Carrie Traner – VP of Finance & Principal Financial Officer Jennifer Cue – CEO

Henry Dillon – Founders Finance

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Jones Soda Company Third Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions]. I would like to remind everyone that this conference call is being recorded. I would now turn the call over to, Carrie Traner, Principal Financial Officer and Vice President of Finance. Ms. Traner, please go ahead.

Thank you and good afternoon, ladies and gentlemen. Before we begin, let me remind everyone of the company’s Safe Harbor disclaimer. Certain portions of our comments today will concern future expectations, plans and prospects of the company that constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all passages containing verbs such as aim, anticipate, estimate, expect, believe, intend, plan, predict, will, may, continue, project or target and negative of these words and similar words or expressions. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statement. Factors that could affect our actual results include among others those that are discussed under the heading Risk Factors in our most recently filed report with the SEC, including our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and current reports on Form 8-K. Listeners are cautioned not to place undue reliance upon these forward-looking statements that speak only as to the date of this earnings call. Except as required by law, we do not assume any obligation to update the forward-looking statements we make today. I will now turn the call over to Jennifer Cue, Chief Executive Officer of Jones Soda.

Thank you, Carrie and good afternoon everyone and thank you for joining us today. This call today marks the fifth quarter into our turnaround plan and marks another important milestone, as we continue to make progress towards long-term financial stability and sustainability. After coming off of four consecutive quarters of revenue decline and due to our turnaround plan of refocusing resources in certain geographic markets and products, I am pleased to report that in the third quarter, we delivered revenue growth for the quarter while maintaining our overall bottom-line results. Before we get into the results for the third quarter, I want to recap for everyone on the call today, the progress we have made today in this turnaround over the last five quarters. Our turnaround strategy and the 2013 operating plan was designed with five pillars that we continue to revisit every quarter due to their fundamental importance in keeping our company on the right path. First, we reduced our overhead to a level commensurate with our company size and aligned our operating expenses with the company’s capital resources. As I mentioned last call, we began adding back selling and marketing expenses that we believe will help us achieve top-line future long-term growth, while holding general and administrative expenses at the reduced structure. Secondly, we have retained attainment of employees who are entrepreneurial and aligned with our turnaround and long-term growth strategy. We hired a full time summer sales team to promote with Natural Jones Soda line and our Pure Cane Jones soda. This program wound down at the end of September. Third, we are focusing our efforts on certain core geographic markets, distributive partners and product lines where we believe, we can achieve profitable long-term growth, while maintaining a streamline operating structure. This entailed refocusing on our core geographic markets including the West Coast, the Midwest and Canada. We have and will continue to redirect resources to support our distributor network through increased promotional allowances at retail. Although, these promotional allowances are a direct offset to revenue, we believe that these types of investments are a catalyst to the top-line growth. The fourth pillar of our strategy is redeploying our marketing resources to cost effective, but more importantly extremely unique initiatives that are in line with our brand like the Fiat partnership and our Made in Michigan program that I’ll speak about later on the call. Finally, we launched Natural Jones Soda, our lower calorie yet full flavor and good tasting soda in response to the growing consumer demand for more healthful beverage options. As we look to 2014, we will be reaching out to new markets for this Natural product line. We are confident that our patience in allowing this turnaround plan the time it needs to take root, while cultivating our focused markets and major distributors and retailers, will eventually deliver the top lien potential that I have always believed this brand could achieve. As I mentioned before, from my past experience in my earlier years of the company when I did a turnaround very similar to the one we are currently undertaking, it did take time before the company reached profitable growth. And along the way, there’s [ph] not always great path ahead the most important thing to remember is to continue in the right direction. Our right size overhead structure allows us to be nimble along the way. The entire company is focused on our overall mission, to be a highly innovative company that celebrates the engaging distinctive character of the Jones Soda brand, with a profitable operations and setting the stage for profitable future growth. I will now turn the call over to Carrie to review the third quarter results and then I will follow this with an update on the business and closing remarks.

