Jones Soda Co. Reports Fiscal 2008 Second Quarter Results

Seattle, Aug 7 - Jones Soda Co. (the “Company” or “Jones”) today announced results for the second quarter of 2008.

• Gross revenues increased 5.6% to $14.0 million for the quarter ended June 30, 2008 compared to $13.2 million in the same period of the prior year.
• Concentrate case sales to National Beverage increased 33.6% in the quarter versus second quarter a year ago.
• Finished goods case sales in our DSD and DTR channels decreased 0.7% in the quarter compared to the same period of 2007. Case sales in 2007 included initial shipments of the now discontinued 16 oz cans.
• Finished goods case sales of Jones branded products by National Beverage in the CSD channels decreased 40.9% in the quarter compared to the same quarter of 2007. Case sales in 2007 included initial shipments to new customers and new listings in the CSD channel.

Stephen Jones, Chief Executive Officer stated, “We continue the transition of the Jones Soda Co started in 2007 in what’s described as a difficult economic time period. We continue to learn and adjust our perspective and sharpen our tactics to increase sales and margin at the same time. Our second quarter performance was highlighted by the ongoing rollout of 24C across North America through our DSD network and the relisting of multiple Jones Soda SKU’s in a majority of Target locations. In addition, concentrate sales to National Beverage increased 34% due primarily to shipments in preparation for the launch of Jones Cola, Jones Sugar Free Cola, and Jones Lemon Lime in the marketplace. We also shipped our traditional flavors during the quarter. We did experience some softness in our core bottle business during the second quarter, but are pleased with bottle performance in key markets. Year over year case sales in our DSD and DTR channels were impacted by the one time introduction in 2007 of now discontinued 16 oz cans and 4 pack bottles at Wal-Mart.

"While we are pleased with progress on many fronts, we increased promotion allowances and slotting fees in order to support the new can presence and bolster the bottle business. This had a negative impact on our net sales and profitability. We believe these key expenditures will result in greater awareness of our beverages and a stronger market position for our Company.”

Second Quarter review

Net revenue for the second quarter of 2008 was $11.7 million compared to $13.0 million in the second quarter of 2007. Net revenues for the second quarter reflect a reduction of $2.3 million in promotional allowances and slotting fees for the CSD and DSD channels (including $0.65m of slotting fees) compared to a reduction of $0.25 million in the comparable three-month period in 2007.

Gross margin for the second quarter of 2008 decreased to 25.5% versus 34.2% in the second quarter of fiscal 2007. Gross margin in the second quarter 2008 was negatively impacted by a provision of approximately $130,000 for discontinued inventory related primarily to specialty packs and packaging costs and the promotional allowances and slotting fees noted above.

Operating expenses for the second quarter of 2008 increased to $5.7 million from $5.0 million in the corresponding period in the prior year. Included in the second quarter of 2008 operating expenses were incremental costs related to increased promotion and advertising, salaries, and legal and audit fees. These increased expenses were offset by a reduction in stock compensation expense resulting from a forfeiture re-estimate due to the departure of employees and directors during the quarter.

For the second quarter of 2008, the Company reported a net loss of $2.7 million, or ($0.10) per diluted share, compared to net income of $0.04 million, or break-even per diluted share in the second quarter of 2007.

Mr. Jones continued, “We are pleased with our go to market improvements. We are strengthening our distribution network with new partners. We implemented our model market program in Los Angeles, Seattle, and Chicago and the early results have been encouraging. National Beverage started ordering concentrate of traditional and new flavors during the quarter based on demand of our 12 ounce cans in the marketplace and their reduced inventory levels.

"We launched several Jones brand building programs including Campaign Cola, which generated more than $2.5 million in media value and drove awareness of our new Jones Pure Cane Sugar Cola product. As we head into the back half of the year, we are focused on further overall reduction and targeting of trade spending and sales execution in our key markets. We intend to get to the point where we invest only in programs that drive high margin revenue.”

About Jones Soda Co.

Headquartered in Seattle, Washington, Jones Soda Co. markets and distributes premium beverages under the Jones Soda, Jones Pure Cane Soda, Jones 24C, Jones Energy, Jones Organics, Jones Naturals and Whoopass brands and sells through its distribution network in markets across North America. A leader in the premium soda category, Jones is known for its variety of flavors and innovative labeling technique that incorporates always-changing photos sent in from its consumers. Jones Soda is sold through traditional beverage retailers and everywhere you’d never expect to find a soda.

Use of Non-GAAP Financial Measures

This release includes the non-GAAP financial measure of gross revenues (before deduction of slotting fees and promotional allowances).

With respect to gross revenues, the most directly comparable GAAP measure is net revenues. Under GAAP, slotting fees and promotional allowances are recorded as a reduction to revenue in calculating net revenue. Gross revenues is used by management to monitor operating performance, including in comparison to prior years, as it allows evaluation of sales performance before the effect of any slotting fees and promotional items, which can mask certain performance issues. Management believes that the presentation of gross revenues provides useful information to investors because it allows a more comprehensive presentation of the Company's operating performance. However, gross revenues should not be used alone as an indicator of operating performance in place of net revenues. The consolidated statement of operations included below includes a reconciliation of gross revenues to net revenues. Gross revenues may not be realized in the form of cash receipts as slotting fees and promotional payments and allowances may be deducted from payments received from customers.