TELEHOP COMMUNICATIONS INC.
TSX VENTURE : HOP

TELEHOP COMMUNICATIONS INC.

November 18, 2008 06:00 ET

Telehop Communications Reports Third Quarter 2008 Results Indicating Positive Momentum With its Strategic Initiatives

TORONTO, ONTARIO--(Marketwire - Nov. 18, 2008) - Telehop Communications Inc.("Telehop")(TSX VENTURE:HOP) today released its financial results for the third quarter ended September 30, 2008, reporting revenue of $3,985,669 compared to revenue of $4,275,280 for the same period in 2007. The net loss for the quarter was $102,676, or $0.01 per share, compared to net earnings of $2,712 for the same period in 2007. Compared to the second quarter 2008 the net loss was reduced by 77% from $454,390. On an EBITDA basis, and before stock-based compensation, the Company was very close to breakeven with a marginal loss of $11,816. Telehop completed the quarter with working capital of $2,717,886.

"I am pleased with our third quarter results," said Hersh Spiegelman, President and CEO of Telehop. "By strengthening our senior management team earlier this year and focusing on our more profitable lines of business we have been able to reduce our operating loss and are trending towards a break-even position. We are confident that we will see a continuation of this trend as we move forward on our key strategic initiatives for creating shareholder value."

Key Strategic Initiatives

Focusing on More Profitable Business Lines

Targeting High Growth Niche Markets

We are focusing our core lines of business on communities where we have a loyal customer base and where trends indicate growing consumer demand for the type of services we offer. In particular, we are concentrating on the ethnic, student and snowbird segments of the market where high quality, convenience and attractive pricing are key decision making factors. To effectively target these markets we are:

- bolstering our marketing capability and accelerating our marketing campaigns.

- forming marketing alliances with complementary service providers, such as home security.

- broadening our product offering to include more bundled services, such as the HomePhone and Internet Access.

Continuing with Telehop HomePhone (VoIP)

With industry trends pointing to the migration of customers to VoIP services, we have enhanced our flagship product, the Telehop HomePhone, and next month will commence a comprehensive multi-media marketing campaign to introduce this product across the country. To support the anticipated growth we are adding staff to our help desks and expanding our product management and marketing teams.

Growing Long Distance Customer Base

Through a more innovative marketing program, including direct marketing and telemarketing, we are focused on converting customers from casual calling to paid subscriptions. We are also aggressively promoting our low-rate cellular phone long distance service as an attractive alternative to the main wireless carriers. And to better respond to the demand for affordable long distance services among our customers in ethnic communities, we are forming alliances in international markets, such as India and the Philippines, with the goal of further reducing our rates.

Evaluating Opportunities for Strategic Partnerships

We are continuing our discussions with Globalive and other potential strategic partners. Our objective is to explore alternative business arrangements that will enhance value for our shareholders.

Strengthening the Management Team

Over the past year, we have taken steps to broaden and deepen the capabilities of our senior management team, an undertaking we felt was essential to move forward on our new strategic initiatives.

Financial Highlights

"With no debt and a strong working capital position we are confident we will be able to fund our growth initiatives internally," said Hersh Spiegelman.

The following recap of our performance indicates that we are achieving positive momentum through the implementation of our growth strategy.

- In response to an increasingly competitive market we reviewed our pricing strategy in the third quarter and reduced our rates accordingly. The subsequent decline in our average revenue per minute (ARPM) contributed to a 6.8% year over year decline in revenue to $3, 985,669 in the third quarter of 2008. Quarter over quarter revenue was down 6.2%. Although revenues are down, our focus on more profitable business lines has driven gross margins higher, with gross margin dollars increasing 11.4% from the second quarter 2008.

- Gross margins increased by 7% to 41% from the 34% recorded for the second quarter, and remained virtually unchanged from the third quarter 2007.

