Jones Soda Q2 Revenue Drops 36%

Seattle, Aug. 6 - Jones Soda Co., a leader in the premium soda category and known for its unique branding and innovative marketing, today announced results for the quarter ended June 30, 2009.

Second Quarter Summary - Comparison of Quarters ended June 30, 2009 and June 30, 2008

• Revenue decreased 36% to $7.5 million in the second quarter of 2009 compared to $11.7 million in the second quarter of 2008. The decrease in revenue was primarily attributable to the discontinuance of the Jones Soda glass bottles at some of our major retailers in our DTR (direct to retail) and DSD (direct store delivery) channels, which occurred in 2008 as part of our realigned channel focus, as well as reduced demand that we believe resulted in large part from the impact of the economic downturn on consumer spending levels. These decreases were offset in part by a 34% increase in revenue for sales to Canada for the quarter compared to second quarter of 2008 due to continued market development. This contributed to an increase in international revenue as a percentage of total revenue to 35% in the second quarter of 2009 from 16% in the same period last year.
  • Promotion allowances and slotting fees decreased to $884,000 compared to $2.3 million in the corresponding quarter of 2008, due primarily to our continued cost containment measures and an improved operating platform for our canned soda (or CSD) business.
  • Finished product case sales declined 35% to 611,600 cases in the second quarter of 2009 compared to the same period in 2008.
• Gross profit as a percentage of revenue increased to 28% for the quarter ended June 30, 2009, from 26% in the same period in 2008. The increase was due to reductions in promotion allowances and slotting fees due to cost containment measures and lower freight and storage costs due to reduced fuel surcharges and inventory management.
• Operating expenses decreased 30% to $4.0 million, compared to the corresponding period a year ago, due primarily to the strategic refocus in the fourth quarter of 2008 which resulted in cost containment measures including a reduction in force that reduced salaries and benefits expense, as well as our realigned channel focus which contributed to a significant decrease in promotional expense, broker and invasion fees.
• Net loss of $2.0 million, or ($0.07) per share, for the second quarter 2009 improved by 28% over the second quarter 2008 net loss of $2.7 million, or ($0.10) per share.
• Our use of cash during the quarter was $1.0 million dollars, significantly less than our use of cash of $2.9 million during the prior year period.

Joth Ricci, President & Chief Executive Officer, stated: “During the second quarter we continued to focus on executing the initiatives we began implementing last year in order to drive bottom-line improvement on lower sales volumes which included controlling our operating expenses, down 30% versus both the three and six month periods of a year ago. We are also beginning to experience the initial benefits of a more disciplined distribution strategy as our reduced promotional spend and focus on single serve opportunities contributed to a 2 percent improvement in gross margin. While we are pleased with the improved efficiency of our organization, we realize there is still much work to be done in order to achieve our goal of long-term profitability and positive cash flows.”

Balance Sheet

As of June 30, 2009, the Company had cash and cash-equivalents of approximately $7.1 million, working capital of $12.5 million, and no debt. Cash used in operations during the six months ended June 30, 2009 totaled $5.3 million, of which $1.0 million was used in the quarter ended June 30, 2009. The Company traditionally uses more cash in the first half of the year as inventory is built to support the historically seasonally-stronger shipping months of April through September, and expects the amount of cash used by operating activities to decrease in the second half of the year as receivables generated during our stronger shipping months are collected. The Company also anticipates increasing the level of its inventories as it continues in the summer selling season through the end of the third quarter. As of June 30, 2009, inventories were $3.7 million compared to $8.1 million as of June 30, 2008 which does not include the long term portion of GABA raw materials purchased in conjunction with our Pharma GABA supply agreement which is classified in other assets.

The Company announced that while it has continued to improve its operating results and reduce its use of cash compared with a year ago, the economic slowdown that began in the second half of 2008 has continued to have a greater than expected impact on case sales year-to-date. Therefore, the Company has further refined its operating plan for the remainder of 2009, including additional cost containment measures that the Company plans to enact in the third quarter. Based on these intended actions, the Company believes it will be able to meet its anticipated cash needs for the next 12 months and beyond. However, due to the volatile economic environment and its potential impact on future sales and the limited ability the Company will have to further reduce costs beyond the measures planned for the third quarter, the Company plans to disclose a going concern uncertainty in the liquidity section of its Form 10-Q for the quarter ended June 30, 2009 to be filed with the Securities and Exchange Commission on Monday, August 10^th.

Mr. Ricci concluded, “As we move into the back half of the year, we are optimistic about our ability to deliver improved operating performance, and continue the trend of delivering sequential and quarter over quarter improvements to our bottom line. Our plan is to capitalize on areas of momentum, offset by additional cost containment measures during the third quarter. We remain confident that our brand equity remains strong and that our innovative products and packaging continue to resonate with our target consumers.”

.