US Dataworks Reports Fiscal 2006 Third Quarter Results; Nine Month Record Revenues Achieved

HOUSTON, Jan. 26  /PRNewswire-FirstCall/ -- US Dataworks (AMEX:UDW), a leading developer of payment processing solutions, today announced financial results for its fiscal 2006 third quarter ended December 31, 2005.

Revenues for the fiscal 2006 third quarter were $1,087,000 compared with revenues of $518,000 for the same period a year ago.  Operating loss for the quarter was $587,000 compared to an operating loss of $1,386,000 for the quarter ended December 31, 2004.  Net loss for the third quarter was $875,000 or $0.03 per share, compared to a net loss of $1,320,000 or $0.05 per share, for the corresponding period in the prior year.

Revenues for the third quarter in the current fiscal year 2006 include approximately $448,000 of license revenue and professional service revenues attributable to a previously announced integrated license, maintenance and services agreement with one of the nation's largest financial services companies. In accordance with generally accepted accounting principles, license revenues attributable to this integrated contract are being recorded on a percentage-of-completion basis.

"We are pleased to report our third consecutive quarter with revenues in excess of $1 million and record revenues through nine months," stated Charles E. Ramey, CEO of US Dataworks. "The results for the quarter were below our prior guidance due to customer and third party delays related to a large contract that is being recorded on a percentage-of-completion basis. We expect these delayed revenues to be recorded during the next two quarters.

"We are also pleased with two additional competitive wins during the third quarter brought about by our direct sales efforts. We were chosen by one of the nation's leading retailers to provide our industry leading Accounts Receivable Conversion ("ARC") software.  We were also selected and have installed our Clearingworks(TM) product to process telephone initiated payments for one of the nation's largest credit card processing companies.

"In addition, during the quarter we completed important strategic alliances with two much larger partners to jointly capitalize on what we perceive as a significant revenue opportunity in the retail sector as regulations are approved in the latter half of 2006 for 'back office conversion'. While maintaining existing 'in lane' business practices of accepting paper checks presented as payment at the cash register, back office conversion will allow retailers to convert these payments at a later time to electronic items and present them as electronic deposits to their financial institutions," concluded Ramey.

FY 2006 OUTLOOK

The following statements are based on current expectations. These statements are forward-looking and actual results may differ materially.

US Dataworks expects revenues for the fourth quarter of fiscal 2006 to range from $1.3 million to $1.5 million and loss per share to be approximately $(0.01). For the full fiscal year ending March 31, 2006, the company expects revenues to range from $6.2 million to $6.4 million and loss per share to be approximately ($0.04).

CONFERENCE CALL

US Dataworks has scheduled a conference call for today, January 26, 2006 at 5:00 p.m. eastern time.  To participate in the conference call, dial [phone] at least ten minutes before the call begins and ask for the US Dataworks conference call.  A replay of the call will be available approximately two hours after the live broadcast ends and will be accessible until February 2, 2006.  To access the replay, dial [phone] using a pass code of 11052093.

Investors, analysts and the general public will also have the opportunity to listen to the conference call over the Internet by visiting http://www.usdataworks.com/ . To listen to the live call on the web, please visit the company's web site at least fifteen minutes before the call begins to register, download and install any necessary audio software. For those who cannot listen to the live web cast, an archive will be available shortly after the call.

ABOUT US DATAWORKS

US Dataworks is a developer of payment processing solutions, focused on the Financial Services market, Federal, State and local governments, billers and retailers.  Software developed by US Dataworks is designed to enable organizations to transition from traditional paper-based payment and billing processes to electronic solutions that automate end-to-end processes for accepting and clearing checks.

Except for the historical information contained herein, the matters set forth in this press release, including, but not limited to the Company's leadership in the payment processing software market and our belief that back office conversion regulations may be approved in the latter half of 2006 are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including, but not limited to, the Company's position in the marketplace, our ability to develop and timely introduce products that address market demand, the impact of alternative technological advances and competitive products, market fluctuations, the timeliness of completing the phases for accounting purposes in our referenced integrated license, maintenance and services agreement, our ability to obtain future financing and other risks detailed from time to time in the SEC reports of US Dataworks, Inc., including its annual report on Form 10-KSB/A for the period ended March 31, 2005 and its quarterly report on Form 10-QSB for the period ended September 30, 2005.  These forward-looking statements speak only as of the date hereof.  US Dataworks disclaims any obligation to update these forward-looking statements.