- Operating expenses were $1,774,552 for the third quarter, 17% less than what was reported in the second quarter 2008 and in line with the $1,760,612 reported for the same period in 2007. The company wide expense reduction achieved in the third quarter from the second quarter 2008 was the result of our plan to reduce overall expenses to a level that we feel is appropriate to help offset an increase in marketing expenditures required to support our plan for growth.

- We completed the quarter with $1,544,485 in cash and cash equivalents; a reduction of $288,680 from the second quarter 2008. This is accounted for as follows:

-- We generated positive cash flow from operations of $30,116.

-- This was offset by net cash outlays of $28,979 for capital items and $307,317 to fund a change in working capital items with the major contributing factor being a decrease in accounts payable due to timing of payments to suppliers, offset by a reduction in taxes recoverable and accounts receivable.

-- In addition $17,500 was received for the issuance of common shares upon exercise of stock options.

About Telehop Communications Inc.

Telehop is licensed by the CRTC and provides a complete range of value-priced telecommunications services to Canadians in both residential & business markets. Telehop offers its branded 10-10-620 and the 10-10-100 Dial Around Services, Telehop Long Distance Subscriber Services and 'Equal Access' Long Distance and alternative Directory Assistance Programs. Telehop also provides toll free1-800 numbers, Cellular Long Distance, Virtual Calling Cards and the Telehop HomePhone VoIP flat rate service.

For the detailed financial statements and MD&A, readers should refer to the Company's filings on www.sedar.com.

Cautionary Note Regarding Forward-looking Statements

Certain statements in this news release may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this news release, such statements use such words as "may", "will", "expect", "believe", "plan", "intend", "are confident" and other similar terminology.

These statements reflect current expectations regarding future events and operating performance and speak only as of the date of this news release. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed under "Risk and Risk Management" in the company's Management Discussion and Analysis filed on SEDAR. Although the forward-looking statements contained in this news release are based upon what management of the Company believes are reasonable assumptions, the company cannot assure investors that actual results will be consistent with these forward looking statements. These forward-looking statements are made as of the date of this news release, and the company assumes no obligation to update or revise them to reflect new events or circumstances.



SELECTED FINANCIAL INFORMATION
Interim Consolidated Balance Sheets
(Unaudited)
As at September 30, 2008 and December 31, 2007

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Sept. 30, 2008 Dec. 31, 2007
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ASSETS
CURRENT
Cash and cash equivalents $ 1,544,485 $ 2,882,305
Accounts receivable 2,707,434 2,875,202
Income taxes recoverable 393,972 291,495
Prepaid expenses and deposits 107,986 88,246
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4,753,877 6,137,248

PROPERTY AND EQUIPMENT 638,850 769,346

INTANGIBLE ASSETS 213,610 267,454

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$ 5,606,337 $ 7,174,048
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LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 2,019,465 $ 2,565,416
Dividend payable - 267,270
Obligations under capital lease 16,526 15,253
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2,035,991 2,847,939

FUTURE INCOME TAXES 1,592 32,284
OBLIGATIONS UNDER CAPITAL LEASE 33,052 47,185
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2,070,635 2,927,408
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SHAREHOLDERS' EQUITY

SHARE CAPITAL 1,544,677 1,527,177
CONTRIBUTED SURPLUS 73,657 40,489
RETAINED EARNINGS 1,917,368 2,678,974
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3,535,702 4,246,640
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$ 5,606,337 $ 7,174,048
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SELECTED FINANCIAL INFORMATION
Interim Consolidated Income Statements
(Unaudited)
Three and Nine month periods ended September 30

Three months Nine Months
ending Sept. 30th ending Sept. 30th
------------------------ ---------------------- ---------------------------
------------------------ ---------------------- ---------------------------

2008 2007 2008 2007
------------------------ ---------- ---------- ------------ -------------

OPERATING REVENUES $3,985,669 $4,275,280 $ 12,607,530 $ 13,767,289

Telecommunications costs 2,357,278 2,522,851 7,853,316 8,138,313
------------------------ ---------- ---------- ------------ -------------

GROSS MARGIN 1,628,391 1,752,429 4,754,214 5,628,976
------------------------ ---------- ---------- ------------ -------------

