Digital Dispatch Systems Inc.

Digital Dispatch Systems Inc.

March 29, 2005 08:00 ET

Digital Dispatch Releases Final Results for Fiscal 2004 and Conference Call Information


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: DIGITAL DISPATCH SYSTEMS INC.

TSX SYMBOL: DD

MARCH 29, 2005 - 08:00 ET

Digital Dispatch Releases Final Results for Fiscal
2004 and Conference Call Information

RICHMOND, BRITISH COLUMBIA--(CCNMatthews - March 29, 2005) - Digital
Dispatch Systems Inc. (TSX:DD) today released its final audited results
for the year ended 2004. As previously indicated in the Company's
February 16, 2005 press release, revenue for the year was $22.0 million,
which compares to $33.2 million in the prior year (restated for a change
in accounting principles, discussed below).

"2004 was a challenging year for the Company," said Bruce Watson, the
recently-appointed Chief Financial Officer. "After a good start in the
first six months, results in the second half of the year were impeded by
delays in the signing and execution of contracts. We believe the
fundamentals of the business remain strong, however, and the Company is
committed to improving execution, increasing the sales force and
revitalizing the Company's sales efforts in all respects in 2005."

Despite the substantial drop in revenue, the Company attained a small
profit with fully diluted earnings per share of $0.01 in 2004, compared
to $0.42 in 2003 (as restated - see below). This represents the
company's fourteenth consecutive year of profitability.

Results from Operations

Year ended December 31, 2004

Overall, revenue decreased to $22.0 million from $33.2 million in 2003.
Gross margin slipped from 51.0% to 46.3%, partly because the labour
component of cost of system sales is incurred principally in Canadian
dollars while the Company's revenue was heavily dependent on the
weakening US dollar, and partly as a result of downtime costs included
in cost of sales in the second half of the year.

Operations expenses increased from $8.7 million in 2003 to $9.9 million
in 2004, as the Company maintained its commitment to strategic
priorities such as research and development expense, the costs of
investigating acquisition opportunities, and the up-front costs of
diversifying into new geographical markets and non-taxi vertical
markets, all of which have been expensed as incurred. In addition, the
Company incurred new compliance costs in its first full year as a public
company.

Fourth quarter

Revenue for the fourth quarter was $4.8 million, a partial recovery from
$3.7 million in the third quarter, but well below the $10.9 million
achieved in the fourth quarter of 2003 (all figures giving effect to the
change in accounting principles discussed below). The pace of signing
contracts picked up in the fourth quarter after the lull in the third
quarter but, in the nature of the Company's business, this translates
mainly into 2005 revenue.

Gross margins for the fourth quarter were 43%, as compared to the 50%
target historically attained by the Company. Margins were impacted by
the weakened US dollar and by the cost of labour downtime associated
with the lower revenue levels. Operating expenses increased 4.9% over
the preceding quarter, principally due to the ramp-up of sales and
marketing efforts. Overall, the quarter showed a loss of $0.03 per
share, after giving effect to the change in accounting principle
discussed below.

Restatement of 2003 results and 2004 quarterly results

Effective January 1, 2004, a new Canadian accounting standard ("EIC
142") is applicable to revenue arrangements with multiple deliverables,
such as the Company's systems sales contracts. For the full year ended
December 31, 2004, this change increased revenue marginally and
decreased earnings by approximately $0.01 per share. The Company has
applied this change in accounting policy retroactively, resulting in an
increase in revenue of $2.2 million in 2003 and a consequent increase in
2003 fully diluted earnings per share from $0.35 to $0.42. These changes
are summarized as follows:



---------------------------------------------------------------------
Prior to
As restated restatement Change
---------------------------------------------------------------------
2004 Revenue ($ooo's) $22,018 $22,015 $3
---------------------------------------------------------------------
2004 Earnings per share $0.01 $0.02 $ (0.01)
---------------------------------------------------------------------
2003 Revenue ($ooo's) $33,172 $31,004 $2,168
---------------------------------------------------------------------
2003 Earnings per share $0.42 $0.35 $ 0.07
---------------------------------------------------------------------


The Company has also restated its quarterly results for 2004 and 2003
to give effect to this change, resulting in revised revenue figures
as follows:

AS RESTATED
---------------------------------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2003 2003 2003 2003 2004 2004 2004 2004
---------------------------------------------------------------------
Revenue
($000's) $7,525 $8,601 $6,147 $10,899 $6,253 $7,324 $3,674 $4,767
---------------------------------------------------------------------
Earnings
Per share $0.10 $0.09 $0.03 $0.20 $0.05 $0.06 $(0.07) $(0.03)
---------------------------------------------------------------------

PRIOR TO RESTATEMENT
---------------------------------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2003 2003 2003 2003 2004 2004 2004 2004
---------------------------------------------------------------------
Revenue
($000's) $4,012 $7,915 $8,380 $10,697 $5,119 $6,941 $3,953 $6,002
---------------------------------------------------------------------
Earnings
Per share $(0.03) $0.07 $0.11 $0.20 $0.03 $0.06 $(0.06) $(0.01)
---------------------------------------------------------------------


Capital resources

During the year, the Company issued 2.8 million shares on conversion of
special warrants, for net cash proceeds of $15.1 million. As a result of
this equity issue, together with reduced investments in accounts
receivable and unbilled receivables, the company had cash and short-term
investments at December 31, 2004 of $21.1 million (2003: $1.7 million).
These resources are expected to be used to move forward on the Company's
growth strategy which includes, among other things, acquisition and
investment initiatives. Several potential acquisition targets were
investigated in detail in 2004, although none were considered to meet
the Company's demanding criteria and the investigation costs were
written off as incurred. The company will continue to investigate
potential acquisition targets in 2005.