Thanks, Jennifer. For the comparative quarter, revenue in the third quarter of 2013 increased $52,000 or 1% to $4.2 million, primarily due to a seasonal program for Halloween during the third quarter, as well as improvement in our core market, which resulted in increased case volume of 12%. Promotional allowances increased $292,000 to $643,000 for the quarter, due impart to our promotional allowance for the seasonal program I just mentioned, as well as our focus on traditional trades and strategies that we believe will drive top-line growth. The accounting impact of used promotional allowances is a direct offset to gross revenue. Gross profit margin in the third quarter decreased to 24.0% from 27.8% in the third quarter of 2012, due to product mix which included our eight ounce Halloween can and the increase in promotional allowances for this Halloween program as well as our general trade spend strategy. Operating expenses in the third quarter decreased 9% to $1.3 million from $1.5 million in the prior year period, reflecting a 23% decrease in general and administrative expenses, offset by a 13% increase in promotional and selling expenses. While we invested in our marketing and promotional activities in the third quarter, we continue to work within a reduced and more sustainable general and administrative cost structure. We believe this is critical to our strategy to invest in a disciplined and focused way in sales and marketing, while holding G&A cost. Operating expenses as a percentage of revenue decreased to 32% for the quarter from 35% in 2012. Since the beginning of the year, we increased our employees from 26 to 31 by the end of the quarter, not including the summer sales team that Jennifer mentioned earlier. Net loss for the quarter ended September 30, 2013 increased 2%, to a loss of $330,000 or a $0.01 per share from a loss of $324,000 or $0.01 a year ago. This included non-cash expenses, depreciation and amortization and stock based compensation, totaling $158,000 compared to $326,000 last year. For the nine months of 2013, revenue decreased 13% to $11.6 million, from $13.3 million in the prior year period, on a case sales decline of 11%. Year-to-date, we have invested more in promotional allowances resulting in an increase of $254,000 to $1.5 million for the period, partially offsetting the decrease in case sale with the August 2012 price increase. Gross profit margins for the period decreased to 25.9% from 28.4%, due primarily to the case sales decline and increased promotional allowances, due to our focus on traditional trade spend strategy. Operating expenses decreased 38% to $3.8 million, from $6.2 million in the prior year period, reflecting a 39% increase in promotional and selling expenses and a 38% decrease in general and administrative expenses. This improvement was due to our turnaround plan and realigned cost structure which included personnel reductions and more variable compensation. Operating expenses as a percentage of revenue decreased to 33% for the period from 46% in 2012. Net loss for the first nine months of this year improved 66%, to a loss of $824,000 or a loss of $0.02 per share from the loss of $2.5 million or a loss of $0.07 per share a year ago. This included non-cash expenses totaling $423,000 compared to $613,000 last year. Turning to our balance sheet. As of September 30, 2013, we have working capital of $4.1 million and cash and cash equivalents of approximately $1.2 million. At this time, we believe that our current cash and cash equivalent would be sufficient in our anticipated cash needs into the first half of 2014, given our progress made in reducing operating expenses and pulling our cash burn, in conjunction with our turnaround plan. Cash used by operations during the three months ended September 30, 2013 was $302,000 compared to $1.1 million used by operations in the prior year. Cash used by operations during the nine months ended September 30, 2013 was $623,000, compared to $3.1 million in the prior year. We have also – we also have our asset based credit facility available to us for working capital needs. To-date, we have not drawn down and we do not have plans to draw down on this credit facility during 2013. I will now turn the call back to, Jennifer to give an update on our sales and marketing highlights for the quarter.

