Digital Dispatch Systems Inc.
TSX : DD

Digital Dispatch Systems Inc.

November 03, 2005 08:00 ET

Digital Dispatch Continues Revenue Growth Trend in Q3

RICHMOND, BRITISH COLUMBIA--(CCNMatthews - Nov. 3, 2005) - Digital Dispatch Systems Inc. (TSX:DD) has continued its growth in the third quarter of 2005 with year-to-date revenues of $18.2 million, an increase of 5 percent over $17.3 million in 2004. Revenues for the third quarter were $5.9 million, a significant jump of 60 percent over $3.6 million in 2004. Revenues for the fourth quarter are similarly projected to be well in excess of last year.

"With the results to date in Q3, coupled with the activity now taking place in the fourth quarter, we know we are poised to finish the year with substantial growth in revenue over last year," said Bruce Watson, Chief Financial Officer for Digital Dispatch. "This also means we expect to finish the year with a very solid bottom line."

The Company's gross margin improved at 50.5 percent year-to date compared to 47.3% in 2004, while the Q3 gross margin of 51.5 percent showed a substantial improvement over 36.9 percent in Q3 of 2004. Operating expenses remained consistent at $2.5 million for the quarter, versus $2.4 million in Q3 of 2004, and are expected to remain at approximately this level in the final quarter.

Earnings per share year-to-date are $0.02 cents, compared to $0.04 cents in 2004, while earnings per share for the quarter were a loss of ($0.02), compared to a loss of ($0.07) in Q3 of 2004. Approximately 87% of Digital Dispatch's sales are in export markets, mostly in U.S. dollars or Euros, and the results for 2005 include a foreign exchange loss of $805 thousand in the third quarter attributable to the impact of a very strong Canadian dollar on assets denominated in other currencies.

The Company finished the quarter with $18.5 million of cash and short-term investments, compared to $21.1 million at December 31, 2004. A significant part of the change is attributable to the Company's normal course issuer bid, under which 477 thousand shares of the company were repurchased and cancelled during the year, for aggregate proceeds of $1.6 million. As at September 30, 2005 the Company had 12.7 million shares outstanding.

For a more detailed analysis, please refer to Management's Discussion and Analysis of Financial Conditions and Results of Operations, which is available on the Company website (www.digital-dispatch.com) and which will be filed on SEDAR.

Revenue Guidance

Based on current foreign exchange rates, the Company is expressing its 2005 revenue guidance at the low end of the previously-indicated range of $28 to $30 million, with a downside risk to approximately $27 million based on the timing of certain contracts. Revenue for the year ended December 31, 2004 was $22.0 million.

Mr. Watson commented that, "Due to regulatory issues like coordination of frequencies between Canada and the U.S., the implementation of two large signed contracts was delayed and deferred approximately $3 million of anticipated 2005 revenue into 2006. The silver lining is that these projects will now contribute to the 2006 revenue stream and, as a result of this and other current activity, we anticipate entering 2006 with a larger order book than at the beginning of this year."

Forward-Looking Statements

This press release contains "forward-looking statements". All statements and other information contained in this press release relative to markets for the Company's services and products and trends in revenue, gross margin, backlog and anticipated expense levels, as well as other statements about anticipated future events or results constitute forward-looking statements. Forward-looking statements are subject to business and economic risks and uncertainties and other factors, including without limitation the risk factors described in the Company's Annual Information Form, that could cause actual results of operations to differ materially from those contained in the forward-looking statements. Forward-looking statements are based on estimates and opinions of management at the date the statements are made. Consequently, all forward looking statements made in this press release are qualified by this cautionary statement and there can be no assurance that actual results or developments anticipated by the Corporation will be realized. Digital Dispatch disclaims any obligation or intention to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

About Digital Dispatch

Digital Dispatch Systems Inc. is a worldwide provider of mobile data solutions for fleet and mobile workforce management. Founded in 1987, we have an installed base of more than 61,000 wireless mobile data devices and 174 wireless data systems on 4 continents. We offer products and services to manage vehicle fleets and mobile workforces, including dispatch software, wireless communication infrastructure and a range of in-vehicle mobile devices.

Visit www.digital-dispatch.com for more information.



