Alpha Microsystems Reports Second Quarter and Six-Months Results.

SANTA ANA, Calif.--(BUSINESS WIRE)--Oct. 6, 1998--

Revenue Up 24 Percent for the Quarter and 22 Percent

for First Six Months

Alpha Microsystems (Nasdaq NM:ALMI) Tuesday reported financial results for its fiscal year 1999 second quarter and six months ended Aug. 23, 1998.

Revenue for the second quarter increased to $5.7 million, a 24 percent increase when compared with revenue of $4.6 million for the same period in fiscal 1998. Net loss for the second quarter fiscal 1999 was $1.2 million, or a loss per share of $0.11, compared with a loss of $800,000, or a loss per share of $0.07 during the same quarter of fiscal 1998.

The operating results reflect an increase in the investment of resources in both the IT Services Division and AlphaCONNECT(R) Internet Division over the previous quarter.

Revenue for the six months ended Aug. 23, 1998, rose 22 percent to $11.1 million vs. revenue of $9.1 million for the comparable period in fiscal 1998. Net loss for the first half of fiscal 1999 was $2.2 million, or a loss per share of $0.20, compared with a loss of $1.9 million, or a loss per share of $0.18 during the same six months of fiscal 1998.

"This is the company's third consecutive quarter of increased revenues," stated Alpha Microsystems Chief Financial Officer Jeffrey J. Dunnigan. "We are pleased with our quarter-to-quarter overall growth as well as the organic growth of our core business," continued Dunnigan.

"During the second quarter, IT Services revenue increased 45.9 percent over the comparable quarter in fiscal 1998, while revenue for the six months ended Aug. 23, 1998, rose 39.7 percent when compared to the same period last year.

"Non-core business revenue continued an anticipated decline as product revenues for the second quarter and six-month period were down 25.6 percent and 16.5 percent, respectively, when compared to the second quarter and six-month period of fiscal 1998."

"The additional investments in our IT Services Division were in preparation for and successful attainment of the new Ingram Micro service agreement and the ramp-up of additional services to be provided under the ATS Money Systems contract to companies like well-known retailer TJ Maxx," commented Alpha Microsystems President and CEO Douglas J. Tullio.

"We should see the benefits associated with these and other investments starting in the third quarter where we expect revenues to increase approximately 50 percent over the just-announced second quarter and approximately 70 percent over the comparable quarter in fiscal 1998."

"In addition to gearing up for the Ingram Micro service agreement, we expended considerable time and resources associated with the recent acquisition of Delta CompuTec Inc. (Nasdaq:DCIS) and finalizing our investment agreement with ING Equity Partners II, L.P.," continued Tullio.

"Our relationship with ING Equity Partners provides a solid platform to pursue additional opportunities including those aligned with our aggressive acquisition strategies. We believe our on-going strategy of placing a strong emphasis on internal growth, as well as growth through acquisitions, is key to our future success," added Tullio.

"Parallel with our IT growth, the AlphaCONNECT(R) Internet Division is already seeing increased opportunities from the introduction of our AC Knowledge Management Suite, including AC Spotlight, a specialized version of which was customized for Microsoft Corp. (Nasdaq NM:MSFT)," said Tullio.

"Having Microsoft as our first customer has enhanced our position as a technology innovator and as a significant player in the knowledge management marketplace," Tullio added.

With more than 60 locations throughout North America, Alpha Microsystems is dedicated to providing superior computer services, including consulting, maintenance and networking for public and private institutions of all sizes.

Alpha Microsystems, a 22-year-old Santa Ana company, also serves the Internet/intranet market through its AlphaCONNECT(R) Division, which includes business-to-business software and technologies. For more information, visit the company's Web site at www.alphamicro.com.

Certain statements in this news release, including statements that we should see the benefits associated with these and other investments starting in the third quarter where we expect revenues to increase approximately 50 percent over the just-announced second quarter and approximately 70 percent over the comparable quarter in fiscal 1998, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties, including (i) the economic and competitive environment of the computer maintenance and IT support services industry in general, and in the company's specific market areas, (ii) the company's ability to successfully integrate acquired operations with its existing operations, (iii) the company's ability to develop, produce and market products and services that incorporate new technology, are priced competitively, and achieve significant market acceptance, (iv) whether the company's products and IT Services will be commercially successful or technically advanced due to the rapid improvements in computer technology and resulting product obsolescence, (v) changes in the cost of IT Services (vi) the company's ability to deliver commercial quantities of new products in a timely manner, (vii) changes in the company's operating strategy (viii) the company's ability to manage risks associated with its IT Services operating strategies, and (ix) other factors which may cause the actual results, performance or achievements of the company, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. -0-

                          ALPHA MICROSYSTEMS
            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                              (Unaudited)
                (In thousands, except per-share data)
                           Three Months Ended            Six Months Ended
                           Aug. 23,  Aug. 24,          Aug. 23,    Aug. 24,
                             1998      1997            1998        1997
 Net sales:
  IT Services                  $  4,627  $  3,172         $  8,691    $        6,221
  Product                     1,062     1,428            2,444        2,928
    Total net sales             5,689     4,600           11,135        9,149
Cost of sales:
  IT Services                     4,019     2,237            7,674        4,456
  Product                       842         975            1,696        2,024
    Total cost of
     sales                     4,861     3,212            9,370        6,480
Gross Margin                       828     1,388            1,765        2,669
Operating expenses:
  Selling, general
   and administrative             1,709     1,849            3,310        3,998
  Engineering, research
   and development               330         381              636          744
    Total operating
     expenses                     2,039     2,230            3,946        4,742
Loss from operations            (1,211)        (842)           (2,181)     (2,073)
Other (income) expense:
  Interest income               (18)         (82)              (44)         (181)
  Interest expense                26           3               52            4
  Other expense, net                15          11               31           12
  Foreign exchange
   (gain) loss                       (27)          24              (36)           17
    Total other (income)
     expense                        (4)         (44)                3         (148)
Loss before taxes            (1,207)        (798)           (2,184)     (1,925)
Provision for income
 taxes                                 1          --               13           10
Net loss                  $ (1,208) $        (798)         $ (2,197)   $ (1,935)
Basic and diluted net
 loss per share           $  (0.11) $  (0.07)         $  (0.20)   $        (0.18)
Number of shares used
 in the computation of
 basic and diluted per-
 share amounts                    10,931    10,834           10,923      10,828