, 2007; File
No. 000-28820.)
Compensation for Directors of Jones Soda Co. (Previously filed with, and incorporated herein by
reference to, Exhibit 10.7 to our annual report on Form 10-K, filed on March 21, 2011; File No.
000-28820.)
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
21.1
23.1
31.1
31.2
32.1
32.2
Jones Soda Co. 2011 Executive Bonus Plan (Previously filed with, and incorporated herein by reference
to, Exhibit 10.1 to our quarterly report on Form 10-Q, filed on May 13, 2011; File No. 000-28820.)
Employment Offer Letter between William R. Meissner and Jones Soda Co., dated April 6, 2010
(Previously filed with, and incorporated herein by reference to, Exhibit 10.1 to our current report on
Form 8-K, filed April 9, 2010; File No. 000-28820.)
Employment Offer Letter, dated February 24, 2012, between Jones Soda Co. and James P. Stapleton.
(Previously filed with, and incorporated herein by reference to, Exhibit 10.1 to our current report on
Form 8-K, filed February 29, 2012; File No. 000-28820.)
Employment Offer Letter between Carrie Traner and Jones Soda Co., dated December 1, 2011.
(Previously filed with, and incorporated herein by reference to, Exhibit 10.1 to our current report on
Form 8-K, filed December 5, 2011; File No. 000-28820.)
Independent Contractor Agreement, between Jennifer Cue and Jones Soda Co., effective September 12,
2011.(Previously filed with, and incorporated herein by reference to, Exhibit 10.1 to our quarterly report
on Form 10-Q, filed November 14, 2011; File No. 000-28820.)
Employment Offer Letter between Michael O'Brien and Jones Soda Co., dated August 15, 2008.
(Previously filed with, and incorporated herein by reference to, Exhibit 10.1 to our current report on
Form 8-K, filed August 18, 2008; File No. 000-28820.)
First Amendment to Employment Offer Letter, dated December 29, 2008, between Jones Soda Co. and
Michael O'Brien. (Previously filed with, and incorporated herein by reference to, Exhibit 10.29 to our
annual report on Form 10-K for the fiscal year ended December 31, 2008, filed on March 16, 2009; File
No. 000-28820.)
Subsidiaries of Jones Soda Co. (Previously filed with, and incorporated herein by reference to, Exhibit
21.1 to our annual report on Form 10-KSB for the year ended December 31, 2002, filed on March 28,
2003; File No. 000-28820.)
Consent of Peterson Sullivan LLP (Filed herewith.)
Certification by William R. Meissner, Chief Executive Officer, pursuant to Rule 13a-14(a), pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith.)
Certification by James P. Stapleton, Chief Financial Officer, pursuant to Rule 13a-14(a), pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith.)
Certification by William R. Meissner, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith.)
Certification by James P. Stapleton, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith.)
101.INS**
XBRL Instance Document.
101.SCH** XBRL Taxonomy Extension Schema Document.
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB** XBRL Taxonomy Extension Label Linkbase Document.
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document.
_______________________________________
* Management contract or compensatory plan or arrangement.
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement
or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of
1934 and otherwise are not subject to liability.
++ Portions of the marked exhibits have been omitted pursuant to requests for confidential treatment filed with the SEC.
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