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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 17, 1999.
REGISTRATION NO. 333-75913
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
URBAN JUICE & SODA COMPANY LTD.
(Exact name of registrant as specified in its charter)
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WYOMING 5149 APPLIED FOR
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
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1356 FRANCES STREET CT CORPORATIONS
VANCOUVER, B.C. V5L 1Y9 SYSTEM
CANADA 1720 CAREY
(800) 656-6050 AVENUE
(Address and Telephone Number CHEYENNE,
of WYOMING 82001
Registrant's Principal (800) 362-1228
Executive (Name, Address
Offices) and Telephone
Number of Agent
for Service)
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COPIES TO:
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WILLIAM E. VAN VALKENBERG, JENNIFER CUE, CHIEF FINANCIAL DAVID TOYODA, ESQ.
ESQ. OFFICER CATALYST CORPORATE FINANCE
DAREN H. NITZ, ESQ. URBAN JUICE & SODA COMPANY LAWYERS
VAN VALKENBERG FURBER LAW LTD. 1100 - 1055 WEST HASTINGS
GROUP P.L.L.C. 1356 FRANCES STREET STREET
1325 FOURTH AVENUE, SUITE 1200 VANCOUVER, B.C. V5L 1Y9 VANCOUVER, B.C. V6E 2E9
SEATTLE, WA 98101-2509 U.S.A. CANADA CANADA
TELEPHONE: (206) 464-0460 TELEPHONE: (800) 656-6050 TELEPHONE: (604) 443-7016
FACSIMILE: (206) 464-2857 FACSIMILE: (604) 253-4501 FACSIMILE: (604) 443-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement which
relates to the continuation of Urban Juice & Soda Company Ltd. from the Province
of British Columbia into Urban Juice & Soda Co., a Wyoming corporation pursuant
to the articles of continuance described in this registration statement.
--------------------------
If any of these securities being registered in this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. /X/
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION 8(1), MAY
DETERMINE.
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SUBJECT TO COMPLETION, DATED AUGUST 17, 1999
URBAN JUICE & SODA COMPANY LTD.
PRELIMINARY INFORMATION CIRCULAR
------------------
URBAN JUICE & SODA COMPANY LTD.
(A TO-BE-FORMED WYOMING CORPORATION)
PROSPECTUS
We are furnishing this information circular/prospectus to shareholders of
Urban Juice & Soda Company Ltd., a British Columbia corporation, in connection
with our Board of Directors' solicitation of proxies for use at an extraordinary
general meeting of the shareholders of Urban Canada. The meeting will be held at
1356 Frances Street, Vancouver, British Columbia, Canada, on October 1, 1999, at
10:00 a.m., local time for the purposes stated in this information
circular/prospectus and in the accompanying Notice of Extraordinary General
Meeting of Shareholders of Urban Canada. This information circular/prospectus is
also a prospectus of Urban Juice & Soda Company Ltd., a to-be-formed Wyoming
corporation, relating to common shares of Urban Canada that will become common
shares of Urban Wyoming upon effectiveness of the continuation of Urban Canada
into the State of Wyoming.
When we effect the continuation, we will continue our legal existence in
Wyoming as if we had been originally incorporated under the Wyoming Business
Corporation Act and each of our outstanding common shares will be converted from
a common share of Urban Canada into a common share of Urban Wyoming.
In order to become effective, at least 75 percent of the votes cast by our
shareholders in person or by proxy at the meeting must approve the proposed
continuation. We will accomplish the proposed continuation as soon as we can
following approval by our shareholders and once we and others satisfy or waive
the other conditions to the continuation.
This information circular/prospectus and the accompanying form of proxy are
first being mailed to our shareholders on or about August 30, 1999.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
INFORMATION CIRCULAR/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
A registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This information circular/prospectus does not constitute an offer to
sell or the solicitation of an offer to buy nor will there be any sale of these
securities in any state in which that offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
that state.
THE DATE OF THIS INFORMATION CIRCULAR/PROSPECTUS IS AUGUST 17, 1999.
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TABLE OF CONTENTS
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WHERE YOU CAN FIND MORE INFORMATION....................................................................... 6
CONVENTION................................................................................................ 6
SUMMARY................................................................................................... 7
Urban Canada............................................................................................ 7
Corporate Restructuring Prior to Continuation........................................................... 7
The Continuation........................................................................................ 7
Introduction.......................................................................................... 7
Continuation.......................................................................................... 7
Rights of Dissenting Shareholders..................................................................... 8
Conversion of Shares.................................................................................. 8
Continuing Disclosure Obligation...................................................................... 8
RISK FACTORS.............................................................................................. 9
The Beverage Industry Is Highly Competitive............................................................. 9
We Rely on Independent Distributors for the Distribution of Our Products................................ 9
We Have Not Earned a Profit in Any Year................................................................. 9
Our Success Is Dependent on Our JONES SODA CO. Brand.................................................... 10
Our Success Is Dependent on Consumer Acceptance of Our Product.......................................... 10
We Are Dependent on the Continued Participation of Key Personnel........................................ 10
We Have Limited Operating Experience as a Brand Holder.................................................. 11
Risks Related to Expansion of Product Distribution...................................................... 11
We Could Be Exposed to Product Liability Claims for Personal Injury or Possibly Death................... 11
We Are Dependent On Third-Party or Contract Packers of Our Products..................................... 11
Failure to Protect Our Trademarks, Design Marks and Flavor Concentrate Trade Secrets Could Harm Our
Business.............................................................................................. 12
Our Business Is Subject to Many Regulations............................................................. 12
Our Information Technology and Computer Controlled Systems May Not Be Year 2000 Compliant............... 12
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS.................................................... 12
MARKETS AND MARKET PRICES................................................................................. 13
Common Shares........................................................................................... 13
Common Share Purchase Warrants.......................................................................... 13
Beneficial Ownership.................................................................................... 13
THE EXTRAORDINARY GENERAL MEETING......................................................................... 14
Management Solicitation and Appointment of Proxies...................................................... 14
Revocation of Proxies................................................................................... 14
Record Date; Shareholders Entitled to Vote at the Meeting............................................... 15
Voting of Shares and Proxies and Exercise of Discretion by Proxyholders................................. 15
Solicitation of Proxies................................................................................. 15
TAX CONSEQUENCES OF THE CONTINUATION...................................................................... 15
United States Federal Income Tax Consequences........................................................... 15
U.S. Holders.......................................................................................... 16
Controlled Foreign Corporation Considerations....................................................... 17
Passive Foreign Investment Company Considerations................................................... 17
Foreign Personal Holding Company.................................................................... 17
Dissenting Shareholders............................................................................. 18
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Urban Canada Warrants............................................................................... 18
United States Taxation of Income, Gains, and Losses................................................. 18
Canadian Holders...................................................................................... 19
Subsequent Sale of Urban Wyoming Shares............................................................. 19
Receipt of Dividends on Urban Wyoming Shares........................................................ 20
Federal Estate Tax Treatment........................................................................ 20
Canadian Income Tax Considerations...................................................................... 20
Nature of Shares and Warrants of Urban Canada Held by Canadian Holders................................ 21
Pre-Continuation Transaction.......................................................................... 21
Shareholder Consequences of Continuation.............................................................. 21
Foreign Reporting................................................................................... 21
Dissent Proceedings................................................................................. 22
Interest Expense.................................................................................... 22
Company Consequences.................................................................................. 22
Tax-exempt Holders.................................................................................... 23
Non-resident Holders.................................................................................. 23
INTEREST OF MANAGEMENT IN THE CONTINUATION................................................................ 24
RIGHTS OF DISSENTING SHAREHOLDERS......................................................................... 24
Right of Dissent........................................................................................ 24
Dissent Proceedings..................................................................................... 24
SELECTED FINANCIAL DATA................................................................................... 25
EXCHANGE RATE DATA........................................................................................ 26
URBAN CANADA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........ 27
Overview................................................................................................ 27
Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30, 1998........................... 27
Sales................................................................................................. 27
Cost of Sales......................................................................................... 27
Gross Profit.......................................................................................... 27
Expenses.............................................................................................. 28
Other Income (Expenses)............................................................................... 28
Net Income (Loss)..................................................................................... 28
Liquidity and Capital Resources....................................................................... 28
Investor Relations...................................................................................... 28
Litigation.............................................................................................. 29
Impact of the Year 2000 Computer Problem................................................................ 29
Results of Operations................................................................................... 30
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997................................... 30
Sales................................................................................................. 30
Cost of Sales......................................................................................... 30
Gross Profit.......................................................................................... 30
Expenses.............................................................................................. 30
Other Income (Expenses)............................................................................... 31
Net Loss.............................................................................................. 31
Liquidity and Capital Resources....................................................................... 31
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996................................... 31
Sales................................................................................................. 31
Cost of Sales......................................................................................... 32
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3
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Gross Profit.......................................................................................... 32
Expenses.............................................................................................. 32
Other Income (Expenses)............................................................................... 33
Net Loss.............................................................................................. 33
Product Development Costs............................................................................. 33
Quarterly Operating Results; Seasonality................................................................ 34
U.S. GAAP Reconciliation................................................................................ 35
URBAN CANADA BUSINESS..................................................................................... 35
Urban Canada............................................................................................ 35
Corporate Structure................................................................................... 36
Company Background.................................................................................... 37
The Alternative or New Age Beverage Industry............................................................ 38
Business Strategy....................................................................................... 38
Brand Franchise....................................................................................... 39
Distributor Network and Key Accounts.................................................................. 39
Brand and Product Development........................................................................... 39
Market Evaluation..................................................................................... 39
Distributor Evaluation................................................................................ 40
Production Evaluation................................................................................. 40
Image and Design...................................................................................... 40
Products................................................................................................ 41
Proprietary Brands.................................................................................... 41
Licensed Products..................................................................................... 41
Marketing, Sales and Distribution....................................................................... 42
Seasonality............................................................................................. 43
Production.............................................................................................. 43
Contract Packing Arrangements......................................................................... 43
Raw Materials......................................................................................... 43
Quality Control....................................................................................... 43
Regulation............................................................................................ 44
Trademarks, Design Marks and Flavor Concentrate Trade Secrets........................................... 44
Competition............................................................................................. 45
Employees............................................................................................... 45
MANAGEMENT................................................................................................ 46
Directors, Executive Officers and Key Employees......................................................... 46
Executive Compensation.................................................................................. 47
Executive Officers.................................................................................... 47
Summary Compensation Table............................................................................ 48
Compensation of Directors............................................................................. 48
Remuneration of Directors and Executive Officers...................................................... 48
Options, Stock Appreciation Rights and Other Rights to Purchase Securities............................ 49
Directors' and Officers' Insurance.................................................................... 49
Long-Term Incentive Plans............................................................................. 49
Pension Benefits...................................................................................... 49
Other Benefits........................................................................................ 50
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS.......................................................... 50
MANAGEMENT CONTRACTS...................................................................................... 50
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS................................................ 50
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DESCRIPTION OF URBAN CANADA CAPITAL STOCK................................................................. 50
Common Shares and Warrants.............................................................................. 50
Escrow Shares........................................................................................... 51
TRANSFER AGENT AND REGISTRAR.............................................................................. 51
SHAREHOLDER'S RIGHTS UNDER THE WYOMING BUSINESS CORPORATION ACT........................................... 51
The Constating Documents................................................................................ 51
Amendments to Constating Documents.................................................................... 51
Share Capital........................................................................................... 52
Appointment of Directors................................................................................ 52
Management.............................................................................................. 52
Rights of Shareholders.................................................................................. 52
Dissent Rights Under the Wyoming Business Corporations Act.............................................. 53
LEGAL MATTERS............................................................................................. 53
EXPERTS................................................................................................... 53
FINANCIAL STATEMENTS...................................................................................... F-
APPENDIX A................................................................................................ A-1
ARTICLES OF CONTINUANCE................................................................................... A-1
APPENDIX B................................................................................................ B-1
COMPANY ACT OF BRITISH COLUMBIA........................................................................... B-1
DIVISION 2--DISSENT PROCEEDINGS........................................................................... B-1
INFORMATION NOT REQUIRED IN PROSPECTUS.................................................................... II-1
Item 20. Indemnification Of Directors And Officers...................................................... II-1
Item 21. Exhibits And Financial Statement Schedules..................................................... II-1
Item 22. Undertakings................................................................................... II-2
SIGNATURES................................................................................................ II-4
POWER OF ATTORNEY......................................................................................... II-4
EXHIBIT INDEX.............................................................................................
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WHERE YOU CAN FIND MORE INFORMATION
This information circular/prospectus constitutes a part of a Registration
Statement on Form S-4 that we filed with the Securities and Exchange Commission
under the Securities Act. This information circular/prospectus does not contain
all of the information set forth in the Registration Statement and its exhibits.
For further information about our company and the common shares offered by this
information circular/prospectus, please refer to the registration statement. We
urge you to refer to the copy of the documents filed as exhibits to the
registration statement filed with the SEC.
We are subject to the informational requirements of the Securities Exchange
Act of 1934 (United States), as applicable to foreign private issuers, and we
file reports and other information with the SEC. You can inspect and copy the
reports and other information filed with the SEC at the SEC's public reference
facilities located at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the SEC's regional offices at 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, CA 90036-3648. You may also obtain copies of
these materials from the SEC at prescribed rates by mailing a request to the
Public Reference Section of the SEC, at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549.
------------------------
We have not authorized any dealer, salesperson or other individual to give
any information or to make any representations other than those contained in
this information circular/prospectus. You may not rely on any information or
representations other than those set forth in this information circular/
prospectus. This information circular/prospectus is not an offer to sell, or a
solicitation of an offer to buy, the securities offered by this information
circular/prospectus to any person in any state or other jurisdiction in which
that offer or solicitation is unlawful. The delivery of this information
circular/ prospectus at any time does not imply that information contained in
this document is correct as of any time subsequent to its date.
CONVENTION
Except as otherwise noted, financial data in this information
circular/prospectus are presented in accordance with generally accepted
accounting principles as applied in Canada.
6
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SUMMARY
THE FOLLOWING IS A SUMMARY OF INFORMATION CONTAINED ELSEWHERE IN THIS
INFORMATION CIRCULAR/PROSPECTUS. THIS SUMMARY IS NOT COMPLETE BY ITSELF. THIS
INFORMATION CIRCULAR/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. WE URGE YOU TO REVIEW
CAREFULLY ALL OF THE INFORMATION CONTAINED IN THIS INFORMATION
CIRCULAR/PROSPECTUS, THE ARTICLES OF CONTINUANCE ATTACHED AS APPENDIX A AND THE
OTHER ATTACHED APPENDICES.
URBAN CANADA
We develop, produce, market and distribute a broad selection of
"alternative" or "New Age" beverages. We created in 1994, and launched in 1995,
two brands unique to Urban Juice, JONES SODA CO. "a traditional 90's soda," and
WAZU, a natural spring water.
CORPORATE RESTRUCTURING PRIOR TO CONTINUATION
In order to better align the business operations of Urban Canada and its
subsidiaries, prior to the effectiveness of the continuation, WAZU Products Ltd.
intends to sell the assets used in its U.S. operations to Urban Juice & Soda
(USA) Inc. for proceeds equal to the fair market value of the assets.
THE CONTINUATION
INTRODUCTION
Our management is proposing that our corporate existence be continued out of
British Columbia into the State of Wyoming. As a result of the continuation we
will cease to be a British Columbia company governed by the provisions of the
British Columbia Company Act and will become a Wyoming company governed by the
provisions of the Wyoming Business Corporations Act.
We believe that the continuation will provide us with a number of business
and tax benefits including:
- Integrating us more fully into the United States, our primary market
- Increasing our access to United States capital and debt sources, which
have been our primary source of both equity and debt financing
- Better positioning ourselves for the possible future listing of our shares
on a United States exchange
- Increasing our access to qualified personnel
- Reducing our corporate income tax expenses
To accomplish the continuation, we will adopt and file articles of
continuance with the Secretary of State of Wyoming that will replace our current
memorandum and articles. A copy of the proposed articles of continuance are
attached as Appendix A and may be reviewed at our solicitors' office, Catalyst
Corporate Finance Lawyers, 1100 - 1055 West Hastings Street, Vancouver, British
Columbia, V6E 2E9 at any time during normal business hours.
CONTINUATION
At the meeting of shareholders, our management will ask you to approve the
continuation by special resolution. We will also seek your consent to not
proceed with the continuation in the event that the special resolution is passed
by the shareholders at the meeting and we subsequently conclude that it would
not be in our best interests to proceed.
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The continuation will not result in any change in our business or assets,
liabilities, net worth or management, nor will the continuation impair any of
our creditors' rights. A particular shareholder's holding will not change. The
continuation is not, in itself, a corporate reorganization, amalgamation or
merger.
On the completion of the continuation, we will become Urban Wyoming subject
to the provisions of the Wyoming Business Corporations Act. As Urban Wyoming we
will establish a registered office in Wyoming and upon consummation of the
continuation, we will file a Current Report on Form 8-K with the SEC to reflect
the continuation for the purposes of Section 15(d) of the Exchange Act.
RIGHTS OF DISSENTING SHAREHOLDERS
The continuation gives rise to a shareholder's right of dissent. If the
continuation is approved at the meeting, and we go forward with the
continuation, shareholders who comply with the provisions of Section 207 of the
British Columbia Company Act will be entitled to receive payment for their
shares. This could have an adverse effect on our cash flow. A copy of Section
207 is attached as Appendix B to this information circular/prospectus.
CONVERSION OF SHARES
The current share certificates representing our common shares will represent
an equivalent number of common shares of Urban Wyoming without other action by
our shareholders. You will not have to exchange any share certificates. We will
issue new certificates representing common shares of Urban Wyoming upon
transfers of common shares or at your request.
CONTINUING DISCLOSURE OBLIGATION
We will remain a "reporting issuer" in British Columbia, Alberta and Ontario
after the continuation, and will continue to be obligated to prepare and issue
news releases in British Columbia, Alberta and Ontario, file material change
reports with the British Columbia Securities Commission, Alberta Securities
Commission and the Ontario Securities Commission, prepare, file and provide to
shareholders unaudited quarterly and audited annual financial statements, and
otherwise comply with the British Columbia Securities Act, Alberta Securities
Act and Ontario Securities Act, where applicable. Our insiders will continue to
be subject to the insider trading and reporting requirements of the British
Columbia Securities Act, Alberta Securities Act and the Ontario Securities Act.
8
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RISK FACTORS
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 which also distribute other beverage brands. Our products
compete with all non-alcoholic beverages, most of which are marketed by
companies with greater financial resources than Urban Canada and some of which
are placing severe pressure on independent distributors not to carry competitive
alternative or New Age beverage brands such as JONES SODA CO. We also compete
with regional beverage producers and "private label" soft drink suppliers. If,
due to such pressure or other competitive threats, we are unable to sufficiently
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 Urban Canada, could have a material adverse affect on our
business, financial condition, and results of operations.
WE RELY ON INDEPENDENT DISTRIBUTORS FOR THE DISTRIBUTION OF OUR PRODUCTS
As is customary in the beverage industry, we have no contractual commitments
from our independent distributors. 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/or volumes as they may have done in the past.
For the year ended December 31, 1998, approximately 18.0% of the cases of
our beverage products sold were sold through three distributors. The ability to
maintain our distribution system and to attract additional distributors in new
distribution areas will depend on a number of factors, many of which are outside
our control. 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 offered by competing products, and our ability to
deliver products in the quantity and at the time ordered by distributors. We
cannot assume that we will 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 affect on our relationships with our distributors in that
particular geographic area.
Our marketing and sales strategy presently, and in the future, will rely on
the availability and performance of our independent distributors. In addition,
we do not currently have, nor do we anticipate in the future that we will be
able to establish, long-term contractual commitments from many of our
distributors. Accordingly, there is no assurance that we will 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/or maintain key distributors in one or
more of our geographic distribution areas.
WE HAVE NOT EARNED A PROFIT IN ANY YEAR
Through December 31, 1998, Urban Canada had an accumulated deficit of
$10,616,388, most of which had resulted from our operations during the period in
which we transformed Urban Canada from being a regional distributor of licensed
and unlicensed beverage brands and products to a unique brand holder producing,
developing and marketing our own products. We believe that to operate at a
9
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profit we must significantly increase the sales volume for our unique brands and
products, achieve and maintain efficiencies in operations, maintain fixed costs
at or near current levels and avoid significant increases in variable costs
relating to production, marketing and distribution. Our ability to significantly
increase sales from current sales levels will depend primarily on success in
introducing our current brands and products, and possibly new unique brands and
products, into new geographic distribution areas, particularly in the United
States. Our ability to successfully enter new distribution areas 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 levels competitive with competing
products, 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. There is no assurance that we will successfully achieve all or any
of these goals, or that we will achieve profitable operations.
OUR SUCCESS IS DEPENDENT ON OUR JONES SODA CO. BRAND
Our business is substantially dependent upon acceptance by independent
distributors of the JONES SODA CO. brand as a beverage brand which may provide
incremental sales growth rather than reduce distributors' existing beverage
sales. It is still too early in the product life cycle of the JONES SODA CO.
brand to determine whether it will achieve this level of acceptance by
independent distributors or, ultimately, retail consumers. We believe that the
success of the WAZU brand will also be substantially dependent upon acceptance
of the JONES SODA CO. brand. Accordingly, any failure by the JONES SODA CO.
brand to achieve acceptance or market penetration would likely have a material
adverse affect on our business, financial condition and results of operations.
OUR SUCCESS IS DEPENDENT ON CONSUMER ACCEPTANCE OF OUR PRODUCT
The current JONES SODA CO. market distribution and penetration may be
limited with respect to the population as a whole to determine whether the brand
has achieved initial consumer acceptance, and there can be no assurance that
this acceptance will ultimately be achieved. Historically, alternative or New
Age beverage brands and products have experienced limited lifecycles in the
marketplace. Based on industry information and our own experience, we believe
typical life cycles for alternative or New Age beverage brands and products
range from five to nine years from the time the product is introduced in a
geographic distribution area. We are currently in the process of introducing the
JONES SODA CO. brand products in new geographic distribution areas and, thus, we
believe that these products are at the early stages of their respective product
life cycles. In light of the limited product life cycle for alternative or New
Age beverage brands and products, a failure to introduce new brands, products or
product extensions into the marketplace as current ones mature would likely have
a material adverse affect on our business, financial condition and results of
operations.
WE ARE DEPENDENT ON THE CONTINUED PARTICIPATION OF KEY PERSONNEL
We are dependent upon the creative skills and leadership of our founder,
Peter M. van Stolk, who serves Urban Canada as President and Chief Executive
Officer, as well as the management and operational skills of other members of
our senior management team. We have entered into an employment agreement with
Mr. van Stolk which expires in 2001. The loss of Mr. van Stolk could have a
material adverse affect on our business, financial condition and results of
operations.
Our management team consists of several key production, distribution, sales
and financial personnel who have been recruited within the past two years. In
order to manage and operate Urban Canada successfully in the future, it may be
necessary to further strengthen our management team; specifically, we anticipate
we will need to recruit a senior executive to be the Chief Operating Officer of
Urban Canada. The competition for such key personnel is intense, and there can
be no assurance
10
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that we will be successful in attracting, retaining or motivating such
individuals. The failure to attract, retain or motivate such key personnel would
likely have a material adverse affect on our business, financial condition and
results of operations.
WE HAVE LIMITED OPERATING EXPERIENCE AS A BRAND HOLDER
We launched our first unique brand, WAZU, in March 1995, and our second
unique brand, JONES SODA CO., in November 1995. In view of this limited
operating experience as a brand holder, we are vulnerable to a variety of
business risks usually associated with young companies or mature companies
entering a new line of business including the lack of management's experience in
expanding our market internationally. There can be no assurance that we will be
able to operate successfully as an international producer, marketer and
distributor of our beverage brands, and any failure to do so would likely have a
material adverse affect on our business, financial condition and results of
operations.
RISKS RELATED TO EXPANSION OF PRODUCT DISTRIBUTION
The ability to establish a market for our unique brands and products in new
geographic distribution areas, as well as the ability to maintain our existing
markets, will depend upon, among other things, our ability to establish and
maintain successful relationships with independent distributors in our
distribution areas, and to establish and maintain relationships with reliable
contract packers strategically located near such areas.
WE COULD BE EXPOSED TO PRODUCT LIABILITY CLAIMS FOR PERSONAL INJURY OR POSSIBLY
DEATH
Although we have product liability insurance in the aggregate amount of $5
million, with an each occurrence limit of $5 million, we cannot assure that the
coverage will be sufficient to cover any or all product liability claims. To the
extent our product liability coverage is insufficient, a product liability claim
would likely have a material adverse affect upon our business, financial
condition and results of operations.
WE ARE DEPENDENT ON THIRD-PARTY OR CONTRACT PACKERS OF OUR PRODUCTS
Even though we control and manage the entire manufacturing process of our
products, we do not own the plant and equipment required to manufacture and
package our beverage products and do not anticipate having such capabilities in
the future. As a consequence, we depend on third-party or contract packers to
produce our beverage products and to deliver them to distributors. Our ability
to attract and maintain effective relationships with contract packers for the
production and delivery of our beverage products in a particular geographic
distribution area is important to the achievement of successful operations
within each distribution area. Currently, the competition among contract packers
for business allows us to have the choice of two or more acceptable contract
packers in each of our geographic distribution areas. Under these circumstances,
we are currently able to establish and maintain competitive arrangements with
contract packers. However, there is no assurance that these conditions will
continue to exist in either our current geographic distribution areas or in new
areas we may enter. Accordingly, there is no assurance that we will be able to
maintain our economic relationships with current contract packers or establish
satisfactory relationships with contract packers in new geographic distribution
areas we may enter. The failure to establish and maintain effective
relationships with contract packers for a distribution area would likely prevent
us from successfully selling our products in that area or materially reduce
profits realized from the sale of our products in that area.