Thanks, Carrie. The results that we have delivered these past five quarters continue to show the success of our turnaround. The business models have been completely transformed. We have gone from four quarters of revenue decline to our first quarter of revenue growth in the turnaround. We believe we now have the right proportion of operating expenses to our company our size, as well as the right ratio of sales and marketing to general and administrative expenses. We are investing in promotional activities and traditional trade-spend strategies that we believe will drive top-line growth. We are diligently working on getting Jones Soda on to more shows with the right amount and frequency of promotional pricing and not just on any show, but shows where we know the product will perform well with the appropriate package type and flavors. We are already seeing the successes with our new listing for the Halloween cans in Target and the evolution of our relationship with Wal-Mart which is now gone from carrying a variety pack to this past quarter, we are now offered at Wal-Mart in three different four pack offering. Our marketing campaigns have been more in line with our brand and are garnering more national awareness at a fraction of the cost of previously costly corporate marketing. We are extremely proud of our truly unique cost effective marketing initiatives this year that I mentioned earlier on the call. These initiatives are helping us forge new partnership at a very low dollar impact to our corporate marketing budget, as reflected in our reviewed operating expenses. As an example, in July, we launched our Made in Michigan line of bottles in a way to say thank you to the great state of Michigan and in conjunction with building our brand back up to the state. We wanted to create a very unique program for a state that was integral in the building of the Jones brand in its early days. These bottles produced in [indiscernible] plant by one of our distributors featured Michigan only theme labels sent in from Michigan consumers and representative of images throughout the state. This program was both successful with our Michigan distributors and retailers, that I am excited to announce that we will be returning to Michigan to create future runs of Jones ad 2014. In September, we also brought back the Jones Halloween cans with four new unique flavors representing traditional Halloween delicacies including candy corn, red licorice, caramel apple and blood orange. These eight ounce limited edition treats were the perfect to trick or treat and for various Halloween events. This seasonal program offered throughout the set 1,700 Target stores in the United States as well as Cost Plus World Market, Hastings Entertainment and Schnucks. While operating in these unique and interesting Jones product offerings, we have been able to forge the relationships with major national retail partners. Finally, this past spring and summer, we partnered with Fiat on a large integrated marketing campaign to jointly celebrate the launch of our Natural Jones Soda and Fiat new 500e into the California market. The relationship we have with Fiat is an example of a great partnership with another company and brand that has a similar DNA to that of Jones. As one part of this campaign we carried out a unique summer photo contest called Jonesin for a Fiat 500e which closed October 31st and received over 10,000 entries and I might add a lot of interesting photos. We, along with Fiat, are in the process of selecting the best photo and therefore the grand prizewinner who will receive a Fiat 500 surfing lessons with Jones athlete Brianna Cope. And this winning photo will be on the bottles of our Natural lines as we move into new markets next year. In addition to the photo contest, we partnered with Fiat USA to sample at numerous other events throughout this past summer. We, at Fiat, could not have been more thrilled at the response we received from this collaboration. And then finally, our Caps for Gear program again a unique and extremely appealing consumer targeted programs which runs for full year has been at 75% increase in price redemptions over the same year-to-date period in 2012. Over the 19,000 caps have been sent into across the US and Canada today and we are still counting until the end of the year. It is interesting and innovative marketing programs that are not only garnering national attention, but are carried out at a fraction of the cost of most other beverage marketing campaign, of which I’m extremely proud that Jones Soda has returned to. On the sales front, our expanded sales team including our full-time seasonal employees who worked till the end of September have been busy promoting and opening up new independent accounts for Jones Soda and our newly launched Natural Jones Soda which has been initially targeted only into the state of California. We are building this Natural line of Jones slowly with a focused and disciplined approach to launch and in a smart way that is met consistently from our distributor partners. We look forward to rowing out this Natural and lower calorie line of Jones into new markets in 2014 which will include our home market of Pacific Northwest as well as Canada and both very strong markets for the Jones brand. While I’m extremely excited about this year’s past – this past year’s truly unique marketing initiatives, I’m even more thrilled by the continued improvement in our overall business model that we have worked to reconfigure over this past year. Furthermore, we have the right product line up, while bias we have the best looking package in the industry with quality ingredient including our core soda line with Pure Cane sugar and for our zero calorie Zilch with Splenda instead of [indiscernible] and Natural Jones soda which is stripped down to the essentials and contains a unique blend of natural sweetness and only 30 calories. As we move forward into 2014, I will look forward to inform you about new and unique marketing programs that I am confident that will continue to go a long way to building back our Jones brand in the right way and creating the connection with our consumers and retail and distributive partners for the long term. We thank you for your continued support and look forward to updating you on our progress in our upcoming call. I will now open the call up for questions.

[Operator Instructions]. We’ll hear first from Gary Getz, private investor. Please go ahead sir.

