Neoware Returns to Operating Profitability Ahead of Forecast, Third Quarter Revenues Up 95% to Over $4.9 Million

Gross Margin Increases to 34%



Apr 18, 2001, 01:00 ET from Neoware Systems, Inc.

    KING OF PRUSSIA, Pa., April 18 /PRNewswire/ --
 Neoware Systems (Nasdaq:   NWRE), the leading supplier of award-winning software
 and solutions for the emerging Appliance Computing market, today reported a
 return to operating profitability with revenues nearly twice the prior year
 quarter, continued significant improvement in gross margins and a strong cash
 position with no debt in its third quarter operating results for the period
 ended March 31, 2001.
     Revenues for the quarter ended March 31, 2001 grew to $4,911,167, up 95%
 from $2,520,727 for the prior year quarter.  Gross margin more than doubled to
 34.2% for the quarter ended March 31, 2001 from 15.4% in the prior year
 quarter reflecting contributions from the Company's new software-based
 computing appliance strategy and products.
     As a result of significantly higher revenues and improved gross margin,
 the Company returned to operating profitability during the quarter with
 operating income of $108,323 before interest and non-cash charges.  Excluding
 the effects of a one-time, non-cash charge of $812,000 related to the write
 down of a note receivable from a former subsidiary, the Company reported pro
 forma net income of $316,252, or $0.03 per share, compared to a net loss of
 $563,495, or $0.08 per share, in the prior year quarter.
     "The operating results we're reporting today mark a milestone in our
 Company's progress, and reflect significant improvements in our business,"
 stated Michael Kantrowitz, Neoware's President and CEO.  "We're seeing growing
 demand for our products both in the US and Europe, and because of our unique
 software-based strategy, margins continue to improve dramatically.  We are
 pleased to return to operating profitability ahead of forecast.  Neoware's
 balance sheet -- with significant cash and no debt -- gives us the resources
 we need to continue to grow."
     "These results reflect the unique benefits of Neoware's software-based
 business model which allows us to deliver high-quality products with lower
 inventory levels and at lower cost than our competitors.  We believe that
 combining this business model with our proprietary software advantages and
 award-winning technology gives us a sustainable competitive advantage that we
 intend to exploit as we build our business in the future."
     "Over the next several months we will continue to promote the fact that
 our products save money.  One of the primary benefits of Neoware's Eon family
 of computing appliances is cost savings, both up-front and especially in the
 total cost of administration and ownership.  With the downturn in IT spending
 that many other technology companies are reporting, we believe that this
 message of cost savings will resonate with potential customers in today's
 business climate."
     "For the fourth quarter of this fiscal year we're projecting continued
 year-over-year revenue growth, which will result in a substantial revenue
 increase for the year.  We're looking forward to this positive momentum
 continuing into fiscal 2002," Kantrowitz concluded.
     During the quarter ended March 31, 2001 the Company recorded a one-time,
 non-cash, non-operating reserve of $812,000 representing the balance due on a
 note receivable from a former subsidiary that was spun off in 1997.  This
 non-cash charge, which is unrelated to the Company's current operations, was
 recorded as a result of current industry conditions affecting that company's
 line of business and the financial constraints facing many Internet-related
 companies. Neoware management intends to vigorously pursue collection of this
 outstanding obligation and any future repayment will be recorded as a gain in
 the period of collection.  Including this non-recurring reserve, the net loss
 for the quarter was $495,748, or $0.05 per share.
     For the nine months ended March 31, 2001 revenues grew to $12,333,573, an
 increase of 57% from $7,840,093 in the nine-month period of the prior year.
 For the nine months ended March 31, 2001 the pro forma net loss excluding the
 one-time non-operating reserve declined to $147,820, or $0.01 per share, from
 a net loss of $1,621,380, or $0.25 per share, in the prior year.  Including
 the reserve, the net loss was $959,820, or $0.09 per share, for the nine
 months ended March 31, 2001.
     During the quarter, the Company revamped its entire product line and
 introduced two important new products, the Eon 2000 and Eon 5000.  These new
 products had virtually no impact on results for the current quarter, but are
 expected to contribute significantly in future periods.  Details of Neoware's
 new product line are outlined below:
 
     Eon 2000
     Eon 2000 is a fast, expandable thin client appliance that lets users run
 Windows applications from a server via Microsoft's RDP or Citrix's ICA
 protocols.  Unlike other thin client appliances, Eon 2000 allows users to
 connect a floppy, Zip drive or CD-ROM for local storage.
 
