PICKERING, ONTARIO -- (Marketwire) -- 08/16/10 -- Phonetime Inc. (TSX: PHD) announced its financial results for the three and six months ended June 30, 2010.

An analysis of quarterly operating results on a rolling quarter basis is set forth below:

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                              For the Quarters Ended (unaudited)
                      ------------------------------------------------
                           Q2 2008     Q3 2008     Q4 2008     Q1 2009
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('000s)                 (restated)  (restated)  (restated)  (restated)
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Revenue                $    39,311 $    39,204 $    42,156 $    42,609
  Cost of sales             34,132      33,652      37,426      36,435
                      ------------------------------------------------
  Gross margin - in $s       5,179       5,552       4,730       6,174
  Gross margin - in %        13.2%       14.2%       11.2%       14.5%
Operating Expenses
  Salaries and
   benefits                  1,852       2,393       2,076       2,299
  Sales and marketing          446         570       1,215       1,118
  Restructuring                  0           0           0           0
  General and
   administrative            1,081         834       1,523       1,565
                      ------------------------------------------------
                             3,379       3,797       4,814       4,982
  Loss (gain) on
   foreign exchange             29        -128         957         263
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Total operating
 expenses                    3,408       3,669       5,771       5,245

Operating income             1,771       1,883      -1,041         929

Stock-based
 compensation                  142         216         148         121
Amortization                   509         507         520         520
Financing costs                267         251         222         160
Income taxes                   288         327         -73         289

Net income (loss)      $       565 $       582 $   (1,858) $     (161)
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                                For the Quarters Ended (unaudited)
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                           Q2 2009     Q3 2009   Q4 2009   Q1 2010   Q2 2010
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('000s)                 (restated)  (restated)
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Revenue                $    41,268 $    44,394 $  43,850 $  45,944 $  39,659
  Cost of sales             36,320      39,807    41,195    41,480    35,056
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  Gross margin - in $s       4,948       4,587     2,655     4,464     4,603
  Gross margin - in %        12.0%       10.3%      6.1%      9.7%     11.6%
Operating Expenses
  Salaries and
   benefits                  2,161       2,118     2,254     2,426     2,038
  Sales and marketing          714         694       905       831       273
  Restructuring                  0           0         0         0     1,469
  General and
   administrative            1,547       1,593     1,272     1,277     1,416
                      ------------------------------------------------------
                             4,422       4,405     4,431     4,534     5,196
  Loss (gain) on
   foreign exchange            263         706    -1,038       102       260
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Total operating
 expenses                    4,685       5,111     3,393     4,636     5,456

Operating income               263        -524      -738      -172      -853

Stock-based
 compensation                   98          93       101        78        61
Amortization                   441         549       682       575       558
Financing costs                147         142       231       238       522
Income taxes                  -120         106      -438       282       246

Net income (loss)      $     (303) $   (1,414)  ($1,314)  ($1,345)  ($2,240)
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Commencing in the second quarter of 2010, the board of directors removed the senior managers of the Company and shifted the focus at the Company from revenue to gross margin maximization which has resulted in a planned reduction in revenue in the second quarter of 2010. In addition, the Company intensified its back office initiatives aimed at improving processes and ultimately reducing operating costs. At the same time, the Company commenced a process to dispose of its retail operations. A charge of $1.5 million for restructuring was recorded in second quarter of 2010 related to the costs associated with terminations of staff and cessation of operations. Staff at the Company has been reduced to 94 from 138 at December 31, 2010. The Company continues to work on its recapitalization, which it expects to complete in 2011 at which time the Company will resume growth.

The Company has been in violation of its senior banking facility since December 2008. The Company continues to work with the bank to complete an orderly restructuring. Borrowings under the bank's senior facility have been reduced to $4 million at June 30, 2010 from $5.2 million at December 31, 2010. In addition, the Company has recently paid off all of its capital leases which were $0.8 million at December 31, 2010.

At the upcoming shareholders meeting scheduled for August 31, 2010, the Company will seek approval from its shareholders to convert up to $2.3 million of insider debt into equity by having the Company issue equity units consisting of one common share at $0.07 per share, along with one six month warrant at $0.07 and a one year warrant at $0.09. In the second quarter of 2010, certain insiders advanced $1 million of short-term loan capital to the Company and committed to advance an additional $1 million following the end of the quarter. The Company also completed the issuance of an $805,000 subordinated debenture during the second quarter. Funds have been used to repay existing debt and to add funds to working capital.

The Company is continuing to work with parties regarding the disposition of its Consumer operations. The Company expects that the proceeds from the sale of these operations will allow the Company to reduce its borrowing with its senior lender to $2.5 million and to discharge its subordinated debt of $0.8 million. Additional proceeds from the sale will be used to improve working capital.

"We are pleased with the progress being made streamlining the Company." said Gary Clifford, Chairman and Interim Chief Executive Officer. "We still have a lot of work to do and the continued support of our customers, suppliers, employees, shareholders and other stakeholders is appreciated".

About Phonetime Inc.

Phonetime is an international telecommunications Network carrier. Phonetime provides long- distance services to major telephone carriers around the world. Phonetime's common shares trade on the Toronto Stock Exchange under the symbol PHD. More information can be found at the Company's website, www.phonetime.com.

Caution Regarding Forward Looking Information:

This press release contains forward-looking statements, which may be identified by words like "expects", "anticipates", "plans", "intends", "indicates" or similar expressions. These statements are not a guarantee of future performance and are inherently subject to risks and uncertainties. Phonetime's actual results could differ materially from those currently anticipated due to a number of factors set forth in reports and other documents filed by the Company with Canadian securities regulatory authorities from time to time.