HCO Hyperspace Comm

Acquisition of MPC Computers Completed, Quarterly Revenue Exceeds $100 Million and Revenue Up 4.7% Compared to Year-Ago Quarter on a Pro-Forma Basis DENVER, Nov. 15 /PRNewswire-FirstCall/ -- HyperSpace Communications, Inc. (AMEX:HCO), a provider of PC products and IT solutions directly and through its subsidiary MPC Computers, today announced results for the third quarter of fiscal year 2005 which include the operations of MPC Computers since July 25, 2005 (the date MPC was acquired). Revenues rose from $119,000 in the third quarter of 2004 to more than $100 million in the third quarter of 2005, primarily as a result of the merger. For the three months ended September 30, 2005 the company had $122,000 in operating income compared to a $744,000 operating loss for the same period in 2004. The company had a net loss of $4.8 million in 2005 compared to a $1 million net loss in 2004. The net loss for the three months ended September 30, 2005 included interest expense of $802,000 and a $4.2 million non-cash charge for stock issued to MPC management in conjunction with the merger. "During Q3, HyperSpace completed the acquisition of MPC Computers," said John P. Yeros, Chairman and CEO of HyperSpace Communications, Inc. "This accomplishment represents a major strategic milestone for HyperSpace and positions the company for success in the professional IT markets of government, business and education." During the quarter, the company also: * Converted over $700,000 in convertible debt to equity, * Retained an investment banker to seek additional financing, * Secured its initial contract manufacturing engagement, which will utilize excess manufacturing capacity at MPC's Nampa, Idaho facility, * Continued to expand its focus on expansion of MPC business in the higher margin server, storage and Mid-sized business markets to reduce MPC's traditional dependence on PCs, and * Launched efficiency initiatives that are expected to reduce annual costs by approximately $5 million. "We are pleased with the progress we are making as a combined company," said Mike Adkins, President of HyperSpace Communications, Inc. and CEO of its MPC Computers subsidiary. "In particular, we achieved Q3 2004-2005 quarter-over-quarter revenue growth based on the strength of our servers/storage, mobile and third party product lines." Pro-Forma Financial Results On a pro-forma consolidated basis (assuming the two companies were merged for all periods, total) consolidated revenue for the third quarter was $122.3 million, an increase of 4.7% compared to $116.8 million in the third quarter of 2004. The operating loss for the quarter was $2.4 million, compared to an operating profit of $0.2 million for the third quarter of 2004. The company's net loss for the quarter was $7.6 million (including the $4.2 million non-cash charge for employee stock compensation described above). The revenue increase in the quarter was driven by higher sales of notebooks, servers, storage products and third party products manufactured by others, offset by a decline in sales of desktops. The company had higher sales to the U.S. federal government and mid-sized business segments offset by lower sales to the state/local government and education segments. Gross margin for the quarter ended September 30, 2005 was 11.0% compared to 14.3% in the third quarter a year ago. The decline in gross margin was due to a higher proportion of sales of third-party products, such as printers, monitors, and software, which carry lower gross margins than products manufactured by the company. The gross margin on MPC manufactured products was 13.6%. MPC resells third-party products to provide a single source of supply for IT solutions for its customers. Operating expenses for the quarter were $15.9 million, or 13.0% of sales, compared to $16.5 million, or 14.1% of sales, in the third quarter a year ago. The lower operating expenses reflect the company's success in reducing overhead costs. The pro forma consolidated revenue increase in the third quarter of 2005 is due to several factors, including: - A 47% increase in the sales of servers and storage products, - A 30% increase in the sales of notebook products, - A 32% increase in the sales of third party products, such as printers, monitors and software, that MPC resells as part of complete IT solutions, - A 10% increase in sales to mid-size enterprise customers, and - An 8% increase