Mark Miyata - VP Finance Jennifer Cue - CEO

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Jones Soda Company First Quarter Fiscal 2015 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 will now turn the call over to Mark Miyata, Vice President of Finance of Jones Soda. Please go ahead sir.

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 the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements containing verbs such as aims, anticipates, estimates, expects, believes, intends, plans, predicts, will, may, continue, projects, or targets 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 these forward-looking statements. Factors that could affect our actual results include among others those that are discussed under the heading Risk Factors in our most recently filed reports 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.

Good afternoon, everyone, and thank you for joining us today. We are happy to report continued improvement in our operating results in our first quarter of 2015, which represents our third consecutive quarter of growth and [indiscernible] over prior comparable quarters. During the first quarter of 2015, we were able to show 6% volume growth in our case sales over the first quarter of 2013. Our growth in case volumes was achieved through a number of regions in Canada and the U.S. as well as in our international business. In addition, we have continued to bring down operating expenses primarily in administrative expenses. Overall, I am pleased with the combination of sales growth and reduced operating expenses as continue to build towards profitability. The endeavor to take advantage of the increased interest in premiums products for our core Jones Soda brand as well as offer lighter options such as Jones Stripped to those channels that are looking for a sparkling beverage that is lower in calories and sugar. I am also encouraged by the enthusiasm we see behind our fountain program and are looking to ways in which we can build this business efficiently while harnessing this incredible enthusiasm from our fans. Finally, I am very excited by several other initiatives that are in the works to supplement our current business model. I will go over some of these sales and marketing initiatives for 2015, but in the meantime, I will turn over the call to Mark to go over the numbers in more detail.

Thanks Jennifer. For the comparative quarters, revenue in the first quarter of 2015 remained relatively flat at $2.9 million. Although we had a 6% increases in case sales, our revenues were impacted by foreign exchange translation losses from our Canadian sales due to the significant weakening of the Canadian dollar during the first quarter of 2015. During the quarter, 23% of our total revenues were generated from Canadian [ph] sales. Promotional allowances increase $15,000 to $296,000 for the quarter due to the increase in case sales. The accounting impact of these promotional allowances is a direct offset to gross revenues. Gross profit margin for the first quarter increased to 25.6%, up from 24% in the first quarter of 2014. This is primarily due to the favorable impact of the Canadian U.S exchange rate on Canadian promotional allowances and Canadian [indiscernible] sold. Operating expenses in the first quarter decreased to $971,000, down from $1.2 million in the prior year period, primarily due to the decreases in compensation and depreciation expenses. Operating expenses, including non-cash expenses which consist of depreciation, amortization, and stock based compensation were $49,000 compared to $140,000 last year. Operating expense as a percentage of revenue decreased to 34% for the quarter from 42% in 2014. Net loss for the quarter ended March 31, 2015, improved 48% to a loss of $278,000 or $0.01 per share compared to a loss of $539,000 or $0.01 per share a year ago. This is the result of the increasing gross profit margins combined with reduced operating expenses. Turning to our balance sheet, as of March 31, 2015, we had working capital of $2.4 million and cash and cash equivalents of approximately $476,000. At this time, we believe that our current cash and cash equivalents combined with our loan facility and cash from operations will be sufficient to meet our anticipated cash needs through December 31, 2015. Cash used in operations during the three month ended March 31, 2015 was $582,000, compared to $264,000 in the prior year, and this is primarily due to the timing of payments in accounts payable offset partially by tighter management of inventory related to increase in case sale volume. We have a loan facility available for working capital needs which we used during the first quarter. As of March 31, 2015, our eligible borrowing base as of that date was approximately $805,000, of which we had drawn down $248,000 as of that date. I will now turn the call back to Jennifer to give an update on our sales and marketing highlights.

