Digital Dispatch Systems Inc.
TSX : DD

Digital Dispatch Systems Inc.

August 03, 2006 08:00 ET

Digital Dispatch Reports Strong Operating Income for Q2

RICHMOND, BRITISH COLUMBIA--(CCNMatthews - Aug. 3, 2006) - Digital Dispatch Systems Inc. (TSX:DD), a leading provider of mobile data solutions, today released its unaudited financial results for the second quarter ended June 30, 2006. (All financial information is expressed in CDN dollars and Canadian GAAP)

"As previously indicated, revenues for the second quarter were lower than the same period of last year. However, Digital Dispatch experienced strong sales activity late in the quarter which will be delivered in 2006," stated George Reznik, CFO for Digital Dispatch. "Prudent cost management resulted in increased gross margin with continued strong operating income for the Company which was offset by unrealized foreign exchange loss in the period. The Company continues to be a leader in its market with an increasing customer base, strategic partnerships and forecasts strong growth for the remainder of 2006."

Financial Results

Total revenues for the second quarter of 2006 were $5.5 million compared to $6.0 million in the first quarter of 2006 and $6.7 million in the same quarter of the previous year. The Company posted gross margins of 53% for the current quarter which is consistent with the previous quarter and higher than the 51% for the same period in the previous year. Total operating expenses were $2.3 million for the quarter, compared to $2.5 million for the first quarter of 2006 and $2.7 million for the same quarter of last year, a decrease of 8% and 13% respectively. For the second quarter ended June 30, 2006, the Company reported net income of $8,450 or $0.00 per share compared to $474,665 or $0.04 per share in the first quarter of 2006, and net income of $461,680 or $0.04 per share for the same quarter last year.

Total revenues for the six months ended June 30th were $11.5 million versus $12.3 million for the same period last year. The Company reported net income of $483,116 or $0.04 per share compared to $545,134 or $0.04 per share for the same period last year.

The Company had $20.3 million in cash and 12,118,981 shares outstanding as at June 30th 2006. Subsequent to the quarter end the Company purchased a further 84,600 common shares as part of its normal course issuer's bid. The Company's guidance for its fiscal year 2006 provided previously remains unchanged.

Quarterly Highlights

- Strategic partnership with a global financial institution to develop unique mobile payment gateway.

- Continued expansion into the Paratransit market.

- Incremental sales traction to Roadside Assistance customers.

- Increased customer base for Digital Dispatch Systems' Web based hosted services, eFleet™.

- Mobile data solutions for taxi vertical market strong with addition of several new customers.

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 on SEDAR.

Conference Call

The Company will host a conference call at 1:30 PM EST today to discuss the results. Please call 416-695-7848 or 1-877-888-4483 to participate in the call. A replay of this conference call will be available until Thursday, August 10, 2006, by dialing 416-695-5275 or 1-888-509-0081 and entering access code 627960.

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. Such forward-looking statements may include financial and other projections as well as statements regarding the Company's future plans, market opportunities, objectives, performance, revenues, growth, profits, operating expenses or the Company's underlying assumptions. Forward-looking information is subject to known and unknown business and economic uncertainties, risks and other factors. Generally, this forward-looking information can be identified by the use of forward-looking terminology such as "outlook", "anticipate", "project", "target", "believe", "estimate", "expect", "intend", "should", "scheduled", "will", "plan" and similar expressions. 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 Systems' products; 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; and including but not limited to other factors described in Digital Dispatch Systems' reports filed on Sedar, including its Annual Information Form for the year ended December 31, 2005 and report for the quarter ended March 31, 2006. 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. Visit www.digital-dispatch.com for more information.



DIGITAL DISPATCH SYSTEMS INC.
Consolidated Balance Sheets

--------------------------------------------------------------------
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June 30, 2006 December 31, 2005
(Unaudited) (Audited)
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Assets

Current assets:
Cash and cash equivalents $ 8,591,380 $ 6,770,989
Short-term investments 11,735,945 12,122,610
Accounts receivable 5,836,297 7,173,391
Unbilled receivables 2,200,607 3,457,030
Investment tax credits recoverable 462,354 462,354
Future income taxes 648,552 564,212
Inventories 2,313,711 3,109,315
Prepaid expenses 380,164 406,988
Current portion of leases receivable 960,086 764,507
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33,129,096 34,831,396

Capital assets 503,262 549,484

Investment tax credits recoverable 2,108,076 1,849,412

Long term leases receivable 523,108 868,921

Future income taxes 1,470,511 1,048,370
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$ 37,734,053 $ 39,147,583
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Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued
liabilities $ 2,080,076 $ 2,044,315
Deferred revenue 993,963 2,022,540
Deferred gain 191,076 191,076
Current income tax payable 890,744 740,262
Current portion future income taxes 1,131,319 1,253,534
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5,287,178 6,251,727

