UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

For the Quarterly Period Ended June 30, 2002

For the Transition Period From                              to                             

Commission File Number 0-28820

Jones Soda Co.
(Exact name of registrant as specified in its charter)

        Check whether the issuer: (1) 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 for such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        As of June 30, 2002, the issuer had 19,800,596 shares of common stock outstanding.

        Transitional Small Business Disclosure Format: Yes o    No ý

JONES SODA CO.
FORM 10-QSB
Index

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PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

JONES SODA CO. AND SUBSIDIARIES
Interim Consolidated Balance Sheets
(Expressed in U.S. dollars)

June 30, 2002 with comparative figures for December 31, 2001

See accompanying notes to interim consolidated financial statements

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JONES SODA CO.
Interim Consolidated Statements of Operations
(Expressed in U.S. dollars)
(Unaudited)

Three months and six months ended June 30, 2002 and 2001

See accompanying notes to interim consolidated financial statements.

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JONES SODA CO. AND SUBSIDIARIES
Interim Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Expressed in U.S. dollars)

Six months ended June 30, 2002 (Unaudited)
Years ended December 31, 2001 and 2000

See accompanying notes to consolidated interim financial statements.

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JONES SODA CO. AND SUBSIDIARIES
Interim Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
(Unaudited)

Six months ended June 30, 2002 and 2001

See accompanying notes to interim consolidated financial statements.

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JONES SODA CO. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
(Expressed in U.S. dollars)
Unaudited

Six months ended June 30, 2002

1.    Nature and continuance of operations:

        Jones Soda Co. (the "Company" or "Jones Soda") develops, produces, markets, and distributes "alternative" or "new age" beverages. The Company's main product lines include the brands: Jones Soda Co.®, Jones Naturals, a non-carbonated juice & tea drink (previously called Jones Juice), Jones Energy, a high energy drink, WhoopAss a high energy drink, and Whoopass Shots. Urban Juice and Soda Company Limited, the Company's predecessor, was incorporated in 1986 under the Company Act of British Columbia. Effective December 31, 1999, Urban Juice continued its incorporation in Wyoming. On August 3, 2000, Urban Juice reincorporated as a Washington corporation under the name Jones Soda Co. Jones Soda Co. has three operating subsidiaries, Jones Soda Co. (USA) Inc., WAZU Products Ltd., and Whoopass USA Inc., as well as one non-operating subsidiary, myJones.com Inc.

        The Company's future operations are dependent upon the market's acceptance of its products. There can be no assurance the Company will be able to secure sufficient market acceptance for its products to generate income from operations. Operations to date have primarily been financed through the issuance of common stock and short-term debt. These consolidated financial statements have been prepared on a basis that assumes the realization of assets and settlement of liabilities in the normal course of business. During the period ended June 30, 2002, the Company incurred a loss of $834,254 and generated negative cash flows from operating activities. The Company's ability to continue as a going concern is dependent upon the ability to raise additional financing and also to generate future profitable operations.

2.    Significant accounting policies:

(a)

Basis of presentation:

        These consolidated financial statements have been prepared using U.S. generally accepted accounting principles.

        The financial information as of June 30, 2002 and for the six-month periods ended June 30, 2002 and 2001 is unaudited; however, in the opinion of management such financial information includes all adjustments (consisting solely of normal recurring adjustments) necessary for its fair presentation in conformity with generally accepted accounting principles. Results of operations for the six-month period ended June 30, 2002 are not necessarily indicative of future financial results, whether for a complete financial year or for any other period.

        The financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

        The financial information included herein should be read in conjunction with the Company's consolidated financial statements for the year ended December 31, 2001 included in its 2001 annual report on Form 10-KSB. Except as disclosed in note 5, the accounting policies applied in these interim consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended December 31, 2001.

(b)

Use of estimates:

        The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the

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amounts reported in the financial statements and accompanying notes. Accordingly, actual results may differ from these estimates.

(c)

Foreign currency translation:

        For the period ended June 30, 2002, the functional currency of the Company and its wholly-owned subsidiaries is the US dollar. As such, all foreign exchange gains or losses, including those arising from translating Canadian operations to US dollars, have been included in income. For the period ended June 30, 2002, the Company incurred a foreign exchange loss of $(3,134) (2001—gain $47,001).

