Max Schroedl - Chief Financial Officer Jennifer Cue - Chief Executive Officer

Mayur Kenia - IWD Capital Management

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Jones Soda Co. First Quarter Earnings 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 to turn the call over to Max Schroedl, Chief Financial Officer. 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 constitutes 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 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 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 our current reports on Form 8-K. Listeners are cautioned not to place undue reliance upon these forward statements that speak only as to the date of this earnings call. Except as required by law, we do not assume any obligations to update the forward-looking statements that we make today. I will now turn the call over to Jennifer Cue, Chief Executive Officer of Jones Soda.

Thank you, Max, and good afternoon, everyone. Our first quarter of 2017 was in line with our expectations. And as a reminder to everyone, last year's first quarter contained a very large load in of our first product line at 7-Eleven USA and into approximately 7,000 locations in that first quarter. If we look beyond the large load in during the first quarter of 2016, our first quarter of 2017 would have been the strongest first quarter since I've returned to Jones Soda. First and fourth quarters have historically been the company's slowest selling periods in part because they occur during the colder seasons of the year. During the first quarter of 2017, we saw the velocity or take rates of 7-Select by Jones at a much higher rate than the original PET version. We attribute the much stronger acceptance of the second iteration of Jones to the premium glass bottle as well to having more Jones like flavors. In addition, one of the four flavors in the lineup is Sour Patch Watermelon, which has quickly become one of the top selling flavors in the lineup just behind Jones' top seller Berry Lemonade. We are pleased that 7-Eleven on our sales group were able to pivot within one year to a product line that is more appealing to our consumer's expectations. We are currently working toward adding new flavors to the 7-Select by Jones lineup and are planning new promotions for the lineup in the summer of 2017 and out to 2018. In addition to the glass lineup at 7-Eleven, we just announced the launch of one of our flavors Green Apple on Fountain in 7-Eleven's 400 Pacific North West locations. And we look forward to continuing to build upon our partnership there with this product and potential follow-on products. Aside from our 7-Eleven partnership business, in the first quarter of 2017, there were a few other items that is timing up promotions or launching SKUs that also impacted our first quarter 2017 results. We remain steadfast in our excitement about our future growth through new corporate retail and distributor partnership coming on board, our initiative of Fountain and Lemoncocco as well our continued focus on developing unique and innovative new products, which I will describe after Max, now goes over the numbers in more detail.

Thanks Jennifer. Revenue in the first quarter of 2017 decreased 17% to $3.5 million from $4.3 million dollars in the comparable period. The primary driver of the decrease was timing and price differences between the initial product launch and of co-branded 7-Elevens PET product and the re-launch of the co-branded 7-Eleven glass product. The current co-branded glass product was launched during the fourth or 2016 and the first quarter 2017 as compared the significant pipeline sell of the PET co-branded product primarily in the first quarter 2016. Other onetime factors including timing and SKU selection contributed to a lesser extent. Promotional allowanced decreased $225,000 or 42% to $309,000 for the first quarter of 2017, primarily due to onetime programs that were completed in 2016. The accounting impact of these promotional allowances is a direct offset to gross revenues. Gross profit margin in the first quarter 2017 decreased 24% from 27% in the first quarter of 2016, primarily due to changes in the 7-Select program. The new offering is our iconic glass bottle which has a slightly higher cost in the previous product. Additionally, the purchase price point to 7-Eleven is slightly lower to support this program even further. Total operating expenses in the first quarter decreased to $1 million from $1.1 million in the prior year period. Operating expenses also included non-cash expenses, depreciation, amortization and stock based compensation totaling $45,000 compared to $33,000 last year. Operating expenses increased as a percentage of revenue to 29% for the first quarter of 2017 from 26% during the same period in 2016. Loss from operations for the first quarter of 2017 was $174,000 compared to income from operations of $66,000 in the first quarter of 2016. Again, largely driven by loading differences in co-branded 7-Select product line. Adjusted EBITDA for the first quarter 2017 was negative $130,000 compared to $111,000 in the first quarter of 2016. Again primarily due to revenue decrease related to the factors we've discussed. Net loss for the quarter ended March 31st, 2017 was $197,000 or $0.00 per share, whereas the first quarter for 2016, we had net income of $49,000 or $0.00. Turning now to our balance sheet, as of March 31st, 2017, we had working capital of $1.6 million and cash and cash equivalents of $554,000 as compared to working capital of $1.8 and cash and cash equivalents were approximately $699,000 as of March 31st, 2106. At this time, we believe that our current cash and cash equivalents combined with our loan facility and anticipated cash from our operations will be sufficient to meet our anticipated cash needs through the end of 2017. We may see alternate forms of financing to fund new initiatives for consolidated growth of current initiatives. Cash provided by operations during the first quarter of 2017 was $371,000 compared to cash used in operations of $67,000 in Q1 2016. The increase in cash from operations was driven by the timing of production and certain receivables. During those years, we utilized our asset base loan facility for working capital needs. And March 31st, 2017, our eligible borrowing base was approximately $1.9 million of which we had drawn down $634,000. Comparatively at December 31st, 2016, we had drawn down $1.2 million on loan facility and at March 31st, 2016, we had drawn down $902,000. Our current maximum advocate amount available from borrowing under loan facilities was $3.2 million. I'll now turn the call back over to Jennifer for final wrap up.

