Phonetime Inc.
TSX VENTURE : PHD

Phonetime Inc.

August 29, 2005 16:57 ET

Phonetime Releases Q2 Results

MISSISSAUGA, ONTARIO--(CCNMatthews - Aug. 29, 2005) - Growth of Call Select Unit Leads to Increase in Gross Profit Margin

Phonetime Inc. (TSX VENTURE:PHD), a leading Canadian supplier of long distance telecommunication services, today released its consolidated financial results for the quarter ending June 30, 2005.

In the first six months of 2005, Phonetime generated revenue of $8.1 million with a gross profit of $2.85 million providing a gross margin of 35%, an increase of 3% over the same period last year. This increase was the result of the Company's focus on the 1+ Equal Access services delivered by its Call Select business unit. From a standing start in August 2004, Call Select now has over 20,000 subscribers and generated revenue of $1.7 million over the past six months.

On a consolidated basis, the Company had a net loss of $206,000 for the period, although EBITDA for the period was $117,000. The Company's pre-paid phone card business earned $160,000 on $7.3 million in revenue, down from $360,000 in earnings on revenue of $10.1 million in the same period last year. The drop in revenue and profits is directly attributable to an industry-wide decline in rates for long distance services over the past year; although revenue now appears to have stabilized. Despite this decline, phone card unit sales remain strong and minute traffic is higher than in the same period last year.

In the second quarter the company generated $54,881 of positive cash flow versus a negative cash flow of $346,164 in the same quarter last year, a cash flow improvement of $401,045 for the equivalent period.

To address the phone card revenue situation, Phonetime focused on its investment in Call Select, which provides higher margin services. Over the past six months, the Company has invested in call centre facilities, customer service representatives, and, in May 2005, Phonetime acquired over 3,000 subscribers and a sophisticated billing system from BeeTel Communications Inc. Consequently, Call Select is now billing approximately $500,000 per month and this figure is increasing monthly - at the same gross profit margin. In addition, Phonetime's wholesale long distance sales efforts over the past six months have been successful and these services are expected to make a substantive contribution to revenues and profits in Q3 and beyond. As a result of these activities and the stabilization of phone card revenue, Phonetime's gross profit in Q2 2005 was $121,000 greater than in the same period last year, despite a $109,000 drop in revenue.

Looking forward, Phonetime is planning to launch a unique residential VoIP service in the third quarter of 2005. At the same time, Call Select will be increasing sales efforts of its profitable "bundled" package of Internet access and long distance services to both current and new subscribers. These services are expected to boost utilization of the Company's extensive Canadian private network and provide significant revenue and profit generating opportunities. To support these new services, over the past six months, Phonetime invested in new software and telecommunication switches; thereby increasing network capacity and reliability. These investments account for much of the $200,000 increase in Operating Expenses for the past six months compared to the same period last year.

Also of note, during this past six months, Phonetime eliminated its long term debt - a considerable achievement, which leaves the company with a strong balance sheet and well positioned to consider acquisition opportunities.

About Phonetime

Phonetime operates one of Canada's largest private long-distance networks for Retail and Wholesale Long Distance traffic, with points-of-presence in 27 major urban areas, with plans to expand. Phonetime markets its own branded pre-paid calling cards (Nuvo, Bravo, Chit Chat, Eureka, Hot and Call Value) across the country. The Company also provides phone cards to over 4,000 retail outlets, including Petro-Canada, Shell Canada, and Business Depot/Staples. With its billion minute global buying power, Phonetime delivers highly competitive prices, quality connections and exceptional customer service. Licensed as a Class A, International Carrier by the CRTC, Phonetime has offices in Toronto, Vancouver and Montreal.

About Call Select

Call Select was established by Phonetime and a group of experienced telecommunications executives (who hold 20% of the equity) in 2004, to deliver 1+ Equal Access and Dial Around long distance services to ethnic markets in Canada. Call Select represents a logical diversification for Phonetime from primarily offering pre-paid telecommunications products to providing a wide range of new products and services, primarily in the higher margin, longer term, post-paid market.

Additional information about Phonetime and Call Select and the services is available on the websites: www.phonetime.com, www.dialnsave.ca, and www.callselect.ca.

Note: This news release may contain forward-looking information. Actual future results may differ materially. All figures are in Canadian dollars. 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 does not accept responsibility for the adequacy or accuracy of this release.

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