Exhibit 99.1
Digital Recorders, Inc. Announces Second Quarter 2004 Earnings Results
DALLAS--(BUSINESS WIRE)--Aug. 20, 2004--Digital Recorders, Inc.
(DRI) (Nasdaq:TBUS), a market leader in transit, transportation and
law enforcement digital communications and audio enhancement systems,
announced today it posted a loss of 1 cent per weighted-average basic
and fully diluted share on $11.74 million in revenue for the second
quarter 2004. This compares to basic earnings of 6 cents per share and
fully diluted, weighted-average earnings of 4 cents per share on
$12.52 million in revenue posted during the same period last year. The
results include $170,606 of non-recurring, non-cash, financing-related
charges and atypical licensing-related income, which boosted gross
margin by approximately 5.3 percent of revenue on the quarter.
"Second quarter 2004 was an active period for DRI. Our common
stock reached a record high, which helped the Company raise $5.0
million in capital through private equity placements, as well as
convert $4.15 million in outstanding debt securities and $2.1 million
in preferred stock into shares of common stock. As a result of these
activities, our balance sheet was considerably strengthened. Although
our consolidated operations experienced a decrease in revenue for
second quarter 2004, we made gains in important markets, including
Germany and Australia, as well as in the automatic vehicle location
sector of the U.S. market. We believe that the revenue decrease is
substantially attributable to order timing although we remain
concerned about the market and revenue stream disruptions caused by
the delay in passage of reauthorization legislation," David L. Turney,
the Company's Chairman, Chief Executive Officer, and President, said.
The Company filed its second quarter 2004 Form 10-Q with the
Securities and Exchange Commission on Aug. 20, 2004, after requesting
a 5-day extension by filing Form 12b-25 on Aug. 16, 2004.
Second Quarter 2004 Financial Results
For the three months ended June 30, 2004, revenue decreased by 6
percent to $11.7 million and the loss was $97,832, or 1 cent per share
on 6,858,851 weighted-average basic and fully diluted shares
outstanding. This compares to revenue of $12.52 million and net income
of $215,827, or 6 cents per share on 3,812,167 basic shares
outstanding and 4 cents per share on 6,198,130 fully diluted,
weighted-average shares outstanding for the same period last year. The
results are after $92,597 and $44,250 in dividends to preferred
shareholders for the three months ended June 30, 2004 and June 30,
2003, respectively.
For the six months ended June 30, 2004, revenue increased by 2
percent to $23.9 million with a net loss of $12,236, or 0 cents per
share on 5,423,802 weighted-average basic and fully diluted shares
outstanding. This compares to revenue of $23.44 million and net income
of $4,360, or 0 cents per share on 3,808,342 basic shares outstanding
and 3,951,223 fully diluted, weighted-average shares outstanding for
the same period last year. The results are after $173,378 and $88,500
in dividends to preferred shareholders for the six months ended June
30, 2004 and June 30, 2003, respectively.
The quarter and year to date results include recognition of a
non-recurring, non-cash, financing-related charge of $170,606
primarily related to the recently converted Subordinated Debt
previously carried on the balance sheet. Additionally, licensing
income increased gross margin by 5.3 percent of revenue on the
quarter. This particular type of licensing income is an occasional
benefit to the Company; however, for the second quarter, it was
substantially higher than typical.
As of June 30, 2004, the Company had $6.5 million in working
capital and $20.7 million in shareholders' equity. This compares to
$2.1 million in working capital and $9.1 million in shareholders'
equity as of June 30, 2003.
"Relative to our preliminary announcement, the difference in
profitability is primarily related to higher-than-expected legal and
public company expense, product margins that were slightly less than
expected, and accounting treatment of non-recurring, non-cash,
financing-related expenses. The higher public company expense is
generally expected to continue as the Company manages the increased
expense of Sarbanes-Oxley era reporting and compliance initiatives.
The product margins matter is one of period-to-period variations
typical to the business and, thus, not considered to be a trend," Mr.
Turney said.
Second Quarter 2004 and Other Recent News Highlights
-- On April 26, 2004, the Company announced it had completed a
$5.0 million private placement of its common stock to certain
qualified institutional investors. The Company sold 625,000
shares of common stock to the investors for $8.00 per share.