     Eon 3000
     Eon 3000 is a Microsoft Windows CE-based thin client with Neoware's unique
 enhancements to improve security and central management.  In addition to
 supporting Microsoft RDP and Citrix ICA to run Windows applications from a
 server, Eon 3000 includes a full suite of terminal emulations and an optional
 browser.
 
     Eon 4000
     Eon 4000 is a powerful Linux-based appliance that can be configured as a
 browser-based appliance, or configured with third-party software as a variety
 of appliance products, including point-of-sale devices, security appliances,
 routers, firewalls and more.
 
     Eon 5000
     Eon 5000 is the first Windows NT Embedded appliance with Neoware's unique
 security and management features.  Eon 5000 is a powerful, customizable
 Windows-based appliance with no hard drive, fan, or other moving parts,
 resulting in highly reliable, silent operation.
 
     ezRemote Manager
     Neoware's ezRemote Manager is a suite of software tools that provides
 asset management, device discovery, remote configuration and remote upgrades
 of all Neoware Eon appliances.  This powerful software suite allows Neoware
 customers to centrally manage Eon appliances across a local or wide area
 network without traveling from desk to desk, resulting in significantly
 greater control and lower administration costs.
 
     About Neoware
     Neoware provides software and solutions to enable Appliance Computing, a
 new Internet-based computing architecture that is designed to be simpler and
 easier than traditional PC-based computing.  Neoware's infrastructure 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 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 Linux servers, the Internet and Windows-based applications running on
 multi-user Windows servers.  Computing appliances that run and are managed by
 Neoware's software offer the cost benefits of industry-standard hardware and
 software, easier installation, and lower up-front and administrative costs
 than proprietary or PC-based alternatives.  More information about Neoware can
 be found on the Web at http://www.neoware.com or via email at
 info@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 the 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 the lower up-front and administrative costs associated with our
 products, the growth of the appliance computing market, the increasing demand
 for our products, improvements in operating results, and the introduction and
 future sales of new products, including the significant contribution to
 revenues from sales of the products introduced during the quarter.  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, 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 general
 economic conditions and risks associated with foreign operations.  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, 2000.
 
     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                                    March 31, 2001  June 30, 2000
     CURRENT ASSETS:
     Cash and cash equivalents                    $13,672,352    $13,831,792
     Accounts receivable, net                       2,642,369      2,068,230
     Inventories                                      475,584      1,119,844
     Prepaid expenses and other                       175,260        249,196
     Notes receivable                                  14,386        726,072
     Total current assets                          16,979,951     17,995,134
 
     Property and equipment, net                      172,349        231,933
     Notes receivable                                  78,216         78,216
     Capitalized and purchased software, net          224,068        363,096
                                                  $17,454,584   $ 18,668,379
 
     LIABILITIES AND STOCKHOLDERS' EQUITY
     CURRENT LIABILITIES:
     Accounts payable                                $620,800     $1,153,972
     Accrued expenses                               1,081,391        602,641
     Deferred revenue                                 333,930        434,686
     Total current liabilities                      2,036,121      2,191,299
 
     COMMITMENTS AND CONTINGENCIES
 
     STOCKHOLDERS' EQUITY:
     Preferred stock                                        -              -
     Common stock                                      10,277         10,275
     Additional paid-in capital                    24,370,849     24,369,648
     Treasury stock                                  (100,000)             -
     Retained earnings                             (8,862,663)    (7,902,843)
     Total stockholders' equity                    15,418,463     16,477,080
                                                  $17,454,584    $18,668,379
 
 
                             NEOWARE SYSTEMS, INC.
                PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                    EXCLUDING ONE-TIME NON-OPERATING RESERVE
                                  (Unaudited)
 
                            Three Months Ended          Nine Months Ended
                         March 31,     March 31,    March 31,       March 31,
                           2001           2000         2001            2000
 
     Net revenues      $4,911,167     $2,520,727  $12,333,573      $7,840,093
     Cost of revenues   3,229,790      2,131,923    8,480,431       6,312,377
     Gross profit       1,681,377        388,804    3,853,142       1,527,716
 
     OPERATING EXPENSES:
     Sales and marketing  740,200        359,448    2,215,976         980,069
     Research and
      development         258,293        138,860      618,843         480,065
     General and
      administrative      574,561        454,232    1,623,406       1,329,921
     Acquisition costs          -         39,942      161,038         445,987
     Operating expenses 1,573,054        992,482    4,619,263       3,236,042
 
