Exhibit 99
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PRESS RELEASE
FOR RELEASE OCTOBER 29, 2002
Neoware Delivers 157% Revenue Increase and Record Earnings
KING OF PRUSSIA, Pa., October 29, 2002 -- Neoware Systems, Inc.
(Nasdaq: NWRE), the leading supplier of award-winning software, services, and
solutions for the Appliance Computing market, today reported sharply higher
revenue and earnings for its fiscal 2003 first quarter ended September 30, 2002.
FINANCIAL HIGHLIGHTS
o Revenues for the quarter ended September 30, 2002 increased 157% to
$13,516,678, from $5,264,729 in the prior year quarter. Pretax income
increased 771% to $2,260,986, or $0.15 per fully diluted share, from
$259,672, or $0.02 per fully diluted share, in the prior year quarter.
o Net income for the quarter ended September 30, 2002 increased 457% to
$1,447,031, or $0.10 per fully diluted share, after an income tax
provision of $813,955, from $259,672, or $0.02 per fully diluted share,
in the prior year quarter, which had no income tax provision.
"Appliance Computing is gaining traction as a recognized solution that
saves enterprises money," stated Michael Kantrowitz, Neoware's Chairman and CEO.
"We see strong demand for our products, and believe that we are very well
positioned to continue to gain market share and to deliver revenue and profit
growth as we capitalize upon the benefits of our software-powered business
model."
ADDITIONAL FINANCIAL HIGHLIGHTS
o Organic appliance and software revenue grew significantly in the
quarter, even during the typically slow summer months. Excluding
revenue attributable to sales of ThinSTAR products and to third-party
products sold as a result of the ACTIV-e acquisition, revenues in Q1
2003 grew by approximately 116% from the prior year quarter and 10%
sequentially from Q4. Since the ThinSTAR and ACTIV-e acquisitions were
consummated in the Q2 and Q3 of fiscal 2002, there were no such
revenues in the prior year quarter.
o Revenue from Neoware's alliance with IBM increased to approximately
$2,500,000 in Q1 from zero in the prior year quarter, and from
approximately $2,000,000 in the prior sequential quarter.
o Revenue from the NCD ThinSTAR product line was approximately $1,500,000
in Q1, compared to approximately $2,500,000 in the prior sequential
quarter as the Company discontinued the ThinSTAR hardware products in
the United States and began the transition process to move customers to
the Company's Eon and Capio products. During this transition process
customers typically place purchases on hold as they evaluate the
Company's new product offerings. The Company expects this transition to
be complete during Q2.
o Cash and marketable securities increased to $20,209,006 from
$17,214,755 in the prior quarter as a result of positive cash flow from
operations and exercises of warrants and employee stock options.
o Total gross margin was 42% in Q1 2003, compared to 42% in the prior
year quarter and 40% in the prior sequential quarter.
o Inventory on hand was $721,431, or 8 days, at September 30, 2002,
compared to 12 days in the prior year quarter.
o Days sales outstanding (DSOs) were 60 days at the end of Q1 2003, based
upon the timing of sales within the quarter, which was within the
Company's goal, compared to 45 days in the prior year quarter. DSOs are
higher in the current period as a result of increased sales in Europe,
via IBM, and via distributors, since these sales typically have payment
terms of 45-60 days as opposed to 30 day payment terms with end users.
o Total operating expenses decreased to 26% of revenue for Q1 2003,
compared to 39% of revenue in the prior year quarter, reflecting the
scaling benefits of the Company's software-powered business model.
o Annualized revenue per employee increased 67% to approximately $500,000
in Q1 2003 from approximately $300,000 in the prior year quarter, even
as employment grew by 51%. During the year, the Company significantly
expanded its sales, marketing and executive management ranks to
implement its growth plans.
CUSTOMER WINS AND MARKET DATA
o Specific customers sold during the quarter included Air Canada, Air New
Zealand, Ardent Health, Art Van Furniture, California Department of
Human Services, Discount Tire, Electrolux, Foxwoods Casino, Ikea,
Safeway, Sears, Target Corporation, Total Elf Fina, and Wal-Mart.
o According to IDC, the worldwide enterprise thin client appliance market
continued to show excellent growth during the quarter, with shipments
reaching more than 335,000 units, the highest ever recorded for the
market, and representing unit growth of 28.4% compared to the prior
year. According to the IDC report, "thin clients are not only
surviving, but thriving, as IT managers continue to recognize the
excellent long-term value and ROI advantages that thin clients can
offer."
o According to IDC, Neoware grew at more than four times the market's
rate, gained more market share than any other supplier, doubled its
market share compared to one year ago, and grew to be the number two
supplier of thin client appliances and software worldwide.
"Unlike other technology companies, Neoware is delivering significant
increases in revenues and profits," Mr. Kantrowitz commented. "The fact that
Neoware's products save money - both up-front and in total ownership cost - is
resonating with customers given today's IT spending climate."
"Looking forward, we are confident that we'll deliver continued,
significant year-over-year increases in revenues through the balance of this
fiscal year as a result of growth in our markets, our software-powered business
model, and our strong industry partnerships, including our alliance with IBM.