(d)

Cash and cash equivalents:

        The Company considers all short-term investments with a maturity date at purchase of three months or less to be cash equivalents.

3.    Bank indebtedness:

        The Company has a $3,000,000 bank line expiring March 22, 2003. Borrowings under the line bear interest at the prime rate plus 1.5% (6.25% at June 30, 2002).

4.    Stock options and stock-based compensation:

        During the three months ended June 30, 2002, the Company issued incentive stock options to purchase 332,000 and 150,000 shares of the Company's common stock to employees. The options have an exercise price of $0.50 and $0.46 per share and expire April 11, 2007 and June 27, 2007, respectively. The granting of the employee options has been accounted for in accordance with the intrinsic value method under APB 25. As these options were granted with an exercise price based on the market price at the date of grant, no compensation expense was required to be recorded in the period as a result of the issuance of these options.

5.    Recent accounting pronouncements:

        In 2001, the FASB issued Emerging Issue Task Force 01-9 "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products" ("EITF 01-9"). EITF 01-9 sets out the FASB's interpretation of United States GAAP with respect to accounting for consideration given by a vendor to a customer (including a reseller of the vendor's products). Specifically, these types of payments are considered to be a reduction of revenue when recognized in the vendor's income statement. The Company's prior policies with respect to these types of payments was to characterize them as an element of promotion and selling cost when recognized in the Company's income statement. Adoption of EITF 01-9 was required for periods beginning after December 15, 2001 and requires reclassification of prior periods presented for comparative purposes. The Company adopted EITF 01-9 effective January 1, 2002, and for the six-month period ended June 30, 2002 reclassified $212,753 (2001—$170,036) against revenue in accordance to EITF 01-9's adoption principles. Adoption of EITF 01-9 had no impact on the Company's net earnings (loss) for any period.

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6.    Segmented information and export sales:

        The Company operates in one industry segment, with operations in both the United States and Canada. During the period ended June 30, 2002, sales in the United States were approximately $8,401,244 (2001—$10,858,196); sales in Canada were approximately $1,413,250 (2001—$1,927,983); and sales in the United Kingdom were nil (2001—$68,313).

7.    Earnings per share:

        The computation for basic and diluted earnings per share are as follows:

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward Looking Statements

        The matters discussed in this Report contain forward-looking statements that involve known and unknown risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. Generally, words such as "anticipate," "believe," "estimate," "intend," "may," "could," "will," "expect," "project," "plan" and variations of such words and similar expressions are intended to identify such forward-looking statements. All statements that address operating performance, events or developments that management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, and/or the Company's existing credit facility, statements expressing general optimism about future operating results and non-historical information, are forward looking statements within the meaning of Section 27.A of the Securities Act of 1933 as amended and Section 21.E of the Securities Exchange Act of 1934, as amended.

        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 (including those described below) and apply only as of the date of this report. The Company's actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in "Other Factors that May Affect Operating Results" as well as those discussed elsewhere in this report, and the risks discussed in the Company's most recently filed Annual Report on Form 10-KSB and in the press releases and other communications to shareholders issued by the Company from time to time which attempt to advise interested parties of the risks and factors that may affect the Company's business. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Results of Operations for the Three and Six Months Ended June 30, 2002
(Expressed in U.S. Dollars)

Revenues

        For the three months ended June 30, 2002, revenues were approximately $5,841,000, a decrease of $1,766,000, or 23.2% over the $7,607,000 in revenues for the three months ended June 30, 2001. The decrease in revenues during the three months ended June 30, 2002 from the comparable period in 2001 was primarily attributable to a decrease in sales of Jones Soda, Jones Naturals and Whoopass, offset by an increase in sales of Jones Energy and Whoopass Shots. For the six-month period ended June 30, 2002, revenues were approximately $9,815,000, a decrease of $3,039,000, or 23.6% over the $12,854,000 in revenues for the six months ended June 30, 2001. The decrease in revenues during the six months ended June 30, 2002 from the comparable period in 2001 was primarily attributable to a decrease in sales of Jones Soda and Whoopass, partially offset by an increase in sales of Jones Energy and Whoopass Shots. Jones Naturals' revenues increased for the six month period ended June 30, 2002 from the comparable period in 2001 due to the fact the Jones Naturals (previously named Jones Juice) was first launched in April 2001 and consequently had a shorter selling period in 2001.