As is customary in the contract packing industry for comparably sized
companies, we are expected to arrange for our contract packing needs
sufficiently in advance of anticipated requirements. To the extent demand for
our products exceeds available inventory and the capacities produced by contract
11
<PAGE>
packing arrangements, 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, the potential unavailability of adequate
storage facilities to meet inventory levels, and the potential risk of inventory
spoilage. Our failure to accurately predict our contract packaging requirements
may impair relationships with our independent distributors and key accounts,
which, in turn, would likely have a material adverse affect on our business,
financial condition and results of operations.
FAILURE TO PROTECT OUR TRADEMARKS, DESIGN MARKS AND FLAVOR CONCENTRATE TRADE
SECRETS COULD HARM OUR BUSINESS
We consider our trademarks, design marks and flavor concentrates to be of
considerable value and importance to our business. We are pursuing the
registration of our trademarks in the United States, 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, design marks, flavor concentrates, trade dress
and/or similar proprietary rights. In addition, there can be no assurance that
other parties will not assert infringement claims against us. Any event that
would jeopardize our proprietary rights or any claims of infringement by third
parties could have a material adverse affect on our business, financial
condition and results of operations.
OUR BUSINESS IS SUBJECT TO MANY REGULATIONS
The production and marketing of our unique beverages, including contents,
labels, caps and containers, are subject to the rules and regulations of various
federal, provincial, state and local health agencies. If any current or future
products or production runs are found to be in noncompliance with any of these
regulatory authorities, there could be a material adverse affect on our
business, financial condition and results of operations.
OUR INFORMATION TECHNOLOGY AND COMPUTER CONTROLLED SYSTEMS MAY NOT BE YEAR 2000
COMPLIANT
We may not accurately identify all potential Year 2000 problems within our
business, and the corrective measures that we implement may be ineffective or
incomplete. Any unexpected problems could interrupt our ability to develop and
produce our products, process orders, accurately report operating and financial
data or service our customers. Similar problems and consequences could result if
any of our key suppliers or customers experience Year 2000 problems. Our failure
or the failure of our significant suppliers and customers to adequately address
the "Year 2000" issue could adversely affect our business, operating results and
financial condition. For more information about our Year 2000 compliance
efforts, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Impact of the Year 2000 Computer Problem."
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Some statements contained in this information circular/prospectus are
forward-looking. Forward-looking statements can be identified by the use of
words like "believe," "expect," "may," "will," "should," or "anticipate," or by
discussions of strategy. We caution you that our business and operations are
subject to a variety of risks and uncertainties and, consequently, our actual
results may materially differ from the results projected by the forward-looking
statements contained in this information circular/prospectus. Some of these
risks and uncertainties are discussed under "Risk Factors," beginning on page
of this information circular/prospectus.
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<PAGE>
MARKETS AND MARKET PRICES
COMMON SHARES
Our common shares are currently traded on the Vancouver Stock Exchange under
the symbol "UJS". Our common shares are also quoted on the OTC Bulletin Board.
We have not made any application to list the common shares on any other
exchange. The following table shows the high and low closing sale prices of the
common shares for the calendar quarters indicated, as reported by the Vancouver
Stock Exchange.
<TABLE>
<CAPTION>
HIGH LOW
----------- ---------
<S> <C> <C>
1997:
First quarter............................................................. Can.$ 2.55 1.44
Second quarter............................................................ Can.$ 2.50 1.45
Third quarter............................................................. Can.$ 1.90 1.30
Fourth quarter............................................................ Can.$ 1.35 0.69
1998:
First quarter............................................................. Can.$ 1.10 .73
Second quarter............................................................ Can.$ 1.34 .83
Third quarter............................................................. Can.$ 1.15 0.42
Fourth quarter............................................................ Can.$ 0.56 0.40
1999:
First quarter............................................................. Can.$ 0.90 0.45
Second quarter............................................................ Can.$ 1.35 0.76
Third quarter through August ........................................... Can.$ 1.60 1.11
</TABLE>
As of August 11, 1999, there were 18,685,918 common shares issued and
outstanding of which 6,151,326 or approximately 32.9% were held by 183 record
holders in the United States.
COMMON SHARE PURCHASE WARRANTS
As of August 11, 1999 we had warrants outstanding to purchase an aggregate
of 2,610,567 of our common shares. We issued warrants to purchase 40,000 common
shares in connection with a bank loan that closed on June 18, 1998. These
warrants expire on June 18, 2000 and have an exercise price of Can.$1.15 per
share. We also issued warrants to purchase 914,000 common shares in connection
with a private placement of common shares that closed on December 9, 1998. The
exercise price of these warrants is Can.$0.60 per share and expire on December
9, 2000. Finally, in connection with a private placement of our common shares
that closed on May 4, 1999, we issued warrants to purchase 1,656,567 common
shares, with each two warrants exercisable for one of our common shares, at an
aggregate exercise price of Can.$0.75 per share until May 4, 2000, and $0.90 per
share until May 4, 2001. There is no trading market for the warrants and we do
not intend to request the listing of the warrants on any exchange.
To the best of our knowledge, Urban Juice is not directly or indirectly
owned or controlled by another corporation or by any foreign government.
BENEFICIAL OWNERSHIP
The following table sets forth certain information regarding beneficial
ownership of our common shares, as of June 11, 1999, with respect to the total
amount of the outstanding common shares owned
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<PAGE>
by our officers and directors as a group. To the best of our knowledge, no
shareholder is the beneficial owner of more than five percent of the outstanding
common shares.
<TABLE>
<CAPTION>
AMOUNT PERCENT OF
TITLE OF CLASS IDENTITY OF PERSONS OR GROUP OWNED CLASS
- ------------------ -------------------------------------------------- -------------- ---------------
<S> <C> <C> <C>
Common Shares Officers and directors as a group 1,598,021 10.5%
</TABLE>
Management knows of no arrangement which would result in a change in control
of the Company subsequent to the date of this registration statement.
THE EXTRAORDINARY GENERAL MEETING
This information circular/prospectus is being furnished to our shareholders
in connection with the solicitation by our Board of Directors of proxies for the
meeting. The meeting will be held at 1356 Frances Street, Vancouver, British
Columbia, Canada, at 10:00 a.m. local time on September , 1999, and at its
adjournment or postponement. The approximate date of mailing this information
circular/prospectus and the accompanying proxy card to our shareholders is
August , 1999.
MANAGEMENT SOLICITATION AND APPOINTMENT OF PROXIES
THE PEOPLE NAMED IN THE ACCOMPANYING FORM OF PROXY ARE NOMINEES OF OUR
MANAGEMENT. A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A
SHAREHOLDER) TO ATTEND AND ACT FOR AND ON THE SHAREHOLDER'S BEHALF AT THE
MEETING OTHER THAN THE PEOPLE DESIGNATED AS PROXYHOLDERS IN THE ACCOMPANYING
FORM OF PROXY. TO EXERCISE THIS RIGHT, THE SHAREHOLDER MUST EITHER:
(A) ON THE ACCOMPANYING FORM OF PROXY, STRIKE OUT THE PRINTED NAMES OF THE
INDIVIDUALS SPECIFIED AS PROXYHOLDERS AND INSERT THE NAME OF THE
SHAREHOLDER'S NOMINEE IN THE BLANK SPACE PROVIDED; OR
(B) COMPLETE ANOTHER PROPER FORM OF PROXY.
TO BE VALID, A PROXY MUST BE DATED AND SIGNED BY THE SHAREHOLDER OR BY THE
SHAREHOLDER'S ATTORNEY AUTHORIZED IN WRITING. IN THE CASE OF A CORPORATION, THE
PROXY MUST BE SIGNED BY A DULY AUTHORIZED OFFICER OF OR ATTORNEY FOR THE
CORPORATION.
THE COMPLETED PROXY, TOGETHER WITH THE POWER OF ATTORNEY OR OTHER AUTHORITY,
IF ANY, UNDER WHICH THE PROXY WAS SIGNED OR A NOTARIALLY CERTIFIED COPY OF THE
POWER OF ATTORNEY OR OTHER AUTHORITY, MUST BE DELIVERED TO PACIFIC CORPORATE
TRUST COMPANY, OF SUITE 830 - 625 HOWE STREET, VANCOUVER, BRITISH COLUMBIA, V6C
3B8, AT LEAST 48 HOURS BEFORE THE MEETING, EXCLUDING SATURDAYS, SUNDAYS AND
HOLIDAYS.
REVOCATION OF PROXIES
A shareholder who has given a proxy may revoke it at any time before the
proxy is exercised by delivering a letter signed by the shareholder, the
shareholder's attorney authorized in writing or, where the shareholder is a
corporation, a duly authorized officer or attorney of the corporation to Pacific
Corporate Trust Company of Suite 830 - 625 Howe Street, Vancouver, British
Columbia V6C 3B8 or to the registered office of Urban Canada at Suite 1100 -
1055 West Hastings Street, Vancouver, British Columbia, Canada, V6E 2E9, at any
time up to and including the last business day preceding the day of the meeting
or any adjournment of the meeting, or delivered to the chairperson of the
meeting on the day of the meeting or any adjournment of the meeting before any
vote has been taken on a matter regarding which the proxy is to be used.
In addition, a proxy may be revoked by operation of law if, for example, the
shareholder dies, becomes incompetent, or, if the shareholder is a corporation,
partnership or other entity, the shareholder is dissolved.
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<PAGE>
RECORD DATE; SHAREHOLDERS ENTITLED TO VOTE AT THE MEETING
Holders of our common shares of record on the close of business on July 22,
1999, the record date, will be entitled to vote at the meeting. As of the record
date, there were of our common shares outstanding.
Shareholders should not forward any stock certificates with their proxy
cards. If the continuation is consummated, certificates representing our common
shares will represent shares of Urban Wyoming common stock.
Our directors and senior officers do not believe that any person
beneficially owns, directly or indirectly, or exercises control or direction
over, shares carrying more than 10% of the voting rights attached to all
outstanding shares of Urban Canada.
VOTING OF SHARES AND PROXIES AND EXERCISE OF DISCRETION BY PROXYHOLDERS
To approve the continuation, the special resolution must be approved by at
least 75% of the votes cast in person or by proxy.
A shareholder may indicate the manner in which the persons named in the
proxy are to vote regarding a matter to be acted upon at the meeting by marking
the appropriate space. If the instructions as to voting indicated in the proxy
are clear, the shares represented by the proxy will be voted or withheld from
voting in accordance with the instructions given in the proxy.
If no choice is specified in the proxy regarding a matter to be acted upon,
the proxy confers discretionary authority regarding that matter upon the
proxyholder named in the proxy. It is intended that the proxyholder named by
management in the accompanying form of proxy will vote the shares represented by
the proxy in favor of each matter identified in the proxy.
The proxy also confers discretionary authority upon the named proxyholder
regarding amendments or variations to the matters identified in the attached
notice of meeting and regarding any other matters which may properly be raised
at the meeting. As of the date of this information circular/ prospectus, we are
not aware of any amendments or variations, or any other matters, that will be
presented for action at the meeting other than those referred to in the
accompanying notice of meeting. If, however, other matters that are not now
known to us are properly raised at the meeting then the persons named in the
accompanying form of proxy intend to vote on them in accordance with their best
judgment.
SOLICITATION OF PROXIES
Solicitations of proxies will be made primarily by mail and possibly
supplemented by telephone or other personal contact by our directors, officers
and employees without special compensation. We may reimburse shareholders'
nominees or agents for the costs incurred in obtaining authorization to execute
forms of proxy from their principals. We will bear any costs of solicitation of
proxies.
TAX CONSEQUENCES OF THE CONTINUATION
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
This summary of the material United States federal income tax consequences
of the continuation applies to U.S citizens and resident aliens, corporations
and partnerships organized under the laws of the United States or any state
thereof, estates subject to the U.S. federal income tax on their income
regardless of source and trusts subject to the primary supervision of a court
within the United States and control by a U.S. fiduciary ("U.S. Holders") who
own common shares of Urban Canada as capital assets on the date of this
information circular/prospectus. U.S. Holders who own interests in Urban Canada
indirectly through one or more non-U.S. entities or in carrying on business
outside the United
15
<PAGE>
States through a permanent establishment or fixed place of business or U.S.
Holders who hold an interest in Urban Canada other than as a common shareholder
should consult with their tax advisors.
This summary also describes the U.S. federal income tax consequences of the
continuation to persons resident in Canada ("Canadian Holders"). The discussion
is limited to the U.S. federal income tax consequences to Canadian Holders of
their ownership and disposition of the common shares of Urban Canada as a result
of the continuation and assumes the Canadian Holders have no other U.S. assets
or activities.
This summary is based upon the facts set out in this information
circular/prospectus and upon additional information possessed by our management
and upon representations of our management. This discussion is also based upon
the United States Internal Revenue Code of 1986, U.S. Treasury regulations, the
Canada-United States Income Tax Convention, 1980 and subsequent protocols, and
judicial and administrative interpretations as of the date of this information
circular/prospectus. This discussion does not consider the potential effects,
adverse or beneficial, of any recently proposed legislation, which if enacted,
possibly could be applied on a retroactive basis at any time. There can be no
assurance that new legislation with retroactive effect will not be introduced or
that judicial or administrative interpretations may not change in a way that
will materially change the U.S. federal income tax consequences described in
this summary. We have not requested an advance income tax ruling from the
Internal Revenue Service , nor have we sought a legal opinion on any U.S. tax
aspect of the continuation.
This summary is not intended to address all provisions of the Internal
Revenue Code that may be relevant to a particular shareholder. No attempt has
been made to address the United States income tax consequences of the
continuation to U.S. Holders who have special status under the Internal Revenue
Code or the Canadian Income Tax Act such as financial institutions, insurance
companies, tax exempt organizations, broker-dealers or dual-residents of the
U.S. and Canada, to U.S. citizens or U.S. resident aliens resident in Canada or
to non-U.S. persons who are not resident in Canada. This summary does not
address the U.S. federal income tax consequences to a person of the ownership,
exercise or disposition of any compensatory options.
This summary does not comment on state and local income tax consequences of
the continuation because it is impractical to consider the state and local tax
rules of each jurisdiction in which a particular U.S. Holder may be resident.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IT IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR SHAREHOLDER.
U.S. HOLDERS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE
SPECIFIC UNITED STATES FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE
CONTINUATION TO THEIR OWN CIRCUMSTANCES.
U.S. HOLDERS
The continuation of Urban Canada to the United States into the
post-continuation company, Urban Wyoming, will be treated for U.S. federal
income tax purposes as a tax-free reorganization. Generally, no gain or loss
will be recognized to a U.S. Holder upon the continuation. A U.S. Holder's
adjusted basis in the shares of Urban Wyoming received in the exchange will be
equal to the U.S. Holders adjusted basis in the shares of Urban Canada
surrendered in the exchange.
A U.S. Holder who sells or exchanges shares of a foreign corporation, such
as the shares of Urban Canada, in transactions such as those undertaken in the
continuation that are otherwise tax-free for U.S. income tax purposes, may be
required to recognize gain, as provided in U.S. Treasury regulations. However,
those regulations that uphold non-recognition treatment to U.S. Holders who own
less than 10% of the total voting power of the shares of the foreign corporation
will be applied to the continuation. Management has represented that no U.S.
Holders of Urban Canada own 10% or more
16
<PAGE>
of the total voting power of the shares of Urban Canada, either directly,
indirectly or constructively. Non-recognition treatment is conditioned upon a
U.S. Holder filing a notice under Reg. 1.367(b)-1(c)(1) containing prescribed
information on or before the last day for filing a U.S. income tax return for
the year of the exchange, taking timely extensions into account. This notice
must be filed with the district director with whom the U.S. Holder is required
to file a U.S. federal income tax return for the year of exchange.
U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE APPROPRIATE
FILING REQUIREMENT WITH RESPECT TO THE SALE OR EXCHANGE OF URBAN CANADA'S
SHARES.
CONTROLLED FOREIGN CORPORATION CONSIDERATIONS
If more than 50% of the voting power of all classes of shares or of the
total value of the shares of Urban Canada is owned, directly, indirectly, or
constructively, by citizens or residents of the United States, U.S. domestic
partnerships and corporations or estates or trusts other than foreign estates or
trusts, each of whom owns 10% or more of the total combined voting power of all
classes of shares of Urban Canada ("U.S. Shareholders"), Urban Canada will be
treated as a controlled foreign corporation under Subpart F of the Internal
Revenue Code. This classification would have many complex results, including the
required inclusion in income of their pro rata shares of the "Subpart F income,"
of Urban Canada by U.S. Shareholders, as specifically defined by the Internal
Revenue Code. Further, if Urban Canada is deemed to be a controlled foreign
corporation, U.S. Shareholders may be subject to U.S. income tax on their pro
rata shares of any increase in the average amounts of U.S. property held by
Urban Canada.
In addition, under Section 1248 of the Internal Revenue Code, gain from the
sale or exchange of shares of Urban Canada by a holder who is or was a U.S.
Shareholder at any time during the five-year period ending with such sale or
exchange would be treated as dividend income and taxed at ordinary income rates
to the extent of earnings and profits of Urban Canada attributable to the stock
sold or exchanged.
If Urban Canada is both a passive foreign investment company (as defined
below) and a controlled foreign corporation, Urban Canada will not be treated as
a passive foreign investment company with respect to the U.S. Shareholders.
Management does not believe that Urban Canada is a controlled foreign
corporation.
PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS
Urban Canada will be classified as a passive foreign investment company for
any taxable year during which either 75 percent or more of our gross income is
passive income or the average quarterly value of our assets which produce or are
held for the production of passive income for such taxable year equals or
exceeds 50 percent of the average quarterly value of our total assets for the
year. Classification of Urban Canada as a passive foreign investment company at
any time during a particular U.S. Holder's holding period may result in a number
of unfavorable U.S. income tax consequences including recognition of gain on the
disposition of Urban Canada shares, recognition of gain on the continuation of
Urban Canada to the United States, taxation of that gain at rates applicable to
ordinary income and an imposition of an interest charge on taxes apportioned to
prior years in the U.S. Holder's holding period for his Urban Canada shares.
Management does not believe that Urban Canada satisfies either of the tests
for passive foreign investment company status in this year or that it has
satisfied either test in any previous year.
FOREIGN PERSONAL HOLDING COMPANY
Urban Canada will be classified as a foreign personal holding company for
U.S. federal income tax purposes if both of the following tests are satisfied:
(i) at any time during Urban Canada's taxable year,
17
<PAGE>
five or fewer individuals who are U.S. citizens or residents own or are deemed
to own (under certain attribution rules) more than 50% of all classes of Urban
Canada's shares measured by voting power or value and (ii) Urban Canada receives
at least 60% (50% in subsequent years) of its gross income (regardless of
source), as specifically adjusted, from passive sources.
If Urban Canada were to be classified as a foreign personal holding company,
a portion of our "undistributed foreign personal holding company income" (as
defined for U.S. federal income tax purposes) would be allocated to all of our
U.S. shareholders who are U.S. Holders on the last day on which Urban Canada is
classified as a foreign personal holding company or the last day of Urban
Canada's taxable year if earlier. This income would be includable in a U.S.
Holder's gross income as a dividend for U.S. federal income tax purposes. U.S.
Holders who dispose of their common shares prior to that date would not be
subject to tax under these rules.
Management does not believe that Urban Canada satisfies either the foreign
personal holding company ownership test or the foreign personal holding company
income test.
DISSENTING SHAREHOLDERS
U.S. Holders who exercise their right of dissent and who receive cash in
exchange for their common shares of Urban Canada will recognize gain or loss.
Gain or loss will be treated as U.S. source capital gain or capital loss and
will be measured as the difference between the money and the fair market value
of other property received in exchange for the shares and the adjusted basis of
the shares surrendered.
URBAN CANADA WARRANTS
A U.S. Holder who holds warrants enabling the U.S. Holder to acquire common
shares of Urban Canada will not recognize gain or loss as a result of the change
in entitlement to acquire common shares of Urban Wyoming as a result of the
continuation. In addition, a U.S. Holder who purchases Urban Wyoming shares
pursuant to a warrant will not recognize any gain or loss on such a purchase and
will have an adjusted tax basis in Urban Wyoming shares equal to the aggregate
of the purchase price of the warrants and the purchase price of Urban Wyoming
shares acquired pursuant to the warrants.
UNITED STATES TAXATION OF INCOME, GAINS, AND LOSSES
Distributions made by Urban Wyoming to U.S. Holders of Urban Wyoming shares
will be treated as dividends to the extent of Urban Wyoming's current and
accumulated earnings and profits. Dividend income is treated as ordinary income.
The maximum federal income tax rate on ordinary income of individuals is
currently 39.6 percent.
A corporate U.S. Holder who receives a dividend from Urban Wyoming will be
allowed a dividends received deduction from its taxable income in an amount
equal to 70% of the dividend received if the corporate U.S. Holder owns less
than 20% of the voting power and the value of the shares of Urban Wyoming. A
corporate U.S. Holder who has an ownership percentage of at least 20% but less
than 80% of the voting power and value of shares of Urban Wyoming will receive a
dividends received deduction in the amount of 80% of the dividends received. A
corporate U.S. Holder that owns 80% or more of the voting power and value of the
shares of Urban Wyoming will be allowed a dividends received deduction equal to
100% of the dividend received from Urban Wyoming.
Distributions in excess of Urban Wyoming's current and accumulated earnings
and profits will be tax-free to the extent of the U.S. Holder's adjusted basis
in their Urban Wyoming shares but will reduce the adjusted basis by the same
amount.
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<PAGE>
U.S. Holders who hold their Urban Wyoming shares as a capital asset and who
either dispose of their Urban Wyoming shares at a gain or who receive
distributions in excess of Urban Wyoming's earnings and profits and adjusted
basis will recognize a capital gain. Under current U.S. law, the net long term
capital gains (assets held in excess of 12 months) of individuals are subject to
a maximum federal income tax rate of 20 percent. Net short-term capital gains
are taxed at the marginal tax rates for ordinary income. (For individuals the
maximum marginal rate is 39.6% and for corporations the maximum marginal rate is
35%.)
In order to determine the appropriate capital gains tax rate, U.S. Holders
who are individuals will need to determine the holding period of their Urban
Wyoming shares (i.e., the period of time that the U.S. Holder has owned the
Urban Wyoming shares). In determining the holding period of the Urban Wyoming
shares, the U.S. Holder will include the period during which the shares of Urban
Canada were held by the U.S. Holder.
For corporations, capital gains and ordinary income are taxed at the maximum
federal income tax rate of 35 percent.
Capital losses are deductible only to the extent of capital gains. However,
in the case of taxpayers other than corporations, $3,000 ($1,500 in the case of
a married person filing a separate return) of capital losses are deductible
against ordinary income annually. In the case of individuals and other non-
corporate taxpayers, capital losses that are not currently deductible may be
carried forward to other years. In the case of corporations, capital losses that
are not currently deductible are carried back to each of the three years
preceding the loss year and forward to each of the five years succeeding the
loss year.
CANADIAN HOLDERS
A Canadian Holder will not be subject to United States federal income tax or
reporting requirements on gain recognized as a result of the continuation.
U.S. non-recognition treatment is mandatory rather than elective and will
result in the Canadian Holders receiving a U.S. federal income tax adjusted cost
basis in the Urban Wyoming shares acquired pursuant to the exchange that is the
same as the U.S. adjusted basis of their shares of Urban Canada surrendered.
Canadian Holders will not be subject to U.S. income tax on account of cash
received on payments made pursuant to the dissent provisions of the
continuation.
SUBSEQUENT SALE OF URBAN WYOMING SHARES
A Canadian Holder will not be subject to United States federal income tax on
gain recognized on the sale or other disposition of Urban Wyoming shares, unless
the Urban Wyoming shares constitutes a United States real property interest at
the time of disposition and the Canadian Holder is a "5 percent shareholder." A
Canadian Holder who beneficially owns or owned more than five percent of the
total fair market value of Urban Wyoming's regularly traded shares, either at
the time of disposition or at any time in the five-year period ending on the
disposition date, will be a 5 percent shareholder. Gain recognized by a 5
percent shareholder will be subject to United States tax unless the Canadian 5
percent shareholder establishes in a prescribed manner that Urban Wyoming is not
a United States real property interest. Specifically, the Canadian 5 percent
shareholder must establish that the fair market value of Urban Wyoming's United
States real property interests is and was less than 50 percent of the fair
market value of the sum of all of its trade or business assets, its real
properties located outside the United States and its United States real property
interests, both at the time of disposition and at any time in the five year
period ending on the disposition date.
Management believes that Urban Wyoming will not be a U.S. real property
interest.
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<PAGE>
RECEIPT OF DIVIDENDS ON URBAN WYOMING SHARES
Distributions made by Urban Wyoming to Canadian Holders of Urban Wyoming
shares will be treated as U.S. source dividends to the extent of Urban Wyoming's
current and accumulated earnings and profits. Canadian Holders will generally be
subject to 15 percent U.S. non-resident withholding tax, with no allowance for
deductions, except in the case of a Canadian corporation that owns at least 10
percent of the Urban Wyoming voting shares, in which case the U.S. non-resident
withholding tax rate is reduced to 5 percent pursuant to the Canadian-United
States Income Tax Convention.
Distributions in excess of Urban Wyoming's current and accumulated earnings
and profits will be tax-free to the extent of the Canadian Holder's adjusted
basis in their Urban Wyoming shares but will reduce the adjusted basis by the
same amount. Distributions in excess of Urban Wyoming's earnings and profits and
adjusted basis will give rise to a capital gain, treated in the manner described
in, "Subsequent Sale of Urban Wyoming Shares," above.
