Phonetime Inc.
TSX : PHD

Phonetime Inc.

May 17, 2010 18:53 ET

Phonetime Refiles Financial Statements to Reflect Previously Announced Restatement of Purchase Price Allocation on 2007 Business Acquisition

Company also Releases Consolidated Financial Results for 2009

MISSISSAUGA, ONTARIO--(Marketwire - May 17, 2010) - Phonetime Inc. (TSX:PHD) announced that it will be refiling today its consolidated financial statements for the years ended December 31, 2007 and 2008, to reflect a previously announced understatement of intangible assets and future income tax liabilities and an overstatement of goodwill in connection with its acquisition of Symphony Holdings, Inc.("Symphony"). The Company is also refiling today its restated interim financial statements for the three, six and nine month periods ended March 31, June 30, and September 30 of each of the 2008 and 2009 fiscal years, respectively, and its related management's discussion and analysis for these periods.

The Company has announced that it will be filing today its consolidated annual financial expects to file its consolidated interim financial statements for the three month period ended March 31, 2010 and related management's discussion and analysis by May 31, 2010.

A summary of the 2009 consolidated financial results are set forth below.

  Network Consumer Corporate Eliminations Consolidated
  2009 2008 2009 2008 2009 2008 2009 2008 2009 2008
  ($000's) ($000's) ($000's) ($000's) ($000's) ($000's) ($000's) ($000's) ($000's) ($000's)
Operating Expenses                    
  External Revenue 143,080 132,127 29,041 25,041               172,121   157,168  
  Intersegment Revenue 27,120 22,877           (27,120 ) (22,877 ) -   -  
  170,200 155,004 29,041 25,041 -   - (27,120 ) (22,877 ) 172,121   157,168  
Cost of Sales                              
  External Revenue 150,727 133,414 3,029 3,377               153,756   136,791  
  Intersegment Revenue 8,742 8,861 18,378 14,016       (27,120 ) (22,877 ) -   -  
  159,469 142,275 21,407 17,393 -   - (27,120 ) (22,877 ) 153,756   136,791  
Gross Margin 10,731 12,729 7,634 7,648 -   - -   -   18,365   20,377  
Operating Expenses                       18,848   16,789  
EBITDA (1)                       (483 ) 3,588  
Capital Expenditures 477 442 151 68               628   510  
Total Assets 28,169 28,899 5,828 6,839 3,729   5,151 (3,557 ) (7,309 ) 34,169   33,580  
Goodwill & Other Intangible Assets 14,045 15,105 1,157 1,164               15,202   16,269  
          EBITDA (from above)       (483 ) 3,588  
          Amortization         (2,192 ) (2,030 )
          Operating Income (loss)       (2,675 ) 1,558  
          Financing Costs         (680 ) (1,022 )
          Income (Loss) Before Income Taxes   (3,355 ) 536  
          Income Taxes         163   (798 )
          Net Profit (Loss)         (3,192 ) (262 )
  1. Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") is a measure that does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers; EBITDA is defined by the Company as operating revenues less operating expenses and foreign exchange gains or losses but before stock compensation costs.

Restatement

As disclosed on February 9, 2010, in December 2009 the Company engaged an independent accountant to review the purchase price allocation related to the 2007 acquisition of Symphony and identified an understatement of intangible assets and future income taxes and an overstatement of goodwill related to the acquisition. The change in the purchase price allocation relates to the establishment of identifiable intangible assets that were not previously recorded by management together with the tax effect. Consequently, the Company has retrospectively restated its consolidated balance sheets as at December 31, 2008 and its consolidated statements of operations, comprehensive income and deficit and cash flows for the years then ended as set out below.

While this restatement has no impact on the cash flow of the Company, the amortization of the above intangibles reduces the previously reporting net income, income tax expense and earnings per share of the company for all reporting periods from the fourth quarter of 2007 to the third quarter of 2009. The modification to the purchase price equation also adjusts the reported assets, liabilities and equity of the Company; the effect of each reporting period as shown.

    As Previously        
  Purchase price allocation   Reported   Adjustment   As Restated
  Property and equipment $ 16,530         $ 16,530  
  Intangible Assets               -  
  Customer relationships         2,100,000     2,100,000  
  Non-compete agreements         3,000,000     3,000,000  
  Management contracts         400,000     400,000  
  Future income tax liability         (1,980,000 )   (1,980,000 )
  Goodwill   14,361,424     (3,520,000 )   10,841,424  
  Fair value of assets acquired $ 14,377,954   $ -   $ 14,377,954  
   
The following summarizes the impact of the restatement:              
   
    As Previously              
    Reported     Adjustment     As Restated  
  Consolidated Balance Sheet   $     $     $  
  Intangible asset   258,363     4,263,333     4,521,696  
  Goodwill   15,266,892     (3,520,000 )   11,746,892  
  Future income tax liability   0.00     (1,534,800 )   (1,534,800 )
  Deficit   (4,861,902 )   (791,467 )   (5,653,369 )
   
Consolidated Statement of Operations and Comprehensive Income and Deficit        
  Amortization of intangible assets   (102,678 )   (1,060,000 )   (1,162,678 )
  Income before income taxes   1,595,736     (1,060,000 )   535,736  
  Future income taxes (recovery)   196,425     (381,600 )   (185,175 )
  Net income (loss) and comprehensive                  
    income (loss)   416,310     (678,400 )   (262,090 )
  Basic earnings per share   0.00     0.00     0.00  
  Diluted earnings per share   0.00     0.00     0.00  
   
  Consolidated Statement of Cash Flows                  
  Net income (loss)   416,310     (678,400 )   (262,090 )
  Amortization of intangible assets   102,678     1,060,000     1,162,678  
  Future income taxes   196,425     (381,600 )   (185,175 )

About Phonetime Inc.

Phonetime is an international telecommunications Network carrier. Phonetime provides long- distance services to major telephone carriers around the world. In 2009, Phonetime carried in excess of 5 billion minutes for customers. Phonetime's common shares trade on the Toronto Stock Exchange under the symbol PHD. More information can be found at the Company's website, www.phonetime.com.

Caution Regarding Forward Looking Information:

This press release contains forward-looking statements, which may be identified by words like "expects", "anticipates", "plans", "intends", "indicates" or similar expressions. These statements are not a guarantee of future performance and are inherently subject to risks and uncertainties. Phonetime's actual results could differ materially from those currently anticipated due to a number of factors set forth in reports and other documents filed by the Company with Canadian securities regulatory authorities from time to time.

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