        Management believes that the decrease in sales was primarily attributable to its strategy of pulling out of non-core markets to focus selling its products into four distinct regions consisting of the Northwest, the Southwest, the Midwest and Western Canada. In addition, management believes that the decrease in sales was secondarily affected by the transition issues with three of the Company's top 5 distributors who replaced the three prior distributors that went bankrupt or out of business in late 2001. Revenues for the three and six month periods ended June 30, 2002 included sales of Jones Energy (an energy drink that was launched in November 2001) and Jones Naturals (a non-carbonated

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juice and tea drink that was launched in April 2001). In addition, effective January 1, 2002, all slotting fees are recorded as a reduction to revenue, resulting in a reduction in revenue of approximately $213,000 for the six-month period ended June 30, 2002 compared to a reduction in revenue of approximately $170,000 for the six-month period ended June 30, 2001 (see "Note 4—Recent accounting pronouncements" above).

Gross Profit

        For the three- and six-month periods ended June 30, 2002, gross profit was approximately $1,604,000 and $3,036,000 respectively. Gross profit decreased by approximately $1,179,000, or 42.2% over the $2,783,000 gross profit for the three months ended June 30, 2001, and $1,683,000, or 35.7% over the $4,719,000 gross profit for the six months ended June 30, 2001. For the three- and six-month periods ended June 30, 2002, gross profit as a percentage of revenue decreased from 36.6% and 36.7% for the three-and six-month periods ended June 30, 2001 to 27.5% and 30.9%, respectively. The decrease in gross profit was primarily attributable to decreased revenues and to a lesser extent a write down in inventory of approximately $428,000 for the three- and six-month period ended June 30, 2002. The write down in inventory was primarily of the Jones Juice inventory due to the label reconfiguration and re-launch of the new Jones Naturals product. The Company's non-carbonated and tea line which was launched in 2001 was re-launched in the new label format in early 2002. The Company launched the new label product in April 2002 to have the same look and feel as the Jones Soda brand.

Total Operating Expenses

        Total operating expenses for the three- and six-month periods ended June 30, 2002 were approximately $2,089,000 and $3,843,000, respectively. Total operating expenses decreased by $442,000, or 17.5% over operating expenses of $2,530,000 for the three months ended June 30, 2001, and $944,000, or 19.7% over operating expenses of $4,787,000 for the six months ended June 30, 2001. For the three-month period ended June 30, 2002, total operating expenses as a percentage of revenue increased to 35.8% from 33.3% over the comparable period in 2001. For the six-month period ended June 30, 2002, total operating expenses as a percentage of revenue increased to 39.2% from 37.2% over the comparable period in 2001. The decrease in total operating expenses in absolute dollars was primarily attributable to decreased promotion and selling expenses and to a lesser extent a reduction in administrative expenses for the three and six months ended June 30, 2002. The slight increase in total operating expenses as a percentage of revenue is due to a greater decrease in revenues than the decrease in operating expenses.

Promotion and Selling Expenses

        Promotion and selling expenses for the three- and six-month periods ended June 30, 2002 were approximately $1,413,000 and $2,503,000, respectively. Promotion and selling expenses decreased by $385,000, or 21.4% over promotion and selling expenses of $1,798,000 for the three months ended June 30, 2001, and $901,000, 26.5% over promotion and selling expenses of $3,404,000 for the six months ended June 30, 2001. Promotion and selling expenses as a percentage of revenue increased to 24.2% for the three months ended June 30, 2002 from 23.6% over the comparable period in 2001. Promotion and selling expenses as a percentage of revenue decreased to 25.5% for the six months ended June 30, 2002 from 26.5% over the comparable period in 2001. The decrease in promotion and selling expenses was primarily attributable to a decrease in distributor programs, more controlled marketing programs as well as decreased salaries and wages associated with a decreased size of sales force, primarily in the Company's non-focus markets.

