Max Schroedl - Controller Jennifer Cue - Chief Executive Officer Eric Chastain - Chief Operating Officer

Mark Freeman - Freeman Investment Advisors

Welcome to the Jones Soda Company First Quarter Fiscal 2016 Conference Call. At this time, all participants are in a listen-only mode. Following the presentation we will conduct the 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 this call is being recorded. I will now turn the call over to Max Schroedl, Controller. 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 purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements containing words such as aims, anticipates, estimates, expects, believes, intends, plans, predicts, will, may, continue, projects or targets and negatives 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 statements. Factors that could affect our actual results include, among others, those that are discussed under the 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 our 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 day 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. Today, we are very happy to report outstanding results for the first quarter of 2016. Our case volume results are remarkable 73%, revenues up 48% and we realized a net income of $49,000 for the first quarter. We are pleased that so many aspects of our business and are most happy about what this quarter says about where we have come over the past four years. We spend the last several years cutting out excess expense, establishing new disciplines as well as building relationships with our distributor and retailer base. Also set the company out for success over the long-term and we are seeing the results of our hard work. A profitable quarter is the Company’s first since nine years ago in the second quarter of 2007. This achievement has been possible due to four specific things. As mentioned the tightening of our spending being the first. The continued refinement and building of our core brand Jones Soda, the second; the creation and addition of new partnership and volume, the third and finally, the addition of the new initiatives and brands. When I returned in mid-2012, I knew that the Jones brand have strong legs and furthermore that the unique skills of the people of our company were not fully reflected in our financial results. With the transformation of our business model the continued enhancement of our distributor and retailer partners plus the addition of new partners as well as launching new initiatives with in the Jones brand and outside of it. I can honestly say I’ve never been as excited about the future of the company. I will now turn the call over to Max Schroedl, who will outline the details of the numbers and then I will return after to add a little more insight into the results and our 2016 plans.

Thanks, Jennifer. For the comparative quarters revenue in the first quarter of 2016 was up 48% at $4.3 million compared to $2.9 million in the prior year. Revenue growth was primarily due to 73% case sales growth. While the momentum of our core brand remains strong. The case volume growth was primarily driven by the initial pipeline fill of our 7-Select co-branded premium product into participating 7-Eleven locations across the United States. During the quarter 16% of our revenues were generated from Canadian sales. Promotional allowances increased $238,000 from $534,000 for the quarter due primarily cost associated with the launch of 7-Select. The accounting impact of these promotional allowances is a direct offset to gross revenues. Gross profit margin for the first quarter increased to 27.4% from 25.6% in the first quarter of 2015. Primarily due to the continued year-over-year favorable impact of the Canadian, U.S. exchange rate on cost of good sold as well as efficiencies related to the initial pipeline fill of 7-Select. Operating expenses in the first quarter increased to $1.106 million from $971,000 in the prior year period primarily due to one-time expenses surrounding the launch of our partnership with 7-Eleven. Operating expenses included non-cash expenses, depreciation, amortization, and stock-based compensation, totaling $33,000 compared to $49,000 last year. Operating expenses as a percentage of revenue decreased to 26% for the quarter from 34% in 2015. Net income for the quarter ended March 31, 2016 was $49,000 or $0.00 per share as compared to a loss of $278,000 or $0.01 per share a year-ago. This is the result of increased revenue related to the 7-Select pipeline fill, core brand growth, cost of goods sold efficiencies associated with the pipeline fill and continued discipline around our operating expenses. Turning now to our balance sheet, as of March 31, 2016 we had working capital of $1.8 million and cash and cash equivalents of approximately $699,000. At this time, we believe 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 March 31, 2017. Cash used in operations during the three months ended March 31, 2016, was $67,000 compared to $582,000 in the prior year primarily due to increased revenue in case sales growth. We have a loan facility available for our working capital needs, which allows us to borrow up to $3 million. Our current eligibility in borrowing base as of March 31, 2016 was approximately $1.7 million of which we had drawn down $902,000 compared to a line balance of [$908,000] at December 31, 2015. In addition, during the first quarter 2016, we had access to an additional $500,000 in principal advances against the purchase orders that expired unused. I’ll now turn the call back over to Jennifer to give an update on our sales and marketing highlights.

