Mark Miyata - VP Finance Jennifer L. Cue - CEO

Unidentified Analyst -

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Jones Soda Company Second 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 is being recorded. I will now turn the call over to Mr. 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. Jennifer L. Cue: Good afternoon, everyone, and thank you for joining us today. We also have Eric Chastain, Chief Operating Officer on the call with us today. He has been the Head of Operations at Jones since 2002 and continues to be an integral part of the executive team and so I wanted him to join us today. We are all happy to report continued improvement in our top and bottom line operating results in our second quarter of 2015 which represents our fourth consecutive quarter of growth in case volume over prior comparable quarters. During the second quarter of 2015 we were able to show 13% volume growth in our case sales over the second quarter of 2014. Sales growth in dollars were also strong at 10% that slightly lower than case volume growth due to the Canadian dollar affecting our Canadian base sales. Gross profit improvement was more impressive showing growth of 21% and with an improved gross margin of 25% up from 23% in the prior year period due to the favorable impact of the weakened Canadian dollar as we continue to shift the bulk of our productions for U.S. and Canadian markets through our Canadian operations. It has been very convenient for us to have a natural hedge on the Canadian dollar given the strength and size and our Canadian business. In addition to the growth in our business there was also a reduction in SG&A expenses mostly in administrative expenses with such items like lens [ph] expense reductions achieved starting the second quarter of 2015 with the move of our head quarters that took place on March 1st. Also mind our loss from operations which include some non-cash items such as depreciation, amortization, and stock based compensation with only $92,000 compared to a loss from operations of $402,000 in the previous year’s quarter. With a streamlined business model and many interesting opportunities on the horizon I could not be more excited about our future. I will go over some of the initiatives in 2015 later but in the mean time I will turn the call over to Mark to go over the numbers in more detail.