     Operating income
      (loss)              108,323       (603,678)    (766,121)     (1,708,326)
 
     Interest income, net 207,929         40,183      618,301          86,946
 
     Net income (loss)   $316,252(A)   $(563,495)   $(147,820)(A) $(1,621,380)
 
     Basic and diluted
      net income (loss)
      per share             $0.03(A)      $(0.08)      $(0.01)(A)      $(0.25)
 
     Weighted average number
      of shares used in
      basic and diluted
      net income (loss)
      per share
      computation      10,452,914      6,872,634    10,242,657      6,493,581
 
     (A) Excludes non-cash impairment reserve of $812,000 related to the write
         down of a note receivable due from a former subsidiary.
 
 
                             NEOWARE SYSTEMS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
 
                           Three Months Ended          Nine Months Ended
                          March 31,    March 31,     March 31,    March 31,
                            2001          2000        2001           2000
 
     Net revenues        $4,911,167    $2,520,727  $12,333,573    $7,840,093
     Cost of revenues     3,229,790     2,131,923    8,480,431     6,312,377
     Gross profit         1,681,377       388,804    3,853,142     1,527,716
 
     OPERATING EXPENSES:
     Sales and marketing    740,200       359,448    2,215,976       980,069
     Research and
      development           258,293       138,860      618,843       480,065
     General and
      administrative        574,561       454,232    1,623,406     1,329,921
     Acquisition costs            -        39,942      161,038       445,987
     Operating expenses   1,573,054       992,482    4,619,263     3,236,042
 
     Operating (loss)
      income                108,323      (603,678)    (766,121)   (1,708,326)
 
     Impairment charge     (812,000)            -     (812,000)            -
     Interest income, net   207,929        40,183      618,301        86,946
 
     Net (loss) income    $(495,748)    $(563,495)   $(959,820)  $(1,621,380)
 
     Basic and diluted
      loss per share         $(0.05)       $(0.08)      $(0.09)       $(0.25)
 
     Weighted average
      number of shares
      used in basic and
      diluted loss per
      share computation  10,176,060     6,872,634   10,242,657     6,493,581
 
 

SOURCE Neoware Systems, Inc.
    KING OF PRUSSIA, Pa., April 18 /PRNewswire/ --
 Neoware Systems (Nasdaq:   NWRE), the leading supplier of award-winning software
 and solutions for the emerging Appliance Computing market, today reported a
 return to operating profitability with revenues nearly twice the prior year
 quarter, continued significant improvement in gross margins and a strong cash
 position with no debt in its third quarter operating results for the period
 ended March 31, 2001.
     Revenues for the quarter ended March 31, 2001 grew to $4,911,167, up 95%
 from $2,520,727 for the prior year quarter.  Gross margin more than doubled to
 34.2% for the quarter ended March 31, 2001 from 15.4% in the prior year
 quarter reflecting contributions from the Company's new software-based
 computing appliance strategy and products.
     As a result of significantly higher revenues and improved gross margin,
 the Company returned to operating profitability during the quarter with
 operating income of $108,323 before interest and non-cash charges.  Excluding
 the effects of a one-time, non-cash charge of $812,000 related to the write
 down of a note receivable from a former subsidiary, the Company reported pro
 forma net income of $316,252, or $0.03 per share, compared to a net loss of
 $563,495, or $0.08 per share, in the prior year quarter.
     "The operating results we're reporting today mark a milestone in our
 Company's progress, and reflect significant improvements in our business,"
 stated Michael Kantrowitz, Neoware's President and CEO.  "We're seeing growing
 demand for our products both in the US and Europe, and because of our unique
 software-based strategy, margins continue to improve dramatically.  We are
 pleased to return to operating profitability ahead of forecast.  Neoware's
 balance sheet -- with significant cash and no debt -- gives us the resources
 we need to continue to grow."
     "These results reflect the unique benefits of Neoware's software-based
 business model which allows us to deliver high-quality products with lower
 inventory levels and at lower cost than our competitors.  We believe that
 combining this business model with our proprietary software advantages and
 award-winning technology gives us a sustainable competitive advantage that we
 intend to exploit as we build our business in the future."
     "Over the next several months we will continue to promote the fact that
 our products save money.  One of the primary benefits of Neoware's Eon family
 of computing appliances is cost savings, both up-front and especially in the
 total cost of administration and ownership.  With the downturn in IT spending
 that many other technology companies are reporting, we believe that this
 message of cost savings will resonate with potential customers in today's
 business climate."
     "For the fourth quarter of this fiscal year we're projecting continued
 year-over-year revenue growth, which will result in a substantial revenue
 increase for the year.  We're looking forward to this positive momentum
 continuing into fiscal 2002," Kantrowitz concluded.
     During the quarter ended March 31, 2001 the Company recorded a one-time,
 non-cash, non-operating reserve of $812,000 representing the balance due on a
 note receivable from a former subsidiary that was spun off in 1997.  This
 non-cash charge, which is unrelated to the Company's current operations, was
 recorded as a result of current industry conditions affecting that company's
 line of business and the financial constraints facing many Internet-related
 companies. Neoware management intends to vigorously pursue collection of this
 outstanding obligation and any future repayment will be recorded as a gain in
 the period of collection.  Including this non-recurring reserve, the net loss
 for the quarter was $495,748, or $0.05 per share.
     For the nine months ended March 31, 2001 revenues grew to $12,333,573, an
 increase of 57% from $7,840,093 in the nine-month period of the prior year.
 For the nine months ended March 31, 2001 the pro forma net loss excluding the
 one-time non-operating reserve declined to $147,820, or $0.01 per share, from
 a net loss of $1,621,380, or $0.25 per share, in the prior year.  Including
 the reserve, the net loss was $959,820, or $0.09 per share, for the nine
 months ended March 31, 2001.
     During the quarter, the Company revamped its entire product line and
 introduced two important new products, the Eon 2000 and Eon 5000.  These new
 products had virtually no impact on results for the current quarter, but are
 expected to contribute significantly in future periods.  Details of Neoware's
 new product line are outlined below:
 
