PhotoChannel Networks Inc.
TSX VENTURE : PN
OTC Bulletin Board : PNWIF

PhotoChannel Networks Inc.

May 13, 2009 16:01 ET

PhotoChannel Networks Announces Strong Second Quarter Results

Revenue up 54% Over Same Quarter Last Year, Non-GAAP Profit of $543,278

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 13, 2009) - PhotoChannel Networks Inc. (TSX VENTURE:PN)(OTCBB:PNWIF), ("PNI Digital Media" or "PNI"), the leading innovator in digital photography and media solutions for retailers, announced strong revenue and record average daily order volumes for its second quarter of Fiscal Year 2009 for the period ending March 31st, 2009.

The company's second quarter results will be discussed on a conference call on May 13th, 2009 at 4:30pm ET, 1:30pm PT. To access the conference call, investors should dial 888-300-8196 or 647-427-3426 and quote ID No. #97666512. Please call 10 minutes prior to the scheduled start time. PhotoChannel will also offer a live and archived webcast, available at the company's website http://www.photochannel.com/webcast.

All amounts are expressed in Canadian dollars. 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 second quarter of our Fiscal Year is always the most seasonally challenging, but we are pleased with our performance this year and the continued growth of our average daily order volume," says Kyle Hall, Chief Executive Officer of PhotoChannel. "We generated over $500,000 of cash from operations for our slowest quarter of the year and have now recorded a year to date total of $3.3 million in non-GAAP net profit. Furthermore, operating expenses, which include SG&A, Development and Network Delivery declined 11% sequentially from last quarter. I'm satisfied our drive to increase sales and profitability while keeping expenses stable is continuing as we have planned."

Second Quarter Financial Highlights

- Total revenues for the quarter of $5,015,041 compared to $3,259,499 for the second quarter of 2008.

- Transactional revenue of $3,525,704, representing an 85% increase year on year.

- Transaction fees representing 70% of total revenue during the quarter vs. 58% during the second quarter of fiscal 2008.

- GAAP net loss for the quarter of $1,475,124 compared to $2,622,228 for the same period of fiscal 2008.

- Non-GAAP net profit for the quarter (defined as net loss less amortization and share-based compensation expense) of $543,278, compared to a non-GAAP net loss of $1,285,808 in the second quarter of 2008.

- Net loss per Share of ($0.04) for the quarter, vs. ($0.08) for the comparable period in Fiscal 2008.

- Non-GAAP adjusted Earnings per share (EPS), defined as net profit, excluding amortization and share-based compensation expense, of $0.02 compared to a Non-GAAP adjusted net loss per share of ($0.04) for the comparable period for Fiscal 2008.

Operational Highlights and Subsequent Events

- 2.8 million orders transacted during the quarter, compared to 1.1 million in the second quarter of 2008.

- Average daily order volume handled during the quarter of approximately 31,000 orders, a 156% increase year on year.

Additional Highlights from the Quarter:

- Announced on February 18, 2009, the launch of the PNI Open Access Project, allowing non-PhotoChannel customers to take advantage of and utilize the power of the PNI Digital Media Platform.

- Announced on March 11, 2009 the closing of the acquisition of WorksMedia Limited.

- Announced on March 11, 2009 the signing of a license agreement with Psi Digital Solutions, granting them the exclusive right to further develop, market and sub-license the IRISS red-eye removal technology.

Recent Accomplishments:

- Announced on April 29, 2009, PNI has been selected by Fred Meyer and King Soopers (both Kroger companies) to deliver their next generation online photo site and kiosk. PNI will deliver two new photo sites branded for Fred Meyer and King Soopers as well as over 700 Connected Kiosk software deployments. The Connected Kiosk software is the latest version of the kiosk software recently acquired with the purchase of Works Imaging, now integrated to the PNI Platform. Besides providing 1-hour print capabilities, both the online site and the Connected Kiosks will be fully outfitted with a large selection of gift products. The new services will start being deployed in the current quarter.



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

March 31, 2009 September 30, 2008
-------------------------------------

Assets
Current assets
Cash and cash equivalents $ 3,038,539 $ 2,670,988
Accounts receivable (note 7) 4,419,964 4,019,286
Prepaid expenses and
other current assets 574,284 430,616
-------------------------------------
8,032,787 7,120,890

Property and equipment 7,101,314 6,786,650
Deferred expenses - 52,882
Intangible assets 6,430,442 5,164,492
Goodwill 1,470,790 1,498,539

-------------------------------------
$ 23,035,333 $ 20,623,453
-------------------------------------
-------------------------------------