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General and Administrative Expenses

        General and administrative expenses for the three- and six-month periods ended June 30, 2002 were approximately $675,000 and $1,340,000, respectively, compared to $733,000 and $1,383,000 for the comparable periods in 2001. General and administrative expenses as a percentage of revenue increased to 11.6% for the three months ended June 30, 2002 from 9.6% over the comparable period in 2001. General and administrative expenses as a percentage of revenue increased to 13.7% for the six months ended June 30, 2002 from 10.8% over the comparable period in 2001. The decrease in general and administrative expenses in absolute dollars is primarily due to a decrease in certain items such as shareholder expense and legal fees, partially offset by increased audit fees and insurance expenses.

Other expenses

        Other expense for the three- and six-month periods ended June 30, 2002 was approximately $34,000 and $27,000, respectively, compared to other income of approximately $40,000 and $100,000 over the comparable periods in 2001. The increase in other expense was due to the fact that there was no foreign exchange gain in 2002 compared to the similar period of 2001 and this was partially offset by a decrease in interest expense for 2002 over 2001 due to the decreased use of the line of credit.

Net Income/Loss

        Net loss for the three-and six-month periods ended June 30, 2002 was approximately $519,000 and $834,000, respectively, compared to a net income of $293,000 and $33,000 over the comparable periods in 2001. The increase in net loss was primarily attributable to the write down of inventory and to a lesser extent decreased gross profit, partially offset by a reduction in promotion and selling and general and administrative expenses.

Liquidity and Capital Resources

        The operations of the Company historically have primarily been funded through the issuance of common stock and external borrowings.

        As of June 30, 2002, the Company had working capital of approximately $1,722,000 compared to working capital of $2,579,000 as at December 31, 2001. The decrease in working capital was primarily attributable to the write down of inventory and the operating loss incurred for the period ending June 30, 2002.

        On March 17, 2000, a credit facility was granted to the Company by Banc of America Commercial Finance Corporation, consisting of a three-year revolving line of credit of up to $3,000,000. Wells Fargo Business Credit has subsequently purchased the portfolio of loans from Banc of America Commercial Finance Corporation. The amount available for borrowing from time to time under the revolving line of credit is dependent upon the levels of certain eligible accounts receivable and inventory. This revolving line of credit is secured by all of the Company's assets, including accounts receivable, inventory, trademarks and other intellectual property, and certain equipment. Borrowings under the credit facility bear interest at a rate of Prime +1.5% (6.25% as of June 30, 2002). The credit facility does not impose any financial covenants. As of June 30, 2002, the Company had $642,963 outstanding under the line of credit, out of a total of $1,587,216 available for borrowing based on eligible accounts receivable and inventory at that time. Bank indebtedness represents checks outstanding.

        Cash and cash equivalents were nil for the period ending June 30, 2002 and December 31, 2001, compared to $1,726,000 of June 30, 2001. Net cash used in operating activities was $165,700 for the six months ended June 30, 2002. The Company's investing activities used $43,400 for the six months ended June 30, 2002 primarily for the purchase of coolers and registration of miscellaneous trademarks. Cash flow provided by financing activities was $209,000 for the six months ended June 30, 2002 and consisted

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primarily of the use of the line of credit and bank indebtedness for the purchase of inventory and payment of prepaid expenses.

Seasonality

        The Company has experienced significant fluctuations in quarterly results that have been the result of many factors, including the following:

•

the addition or deletion of certain licensed brands to its distribution portfolio;



•

the shift in business focus from being solely a regional distributor of licensed and unlicensed brands and products to being a developer, producer, marketer and distributor of internally developed brands and products;



•

the seasonal demand for beverages; and



•

competition and general economic conditions.

        Due to these and other factors, the Company's results of operations have fluctuated from period to period. 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. Like many other companies in the beverage industry, the Company generates a substantial percentage of its revenues during the warm weather months of April through September. Management believes that the demand for the Company's products will continue to reflect such seasonal consumption patterns. While the Company looks to expand its distribution network and increase market penetration, however, such seasonality may not be easily discernible from results of operations. Due to all of the foregoing factors, the Company's operating results in a particular quarter may fail to meet market expectations.

