DataWave Systems, Inc.
OTC Bulletin Board : DWVS

June 30, 2005 07:30 ET

DataWave Reports 69% Increase in Fourth Quarter Revenue; Achieves 4th Consecutive Year of Profitability

WAYNE, N.J.--(CCNMatthews - Jun 30, 2005) -

DataWave Systems, Inc. (OTCBB: DWVS), today reported financial results for the fourth quarter and the year ended March 31, 2005.

Total revenue for the fourth quarter of fiscal 2005 increased 69% to $7.7 million, compared to $4.6 million for the same period in fiscal 2004. Net income for the fourth quarter of fiscal 2005 was $41,000 or $0.00 per diluted share, versus net income of $94,000 or $0.00 per diluted share, for the same period last year. Net income for the fourth quarter of fiscal 2005 included non-recurring costs of $459,000 related to the termination of the company's proposed merger with Integrated Data Corp.

Total revenue for fiscal 2005 increased 35% to $24.3 million, compared to $18.0 million for fiscal 2004. Net income for fiscal 2005 was $663,000 or $0.01 per diluted share, versus net income of $494,000 or $0.01 per diluted share for fiscal 2004. Net income for the full year also included $659,000 of non-recurring costs related to the termination of the company's proposed merger.

Josh Emanuel, chairman and chief executive officer, stated, "We are extremely pleased with our continued revenue growth, both sequentially and year-over-year. The ability to add value and authorize or reload prepaid products at retail check out registers, or through our intelligent free-standing vending machines, reduces inventory risk and provides significant savings for retailers. In addition, our unique pre-paid and stored value cards provide customers convenient and customized products such as cash cards, prepaid phone cards, and prepaid wireless airtime. As a result, our point-of-sale activation technology is rapidly penetrating the Canadian marketplace with more than 4,200 terminals installed as of June 28, 2005, and more than 500 host-to-host or distributor locations. Daily transactions processed average more than 32,000 compared with 26,000 a year ago. Meanwhile, we have barely scratched the surface of the U.S. market. Given this exciting growth opportunity, we cancelled our planned merger and recently re-domiciled the Company to the United States to focus on organic growth opportunities within the entire North American market."

Mr. Emanuel continued, "Net income, excluding non-recurring costs related to the merger, for the fourth quarter more than doubled over the same period last year, and we achieved profitability for our fourth consecutive year. In addition, our business is highly scaleable with the ability to significantly increase our volume by introducing new products in high traffic retail locations such as grocery stores, convenience stores, and other high volume retailers--as illustrated by our recent agreement to offer our products within more than 600 Shell Canada locations. We have also signed agreements with additional U.S. and Canadian financial institutions to distribute prepaid Visa and MasterCard cards throughout North America. As a result of these and other initiatives, we are extremely optimistic about the outlook for fiscal 2006."

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 the 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.



Fiscal 2005 Consolidated Financial Statements:

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.


DATAWAVE SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
Years ended March 31, 2005 and 2004
Unaudited
(Expressed in United States dollars, except share amounts)

2005 2004
------------ ------------
Assets
Current
Cash and cash equivalents $ 4,526,512 $ 852,406
Restricted cash 34,000 -
Accounts receivable and other 7,366,712 3,779,638
Inventories 4,155,614 2,234,443
Prepaid expenses and deposits 336,800 451,377
------------ ------------
Total current assets 16,419,638 7,317,864
Restricted cash - 54,000
Machinery and equipment, net 2,453,571 2,332,997
Equity investment 39,387 -
Deferred development costs 101,567 49,335
Other long term receivables 124,008 110,865
Goodwill 1,857,985 1,845,619
Intangible assets, net 1,079,843 378,529
------------ ------------
Total assets $ 22,075,999 $ 12,089,209
============ ============

Liabilities
Current
Accounts payable and accrued
liabilities $ 14,547,422 $ 7,080,615
Deferred revenue 839,303 61,572
Current portion of capital lease
obligations 78,344 64,641
Current portion of deferred inducement 31,002 27,716
------------ ------------
Total current liabilities 15,496,071 7,234,544
Capital lease obligations 61,668 125,026
Deferred income taxes 309,509 267,766
Deferred inducement 342,184 280,835
Convertible promissory note 600,000 -
------------ ------------
Total liabilities 16,809,432 7,908,171
------------ ------------

Shareholders' equity
Common shares
Authorized, 100,000,000 common shares,
$0.001 par value
Issued, 46,826,834 and 43,889,334
shares issued and outstanding at
March 31, 2005 and March 31, 2004
respectively 46,827 15,006,743
Additional paid-in capital 17,920,408 2,725,492
Accumulated other comprehensive income 465,048 277,966
Accumulated deficit (13,165,716) (13,829,163)
------------ ------------
Total shareholders' equity 5,266,567 4,181,038
------------ ------------
Total liabilities and
shareholders' equity $ 22,075,999 $ 12,089,209
============ ============


