-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LO+ufX5mtCb3wpQ+dFKxnqAu9uy7qzUNmz12dox6K0pfxz0OYbB4IfePiQhNRGJC 9dXogsRxPPexqXA9LTZIfA== 0001144204-04-007869.txt : 20040601 0001144204-04-007869.hdr.sgml : 20040601 20040601163230 ACCESSION NUMBER: 0001144204-04-007869 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040531 FILED AS OF DATE: 20040601 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHOTOCHANNEL NETWORKS INC CENTRAL INDEX KEY: 0001036642 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943275711 FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-30148 FILM NUMBER: 04841730 BUSINESS ADDRESS: STREET 1: 800 900 WEST HASTINGS ST STREET 2: V6C 1E5 CITY: VANCOUVER BC CANADA STATE: A1 BUSINESS PHONE: 6048938955 MAIL ADDRESS: STREET 1: 900 WEST HASTINGS STREET STREET 2: SUITE 800 V6C 1E5 CITY: VANCOUVER BC STATE: A1 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: INMEDIA PRESENTATIONS INC DATE OF NAME CHANGE: 19990708 6-K 1 v03794_6k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 6-K REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934 For the month of May, 2004 Commission File No. 0-30148 PHOTOCHANNEL NETWORKS INC. ----------------------------------------------- (Translation of registrant's name into English) 506 - 425 CARRALL STREET, VANCOUVER, BRITISH COLUMBIA V6B 6E3 CANADA -------------------------------------------------------------------- (Address of principal executive office) [Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F] Form 20-F [X] Form 40-F [ ] Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1) [ ] NOTE: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders. Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7) [ ] NOTE: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR. Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes [ ] No [X] If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PHOTOCHANNEL NETWORKS INC. Date: June 1, 2004. "Robert Chisholm" - ----------------------------- Robert Chisholm, CFO BRITISH COLUMBIA SECURITIES COMMISSION QUARTERLY AND YEAR END REPORT BC FORM 51-901F - -------------------------------------------------------------------------------- ISSUER DETAILS NAME OF ISSUER FOR QUARTER ENDED DATE OF REPORT Y M D PhotoChannel Networks Inc. March 31, 2004 2004 05 28 - -------------------------------------------------------------------------------- ISSUER ADDRESS 506 - 425 Carrall Street - -------------------------------------------------------------------------------- CITY PROVINCE POSTAL CODE ISSUER FAX NO. ISSUER TELEPHONE NO. Vancouver B. C. V6B 6E3 604-893-8966 604-893-8955 - -------------------------------------------------------------------------------- CONTACT NAME CONTACT POSITION CONTACT TELEPHONE NO. Robert Chisholm C. F. O. 604-893-8955 ext. 224 - -------------------------------------------------------------------------------- CONTACT EMAIL ADDRESS WEBSITE ADDRESS rchisholm@photochannel.com www.photochannel.com - -------------------------------------------------------------------------------- CERTIFICATE The Three schedules required to complete this Report are attached and the disclosure contained therein has been approved by the Board of Directors. A copy of this Report will be provided to any shareholder who requests it. Y M D "Peter Scarth" Peter Scarth 2004 05 28 - -------------------------------------------------------------------------------- Director's Signature Print Full Name Date Signed "Cory Kent" Cory Kent 2004 05 28 - -------------------------------------------------------------------------------- Director's Signature Print Full Name Date Signed NOTICE THAT FINANCIAL STATEMENTS HAVE NOT BEEN REVIEWED BY AN AUDITOR PHOTOCHANNEL NETWORKS INC. INTERIM FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 2004 The Issuer's auditors have not reviewed or been involved in the preparation of these financial statements. PHOTOCHANNEL NETWORKS INC. CONSOLIDATED BALANCE SHEET UNAUDITED - PREPARED BY MANAGEMENT (expressed in Canadian dollars) - -------------------------------------------------------------------------------- MARCH 31, SEPTEMBER 30, 2004 2003 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 117,302 $ 1,104,410 Cash held in trust -- 345,000 Accounts receivable 445,390 96,750 Inventory 14,714 -- Prepaid expenses 20,503 19,364 ---------------------------- 597,909 1,565,524 CAPITAL ASSETS 594,643 285,573 ---------------------------- $ 1,192,552 $ 1,851,097 ============================ LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities $ 532,232 $ 1,117,247 Deferred revenue 113,196 60,000 ---------------------------- $ 645,428 $ 1,177,247 ---------------------------- SHAREHOLDERS' DEFICIENCY Capital stock $ 33,086,923 $ 31,826,678 Contributed surplus 6,976,915 6,976,915 Loans receivable (48,317) (122,206) Warrants 1,923,382 2,168,522 Deficit (41,391,779) (40,176,059) ---------------------------- 547,124 (673,850) ---------------------------- $ 1,192,552 $ 1,851,097 ============================ The accompanying notes are an integral part of these financial statements. PHOTOCHANNEL NETWORKS INC. Consolidated Statements of Income (Loss) and Deficit UNAUDITED - PREPARED BY MANAGEMENT (expressed in Canadian dollars) - --------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------ ------------------------------ MARCH MARCH MARCH MARCH 31, 2004 31, 2003 31, 2004 31, 2003 ------------------------------ ------------------------------ REVENUE $ 231,495 $ 