Thanks Max. To reiterate, our plan for the future includes three initiatives, Joes, Lemoncocco and innovation. With regards to Jones, we are seeing interest in premium sodas over mainstream brands. In conjunction with this, our Fountain initiative remains a pivotal area - a pivotal area for growth within the Jones Soda umbrella. As demonstrated by our Orange & Cream flavor which debuted in November on Slurpee in the Pacific Northwest 7-Elevens and the current launch of our Green Apple flavor on fountain in 7-Elevens, we are excited by the opportunity of seeing Jones products on Fountain at convenience. In addition, we are landing and garnering ever increasing interest from independent and regional restaurant chains. With this in mind, we will be profiling again our Fountain program at the upcoming National Restaurant Association Show in Chicago this month, as well as the National Association of Convenience Stores Show in Chicago as well in October. Our second and increasingly exciting brand initiative is Lemoncocco. Lemoncocco is an all-natural brand that was inspired by my own experiences in Rome, Italy. Lemoncocco is one SKU at this point and is a non-carbonated brand made with the cream of a coconut and Sicilian lemons. It is a great hydration beverage, food premium beverage and is quickly becoming a great cocktail mixer. Lemoncocco is currently being rolled out beyond our initial launch markets of 2016, which were the Pacific Northwest, California and select markets such as Montreal, Canada Chicago and Boston. We are in the process of launching Lemoncocco into new states such as Utah, Colorado and Arizona in the last. Additionally, we are in the process of setting up a network of distributors for the New York, New Jersey market and just in time for the warm summer months. And finally, we are excited to have list [ph] on to industries, our longstanding Canadian partner and single largest distributor of Jones Soda in our network become our monster distributors for Lemoncocco Canada. With our network growing, we are also in the process of introducing the product to more retailers across North America. While still a small part of our business every day we're seeing great signs of where the Lemoncocco brand can go. Spin data which is the all natural channel equivalent of Nielsen data just showed Lemoncocco growing in our original market of Northern California at a rate in excess of 200% for the prior 12 month period. We are using this exciting data to secure retail partners for Lemoncocco. And finally, we look to product innovation as another avenue for growth. For 2017 and for our 21st year in business, we are appropriately going to be launching an alcoholic brand in our home market in the upcoming weeks. We are excited to be launching our first ever alcoholic brand as we turn 21 and appropriately named by SPIKE Jones. SPIKE Jones will be the first ever hard sider soda. After 21 years on the market, we want to offer our original Jones fans, who grew up on the soda and are now in their late 20's and 30's and alcoholic version of the brand they loved growing up. We will launch SPIKE Jones with our longtime partner in our home market of the Pacific Northwest Colombia Distributing. Colombia is one of the nation's largest alcoholic beverage distributors and as managed our Jones Soda brands since 2000. We trust their knowledge of this business and will be very glad to work with them to manage the rollout in his new category for our company. We will be launching SPIKE Jones specifically in our home market of the Pacific Northwest in 2017 for a 21st birthday and we will gauge the success of this role out into the alcoholic category along the way, preparing a more broad scale launch in the future. Look for more product information and an official release from us soon. And finally, before opening the call up for questions, I would like to thank Mills Brown, one of our board members. Mills' last board meeting was this past Tuesday. And on behalf of all shareholders, I would like to thank him for all the contributions over the past eight years. He was a key reason for why I return to the company, and I know Mills would still play a key role as a very active shareholder moving forward. We are currently evaluating new potential board members, and we'll look add some one in the next year. I will now call up for questions.