FEDERAL ESTATE TAX TREATMENT
Shares and warrants of Urban Wyoming held by an individual Canadian Holder
at the time of death are U.S. situs assets and are potentially subject to United
States federal estate tax. A non-resident of the United States is eligible for
an effective $60,000 exemption amount on U.S. situs assets. Estates with U.S.
situs assets in excess of $60,000 are subject to estate tax rates ranging from
26% to 55%. A number of relieving provisions are available under the
Canadian-United States Income Tax Convention, including a potentially enhanced
effective exemption amount, a limited marital credit and, depending upon the
circumstances, a Canadian foreign tax credit for all or a portion of any U.S.
estate taxes paid. As well, individual Canadian Holders whose world-wide gross
estates, as computed under U.S. tax rules, are limited to $1.2 million or less
are subject to U.S. estate tax only on properties the disposition of which would
be subject to U.S. income tax under the Canadian-United States Income Tax
Convention.
CANADIAN INCOME TAX CONSIDERATIONS
Thorsteinssons, our Canadian tax counsel, has advised that the following
general summary fairly describes the principal Canadian federal income tax
consequences of the proposed continuation of Urban Canada to Wyoming to our
shareholders and warrantholders who are resident in Canada, who own, either
alone or together with related persons, less than 10% of the shares of Urban
Canada, and to whom shares and warrants of Urban Canada constitute capital
property for the purposes of the Canadian Income Tax Act. This summary also
describes the principal Canadian federal income tax consequences of the proposed
continuation of Urban Canada to Wyoming to shareholders and warrantholders who
are non-residents of Canada, do not carry on business in Canada, and who own,
either alone or together with related persons, less than 10% of the shares of
Urban Canada ("Non-resident Holders"). Shareholders and warrantholders of the
Company should consult their own tax advisors as the tax consequences to them of
the proposed continuation are beyond the scope of this summary.
This summary is based upon the current provisions of the Canadian Income Tax
Act, the regulations therein, any proposed amendments to the Canadian Income Tax
Act or regulations previously announced by the Federal Minister of Finance and
counsel's understanding of the current administrative and assessing policies of
Revenue Canada, Customs, Excise and Taxation. This description is not exhaustive
of all possible Canadian federal income tax consequences and does not take into
account or anticipate any changes in law, whether by legislative, governmental
or judicial action other than the proposed amendments, nor does it take into
account provincial or foreign tax considerations which may differ significantly
from those discussed herein.
20
<PAGE>
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IT IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR SHAREHOLDER.
ACCORDINGLY, SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS FOR ADVICE WITH
RESPECT TO THE CANADIAN INCOME TAX CONSEQUENCES TO THEM OF THE PROPOSED
CONTINUATION.
NATURE OF SHARES AND WARRANTS OF URBAN CANADA HELD BY CANADIAN HOLDERS
The shares and warrants of Urban Canada will constitute "capital property"
to a Canadian Holder, unless the Canadian Holder is a trader or dealer in
securities or is engaged in an adventure in the nature of trade with respect to
the shares and warrants. Certain individual Canadian Holders, resident in
Canada, whose shares of Urban Canada might not otherwise qualify as "capital
property" may be entitled to obtain such qualification by disposing of their
shares before the time of the continuation and making an irrevocable election
under subsection 39(4) of the Canadian Income Tax Act. After the continuation,
the shares of Urban Canada will no longer constitute Canadian securities for
purposes of the subsection 39(4) election. ANY INDIVIDUALS CONTEMPLATING MAKING
AN ELECTION UNDER SUBSECTION 39(4) OF THE CANADIAN INCOME TAX ACT SHOULD CONSULT
THEIR TAX ADVISORS AS THE ELECTION WILL AFFECT THE CANADIAN INCOME TAX TREATMENT
OF THE DISPOSITION OF THE SHAREHOLDER'S OTHER CANADIAN SECURITIES.
PRE-CONTINUATION TRANSACTION
Before the continuation, WAZU Products Ltd., a subsidiary of Urban Canada,
will sell the assets used in its U.S. operations to Urban Juice and Soda (USA)
Inc. for proceeds of disposition equal to the fair market value of its assets.
WAZU will realize a gain on the sale equal to the amount by which the proceeds
exceed the tax cost of its assets. WAZU may deduct any non-capital losses
available for carry-forward from the gain in computing its taxable income for
the year in which the sale takes place.
As of the date of this information circular/prospectus, in view of the fair
market value and the tax cost of the assets to be sold by WAZU and the
non-capital losses available to be carried forward by WAZU, we do not believe
WAZU will incur tax liability as a result of the sale.
SHAREHOLDER CONSEQUENCES OF CONTINUATION
The continuation of Urban Canada into Wyoming will not constitute a taxable
event for our Canadian Holders. Canadian Holders will continue to hold their
shares and warrants at the same adjusted cost base as before the continuation.
Any dividends paid by us to our Canadian shareholders after Urban Canada's
continuation into Wyoming will no longer be eligible for the dividend tax credit
provided under the Canadian Income Tax Act. Under the Canada-US Income Tax
Convention the U.S. tax that may be withheld from dividends paid by us to our
Canadian shareholders after Urban Canada's continuation into Wyoming will be
limited to a maximum rate of 15%. Canadian shareholders may claim a foreign tax
credit or a deduction in computing their taxable income for US tax withheld on
dividends paid by Urban Canada.
FOREIGN REPORTING
A Canadian resident is required under the Canadian Income Tax Act to report
his or her foreign property holdings if the aggregate cost amount of such
holdings exceeds $100,000. Following the continuation, the shares and warrants
of Urban Canada will constitute foreign property for the purposes of this rule
and their "cost amount" will count towards the calculation of the $100,000
threshold.
21
<PAGE>
DISSENT PROCEEDINGS
If a shareholder initiates formal dissent proceedings in respect of the
proposed continuation, Urban Canada will be required to purchase the dissenting
shareholder's shares for a cash payment equal to the fair value of the shares.
The redemption proceeds will be treated as a dividend to the extent that the
proceeds exceed the paid-up capital of the purchased shares. The balance of the
redemption proceeds (i.e., the amount equal to the paid-up capital of the
purchased shares) will be treated as proceeds of disposition of the shares for
the purpose of computing the shareholder's capital gain or loss. Consequently,
the dissenting shareholder will realize a capital gain or loss to the extent
that the paid-up capital of the shares exceeds or is exceeded by the
shareholder's adjusted cost base of the shares.
A dissenting shareholder that is a private corporation or a subject
corporation, as those expressions are defined in the Canadian Income Tax Act,
will be liable to pay a 33 1/3% tax under Part IV of the Canadian Income Tax Act
on the redemption proceeds to the extent that they are treated as a dividend. A
private corporation is one that is not public and is not controlled by one or
more public companies and a subject corporation is one that is not private and
is controlled by or for the benefit of one or more individuals.
If the dissenting shareholder is a public corporation resident in Canada,
the full amount of the redemption proceeds may be treated as proceeds of
disposition with the result that no dividend will be deemed to have been paid to
the shareholder and any gain or loss realized by the dissenting shareholder will
be determined by reference to the full amount of the redemption proceeds.
Any capital loss arising on the exercise of dissent rights by a corporate
shareholder of Urban Canada will be reduced by the amount of dividends received
or deemed to have been received, including any deemed dividend arising from the
exercise of dissent rights, on the purchased shares where the period of
ownership of the shares was less than 365 days or where the corporate holder
(together with individuals or entities with whom it did not deal at arm's
length) held more than 5% of the issued shares of any class of Urban Canada at
the time the dividends were received or deemed to have been received.
INTEREST EXPENSE
Urban Canada's continuation to Wyoming will not affect the deductibilty of
interest incurred on money borrowed to purchase shares of Urban Canada. Interest
will continue to be deductible by the shareholder after the continuation to
Wyoming when paid or payable, depending on the method regularly followed by the
shareholder. Interest will remain deductible only as long as the shareholder
continues to own the shares of Urban Canada or uses the borrowed funds to earn
income from a business or property. Compound interest is deductible only when
paid.
COMPANY CONSEQUENCES
Once we have been granted a Certificate of Continuation or similar
constitutional documents from Wyoming, Urban Canada will be deemed to have been
incorporated in Wyoming at that time for purposes of the Canadian Income Tax Act
and will cease to be a resident of Canada.
The "corporate emigration" rules under the Canadian Income Tax Act will
apply upon the continuation of Urban Canada to Wyoming. Accordingly, we will be
deemed to have had a taxation year ended immediately before being granted a
Certificate of Continuation in Wyoming. Each property owned by us immediately
before the deemed year end will be deemed to have been disposed of for proceeds
of disposition equal to that property's fair market value. Any gains or losses
derived from this deemed disposition of property will be taken into account when
determining the amount of our taxable income for the fiscal period which ends
immediately before Urban Canada's continuation into
22
<PAGE>
Wyoming. The amount of any taxable income so determined will be subject to tax
in accordance with the provisions of the Canadian Income Tax Act.
As of the date of this information circular/prospectus, in view of the fair
market value and tax cost of each property owned by us, we do not believe that
we will incur tax liability as a result of the deemed disposition of each of our
properties.
We will also be required to pay a special branch tax equal to 5% of the
amount by which the fair market value of our assets exceed the aggregate of our
liabilities, including any liabilities under the Canadian Income Tax Act, and
the paid-up capital of issued and outstanding shares at the time of Urban
Canada's continuation into Wyoming.
As of the date of this information circular/prospectus, in view of the fair
market value of our assets, liabilities and the paid-up capital of our issued
and outstanding shares, we do not believe that we will be liable to pay the
special branch tax.
After our continuation into Wyoming, Urban Canada will cease to be liable
for Canadian tax on our worldwide income. However, if we carry on business
through a permanent establishment located in Canada, as that expression is
defined in the Canadian-United States Income Tax Convention, we will continue to
be subject to Canadian tax on business profits attributable to the permanent
establishment.
TAX-EXEMPT HOLDERS
After the continuation takes effect, the shares of Urban Wyoming will remain
listed on the Vancouver Stock Exchange which is a prescribed stock exchange for
purposes of the Canadian Income Tax Act. In this way, the shares and warrants
will be qualified investments for a trust governed by a registered retirement
savings plan, a deferred profit sharing plan, a registered retirement income
fund or a registered pension plan, and certain other entities. However, the
shares and warrants would constitute "foreign property" to these trusts and
entities for the purposes of the Canadian Income Tax Act.
Excepting foreign property that constitutes a qualified investment and
property that was not foreign property when acquired but became foreign property
within the preceding two years, trusts and entities must pay a monthly tax under
the Canadian Income Tax Act equal to 1% of the amount by which the cost amount
of all the trust's foreign property as determined at the end of each month
exceeds the aggregate of:
(a) 20% of the cost amount of all the trust's property; and,
(b) in certain circumstances, an additional amount in respect of the
trust's "small business investment amount."
SHAREHOLDERS THAT ARE ONE OF THE TYPES OF ENTITIES DESCRIBED ABOVE SHOULD
CONSULT THEIR OWN TAX ADVISORS REGARDING THE CONSEQUENCES OF ACQUIRING AND
HOLDING SHARES AND WARRANTS OF URBAN WYOMING.
NON-RESIDENT HOLDERS
The continuation of Urban Canada into Wyoming will not constitute a taxable
event for federal Canadian income tax purposes for Non-resident Holders.
Dividends paid by Urban Canada to Non-resident Holders after its
continuation into Wyoming will no longer be subject to Canadian withholding tax.
23
<PAGE>
INTEREST OF MANAGEMENT IN THE CONTINUATION
No director or senior officer of Urban Canada at any time since the
beginning of our most recently completed financial year, no proposed nominee for
election as a director of Urban Canada and no associate or affiliate of any
person has any material interest, direct or indirect, by way of beneficial
ownership of securities or otherwise, in the continuation, except for any
interest arising from the ownership of shares of Urban Canada where the
shareholder will receive no extra or special benefit or advantage not shared on
a pro-rata basis by all holders of shares in the capital of Urban Canada.
RIGHTS OF DISSENTING SHAREHOLDERS
RIGHT OF DISSENT
The British Columbia Company Act provides that our shareholders are entitled
to exercise dissenter's rights in connection with the continuation. A
shareholder validly exercising its right of dissent is entitled to be paid the
fair value of its shares as determined by agreement between the dissenter and
us. If we cannot agree on the fair value of the shares, the value will be
determined by a court order. In determining the fair value of the dissenter's
shares, the court will consider the value of the shares as of the day before the
date the continuation resolution is passed, including any appreciation or
depreciation in anticipation of the vote. The court may set the price and terms
of the payment and sale or order that they be set by arbitration. The court is
not bound by any single set of evidentiary standards, although the quoted stock
market price is used as an indication of the fair value of the shares.
DISSENT PROCEEDINGS
A dissenting shareholder must follow the appropriate procedures under the
British Columbia Company Act or suffer the termination or waiver of its
dissenter's rights.
A shareholder electing to exercise dissenter's rights must, at least two
days prior to the meeting, perfect its dissenter's rights by demanding in
writing from Urban Canada the appraisal of its common shares of Urban Canada, as
provided in Section 37 of the British Columbia Company Act. A holder who elects
to exercise dissenter's rights should mail or deliver its written demand to
Urban Canada at 1356 Frances Street, Vancouver, British Columbia, Canada V6L
1Y9, Attn: Corporate Secretary. The demand should specify the holder's name and
mailing address, the number of common shares of Urban Canada owned and that the
holder is demanding appraisal of its shares. Only a holder of record of common
shares of Urban Canada, or its representative, is entitled to assert dissenter's
rights for the shares registered in its name.
Section 207 of the British Columbia Company Act applies after a holder of
Urban Canada common shares has given its notice of dissent. If a holder
exercises and perfects dissenter's rights in connection with the continuation
under Section 207, any common shares of Urban Canada affected by those rights
will not be converted into common shares of Urban Wyoming but instead will be
converted into the right to receive the consideration as may be determined in
accordance with Section 207.
If any dissenting shareholder withdraws or loses its right to appraisal, its
shares will be converted into common shares of Urban Wyoming in the continuance.
A shareholder will lose its right to appraisal if it votes in favor of the
continuation.
24
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data as of December 31, 1994, 1995, 1996, 1997, 1998,
and as of June 30, 1999, for the nine months ended December 31, 1994 and the
years ended December 31, 1995, 1996, 1997 and 1998, are derived from the audited
consolidated financial statements of Urban Canada (the "Consolidated Financial
Statements"), and should be read in conjunction with the Consolidated Financial
Statements and the notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations. The unaudited selected financial
data as of June 30, 1999 and comparative figures as of June 30, 1998 and for the
six months ended June 30, 1999 and June 30, 1998, respectively, have been
prepared by management of Urban Canada. The Consolidated Financial Statements
are expressed in Canadian dollars and were prepared in accordance with Canadian
generally accepted accounting principles, which do not materially differ from
United States generally accepted accounting principles except as explained in
"Consolidated Financial Statements--Note 14." We changed our fiscal year end to
December 31, effective 1994. As a result, amounts reported for fiscal 1994 are
for nine months ended December 31, 1994. Previously, Urban Canada had a fiscal
year ending on March 31.
<TABLE>
<CAPTION>
NINE SIX SIX
MONTHS YEAR YEAR YEAR YEAR MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
STATEMENT OF OPERATIONS DATA 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 6/30/99 6/30/98
- ------------------------------------- ------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CANADIAN GAAP
Sales................................ Can.$5,278,230 $4,412,338 $3,458,701 $3,265,317 $7,011,046 $8,263,627 $3,339,969
Cost of sales........................ 4,422,241 3,750,758 3,006,924 2,689,897 5,123,016 5,684,292 2,387,889
------------- --------- --------- --------- --------- --------- ---------
Gross margin......................... 855,989 661,580 451,777 575,420 1,888,030 2,579,335 952,080
Operating expenses................... 1,031,338 2,218,028 2,874,977 4,263,456 4,051,235 2,878,190 1,905,365
------------- --------- --------- --------- --------- --------- ---------
Total operating loss............... Can.$ 175,349 $1,556,448 $2,423,200 $3,668,036 $2,163,205 $(298,855) $(953,285)
------------- --------- --------- --------- --------- --------- ---------
OTHER INCOME/EXPENSES:
Interest expense on debentures....... Can.$ 27,649 $ 21,703 $ -- $ -- $ -- $ -- $ --
Other interest expense............... 10,436 31,578 26,527 10,002 16,347 $ 13,522 $ 8,736
Interest income...................... 3,314 401 29,055 57,146 27,725 15,518 23,910
Write-down of inventory subject to
legal claims(1).................... 353,797
Write-down of intangible assets...... 102,871
Miscellaneous income (expense)....... 4,264 113,875 1,341 5,167 3,028 (32,234) 1,696
Foreign exchange gain................ 6,361 72,224 22,604 26,787
Gain (loss) on disposal of capital
assets............................. -- 18,823 (6,921) 12,584 17,813 4,307 (5,792)
------------- --------- --------- --------- --------- --------- ---------
Net loss(2)........................ Can.$ 205,856 $1,476,630 $2,426,252 $3,970,577 $2,341,707 $ 302,182 $ 915,420
------------- --------- --------- --------- --------- --------- ---------
------------- --------- --------- --------- --------- --------- ---------
Net loss per common share(3)......... Can.$ 0.04 $ 0.23 $ 0.28 $ 0.33 $ 0.17 $ (0.02) $ 0.08
Weighted average number of common
shares outstanding(4)(5)........... 5,544,200 6,345,285 8,779,905 11,868,160 14,037,202 17,228,815 13,850,643
DIFFERENCES TO US GAAP
Loss determined under Canadian GAAP.. 205,856 1,476,630 2,426,252 3,970,577 2,341,707 437,704 337,359
Expense (income) relating to product
development costs.................. -- 94,604 273,439 39,911 (84,000) 42,000 (42,000)
------------- --------- --------- --------- --------- --------- ---------
Loss determined under US GAAP........ 205,856 1,571,234 2,699,731 4,010,488 2,257,707 478,704 295,359
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF AS OF AS OF
BALANCE SHEET DATA 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 6/30/99 6/30/98
- ------------------------------ ------------- ---------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets................ Can.$1,356,012 $1,740,613 $4,046,920 $3,677,130 $ 2,766,317 $ 6,113,895 $3,169,642
Capital assets................ 378,790 321,149 229,552 667,764 834,975 778,896 891,856
Intangible assets............. 150,943 192,155 450,048 634,451 454,099 425,918 623,528
------------- ---------- ---------- ---------- ----------- ----------- ----------
Total assets.............. Can.$1,885,745 $2,253,917 $4,726,520 $4,979,345 $ 4,055,391 $ 7,318,709 $4,685,026
------------- ---------- ---------- ---------- ----------- ----------- ----------
------------- ---------- ---------- ---------- ----------- ----------- ----------
Current liabilities........... 431,636 869,394 681,237 1,204,941 1,696,929 2,845,910 1,633,193
Capital leases and long term
debt........................ 126,233 121,803 54,641 -- 31,915 2,861,829 1,633,193
Debentures.................... 520,000 248,302 -- -- -- -- --
Shares capital................ 1,209,098 2,892,270 8,294,746 12,049,085 12,942,935 15,375,450 12,241,934
Accumulated deficit........... (401,222) (1,877,852) (4,304,104) (8,274,681) (10,616,388) (10,918,570) (9,190,101)
------------- ---------- ---------- ---------- ----------- ----------- ----------
Shareholders' equity.......... Can.$ 807,876 1,014,418 3,990,642 3,774,404 2,326,547 4,456,880 3,051,833
Common shares
outstanding(4)(5)........... 5,824,379 7,354,701 10,742,612 13,651,164 15,150,164 18,660,918 13,936,164
</TABLE>
- ------------------------------
(1) The inventory write-down in 1997 relates to inventory manufactured using
flavor concentrate produced in 1996 by our flavor concentrate supplier,
Tastemaker. In 1996-97, the inventory was deemed unfit to sell due to the
defective concentrate and resulted in our filing a Statement of Claim for
damages against Tastemaker in February 1997.
(2) The amounts of the net losses are computed in accordance with Canadian GAAP.
The net loss in accordance with U.S. GAAP differs from the amount in the
Consolidated Financial Statements due to the expensing of product
development costs as incurred. Under U.S. GAAP, the net loss for the years
ended December 31, 1995, 1996, 1997 and 1998 were Can.$1,571,234,
Can.$2,699,731, Can.$4,010,488 and Can.$2,257,707, respectively.
(3) The amounts of net losses per share are computed in accordance with Canadian
GAAP. The net loss per share for Canadian GAAP is calculated including the
1,500,000 common shares held in escrow. Under U.S. GAAP, such common shares
would not be included in the loss per share calculation. Under U.S. GAAP,
the net loss per share for the years ended December 31, 1995, 1996, 1997 and
1998 were Can.$0.30, Can.$0.37, Can.$0.39 and Can.$0.18, respectively.
(4) Does not include 2,412,000 common shares reserved for issuance upon exercise
of outstanding stock options at exercise prices ranging from $0.75 to $1.75
per share as at August 11, 1999, 40,000 common shares reserved for issuance
upon exercise of outstanding warrants at an exercise of Can.$1.15, 914,000
common shares reserved for issuance upon exercise of outstanding warrants at
an exercise price of Can.$0.60 and 1,656,567 common shares reserved for
issuance upon exercise of outstanding warrants at an exercise of Can.$0.75
per share if exercised by May 4, 2000, and then at $0.90 per share until May
4, 2001.
(5) 1,500,000 escrow shares are eligible for release at a rate of one escrow
share released pro rata for each Can.$0.125 of cumulative cash flow from
operations of Urban Canada. Release of these shares from escrow is subject
to approval by the securities regulatory authorities. See "Description of
Urban Canada Capital Stock -- Escrow Shares."
EXCHANGE RATE DATA
The following table sets forth certain exchange rates based on the noon
buying rate in New York City for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York (the
"Noon Buying Rate"). Such rates are set forth as U.S. dollars per Can.$1.00. On
December 31, 1998, the inverse of the Noon Buying Rate was Can.$1.00 per
US$0.6504.
<TABLE>
<CAPTION>
FROM TO AVERAGE HIGH LOW
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
3/31/94 12/31/94 0.7279 0.7463 0.7097
12/31/94 12/31/95 0.7286 0.7527 0.7023
12/31/95 12/31/96 0.7332 0.7513 0.7235
12/31/96 12/31/97 0.7197 0.7487 0.6945
12/31/97 12/31/98 0.6714 0.7105 0.6341
12/31/98 6/30/99 0.6702 0.6913 0.6511
</TABLE>
26
<PAGE>
URBAN CANADA MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We currently produce and market two New Age Beverages. In 1994, we created,
and in 1995 launched, two unique beverage brands, JONES SODA CO., a "premium"
soda, and WAZU, a natural spring water. Prior to the launch of these two Urban
Juice brands, we were solely a regional distributor of licensed and unlicensed
alternative or New Age beverage brands and products in various territories
located in Western Canada.
In connection with transforming our business focus from being solely a
regional distributor of licensed and unlicensed brands and products to being
solely a developer, producer, marketer and distributor of our own brands and
products, we believe our short-term sales growth will be substantially dependent
on our ability to build the JONES SODA CO. brand franchise and expand our
distributor network. We believe that our long-term sales growth will be largely
dependent on the ability to continue to build the quality of our distributor
network for our brands, and to successfully launch new unique beverage brands
and products through that network when the lifecycle of our existing brands and
products warrant doing so.
One of the main reasons for our change in strategic direction was the
potential to earn higher gross margins from the sale of our own unique beverage
brands. We anticipate that gross margins will improve as we increase the volume
of sales of our brands. This increase, we believe, will come from falling
marginal costs as we increases our sales volume.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
SALES
Total sales increased by $4,923,658 or 147%, from $3,339,969 for the six
months ended June 30, 1998 to $8,263,627 for the six months ended June 30, 1999.
Sales of Jones Soda increased year over year due to increased case sales by
existing distributors as well as new distributors that were added in late 1998
and early 1999. As of June 30, 1999, Jones Soda was sold in Western Canada,
Ontario, Nova Scotia, Newfoundland, California, the Pacific Northwest, New York,
New Jersey, Nevada, Arizona, Alaska, Yukon, select regions of New England,
Philadelphia, Ohio, Illinois, Indiana, Michigan, South Dakota, Nebraska,
Alabama, Iowa, Georgia, North Carolina, Florida and Hawaii.
COST OF SALES
Cost of sales, which consists of product and delivery and storage expenses,
increased by $3,296,403, or 138%, from $2,387,889 for the six months ended June
30, 1998 to $5,684,292 for the six months ended June 30, 1999. The increase in
cost of sales was attributable to the increase in sales year over year. Cost of
goods sold as a percent of sales was 68.8% for the six month period ending June
30, 1999 compared to 71.5% for the six month period ending June 30, 1998.
Delivery and storage was up as a percent of sales due to a wider distribution of
customers to ship primarily from two bottling plants.
GROSS PROFIT
Gross profit increased by $1,627,255, or 171%, from $952,080 for the six
months ended June 30, 1998 to $2,579,335 for the six months ended June 30, 1999.
The increase in gross profit reflects the increase in the sales compared to the
same period last year. Gross margin increased from 28.5% for the six months
ended June 30, 1998 to 31.2% for the six months ended June 30, 1999. The
increase in gross margin reflects the lower cost of goods due to volume
efficiencies.
27
<PAGE>
EXPENSES
Total expenses increased by $964,431 or 50.6% from $1,905,365 for the six
months ended June 30, 1998 to $2,869,796 for the six months ended June 30, 1999.
The increase in total expenses for the six month period ended June 30, 1999
compared to the same period last year is due primarily to an increase in
promotion and selling expenses.
Promotion and selling expenses increased by $681,234, or 60% from $1,143,503
for the six months ended June 30, 1998 to $1,824,737 for the six months ended
June 30, 1999. Promotion and selling increased year over year due to the
increased amount of distributor programs due to the increased number of
distributors of Jones Soda.
Wages increased $35,662 or 16% from $222,431 for the six months ended June
30, 1998 to $258,093 for the six months ended June 30, 1999 due to increased
costs to serve a much larger sales force and distributor base.