We're comfortable with consensus analyst estimates for revenue growth for the
balance of the fiscal year, and believe that as our top line grows, we can
continue to reduce our operating expenses as a percentage of revenue, driving
additional profitability. We're very encouraged by our progress, and believe
that we are very well positioned to deliver continued growth," Mr. Kantrowitz
concluded.
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: strong demand for our products; our expectation that that
our existing customers may purchase through IBM in the future; our expectation
of continued, significant increases in revenues during the fiscal year as a
result of growth in our markets, our business model and our strong industry
partnerships, including the IBM alliance; continued gains in market share and
revenue and profit growth due to our business model; our views regarding
consensus analyst estimates of revenue growth for the balance of the fiscal
year; revenue growth resulting in the reduction of our operating expenses as a
percentage of revenue driving growth in our profitability; our position as the
leading supplier of software, products, services and solutions for the Appliance
Computing market; the benefits of our 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 our ability to continue
to lower our costs, our timely development and customers' acceptance of our
Appliance Computing products, including acceptance by IBM and NCD customers,
NCD's creditworthiness as a distributor of our products in Europe, pricing
pressures, rapid technological changes in the industry, growth of the Appliance
Computing market, increased competition, our ability to attract and retain
qualified personnel, our ability to identify and successfully consummate future
acquisitions; 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, 2002.
Neoware is a registered trademark of Neoware Systems, Inc. All other names
products and services are trademarks or registered trademarks of their
respective holders.
CONTACT:
Vince Dolan, CFO
Neoware Systems, Inc.
610-277-8300
vince.dolan@neoware.com
NEOWARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS September 30, 2002
(Unaudited) June 30, 2002
----------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents $20,062,339 $17,031,422
Marketable securities 146,667 183,333
Accounts receivable, net 10,188,130 9,520,558
Inventories 721,431 1,040,851
Prepaid expenses and other 658,147 551,598
Deferred income taxes 595,728 1,394,864
----------------- ----------------
Total current assets 32,372,442 29,722,626
Property and equipment, net 634,454 622,235
Goodwill and other intangibles 11,468,607 11,568,940
Notes receivable 254,269 263,732
Deferred income taxes 173,648 173,648
Capitalized and purchased software, net 40,413 47,779
----------------- ----------------
$44,943,833 $42,398,960
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,934,061 $3,111,164
Accrued expenses 2,019,942 2,136,776
Capital lease obligations 64,597 63,037
Deferred revenue 714,151 582,290
----------------- ----------------
Total current liabilities 5,732,751 5,893,267
----------------- ----------------
Capital lease obligations, non-current portion 187,388 204,131
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 13,556 12,936
Additional paid-in capital 41,616,574 40,291,861
Treasury stock (100,000) (100,000)
Accumulated other comprehensive income (166,904) (116,672)
Retained earnings (deficit) (2,339,532) (3,786,563)
----------------- ----------------
Total stockholders' equity 39,023,694 36,301,562
----------------- ----------------
$44,943,833 $42,398,960
================= ================
NEOWARE SYSTEMS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Three Months Ended
September 30, September 30,
2002 2001
------------------ ------------------
Net revenues $13,516,678 $ 5,264,729
Cost of revenues 7,822,502 3,060,589
------------------ ------------------
Gross profit 5,694,176 2,204,140
------------------ ------------------
Sales and marketing 2,227,333 1,210,108
Research and development 387,763 330,866
General and administrative 908,117 515,447
------------------ ------------------
Operating expenses 3,523,213 2,056,421
------------------ ------------------
Operating income 2,170,963 147,719
Interest income, net 90,023 111,953
------------------ ------------------
Income before income taxes 2,260,986 $ 259,672
Income tax expense (813,955) -
------------------ ------------------
Net income $1,447,031 $259,672
================== ==================
Basic income per share $ 0.11 $ 0.03
================== ==================
Diluted income per share $ 0.10 $ 0.02
================== ==================
Weighted average number of common
shares outstanding used in basic
earnings per share computation 13,162,589 10,179,851
================== ==================
Weighted average number of common
shares outstanding used in diluted
earnings per share computation 14,652,096 10,596,720
================== ==================
NEOWARE SYSTEMS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Three Months
Ended Ended
September 30, September 30,
2002 2001
------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,447,031 $259,672
Adjustments to reconcile net income to net cash
provided by operating activities-
Deferred income taxes 799,136 -
Depreciation and amortization 187,509 50,821
Changes in operating assets and liabilities-
(Increase) decrease in:
Accounts receivable (667,572) 166,954
Inventories 319,420 43,590
Prepaid expenses and other (120,114) 114,403
Increase (decrease) in:
Accounts payable (177,103) 168,587
Accrued expenses (116,934) (348,755)
Deferred revenue 131,861 4,694
------------------------------------------
Net cash provided by operating activities 1,803,234 459,966
------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of intangible assets (148,592) (12,421)
Purchases of property and equipment, net (62,378) (31,336)
------------------------------------------
Net cash provided used in investing activities (210,970) (43,757)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital leases (15,183) -
Exercise of stock options and warrants 1,444,273 6,112
Repayments of officer loans 9,463 30,644
------------------------------------------
Net cash provided by financing activities 1,438,553 36,756
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INCREASE IN CASH AND CASH EQUIVALENTS 3,030,917 452,965
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 17,031,422 11,712,535
------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $20,062,339 $12,165,500
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