Digital Dispatch Systems Inc.
TSX : DD

Digital Dispatch Systems Inc.

August 14, 2007 08:00 ET

Digital Dispatch Reports 2007 Q2 Operating Results

RICHMOND, BRITISH COLUMBIA--(Marketwire - Aug. 14, 2007) - Digital Dispatch Systems Inc. (TSX:DD), a leading provider of mobile data solutions, today released unaudited financial results for the second quarter and six months ended June 30, 2007 (All financial information is expressed in CDN dollars and Canadian GAAP).

Total revenues for the three months ended June 30, 2007, were $4.3 million compared with total revenues of $3.9 million in the three months ended March 31, 2007, and $5.5 million for the same period in the prior year. The decrease from the prior year is due to the timing of delivery of outstanding customer orders, foreign exchange impact from the strengthened Canadian dollar against the US dollar and a lower sales volume.

The Company experienced overall gross margin of 50% for the three months ended June 30, 2007 compared with a gross margin of 52% and 53% for the three months ended March 31, 2007 and June 30, 2006, respectively. Total operating expenses were $2.8 million for the three months ended June 30, 2007, compared to $2.5 million for the three months ended March 31, 2007, and $2.3 million in the same period last year. This increase in operating expenses is due to incremental sales and marketing expenses for the Company's New York City Taxi and Limousine Commission ("TLC") initiative in addition to TLC project costs of $238,000 incurred prior to the receipt of Notice to Proceed expensed during the period.

For the three months ended June 30, 2007, the Company reported a net loss of $1.2 million or ($0.10) per share compared to net loss of $574,000 or ($0.05) per share and net earnings of $8,000 or $0.00 per share for the three months ended March 31, 2007, and June 30, 2006, respectively. As reported on July 3, 2007, the Company incurred a foreign exchange loss of $1.0 million during the three months ended June 30, 2007, which is attributable to the strengthened Canadian dollar relative to the US dollar. Most of Digital Dispatch's revenues are generated in the US dollar.

Total revenues for the six months ended June 30, 2007, were $8.2 million compared to the total revenues of $11.5 million for the same period last year. The Company experienced overall gross margin of 51% for the six months ended June 30, 2007, compared to a gross margin of 53% for the six months ended June 30, 2006. Total operating expenses were $5.3 million for the six months ended June 30, 2007, compared to $4.8 million for the same period of the previous year. For the six months ended June 30, 2007, the Company reported a net loss of $1.8 million or ($0.15) per share compared to net earnings of $483,000 or $0.04 per share for the six months ended June 30, 2006.

The Company had $9.7 million in cash and short-term investments and 11,863,201 shares outstanding as at June 30, 2007. The Company's updated guidance provided on July 3, 2007, for revenues for its 2007 fiscal year of $24 million during this period remains unchanged.

"While we are disappointed that revenues for the first half of 2007 were lower due to the stronger Canadian dollar against the US dollar, the timing of execution of certain contracts, and lower sales volume, we remain excited about our prospects for the remainder of 2007. Our new business initiatives, eFleet ASP offering and iView launch with the New York City Taxi and Limousine Commission, in addition to continuing to serve our core market of large taxi fleets, are expected to drive growth for 2008 and beyond," stated Vari Ghai, CEO and President for Digital Dispatch. "We also remain active in our pursuit of acquisition opportunities which is expected to further enhance future shareholder value."

Quarterly Highlights

- Europe's largest taxi company and a long-time Digital Dispatch customer, TAXIS G7 of Paris, France, awarded the Company a new contract with a potential value of over $6 million (CAD) over the next 2-3 years. Under this new Framework Agreement, Taxis G7 has the potential to procure 4,000 to 5,000 iPilot 8000™, one of the most advanced mobile computers in the market today.

- The Company further strengthened its presence in the European taxi market with a new order from its existing customer, Sammenslutningen Kobenhavns Taxa (TAXA 4x35) of Copenhagen, Denmark.

- Sales orders won by the Company during 2007 also include purchases from the East Texas Council of Governments, Silver Cab of P.G. in Maryland, the Longview Transit Management in Texas, SCR Medical Transportation in Chicago, and All Yellow Taxi in Los Angeles.

- Commercial availability of the Company's iView 8000™ which is designed to enhance the passenger experience in the backseat of a taxicab. The iView 8000™ is an integrated multimedia interactive terminal with the capability of providing taxi passengers with a variety of interesting information including street maps which indicate the route being traveled, news, city sights, advertising, taxi regulations and much more in addition to enabling passengers to perform secure payment transactions with a signature-based debit or credit card.