Professional fees increased $98,311 or 236% from $41,645 for the six months
ended June 30, 1998 to $139,956 for the six months ended June 30, 1999 and
consulting fees increased $79,312, or 87.5% from $90,606 for the 1998 period to
$169,818 in the 1999. The increase in professional and consulting fees is
attributable to increased legal and accounting fees associated with our lawsuit
against Tastemaker as well as our re-incorporation into the United States.
OTHER INCOME (EXPENSES)
Other income (expense) was $(3,327) for the six months ended June 30, 1999
compared to other income of $37,865 for the six months ended June 30, 1998.
Other expense for the six months ended June 30, 1999 consisted mainly of
miscellaneous expense incurred to destroy old product and associated with the
Tastemaker lawsuit and interest expense on our Operating Line of Credit,
partially offset by foreign exchange gains and interest income earned on cash
deposits.
NET INCOME (LOSS)
Our net loss decreased by $621,632 or 68% from $(915,420) for the six months
ended June 30, 1998 to $(293,788) for the six months ended June 30, 1999. As a
percentage of total sales, the net loss decreased from 27.4% for the period
ended June 30, 1998 to 3.6% for the period ended June 30, 1999. The improvement
is due to a higher level of sales as well as improved gross margins.
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO JUNE 30, 1998.
Net cashflow from operating activities for the six-month period ending June
30, 1999 was (1,287,687) compared to (1,380,668) for the same period in 1998.
The Company invested in sales, marketing and administrative expenses to increase
the Company's distributor network and promote the Company's lead brand, Jones
Soda. Net cashflow from financing activities in 1999 was 2,106,919 compared to
151,098 in 1998. During the period ending June 30, 1999, the Company closed a
Private Placement of 2,432,515. Cash and cash equivalents increased for the
six-month period ending June 30, 1999 to 1,110,502 from 136,902 in 1998.
The current ratio of the Company's balance sheet as at June 30, 1999 was
2.15 compared to 1.94 as at June 30, 1998. Working capital as at June 30, 1999
was $3,276,379 compared to $1,536,449 for the same time last year. Inventory was
$1,652,362 as at June 30, 1999 compared to $1,524,953 for the same time last
year, and for 1999 included raw materials of $643,249, WAZU finished goods of
$5,749 and Jones Soda finished goods of approximately $934,759. Wearables and
point of sale materials of $68,605 made up the remaining inventory balance.
28
<PAGE>
We announced on May 4, 1999 that we had closed our Private Placement in the
amount of CDN$2,484,850. The purpose of this financing was to finance the growth
of the brand in 1999.
INVESTOR RELATIONS
During the period ending June 30, 1999, we completed all Investor Relations
activities in-house. We sent out copies of news or press releases, our corporate
brochure, and communicated to shareholders with a monthly newsletter.
LITIGATION
On February 19, 1997, we filed a Statement of Claim in the British Columbia
Supreme Court (URBAN JUICE & SODA COMPANY LTD. V. HERCULES INCORPORATED ET AL.)
The named defendants were Tastemaker, Tastemaker Canada Inc., Hercules
Incorporated and Mallinckrodt Inc. Givaudan Roure Flavors Corporation, by
agreement dated March 31, 1997, assumed the United States liabilities of
Tastemaker, and on August 6, 1997 was substituted as the defendant in place of
Mallinckrodt Inc., carrying under the name and style of Tastemaker, Hercules
Incorporated, and Tastemaker. Thus, the defendants in the action are now
Givaudan Roure Flavors Corporation and Tastemaker Canada, Inc. The trial date is
set for March 2000. Tastemaker and its affiliated companies, were the flavor
houses that created the concentrate for the original line of flavors for JONES
SODA CO. We are seeking damages in excess of Can.$1,000,000 against the
defendants for failing to design and produce concentrate in accordance with our
specifications.
IMPACT OF THE YEAR 2000 COMPUTER PROBLEM
In November 1998, we upgraded new billing, accounting and administrative
systems which are now fully operational and which have been represented to be
fully Year 2000 compliant. Failures of our internal systems could temporarily
prevent us from processing orders, issuing invoices, manufacturing and
developing products and could require us to devote significant resources to
correcting resulting problems. We have tested all of our desktop computers for
Year 2000 compliance with Year 2000 compliance testing software. All of our
desktop units are Year 2000 compliant. We have received written assurances from
the manufacturers of the computers used in our manufacturing facility that all
of the computers are Year 2000 compliant. We are addressing our embedded systems
on a prioritized piece-by-piece basis. We are currently receiving questionnaires
from our customers and suppliers regarding their Year 2000 compliance status. If
our customers are not Year 2000 compliant, they may experience material costs to
remedy problems, may face litigation costs and may delay purchases of our
products. As a result, our business, financial condition and results of
operations could be seriously harmed. If our suppliers, particularly our
contract packers, are not Year 2000 compliant, they may experience material
costs to remedy problems, may face litigation costs and may delay production of
our products. As a result, our business, financial condition and results of
operations could be seriously harmed. We have funded our Year 2000 plan from
cash balances. As of June 11, 1999, we have spent Can.$60,000 to address the
Year 2000 problem, primarily on new computer software. We will incur
approximately another Can.$10,000 in costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance
and software. In addition, we may experience material problems and costs with
Year 2000 compliance that could seriously harm our business, financial condition
and results of operations. We have begun to develop a contingency plan to
address situations that may result if we are unable to achieve Year 2000
readiness of our critical operations. The cost of developing and implementing
this plan may itself be significant. Finally, we are also subject to external
forces that might generally affect industry and commerce, such as utility or
transportation company interruptions caused by Year 2000 compliance failures.
29
<PAGE>
RESULTS OF OPERATIONS
By March 1995, Urban Canada made a strategic decision to focus time and
resources on our own internally developed brands. This shift in business focus,
combined with changes in consumer trends, resulted in a decline in the sales of
other companies' beverage brands by us. By year-end 1998, we distributed only
our own internally-developed brands and did not distribute the licensed or
unlicensed brands of any third parties. The percentage of our total sales
derived from the distribution of licensed and unlicensed brands was .3% in 1997,
28% in 1996 and 86% in 1995. As we complete the shift from being a distributor
of licensed and unlicensed brands to a developer, producer, marketer and
distributor of our own brands, our gross margins will continue to increase. Our
gross margins increased from 13.1% in 1996 to 17.6% in 1997 and 26.9% in 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
SALES
Total sales increased by Can.$3,745,729 or 115%, from Can.$3,265,317 for the
year ended December 31, 1997 to Can.$7,011,046 for the twelve months ended
December 31, 1998. Sales of Jones Soda increased year over year due to increased
case sales by our 30 existing distributors as well as 70 new distributors that
were added in 1998. As of December 31, 1998, Jones Soda was sold in Western
Canada, Ontario, Nova Scotia, Newfoundland, California, the Pacific Northwest,
New York, New Jersey, Nevada, Arizona, Alaska, Yukon, select regions of New
England, Philadelphia, Ohio, Illinois, Indiana, Michigan, South Dakota,
Nebraska, Georgia, North Carolina and Florida.
COST OF SALES
Cost of sales, which consists of product and delivery and storage expenses,
increased by Can.$2,433,119, or 90%, from Can.$2,689,897 for the twelve months
ended December 31, 1997 to Can.$5,123,016 for the twelve months ended December
31, 1998. The increase in cost of sales was attributable to the increase in
sales for Urban Canada year over year.
GROSS PROFIT
Gross profit increased by Can.$1,312,610, or 228%, from Can.$575,420 for the
twelve months ended December 31, 1997 to Can.$1,888,030 for the twelve months
ended December 31, 1998. The increase in gross profit reflects the increase in
the sales compared to the same period last year. Gross margin increased from
17.6% for the twelve months ended December 31, 1997 to 26.9% for the twelve
months ended December 31, 1998. The increase in gross margin reflects the lower
cost of goods due to the volume increases and efficiencies incurred with the
production of the Jones Soda brand.
EXPENSES
Total expenses decreased by Can.$212,221 or 5% from Can.$4,263,456 for the
twelve months ended December 31, 1997 to Can.$4,051,235 for the twelve months
ended December 31, 1998. The decrease in total expenses for the twelve month
period ended December 31, 1998 compared to the same period last year is due
primarily to a reduction in office, administration and bad debt expenses,
partially offset by a slight increase in promotion, selling and wage expenses.
Office and administration expenses decreased by Can.$184,863, or 23.3% from
Can.$794,204 in 1997 to Can.$609,341 in 1998. The decrease is attributable to a
strict review of costs and consequent reduction in insurance costs, office
supplies, rent, and public company expenses.
Bad debt expense improved in 1998 by Can.$379,905 from 1997. Bad debt
expense as a percent of sales was 1.2% in 1998, compared to 14.2% in 1997. The
improvement in bad debt experience is due to
30
<PAGE>
an increasingly stronger distributor network, combined with strict controls put
into place to manage the credit risk.
Promotion and selling expenses increased by Can.$110,421 or 5.2% from
Can.$2,111,116 for the twelve months ended December 31, 1997 to Can.$2,221,537
for the twelve months ended December 31, 1998. Promotion and selling was
relatively consistent year over year, however the allocation in 1998 was
directed more heavily on building our sales team and initiating various
marketing programs with our distributor network.
Wages and commissions increased Can.$82,671 or 22.5% from Can.$366,137 for
the twelve months ended December 31, 1997 to Can.$448,808 for the twelve months
ended December 31, due to increased costs to serve a much larger sales force and
distributor base.
The amortization increase from December 31, 1997, to December 31, 1998, was
due to increased purchase of capital assets, such as coolers and computer
equipment, and the consequent increase in depreciation expense of these assets.
OTHER INCOME (EXPENSES)
Other expense was Can.$178,502 for the twelve months ended December 31, 1998
compared to Can.$282,541 for the twelve months ended December 31, 1997. Other
expense for the twelve months ended December 31, 1998 consisted mainly of a
write-down of intangibles of Can.$102,871 that related to marketing research and
development. In addition, we wrote-down inventory of Can.$353,797 for the twelve
months ended December 31, 1997. We determined this inventory unfit to sell
because of problems with the flavoring.
NET LOSS
Our net loss decreased by Can.$1,628,870 or 41% from Can.$3,970,577 for the
twelve months ended December 31, 1997 to Can.$2,341,707 for the twelve months
ended December 31, 1998. As a percentage of total sales, the net loss decreased
from 121.5% for the year ended December 31, 1997 to 33.4% for the year ended
December 31, 1998. The improvement is due to a higher gross margin based on a
higher level of sales and a relatively consistent level of expenses.
LIQUIDITY AND CAPITAL RESOURCES
YEAR ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997.
Net cashflow from operating activities in 1998 was (2,098,030) compared to
(3,060,716) for the year ended December 31, 1997. The Company invested in sales,
marketing and administrative expenses, to increase the Company's distributor
network and promote the Company's lead brand, Jones Soda. Net cashflow from
financing activities in 1998 was 884,319 compared to 3,687,083 in 1997. During
1998 and 1997, the company raised capital through the issuance of commons
shares. Net cashflow from investing activities for the year ended December 31,
1998 was 424,992 compared to 807,785 in 1997. In each of these years the Company
invested in dedicated Jones Soda cooler equipment and also invested in
trademarking of Jones Soda and its various slogans and design work. Cash and
cash equivalents decreased to 336,983 in 1998 from 1,666,086 in 1997.
The current ratio of our balance sheet as at December 31, 1998 was 1.63
compared to 3.05 as at December 31, 1997. Working capital as at December 31,
1998 was $1,069,388 compared to Can.$2,472,189 for the same time last year.
Inventory was Can.$823,514 as at December 31, 1998 compared to Can.$1,090,699
for the same time last year, and for 1998 included raw materials of
appproximately Can.$383,280, WAZU finished goods of Can.$8,813 and Jones Soda
finished goods of approximately Can.$375,518. Wearables and point of sale
materials of Can.$55,903 made up the
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<PAGE>
remaining inventory balance. The level of inventory is lower in 1998 than in
1997 even with higher sales levels due to better management of the Jones Soda
inventory. We are currently planning approximately Can.$200,000 of capital
expenditures.
We have an authorized operating line of credit in the amount of
US$1,000,000. Security for the operating line of credit includes accounts
receivable, inventory and other assets, including our brand trademarks. We have
covenants in place, including current ratio, a minimum tangible net worth and
maximum quarterly losses. As of today's date, we are in compliance with the
covenants. In addition as of today's date, the balances drawn on the operating
line of credit are nil.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
SALES
Total sales decreased by Can.$193,384, or 5.6%, from Can.$3,458,701 for the
twelve months ended December 31, 1996 to Can.$3,265,317 for the twelve months
ended December 31, 1997. Sales of our own brands increased Can.$764,270, or
30.7% from Can.$2,492,557 for the twelve months ended December 31, 1996 to
Can.$3,256,827 for the twelve months ended December 31, 1997. Our sales of
licensed and unlicensed brands decreased 99% from 1996 to 1997. This is
consistent with our focus in 1997 on being a manufacturer, marketer and
distributor of our own brands and products, Jones Soda and WAZU Natural Spring
Water, in select markets in North America.
COST OF SALES
Cost of sales, which consists of product and delivery and storage expenses,
decreased by Can.$317,027, or 10.5%, from Can.$3,006,924 for the twelve months
ended December 31, 1996 to Can.$2,689,897 for the twelve months ended December
31, 1997. The decrease in cost of sales was primarily attributable to a lower
average cost of product for our brands in 1997 compared to the average cost of
product for our licensed and unlicensed brands and our own brands in 1996.
Delivery and storage costs were lower compared to the same period last year due
primarily to better terms from suppliers for shipping and warehousing.
GROSS PROFIT
Gross profit increased by Can.$123,643, or 27.4%, from Can.$451,777 for the
twelve months ended December 31, 1996 to Can.$575,420 for the twelve months
ended December 31, 1997. The increase in gross profit reflects the overall
decrease in the cost of sales compared to the same period last year. Gross
margin increased from 13.1% for the twelve months ended December 31, 1996, to
17.6% for the twelve months ended December 31, 1997. The increase in gross
margin reflects the focus on our own brands in 1997 and the decreased emphasis
on the sale of unlicensed and licensed brands.
EXPENSES
Total expenses increased by Can.$1,388,479, or 48.3%, from Can.$2,874,977
for the twelve months ended December 31, 1996 to Can.$4,263,456 for the twelve
months ended December 31, 1997. Expenses for the twelve month period ended
December 31, 1997 included advertising credits, (non-cash marketing expenses) of
Can.$842,794 compared to nil for the twelve month period ending December 31,
1996.
The increase in total expenses for the twelve months ended December 31, 1997
compared to the twelve months ended December 31, 1996 was attributable to higher
advertising and promotion expenses incurred to launch, promote and sell our own
brands and products in two of our key markets in the United States, partially
offset by lower wages and commission expense. Advertising and promotion
expenses, including the advertising credits, increased by Can.$803,440 or 61.4%
from Can.$1,307,676 for
32
<PAGE>
the twelve months ended December 31, 1996 compared to Can.$2,111,116 for the
twelve months ended December 31, 1997.
Office and general administrative expenses increased by Can.$309,136, or
63.7%, from Can.$485,068 for the twelve months ended December 31, 1996 to
Can.$794,204 for the twelve months ended December 31, 1997, as a result of
higher insurance costs, public company expenses and additional offices.
Bad debt expense increased by Can.$324,170, or 232.7%, from Can.$139,301 for
the twelve months ended December 31, 1996 to Can.$463,471 for the twelve months
ended December 31, 1997, due primarily to a write-down of an account receivable
of Can.$275,000 owed by the Company's distributor in New York City.
Wages and commissions decreased by Can.$225,517, or 38.1%, from Can.$591,654
for the twelve months ended December 31, 1996 to Can.$366,137 for the twelve
months ended December 31, 1997.
Consulting fees increased by Can.$94,420, or 131.1%, from Can.$72,006 for
the twelve months ended December 31, 1996 to Can.$166,426 for the twelve months
ended December 31, 1997 as certain of our sales people acted in consulting
capacities. Professional fees increased by Can.$94,139, or 174.8%, from
Can.$53,869 for the twelve months ended December 31, 1996 to Can.$148,008 for
the twelve months ended December 31, 1997. Professional fees increased in 1997
due to our having to complete regulatory filings with the United States
Securities and Exchange Commission.
OTHER INCOME (EXPENSES)
Other income (expenses) was Can.$(3,052) for the twelve months ended
December 31, 1996 compared to Can.$(282,541) for the twelve months ended
December 31, 1997. Other income (expenses) for the twelve months ended December
31, 1997 consists mainly of a write-down of inventory and interest income earned
on the Company's short term marketable securities.
We wrote down inventory of Can.$353,797 in 1997. We filed a Statement of
Claim in February 1997 against Tastemaker, the flavor house that designed the
original flavor concentrates in 1995-96 for Jones Soda. We are claiming damages
for product that failed to meet certain flavor stability and performance
standards. We are seeking damages for inventory and other costs in excess of
Can.$1,000,000 from Tastemaker.
NET LOSS
Our net loss increased by Can.$1,544,325, or 63.6% from Can.$2,426,252 for
the twelve months ended December 31, 1996 to Can.$3,970,577 for the twelve
months ended December 31, 1997. As a percentage of total sales, the net loss
increased from 70.1% to 121.6%.
PRODUCT DEVELOPMENT COSTS
Product development costs (before amortization) as of December 31, 1997
included Can.$63,817 (December 31, 1996--Can.$433,160 and December 31,
1995--Can.$80,558) expended on the JONES SODA CO. project and Can.$0.00
(December 31, 1996--Can.$23,408 and December 31, 1995--Can.$17,586) expended on
the WAZU project. Approximately $250,000 was paid to Orpheus Consulting Ltd. to
complete the flavor development for JONES SODA CO., establish production,
operation and quality control procedures, initiate a raw material inventory
handling and monitoring system, negotiate with raw material suppliers,
transportation companies and independent warehouses, and review our distribution
agreements with some of its major customers. The balance was expended on artwork
and design of JONES SODA CO. and WAZU labels and packaging, posters, point of
sale materials, and presentation boards.
33
<PAGE>
QUARTERLY OPERATING RESULTS; SEASONALITY
The following table sets forth the case sales of our internally developed
brands and licensed and unlicensed brands for the most recent thirteen quarters.
The quarterly case sales reflect, in our opinion, all adjustments necessary to
present the results of operations for such periods which include only normal
recurring adjustments. Results of any one or more quarters are not necessarily
indicative of annual results or continuing trends.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING DATA (IN CASES SOLD):
JONES SODA CO. and WAZU brands........................ 20,061 64,519(1) 73,786 31,653
Licensed brands....................................... 13,006 20,730 5,055 2,247
Unlicensed brands..................................... 4,509 3,035 1,618 15
----------- ----------- ------ ------
Total............................................... 37,576 88,284 80,459 33,915
----------- ----------- ------ ------
----------- ----------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING DATA (IN CASES SOLD):
JONES SODA CO. and WAZU brands........................ 17,783(2) 102,635 61,364 27,668
Licensed brands....................................... 30 20 9 9
Unlicensed brands..................................... -- -- -- --
----------- ----------- ------ ------
Total............................................... 17,813 102,655 61,373 27,677
----------- ----------- ------ ------
----------- ----------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA (IN CASES
SOLD):
JONES SODA CO. and WAZU
brands................... 86,218 125,358 128,762 97,129 170,143 335,124
Licensed brands............ -- -- -- -- -- --
Unlicensed brands.......... -- -- -- -- -- --
----------- ----------- ------------- ------ ----------- ------------
Total.................... 86,218 125,358 128,762 97,129 170,143 335,124
----------- ----------- ------------- ------ ----------- ------------
----------- ----------- ------------- ------ ----------- ------------
</TABLE>
- ------------------------
(1) Includes case sales of 15,229 which represent a recovery on account of
certain production deficiencies which we believe were in the normal course
of business. The supplier of bottle caps incorrectly produced the wrong
color of caps, which were utilized in a production run of 15,229 cases. From
an image/marketing perspective, the product was deemed unfit for sale in the
marketplace and these 15,299 cases were sold back to the supplier pursuant
to the terms of the supply contract.
(2) Case sales decreased during the first quarter of 1997 due to a production
delay in connection with the launch of five new JONES SODA CO. flavors. We
did not begin shipping these products until February when the new flavors
came off the production line. At this time, we also changed our
34
<PAGE>
concentrate manufacturer from Tastemaker to Pro Liquitech due to
Tastemaker's inability to meet industry standards for flavor stability and
performance.
We have 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 our distribution portfolio; the shift in
our business focus from being solely a regional distributor of licensed and
unlicensed brands and products to being solely a developer, producer, marketer
and distributor of our internally developed brands and products; the seasonal
demand for beverages; and competition and general economic conditions. Due to
these and other factors, our results of operations have fluctuated from period
to period. As a result, we believe that period-to-period comparisons of our
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, we generate a
substantial percentage of our revenues during the warm weather months of April
through September. We believe that the demand for our products will reflect such
seasonal consumption patterns. While we expand our distribution network and
increase its market penetration, however, such seasonality may not be easily
discernible from our results of operations. Due to all of the foregoing factors,
our operating results in a particular quarter may fail to meet market
expectations. See Item 1. "Description of Business--Seasonality."
U.S. GAAP RECONCILIATION
Our Consolidated Financial Statements have been prepared by our management
in accordance with Canadian GAAP. Such Consolidated Financial Statements vary in
certain significant respects from accounting principles generally accepted in
the United States. Application of accounting principles generally accepted in
the United States would have affected net loss and net loss per share
calculations as disclosed in Note 14 to the Consolidated Financial Statements.
The amounts of net loss and net loss per share are computed in accordance with
Canadian GAAP. The net loss in accordance with U.S. GAAP differs from the amount
in the Consolidated Financial Statements due to the expensing of product
development costs as they are incurred. The net loss and net loss per share in
accordance with U.S. GAAP for the year ended December 31, 1998 were $2,257,707
and $0.18 per share, respectively.
URBAN CANADA BUSINESS
URBAN CANADA
Urban Canada develops, produces, markets and distributes "alternative" or
"New Age" beverages. In 1994 we created, and in 1995 launched, two unique
beverage brands, JONES SODA CO., "a traditional 90's soda," and WAZU, a natural
spring water.
Our business strategy is to increase sales by expanding distribution of our
internally developed brands in new and existing markets, stimulating consumer
trial of our products and increasing consumer awareness of, and brand loyalty
to, our unique brands and products. Key elements of our business strategy
include:
- the creation of strong distributor relationships;
- stimulating strong consumer demand for our existing brands and products
throughout Canada and the United States; and
- ongoing development of unique alternative beverage brands and products.
The premise underlying our business strategy is that the success of any
alternative or New Age beverage brand will, in large part, be determined by its
brand image. Moreover, due to the limited life cycle of beverages in the
alternative or New Age category of the beverage industry, we believe that the
35
<PAGE>
ongoing process of creating new brands, products and product extensions will be
an important factor in our long-term success.
Beginning in March, 1995, our business has shifted from being solely a
regional distributor of licensed and unlicensed brands and products to being
solely a developer, producer, marketer and distributor of our internally
developed brands and products. During this period we have also reorganized and
strengthened our senior management team. Sales of our unique brands have
increased from 1995 through 1998, as follows:
- from $634,625 for the year ended December 31, 1995 to $2,492,557 for the
year ended December 31, 1996, for an increase of $1,857,932 or 293%;
- from $2,492,557 for the year ended December 31, 1996 to $3,256,827 for the
year ended December 31, 1997, for an increase of $764,270, or 30.7%; and
- from $3,256,827 for the year ended December 31, 1997 to $7,011,046 for the
year ended December 31, 1998, for an increase of $3,754,219 or 115.3%.
We use contract packers to prepare, bottle and package Urban Canada's
internally developed products, continually reviewing our contract packing needs
in light of regulatory compliance and logistical requirements. Currently, our
primary contract packers are located in Burnaby, British Columbia and
Elizabethtown, Kentucky. Substantially all of the raw materials used in the
preparation, bottling and packaging of our products are purchased by us or by
our contract packers in accordance with our specifications.
We arrange with independent trucking companies to have product shipped from
various contract packers to independent warehouses. From such independent
warehouses, we deliver our products through independent trucking companies to
our distributors. Distributors sell and deliver our products either to
sub-distributors or directly to retail outlets, and such distributors or
sub-distributors stock the retailers' shelves with our products.
CORPORATE STRUCTURE
The following outlines our current organizational structure:
[LOGO]
WAZU Products Ltd. is the entity through which Urban Juice generates the
majority of our revenues. WAZU Products was incorporated on March 6, 1987
pursuant to the laws of Alberta under the name Urban Hand Limited. On July 2,
1991, WAZU Products continued pursuant to the laws of British Columbia under the
name Urban Hand Enterprises Limited. On February 20, 1995, WAZU Products changed
its name to its current name.
36
<PAGE>
Zip City Distribution Co. Vancouver Ltd. previously distributed licensed and
unlicensed beverage products in the Vancouver, British Columbia market. Zip City
was incorporated in British Columbia on May 31, 1991 and was acquired by WAZU
Products Ltd. in June 1993. In April 1995, Zip City changed its name to its
current name from its previous name, Southpines Juice & Soda Company Inc. Zip
City no longer distributes beverage products and is currently inactive.
Vancouver Island Beverage Company Ltd. previously operated as distribution
arm for Urban Juice on Vancouver Island. By December 1994, the operations of
this company were reorganized in order to take advantage of efficiencies at both
Zip City and WAZU Products. This company was incorporated in British Columbia on
March 31, 1992 and is currently inactive.
Urban Juice & Soda (USA) Inc. was incorporated in the State of Washington on
August 3, 1995, and currently conducts minimal business activities.
