Jones Soda Co. Announces Record 2006 Second Quarter Financial Results

Jones Soda Co. (NASDAQ:JSDA) (TSX VENTURE:JSD):

— Second Quarter Revenues Increased 11.6% to $10.0 million —

— Company Reports 2Q06 Diluted EPS of $0.10, Including Non-cash tax recovery —

— Company Reports 2Q06 Diluted EPS of $0.04, Excluding Non-cash tax recovery —

Jones Soda Co. (the “Company” or “Jones”) (NASDAQ:JSDA) (TSX VENTURE:JSD), today announced financial results for the second quarter ended June 30, 2006.

Revenue for the second quarter of fiscal 2006 increased 11.6% to $10,025,978 compared to $8,984,808 for the second quarter of fiscal 2005. Net income was $2,313,795 or $0.10 per diluted share, versus a loss of $160,433, or ($0.01) per diluted share, for the same period last year. Second quarter fiscal 2006 results include a one-time non-cash income tax benefit of $1,482,934 or $0.06 per diluted share.

The one-time non-cash income tax benefit of $1,482,934 related to the reversal of a significant portion of our valuation allowance for net deferred tax assets. Prior to the 2006 second quarter, we maintained a valuation allowance for our deferred tax assets (in accordance with SFAS No. 109, “Accounting for Income taxes”) due to the uncertainty regarding the full utilization of our deferred net tax asset. We generated taxable income for 2004 and 2005 allowing us to realize some of these tax benefits and together with our improved profitability and liquidity allowed us to reverse a significant portion of the valuation allowance. Excluding the impact of the non-cash tax benefit, earnings in the second quarter of 2006 would be $0.04 per diluted share.

Second quarter results also include $252,725 of stock-related expense, compared to $860 of such expense for the second quarter of 2005.

Excluding the impact of the stock-related expense of $252,725 and the one-time non-cash income tax benefit of $1,482,934, earnings in the second quarter of 2006 would be $0.05 per diluted share, compared to ($0.01) per diluted share for the second quarter of 2005.

Gross margin for the second quarter of 2006 increased to 38.0% versus 34.1% in the second quarter of the prior year. Operating expenses as a percentage of sales for the second quarter of 2006 improved to 31.1% from 38.6% in the corresponding period in the prior year. Excluding the stock options expense, operating expenses as a percentage of sales for the second quarter improved to 28.6% from 38.6% in the second quarter of last year.

Management believes that the presentation of non-GAAP financial measures provides useful information to investors regarding our income from operations and comparisons to prior years’ results.

Peter van Stolk, President and CEO stated, “We are very pleased with our second quarter results which represent the most profitable quarter in our history. Our performance was highlighted by meaningful improvements in gross margin and key operating expense leverage. At the same time, total revenues increased approximately 12%, driven by significant gains in our DTR business segment and sales of concentrate for a successful trial of Jones Energy, offset by case sale decreases in our DSD business. We are encouraged by our ability to manage costs, especially given the challenging economic environment, which underscores the progress we have made building a stronger, more efficient organization.”

Mr. van Stolk continued, “The second quarter was marked by the execution of key initiatives that we believe substantially enhance our future prospects. We completed a private placement of our common stock and as a result ended the quarter with over $30 million in cash on our balance sheet to help fund our growth plans. We also extended our existing licensing agreement with Target through the end of the year, and we continue to explore additional opportunities through this relationship.”

Mr. van Stolk concluded, “We believe our strong performance in the first six months of 2006 bodes well for business throughout the remainder of the year. We move forward with a solid financial position, and what I believe are some of the most unique and compelling products in today’s marketplace. Our management team remains focused on delivering long-term earnings growth and maximizing our shareholder value.”

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

This press release contains forward-looking statements and projections concerning our plans, strategies, expectations, predictions and financial projections concerning our future activities and results of operations and other future events or conditions, and are “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Words such as “expect,” “believe,” “anticipate,” “may,” “will,” “plan,” “intend,” “estimate,” “could,” and other similar expressions are intended to identify these forward-looking statements. In particular, statements in this release regarding potential growth opportunities, working capital and cash flow management, operational and expense controls, future profitability and results of operations are forward looking. Statements in this press release, and elsewhere, that look forward in time or include anything other than historical information involve risks and uncertainties that may affect our actual results of operations. These statements are subject to certain risks, including, among others, future demand for its products, competition from other businesses providing similar products, the ability to maintain profitability and control expenses and our ability to successfully execute our business strategy. These and other risks and uncertainties are discussed in more detail in our periodic reports filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, which are available at the SEC website at www.sec.gov.

                                 JONES SODA CO. 
                      CONSOLIDATED STATEMENT OF OPERATIONS 
                                  (Unaudited) 
 
                             Three Months Ended        Six Months Ended 
                                  June 30,                 June 30, 
     ---------------------------------------------------------------------- 
                               2006       2005         2006        2005 
                            ----------- ----------- ----------- ----------- 
     Revenue               $10,025,978 $8,984,808  $18,786,358 $15,858,984 
 
     Cost of Goods Sold      6,219,655  5,916,407   11,860,365  10,559,592 
     ---------------------- ----------- ----------- ----------- ----------- 
 