OPERATING EXPENSES
General and
administration 893,518 707,342 3,041,697 2,231,996
Marketing and selling 510,218 669,547 1,823,090 1,837,083
Development and
technical support 258,583 261,735 689,281 549,379
Amortization 111,134 111,150 361,282 346,638
Interest 1,099 10,838 1,823 24,946
------------------------ ---------- ---------- ------------ -------------
1,774,552 1,760,612 5,917,173 4,990,042
------------------------ ---------- ---------- ------------ -------------

OPERATING INCOME (LOSS) (146,161) (8,183) (1,162,959) 638,934

Other income 15,031 34,539 62,660 129,290
------------------------ ---------- ---------- ------------ -------------

INCOME (LOSS) BEFORE
INCOME TAXES (131,130) 26,356 (1,100,299) 768,224

Income taxes (recovery) (28,454) 23,644 (338,693) 313,698
------------------------ ---------- ---------- ------------ -------------

NET INCOME (LOSS) (102,676) 2,712 (761,606) 454,526

Other comprehensive
income - - - -
------------------------ ---------- ---------- ------------ -------------

COMPREHENSIVE
INCOME (LOSS) (102,676) 2,712 (761,606) 454,526
------------------------ ---------- ---------- ------------ -------------

EARNINGS (LOSS)
PER SHARE $ (0.01) $ 0.00 $ (0.06) $ 0.04
------------------------ ---------- ---------- ------------ -------------
------------------------ ---------- ---------- ------------ -------------

DILUTED EARNINGS
(LOSS) PER SHARE $ (0.01) $ 0.00 $ (0.06) $ 0.03
------------------------ ---------- ---------- ------------ -------------
------------------------ ---------- ---------- ------------ -------------



SELECTED FINANCIAL INFORMATION
Interim Consolidated Statement of Cash Flow
Three and Nine month periods ended September 30

Three months Nine Months
ending Sept. 30th ending Sept. 30th
---------------------- ---------------------------
---------------------- ---------------------------
2008 2007 2008 2007
------------------------ ---------- ---------- ------------ -------------

CASH FLOW PROVIDED
BY (USED FOR)
OPERATING ACTIVITIES
Net income (loss) for
the period $ (102,676) $ 2,712 $ (761,606) $ 454,526
Adjustments for
non-cash items:
Amortization expense 111,134 111,150 361,282 346,638
Future income tax
liability (454) (6,984) (30,692) (25,833)
Stock-based
compensation 22,112 - 33,168 (39,298)

Changes in working
capital items (307,317) 67,366 (500,400) (262,746)
------------------------ ---------- ---------- ------------ -------------

Cash provided (used)
by operating
activities (277,201) 174,244 (898,248) 473,287
------------------------ ---------- ---------- ------------ -------------

INVESTING ACTIVITIES
Acquisitions of
property and
equipment (347) (42,669) (83,572) (180,187)
Acquisition of
intangible assets (24,500) (39,326) (93,370) (74,764)
------------------------ ---------- ---------- ------------ -------------

Cash used by investing
activities (24,847) (81,995) (176,942) (254,951)
------------------------ ---------- ---------- ------------ -------------

FINANCING ACTIVITIES
Obligations under
capital lease (4,132) - (12,860) -
Dividend paid - - (267,270) -
Issuance of common
shares 17,500 17,500 17,500 37,500
------------------------ ---------- ---------- ------------ -------------

Cash used by financing
activities 13,368 17,500 (262,630) 37,500
------------------------ ---------- ---------- ------------ -------------

INCREASE (DECREASE)
IN CASH POSITION (288,680) 109,749 (1,337,820) 255,836

CASH, BEGINNING OF
PERIOD 1,833,165 2,924,751 2,882,305 2,778,664
------------------------ ---------- ---------- ------------ -------------

CASH, END OF PERIOD $1,544,485 $ 3,034,500 $ 1,544,485 $ 3,034,500
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