Other Factors that May Affect Operating Results

        The Company's operating results may fluctuate due to a number of factors, including, but not limited to:

•

the ability of the Company's third party distributors to successfully promote and sell the Company's products;



•

the Company's ability to (i) develop and expand distribution channels, (ii) develop favorable arrangements with third party distributors of the Company's products and (iii) minimize or reduce issues associated with engaging new distributors, including, but not limited to, transition costs and expenses and down time resulting from the initial deployment of the Company's products in each new distributor's network;



•

unilateral decisions by distributors, grocery store chains, specialty chain stores, club stores, mass merchandisers and other customers to discontinue carrying all or any of the Company's products that they are carrying at any time;



•

competitive products and pricing pressures and the Company's ability to gain or maintain share of sales in the marketplace as a result of actions by competitors;



•

the Company's ability to generate sufficient cash flows to support general operating activities and capital expansion, and its ability to operate profitably;



•

the availability of financing, whether on terms acceptable to the Company or at all, including the terms and/or availability of the Company's credit facility and the actions of its creditors;



•

the Company's ability to develop and maintain favorable arrangements with third party packers and suppliers of the Company's products;

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•

the Company's ability to effectively manage changes in key personnel or management;



•

the Company's ability to develop and maintain brand awareness for its products;



•

the Company's success in introducing new products to the market and the market's acceptance of the new products;



•

the Company's ability to comply with federal, state and provincial laws and regulations and any changes or amendments thereon, and the cost and effect of such compliance;



•

changes in consumer tastes, preferences and demographic patterns;



•

changes in the cost and availability of raw materials and the ability to maintain favorable supply arrangements and relationships and procure timely and/or adequate production of all or any of the Company's products;



•

fluctuations in foreign currency rates, interest rates and other capital market conditions;



•

the Company's ability to penetrate new markets;



•

the effectiveness of the Company's advertising, marketing and promotional programs; and



•

adverse weather conditions, which could reduce demand for the Company's products.

Investor Relations

        During the period ending June 30, 2002, the Company completed all Investor Relations activities in-house. The Company sent out copies of news or press releases, the Company's corporate brochure, and communicated to shareholders with a monthly newsletter and a quarterly Investor Conference Call.

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PART II. OTHER INFORMATION

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

        During the period-ended June 30, 2002, the Company granted stock options to employees to purchase shares of common stock of the Company on the following dates, in the following amounts and at the exercise prices set forth below. The stock option grants were issued in reliance on Rule 701 under the Securities Act of 1933.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

        The annual meeting of shareholders of the Company was held on June 24, 2002. At the meeting, the following individuals were elected as directors of the Company and received the number of votes set opposite their respective names:

        At the meeting, the shareholders of the Company approved the amendment of the performance share escrow agreement dated March 29, 1993, governing the release of shares of certain officers and directors of the Company based on the achievement of certain performance criteria. The amendment changes the escrow agreement from a performance based agreement to a time based agreement. The amendment was approved by a vote of 3,269,542 shares for, 289,036 shares against and 6,780,278 shares abstaining.

        In addition, at the meeting, the shareholders of the Company approved the adoption of the Company's 2002 Stock Option Plan by a vote of 3,132,317 shares for, 1,267,530 shares against and 5,938,986 shares abstaining.

        Finally, at the meeting, the shareholders of the Company ratified the appointment of KPMG Peat Marwick Thorne, Chartered Accountants, as independent auditors of the Company for the fiscal year ending December 31, 2002, by a vote of 10,318,755 shares for,18,900 shares against and 3,200 shares abstaining.

Item 5. OTHER INFORMATION

        Matthew Hughes resigned as President of Whoopass USA Inc., effective as of July 31, 2002.

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Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits

*

Incorporated herein by reference from Exhibit A of Registrant's Definitive Proxy Statement on Schedule 14A filed on May 24, 2002.



(b)

Reports on 8-K.

        None.

SIGNATURE

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized on August     , 2002.

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QuickLinks

PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
Item 5. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K