DataWave Systems, Inc.
OTC Bulletin Board : DWVS

August 12, 2005 08:00 ET

DataWave Reports 68% Increase in Net Income on 53% Increase in First Quarter Revenue

WAYNE, N.J.--(CCNMatthews - Aug 12, 2005) -

DataWave Systems, Inc. (OTCBB: DWVS), an established provider of prepaid and stored value delivery systems, today reported financial results for the first quarter ended June 30, 2005.

Total revenue for the first quarter of fiscal 2006 increased 53% to $7.0 million, compared to $4.5 million for the same period in fiscal 2005. Net income for the first quarter of fiscal 2006 was $138,000, or $0.00 per diluted share, versus net income of $82,000, or $0.00 per diluted share, for the same period last year.

Josh Emanuel, chairman and chief executive officer, stated, "We are rapidly gaining traction within the growing prepaid and stored value markets, as evidenced by a 53% increase in sales and 68% increase in net income. During the quarter, we experienced a 26% increase in average daily point-of-sale transactions, further demonstrating the scalability of our business."

Mr. Emanuel continued, "Building on our established market leadership in Canada, we are working aggressively to expand our presence within the U.S., a highly fragmented multi-billion dollar market. At the same time, we are gearing up to introduce new products including cash cards, third party gift cards and retail loyalty programs, each one of which represents a significant growth opportunity for DataWave and provides a path for evolving DataWave from its legacy long-distance and wireless market business.

"The combination of a wider footprint, broader product offering and over 5,800 distributor locations should enable us to sustain organic growth at rates comparable to our historic levels. To complement our strong core operating business, we plan to acquire companies that leverage our state-of-the-art technology platform and accelerate our U.S. expansion."

As of June 30, 2005, the company had more than 4,900 terminals installed, and more than 850 host-to-host or distributor locations. Daily transactions processed for the quarter averaged more than 34,200 compared with 27,100 a year ago.

About DataWave

DataWave has been an innovator and developer of prepaid and stored-value programs and merchandising solutions since it was founded in 1994. DataWave pioneered systems that allow for point-of-sale activation of high value, high shrinkage products, such as cash cards, prepaid phone cards and prepaid wireless time. These systems work equally well over the Internet, through intelligent freestanding vending machines and POSA terminals, or with various card activation devices, including cash registers.

This press release contains forward-looking statements and projections concerning DataWave's plans, strategies, expectations, predictions and financial projections concerning the Company's future activities and results of operations and other future events or conditions, and are "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995. Words such as "expect", "believe", "anticipate", "may", "will", "plan", "intend", "estimate", "could", and other similar expressions are intended to identify these forward-looking statements. In particular, statements in this release regarding potential growth opportunities, working capital and cash flow management, operational and expense controls, future profitability and results of operations are forward looking. Statements in this press release, and elsewhere, that look forward in time or include anything other than historical information involve risks and uncertainties that may affect the Company's actual results of operations. These statements by the Company are subject to certain risks, including, among others, future demand for its products and brand, competition from other businesses providing similar products, the ability to maintain profitability and control expenses and the Company's ability to successfully execute its business strategy. These and other risks and uncertainties are discussed in more detail in the Company's periodic reports filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, which are available at eh SEC website at www.sec.gov.

"DataWave" is a registered trademark of the Company. All other trademarks and trade names referred to are the property of their respective owners.



DATAWAVE SYSTEMS INC.

CONSOLIDATED BALANCE SHEETS
As at June 30, 2005 and March 31,2005
(Expressed in United States dollars, except share amounts)
(Unaudited)
----------------------------------------------------------------------
June 30 March 31
2005 2005
----------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 1,950,142 $ 4,560,512
Accounts receivable and other 7,543,684 7,366,712
Inventories 5,471,446 4,155,614
Prepaid expenses and deposits 412,078 336,800
----------------------------------------------------------------------
Total current assets 15,377,350 16,419,638
----------------------------------------------------------------------

Machinery and equipment, net 2,487,365 2,453,571
Equity investment 73,635 39,387
Goodwill 1,849,408 1,857,985
Intangible assets, net 1,029,581 1,079,843
Other assets 211,209 225,575
----------------------------------------------------------------------
Total assets $ 21,028,548 $ 22,075,999
----------------------------------------------------------------------