105,834 $ 412,865 $ 174,303 COST OF SALES 71,776 23,145 128,293 36,412 ------------------------------ ------------------------------ GROSS PROFIT (LOSS) 159,719 82,689 284,572 137,891 ------------------------------ ------------------------------ EXPENSES General and administration 367,410 410,861 691,562 739,416 Sales and marketing 117,572 145,105 288,773 253,848 Research and development 216,590 162,117 534,598 312,977 Amortization 33,491 55,261 62,967 266,376 ------------------------------ ------------------------------ 735,063 773,344 1,577,900 1,572,617 ------------------------------ ------------------------------ Net loss from operations (575,344) (690,655) (1,293,328) (1,434,726) OTHER INCOME (LOSS) Expense recovery 48,759 163,419 48,759 163,419 Loss on disposal of property, plant and equipment -- (1,840) -- (119,257) Translation loss 7,068 756 26,121 335 Interest and miscellaneous income 80 19 2,728 234 ------------------------------ ------------------------------ 55,907 162,354 77,608 44,731 NET (LOSS) GAIN FOR THE PERIOD (519,437) (528,301) (1,215,720) (1,389,995) LOSS FOR THE PERIOD ATTRIBUTED TO LIMITED PARTNERSHIP -- -- -- 127,410 ------------------------------ ------------------------------ NET LOSS FOR THE PERIOD ATTRIBUTED TO COMMON SHAREHOLDERS (519,437) (528,301) (1,215,720) (1,262,585) ------------------------------ ------------------------------ DEFICIT - BEGINNING OF PERIOD (40,872,342) (38,460,359) (40,176,059) (37,726,075) ------------------------------ ------------------------------ DEFICIT - END OF PERIOD $ (41,391,779) $ (38,988,660) $ (41,391,779) $ (38,988,660) ============================== ============================== (LOSS) GAIN PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (0.00) $ (0.01) $ (0.01) $ (0.01) ============================== ============================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 130,258,732 87,130,643 130,258,732 87,130,643 ============================== ==============================
The accompanying notes are an integral part of these financial statements. PHOTOCHANNEL NETWORKS INC. Consolidated Statementnine monthsnine monthss of Cash Flows UNAUDITED - PREPARED BY MANAGEMENT (expressed in Canadian dollars) - --------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------- -------------------------- MARCH 31, MARCH 31, MARCH 31, MARCH 31, 2004 2003 2004 2003 -------------------------- -------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) gain for the period $ (519,437) $ (528,301) $(1,215,720) $(1,389,995) Items not affecting cash Amortization 33,491 55,261 62,967 266,376 Loss on sale of property, plant and equipment -- 1,840 -- 119,257 -------------------------- -------------------------- (485,946) (471,200) (1,152,753) (1,004,362) Net change in non-cash working capital items (436,802) (192,154) (896,312) (689,490) -------------------------- -------------------------- (922,748) (663,354) (2,049,065) (1,693,852) -------------------------- -------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (84,878) (1,842) (227,874) (197,902) Deferred development costs (144,163) -- (144,163) -- Proceeds from sale of property, plant and equipment -- 3,775 -- 103,775 Short term deposits -- -- -- -- -------------------------- -------------------------- (229,041) 1,933 (372,037) (94,127) -------------------------- -------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Cash in trust -- -- 345,000 -- Demand loan -- (66,947) -- 292,650 Loan receivable 32,210 -- 73,889 -- Issuance of common shares and exercise of common share purchase warrants and options 38,608 566,947 1,015,105 1,357,300 Issuance of special warrants -- -- -- -- Issuance of limited partnership units -- -- -- 115,000 -------------------------- -------------------------- 70,818 500,000 1,433,994 1,764,950 -------------------------- -------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,080,971) (161,421) (987,108) (23,029) CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 1,198,273 223,978 1,104,410 85,586 -------------------------- -------------------------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 117,302 $ 62,557 $ 117,302 $ 62,557 ========================== ==========================
The accompanying notes are an integral part of these financial statements. PHOTOCHANNEL NETWORKS INC. Notes to Consolidated Financial Statements MARCH 31, 2004 UNAUDITED - PREPARED BY MANAGEMENT (expressed in Canadian dollars) - -------------------------------------------------------------------------------- NOTE 1: While the information presented in the accompanying interim three month financial statements is unaudited, it includes all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim period presented. It is suggested that these interim financial statements be read in conjunction with the Company's September 30, 2003 annual audited statements. These financial statements follow the same accounting policies and methods as the Company's September 30, 2003 annual financial statements. NOTE 2: Loss per share figures are calculated using the weighted average number of shares outstanding during the period. Diluted loss per share information is not presented where the effect would be anti-dilutive. NOTE 3: Following is a breakdown of accounts receivable at March 31, 2004, as compared to September 30, 2003. ---------------------------------------------------------------------------- DESCRIPTION PERIOD ENDED ---------------------------------------------------------------------------- March 31, 2004 September 30, 2003 ---------------------------------------------------------------------------- Trade accounts receivable $ 427,328 $ 96,750 ---------------------------------------------------------------------------- GST receivable 18,062 -- ---------------------------------------------------------------------------- Advance on expenses -- -- ---------------------------------------------------------------------------- Other -- -- ---------------------------------------------------------------------------- Total $ 445,390 $ 96,750 ---------------------------------------------------------------------------- NOTE 4: Following is a breakdown of the revenue for the six month period ended March 31, 2004, as compared to the fiscal period ended September 30, 2003. ---------------------------------------------------------------------------- DESCRIPTION PERIOD ENDED ---------------------------------------------------------------------------- March 31, 2004 September 30, 2003 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Website fees $ 103,619 $ 73,606 ---------------------------------------------------------------------------- Installation fees 66,957 13,308 ---------------------------------------------------------------------------- Membership fees 37,886 73,120 ---------------------------------------------------------------------------- Transaction fees 181,099 90,054 ---------------------------------------------------------------------------- Prepaid Card fees 23,304 - ---------------------------------------------------------------------------- Other -- 5,485 ---------------------------------------------------------------------------- Total $412,865 $ 255,573 ---------------------------------------------------------------------------- BRITISH COLUMBIA SECURITIES COMMISSION QUARTERLY AND YEAR END REPORT BC FORM 51-901F - -------------------------------------------------------------------------------- ISSUER DETAILS NAME OF ISSUER FOR QUARTER ENDED DATE OF REPORT Y M D PhotoChannel Networks Inc. March 31, 2004 2004 05 28 - -------------------------------------------------------------------------------- ISSUER ADDRESS 506 - 425 Carrall Street - -------------------------------------------------------------------------------- CITY PROVINCE POSTAL CODE ISSUER FAX NO. ISSUER TELEPHONE NO. Vancouver B. C. V6B 6E3 604-893-8966 604-893-8955 - -------------------------------------------------------------------------------- CONTACT NAME CONTACT POSITION CONTACT TELEPHONE NO. Robert Chisholm C. F. O. 604-893-8955 ext. 224 - -------------------------------------------------------------------------------- CONTACT EMAIL ADDRESS WEBSITE ADDRESS rchisholm@photochannel.com www.photochannel.com - -------------------------------------------------------------------------------- CERTIFICATE The three schedules required to complete this Report are attached and the disclosure contained therein has been approved by the Board of Directors. A copy of this Report will be provided to any shareholder who requests it. Y M D "Peter Scarth" Peter Scarth 2004 05 28 - -------------------------------------------------------------------------------- Director's Signature Print Full Name Date Signed "Cory Kent" Cory Kent 2004 05 28 - -------------------------------------------------------------------------------- Director's Signature Print Full Name Date Signed SCHEDULE "B" PHOTOCHANNEL NETWORKS INC. YEAR-TO-DATE ENDED MARCH 31, 2004 - -------------------------------------------------------------------------------- 1. ANALYSIS OF EXPENSES AND DEFERRED COSTS MARCH 31, 200457 GENERAL AND ADMINISTRATION Accounting and legal $ 38,963 Investor relations 45,000 Office and miscellaneous 143,399 Public company fees 28,058 Salaries 218,499 Consulting 134,400 Interest 51,460 Rent 31,783 ---------------- $ 691,562 ================ SALES AND MARKETING Travel and Miscellaneous $ 75,510 Salaries 27,857 Consulting 185,406 ---------------- $ 288,773 ================ RESEARCH AND DEVELOPMENT Salaries $ 342,572 Consulting 167,208 Miscellaneous 24,818 ---------------- $ 534,598 ================ 2. RELATED PARTY TRANSACTIONS As at March 31, 2004, the Company had accrued fees of approximately $nil (2003 - $102,192) to a company owned by a current director and officer. 3. SUMMARY OF SECURITIES ISSUED AND OPTIONS GRANTED DURING THE PERIOD. (a) Summary of securities issued during the period
------------------ -------------- ---------------- ------------ ---------- --------------- ---------------- ----------------- DATE OF ISSUE TYPE OF TYPE OF ISSUE NUMBER PRICE TOTAL PROCEEDS TYPE OF TYPE OF SECURITY CONSIDERATION COMMISSION PAID ------------------ -------------- ---------------- ------------ ---------- --------------- ---------------- ----------------- Jan. 23, 2004 Common Shares Option Exercise 8,333 $0.15 $1,249.95 Cash Nil ------------------ -------------- ---------------- ------------ ---------- --------------- ---------------- ----------------- Mar. 10, 2004 Common Shares Warrant exercise 99,000 $0.14 $13,860 Cash Nil ------------------ -------------- ---------------- ------------ ---------- --------------- ---------------- ----------------- Mar. 16, 2004 Common Shares Warrant exercise 235,000 $0.10 $23,500 Cash Nil ------------------ -------------- ---------------- ------------ ---------- --------------- ---------------- -----------------
(b) Summary of options granted during the period.