Liabilities
Current liabilities
Accounts payable and
accrued liabilities $ 7,810,936 $ 7,480,800
Purchase consideration
payable (note 5) 1,830,458 -
Current portion of
deferred revenue 547,914 658,045
Current portion of capital
lease obligations 490,072 490,072
Loan payable 937,169 969,886
-------------------------------------
11,616,549 9,598,803

Deferred revenue 163,536 363,108
Long-term portion of capital
lease obligations 215,460 375,875
Contingent consideration (note 5) 430,437 -
Asset retirement obligations 21,610 22,009
-------------------------------------
12,447,592 10,359,795
-------------------------------------

Shareholders' Equity (note 8)
Share capital $ 66,017,456 $ 65,614,347
Warrants - 4,961,826
Contributed surplus 17,455,022 11,611,165
-------------------------------------
83,472,478 82,187,338
-------------------------------------

Deficit (71,301,628) (70,767,148)
Accumulated other comprehensive loss (1,583,109) (1,156,532)
-------------------------------------
(72,884,737) (71,923,680)
-------------------------------------
10,587,741 10,263,658
-------------------------------------
$ 23,035,333 $ 20,623,453
-------------------------------------
-------------------------------------


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

Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
2009 2008 2009 2008
------------ ------------ ------------ ------------

Revenue (note 10) $ 5,015,041 $ 3,259,499 $ 12,191,374 $ 7,558,093

Expenses
Network delivery 1,641,783 1,644,677 4,013,577 3,467,794
Software
development 1,843,612 1,823,038 3,654,568 3,317,074
General and
administration 1,141,451 877,011 2,129,677 1,954,740
Sales and marketing 346,241 351,737 669,105 621,980
Amortization 1,521,834 1,098,961 2,920,862 1,888,618
------------ ------------ ------------ ------------
6,494,921 5,795,424 13,387,789 11,250,206
------------ ------------ ------------ ------------

Net loss before
the undernoted (1,479,880) (2,535,925) (1,196,415) (3,692,113)

Foreign exchange
gain (loss) 58,032 (147,136) 772,318 (145,674)
Interest income 671 36,839 7,669 111,128
Interest expense
- capital lease (39,858) - (84,621) -
Interest expense
- other (14,089) (1,747) (32,706) (3,910)
Gain (loss) on
disposal of property,
plant & equipment - 25,741 (725) 25,741
------------ ------------ ------------ ------------
4,756 (86,303) 661,935 (12,715)
------------ ------------ ------------ ------------
Net loss (1,475,124) (2,622,228) (534,480) (3,704,828)

Other comprehensive
loss:
Unrealized foreign
exchange gain
(loss) on translation
of self sustaining
foreign operations
(note 8) 31,098 525,776 (426,577) 29,775
------------ ------------ ------------ ------------
Comprehensive loss $ (1,444,026) $ (2,096,452) $ (961,057) $ (3,675,053)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Basic and fully
diluted net loss
per share $ (0.04) $ (0.08) $ (0.02) $ (0.11)

Weighted average
number of common
shares outstanding 33,647,765 33,347,087 33,578,203 33,340,411


Non-GAAP Adjusted Profit (Loss) Reconciliation

Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
2009 2008 2009 2008
-------------------------- --------------------------

Net Loss $ (1,475,124) $ (2,622,228) $ (534,480) $ (3,704,828)
Add Back:
Amortization 1,521,834 1,098,961 2,920,862 1,888,618
Share-based
compensation
expense 496,568 237,459 949,951 412,919

-------------------------- --------------------------
Non-GAAP Adjusted
Profit (loss) $ 543,278 $ (1,285,808) $ 3,336,333 $ (1,403,291)
-------------------------- --------------------------
-------------------------- --------------------------


Non-GAAP Measures

This release includes references to non-GAAP adjusted Profit (loss) and non-GAAP adjusted Earnings per share data. These non-GAAP measures are not in accordance with, or an alternative for measures prepared in accordance with, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles.

PhotoChannel believes that the presentation of certain non-GAAP measures, including non-GAAP adjusted Profit (loss) and non-GAAP adjusted Earnings per share, when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and results of operation.

About PNI Digital Media - Founded in 1995, PhotoChannel Networks Inc. (also known as "PNI Digital Media") operates the PNI Digital Media Platform, which provides transaction processing and order routing services for major retailers. The PNI Digital Media Platform connects consumer ordered digital content, whether from in-store kiosks, online sites or desktop software, with retailers that have on-demand manufacturing capabilities for the production of merchandise such as photos and business documents. PhotoChannel successfully generates millions of transactions each year for retailers and their thousands of locations worldwide. Follow us on Twitter® @PNI_Kyle and @PNI_Yasmin.

For more information please visit www.pnidigitalmedia.com.

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.

The TSX Venture Exchange has neither approved nor disapproved the information contained in this release. PhotoChannel relies upon litigation protection for "forward-looking" statements. Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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