20-F 1 v227150_jp-20f.htm VintageFilings,LLC

 

 

 

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



 

FORM 20-F



 

 
o   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 
x   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

OR

 
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to 

OR

 
o   SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report 

Commission file number 001-34929



 

SODASTREAM INTERNATIONAL LTD.

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s name into English)

Israel

(Jurisdiction of incorporation or organization)

Gilboa Street, Airport City
Ben Gurion Airport 70100, Israel

(Address of principal executive offices)

Daniel Birnbaum
Chief Executive Officer
SodaStream International Ltd.
Gilboa Street
Airport City 70100, Israel
Telephone: +972 (3) 976-2301
Facsimile: +972 (3) 973-6673

(Name, telephone, e-mail and/or facsimile number and address of company contact person)



 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 
Title of each class   Name of each exchange on which registered
Ordinary Shares, par value NIS 0.645 per share   The Nasdaq Stock Market LLC

Securities registered or to be registered pursuant to Section 12(g) of the Act.

Not Applicable

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

Not Applicable

(Title of Class)

 


 
 

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As of December 31, 2010, there were 18,447,862 shares of the registrant’s ordinary shares outstanding, NIS 0.645 par value per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file, or a non-accelerated filer. See the definitions of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

   
Large accelerated filer o   Accelerated filer o   Non-accelerated filer x

Indicate by check mark which basis for accounting the registrant has used to prepare the financing statements included in this filing:

   
U.S. GAAP o   International Financial Reporting Standards as issued by the International Accounting Standards Board x   Other o

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. o Item 17 o Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS IN THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o


 
 

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SODASTREAM INTERNATIONAL LTD.



 

FORM 20-F

ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010



 

TABLE OF CONTENTS

 
Introduction     ii  
Special Note Regarding Forward-Looking Statements and Industry Data     ii  
PART I
        

Item 1.

Identity of Directors, Senior Management and Advisers

    1  

Item 2.

Offer Statistics and Expected Timetable

    1  

Item 3.

Key Information

    1  

Item 4.

Information on the Company

    24  

Item 4A.

Unresolved Staff Comments

    41  

Item 5.

Operating and Financial Review and Prospects

    42  

Item 6.

Directors, Senior Management and Employees

    65  

Item 7.

Major Shareholders and Related Party Transactions

    83  

Item 8.

Financial Information

    89  

Item 9.

The Offer and Listing

    92  

Item 10.

Additional Information

    93  

Item 11.

Quantitative and Qualitative Disclosures About Market Risk

    109  

Item 12.

Description of Securities Other than Equity Securities

    109  
PART II
        

Item 13.

Defaults, Dividend Arrearages and Delinquencies

    110  

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

    110  

Item 15.

Controls and Procedures

    110  

Item 16A.

Audit Committee Financial Expert

    111  

Item 16B.

Code of Ethics

    111  

Item 16C.

Principal Accountant Fees and Services

    111  

Item 16D.

Exemptions from the Listing Standards for Audit Committees

    112  

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

    112  

Item 16F.

Change in Registrant’s Certifying Accountant

    112  

Item 16G.

Corporate Governance

    112  
PART III
        

Item 17.

Financial Statements

    113  

Item 18.

Financial Statements

    113  

Item 19.

Exhibits

    114  
Signatures     115  
Index to Consolidated Financial Statements     F-1  

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INTRODUCTION

In this annual report, the terms “SodaStream,” “we,” “us,” “our” and “the company” refer to SodaStream International Ltd. and its consolidated subsidiaries. References to “Euros” or “€” are to the Euro, the official currency of the European Union; references to “U.S. Dollars,” “$” or “dollars” are to United States dollars; and references to “NIS” are to New Israeli shekels.

We obtained the industry, market and competitive position data in this annual report from our own internal estimates and research as well as from industry and general publications and research, surveys and studies conducted by third parties. The third-party studies were conducted by ToLuna Germany GmbH (formerly Ciao Surveys GmbH), Intervjubolaget Imri AB, Ipsos Tambor, s.r.o., Panels Limited Ltd. and Spinach Ltd. These third parties surveyed approximately 500 people each in certain of our smaller markets and approximately 1,000 people each in certain of our larger markets. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources. While we believe our internal company research is reliable and the market definitions are appropriate, neither such research nor these definitions have been verified by any independent source.

Throughout this annual report, we refer to various trademarks, service marks and trade names that we use in our business. SodaStream® and Soda-Club® are some of our registered trademarks. Fizz ChipTM is one of our trademarks. We also have a number of other registered trademarks, service marks and pending applications relating to our products. Other trademarks and service marks appearing in this annual report are the property of their respective holders.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, potential market opportunities and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts, “projects,” “should,” “would” or similar expressions that convey uncertainty of future events or outcomes and the negatives of those terms. These statements include, but are not limited to, statements regarding:

•   our continued expansion into, and the acceptance of our products in, the United States;

•   our ability to re-introduce and increase our presence in Western European countries;

•   our ability to educate retailers and consumers about the benefits of our products;

•   the marketing techniques that we intend to use for expansion into new markets;

•   the estimated cost of constructing or purchasing, and the timing of completion of, an additional manufacturing facility;

•   our ability to help retailers understand and successfully manage our cylinder exchange program;

•   our intention to build up our distribution locations, particularly in high foot traffic locations;

•   our intention to increase the number of stores in each market where we sell our products;

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•   our intention to increase the number of locations in each market where consumers can exchange their empty CO2 cylinders;

•   our intention to expand our refilling capabilities;

•   our belief that demand for sparkling water will increase in the future;

•   our belief that the sale of soda makers will increase the sale of consumables;

•   our ability to increase our installed base of soda makers in order to generate ongoing demand for consumables;

•   future product developments and our plans for the SodaStream Inside program including our plans to license our proprietary carbonating technology to third parties;

•   the timing of sales of our new Fizz ChipTM soda machine in the United States;

•   plans to have partnership programs with municipal authorities and public water providers;

•   our intent to enter new markets in collaboration with distributors;

•   our ability to continue to lower production costs and increase gross margins;

•   our continued investment in the expansion of our consumable business;

•   our ability to introduce additional flavors in order to expand sales in existing markets;

•   our belief that raw materials for our products will be readily available;

•   our belief that additional or alternative facilities will be readily available if necessary;

•   our belief that our liability insurance will provide sufficient protection; and

•   our belief that our capital expenditure requirements and liquidity needs will be met.

The forward-looking statements contained in this annual report reflect our views as of the date of this annual report about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, those factors described in “Item 3.D — Risk Factors,” “Item 4 — Information on the Company” and “Item 5 — Operating and Financial Review and Prospects.”

All of the forward-looking statements we have included in this annual report are based on information available to us on the date of this annual report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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PART I

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

Item 3. KEY INFORMATION

A. Selected Financial Data

You should read the following selected consolidated financial data in conjunction with “Item 5 —  Operating and Financial Review and Prospects” and our consolidated financial statements and the related notes appearing elsewhere in this annual report.

The following table sets forth our selected consolidated financial and other data. Historical results are not indicative of the results to be expected in the future. Our financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board.

The consolidated statements of operations data for each of the years in the three-year period ended December 31, 2010 and the consolidated balance sheet data as of December 31, 2009 and December 31, 2010 are derived from our audited consolidated financial statements appearing elsewhere in this annual report. The consolidated statement of operations data for the year ended December 31, 2007 and the consolidated balance sheet data as of December 31, 2007 and December 31, 2008 are derived from our audited consolidated financial statements that are not included in this annual report. Selected consolidated financial information as of December 31, 2006 and for the year ended December 31, 2006 has been omitted because such information could not be provided without unreasonable effort or expense. The information presented below under the caption “Other Financial and Operating Data” contains information that is not derived from our financial statements.

The following tables also contain translations of Euro amounts into U.S. Dollars for amounts presented for the year ended and as of December 31, 2010. These translations are solely for the convenience of the reader and were calculated at the rate of €1.00 = $1.4183, the noon buying rate for Euros in New York City, as certified for customs purposes by the Federal Reserve Bank of New York, on March 31, 2011. You should not assume that, on that or on any other date, one could have converted these amounts of Euros into dollars at that or any other exchange rate.

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(in thousands, except share
and per share amounts)
  Year Ended December 31,
  2007   2008   2009   2010   2010
Consolidated statements of operations data:
                                            
Revenues   85,983     99,949     105,023     160,652     $ 227,853  
Cost of revenues     39,745       45,213       46,593       74,059       105,038  
Gross profit     46,238       54,736       58,430       86,593       122,815  
Operating expenses:
                                            
Sales and marketing     31,449       32,184       34,692       57,057       80,924  
General and administrative     13,769       12,675       13,134       18,536       26,290  
Other income, net     (25 )      (19 )      (95 )      (198 )      (281 ) 
Total operating expenses     45,193       44,840       47,731       75,395       106,933  
Operating income     1,045       9,896       10,699       11,198       15,882  
Interest expense, net     2,195       2,742       2,022       1,467       2,081  
Other financial expenses (income), net     134       1,654       (248 )      (1,766 )      (2,505 ) 
Total financial expenses (income), net     2,329       4,396       1,774       (299 )      (424 ) 
Income (loss) before income tax     (1,284 )      5,500       8,925       11,497       16,306  
Income tax     306       4,970       1,793       1,769       2,509  
Net income (loss)   (1,590 )    530     7,132     9,728     $ 13,797  
Net income (loss) per ordinary share:
                                            
Basic   (0.29 )    0.09     1.14     1.21     $ 1.72  
Diluted   (0.29 )    0.07     0.57     0.69     $ 0.98  
Shares used in computing net income (loss) per ordinary share:
                                            
Basic     5,466,901       5,850,228       6,259,393       8,026,701       8,026,701  
Diluted     5,466,901       9,629,991       13,206,403       14,680,217       14,680,217  

         
  Year Ended December 31,
(in thousands)   2007   2008   2009   2010   2010
Other financial and operating data:
                                            
Total number of soda makers sold (unaudited)     730       877       1,057       1,922       N/A  
Total number of CO2 refills sold (unaudited)(1)     7,364       7,496       8,166       9,787       N/A  
EBITDA(2)   2,744     10,218     12,588     15,502     $ 21,986  
Adjusted EBITDA(3)   3,005     11,004     13,212     18,796     $ 26,658  
Adjusted net income (loss)(3)   (1,366 )    1,220     7,688     13,022     $ 18,469  
Cash dividends declared   0     0     0     0     $ 0  

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  As of December 31,
(in thousands)   2007   2008   2009   2010   2010
Consolidated balance sheet data:
                                            
Cash and cash equivalents   1,928     4,349     4,185     52,900     $ 75,028  
Working capital(4)     8,610       7,415       5,086       27,164       38,526  
Total assets     61,664       68,682       77,695       168,065       238,366  
Loans and borrowings (including short-term obligations)     23,398       18,329       12,754       6,753       9,578  
Shareholders’ loans     6,330       11,564       11,793              
Total liabilities     53,301       59,372       61,039       59,943       85,017  
Total shareholders’ equity     8,364       9,310       16,656       108,122       153,349  

(1) The CO2 refills are sold in exchangeable CO2 cylinders of different sizes. For the purpose of comparison, we have adjusted the number of CO2 refills to be equivalent to one “standard” 60-liter cylinder size.
(2) EBITDA is a non-IFRS measure and is defined as earnings before interest expense, taxes, depreciation and amortization. We present EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company. EBITDA should not be considered in isolation or as a substitute for operating income or other statement of operations items prepared in accordance with IFRS as a measure of our performance. EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, EBITDA, as presented in this annual report, may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.
(3) Adjusted EBITDA is a non-IFRS measure and is defined as earnings before interest, income tax, depreciation and amortization, and further eliminates the effect of the non-cash share-based compensation expense (the “Share-Based Compensation”) and for the impact of a discontinued management fee expense paid to Fortissimo Capital (the “Fortissimo Payments”). Adjusted net income is a non-IFRS measure and is defined as net income calculated in accordance with IFRS as adjusted for the impact of Share-Based Compensation and for the impact of the Fortissimo Payments. We use Adjusted Net Income and Adjusted EBITDA as measures of operating performance because they assist us in comparing performance on a consistent basis, as they remove from our operating results the impact of one-time costs associated with non-recurring events and non-cash items such as share-based compensation expense, which can vary depending upon accounting methods. We believe Adjusted Net Income and Adjusted EBITDA are useful to an investor in evaluating our operating performance because they are widely used by investors, securities analysts and other interested parties to measure a company’s operating performance without regard to one-time costs associated with non-recurring events and without regard to non-cash items such as share-based compensation expense, which can vary depending upon accounting methods.
(4) Working capital is defined as (i) total current assets excluding cash and cash equivalents, minus (ii) total current liabilities excluding loans and borrowings, and shareholders’ loans.

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  Year Ended December 31,
(in thousands)   2007   2008   2009   2010   2010
Reconciliation of Net income (loss) to EBITDA and to Adjusted EBITDA:
                                            
Net income (loss)   (1,590 )    530     7,132     9,728     $ 13,797  
Interest expense, net     2,195       2,742       2,022       1,467       2,081  
Income tax     306       4,970       1,793       1,769       2,509  
Depreciation and amortization     1,833       1,976       1,641       2,538       3,599  
EBITDA   2,744     10,218     12,588     15,502     $ 21,986  
Management Fee     250       541       461       2,290       3,248  
Share-based payment     11       245       163       1,004       1,424  
Adjusted EBITDA   3,005     11,004     13,212     18,796     $ 26,658  

         
  Year Ended December 31,
(in thousands)   2007   2008   2009   2010   2010
Reconciliation of Net income (loss) to Adjusted net income (loss):
                                            
Net income (loss)   (1,590 )    530     7,132     9,728     $ 13,797  
Management Fee     250       541       461       2,290       3,248  
Share-based payment     11       245       163       1,004       1,424  
Income tax effect of the foregoing     (37 )      (96 )      (68 )             
Adjusted Net income (loss)   (1,366 )    1,220     7,688     13,022     $ 18,469  

Exchange Rate Information

In this annual report, for convenience only, we have translated the Euro amounts reflected in our financial statements as of and for the year ended December 31, 2010 into U.S. Dollars at the rate of €1.00 = $1.4183, the noon buying rate for Euros in New York City, as certified for customs purposes by the Federal Reserve Bank of New York, on March 31, 2011. You should not assume that, on that or on any other date, one could have converted these amounts of Euros into dollars at that or any other exchange rate.

The following table sets forth, for each period indicated, the low and high exchange rates for Euros expressed in U.S. Dollars, the exchange rate at the end of such period and the average of such exchange rates on the last day of each month during such period, based on the noon buying rate in the City of New York for cable transfers in Euros as certified for customs purposes by the Federal Reserve Bank of New York. The source of the exchange rate is: (i) with respect to any period ending on or prior to December 31, 2008, the Federal Reserve Bank of New York, and (ii) with respect to any period ending on or after January 1, 2009, the H.10 statistical release of the Federal Reserve Board. The exchange rates set forth below demonstrate trends in exchange rates, but the actual exchange rates used throughout this annual report may vary.

         
  Year Ended December 31,
     2006   2007   2008   2009   2010
High     1.3327       1.4862       1.6010       1.5100       1.4536  
Low     1.1860       1.2904       1.2446       1.2547       1.1959  
Period End     1.3197       1.4603       1.3919       1.4332       1.3269  
Average Rate     1.2661       1.3797       1.4695       1.3955       1.3216  

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The following table sets forth, for each of the last six months, the low and high exchange rates for Euros expressed in U.S. Dollars and the exchange rate at the end of the month based on the noon buying rate as described above. The source of the exchange rate is the H.10 statistical release of the Federal Reserve Board.

           
  Last Six Months
     December   January   February   March   April   May
High     1.3395       1.3715       1.3794       1.4212       1.4821       1.4875  
Low     1.3089       1.2944       1.3474       1.3813       1.4211       1.4015  
End of Month     1.3269       1.3715       1.3793       1.4183       1.4821       1.4376  

On June 24, 2011, the noon buying rate for Euros in New York City, as certified for customs purposes by the Federal Reserve Bank of New York, was €1.00 = $1.4189.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

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D. Risk Factors

Our business faces significant risks. You should carefully consider all of the information set forth in this annual report and in our other filings with the United States Securities and Exchange Commission (“SEC”), including the following risk factors which we face and which are faced by our industry. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. This report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements, as a result of certain factors including the risks described below and elsewhere in this report and our other SEC filings. See “Special Note Regarding Forward-Looking Statements and Industry Data” on page ii.

Risks related to our Business and Industry

A key element of our strategy is to expand in target markets, such as the United States, which will require substantial investment to build product and brand awareness and develop an installed base of users, and our failure to do so would have a material adverse effect on our future growth and prospects.

A key element of our strategy is to grow our business by expanding sales of our soda makers, CO2 refills and other related consumables in certain existing markets that we believe have high growth potential in which we currently have a limited presence and in select new markets. In particular, we are focusing our growth efforts on the United States, the world’s largest market for carbonated beverages and our most important target market. Our success depends, in large part, upon consumer acceptance and adoption of our products. Consumer tastes and preferences differ in the markets into which we are expanding as compared to those in which we already sell a significant amount of products. We will face several challenges in achieving consumer acceptance and adoption of our home beverage carbonation systems in those markets, including consumers’ desire to carbonate beverages at home rather than purchasing carbonated beverages and consumers’ willingness to exchange empty CO2 cylinders for filled CO2 cylinders. The United States differs from most European markets because of the higher propensity in the United States to consume carbonated beverages rather than sparkling water. This is requiring us to market our products differently than we have in our key European markets. There can be no assurance that we will meet any of these challenges in the existing or new markets we are targeting and the failure to do so would adversely affect our growth in a particular market and may adversely affect our strategy, future growth and prospects.

We may not be successful in continuing to develop or maintaining our presence in retail networks for the sale of our home beverage carbonation systems and the exchange of our empty CO2 cylinders in the markets we are targeting for growth, which could have a material adverse effect on our future growth and prospects.

Our growth both in existing markets and in new markets depends significantly on our ability to develop or maintain our presence in retail networks, as retailers are the primary channel through which consumers initially purchase our home beverage carbonation system and the primary channel through which our consumables are sold. Our ability to successfully expand in the markets that we are targeting for growth depends, in large part, on whether we are able to establish relationships with strong retailers in those markets for the sale of our home beverage carbonation systems and the exchange of our empty CO2 cylinders. Establishing relationships with retailers may prove more difficult in the United States, our key market for growth, than in our other markets, as retailers in the United States may be more likely to be resistant to establishing the reverse logistics needed for consumers to return empty CO2 cylinders and exchange them for filled ones. There can be no assurance that we will be successful in establishing relationships with large retailers in the markets we are targeting for growth, particularly the United States, or that if successful, we will do so in a time frame consistent with our projections or that will enable us to achieve significant sales. Our failure to establish and maintain such relationships will adversely affect our ability to grow in a particular market and may adversely affect our future growth and prospects.

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Our ability to grow our business successfully depends on whether we can develop and implement production and operating infrastructure, including increased manufacturing capacity, to effectively support our growth.

We are targeting certain markets for growth in which we historically had limited or no presence, including the United States, and other markets in which we have not had a presence in the recent past, including the United Kingdom. Achieving and successfully managing growth in these markets will require that we develop and implement production and operating infrastructure including, among other things, infrastructure for product development and for manufacturing our products, information technology and financial control systems. In addition, we will need to continue to develop the infrastructure for consumers to conveniently exchange empty CO 2 cylinders for filled ones, whether through retail outlets or otherwise. The development and implementation of this infrastructure will require significant additional investment as our business grows and becomes increasingly complex in these markets. Our future results will depend on management’s ability to successfully implement these initiatives on a larger scale, particularly in the United States. Failure to do so could negatively impact our efforts to increase our sales in these markets and have a material adverse effect on our future growth and prospects.

Our future success also requires that we have adequate capacity in our manufacturing facilities to manufacture sufficient products to support our current level of sales and the anticipated increased levels that may result from our growth plans. We believe that the capacity of our current manufacturing facilities and subcontractors is sufficient to meet anticipated demand for our products through 2013. We currently anticipate needing additional manufacturing capacity in the future as the demand for our products continues to increase. We intend to meet this future need for additional manufacturing capacity by constructing and/or purchasing an additional manufacturing facility in or near one of our existing markets. Pending the construction or purchase of such an additional manufacturing facility, we are investing in expanding our manufacturing capabilities through other means, primarily by expanding the manufacturing capacity at our existing facilities and by increasing the use of sub-contractors for certain products and components.

We currently intend to construct an additional facility in the southern part of Israel for which we will need to secure additional real estate and hire additional employees. Construction of a new manufacturing facility involves risks, including the risk of cost overruns and unexpected delays. Appropriate locations, as well as a sufficient pool of employees, may not be available at reasonable costs or at all. If we choose to purchase an existing manufacturing facility and modify it for our manufacturing needs, we may incur similar cost overruns and unexpected delays. In addition, our actual cost to construct or purchase such a facility might be higher than the projected cost.

Any interruption of operations at our existing manufacturing facilities or our failure to secure additional manufacturing capacity when necessary in the future could result in an interruption in the supply of our products to our customers, thereby impeding our growth plans.

Our marketing campaigns and media spending might not result in increased sales or generate the levels of product and brand name awareness we desire.

Our products are ultimately sold to consumers and, therefore, our future growth depends in large part on our ability to create awareness of our product and our brand name. To create and maintain this awareness, we intend to engage in extensive advertising and promotional campaigns in certain key markets that we believe have significant growth potential. Our future growth and profitability will depend in part on the effectiveness and efficiency of these campaigns and our media spending, including our ability to:

•   raise awareness of our home beverage carbonation system and brand name;

•   determine the appropriate creative message and media mix for future expenditures;

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•   create and tailor specific advertisements and promotion campaigns for each country in which we distribute; and

•   effectively manage advertising costs, including creative and media costs, to maintain acceptable costs per sale and operating margins.

