Monday January 28, 7:00 am Eastern Time
Press Release
SOURCE: Neoware Systems
Neoware Q2 Sales Increase 95% to $6.6 Million
Net Income of $.06 per Share Reflects Benefits of Company's Software-Powered Business Model
KING OF PRUSSIA, Pa., Jan. 28, 2002 (PRIMEZONE) -- Neoware Systems (Nasdaq:NWRE - news), the leading
supplier of award-winning software, services, and solutions for the Appliance Computing market, today reported significantly
higher revenue and profitable operations for its second fiscal quarter ended December 31, 2001.
Driven by growing demand for software-powered thin client appliance solutions by business customers, revenues for the
quarter ended December 31, 2001 grew to $6,595,133, an increase of 95% from $3,389,070 for the prior year quarter. Net
income for the quarter ended December 31, 2001 was $610,568, or $0.06 per fully diluted share, compared to a net loss of
$276,526, or $(0.03) per share, in the prior year period.
``These results - nearly double the prior year second quarter revenue and strong, profitable operations - demonstrate the
benefits of Neoware's software-powered business model and reflect the growth we are seeing in the thin client appliance
market,'' stated Michael Kantrowitz, Neoware's President and CEO. ``Unlike other technology companies, Neoware is doing
well in this difficult economic climate because our primary message - that Neoware's products save money - is being heard loud
and clear.''
``Even better, we're reporting these positive results with only one month of contribution from Neoware Technology Group, our
new services subsidiary, and no revenue contribution yet from our alliance with IBM, which we announced after the end of the
quarter. We expect these two developments to add considerably to our future growth.''
Commenting on the Company's financial condition and its competitive position, Mr. Kantrowitz noted, ``Neoware is now able
to provide complete Appliance Computing solutions to our customers, with proprietary software, thin client appliances, and a
full range of services. This is in contrast to our most significant competitors, who are hardware 'box' companies with a more
limited ability to fully support customers. By offering a complete range of products and services, we are in a unique position to
truly solve our customers' problems and significantly reduce their information technology costs.''
``Neoware is growing faster than our competitors, and we're in stronger financial condition, with more profits, significant cash
reserves, and no debt. With strong growth projected in the future, organically and as a result of our recent acquisitions and our
new alliance with IBM, Neoware is very well positioned to continue to deliver superior financial results,'' Mr. Kantrowitz noted.
Financial Highlights
-- Revenues for the second quarter increased 95% over the prior year
quarter to $6,595,133.
-- Net income of $610,568 was $0.06 per fully diluted share and 9.3%
of revenue.
-- Gross margin increased to 43.3% for the quarter, up from 29.5% in
the prior year quarter.
-- Inventory on hand decreased to $373,030, or nine days at quarter
end, from $1,056,451, or 40 days in the prior year quarter,
reflecting the benefits of the Company's software-powered business
model.
-- Research and Development expenses were up 76% from the prior year
quarter, reflecting the Company's commitment to establish and
maintain technical leadership in its markets.
-- General and Administrative expenses decreased to 10% of revenues
from 16% in the prior year as a result of increased revenues and
the Company's focus on cost containment.
-- Cash equivalents and marketable securities were approximately
$11.5 million at quarter end with no short-term or long-term debt.
Customer Wins
-- During the quarter, the Company sold its products across a broad
range of industry segments including retail, healthcare,
manufacturing, transportation, government, and education.
-- Neoware added more than 130 new customers during Q2, up from 87 in
the prior quarter. Customer announcements included Ohio Shared
Information Services, London Borough of Hammersmith and Fulham,
Mizuno USA, and National Semiconductor.
-- Even with strong new customer acquisition, recurring revenue from
existing customers accounted for more than 85% of total revenue
for the quarter, demonstrating Neoware's continued high level of
customer satisfaction and repeat business.
ACTIV-e Acquisition
-- In December 2001, Neoware completed the acquisition of ACTIV-e
Solutions and formed a new subsidiary, Neoware Technology Group,
to provide integration services to its customers. With this
acquisition, Neoware is now able to provide a complete range of
products, services, software, and solutions to enable enterprise
customers to embrace Appliance Computing.
