MINNEAPOLIS, April 21 /PRNewswire/ -- Digi International Inc. (Nasdaq: DGII) today announced financial results for its fiscal second quarter, ended March 31, 1999.

Sales for the quarter were $42.6 million compared to $45.1 million for the year-ago period. The net loss for the fiscal second quarter was $2.5 million, or ($.17) per share, compared to net income of $4.7 million, or $.33 per diluted share, for the year-ago period.

Sales for the first six months of fiscal year 1999 were $94.0 million compared to $87.6 million for the same period last year. The net loss for the first two quarters of fiscal year l999 was $1.1 million compared to net income of $8.5 million for the year-ago period. The net loss per share for the first six months of fiscal year l999 was ($.08) compared to net income of $.63 per diluted share for the first six months of fiscal year l998.

As the company indicated earlier, several factors impacted second quarter results. The company discontinued the sale of certain modem products and wrote down by $1.4 million the carrying value of related inventories. The company reorganized its sales organization, resulting in severance-related charges of approximately $1.5 million. The company also implemented a channel inventory management program that decreased net revenue during the quarter.

In addition to these factors, the company's effective income tax rate, estimated to be 58 percent in fiscal l999, remains significantly higher than the statutory income tax rate, due primarily to the non-deductibility of the amortization of intangible assets and goodwill of approximately $1.4 million per quarter, associated with the acquisitions of Central Data Corporation and ITK International.

``As we enter the second half of fiscal l999, we expect to maintain tight control on operating expenses and restore the company to profitability through revenue growth,'' said John P. Schinas, Chairman of the Board and interim President and CEO of Digi International. ``With the normalization of channel inventory, we expect overall sales to increase and gross margins to improve going forward, and we believe that we can get back on a solid growth track by year end.''

The company said it has responded to a second round of comments received in January from the Securities and Exchange Commission (SEC) including comments relating to the value of acquired in-process research and development recorded in connection with the Central Data and ITK acquisitions.

                   DIGI INTERNATIONAL INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
      FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1999 AND 1998
                                 (UNAUDITED)


                                Three months ended       Six months ended
                                     March 31               March 31
                                1999        1998        1999        1998

    Net sales              $42,631,488  $45,058,973  $94,026,510  $87,649,032
    Cost of sales           24,153,615   21,993,344   49,057,929   43,214,657
    Gross Margin            18,477,873   23,065,629   44,968,581   44,434,375

    Operating expenses:
      Sales and marketing   10,972,993    9,007,379   22,947,075   17,266,872
      Research and
       development           5,887,729    3,948,109   12,363,946    7,759,010
      General and
       administrative        5,527,153    3,445,691   10,679,442    7,055,815
      Restructuring          1,452,909           --    1,452,909           --
    Total operating
     expenses               23,840,784   16,401,179   47,443,372   32,081,697

    Operating (loss) income (5,362,911)   6,664,450   (2,474,791)  12,352,678
    Other income (expense),
     principally interest      (35,517)     548,470     (245,302)     817,355

    (Loss) income before
     income taxes           (5,398,428)   7,212,920   (2,720,093)  13,170,033
    (Benefit) provision
     for income taxes       (2,890,040)   2,547,584   (1,577,655)   4,662,359

    Net (loss) income      $(2,508,388)  $4,665,336  $(1,142,438)  $8,507,674

    Net (loss) income
     per common share           $(0.17)       $0.35       $(0.08)       $0.63

    Net (loss) income per common
     share, assuming dilution   $(0.17)       $0.33       $(0.08)       $0.60

    Weighted average
     common shares          14,590,771   13,508,084   14,581,396   13,494,509

    Weighted average
     common shares,
     assuming dilution      14,590,771   14,265,107   14,581,396   14,149,319

About Digi International

Digi International, based in Minneapolis, Minn., is a leading worldwide provider of voice and data communications hardware and software that delivers seamless connectivity solutions for open systems, server-based remote access, and LAN markets. The company markets its products through a global network of distributors and resellers, system integrators and original equipment manufacturers (OEMs). For more information, visit Digi's Web site at http://www.digi.com or call 800-344-4273 (U.S.) or 612-912-3444 (International).

Forward-Looking Statements:

This press release contains certain forward-looking statements that involve risks and uncertainties. Factors that could cause actual results to differ include but are not limited to the following:

-- The expectation that gross margins will improve, sales overall will increase and that the company will be restored to profitability -- This expectation may be impacted by presently unanticipated delays in the effect of the channel normalization program and product availability, as well as general market and competitive conditions.

-- The expectation that the company will maintain control of operating expenses -- This expectation may be impacted by presently unanticipated expenses, delays in consolidation efforts, general market or competitive conditions.

-- The expectation that the company's l999 effective tax rate will increase to 58 percent -- This expectation may be impacted by the changes in the company's level of profitability or changes in the allocation of the purchase prices made in connection with the ITK and CDC acquisitions.