We intend to allocate a significant portion of our media spending on marketing campaigns targeted at the United States, our largest market for future growth. These campaigns will require significant financial resources and may require additional funds depending on the results they generate.

There can be no assurance that our marketing campaigns will result in increased revenues or increased product or brand awareness, and we may not be able to increase our sales at the same rate as we increase our advertising expenditures, any of which could have a material adverse effect on our business and results of operations.

We may be unable to maintain our customer base in markets where we have an established presence due to changes in consumer preference, perception and spending habits.

Our long-term revenue growth and profitability depend upon our ability to apply our business model of selling soda makers to new consumers and our consumables, particularly our CO2 refills and flavors, to consumers who already own our soda makers. Since we derive our highest profit margins from our consumables, the continued use of our systems by, and the repeat sales of our consumables to, consumers who have already purchased our home beverage carbonation systems is important to our business. In markets where we have an established presence, we face the challenge of maintaining this customer base due to changes in consumer preference, perception and habits, as well as the introduction of competing products, any of which may cause our consumers to stop using our systems or to use them less frequently. In order to maintain the use of our systems by our consumers, we will need to navigate quickly and respond accordingly to such changes, including through creative initiatives such as new product offerings and special promotions. Our failure to adequately respond to changes in consumer behavior could result in a reduction in the size of our customer base, which would have a material adverse effect on our business and results of operations.

We rely on exclusive arrangements for the distribution of our home beverage carbonation systems and consumables in each of the markets in which we use third party distributors.

We distribute our home beverage carbonation systems and consumables through exclusive relationships with third party distributors in 29 countries, representing 32% of our revenues in 2010. Our distribution agreements are generally exclusive agreements for a given territory with a five year term and option of renewal; however, our contracts contain performance criteria to maintain exclusivity. If any distributor fails to meet its distribution targets, we may attempt to terminate our distribution agreement with that distributor. We may not be successful in terminating our distribution agreements with our distributors and even if we are successful, we may have to pay statutory compensation to such distributors or fines, and we may experience a delay in retaining new distributors. Because we rely on third party distributors, we have less control than when we distribute directly and can be adversely impacted by the actions of our distributors. For example, in 2009, we experienced a decrease in revenues from Western Europe primarily because our distributor in the Nordics experienced significant financial difficulty as a result of the recession in that market as well as certain inventory management issues relating to consumables, which have since been resolved. Furthermore, our distributors also undertake to manage the reverse logistics needed for our end-user consumers to return empty CO2 cylinders and exchange them for filled CO2 cylinders. In the event that any of our distributors does not successfully manage those reverse logistics, it will make it more difficult for our end-user consumers to obtain replacement CO2 cylinders, which will negatively affect their attitude towards us and our revenues in that market. Any disruption in our distribution network could have a negative effect on our ability to sell our products and maintain our customer base, which would in turn materially and adversely affect our business and results of operations.

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We may be unable to compete effectively with other companies which offer, or may offer in the future, competing products.

We face competition in several of our markets from manufacturers of one or more of the components of our home beverage carbonation systems, including the soda makers, exchangeable CO2 cylinders, carbonation bottles and flavors. We anticipate that our success may attract additional competition, both from other manufacturers of home beverage carbonation systems and consumables and the manufacturers of carbonated beverages. The entry of new competitors into our market or the acquisition of our existing competitors by companies with substantial resources could result in further increased competition and harm our business. Increased competition from new competitors may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business and results of operations.

In addition, we compete with suppliers of CO2 who seek to refill our exchangeable CO2 cylinders and other exchangeable CO2 cylinders compatible for use with our systems. For a variety of reasons, including safety and public health, through various contractual arrangements, we generally require customers to refill their CO2 cylinders through authorized refillers. These arrangements have not always been effective in the past and there can be no assurance that they will be effective in the future in deterring unauthorized refilling by our competitors. Additionally, third parties have offered in the past, and may offer in the future, CO2 cylinders and flavors compatible for use in our home beverage carbonation systems. Such sales of consumables by competitors may result in lost sales opportunities for us, decrease our market share and could cause negative publicity if these products cause damage when used with our products.

We also face competition from manufacturers who sell counterfeit reproductions of our soda makers. Although we monitor and attempt to take action against such manufacturers where possible, there can be no assurance that we will be successful in deterring competitors from manufacturing and selling counterfeit reproductions of our products. These actions may result in lost sales opportunities and harm to our reputation due to the lower quality of these counterfeit products compared to our products. The risk of counterfeiting may increase with the expansion of our business and increased recognition of our brand name.

Finally, we face competition from companies that sell sparkling water and carbonated soft drinks. A number of these competitors are substantially larger than we are and have significantly greater financial, sales and marketing, manufacturing and other resources than are available to us, as well as established brands and greater brand awareness. These competitors may use their resources and scale to respond more rapidly than us to competitive pressures and changes in consumer preferences by introducing new products, reducing prices or increasing promotional activities.

If any component of our home beverage carbonation systems is misused, the system may fail and cause personal injury or property damage. We may be subject to product liability claims as a result of any such failure, which will likely increase our costs and adversely affect our business and reputation.

Although we include explicit instructions for the operation of our home beverage carbonation systems and have placed safety warnings on all of our products, consumers may misuse our products, including by:

•   washing our non-dishwasher safe carbonation bottles in the dishwasher or otherwise exposing them to severe heat, which could cause the bottle to crack;

•   carbonating substances other than water with our soda maker, which could cause the soda maker to fail and possibly cause damage to the other components of our home beverage carbonation system; and

•   subjecting our exchangeable CO2 cylinders to pressure beyond their measured stress resistance, which could cause the cylinder to burst.

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The misuse of any of the components of our home beverage carbonating systems may cause personal injury and damage to property. In addition, while we have safety approvals from local authorities for our products, these approvals are predicated upon the exclusive use of our proprietary components with our system. Any unauthorized use of our home beverage carbonation system, including by using third party consumables with our system, could lead to failure or malfunction of the system which in turn could cause personal injury or property damage. Potential personal injury and property damage may also result from the deterioration of the quality or contamination of the materials used in our systems, including the tap water used in the soda maker.

Our product liability insurance for personal injury and damage to property may not be sufficient or available to cover any successful product liability claim, or similar claims, against us, which could materially adversely impact our financial condition. Whether or not a claim against us would be successful, defense of the claim may be costly and the existence of any claim may adversely impact our reputation, financial condition or results of operations.

Our inability to protect our intellectual property rights could reduce the value of our products or permit competitors to more easily compete with us and have a material adverse effect on our business, brand, financial condition and results of operations.

While we make efforts to develop and protect our intellectual property, the validity, enforceability and commercial value of our intellectual property rights may be reduced or eliminated by the discovery of prior inventions by third parties, the discovery of similar marks previously used by third parties, non-use or non-enforcement by us, the successful independent development by third parties of the same or similar confidential or proprietary innovations or changes in the supply or distribution chains that render our rights obsolete. We have been in the past and may in the future be subject to opposition proceedings with respect to applications for registrations of our intellectual property, including but not limited to our marks. As we rely in part on brand names and trademark protection to enforce our intellectual property rights, barriers to our registration of our brand names and trademarks in various countries may restrict our ability to promote and maintain a cohesive brand throughout our key markets.

Our ability to compete effectively depends, in part, on our ability to maintain the proprietary nature of our technologies, which include the ability to obtain, protect and enforce patents and trade secrets and other know how relating to our technology. Our current patent portfolio is limited and certain patents of ours that cover significant aspects of our products will expire in the near future. Although we hold additional utility patents and design registrations and patents (as well as applications for such) that may protect certain aspects of our products for an extended period, there can be no assurance that pending United States or foreign applications will be approved in a timely manner or at all, or that such registrations will effectively protect our intellectual property. There can be no assurance that we will develop patentable intellectual property in the future, and we may choose not to pursue patents or other protection for innovations that subsequently turn out to be important.

To protect our know-how and trade secrets, we have implemented a system in most jurisdictions by which we require certain of our employees to enter into employment contracts, which include clauses requiring such employees to acknowledge our ownership of all inventions and intellectual property rights they develop in the course of their employment and to agree not to disclose our confidential information. Agreements with certain of our employees also typically contain provisions restricting employment with our competitors for a certain period after they stop working for us. Not all employees have executed such employment agreements, and certain of these restrictions may be of no or little enforceability under applicable law. We also typically include non-compete and confidentiality provisions, as well as provisions acknowledging our ownership of all intellectual property rights, in our distributor and supplier agreements. These provisions may not be adequate or enforceable, and despite our efforts, our know-how and trade secrets could be disclosed to third parties, or third parties could independently develop the same or similar information or technology, which could cause us to lose any competitive advantage resulting from such know-how or trade secrets.

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From time to time, we may discover that third parties are infringing or otherwise violating our intellectual property rights. For example, we are aware of third party uses of our trademarks and designs, and there may be other third parties using trademarks or names similar to ours of whom we are unaware. Monitoring unauthorized use of intellectual property is difficult and protecting our intellectual property rights could be costly and time consuming. The monitoring and protection of our intellectual property rights may become more difficult, costly and time consuming as we expand into new markets, particularly in those markets, such as China, in which legal protection of intellectual property rights is less robust than in the markets in which we currently operate. We are prepared to protect our intellectual property rights vigorously; however, our patent portfolio is limited in certain markets and, as such, we may be unable to institute effective legal action against third parties engaged in copying of our machines and components.

In November 2009, we filed a lawsuit in the District Court of Stockholm, Sweden, against a competitor, Vikingsoda AB, which had been refilling our exchangeable CO2 cylinders without our authorization. In the suit, we alleged that Vikingsoda had infringed our intellectual property rights by removing our trademarks from our exchangeable CO2 cylinders and affixing their trademarks to those cylinders. Vikingsoda has filed a complaint with the Swedish Competition Authority against us and our Scandinavian distributor, as more fully described below. In January 2011, a preparatory hearing was held at the District Court of Stockholm addressing our claim that Vikingsoda had infringed our intellectual property rights. A hearing is likely to take place in the latter part of 2011. Should our case be unsuccessful, we will have to compensate Vikingsoda for its litigation costs. It is also possible that Vikingsoda will claim compensation for damages suffered during the period between the granting of the preliminary injunction by the District Court of Stockholm and the Stockholm Court of Appeal’s decision that the preliminary injunction could not be enforced.

There can also be no assurance that we will prevail in any intellectual property infringement litigation we institute to protect our intellectual property rights given the complex technical issues and inherent uncertainties in litigation. Such litigation may be time consuming, expensive, and may distract our management from running the day-to-day operations of our business. If we are unable to successfully defend our intellectual property rights, we could experience a material adverse effect on our business, brand, financial condition and results of operations. There can be no assurance that our intellectual property rights can be successfully asserted or will not be invalidated, circumvented or challenged. In addition, there can be no assurance that these protections will be adequate to deter the use of our intellectual property rights by third parties or to deter the development of products with features based upon, or otherwise similar to, our products.

We may be subject to claims by third parties asserting that our products and other intellectual property rights infringe, or may infringe, their proprietary rights.

We have in the past been, and may in the future be, subject to claims by third parties asserting misappropriation, or that our products and other intellectual property rights infringe, or may infringe, or otherwise violate their proprietary rights. Any such claims, regardless of merit, could result in litigation, which could result in expenses, divert the attention of management, cause significant delays and materially disrupt the conduct of our business. As a consequence of such claims, we could be required to pay a damage award, develop non-infringing products, enter into royalty-bearing licensing agreements, stop selling our products or re-brand our products. Litigation is inherently uncertain and any adverse decision could result in a loss of our proprietary rights, subject us to liabilities, require us to seek licenses from others, which may not be available on reasonable terms, if at all, and otherwise negatively affect our business. In the event of a successful claim of infringement against us or our failure or inability to develop non-infringing technology or license the infringed or similar technology, our business, financial condition and results of operations could be materially adversely affected.

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We have been found to have a dominant position in certain markets. Antitrust and competition laws may place limits on our ability to engage in practices that would be permissible by smaller competitors.

Retaining business from refilling our exchangeable CO2 cylinders is important to the long-term success of our business and our future growth. For safety, public health and other reasons, we retain through contractual means the ownership of the exchangeable CO2 cylinders included in our home beverage carbonation systems, whether sold with the system or as a separate component, and prohibit the refilling of the exchangeable CO2 cylinders by third parties not authorized by us. Our agreements with retailers contain an acknowledgement that we retain title to the exchangeable CO2 cylinders. In addition, the packaging in which the cylinders are distributed, as well as the cylinders themselves, bear notices advising consumers that we retain title to the cylinders and that their use of the cylinders is under license.

The German Federal Court of Justice, the highest German court, recently upheld a decision by the German Federal Cartel Office that preventing third parties from refilling our exchangeable CO2 cylinders constituted an abuse of a dominant position in violation of EU and German competition law and requiring us to permit our cylinders to be refilled by or exchanged with third parties.

In addition, in late 2009, Vikingsoda AB, a refiller of our exchangeable CO2 cylinders in Sweden, filed a complaint with the Swedish Competition Authority against us and our Scandinavian distributor, alleging that we abused a dominant market position. The Swedish Competition Authority is currently investigating our practices and has issued a preliminary opinion that preventing third parties from refilling our exchangeable CO2 cylinders may constitute an abuse of a dominant position. The Swedish Competition Authority submitted this preliminary opinion to the Stockholm Court of Appeal, requesting that the Stockholm Court of Appeal consider the Swedish Competition Authority’s preliminary opinion when deciding on the preliminary injunction that we requested in relation to our claim that Vikingsoda had infringed our intellectual property rights by removing our trademarks from our exchangeable CO2 cylinders and affixing their trademarks to those cylinders. Further, on June 1, 2011, the Swedish Competition Authority, within the context of their investigation, provided us with a draft decision setting out their current position. We are currently preparing a written reply, which, according to the current timetable, should be submitted to Swedish Competition Authority on or about August 31, 2011. As a result, it is, at this stage, not possible to predict the outcome of the Swedish Competition Authority’s investigation. However, if the Swedish Competition Authority’s current position, as expressed in the draft decision, becomes final, we would, among other measures the Swedish Competition Authority may deem necessary, be prohibited from continuing with the allegedly abusive conduct and be ordered to allow third parties to refill our exchangeable CO2 cylinders, in addition to being subject to a fine if the order is not complied with. A final decision by the Swedish Competition Authority is appealable to the Market Court.

Although neither the decision of the German Federal Court of Justice nor the preliminary opinion or draft decision of the Swedish Competition Authority is binding on courts in other jurisdictions, any or all could be cited as precedent in other antitrust or competition law proceedings. There can be no assurance that a court of law in any other jurisdiction will determine that we have not violated applicable competition or antitrust laws. For example, there can be no assurance that a court in any of the jurisdictions in which we operate will uphold our refilling restrictions or ownership rights over the exchangeable CO2 cylinders or find that the cylinder refilling restrictions we impose on unauthorized third parties do not violate applicable competition or antitrust laws. Our failure to successfully enforce our ownership rights to our exchangeable CO2 cylinders or to prevent unauthorized third parties from refilling our exchangeable CO2 cylinders could have a material adverse effect on our business and results of operations.

As a multinational corporation, our operations are subject to additional risks.

With sales in 41 countries, our operations are subject to risks inherent in multinational operations, including:

•   fluctuations in exchange rates;

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•   unpredictability of foreign currency exchange controls;

•   compliance with a variety of local regulations and laws;

•   changes in tax laws and the interpretation of those laws; and

•   difficulties enforcing intellectual property and contractual rights in certain jurisdictions.

In addition, certain jurisdictions could impose tariffs, quotas, trade barriers and other similar restrictions on our sales. Moreover, our business operations could be interrupted and negatively affected by economic changes, geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war, and other economic or political uncertainties. All of these risks could result in increased costs or decreased revenues, either of which could adversely affect our profitability.

We are subject to fluctuations in currency exchange rates and may not have adequately hedged against them.

We conduct business in multiple countries, which exposes us to fluctuations in currency exchange rates between the Euro (our reporting currency) and certain other currencies in which we conduct business. Fluctuations of the U.S. Dollar and the NIS against the Euro are the most significant to us because most of our revenues are denominated in Euros, while most of our cost of revenues and operating expenses are denominated in Euros, U.S. Dollars and NIS. Although we currently engage in hedging transactions to minimize our currency risk, future currency exchange rate fluctuations that we have not adequately hedged could adversely affect our profitability. We are also exposed to credit risk if counterparties to our derivative instruments are unable to meet their obligations.

Fluctuations in our business caused by seasonality or unusual weather conditions could cause fluctuations in our quarterly results of operations and volatility in the market price of our ordinary shares.

Our business experiences seasonal fluctuations because demand for soft drinks is highest in the summer months, while in colder months, consumers tend to drink fewer carbonated beverages. As a result, we ordinarily experience a decline in sales of all of our products during the winter months, other than in December, when we experience an increase in sales as a result of the holidays. In addition, our business is sensitive to unusual weather conditions. For example, if temperatures during the winter are colder than average, we will experience decreased revenues.

Because of the seasonality and sensitivity to unusual weather conditions of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. The impact on sales volume and operating results due to the timing and extent of these factors can significantly impact our business. For these reasons, our quarterly operating results should not be relied on as indications of our future performance. These fluctuations may also cause volatility in the market price of our ordinary shares.

We may have exposure to greater than anticipated tax liabilities.

We have endeavored to structure our activities in a manner so as to minimize our and our subsidiaries’ aggregate tax liabilities. However, we have operations in various taxing jurisdictions, and there is a risk that our tax liabilities in one or more jurisdictions could be more than reported in respect of prior taxable periods and more than anticipated in respect of future taxable periods. In this regard, the amount of income taxes that we pay in future taxable periods could be higher if earnings are lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates.

In addition, we have entered into transfer pricing arrangements that establish transfer prices for our inter-company operations. However, our transfer pricing procedures are not binding on the applicable taxing authorities. No official authority in any country has made a binding determination as to whether or not we are operating in compliance with its transfer pricing laws. Accordingly, taxing authorities in any of the countries in which we operate could challenge our transfer prices and require us to adjust them to

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reallocate our income and potentially to pay additional taxes for past tax periods. For example, following a recent audit, the tax authorities in Germany issued a finding that the amount of royalties we recognized on our CO2 refills are not in compliance with that jurisdiction’s transfer pricing guidelines and issued a tax assessment of approximately €8.2 million, of which €5.6 million is directly in respect of these royalties for the period from 2003 to 2005. While we have appealed this assessment and are not bound to comply with the assessment during the pendency of this appeal, our appeal may not be successful and we may be required to pay some or the entire amount assessed. In addition, during the pendency of our appeal, we may be required to place a deposit or a guaranty with the tax authorities to cover a portion of or the entire assessed amount, which may have a material adverse affect on our available cash and credit lines. Moreover, in the event that our appeal is unsuccessful, further assessments for tax periods after 2005 could be forthcoming and would likely affect our tax liability on a going-forward basis. We are unable to assess the likelihood that the existing finding of non-compliance in the jurisdiction in which we are having this dispute may lead the taxing authorities of other countries to more closely scrutinize our transfer pricing or issue adverse tax assessments.

The issue of the validity of our transfer pricing procedures will become of greater importance as we continue our expansion in markets in which we currently have a limited presence and attempt to penetrate new markets. In particular, the tax authorities in the United States, our most important expansion market, have increased their focus on transfer pricing procedures generally, which could result in a greater likelihood of a challenge to our transfer prices and the risk that we will be required to adjust them and reallocate our income, which could result in a higher effective tax rate than that to which we are currently subject. Any change to the allocation of our income as a result of review by taxing authorities could have a negative effect on our profitability.

In addition, the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment and there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, our ultimate tax liability may differ from the amounts recorded in our financial statements and may materially adversely affect our financial results in the period or periods for which such determination is made. We have created reserves with respect to such tax liabilities where we believe it to be appropriate. However, there can be no assurance that our ultimate tax liability will not exceed the reserves we have created.

Our products are subject to extensive governmental regulation in the markets in which we operate.

Our products are subject to extensive governmental regulation in the markets in which we operate. Among the regulations we must comply with are those governing the manufacturing and transportation of our exchangeable CO2 cylinders. In the United States, our most significant target market, and in certain other markets in which we currently operate or may in the future operate, our exchangeable CO2 cylinders are considered hazardous materials due to the CO2 inside and the applicable regulations consequently restrict our ability to ship our exchangeable CO2 cylinders by air and also place significant restrictions on their land transportation, which results in additional costs. There can be no assurance that we will comply with all applicable laws and regulations to which we and our products are subject. If we fail to comply, we may be subject to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our business, results of operations and reputation.

The flavors we manufacture and distribute are also subject to numerous health and safety laws regulating the manufacture and distribution of food products. Our inability to plan and develop effective procedures to address these laws and regulations, and the need to comply with new or revised laws or regulations, or new interpretations or enforcement of existing laws and regulations, may affect our ability to reach our manufacturing and distribution targets, having an overall material adverse effect on our sales and profitability.

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Furthermore, new government laws and regulations may be introduced in the future that could result in additional compliance costs, seizures, confiscations, recalls or monetary fines, any of which could prevent or inhibit the development, distribution and sale of our products. Recently, the Finance Committee of the United States Senate, as well as several state and local governmental authorities in the United States, have considered enacting a tax on sugar-sweetened beverages, including carbonated soft drinks. If such a tax were enacted and if it were to apply to our flavors, the sales and consumption of our non-diet flavors might decrease and thereby have a material adverse impact on our sales and profitability.

An increase in the cost or shortage of supply of the raw materials for our products could have a material adverse effect on our business and results of operations.