COMPANY BACKGROUND
We were incorporated on December 23, 1986, under the British Columbia
Company Act under the name 2072 Investment Ltd. On September 25, 1987, we
changed our name to Republic Aircraft Manufacturing Corporation. On June 9,
1992, we changed our name to International Republic Aircraft Manufacturing
Corporation and finally to our present name on May 26, 1993.
The genesis of our business dates back to March 1987 when Peter M. van Stolk
founded Urban Hand Limited ("Urban Hand") in Edmonton, Alberta. In September
1987, Urban Hand began marketing and distributing Just Pik't Juices, a patented
line of fresh squeezed juices, for all of Western Canada. In 1989, Urban Hand
moved its principal place of business from Edmonton to Calgary, Alberta and in
1990, it moved its principal place of business from Calgary to Vancouver,
British Columbia. By the end of 1991, Urban Hand had become the leading
distributor on a per capita basis for Just Pik't Juices in North America. In
1992, Urban Hand began to implement an aggressive plan to acquire the
distribution rights to a full-line of complementary alternative or New Age
beverage brands.
In 1992, Urban Hand acquired the exclusive distribution rights to Thomas
Kemper Sodas, hand crafted brewed soda products, for all of Canada. In May 1993,
Urban Hand was acquired by International Republic Aircraft Manufacturing
Corporation, with a mandate to acquire distribution companies, acquire rights to
additional alternative or New Age beverages, and to create, manufacture and
distribute one or more internally developed beverage brands. In June 1993, we
acquired Southpines Juice & Soda Company, Inc. (since renamed Zip City), a
beverage distribution company serving the greater Vancouver and Whistler areas
of British Columbia. In September 1993, we acquired Vancouver Island Beverage
Company Ltd., a full-line beverage distribution company serving southern
Vancouver Island. By acquiring our own distribution and our own trucks, we
gained more control over our distribution system and assured our access to
retailers for our line of licensed products. In September 1993, we acquired the
exclusive distribution rights to AriZona Iced Teas for Western Canada. By early
1994, we had also acquired the exclusive distribution rights to all of Canada
(except Quebec) for the West End Soda Brew line of products.
By the end of 1994, we had established our business as a full-line beverage
distribution company focusing on the distribution of alternative beverage
products in Western Canada. During 1994, we simultaneously completed the
creation of two internally developed products and began work on the creation of
a third internally developed product. In March 1995, coinciding with the
accelerating demand for bottled water, we launched our first unique brand, WAZU,
a natural spring water. In November 1995, we launched our second trademarked
brand, JONES SODA CO.
During this period, we had also been selling AriZona Iced Teas in the
Western Canadian market. By March 1995, however, we had made a strategic
decision to focus our time and resources on our own brands. Because the AriZona
Iced Tea relationship required a high degree of managerial time and resources,
and because of certain other factors, we sold our rights to distribute AriZona
Iced Teas to
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another independent Vancouver, British Columbia based distributor. In April
1995, we acquired the rights to Lahaina Iced Teas and Lemonades, ready-to-drink
teas. In May 1995, we acquired the rights to distribute Odwalla, all natural
fresh fruit and vegetable-based beverages. In order to increase our business
focus on our own brands, however, we discontinued the distribution of Odwalla in
February 1996, Lahaina Iced Teas and Lemonades in May 1996, Thomas Kemper Sodas
in September 1996, West End Soda Brews in October 1996, and Just Pik't Juices in
December 1996. We no longer sell licensed or unlicensed brands nor operate as a
beverage distributor.
THE ALTERNATIVE OR NEW AGE BEVERAGE INDUSTRY
JONES SODA CO. and WAZU, which are classified as New Age or alternative
beverages, as well as other unique brands and products that we may develop in
the future, compete with beverage products of all types, including soft drinks,
beer, fruit juices and drinks, bottled water, wine and spirits.
In its annual beverage market survey for calendar year 1998, Beverage World
magazine estimated that the New Age or alternative beverage markets grew 12.6%
over 1997, to approximately $7.73 billion in total sales.
New Age or alternative beverages are distinguishable from mainstream
carbonated soft drinks in that they tend to contain less sugar, less
carbonation, and natural ingredients. As a general rule, three criteria have
been established for such a classification: (1) relatively new introduction to
the market-place; (2) a perception by consumers that consumption is healthful
compared to mainstream carbonated soft drinks; and (3) the products use natural
ingredients and flavors. According to Beverage Aisle magazine (January 1998
issue), the New Age or alternative beverage category consists of the following
segments:
- Retail polyethylene terephthalate (PET) bottled waters
- Ready-to-drink (RTD) teas
- Single-serve fruit beverages
- Sports drinks
- Sparkling water
- Premium Sodas
- RTD Coffees
- All Others
BUSINESS STRATEGY
After witnessing the proliferation of hundreds of new ready-to-drink tea
brands during the first half of 1995, we anticipated what we believed to be a
peak in the product life cycle for this segment of the New Age beverage category
and decided to launch our trademarked brand, JONES SODA CO., which we believed
was creating a new category and offering distributors something new to sell. In
its January 1998 issue, Beverage Aisle magazine renamed the all-natural soda
segment as the premium soda segment and cited JONES SODA CO. as an example of a
beverage in this category. Thus, we believe that the JONES SODA CO. brand and
product line have helped to create a new segment in the New Age or alternative
beverage industry.
Utilizing creative but relatively low cost marketing and brand promotion
techniques, we are currently focused on building a strong distributor network
for our lead brand, JONES SODA CO., and its complementary brand, WAZU. We
believe that our experience as a distributor of licensed and non-licensed New
Age beverage brands has given, and will continue to give, our company
credibility in connection with its efforts to build a quality network of
independent distributors. Moreover, we believe that our first hand experience
watching other companies' fortunes rise and fall with a single New Age
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beverage brand has been incorporated into our business strategy. Five New Age
beverage brands, including Sundance, New York Seltzer, Koala Springs, Clearly
Canadian and Snapple, have each achieved a minimum of $100,000,000 in revenues.
Each of these brands were the first brands in a new segment of the New Age
beverage category and each brand had a certain fashion or trend component. For
instance, Koala Springs increased sales at a time when Australia was popular as
a travel destination. In developing the JONES SODA CO. brand, we believe we have
created a leading brand in the premium soda segment of the New Age beverage
category and have marketed the product with a distinct fashion component. The
fashion component includes black and white labels, which is representative of
current overall fashion trends. See "Products--Proprietary Brands--JONES SODA
CO." We believe we will be ready to launch new unique brands, products and/or
product extensions through our then-existing distributor network if and when the
consumer demand for JONES SODA CO. and/or WAZU brands or products begins to
decline.
Our business strategy is to attempt to increase sales by expanding product
distribution in new and existing markets, stimulating consumer trial of our
products and increasing consumer awareness of and brand loyalty to our unique
brands and products. We believe that products in the New Age beverage category,
much like certain fashion trends, tend to have a limited life cycle of
approximately five to nine years. As part of our business strategy, we intend to
launch new brands, products and/or product extensions at approximately eighteen
to thirty month intervals. See "--Brand and Product Development."
Key elements of our business strategy include the following:
BRAND FRANCHISE
We believe that the market for alternative beverages is dependent to a large
extent on image more than taste, and that this market is driven by trendy, young
consumers between the ages of 15 and 34. Accordingly, our strategy is to develop
eclectic brand names, slogans and trade dress. In addition to eclectic labeling,
we provide each of our distributors with point-of-sale promotional materials and
branded apparel items. We promote interaction with our customers through the use
of such point-of-sale items as posters, stickers, table cards, shelf danglers,
post cards, hats, pins, T-shirts, and our proprietary lighted display box. In
addition, through the labels on its bottles, we invite consumers to access our
website and to send in photographs to be featured on the JONES SODA CO. labels.
We believe that our labeling, marketing and promotional materials increase
distributor, retailer and consumer awareness of our brands and products.
DISTRIBUTOR NETWORK AND KEY ACCOUNTS
We distribute our products through a network of independent distributors. We
have also obtained listings for the JONES SODA CO. brand with certain key retail
accounts. We have pursued this strategy both in an effort to increase sales and
to encourage distributors to distribute our brands and products to our key
accounts and other accounts of our distributors.
We usually grant independent distributors the right to distribute finished
cases of one or more of our brands in a particular region, province, state or
local territory, subject to our overall management directives. We select
distributors who we believe will have the ability to get our unique brands and
products on the "street level" retail shelves in convenience stores,
delicatessens, sandwich shops and selected supermarkets. Ultimately, we have
chosen, and will continue to choose, our distributors based upon their perceived
ability to build our brand franchise.
We currently maintain a network of approximately 100 distributors in select
markets of the Western, Central and Eastern regions of North America. In the
Western region, distributors are located in Alaska, Yukon, Western Canada,
Pacific Northwest, California, Nevada, Arizona and New Mexico. In the Central
region, distributors are located in Illinois, Wisconsin, Ohio, Indiana,
Missouri, Minnesota, Michigan and Ontario. In the Eastern region, distributors
are located in New England, New York, New Jersey, Pennsylvania, Maryland,
Georgia, Nebraska, North Carolina and Florida.
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We have additionally pursued distribution to "alternative" or
"non-traditional" beverage retailers. We have entered into exclusive
distribution agreements with approximately 200 independent non-traditional
beverage retailers, including music stores, skateboard shops, comic book stores
and clothing stores in San Diego, Seattle and Vancouver, British Columbia. We
intend to selectively pursue distribution to these national and independent
non-traditional beverage accounts as part of our distribution and marketing
strategy.
BRAND AND PRODUCT DEVELOPMENT
We have developed and intend to continue to develop our brands and products
in-house. We used a similar process to create the WAZU and JONES SODA CO.
brands, and intend to continue utilizing this process in connection with the
creation of our future brands. This process primarily consists of the following
steps:
MARKET EVALUATION
First we perform a complete review of the beverage industry in general,
including a review of existing beverage categories and segments, and the product
life cycle stages of such categories and segments. In addition, we review the
fashion industry and the consumer products industry to determine the general
trends in such industries. Based on these findings, we also review and attempt
to determine the direction of future fashion and consumer product trends.
Finally, 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 prepare a thorough analysis of existing and potential distribution
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 in the beverage industry, 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 unique brands and products.
IMAGE AND DESIGN
In light of our market, distribution and production evaluations, we then
create and develop the concept for a beverage brand or product extension.
Although we control all aspects of the creation of each brand or product
extension, we contract with outside creative artists to help design our brands.
We have used, and intend to continue to use, a different artist, or group of
artists, whose portfolio of work best suits Urban Juice with respect to the
creation of a particular new brand. Such artists work closely with us to
finalize the creation of a new brand image and design. Our technical services
department then works with various flavor concentrate houses to test, choose and
develop product flavors for the brand.
In addition to the WAZU and JONES SODA CO. brands and products, we have
developed the concept for a third unique brand in a different segment of the
alternative or New Age beverage category. However, we currently anticipate that
we will not launch this brand until the life cycle of our existing brands or
products warrant doing so. Due to the limited life cycle of beverages in the
alternative or New Age category, we believe that the ongoing process of creating
new brands, products and product extensions will be an important factor in our
long-term success.
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PRODUCTS
PROPRIETARY BRANDS
JONES SODA CO. We believe that our trademarked JONES SODA CO. brand and
product line is a leader in the new segment of the New Age beverage category
called premium sodas. The JONES SODA CO. product line currently consists of the
following twelve flavors:
<TABLE>
<S> <C> <C> <C>
- - Orange - Strawberry lime - Fufu berry - Crushed Melon
- - Grape - Vanilla cola - Blue bubble gum - Pink
- - Cherry - Root beer - Green apple - Club Soda
- - Lemon lime - Cream soda - Pineapple upside-down
</TABLE>
Each of the current JONES SODA CO. products is made from natural and artificial
flavors. Some flavors distributed in the U.S. market may contain caffeine. Each
flavor has a different color profile which we believe is readily distinguishable
on a retail shelf. Most JONES SODA CO. beverage products come in twelve ounce
(355 ml.) clear long-neck bottles with primarily black and white labels
displaying a variety of urban American 1990s images. We also encourage consumers
of JONES SODA CO., through the labels on our bottles, to send in photographs
that may potentially be used on one of the JONES SODA CO. labels.
In June of 1998, we launched three flavors of NATURAL JONES SODA:
- Passion
- Lemon ginger
- Peach ginseng
In January of 1999, we launched four flavors of SLIM JONES and added a fifth
flavor in June 1999. Our current SLIM JONES beverage products are:
- Orange
- Lime cola
- Fufu berry
- Cream Soda
- Black Cherry
WAZU. We also seek to distinguish our WAZU brand and product line from
other competitive brands and product lines in the now well-developed PET bottled
water segment of the alternative or New Age beverage category. Each of the WAZU
products contains water currently sourced from springwater in Burnaby, British
Columbia. We have positioned the WAZU brand and product line in the middle price
point of the PET bottled water category. In doing so, we offer WAZU to
distributors as a brand that will offer enhanced incremental sales without
damaging sales of their current brands.
The WAZU product line currently consists of the following stock keeping
units:
- wee WAZU: (16.9 fluid ounces or 500ml) (with or without sport-cap)
- TRUE WAZU: (33.8 fluid ounces or 1L) (with or without sport-cap)
- BIG WAZU: (50.7 fluid ounces or 1.5L) (with or without sport-cap)
LICENSED PRODUCTS
In order to increase our business focus on our internally developed brands,
we discontinued the distribution of Odwalla in February 1996, Lahaina Iced Teas
and Lemonades in May 1996, Thomas Kemper Sodas in September 1996, West End Soda
Brews in October 1996, and Just Pik't Juices in December 1996. We no longer hold
marketing and distribution rights to any licensed brands. See "The
Company--Company Background."
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MARKETING, SALES AND DISTRIBUTION
Our unique products are sold in six provinces and 25 states, primarily in
convenience stores, delicatessens, sandwich shops and selected supermarkets. Our
products are sold by approximately 100 independent distributors. Our policy is
to grant our distributors rights to sell particular brands within a defined
territory. The majority of our distributors carry other beverage products.
Agreements with our distributors vary, but are usually oral and terminable by
either party at will, as is common in the beverage industry.
During 1998 the three primary distributors of our products purchased
approximately 6.9%, 5.7% and 5.4%, respectively, of the total number of cases
sold by Urban Juice. We believe that, concurrent with the expected increase in
consumer awareness of our brands, we will upgrade and expand our distributor
network which may result in a decreased dependence on any one or more of our
independent distributors.
It is our business practice to require our independent distributors to place
their purchase orders for our products at least 10 days in advance of shipping.
To the extent we have additional product available in inventory, it will fulfill
other purchase orders when and as received. We contract with outside trucking
companies to deliver our products from our independent warehouses to our
independent distributors. After an independent distributor receives delivery of
our products it will most often, in turn, resell and deliver those products
directly to a retail outlet and stock the retailer's shelves with our products.
Our pricing policies for the JONES SODA CO. and WAZU brands take into
consideration competitors' prices and our perception of what a consumer is
willing to pay for the particular brand and product. The goal is to
competitively price our unique products with the other New Age beverages. Since
we can control our production costs, we work back through the distribution chain
so that our suggested retail prices are proportional with respect to the
anticipated profit margins of each chain in the distribution process. The
suggested retail price for JONES SODA CO. products is $0.99 - $1.29 in Canada
and US$0.79 - US$1.09 in the United States. The suggested retail price for a wee
WAZU (500ml bottle) is $0.89 - $0.99 in Canada and US$0.59 - US$0.79 in the
United States.
During 1997, our sales force was organized into four regional groups (U.S.
Northeast, California, Pacific Northwest and Ontario), as well as certain second
tier markets. In 1998, this expanded to include Central and Southeast U.S. and
with Peter Strahm, the Vice President of Sales and Distribution ultimately
responsible for each region. All of our sales personnel have had prior industry
experience. Senior sales personnel are responsible for large retail accounts
located in their regions, the management of existing independent distributor
relationships and the selection of new independent distributors as may be
required. Junior sales personnel work closely with the sales representatives of
our independent distributors to help them open street level retail accounts and
train them in our sales and marketing techniques.
We primarily use point-of-sale materials such as posters, stickers, table
cards, shelf danglers, post cards, hats, pins, T-shirts and jackets to increase
consumer awareness of our proprietary brands. In response to consumer demand, we
sell our wearables on our web site HTTP://WWW.JONESSODA.COM. Through cooperative
advertising, certain of our independent distributors fund a portion of our
marketing budget, based upon case sales. In selected cities, we have planned or
are planning to sponsor or participate on a "grass roots" level at certain
events in an attempt to increase brand awareness and loyalty. We have also
devised a number of other low cost techniques which involve all Urban Juice
personnel (and which we treat as trade secrets) to create distinct personalities
for each of our brands. We have also begun a program of signing up extreme sport
athletes to promote JONES SODA CO. Pursuant to the program, we have signed up
several athletes in the skateboard, snowboard and mountain bike industries. We
also use a leased recreational vehicle painted with the JONES SODA CO. colors
and logos to create consumer awareness and enthusiasm to assist distributors as
they open new
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markets. In addition to these marketing techniques, we also initiated a campaign
of cross-promotions with other companies. Such cross promotions in 1998 were
with BMG Entertainment, Armani A/X, Namco Limited and Diesel Stores.
SEASONALITY
Typically, the beverage industry as a whole generates a substantial
percentage of its revenues during the warm weather months of April through
September. We believe that the demand for our unique products will reflect such
seasonal consumption patterns. As we expand our distribution network and
increase our market penetration, such seasonality may not be easily discernible
from our results of operations. We use independent contract packers, truckers
and distributors to increase the amount of product available during peak
seasonal periods without incurring expenses for personnel or equipment during
our slower periods.
PRODUCTION
CONTRACT PACKING ARRANGEMENTS
We currently use two main independent contract packers known as "co-packers"
to prepare and bottle our products. As is customary in the contract packing
industry, we are expected to arrange for our contract packing needs sufficiently
in advance of anticipated requirements. Accordingly, it is our business practice
to require our independent distributors to place their purchase orders for our
products at least 10 days in advance of shipping. Other than minimum case volume
requirements per production run, we do not have any minimum production
requirements, except as detailed below.
During 1998, we used several contract packing facilities to produce all
requirements of both JONES SODA CO. and WAZU. We have made arrangements with
another contract packing facility to produce NATURAL JONES, our upscale
pasteurized version of JONES SODA CO.
RAW MATERIALS
The raw materials used in the preparation and packaging of our products
(consisting primarily of concentrate, glass, labels, caps and packaging) are
purchased from suppliers selected either directly by our contract packers or by
us which, in turn, supply those raw materials to our contract packers.
We believe that we have adequate sources of raw materials which are
available from multiple suppliers. Currently, we purchase all of our flavor
concentrate for JONES SODA CO. products from Pro-Liquitech, Inc., a flavor
concentrate company, on an exclusive basis. We intend to purchase flavor
concentrate from multiple flavor houses for future JONES SODA CO. flavors and/or
additional products, with the intention of developing secondary sources of
flavor concentrate for each of our products. The water used to produce JONES
SODA CO. is filtered and is also treated to reduce alkalinity.
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
quality standards. Contract packers are selected and monitored by our own
quality control representatives in an effort to assure adherence to our
production procedures and quality standards. We analyze samples of our products
from each production run undertaken by each of our contract packers.
For every run of product, extensive on-line testing of product quality and
packaging is completed. This includes testing levels of sweetness, carbonation,
taste, product integrity, packaging and various regulatory cross checks. For
each product, the contract packer must transmit all quality control test results
to us on a daily basis. These test results are reviewed by technical staff for
compliance with our standards. In addition, samples from every production run
are forwarded to our Quality Control
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Department. These samples are then re-tested by us to double check the
production facilities' quality control. Based on our experience, we believe this
cross check on product meets or exceeds standard procedures established in the
industry.
Testing at both the Urban Juice facility and the contract production
facilities includes microbiological checks and other tests to ensure the
production facilities meet the standards and specifications of our quality
assurance program. This information is then logged into a database for rapid
statistical analysis and followed up with each contract packer. We believe our
production facilities inspection program meets or exceeds industry standards.
Water quality is monitored during production and at scheduled testing times to
ensure compliance with applicable government regulatory requirements. Flavors
are pre-tested before shipment to contract packers from the flavor manufacturer.
We are committed to an on-going program of product improvement with a view
toward ensuring the high quality of our product.
We believe we source and select only those suppliers that use only quality
components. We also inspect packaging suppliers' production facilities and
monitor their product quality.
REGULATION
The production and marketing of our licensed and proprietary beverages are
subject to the rules and regulations of various federal, provincial, state and
local health agencies, including without limitation, Health Canada, Agriculture
and Agri-Food Canada and the United States Food and Drug Administration. The FDA
and Agriculture and Agri-Food Canada also regulate labeling of our products.
From time to time, we may receive notifications of various technical labeling
and/or ingredient infractions 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 on a going-forward basis, and that none of
the foregoing notifications or actions would have a material adverse affect on
our business, financial condition or results of operations. There are no
potential notifications or actions currently outstanding.
TRADEMARKS, DESIGN MARKS AND FLAVOR CONCENTRATE TRADE SECRETS
We own a number of different trademarks, including the following which are
registered in Canada and the United States: "JONES SODA CO.," "I'VE GOT A JONES
FOR A JONES," "URBAN JUICE & SODA CO.," Urban Juice & Soda & Design, Urban Juice
& Soda Co. & Design and Wazu & Design. In Canada the trademarks expire 15 years
from the registration date and in the United States 10 years from the
registration date, although in the U.S., they may be renewed for a nominal fee.
In addition, we have applied for trademark protection in Canada and the United
States for a number of other trademarks for slogans and product design,
including "WET YOURSELF," "I'VE GOT A JONES FOR SODA," "IT MAY NOT BE YOUR
THING" and "FUFU BERRY SODA." In addition, trademark protection for the marks
JONES SODA CO. and WAZU have also been applied for in the United Kingdom,
Germany, Japan, and other foreign jurisdictions.
To date, we have the exclusive rights to nineteen flavor concentrates
developed with Pro-Liquitech, Inc., which we protect as trade secrets. We will
continue to take appropriate measures, such as entering into confidentiality
agreements with our contract packers and exclusivity agreements with our flavor
houses, to maintain the secrecy and proprietary nature of our flavor
concentrates.
We consider our trademarks, design marks and flavor concentrates to be of
considerable value and importance to our business. No challenges to our
trademarks or design marks have arisen and we have no reason to believe that any
such challenges will arise in the future.
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COMPETITION
The beverage industry is highly competitive. The principal methods of
competition in the beverage industry include brand name, brand image, price,
labeling and packaging, product quality and taste, trade and consumer promotions
and the 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 which 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 Urban Juice. We also compete with
regional beverage producers and "private label" soft drink suppliers.
In order to compete effectively in the beverage industry, we believe that we
must first convince independent distributors that JONES SODA CO. is a leading
brand in the newly created premium soda segment of the alternative or New Age
beverage industry. As such, JONES SODA CO. provides distributors with the
opportunity for incremental beverage sales growth rather than replacing their
existing beverage sales. In connection with or as a follow-up to the
establishment of an independent distributor relationship for the JONES SODA CO.
brand, we sell WAZU as a complementary brand which may replace competitive PET
bottled water products carried by such distributors. As a means of maintaining
and expanding our distribution network, we intend to introduce new products and
product extensions, and when warranted, new brands. Although we believe that we
will be able to continue to create unique, exciting and fashionable 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.
Pricing of the products is also important. The JONES SODA CO. products are
priced in the same price range as competitive New Age beverage brands and
products. WAZU products are priced in the middle of the pricing range for PET
bottled water products.
EMPLOYEES
As of December 31, 1998, we had 25 full-time employees, of whom 15 were
employed in sales and marketing capacities, five were employed in administrative
capacities, and five were employed in manufacturing and quality control
capacities. None of our employees are represented by labor unions. We believe
that our relationships with our employees are good.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information regarding our directors,
executive officers and key employees, as of August 11, 1999.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
CONTRACTUAL
NAME TITLE WITH URBAN CANADA SINCE ARRANGEMENT
- -------------------------- ------------------------------ ------------------------------ ----------------------
<S> <C> <C> <C>
Peter M. van Stolk President, Chief Executive Officer and Director since May 5-year Employment
Officer and Director 1993 Agreement(1)
Jennifer L. Cue Chief Financial Officer, Director since March 1995 3-year Employment
Secretary and Director Officer since October 1995 Agreement(1)
Peter Strahm Vice President of Sales-- Officer since April 1998 N/A
North America
Ron B. Anderson Director Director since July 1994 N/A
Michael M. Fleming Director Director since April 1997 N/A
Roly Morris Director Director since May 1998 N/A
Matthew Kellogg Director Director since May 1999 N/A
Peter Cooper Director Director since May 1999 N/A
</TABLE>
PETER M. VAN STOLK has served as our President, Chief Executive Officer and
a director since May 1993. Mr. van Stolk began his career in the beverage
industry in 1987 when he founded Urban Hand. He served in a similar capacity
with Urban Hand prior to it being acquired by Urban Canada in 1993. Mr. van
Stolk is also a member of the Social Venture Network. Since 1987, Mr. van Stolk
has worked in virtually all aspects of the beverage distributor business. He
attended Grant McKewan College in Edmonton, Alberta.
JENNIFER L. CUE has served as our Corporate Secretary since August 1997,
Chief Financial Officer since February 1997, Vice President, Corporate and
Financial Development, between October 1995 and January 1997, and a director
since March 1995. Prior to October 1995, Ms. Cue served as Vice President
Investment Research of D. Grant Macdonald Capital Corporation from February
1994, and prior to that served as Vice President, Investments at Penfund
Management in Toronto, Ontario from November 1990. From 1986 to 1988, Ms. Cue
worked in Commercial Banking for Lloyds Bank Canada. Ms. Cue holds an MBA from
McGill University in Montreal and a Bachelor of Commerce from the University of
British Columbia in Vancouver, British Columbia.