DATAWAVE SYSTEMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(Expressed in United States dollars, except share amounts)

Three months ended
March 31, Years ended March 31,
------------------------- -------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------

Revenue
Sales $ 5,644,551 $ 3,808,882 $16,783,031 $11,144,952
Net agency sales 2,087,445 779,570 7,543,982 6,898,727
----------- ----------- ----------- -----------
Total revenue 7,731,996 4,588,452 24,327,013 18,043,679
Cost of revenues
(exclusive of
depreciation and
amortization) 5,188,410 2,903,638 15,543,066 10,855,665
----------- ----------- ----------- -----------
2,543,586 1,684,814 8,783,947 7,188,014
----------- ----------- ----------- -----------

Operating costs and
expenses
General and
administrative 926,997 603,297 3,278,871 2,812,821
Selling and
marketing 517,350 363,825 1,905,988 1,562,150
Product
development 385,427 284,391 1,312,263 1,405,248
Merger costs 459,408 - 658,652 -
Depreciation and
amortization 261,371 196,885 1,142,474 835,035
----------- ----------- ----------- -----------
Total operating
costs and expenses 2,550,553 1,448,398 8,298,248 6,615,254
----------- ----------- ----------- -----------
Operating income
(loss) (6,967) 236,416 485,699 572,760
Other income
(expenses) 37,015 (14,053) 39,265 13,888
Gain (loss) on
foreign exchange (5,828) 14,650 34,605 51,279
----------- ----------- ----------- -----------
Income before
income taxes 24,220 237,013 559,569 637,927
Income taxes - 79,000 - (79,000)
Equity income
(loss) from
investee 16,757 (64,491) 103,878 (64,491)
----------- ----------- ----------- -----------
Net income $ 40,977 $ 93,522 $ 663,447 $ 494,436
=========== =========== =========== ===========

Net income per
share
- basic $ 0.00 $ 0.00 $ 0.02 $ 0.01
=========== =========== =========== ===========
- diluted $ 0.00 $ 0.00 $ 0.01 $ 0.01
=========== =========== =========== ===========

Weighted-average
number of common
shares
- basic 44,607,305 44,889,334 44,066,389 43,889,334
=========== =========== =========== ===========
- diluted 55,757,667 43,889,334 47,426,389 43,889,334
=========== =========== =========== ===========


DATAWAVE SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(Expressed in United States dollars, except share amounts)

Three months ended
March 31, Years ended March 31,
------------------------- -------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Operating
activities
Net income $ 40,977 93,522 $ 663,447 $ 494,436
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 261,371 196,885 1,142,474 835,035
Equity income
(loss) from
investee (16,757) 64,491 (103,878) 64,491
Deferred income
taxes - 79,000 - 79,000
Merger costs 235,000 - 235,000 -
Amortization of
lease
inducement 25,547 - 25,547 -
Net change in non-cash
operating assets and
liabilities
Accounts
receivable and
other (1,200,426) 400,019 (3,787,862) (2,305,139)
Inventories 1,032,335 604,889 (2,074,656) (1,009,052)
Prepaid expenses
and deposits 113,418 410,016 113,603 31,172
Accounts payable
and accrued
liabilities 303,598 (2,130,444) 7,981,805 1,812,949
Deferred revenue 124,939 34,766 817,858 (84,848)
----------- ----------- ----------- -----------
Net cash provided
by (used in)
operating
activities 920,002 (246,846) 5,013,338 (81,956)
----------- ----------- ----------- -----------

Investing
activities
Restricted cash 6,000 - 20,000 -
Deferred
development
costs (94,786) (49,335) (94,786) (49,335)
Deferred
inducements, net
of related
receivables 22,630 197,686 - 197,686
Purchase of
machinery and
equipment (31,857) (535,428) (912,044) (1,170,118)
Purchase of
intangible (265,000) - (265,000) -
----------- ----------- ----------- -----------
Net cash used in
investing
activities (363,013) (387,077) (1,251,830) (1,021,767)
----------- ----------- ----------- -----------

Financing activity
Repayment of
capital lease
obligations (39,487) (182,934) (87,402) (182,934)
----------- ----------- ----------- -----------
Net cash used in
financing activity (39,487) (182,934) (87,402) (182,934)
----------- ----------- ----------- -----------

Increase (decrease)
in cash 517,502 (816,857) 3,674,106 (1,286,657)
Cash and cash
equivalents,
beginning of
period 4,009,010 1,669,263 852,406 2,139,063
----------- ----------- ----------- -----------
Cash and cash
equivalents, end
of period $ 4,526,512 $ 852,406 $ 4,526,512 $ 852,406
=========== =========== =========== ===========



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