     Eon 2000
     Eon 2000 is a fast, expandable thin client appliance that lets users run
 Windows applications from a server via Microsoft's RDP or Citrix's ICA
 protocols.  Unlike other thin client appliances, Eon 2000 allows users to
 connect a floppy, Zip drive or CD-ROM for local storage.
 
     Eon 3000
     Eon 3000 is a Microsoft Windows CE-based thin client with Neoware's unique
 enhancements to improve security and central management.  In addition to
 supporting Microsoft RDP and Citrix ICA to run Windows applications from a
 server, Eon 3000 includes a full suite of terminal emulations and an optional
 browser.
 
     Eon 4000
     Eon 4000 is a powerful Linux-based appliance that can be configured as a
 browser-based appliance, or configured with third-party software as a variety
 of appliance products, including point-of-sale devices, security appliances,
 routers, firewalls and more.
 
     Eon 5000
     Eon 5000 is the first Windows NT Embedded appliance with Neoware's unique
 security and management features.  Eon 5000 is a powerful, customizable
 Windows-based appliance with no hard drive, fan, or other moving parts,
 resulting in highly reliable, silent operation.
 
     ezRemote Manager
     Neoware's ezRemote Manager is a suite of software tools that provides
 asset management, device discovery, remote configuration and remote upgrades
 of all Neoware Eon appliances.  This powerful software suite allows Neoware
 customers to centrally manage Eon appliances across a local or wide area
 network without traveling from desk to desk, resulting in significantly
 greater control and lower administration costs.
 
     About Neoware
     Neoware provides software and solutions to enable Appliance Computing, a
 new Internet-based computing architecture that is designed to be simpler and
 easier than traditional PC-based computing.  Neoware's infrastructure 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 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 Linux servers, the Internet and Windows-based applications running on
 multi-user Windows servers.  Computing appliances that run and are managed by
 Neoware's software offer the cost benefits of industry-standard hardware and
 software, easier installation, and lower up-front and administrative costs
 than proprietary or PC-based alternatives.  More information about Neoware can
 be found on the Web at http://www.neoware.com or via email at
 info@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 the 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 the lower up-front and administrative costs associated with our
 products, the growth of the appliance computing market, the increasing demand
 for our products, improvements in operating results, and the introduction and
 future sales of new products, including the significant contribution to
 revenues from sales of the products introduced during the quarter.  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, 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 general
 economic conditions and risks associated with foreign operations.  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, 2000.
 