Thank you, Max. 2016 has definitely started with a great quarter. We are beginning to analyze our business in three broad categories. Our first is our core business, which has represented the Company’s core brand Jones Soda, and its extension and what has made up all of the Company’s sales and bottom line in the past several years. Our core Jones business includes our glass bottles and 12-ounce cans, any extension of the Jones bottle including Stripped as well as new initiatives that directly tied to our core brand such as Jones on Fountain. This core business remains the engine and we are pleased with the progress and momentum we are having here. We continue to see opportunities for our core line. While the carbonated soft drink side of the beverage industry has seen declines in recent years, it is still a significant five at approximately $80 billion in the U.S. alone. We are witnessing a shift in the segment as consumers and retailers understand that a premium soda is a way of treating yourself if and when you are grabbing a soda. Why not choose one with better ingredients and a unique and independent personality and this is where Jones fits in. We support the Jones brand with traditional marketing such as point of sales materials and tradeshows as well as our unique marketing such as Caps for Gear, our social media strategy, which now includes Snapchat as well as many of the unique ways that connect our consumer to our brand. As mentioned on previous calls, we constantly evaluate our core brand and the sugar content of it in order to evolve changing consumer tastes. We will also continue to evaluate new innovation around the Jones brand. Our second category of our business we look at is our strategic partnerships. Outside of our core business, we have over the past few years and presented with some unique strategic partnership opportunities. A good example of this and now coming to fruition is our new businesses 7-Eleven USA. During the first quarter, we launched a new core branded item with the private brands group of 7-Eleven USA. I am very proud that our team flawlessly executed the launch of this new brand into the massive 7-Eleven distribution system. The launch of this new brand definitely comprises a large part of our case volume for the first quarter due to the pipeline fill of the brand into their distribution system. I know everyone is very excited and interested in this new launch as are we and I expect that we will have a number of questions about this launch. This program is in its infancy at this stage and we are limited and what we can say about it. As Max mentioned, our first quarter results reflect the initial load and across the participating 7-Eleven stores in the U.S. Our job is to manufacture and sell the 7-Select product to 7-Eleven and 7-Eleven handles the marketing pricing and other strategies for selling the product within their stores. We closely work with 7-Eleven to monitor the results. However, we cannot provide any information or guidance about sell through or reorders. We expect to sell to 7-Eleven during 2016 will fluctuates from month-to-month as the public react to this new product and as reorders come in. Although, we cannot give out the specifics, we can say that we feel confident in the program we have created with 7-Eleven and we will be working with them towards its success. And then finally, the third category of our business, new brands outside the Jones brand. We are pleased with the initial consumer feedback we have been getting to our new brand LEMONCOCCO. This brand is also in its infancy and does not currently represent a material part of our business. Our launch has been very strategic and focused on this brand, Italian roots. As such we are going to market in a unique way by placing it in the appropriate and influential counts for the Italians inspired brand. The feedback has been great. We nailed LEMONCOCCO with the product we created as well as its great packaging. When people taste LEMONCOCCO and connect with that they love it. We are very excited about the initial response and will be working to rollout this brand in 2016 and beyond. All of these innovations and hard work paid off as witnessed by our 2015 first quarter result as such I hope to reestablish this brand and Company almost four years ago and set it on the path to and more importantly profitability again. With the first quarter 2016 showing 48% revenue growth and a net income of $49,000 I could not be more proud of how the business model has transformed. We will look to make these results more of the norm than the anomaly and we established this Company as not only one of the most innovative beverage companies, but also one that is solid financially both top and the bottom line. And to begin showing the feeds of this transformation in our 20th Birthday year, it's fitting and makes the team here feel very proud of what they have accomplished. Happy [indiscernible] everyone. I will now open the call up for questions.

Thank you very much. [Operator Instructions] We will take our first question from Greg Rickman of Private Investor.

