##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2010
 OR
 o
    
    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 Number)234 Ninth Avenue NorthSeattle, Washington
    
    98109(Address of principal executive offices)
    
    (Zip Code)
 
 (206) 624-3357
(Registrants Telephone Number, Including Area Code)
 (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 þ o
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ
 o þ




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##### 



JONES SODA CO.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED March 31, 2010
TABLE OF CONTENTS
  
 PageExplanatory Note
    
    
    3Cautionary Notice Regarding Forward Looking Statements
    
    
    3PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    5a) Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009
    
    
    5b) Condensed Consolidated Statements of Operations  three months ended March 31, 2010 and 2009
    
    
    6c) Condensed Consolidated Statements of Cash Flows  three months ended March 31, 2010 and 2009
    
    
    7d) Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 4. Controls and Procedures
    
    
    22PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 6. Exhibits
    
    
    25EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



EXPLANATORY NOTE
 ®
 Jones Soda Jones Pure Cane Soda Jones Soda Co
 
 CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
    
    
    Our ability to successfully execute on our 2010 operating plan and obtain financing
before 2011;
    
    Our inability to secure additional financing or generate sufficient cash flow from
operations, which may force us to explore liquidation alternatives, including seeking
protection from creditors under bankruptcy laws;
    
    Whether our efforts to explore strategic transactions result in a definitive
transaction, and the risks and uncertainties associated with the evaluation and
negotiation of any proposed transaction, including management distraction and the effect
of market assumptions regarding a proposed transaction on the price of our common stock;
    
    Our ability to establish and maintain distribution arrangements with distributors,
retailers, brokers and national retail accounts, on which our business plan and future
growth are dependent in part;
    
    Our ability to manage our inventory levels and to predict the timing and amount of our
sales;
    
    The inability of our exclusive manufacturer and distributor (National Beverage Corp.)
of Jones Soda12-ounce cans in the grocery and mass merchant channel to perform
adequately, which could impair our ability to meet demand;
    
    Our ability to modify our sponsorship arrangements in a timely manner to reduce our
obligations or make any other changes or to realize the benefits expected from our
sponsorship agreements, to which we have dedicated significant resources;
    
    Our reliance on third-party packers of our products, which could make management of
our marketing and distribution efforts inefficient or unprofitable;
 3




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
    
    Our ability to secure a continuous supply and availability of raw materials, as well
as other factors affecting our supply chain;
    
    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 protect our trademarks, patents and trade secrets, which may prevent
us from successfully marketing our products and competing effectively;
    
    Litigation or legal proceedings (including pending securities class actions), which
could expose us to significant liabilities and damage our reputation;
    
    Our inability to build and sustain proper information technology infrastructure;
    
    Our inability to maintain compliance with the continued listing requirements of The
Nasdaq Capital Market, including the $1 minimum bid price requirement, which may
adversely affect our market price and liquidity;
    
    Our inability 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 inability to continue developing new products to satisfy our consumers changing
preferences;
    
    Global economic conditions that may adversely impact our business and results of
operations;
    
    Our ability to comply with the many regulations to which our business is subject.
  4




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 
 JONES SODA CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
 March 31, 2010
    
    
    December 31, 2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,431
    
    
    $
    4,975Accounts receivable, net of allowance of $84 and $87
    
    
    2,761
    
    
    
    2,508Inventory
    
    
    3,816
    
    
    
    3,711Prepaid expenses and other current assets
    
    
    458
    
    
    
    498Total current assets
    
    
    9,466
    
    
    
    11,692Fixed assets, net of accumulated depreciation of $2,993 and $2,951
    
    
    697
    
    
    
    807Other assets
    
    
    1,024
    
    
    
    1,035Total assets
    
    $
    11,187
    
    
    $
    13,534LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,326
    
    
    $
    1,397Accrued liabilities
    
    
    1,224
    
    
    
    1,571Taxes payable
    
    
    102
    
    
    
    69Note payable, current portion
    
    
    125
    
    
    
    125Total current liabilities
    
    
    2,777
    
    
    
    3,162Note payable
    
    
    188
    
    
    