PETER STRAHM has served as our Vice President of Sales--North America since
April 1998. Prior to April 1998, Mr. Strahm served as Vice President, Eastern
Region for R.J. Groux Corporation, a beverage distribution company based in New
York. From 1989 to 1996 Mr. Strahm served in various positions at Snapple
Beverage Corporation. From 1989 to 1992, Mr. Strahm was the New York State Area
Manager for Snapple. From 1992 to 1993, Mr. Strahm served as Midwest Regional
Manager for Snapple where he oversaw the newly formed Midwest regional office.
From 1993 to 96, Mr. Strahm was President & CEO of Mr. Natural Inc., the
company-owned distributor for Snapple in the New York area. Prior to Snapple,
Mr. Strahm was with the Pepsi organization for five years. Mr. Strahm holds a
Bachelor of Science degree and an M.B.A.
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RON B. ANDERSON has served as one of our directors since July 1994. Mr.
Anderson is currently the Vice President, Corporate Development of ParkSide
Developments L.P., a private partnership involved in real estate development.
From July 1995 to December 1995, Mr. Anderson was a full-time consultant to The
Loewen Group Inc., a funeral service company. From August 1993 to June 1995, he
was President of D. Grant Macdonald Capital Corporation, a private merchant
bank. From September 1987 to July 1993, he was Senior Manager, British Columbia
District for National Bank of Canada. Mr. Anderson is a Certified General
Accountant and holds a B. Comm. from the University of British Columbia in
Vancouver, British Columbia.
MICHAEL M. FLEMING has served as one of our directors since April 1997. Mr.
Fleming is currently a Partner with the law firm of Ryan, Swanson & Cleveland in
Seattle, Washington, and specializes in real estate, dispute resolution,
securities and environmental matters. He is also the President and owner of
Kidcentre, Inc., a company in the business of providing child care services in
Seattle, Washington. Since April 1985, he has also been the President and owner
of Fleming Investment Co., an investment company. Mr. Fleming is currently a
board member of several entities, including Caring Products International, Inc.,
the Washington Chapter of the Cystic Fibrosis Foundation and the Seattle
Children's Museum.
ROLY MORRIS was appointed as one of our directors on May 6, 1998. From
November 1991 to November 1997, Mr. Morris was employed in several executive
capacities with Starbucks Coffee Company, most recently as the Zone Vice
President for Canada and the Pacific Northwest. At Starbucks, Mr. Morris
essentially established that company in Canada by identifying, recruiting and
developing its Canadian management team. Prior to his employment with Starbucks,
Mr. Morris was employed by a number of retail food chains including McGavin
Foods Limited, where he was responsible for retail operations, The Kitchen Table
Group, where he was the General Manager of Operations, and Miracle Food Mart,
where he was the Regional Manager, Grocery Field Specialist and Store Manager.
Mr. Morris holds a Bachelor of Commerce from the University of Windsor in
Windsor, Ontario.
MATTHEW KELLOGG was appointed as one of our directors on May 28, 1999. Mr.
Kellogg is currently the Managing Member of Kingfisher Capital, LLC. From 1995
to 1999, Mr. Kellogg served as the Managing Member of MTC, LLC, a restaurant
management firm. From 1997 to 1998, Mr. Kellogg was the Business Development
Director for Playnetwork, Inc. following his position at Enviros Inc. as
Business Development Manager from 1993 through 1995.
PETER COOPER was appointed as one of our directors on May 28, 1999. Mr.
Cooper is currently the owner of Cooper & Company, a U.S. based investment
company with interests in real estate and private companies. Mr. Cooper is also
a founding partner of Cooper & LeVasseur, a "special situation" investment
parnership. From 1986 through 1994, Mr. Cooper served as Chief Executive of L.D.
Nathan & Co., Ltd., a New Zealand based retail and consumer brand company and
following the merger with Lion Breweries as an Executive Director of Lion Nathan
Limited. Mr. Cooper received an Honors Degree in Law from Auckland University
and was admitted as a Barrister and Solicitor in New Zealand in 1977.
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
For purposes of this information circular/prospectus, "executive officer" of
Urban Canada means an individual who at any time during the year was the Chair
or a Vice-Chair of Urban Canada where the person performed the functions of such
office on a full-time basis; the President of Urban Canada; any Vice-President
of Urban Canada in charge of a principal business unit such as sales, finance or
production; any officer of Urban Canada or of a subsidiary of Urban Canada; or
any other person who performed a policy-making function in respect of Urban
Canada.
47
<PAGE>
The summary compensation table below discloses compensation paid to the
following individuals:
(a) our chief executive officer ("CEO");
(b) each of our four most highly compensated executive officers, other than
the CEO, who were serving as executive officers as at the end of the most
recently completed financial year and whose total salary and bonus
exceeds $100,000 per year; and
(c) any additional individuals for whom disclosure would have been provided
under (b) but for the fact that the individual was not serving as an
executive officer of Urban Canada at the end of the most recently
completed financial year
We currently have two executive officers so qualified: Peter van Stolk
(Chief Executive Officer and President) and Peter Strahm (Vice President of
Sales).
SUMMARY COMPENSATION TABLE
The following table contains a summary of the compensation paid to the
Messrs. van Stolk and Strahm during the three most recently completed financial
years. In the column headings, "SAR" or "stock appreciation right" means a right
granted by Urban Canada, as compensation for services rendered, to receive a
payment of cash or an issue or transfer of securities based wholly or in part on
changes in the trading price of publicly traded securities of Urban Canada, and
"LTIP" or "long term incentive plan" means any plan that provides compensation
intended to serve as incentive for performance to occur over a period longer
than one financial year, but does not include option or stock appreciation right
plans or plans for compensation through restricted shares or restricted share
units.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------------
ANNUAL COMPENSATION AWARDS
---------------------------------- ------------------------------
OTHER SECURITIES RESTRICTED PAYOUTS
ANNUAL UNDER SHARES OR -----------
COMPEN- OPTIONS/SARS RESTRICTED LTIP
NAME AND YEAR SALARY BONUS SATION GRANTED SHARE UNITS PAYOUTS
PRINCIPAL POSITION ENDED (CAN.$) (CAN.$) (CAN.$) (#) (CAN.$) (CAN.$)
- ----------------------------- ------------ ---------- ----------- --------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Peter van Stolk,............. Dec. 31/96 $ 50,000 Nil 61,760 70,000 Nil Nil
CHIEF EXECUTIVE Dec. 31/97 $ 54,885 Nil Nil 295,000 Nil Nil
OFFICER Dec. 31/98 $ 83,400 Nil $ 10,210 320,000 Nil Nil
Peter Strahm,................ Dec. 31/96 Nil Nil Nil Nil Nil Nil
VICE PRESIDENT, Dec. 31/97 Nil Nil Nil Nil Nil Nil
SALES Dec. 31/98 $ 114,742 Nil Nil 100,000 Nil Nil
<CAPTION>
ALL OTHER
COMPEN-
NAME AND SATION
PRINCIPAL POSITION (CAN.$)
- ----------------------------- -------------
<S> <C>
Peter van Stolk,............. Nil
CHIEF EXECUTIVE Nil
OFFICER Nil
Peter Strahm,................ Nil
VICE PRESIDENT, Nil
SALES Nil
</TABLE>
COMPENSATION OF DIRECTORS
None of our directors has received any remuneration for acting as director
of Urban Canada except for the incentive stock options as disclosed below. In
addition, directors are paid out of pocket expenses incurred in attending Board
of Directors and committee meetings of the Board.
REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS
The aggregate remuneration paid or payable by Urban Canada and its
subsidiaries in 1998 to the directors and executive officers of Urban Canada was
Can.$288,142.
48
<PAGE>
OPTIONS, STOCK APPRECIATION RIGHTS AND OTHER RIGHTS TO PURCHASE SECURITIES
The following table sets out the incentive stock options and stock
appreciation rights granted to Messrs. van Stolk and Strahm during our most
recently completed financial year.
<TABLE>
<CAPTION>
MARKET VALUE OF
% OF TOTAL SECURITIES
SECURITIES OPTIONS/SARS UNDERLYING
UNDER GRANTED TO EXERCISE OR OPTIONS/SARS ON
OPTIONS/SARS EMPLOYEES IN BASE PRICE THE DATE OF GRANT EXPIRATION
NAME GRANTED (#) FINANCIAL YEAR (CAN.$/SECURITY) (CAN.$/SECURITY) DATE
- --------------------------- --------------- --------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Peter van Stolk............ 100,000 4.15% $ 1.15 Nil May 22, 2003
100,000 4.15% $ 1.15 Nil June 1, 2003
20,000 0.008% $ 1.00 Nil July 24, 2003
100,000 4.15% $ 0.75 Nil Feb. 8, 2003
Peter Strahm............... 100,000 4.15% $ 1.00 Nil Mar. 24, 2003
</TABLE>
Since the beginning of our most recently completed financial year, the
following options and other rights to purchase securities of Urban Canada were
granted to the directors and executive officers of Urban Canada, as a group:
<TABLE>
<CAPTION>
EXERCISE
SECURITIES PRICE CONSIDERATION RECEIVED
UNDER OPTION PER SHARE DATE OF GRANT/EXPIRY DATE FOR THE GRANT
- ------------- ------------- ----------------------------- -------------------------
<S> <C> <C> <C>
180,000... Can.$ 0.75 Feb 8, 1999/Feb 8, 2004 Nil
115,000 Can.$ 0.80 Feb. 9, 1999/Feb. 2, 2004 Nil
150,000 Can.$ 0.85 Mar. 5, 1999/Mar. 5, 2004 Nil
</TABLE>
Since the beginning of our most recently completed financial year, no
options and other rights to purchase securities of Urban Canada were exercised
by the directors and executive officers of Urban Canada.
DIRECTORS' AND OFFICERS' INSURANCE
We maintain directors' and officers' insurance for our directors and
officers as well as those of our subsidiaries as a group. The yearly coverage
limit of such insurance is $3,000,000 per occurrence and $3,000,000 in the
aggregate, subject to a corporate deductible of $50,000 per loss on
non-securities claims and $150,000 per loss on securities claims. We paid a
premium of $41,200 in the last completed fiscal year with respect to the period
October 9, 1998 to October 9, 1999.
LONG-TERM INCENTIVE PLANS
During the financial year ended December 31, 1998, there were no payments
made to directors or executive officers pursuant to the long-term incentive
plan.
PENSION BENEFITS
We currently have no pension benefits arrangement under which we have made
payments to the directors and executive officers of Urban Canada during our most
recently completed financial year or intend to make payments to our directors
and executive officers upon their retirement (other than the payments set out
above and those made, if any, pursuant to the Canada Pension Plan or any
government plan similar to it).
49
<PAGE>
OTHER BENEFITS
We did not pay any remuneration pursuant to any existing plan or arrangement
during our most recently completed financial year to the directors and executive
officers of Urban Canada, as a group, directly or indirectly, other than the
payments set out above and those made pursuant to the Canada Pension Plan or any
government plan similar to it and payments to be made for, or benefits to be
received from, group life or accident insurance, group hospitalization or
similar group benefits or payments. We do not propose to make any payments,
directly or indirectly, in the future to the directors and executive officers of
Urban Canada, as a group, pursuant to any existing plan or arrangement.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
Other than indebtedness incurred in the ordinary course of our business, not
exceeding Can.$5,000 per occurrence, no director or executive officer of Urban
Canada, or any proposed nominee for election as a director of the Company, or
any associate or affiliate of any director, executive officer or proposed
nominee, is or has been indebted to Urban Canada, or to any other entity that
was provided a guarantee or similar arrangement by Urban Canada in connection
with the indebtedness, at any time since the beginning of our most recently
completed financial year. For fiscal year 1998 there was no single transaction
in excess of $60,000.
MANAGEMENT CONTRACTS
Our directors and officers perform all of the material management functions
in Urban Canada.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Other than as set forth in this information circular/prospectus, no insider
of Urban Canada, no proposed nominee for election as a director and no associate
or affiliate of any such insider or proposed nominee has had any material
interest, direct or indirect, in any transaction since the beginning of our most
recently completed financial year or in any proposed transaction that, in either
case, has materially affected or will materially affect our operations.
DESCRIPTION OF URBAN CANADA CAPITAL STOCK
The authorized capital of Urban Canada consists of 100,000,000 common
shares. The following summary description of Urban Canada capital stock is
qualified in its entirety by reference to the memorandum and articles of Urban
Canada, copies of which are filed as exhibits to the registration statement on
Form 8-A, filed with the SEC on October 3, 1996, as amended, and Urban Canada's
Form 6-K Report of Foreign Private Issuer containing unaudited financial
statements for the six months ended June 30, 1999.
COMMON SHARES AND WARRANTS
Urban Canada is authorized to issue 100,000,000 common shares without par
value. The common shares are all of the same class and rank equally as to
dividends, voting powers and participation in assets. No common shares are
subject to call or assessment. There are no pre-emptive or conversion rights and
no provisions for redemption, retraction, purchase for cancellation, surrender
or sinking or purchase funds. Provisions as to the modification, amendment or
variation of such rights or provisions are contained in the British Columbia
Company Act. See "Markets and Market Prices" for a description of our
outstanding common shares and common share purchase warrants.
50
<PAGE>
ESCROW SHARES
Presently 1,500,000 of our common shares are held in trust by Pacific
Corporate Trust Company pursuant to a performance escrow share agreement dated
March 29, 1993. The escrow shares are restricted and any dealings with them are
subject to the direction or determination of the Vancouver Stock Exchange. The
escrow restrictions prohibit all trading or dealing in any manner with, or
release of, the escrow shares without the consent of the Vancouver Stock
Exchange and further prohibit the recording of trading or any transfer of the
escrow shares prior to release from escrow without such consent. A holder of
escrow shares has the right to vote the escrow shares, except on a resolution to
cancel the escrow shares but has waived the right to receive dividends and to
participate in our assets and property on our winding-up or dissolution.
The escrow shares may be released from escrow, on a pro rata basis, based
upon our cumulative cash flow. "Cash flow" means net income or loss before tax,
adjusted for certain add backs. One escrow share will be released pro rata for
each Can.$0.125 of cumulative cash flow.
TRANSFER AGENT AND REGISTRAR
Our common share transfer agent and registrar is Pacific Corporate Trust
Company, whose address is 830 - 625 Howe Street, Vancouver, British Columbia,
V6C 3B8.
SHAREHOLDER'S RIGHTS UNDER THE WYOMING BUSINESS CORPORATION ACT
The following is a discussion of the material provisions of the Wyoming
Business Corporations Act. This discussion includes, where relevant, a summary
of certain differences between the Wyoming Business Corporations Act and the
British Columbia Company Act. However, the following summary is not intended to
be exhaustive and its focus is primarily upon shareholder rights and safeguards.
Nothing that follows should be construed as legal advice to any particular
shareholder of Urban Canada and shareholders should consult with their own legal
advisors respecting all of the implications of the continuation.
THE CONSTATING DOCUMENTS
Under the British Columbia Company Act, a British Columbia company is
required to have constating documents made up of a memorandum and articles.
Under the Wyoming Business Corporations Act, a Wyoming company which has
continued from another jurisdiction is required to have constating documents
made up of articles of continuance. The articles of continuance will set forth
Urban Canada's name and authorized share capital and take the place of Urban
Canada's current memorandum.
AMENDMENTS TO CONSTATING DOCUMENTS
Both the Wyoming Business Corporations Act and the British Columbia Company
Act require shareholders to approve substantive changes to the constating
documents of a company. However, the requisite majority of votes necessary to
approve substantive changes to the constating documents under the British
Columbia Company Act is 75% (3/4) of the votes cast whereas under the Wyoming
Business Corporations Act a simple majority of 50% of shareholders entitled to
vote on the proposed resolution is required. Both the Wyoming Business
Corporations Act and the British Columbia Company Act provide that in the case
of certain fundamental changes, such as the alteration of special rights and
restrictions attached to issued shares or a proposed amalgamation or
continuation to another jurisdiction, a resolution similarly approved by each
class of shares is also required.
51
<PAGE>
SHARE CAPITAL
Upon the completion of the continuation and the adoption of the proposed new
articles of continuance, the authorized share capital of Urban Wyoming will
consist of 100,000,000 common shares without par value. Urban Wyoming will have
only one kind and class of shares and there will be no unusual rights or
restrictions attached to that class. All of the current issued common shares of
Urban Canada will be converted into shares of this class automatically without
any further action by the shareholders.
All of the common shares of Urban Canada in this new class will rank equally
as to voting rights, participation in a distribution of the assets of Urban
Wyoming on a liquidation, dissolution or winding-up of Urban Canada and the
entitlement to dividends. The holders of the common shares will be entitled to
receive notice of all meetings of shareholders and to attend and vote the shares
at the meetings. Each common share will carry with it the right to one vote.
In the event of the liquidation, dissolution or winding-up of Urban Wyoming
or other distribution of its assets, the holders of the common shares will be
entitled to receive, on a pro rata basis, all of the assets remaining after
Urban Wyoming has paid out its liabilities. Distribution in the form of
dividends, if any, will be set by the Board of Directors.
Provision as to the modification, amendment or variation of the rights
attached to the common shares of Urban Wyoming will be contained in Urban
Wyoming's articles of continuance and the Wyoming Business Corporations Act.
Generally speaking, substantive changes to the share capital require the
approval of the shareholders by majority resolution.
APPOINTMENT OF DIRECTORS
Under both the British Columbia Company Act and the Wyoming Business
Corporations Act, the company's directors are elected by the shareholders at
each annual general meeting and typically hold office until the next annual
general meeting at which time they may be re-elected or replaced. Individuals
appointed as directors to fill vacancies on the Board or added as additional
directors hold office like any other director until the next annual general
meeting at which time they may be re-elected or replaced. A director may be
removed between annual meetings by way of a shareholder resolution passed in
that regard at a meeting of the shareholders called for that purpose.
MANAGEMENT
The Board of Directors will be responsible for the overall management of
Urban Wyoming. However, they are permitted to delegate much of their
responsibility to the officers and employees of Urban Wyoming and to committees
formed by the board. As a "reporting issuer" in British Columbia, Urban Wyoming
will continue to be required to have an audit committee.
The directors and senior officers are required, under the Wyoming Business
Corporations Act, to act honestly, in good faith and with a view to the best
interests of Urban Wyoming. The directors have a fiduciary responsibility to
Urban Wyoming and they are required to disclose conflicts of interests. The
fiduciary standards of directors under the Wyoming Business Corporations Act is
similar to the standards under the British Columbia Company Act. Both laws
require directors to act in good faith and in our best interest, with the same
care as would be exercised by a reasonable, prudent person.
RIGHTS OF SHAREHOLDERS
In addition to the voting, dividend and liquidation rights attached to the
common shares as described under "Share Capital" above, the Wyoming Business
Corporations Act affords shareholders certain rights such as the right to call a
shareholders' meeting or cause a derivative action to be
52
<PAGE>
brought on behalf of Urban Wyoming, as well as certain rights to review the
minute books of Urban Wyoming.
The Wyoming Business Corporations Act provides that a shareholder or a
director may commence or defend a legal action on behalf of a company (a
derivative action) to enforce a right, duty or obligation owed to Urban Wyoming
by another party or to obtain damages for any breach of that right, duty or
obligation. A shareholder is entitled to commence a derivative action if:
- the shareholder was a shareholder of Urban Wyoming at the time of the act
or omission complained of, or became a shareholder through transfer by
operation of law from one who was a shareholder at the time; and
- the shareholder fairly and adequately represents the interests of Urban
Wyoming in enforcing the rights of Urban Wyoming.
Court approval is also required to discontinue, settle or dismiss any action
brought under any of these provisions.
Under the British Columbia Company Act, a shareholder of a company has the
right to apply to court on the grounds that Urban Canada is acting or proposes
to act in a way that is prejudicial to the shareholder (this is referred to as
an oppression action). On such an application, the court may make such order as
it sees fit, including an order to prohibit any act proposed by Urban Canada.
The Wyoming Business Corporations Act does not contain a comparable provision
and, accordingly, this remedy is not available to the shareholders of a Wyoming
company.
DISSENT RIGHTS UNDER THE WYOMING BUSINESS CORPORATIONS ACT
The rights of shareholders to dissent to actions proposed to be taken by a
Wyoming company are not significantly different from the right to dissent
provided the shareholders of a British Columbia company under the British
Columbia Company Act.
LEGAL MATTERS
Legal matters relating to the legality of the issuance of the common shares
offered by this information circular/prospectus will be passed upon for Urban
Canada by Catalyst Corporate Finance Lawyers, Vancouver, British Columbia. Legal
matters will be passed upon for Urban Wyoming by Bagley Law Office, Cheyenne,
Wyoming, and Van Valkenberg Furber Law Group P.L.L.C., Seattle, Washington,
special United States counsel to Urban Canada. Van Valkenberg Furber Law Group
P.L.L.C. will rely on the opinions of Catalyst Corporate Finance Lawyers on
Canadian law and Bagley Law Office on Wyoming law.
EXPERTS
KPMG, LLP, independent chartered accountants, have audited our financial
statements as of December 31, 1997 and 1998, and for each of the years in the
three-year period ended December 31, 1998. We have included our financial
statements in this information circular/prospectus and elsewhere in the
registration statement in reliance on KPMG, LLP, reports, given on their
authority as experts in accounting and auditing.
53
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
URBAN JUICE & SODA COMPANY LTD.
YEARS ENDED DECEMBER 31, 1998 AND 1997
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements Of Operations And Deficit.......................................................... F-4
Consolidated Statements Of Changes In Financial Position................................................... F-5
Notes to Consolidated Financial Statements................................................................. F-6
Schedule of Office and Administration Expenses............................................................. F-18
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT
To the Directors
Urban Juice & Soda Company Ltd.
We have audited the consolidated balance sheets of Urban Juice & Soda
Company Ltd. as at December 31, 1998 and 1997 and the consolidated statements of
operations and deficit and changes in financial position for each of the years
in the three year period ended December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1998 and 1997, and the results of its operations and the changes in its
financial position for each of the years in the three year period ended December
31, 1998 in accordance with generally accepted accounting principles in Canada.
Significant measurement differences between Canadian and United States
accounting principles as they affect these consolidated financial statements are
explained and quantified in note 14.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
February 12, 1999, except
as to note 2(a) which is as
of April 12, 1999
F-2
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and term deposits......................................................... $ 336,983 $ 1,666,086
Accounts receivable (note 3)................................................... 1,271,470 809,418
Inventory (note 4)............................................................. 823,514 1,090,699
Prepaid expenses............................................................... 334,350 110,927
-------------- -------------
2,766,317 3,677,130
Capital assets (note 5)............................................................ 834,975 667,764
Intangible assets (note 6)......................................................... 454,099 634,451
-------------- -------------
$ 4,055,391 $ 4,979,345
-------------- -------------
-------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness (note 7)..................................................... $ 309,600 $ --
Accounts payable and accrued liabilities....................................... 1,363,684 1,139,850
Current portion of long-term debt (note 8)..................................... 23,645 65,091
-------------- -------------
1,696,929 1,204,941
Long-term debt (note 8)............................................................ 31,915 --
Shareholders' equity:
Share capital (note 9)......................................................... 12,942,935 12,049,085
Deficit........................................................................ (10,616,388) (8,274,681)
-------------- -------------
2,326,547 3,774,404
Operations (note 2(a))
Commitments and contingencies (note 10)
-------------- -------------
$ 4,055,391 $ 4,979,345
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Sales............................................................... $ 7,011,046 $ 3,265,317 $ 3,458,701
Cost of sales....................................................... 5,225,887 3,043,694 3,006,924
-------------- ------------- -------------
1,785,159 221,623 451,777
Expenses:
Amortization.................................................... 317,449 197,754 199,446
Bad debts....................................................... 83,566 463,471 139,301
Consulting fees................................................. 167,664 166,426 72,006
Filing fees and transfer agent.................................. 23,925 16,340 25,957
Office and administration (schedule)............................ 609,341 794,204 485,068
Professional fees............................................... 178,945 148,008 53,869
Promotion and selling........................................... 2,221,537 2,111,116 1,307,676
Wages........................................................... 448,808 366,137 591,654
-------------- ------------- -------------
4,051,235 4,263,456 2,874,977
-------------- ------------- -------------
Loss from operations................................................ (2,266,076) (4,041,833) (2,423,200)
Other income (expense):
Foreign exchange gain (loss).................................... (72,224) 6,361 --
Other interest expense.......................................... (16,347) (10,002) (26,527)
Interest income................................................. 27,725 57,146 29,055
Write-down of inventory......................................... -- (353,797) --
Write-down of intangible assets................................. (102,871) -- --
Miscellaneous income............................................ 3,028 5,167 1,341
Gain (loss) on disposal of capital assets....................... (17,813) 12,584 (6,921)
-------------- ------------- -------------
(178,502) (282,541) (3,052)
-------------- ------------- -------------
Loss for the year................................................... (2,341,707) (3,970,577) (2,426,252)
Deficit, beginning of year.......................................... (8,274,681) (4,304,104) (1,877,852)
-------------- ------------- -------------
Deficit, end of year................................................ $ (10,616,388) $ (8,274,681) $ (4,304,104)
-------------- ------------- -------------
-------------- ------------- -------------
Loss per share (note 2(g)).......................................... $ (0.17) $ (0.33) $ (0.28)
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash provided by (used in):
Operations:
Loss for the year................................................ $ (2,341,707) $ (3,970,577) $ (2,426,252)
Items not involving cash:
Amortization................................................. 317,449 197,754 199,446
Loss (gain) on disposal of capital assets.................... 17,813 (12,584) 6,921
Write-down of inventory subject to legal claim............... -- 353,797 --
Write-down of intangible assets.............................. 102,871 -- --
Changes in non-cash operating working capital:
Accounts receivable.......................................... (462,052) (271,545) (34,884)
Inventory.................................................... 267,185 (545,394) 289,730
Prepaid expenses............................................. (223,423) 651,514 (713,649)
Accounts payable and accrued liabilities..................... 223,834 536,319 (192,528)
------------- ------------- -------------
(2,098,030) (3,060,716) (2,871,216)
Financing:
Increase in long-term debt....................................... 46,982 -- --
Repayment of long-term debt...................................... (56,513) (67,256) (59,071)
Convertible debenture............................................ -- -- (248,302)
Issuance of share capital, net................................... 893,850 3,754,339 5,402,476
------------- ------------- -------------
884,319 3,687,083 5,095,103
Investments:
Proceeds on disposal of capital assets........................... 11,200 18,084 52,062
Purchase of capital assets....................................... (401,352) (545,178) (73,581)
Purchase of intangible assets.................................... (34,840) (280,691) (351,144)
------------- ------------- -------------
(424,992) (807,785) (372,663)
------------- ------------- -------------
Increase (decrease) in cash (bank indebtedness)...................... (1,638,703) (181,418) 1,851,224
Cash (bank indebtedness), beginning of year.......................... 1,666,086 1,847,504 (3,720)
------------- ------------- -------------
Cash, end of year.................................................... $ 27,383 $ 1,666,086 $ 1,847,504
------------- ------------- -------------
------------- ------------- -------------
Cash is defined as cash and term deposits less bank indebtedness.