-- Results for the current quarter include one month of revenue and
operating expenses from this acquisition.
Strategic Alliances
-- During the second quarter, Neoware announced that Microsoft
appointed the Company as a member of the Windows Embedded Partner
Program, a strategic worldwide program that provides partnering
and co-marketing opportunities to companies delivering products,
services, and solutions based on Microsoft Windows Embedded
platforms. As part of this program, Neoware is working closely
with Microsoft to develop and cooperatively market a broad range
of Windows Powered thin client appliances.
-- On January 8, 2002, Neoware announced an alliance with IBM under
which it has become the preferred provider of thin client
appliances to IBM and its customers.
-- Under the alliance, IBM is actively referring its thin client
customers to Neoware and intends to offer service and support for
Neoware products.
-- In connection with the alliance, Neoware has issued 375,000 shares
of Neoware common stock to IBM, resulting in IBM owning
approximately 3.5% of Neoware's outstanding securities.
-- As part of the alliance, Neoware and IBM have made joint
presentations to a number of major customers detailing the cost
savings and benefits of migrating from IBM to Neoware products.
-- Customer response to Neoware and IBM presentations has been very
positive, and, as a result, Neoware and IBM are engaged together
in significant new opportunities for the sale of thin client
appliance solutions throughout the Americas, Europe, and Asia.
-- Because the alliance was formed in January 2002, no revenue from
IBM was recorded in the December quarter.
``Neoware will continue to build our lead in the growing Appliance Computing market by providing a complete family of
complementary software, products, services, and solutions to our enterprise customers, distinguishing ourselves from our
hardware competitors,'' Mr. Kantrowitz commented. ``We have recently concluded strategic acquisitions to broaden our
product line and expand our distribution. Our new alliance with IBM is already bearing fruit, with initial sales activities and very
positive feedback from IBM customers about Neoware's capabilities, migration plan, and product strategy. While individual
large orders can still influence our results in any given quarter, our strong competitive position and these recent developments
position us to continue to deliver strong revenue and earnings growth for the balance of this year and into fiscal 2003.''
About Neoware
Neoware provides software, services, and solutions to enable Appliance Computing, a new Internet-based computing
architecture targeted at business customers that is designed to be simpler and easier than traditional PC-based computing.
Neoware's software and management tools power and manage a new generation of smart computing appliances that utilize the
benefits of open, industry-standard technologies to create new alternatives to personal computers used in business and a wide
variety of proprietary business devices. Neoware's products are designed to run local applications for specific vertical markets,
plus allow access across a network to multi-user Windows servers, Linux servers, mainframes, minicomputers, and the
Internet. Computing appliances that run and are managed by Neoware's software offer the cost benefits of industry-standard
hardware and software, easier installation, and have lower up-front and administrative costs than proprietary or PC-based
alternatives. More information about Neoware can be found on the Web at www.neoware.com or via email at
invest@neoware.com. Neoware is based in King of Prussia, PA.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995, including statements regarding increased revenues from our services subsidiary and our alliance with IBM, our position
as the leading supplier of software, products, services and solutions for the Appliance Computing market, the rapid growth of
our business, revenues and profitability, the competitive advantage of our business model, our proprietary software and our
technology, the increase in sales of our products in today's business climate due to cost savings associated with our products,
our relationship with Microsoft, our focus on cost containment, the growth of the Appliance Computing market, the increasing
demand for our products, continued benefits of our business model to our stockholders, employees and customers due to our
proven software-powered business model and our competitive advantage. These forward-looking statements involve risks and
uncertainties. Factors that could cause actual results to differ materially from those predicted in any such forward-looking
statement include Neoware's ability to lower its costs, Neoware's timely development and customers' acceptance of Neoware's
Appliance Computing products, including acceptance by IBM customers, pricing pressures, rapid technological changes in the
industry, growth of the Appliance Computing market, increased competition, our ability to attract and retain qualified personnel,
adverse changes in customer order patterns, adverse changes in general economic conditions in the U. S. and internationally,
risks associated with foreign operations and political and economic uncertainties associated with current world events. These
and other risks are detailed from time to time in Neoware's periodic reports filed with the Securities and Exchange
Commission, including, but not limited to, its report on Form 10-K for its fiscal year ended June 30, 2001.