Good afternoon, everyone. I have more than one question. Am I allowed to ask more than one?

Well Greg, we'd like to limit it to a little less than eight that you did last time. So can you – maybe just one or two max.

Sure, I’ll try to see what the two most important ones are.

Okay, great.

I guess what I’ll talk about the credit line a little bit because there is a lot of chatter in the investor community that you guys are living off the credit line. I don't think that's accurate based on my observations. Is it true that the credit line primarily is drawn down on to create products that essentially is already pre-sold for the most part to 7-Eleven which is a bond quality receivable?

Well I do not know your definition of bond quality receivable, but what I can say is that our line of credit balance is lower now than it was at year end. We feel confident that we are using it to meet our production needs.

My question was you're not using it to pay for G&A expenses; you're using it for income – for corresponding income producing uses would generate – that inevitably generate income, is that right?

Yes. That's correct. I mean as shown by our profitable quarter definitely not utilizing to pay G&A expenses and we are utilizing our line of credit to build up our inventory for the launch of the 7-Select product, our core brand and as we roll into the summer our inventory builds up and we have orders that come in. They pick up a lot now in this period.

Okay. And as part of that first question and now on to my second question. You guys cut G&A that the bond which is great and one of the looming questions I have is now that you have this new stream of business you got the 7-Eleven account hopefully you'll have other demand with LEMONCOCCO. Do you foresee having to significantly increase G&A to service? What's on the table today and what will likely be on the table in terms of, just the business that needs to be attended to for lack of the description into the next 12 months or is G&A projected internally to be about what it is or maybe just slightly more?

Yes. I feel comfortable with the level of the size of the infrastructure that we have right in place in the G&A can support the business through the next 12 months.

Okay. Meaning no meaningful increase that you can see?

No I don’t foresee a meaningful increase in G&A for the next 12 months.

Okay. The second question is and maybe I don’t know if you can answer this or not. But well did you say that all the stores were fully loaded already or are they still being loaded the 7-Eleven stores?

Well. Again, somewhat we can see the product is in the majority of the stores. We don't have an insight into the specific numbers, but it’s in the majority of the stores.

And we will take our next question from Shawn Gordon a Private Investor.

Hello, I just want to say a great quarter that you guys reported first half.

Thank you.

Yes, absolutely. And also I had sentences and suggestions in the website and I saw few of those are implemented. So I’m glad to see that in your website that looks very good. The other thing I want to ask, one of the calls – maybe two calls ago you mentioned that some other distributors get picked up I think it was Kum & Go and Circle K and again that may been a few quarters ago. Are there any other distributors that you're willing to highlight this quarter?

That what you mentioned Kum & Go and Circle K those are retailers not distributors, but yes we do – yes no problem. So we are constantly meeting with the retailers. There is a time of the year where you present more frequently in that in the fall period for the following summer. So yes it's pretty intense presenting to the number of retailers in the fall period. But there is opportunity throughout the year and it's a constant part of our business presenting to new retailers.

Okay. And then on LEMONCOCCO, it's actually a fantastic product. And I know that you guys are trying to go strategically through the Italian distributors. And I have a couple of thoughts on that you know I live in New York City I don’t know how much distributions you have here yet. But clearly we have in neighborhood and all kinds of old fashion cafes. So that's a natural fit for that initial target. But I do think you guys have a home run on your hands and I'd rather see you go much faster and I don't know that's a function of you know potentially having to do a capital raise whether would be equity or debt, but I think you actually have a home run on your hands and so I would think quicker would be better, but anything else you can share with the LEMONCOCCO.

Yes. Again, we are – we believe we've created a winner here too, but I've witnessed launches of other brands in the past and I believe we are placing the appropriate accounts, we’re doing it in strategy that works in a way that I believe is better, we’re creating a plan around it. I don’t want to give out specific because sort of our unique little strategy, but yes, cafes are good place to start it. It’s a great food pairing item. And we believe that creating natural consumer demand for this – that’s what we're doing. We’re fine tuning a few things along the way and really nailing down what's working and what's not and we will – we're not raising capital at this point right now so we feel, we've got enough focus on it right now, but we will – we believe it is a winner too.

