MINNEAPOLIS, July 22 /PRNewswire/ -- Digi International Inc. (Nasdaq: DGII) today announced financial results for its fiscal third quarter, ended June 30, 1999.

"The results for the third quarter reflect the progress we've made in continuing to control operating expenses and improve gross margins," said John P. Schinas, Chairman of the Board and interim President and CEO of Digi International. The quarter results also reflect a significant change in accounting treatment of in-process research and development costs acquired through business combinations. In addition, we've improved our cash position to $26 million at the end of third quarter, up significantly from $11 million at the end of second quarter."

Sales for the quarter were $51.1 million compared to $46.5 million for the year-ago period. Net income for the quarter including amortization charges related to restated in-process research and development costs was $2.3 million, or $.15 per diluted share compared to analysts' consensus estimates of $.10 per share. This compares to net income of $6.4 million, or $.45 per diluted share, for the year-ago period.

Sales for the first nine months of fiscal 1999 were $145.2 million compared to $134.1 million for the same period last year. Net income for the first three quarters of fiscal l999 was $0.5 million, or $.03 per diluted share, compared to net income of $14.9 million, or $1.05 per diluted share, for the year-ago period.

Excluding amortization of intangible assets acquired through business combinations, earnings per diluted share were $0.29 for the third quarter and $0.44 for the first three quarters of fiscal 1999. This compares to earnings per diluted share, excluding amortization of intangible assets acquired through business combinations, of $0.45 and $1.07 for the comparable year-ago periods.

As previously disclosed, the Company has received comments from the staff of the Securities and Exchange Commission (SEC) regarding its accounting for certain prior acquisitions. These comments were similar to those which other high technology companies have received concerning the allocation of the acquisition purchase prices to in-process research and development and other intangible assets.

In response to comments by the SEC regarding Digi's acquisition of ITK International, Inc. (ITK) and Central Data Corporation (CDC) and the related purchase price allocation, the Company has elected to restate its previously issued financial statements to reduce the aggregate amount originally allocated to in-process research and development from $39.2 million to $16.1 million and, correspondingly, has increased the amount allocated to intangible assets and goodwill by $23.1 million. The resulting intangible assets and goodwill will be amortized, in the form of a non-cash charge to operations, over periods ranging from five to seven years. The Company had previously written off $39.2 million of acquired in-process research and development costs in the fiscal fourth quarter of 1998 in accordance with both generally accepted accounting principles and the established industry practice at that time. The restatement to reduce this charge by $23.1 million is consistent with the current SEC position and methodology regarding allocations of purchase prices to acquired in-process research and development costs.

The fiscal 1999 effective tax rate, as a result of the restatement of in-process research and development, increased to 66% from 58% previously reported. The rate could be lower in fiscal 2000 based on actual operating results.

Net loss for fiscal 1998, as restated, was $70,000 ($0.01 per diluted share), which is $22,600,000 ($1.64 per diluted share) less than the amount originally reported. Net income for the first quarter of fiscal 1999, as restated, was $500,000 ($0.03 per diluted share), which is $900,000 ($0.06 per diluted share) less than the amount originally reported. Net loss for the second quarter of fiscal 1999, as restated, was $2,260,000 ($0.15 per diluted share), which is $250,000 ($0.02 per diluted share) less than the amount originally reported. These charges will have no impact on Digi's cash flow. The Company will file amended quarterly and annual reports, as appropriate, to reflect these restatements.

                   DIGI INTERNATIONAL INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
      FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1999 AND 1998
                                 (UNAUDITED)



                      Three months ended June 30   Nine months ended June 30
                           1999          1998         1999        1998
                                                    RESTATED

    Net sales          $51,144,524  $ 46,449,286  $145,171,035 $134,098,319
    Cost of sales       23,997,831    21,890,041   73,055,760   65,104,699
    Gross margin        27,146,693    24,559,245   72,115,275   68,993,620

    Operating expenses:
     Sales and marketing 9,323,592     9,036,250   32,270,668   26,303,159
     Research and
      development        6,003,762     4,127,946   18,367,708   11,886,956
     General and
      administrative     5,929,891     2,969,649   19,113,196   10,025,425
     Restructuring              --            --    1,452,909           --
    Total operating
     expenses           21,257,245    16,133,845   71,204,481   48,215,540

    Operating income     5,889,448     8,425,400      910,794   20,778,080
    Other income, net,
     principally interest  749,648       659,916      504,347    1,475,270
    AetherWorks Corporation
     net gain                   --     1,350,000           --    1,350,000

    Income before
     income taxes        6,639,096    10,435,316    1,415,141   23,605,350
    Provision for
     income taxes        4,381,803     4,024,409      933,994    8,686,768

    Net income          $2,257,293    $6,410,907     $481,147  $14,918,582

    Net income per
     common share, basic     $0.15         $0.47        $0.03        $1.10

    Net income per common
     share, assuming dilution$0.15         $0.45        $0.03        $1.05

    Weighted average
     common shares      14,714,942    13,617,518   14,625,908   13,535,512

    Weighted average
     common shares,
     assuming dilution  14,772,315    14,385,012   14,767,841   14,216,915

    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 the Company's 1999 effective tax rate will be 66 percent. This expectation may be impacted by changes in the company's level of profitability.

-- The expectation that the Company's 2000 effective tax rate will decrease based on actual operating results. This expectation may be impacted by changes in the Company's level of profitability.

SOURCE Digi International Inc.