    219Long-term liabilities  other
    
    
    2
    
    
    
    Commitments and contingencies (Note 6)Shareholders equity:Common stock, no par value:Authorized  100,000,000; issued and outstanding shares 
26,428,797 and 26,427,989 at March 31, 2010 and December 31,
2009, respectively
    
    
    43,926
    
    
    
    43,925Additional paid-in capital
    
    
    5,937
    
    
    
    5,771Accumulated other comprehensive income
    
    
    450
    
    
    
    418Accumulated deficit
    
    
    (42,093
    )
    
    
    (39,961
    )Total shareholders equity
    
    
    8,220
    
    
    
    10,153Total liabilities and shareholders equity
    
    $
    11,187
    
    
    $
    13,534
  5




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##### Table of Contents



JONES SODA CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share data)
 Three Months Ended March 31,2010
    
    
    2009Revenue
    
    $
    3,893
    
    
    $
    7,071Cost of goods sold
    
    
    3,085
    
    
    
    5,626Gross profit
    
    
    808
    
    
    
    1,445Licensing revenue
    
    
    10
    
    
    
    28Operating expenses:Promotion and selling
    
    
    1,224
    
    
    
    2,320General and administrative
    
    
    1,684
    
    
    
    1,8022,908
    
    
    
    4,122Loss from operations
    
    
    (2,090
    )
    
    
    (2,649
    )Other (expense) income, net
    
    
    (4
    )
    
    
    21Loss before income taxes
    
    
    (2,094
    )
    
    
    (2,628
    )Income tax (expense) benefit
    
    
    (38
    )
    
    
    27Net loss
    
    $
    (2,132
    )
    
    $
    (2,601
    )Net loss per shareBasic and diluted
    
    $
    (0.08
    )
    
    $
    (0.10
    )Weighted average basic and diluted common shares outstanding
    
    
    26,427,972
    
    
    
    26,456,594
  6




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JONES SODA CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 Three months Ended March 31,2010
    
    
    2009OPERATING ACTIVITIES:Net loss
    
    $
    (2,132
    )
    
    $
    (2,601
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    119
    
    
    
    210Stock-based compensation
    
    
    167
    
    
    
    296Loss on disposal of fixed assets
    
    
    
    
    
    
    21Deferred income taxes
    
    
    2
    
    
    
    Change in allowance for doubtful accounts
    
    
    (3
    )
    
    
    64Other non-cash charges and credits
    
    
    7
    
    
    
    Change in inventory reserve
    
    
    
    
    
    
    (252
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (246
    )
    
    
    (1,335
    )Taxes receivable
    
    
    5
    
    
    
    Inventory
    
    
    (91
    )
    
    
    1,002Prepaid expenses and other current assets
    
    
    34
    
    
    
    (87
    )Other assets
    
    
    11
    
    
    
    (1,018
    )Accounts payable
    
    
    (72
    )
    
    
    4Accrued liabilities
    
    
    (356
    )
    
    
    (630
    )Taxes payable
    
    
    31
    
    
    
    (20
    )Net cash used in operating activities
    
    
    (2,524
    )
    
    
    (4,346
    )INVESTING ACTIVITIES:Purchase of investments
    
    
    
    
    
    
    (4
    )Purchase of fixed assets
    
    
    (10
    )
    
    
    (20
    )Sales of fixed assets
    
    
    
    
    
    
    5Net cash used in investing activities
    
    
    (10
    )
    
    
    (19
    )FINANCING ACTIVITIES:Proceeds from exercise of options
    
    
    1
    
    
    
    1Repayment of capital lease obligations
    
    
    
    
    
    
    (37
    )Repayment of note payable
    
    
    (32
    )
    
    
    Net cash used in financing activities
    
    
    (31
    )
    
    
    (36
    )Net decrease in cash and cash equivalents
    
    
    (2,565
    )
    
    
    (4,401
    )Effect of exchange rate changes on cash
    
    
    21
    
    
    
    (31
    )Cash and cash equivalents, beginning of period
    
    
    4,975
    
    
    
    11,736Cash and cash equivalents, end of period
    
    $
    2,431
    
    
    $
    7,304Supplemental disclosure:Cash paid (received) during period for:Interest
    