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
1. NATURE OF OPERATIONS:
The Company develops and distributes sodas and water which are bottled under
contract by third parties.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Operations:
These consolidated financial statements have been prepared on a basis
which assumes the realization of assets and settlement of liabilities in
the normal course of business. During the years ended December 31, 1998,
and 1997, the Company incurred losses of $2,341,707 and $3,970,577,
respectively. The Company's ability to continue with its planned course
of expansion and to recover its investment in capital and intangible
assets is dependent upon raising additional financing and generating
future profitable operations. Subsequent to year end, the Company entered
into private placements to raise $2,000,000 in equity financing.
(b) Basis of consolidation:
The consolidated financial statements include the assets, liabilities,
revenues and expenses of Urban Juice & Soda Company Ltd. (the parent) and
its wholly-owned subsidiaries, Wazu Products Ltd., Zip City Distribution
Co. (Vancouver) Ltd., Vancouver Island Beverage Company Ltd., and Urban
Juice and Soda (USA) Inc. All material intercompany transactions and
balances have been eliminated.
(c) Inventory:
Inventory has been valued at the lower of cost and net realizable value
with cost being determined on a First In - First Out basis. Cost includes
laid-down cost that is cost of material plus the cost of direct labour
applied to the product and applicable overhead chargeable to production
plus delivery and storage costs plus applicable overheads.
(d) Capital assets:
Capital assets are recorded at cost and are amortized on the declining
balance basis over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Equipment............................................. 20% to 50%
Automobile and computers.............................. 30%
Leasehold improvements................................ 20%
Equipment under capital lease......................... lease term
</TABLE>
(e) Intangible assets:
(i) The Company follows the policy of capitalizing development costs,
including artwork and design, marketing and production, and
consulting and licencing relating to new projects. Deferred
development costs are amortized on a straight-line basis over five
years from the date of commercial production. When a project is
abandoned, the related development costs are written off.
F-6
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(ii) Trademarks and patents are amortized over their estimated useful
lives of five years.
(f) Revenue recognition:
Sales are recorded upon shipment of products, and represent amounts
realized net of sales returns, discounts and allowances.
Sales returns are recognized once the Company has picked up the returned
goods by issuing a credit note to the customer. Discounts are offered to
customers via promotional events, which are recorded when the credit not
as issued on shipment of the discounted amount relating to the purchase.
(g) Loss per share:
Basic loss per share is based upon the weighted average number of common
shares outstanding of 14,037,202 (1997--11,868,160; 1996--8,779,905).
Fully diluted loss per share has not been presented as all outstanding
options (1998--1,494,750; 1997--1,054,076; 1996-- 1,123,696)
(1998--914,000; 1997--2,631,700; 1996--3,397,700) and warrants are
anti-dilutive.
(h) Foreign currency:
The Company's foreign operations are considered to be integrated and
accordingly the Company uses the temporal method of translation. Monetary
items denominated in foreign currency are translated to Canadian dollars
at exchange rates in effect at the balance sheet date and non-monetary
items are translated at rates of exchange in effect when the assets were
acquired or obligations incurred. Revenues and expenses are translated at
rates in effect at the time of the transactions. Foreign exchange gains
and losses are included in income.
(i) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Items involving the significant
use of management estimates include the carrying value of intangible
assets, collectibility of accounts receivable, useful lives of capital
assets, and valuation of inventory. Actual results could differ from
those estimates.
(j) Advertising costs:
The Company expenses all advertising costs as incurred. Prepaid
advertising costs are amortized over a 12 month period. During the years
ended December 31, 1998, 1997, and 1996, the Company incurred advertising
costs of $1,133,599, $1,419,416 and $555,374, respectively.
F-7
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
3. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Trade.............................................................. $ 1,543,110 $ 986,832
Other.............................................................. 36,584 108,195
Allowance for doubtful accounts.................................... (308,224) (285,609)
------------ -----------
$ 1,271,470 $ 809,418
------------ -----------
------------ -----------
</TABLE>
4. INVENTORY:
<TABLE>
<CAPTION>
1998 1997
---------- ------------
<S> <C> <C>
Finished goods...................................................... $ 440,234 $ 733,319
Raw materials....................................................... 383,280 357,380
---------- ------------
$ 823,514 $ 1,090,699
---------- ------------
---------- ------------
</TABLE>
During 1997, $353,797 of inventory was written off to cost of sales as
the inventory was determined to be unsaleable due to improper concentrate
levels and labels which did not meet certain regulations.
5. CAPITAL ASSETS:
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
1998 COST AMORTIZATION VALUE
- ------------------------------------------------------ ------------ ------------ ----------
<S> <C> <C> <C>
Equipment............................................. $ 1,249,669 $ 462,737 $ 786,932
Equipment under capital lease......................... 49,455 7,418 42,037
Automotive............................................ 40,408 35,343 5,065
Leasehold improvements................................ 1,306 365 941
------------ ------------ ----------
$ 1,340,838 $ 505,863 $ 834,975
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
1997 COST AMORTIZATION VALUE
- -------------------------------------------------------- ---------- ------------ ----------
<S> <C> <C> <C>
Equipment............................................... $ 927,545 $ 267,227 $ 660,318
Automotive.............................................. 40,048 33,328 6,720
Leasehold improvements.................................. 906 180 726
---------- ------------ ----------
$ 968,499 $ 300,735 $ 667,764
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
F-8
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
6. INTANGIBLE ASSETS:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Artwork and design.................................................. $ 164,867 $ 164,867
Marketing and production, consulting and licensing.................. 418,318 521,189
Trademarks and patents.............................................. 176,314 141,474
----------- -----------
759,499 827,530
Less amortization................................................... (305,400) (193,079)
----------- -----------
$ 454,099 $ 634,451
----------- -----------
----------- -----------
</TABLE>
During 1998 it became apparent that advertising services previously paid for
in advance were not going to be provided and accordingly the Company wrote
off the amount capitalized. The amount written off was $102,871 and is
included in cost of sales.
7. BANK INDEBTEDNESS:
Operating line of credit up to an amount of $1,500,000 (U.S. $1,000,000)
bearing interest at prime plus 1.5% (9.25%), secured by assignment of all
assets.
8. LONG-TERM DEBT:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Bank term loans, repayable in various monthly instalments with
interest at prime plus 1.75% (8.5%), secured by chattel mortgages
over equipment of the Company....................................... $ 8,578 $ 65,091
Capital lease obligations payable in monthly instalments of $1,605
including principal and interest at 10.4%, maturing October 2001.... 46,982 --
---------- ----------
55,560 65,091
Less current portion.................................................. (23,645) (65,091)
---------- ----------
$ 31,915 $ --
---------- ----------
---------- ----------
</TABLE>
Principal portion of long-term debt due within each of the next three years
are as follows:
<TABLE>
<S> <C>
1999............................................................... $ 23,645
2000............................................................... 16,712
2001............................................................... 15,203
---------
$ 55,560
---------
---------
</TABLE>
F-9
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
9. SHARE CAPITAL:
(a) Authorized:
100,000,000 common shares without par value.
(b) Issued:
<TABLE>
<CAPTION>
NUMBER
OF SHARES AMOUNT
------------ -------------
<S> <C> <C>
Balance, December 31, 1995....................................... 7,354,701 $ 2,892,270
Issued for cash:
Exercise of share purchase options............................. 429,872 547,252
Exercise of share purchase warrants............................ 300,000 303,000
Private placement.............................................. 186,000 427,320
Conversion of debentures....................................... 160,191 248,296
Public offering (net of issue costs of $1,324,014)............. 2,281,700 3,793,647
Issued for debt.................................................. 30,148 82,825
Underwriters' unit warrants...................................... -- 136
------------ -------------
3,387,911 5,402,476
------------ -------------
Balance, December 31, 1996....................................... 10,742,612 8,294,746
Issued for cash:
Exercise of share purchase options............................. 214,974 271,637
Exercise of share purchase warrants............................ 400,000 368,000
Private placement (net of issue costs of $271,505)............. 2,293,578 3,168,862
Share issue costs.............................................. -- (54,160)
------------ -------------
2,908,552 3,754,339
------------ -------------
Balance, December 31, 1997....................................... 13,651,164 12,049,085
Return of shares to treasury..................................... (20,000) (21,400)
Issued for cash:
Exercise of share purchase options............................. 605,000 490,250
Private placement (net of issue costs of $32,000).............. 914,000 425,000
------------ -------------
1,519,000 915,250
------------ -------------
Balance, December 31, 1998....................................... 15,150,164 $ 12,942,935
------------ -------------
------------ -------------
</TABLE>
(i) The shares returned to treasury in 1998 relate to a promissory note
signed by an employee of the Company to exercise their option to
purchase 20,000 shares at the exercise price of $1.07 which was
never paid, therefore, the shares were returned to treasury.
F-10
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
9. SHARE CAPITAL: (CONTINUED)
(ii) The 7% per annum convertible debentures had a conversion feature,
allowing the holder to convert the debentures to common shares
based on a conversion price of $1.30 per share for the first year
(1995), $1.55 for the second year (1996), and $1.80 for the third
year (1997). The conversion price for the first year was based on
market price at the date when the debentures were issued, with
$0.25 per share incremental increases for each of the next two
years that the debentures were not converted, up to a maximum of
three years. During 1996, debentures aggregating $248,296 were
converted to 160,191 common shares.
(c) Share purchase options:
<TABLE>
<CAPTION>
OUTSTANDING OUTSTANDING
DECEMBER 31, DECEMBER 31,
EXPIRY DATES PRICE 1995 ISSUED EXERCISED EXPIRED 1996
- ----------------------------------------- --------- ------------ ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
May 1, 1997.............................. $ 0.95 37,500 -- 22,500 -- 15,000
July 21, 1997............................ 0.84 15,000 -- 10,000 -- 5,000
August 14, 1997.......................... 0.86 249,568 -- 237,068 -- 12,500
August 26, 1997.......................... 1.07 125,000 -- 5,000 -- 100,000
August 29, 1997.......................... 1.13 25,000 -- 25,000 -- --
October 3, 1997.......................... 1.64 10,000 -- 304 -- 9,696
November 29, 1997........................ 2.15 200,000 -- 130,000 -- 70,000
February 14, 1998........................ 2.50 -- 90,000 -- -- 90,000
February 22, 1998........................ 3.05 -- 60,000 -- -- 60,000
April 22, 1998........................... 3.25 -- 41,500 -- -- 41,500
November 5, 1998......................... 2.00 -- 165,000 -- -- 165,000
December 13, 1998........................ 1.50 -- 210,000 -- -- 210,000
December 13, 1999........................ 1.50 -- 25,000 -- -- 25,000
December 19, 1998........................ 1.60 -- 320,000 -- -- 320,000
------------ ---------- ----------- --------- ------------
662,068 911,500 429,872 1,123,696
------------ ---------- ----------- --------- ------------
------------ ---------- ----------- --------- ------------
</TABLE>
F-11
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
9. SHARE CAPITAL: (CONTINUED)
<TABLE>
<CAPTION>
OUTSTANDING OUTSTANDING
DECEMBER 31, DECEMBER 31,
EXPIRY DATES PRICE 1996 ISSUED EXERCISED EXPIRED 1997
- ----------------------------------------- --------- ------------ ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
May 1, 1997.............................. $ 0.95 15,000 -- 4,000 11,000 --
July 21, 1997............................ 0.84 5,000 -- 5,000 -- --
August 14, 1997.......................... 0.86 12,500 -- 12,500 -- --
August 26, 1997.......................... 1.07 100,000 -- 86,800 13,200 --
August 29, 1997.......................... 1.64 9,696 -- -- 9,696 --
October 3, 1997.......................... 2.15 70,000 -- -- 70,000 --
November 29, 1997........................ 2.50 90,000 -- -- 90,000 --
February 14, 1998........................ 3.05 60,000 -- -- 55,000 5,000
February 22, 1998........................ 3.25 41,500 -- -- 11,500 30,000
April 22, 1998........................... 3.25 -- 6,500 -- -- 6,500
November 5, 1998......................... 2.00 165,000 30,000 -- -- 195,000
December 13, 1998........................ 1.50 210,000 -- 106,674 103,326 --
December 13, 1999........................ 1.50 25,000 -- -- -- 25,000
December 19, 1998........................ 1.60 320,000 -- -- 26,174 293,826
February 7, 1999......................... 1.50 -- 122,000 -- 56,750 65,250
November 10, 1999........................ 1.60 -- 87,500 -- -- 87,500
April 29, 1999........................... 1.75 -- 191,000 -- -- 191,000
September 17, 1999....................... 1.50 -- 155,000 -- -- 155,000
------------ ---------- ----------- --------- ------------
1,123,696 592,000 214,974 446,646 1,054,076
------------ ---------- ----------- --------- ------------
------------ ---------- ----------- --------- ------------
</TABLE>
F-12
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
9. SHARE CAPITAL: (CONTINUED)
<TABLE>
<CAPTION>
OUTSTANDING OUTSTANDING
DECEMBER 31, DECEMBER 31,
EXPIRY DATES PRICE 1997 ISSUED EXERCISED EXPIRED 1998
- ----------------------------------------- --------- ------------ ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
February 14, 1998........................ $ 2.00 5,000 -- -- 5,000 --
February 22, 1998........................ 3.05 30,000 -- -- 30,000 --
April 22, 1998........................... 3.25 6,500 -- -- 6,500 --
November 5, 1998......................... 2.00 195,000 -- -- 195,000 --
December 13, 1999........................ 1.50 25,000 -- -- -- 25,000
February 7, 1999......................... 1.50 65,250 -- -- -- 65,250
December 19, 1998........................ 1.60 293,826 -- -- 293,826 --
March 10, 2002........................... 1.60 87,500 -- -- -- 87,500
April 29, 1999........................... 1.75 191,000 -- -- 99,000 92,000
September 17, 1999....................... 1.50 155,000 -- -- 75,000 80,000
January 19, 2003......................... 0.85 -- 350,000 285,000 6,000 59,000
February 13, 2003........................ 1.00 -- 350,000 320,000 -- 30,000
February 23, 2003........................ 1.00 -- 295,000 -- -- 295,000
March 24, 2003........................... 1.00 -- 100,000 -- -- 100,000
May 22, 2003............................. 1.15 -- 125,000 -- -- 125,000
September 17, 1999....................... 1.15 -- 5,000 -- -- 5,000
May 22, 2000............................. 1.15 -- 11,000 -- -- 11,000
June 1, 2003............................. 1.15 -- 232,000 -- -- 232,000
July 24, 2003............................ 1.00 -- 270,000 -- -- 270,000
October 9, 2003.......................... 1.00 -- 10,000 -- -- 10,000
June 1, 2000............................. 1.15 -- 8,000 -- -- 8,000
------------ ---------- ----------- --------- ------------
1,054,076 1,756,000 605,000 710,326 1,494,750
------------ ---------- ----------- --------- ------------
------------ ---------- ----------- --------- ------------
</TABLE>
(d) Share purchase warrants:
<TABLE>
<CAPTION>
OUTSTANDING OUTSTANDING
DECEMBER 31, DECEMBER 31,
EXPIRY DATES PRICE 1995 ISSUED EXERCISED 1996
- ---------------------------------------------- ------------ ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
On or before June 9, 1996..................... $ 1.01 300,000 -- 300,000 --
On or before August 14, 1997.................. 0.92 400,000 -- -- 400,000
On or before November 14, 1997................ 1.96 300,000 -- -- 300,000
On or before February 26, 1997/98............. 2.50/2.88 -- 350,000 -- 350,000
On or before January 17, 1997/98.............. 1.52/1.75 -- 66,000 -- 66,000
On or before September 17, 1997/98............ 2.70/3.375 -- 2,281,700 -- 2,281,700
------------ ---------- ----------- ------------
1,000,000 2,697,700 300,000 3,397,700
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
</TABLE>
F-13
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
9. SHARE CAPITAL: (CONTINUED)
<TABLE>
<CAPTION>
OUTSTANDING OUTSTANDING
DECEMBER 31, DECEMBER 31,
EXPIRY DATES PRICE 1996 EXERCISED EXPIRED 1997
- ---------------------------------------------- ------------ ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
August 14, 1997............................... $ 0.92 400,000 400,000 -- --
November 14, 1997............................. $ 1.96 300,000 -- 300,000 --
February 26, 1997/98.......................... $ 2.50/2.88 350,000 -- -- 350,000
January 17, 1997/98........................... $ 1.52/$1.75 66,000 -- 66,000 --
September 17, 1997/98......................... $ 2.70/$3.75 2,281,700 -- -- 2,281,700
------------ ---------- --------- ------------
3,397,700 400,000 366,000 2,631,700
------------ ---------- --------- ------------
------------ ---------- --------- ------------
</TABLE>
<TABLE>
<CAPTION>
OUTSTANDING OUTSTANDING
DECEMBER 31, DECEMBER 31,
EXPIRY DATES PRICE 1997 ISSUED EXPIRED 1998
- ---------------------------------------------- ------------ ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
February 26, 1997/98.......................... $ 2.50/$2.88 350,000 -- 350,000 --
September 17, 1997/98......................... $ 2.57/$3.75 2,281,700 -- 2,281,700 --
December 9, 2000/2001......................... $ 0.60 -- 850,000 -- 850,000
------------ --------- ---------- ------------
2,631,700 850,000 2,631,700 850,000
------------ --------- ---------- ------------
------------ --------- ---------- ------------
</TABLE>
The Company issued two-year warrants to purchase 40,000 common shares on
June 18, 1998 at an exercise price of $1.00 per share for the first year,
and $1.15 per share for the second year in connection with the closing of
a bank loan. Two-year warrants were also issued to purchase 914,000
common shares, 64,000 of which are brokers' unit warrants, at an exercise
price of $0.60 per share in connection with a private placement that
closed on December 9, 1998. Subsequent to year end, additional two-year
warrants to purchase 1,755,377 common shares at an exercise price of
$0.75 per share for the first year and $0.90 per share for the second
year were issued in connection with the closing of a private placement on
May 4, 1999. All warrants are priced and accounted for at the fair value
of the shares at the time of issue.
(e) Brokers' unit warrants:
<TABLE>
<CAPTION>
OUTSTANDING OUTSTANDING
DECEMBER 31, DECEMBER 31,
EXPIRY DATES PRICE 1997 ISSUED EXERCISED EXPIRED 1998
- --------------------------------------------- --------- ----------------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
December 9, 2000/2001........................ $ 0.60 -- 64,000 -- -- 64,000
</TABLE>
(i) The exercise prices associated with the issuances of options and
warrants are determined by the market price at the date the option
and/or warrant are granted based on the price per share at end of day
market close. All prices are approved by the Vancouver Stock Exchange.
This also includes prices for non-employee and broker unit warrants.
F-14
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
10. COMMITMENTS AND CONTINGENCIES:
(a) Lease commitments:
The Company has lease commitments for office and warehouse premises
expiring at various dates. All rental payments are fixed rental payments,
as the Company does not have any contingent rental payments. The
agreements require base rental payments over the next five years as
follows:
<TABLE>
<S> <C>
1999.............................................................. $ 52,534
2000.............................................................. 52,744
2001.............................................................. 53,623
2002.............................................................. 55,380
2003.............................................................. 55,380
---------
$ 269,661
---------
---------
</TABLE>
(b) Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range
from minor errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting
the entity, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
11. INCOME TAXES:
The Company, through its subsidiaries, has tax losses carried forward of
approximately $10,000,000 which may be applied against future earnings.
These losses expire between 1999 and 2005. The future income tax benefits
which may result from these losses have not been recognized in the financial
statements, as there is no sufficient assurance that these tax benefits will
be realized.
12. SEGMENTED INFORMATION AND EXPORT SALES:
The Company operates in one industry segment and substantially all of its
operations are based in Canada. During the year ended December 31, 1998,
export sales to the United States were approximately $5,460,000
(1997--$2,143,000).
F-15
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
13. FINANCIAL INSTRUMENTS:
(a) Fair values:
As at December 31, 1998, the carrying amounts reported in the balance
sheets for cash and term deposits, accounts receivable, accounts payable
and accrued liabilities approximate fair values, due to short term to
maturity of these instruments. Fair value of long term debt is based on
the present value of contractual payments using current market interest
rates as a discount factor. The carrying value of long term debt reported
on the balance sheet approximates fair value either because the debt
bears interest at floating rates, or because it bears interest at fixed
rates which approximate current market rates.
(b) Concentration of credit risk:
The Company mainly sells its products to customers in the United States
and Canada. Customers in the United States represent 78% or $1,203,626
(1997--76% or $749,992), while customers in Canada represent 22% or
$339,484 (1997--24% or $236,840) of year end accounts receivable trade
balances. The Company has credit policy controls in place to mitigate
this risk.
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP):
(a) The following table sets forth a reconciliation of loss determined under
Canadian GAAP with that determined under United States GAAP adjusted to
expense product development costs as period costs:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Loss determined under Canadian GAAP.............. $ (2,341,707) $ (3,970,577) $ (2,426,252)
Income (expense) relating to product development
costs.......................................... 84,000 (39,911) (273,479)
------------- ------------- -------------
Loss determined under United States GAAP......... $ (2,257,707) $ (4,010,488) $ (2,699,731)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
(b) Loss per share:
The Company has adopted Statement of Financial Accounting Standard No.
128 ("SFAS 128") "Loss Per Share".
The loss per share computed in accordance with Canadian GAAP includes
1,500,000 common shares held in escrow. These escrow shares are held by
Peter van Stolk (573,500), William Wong (301,250), Brian Richards
(250,000), Carl Mark (225,000) and Tony Peiffer (150,000). The holders of
the escrow shares will be entitled to the pro-rata release of a number of
shares equal to the amount of cumulative cash flow produced by the
Company not previously applied toward a release, divided by the earned
price of $0.125. Under U.S. GAAP, such common shares would not be
included in loss per share calculations and, upon eligibility for release
F-16
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP): (CONTINUED)
from escrow, the fair value of these shares would be charged against
income as compensation expense. Loss per share calculated in accordance
with U.S. GAAP would be as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Weighted average number of common shares............. 14,037,202 11,868,160 8,779,905
Less common shares held in escrow.................... 1,500,000 1,500,000 1,500,000
------------ ------------ ----------
Weighted average number of shares for purposes of
loss per share calculation......................... 12,537,202 10,368,160 7,279,905
------------ ------------ ----------
------------ ------------ ----------
Loss per share....................................... $ (0.18) $ (0.39) $ (0.37)
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
(c) The following sets forth the effect of adjusting for expenditures
relating to product development costs, which are expensed as period costs
under U.S. GAAP, on the assets and shareholders' equity of the Company:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Artwork and design expenditure...................................... $ 164,867 $ 164,867
Marketing, production consulting and licensing expenditures......... 418,318 521,189
Amortization........................................................ (259,191) (278,062)
Decrease in intangible asset........................................ 323,994 407,994
Increase in deficit................................................. 323,994 407,994
</TABLE>
F-17
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP): (CONTINUED)
(d) Statements of cash flows:
Cash flows from operating, financing and investing activities would be
presented as follows under United States accounting principles:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss for the year.............................. $ (2,257,707) $ (4,010,483) $ (2,699,731)
Items not involving cash:
Amortization................................. 233,452 119,354 106,195
Loss (gain) on disposal of capital assets.... 17,813 (12,584) 6,921
Write down of inventory...................... -- 353,797 --
Write down of intangible assets.............. 102,871 -- --
Shares issued for services................... -- -- 204,000
Changes in non-cash operating working capital:
Accounts receivable.......................... (462,052) (271,545) (34,884)
Inventory.................................... 267,185 (545,394) 289,730
Prepaid expenses............................. (223,423) 651,514 (713,649)
Accounts payable and accrued liabilities..... 223,834 536,319 (109,701)
------------- ------------- -------------
Cash used in operating activities................ (2,098,027) (3,179,027) (2,951,119)
------------- ------------- -------------
Cash flows from financing activities:
Increase in bank indebtedness.................. 309,600 -- --
Proceeds on issuance of share capital, net..... 915,250 3,754,339 4,867,347
Payments of bank loans......................... (56,513) (67,256) (33,784)
------------- ------------- -------------
Cash flows provided by financing activities...... 1,168,377 3,687,083 4,833,562
------------- ------------- -------------
Cash flows from investing activities:
Purchase of capital assets..................... (354,370) (545,178) (98,868)
Proceeds on disposal of capital assets......... 11,200 18,084 52,062
Purchase of intangible assets.................. (56,513) (162,380) 15,586
------------- ------------- -------------
(399,453) (689,474) (31,220)
Increase (decrease) in cash...................... (1,329,103) (181,418) 1,851,224
Cash (bank indebtedness), beginning of year...... 1,666,086 1,847,504 (3,720)
------------- ------------- -------------
Cash, end of year................................ $ 336,983 $ 1,666,086 $ 1,847,504
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-18
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP): (CONTINUED)
The following non-cash transactions have not been reflected in the above
statement:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- -----------
<S> <C> <C> <C>
Shares issued for services.................................... -- -- (204,000)
Conversion of accounts payable to shares...................... $ -- $ -- $ (82,825)
Conversion of debentures...................................... -- -- (248,302)
Capital lease obligations..................................... 46,982 -- --
Return of shares to treasury.................................. (21,400)
</TABLE>
Reconciliation of net income under US GAAP to net cash flow from
operating activities under US GAAP: (see insert next pg).
