PHOTOCHANNEL NETWORK (fka PNWIF)

[PremierStocks]

PhotoChannel Reports Record Q3 Revenues for Fiscal Q3, 2008
Tuesday August 26, 4:30 pm ET

VANCOUVER, BRITISH COLUMBIA--(MARKET WIRE)--Aug 26, 2008 -- PhotoChannel Networks Inc. (CDNX:PN.V - News)(OTC BB:PNWIF.OB - News), the leading innovator in online digital photography and media solutions for retailers, reports its financial results for the three and nine month periods ended June 30, 2008. The following discussion is qualified in its entirety by reference to the company's financial statements and accompanying management discussion and analysis, which are accessible on the SEC'S website at www.sec.gov/edgar.shtml and on SEDAR at www.sedar.com.

The company will host a conference call and webcast to discuss the third quarter 2008 results with Peter Fitzgerald, President and Chief Executive Officer and Robert Chisholm, Chief Financial Officer of PhotoChannel, on Tuesday, August 26, 2008, at 5 PM ET.

To access the conference call, investors should dial 647-427-3420 and quote passcode 61031009. Please call 10 minutes prior to the scheduled start time.

PhotoChannel will also offer a live and archived webcast, available at: www.photochannel.com/webcast

ADVERTISEMENT
HIGHLIGHTS FOR THE QUARTER

- Revenues of $4.2 million up 231% period-over-period.

- Transactional revenues of $2.8 million, up 247% period-over-period.

- Transaction fees represent 67% of total revenue vs. 64% during the same period last year.

- Net loss for the period of $2,297,614 compared to $1,639,651 in same period of fiscal 2007.

- Non-GAAP EBITDA loss (defined as net loss, excluding amortization and compensation expense associated with stock option grants) of $563,245 compared to $1,343,222 during the third quarter of fiscal 2007.

- Cash and cash equivalents at June 30, 2008 of $1,997,135.

- Launched a new online photo service for Costco USA in June 2008.

- Total orders handled during the quarter of 1,938,445, a 109% increase over Q3, 2007.

- Average orders per day of 21,302 compared to 10,183 during the third quarter of 2007.

NEW BUSINESS PARTNERS

- Costco USA (Launched June 2008)

- Hallmark UK (Launched August 2008)

- Kmart Australia (Launched July 2008)

NEW BUSINESS PARTNERS to launch

- Kodak China

- Kodak Express Stores in Australia

- Australian Photo Supplies

"We are very pleased with the successful launch of three very significant photofinishing retailers," said Peter Fitzgerald, CEO of PhotoChannel. "With the launch of a number of large retailers over the last six months, we now believe that our increasing expenses are behind us. We remain confident that 2008 is a turning point for PhotoChannel as we accelerate revenues from our new and existing retail partners and expect strong growth resulting in continued record revenue and transaction volumes. With the launch of our new customers we are now cash flow positive and fully believe that this will continue going forward."

"Increased expenses during the quarter compare to the same fiscal quarter of last year are primarily attributable to the addition of our Pixology subsidiary and the build out of new development teams for new customers, including Costco USA and Sam's Club USA. In addition, the Company has added a new data centre in Toronto to handle our new customers, allow for future growth and efficiently service our UK customer base, along with permitting European growth."

"We continue to strongly believe the opportunity to present a completely integrated digital photo and gifting solution to our retail partners is well worth the investments. We are now providing consumers with two attractive choices for printing their digital images or creating unique gifts through their favorite retailer - either bringing images into the store for uploading at a kiosk; or ordering photos or gifts online from the convenience of home or office."

Q3 FINANCIAL RESULTS

Revenue



Three Months Three Months
Ended Ended
Description June 30, 2008 June 30, 2007 Change % Change
------------------------------------------------------

Transaction fees $ 2,806,146 $ 809,469 $ 1,996,677 247%
Installation fees 1,002,267 151,752 850,515 560%
Membership fees 235,961 199,395 36,566 18%
Professional fees 127,266 97,342 29,924 31%
Archive fees 46,352 15,004 31,348 209%

------------------------------------------------------
Total $ 4,217,992 $ 1,272,962 $ 2,945,030 231%
------------------------------------------------------
------------------------------------------------------

The Company's overall increase in revenues was primarily attributable to four factors:

- Pixology acquisition effective July 2, 2007;

- Organic growth in usage of the PhotoChannel Network from customers of our photo-finishing retailers;

- Retailers market the convenience of one hour printing from online through continued marketing efforts; and

- The launch of new, large, photofinishing retailers.

Net loss for the period increased to $2,297,614 compared to $1,639,651 for the same period of fiscal 2007. Major contributors to this increased loss are as follows:

- An approximate increase in amortization over third quarter fiscal 2007 of $950,000, $580,000 of which relates to Pixology, of which $540,000 arose as a result of acquiring intangible assets as part of the acquisition of Pixology with the remainder of the increase (approximately $380,000) as a result of purchasing more hardware and software allowing PhotoChannel to develop and deploy new customers and infrastructure;

- Incremental staffing and consultant costs during the quarter as a result of new customers of approximately $530,000, of which were required for future revenue. There is only a small amount of this related revenue in this quarter as these sites launched at different times during the quarter and the largest of which did not launch until June 2008 (the last month of the quarter).

- Approximately $535,000 related to stock options granted to management and staff in March 2008.

About PhotoChannel - Founded in 1995, PhotoChannel operates PNI Digital Media to provide services for major retailers, wireless carriers and content providers. The PNI Digital Media Platform connects consumer ordered digital content with retailers that have on-demand manufacturing capabilities for the production of merchandise. PNI Digital Media generates millions of transactions for major retailers around the world.