in sales to the U.S. federal government These increases were partially offset by several factors, including a 20% decline in desktop sales. About HyperSpace Communications: HyperSpace Communications, Inc. (AMEX:HCO), through its subsidiary MPC Computers, provides PC products and IT solutions to mid-sized businesses, government agencies and education organizations. MPC's products include desktops, notebooks, servers and storage, all of which are backed by an industry-leading level of service and support. HyperSpace also offers software for network acceleration and secure data transmission. For more information, visit HyperSpace online at http://www.ehyperspace.com/. Cautionary Statement Certain statements in this press release are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve a number of risks, uncertainties and other factors that could cause actual results, performance or achievements of HyperSpace Communications or MPC Computers to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Other risk factors that could materially affect such forward-looking statements, including liquidity constraints, can be found in HyperSpace Communications' filings with the Securities and Exchange Commission at http://www.sec.gov/. Investors, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Factors that could materially affect the results, performance or achievements of the company include competition in the PC industry, the company's liquidity and available borrowing under its credit facility, rapid changes in technology, intellectual property disputes, reliance on federal, state and local government for a significant portion of its revenue, and fluctuations operating results. The forward-looking statements made herein are only made as of the date of this press release and HyperSpace Communications undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. HYPERSPACE COMMUNICATIONS, INC. Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2005 and 2004. September 30, Three months ended Nine months ended 2005 2004 2005 2004 Net Sales $100,924,297 $119,221 $101,089,575 $325,605 Cost of Good Sold $88,165,039 $82,622 $88,252,326 $211,743 Gross Margin $12,759,258 $36,599 $12,837,249 $113,862 Operating Expenses Research & Development $1,099,302 $227,441 $1,279,809 $451,138 Selling, General & Administrative 10,266,567 538,428 11,712,752 1,364,642 Depreciation & Amortization 1,270,541 15,293 1,301,128 53,857 Total Operating Expenses $12,636,410 $781,162 $14,293,689 $1,869,637 Operating Income (Loss) $122,848 $(744,563) $(1,456,440) $(1,755,775) Other (Income)/ Expense Interest Expense, net $802,356 $265,934 $804,170 $802,843 Merger Related Stock Compensation 4,183,070 -- 4,183,070 -- Other Expense -- (1,056) 194 (433,767) Total Other (Income)/ Expense $4,985,426 $264,878 $4,987,434 $369,076 Net Loss $(4,862,578) $(1,009,441) $(6,443,874) $(2,124,851) Preferred Dividends $-- $24,449 $-- $72,489 Net Loss attributable to Common Shareholders $(4,862,578) $(1,033,890) $(6,443,874) $(2,197,340) Basic and diluted weighted average Common Shares outstanding 6,485,728 $1,501,026 4,661,011 $1,445,534 Basic and diluted loss per Common Share $(0.75) $(0.69) $(1.38) $(1.52) The results of GTG PC Holdings, LLC, the parent holding company of MPC Computers, LLC have been consolidated effective from July 25, 2005, the date the merger with HyperSpace Communications, Inc. became effective. The column reflecting the nine months ended September 30, 2005 includes results for HyperSpace only from January 1, 2005 through July 24, 2005. HyperSpace's results are consolidated with MPC's results for the remainder of the nine-month period. The 2004 information is for HyperSpace only. HYPERSPACE COMMUNICATIONS, INC. Consolidated Balance Sheet September 30, December 31, 2005 2004 (Unaudited) ASSETS Current Assets Cash and Cash Equivalents $6,267,222 $5,875,481 Accounts Receivable, net 62,242,613 158,998 Inventories, net 36,952,982 -- Prepaid Maintenance & Warranty Costs 20,056,671 -- Other Current Assets 1,477,479 106,182 Total Current Assets $126,996,967 $6,140,661 Non-Current Assets Property & Equipment, net 8,466,356 110,782 Capitalized Software, net -- 298,570 Goodwill 24,818,982 -- Acquired Intangibles, Net 33,799,128 -- Long-Term Portion of Prepaid Maintenance & Warranty Costs 1,466,989 -- Other Assets 1,101,958 -- Total Non-Current Assets $69,653,413 $409,352 TOTAL ASSETS $196,650,380 $6,550,013 