The Company also granted the investors warrants to acquire
125,000 shares of common stock at an exercise price of $8.80
per share, exercisable for a period of five years.
-- On April 28, 2004, the Company announced its Mobitec AB
subsidiary in Sweden had signed a renewed frame agreement with
Volvo Bus Corporation. Valid for two years, the agreement is
renewable and is a continuation of the relationship that
Mobitec has held with Volvo for many years.
-- On April 30, 2004, the Company announced that certain of its
outstanding debt securities and preferred stock had been
converted into shares of common stock. Upon such conversions,
the Company issued an aggregate of 2,075,000 shares of common
stock to the holders.
-- On April 30, 2004, the Company announced its previously filed
Registration Statement on Form S-3, as amended, had been
declared effective.
-- On May 26, 2004, the Company announced its shareholders
approved the two proposals put forth for vote at its Annual
Meeting of Shareholders, which was held that day at the
Radisson Governor's Inn in Research Triangle Park, N.C.
Shareholders cast their votes in favor to: (1) elect four
Class Three directors to serve until the 2007 Annual Meeting
of Shareholders; and (2) amend the Digital Recorders, Inc.
2003 Stock Option Plan to increase by 200,000 the number of
shares that may be issued pursuant to awards granted under
that Plan. No other business was transacted during the Annual
Meeting.
-- On June 4, 2004, the Company announced its shareholders had
elected Nuria I. Fernandez to a three-year term on its Board
of Directors during the Annual Meeting of Shareholders. Ms.
Fernandez serves as Senior Vice President of Business
Development at Earth Tech, an engineering consulting firm
headquartered in Long Beach, Calif., and owned by Tyco
International Ltd. (NYSE:TYC).
-- On June 21, 2004, the Company announced its Digital Audio
Corporation (DAC) business unit received an order for
security-related equipment that will be used during the Games
of the XXVIII Olympiad in Athens, Greece. Mr. Turney said
that, out of respect for the customer and this order's
security-related purpose, the Company was limiting its
comments pertaining to specific order details. "However,
although this particular order is small, it does illustrate
recognition of the utility of DAC's covert technologies in
combating terrorism."
-- On July 8, 2004, the Company announced its Board of Directors
voted to amend the Company's current shareholder rights plan
to change the expiration date of the purchase rights issued
under the plan to July 15, 2004. The Company's shareholder
rights plan, which was adopted in 1999, originally had a
10-year term. This amendment resulted in termination of the
rights plan on July 15, 2004.
-- On July 8, 2004, the Company announced its previously filed
Registration Statement on Form S-1 was declared effective on
that date. The Registration Statement relates to the resale by
certain security holders of the Company of 812,500 shares of
common stock, consisting of 625,000 outstanding shares and
187,500 shares purchasable under outstanding warrants.
Long-Term Outlook
"The Company's outlook for the coming 12 months to 18 months
continues to indicate organic top-line growth and profitability for
fiscal years 2004 and 2005 before considering any non-cash financing
charges should any materialize related to additional financing
activities," Mr. Turney said.
According to Mr. Turney, the delay in federal legislative action
to pass the long-awaited reauthorization of federal transportation
funding following last year's expiration of the Transportation Equity
Act for the 21st Century (TEA-21) is troubling. "The U.S. transit
industry has been operating on a series of continuing resolutions
passed at the all-time high funding levels in existence at TEA-21's
expiration. At issue, however, are the negative effects of uncertainty
that the multiple legislative delays have on the industry and market.
Both the U.S. House of Representatives and the U.S. Senate have passed
a record-high funding bill, but the Bush Administration so far has
declined to sign it into law. Related to the security side of our
Transportation Communications Segment, it appears that additional
funding to enhance transit security measures may materialize in
2005-2006 through the U.S. Department of Homeland Security."
Conference Call Information
Senior management will discuss second quarter 2004 earnings
results, as well as the Company's long-term outlook, during an
investors' conference call on Tuesday, Aug. 24, 2004, at 11:30 a.m.
(Eastern).
To listen to, and participate in, the live questions-and-answers
exchange, call one of the following telephone numbers at least five
minutes prior to the start time: domestic, 888-694-4768; or
international, 973-935-8514. For the convenience of investors,
telephone replay will be available through Sept. 7, 2004 via the
following telephone numbers: domestic, 877-519-4471 (Replay Pin Number
(5100203); or international, 973-341-3080 (Replay Pin Number
(5100203).