Let me ask this. I know there was somewhere around Twitter six months ago someone on Jones Soda is hoping to get the Fountain beverage into Chipotle and that’s still something somewhere down the line when their deal with Coke or Pepsi are design with could become a possibility. But I think LEMONCOCCO is much more of unique [indiscernible] or Starbucks and you guys you didn’t had relationships with Starbucks. But would you think it's something big like that or you just no [easier at that point of yet]?

For LEMONCOCCO?

For LEMONCOCCO.

Yes, I think a natural fit for LEMONCOCCO would be at fully or Starbucks. I agree, I think we are at both Italian inspired. Yes, those are on our radar screen and they will be part of our whole presentation plan and we're not – we’re focused on Italian markets to start Italian distributors, but it will be going much larger, but we benefited by going slow in my opinion by making sure that we've cleaned up and tweaked the brand, we did a bit of our product reformulation and you cannot – you need to launch a brand in a methodical way, so…

We’ll go next to Daniel Baxter, Private Investor.

Hi, Jennifer. Thanks a lot for the hard work. You did it.

You are welcome. Thank you.

I mean I know it’s I had if you really hard stuff and you did it. I have a question. The question is, a while back you were talking about putting both canisters in Fountain drinks in restaurants chains. Is that still – I’m not sure if I heard you talk about that in this conference call or is that still on the table?

Yes. Our Jones Fountain program is part of our core business and interesting new initiative for us and we are presenting that. We’re partnering up with the right partners to execute that in the right way and receiving a lot of interest you know the Fountain business is competitive and a lot of these large chains are locked up with the number one and number two, but we feel we've got a good strategy to feed this in the markets that are going to work for us initially and make it a large part of our business one day.

Okay. Thank you so much, excellent and good job. Thank you.

Okay. Thank you.

[Operator Instructions] We will take our next question from Jody Angel of Private Investor.

Hi, good afternoon. I would like to first echo the sentiments of the other callers and congratulate the team on the accomplishment. I just have one question. I’m wondering if there is an outstanding 7-Eleven receivable at the end of Q1 for products that you guys have delivered, but not yet received payment for.

Yes. Let me jump in and fill that one. I can say that quarter end there is not a material receivable from that customer. We have a great relationship and there is a - early payment in senate and we feel confident about that relationship.

Okay. Very well. Thank you and good job. Keep it up.

Okay. Thanks a lot for your support.

We'll go next to Mark Freeman from Freeman Investment Advisors.

Congratulations on the quarter. Terrific. It’s terrific news.

Thank you.

I have a brief question. Now that Jones has appeared to turn the corner and it's actually beginning to grow. What's the plan to perhaps get some analysts coverage perhaps be part of some growth stock conferences just to get the word out I don't hear much about Jones other than the quarterly conference calls.

Yes, that’s a good point. I think if you look at the size of our group which is about 27 people strong and what we've accomplished and done over the last several years and what is the priority right now. My priority is to go out and get more strategic partners and however I do believe that we – it will be a nice – I think they have coverage’s at some point in time, but I'd like to make sure that the business is very exciting and while we have shown our first profit in nine years I want to really make sure that we have a fantastic great year all in and that leads me mostly focusing on the business.

Okay. Well thank you and again congratulations on the quarter and your new partnership with 7-Eleven. I look for good year from you. Thank you, Jennifer.

Okay. Thank you. End of Q&A

And with no further questions in the queue, I would like to turn the call back over to Jennifer Cue for any additional or closing remarks.

Yes. We would just like to say as a reminder we will be holding our annual shareholder meeting next week, Wednesday, May 11. It will be at our Seattle Headquarters, 66 South Hanford Street in Seattle, [builders blocks south] of the Starbucks Headquarters we also offering a virtual shareholder meeting. And then otherwise we will next speak when we report our second quarter result in August. Thank you very much.

This does conclude today's call. We thank you for your participation. You may now disconnect