We use certain raw materials to produce our soda makers, exchangeable CO2 cylinders and consumables. The most important of these materials are aluminum, brass, CO2, certain plastics and sugar. These materials represent a significant portion of our cost of goods sold. The availability and cost of such raw materials have fluctuated in the past and may fluctuate in the future widely due to movements in currency exchange rates, government policy and regulation, crop failures or shortages, weather conditions or other unforeseen circumstances. To the extent that any of the foregoing or other unknown factors increase the prices or limits the supply of such materials and we are unable to increase our prices or adequately hedge against such changes in a manner that offsets such changes, our business and results of operations could be materially and adversely affected.

Disruption of our supply chain could adversely affect our business.

Damage or disruption to our manufacturing or distribution capabilities due to the financial and/or operational instability of key suppliers, distributors, warehousing and transportation providers, or brokers, or other reasons could impair our ability to manufacture or sell our products. To the extent we are unable to retain alternative sources of supply, or cannot financially mitigate the impact of such events, such as by identifying an alternative supplier in a timely and cost-effective manner, or to effectively manage such events if they occur, there could be a material adverse effect on our sales and profitability, and additional resources could be required to restore our supply chain.

A majority of our products is currently produced at one location that could experience business interruptions, which could result in our inability to produce certain of our products for some period of time, which would have a material adverse effect on our business and results of operations.

We currently produce the majority of our products, including certain key components, at a single manufacturing facility. A natural disaster or other unanticipated catastrophic events, including power interruptions, water shortage, storms, fires, earthquakes, terrorist attacks and wars, could significantly impair our ability to manufacture our products at that facility and operate our business. Our facility and certain equipment located in this facility would be difficult to replace and could require substantial replacement lead-time. Catastrophic events could also destroy any inventory located in this facility. The occurrence of such an event could lead to a halt in production, which would materially and adversely affect our business and results of operations.

We are subject to certain safety risks in our manufacturing facilities.

Our business involves complex manufacturing processes and hazardous materials that can be dangerous to our employees. Although we employ safety procedures in the design and operation of our facilities, there is a risk that an accident or death could occur in one of our facilities. Any accident could result in manufacturing delays, which could harm our business and our results of operations. The potential liability resulting from any such accident or death, to the extent not covered by insurance, and any negative publicity associated therewith could harm our business, reputation, financial condition or results of operations.

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Because a portion of our manufacturing takes place in China through third party manufacturers, a significant disruption in the operation of those manufacturers or political unrest in China could materially adversely affect our business, financial condition and results of operations.

We manufacture some of the components of our home beverage carbonation systems through third parties in China. Any disruption in production or inability of our manufacturers in China to produce adequate quantities to meet our needs, whether as a result of a natural disaster or other causes, could impair our ability to operate our business on a day-to-day basis and to meet the growing demand for our products. Furthermore, since these manufacturers are located in China, we are exposed to the possibility of product supply disruption and increased costs in the event of changes in the policies of the Chinese government, political unrest or unstable economic conditions in China. Any of these matters could materially and adversely affect our business and results of operations.

Higher energy costs and other factors affecting the cost of producing, transporting and distributing our products could adversely affect our financial results.

Rising fuel, freight and energy costs have in the past and may in the future have an adverse impact on the cost of our operations, including the manufacture, transportation, and distribution of products. Fuel costs may fluctuate due to a number of factors outside our control, including government policy and regulation and weather conditions. Additionally, we may be unable to maintain favorable arrangements with respect to the costs of transporting products, which could result in increased expenses and negatively affect operations. If we are unable to hedge against such increases or raise the prices of our products to offset the changes, our results of operations could be materially and adversely affected.

If our distributors or retailers return a large number of empty exchangeable CO2 cylinders without exchanging them for full ones, we would incur costs with no corresponding revenue.

We retain the ownership of the exchangeable CO2 cylinders included in our home beverage carbonation systems through contractual means and collect a deposit from distributors and retailers. The amount of the deposit varies from country to country and also changes over time as market conditions vary in a particular country. In addition, in some countries, including certain major markets in Northern and Western Europe, consumers have paid an advance rental fee when they purchased their first exchangeable CO2 cylinder. A portion of this fee may be refundable when an empty exchangeable CO2 cylinder is returned and not exchanged for a full one. To date, returns of exchangeable CO2 cylinders from our distributors, retailers and consumers have been negligible. However, if distributors, retailers or consumers in any one or more of the markets in which we operate return a large number of cylinders without exchanging them for full ones, we may be required to pay out a large amount of cash to refund a portion of the rental fee or the deposit, which could have a material adverse effect on our financial condition and profitability.

Adverse conditions in the global economy could negatively impact our customers’ demand for our products.

Consumer purchases of discretionary items tend to decline during recessionary periods, when disposable income is lower, and may impact sales of our products. As a result of the global recession, consumers may have less money for discretionary purchases as a result of job losses, foreclosures, bankruptcies, reduced access to credit, and sharply falling home prices, among other things. A prolonged economic downturn or recession in any of the countries in which we conduct significant business or in any of the markets we are targeting for expansion, including the United States, may cause significant readjustments in both the volume and mix of our product sales, which could materially and adversely affect our business and results of operations.

We depend on the expertise of key personnel. If these individuals leave without replacements, our operations could suffer.

Our Chief Executive Officer, Daniel Birnbaum, and certain other members of our senior management were retained in 2007 following our acquisition by Fortissimo Capital. Given their extensive knowledge of

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the home beverage carbonation industry and the limited number of direct competitors in that industry, we believe that it would be difficult to find replacements should any of them leave. Our inability to find suitable replacements for any of the members of our senior management team, particularly Mr. Birnbaum, would adversely impair our ability to implement our business strategy and could have a material adverse effect on our business and results of operations.

We may need to raise additional capital in the future and may be unable to do so on acceptable terms.

Based on current expectations, we believe that our cash on hand and cash flow from operations will be sufficient to finance our strategic plans, including our expansion in markets in which we currently have a limited presence and penetration into certain new markets, for the foreseeable future. However, in the future, we may require additional capital in order to finance even further expansion or possible acquisitions. Our ability to satisfy our future capital needs, if any, will depend upon the costs of such financing and the availability of attractive terms for additional financing. The recent global financial crisis has made it more difficult in general for companies to finance their capital expenditure requirements. We may be unable to obtain requisite financing or such financing may not be available on terms that are acceptable to us. The incurrence of additional debt would result in increased debt service obligations resulting in further operating and financing covenants that might restrict our ability to pay dividends to our shareholders. If we were to issue equity to meet our financing needs, it would dilute the holdings of our existing shareholders. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

We are in the process of determining whether our existing internal controls over financial reporting systems are compliant with Section 404 of the Sarbanes-Oxley Act, which may divert internal resources and will take a significant amount of time and effort to complete.

We will be required to comply with the internal control, evaluation and certification requirements of Section 404 of the Sarbanes-Oxley Act in our Annual Report on Form 20-F for the year ending December 31, 2011. We are in the process of determining whether our existing internal controls over financial reporting systems are compliant with Section 404. This process may divert internal resources and will take a significant amount of time and effort to complete. Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. As a result, we may experience higher than anticipated operating expenses, as well as higher independent auditor fees during and after the implementation of these changes. If we are unable to implement any of the required changes to our internal control over financial reporting effectively or efficiently, it could adversely affect our operations, financial reporting and results of operations and could result in an adverse opinion on internal controls from our independent auditors.

Risks related to our Location in Israel

As our principal manufacturing facility is located in disputed territory, rising political tensions and negative publicity may negatively impact demand for our products or require us to relocate our manufacturing activities to other locations, either of which may adversely affect our business.

Our principal manufacturing facility is located in Mishor Adumim, an area in the West Bank that is the subject of dispute between Israel and the Palestinian Authority. Mishor Adumim is currently under Israeli jurisdiction and authority. There has recently been negative publicity, primarily in Western Europe, against companies with facilities in the West Bank. A number of political groups have called for consumer boycotts of Israeli products originating in the West Bank, including our products. Though we manufacture certain of our products in other locations, this may not persuade such political groups sufficiently to end their call to boycott our products. In addition, the Palestinian Authority has adopted legislation that may prohibit or restrict Palestinians from working for Israeli companies located in the West Bank. For these reasons, we may in the future be required to transfer a significant portion of our manufacturing activities to a location outside of the West Bank, which may divert the attention of management, require the

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expenditure of significant capital resources and limit certain of the tax benefits for which we are currently eligible. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

We conduct operations in Israel and, therefore, political, economic and military instability in Israel and its region may adversely affect our business.

We are incorporated under Israeli law, and our principal offices and a significant portion of our manufacturing facilities are located in Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors. A state of hostility, varying in degree and intensity, has caused security and economic problems in Israel. Although Israel has entered into peace treaties with Egypt and Jordan, and various agreements with the Palestinian Authority, there has been a marked increase in violence, civil unrest and hostility, including armed clashes, between the State of Israel and the Palestinians, since September 2000. The establishment in 2006 of a government in the Gaza Strip by representatives of the Hamas militant group has created heightened unrest and uncertainty in the region. In mid-2006, Israel engaged in an armed conflict with Hezbollah, a Shiite Islamist militia group based in Lebanon, and in June 2007, there was an escalation in violence in the Gaza Strip. From December 2008 through January 2009, Israel engaged in an armed conflict with Hamas, which involved missile strikes against civilian targets in various parts of Israel and negatively affected business conditions in Israel.

Recent political uprisings and social unrest in various countries in the Middle East and north Africa are affecting the political stability of those countries. This instability may lead to deterioration of the political relationships that exist between Israel and these countries, and have raised new concerns regarding security in the region and the potential for armed conflict. Among other things, this instability may affect the global economy and marketplace through changes in oil and gas prices. Continued hostilities between Israel and its neighbors and any future armed conflict, terrorist activity or political instability in the region could adversely affect our operations in Israel and adversely affect the market price of our ordinary shares. Further escalation of tensions or violence might result in a significant downturn in the economic or financial condition of Israel, which could have a material adverse effect on our operations in Israel and our business.

In addition, several countries restrict doing business with Israel. The State of Israel and Israeli companies have been and are today subjected to economic boycotts. The interruption or curtailment of trade between Israel and its present trading partners could adversely affect our business, financial condition and results of operations.

Our operations could be disrupted as a result of the obligation of certain of our personnel in Israel to perform military service.

Generally, all male adult citizens and permanent residents of Israel under the age of 42 (or older, for citizens who hold certain positions in the Israeli armed forces reserves) are, unless exempt, obligated to perform military reserve duty annually. Additionally, all Israeli residents of this age may be called to active duty at any time under emergency circumstances. Many of our officers and employees are currently obligated to perform annual reserve duty. In response to increased tension and hostilities in the region, there have been, at times, call-ups of military reservists, and it is possible that there will be additional call-ups in the future. Our operations could be disrupted by the absence of one or more of our executive officers or key employees for a significant period due to military service. Such disruption could have a material adverse effect on our business and results of operations.

The tax benefits that are available to us require us to continue to meet various conditions and may be terminated or reduced in the future, which could increase our costs and taxes.

One of our subsidiaries received investment grants and is eligible for tax benefits under the Israeli Law for the Encouragement of Capital Investments, 5719-1959, referred to as the Investment Law, and the

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Israeli Law for the Encouragement of Industry (Taxes), 5729-1969. This subsidiary has been granted six separate encouragement of investment programs, of which one is currently active and one program has been approved under the amendment to this law but it has not yet received tax benefits from this program. To remain eligible for these tax benefits, this subsidiary must continue to meet certain conditions stipulated in the Investment Law and its regulations, as amended, and the criteria set forth in the specific certificate of approval. If this subsidiary does not meet these requirements, the tax benefits would be canceled and it could be required to refund any tax benefits and investment grants that it received in the past. Further, in the future these tax benefits may be reduced or discontinued.

In April 2005 and in January 2011, amendments to the Investment Law became effective under which the criteria for new investments qualified to receive tax benefits were revised and, in some cases, companies were given the choice whether or not to opt into the new benefit regimes or to remain subject to the previous benefit regimes. In the future, we may not be eligible to receive additional tax benefits under this law. The termination or reduction of these tax benefits would increase our tax liability, which would reduce our profits. Additionally, if we increase our activities outside of Israel through acquisitions, for example, our expanded activities might not be eligible for inclusion in future Israeli tax benefit programs. See “Item 10.E — Taxation — Israeli Tax Considerations and Government Programs — Law for the Encouragement of Capital Investments, 5719-1959.”

It may be difficult to enforce the judgment of a United States court against us, our officers and directors and the Israeli experts named in this annual report in Israel or the United States, or to assert United States securities laws claims in Israel or serve process on our officers and directors and these experts.

We are incorporated in Israel. The majority of our executive officers and directors and the Israeli experts named in this annual report are not residents of the United States, and the majority of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce a judgment of a United States court based upon the civil liability provisions of the United States federal securities laws against us or any of these persons in a United States or Israeli court, or to effect service of process upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect to United States securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of United States securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not United States law is applicable to the claim. If United States law is found to be applicable, the content of applicable United States law must be proven as a fact by expert witnesses, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a United States or foreign court.

Your rights and responsibilities as our shareholder will be governed by Israeli law, which differ in some respects from the rights and responsibilities of shareholders of United States corporations.

Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in United States-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith towards the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to the company’s articles of association, an increase of the company’s authorized share capital, a merger and approval of related party transactions that require shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholders’ vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness towards the company. However, Israeli law does not define the substance of this duty of fairness. See “Item 6.C — Board Practices — Fiduciary Duties and Approval of Specified Related Party Transactions under

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Israeli Law — Duties of Shareholders.” Because Israeli corporate law underwent extensive revisions approximately ten years ago, the parameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of United States corporations.

As a foreign private issuer whose shares are listed on The Nasdaq Global Select Market, we may in the future elect to follow certain home country corporate governance practices instead of certain Nasdaq requirements.

As a foreign private issuer whose shares are listed on The Nasdaq Global Select Market, we have elected to follow certain home country corporate governance practices instead of certain requirements of the Marketplace Rules of The Nasdaq Global Select Market, or the Nasdaq Marketplace Rules. We may in the future elect to follow Israeli corporate governance practices with regard to, among other things, the composition of our board of directors, compensation of officers, director nomination procedures and quorum requirements at shareholders’ meetings. In addition, we may elect to follow Israeli corporate governance practices instead of the Nasdaq requirements to obtain shareholder approval for certain dilutive events (such as for the establishment or amendment of certain equity-based compensation plans, issuances that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company). Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaq’s corporate governance rules. Following our home country governance practices as opposed to the requirements that would otherwise apply to a United States company listed on The Nasdaq Global Select Market may provide less protection than is accorded to investors of domestic issuers. See “Item 16.G — Corporate Governance.”

In addition, as a foreign private issuer, we are exempt from the rules and regulations under the United States Securities Exchange Act of 1934, as amended, or the Exchange Act, related to the furnishing and content of proxy statements, and our officers, directors, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the Securities and Exchange Commission as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act.

Provisions of our articles of association and of Israeli law may delay, prevent or make undesirable an acquisition of all or a significant portion of our shares or assets.

Our articles of association contain certain provisions that may delay or prevent a change of control. These provisions include a classified board of directors and the requirement of a supermajority vote of our shareholders to amend certain provisions of our articles of association. In addition, Israeli corporate law regulates acquisitions of shares through tender offers and mergers, requires special approvals for transactions involving significant shareholders and regulates other matters that may be relevant to these types of transactions. Further, Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as United States tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which certain sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred. See “Item 10.B — Memorandum and Articles of Association — Acquisitions under Israeli Law.” These provisions of Israeli law could have the effect of delaying or preventing a change in control and may make it more difficult for a third party to acquire us, even if doing so would be beneficial to our shareholders, and may limit the price that investors may be willing to pay in the future for our ordinary shares.

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Risks related to our Ordinary Shares and the Trading of our Ordinary Shares

The price of our ordinary shares may fluctuate significantly.

Our ordinary shares were first offered publicly in our IPO in November 2010, at a price of $20.00 per share, and our ordinary shares have subsequently traded as high as $63.20 per share and as low as $23.15 per share.

In the recent past, stocks generally have experienced high levels of volatility. The trading price of our ordinary shares may fluctuate significantly. Fluctuations in the market price of our ordinary shares may be exaggerated if the trading volume of our ordinary shares is too low. The lack of a trading market may result in the loss of research coverage by any one or more of the securities analysts that may cover our company in the future. Moreover, we cannot assure you that any securities analyst will initiate or maintain research coverage of us and our ordinary shares. The price of the ordinary shares sold in this offering will not necessarily reflect the market price of our ordinary shares after this offering. The market price for our ordinary shares after this offering will be affected by a number of factors, some of which are beyond our control, including, without limitation:

•   an increase or decrease in our revenue;

•   quarterly variations in our results of operations or in our competitors’ results of operations;

•   announcements or introductions of new products by us or competitors;

•   the recruitment or departure of key personnel;

•   regulatory developments;

•   changes in earnings’ estimates, investors’ perceptions or recommendations by securities analysts or our failure to achieve analysts’ earning estimates;

•   developments in our industry;

•   sales of ordinary shares by us or our shareholders; and

•   general market conditions and political and other factors unrelated to our operating performance or the operating performance of our competitors.

These factors may materially and adversely affect the market price of our ordinary shares and result in significant price fluctuations.

In the past, many companies that have experienced volatility in the market price of their securities have become subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

Sales of our outstanding ordinary shares into the market in the future could cause the market price of our ordinary shares to drop significantly, even if our business is doing well.

Upon completion of our follow-on offering, we had 19,946,961 shares outstanding, of which 13,807,293 shares are freely tradable without restrictions or further registration under the Securities Act. We, each of our officers, directors and the selling shareholders have agreed, subject to certain exceptions, with the underwriters not to dispose of or hedge any of their ordinary shares or securities convertible into or exchangeable for ordinary shares for a period of 90 days after April 14, 2011, subject to extension in the case of an earnings release or material news or a material event relating to us and, except in our case, for the issuance of ordinary shares upon exercise of options under existing option plans. J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. may, in their sole discretion and without notice, release all or any portion of the ordinary shares subject to lock-up agreements. Starting on May 8, 2011, subject to the lock-up agreements described above, holders of 4,160,631 of our ordinary shares will be entitled to

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request that we register their shares for resale and certain other shareholders have the right to include their shares in any such registration statement or in a registration statement for any public offering we undertake in the future.

To the extent that any of these shareholders sell, or indicate an intent to sell, substantial amounts of our ordinary shares in the public market after the contractual lock-ups and other legal restrictions on resale discussed in this annual report lapse, the trading price of our ordinary shares could decline significantly.

In addition, on November 3, 2010, we filed a Registration Statement on Form S-8 registering up to 2,195,838 ordinary shares that we may issue under our option plans. These ordinary shares may be freely sold in the public market upon issuance, subject to the lock-up agreements described above. The registration or sale of any of these ordinary shares could cause the market price of our ordinary shares to drop significantly.

The ownership of our ordinary shares will continue to be highly concentrated, and your interests may conflict with the interests of our existing shareholders.

Our executive officers, directors and their affiliates beneficially own approximately 18.8% of our outstanding ordinary shares. Moreover, one of our largest shareholders, Fortissimo Capital, beneficially owns approximately 11.4% of our outstanding ordinary shares. In addition, individual partners of this shareholder serve on our board of directors. Accordingly, this shareholder will exercise a significant influence on us and will continue to be able to significantly influence the outcome of corporate actions requiring shareholder approval, including the election of directors, amending our articles of association, raising future capital, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction. This shareholder could delay or prevent a change of control of our company, even if such a change of control would benefit our other shareholders. The significant concentration of share ownership may adversely affect the market price of our ordinary shares due to investors’ perception that conflicts of interest may exist or arise.

If securities or industry analysts cease to publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

We expect that the trading price for our ordinary shares will be affected by any research or reports that securities or industry analysts publish about us or our business. If one or more of the analysts who currently cover us or our business publish inaccurate or unfavorable research about us or our business, and in particular if they downgrade their evaluations of our ordinary shares, the price of our ordinary shares would likely decline. If one or more of these analysts cease coverage of our company, we could lose visibility in the market for our ordinary shares, which in turn could cause our stock price to decline.

We do not expect to pay any dividends for the foreseeable future.

We do not anticipate that we will pay any dividends to holders of our ordinary shares in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing operations. In addition, our ability to pay dividends is currently limited by the terms of our credit facilities, and any future credit facility may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our ordinary shares. Accordingly, investors must rely on sales of their ordinary shares after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our ordinary shares.

Our United States shareholders may suffer adverse tax consequences if we are characterized as a Passive Foreign Investment Company.

Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company for United States federal income tax purposes. To determine if at least 50% of our assets are held for the production of, or produce, passive income, we may use the market

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capitalization method for certain periods. Under the market capitalization method, the total asset value of a company would be considered to equal the fair market value of its outstanding shares plus outstanding indebtedness on a relevant testing date. Because the market price of our ordinary shares is likely to fluctuate and may be volatile, and the market price may affect the determination of whether we will be considered a passive foreign investment company, there can be no assurance that we will not be considered a passive foreign investment company for any taxable year. If we are characterized as a passive foreign investment company, our United States shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are United States holders, and having interest charges apply to distributions by us and the proceeds of share sales. See “Item 9.E — Taxation — United States federal income taxation.”

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 Item 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

Our History

The SodaStream brand has a history that dates back to the beginning of the 20th century. Guy Hugh Gilbey of the London gin distillers, W & A Gilbey Limited, invented the forerunner of our machine in London in 1903. During the 1970s and 1980s, the SodaStream home carbonation beverage system gained substantial popularity in certain markets, although the company was focused on just a few niche markets and primarily on sparkling water. In 1998, Soda Stream Ltd. was acquired by Soda Club Enterprises NV, which, at the time, was its Israeli distributor. The company encountered numerous challenges, including ownership changes and a lack of product innovation during the years preceding 2007.