------------------ ------------- ------------------- ------------------ -------------- -------------- DATE NUMBER NAME OF INSIDER DESCRIPTION OF EXERCISE EXPIRY DATE OPTIONEE OTHER OPTIONEE PRICE ------------------ ------------- ------------------- ------------------ -------------- -------------- Feb 4, 2004 500,000 Kent Thexton $0.30 Feb 4, 2009 ------------------ ------------- ------------------- ------------------ -------------- --------------
4. SUMMARY OF SECURITIES AS AT THE END OF THE REPORTING PERIOD (a) Authorized Share Capital as at March 31, 2004 ---------------------------------------------- CLASS AUTHORIZED ---------------------------------------------- Common Shares 500,000,000 ---------------------------------------------- Preferred Shares 10,000,000 ---------------------------------------------- (b) Number and Value of Shares Issued and Outstanding as at March 31, 2004 ------------------- ------------------- ----------------- CLASS ISSUED VALUE ------------------- ------------------- ----------------- Common Shares 136,947,341 $33,086,923 ------------------- ------------------- ----------------- (c) Options, Warrants and Convertible Securities Outstanding as at March 31, 2004
------------------------------- -------------- ----------------------------------- ------------------------ SECURITY NUMBER EXERCISE PRICE VALUE EXPIRY DATE ------------------------------- -------------- ----------------------------------- ------------------------ Common Share Purchase Warrants 1,000,000 $1.75 US $ 1,700,000 May 11, 2005 ------------------------------- -------------- ----------------------------------- ------------------------ Common Share 2,100,000 $0.10 $ 105,000 February 27, 2005 Purchase Warrants ------------------------------- -------------- ----------------------------------- ------------------------ Common Share 1,765,000 $0.10 $ 82,072 January 22, 2005 Purchase Warrants ------------------------------- -------------- ----------------------------------- ------------------------ Common Share 401,000 $0.14 $ 27,560 December 20, 2004 Purchase Warrants ------------------------------- -------------- ----------------------------------- ------------------------ Common Share Purchase Warrants 350,000 $0.10 $ 8,750 July 26, 2004 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 125,000 $0.15 Nil Apr 20, 2004 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 275,000 $0.15 Nil Mar 16, 2005 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 100,000 $0.15 Nil May 1, 2005 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 330,736 $1.05 Nil June 28, 2005 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 50,000 $0.15 Nil June 29, 2005 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 200,000 $1.00US Nil July 25. 2005 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 49,660 $0.15 Nil July 25. 2005 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 100,000 $0.15 Nil Aug 10, 2005 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 100,000 $0.15 Nil Oct 2, 2005 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 100,000 $0.15 Nil Oct 27, 2005 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 15,000 $0.15 Nil Nov 17, 2005 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 4,125,000 $0.15 Nil July 26, 2006 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 5,489,271 $0.15 Nil May, 27, 2007 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 300,000 $0.15 Nil Sept 2, 2008 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 750,000 $0.17 $ 97,165 Sept 18, 2008 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 3,275,000 $0.31 Nil Nov 24, 2008 ------------------------------- -------------- ----------------------------------- ------------------------ Stock Options 500,000 $0.30 Nil Feb 4, 2009 ------------------------------- -------------- ----------------------------------- ------------------------
(d) Shares in Escrow as at March 31, 2004 NIL 5. LIST OF DIRECTORS AND OFFICERS AS AT MARCH 31, 2004 DIRECTORS --------- Peter Scarth Peter Fitzgerald Cory Kent Kent Thexton OFFICERS -------- Peter Scarth, President and Chief Executive Officer Kyle Hall, EVP Business Development and Corporate Secretary Timothy J Kerbs, EVP Operations Robert Chisholm, Chief Financial Officer SCHEDULE "C" MANAGEMENT DISCUSSION AND ANALYSIS DESCRIPTION OF BUSINESS PhotoChannel Networks Inc. ("PhotoChannel" or the "Company") is an Internet infrastructure company providing photofinishing retailers and telecommunication companies with an electronic "turnkey" networked solution enabling them to provide their customers with digital image printing, organizing, sharing and storage through the ease of an online environment. The functionality of the Company's Network technology also enables customers of the photofinishing retailers and telecommunication companies to print their images to any networked location within a photofinishing retailer or within the Network as a whole, or to opt for the choice of home delivery for those photofinishing retailers offering this service. The Company's Network electronically connects the photofinishing retailers and telecommunications companies and their customers through the Internet and provides them with hosting, storage and back-end reporting. This turnkey solution enables the photofinishing retailers and telecommunication companies to meet the needs of their customers for online digital photography. The Company has focused its operational efforts on contracting with and deploying the Network within photofinishing retail partner locations and wireless communications companies. The Company is a small and growing company and continues to seek a cash flow positive and profitable position. Management believes that the Company is well positioned to profit from the large and ever increasing digital imaging market. The Company is headquartered in Vancouver, British Columbia, Canada and trades on the TSX Venture Exchange ("TSX-V") in Canada (symbol - PNI) and the OTCBB in the United States (symbol - PHCHF). The accompanying financial statements are for its second quarter ended March 31, 2004 and are expressed in Canadian dollars. OPERATIONS AND FINANCIAL CONDITION Management's strategy is to focus on being a digital imaging technology provider for a wide variety of businesses within the photofinishing industry including: photofinishing retailers; connecting the photofinishing retailer to professional and commercial photo processing labs; image content owners; and targeted portal services. The Company's digital Network is focused on delivering digital image orders from capture to fulfillment under the control of the originating photofinishing retailer. The Network also connects the photofinishing retailer to professional and commercial photo processing labs for enlargements and gifting items. The Company charges its photofinishing retailers a one time website development fee, a monthly recurring fee