Thank you. [Operator Instructions] We'll go now to Gary Getz [ph], who is a private investor.

Hi, Jennifer.

Hi Gary.

Hey, looking at the result, I guess what impressed me more about the call was looking forward and I did two things, while you were talking, I went to the 7-Eleven website and they are featuring the new product on their website under thirsty and 7-Select beverages and the graphic that look really good, so…

Great.

So hopefully there is potential there and I got to give you credit for trying and what…

Yeah, I mean we just to follow along with that Gary, we are definitely with the role out of the second version, it definitely has - it hit the velocity requirements of 7-Eleven and they consider success. So they're really jumping in and promoting it in a large way. So we're excited by the enthusiasm from 7-Eleven on this Jones 2.0 version.

That's good. And hopefully we'll speak product filling and even refilling in Q2 and Q3. What really bought me by surprise and most investors by surprise was that SPIKE Jones. And I want to give you a lot of credits for the innovation and for pursuing that market. I think there's a lot of potential there in the alcohol beverage market?

Yeah, I mean Gary, I give you some credit too actually, you've sit along the last few years, you've asked me about different iterations of Jones and sort of I bite my tongue because I really –we trademark SPIKE Jones in 1997. We always thought we want to do this. And as we're turning 21, it just makes the most sense that allows us to try to take this amazing brand and put it into a category that could deliver us a lot more potential than even say a premium soda category. So we - I am looking at the design of everything. I can't wait to show it to you, and we can't wait to roll it out in our home market. And already we're talking about beyond our home market. So yeah we're really excited and I could not be more proud of what we have created.

Super, super. Also with Lemoncocco, I've noticed it's spreading in Northeast in New England area and I wanted to give you credit on that?

Yeah, thank you again, Gary. Yeah, we're really making some headway and we're really excited about what we're doing in New England for the summer as well as New York, New Jersey markets. So, 2016 we launched Lemoncocco, it was really a year we really we could witnessed that yeah, this is connecting with consumers and we made a couple of tweaks to the packaging the formulation and we're going hard this year and super excited by the mass appeal of this brand, it goes from age 5 to 95, it's a mass appeal brand. So year, we are very excited with Lemoncocco.

Great. Well, congratulations on hopefully a good future. And I wanted to thank you very much.

Okay, well, thank you, Gary for being a very, very patient shareholder and I am making this work for you Gary.

Thank you, Jennifer. A - Jennifer Cue Okay.

[Operator Instructions] We'll go next to Mayur Kenia with IWD Capital Management.

Hi Jennifer and Max. Just had a question, could you give us the case sales data for Q1 2017 and also Q4 2015, I wasn't able to find it in the press release?

You know, as we shifted product size from the previous iterations of 7-Select and we're going into Fountain and Lemoncocco and our margins are changing, we really thought that the case data was less meaningful. So at this time, I am not providing case data.

Okay, alright. That answers my question. Thanks.

Okay.

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

Yeah, I am going to jump in there for Max. But we'd like to thank everyone again for your interest in Jones Soda Co. And just as a reminder, we will be speaking, we will be having our Annual Shareholder Meeting next Wednesday, May 10th at 2:00 p.m. And if not there, we will definitely be speaking with you in early August when we announce our second quarter results. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.