Long-term portion of deferred gain 238,846 334,384

Future income taxes 1,377,147 726,296

Shareholders' equity:
Share capital 20,190,841 20,922,358
(Issued and outstanding:
June 30, 2006 - 12,118,981;
December 31, 2005 - 12,558,067)
Contributed surplus 260,028 195,226
Retained earnings 11,276,627 11,614,206
Cumulative translation adjustments (896,614) (896,614)
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30,830,882 31,835,176
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$ 37,734,053 $ 39,147,583
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DIGITAL DISPATCH SYSTEMS INC.
Consolidated Statements of Operations and Retained Earnings

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Three months ended June 30, Six months ended June 30,
2006 2005 2006 2005
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
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Revenue $ 5,488,793 $ 6,701,002 $ 11,495,086 $ 12,328,089
Cost of sales 2,593,157 3,255,546 5,423,757 6,173,073
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2,895,636 3,445,456 6,071,329 6,155,016

Operations
expenses:
Research and
development 879,148 1,019,756 1,908,063 2,096,419
Sales and
marketing 781,465 898,766 1,450,465 1,653,588
General and
administrative 657,850 744,508 1,485,233 1,468,804
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2,318,463 2,663,030 4,843,761 5,218,811
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Earnings before
undernoted 577,173 782,426 1,227,568 936,205

Other (income)
expense:
Amortization
of capital
assets 77,074 68,332 157,871 143,900
Foreign
exchange 509,259 60,908 414,970 9,781
Other (47,769) (47,222) (95,538) (89,930)
Stock
compensation 26,526 46,066 64,802 91,066
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565,090 128,084 542,105 154,817
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Earnings before
income taxes 12,083 654,342 685,463 781,388

Income taxes
Current 42,633 24,907 180,191 106,157
Future (39,000) 167,755 22,156 130,097
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3,633 192,662 202,347 236,254
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Net earnings 8,450 461,680 483,116 545,134

Retained
earnings,
beginning of
period 12,002,253 10,580,035 11,614,206 10,496,581
Stock
repurchase (734,076) (488,137) (820,695) (488,137)
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Retained
earnings, end
of period $ 11,276,627 $ 10,553,578 $ 11,276,627 $ 10,553,578
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Earnings per
commmon
share
Basic $ - $ 0.04 $ 0.04 $ 0.04
Diluted $ - $ 0.04 $ 0.04 $ 0.04
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Weighted
average
shares
Basic 12,338,992 13,011,153 12,435,050 13,077,985
Diluted 12,339,954 13,011,153 12,436,012 13,077,985
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DIGITAL DISPATCH SYSTEMS INC.
Consolidated Statements of Cash Flows

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Three months ended June 30, Six months ended June 30,
2006 2005 2006 2005
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
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Cash provided
by (used in):

Operations:
Net earnings $ 8,450 $ 461,680 $ 483,116 $ 545,134
Items not
involving
cash:
Amortization 77,074 78,253 157,871 153,821
Future
income taxes (39,000) 159,568 22,156 164,338
Amortization
of gain on
disposition
of land and
building (47,769) (47,769) (95,538) (95,538)
Stock
compensation 26,526 46,066 64,802 91,066
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25,281 697,798 632,407 858,821

Change in
non-cash
operating
working
capital 699,680 (790,217) 2,106,409 (1,261,304)
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724,961 (92,419) 2,738,816 (402,483)

Investments:
Increase in
short-term
investments 621,500 (6,994,197) 386,665 404,162
Purchase
of capital
assets (39,794) (76,547) (138,100) (110,208)
Repayments
on leases
receivable 273,338 (6,495) 463,729 386,074
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855,044 (7,077,239) 712,294 680,028
Financing:
Repurchase of
share capital (1,374,463) (1,007,596) (1,552,212) (1,007,596)
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(1,374,463) (1,007,596) (1,552,212) (1,007,596)
Effect of
foreign
currency
exchange
rates on cash
and cash
equivalents (120,263) 113,797 (78,507) 89,723
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Increase
(decrease) in
cash and cash
equivalents 85,279 (8,063,457) 1,820,391 (640,328)

Cash and cash
equivalents,
beginning of
period 8,506,101 16,949,506 6,770,989 9,526,377
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Cash and cash
equivalents,
end of
period $ 8,591,380 $ 8,886,049 $ 8,591,380 $ 8,886,049
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