Neoware Reports Fourth Quarter and FY07 Results and Files Preliminary Proxy


KING OF PRUSSIA, Pa., Aug. 10, 2007 (PRIME NEWSWIRE) -- Neoware, Inc. (Nasdaq:NWRE), a leading provider of thin client computing solutions, today reported financial results for its fiscal fourth quarter and year ended June 30, 2007. In addition, Neoware reported that it filed a preliminary proxy statement with the SEC related to the pending acquisition of the Company by HP (Hewlett-Packard Company).



 Q4 Financial Highlights:

 -- Revenues were $22,995,000, compared to $23,553,000 in the prior
    year fourth quarter.
 -- Gross profit was 34% of revenue, compared to 37% of revenue in the
    prior year fourth quarter. Non-GAAP gross profit was 35% of
    revenue, compared to 38% of revenue in the prior year fourth
    quarter. The pricing environment proved to be challenging in the
    quarter due to competition.
 -- Operating expenses were $10,548,000, compared to $8,825,000 in the
    prior year fourth quarter. Non-GAAP operating expenses were
    $9,147,000 compared to $7,175,000, in the prior year fourth
    quarter. This increase in operating expense was due to a planned
    increase in investments in staffing and programs for research and
    development and sales and marketing.
 -- Non-GAAP net income for the quarter was $.00 per fully diluted
    share, compared to $.09 per fully diluted share in the prior year
    fourth quarter.
 -- Net loss for the quarter was $.04 per diluted share, compared to
    net income of $.02 per diluted share in the prior year fourth
    quarter.
 -- The Company ended the quarter with $121.5 million of cash and
    marketable securities.
 -- Non-GAAP results exclude amortization of acquisition-related
    intangibles and stock-based compensation and apply a non-GAAP tax
    rate of 52% and 33% in the fourth quarters of fiscal 2007 and 2006,
    respectively, for the purpose of showing a comparable view of the
    Company's performance from period to period.

 FY07 Financial Highlights:

 -- Revenues for the year were $90,401,000 compared to $107,219,000 in
    the prior year.
 -- Gross profit was 37% of revenue, compared to 41% of revenue in the
    prior year. Non-GAAP gross profit was 38% of revenue, compared to
    43% of revenue in the prior year.
 -- Operating expenses were $41,976,000, compared to $35,126,000, in
    the prior year. Non-GAAP operating expenses were $35,139,000,
    compared to $29,860,000 in the prior year.
 -- Non-GAAP net income for the year was $.08 per fully diluted share,
    compared to $.66 per fully diluted share, in the prior year.
 -- Net loss for the year was $.12 per diluted share, compared to net
    income of $.39 per diluted share in the prior year.
 -- Non-GAAP results exclude amortization of acquisition-related
    intangibles and stock-based compensation and apply a non-GAAP tax
    rate of 52% in fiscal 2007 and 33% in fiscal 2006 for the purpose
    of showing a comparable view of the Company's performance from
    period to period.

Details of the financial results for the fiscal fourth quarter and year ended June 30, 2007 appear in the accompanying financial schedules. The Company will not be holding a conference call to discuss this earnings release or guidance for fiscal 2008 due to the pending acquisition of the Company by HP.

Non-GAAP Financial Measures

Neoware presents the following non-GAAP financial measures: non-GAAP gross profit and margin; non-GAAP operating expenses; non-GAAP operating income and margin; non-GAAP effective income tax rate; non-GAAP income taxes; non-GAAP net income; and non-GAAP earnings per share. We exclude the following items in the development of the non-GAAP financial measures presented:

Stock-based compensation expenses. Our non-GAAP financial measures exclude stock-based compensation expenses, which consist of expenses for stock-based compensation that we began recording under SFAS 123-R in the first quarter of fiscal 2006. We exclude these expenses from our non-GAAP financial measures primarily because (i) they are non-cash expenses that we do not consider part of ongoing operating results when assessing the performance of our business, (ii) the exclusion of these expenses facilitates the comparison of results for fiscal 2007 and 2006 with results for prior periods, which did not include stock-based compensation expenses and (iii) exclusion of these expenses allows more meaningful comparisons against financial models prepared by our investors and securities analysts that also present information on a GAAP and non-GAAP basis. In addition, stock-based compensation amounts are difficult to forecast, because the magnitude of the charges depends upon the volume and timing of stock option and other equity-based compensation grants, which can vary dramatically from period to period, and external factors such as interest rates and the trading price and volatility of our common stock. Excluding these stock-based compensation amounts improves comparability of the performance of the business across periods.