for each location connected to the Network and a percentage of all gross print revenues processed through the Network. In addition, the Company charges the customers of the photofinishing retailers a storage fee, if selected, for hosting of their digital images. Revenue for the six months ended March 31, 2004 was $412,865 versus $174,303 for the same period last year. Revenue increased 137% for the period ended March 31, 2004, compared to the same period last year, due to large photofinishing retailers that contracted with the Company during fiscal 2003. The largest increase in revenue has resulted from the acceptance of retailers' customers of purchasing products from digital images online. This increase has resulted in the Company's transactional revenues during the first six month of fiscal 2004 growing to $181,099 versus $22,665 for the corresponding period during fiscal 2003, a 699% increase. Also during this period the Company contracted with its first wireless carrier, TELUS Mobility, and launched Konica Photo Imaging, which now provides access to over 4,500 participating photofinishing retail locations across the United States. These two contracts contributed to the Company reporting an increase in website fees of $7,117, (subsequent to the deferral below), from $96,502 for the first six months of 2003 to$103,619 for the six months ended March 31, 2004. The Company now defers revenue from website fees earned for the initial set-up of a customer and recognizes it as income over the estimated term of the customer relationship period. At March 31, 2004, the Company had deferred revenue of $113,196 of which $73,196 has resulted from work performed in fiscal 2004. The Company's revenue for installation fees increased by $59,997 from $6,960 for the six months ended March 31, 2003 to $66,957 for this corresponding period of fiscal 2004. This large increase is the result of the Company's customers starting to print in-store thereby offering the consumer the equivalent of one hour digital photofinishing. During the six months ended March 31, 2004, the Company reported a gross profit of $284,572 versus $137,891 for the comparable period of 2003. This increase of 106% was due to the increase in revenues. The percentage increase in gross margin compared to revenue was partially reduced due to lower gross margins associated with the one time initial physical setup of retailer locations for in-store printing, along with the printing and sale of the physical prepaid cards. The subsequent usage of the prepaid cards by customers will result in the Company recording transactional revenue with the same gross margins as those received with similar online orders at the time of use. The Company's costs of operations for the period were $1,577,900, as compared to $1,572,617 during the same period last year. This increase of 0.3% was primarily the result of an increase in travel costs and staffing in research and development, offset by a reduction in amortization costs, as further described below. General and administration expenses for the six months ended March 31, 2004 decreased by $47,854 to $691,562 or 6.5% over the comparable period in fiscal 2003. This decrease was due to a reduction in employee costs over the comparable period in fiscal 2003. During this period the Company expended $45,000 on investor relations compared to $20,000 for the comparable period of fiscal 2003. Sales and marketing expenses for the six months ended March 31, 2004 increased by $34,925 to $288,773, an increase of 13.8% from the comparable period of 2003. This increase was due to an increase in travel as the Company introduces its technology to potential customers in the United States. As 80% of all photofinishing is being done by 20% of the retailers who provide photofinishing services, the Company is focused on the large retail chains as its means for immediate growth. These large photofinishing retailers are best approached through industry contacts and the Company believes that it has assembled a sales team with the background and contact base to accomplish this. During the six month period ended March 31, 2004, the Company expensed $534,598 on research and development costs, as compared to $312,977 during the same period last year. This increase of 70.8% is the result of an increase in the number of employees. During this period the Company deferred $144,163 of development costs, having met the criteria established under Accounting Recommendations, section 3450. During this period the Company increased its technical staffing to accommodate an increased demand for its Network solution and to develop new solutions which will allow it to maintain its competitive advantage in the provision of online photofinishing services. During this period the development team was busy optimizing the existing system due to a large increase in transactional volume, as well as enhancing the functionality of its existing solutions. Such enhancements include: incorporating searchable maps for ease of finding photofinishing retailers; the use of multiple prepaid cards and a multi up-loader to enhance the consumers' experience by increasing the ease and speed of uploading digital images (the new multi up-loader will be released in the third quarter of fiscal 2004). Amortization decreased by $203,409 to $62,967 for the six month period ended March 31, 2004, as compared to $266,376 during the comparable period last year. This reduction is primarily the result of certain equipment of the Company being fully amortized, along with replacing old expensive equipment with new, less expensive and more cost effective, equipment. The purchase of this new equipment provides the Company with future growth potential and the ability to scale much more efficiently, based upon its anticipated growth. The Company recorded a six month net loss attributable to common shareholders of $1,215,720 or $0.00 per share compared to $1,262,585 or $0.01 per share in the same period last year. Excluding the loss attributed to the Limited Partnership during 2003, the Company's net loss for the six month period was $1,215,720, as compared to $1,389,995 during the comparable period in 2003. This 12.5% reduction was due to an increase in revenues and gross profit, along with a reduction in amortization expenses, which has been partially offset by an increase in staffing in research and development and travel in sales and marketing. CONTINGENCIES Other than as set out below, as of May 28, 2004 there were no legal proceedings material to the Company to which the Company or its subsidiaries are a party or to which their property is subject, nor to the best of the knowledge of management, are any such legal proceedings contemplated. 