Thanks Jennifer. For the comparative quarters in fiscal 2015 compared to fiscal 2014 revenue in the second quarter increased 10% to $4.3 million up from $3.9 million. Case volume increased 13% compared to the prior year period. Promotional allowances decreased $143,000 to $316,000 for the quarter due to tighter management of promotional programming. Accounting impact of these promotional allowances is a direct offset to gross revenues. Gross profit margin in the second quarter increased to 25% from 23% in the second quarter of 2014, due to the increase in case volume and favorable impact of shifting more production to Canadian operations given the Canadian U.S. dollar exchange rates during the quarter. Operating expenses in the second quarter decreased to $1.1 million from $1.3 million in the prior year period primarily due to tighter management of sales operating expenses and a decrease in administrative compensation in rent expenses. Operating expenses also included non-cash expenses, which includes depreciation, amortization, and stock based compensation totaling $95,000 compared to $152,000 last year. Operating expenses as a percentage of revenue decreased to 27% for the quarter from 33% in 2014. Net loss for the quarter-ended June 30, 2015 improved 73% to a loss of $116,000 or $0.00 per share compared to a loss of $429,000 or $0.01 per share a year ago. This is a result of the increasing gross profit margin combined with reduced operating expenses. For the first six months of 2015, revenue increased 5.7% to $7.2 million from $6.8 million primarily due to the 10% increase in case sales loss compared to the prior year. Our increase in revenue for the first half of 2015 was partially offset by the foreign exchange translation loss from Canadian sales given the continued weakness of the Canadian dollar during these first six months of 2015 compared to the first six months of 2014. Promotional allowances decreased $128,000 to $612,000 for the first half of the year due to tighter management of promotional programming. The accounting impact of these promotional allowances is a direct offset to gross revenues. Gross profit margin for the period increased to 25% from 23% in the second quarter of 2014 for the reasons I previously mentioned. Operating expenses decreased 15% to $2.1 million from $2.5 million in the prior year period primarily due to tighter management up SG&A expenses I mentioned earlier. This also included non tax expenses totaling $144,000 compared to $292,000 last year. Operating expenses as a percentage of revenue decreased to 30% for the first half of 2015 from 37% in 2014. Net loss for the first six months of this year improved 59% to a loss of $394,000 or $0.01 per share compared to a loss of $968,000 or $0.02 per share a year ago. This is a result of the increase in gross profit margins combined with reduced operating expenses. Turning to our balance sheet, as of June 30, 2015 we have working capital of $2.5 million and cash and cash equivalents of approximately $667,000. At this time we believe that our current cash and cash equivalent 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 six months ended June 30, 2015 was $984,000 compared to $1.1 million in the prior year primarily due to the tighter management of inventories relating to the increase in case sale volume. We have a loan facility available for working capital needs which we used during the second quarter. As of June 30, 2015 our eligible borrowing base as of that date was approximately $1 million of which we had drawn down $729,000 as of that date. I’ll now turn the call back to Jennifer to give an update on our sales and marketing highlights for the quarter. Jennifer L. Cue: Thanks Mark, during the second quarter of 2015 I was pleased to see positive movement in all aspects of the business. We continued to build our Jones Cane Sugar soda product line in Canada and the U.S. as well as in our international markets. This growth was achieved by successfully landing in several keychain while continuing to build on our independent account in regions within our markets. The increase of presence at [indiscernible] Jones cane sugar as well as the two of our flavors of account strip combined with our 12 ounce can, we offer a broad spectrum of offering the program we are pleased with our long-term partnership with this national chain. In addition for our cane sugar line we secured several new convenience chains in the U.S. and Canada. Our fountain business growth potential is very exciting. In May of this year we attended the National Restaurant Show in Chicago where we officially unveiled our unique fountain program with what we believe was one of the best foods of the show. Consumers and retailers there were very intrigued upon Jones on fountain and thrilled with the look of our machines and cups. With our growing network of fountain partners in North America and a continued interest from both independent restaurants and up and coming chains that are excited to offer something more unique than the standard soda offerings, we believe there is significant potential in this side of our business. Our annual Tabs for Tees [ph] program is proving to be very successful. We have received twice the number of entries half way through the year then we did last year. In addition, our Jones and FIAT contest is in full swing and the number of entries continues to far outpace the numbers from the year prior. Our partnership with FIAT works. Weekly joint FIAT Jones surprises are being shipped out to a weekly photo winner. We again participated in the U.S. open of third with FIAT in late July and we are looking forward to do many more events and activations with FIAT in the future. Our limited addition flavors are gearing up for the fall, starting with our peanut butter and jelly flavor to celebrate the back to school season. For Halloween this year we are offering Halloween flavors in the lemon drop dead and blood orange in our signature Jones Soda bottle instead of our 8 ounce Halloween cans. Offering Halloween flavors in our bottles allows us to offer this unique seasonal item to retailers -- or via distributor base and Jones is able to increase their sales by the use of these unique in and out flavors by Jones. For our online business we continued our participation with Zulily in two different online events in the second quarter and intend to offer Jones in core flavors and seasonal flavors with Zulily as well as consider other online partnerships that will supplement our own online business. Finally we are continually evaluating new opportunities that present themselves to us as well as innovating new products all the while seeking to build the Jones brand in the U.S., Canada, and international markets. I am very proud of what this team has accomplished over the past several years and I am very excited about the opportunities we have ahead. Before we open the call up for questions I would also like to mention that as we announced a few weeks ago, Mark Miyata, Vice President of Finance will be leaving the company this month. We’re sad to see him go but its amicable departure due to exciting family reasons coming up and we wish him all the best in the future. I will serve as our Interim Principal Financial Officer while we seek a qualified replacement for Mark. I will now open the call up for questions.

[Operator Instructions]. And our first question will come from Jonathan O'Philly [ph].

Hi Jennifer, I just wanted to know do we have any future headwinds for the third quarter that would prevent us from going in the direction we are going now as the growth in revenue? Jennifer L. Cue: Headwinds in terms of what would you be.

So the direction that we are headed. So I don’t know if we have something that is currently, are we facing something that we should be facing like last quarter at third quarter we faced will prevent us from having positive earnings next quarter? Jennifer L. Cue: I am not quite sure what you’re asking there but all I can say is we’ve continued to setup our business for this year. Moreover we have got distributors and our retail partners. I do not see retail partners abandoning us at this point. So yes, we would continue to plough forward and we got our third quarter plan in place and we’re sticking to our plan. So no, I did not see any specific headwinds.

Okay. Thank you.

[Operator Instructions]. And it appears we have no further questions at this time. Jennifer L. Cue: Well we’ll just finish off. Thank you again for your interest in Jones Soda. We will next speak when we report our third quarter results in November.

And that does conclude today’s teleconference. We thank you all for your participation.