Amortization of acquired intangible assets. In accordance with GAAP, cost of sales and operating expenses include amortization of acquired intangible assets such as intellectual property, customer lists and covenants not to compete. We exclude these items from our non-GAAP financial measures because (i) they are non-cash expenses that we do not consider part of ongoing cash operating results when assessing the performance of our business, as the timing and amount of the expenses vary from period to period, (ii) we believe that doing so facilitates comparisons to our historical operating results and to the results of other companies in our industry, which have their own unique acquisition histories, and (iii) exclusion of these expenses better allows comparison against financial models prepared by our investors and securities analysts that also present information on a GAAP and non-GAAP basis.

Income taxes. We use a non-GAAP effective income tax rate based on a derived amount which excludes the impact of the non-deductible portion of stock-based compensation expense as we believe this reflects income tax expense without the impact of stock-based compensation and provides a more meaningful comparison against our historical effective income tax rate for fiscal 2005, which did not include any impact of stock-based compensation expense.

The Company believes that its non-GAAP financial measures provide meaningful supplemental information regarding the Company's operating results because they exclude amounts that the Company excludes as part of its monitoring of operating results and assessing the performance of the business. For example, the Company uses non-GAAP measures, including gross profit, operating expense and operating income excluding amortization and stock-based compensation expense, in its financial and operational decision making, including decisions regarding staffing, future management priorities and how the Company will direct future operating expenses on the basis of non-GAAP financial measures. In addition, the Company has established incentive compensation programs utilizing, in part, such non-GAAP financial measures, including non-GAAP operating income. For the same reasons, management also uses this information in its budgeting and forecasting activities and in quarterly reports to its Board of Directors.

Non-GAAP financial measures should not be considered as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Neoware's non-GAAP financial measures do not reflect a comprehensive system of accounting, and they differ from GAAP measures with similar names and from non-GAAP financial measures with the same or similar names that are used by other companies. We strongly urge investors and potential investors in our securities to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures that are included in this release, and our consolidated financial statements, including the notes thereto, and the other financial information contained in our periodic filings with the SEC and not to rely on any single financial measure to evaluate our business. The principal limitation of Neoware's non-GAAP financial measures is that they exclude significant expenses that are required by GAAP to be recorded. In addition, non-GAAP financial measures are subject to inherent limitations because they reflect the exercise of judgments by management about which charges are excluded from the non-GAAP financial measures. To mitigate this limitation, Neoware presents its non-GAAP financial measures in connection with its GAAP results, and recommends that investors do not give undue weight to its non-GAAP financial measures.

About Neoware

Neoware, Inc. (Nasdaq:NWRE) is global provider of thin client computing solutions that allow organizations to cut costs by centralizing desktop management, alleviating threats of security breaches and reducing energy consumption. Forward thinking companies enable their desktop virtualization strategies with Neoware's desktop, laptop and software offerings. Headquartered in King of Prussia, PA, U.S.A., Neoware has offices throughout Europe and Asia. Its products are available worldwide from select resellers and partners, and it has technology partnerships with leading companies including Microsoft, IBM and Lenovo.

Neoware is a trademark of Neoware, Inc. All other names, products and services are trademarks or registered trademarks of their respective holders.

Additional Information and Where to Find It

Neoware has filed with the Securities and Exchange Commission a preliminary proxy statement and other relevant materials in connection with the acquisition of Neoware by HP. Neoware intends to file a definitive proxy statement and other relevant materials with the SEC in connection with such acquisition. When and if completed, the definitive proxy statement will be mailed to the stockholders of Neoware and will, with the other relevant documents, be available free of charge at the SEC's website at www.sec.gov. In addition, investors and stockholders of Neoware may obtain free copies of the documents filed with the SEC from Cameron Associates, 1370 Avenue of the Americas, New York, NY 10019, +1 212 245 8800. Before making any voting or investment decision with respect to the acquisition, investors and stockholders of Neoware are advised to read the definitive proxy statement and the other relevant materials when and if completed because they will contain important information about the acquisition.

