Ariel Corporation Reports Preliminary Fourth Quarter Results - Company Financial Information

Cambridge Telcom Report, March 13, 2000

Ariel Corp. (Nasdaq: ADSP) Monday reported net sales for the year ended December 31, 1999 of $11,626,546. The decrease from net sales of $17,445,829 reported for the year ended December 31, 1998 includes a reduction of approximately $5 million in sales to computer equipment suppliers, including $4.2 million to Compaq. Net sales were $2,932,292 for the three months ended December 31, 1999, a decrease of $945,478 from net sales of $3,877,770 for the three months ended December 31, 1998. Decreases in revenues from 1998 reflect a decline in enterprise demand for high-end communications options -- as anticipated by Ariel's shift to internet service providers (ISPs) and technical original equipment manufacturers.

Increases in gross margins of $1,049,923 for 1999 as compared to 1998 reflect a significantly improved mix of sales concentrated in Technical OEMs and end users vs. lower-margin PC equipment business. Gross margins for the twelve months ending December 31, 1999 were $6,530,532 or 56% of sales as compared to $5,480,609 or 31% for the same period last year. Gross margins were $1,686,228 or 58% of sales for the fourth quarter of 1999 before costs related to inventory write downs of $195,000. After this adjustment, gross margins were $1,491,228 or 51%, up 16% from the 35% reported for the same period last year before costs incurred to write down inventory.

Reduced operating losses were the result of the improved gross margins combined with a reduction in operating expenses. Losses from operations declined 46% to ($3,284,102) for the three months ended December 31, 1999 as compared to ($6,095,468) for the three months ended December 31, 1998. Losses from operations for 1999 decreased by $3,743,953 to ($12,474,160) as compared to ($16,218,113) in 1998. Operating expense reductions were the result of tighter expense controls throughout 1999 and the sale of the DSLAM group in September of 1998.

The company realized an increase in cash of approximately $3.8 million as a result of the exercise of outstanding stock options and warrants during the three months ending December 31, 1999. Cash as of December 31, 1999 was $7,088,431 and working capital was $7,827,521 as compared to cash of $17,996,575 and working capital of $12,632,033 as of December 31, 1998.

The net loss for the year ending December 31, 1999 was ($12,499,815) or ($1.27) basic and dilutive loss per share. Comparatively, 1998 income includes one time gain on the sale of Ariel's DSLAM group to Cabletron Systems, Inc. of Rochester, New Hampshire (NYSE: CS) on September 1, 1998. The gain represents approximately $2.80 per share diluted after transaction costs, interest and administrative expenses. Net income for the year ending December 31, 1998 was $12,076,506 or basic earnings per share of $1.25 and dilutive earnings per share of $1.11. Before giving affect to the DSLAM transaction Ariel's 1998 basic and loss per share diluted was ($1.69).

The net loss for the three months ending December 31, 1999 was ($3,241,078) or ($0.32) basic and dilutive loss per share compared to a net loss of ($5,986,447) or basic and dilutive loss per share of $(.61) for the three months ended December 31, 1998.

"The results reflect our continued focus on our ISP and OEM market strategy, improved margin rates and operating expense controls," commented CEO and President, Jay H. Atlas. "The operational results combined with our strengthened balance sheet and working capital put us in an excellent position to execute our objectives for 2000."

Ariel Corp. (Nasdaq: ADSP) is a leading provider of high-density remote access plug-in cards for applications such as Internet access, corporate Intranet/Extranet access, on-line services, telecommuting, transaction processing, and unified messaging. Ariel's remote access products make it easy for OEMs and system integrators targeting ISPs, corporate enterprises and other service providers to add high-density remote access to open systems platforms running a variety of popular operating systems, including Windows NT and Linux. Ariel's high-density remote access cards provide V.34, V.90-compatible 56K, and basic rate ISDN remote dial-in, LAN dial-out, and Internet back-haul. Available in ISA, PCI and CompactPCI formats, the cards connect to T1, E1, ISDN, and POTS lines. Ariel's remote access products run Windows NT and Linux out of the box. An SDK is available for OEMs who want to use Ariel's remote access products with other operating systems. FMI: http://www.ariel.com.