    $
    3
    
    
    $
    (11
    )Income taxes
    
    
    13
    
    
    
    1
  7




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JONES SODA CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Nature and Operations and Summary of Significant Accounting Policies
  
    
    Jones Pure Cane Soda®, a premium carbonated soft drink with three new
extensions launched in targeted markets during 2009:
 
    
    Jones Refresco De Caña Pura,
    
    Jones Jumble,our seasonal soda, and
    
    Jones Zilch,our zero calorie offering;
 
    
    Jones 24C®, an enhanced water beverage;
    
    Jones GABA®, a functional tea juice blend launched in February 2009; and
    
    WhoopAss Energy Drink®, a citrus energy drink.
  Basis of presentation and consolidation
   Use of estimates
  Seasonality
  8




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Recently issued accounting pronouncements
 Improving Disclosures about Fair Value Measurements
 Liquidity
  Jones GABA
 Jones Pure Cane Soda
   9




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##### Table of Contents



Reclassifications
  2. Inventory
  March 31, 2010
    
    
    December 31, 2009Finished goods
    
    $
    2,758
    
    
    $
    2,794Raw materials
    
    
    1,058
    
    
    
    917$
    3,816
    
    
    $
    3,711
 Jones GABA Jones
GABA
 10




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3. Other Assets
  March 31, 2010
    
    
    December 31, 2009Certificate of deposit
    
    $
    376
    
    
    $
    376GABA raw materials
    
    
    239
    
    
    
    239GABA finished goods
    
    
    64
    
    
    
    64Other
    
    
    345
    
    
    
    356$
    1,024
    
    
    $
    1,035
  Jones GABA.
 4. Note Payable
   2010
    
    $
    942011
    
    
    1252012
    
    
    94$
    313
 5. Stock-Based Compensation
  (a) Stock options:
  Outstanding OptionsWeighted AverageNumber of
    
    
    ExerciseShares
    
    
    PriceBalance at January 1, 2010
    
    
    1,389,496
    
    
    $
    2.96Option granted
    
    
    
    
    
    
    Options exercised
    
    
    (1,428
    )
    
    
    0.37Options cancelled/expired
    
    
    (124,145
    )
    
    
    3.54Balance at March 31, 2010
    
    
    1,263,923
    
    
    $
    2.88Exercisable, March 31, 2010
    
    
    764,058
    
    
    $
    3.71Vested and expected to vest
    
    
    1,205,466
    
    
    $
    2.94
 11




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##### Table of Contents



(b) Restricted stock awards:
  Weighted-
Average
    
    
    Weighted-
AverageRestricted
    
    
    Grant Date
    
    
    ContractualShares
    
    
    Fair Value
    
    
    LifeNon-vested restricted stock at January 1, 2010
    
    
    33,833
    
    
    $
    6.06
    
    
    8.01 yrsGranted
    
    
    
    
    
    
    Vested
    
    
    (7,462
    )
    
    
    6.34Cancelled/expired
    
    
    (3,337
    )
    
    
    7.68Non-vested restricted stock at March 31, 2010
    
    
    23,034
    
    
    $
    5.64
    
    
    7.82 yrs
  (c) Stock-based compensation expense:
    Three months ended March 31,2010
    
    
    2009Type of awards:Stock options
    
    $
    135
    
    
    $
    226Restricted stock
    
    
    32
    
    
    
    70$
    167
    
    
    $
    296Income statement account:Promotion and selling
    
    $
    33
    
    
    $
    111General and administrative
    
    
    134
    
    
    
    185$
    167
    
    
    $
    296
  Three months endedMarch 31, 2009Expected dividend yield
    
    
    Expected stock price volatility
    
    
    92.5
    %Risk-free interest rate
    
    
    1.91
    %Expected term (in years)
    
    4.5 yearsWeighted-average grant date fair-value
    
    $
    0.55
 12




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##### Table of Contents



6. Commitments and contingencies
 Legal proceedings
 Saltzman v. Jones Soda Company, et al. In re Jones
Soda Company Securities Litigation
 Cramer v. van Stolk, et al.
  13