Participants in the Solicitation

Neoware and HP and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the Neoware stockholders in connection with the acquisition. Information about HP's directors and executive officers is set forth in the tender offer statement on Schedule TO filed by HP with the SEC on August 3, 2007. Information about Neoware's directors and executive officers is set forth in the proxy statement on Schedule 14A for Neoware's 2006 Annual Meeting of Stockholders filed with the SEC on Oct. 30, 2006. Additional information regarding the interests of participants in the solicitation of proxies in connection with the acquisition is included in the preliminary proxy statement that Neoware has filed with the SEC.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the pending acquisition of Neoware by HP. Factors that could cause actual results to differ materially from those predicted in any forward-looking statements include: the risk that we will not be able to obtain certain regulatory approvals or satisfy or obtain the waiver of conditions to the consummation of the transaction; and changes or circumstances that could give rise to the termination of the merger agreement. 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, our annual report on Form 10-K for the year ended June 30, 2006 and our quarterly reports on Forms 10-Q for the quarters ended September 30, 2006, December 31, 2006 and March 31, 2007.



                             NEOWARE, INC.

                      CONSOLIDATED BALANCE SHEETS
                            (in thousands)

                              (unaudited)


                                                June 30,    June 30,
                                                 2007         2006
                                              ---------    ---------
                   ASSETS
 Current assets:
  Cash and cash equivalents                   $  75,983    $  19,328
  Restricted cash                                   389           --
  Short-term investments                         45,125       94,798
  Accounts receivable, net                       18,431       16,877
  Inventories                                     7,186        7,734
  Prepaid income taxes                            2,875        1,544
  Prepaid expenses and other                      2,851        1,687
  Deferred income taxes                           1,774        1,866
                                              ---------    ---------
    Total current assets                        154,614      143,834

 Property and equipment, net                      2,655        1,586
 Goodwill                                        37,501       37,761
 Intangibles, net                                 8,670       12,175
 Deferred income taxes                            4,862        4,156
 Other                                               81           61
                                              ---------    ---------
                                              $ 208,383    $ 199,573
                                              =========    =========

     LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
  Accounts payable                            $   8,065    $   8,989
  Accrued compensation and benefits               3,842        2,021
  Other accrued expenses                          4,266        4,159
  Restructuring reserve                             421          600
  Income taxes payable                              316          158
  Deferred revenue                                1,638          973
                                              ---------    ---------
    Total current liabilities                    18,548       16,900

 Deferred income taxes                            1,102          755
 Deferred revenue                                   328          316
                                              ---------    ---------
    Total liabilities                            19,978       17,971
                                              ---------    ---------

 Stockholders' equity:
  Preferred stock                                    --           --
  Common stock                                       20           20
  Additional paid-in capital                    165,716      158,671
  Treasury stock, 100,000 shares at cost           (100)        (100)
  Accumulated other comprehensive income          2,671          556
  Retained earnings                              20,098       22,455
                                              ---------    ---------
    Total stockholders' equity                  188,405      181,602
                                              ---------    ---------
                                              $ 208,383    $ 199,573
                                              =========    =========

                            NEOWARE, INC.

                CONSOLIDATED STATEMENTS OF OPERATIONS
                (in thousands, except per share data)

                             (unaudited)


                      Three Months Ended        Twelve Months Ended
                            June 30,                  June 30,
                    ----------------------    ----------------------
                      2007          2006         2007         2006
                    ---------    ---------    ---------    ---------

 Net revenues       $  22,995    $  23,553    $  90,401    $ 107,219
                    ---------    ---------    ---------    ---------

 Cost of revenues

 Cost of products
  (includes stock-
  based compensation
  expense of $22 and
  $26 for the three
  months and $102
  and $86 for the
  twelve months
  ended June 30,
  2007 and 2006)       14,910       14,556       56,035       61,607
 Amortization of
  intangibles             348          347        1,367        1,260
                    ---------    ---------    ---------    ---------
 Total cost of
  revenues             15,258       14,903       57,402       62,867
                    ---------    ---------    ---------    ---------
 Gross profit           7,737        8,650       32,999       44,352
                    ---------    ---------    ---------    ---------

 Operating expenses

 Sales and marketing    5,607        4,056       19,541       16,920
 Research and
  development           1,972        1,584        6,899        6,030
 General and
  administrative        2,235        2,597       12,278       10,211
 Amortization of
  intangibles             734          588        2,403        1,965
 Abandoned
  acquisition costs        --           --          874           --
                    ---------    ---------    ---------    ---------
 Total operating
  expenses (includes
  stock-based
  compensation
  expense of
  $667 and $1,062
  for the three
  months and $4,434
  and $3,301 for the
  twelve months
  ended June 30,
  2007 and 2006)       10,548        8,825       41,976       35,126
                    ---------    ---------    ---------    ---------

 Operating income
  (loss)               (2,811)        (175)      (8,977)       9,226