- Awarded Notice to Proceed ("NTP") from the Taxi and Limousine Commission ("TLC") of New York City to roll-out its new state-of-the-art SmartCab™ taxi management solution to enhance passenger experience in New York City's approximately 13,000 medallion yellow cabs.

- The Company's ASP mobile fleet management business initiative eFleet™, is gaining momentum with the addition of new customers in 2007. The Company's eFleet™ initiative provides mobile fleet management, merging the benefits of wireless dispatch with value added automatic vehicle location ("AVL"), navigation, and card payment features resulting in optimizing overall fleet efficiency.

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's website (www.digital-dispatch.com) and on SEDAR.

Conference Call

The Company will host a conference call at 5:00 PM EST (2:00 PM PST) on Tuesday, August 14, 2007, to discuss the financial results. Please call 416-641-6125 or 1-866-542-4238 to participate in the call. A replay of this conference call will be available until Tuesday, August 21, 2007, by dialing 416-695-5800 or 1-800-408-3053 and entering access code 3231496.

Forward-Looking Statements

This press release contains statements which, to the extent that they are not recitations of historical fact, may constitute forward-looking information. Factors that could cause actual events or results to differ materially from those suggested by these forward-looking statements include, but are not limited to: the need to develop, integrate and deploy applications to meet our customer's requirements; the possibility of development or deployment difficulties or delays; the dependence on our customer's satisfaction with Digital Dispatch's products; the timing of entering into significant contracts; our customers' continued commitment to the deployment of our solutions; the risks involved in developing integrated software and hardware solutions and integrating them with third-party communication and other services; the performance of the global economy and growth in software industry sales; market acceptance of the Company's products and services; customer and industry analyst perception of the Company and its technology vision and future prospects; the success of certain business combinations engaged in by the Company or by competitors; political unrest or acts of war; possible disruptive effects of organizational or personnel changes; technological change, new products and standards; risks related to acquisitions and international expansion; reliance on large customers; concentration of sales; international operations and sales; management of growth and expansion; dependence upon key personnel and hiring; reliance on a limited number of suppliers; industry growth; competition; intellectual property; product defects and product liability; currency exchange rate risk; concentration of ownership; and including but not limited to other factors described in Digital Dispatch's reports filed on Sedar, including its Annual Information Form and financial report for the year ended December 31, 2006.
In drawing a conclusion or making a forecast or projection set out in the forward-looking information, the Company takes into account the following material factors and assumptions in addition to the above factors the Company's ability to execute on its business plan; the acceptance of the Company's products and services by its customers; the timing of execution of outstanding or potential customer contracts by the Company; the sales opportunities available to the Company; the Company's subjective assessment of the likelihood of success of a sales lead or opportunity; the Company's historic ability to generate sales leads or opportunities; and that sales will be completed at or above the Company's estimated margins. This list is not exhaustive of the factors that may affect our forward-looking information. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking information. 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 Company 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.

About Digital Dispatch Systems Inc.

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 70,000 wireless mobile data devices and nearly 200 wireless data systems in four 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.

SEE ATTACHED FINANCIAL STATEMENTS



DIGITAL DISPATCH SYSTEMS INC.
Interim Consolidated Balance Sheets
(Unaudited)

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June 30, December 31,
2007 2006
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Assets
Current assets:
Cash and cash equivalents $ 2,536,936 $ 6,712,786
Short-term investments 7,191,543 4,381,016
Accounts receivable 6,021,192 7,627,088
Income taxes receivable - 777,629
Future income taxes 75,790 81,087
Inventories 4,991,473 3,465,262
Prepaid expenses 539,667 387,893
Current portion of leases receivable 787,169 968,708
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22,143,770 24,401,469

Plant and equipment 662,904 491,180

Long-term leases receivable 1,986,193 1,940,441

Future income taxes 2,839,711 1,903,985
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$ 27,632,578 $ 28,737,075
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 2,939,254 $ 2,604,899
Income taxes payable 26,429 -
Future income taxes 644,266 521,900
Deferred revenue 690,052 562,296
Deferred gain 191,076 191,076
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4,491,077 3,880,171