In conjunction with Fortissimo Capital’s investment in us, SodaStream International Ltd. was incorporated under the laws of the State of Israel on March 8, 2007, and all of the shares of Soda Club Enterprises NV were exchanged for our ordinary shares. Following our acquisition by Fortissimo Capital, we restructured our operations significantly, including introducing a new management team headed by our Chief Executive Officer, Daniel Birnbaum. Our new management team implemented a new corporate strategy focused on penetration of new markets, consumer-driven product innovation and capitalizing on the consumer benefits of our products, including being environmentally-friendly and health-promoting.

We are registered with the Israeli Registrar of Companies in Jerusalem. Our registration number is 51-395125-1. Our purpose as set forth in our articles of association is to engage in any legal business.

On March 11, 2010, we changed our corporate name from Soda-Club Holdings Ltd. to SodaStream International Ltd. On November 3, 2010, our ordinary shares commenced trading on The Nasdaq Global Select Market.

Our principal executive offices are located at Gilboa Street, Airport City 70100 Israel and our telephone number is 011-972-3-976-2301. Our authorized representative in the U.S. and agent for service of process in the U.S., SodaStream USA, Inc., is located at One Mall Drive, Cherry Hill, New Jersey 08002. Our website address is www.sodastream.com. The information contained therein or connected thereto shall not be deemed to be incorporated into this annual report.

As of the date of this annual report, there has been no indication of any public takeover offers by third parties in respect of our ordinary shares or by the Company in respect of other companies’ shares.

Principal Capital Expenditures

Our capital expenditures for fiscal 2010, 2009 and 2008 amounted to €6.6 million, €5.5 million and €2.2 million, respectively. Capital expenditure is defined as investment in property, plant and equipment and in intangible assets. We anticipate our capital expenditure in fiscal 2011 to be for the expansion of our production capacity and capabilities; improvements and expansion of our distribution and corporate facilities to support our growth; and investment and improvements in our information technology systems. We anticipate our capital expenditure in 2011 to be financed from the proceeds of our initial public offering and our follow-on offering.

B. Business Overview

Overview

SodaStream manufactures home beverage carbonation systems, which enable consumers to easily transform ordinary tap water instantly into carbonated soft drinks and sparkling water. We believe our

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soda makers offer a highly differentiated and innovative solution to consumers of bottled and canned carbonated soft drinks and sparkling water. Our products are environmentally friendly, cost-effective, promote health and wellness, and are customizable and fun to use. In addition, our products offer convenience by eliminating the need to carry bottles home from the supermarket, to store bottles at home or to regularly dispose of empty bottles. Educating consumers of these benefits is a key element of our strategy to build awareness, particularly as we continue to expand into new markets. We believe that we are the world’s leading manufacturer of home beverage carbonation systems. Such belief is based on consumer surveys we commissioned that show SodaStream has the largest market share in each of a dozen of the largest markets in which we operate and the lack of a competing home beverage carbonation system in the significant majority of other markets around the world, including the United States. We continue to grow our installed base and estimate, based on consumer surveys and sales of CO2 refills, that there are currently approximately 4.5 million consumers who create a carbonated beverage using our system at least once every two weeks, whom we refer to as active consumers, with many of the largest carbonated soft drink and sparkling water markets still remaining virtually untapped.

We develop, manufacture and sell soda makers and exchangeable carbon-dioxide (CO2) cylinders, as well as consumables, consisting of CO2 refills, reusable carbonation bottles and flavors to add to the carbonated water. We currently sell our products through more than 40,000 retail stores in 41 countries, including 25 countries that we have entered since the beginning of 2007. In 2010, we started selling our products through a new major retailer in the United States, and added more than 1,000 new stores in that market for a total of over 4,000 stores in the United States. We distribute our products directly in 12 countries and indirectly through local distributors in our remaining markets. Our products are sold under the SodaStream® brand name in most countries, and under the Soda-Club® brand name or select other brand names in certain other countries. While our distribution strategy is customized for each market, we generally employ a multi-channel distribution approach that is designed to raise awareness and establish positioning of our product offerings, first in specialty retail and direct marketing channels and then in larger food, drug and mass retailers.

From 2008 through 2010, our revenues grew at a compound annual growth rate of 26.8% from €99.9 million to €160.7 million. We had net income of €530,000, €7.1 million and €9.7 million in 2008, 2009 and 2010, respectively. Similarly, from 2008 through 2010, our revenues from soda makers and exchangeable CO2 cylinders grew from €31.4 million to €74.2 million, while our revenues from sales of consumables grew from €59.8 million to €80.4 million. Although we are only in the early stages of our United States marketing investment plan, our sales in the United States have increased from $4.4 million in 2007 to $39.8 million in 2010, more than doubling in each of 2009 and 2010 as compared to the prior year. Between 2007 and 2010, we further penetrated key existing markets, including France and Italy, where we previously had minimal presence.

Industry background

According to Datamonitor, the global off-premise (defined as beverages consumed at home) soft drink and global sparkling water industries generated approximately $216 billion and $34 billion, respectively, in retail sales in 2009. According to Euromonitor, the United States led most other markets with annual per capita off-premise carbonated soft drink consumption of 118 liters in 2010, representing an aggregate of $39 billion in sales.

Our products address several long-term trends in global consumer behavior, including the rapidly growing popularity of environmentally-friendly (or “green”) products. In the United States, consumers have clearly adopted more environmentally conscious behavior in recent years, with studies by McMillan Doolittle Retail Consultants indicating that 68% of United States consumers reported actively or occasionally considering and purchasing “green” products — a substantial increase from 59% in 2007 despite the global recession during this period. It is estimated by the Natural Marketing Institute that the

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United States market for products perceived as “green” represented $290 billion in sales in 2008 and was expected to grow to $420 billion in 2010.

In addition to this environmental trend, we believe that several other important consumer trends influence demand for our products. Consumers continue to increasingly prioritize health and wellness, including by favoring more natural and fresh food and beverage products. Consumers are also exhibiting an increased focus on value, including by increasingly favoring private label products, “do it yourself” alternatives and eating more at home instead of at restaurants.

These forces are having a negative impact on the growth rates observed recently in the off-premise carbonated soft drink category in the United States, which in 2010 did not grow as compared to 2009, according to Euromonitor. An even more pronounced impact has been observed in the bottled water category in the United States, where many consumers are reverting to tap and filtered water. According to The Nielsen Company, retail sales in the United States of the leading water filtration products, Brita and PUR, increased at an annualized rate of 6.3% from 2007 to 2010, while bottled water retail sales declined at an annualized rate of 2.1% over the same period. Euromonitor is forecasting annual growth in bottled water retail sales in the United States of less than 1% through 2015, which is a significant deceleration from the double-digit growth rates seen from 2005 to 2008.

Our business strengths

We believe the following business strengths position us well to grow our business:

•   Clear and compelling consumer benefits.  Our products provide an innovative alternative to packaged carbonated beverages and are consistent with long-term trends in consumer behavior. Our products are:

º Environmentally friendly.  Disposable plastic bottles are harmful to the environment, particularly since only a minority of plastic bottles is recycled. Use of our products, which include reusable carbonation bottles, reduces the number of plastic bottles and cans used by consumers. In addition, the carbon footprint and pollution left by the manufacture and transportation of plastic bottles is significant. In order to minimize the environmental harm caused by the transport of our CO2 cylinders, we continue to set up CO2 refilling stations as close as possible to our consumer base as exemplified by our new CO2 refilling station in the Netherlands. An additional environmental benefit is that our products do not use electricity, thus reducing their environmental impact.
º Convenient.  Our products eliminate the need to carry bottles home from the supermarket, store bottles at home and dispose of the empty bottles. Bottled beverages are bulky and difficult for consumers to transport and store, especially for those without private vehicles or large homes. The fact that our products do not require electricity enables them to be easily transported and used anywhere, even on recreational vehicles and boats.
º Cost effective.  There are significant cost savings for a consumer who carbonates soft drinks at home as opposed to purchasing bottled or canned carbonated water or soft drinks. In the United States, we estimate the cost to a SodaStream consumer, excluding the initial cost of the soda maker, of sparkling water to be as little as $0.25 per liter and of carbonated soft drinks to be as little as $0.67 per liter, each of which is significantly lower than most bottled or canned sparkling water or carbonated soft drinks. Our cost estimate for the United States market is based on the typical retail price charged for CO2 refills and flavors in that market. In comparison to the cost of one liter of bottled sparkling water and the cost of one liter of a bottled or canned carbonated soft drink, based on price studies by Euromonitor in August 2009, we

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estimate that our sparkling water and carbonated soft drinks provide savings of up to 70% for sparkling water and of up to 30% for carbonated soft drinks, in each case as compared to standard retail prices. The average savings from the use of our products will typically result in an active user recovering the cost of purchasing the basic soda maker within a period of one year.
º Promoting health and wellness.  We believe that our products present consumers with a healthier alternative to traditional carbonated soft drinks. Our flavors contain two-thirds less sugar, carbohydrates and calories than leading soft drink brands, and one-third less caffeine than popular carbonated soft drinks. We do not use high-fructose corn syrup in our flavors, and we offer certain diet versions with Splenda®, and without aspartame and saccharin. Our flavors contain significantly less sodium per serving than many popular carbonated soft drinks. We offer consumers the choice of adding to carbonated water a variety of flavors which could be sugar-free, low calorie, naturally sweetened or vitamin-enhanced. In our experience, consumers recognize the health benefits of drinking more water and increasingly demand sparkling water, as even unflavored, sparkling water provides a refreshing alternative to plain tap water.
º Customizable, fun and easy to use.  Our products enable consumers to customize beverages in a fun and creative way. With our home beverage carbonation system, the consumer has full control over the level of carbonation. In addition, we offer more than 100 different flavors, including new all-natural versions (including cola, root beer and ginger ale) and diet versions, which can also be mixed to meet consumer preference. Each member of the family can consume a different flavor or blend our flavors together to create new flavors. Our soda makers are quick and easy to use, do not require cleaning and provide instant enjoyment by enabling all members of the family to make their own sparkling water or soda within seconds.

•   Established presence in certain markets.  We believe our brand recognition and global footprint position us well to capture additional consumers as they increasingly look for alternatives to bottled or canned carbonated soft drinks. We currently sell our products through more than 40,000 retail stores in 41 countries across 6 continents, including 26 new markets that we have entered since the beginning of 2007. We now sell our products at more than 4,000 stores in the United States and have been rapidly establishing strong brand recognition among U.S. consumers. Among other home beverage carbonation system marketers and manufacturers, we believe, based on our familiarity with the retail and distribution channels in the markets in which we operate, that we hold the leading market share position in each of the markets in which we compete. Our global presence and the depth of our retailer relationships in our key markets has allowed us to better address consumer preferences and to enter new markets more quickly and effectively than many of our competitors. In particular, we rely on local sales and marketing capabilities which provide us with knowledge and understanding of local consumer preferences and regulatory requirements.

•   Recurring revenues.  Our business model is to increase the installed base of soda makers, in order to generate ongoing demand for higher-margin CO2 refills, carbonation bottles and flavors. As we initially penetrate a new market, sales of soda makers typically exceed sales of consumables. Within a few years, however, as our initial user base grows, unit sales of our consumables typically exceed unit sales of our soda makers by a multiple of initial purchases. Although each market’s performance differs, this trend has been present in all markets in which we currently operate and we expect it to continue in new markets. We believe that our recent experience in the United States, where we have experienced strong sales of consumables, further supports this business

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model. As a result of the higher margins associated with our consumables, over time, this change in sales mix generally has a positive impact on our operating margins. In established markets, we typically target an overall operating margin in excess of 25%.

•   Strong value proposition for our retailers.  We believe that retailers derive significant new sales opportunities and other benefits from featuring our eye-catching and innovative products in their stores. The significant growth we are experiencing in the sales of consumables also benefits retailers by offering them repeat foot traffic and a strong and recurring revenue stream. We offer non-food retailers the opportunity to participate in the vast soft drink category which typically represents entirely incremental sales for them. To facilitate our strategy of targeting both specialty and mass channels, we have developed different soda makers at various price points to target for the distinct consumer segments served by various retailers.

•   Ongoing product innovation.  We offer a broad range of soda makers, ranging from a basic plastic model that uses a plastic carbonation bottle to our high-end Penguin model that uses a glass carbonation bottle and has a stainless steel finish, in order to meet the needs of consumers at various price points. We are continuously evaluating and improving our product offerings. For example, we recently introduced plastic carbonation bottles which are dishwasher-safe and glass carbonation bottles that can be used in more formal dining settings. We are constantly broadening and adapting our range of flavors to consumer tastes, and now offer more than 100 flavors, including all-natural varieties. We recently released a new soda maker that comes with a Fizz ChipTM, a digital gas gauge that displays the approximate amount of gas remaining in a CO2 cylinder as well as the carbonation level during use.

•   Operational expertise and global infrastructure.  Our business requires a significant amount of manufacturing and logistical expertise. Our manufacturing operations include facilities in Israel and in China. At our primary site in Israel, we have an integrated manufacturing facility at which we manufacture most of the components of our products. We are highly committed to ensuring product safety and thus implement rigorous quality control and testing procedures at all our facilities. We consistently meet or exceed safety requirements and meet the regulatory requirements of each country in which our products are sold. Our ability to meet the regulations of several foreign governing bodies and maintain a global network of regulatory compliance, including self-regulated status with several of those organizations, gives us an advantage relative to other market participants or potential new entrants. We conduct CO2 refilling in Australia, Germany, Israel, the Netherlands, New Zealand, South Africa, Sweden and the United States. We have successfully established and continuously refine the reverse logistics needed for consumers to return empty CO2 cylinders and exchange them for filled CO2 cylinders in each market in which we operate. Facilitating the ability of retailers to understand and successfully manage reverse logistics is a key element of our ability to gain and retain distribution.

•   Highly experienced management team.  We are led by a proven and experienced management team. Our Chief Executive Officer, Daniel Birnbaum, brings significant experience in the consumer sector and has held management positions at Nike, Procter & Gamble and Pillsbury. Our Chief Financial Officer, Daniel Erdreich, previously served as the CFO of two publicly-traded companies. The other members of our senior management team also have significant experience in the consumer products sector, and have previously held positions at major consumer products companies, including Campbell Soup Company, Groupe SEB, Kraft, McDonald’s and Nike.

Strategy

Our principal strategies are (1) to grow our installed base through new purchases of our products and (2) to maintain consumer loyalty and “users for life.” Our long-term goal is to convert as many carbonated beverage consumers to our products as possible throughout the world. As such, as we grow our company,

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we measure our success by the household penetration our products achieve. Based on consumer surveys we commissioned, we believe that our average household penetration in established markets has generally been in the range of 5% to 15%. Our highest penetration is in Sweden, where we estimate, based on those same surveys, that we have achieved household penetration of approximately 21%.

We intend to enhance our organic growth strategy through the pursuit of complementary acquisitions that will strengthen our technological capabilities, expand our product offerings and broaden our channel access.

Expand our installed base of consumers

As we strive to bring our products to a greater number of households worldwide, we are focusing on the key elements that we believe drive new purchases and grow our installed base, which include the following:

•   Increased awareness of our products and their compelling consumer benefits.  Educating consumers on the numerous benefits of our products is a vital component of our strategy to grow our installed base and our revenues. As such, we employ a variety of conventional and specialized marketing activities, many of which are designed to challenge the consumer to rethink the habit of using disposable bottles. In the markets we have entered most recently, particularly the United States, our strategy involves aggressive marketing focused primarily on in-store demonstrations both to educate potential consumers and sales associates in the retail stores that carry our products. As part of our effort to create “user ambassadors,” we employ several other targeted strategies, including infomercials and direct-response advertising, public relations campaigns, partnerships with municipalities and public water companies, social media, digital advertising, affiliate marketing and referral programs in order to inform consumers of our products while testing the effectiveness of various demand-creation vehicles for constant optimization of our marketing expenditures. Our strategy may be somewhat different in markets where we are re-introducing our products, particularly in Western Europe.

•   Growth of retail distribution.  Increased retail distribution is an essential element in delivering our products to potential consumers. We intend to continue to build our retail distribution worldwide by educating retailers about the benefits of carrying our products. During 2010, we added approximately 5,000 additional retail stores, bringing our total worldwide retail distribution to more than 40,000 stores.

Our products have been well received in the United States, where the carbonated beverage market size and per capita consumption are higher than in many of our existing markets. Although we are only in the early stages of our United States marketing investment plan, our sales in this market have increased from $4.4 million in 2007 to $39.8 million in 2010, more than doubling in each of 2009 and 2010 as compared to the prior year. Our growth in this market has been driven by recent retailer launches including Bed, Bath & Beyond, Bloomingdale’s, Le Gourmet Chef, Macy’s, Sur la Table, Williams Sonoma and others. In the United States market, we continue to engage in discussions with existing retailers on expanding distribution and with additional national retailers on initiating distribution of our products. While we intend to maintain discipline in our retail rollout strategy, we are focused on identifying future retail partners, including opportunities with major mass retailers in the United States.

Although Western Europe is our most developed region, we believe that we have significant opportunities to grow distribution as we are only in the early stages of development in many large markets such as France and Italy, and have not yet entered certain other sizeable markets. We also believe that the attention our products have generated in the United States has made SodaStream more attractive to some retailers in

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our existing markets, and that the excitement surrounding our products in the United States will help drive growth in retail distribution globally. Our longer term expansion plans also include developing a presence in other large markets globally, including Japan and Brazil.

•   Introduction of new soda maker products.  We maintain an active product development department, devising new products that offer improved aesthetics and lifestyle appeals as well as improved functionality. Since 2007, we have introduced several new and more up-scale models of soda makers, some of which use glass or dishwasher-safe plastic carbonation bottles, and we recently released a soda maker with a digital gas gauge (Fizz Chip TM) that displays the approximate amount of gas remaining in a cylinder, as well as the carbonation level during use, which is being sold in the United States and other markets. We intend to continue facilitating innovation, and are currently developing several new and improved products. Additionally, we are designing an under-sink dispenser, a soda maker with a built-in filter, a single-serve soda maker and a designer-styled upscale soda maker. We have recently launched a program that we refer to as “SodaStream Inside,” whereby we manufacture a soda maker on behalf of a third party that is marketed under their brand name. We hope to expand this program to include licensing our proprietary carbonating technology to third parties. We believe these innovations will continue to generate excitement around our products and help us attract new customers.

Promote consumer retention (“users for life”)

Acquiring the new user is only the beginning of a relationship with our consumer. Repeat users are key to driving both the sustainability and the profitability of our business. In fact, in most established markets, sales of our higher-margin consumables typically approach or exceed sales of our soda makers. We attempt to promote consumer retention by taking the following steps:

•   Increasing availability of consumables.  We will continue to invest in the expansion of our consumables business (primarily CO2 refills and flavors). We believe that widespread availability and easy access to consumables are key to consumer retention and loyalty, and therefore are working to enhance our already strong CO2 refill exchange program. We have successfully established and continuously refine the reverse logistics needed for our end-user consumers to return empty CO2 cylinders and exchange them for filled CO2 cylinders in each market in which we operate. Facilitating the ability of retailers to understand and successfully manage reverse logistics is a key element of our ability to gain and retain distribution. We also have plans to expand our distribution presence into high foot traffic locations such as drug and convenience stores. We conduct CO2 refilling in Australia, Germany, Israel, the Netherlands, New Zealand, South Africa, Sweden and the United States. We intend to expand our refilling capabilities, adding capacity in new and existing geographies where it complements our sales and marketing plan.

•   Introducing exciting new flavors.  In addition to our ongoing soda maker innovation, we continue to introduce additional flavors to expand our sales in existing markets. We currently offer more than 100 flavors, including diet and all-natural versions, which can also be mixed to meet consumer preferences. We regularly create and test new flavors to appeal to the demands of our different markets and regions in an effort to remain on-trend with our offerings. We currently offer sparkling vitamin water, energy drinks, clear, green tea and all-natural versions of our products as well as unique seasonal flavors.

•   Employing creative and effective consumer marketing.  We believe that our best ambassadors are our own users. We have therefore established ongoing consumer marketing programs to keep our installed base not only engaged but also encouraged and motivated to educate their friends through word-of-mouth. These programs include subscription programs, newsletters, warranties, trade-in promotions, referral programs and various other programs. An example of this strategy is our recently introduced trade-in program which was initiated in markets where we identified a

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large base of past consumers of old SodaStream systems. In those markets, we offer consumers discounts if they trade in an older-model soda maker for a new soda maker. Additionally, our referral program allows our existing consumer base to participate in the expansion of sales of our products to new users and sustains the excitement of owning and using a SodaStream system. In certain markets, we have implemented consumer loyalty programs that reward consumers for repeat purchases.

Products

     
[GRAPHIC MISSING]   [GRAPHIC MISSING]   [GRAPHIC MISSING]   [GRAPHIC MISSING]
Soda Maker   CO2 cylinder   Carbonation Bottle   Flavor

Consumers initially purchase a “starter kit,” consisting of a soda maker, one or two carbonation bottles together with hermetically-sealing bottle caps and, in some markets, samples of a variety of flavors. The starter kit also includes an exchangeable CO2 cylinder which can produce between 30 and 130 liters of carbonated beverages, depending on the size. Such systems are typically sold in the United States at prices ranging from $79 for a basic plastic model that uses a plastic carbonation bottle, to $199 for the higher-end Penguin model that has stainless steel components and utilizes glass carbonation bottles.