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##### Table of Contents



7. Segment Information
  March 31, 2010
    
    
    March 31, 2009Revenue:United States
    
    $
    2,700
    
    
    $
    5,240Canada
    
    
    1,013
    
    
    
    1,720Other Countries
    
    
    180
    
    
    
    111Total revenue
    
    $
    3,893
    
    
    $
    7,071
  14




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8. Subsequent Events
   15




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 You should read the following discussion and analysis in conjunction with our unaudited
condensed consolidated financial statements and related notes included elsewhere in this Report and
the 2009 audited consolidated financial statements and notes thereto included in our Annual Report
on Form 10-K , which was filed with the Securities and Exchange Commission (SEC) on March 31, 2010.
 This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain
forward-looking statements. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by terminology such as
believe, expect, intend, anticipate, estimate, may, will, can, plan, predict,
could, future, variations of such words, and similar expressions. These statements are only
predictions. Actual events or results may differ materially. In evaluating these statements, you
should specifically consider various factors, including the risks outlined at the beginning of this
report under Cautionary Notice Regarding Forward-Looking Statements and in Item 1A of our most
recent Annual Report on Form 10-K filed with the SEC. These factors may cause our actual results to
differ materially from any forward-looking statements. Except as required by law, we undertake no
obligation to publicly release any revisions to these forward-looking statements that may be made
to reflect events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
 Overview
  
    
    Jones Pure Cane Soda®, a premium carbonated soft drink with three new
extensions launched in targeted markets during 2009:
 
    
    Jones Refresco De Caña Pura,
    
    Jones Jumble,our seasonal soda, and
    
    Jones Zilch,our zero calorie offering;
 
    
    Jones 24C®, an enhanced water beverage;
    
    Jones GABA®,a functional tea juice blend; and
    
    WhoopAss Energy Drink ®,a citrus energy drink.
  Jones Soda Jones Pure Cane Soda
   16




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##### Table of Contents




    
    expanding points of distribution for our products;
    
    creating strong alignment with our key distributors;
    
    developing innovative beverage brands and products;
    
    stimulating strong consumer demand for our existing brands and products, with primary
emphasis in the U.S. and Canada;
    
    inviting consumers to participate in our brand through submission of photographs to be
placed on labels through our interactive application of myJones.com;
    
    licensing our brand equity for the creation of other beverage or non-beverage products;
and
    
    exploring opportunities to license our patented custom-label process to non-competitive
products.
 Jones Pure Cane Soda Jones Pure Cane
Soda Jones GABA
 Jones GABA Jones GABA Jones GABA
  17




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Results of Operations
  Three Months Ended March 31,% of
    
    
    
    
    
    
    % of2010
    
    
    Revenue
    
    
    2009
    
    
    RevenueConsolidated statements of operation data:
    
    (Dollars in thousands, except share data)Revenue
    
    $
    3,893
    
    
    
    100.00
    
    
    $
    7,071
    
    
    
    100.00Cost of goods sold
    
    
    (3,085
    )
    
    
    (79.2
    )
    
    
    (5,626
    )
    
    
    (79.6
    )Gross profit
    
    
    808
    
    
    
    20.8
    
    
    
    1,445
    
    
    
    20.4Licensing revenue
    
    
    10
    
    
    
    0.3
    
    
    
    28
    
    
    
    0.4Promotion and selling expenses
    
    
    (1,224
    )
    
    
    (31.4
    )
    
    
    (2,320
    )
    
    
    (32.8
    )General and administrative expenses
    
    
    (1,684
    )
    
    
    (43.3
    )
    
    
    (1,802
    )
    
    
    (25.5
    )Loss from operations
    
    
    (2,090
    )
    
    
    (53.6
    )
    
    
    (2,649
    )
    
    
    (37.5
    )Other (expense) income, net
    
    
    (4
    )
    
    
    (0.1
    )
    
    
    21
    
    
    
    0.3Loss before income taxes
    
    
    (2,094
    )
    
    
    (53.7
    )
    
    
    (2,628
    )
    
    
    (37.2
    )Income tax (expense) benefit
    
    
    (38
    )
    
