PhotoChannel Networks Inc.
TSX VENTURE : PNI
OTC Bulletin Board : PHCHF

PhotoChannel Networks Inc.

May 29, 2006 17:46 ET

PhotoChannel Posts Record Revenues

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - May 29, 2006) - PhotoChannel Networks Inc. (TSX VENTURE:PNI)(OTCBB:PHCHF) ("PhotoChannel" or "PNI") the leading innovator of online digital media solutions for retailers, reports its second quarter fiscal 2006 financial statements for the six month period ending March 31, 2006. PhotoChannel's financial statements and related management discussion and analysis is now available on SEDAR at www.sedar.com.

"PhotoChannel is pleased to report another very strong quarter," says Peter Fitzgerald, President and CEO of PhotoChannel. "During the quarter certain retailers of ours continued to connect locations directly, offering their customers a one hour printing solution. We continued to focus on the US marketplace and we were very pleased to announce a partnership with CVS/pharmacy, the largest drug store chain in the United States during this quarter. Our on-going goal is to provide our retail partners with the best online digital solution available."

Business Highlights

For Q2 - FY06 PhotoChannel reports that:

- Revenues for the three months ended March 31, 2006 were $831,145, up 53% over the first quarter of fiscal 2006.

- Transactional revenues for second quarter were up 33% from the first quarter of fiscal 2006, the period from October to December historically being the best photofinishing quarter.

- Net operating loss for the period was $812,859 up from $613,004 during the first quarter of fiscal 2006, primarily due to an increase in installations and research and development expenditures related to new product developments, including the Company's online music initiative.

- An agreement with CVS/pharmacy whereby CVS/pharmacy will deploy PNI Digital Media Platform to offer online photo printing for its customers and pick up in any of over 5,000 CVS/pharmacy locations across the United States. CVS is now completing its rollout of the in-store print solution to offer its customers a one hour online digital photofinishing solution. When this rollout is completed it will be the largest distributed printing network offered by any retailer in North America. Completion is scheduled for June 2006. (See www.cvs.com)

- In March 2006, Costco Canada completed rollout of all of its locations offering an online to in-store print solution for its customers. (See www.costco.ca)

- It signed an agreement to provide PNI Digital Media Platform to Wal-Mart Puerto Rico's 27 locations. Deployment and rollout was completed in May 2006.

- It signed an agreement with Hy-Vee, Inc ("Hy-Vee") whereby Hy-Vee will deploy PNI Digital Media Platform to offer online photo printing through the Hy-Vee website located at www.hy-vee.com.

- It launched a prepaid card driven online photo service (www.photosdirect2u.ca) for Visions Electronics ("Visions"). The online service will be utilized to expand Vision's product offering and to provide a base for ongoing marketing, customer loyalty and e-commerce programs.

- It signed an agreement with Katz Group Canada ("Katz") and has deployed its PNI Digital Media Platform to deliver Rexall™ Photo Centre an online solution located at www.rexall.ca.

- It partnered with Datawave Systems Inc. to expand the Black's Prepaid Photo-finishing program. Black's Prepaid Photo Cards are now available at Petro Canada, Shell, Scholtens, HDS, Needs, Irving Oil, Stop'n Cash, Cash Now, Wilson Fuels, Mac's, and Husky.

- It partnered with PassAlong Networks to launch the PNI Digital Media Platform for digital music that provides customers with the ability to purchase digital music online and the pick up a CD of their selection(s) within one hour at a nearby retail store, as is now offered for digital photos.

- It integrated its Digital Media Platform with Sony's ImageStation and has launched this with Blacks Photo and Wal-Mart Canada to offer same-day digital prints in-store for ImageStation's members.

- Today, PhotoChannel announced the completion, subject to TSX Venture Exchange approval, of a non-brokered private placement for gross proceeds of $2.75 million by way of issuance of 27,500,000 units. Each such unit comprising one common share of the Company and one half of one non-transferable share purchase warrant, each full warrant entitling the purchase of an additional common share of the Company for a period of one year, from the date of close, at a price of $0.15.

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. Currently PNI Digital Media generates transactions for retailers and their thousands of locations across North America. For more information please visit www.photochannel.com.

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 for 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.

Notice of no auditor review of interim consolidated financial statements

Under National Instrument 51-102, Part 4, subsection 4.3 (3)/(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by and auditor.

The interim consolidated financial statements of the Company, as at and for the period ended December 31, 2005, has been prepared by and are the responsibility of the Company's management.

The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.

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