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PhotoChannel Posts Record Revenues

VANCOUVER, BC May 28, 2006 – PhotoChannel Networks Inc. (TSX-V: PNI and OTCBB: PHCHF) (“PNI” or “PhotoChannel”) reports its second quarter fiscal 2006 financial statements for the six month period ended 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” stated Peter Fitzgerald, President and CEO of PhotoChannel. “During the quarter certain of our retailers 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 Networks

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: (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.