                           - Tables to Follow -



                         STATEMENTS OF OPERATIONS
      For the Three and Nine Months Ended December 31, 2005 and 2004
                               (UNAUDITED)

                              For the Three Months      For the Nine Months
                                     Ended                    Ended
                                  December 31,             December 31,
                               2005         2004        2005         2004
  Revenues
     Software licensing
      revenues               $89,109      $95,000   $1,840,029     $595,732
     Software transactional
      revenues               236,848      156,458      649,452      444,161
     Software maintenance
      revenues               104,477       89,997      331,369      262,222
     Professional service
      revenues               656,119      176,480    2,078,335      728,785
        Total revenues     1,086,553      517,935    4,899,185    2,030,900

  Cost of sales              321,100      147,689    1,103,956      666,337
     Gross profit            765,453      370,246    3,795,229    1,364,563

  Operating expenses
     General and
      administrative       1,261,557    1,674,255    4,167,079    4,637,577
     Depreciation and
      amortization            91,163       81,727      269,645      237,499
        Total operating
         expense           1,352,720    1,755,982    4,436,724    4,875,076

  Loss from operations      (587,267)  (1,385,736)    (641,495)  (3,510,513)

  Other income (expense)
     Financing costs        (268,846)         ---     (357,208)    (419,903)
     Interest expense        (27,605)     (22,730)     (79,143)    (187,686)
     Accrued costs of
      litigation settlement      ---       75,800          ---     (924,199)
     Other income              8,249       12,761       24,467       30,448
        Total other income
         (expense)          (288,202)      65,831     (411,884)  (1,501,340)

  Loss before provision
   for income taxes         (875,469)  (1,319,905)  (1,053,379)  (5,011,853)
  Provision for income
   taxes                         ---          ---          ---          ---
  Net loss                 $(875,469) $(1,319,905) $(1,053,379) $(5,011,853)


  Basic and diluted
   loss per share             $(0.03)      $(0.05)      $(0.04)      $(0.19)

  Basic and diluted
   weighted-average
   shares outstanding     30,037,020   27,800,238   29,684,597   26,725,216



                              BALANCE SHEET
                            December 31, 2005
                               (UNAUDITED)

                                    ASSETS
  Current assets
     Cash and cash equivalents                                  $1,114,002
     Accounts receivable, net of allowance for doubtful
      accounts of $0                                               658,983
     Costs and estimated earnings in excess of billings
      on uncompleted contracts                                     937,323
     Prepaid expenses and other current assets                     221,323
        Total current assets                                     2,931,631
  Property and equipment, net                                      517,120
  Goodwill, net                                                 14,133,629
  Other assets                                                      43,224
        Total Assets                                           $17,625,604

                     LIABILITIES AND SHAREHOLDERS' EQUITY
  Current liabilities
     Note payable- related party                                   $39,000
     Deferred revenue                                              309,904
     Accounts payable                                              142,251
     Accrued expenses                                              261,685
     Interest payable                                               22,467
     Current portion of convertible notes payable,
      net of unamortized discount of $426,067                      548,066
        Total current liabilities                                1,323,373
     Long-term portion of convertible notes payable,
      net of unamortized discount of $219,708                      344,358
     Deferred revenue                                                8,359
        Total liabilities                                        1,676,090
  Commitments
  Shareholders' equity
     Convertible Series B preferred stock, $0.0001 par value
      700,000 shares authorized, 549,667 shares issued and
      outstanding, $0.75 liquidation preference, dividends
      of $200,597 in arrears                                            55
     Common stock, $0.0001 par value
      90,000,000 shares authorized and 30,037,020 shares
      issued and outstanding                                         3,004
     Additional paid-in capital                                 63,292,016
     Accumulated deficit                                       (47,345,561)
        Total shareholders' equity                              15,949,514
           Total Liabilities and Shareholders' Equity          $17,625,604


   Contacts:
   John Reiland, CFO
   John Figone, VP-Business Development
   US Dataworks, Inc.
   [phone]
   http://www.usdataworks.com/

   Ken Dennard, Managing Partner
   DRG&E  [phone]
   

FCMN Contact: [e-mail] 

DATASOURCE: US Dataworks, Inc.



CONTACT:  John Reiland, CFO, or John Figone, VP-Business Development,

both of US Dataworks, Inc., [phone]; or Ken Dennard, Managing Partner

of DRG&E, [phone], or  , for US Dataworks, Inc.



Web site:  http://www.usdataworks.com/ 

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