To participate via webcast, go to
http://www.viavid.net/detailpage.aspx?sid=00001DF4. For the
convenience of investors, the webcast will be archived for six months.
About the Company
Digital Recorders, Inc. is a market leader in transit,
transportation and law enforcement/security digital communications and
audio enhancement systems using proprietary software applications. Our
products improve the flow and mobility of people through
transportation infrastructure, mitigate security threats, and enhance
law enforcement agencies' surveillance capabilities. Our transit
communications products -- TwinVision(R) and Mobitec route destination
signage systems, Talking Bus(R) voice announcement systems, and
Internet-based, automatic vehicle locating and monitoring systems --
enhance public transportation and mitigate security threats worldwide.
Our electronic surveillance tools, including microphone amplifiers and
processors, countermeasures devices, speech activity detectors, and
radio/television noise cancellers, help law-enforcement agencies
around the globe detect, capture, arrest and prosecute criminals. For
more information about DRI and its operations worldwide, go to
www.digrec.com.
Forward-Looking Statements
This press release contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
In particular, any statement, express or implied, concerning future
events or expectations is a forward-looking statement. Use of words
such as "expect," "fully expect," "expected," "appears," "believe,"
"plan," "anticipate," "would," "goal," "potential," "potentially,"
"range," "pursuit," "run rate," "stronger," "preliminarily," etc., is
intended to identify forward-looking statements that are subject to
risks and uncertainties, including those described below. There can be
no assurance that any expectation, express or implied, in a
forward-looking statement will prove correct or that the contemplated
event or result will occur as anticipated. It is important to note the
Company's actual results could differ materially from those
contemplated in the Company's forward-looking statements as a result
of various factors. Among other factors, the Company's results will be
affected, perhaps materially, by general economic conditions, the
availability of national government assistance and funding to local
transportation authorities, the adoption and implementation of
regulations concerning public transportation services, product demand
and market acceptance risks, the effect of import, licensing and trade
restrictions, the results of implementing the Company's business plan,
the impact on the Company of its relationship with its lenders, the
plans and prospects of competitors, the impact of competitive products
and pricing, currency fluctuations, infringement by third parties of
the Company's trade secrets and other intellectual property, the
burdens and costs of defending against potential infringement claims
against the Company, and our ability to attract and retain personnel.
Refer to the Company's various Securities and Exchange Commission
filings, such as its Forms 10-Q and 10-K, for further information
about forward-looking statements and risks associated with the
Company's business.
DIGITAL RECORDERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2004 2003
(Unaudited)
------------ ------------
ASSETS
- --------------------------------------------
Current Assets
Cash and cash equivalents $973,229 $970,222
Trade accounts receivable, less allowance
for doubtful accounts of $70,364 at June
30, 2004 and $115,042 at December 31, 2003 9,708,818 6,974,914
Other receivables 394,976 379,369
Inventories 10,449,269 9,797,610
Prepaids and other current assets 498,296 555,068
------------ ------------
Total current assets 22,024,588 18,677,183
------------ ------------
Property and equipment, less accumulated
depreciation of $2,622,619 at June 30, 2004
and $2,351,651 at December 31, 2003 2,596,545 2,434,589
Goodwill, less accumulated amortization of
$1,131,393 at June 30, 2004 and $1,144,248
at December 31, 2003 10,257,618 10,666,113
Intangible assets, less accumulated
amortization of $659,289 at June 30, 2004
and $598,484 at December 31, 2003 1,397,352 1,527,292
Deferred tax assets 810,846 840,585
Other assets 276,371 406,134
------------ ------------
TOTAL ASSETS $37,363,320 $34,551,896
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------
Current Liabilities
Lines of credit $5,710,500 $5,983,051