Soda makers.  We currently offer a broad range of soda makers. Our soda makers are free-standing, lightweight and compact, and have a stylish design. They are made of stainless steel and/or plastic. Our soda makers do not require electricity. The CO2 cylinder fits easily in a rear compartment and by the push of a button carbonates water. Our soda makers are sold in a variety of styles and CO2 cylinder sizes.

Exchangeable CO2 cylinders.  The basis of the SodaStream home beverage carbonation system is the carbonation of water by means of an aluminum or steel cylinder containing compressed liquid CO2. The cylinder is inserted by the consumer into the soda maker. Certain models of soda makers can accommodate different size cylinders, while others fit only the “standard” 60-liter cylinder. The actual amount of beverage produced per cylinder varies based on the CO2 content, the type of soda maker used and user preference (the amount of carbonation released during each carbonation). We only use beverage-grade CO2 in our cylinders, the same as that used by the world’s major soft drink companies. We recently introduced natural sourced CO2 (derived from natural underground sources) in certain markets, in addition to CO2 extracted from the atmosphere.

CO2 refills.  We provide beverage-grade CO2 refills through authorized retailers that participate in our cylinder exchange program. These retailers generally maintain a stock of filled cylinders in their inventory. Consumers typically exchange their empty cylinders at retail stores or through online orders for full cylinders and pay only the price of the CO2. In some markets, direct home delivery and exchange is also available, and we use third party carriers to exchange the empty cylinders for full ones. Empty cylinders are then delivered to a filling plant where they are inspected, cleaned, and refilled for distribution. We conduct CO2 refilling (including third-party facilities) in Australia, Germany, Israel, the Netherlands, New Zealand, South Africa, Sweden and the United States. We periodically evaluate opening

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additional refilling stations in our existing markets based on demand for CO2 refills and other factors. Consumers in the United States typically pay either $14.99 for a 60-liter CO2 refill or $29.99 for a 130-liter CO2 refill.

Carbonation bottles.  Our home beverage carbonation system produces sparkling water in a high pressure-resistant plastic or glass bottle, which we manufacture specifically for repeated usage. These specially-designed carbonation bottles are the only bottles intended for use with our home beverage carbonation system. The glass bottle, as well as some versions of the plastic bottle, are dishwasher-safe. For the high-end market, we offer two soda makers specifically intended to be used with glass bottles, which are appropriate for a more formal table setting. Carbonation bottles can easily be personalized and are offered in a variety of colors, designs and sizes. The plastic bottles are BPA-free and are designed to have a lifespan of three years. Consumers often purchase additional carbonation bottles to allow for several bottles of carbonated soft drinks or sparkling water to be available at the same time. Consumers in the United States typically pay $14.99 for two additional plastic carbonation bottles or for one additional glass carbonation bottle.

Flavors.  We work closely with a leading international flavor and essence manufacturer who provides research and product development services, including sensory testing in order to constantly broaden and adapt the range of flavors to consumer tastes. Flavors come in a highly concentrated form, customized for our home beverage carbonation system. Flavors are usually sold in 500 ml or 750 ml bottles, which typically produce 12 or 18 liters of carbonated soft drinks. Our current product range consists of more than 100 flavors, including a large variety of fruit flavors. We also offer flavors which are designed to appeal to consumers of a range of leading carbonated soft drink brands, as well as “enhanced” flavors, including fruit, energy, isotonic and natural blends. Most flavors are available in both regular and diet versions, and we are increasingly producing a larger variety of natural and “enhanced” flavors (green tea essence, pomegranate, and vitamin-enhanced) to meet growing consumer demand in these areas. As part of our focus on healthier beverages, we do not use high-fructose corn syrup in our flavors and we offer diet versions without aspartame and saccharin. In addition, we address local tastes by producing flavors geared for individual markets such as Ginger Beer (South Africa), Root Beer (United States), Must (Scandinavia), and Chinotto (Italy). We also offer special “limited edition” flavors for holidays or seasonal campaigns such as apple-cinnamon, vanilla-lemon, pear-honey, papaya-lime and mango-coconut. Consumer “starter kits” sometimes include flavor sample packs to provide the consumer with an opportunity to become acquainted with our flavors. Consumers in the United States typically pay $4.99 for a 500 ml bottle of one of our flavors, which would usually produce 12 liters of carbonated soft drinks.

Other accessories.  We also sell additional accessories for our products, including bottle cleaning materials and ice cube trays shaped to produce ice cubes that fit in our carbonation bottles. These products are manufactured by third parties.

Distribution

We mostly market our products through distributors and retail channels. We distribute our products in 41 markets, 12 directly through our wholly-owned subsidiaries, and the remainder indirectly through our exclusive distribution partnerships.

We generally employ a multi-channel distribution strategy in each geographical market that is designed to raise awareness and establish positioning of our product offerings, first in specialty retail and direct marketing channels and then in larger food, drug and mass retailers. Our products are sold at more than 40,000 stores worldwide, including many of the largest retailers in our markets.

Direct markets

We historically opened subsidiary offices in countries in which we sold our products. In these markets, we typically utilize our own internal sales force and, in certain countries, sub-distributors as well.

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In the United States, we have established a logistics network, composed of local delivery agencies, that covers territories in which over two-thirds of the population of the continental United States resides, complemented by national carriers that cover the remainder of the country. The local delivery agencies maintain inventories of our products at locations around the United States, are connected to our enterprise resource planning software and handle local deliveries. In addition, they handle the exchange of empty CO 2 cylinders initiated both by our online consumers and, in some cases, our retail customers. This logistics network enables us to offer full market coverage with direct deliveries through a high quality service at short lead times, with high level of compliance and control, and at reasonable cost to us. We demonstrated our distribution capabilities when we added more than 1,000 new stores in the United States in the fourth quarter of 2010.

Indirect markets

In 2007, we implemented a new distribution strategy and, in order to expedite penetration into certain new markets, we contracted with third party distributors who facilitate distribution of our products. In 2010, our distributors accounted for 32% of our total revenues. The gross margin on sales in markets where we distribute directly is generally higher than markets in which we use external distributors, due to the elimination of the external distributor’s margin. In many markets, our expansion strategy is to work with third party distributors who we believe will have a better ability to increase revenues in their market than we could if we distributed our products directly.

Distributors sell to retailers in their relevant markets either through their own sales force or through wholesalers and agents, or a combination of these. Sales activities follow typical retail sales processes, including initial pitches and offers, periodic product range and price reviews, offers for seasonal or limited edition activities and promotions. Merchandising and demonstration of the products is managed by the distributor in cooperation with the retailers. Delivery to retailer chains can be to central warehouses or to individual stores depending upon the specific agreements with the chain.

To ensure promotion of our brand in our indirect markets, we provide our distributors with various forms of marketing materials. In all cases, materials that use our brand — including our trademarks, all promotions, and all sales and marketing materials — must be prepared or approved by us. We agree with our distributors on an annual advertising and promotional budget, of which we contribute a portion.

When we evaluate potential distributors, we take into consideration several factors, including their experience with selling and marketing consumer products to retail channels; existing sales, logistics and distribution capabilities; current product portfolio; financial strength; and suitability to market our products. Distributors are given exclusivity over a particular territory for a given period, so long as they achieve certain requirements relating to minimum purchase amounts and marketing investments. These requirements are set by us after consultation with the distributor. We attempt to set realistic targets for the distributor that are achievable if the distributor dedicates sufficient resources to the distribution of our products. We work closely with our distributors to assist them in preparing and executing a multi-year strategy. Most distributors also operate e-commerce sites in their countries as well as our website in their local language. During the past four years, we significantly increased the number of countries where our products are sold, by appointing exclusive distributors in several countries, including Canada, Colombia, Cyprus, the Czech Republic, Denmark, Finland, Hungary, Ireland, Italy, Malta, Mexico, the Philippines, Portugal, Romania, Russia, Slovakia, Slovenia and Taiwan.

We continue to penetrate new markets in collaboration with distributors. Factors that we consider in prioritizing which markets to enter include: the size of the carbonated soft drink and carbonated water market, per capita consumption of carbonated beverages, the perceived quality of the tap water, household demographics, and environmental and health consciousness.

Our distribution agreements are generally exclusive agreements for a given territory with a five-year term and an option to renew; however, our contracts contain performance criteria to maintain exclusivity.

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In addition to carrying a full selection of our products, the distributor also agrees to manage the reverse logistics needed for our end-user consumers to return empty CO2 cylinders and exchange them for filled CO2 cylinders.

Distributors are required to meet annual purchase targets defined as monetary amounts for the first year or two of the distribution contract, as well as to meet certain defined growth targets for each of the subsequent years until the end of the contract (usually 5 years). In addition, annual and semi-annual discussions with distributors often include more specific volume targets per product type. Distributors that do not meet their defined purchase targets can be terminated by notice during the first quarter following the year in which they failed to achieve the target. The termination takes effect six months after the notice is given. Historically, we have terminated particular distributors on several occasions.

In addition, SodaStream Israel Ltd., our Israeli sales and marketing subsidiary, also serves as the exclusive distributor of Brita water filtration systems in Israel and as a distributor of certain other consumer products. Brita’s products sold by SodaStream Israel Ltd. include water containers and filter cartridges used with such water containers. SodaStream’s primary responsibilities under the agreement include purchasing, distributing and promoting the sale of Brita’s products in Israel, after obtaining all legal approvals necessary for the importation and sale of such products in Israel. The agreement is for an indefinite period, and can be terminated by either party upon 12 months’ prior written notice from the end of the month in which notice is given. Our revenues derived from distributing Brita products have been declining as a percentage of our total revenues, constituting 3.0%, 5.2% and 5.5% of our total revenues, in 2010, 2009 and 2008, respectively, primarily due to the increase in our revenues from home beverage carbonation systems.

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Retailers

In both our direct and indirect markets, we sell our products primarily at retail stores, as well as over the Internet. We target major retailers with either a national footprint or a significant regional concentration. Set forth below is a representative list of our current retailer relationships:

     
Western Europe   Central and Eastern
Europe, Middle East
and Africa
  The Americas   Asia-Pacific
Ahlens
Auchan
Boulanger
Carrefour
Coop
Cora
Costco
Darty
Edeka
Electrolux Home
elGiganten
Elkedjan
Euronics
Expert
ICA
Intermarche
InterSpar
Jarnia John
Lewis
Karstadt
Kasanova
Kaufhof
Kaufland
Leclerc
Media Markt
Media Saturn
Metro
Migros
OBI
OnOff
Real
REWE
Rossmann
SIBA
  ACE
Ahold
Auchan
Blue Square
Clicks
Cora
Darty Datart
FoodZone
Game
General Trade
Globus
Home Center
InterSpar
Makro
Media Markt
Media Saturn
Metro/Stax
OK Foods
Pick’n Pay National
Planeo Partners
Shield
Shoprite Checkers
Shufersal
Spar
  Bed Bath & Beyond
BJ’s
Bloomingdale’s
Crate and Barrel
El Palacio de Hierro
Kitchen Collection
Kohl’s
Le Gourmet Chef
Liverpool
London Drugs
Macy’s
Sears
Shopko
Sur La Table
Williams Sonoma
  Assorted Homeware
Automatic Centre
Betta
Bing Lee
Bunnings
Clive Peeters
Coles
Djones
Globus
Good Guys
Harris Scarfe
Harvey Norman
IGA
John Danks
Kmart
M10
Myers
RetraVision
SM
Target
Woolworth

During 2010, we began selling our products at approximately 5,000 additional retail stores with our home beverage carbonation system, bringing our total worldwide retail distribution to more than 40,000 stores. Our continuously increasing retail distribution is an important element in bringing our products to potential consumers and thereby generating new user acquisition. Additionally, we believe that the widespread availability and easy access to consumables (primarily gas refills and flavors) are key to securing ongoing consumer retention and loyalty. Indeed, one of our most important competitive advantages is our strong network of retail distribution, in particular, that of our gas refill exchange program.

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In addition, we intend to further penetrate our existing markets by increasing the number of stores in which our products are currently being sold in each region. We have been expanding our presence in the United States and significantly increased the retail distribution of our products with a major rollout with a large retailer in the United States and Canada that added 1,000 additional stores.

Marketing

Our marketing objective is to establish and position carbonated beverages created using our soda makers as an attractive alternative to canned and bottled carbonated soft drinks and to position the brand as desirable, yet accessible, as a mass market solution. Consumer demand activities are designed primarily to increase the installed base of soda makers as measured in terms of percentage household penetration in each market. Secondarily, we promote “users for life” so as to generate ongoing demand for our consumables (the CO2 refills, carbonation bottles and flavors). We believe that widespread availability and easy access to consumables are key to consumer retention and loyalty.

Our marketing activities include brand and product marketing and management as well as sales support programs. We use a variety of vehicles, including advertising, direct marketing and public relations, in-store demonstrations, infomercials and our website to build brand awareness, educate new consumers about the benefits of home beverage carbonation systems, communicate the advantages of our products and establish brand positioning, all of which are designed to increase our installed base of active user households in our markets. As an example, in the fourth quarter of 2010, more than 10,000 in-store demonstrations of our products were carried out in the United States. We also use our marketing programs to support the sale of our products through new channels and to enter new markets. Our internal marketing team supports sales at the point-of-sale through trade marketing, developing and executing product and brand initiatives, and consumer education.

We challenge consumers to re-think the way they obtain carbonated drinks and consider home carbonation, specifically our home beverage carbonation system, as a viable alternative. This consumer education is done through various vehicles, including direct advertising, promotional activity, especially in-store demonstrations at the point of sale, and public relations campaigns and activities. We use both traditional media (TV, print and out-of home) as well as digital media (pay-per-click, search engine optimization and affiliate marketing) in these efforts, as well as infomercials. We conduct surveys and use third-party tracking programs in order to track our household penetration, usage behaviors and consumer opinions across markets and to measure the success of our marketing activities over time.

Acquiring a new user is only the beginning of a relationship with our ultimate consumers. To this end, we continuously test and apply various marketing tools to improve user retention. In addition to continuously offering consumers new flavors, we employ subscription programs, newsletters, warranties, trade-in promotions and various other programs to keep users engaged. Moreover, seasonal flavors and “limited edition” promotional bottles are also directed at user retention. Finally, offering easy access to CO2 refills through mass distribution of our exchange cylinder program and direct-to-home delivery from web orders. We also encourage our consumers to purchase additional CO2 cylinders, which also contributes to keeping consumers actively using our products over time. In certain markets, we have implemented consumer loyalty programs that reward consumers for repeat purchases.

We believe we are also an attractive partner to municipalities and public water companies. For such entities, we provide various benefits, including a reduction in the amount of waste required to be disposed and enabling municipalities to improve the image of their tap water. During the past four years, we have entered into a number of partnership programs with municipal authorities and public water providers. Among these are Veritas, the water company of Venice, Italy; the municipality of Trenta, Italy; and Wasser Vien of Munich and Dresden, Germany and of Vienna, Austria. We are currently exploring several similar partnership programs in certain other markets around the world. These programs typically involve education and special offers for the customers of the municipal water utility, distributed inside the

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envelopes with the monthly utility bill. These joint programs have included retail tie-in and public relations coverage for us. Municipal partnerships are an important endorsement and source of high-quality public relations for us.

Our marketing activities are managed from our headquarters in Israel. Each market has a representative (either through our subsidiary or through our distributor partner) who works closely with our marketing team to localize our marketing activities in accordance with the individual tastes and preferences in a particular country.

Manufacturing and production

We manufacture most of our products ourselves in our own production sites or in sites of subcontractors under our guidelines and supervision. We believe that in light of our strict quality control and the safety and regulatory standards to which we are subject, self-manufacture is the best and most efficient way to ensure that our consumers receives quality products. Most of our products are manufactured at our two Israeli facilities, in Mishor Adumim, east of Jerusalem, and in Ashkelon, on the Mediterranean coast. In Mishor Adumim, we have a metal factory, plastic and bottle blowing factory, machining factory, assembly factory, cylinder manufacturing facility, CO2 refill line and cylinder retest facility. In Ashkelon, we manufacture the flavors that are distributed worldwide.

We also outsource the production of certain components of our products to two subcontractors in China. In addition, we conduct CO2 refilling (including at third-party facilities) in Australia, Germany, Israel, the Netherlands, New Zealand, South Africa, Sweden and the United States. We mostly manufacture our CO2 cylinders ourselves, but in certain cases we also purchase empty CO2 cylinders from other suppliers who have passed our rigorous safety standards.

Our future success requires that we have adequate capacity in our manufacturing facilities to manufacture sufficient products to support our current level of sales and the anticipated increased levels that may result from our growth plans. We were able to meet higher than expected demand in 2010 and believe that the capacity of our current manufacturing facilities and subcontractors is sufficient to meet anticipated demand for our products through 2012. We currently anticipate needing additional manufacturing capacity in the future as the demand for our products continues to increase. We intend to meet this future need for additional manufacturing capacity by constructing or purchasing an additional manufacturing facility in or near one of our existing markets. Pending the construction or purchase of such an additional manufacturing facility, we are investing in expanding our manufacturing capabilities through other means, primarily by expanding the manufacturing capacity at our existing facilities and by increasing the use of sub-contractors for certain products and components.

We currently intend to construct an additional facility in the southern part of Israel for which we will need to secure additional real estate and hire additional employees. If we pursue this option, we intend to target commencement of construction in 2011 and completion within approximately 24-36 months from the commencement of construction. The total anticipated capital expenditure required for such facility is approximately €30.0 million, although this amount may increase if we are unsuccessful in obtaining grants from the Israeli Ministry of Trade and Industry. However, the timing of construction of such facility is not yet finalized.

We manufacture our products in accordance with relevant safety and regulatory bodies around the world. We also have implemented specific quality assurance procedures throughout the various stages and processes of manufacturing to ensure the quality of all of our products.

We use certain raw materials to manufacture our soda makers, carbonation bottles, CO2 cylinders and flavors. The most important of these materials are aluminum, brass, certain plastics, flavor ingredients and sugar. We believe that these materials are readily available from multiple sources and that we have sufficient inventory to continue manufacturing during the time it would take us to locate and qualify an

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alternative source of supply. The cost of such raw materials have fluctuated in the past. We engage in long-term purchase agreements and in hedging transactions to lower the impact of such fluctuations.

Product development

We maintain an active product development department, which is engaged in devising new products that offer improved aesthetics and lifestyle appeal as well as improved functionality. Since 2007, we have introduced several new and more up-scale models of soda makers, some of which use glass or dishwasher-safe plastic carbonation bottles and we introduced a soda maker with a digital gas gauge (Fizz ChipTM) that displays the approximate amount of gas remaining in a CO2 cylinder as well as the carbonation level during use. We are continuously introducing new flavors, such as all-natural cola, root beer and ginger ale, and have increasingly expanded the variety of natural and “enhanced” flavors, including fruit, energy and isotonic blends, to satisfy evolving consumer tastes. As part of our focus on healthier beverages, we do not use high-fructose corn syrup in our flavors and offer certain of our diet versions with Splenda®, and without aspartame and saccharin. We also address local tastes with flavors designed for individual markets.

We intend to continue innovating, and are currently developing several new and improved products that include:

•   an under-sink sparkling water dispenser;

•   a soda maker with a built-in filter;

•   a single-serve soda maker; and

•   a designer-styled upscale soda maker.

Additionally, we have recently launched a program that we refer to as “SodaStream Inside,” whereby we manufacture a soda maker on behalf of third parties that is marketed under their brand name. These soda makers contain our cylinders and we expect to benefit from the consumable sales that are generated from these appliances in the after-market. Consumers using these products will become our customers, which would increase our household penetration base and generate higher-margin sales of consumables. We hope to expand this program to include licensing our proprietary carbonating technology to third parties.

Intellectual property

Our intellectual property portfolio is one of the means by which we attempt to protect our competitive position. We have a variety of trademarks registrations and pending applications, patents and pending applications, and design registrations and pending applications, some of which we acquired as part of our acquisition of certain assets of Wassermaxx in 2009. We rely on a combination of trademark and patent protection for our products, with a focus on trademarks. We are constantly seeking ways to protect our intellectual property through registrations in relevant jurisdictions. As our patent portfolio is limited, and as certain of the more basic patents on our technology approach expiration, we have increasingly turned to design registrations to protect the unique proprietary designs of our products. We have actively monitored and challenged the sale of products that we believe infringe our intellectual property rights in the past, and we intend to continue to actively protect our intellectual property rights in the future to the fullest extent possible. We place trademarks on all of our products, including carbonation bottles, CO2 cylinders and flavors. To protect our know-how and trade secrets, we generally require our employees with access to our know-how and trade secrets to enter into agreements acknowledging our ownership of all inventions and intellectual property rights which they develop during the course of their employment and to agree not to disclose our confidential information. In addition, we

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typically include non-compete and confidentiality provisions, as well as provisions acknowledging our ownership of all intellectual property rights, in our distributor and supplier agreements.

Competition

We face competition at several levels. We face direct competition from manufacturers of other home soda makers. Existing competitors in certain regions include AGA and Vikingsoda (Nordics only), Soda 2000, Soda-Quick, Drink-it (India, Sweden), WasserMate, L’acqua di Qui and OBH/Nordica. In September 2009, we acquired most of the assets of Wassermaxx, previously one of our largest competitors in Germany, the Nordic countries, France and Italy.

We also face competition with respect to some of our consumables, in particular in our CO2 refill business and our flavors. Third parties may manufacture and refill cylinders that can be used with our soda makers, including AGA in the Nordics. We have generally entered into agreements with distributors and retailers that prohibit third parties from refilling our empty cylinders. Notwithstanding such arrangements, a recent court ruling in Germany allows consumers, as well as retailers who are not party to written agreements with SodaStream, to refill cylinders with CO2 supplied by third parties, and current legal proceedings in Sweden are reviewing such arrangements as well. See “Item 8.A — Consolidated Statements and Other Financial Information — Legal Proceedings.” We may in the future become subject to similar rulings in other jurisdictions. With respect to our flavors, we face competition from various companies that produce soft drink syrups and fruit-flavored mixes to add to sparkling or still water.