     Gross Profit          $ 3,806,323 $3,068,401  $ 6,925,993 $ 5,299,392 
 
           Gross Margin           38.0%      34.1%        36.9%       33.4% 
 
     Licensing Revenue         146,481    230,243      284,052     333,791 
 
     Operating Expenses(1): 
        Promotion and 
         Selling           $ 1,992,670 $2,576,892  $ 4,107,493 $ 4,158,165 
        General & Admin.     1,124,430    888,324    2,222,016   1,632,108 
     ---------------------- ----------- ----------- ----------- ----------- 
                             3,117,100  3,465,216    6,329,509   5,790,273 
                            ----------- ----------- ----------- ----------- 
     Earnings (loss) 
      before interest & 
      taxes                    835,704   (166,572)     880,536    (157,090) 
        Interest income, 
         net                   100,637      6,139      113,347      13,584 
     ---------------------- ----------- ----------- ----------- ----------- 
     Earnings (loss) 
      before income taxes      936,341   (160,433)     993,883    (143,506) 
     Income tax benefit 
      (expense) 
          Current             (105,480)         -     (160,480)          - 
          Deferred           1,482,934          -    1,482,934           - 
     ---------------------- ----------- ----------- ----------- ----------- 
     Earnings (loss) for 
      the period             2,313,795   (160,433)   2,316,337    (143,506) 
     ---------------------- ----------- ----------- ----------- ----------- 
 
     Earnings (loss) per 
      share: 
                 Basic     $      0.10  $   (0.01) $      0.10 $     (0.01) 
                 Diluted   $      0.10  $   (0.01) $      0.10 $     (0.01) 
 
     Weighted average 
      number of common 
      stock: 
         Basic              22,891,891 21,419,157   22,321,479  21,273,578 
         Diluted            22,991,489 21,419,157   23,324,830  21,273,578 
 
     (1) Includes 
     non-cash stock based 
     compensation: 
     Promotion and  
      selling              $   102,530          -  $   218,540           - 
     General and 
      administrative       $   150,195  $     860  $   420,888 $     5,745 
     --------------------- ----------- ------------ ----------- ----------- 
 
 
 
                                 JONES SODA CO. 
                           CONSOLIDATED BALANCE SHEET 
 
                                              June 30, 2006   Dec. 31, 2005 
     ---------------------------------------------------------------------- 
                                               (unaudited) 
     ASSETS 
 
     Current Assets: 
      Cash and cash equivalents                 $ 30,937,644  $  1,176,101 
      Accounts receivable                          4,779,937     3,699,994 
      Inventory                                    4,539,548     4,694,213 
      Deferred income tax asset                      624,371             - 
      Prepaid expenses                               459,888       146,614 
     ------------------------------------------- ------------- ------------ 
                                                $ 41,341,388  $  9,716,922 
     Deferred income tax asset                       858,563             - 
     Capital assets                                  736,616       662,942 
     Intangible assets                               217,131        72,753 
     ------------------------------------------- ------------- ------------ 
                                                $ 43,153,698  $ 10,452,617 
                                                 ------------- ------------ 
 
     LIABILITIES AND SHAREHOLDERS' EQUITY 
 
     Current Liabilities: 
      Accounts payable and accrued liabilities     4,736,307     3,851,335 
      Current portion of capital lease 
       obligations                              $    104,574  $    114,110 
      Taxes payable                                  143,472             - 
      Deferred revenue                                27,318        52,318 
     ------------------------------------------- ------------- ------------ 
                                                $  5,011,671  $  4,017,763 
 
     Deferred revenue                                 38,563        88,219 
     Shareholders' equity                         38,103,464     6,346,635 
     ------------------------------------------- ------------- ------------ 
                                                $ 43,153,698  $ 10,452,617 
                                                 ------------- ------------ 
 
 
 
                                 JONES SODA CO. 
                      CONSOLIDATED STATEMENT OF CASH FLOWS 
 
                                            Six months        Six months 
                                              ended              ended 
                                           June 30, 2006     June 30, 2005 
     ---------------------------------------------------------------------- 
                                            (unaudited)       (unaudited) 
     Cash flows from (used in) operating 
      activities: 
     Earnings (loss) for the period      $       2,316,337  $     (143,506) 
     Items not involving cash: 
        Depreciation and amortization              118,983         100,950 
        Deferred income taxes                   (1,482,934)              - 
        Stock based compensation                   639,428           5,745 
     Change in assets and liabilities: 
        Accounts receivable                     (1,079,943)     (1,205,164) 
        Inventory                                  154,665        (855,989) 
        Prepaid expenses                          (313,274)        155,425 
        Deferred income                            (25,000)        (22,727) 
        Taxes payable                              143,472               - 
       Accounts payable and accrued 
        liabilities                                884,973       1,769,584 
     ------------------------------------ ------------------ -------------- 
     Net cash from (used in) operating 
      activities                                 1,356,707        (195,682) 
 
     Cash flows used in investing 
      activities: 
        Purchase of capital assets                (177,009)       (166,094) 
 
        Purchase of intangible assets             (160,027)        (15,958) 
     ------------------------------------ ------------------ -------------- 
     Net cash used in investing 
      activities                                  (337,036)       (182,052) 
 
     Cash flows from (used in) investing 
      activities: 
       Net repayment under line of 
        credit                                           -        (480,285) 
       Net repayment of capital lease 
        obligations                                (59,193)         87,460 
       Net proceeds from PIPE                   28,113,000               - 
       Proceeds from exercise of options           688,065         487,836 
     ------------------------------------ ------------------ -------------- 
     Net cash from financing activities         28,741,872          95,011 
     ------------------------------------ ------------------ -------------- 
     Net increase(decrease) in cash and 
      cash equivalents                          29,761,543        (282,723) 
     Cash and cash equivalents, 
      beginning of period                        1,176,101         333,533 
     ------------------------------------ ------------------ -------------- 
     Cash and cash equivalents, end of 
      period                             $      30,937,644  $       50,810 
     ------------------------------------ ------------------ -------------- 

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