PhotoChannel Reports Third Quarter Results

Record Revenues up 58% over Second Quarter

VANCOUVER, BC – August 23, 2006 – PhotoChannel Networks Inc. (TSX-V: PNI and OTCBB: PHCHF) (“PNI” or “PhotoChannel”) the leading innovator of online digital media solutions for retailers, reports its third quarter fiscal 2006 financial statements for the nine month period ended June 30, 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” stated Peter Fitzgerald, President and CEO of PhotoChannel. “During the third quarter we expanded our media solutions base through the expansion of our retailer’s online connections with PhotoChannel offering their customers a one hour printing solution. At the end of the third quarter our largest and newest partner, CVS/pharmacy with over 5,000 locations, launched the one hour printing solution to its customers. Revenue for the quarter increased by 58% over the second quarter and while the loss increased, nearly 50% was related to one-time and/or non-recurring expenses.

“Of greatest significance, having experiencing a record month in May 2006, the Company has continued to experience strong month over month growth in both June and July 2006. These increases resulted in losses on a cash flow basis for the month of July 2006 being less than $50,000. Based on the significant number of orders processed thus far during the month of August 2006, we are confident that this month will represent the first cash flow positive month in our Company’s history.”

Business Highlights

For Q3 – FY06 PhotoChannel reports that:

  • CVS/pharmacy launched the print in-store, one hour online photofinishing solution, late in June 2006;
  • Wal-Mart Puerto Rico’s rollout was completed in May 2006.
  • Revenues for the nine months ended June 30, 2006 of $2,684,380, up 72% or $1,124,249 over the corresponding period of 2005.
  • Revenues for the three months ended June 30, 2006 were $1,310,520, up 141% and 58% over the first and second quarters of 2006, respectively.
  • Transactional revenues for third quarter were up 107% and 56% over the first and second quarters of 2006, respectively.
  • Revenue continues to be driven by increases in installation, membership and transaction fees, which increased by 61%, 40%, and 95%, respectively, from the first three quarters of fiscal 2005.
  • The Company recorded a loss for the three months ended June 30, 2006 of $1,025,636 or $219,741 over its previous quarter ended March 31, 2006. This loss included one-time and non-recurring charges of $489,818, which were primarily due to restructuring during the quarter.
  • The Company closed a non-brokered private placement for gross proceeds of $2,750,000 on May 30, 2006.

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, including Wal-Mart Canada, CVS/pharmacy, Eckerd Drugs and Costco Canada. For more information please visit www.pnidigitalmedia.com

Investor Information: (800) 261 - 6796

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 June 30, 2006, have been prepared by and ar 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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