(e) Accounting for income taxes:
Under the asset and liability method of Statement of Financial Accounting
Standard No. 109 ("FAS 109"), deferred income tax assets and liabilities
are measured using enacted tax rates to reflect the future income tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective
tax losses. There is no effect of adopting the provisions of FAS 109 on
the Company's financial statements, since the Company's deferred tax
assets under U.S. GAAP as at December 31, 1998 and 1997 were offset by a
valuation allowance.
The Company's deferred tax asset consists of the following:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Net operating loss carry forwards............................... $ 4,500,616 $ 2,856,051
Capital assets.................................................. 234,869 112,965
Intangible assets............................................... (204,345) (285,503)
------------- -------------
Total gross deferred tax assets................................. 4,531,140 2,683,513
Less valuation allowance........................................ (4,531,140) (2,683,513)
------------- -------------
Net deferred tax assets......................................... $ -- $ --
------------- -------------
------------- -------------
</TABLE>
(f) Comprehensive income:
Net income for the Company is the same as comprehensive income.
(g) Stock based compensation:
For United States GAAP purposes the Company has adopted the disclosure
provisions of Statement of Financial Accounting Standard No. 123 ("FAS
123"), Accounting for Stock-Based Compensation. The Company continues to
record compensation expense following the intrinsic value principles of
APB 25 for Accounting Stock Issued to Employees, under which no
compensation expense has been recognized in 1998.
F-19
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP): (CONTINUED)
Had compensation cost been determined based on fair value at grant dates
for awards under those plans consistent with the measurement provisions
of FAS 123 net loss under United States GAAP would have been $3,042,018
for the year ended December 31, 1998 (1997-- $4,285,876;
1996--$3,197,908) and basic loss per share would have been $0.24
(1997--$0.32; 1996--$0.44). For these purposes, the fair value of each
option is estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted average assumptions;
dividend yield 0% (1997--0%; 1996--0%), Canadian risk-free interest rates
4.84% (1997--5.22%; 1996--4.24%) and expected option term of between one
to five years. The weighted average fair value of the options granted was
$0.45 (1997--$0.51; 1996--$0.55) per option.
15. COMPARATIVE FIGURES:
Certain of the 1996 and 1997 comparative figures have been reclassified to
conform with the financial presentation adopted in 1998.
16. CONTINUATION TRANSACTION:
Subsequent to December 31, 1998, WAZU Products Ltd. intends to sell the
assets used in its United States operations to Urban Juice and Soda USA Inc.,
which will be accounted for at historical cost under both Canadian and United
States GAAP since the parties to the transaction are under common control.
F-20
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
SCHEDULE OF OFFICE AND ADMINISTRATION EXPENSES
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Automobile................................................................... $ 62,326 $ 54,955 $ 16,072
Bank charges................................................................. 18,532 12,054 26,502
Insurance, taxes and licences................................................ 96,144 176,100 52,646
Office supplies, printing and postage........................................ 201,190 225,599 125,367
Public company expense....................................................... 19,656 101,025 26,013
Rent......................................................................... 91,869 105,816 114,358
Repairs and maintenance...................................................... 5,842 10,513 18,428
Telephone.................................................................... 113,782 108,142 105,682
---------- ---------- ----------
$ 609,341 $ 794,204 $ 485,068
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-21
<PAGE>
APPENDIX A
ARTICLES OF CONTINUANCE
OF
URBAN JUICE & SODA COMPANY LTD.
(i) A certified copy of the Memorandum and Articles of Urban Juice & Soda
Company Ltd. ("Urban Canada"), including all amendments thereto, are
attached hereto as EXHIBIT A.
(ii) The name of the corporation is "Urban Juice & Soda Company Ltd."
(iii) Urban Canada was incorporated on December 23, 1986 under the British
Columbia Company Act under the name 2072 Investment Ltd. On September 25,
1987, Urban Canada changed its name to Republic Aircraft Manufacturing
Corporation. On June 9, 1992, Urban Canada changed its name to
International Republic Aircraft Manufacturing Corporation and finally to
its present name on May 26, 1993. It has perpetual existence.
(iv) The address of Urban Canada's principle place of business is 1356 Frances
Street, Vancouver, B.C. V5L 1Y9, Canada.
(v) The address of the proposed registered office of Urban Juice & Soda
Company, Ltd. in Wyoming is 1720 Carey Avenue, Cheyenne, Wyoming 82001 and
the name of the registered agent at that address is CT Corporations System.
(vi) The purpose of Urban Juice & Soda Company, Ltd. is to conduct any lawful
business.
(vii) The names and respective business addresses of the directors and officers
of Urban Canada that will become officers and directors of Urban Juice &
Soda Company, Ltd., a Wyoming corporation, upon effectiveness of the
continuation are Peter M. van Stolk, President, Chief Executive Officer
and Director, Jennifer L. Cue, Chief Financial Officer, Secretary and
Director, Peter Strahm, Vice President of Sales--North America, Ron B.
Anderson, Director, Michael M. Fleming, Director, Roly Morris, Director,
Matthew Kellogg, Director and Peter Cooper, Director. Their business
addresses are all 1356 Frances Street, Vancouver, B.C. V5L 1Y9, Canada.
(viii) The aggregate number of shares that Urban Canada is authorized to issue
is 100,000,000 common shares without par value. The common shares are all
of the same class and rank equally as to dividends, voting powers and
participation in assets. No common shares are subject to call or
assessment. There are no pre-emptive or conversion rights and no
provisions for redemption, retraction, purchase for cancellation,
surrender or sinking or purchase funds.
(ix) As of June 11, 1999, Urban Canada has 18,660,914 common shares issued and
outstanding.
(x) Urban Canada accepts the constitution of the State of Wyoming in compliance
with the requirements of Article 10, Section 5 of the Wyoming constitution.
Executed as of the day of , 1999.
Peter van Stolk,
PRESIDENT
A-1
<PAGE>
APPENDIX B
COMPANY ACT OF BRITISH COLUMBIA
DIVISION 2--DISSENT PROCEEDINGS
SECTION 207 DISSENT PROCEDURE
(1) If,
(a) being entitled to give notice of dissent to a resolution as provided in
section 37, 103, 126, 222, 244, 249 or 289, a member of a company (a
"dissenting member") gives notice of dissent,
(b) the resolution referred to in paragraph (a) is passed, and
(c) The company or its liquidator proposes to act on the authority of the
resolution referred to in paragraph (a),
The company or the liquidator must first give to the dissenting member
notice of the intention to act and advise the dissenting member of the
rights of dissenting members under this section.
(2) On receiving a notice of intention to act in accordance with subsection
(1), a dissenting member is entitled to require the company to purchase all
of the dissenting member's shares in respect of which the notice of dissent
was given.
(3) The dissenting member must exercise the right given by subsection (2) by
delivering to the registered office of the Company, within 14 days after
the company, or the liquidator, gives the notice of intention to act,
(a) a notice that the dissenting shareholder requires the company to
purchase all of the dissenting member's shares referred to in subsection
(2), and
(b) the share certificates representing all of those shares, and, on
delivery of that notice and those share certificates, the dissenting
member is bound to sell those shares to the company and the company is
bound to purchase them.
(4) A dissenting member who has complied with subsection (3), the company, or,
if there has been an amalgamation, the amalgamated company, may apply to
the court, and the court may
(a) require the dissenting member to sell, and the company or the
amalgamated company to purchase, the shares in respect of which the
notice of dissent has been given,
(b) set the price and terms of the purchase and sale, or order that the
price and terms be established by arbitration, in either case having due
regard for the rights of creditors,
(c) join in the application any other dissenting member who has complied
with subsection (3), and
(d) make consequential orders and give directions it considers appropriate.
(5) The price that must be paid to a dissenting shareholder for the shares
referred to in subsection (2) is their fair value as of the day before the
date on which the resolution referred to in subsection (1) was passed,
including any appreciation or depreciation in anticipation of the vote on
the resolution, and every dissenting member who has complied with
subsection (3) must be paid the same price.
(6) The amalgamation or winding up of the company, or any change in its
capital, assets or liabilities resulting from the company acting on the
authority of the resolution referred to in subsection (1),
B-1
<PAGE>
does not affect the right of the dissenting member and the company under
this section or the price to be paid for the shares.
(7) Every dissenting member who has complied with subsection (3)
(a) may not vote, or exercise or assert any rights of a member, in respect
of the shares for which notice of dissent has been given, other than
under this section,
(b) may not withdraw the requirement to purchase the shares, unless the
company consents, and
(c) until the dissenting member is paid in full, may exercise and assert all
the rights of a creditor of the company.
(8) If the court determines that a person is not a dissenting member, or is not
otherwise entitled to the right provided by subsection (2), the court,
without prejudice to any acts or proceedings that the company, its members,
or any class of members may have taken during the intervening period, may
make the order it considers appropriate to remove the limitations imposed
on the person by subsection (7).
(9) The relief provided by this section is not available if, subsequent to
giving notice of dissent, the dissenting member acts inconsistently with
the dissent, but a request to withdraw the requirement to purchase the
dissenting member's shares is not an act inconsistent with the dissent.
(10) A notice of dissent ceases to be effective if the dissenting member
consents to or votes in favor of the resolution of the company to which the
dissent relates, unless the consent or vote is given solely as a proxy
holder for a person whose proxy required an affirmative vote.
B-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subject to the provisions of the Wyoming Business Corporations Act, the
directors shall cause Urban Wyoming to indemnify a director or former director
of Urban Wyoming and the directors may cause Urban Wyoming to indemnify a
director or former director of a corporation of which Urban Wyoming is or was a
shareholder and the heirs and personal representatives of any former director
against all costs, charges and expenses, including an amount to settle an action
or satisfy a judgment, actually and reasonably incurred by him or them including
an amount paid to settle an action or satisfy a judgment in a civil, criminal or
administrative action or proceeding to which he is or they are made a party by
reason of his being or having been a director including any action brought by
Urban Wyoming. Each director of Urban Wyoming on being elected or appointed
shall be deemed to have contracted with Urban Wyoming on the terms of this
indemnity.
Subject to the provisions of the Wyoming Business Corporations Act, the
directors may cause Urban Wyoming to indemnify any officer, employee or agent of
Urban Wyoming or of a corporation of which Urban Wyoming is or was a shareholder
(notwithstanding that he is also a director) and his heirs and personal
representatives against all costs, charges and expenses whatsoever incurred by
him or them and resulting from his acting as an officer, employee or agent of
Urban Wyoming or the corporation.
The failure of a director or officer of Urban Wyoming to comply with the
provisions of the Wyoming Business Corporations Act or of the articles of
continuance shall invalidate any indemnity to which he is entitled under this
Part.
The directors may cause Urban Wyoming to purchase and maintain insurance for
the benefit of any person who is or was serving as a director, officer, employee
or agent of Urban Wyoming or as a director, officer, employee or agent of any
corporation of which Urban Wyoming is or was a shareholder and his heirs or
personal representatives against any liability incurred by him as a director,
officer, employee or agent.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
3.1* Articles of Continuance of Urban Juice & Soda Company Ltd.
3.2** Memorandum of Urban Juice & Soda Company Ltd.
3.3** Articles of Urban Juice & Soda Company Ltd.
5.1*** Form of Opinion of Bagley Law Office
8.1 Opinion of Thorsteinssons (included in this Registration Statement)
10.1**** Bottling Agreement between Urban Juice & Soda and World Choice Bottling Corp.
10.2**** Bottle Supply Agreement between Urban Juice & Soda and Zuckerman-Honickman, Inc.
23.1*** Consent of Bagley Law Office (included in Exhibit 5.1)
24.1 Power of Attorney (included in the Signature Page to this Registration Statement)
99.1*** Letter to Shareholders
99.2 Notice of Extraordinary General Meeting of Shareholders
99.3 Form of Proxy
</TABLE>
- ------------------------
(*) Included as Appendix A to the information circular/prospectus.
(**) Filed as an exhibit to the SB-2 Registration Statement (No. 333-5156-LA),
as amended through the date hereof and incorporated herein by reference.
(***) Previously filed.
(****) Previously filed. Confidential treatment requested.
II-1
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(5) That every prospectus: (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(6) To respond to requests for information that is incorporated by
reference into the information circular/prospectus pursuant to Items 4,
10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request.
(7) To supply by means of a post-effective amendment all information
concerning a transaction, and Urban Canada being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as the indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such
II-2
<PAGE>
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in Vancouver, British
Columbia, on August 17, 1999.
<TABLE>
<S> <C> <C>
URBAN JUICE & SODA CO.
By: /s/ PETER VAN STOLK
-----------------------------------------
Peter van Stolk
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ PETER M. VAN STOLK Officer and Director
- ------------------------------ (Principal Executive August 17, 1999
Peter M. van Stolk Officer)
Chief Financial Officer,
/s/ JENNIFER L. CUE Secretary and Director
- ------------------------------ (Principal Financial and August 17, 1999
Jennifer L. Cue Accounting Officer)
*
- ------------------------------ Director August 17, 1999
Ron B. Anderson
*
- ------------------------------ Director August 17, 1999
Michael M. Fleming
*
- ------------------------------ Director August 17, 1999
Roly Morris
*
- ------------------------------ Director August 17, 1999
Matthew Kellogg
*
- ------------------------------ Director August 17, 1999
Peter Cooper
*/s/ JENNIFER CUE
- ------------------------------ Attorney-in-Fact August 17, 1999
Jennifer Cue
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
3.1* Articles of Continuance of Urban Juice & Soda Company Ltd.
3.2** Memorandum of Urban Juice & Soda Company Ltd.
3.3** Articles of Urban Juice & Soda Company Ltd.
5.1*** Form of Opinion of Bagley Law Office.
8.1 Opinion of Thorsteinssons (included in this Registration Statement)
10.1**** Bottling Agreement between Urban Juice & Soda and World Choice Bottling Corp.
10.2**** Bottle Supply Agreement between Urban Juice & Soda and Zuckerman-Honickman, Inc.
23.1*** Consent of Bagley Law Office.
(included in Exhibit 5.1)
24.1 Power of Attorney (included in the Signature Page to this Registration Statement)
99.1*** Letter to Shareholders
99.2 Notice of extraordinary general meeting of Shareholders
99.3 Form of Proxy
</TABLE>
- ------------------------
(*) Included as Appendix A to information circular/prospectus.
(**) Filed as an exhibit to the SB-2 Registration Statement (No. 333-5156-LA),
as amended through the date hereof and incorporated herein by reference.
(***) Previously filed.
(****) Previously filed. Confidential treatment requested.
<PAGE>
EXHIBIT 99.2
URBAN JUICE & SODA COMPANY LTD.
NOTICE OF EXTRAORDINARY GENERAL MEETING
NOTICE IS HEREBY GIVEN that the extraordinary general meeting (the "Meeting") of
URBAN JUICE & SODA COMPANY LTD. (the "Company") will be held at 1356 Frances
Street, Vancouver, British Columbia, at a.m./p.m., ON THURSDAY, SEPTEMBER
30, 1999 for the following purposes:
1. to consider and, if thought fit, pass a special resolution, with or without
amendment:
(a) authorizing the Company to make application to the Registrar of
Companies (the "B.C. Registrar"), the Secretary of State of the State of
Wyoming (the "Secretary of State") and the VSE for consent and approval
of the proposed continuation of the Company into Wyoming;
(b) authorizing the Company to make application to the Secretary of State
for a Certificate of Continuation continuing the Company as if it had
been originally incorporated under the Wyoming Business Corporations Act
(the "WBCA");
(c) adopting the Articles of Continuance (the "Wyoming Articles of
Continuance") in the form approved by the directors of the Company,
having the effect, among other things, of setting the authorized capital
of the Company at an unlimited number of common shares without par value,
in substitution for the British Columbia Memorandum of the Company, the
Wyoming Articles of Continuance to come into effect when the Secretary of
State issues a Certificate of Continuation continuing the Company as if
it had been originally incorporated under WBCA;
(d) adopting the By-Laws (the "Wyoming By-Laws") in the form approved by the
directors of the Company in substitution for the British Columbia
Articles of the Company, the Wyoming By-Laws to come into effect when the
Secretary of State issues a Certificate of Continuation (the "Wyoming
Certificate of Continuation") continuing the Company as if it had been
originally incorporated under WBCA;
(e) upon the Continuation of the Company into the State of Wyoming,
authorizing the Company to file with the B.C. Registrar a certified copy
of the Wyoming Certificate of Continuation issued by the Secretary of
State and request that the B.C. Registrar remove the Company from the
register in British Columbia;
(f) authorizing the directors of the Company, in their discretion, to
abandon or amend the application for continuation of the Company under
the WBCA without further approval of the shareholders;
(g) authorizing and directing the directors and officers of the Company, or
any one of them, to perform all such acts, deeds and things and execute,
under the seal of the Company or otherwise, all such documents,
agreements and other writings as may be required to give effect to the
true intent of this resolution; and
2. to consider such other matters as may properly be brought before the Meeting
or any adjournment thereof.
TAKE NOTICE that under the Company Act (British Columbia), you may until
September 28, 1999 give the Company a notice of dissent by registered mail
addressed to the Company at 1100-1055 West Hastings Street, Vancouver, BC, V6E
2E9 with respect to the special resolution to continue the Company from
incorporation under the Company Act (British Columbia) to incorporation under
the WBLT. As a result of giving a notice of dissent you may, on receiving a
notice of intention to act under section 207 of the COMPANY ACT (British
Columbia), require the Company to purchase all of your shares in respect of
which the notice of dissent was given.
The accompanying Information Circular provides additional information relating
to the matters to be dealt with at the Meeting and is supplemental to and
expressly made a part of this Notice of Meeting.
<PAGE>
If you are a registered shareholder of the Company and are unable to attend the
Meeting in person, please complete, date and execute the accompanying form of
proxy and deposit it with Pacific Corporate Trust Company, Suite 830 - 625 Howe
Street, Vancouver, British Columbia, V6C 3B8, not less than 48 hours (excluding
Saturdays, Sundays and holidays) prior to the Meeting.
If you are a non-registered shareholder of the Company and received these
materials through a broker, a financial institution, a participant, a trustee or
administrator of a self-administered retirement savings plan, retirement income
fund, education savings plan, or other similar self-administered savings or
investment plan registered under the INCOME TAX ACT (Canada), or a nominee of
any of the foregoing that holds your security on your behalf (the
"Intermediary"), please complete and return the materials in accordance with the
instructions provided to you by your Intermediary.
DATED at Vancouver, British Columbia as of the day of , 1999.
By Order of the Board of Directors of
URBAN JUICE & SODA COMPANY LTD.
- --------------------------------------
Authorized Signatory
<PAGE>
EXHIBIT 99.3
URBAN JUICE & SODA COMPANY LTD.
FORM OF PROXY
THIS PROXY IS SOLICITED BY MANAGEMENT OF URBAN JUICE & SODA COMPANY LTD. (THE
"COMPANY") FOR THE EXTRAORDINARY GENERAL MEETING OF MEMBERS ON SEPTEMBER 30,
1999.
I, the undersigned, being a shareholder of Urban Juice & Soda Company Ltd. (the
"Company") appoint Peter van Stolk, the President, Chief Executive Officer and a
director of the Company, or failing him, Jennifer Cue, Secretary and Chief
Financial Officer and a director of the Company, or instead of the
above-mentioned , as my proxyholder, with full power of
substitution, to attend on my behalf at the Extraordinary General Meeting (the
"Meeting") of members of the Company, to be held at a.m./p.m. on Thursday,
September 30, 1999 and at any adjournment or adjournments thereof, and to cast
the number of votes that I would be entitled to cast if personally present with
respect to the matters specified below.
I direct my proxyholder to vote as follows:
ITEM 1. To pass a special resolution, with or without amendment:
1. authorizing the Company to make application to the B.C. Registrar, the
Secretary of State of the State of Wyoming (the "Secretary of State") and
the VSE for consent and approval of the proposed continuation of the
Company into Wyoming;
2. authorizing the Company to make application to the Secretary of State
for a Certificate of Continuation continuing the Company as if it had
been originally incorporated under the Wyoming Business Corporations Act
(the "WBCA");
3. adopting the Articles of Continuance (the "Wyoming Articles of
Continuance") in the form approved by the directors of the Company,
having the effect, among other things, of setting the authorized capital
of the Company at an unlimited number of common shares without par value,
in substitution for the British Columbia Memorandum of the Company, the
Wyoming Articles of Continuance to come into effect when the Secretary of
State issues a Certificate of Continuation continuing the Company as if
it had been originally incorporated under WBCA;
4. adopting the By-Laws (the "Wyoming By-Laws") in the form approved by the
directors of the Company in substitution for the British Columbia
Articles of the Company, the Wyoming By-Laws to come into effect when the
Secretary of State issues a Certificate of Continuation (the "Wyoming
Certificate of Continuation") continuing the Company as if it had been
originally incorporated under WBCA;
5. upon the Continuation of the Company into the State of Wyoming,
authorizing the Company to file with the B.C. Registrar a certified copy
of the Wyoming Certificate of Continuation issued by the Secretary of
State and request that the B.C. Registrar remove the Company from the
register in British Columbia;
6. authorizing the directors of the Company, in their discretion, to
abandon or amend the application for continuation of the Company under
the WBCA without further approval of the shareholders; and
7. authorizing and directing the directors and officers of the Company, or
any one of them, to perform all such acts, deeds and things and execute,
under the seal of the Company or otherwise, all such documents,
agreements and other writings as may be required to give effect to the
true intent of this resolution.
FOR / / AGAINST / /
<PAGE>
ITEM 2. To consider such other matters as may properly be brought before the
Meeting or any adjournment thereof.
I HEREBY REVOKE ANY PROXY PREVIOUSLY GIVEN AND AUTHORIZE THE PROXYHOLDER TO VOTE
IN FAVOUR OF THE ITEMS SET OUT ABOVE UNLESS AN INSTRUCTION TO THE CONTRARY IS
INDICATED.
<TABLE>
<S> <C>
- -------------------------------------------- --------------------------------------------
Date Address of Shareholder
- -------------------------------------------- --------------------------------------------
Signature of Shareholder City/Province (State)
- -------------------------------------------- --------------------------------------------
Please Print Name of Shareholder Number of Shares to be voted (If not
completed all shares registered in your name
will be deemed to be represented by this
proxy)
</TABLE>
<PAGE>
INSTRUCTIONS
1. IF THE SHAREHOLDER DOES NOT WISH TO APPOINT EITHER OF THE PERSONS NAMED IN
THIS PROXY, HE OR SHE SHOULD STRIKE OUT THEIR NAMES AND INSERT THE NAME OF
THE PERSON HE OR SHE WISHES TO ACT AS HIS OR HER PROXYHOLDER IN THE BLANK
SPACE PROVIDED. SUCH OTHER PERSON NEED NOT BE A SHAREHOLDER OF THE COMPANY.
2. IN THE ABSENCE OF CONTRARY DIRECTION, A GENERAL AUTHORITY WILL BE DEEMED TO
BE GRANTED TO THE PROXYHOLDER WITH RESPECT TO AMENDMENTS TO OR VARIATIONS OF
MATTERS IDENTIFIED IN THE NOTICE OF MEETING AND ANY OTHER MATTERS WHICH MAY
PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENT OR ADJOURNMENTS
THEREOF.
3. THIS PROXY MAY NOT BE USED AT THE MEETING, OR ANY ADJOURNMENT OR
ADJOURNMENTS THEREOF, UNLESS IT IS DATED, EXECUTED, AND DEPOSITED AT THE
OFFICE OF PACIFIC CORPORATE TRUST COMPANY, THE COMPANY'S REGISTRAR AND
TRANSFER AGENT, BY MAIL, TELEFAX OR BY HAND AT SUITE 830 - 625 HOWE STREET,
VANCOUVER, BRITISH COLUMBIA, V6C 3B8, (TELEFAX: (604) 689-8144), NOT LATER
THAN 48 HOURS (EXCLUDING SATURDAYS, SUNDAYS AND HOLIDAYS) BEFORE THE TIME
FOR HOLDING THE MEETING.
4. THIS PROXY WILL NOT BE VALID UNLESS IT IS DATED AND SIGNED BY THE
SHAREHOLDER OR BY HIS OR HER ATTORNEY DULY AUTHORIZED BY HIM IN WRITING, OR
IN THE CASE OF A CORPORATION, IS EXECUTED UNDER ITS CORPORATE SEAL OR BY AN
OFFICER OR OFFICERS OR ATTORNEY FOR THE CORPORATION DULY AUTHORIZED. IF THIS
PROXY IS EXECUTED BY AN ATTORNEY FOR AN INDIVIDUAL SHAREHOLDER OR JOINT
SHAREHOLDERS OR BY AN OFFICER OR ATTORNEY OF A CORPORATE SHAREHOLDER AND NOT
UNDER ITS CORPORATE SEAL, THE INSTRUMENT SO EMPOWERING THE OFFICER OR THE
ATTORNEY, AS THE CASE MAY BE, OR A CERTIFIED COPY THEREOF, MUST BE ATTACHED
HERETO.
5. THIS PROXY IS REVOCABLE IN THE MANNER DESCRIBED UNDER THE HEADING
"REVOCATION OF PROXY" IN THE ACCOMPANYING INFORMATION CIRCULAR.