Thanks Mark. During the first quarter 2015, we made a fresh start by relocating our headquarters to a new location in Seattle which to me is a physical and tangible representation of the final transition out of our turnaround plan. Our new space has selected the Jones brand very well and importantly is cost effective, more operationally efficient, and sets itself well to focus on core business into the long term. With our fresh start, we are also on a solid path to growing our business towards profitability for our shareholders. We have built significant brand equity in Jones over the last 19 years, and over time, the brand has evolved to provide potential in various regions and formats. However, we are also cognizant we need to be disciplined in our spending in order to build our business for the long term. Some of the sales and marketing initiatives we put into place for 2015 are to capitalize on key strategic goals and speak to our brand value. With the core line of Jones cane sugar, we have continued our successful annual Caps for Gear program that was launched again in the first quarter of 2015. Point of sale material for this program is being placed at retail locations selling Jones across North America. We feel that this program profiles our brand in a [indiscernible] unique unit Caps for Gear consumer contest with prices that include GoPro cameras, Spy Sunglasses, Diamondback BMX bike, and a Jones branded Skateboard. The prizes are huge hit with our core demographic of Jones Soda. For our Jones Stripped line, we will have recreated for the third year in a row our Jones and For a Fiat contest that will run from June through November 2015 and did see a composite giveaway all new Fiat 500X to the consumer that sends in the best photo. In conjunction with this contest, Fiat will provide a free set of customized Jones Stripped bottles to all buyers of the Fiat 500X during the content period by our myJones customization program providing for unique advertising of the Stripped brand as a result. We continue to create and offer limited additional flavors to certain market and change such as the recently released Easter bottles that incorporated bunnies and chicks on our Grape and Pineapple Cream flavored sodas. Later this year, we aim to bring back what has become a fan favorite in the Jones peanut butter and jelly flavor in conjunction with other back to school offerings. We also have other limited edition releases in the works for the second half of this year. Our online business is also ramping up with various target market event participation and a continued relationship with online retailer Zulily also based here in Seattle. We are noticing an increase in consumer interest with fans reaching to us daily regarding the online purchase of Jones products for customize bottles through our myJones program for various events such as Wedding, Birthday's, Graduations, and Corporate promotions. Another exciting adventure for us and our consumer is our Fountain Program which we officially announce in February of this year. Part of this expansion, we are excited to be in attendance of the National Restaurant Association trade show in Chicago from May 16 through May19 to present our unique Fountain Concept to independent in chain restaurants in North America. In conjunction with our with our presence at this show, we have placed a full page ad in the weekly periodical nation’s restaurant news which is a great print magazine with significant viewership and a devoted following from the restaurant industry. The Jones ad is titled Fountain of Youth and profiles our fountain equipment that is the first of its kind in the beverage industry using customer submitted photos on the Fountain equipment offering traditional flavors such as Jones Cola, Jones zero calorie cola, lemon lime ginger ale, as well as some fun flavors like berry lemonade and green apple. Our fans on social media have spoken about their enthusiasm of having Jones cane sugar as an option on fountain, and so we are excited to roll out this initiative on a greater scale. Finally, we are continuing to validate new opportunities that present themselves to us while growing the Jones brand back up in United States, Canada, and international markets. I will now open up the call up for questions.

[Operator Instruction] We do have a question from Jonathan [indiscernible], a Private Investor.

My question is, when will we start seeing the results of the initiatives that we are opening out. You said in May, when will that start effecting process or where when will we see the effects of that?

Are you referring to our fountain program?

Yes.

So, in terms of running, you can start to see -- see the results of that -- I am not sure, quite sure of the question that you're asking John.

So the question is, when should we -- are we testing that? Or is it a full on scale? Are we -- is that?

I understand your question now. What we have done over the past year, year and a half in terms of learning how to operate within the Fountain business, we have been partnering with certain Fountain distributors in markets where we have some lead restaurants who wanted to put Jones fountain in place. So it's not considerably wide spread across North America, it’s selectively being launched through independent restaurants that are not in contracts with other large beverage companies that can take a chance on the Jones Fountain machine. So we are in the process of putting in our Jones Fountain machine in independent accounts in markets where we’ve got good Fountain distributors and then just continue to build this network of Fountain distributors up, for when a large chain comes to us and wants to put Jones across the nation. So it will be a gradual build-up, but we’re pretty excited by what the future holds for this initiative.

I do know, we have been reporting net losses for a while, but how long can we sustain a net loss versus earnings on the quarterly basis, are we able to -- are we saying that we’re -- we should be okay up until December 2015 or is it beyond that?

Well we have our budget in place, we’ve got in place and we feel that the cash that we have on hand is sufficient to execute our plan for this year, which includes some growth as well as sustainability. So our goal is profitability and I think we’re honestly -- I know it's seems like a long time, it's been 2006 that there has been profit in this company, we’ve come off a period of six years, probably when I returned we were losing $10 million to $15 million a year. This Brand should not be losing money. The first quarter and the fourth quarter in a beverage company often do, it's a slower month, you are going to see losses. But this brand should be making money and I am very excited by where we’ve come from and how close we are to breakeven and I look forward to profitability moving forward. I am the big believer in profitability John.

I know you are -- I know it should be in last August, I know you are. So that why I’m comfortable just hearing that, it makes me feel more comfortable.

We’ll take next question from [Gary Gates].

I was being silent until I heard that last comment, and wow, I am very pleased to hear your thoughts that we’re getting close to profitability, I mean it's been -- as an investor -- as a long time investor, it's been a long road, but I have patients and I have confidence. And again I wish -- I have confidence in the company and in you -- and I wish you all the best.

Well Gary, you’ve got my commitment, we are in an industry, beverage industry where a lot of beverage companies -- and a lot of money to get shelf space and sales, and we are that close to fine tuning so that we get enough sales growth above the spending -- keeping spending to a minimum. So I remember when we first took this company to profitability in 2002 and the excitement that I felt, at that time, when we first got the profitability after seven years, and -- anyway I am a big believer in sustainable profitable business model and we are very, very close.

[Operator Instructions] And it appears there are no further questions at this time. Ms. Cue, I like to turn the conference back to you for any additional or closing remarks.

Well thank you Melissa and thank you everyone for your interest in Jones Soda. We will speak to you next when we report our second quarter results in August or at our Annual Shareholder Meeting which we are having a virtual shareholder meeting on May 13, at 3 PM Pacific Time. Thanks a lot.

This concludes today’s conference and thank you for your participation.