Current maturities of long-term debt 2,714,985 1,249,110
Accounts payable 4,980,219 6,456,870
Accrued expenses 1,845,111 2,334,050
Deferred tax liabilities 186,056 193,918
Preferred stock dividends payable 67,183 117,983
------------ ------------
Total current liabilities 15,504,054 16,334,982
------------ ------------
Long-term debt and other obligations, less
current maturities 837,000 6,647,052
------------ ------------
Minority interest in consolidated subsidiary 378,129 338,199
------------ ------------
Commitments and contingencies
Shareholders' Equity
Series E Redeemable, Nonvoting, Convertible
Preferred Stock, $.10 par value,
Liquidation Preference of $5,000 per
share; 600 shares authorized; 430 and 363
shares issued and outstanding at June 30,
2004 and December 31, 2003,
respectively. 1,730,374 1,440,295
Series F Convertible Preferred Stock, $.10
par value, Liquidation Preference of
$5,000 per share; 400 shares authorized;
zero and 300 shares issued and outstanding
at June 30, 2004 and December 31, 2003,
respectively. -- 1,500,000
Series AAA Redeemable, Nonvoting
Convertible Preferred Stock, $.10 par
value, Liquidation Preference of $5,000
per share; 20,000 shares authorized; 246
and 354 shares issued and outstanding at
June 30, 2004 and December 31, 2003;
redeemable at the discretion of the
Company. 1,230,000 1,770,000
Common stock, $.10 par value, 25,000,000
shares authorized; 7,973,874 and 3,944,475
issued and outstanding at June 30, 2004
and December 31, 2003. 797,388 394,447
Additional paid-in capital 24,468,732 13,259,542
Accumulated other comprehensive income -
foreign currency translation 1,681,367 2,271,823
Accumulated deficit (9,263,724) (9,404,444)
------------ ------------
Total shareholders' equity 20,644,137 11,231,663
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $37,363,320 $34,551,896
============ ============
DIGITAL RECORDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2004 2003 2004 2003
-------------- ------------ ------------ ------------
Net sales $11,745,827 $12,520,913 $23,881,533 $23,438,106
Cost of sales 6,709,037 7,514,008 13,761,151 13,947,593
-------------- ------------ ------------ ------------
Gross profit 5,036,790 5,006,905 10,120,382 9,490,513
-------------- ------------ ------------ ------------
Operating
expenses:
Selling,
general and
administrative 4,557,929 3,837,034 8,313,117 7,539,350
Research and
development 237,227 531,963 970,726 1,181,959
-------------- ------------ ------------ ------------
Total
operating
expenses 4,795,156 4,368,997 9,283,843 8,721,309
-------------- ------------ ------------ ------------
Operating
income 241,634 637,908 836,539 769,204
-------------- ------------ ------------ ------------
Other income 32,734 14,138 65,019 33,621
Foreign currency
translation
gain (loss) 19,138 100,015 (95,508) 128,674
Interest
expense, net (341,257) (279,621) (574,289) (589,443)
-------------- ------------ ------------ ------------
Total other
expense and
interest
expense (289,385) (165,468) (604,778) (427,148)
-------------- ------------ ------------ ------------
Income (loss)
before income
taxes (47,751) 472,440 231,761 342,056
Income tax
benefit
(expense) 32,825 (200,173) (44,098) (199,572)
-------------- ------------ ------------ ------------
Income (loss)
before
minority
interest in
income of
consolidated
subsidiary (14,926) 272,267 187,663 142,484
Minority
interest in
income (loss)
of consolidated
subsidiary 9,691 (12,190) (26,521) (49,624)
-------------- ------------ ------------ ------------
Net income
(loss) (5,235) 260,077 161,142 92,860
Preferred stock
dividends (92,597) (44,250) (173,378) (88,500)
-------------- ------------ ------------ ------------
Net income
(loss)
applicable to
common
shareholders $(97,832) $215,827 $(12,236) $4,360
============== ============ ============ ============
Earnings per
share:
Net income
(loss) per
share
applicable to
common
shareholders:
Basic $(0.01) $0.06 $-- $--
============== ============ ============ ============
Diluted $(0.01) $0.04 $-- $--
============== ============ ============ ============
Weighted
average number
of common
shares and
common
equivalent
shares
outstanding:
Basic 6,858,851 3,812,167 5,423,802 3,808,342
============== ============ ============ ============
Diluted 6,858,851 6,198,130 5,423,802 3,951,223
============== ============ ============ ============
CONTACT: Digital Recorders, Inc., Dallas
Veronica B. Marks, 214-378-4776
Fax: 214-378-8437
E-Mail: veronicam@digrec.com
www.digrec.com