    
    (1.0
    )
    
    
    27
    
    
    
    0.4Net loss
    
    
    (2,132
    )
    
    
    (54.7
    )
    
    
    (2,601
    )
    
    
    (36.8
    )Basic and diluted net loss per share
    
    $
    (0.08
    )
    
    
    
    
    
    $
    (0.10
    )
 18




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##### Table of Contents



As ofMarch 31, 2010
    
    December 31, 2009Balance sheet data:
    
    (Dollars in thousands)Cash and cash equivalents and accounts receivable
    
    $
    5,192
    
    
    $
    7,483Fixed assets, net
    
    
    697
    
    
    
    807Total assets
    
    
    11,187
    
    
    
    13,534Long-term liabilities
    
    
    190
    
    
    
    219Working capital
    
    
    6,689
    
    
    
    8,530Three months Ended March 31,288-ounce equivalent case sales:
    
    2010
    
    2009Finished products case sales
    
    
    310,700
    
    
    
    539,300Concentrate case sales
    
    
    26,800
    
    
    
    163,300Total case sales
    
    
    337,500
    
    
    
    702,600
 Quarter Ended March 31, 2010 Compared to Quarter Ended March 31, 2009
 Revenue
 Jones Soda Jones GABA Jones Organicstm Jones
Naturals® Jones Pure Cane Soda Jones
Zilch tm
  Gross Profit
 Jones GABA Jones
Organics tm Jones Naturals®
 19




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Licensing Revenue
 Jones Soda
 Promotion and Selling Expenses
  General and Administrative Expenses
  Other (Expense) Income, Net
  Income Tax (Expense) Benefit
  Net Loss
 Jones GABA
 20




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Liquidity and Capital Resources
  Jones GABA
 Jones Pure
Cane Soda
    21




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Off-Balance Sheet Arrangements
  Seasonality
  Critical Accounting Policies
  
 ITEM 4. CONTROLS AND PROCEDURES
 Procedures
 (a) Evaluation of disclosure controls and procedures
  22




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(b) Changes in internal controls
  
 PART II OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Saltzman v. Jones Soda Company, et al. In re Jones
Soda Company Securities Litigation
 Cramer v. van Stolk, et al.
  23




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##### Table of Contents



ITEM 1A. RISK FACTORS
 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 
 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.
    24




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number of
    
    
    Approximate DollarShares Purchased
    
    
    Value of Shares Thatas Part of Publicly
    
    
    May Yet Be PurchasedTotal Number of
    
    
    Average Price
    
    
    Announced Plans or
    
    
    Under the Plans orFiscal Period
    
    Shares Purchased(1)
    
    
    Paid per Share(1)
    
    
    Programs
    
    
    Programs (in $000)January 1 to January 31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    February 1 to February 28, 2010
    
    
    907
    
    
    $
    1.63
    
    
    
    
    
    
    
    March 1 to March 31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    907
    
    
    $
    1.63
    
    
    
    
    
    
    
    
 
 (1)
    
    The number of shares reported above as purchased are attributable to shares withheld by the
Company as payment for withholding taxes due in connection with the vesting of restricted
stock awards issued 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. 
 ITEM 6. EXHIBITS
 10.1*
    
    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.)31.1
    
    Section 302 Certification of CEO  William R. Meissner, Chief Executive Officer (Filed herewith.)31.2
    
    Section 302 Certification of CFO  Michael R. OBrien, Chief Financial Officer (Filed herewith.)32.1
    
    Section 906 Certification of CEO  William R. Meissner, Chief Executive Officer of Jones Soda
Co., pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (Filed herewith.)32.2
    
    Section 906 Certification of CFO  Michael R. OBrien, Chief Financial Officer of Jones Soda
Co., pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (Filed herewith.)
 
 *
    
    Management contract or compensatory plan or arrangement. 25




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##### Table of Contents



SIGNATURES
   JONES SODA CO.By:
    /s/ WILLIAM R. MEISSNERWilliam R. MeissnerPresident and Chief Executive OfficerBy:
    /s/ MICHAEL R. OBRIENMichael R. OBrienChief Financial Officer 26