1. On February 24, 1999, Thomas Jackson, a former President and Chief Executive Officer of the Company, commenced proceedings against the Company in the Supreme Court of British Columbia. Mr. Jackson has claimed damages for unpaid services not exceeding $150,000. Management is of the view that the claim is without merit and is vigorously defending these proceedings. There have been no further proceedings in this matter since the Company filed its statement of defence on August 3, 1999. 2. On March 3, 1999, the Company received a letter from DATT Japan indicating that they had proceeded with legal action in the Japanese courts and for an order for payment. On September 10, 2001, the Company's legal representative received a telephone call from an individual claiming that he represented DATT Japan and indicated that his client had received a judgment from a Japanese court against PhotoChannel for approximately $99,000. The Company intends to defend itself against the enforcement of this judgment, however, there have been no further proceedings or correspondence since the September 10, 2001 telephone call. 3. On November 5, 2001, Donald Sutherland of P.O. Box 345, Staten Island, New York, New York, commenced an action in the Supreme Court of British Columbia, claiming $132,770.63 plus interest, for the provision of text, photographs and services. The Company is disputing the claim and has received no further correspondence since providing the claimant with documents supporting its position in 2002. LIQUIDITY AND SOLVENCY As at March 31, 2004, the Company had a working capital deficiency of $47,519 compared to a positive working capital position of $388,277 at September 30, 2003. The cash and cash equivalents on hand at March 31, 2004 were $117,302. Excluding the deferred revenue amount at March 31, 2004, the Company had a positive working capital position of $74,741. As a start-up, which continues to strive for profitability, the Company's main source of funds has been, and will continue to be, the sale of equity capital until it manages to reach a cashflow positive position. If requisite funding on acceptable terms cannot be attracted in a timely fashion, the Company may be forced to delay activities and, possibly, lose market opportunities to competitors. Similarly, delayed financing could force reductions in planned marketing, product deployment and development expenditures, resulting in delays in meeting its business objectives. "Peter Scarth" "Cory Kent" - --------------- --------------- Peter Scarth Cory Kent Chairman & CEO Director May 28, 2004 EX-99.1 2 v03794_exh99-1.txt Exhibit 99.1 FOR IMMEDIATE RELEASE FOR MORE INFORMATION: Robert Chisholm, CFO PhotoChannel Networks Inc. rchisholm@photochannel.com 604-893-8955 ext 224 PhotoChannel Expands its Market Leading Technology and Network PhotoChannel Adds Customers, Features and Functionality VANCOUVER, BC - May 13, 2004 - PhotoChannel Networks Inc. (TSX-V: PNI and OTCBB: PHCHF) ("PhotoChannel" or "Company"), the global leader in digital imaging network technology, with over 7,500 print locations worldwide, today reports the following: CUSTOMERS HIGHLIGHTS The Company has recently signed and launched or is in the process of launching in excess of 500 new photofinishing retail locations in Canada, bringing the total to over 7,500 print locations now available on the PhotoChannel Network. These new retailers include: o Atlantic Coop - launched; o Essaim Photo Shops - launched; o Gosselin Photo - launched; o Obonsoins - launched; and o Procurity (United Pharmacists). o The Company has also signed and is in the process of launching western Canada's largest professional colour laboratory, ABC Photo Colour. o The Company is receiving significant US and international interest in the PhotoChannel solution and the Company is presently conducting a significant in-store trial with a major US retailer. o The Company has enhanced its in-store lab integration for its retailers making the printing process easier and more user friendly. In conjunction with this, the Company has signed an agreement with Noritsu giving it even closer connectivity with the Noritsu digital minilab equipment utilized by many of the Company's major customers. TECHNOLOGY HIGHLIGHTS To remain the leader in online photofinishing solutions for the photofinishing retailer, PhotoChannel has completed the development of several new solutions and product enhancements making the consumer experience easier and more enjoyable, resulting in more prints, more often. The new services available today include: o What You See Is What You Get (WYSIWYG) shopping cart. This new solution is the first of its kind and allows the consumer to view their images in the exact format that will be printed from the shopping cart thumbnails. If the consumer selects different print sizes from within the shopping cart, the thumbnail will automatically modify in real time presenting exactly what will be printed by the lab. This feature allows the consumer to quickly scan their order and only elect to edit the images that need altering. o A new multi up-loader, which will allow consumers to view thumbnails of the images for uploading and then permits the consumer to quickly and easily select the images for upload. This up-loader is based upon Microsoft's ActiveX methodology and increases the consumers upload speed by as much as 50% over a basic browser up-loader. o An e-mail marketing engine, which integrates permission based e-mail marketing allowing photofinishing retailers to quickly and easily market to their opt-in customer base. This marketing initiative has been very successful in driving repeat business and new product awareness such as gifting items for Easter, Valentines, Mother's Day, etc. INFRASTRUCTURE HIGHLIGHTS As previously announced, the Company has expended significant resources over the last four months in completing its development of the PhotoChannel Storage Grid. This major transformation has resulted in an innovative grid based storage solution, which was developed specifically to manage the complete image lifecycle inherent for managing images to be printed from an online environment direct to in-store based minilabs for one hour processing. The major business advantages of this solution over any third party storage system are as follows: o A flexible, modular and resilient infrastructure that can scale to address rapid increases in demand; o A simplified data lifecycle management; o Additional processing resources are available when storage server processors are idle, eliminating duplication of hardware; o Instantaneous access to processing resources to "sense and respond" to system needs avoiding over-provisioning and the associated excess cost; o The ability to distribute processing and storage globally, reducing bandwidth requirements of moving images; and o Complete redundancy, as failures are isolated to individual and redundant components. PHOTOCHANNEL NETWORKS LIMITED PARTNERSHIP The Company is pleased to announce that it has reacquired its rights to the Canadian marketplace through the exercise of its call