Hi Jennifer and Carrie and congratulations. I think you guys and the company have done a super job. It’s refreshing to see sales growth, very refreshing to see that and hope to see more of that and to see that accelerate that into future. And I think your marketing initiatives from Halloween to Wal-Mart to Target to Made in Michigan are really great. I had one question on the gross margin. I noticed it Carrie, you had indicated that one of the reasons for the drop was promotion expenses, but yet I see the promotion expenses on a separate line under the operating expenses. So could you explain in a little more detail, why the gross margin declined?

Sure, Gary. Thanks very much for your comments and I’d be happy to answer that question. So the trade-spend that we’re talking about in these promotional programs that happened at retail, our net gross revenue. So I know that – so it gets a little bit confusing I know because our below the line expenses within operating expenses that also have promotion and selling, which is growing more our sales and our marketing expense for the company. So the programming that we did with the Halloween program, that was posted at lower purchase price, because they are eight ounce can. In addition, we also had some promotional allowances to really drive the velocity of retail to make sure that we work through the program in time for Halloween. So the promotion amount I’m talking about within margin is actually net with [ph] revenue.

And I may jump in there too Gary, it’s part of the what I believe when I came back and I’m taking the company on this path is the increase in trade spend is to support our distributors and our retailers with temporary price reductions that help – that allows our brand to be at a lower cost on shelf. The promotional and selling expenses that are segregated out below the gross profit line are those items like we talk about for marketing the cost associated with our Fiat partnership and our advanced what we call corporate marketing. So that’s a differentiation between the two.

Okay. Thank you very much. And once again congratulations to you and to all of Jones Soda for the remarkable work that you’re doing.

Well thank you very much, Gary. We appreciate your support and meeting with us every call.

Thank you, Gary.

[Operator Instructions]. We’ll hear next from Josh Hansen. Please go ahead sir. Mr. Hansen you may be muted on your end. Please go ahead. And it appears that line has disconnected. We’ll go next to Brett Maul, private investor. Please go ahead.

Yeah how are you guys? Few questions for you ladies. Good job on the quarter. My first question is about your online presence and I’m from New Jersey so I love the product of [indiscernible] for years but I don’t see much of it. My first question involves why don’t you have the Halloween addition on your online store? I think that would be a good stand for people who may not have the opportunity to get in stores, in the shelf. And why not may extend to Amazon or something like that so that you can get an online presence?

I’m sorry, what was your name again? I missed your name.

My name is Brett Maul.

Brett. Okay Brett, sorry about that. Yeah you actually bring up interesting point. We now moving forward we definitely are looking at our online presence and looking at how it’s presented and what we’re offering in the pricing that we’re providing. We’re looking to do a bit of refresh for 2014, so I’m excited by what we’re going to be coming out with and starting January 2014. In terms of the Halloween can, unfortunately, we were going to put them on the website, but we had so much retailer interest with them that we had none left to sell online. So it was a plus and a minus there. So we couldn’t offer it online, but we will be offering all of our products. We will produce a little bit more next year so that we can allow it to be sold online as we roll with various other Jones Soda product. And then in terms of your Amazon question, we of course are continuing to look at that and see if it makes sense to the company and we will be revisiting that with the review of our whole online strategy starting well before and before we launch in 2014.

Okay, great. And then usually you used to roll out a holiday special or a Halloween addition, do you plan on starting that online too or do you plan on the same ads you went down with the Halloween addition?

You mean holiday themes? Yeah this year we do not have the variety pack that we had in the past. We were so crowned up in the fourth quarter with Halloween and we did our breast cancer awareness promotion and then what we’ve got going on right now in November is our No Shave November program. We were just a little bit packed. We definitely recognize the importance of the seasonal items and we will be looking it out for next year.

Great. And my last question is, I know you had mentioned earlier you have enough cash flow which is great, to last you to the first half of 2014. But my serious concern is that, if we’re not profitable by 2014 first half, what are our other options at that point when we run out of cash? And then you said you have a credit facility, can you speak about how much money we have available with our credit facility or what are the options are when we – return the profit but if we don’t turn the profit, what do we do then when we’re out of cash flow?

