Phonetime Inc.
TSX VENTURE : PHD

Phonetime Inc.

May 29, 2006 08:00 ET

Phonetime Releases Q1 Results

MISSISSAUGA, ONTARIO--(CCNMatthews - May 29, 2006) -

Revenue and Gross Profit and Net Earnings Improve

Phonetime Inc. (TSX VENTURE:PHD), a leading Canadian supplier of long distance telecommunication services, today released its consolidated financial results for the first fiscal quarter ending March 31, 2006 along with Management's Discussion and Analysis of these results.

In the 1st Quarter of 2006, Phonetime generated a 19% increase in revenue to $4.54 million, compared to $3.81 million during the same period in 2005. Gross profit increased 30% to $1.78 million, compared to $1.37 million in 2005. Equally important, gross margin improved by 3.2% to 39.2% in 2006, from 36.0% in 2005. Net earnings also improved by $125,877 with a loss of $43,686 in the 1st Quarter of 2006, compared to a loss of $169,559 for the same period in 2005.

Quarterly revenue growth and gross profit improvement over the past year is directly attributable to Phonetime's diversification strategy. This strategy has moved the Company away from its sole reliance on pre-paid long-distance cards to a three-pronged program in which Phonetime provides 1+ Equal Access and Dial Around long distance services through its Call Select subsidiary, Canadian wholesale call delivery services to International carriers and VoIP service providers along with the long distance cards. As of the end of the first quarter, Call Select was generating revenues in excess of $600,000 per month. At its current growth rate, Call Select should generate monthly revenues of close to $1 million by the end of 2006. Phonetime's wholesale services are generating profits at their current run rate of 30 million minutes per month - and this figure is also growing each month. Operating expenses increased 24% in the First Quarter of 2006 to $1.63 million from $1.31 million in the same period of the prior year. Phonetime spent the additional $322,000 primarily on supporting the expanded operations of Call Select.

A milestone was reached in Q1, as Phonetime's Call Select division achieved profitability. In Q1, Call Select's net profit was $48,000 compared to a loss of $143,000 in the prior year, an increase in profit by $191,000 as its revenue grew by nearly 300%. Phonetime's Balance Sheet also improved in Q1 2006 over Q4 of the prior year. For example, the Company's current ratio (current assets/current liabilities) improved to 1.35:1 from 1.30:1 - a result of improving fiscal controls and the realignment of the business into a diversified telecommunications company.

In commenting on the Company's Q1 results, Rodney Franklin - Phonetime's Chairman & C.F.O. stated, "Our Q1 results validate our long-term strategy of diversifying into new lines of business. Revenue, gross profits, and net earnings are all higher in the first quarter of 2006 compared to the same period of 2005, continuing the trend that commenced last year at this time. Furthermore, our balance sheet is stronger than last year - positioning the Company for both organic growth and growth through potential acquisitions."

The Company's complete financial report along with Management's Discussion and Analysis of its results for the first quarter of 2006 may be found at www.sedar.com.

About Phonetime

Licensed as a Class A, International Carrier by the CRTC, Phonetime operates one of Canada's largest and most advanced private long-distance and VoIP telecommunications networks with points-of-presence in 36 Canadian urban areas. Phonetime's wholesale network currently has the capacity to process over 3 billion minutes of traffic annually and is rapidly emerging as a cost effective wholesale backbone for VoIP service providers, including ILECs, CLECs, PTTs, and IPLECs world-wide.

Phonetime also markets its own competitively priced, branded calling cards (including Nuvo, Bravo, Lucky 888, Eureka, Hot and Call Value) across the country. These are distributed to consumer markets from more than 4,000 retail outlets, including Petro-Canada, Shell Canada, and Business Depot/Staples as well as through many Private Label distributors. With offices in Toronto, Montreal and Vancouver, Phonetime provides retail customers with multi-lingual customer service - an important competitive advantage.

Phonetime's Call Select subsidiary provides 1+ Equal Access and Dial Around long distance services to ethnic markets across Canada and serves as a platform for the Company's long-term diversification plan. Since its establishment, it has enabled Phonetime to deliver a wide range of new services in the higher margin and relatively stable post-paid market.

Note: This news release contains forward-looking information. Actual future results may differ materially. All figures are in Canadian dollars except as noted otherwise. The risks, uncertainties, and other factors that could influence actual results are described in the Company's annual report to shareholders.

The TSX Venture Exchange has neither approved nor disapproved the contents of the press release.

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