Although manufacturers of consumer products may enter the home beverage carbonation system market as the industry grows, we believe that it will be difficult for new entrants to provide a complete product system to consumers. In particular, we believe that the reverse logistics needed for our end-user consumers to return empty CO2 cylinders and exchange them for filled CO2 cylinders at retail stores, currently comprised of a pool of approximately two million cylinders globally, will be difficult and expensive for others to replicate.

Since we are active in the carbonated soft drink and sparkling water markets, we also compete with the large global beverage companies for the dollars spent by consumers on non-alcoholic beverages. These include primarily manufacturers of carbonated soft drinks and sparkling water.

Government regulation

Our products, which include both food products and compressed gas, are regulated by governments in most jurisdictions in which we do business. Food products, such as flavors and beverage-grade CO2, are subject to regulation both at regional levels such as the European Union, as well as on a national level. These regulations require us to vary product formulations and labeling. In addition, certain marketing claims regarding our flavors differ from jurisdiction to jurisdiction as a result of local regulations.

The transport of compressed gases, such as the CO2 in our cylinders, is regulated in most jurisdictions. The manufacturing process and cylinder features vary by jurisdiction and we manufacture different cylinders, each of which is subject to a separate regulatory regime, for use in the European Union, Switzerland (SVTI), United States (Department of Transportation) and Canada (Transport Canada). The various regulatory bodies have different requirements for periodic re-testing of cylinders that vary from between five to ten years, procedures for which we are largely self-certified. In addition, the transport of cylinders is regulated on an international level and all of our cylinder packaging bears the international “green diamond” symbol for a Class 102 product. In the United States, our cylinders are regulated as hazardous materials.

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Facilities

Our headquarters in Airport City, Israel is comprised of 46,070 square feet of office and warehouse space under a lease that terminates in April 2018. We also lease our two Israeli manufacturing facilities: one in Mishor Adumim, east of Jerusalem, which is comprised of 164,214 square feet of factory, warehouse and office space under a lease that terminates in July 2013; and the other in Ashkelon, on the Mediterranean coast, which is comprised of approximately 21,528 square feet of factory, warehouse and office space under a lease that terminates in March 2013.

Our facility in Limburg, Germany is comprised of 48,987 square feet of factory, office and warehouse space under a lease that terminates in July 2011. This location is used for sales and marketing activities as well as refilling. Additional gas refilling takes place in Australia, Israel, the Netherlands, New Zealand, South Africa, Sweden and the United States.

Our European commercial and logistics center is managed from Breda, the Netherlands. We have marketing and sales subsidiary offices in Australia, Germany, Israel, the Netherlands, South Africa, Switzerland, the United Kingdom and the United States. We believe that our existing facilities are adequate for our current needs and that suitable additional or alternative space will be available on commercially reasonable terms to meet our future needs.

We currently intend to construct an additional facility in the southern part of Israel. See “— Manufacturing and production.”

Seasonality

For a discussion of seasonality, please refer to “Item 5.A — Operating Results — Seasonality.”

C. Organizational Structure

The Company was formed in December 2006, for the purpose of fully controlling Soda-Club Enterprises N.V. (hereinafter — SCNV). The acquisition was consummated pursuant to a share exchange agreement. The operational activities of the Company, its subsidiary SCNV and all the subsidiaries of SCNV (together referred to as the “Group” and individually as “Group companies” or “Group entities”) are managed by SCNV’s wholly owned subsidiary, SodaStream International B.V. (formerly Soda-Club International B.V.), registered in the Netherlands.

The following table sets forth the subsidiaries owned, directly or indirectly, by the Company as of April 30, 2011:

   
Name of Subsidiary   Jurisdiction   Ownership Interest
SodaStream Enterprises N.V.   Netherlands Antilles   100%
SodaStream International B.V.   The Netherlands   100%
Soda-Club Worldwide B.V.   The Netherlands   100%
SodaStream GmbH   Germany   100%
SodaStream Industries Ltd.   Israel   100%
SodaStream Israel Ltd.   Israel   100%
SodaStream (Switzerland) AG   Switzerland   100%
SodaStream Österreich GmbH   Austria   100%
SodaStream Australia PTY Ltd.   Australia   100%
SodaStream (New Zealand) Ltd.   New Zealand   100%
Soda-Club (SA) (Pty) Ltd.   South Africa   100%
SodaStream USA, Inc.   Delaware (United States)   100%
Soda-Club CO2 Ltd.   British Virgin Islands   100%

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Name of Subsidiary   Jurisdiction   Ownership Interest
Soda-Club (Europe) Limited   United Kingdom   100%
Soda-Club Switzerland GmbH   Switzerland   100%
Soda-Club (CO2) SA/AG/Ltd.   Switzerland   100%
SodaStream (CO2) SA/AG/Ltd.   Switzerland   100%
Soda-Club (CO2) Atlantic GmbH (LLC)   Switzerland   100%
Soda-Club Worldwide BV Sp. Z.O.O Oddziel
w polsce Branch
  Poland   100%
SodaStream Worldwide Trading Company Branch   United Kingdom   100%
Soda-Club Worldwide BV Holland Filial (Sweden) Branch   Sweden   100%
Soda-Club Worldwide BV (France) Branch   France   100%
Soda-Club Worldwide BV (Greece) Branch   Greece   100%
SodaStream Direct, LLC   Delaware (United States)   100%

D. Property, Plants and Equipment

For a discussion of property, plants and equipment, see “Item 4.B — Business Overview —  Manufacturing and production,” “Item 4.B — Business Overview — Facilities” and “Item 5 — Operating and Financial Review and Prospects — Application of critical accounting policies and use of estimates — Property, plant and equipment.”

Item 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

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Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Summary

SodaStream manufactures home beverage carbonation systems, which enable consumers to easily transform ordinary tap water instantly into carbonated soft drinks and sparkling water. We develop, manufacture and sell soda makers and exchangeable carbon-dioxide (CO2) cylinders, as well as consumables, consisting of CO2 refills, reusable carbonation bottles and flavors to add to the carbonated water.

We currently sell our products through more than 40,000 retail stores in 41 countries, including 25 new countries that we have entered since the beginning of 2007. We distribute our products directly in 12 countries and indirectly through local distributors in our remaining markets. Our products are sold under the SodaStream® brand name in most countries, and under the Soda-Club® brand name or select other brand names in certain other countries. While our distribution strategy is customized for each market, we generally employ a multi-channel distribution approach that is designed to raise awareness and establish positioning of our product offerings, first in specialty retail and direct marketing channels and then in larger food, drug and mass retailers.

We have an attractive “razor/razor blade” business model, which is designed to increase sales of soda makers (the razor); and to generate recurring sales of higher-margin consumables, consisting of CO2 refills, carbonation bottles and flavors (collectively, the razor blades). As sales of our soda makers increase, we expect that the subsequent sales of related consumables will result in increased gross profits due to the higher gross margin associated with our consumables. However, in order to further develop our user base, we plan to continue to focus on increasing our soda maker sales and expect soda maker sales to continue to be a growing component of our overall revenues. We therefore do not foresee a material overall increase in gross margin over the next few years.

Our revenues grew by 5.1% from €99.9 million in 2008 to €105.0 million in 2009, and by 53.0% to €160.7 million in 2010. The growth in 2010 was achieved by year-over-year growth in each of our regions, led by the Americas in which revenues increased in 2010 by 188.9% compared to 2009, the majority of which came from the United States. Although we are only in the early stages of our United States marketing investment plan, our sales in the United States have increased from $4.4 million in 2007 to $39.8 million in 2010, more than doubling in each of 2009 and 2010 as compared to the prior year. This was followed by Asia-Pacific, in which revenues increased by 66.8% in 2010 compared to 2009; CEMEA, in which revenues increased by 41.8% in 2010 compared to 2009; and Western Europe, in which revenues increased by 34.0% in 2010 compared to 2009. By product, our two major segments — Soda Makers and exchangeable CO2 cylinders, and Consumables — delivered revenue growth of 89.9% and 35.4%, respectively. Within the Consumables product segment, CO2 refills increased 19.8% to 9.8 million units, and flavors increased 68.0% to 13.8 million units.

We believe that this growth in revenues has been driven by our heightened focus on promoting soda maker sales in both existing markets and new markets to increase our installed base, in particular in Western Europe, but also in North America and Asia-Pacific. The growth of our installed base has in turn resulted in an increase in revenues from sales of consumables.

Our strategy is to expand our active installed base, by further penetrating existing markets and by entering new markets. We intend to continue initiating select marketing activities, including aggressive public relations campaigns, in-store demonstrations, direct response TV advertising (infomercials), point-of-sale advertising, and regional and national media advertising campaigns in order to both inform consumers of our product offerings and test the effectiveness of various demand-creation vehicles. A key part of our strategy is to grow our revenues in the United States, which we believe can become one of our largest markets within a number of years. We also plan on accelerating our efforts and devoting resources to increase our active user base in other markets, in particular in Germany, France and Italy.

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A. Operating Results

Key measures of our performance

Revenues

Our revenues consist primarily of sales of soda makers and recurring sales of higher-margin consumables, including CO2 refills, carbonation bottles and flavors. We derive revenues from the sale of goods to our customers, who may be consumers, retail partners or distributors, depending on the sales channel through which the goods are sold. The majority of our product distribution to our ultimate customers is through retail stores. Our distribution retail coverage includes many of the leading chain stores in the markets in which we operate. In some markets, such as the United States, we also distribute our soda makers and consumables directly to consumers through telephone service centers or the Internet.

We record revenues from sales of these items at the gross sales price, net of returns, trade discounts, rebates and provisions for estimated returns. We recognize revenues when the significant risks and rewards of ownership have been transferred to the buyer, collection of payment is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured accurately.

The following tables present our revenues, by product type for the periods presented, as well as such revenues by product type as a percentage of total revenues:

     
(in thousands)   Year Ended December 31,
     2008   2009   2010
     Revenues
Soda makers and exchangeable CO2 cylinders   31,406     39,091     74,223  
Consumables     59,768       59,329       80,351  
Other(1)     8,775       6,603       6,078  
Total   99,949     105,023     160,652  

     
  Year Ended December 31,
     2008   2009   2010
     As a Percentage of Revenues
Soda makers and exchangeable CO2 cylinders     31.4 %      37.2 %      46.2 % 
Consumables     59.8       56.5       50.0  
Other(1)     8.8       6.3       3.8  
Total     100.0 %      100.0 %      100.0 % 

(1) Other consists primarily of sales of Brita-branded products in Israel.

We believe that the number of soda makers and CO2 refills sold during each period is an important indicator of the expansion rate of our business. The number of soda maker units sold is indicative of the growth of our user base and the number of CO2 refills sold is indicative of consumables sales to our active user base. The number of soda maker units that we sold in 2010 increased by 119.2% compared to 2008 and the number of CO2 refills increased by 30.6%. We estimate, based on consumer surveys and sales of CO2 refills, that there are currently approximately 4.5 million consumers who create a carbonated beverage using our system at least once every two weeks, whom we refer to as active consumers, with many of the largest carbonated soft drink and sparkling water markets still remaining virtually untapped.

We believe that the sale of every soda maker can have a compounding effect because every sale increases the potential demand for our consumables, which consist of CO2 refills, flavors and carbonation bottles, over time. Each soda maker that is sold comes with a filled exchangeable CO2 cylinder, which is recorded in the revenues category above referred to as “soda makers and exchangeable CO2 cylinders.” A

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consumer would not typically need to purchase a CO2 refill, which is recorded in the sales category above referred to as “consumables,” for several months. Consequently, our general historical experience is that the initial growth in consumables after we enter a new market is slower than growth in soda makers sales, but that the sale of consumables increases correspondingly once we have established an active user base. This results in a lag between the growth in soda maker sales and growth in the sales of consumables. As an illustration of these trends, for the year ended December 31, 2009 and the year ended December 31, 2010 (in each case, as compared to the prior fiscal year), the annual growth in the volume of soda makers sold was 20.5% and 81.9%, respectively. The increase in CO2 refills for those periods was 9.3% and 19.8%, respectively. The change in sales of flavors for those periods was a decrease of 12.8% and an increase of 68.0%, respectively. The increase in sales of carbonation bottles for those periods was 8.5% and 30.3%, respectively.

While we anticipate that this trend will continue, a variety of factors, including consumer retention rates, the growth of our reverse logistics network, weather and competition could affect our results in the future. For example, the sales of consumables was depressed in 2009 as a result of a freeze on orders for flavors placed by our distributor in the Nordics during the first half of that year, who experienced significant financial difficulty as a result of the global recession and material over-stocking of flavors in the previous year. Both of those issues have since been resolved.

In most of the markets in which our products are sold, we operate through local distributors. Distributors are required to meet annual purchase targets defined as monetary amounts for the first or second year of the distribution contract, as well as defined growth targets for each of the subsequent years until the end of the contract (usually 5 years). In addition, annual and semi-annual discussions with distributors often include more specific volume targets per product type. Distributors that do not meet the defined purchase targets stated in the contract (the annual purchase targets) can be terminated by notice during the first quarter following the year in which they failed to achieve the target. The termination takes effect six months after the notice is given.

Cost of revenues and gross margin

Our cost of revenues consists primarily of raw materials and components, as well as production and production-related labor, freight costs and other direct and indirect production costs. We require certain raw materials to manufacture our soda makers, exchangeable CO2 cylinders, carbonation bottles and flavors, including, in particular, aluminum, plastics, flavoring essences, brass, sugar, CO2, sweeteners and fruit concentrate. In addition, cost of revenues includes the cost of delivery from the production site to the distribution warehouse. When we sell products to our third-party distributors, they usually collect their orders from our warehouses and bear the cost of delivery. We have opened regional refilling stations and plan to open additional regional refilling stations in new markets to lower the freight costs of filling exchangeable CO2 cylinders.

Gross profit and gross margin are influenced by each of the following factors:

•   The gross margins of our consumables are typically higher than the gross margin of our soda makers. We have found that as markets mature, sales of our consumables become a larger portion of our total revenues, thus increasing overall gross margins.

•   The gross margin on sales in markets where we distribute directly is generally higher than markets in which we use external distributors, due to the elimination of the external distributor’s margin. In many markets, our expansion strategy is to work with third party distributors who we believe will have a better ability to increase revenues in their market than we could if we distributed our products directly. However, in several of our key markets targeted for expansion, including the United States, we intend to distribute directly, and thus we believe our gross margins will be positively impacted as the portion of our revenues from these markets increases.

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•   Our cost of revenues, and therefore our gross profit, is impacted by several factors, including the commodity prices of aluminum, plastics, flavoring essences, brass, sugar, CO2, sweeteners and fruit concentrates; production labor costs; and fuel prices, which affect our freight costs.

•   The majority of our purchases of raw materials and parts is denominated in U.S. Dollars and the majority of our labor costs is denominated in NIS. Currently, the majority of our sales are denominated in Euros. As a result, the higher the Euro/U.S. Dollar and the Euro/NIS exchange rates are, the higher our gross margin will be. In the coming years, we expect our sales in the United States to exceed our U.S. Dollar costs and, thereby, reverse our Euro/U.S. Dollar currency exposure. We regularly purchase currency hedging options and enter into forward contracts to hedge against the weakening of the Euro against the U.S. Dollar or the NIS. Such transactions are mostly unrelated to specific operating transactions and therefore included in financial income and expenses. See “Item 11 — Quantitative and Qualitative Disclosures About Market Risk.

•   Increases in our prices have positively impacted our gross margin in each of the past two years. In the coming years, we do not expect that any further price increases will materially impact our gross margins.

•   We continuously seek to reduce the cost of production, through engineering and purchasing optimization, without compromising the quality of our products. The success of such cost reduction activities in the past has resulted in lower production costs and improved gross margins. We expect these activities and related cost savings to continue.

•   If our overall revenues grow, certain manufacturing costs, which are fixed in nature — such as the cost of production management and engineering employees — will constitute a smaller percentage of our overall cost of revenues and will positively affect our gross margin.

Operating expenses

Our sales and marketing expenses consist primarily of wages, salaries and other employee remuneration to our marketing, selling, distribution and other sales-support employees; advertising and promotional expenses; warehousing and distribution costs; commissions; and bad debts. Our warehousing and distribution expenses principally consist of the cost of delivering our products to our customers’ premises (home, office, warehouse or other as the case may be). The distribution of our products and the collection of the exchangeable CO2 cylinders for refill often involve freight costs and require logistical planning and execution. In some countries, and in particular in the United States, we sell our products directly to our consumers’ homes. In these cases, we bear high distribution expenses for a small volume of deliveries and the collection of the empty exchangeable CO2 cylinders. In many cases, we are able to pass some delivery costs on to consumers. In the United States, we have significantly reduced such costs by arranging for delivery through regional service providers.

Our advertising and promotional expenses consist primarily of media adverting costs, trade and consumer marketing expenses and public relation expenses. As we intend to invest in increasing our active customer installed base, particularly in the United States, we expect sales and marketing expenses in general, and advertising expenses in particular, to increase in absolute terms.

Our general and administrative expenses consist primarily of wages, salaries and other employee benefits for our managerial and administrative personnel, rental fees, and building maintenance communications and support costs as well as professional advisors. As we expand our installed base of active consumers, primarily in our direct sales markets and in particular in the United States, we expect our administrative expenses to increase, mainly due to the additional information technology and finance resources required for supporting our business growth and our new status as a public reporting company.

Since our acquisition by Fortissimo Capital, we have undertaken several business realignment initiatives. Associated with these initiatives have been certain selling, marketing and administrative

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expenses, such as severance expenses related to the termination of personnel following the closing of some of the European headquarters that were managing certain of our direct distribution operations in Europe (this was part of the change in our expansion strategy from operating directly in new markets to opening new markets with external third party distributors), combining the management and administration of some of our markets under one unit, shifting some of our in-house activities to outsourcing, and shifting local support functions to central management by our group headquarters. We currently have no ongoing business realignment initiatives.

Other income, net consists primarily of rental income and capital gains and losses.

Financial expenses, net, consists primarily of (i) borrowing costs, (ii) foreign currency exchange expenses, and (iii) losses on derivative instruments. These expenses are offset against (i) interest income on our interest bearing deposits, (ii) foreign currency exchange income, and (iii) gains on derivative instruments. We expect financial income to increase in the short-term as we repay our outstanding debt balances and invest the surplus cash balance resulting from the proceeds of our IPO and of the follow-on offering in interest bearing deposits and marketable securities.

Corporate taxes

The regular corporate tax rate in Israel in 2011 is 24%. The Israeli corporate tax rate for the 2010 tax year was 25%, for the 2009 tax year was 26% and for the 2008 tax year was 27%. The Israeli corporate tax rate is expected to decline to 18% by the year 2016. Non-Israeli subsidiaries are taxed according to the tax laws in their respective country of organization. Certain of our subsidiaries benefit from tax incentives such as reduced tax rates ranging from 0% to 10%. In previous years, we have received specific tax rulings in certain countries allowing for reduced tax rates, which have subsequently expired. We are currently in the process of attempting to obtain extensions for these tax rulings.

One of our Israeli subsidiaries received “Approved Enterprise” status under the Israeli Law for the Encouragement of Capital Investments — 1959. The benefits period of an investment program that was approved in December 1999 has not yet ended. This investment program provides a tax exemption on undistributed earnings derived from program assets for a period of ten years from the first year in which taxable income is generated from the approved assets. The ten-year period will end at the end of the 2012 tax year. Calculation of the approved enterprise tax benefits is based on the increase in the Euro value in revenues during each year of the benefit period, compared to the “base year” (the year prior to operation of the program) revenues (“Base Revenue”). The current Base Revenue is €36.0 million.

The operational phase of another program, which is in the investment grant course and was approved in December 2005, has not yet commenced. The subsidiary will be entitled to a grant of 24% of part of the approved investment. The benefit period for this program will be ten years (tax exemption for two years and reduced tax for eight more years) beginning in the first year the subsidiary has taxable income from the approved assets.

The subsidiary’s income that is not derived from assets eligible for reduced taxation benefits, as described above, is taxed at the regular corporate income tax rate in Israel of 25% in 2010 (2009: 26%; 2008: 27%).

Under this and other Israeli legislation, we are entitled to accelerated depreciation and amortization rates for tax purposes on certain of our assets. For more information about the tax benefits available to us as an approved enterprise, see “Item 10.E — Taxation.”

Over the course of our business operations, we have accumulated net operating loss carry-forwards for tax purposes amounting to approximately €14.7 million as of December 31, 2010.

In addition, we have entered into transfer pricing arrangements that establish transfer prices for our inter-company operations. However, our transfer pricing procedures are not binding on the applicable

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taxing authorities. No official authority in any country has made a binding determination as to whether or not we are operating in compliance with its transfer pricing laws and regulations. Taxing authorities in any of the countries in which we operate could challenge our transfer prices and require us to adjust them to reallocate our income. For example, following a recent audit, the tax authorities in Germany challenged the amount of royalties we recognized on our CO2 refills and issued a tax assessment of approximately €8.2 million, of which €5.6 million is directly in respect of these royalties for the period from 2003 to 2005. While we plan to vigorously challenge this assessment and have applied for a Mutual Agreement Procedure under Article 6 of the EU Arbitration Convention against the tax authority’s assessment, our challenge may not be successful and we may be required to pay some of the entire amount assessed. We have created reserves with respect to such tax liabilities where we believe it to be appropriate. However, there can be no assurance that our ultimate tax liability will not exceed the reserves we have created.