     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                                    March 31, 2001  June 30, 2000
     CURRENT ASSETS:
     Cash and cash equivalents                    $13,672,352    $13,831,792
     Accounts receivable, net                       2,642,369      2,068,230
     Inventories                                      475,584      1,119,844
     Prepaid expenses and other                       175,260        249,196
     Notes receivable                                  14,386        726,072
     Total current assets                          16,979,951     17,995,134
 
     Property and equipment, net                      172,349        231,933
     Notes receivable                                  78,216         78,216
     Capitalized and purchased software, net          224,068        363,096
                                                  $17,454,584   $ 18,668,379
 
     LIABILITIES AND STOCKHOLDERS' EQUITY
     CURRENT LIABILITIES:
     Accounts payable                                $620,800     $1,153,972
     Accrued expenses                               1,081,391        602,641
     Deferred revenue                                 333,930        434,686
     Total current liabilities                      2,036,121      2,191,299
 
     COMMITMENTS AND CONTINGENCIES
 
     STOCKHOLDERS' EQUITY:
     Preferred stock                                        -              -
     Common stock                                      10,277         10,275
     Additional paid-in capital                    24,370,849     24,369,648
     Treasury stock                                  (100,000)             -
     Retained earnings                             (8,862,663)    (7,902,843)
     Total stockholders' equity                    15,418,463     16,477,080
                                                  $17,454,584    $18,668,379
 
 
                             NEOWARE SYSTEMS, INC.
                PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                    EXCLUDING ONE-TIME NON-OPERATING RESERVE
                                  (Unaudited)
 
                            Three Months Ended          Nine Months Ended
                         March 31,     March 31,    March 31,       March 31,
                           2001           2000         2001            2000
 
     Net revenues      $4,911,167     $2,520,727  $12,333,573      $7,840,093
     Cost of revenues   3,229,790      2,131,923    8,480,431       6,312,377
     Gross profit       1,681,377        388,804    3,853,142       1,527,716
 
     OPERATING EXPENSES:
     Sales and marketing  740,200        359,448    2,215,976         980,069
     Research and
      development         258,293        138,860      618,843         480,065
     General and
      administrative      574,561        454,232    1,623,406       1,329,921
     Acquisition costs          -         39,942      161,038         445,987
     Operating expenses 1,573,054        992,482    4,619,263       3,236,042
 
     Operating income
      (loss)              108,323       (603,678)    (766,121)     (1,708,326)
 
     Interest income, net 207,929         40,183      618,301          86,946
 
     Net income (loss)   $316,252(A)   $(563,495)   $(147,820)(A) $(1,621,380)
 
     Basic and diluted
      net income (loss)
      per share             $0.03(A)      $(0.08)      $(0.01)(A)      $(0.25)
 
     Weighted average number
      of shares used in
      basic and diluted
      net income (loss)
      per share
      computation      10,452,914      6,872,634    10,242,657      6,493,581
 
     (A) Excludes non-cash impairment reserve of $812,000 related to the write
         down of a note receivable due from a former subsidiary.
 
 
                             NEOWARE SYSTEMS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
 
                           Three Months Ended          Nine Months Ended
                          March 31,    March 31,     March 31,    March 31,
                            2001          2000        2001           2000
 
     Net revenues        $4,911,167    $2,520,727  $12,333,573    $7,840,093
     Cost of revenues     3,229,790     2,131,923    8,480,431     6,312,377
     Gross profit         1,681,377       388,804    3,853,142     1,527,716
 
     OPERATING EXPENSES:
     Sales and marketing    740,200       359,448    2,215,976       980,069
     Research and
      development           258,293       138,860      618,843       480,065
     General and
      administrative        574,561       454,232    1,623,406     1,329,921
     Acquisition costs            -        39,942      161,038       445,987
     Operating expenses   1,573,054       992,482    4,619,263     3,236,042
 
     Operating (loss)
      income                108,323      (603,678)    (766,121)   (1,708,326)
 
     Impairment charge     (812,000)            -     (812,000)            -
     Interest income, net   207,929        40,183      618,301        86,946
 
     Net (loss) income    $(495,748)    $(563,495)   $(959,820)  $(1,621,380)
 
     Basic and diluted
      loss per share         $(0.05)       $(0.08)      $(0.09)       $(0.25)
 
     Weighted average
      number of shares
      used in basic and
      diluted loss per
      share computation  10,176,060     6,872,634   10,242,657     6,493,581
 
 SOURCE  Neoware Systems, Inc.