options with the Limited Partners, as initially announced on July 26, 2002. As such, the Company has issued 16,100,000 common shares and 13,650,000 common share purchase warrants, each the subject of a four month hold period. "In addition to increasing the Company's Network of photofinishing retailers, PhotoChannel has focused on enhancing its solutions and created a new storage solution, providing for ease of growth and exceptional data security," stated Robert Chisholm, CFO of PhotoChannel. "In order to accomplish these major objectives the Company made the decision to hire additional development staff due to its commitment of rolling out to the US marketplace. It is the Company's belief that these and future developments will attract new photofinishing retailers, along with the digital photo consumer. The Company now expects to achieve a profitable position in 2005." ABOUT PHOTOCHANNEL - Founded in 1995, PhotoChannel is a leading digital imaging technology provider for a wide variety of businesses including photofinishing retailers and telecommunications companies. PhotoChannel has created and manages the open standard PhotoChannel Network environment whose focus is delivering digital image orders from capture to fulfillment under the control of the originating PhotoChannel Network partner. There are now over 7500 retail locations worldwide accepting print orders from the PhotoChannel system. For more information on the Company visit www.photochannel.com. INVESTOR INFORMATION: (866) 345-0115 WARNING: The TSX Venture Exchange has neither approved nor disapproved the information contained in this release. The Company relies upon litigation protection for "forward-looking" statements. - 30 - EX-99.2 3 v03794_ex99-2.txt Exhibit 99.2 FOR RELEASE ON MAY 31, 2004 4:00 P.M. EST PHOTOCHANNEL INTERIM FINANCIALS Transactional revenues increase 700% quarter over quarter, Q2 2003 to Q2 2004. VANCOUVER, BC - May 31, 2004 - PhotoChannel Networks Inc. (TSX - V: PNI; OTCBB: PHCHF) ("PhotoChannel" or the "Company") is pleased to report its second quarter fiscal 2004 financial statements for the six-month period ended March 31, 2004. "The Company is very pleased to report another significant increase in its transactional revenues," stated Peter Scarth, PhotoChannel CEO. "Transactional revenue increased 66% during this quarter over last quarter, during a time when our largest retailers reduced their prices by approximately 40%. Had these retailers not reduced their pricing in January 2004, we would have again shown a 100% increase quarter over quarter. The increase of in-store deployment will further help to accelerate transactional revenue in the upcoming months." During the most recent quarter, the Company saw certain of its large retail partners commence a concentrated marketing of their online printing services. As part of this marketing, the Company shipped its first large scale orders of prepaid cards to be sold and/or to be given away as an incentive to introduce customers to the ease of online photofinishing. SECOND QUARTER FINANCIALS Revenue for the six months ended March 31, 2004 was $412,865 versus $174,303 for the same period last year. Revenue increased 137% for the period ended March 31, 2004, compared to the same period last year, primarily due to the large photofinishing retailers that contracted with the Company during fiscal 2003. The largest increase in revenue has resulted from the acceptance of retailers' customers of purchasing products from digital images online. This increase has resulted in the Company's transactional revenues during the first six month of fiscal 2004 growing to $181,099 versus $22,665 for the corresponding period during fiscal 2003, a 699% increase. Transactional revenue increased 66% quarter over quarter, from $68,029 during 1st quarter 2004 to $113,071 during 2nd quarter 2004. For the six months ended March 31, 2004 website fees were $103,619 (subsequent to the deferral below), compared to $96,502 for the first six months of 2003, an increase of $7,117. The Company now defers revenue from website fees earned for the initial set-up of a customer and recognizes it as income over the estimated term of the customer relationship period. At March 31, 2004, the Company had deferred revenue of $113,196 of which $73,196 has resulted from work performed in fiscal 2004. Installation fees increased by $59,997 from $6,960 for the six months ended March 31, 2003 to $66,957 for this corresponding period of fiscal 2004. This large increase is the result of the Company's customers starting to deploy the print in-store model, thereby offering the consumer the equivalent of one hour digital photofinishing. The Company reported a gross profit of $284,572 during the six months ended March 31, 2004 versus $137,891 for the comparable period of 2003. This increase of 106% was due to the increase in revenues. The percentage increase in gross margin compared to revenue was partially reduced due to lower gross margins associated with the one time initial physical setup of retailer locations for in-store printing, along with the printing and sale of the physical prepaid cards. The subsequent usage of the prepaid cards by customers will result in the Company recording transactional revenue with the same gross margins as those received with similar online orders at the time of use. The Company recorded a six-month net loss for the period attributed to common shareholders of $1,215,720 or $0.01 per share compared to $1,262,585 in the same period last year. Losses incurred by the Limited Partnership in fiscal 2003 were allocated first to the Limited Partnership units to the extent of their equity investment and thereafter to the Company. The Company previously attributed all losses to the Company. Accordingly, the loss for fiscal 2003 has been restated for comparative purposes to allocate losses to the Limited Partnership units to the extent of the equity. This restatement has had the effect of reducing the second quarter fiscal 2003's net loss for the period attributed to the Company's common shareholders by $127,410. The Company's costs of operations for the six-month period were $1,577,900, as compared to $1,572,617 during the same period last year. This increase of 0.3% was primarily the result of an increase in travel costs and staffing research and development, offset by a reduction in amortization costs. ABOUT PHOTOCHANNEL Founded in 1995, PhotoChannel is a leading digital imaging technology provider for a wide variety of businesses including photofinishing retailers and telecommunications companies. PhotoChannel has created and manages the open standard PhotoChannel Network environment whose focus is delivering digital image orders from capture to fulfillment under the control of the originating PhotoChannel Network partner. There are now over 7500 retail locations worldwide accepting print orders from the PhotoChannel system.