Because we operate in a number of countries, our income is subject to taxation in differing jurisdictions with a range of tax rates. Therefore, we need to apply significant judgment to determine our consolidated income tax position. As a result of our multi-jurisdictional operations, we are exposed to a number of different tax risks including, but not limited to, changes in tax laws or interpretations of these tax laws. The tax authorities in the jurisdictions where we operate may audit our tax returns and may disagree with the position taken in those returns. An adverse outcome resulting from any settlement or future examination of our tax returns may result in additional tax liabilities and may adversely affect our effective tax rate, which could have a material adverse effect on our financial position, results of operations and liquidity. In addition, any examination by the tax authorities could cause us to incur significant legal expenses and divert management’s attention from the operation of our business.

We estimate our effective tax rate for the coming years based on our planned future financial results in existing and new markets and the key factors setting our tax liability, in particular our transfer pricing policy and net operating loss carry forwards. Accordingly, we estimate that our effective tax rate will range between 15% and 20% of our income before income tax. There could be no certainty that our plans will be realized and that our assumptions with regard to the key elements affecting tax rates will be accepted by the tax authorities. Therefore, our actual effective tax rate might be higher than our estimate.

Share-based compensation

During the year ended December 31, 2010, we granted options to purchase 847,992 ordinary shares under our equity incentive plan. The total amount of share-based compensation derived from the options granted in the year ended December 31, 2010 is €7.2 million. The expense will be recognized over a four-year vesting period. The total amount with respect to the 2010 grants that was recognized in 2010 is €1.0 million.

Segment results

As we have rapidly entered new markets over the past few years, we have begun to review our performance in distinct operating segments representing geographical regions. Each region has similar characteristics relevant to our business and usually includes several markets in which we sell our products.

The sales of our products in each market are managed either by wholly owned subsidiaries or by external third party distributors. The reported performances of these markets are provided periodically and consolidated for presentation to our board of directors, which acts as our Chief Operating Decision Maker (the “CODM”).

We have identified four reportable operating segments, each of which represents a geographical area with similar characteristics. The products sold in all the segments are similar and generally produced in the same production sites. The identified segments are:

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•   Western Europe consists of our markets in western and northern Europe, which are characterized by high standards of living and high price levels. These markets also consume relatively high volumes of sparkling water as compared to carbonated soft drinks.

•   The Americas consists of the United States and other markets in North America and Central America, which are significantly influenced by the consumption culture of the United States and which are characterized by a very high consumption of carbonated soft drinks.

•   Central and Eastern Europe, Middle East and Africa (CEMEA) consists of our markets in Central and Eastern Europe, Israel and South Africa. These markets tend to be characterized by a lower price level in comparison with the other geographical markets in which we operate.

•   Asia-Pacific consists of our markets in Australia and New Zealand, together with our new markets in East Asia, which constitute one unit for the purpose of operations management due to their relative proximity to each other and distance from our main operational units.

The following table presents our revenues, by segment for the periods presented, as well as income (loss) before income tax from each segment:

             
             
(in thousands)   Western Europe   CEMEA   The Americas   Asia-Pacific   Reportable Segments   Reconciliation   Consolidated
Year ended December 31, 2008
                                                              
Revenues   81,779     10,234     4,937     2,999     99,949         99,949  
Reportable segment income (loss) before income tax     18,602       1,694       (1,335 )      46       19,007       (13,507 )      5,500  
Year ended December 31, 2009
                                                              
Revenues     74,433       13,728       10,924       5,938       105,023             105,023  
Reportable segment income (loss) before income tax     20,195       1,104       (2,128 )      1,205       20,376       (11,451 )      8,925  
Year ended December 31, 2010
                                                              
Revenues     99,722       19,466       31,562       9,902       160,652             160,652  
Reportable segment income (loss) before income tax     20,908       2,350       (4,173 )      2,213       21,298       (9,801 )      11,497  

The following table presents our revenues, as a percentage of total revenues:

     
  Year Ended December 31,
     2008   2009   2010
Western Europe     81.8 %      70.9 %      62.1 % 
CEMEA     10.2       13.0       12.1  
The Americas     5.0       10.4       19.6  
Asia-Pacific     3.0       5.7       6.2  
Total     100.0 %      100.0 %      100.0 % 

One of our distributors in Western Europe accounted for 14.7% of our total revenues in 2009 and 13.1% of our total revenues in 2010. This is our only customer that generated in excess of 10% of our revenues for those periods.

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We are headquartered in Israel. Revenues from customers located in Israel amounted to €8.1 million in 2008, €8.3 million in 2009, and €8.1 million in 2010. Our Israeli sales and marketing subsidiary also serves as the exclusive distributor of Brita water filtration systems in Israel and as the distributor of certain other consumer products. Our revenues derived from distributing Brita products declined, as a percentage of total revenues, to 3.0% in 2010 from 5.2% in 2009 and 5.5% in 2008, primarily due to the increase in our revenues from home beverage carbonation systems.

Western Europe

Revenues in Western Europe increased by €25.3 million, or 34.0%, to €99.7 million in 2010 from €74.4 million in 2009. This increase is primarily attributable to our marketing efforts, which resulted in increased sales in both our newer markets (primarily France, Italy and the United Kingdom) and our established markets (primarily Germany, the Nordics and Switzerland). Our revenue growth in Western Europe took place in both soda makers and consumables. This growth in revenues also reflects a slowdown in purchases during the first six months of 2009 by our distributor in the Nordics that experienced significant financial difficulty as a result of the global recession as well as certain inventory management issues relating to consumables, which have since been resolved. Revenues in Western Europe decreased by €7.4 million, or 9.0%, to €74.4 million in 2009 from €81.8 million in 2008. This was primarily due to a reduction in purchases during 2009 by our distributor in the Nordics who experienced financial difficulty as mentioned above. Revenues from other countries in Western Europe increased during this period despite the worldwide recession affecting many of these markets, through increased household penetration, new retail customers and the acquisition of certain of the assets of one of our competitors in Germany.

Income before income tax in Western Europe increased by €713,000, or 3.5%, to €20.9 million in 2010 from €20.2 million in 2009. This was mainly due to the increase in revenues, which was partially offset by an increase of 53.6% in selling and marketing expenses, resulting from promotional and marketing activities that took place mainly in the United Kingdom, following our re-launch in this market, and in Germany. Income before income tax in Western Europe increased by €1.6 million, or 8.6%, to €20.2 million in 2009 from €18.6 million in 2008. This was primarily due to sales to new distributors and higher-margin revenue growth from consumables in some of our existing distribution markets, in particular France and Italy, which were partially offset by reduced consumables sales in other markets in the territory, and increased sales and marketing expenses.

CEMEA

Revenues in CEMEA increased by €5.7 million, or 41.8%, to €19.4 million in 2010 from €13.7 million in 2009. Revenues in CEMEA increased by €3.5 million, or 34.1%, to €13.7 million in 2009 from €10.2 million in 2008. These increases were primarily attributable to continued growth in certain of our markets in Central Europe, primarily the Czech Republic.

Income before income tax in CEMEA increased by €1.2 million, or 112.9%, to €2.3 million in 2010 from €1.1 million in 2009. This was mainly due to the revenue increase mentioned above. Income before income tax in CEMEA decreased by €590,000, or 34.8%, to €1.1 million in 2009 from €1.7 million in 2008 mainly due to increased selling and marketing expenses.

The Americas

Revenues in the Americas increased by €20.6 million, or 188.9%, to €31.5 million in 2010 from €10.9 million in 2009. Revenues in the Americas increased by €6.0 million, or 121.3%, to €10.9 million in 2009 from €4.9 million in 2008. In each year, this increase is primarily attributable to the addition of new retail customers and, to a lesser extent, an increase in our revenues from online sales, both of which reflect the increase of our installed base in the United States, as well as our entry into the Canadian market.

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Loss before income tax in the Americas increased by €2.1 million, or 96.1%, to €4.2 million in 2010 from €2.1 million in 2009 due to our advertising and promotional activities designed to introduce the home beverage carbonation category, our system and the SodaStream brand to consumers in the United States in parallel to our rollout into major retailers in the country. Loss before income tax in the Americas increased by €793,000, or 59.4%, to €2.1 million in 2009 from €1.3 million in 2008 mainly due to higher sales and marketing expenses in the United States as mentioned above.

Asia-Pacific

Revenues in Asia-Pacific increased by €4.0 million, or 66.8%, to €9.9 million in 2010 from €5.9 million in 2009. This was mainly due to the increase of our installed base in the Australian and New Zealand markets and the addition of new markets in Asia. Revenues in Asia-Pacific increased by €2.9 million, or 98.0%, to €5.9 million in 2009 from €3.0 million in 2008 as a result of an increase in our installed base and the addition of new retailers.

Income before income tax in Asia-Pacific increased by €1.0 million, or 83.7%, to €2.2 million in 2010 from €1.2 million in 2009. Income before income tax in Asia-Pacific increased by €1.2 million to €1.2 million in 2009 from €46,000 in 2008. These increases were as a result of the increase in revenues.

Results of operations

Year ended December 31, 2010 compared to year ended December 31, 2009

Revenues increased by €55.7 million, or 53.0%, to €160.7 million in 2010 from €105.0 million in 2009. This growth was attributable primarily to an increase of 81.9% in the volume of soda makers sold to 1.9 million in 2010, compared to 1.1 million in 2009. CO2 refills increased by 19.8% to 9.8 million units in 2010 from 8.2 million units in 2009 and flavors increased by 68.0% to 13.8 million units in 2010 from 8.2 million in 2009, both reflecting the expansion of our active installed user base. By segment, the key regions of revenue growth were Western Europe with an increase of €25.3 million and the Americas with an increase of €20.6 million. Revenues from CEMEA and from Asia-Pacific increased by €5.7 million and €4.0 million, respectively.

Gross profit increased by €28.2 million, or 48.2%, to €86.6 million in 2010 from €58.4 million in 2009. Gross profit as a percentage of revenues, or gross margin, decreased by 1.7 percentage points to 53.9% in 2010 compared to 55.6% in 2009. This decrease was mainly due to the growing portion of soda maker starter kits in the revenue mix, which have lower gross margins than our consumables products.

Sales and marketing expenses increased by €22.4 million, or 64.5%, to €57.1 million in 2010 from €34.7 million in 2009. As a percentage of revenues, sales and marketing expenses increased to 35.5% in 2010 from 33.0% in 2009. These changes were attributable primarily to increased advertising and promotional expenses, mainly in the United States, as part of our ongoing initiative to increase our active user installed base in that market.

General and administrative expenses increased by €5.4 million, or 41.1%, to €18.5 million in 2010 from €13.1 million in 2009. As a percentage of revenues, general and administrative expenses decreased to 11.5% in 2010 from 12.5% in 2009. The general and administrative expenses include non-recurring management fees paid to Fortissimo Capital of €2.3 million (including a one-time termination payment of €1.75 million) in 2010 and €461,000 in 2009. These management fees were terminated at the time of our IPO. Recurring administrative expenses increased to €16.2 million in 2010 from €12.7 million in 2009 primarily due to share-based compensation charges that increased to €1.0 million in 2010 from €163,000 in 2009 and an increase in our information technology and financial department expenses required to support our expansion, particularly in the United States, as well as the additional expenses for supporting our new public company status.

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Other income increased by €103,000 to €198,000 in 2010 from €95,000 in 2009, due primarily to capital gain from sale of property, plant and equipment.

Total financial expenses (income), net was income of €299,000 in 2010 as compared to a net expense of €1.8 million in 2009, primarily due to a decrease in interest expense, net by €555,000 to €1.5 million in 2010 from €2.0 million in 2009, mainly due to lower debt balances, and to the impact of foreign exchange rates on assets and liabilities denominated in currencies other than the Euro.

Income tax expense was €1.8 million in 2010 essentially unchanged compared to 2009. Our effective tax rate for 2010 was 15.4%, compared to 20.1% for 2009. The decrease in our effective tax rate was primarily attributable to the utilization of tax losses in some of our taxable units.

Year ended December 31, 2009 compared to year ended December 31, 2008

Revenues increased by €5.1 million, or 5.1%, to €105.0 million in 2009 from €99.9 million in 2008. This increase is attributable primarily to an increase of 20.5% in the volume of soda makers sold to 1.1 million in 2009 compared to 877,000 in 2008. CO2 refills increased by 9.3% to 8.2 million units in 2009 from 7.5 million units in 2008, primarily due to the expansion of our active installed user base. By segment, the key components of revenue growth were an increase in revenues from the Americas of €6.0 million, an increase in revenues from Central and Eastern Europe, Middle East and Africa of €3.5 million, and an increase in revenues from Asia-Pacific of €2.9 million, partially offset by a decrease in revenues from Western Europe of €7.4 million.

Gross profit increased by €3.7 million, or 6.7%, to €58.4 million in 2009 from €54.7 million in 2008. Gross profit as a percentage of revenues, or gross margin, increased by 0.8 percentage points to 55.6% in 2009 compared to 54.8% in 2008. The change in gross margin was primarily caused by a reduction in our per unit production cost as a result of the increase in soda maker production volumes, continued cost reduction programs and, to a lesser extent, a modest price increase implemented in 2009. The cost savings were largely offset by the negative impact that resulted from an increasing share of soda makers and exchangeable CO2 cylinders in our overall revenue mix, competition in sales of consumables in some of our markets and a slight strengthening of the U.S. Dollar and the NIS against the Euro in 2009 as compared to 2008.

Sales and marketing expenses increased by €2.5 million, or 7.8%, to €34.7 million in 2009 from €32.2 million in 2008. As a percentage of revenues, sales and marketing expenses increased to 33.0% in 2009 from 32.2% in 2008. These changes were attributable primarily to increased advertising and promotional expenses, primarily in the United States as part of our ongoing initiative to increase our active user installed base in that market, and to an increase in wages and salaries necessary to support our future expansion plans.

General and administrative expenses increased by €459,000, or 3.6%, to €13.1 million in 2009 from €12.7 million in 2008. As a percentage of revenues, general and administrative expenses decreased to 12.5% in 2009 from 12.7% in 2008. Recurring administrative expenses were reduced during 2009 as a result of a continued reduction in most ongoing expense components, although immediate savings were largely offset by higher business realignment and termination expenses recorded in the year.

Other income increased by €76,000 to €95,000 in 2009 from €19,000 in 2008, due primarily to an increase in rental income from a rental property currently owned by us and leased to a third party.

Total financial expenses, net decreased by €2.6 million to €1.8 million in 2009 as compared to €4.4 million in 2008, primarily due to the impact of foreign exchange rates in 2008 on assets and liabilities denominated in currencies other than the Euro and in particular on a financial liability denominated in U.S. Dollars.

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Income tax expense decreased by €3.2 million to €1.8 million in 2009 as compared to €5.0 million in 2008, of which €3.4 million was attributable to an exceptional tax provision relating to a prior years’ dispute with the tax authorities in Germany. Our effective tax rate for 2009, excluding this provision, was 20.1%, compared to 28.5% for 2008. The decrease in our effective tax rate was primarily attributable to the utilization of tax losses in some of our taxable units combined with favorable tax rates in comparison with the primary tax rate in Israel resulting from our approved enterprise benefits in Israel and lower tax rates in other countries.

Seasonality

Historically, we have recognized a somewhat larger share of our revenues in the second quarter of the year, driven by increased sales volume in preparation for the warm summer months. The fourth quarter is also generally stronger than the first and third quarters as a result of increased sales associated with holiday shopping, and in any given year the fourth quarter may be the quarter with the highest revenues. In 2009 and 2010, this seasonality was not reflected in our quarterly sales as sales in the third quarter were higher than in the second quarter, which was as a result of continued growth of our installed base in our new and fast growing markets.

Our revenues may also be impacted by the effect of the weather. Specifically, in periods when the weather is warmer than usual our revenues would likely increase, and in periods when the weather is colder than usual our revenues would likely decline.

In the short term, due to our expansion in certain key markets, our revenues may increase in each quarter of a given year, as they did in 2009 and 2010, or we may find the fourth quarter to be our highest revenue-generating quarter in a given year, thereby changing the seasonality fluctuations described above.

Our operating expenses and, therefore, our overall margins are also seasonally impacted. Specifically, we typically increase our advertising and promotional expenditures in the second quarter and, to a lesser extent, in the fourth quarter relating to the holiday season. Consequently, our overall operating income may be lower in the second quarter.

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Quarterly financial information

The following table sets forth certain unaudited consolidated quarterly statement of operations data for each of the eight quarters ended December 31, 2010. This unaudited information has been prepared on a basis consistent with our annual financial statements. This information should be read in conjunction with our audited consolidated financial statements and related notes, appearing elsewhere in this annual report. The results of operations for any quarter are not necessarily indicative of results that we may achieve for any subsequent periods.

               
(in thousands)   March 31, 2009   June 30, 2009   Sept. 30, 2009   Dec. 31, 2009   March 31, 2010   June 30, 2010   Sept. 30, 2010   Dec. 31, 2010
     (unaudited)
Consolidated statements of operations data:
                                                                       
Revenues    21,484      24,325      27,676      31,538      30,159      38,517      41,974      50,002  
Cost of revenues     9,575       10,883       11,920       14,215       13,894       18,992       18,341       22,832  
Gross profit     11,909       13,442       15,756       17,323       16,265       19,525       23,633       27,170  
Operating expenses:
                                                                       
Sales and marketing     7,694       8,803       8,918       9,277       9,793       14,150       14,176       18,938  
General and administrative     2,938       3,795       3,278       3,123       3,880       3,924       6,084       4,648  
Other expense (income), net     (4 )      (54 )      (66 )      29       (23 )      (38 )      (31 )      (106 ) 
Total operating expenses     10,628       12,544       12,130       12,429       13,650       18,036       20,229       23,480  
Operating income     1,281       898       3,626       4,894       2,615       1,489       3,404       3,690  
Financial expenses (income), net     373       520       678       203       290       (960 )      904       (533 ) 
Income before income tax     908       378       2,948       4,691       2,325       2,449       2,500       4,223  
Income tax     537       277       495       484       284       318       427       740  
Net income for the period   371     101     2,453     4,207     2,041     2,131     2,073     3,483  

               
               
  March 31, 2009   June 30, 2009   Sept. 30, 2009   Dec. 31, 2009   March 31, 2010   June 30, 2010   Sept. 30, 2010   Dec. 31, 2010
As a percentage of revenues:
                                                                       
Revenues     100.0 %      100.0 %      100.0 %      100.0 %      100.0 %      100.0 %      100.0 %      100.0 % 
Gross profit     55.4       55.3       56.9       54.9       53.9       50.7       56.3       54.3  
Operating expenses:
                                                                       
Sales and marketing     35.8       36.2       32.2       29.4       32.5       36.7       33.8       37.9  
General and administrative     13.7       15.6       11.8       9.9       12.9       10.2       14.5       9.3  
Other expense (income), net     (0.0 )      (0.2 )      (0.2 )      0.1       (0.1 )      (0.1 )      (0.1 )      (0.2 ) 
Total operating expenses     49.5       51.6       43.8       39.4       45.3       46.8       48.2       47.0  
Net income for the period     1.7 %      0.4 %      8.9 %      13.3 %      6.8 %      5.5 %      4.9 %      7.0 % 
As a percentage of full year results:
                                                                       
Revenues     20.4 %      23.2 %      26.4 %      30.0 %      18.8 %      24.0 %      26.1 %      31.1 % 
Gross profit     20.4       23.0       27.0       29.6       18.8       22.5       27.3       31.4  
Operating expenses:
                                                                       
Sales and marketing     22.2       25.4       25.7       26.7       17.2       24.8       24.8       33.2  
General and administrative     22.3       28.9       25.0       23.8       20.9       21.2       32.8       25.1  
Other expense (income), net     (4.2 )      (56.8 )      (69.5 )      30.5       (11.6 )      (19.2 )      (15.6 )      (53.6 ) 
Total operating expenses     22.3       26.3       25.4       26.0       18.1       23.9       26.8       31.2  
Net income for the period     5.2 %      1.4 %      34.4 %      59.0 %      21.0 %      21.9 %      21.3 %      35.8 % 

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Application of critical accounting policies and use of estimates

Our accounting policies affecting our financial condition and results of operations are more fully described in our consolidated financial statements for the years ended December 31, 2008, 2009 and 2010, and as of December 31, 2009 and 2010, included elsewhere in this annual report. The preparation of our financial statements requires management to make judgments, estimates and assumptions that affect the amounts reflected in the consolidated financial statements and accompanying notes, and related disclosure of contingent assets and liabilities. We base our estimates upon various factors, including past experience, where applicable, external sources and on other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and could have a material adverse effect on our reported results.

In many cases, the accounting treatment of a particular transaction, event or activity is specifically dictated by accounting principles and does not require management’s judgment in its application, while in other cases, management’s judgment is required in the selection of the most appropriate alternative among the available accounting principles, that allow different accounting treatment for similar transactions.

We believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance, as these policies relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate; and (2) changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.

Revenue recognition

As described in note 3K to our audited consolidated financial statements, revenue is recognized when persuasive evidence exists (usually in the form of an executed sales agreement), that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized.

The exchanging and refilling of exchangeable CO2 cylinders is a critical component of our operations and, since inception, we have developed various methods to protect our rights over the manufacture, trading and refilling of our exchangeable CO2 cylinders. In this regard, our primary objective has been to assert that we maintain legal ownership over the exchangeable CO2 cylinders, while establishing the appropriate business and legal framework in each of our markets for trading and refilling activities related to the exchangeable CO2 cylinders.