For more information please visit www.photochannel.com.



PhotoChannel Networks Inc.
Consolidated Balance Sheets
Unaudited - Prepared by Management
(expressed in Canadian dollars)

June 30, September 30,
2008 2007
------------- -------------
Assets

Current assets
Cash and cash equivalents $ 1,997,135 $ 7,405,034
Accounts receivable (note 9) 4,437,166 4,045,035
Prepaid expenses and other current assets 543,122 523,356
----------------------------
6,977,423 11,973,425

Property and equipment 6,440,746 2,760,545

Deferred expenses 39,289 89,804

Intangible assets 4,378,951 6,067,614

Goodwill 4,838,867 4,867,231
----------------------------

$ 22,675,276 $ 25,758,619
----------------------------
----------------------------

Liabilities

Current liabilities
Accounts payable and accrued liabilities $ 7,675,434 $ 7,510,751
Current portion of deferred revenue 678,950 344,833
Current portion of capital lease obligations
(note 14) 490,074 -
----------------------------

8,844,458 7,855,584

Deferred revenue 574,966 171,210
Long-term portion of capital lease obligations
(note 14) 520,646 -
Asset retirement obligations 23,023 120,699
----------------------------
9,963,093 8,147,493
----------------------------

Shareholders' Equity (note 10)

Share capital $ 65,554,107 $ 65,293,214
Warrants 4,961,826 4,961,826
Contributed surplus 11,189,821 10,215,777
----------------------------
81,705,754 80,470,817
----------------------------

Deficit (68,052,564) (62,050,122)

Accumulated other comprehensive loss (note 10) (941,007) (809,569)
----------------------------

(68,993,571) (62,859,691)
----------------------------

12,712,183 17,611,126
----------------------------
$ 22,675,276 $ 25,758,619
----------------------------
----------------------------

Approved by the Board of Directors

"Cory Kent" Director "Peter Fitzgerald" Director
--------- ----------------


PhotoChannel Networks Inc.
Consolidated Statements of Loss and Comprehensive Loss
Unaudited - Prepared by Management
(expressed in Canadian dollars)


-------------------------- --------------------------
Three Months Ended Nine Months Ended
-------------------------- --------------------------
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
-------------------------- --------------------------

Revenue $ 4,217,992 $ 1,272,962 $ 11,776,085 $ 4,112,147

Expenses
Network delivery 1,986,924 306,763 5,454,718 1,078,671
Research and
development 1,902,773 699,530 5,219,847 2,024,256
General and
administration 1,353,583 446,619 3,312,233 1,384,193
Sales and marketing 322,128 150,662 944,108 519,438
Amortization 1,081,368 128,465 2,969,986 361,162
-------------------------- --------------------------

6,646,776 1,732,039 17,900,892 5,367,720
-------------------------- --------------------------

Net loss before the
undernoted (2,428,784) (459,077) (6,124,807) (1,255,573)

Foreign exchange
gain (loss) 38,144 (1,369,179) (107,530) (1,371,158)

Interest income 6,655 188,605 117,783 232,345

Gain on disposal of
property, plant &
equipment - - 25,741 -

Gain on settlement
of asset retirement
obligation (note 6) 86,371 - 86,371 -

-------------------------- --------------------------
131,170 (1,180,574) 122,365 (1,138,813)
-------------------------- --------------------------
Net loss (2,297,614) (1,639,651) (6,002,442) (2,394,386)

Other comprehensive
loss:

Unrealized foreign
exchange loss on
translation of self
sustaining
foreign operations
(note 10) (161,213) - (131,438) -
-------------------------- --------------------------
Comprehensive loss $ (2,458,827) $ (1,639,651) $ (6,133,880) $ (2,394,386)
-------------------------- --------------------------
-------------------------- --------------------------

Basic and fully
diluted net loss
per share $ (0.07) $ (0.05) $ (0.18) $ (0.08)

Weighted average
number of
common shares
outstanding 33,403,690 32,404,197 33,361,427 28,721,894

Non-GAAP Adjusted EBITDA Reconciliation



--------------------------------------------------------------------------
Three Months Ended
June 30, June 30,
2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Loss from operations $ (2,297,614) $ (1,639,651)
--------------------------------------------------------------------------
Add Back:
--------------------------------------------------------------------------
Amortization 1,081,368 128,465
--------------------------------------------------------------------------
Stock-based compensation expense 653,001 167,964
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Non-GAAP Adjusted EBITDA $ (563,245) $ (1,343,222)
--------------------------------------------------------------------------
----------------------------

Adjusted EBITDA is a non-GAAP financial measure that the Company defines as earnings before interest, taxes, depreciation, amortization and compensation expense associated with stock options.

Caveat

The statements that are not historical facts contained in this release are forward-looking statements that involve risks and uncertainties. PhotoChannel's actual results could differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, changes in technology, employee retention, inability to deliver on contracts, failure of customers to continue marketing the online solution, competition, general economic conditions, foreign exchange and other risks detailed in the Company's annual report and other filings. Additional information related to the Company can be found on SEDAR at www.sedar.com and on the SEC'S website at www.sec.gov/edgar.shtml.

WARNING: PhotoChannel relies upon litigation protection for "forward-looking" statements.



The TSX Venture Exchange has neither approved nor disapproved the information contained in this release.


Contact:

Contacts:
PhotoChannel Networks Inc.
Robert Chisholm
CFO
[phone] ext. 224
Email: [e-mail]

PhotoChannel Networks Inc.
Investor Information
1-800-261-6796
Website: http://www.photochannel.com


Source: PhotoChannel Networks Inc.