SIX MONTHS ENDED ------------------------------- MARCH 31, 2004 MARCH 31, 2003 -------------- -------------- REVENUE $ 412,865 $ 174,303 COST OF SALES $ 128,293 $ 36,412 ------------- ------------- GROSS PROFIT (LOSS) $ 284,572 $ 137,891 ------------- ------------- EXPENSES General and administration 691,562 739,416 Sales and marketing 288,773 253,848 Research and development 534,598 312,977 Amortization 62,967 266,376 ------------- ------------- 1,577,900 1,572,617 Net loss from operations (1,577,900 (1,434,726) OTHER INCOME (LOSS) Expense recovery 48,759 163,419 Loss on disposal of property, plant and equipment -- ()19,257 Translation loss 26,121 335 Interest and miscellaneous income 2,728 234 ------------- ------------- 77,608 44,731 NET (LOSS) GAIN FOR THE PERIOD (1,215,720) (1,389,995) LOSS ATTRIBUTED TO LIMITED PARTNERSHIP -- 127,410 ------------- ------------- NET LOSS FOR THE YEAR ATTRIBUTED TO COMMON SHAREHOLDERS (1,215,720) (1,262,585) DEFICIT - BEGINNING OF PERIOD (40,176,059) (37,726,075) ------------- ------------- DEFICIT - END OF PERIOD $ (41,391,779) $ (38,988,660) ------------- ------------- (LOSS) GAIN PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (0.01) $ (0.01) ============= ============= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 130,258,732 87,130,643 ============= =============
For more information visit www.photochannel.com. Robert Chisholm, Chief Financial Officer PhotoChannel Networks Inc. rchisholm@photochannel.com 604.893.8955 ext. 224 INVESTOR INFORMATION: (866) 345 0115 # # # EX-99.3 4 v03794_ex99-3.txt Exhibit 99.3 FOR MORE INFORMATION: Kyle Hall EVP, Business Development PhotoChannel Networks Inc. khall@photochannel.com 604-893-8955 ext 293 PhotoChannel partners with TELUS to expand market leading technology and network PhotoChannel Storage Grid to be launched within TELUS' data centre VANCOUVER, B.C. - May 10, 2004 - PhotoChannel Networks Inc. (TSX-V: PNI and OTCBB: PHCHF) and TELUS (TSX: T, T.A; NYSE: TU), the largest telecommunications company in Western Canada and the second largest in the country, today announced the next step in its ongoing partnership to enhance the digital photo customer experience by expanding innovative network solutions for photofinishing services. B.C.-based PhotoChannel's partnership with TELUS will now provide retailers and consumers with secure storage and full power and bandwidth redundancy for PhotoChannel's innovative digital photo network at the TELUS data centre in Burnaby. In conjunction with this hosting relocation, PhotoChannel will be migrating its customers onto its new PhotoChannel Storage Grid. "TELUS has been involved as an investor and business partner with PhotoChannel for almost two years," said Mark Schnarr, executive vice president of corporate development at TELUS. "The rapidly expanding adoption of PhotoChannel's digital photo finishing solution in the marketplace is a testament to the need for using innovative technology to bring user-friendly online solutions to customers. We are excited to expand our partnership with PhotoChannel and to showcase these solutions through TELUS' world class data centre." "Since December 2003, we have been proactively developing the PhotoChannel Storage Grid, a grid-based storage solution for digital image photo files, based on computing solutions now sweeping the high tech industry," said Peter Scarth, CEO of PhotoChannel. "We have chosen to partner with TELUS and use its Burnaby facility to help meet the growing needs of our customers, including Canada's largest photofinishers such as Wal-Mart Canada. Together, this exciting new platform will allow us to scale in an efficient and cost effective manner, while offering our customers the most reliable solution in the marketplace." ABOUT TELUS TELUS (TSX: T, T.A; NYSE: TU) is the largest telecommunications company in Western Canada and the second largest in the country, with more than $7 billion of annual revenue, 4.8 million network access lines and 3.5 million wireless subscribers. The company provides subscribers with a full range of telecommunications products and services including data, voice and wireless services across Canada, utilizing next generation Internet-based technologies. TELUS was a premier founding supporter of the successful bid to bring the 2010 Winter Olympic and Paralympic Games to Canada. ABOUT PHOTOCHANNEL Founded in 1995, PhotoChannel is a leading digital imaging technology provider for a wide variety of businesses including photofinishing retailers and telecommunications companies. PhotoChannel has created and manages the open standard PhotoChannel Network environment focusing on delivering digital image orders from capture to fulfillment under the control of the originating PhotoChannel Network partner. There are now more than 7500 retail locations worldwide accepting print orders from the PhotoChannel system. For more information on the Company visit www.photochannel.com. INVESTOR INFORMATION: (866) 345-0115 Warning: The TSX Venture Exchange has neither approved nor disapproved the information contained in this release. PhotoChannel relies upon litigation protection for any "forward-looking" statements. - 30 - -----END PRIVACY-ENHANCED MESSAGE-----