The provision of exchangeable CO2 cylinders to customers is treated as a final sale and the related income is recorded. In certain circumstances, where no full cylinder is being exchanged for a returned cylinder, we have an obligation to provide a refund upon request for the returned exchangeable CO2 cylinder. The amount of the refund varies from country to country, from customer to customer (retailer, distributor and end consumer) and may also change over time as market conditions vary in a particular country. As a result, a provision is recorded for estimated returns based on historical return patterns of customers and the refundable amounts are recorded as reduction of revenue. Although to date, returns of initial exchangeable CO2 cylinders stock from our distributors and retailers have been negligible, if the distributors or retailers in any one or more of the markets in which we operate return a large number of

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exchangeable CO2 cylinders without exchanging them for full ones, we may be required to pay out a large amount of cash, which could have an adverse effect on our business, financial condition and results of operations.

Accounts receivable — bad debt and allowance for doubtful accounts

We make ongoing estimates relating to the collectability of our accounts receivable and maintain a reserve for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the reserve, we consider the payment history of the customers and significant economic developments within the retail environment that could impact the ability of our customers to pay outstanding balances and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Because we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required. In the event we determine that a smaller or larger reserve was appropriate, we would record a benefit or charge to sales and marketing expenses in the period in which we made such a determination.

Inventory

For financial reporting purposes, we evaluate our inventory to ensure it is carried at the lower of cost or net realizable value. Provision is made against slow moving, obsolete and damaged inventories. Damaged inventories are identified and written down through the inventory counting procedures conducted at each location. Provision for slow moving and obsolete inventories is assessed by each country as part of their ongoing financial reporting. Obsolescence is assessed based on comparison of the level of inventory holding to the projected likely future sales. Future sales are assessed based on historical experience, and adjusted where we will no longer continue to manufacture the particular item. To the extent that future events impact the salability of inventory, these provisions could vary significantly. For example, changes in specifications or regulations may render certain inventory, previously considered to have a realizable value in excess of cost, obsolete and requiring such inventory to be fully written off. Inventories include exchangeable CO2 cylinders that are provided to customers. Exchangeable CO2 cylinders that are loaned to distributors and exchangeable CO2 cylinders that are used by the Company to facilitate the exchange program are included in property, plant and equipment.

Property, plant and equipment

Property, plant and equipment represent a significant proportion of our assets, being 12.8% of the total assets as of December 31, 2010 (2009: 24.1%). Therefore, the estimates and assumptions made to determine their carrying value and related depreciation are critical to our financial position and performance.

Exchangeable CO2 cylinders that are loaned to distributors and certain retailers and exchangeable CO2 cylinders that are used to facilitate the cylinder exchange program are considered property, plant and equipment. These cylinders represent approximately 37% of our total property, plant and equipment.

The charge in respect of periodic depreciation of an asset is derived after determining its estimated expected useful life. The useful lives of our assets are determined at the time they are acquired and reviewed annually for appropriateness. The asset’s life is based on historical experience with similar assets as well as anticipation of future events, which may impact its life, such as changes in technology. With respect to the exchangeable CO2 cylinders, although we have no plans to replace the existing aluminum CO2 cylinder model and to date new machines have been designed to use our existing stock of cylinders, we have a continuous process of introducing re-designed or newly-designed soda makers that might require a change to the cylinder design in the future. There is no assurance that future soda maker designs will be compatible with the current cylinders’ models or that changes in governmental regulations, technological developments or other factors would not shorten the useful life of these

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cylinders in comparison with the current estimates. Our policy is that, if and when new developments lead to the phase-out of the current model of cylinders, at that time, we will change the estimated useful life and adjust the depreciation rate of the exchangeable CO2 cylinders.

We continuously evaluate our estimates and assumptions for each reporting period, and, when warranted, adjust these assumptions. Generally, these adjustments are accounted for on a prospective basis, through depreciation expense and impairment.

Impairment of long-lived assets

We periodically evaluate the recoverable amount of long-lived assets, including goodwill, other intangible assets and property, plant and equipment, relying on a number of factors, including operating results, business plans and projected future cash flows. Assets that have an indefinite useful life, such as goodwill, are not subject to amortization and are tested annually for impairment and whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. In addition, we examine at least once a year the useful life of an intangible asset that is not periodically amortized in order to determine whether events and circumstances continue to support the decision that the intangible asset has an indefinite useful life.

Assets that are subject to amortization are tested for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. The fair value is in most cases based on the discounted present value of the future cash flows expected to arise from the cash generating unit to which the goodwill relates, or from the individual asset or asset group. Estimates are used in deriving these cash flows and the discount rate.

The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent with the application of the intangible assets and property, plant and equipment accounting policies affect the amounts reported in the financial statements. In particular, if different estimates of the projected future cash flows or a different selection of an appropriate discount rate or long-term growth rate were made, these changes could materially alter the projected value of the cash flows of the asset, and as a consequence materially different amounts would be reported in the financial statements.

Income tax

Income tax comprises the taxes levied on taxable income in the individual countries and the changes in deferred tax assets and liabilities. The income taxes recognized are reflected at the amounts likely to be payable under the statutory regulations in force, or already enacted in relation to future periods, as of the reporting date.

In compliance with IAS 12 (Income Taxes), deferred taxes are recognized for temporary differences between the carrying amounts of assets and liabilities in the balance sheet prepared according to IFRS and those in the balance sheet drawn up for tax purposes. Deferred taxes are also recognized for consolidation measures and for tax loss carry forwards likely to be realizable. Deferred tax assets relating to deductible temporary differences, tax credits and tax loss carry forwards are recognized where it is sufficiently probable that taxable income will be available in the future to enable the tax loss carry forwards to be utilized. Deferred tax liabilities are recognized on temporary differences taxable in the future. Deferred taxes are calculated at the rates which — on the basis of the statutory regulations in force, or already enacted in relation to future periods, as of the reporting date — are expected to apply in the individual countries at the time of realization. Deferred tax assets and deferred tax liabilities are offset if they relate to income taxes levied by the same taxation authority. The effects of changes in tax rates or tax law on deferred tax assets and liabilities are generally accounted for in the period in which the changes are substantively enacted. Such effects are normally recognized in the statement of

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operations. Effects on deferred taxes previously recognized in other comprehensive income are reflected in other comprehensive income. The probability that deferred tax assets resulting from temporary differences or loss carry forwards can be utilized in the future is the subject of forecasts by the individual consolidated companies regarding their future earnings situation and other parameters. The deferred tax liabilities recognized on planned dividend payments by subsidiaries depend on assumptions regarding the future earnings situation of the subsidiaries concerned, their future financing structure and other factors. Changes in the assumptions or in circumstances may necessitate adjustments that result in allocations to deferred taxes or reversals thereof.

The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment and there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, the ultimate outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.

In addition, we have entered into transfer pricing arrangements that establish transfer prices for our inter-company operations. However, our transfer pricing procedures are not binding on the applicable taxing authorities. No official authority in any country has made a binding determination as to whether or not we are operating in compliance with its transfer pricing laws. Accordingly, although we have performed transfer pricing studies, benchmarked our inter-company transactions and developed our transfer pricing policies and procedures based on such studies and benchmarks, taxing authorities in any of the countries in which we operate could challenge our transfer prices and require us to adjust them to reallocate our income. Any change to the allocation of our income as a result of review by taxing authorities could have a negative effect on our operating results and financial condition.

Recently issued accounting standards

A number of new standards, amendments to standards and interpretations are not yet in effect for the year ended December 31, 2010, and have not been applied in preparing our consolidated financial statements as of that date.

In the framework of Improvements to IFRSs in 2010, the IASB published and approved 11 amendments to IFRSs on a wide range of accounting issues. Most of the amendments apply to periods beginning on or after January 1, 2011 and permit early adoption, subject to the specific conditions of each amendment. Presented below is the amendment that is expected to have an effect on our financial statements:

•   Amendment to IFRS 7 Financial Instruments: Disclosures — Clarification of Disclosures (the “Amendment”). The Amendment added an explicit statement that the interaction between the qualitative and quantitative disclosures should enable the users of the financial statements to better assess a company’s exposure to risks arising from financial instruments. Furthermore, the clause stating that quantitative disclosures are not required when the risk is immaterial was removed, and certain disclosure requirements regarding credit risk were amended while others were removed. The Amendment is effective for annual periods beginning on or after January 1, 2011. Early application is permitted with disclosure. The relevant disclosures will be included in our financial statements as of December 31, 2011.

Presented below are the new standards that may be relevant to our financial statements:

•   IFRS 9 (2010) Financial Instruments (the “Standard”) — This Standard is one of the stages in a comprehensive project to replace IAS 39 Financial Instruments: Recognition and Measurement (“IAS 39”) and it replaces the requirements included in IAS 39 regarding the classification and measurement of financial assets and financial liabilities.

º In accordance with the Standard, there are two principal categories for measuring

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financial assets: amortized cost and fair value, with the basis of classification for debt instruments being the entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial asset. In accordance with the Standard, an investment in a debt instrument will be measured at amortized cost if the objective of the entity’s business model is to hold assets in order to collect contractual cash flows and the contractual terms give rise, on specific dates, to cash flows that are solely payments of principal and interest. All other debt assets are measured at fair value through profit or loss. Furthermore, embedded derivatives are no longer separated from hybrid contracts that have a financial asset host. Instead, the entire hybrid contract is assessed for classification using the principles above. In addition, investments in equity instruments are measured at fair value with changes in fair value being recognized in the statement of operations. Nevertheless, the Standard allows an entity on the initial recognition of an equity instrument not held for trading to elect irrevocably to present fair value changes in the equity instrument in other comprehensive income where no amount so recognized is ever transferred to the statement of operations at a later date. Dividends on equity instruments where revaluations are measured through other comprehensive income are recognized in the statement of operations unless they clearly constitute a return on an initial investment.
º The Standard generally preserves the instructions regarding classification and measurement of financial liabilities that are provided in IAS 39. Nevertheless, unlike IAS 39, IFRS 9 (2010) requires as a rule that the amount of change in the fair value of financial liabilities designated at fair value through profit or loss, other than loan grant commitments and financial guarantee contracts, attributable to changes in the credit risk of the liability be presented in other comprehensive income, with the remaining amount being included in the statement of operations. However, if this requirement aggravates an accounting mismatch in the statement of operations, then the whole fair value change is presented in the statement of operations. Amounts thus recognized in other comprehensive income may never be transferred to the statement of operations at a later date. The new standard also eliminates the exception that allowed measuring at cost derivative liabilities that are linked to and must be settled by delivery of an unquoted equity instrument whose fair value cannot be reliably measured. Such derivatives are to be measured at fair value.
º The Standard is effective for annual periods beginning on or after January 1, 2013 but may be applied earlier, subject to providing disclosure and at the same time adopting other IFRS amendments as specified in the Standard. The Standard is to be applied retrospectively other than in a number of exceptions as indicated in the transitional provisions included in the Standard. In particular, if an entity adopts the Standard for reporting periods beginning before January 1, 2012, it is not required to restate prior periods.
º We are examining the effect of adopting the Standard on our financial statements.

•   A new suite of accounting standards on Consolidation, Joint Arrangements and Disclosure of Involvement with Other Entities has been adopted by the IASB. Presented below are the standards that may be relevant to our financial statements:

º IFRS 10 Consolidated Financial Statements (“IFRS 10”). IFRS 10 replaces the requirements of IAS 27 Consolidated and Separate Financial Statements and the requirements of SIC-12 Consolidation — Special Purpose Entities with respect to the consolidation of financial statements, so that the requirements of IAS 27 will continue to be valid only for separate financial statements.

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•   IFRS 10 introduces a new single control model for determining whether an investor controls an investee and should therefore consolidate it. This model is implemented with respect to all investees. According to the model, an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with that investee, has the ability to affect those returns through its power over that investee (and there is a link between power and return). Presented hereunder are certain key changes from the current consolidation guidance:

º IFRS 10 introduces a model that requires applying judgment and analyzing all the relevant facts and circumstances for determining who has control and is required to consolidate the investee. This is reflected in, inter alia, the need to understand the design and purpose of an investee and the need to take into account evidence of power. Furthermore, the model explicitly requires identifying the investee’s activities as part of the control assessment.
º IFRS 10 introduces a single control model that is to be applied to all investees, both those presently in the scope of IAS 27 and those presently in the scope of SIC-12.
º De facto power should be considered when assessing control. This means that the existence of de facto control could require consolidation.
º When assessing control, all “substantive” potential voting rights will be taken into account. The structure, reasons for existence and conditions of potential voting rights should be considered.
º IFRS 10 provides guidance on the determination of whether a decision maker is acting as an agent or as a principal when assessing whether an investor controls an investee.
º IFRS 10 provides guidance on when an investor would assess power over portion of the investee (silos), that is over specified assets of the investee.
º IFRS 10 provides a definition of protective rights.
º The exposure to risk and rewards of an investee does not, on its own determine that the investor has control over an investee, rather it is one of the factor of control analysis.

•   IFRS 10 is effective for annual periods beginning on or after January 1, 2013. Early adoption is permitted provided that the entire consolidation suite is adopted at the same time.

•   We believe that adopting IFRS 10 will not have a material effect on our financial statements.

º IFRS 12 Disclosure of Involvement with Other Entities (“IFRS 12”). IFRS 12 contains disclosure requirements for entities that have interests in subsidiaries, joint arrangements (i.e. joint operations or joint ventures), associates and/or unconsolidated structured entities.

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•   Structured entities are entities that are designed so that voting or similar rights are not the dominant factor in deciding who controls the entity (Special Purpose Entities under current guidance are likely to meet the definition of structured entities). The definition of rights in IFRS 12 is broad and includes contractual and/or non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity.

•   The purpose of the new disclosure requirements is to enable the users of the financial statements to understand the nature and the risks associated with its interests in other entities, and to understand the effect of such interests on the entity’s financial position, results of operations and cash flows. This is reflected in broad and extensive disclosure requirements, including among other: significant judgments and assumptions made in determining the nature of interests in entities and arrangements, interests in subsidiaries, interests in joint arrangements and in associates and interests in structured entities.

•   IFRS 12 is applicable retrospectively for annual periods beginning on or after January 1, 2013. Early adoption is permitted providing that the entire consolidation suite is adopted at the same time.

•   Nevertheless, it is permitted to voluntarily provide the additional disclosures required by IFRS 12 prior to its adoption without early adopting the other standards.

•   The relevant disclosures will be included in our financial statements as of December 31, 2013.

º IFRS 13 Fair Value Measurement (“IFRS 13”). IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. It defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. IFRS 13 does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exception to fair value measurement that currently exist in certain standards.

•   IFRS 13 applies to assets, liabilities and an entity’s own equity instruments that, under other IFRSs, are required or permitted to be measured at fair value or when disclosure of fair value is provided. Nevertheless, IFRS 13 does not apply to share-based payment transactions within the scope of IFRS 2 and leasing transactions within the scope of IAS 17. IFRS 13 does not apply to measurements that are similar to but not fair value (such as net realizable value and value in use).

•   IFRS 13 is applicable prospectively for annual periods beginning on or after January 1, 2013. Earlier application is permitted with disclosure of that fact. The disclosure requirements of IFRS 13 need not be applied in comparative information for periods before initial application.

•   We are examining the effect of adopting IFRS 13 on our financial statements.

º IAS 24 (2009) Related Party Disclosures (“IAS 24”). IAS 24 includes changes in the definition of a related party and changes with respect to disclosures required by entities related to government. IAS 24 is to be applied retrospectively for annual periods beginning on or after January 1, 2011. We are in the process of reassessing our relationships with related parties for the purpose of examining the effects of adopting IAS 24 on our financial statements.

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B. Liquidity and Capital Resources

Our cash requirements have principally been for working capital and capital expenditures. Working capital was funded primarily from cash flows provided by our operating activities, our secured revolving credit lines, secured bank-loans and cash and cash equivalents on hand. Our working capital requirements generally reflect the growth in our business and its seasonality. Historically, we have funded a portion of our working capital (primarily inventory) and capital investments from cash flows provided by our operating activities, cash and cash equivalents on hand and borrowings available under our revolving credit and long-term debt facilities. Following the IPO and the follow-on offering, we expect that our working capital and capital investment needs will be funded for the foreseeable future mainly by our cash and cash equivalents. Our capital investments have included: the expansion of our production capacity and capabilities; improvements and expansion of our distribution and corporate facilities to support our growth; and investment and improvements in our information technology systems.

Since 2007, our inventory strategy has included increasing inventory levels to meet anticipated consumer demand for our products. This includes maintaining an inventory of soda makers, exchangeable CO2 cylinders and other consumables at each of our sites, at levels that we expect to sell during the successive three months. In addition, our inventory strategy included, for some products for which we have limited production capacity, high production volumes during the low selling seasons in order to maximize productivity during our busier seasons and to be prepared with inventory in advance of the high selling seasons. In 2009 and 2010, we continued to focus on meeting market demand for our products while improving our inventory efficiency over the long term by implementing procedures to improve our production planning process. Based on these initiatives and new systems, and processes that we intend to implement, inventory may continue to increase, but at a rate lower than the rate of growth of revenues.

As of December 31, 2010, available borrowings under credit facilities totaled €14.1 million, of which 23% was being utilized. These facilities are currently provided by banks in Israel.

We believe that, based on our IPO, the follow-on offering and our current business plan, our cash and cash equivalents on hand and cash from operations will be adequate to meet our capital expenditure requirements and liquidity needs for the foreseeable future. We may require new borrowings or additional capital to meet our longer term liquidity and future growth requirements. Although we believe that we have adequate sources of liquidity, future weakening of economic conditions could adversely affect our business and liquidity. In addition, continued instability in the capital markets could adversely affect our ability to obtain additional capital to grow our business and would affect the cost and terms of such capital.

Cash flows

The following table presents the major components of net cash flows used in and provided by operating, investing and financing activities for the periods presented:

     
  Year Ended December 31,
(in thousands)   2008   2009   2010
Net cash provided by (used in) operating activities   6,273     11,541     (8,199 ) 
Net cash used in investing activities     (2,129 )      (5,885 )      (5,475 ) 
Net cash provided by (used in) financing activities     (1,717 )      (5,882 )      62,111  

Cash provided by (used in) operating activities

Operating activities consist primarily of net income adjusted for certain non-cash items. Adjustments to net income for non-cash items include depreciation and amortization, unrealized financial gains and losses, share based compensation and non-cash movements in our income tax provision and deferred

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taxes. In addition, operating cash flows include the effect of changes in operating assets and liabilities, principally inventories, trade and other receivables, trade payables and accrued expenses.

Cash used in operating activities was €8.2 million in 2010 as compared to cash provided by operating activities of €11.5 million in 2009. This was primarily due to an increase in net cash outflows to working capital by €19.4 million to €19.6 million in 2010 from €237,000 in 2009 and a decrease in adjustments to net income for non-cash items by €2.9 million to €1.7 million in 2010 from €4.6 million in 2009, which were partially offset by an increase in our net income to €9.7 million in 2010 compared to €7.1 million in 2009. The increase in cash outflows related to working capital was primarily driven by an increase in inventories of €18.3 million in 2010, compared to €3.6 million in 2009, and an increase in trade and other receivables of €19.0 million in 2010 compared to €1.7 million in 2009, partially offset by an increase in trade payables of €12.4 million in 2010 compared to €3.5 million in 2009 and an increase of €4.6 million in provisions and other current liabilities in 2010 compared to €1.4 million in 2009. Adjustments to net income for non-cash items decreased in 2010 as compared to 2009 primarily due to the decrease in interest expense, net and a decrease in income tax expense, which were partially offset by an increase in depreciation and amortization, and an increase in non-cash share-based compensation expense.

Cash provided by operating activities increased by €5.2 million to €11.5 million in 2009 as compared to €6.3 million in 2008. The increase in cash provided by operating activities was primarily due to an increase in our net income to €7.1 million in 2009 compared to €530,000 in 2008, and net cash outflows to working capital of €237,000 compared to €2.6 million in 2008. Adjustments to net income for non-cash items decreased by €3.7 million to €4.6 million in 2009 from €8.3 million in 2008, partially offsetting the net cash outflows described above. The change to net cash inflows from net cash outflows related to changes in working capital period over period and was primarily driven by an increase in accounts payable and other current liabilities of €5.1 million in 2009 compared to €1.1 million in 2008. This increase was attributable primarily to an increase in product purchasing, for which payment was not due, during the fourth quarter of 2009 in comparison with the fourth quarter of 2008 and higher provisions for employees and sales rebates recorded in 2009 as compared to 2008, reflecting the growth in our operational activities. The above noted increases in net cash inflows relating to changes in operating liabilities were partially offset by an increase in inventory of €3.6 million in 2009 as compared to an increase of €3.0 million in 2008 and an increase in accounts receivable of €1.7 million as compared to an increase of €643,000 in 2008, both reflecting the revenue growth in the fourth quarter of 2009 as compared to the revenues in 2008. Adjustments to net income for non-cash items decreased in 2009 as compared to 2008 primarily due to the effect of the tax provision of €3.4 million relating to a prior years’ dispute with the tax authorities in Germany.

Cash used in investing activities

Cash used in investing activities decreased by €410,000 to €5.5 million in 2010 from €5.9 million in 2009, primarily as a result of decrease in payments for derivative financial instruments and decrease in acquisition of intangible assets, which were partially offset by an increase in acquisition of property, plant and equipment.

Cash used in investing activities increased by €3.8 million to €5.9 million in 2009 from €2.1 million in 2008, principally as a result of additional capital expenditures in machinery and equipment to serve our increasing capacity needs as well as new product molds and tooling, investment in trademarks acquired as part of the acquisition in October 2009 of certain assets of Wassermaxx, one of our competitors in Germany, and investments in information technology systems to support our increasing Internet sales.

The majority of our capital expenditures have historically been related to the purchase of machinery and equipment and information technology hardware. In order to support our overall business expansion, we will continue to invest in production machinery and equipment, additional gas filling lines, corporate facilities and information technology infrastructure in 2011 and thereafter.

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