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts Payable & Accrued Expenses $75,557,665 $314,006 Accrued Licenses & Royalties 2,907,289 -- Current Portion of Accrued Warranties 2,709,516 -- Current Portion of Deferred Revenue 26,201,696 122,016 Current Portion of Notes Payable & Debt 45,049,365 721,965 Total Current Liabilities $152,425,531 $1,157,987 Long Term Liabilities Long term Portion of Notes Payable $60,606 $425,000 Non-Current Portion of Accrued Warranties 2,405,444 -- Non-Current Portion of Deferred Revenue 17,671,840 -- Total Long Term Liabilities $20,137,890 $425,000 TOTAL LIABILITIES $172,563,421 $1,582,987 Shareholders' Equity Preferred Stock, no par value; 1,000,000 shares authorized; no shares issued and outstanding at 2005 and 2004 $-- $-- Common Stock, no par value, 50,000,000 shares authorized; 7,675,637 and 3,732,429 shares issued and outstanding at 2005 and 2004, respectively 37,650,941 12,087,134 Accumulated Deficit (13,563,982) (7,120,108) Total Shareholders' Equity $24,086,959 $4,967,026 TOTAL LIABILITIES AND EQUITY $196,650,380 $6,550,013 The results of GTG PC Holdings, LLC, the parent holding company of MPC Computers, LLC, have been consolidated effective from July 25, 2005, the date the merger with HyperSpace Communications, Inc. became effective. Accordingly, the Balance Sheet at December 31, 2004 contains the information without MPC Computers. HYPERSPACE COMMUNICATIONS, INC. Pro-Forma Comparison of the Three and Nine Months ended September 30, 2005 to 2004 (Unaudited) (Assuming the Merger Took Place on January 1, 2004) September 30, Three months ended Nine months ended 2005 2004 2005 2004 Net Sales $122,310,985 $116,786,851 $280,196,595 $324,759,051 Cost of Goods Sold $108,876,433 $100,133,764 $247,928,780 $283,004,536 Gross Margin $13,434,552 $16,653,087 $32,267,815 $41,754,515 Gross Margin % 11.0% 14.3% 11.5% 12.9% Operating Expenses Research & Development $1,362,611 $1,584,767 $3,896,521 $4,465,232 Selling, General & Administrative 13,121,709 14,322,115 37,804,702 42,795,033 Depreciation & Amortization 1,376,160 593,666 2,493,423 1,861,045 Total Operating Expenses $15,860,480 $16,500,548 $44,194,646 $49,121,311 Operating expenses as a % of Revenue 13.0% 14.1% 15.8% 15.1% Operating Income (Loss) $(2,425,928) $152,539 $(11,926,831) $(7,366,796) Non-Operating (Income)/Expense Interest (Income)/Expense $1,023,172 $861,747 $2,091,372 $2,455,423 Merger Related Stock Comp Exp 4,183,070 -- 4,183,070 -- Other (Income)/Expense -- (1,056) 194 (433,767) Total Non-Operating (Income)/Expense $5,206,242 $860,691 $6,274,636 $2,021,656 Net Income (Loss) $(7,632,170) $(708,152) $(18,201,467) $(9,388,452) Preferred Dividends $-- $24,449 $-- $72,489 Net Income (Loss) before taxes $(7,632,170) $(732,601) $(18,201,467) $(9,460,941) Income Tax Benefit $-- $-- $-- $-- Net Income (Loss) $(7,632,170) $(732,601) $(18,201,467) $(9,460,941) EBITDA $(1,049,768) $746,205 $(9,433,409) $(5,505,751) EBITDA % -0.9% 0.6% -3.4% -1.7% Reconciliation of Net Income (Loss) to EBITDA: Net Income (Loss) $(7,632,170) $(732,601) $(18,201,467) $(9,460,941) Interest (Income)/Expense $1,023,172 $861,747 $2,091,372 $2,455,423 Merger Related Stock Comp Exp $4,183,070 $-- $4,183,070 $-- Other (Income)/Expense $-- $(1,056) $194 $(433,767) Depreciation & Amortization $1,376,160 $593,666 $2,493,423 $1,861,045 Preferred Dividends $-- $24,449 $-- $72,489 EBITDA $(1,049,768) $746,205 $(9,433,409) $(5,505,751) The Company uses "EBITDA", earnings before interest, taxes, depreciation and amortization, after adjusting for non-cash stock awards issued pursuant to the merger, as a financial measurement. This is not a GAAP measurement. EBITDA after adjusting for non-cash stock awards issued pursuant to the merger is derived by adding back the following to GAAP net loss: Net Interest expenses, Depreciation and Amortization, Impairment of Intangibles and the non-cash expense of stock awards issued pursuant to the merger. This non-GAAP measurement is provided as supplementary information and is not an alternative to GAAP. Some investors may use EBITDA to supplement their analysis of our results of operations. DATASOURCE: HyperSpace Communications, Inc. CONTACT: Barbara Coy of HyperSpace Communications, Inc., +1-303-566-6532, ; or Media, Elissa Reid, +1-208-893-3286, , for HyperSpace Communications, Inc. Web site: http://www.ehyperspace.com/

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