DIGITAL DISPATCH SYSTEMS INC.
Consolidated Balance Sheets

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September 30, 2005 December 31, 2004
(Unaudited) (Audited)
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Assets

Current assets:
Cash and cash equivalents $ 2,539,645 $ 9,526,377
Short-term investments 15,992,651 11,585,367
Accounts receivable 5,311,846 4,837,227
Unbilled receivables 3,184,314 2,113,027
Investment tax
credits recoverable 1,171,982 1,040,599
Future income
taxes recoverable 271,290 780,260
Inventories 3,376,716 3,958,482
Prepaid expenses 453,643 512,615
Current portion of
leases receivable 777,026 1,074,218
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33,079,113 35,428,172

Capital assets 498,664 580,003

Investment tax
credits recoverable 1,171,982 1,040,600

Future income taxes recoverable 741,399 304,083

Long term leases receivable 1,034,570 1,183,286
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$ 36,525,728 $ 38,536,144
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Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and
accrued liabilities $ 2,101,424 $ 1,953,140
Deferred revenue 1,493,595 2,031,203
Deferred gain 191,076 191,076
Current income tax payable 602,311 848,100
Current portion future
income taxes payable 106,149 47,893
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4,494,555 5,071,412


Long-term portion of
deferred gain 382,153 525,460

Future income taxes payable 902,620 776,089

Shareholders' equity:
Share capital 21,109,929 21,899,862
Contributed surplus 178,986 50,013
Retained earnings 9,994,579 10,496,581
Cumulative translation
adjustments (537,094) (283,273)
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30,746,400 32,163,183
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$ 36,525,728 $ 38,536,144
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DIGITAL DISPATCH SYSTEMS INC.
Consolidated Statements of Operations and Retained Earnings

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Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
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Revenue $ 5,865,101 $ 3,674,596 $18,193,190 $ 17,251,314
Cost of sales 2,844,488 2,316,996 9,017,561 9,090,939
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3,020,613 1,357,600 9,175,629 8,160,375

Operations
expenses:
Research and
development 956,082 982,174 3,052,503 3,039,159
Sales and marketing 710,524 698,733 2,364,112 2,128,397
General and
administrative 728,930 675,338 2,173,739 2,113,776
Other 95,248 35,932 119,243 70,179
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2,490,784 2,392,177 7,709,597 7,351,511
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Earnings before
undernoted 529,829 (1,034,577) 1,466,032 808,864

Other (income)
expense:
Amortization of
capital assets 68,005 73,200 211,905 250,228
Foreign exchange 805,467 318,102 815,248 (130,549)
Stock compensation 37,907 43,949 128,973 94,178
Other (47,769) (47,769) (137,700) (284,029)
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863,610 387,482 1,018,426 (70,172)
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Earnings before
income taxes (333,781) (1,422,059) 447,606 879,036

Income taxes
Current (203,031) (48,587) (96,874) 417,733
Future 105,535 (453,834) 235,631 (84,333)
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(97,496) (502,421) 138,757 333,400
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Net earnings (236,285) (919,638) 308,849 545,636

Retained
earnings,
beginning
of period 10,571,579 11,873,354 10,496,581 10,408,081
Stock repurchase (340,715) - (810,851) -
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Retained
earnings,
end of period $ 9,994,579 $10,953,716 $ 9,994,579 $ 10,953,717
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Earnings per
common share
Basic $ (0.02) $ (0.07) $ 0.02 $ 0.04
Diluted $ (0.02) $ (0.07) $ 0.02 $ 0.04
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DIGITAL DISPATCH SYSTEMS INC.
Consolidated Statements of Cash Flows

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Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
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Cash provided by
(used in):

Operations:
Net earnings $ (236,285) $ (919,638) $ 308,849 $ 545,636
Items not
involving cash:
Amortization 58,083 73,200 211,905 250,228
Sales lease (674,281) - (674,281) 267,536
Future income
taxes 91,128 (226,010) 255,467 (24,586)
Amortization of
gain on
disposition
property (47,769) (47,769) (143,307) (143,307)
Stock compensation 37,907 43,949 128,973 94,178
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(771,217) (1,076,268) 87,604 989,685

Change in non-cash
operating working
capital: (936,361) 1,018,884 (2,197,665) 2,915,088
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(1,707,577) (57,384) (2,110,061) 3,904,773

Investments:
Increase in
short-term
investment (4,913,995) (11,724,185) (4,509,833) (14,213,525)
Purchase of
capital assets (29,347) (33,268) (139,556) (118,688)
Repayments on
lease receivables 725,059 372,700 1,111,134 1,025,946
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(4,218,283) (11,384,753) (3,538,255) (13,306,267)
Financing:
Deferred
financing costs - (25) - 422,604
Normal course
issuer bid (593,189) - (1,600,785) -
Shares Issued
for cash - 132,000 - 15,310,453
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(593,189) 131,975 (1,600,785) 15,733,057
Effect of foreign
currency exchange
rates on cash and
cash equivalents 172,645 (171,766) 262,369 (103,768)
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Increase (decrease)
in cash and cash
equivalents (6,346,405) (11,481,928) (6,986,732) 6,227,795

Cash and cash
equivalents,
beginning of
period 8,886,050 19,377,082 9,526,377 1,667,359
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Cash and cash
equivalents,
end of period $ 2,539,645 $ 7,895,154 $ 2,539,645 $ 7,895,154
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