Liabilities
Current
Accounts payable and accrued liabilities $ 13,283,161 $ 14,547,422
Deferred revenue 948,915 839,303
Other current liabilities 109,570 109,346
----------------------------------------------------------------------
Total current liabilities 14,341,646 15,496,071
----------------------------------------------------------------------

Deferred income taxes 305,468 309,509
Deferred inducement 337,947 342,184
Convertible promissory note 600,000 600,000
Other liabilities 40,461 61,668
----------------------------------------------------------------------
Total liabilities 15,625,522 16,809,432
----------------------------------------------------------------------

Shareholders' equity
Common shares
Authorized, 100,000,000 common shares,
$0.001 par value
Issued, 46,826,834 shares issued and
outstanding at June 30, 2005 and March 31,
2005 46,827 46,827
Additional paid-in capital 17,920,408 17,920,408
Accumulated other comprehensive income 463,636 465,048
Accumulated deficit (13,027,845) (13,165,716)
----------------------------------------------------------------------
Total shareholders' equity 5,403,026 5,266,567
----------------------------------------------------------------------
Total liabilities and shareholders' equity $ 21,028,548 $ 22,075,999
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DATAWAVE SYSTEMS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
Three month period ended June 30, 2005 and 2004
(Expressed in United States dollars, except share amounts)
(Unaudited)
----------------------------------------------------------------------

Three months ended June 30,
2005 2004
----------------------------------------------------------------------

Revenue
Sales $ 5,053,588 $ 2,764,207
Net agency sales 1,898,818 1,771,402
----------------------------------------------------------------------
Total revenue 6,952,406 4,535,609
Cost of revenues (exclusive of depreciation
and amortization) 4,559,363 2,647,054
----------------------------------------------------------------------
2,393,043 1,888,555
----------------------------------------------------------------------

Operating costs and expenses
General and administrative 948,268 758,788
Selling and marketing 581,548 426,990
Product development 396,573 290,255
Depreciation and amortization 369,187 249,610
Merger costs - 73,142
----------------------------------------------------------------------
Total operating costs and expenses 2,295,576 1,798,785
----------------------------------------------------------------------

----------------------------------------------------------------------
Operating income 97,467 89,770
----------------------------------------------------------------------
Other income (expense) 34,864 (560)
Loss on foreign exchange (3) (3,427)
----------------------------------------------------------------------
Income before income taxes 132,328 85,783
----------------------------------------------------------------------
Income taxes (28,705) -
Equity income (loss) from investee 34,248 (3,555)

----------------------------------------------------------------------
Net income $ 137,871 $ 82,228
----------------------------------------------------------------------

Net income per share
- basic $ 0.00 $ 0.00
----------------------------------------------------------------------
- diluted $ 0.00 $ 0.00
----------------------------------------------------------------------

Weighted-average number of common shares
- basic 46,826,834 43,889,334
----------------------------------------------------------------------
- diluted 56,023,391 43,889,334
----------------------------------------------------------------------

DATAWAVE SYSTEMS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Three month period ended June 30, 2005 and 2004
(Expressed in United States dollars, except share amounts)
(Unaudited)
----------------------------------------------------------------------
Three months ended June 30,
2005 2004
----------------------------------------------------------------------

Operating activities
Net income $ 137,871 $ 82,228
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 369,187 249,610
Equity (income) loss from investee (34,248) 3,555
Amortization of lease inducement 7,546 -
Net change in non-cash operating assets and
liabilities
Accounts receivable and other (176,972) (315,719)
Inventories (1,315,832) (1,077,411)
Prepaid expenses and deposits (75,278) 112,445
Accounts payable and accrued liabilities (1,264,262) 2,542,430
Deferred revenue 109,612 93,188
----------------------------------------------------------------------
Net cash (used in) provided by operating
activities (2,242,376) 1,690,326
----------------------------------------------------------------------

Investing activity
Purchase of machinery and equipment (346,766) (202,470)
----------------------------------------------------------------------
Net cash used in investing activity (346,766) (202,470)
----------------------------------------------------------------------

Financing activity
Repayment of capital lease obligations (21,228) (15,651)
----------------------------------------------------------------------
Net cash used in financing activity (21,228) (15,651)
----------------------------------------------------------------------

(Decrease) increase in cash (2,610,370) 1,472,205
Cash and cash equivalents, beginning of
period 4,526,512 852,406
----------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,916,142 $ 2,324,611
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Note: These financial statements have been prepared by Management in accordance with generally accepted accounting principles in the United States and are reported in US dollars.

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