Yeah, very good question. We do you have an asset base line of credit with an approved amount of $2 million and we are working every quarter, every month on a TV break even what we – it’s a delicate balance because we want to be able to take advantage of opportunities like Target and provide the right kind of support to great retailer like Target. But we will as a company and our board of directors, we will evaluate options in terms of if at the time we need this additional equity capital as we’re continuing to build back our business. But we are counting on it, we watch it daily.

Okay. But I’m sorry to take your so much time my last question is I know you say you’re in Wal-Marts you’re in Targets, but in New Jersey I don’t see anything. Is it regional Wal-Marts and Targets? I know you say nationwide, but I’ve gone for several looking for it now picture of it I don’t see it anywhere.

Yeah it was a little difficult to find. It was in the Halloween section in Target. There were some Targets that we discovered along the way that they didn’t, they were city Target, but yeah – we heard that from consumers that they couldn’t find it, but we definitely – we were from what we saw in the reports we were in the majority of all of the Targets.

Okay. Excellent. All right. I’m looking forward to some growth in the future and hopefully a profitable quarter coming up I’ve been waiting for a while.

Okay, great. Thank you.

[Operator Instructions]. And we’ll go next Henry Dillon with Founders Finance. Henry Dillon – Founders Finance: Hi Jennifer. Congratulations on the revenue growth.

Thank you. Henry Dillon – Founders Finance: Question first – you’re welcome. The first question goes to the finished product cases and the growth that I see there from 2012 to 2013. I was hoping you could provide a little bit of a breakdown on what percentage of that came from existing products and what percentage of it came from the new products such as the Natural soda?

We don’t generally give a breakdown of product line Henry, it’s a pre-combination of growth from our case volume with the Halloween can as well as growth in certain of our core market, as well as a reduction we’re not focusing much on the WhoopAss product line. And then certain regions in the United States where we’re going with the sales force we’re not focused on those. So it’s a balance of increase, overall volume in some areas offset with some decreases, but again for competitive reasons, we never give out product breakdown. Henry Dillon – Founders Finance: Okay. Thank you. And then also as it relates to the whole foods imitative, how is that working at this point?

Well we’ve been in whole foods for approximately four, five months we are in there I believe March of next year. We are going to present to them again for next year in the Northern California market. We are also looking to present our national line into some other divisions of whole foods. So again right now we are encouraged with the repeat orders [indiscernible] presentation this quarter and we will find out. So I can’t really say any much there. Henry Dillon – Founders Finance: Okay. And then finally on the Made in Michigan initiative, can you provide a little bit of commentary on how the bottling facility in Michigan backs up against your other options and how that affects gross margin overall? Is there an advantage other than the marketing aspect, is there an operational advantage to the product that is bottled and sold from the Michigan facility?

Fortunately, our bottler there is also our distributor so he’s a friendly partner of ours and so we got great pricing for the bottling operation there. We all work together to make it work for all of us. We bottle elsewhere in the United States and so we want to maintain volume in each of our plants. But again it was not a significant increase in consummated $4,000 in the added equipment bottle it down there at IDI. And again the marketing impact and what we’re doing in the state of Michigan are ways of light additional cost and it’s so immaterial to our gross margin in terms of what increased it was so it would be 0.01%. So it is something we’ll be moving forward with in the future. Henry Dillon – Founders Finance: Okay. So to understand that’s on a per case basis then what you’re saying is there is essentially no difference in gross profitability on a case bottled in Michigan versus a case bottled in another facility?

That’s correct, because we also have the option of a freight cost that our distributors in Michigan would have had to pay or we would have paid for to get the products to Detroit. And we can do it in the state of Michigan because the volume is there. We cannot do this program in any other state really but the volume is there in Michigan. Henry Dillon – Founders Finance: All right. Thank you very much.

You’re welcome.

[Operator Instructions]. And seeing no further questions in queue, I’ll turn the call back over to Jennifer Cue for any closing or additional remarks.

Okay. Thank you, Yolanda. I just wanted to say again, thank you everybody for your interest in Jones Soda. And we will be speaking with you next when we report our year-end results early in 2014.

That will conclude today’s conference. Thank you all once again for your participation today.