Neoware is a registered trademark of Neoware Systems, Inc. All other names products and services are trademarks or
registered trademarks of their respective holders.
NEOWARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS December 31, 2001 June 30, 2001
----------------- -----------------
CURRENT ASSETS:
Cash and cash
equivalents $ 11,120,344 $ 11,712,535
Marketable securities 336,667 366,667
Accounts receivable,
net 4,749,534 3,502,013
Inventories 373,030 458,736
Prepaid expenses and
other 304,000 369,529
Notes receivable 26,072 26,072
----------------- -----------------
Total current assets 16,909,647 16,435,552
Property and equipment,
net 735,612 199,397
Goodwill and other
intangibles 5,369,327 2,024,453
Notes receivable 21,549 52,193
Capitalized and
purchased software,
net 62,513 77,247
----------------- -----------------
$ 23,098,648 $ 18,788,842
================= =================
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,993,471 $ 935,943
Accrued expenses 1,415,179 1,473,718
Capital lease obligations 87,632 -
Deferred revenue 284,506 289,278
----------------- -----------------
Total current liabilities 3,780,788 2,698,939
----------------- -----------------
Capital lease obligations,
non-current portion 353,932 -
COMMITMENTS AND
CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 10,924 10,280
Additional paid-in capital 26,556,384 24,524,567
Treasury stock (100,000) (100,000)
Accumulated other
comprehensive income 37,990 66,667
Retained earnings (deficit) (7,541,370) (8,411,611)
----------------- -----------------
Total stockholders' equity 18,963,928 16,089,903
----------------- -----------------
$ 23,098,648 $ 18,788,842
================= =================
NEOWARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
------------------------ -----------------------
December December December December
31, 31, 31, 31,
2001 2000 2001 2000
---------- ---------- ----------- ----------
Net revenues $6,595,133 $3,389,070 $11,859,862 $7,422,407
Cost of
revenues 3,740,254 2,388,884 6,800,843 5,250,640
--------- --------- --------- ---------
Gross profit 2,854,879 1,000,186 5,059,019 2,171,767
--------- --------- --------- ---------
Sales and
marketing 1,315,246 761,500 2,525,354 1,475,776
Research and
development 343,985 195,723 674,851 360,550
General and
administrative 668,827 529,135 1,184,274 1,048,846
Acquisition
costs - - - 161,038
--------- --------- --------- ---------
Operating
expenses 2,328,058 1,486,358 4,384,479 3,046,210
--------- --------- --------- ---------
Operating
income
(loss) 526,821 (486,172) 674,540 (874,443)
Interest
income, net 83,747 209,646 195,701 410,371
--------- --------- --------- ---------
Net income
(loss) $610,568 $(276,526) $870,241 $(464,072)
========= ========= ========= =========
Basic income
(loss) per
share $0.06 $(0.03) $0.08 $(0.05)
========= ========= ========= =========
Diluted income
(loss) per
share $0.06 $(0.03) $0.08 $(0.05)
========= ========= ========= =========
Weighted average
number of
shares used in
basic earnings
per share
computation 10,376,892 10,275,652 10,279,762 10,275,409
========== ========== ========== ==========
Weighted average
number of shares
used in
diluted
earnings per
share
computation 10,884,693 10,275,652 10,742,097 10,275,409
========== ========== ========== ==========
Contact:
Neoware Systems, Inc., King of Prussia
Vince Dolan, CFO
610-277-8300
vince.dolan@neoware.com
Cameron Associates Inc., New York
Kevin McGrath
212-245-8800
kevin@cameronassoc.com