Outlook for 2005

The Company is presently reviewing the effect of the above-described
change in accounting principle on the timing of 2005 and future revenue
and is, therefore, currently suspending the provision of guidance with
respect to future revenues. However, the Company notes that, as at
December 31, 2004, it had a revenue backlog of $18.8 million in signed
contracts applicable to 2005, and business activity remains strong. The
Company will review whether it is possible to resume the provision of
guidance at the time of releasing its first quarter results for 2005.

Forward Looking Statements

This press release may contain some forward-looking statements that are
subject to risks and uncertainties that may cause actual results to
differ materially from those expressed or implied by such statements.
Statements relating to revenues, growth profits, operating expenses,
introduction or enhancement of our products or services depend on future
market conditions and risks, and are considered forward-looking thereby
providing no guarantee that they will be realized. The Company disclaims
any intention or obligation to update or revise forward-looking
information, whether as a result of new information, future events or
otherwise. All forward-looking statements in this press release are
qualified by this cautionary statement.

A conference call to review this information is scheduled for Wednesday,
March 30, 2005 at 12:00 noon, Eastern Standard Time. The call-in numbers
are 416-695-9705 and 1-877-323-2011.

For a more detailed analysis, please refer to the Financial Statements
and Management's Discussion and Analysis of Financial Conditions and
Results of Operations, which will be filed on the Company's web site
(www.digital-dispatch.com) on March 29, 2005, and will also be available
on the SEDAR web site (www.sedar.com).

The Company intends to mail the Annual Financial Statements to
shareholders on or about April 21, 2005, together with materials in
connection with the Company's annual general meeting of shareholders.
Shareholders of the Company may obtain a copy of the Annual Financial
Statements in advance of this upon request to the Company.

About Digital Dispatch

Please visit www.digital-dispatch.com for information on Digital
Dispatch.



DIGITAL DISPATCH SYSTEMS INC.
Summarized Consolidated Statements of Operations

Three months ended December 31, Year ended December 31,
2004 2003 2004 2003
---------------------------------------------------------------------
Restated Restated
Revenue $ 4,767,418 $ 10,899,211 $ 22,018,733 $ 33,172,788
Cost of sales 2,722,644 5,648,875 11,813,083 16,241,446
---------------------------------------------------------------------
Gross margin 2,044,774 5,250,336 10,205,650 16,931,342

Operational
expenses 2,509,371 2,451,694 9,860,880 8,665,969
---------------------------------------------------------------------

Earnings (loss)
from operations (464,597) 2,798,642 344,770 8,265,373

Other income
(expense) (289,263) (585,157) (218,659) (2,442,030)
---------------------------------------------------------------------

Earnings before
income taxes (753,860) 2,213,485 126,111 5,823,343

Income taxes
(recovery) (296,787) 95,347 37,611 1,306,053
---------------------------------------------------------------------

Net earnings $ (457,073) $ 2,118,138 $ 88,500 $ 4,517,290
---------------------------------------------------------------------

Earnings Per
Common Share
Basic $ (0.03) $ 0.20 $ 0.01 $ 0.43
Fully diluted $ (0.03) $ 0.20 $ 0.01 $ 0.42



DIGITAL DISPATCH SYSTEMS INC.
Summarized Consolidated Balance Sheets

December 31, 2004 December 31, 2003
---------------------------------------------------------------------
Restated
Assets
Current assets:
Cash and short-term investments $ 21,111,744 $ 1,667,359
Receivables, inventories,
and other current assets 14,316,428 19,594,750
---------------------------------------------------------------------
35,428,172 21,262,109
Capital assets 580,003 702,332
Future tax assets (including ITCs) 1,344,683 63,547
Long-term lease receivable 1,183,286 2,518,969
---------------------------------------------------------------------
$ 38,536,144 $ 24,546,957
---------------------------------------------------------------------
---------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities $ 5,071,412 $ 6,297,304
Deferred credits 1,301,549 1,727,628
Shareholders' equity 32,163,183 16,522,025
---------------------------------------------------------------------
$ 38,536,144 $ 24,546,957
---------------------------------------------------------------------
---------------------------------------------------------------------


-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Digital Dispatch Systems Inc.
    Bruce Watson
    CFO
    (604) 214-7206
    Bruce.Watson@digital-dispatch.com
    or
    Digital Dispatch Systems Inc.
    Vari Ghai
    President and CEO
    (604) 241-1441
    investors@digital-dispatch.com
    The Toronto Stock Exchange has neither approved nor disapproved the
    contents of this press release.