Long-term portion of deferred gain 47,769 143,308

Shareholders' equity:
Share capital 19,764,711 19,764,711
Contributed surplus 528,069 378,069
Retained earnings 3,697,566 5,467,430
Accumulated other comprehensive loss (896,614) (896,614)
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23,093,732 24,713,596
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$ 27,632,578 $ 28,737,075
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DIGITAL DISPATCH SYSTEMS INC.
Interim Consolidated Statements of Operations and Retained Earnings
Three and six months ended June 30, 2007 and 2006
(Unaudited)

--------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30,
2007 2006 2007 2006
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Revenue $ 4,328,885 $ 5,488,793 $ 8,184,575 $ 11,495,086
Cost of sales 2,176,555 2,593,157 4,037,623 5,423,757
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2,152,330 2,895,636 4,146,952 6,071,329

Operations expenses:
Research and
development 968,270 879,148 1,928,022 1,908,063
Sales and marketing 1,127,552 781,465 2,038,425 1,450,465
General and
administrative 681,663 657,850 1,359,225 1,485,233
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2,777,485 2,318,463 5,325,672 4,843,761
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(Loss) earnings
before undernoted (625,155) 577,173 (1,178,720) 1,227,568

Other (income)
expense:
Amortization of
plant and
equipment 73,455 77,074 142,945 157,871
Foreign exchange
loss 962,267 509,259 1,094,889 414,970
Stock based
compensation 75,000 26,526 150,000 64,802
Other (37,208) (47,769) (84,384) (95,538)
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1,073,514 565,090 1,303,450 542,105
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(Loss) earnings
before income
taxes (1,698,669) 12,083 (2,482,170) 685,463

Income taxes
Current (221,012) 42,633 (439,669) 180,191
Future (281,464) (39,000) (272,637) 22,156
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(502,476) 3,633 (712,306) 202,347
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Net (loss) earnings
and comprehensive
(loss) income (1,196,193) 8,450 (1,769,864) 483,116

Retained earnings,
beginning of
period 4,893,759 12,002,253 5,467,430 11,614,206
Excess paid on
share repurchase
and cancellation
of common shares - (734,076) - (820,695)
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Retained earnings,
end of period $ 3,697,566 $ 11,276,627 $ 3,697,566 $ 11,276,627
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Basic and diluted
(loss) earnings
per common share $ (0.10) $ 0.00 $ (0.15) $ 0.04
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DIGITAL DISPATCH SYSTEMS INC.
Interim Consolidated Statements of Cash Flows
Three and six months ended June 30, 2007 and 2006
(Unaudited)

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Three months ended June 30, Six months ended June 30,
2007 2006 2007 2006
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Cash provided by
(used in):

Operations:

Net earnings
(loss) $ (1,196,193) $ 8,450 $ (1,769,864) $ 483,116
Items not
involving cash:
Amortization of
plant and
equipment 73,455 77,074 142,945 157,871
Future income
taxes (281,464) (39,000) (272,637) 22,156
Amortization of
gain on
disposition of
property (47,769) (47,769) (95,538) (95,538)
Stock based
compensation 75,000 26,526 150,000 64,802
Loss on asset
disposal 10,892 - 10,892 -
Unrealized foreign
exchange loss 305,205 - 305,205 -
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(1,060,874) 25,281 (1,528,997) 632,407

Change in non-cash
operating working
capital: 346,347 699,680 514,261 2,106,409
--------------------------------------------------------------------------
(714,527) 724,961 (1,014,736) 2,738,816
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Investments:
(Decrease) increase
in short-term
investment (2,544,955) 621,500 (2,810,527) 386,665
Purchase of plant
and equipment (125,504) (39,794) (325,561) (138,100)
Repayments on
lease receivables 326,258 273,338 603,697 463,729
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(2,344,201) 855,044 (2,532,391) 712,294
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Financing:
Cash paid on share
repurchase and
cancellation - (1,374,463) - (1,552,212)
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- (1,374,463) - (1,552,212)
--------------------------------------------------------------------------
Effect of foreign
currency exchange
rates on cash and
cash equivalents (628,723) (120,263) (628,723) (78,507)
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Increase (decrease)
in cash and cash
equivalents (3,687,451) 85,279 (4,175,850) 1,820,391

Cash and cash
equivalents,
beginning of
period 6,224,387 8,506,101 6,712,786 6,770,989
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Cash and cash
equivalents, end
of period $ 2,536,936 $ 8,591,380 $ 2,536,936 $ 8,591,380
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The Toronto Stock Exchange has neither approved nor disapproved the contents of this press release.

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