 Foreign exchange
  loss                    (14)        (123)         (71)         (59)
 Interest income,
  net                   1,178          939        4,158        1,937
                    ---------    ---------    ---------    ---------

 Income (loss)
  before income
  taxes                (1,647)         641       (4,890)      11,104

 Income tax expense
  (benefit)              (846)         240       (2,533)       4,007
                    ---------    ---------    ---------    ---------

 Net income (loss)  $    (801)   $     401    $  (2,357)   $   7,097
                    =========    =========    =========    =========

 Earnings (loss)
  per share:
   Basic            $   (0.04)   $    0.02    $   (0.12)   $    0.40
                    =========    =========    =========    =========
   Diluted          $   (0.04)   $    0.02    $   (0.12)   $    0.39
                    =========    =========    =========    =========

 Weighted average
  number of
  common shares
  outstanding:
   Basic               20,053       19,874       19,990       17,665
                    =========    =========    =========    =========
   Diluted             20,053       20,408       19,990       18,105
                    =========    =========    =========    =========


                           NEOWARE, INC.

               CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (in thousands)

                            (unaudited)

                             Three Months Ended    Twelve Months Ended
                                   June 30,              June 30,
                             -----------------------------------------
                               2007       2006       2007       2006
                             -----------------------------------------
 Cash flows from
  operating activities:
  Net income (loss)          $   (801)  $    401   $ (2,357)  $  7,097
  Adjustments to
   reconcile net
   income to net
   cash provided by
   operating activities:
     Amortization of
      intangibles               1,082        935      3,770      3,225
     Depreciation                 164        118        574        421
     Non-cash
      share-based
      compensation                689      1,088      4,536      3,386
     Deferred income
      taxes                      (739)      (820)      (601)      (820)
  Changes in
   operating assets
   and liabilities -
   net of effect from
   acquisition:
     Restricted cash               (5)       --        (390)       --
     Accounts
      receivable               (2,064)     5,301     (1,452)     1,062
     Inventories               (1,283)    (1,610)       549     (1,144)
     Prepaid expenses
      and other                 1,511        653     (2,435)     1,033
     Accrued
      compensation
      and benefits                710     (1,271)     1,813        (48)
     Accounts payable           1,599     (3,555)      (937)      (451)
     Other accrued
      expenses                   (331)       670       (137)    (2,415)
     Income taxes
      payable                     147       (961)       146     (3,030)
     Deferred revenue              56          7        651        115
                             -----------------------------------------
 Net cash provided
  by operating
  activities                      735        956      3,730      8,431
                             -----------------------------------------
 Cash flows from
   investing activities:

  Purchase of
   short-term
   investments                (44,075)   (21,005)  (172,275)   (95,233)
  Sales of
   short-term
   investments                 28,650      2,962    221,924     36,188
  Purchases of
   property and
   equipment                   (1,255)       (86)    (1,672)    (1,498)
  Purchase of Visara
   thin client
   business                       --         --         --      (2,107)
  Purchase of
   TeleVideo thin
   client business                --         --         --      (3,520)
  Acquisition of
   Maxspeed, net of
   cash acquired                  --          71      1,674    (11,982)
                             -----------------------------------------
 Net cash provided
  by (used in)
  investing
  activities                  (16,680)   (18,058)    49,651    (78,152)
                             -----------------------------------------
 Cash flows from
  financing activities:
  Proceeds from
   issuance of
   common stock,
   net of expenses                --         (80)        (3)    71,156
  Exercise of stock
   options                      1,195       1,882     1,835      7,896
  Excess tax benefit
   from share-based
   payment
   arrangements                    29        (73)       676      1,661
                             -----------------------------------------
 Net cash provided
  by financing
  activities                    1,224      1,729      2,508     80,713
                             -----------------------------------------
 Effect of foreign
  exchange rate
  changes on cash                 421        213        766         51
                             -----------------------------------------

  Increase (decrease)
   in cash and cash
   equivalents                (14,300)   (15,160)    56,655     11,043
 Cash and cash
  equivalents,
  beginning of period          90,283     34,488     19,328      8,285
                             -----------------------------------------
  Cash and cash
   equivalents, end
   of period                 $ 75,983   $ 19,328   $ 75,983   $ 19,328
                             =========================================

 Supplemental
  disclosures:
  Cash paid for
   income taxes              $     22   $    963   $    473   $  6,189



                            NEOWARE, INC.
              RECONCILIATION OF GAAP TO NON GAAP AMOUNTS
                (in thousands, except per share data)
                             (unaudited)

                                  Three Months Ended
                ------------------------------------------------------
                        June 30, 2007             June 30, 2006
                --------------------------  --------------------------
                 GAAP     Adj.    Non-GAAP   GAAP     Adj.    Non-GAAP
                -------  ------    ------   ------   ------    ------
 Gross profit   $ 7,737  $  371 A  $8,108   $8,650   $  374 A  $9,024
                -------  ------    ------   ------   ------    ------
  Gross profit
   percentage      33.6%             35.3%    36.7%              38.3%

 Operating
  expenses
  Sales and
   marketing      5,607    (292)B   5,315    4,056    (409)B    3,647
  Research and
   development    1,972     (85)B   1,887    1,584     (88)B    1,496
  General and
   administrative 2,235    (290)B   1,945    2,557    (565)B    1,992
  Amortization of
   intangibles      734    (734)C      --      588    (588)C       --
  Abandoned
   acquisition
   costs             --      --        --       40       --        40
                -------  ------    ------   ------   ------    ------
   Operating
    expenses     10,548  (1,401)    9,147    8,825   (1,650)    7,175
                =======  ======    ======   ======   ======    ======
 Operating
  income
  (loss)         (2,811)  1,772    (1,039)    (175)   2,024     1,849
                -------  ------    ------   ------   ------    ------
 Income tax
  expense
  (benefit)        (846)    911 D      65      240     639 D       879
                -------  ------    ------   ------   ------    ------
 Net (loss)
  income        $  (801)           $   60   $  401             $1,786
                -------            ------   ------             ------
 Earnings (loss)
  per share
  - diluted     $ (0.04)           $   --   $ 0.02             $ 0.09
                -------            ------   ------             ------

 Weighted average
  shares
  outstanding
  - diluted      20,053            20,104   20,408             20,408
                -------            ------   ------             ------

 A - To exclude the effect of stock-based compensation expense and
     the amortization of intangible assets related to business
     combinations.
 B - To exclude the effects of stock-based compensation expense.
 C - To exclude the effects of the amortization of intangible
     assets related to business combinations.
 D - To exclude the tax effect of reconciling items.


                            NEOWARE, INC.
              RECONCILIATION OF GAAP TO NON GAAP AMOUNTS
                (in thousands, except per share data)
                             (unaudited)

                                   Twelve Months Ended
                ------------------------------------------------------
                       June 30, 2007               June 30, 2006
                --------------------------  --------------------------
                 GAAP     Adj.    Non-GAAP   GAAP     Adj.    Non-GAAP
                -------  ------    -------  -------  ------    -------
 Gross profit   $32,999  $1,469 A  $34,468  $44,352  $1,347 A  $45,699
                -------  ------    -------  -------  ------    -------
   Gross profit
    percentage     36.5%             38.1%    41.4%               42.6%

 Operating
  expenses
  Sales and
   marketing     19,541  (1,353)B   18,188   16,920  (1,238)B   15,682
  Research and
   development    6,899    (376)B    6,523    6,030    (394)B    5,636
  General and ad-
   ministrative  12,278  (2,705)B    9,573   10,171  (1,669)B    8,502
  Amortization of
   intangibles    2,403  (2,403)C       --    1,965  (1,965)C       --
  Abandoned
   acquisition
   costs            855      --        855       40      --         40
                -------  ------    -------  -------  ------    -------
   Operating
    expenses     41,976  (6,837)    35,139   35,126  (5,266)    29,860
                =======  ======    =======  =======  ======    =======
 Operating
  income (loss)  (8,977)  8,306       (671)   9,226   6,613     15,839
                -------  ------    -------  -------  ------    -------
 Income tax
  expense
  (benefit)      (2,533)  4,303 D    1,770    4,007   1,839 D    5,846
                -------  ------    -------  -------  ------    -------
 Net income
  (loss)        $(2,357)           $ 1,646  $ 7,097            $11,869
                -------            -------  -------            -------
 Earnings (loss)
  per share
  - diluted     $ (0.12)           $   .08  $  0.39            $  0.66
                -------            -------  -------            -------
 Weighted
  average shares
  outstanding
  - diluted      19,990             20,040   18,105             18,105
                -------            -------  -------            -------

 A - To exclude the effect of stock-based compensation expense and
     the amortization of intangible assets related to business
     combinations.
 B - To exclude the effects of stock-based compensation expense.
 C - To exclude the effects of the amortization of intangible
     assets related to business combinations.
 D - To exclude the tax effect of reconciling items.

            

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