I/OMagic Reports Strong First Quarter Results; Net Sales Increase 166% Year-Over-Year; Three Brand Names Continue Fueling Profitable Growth

Business Wire, May 14, 2002

Business Editors

SANTA ANA, Calif.--(BUSINESS WIRE)--May 14, 2002

I/OMagic Corp. (OTCBB:IOMC), a leading developer and marketer of optical storage, digital entertainment, multimedia and I/O peripheral PC products, today announced financial results for the first quarter ended March 31, 2002.

Gross sales for the 2002 first quarter increased 139% to $33.6 million from $14 million in the prior year. Net sales for 2002 first quarter rose 166% to $26.7 million from $10 million in the 2001 first quarter.

Net income for the 2002 first quarter increased 149% to $1 million, or $0.01 per diluted share, compared with a net loss of $2.1 million, or ($0.03) per diluted share, for the quarter ended March 31, 2001. Earnings before interest, taxes, depreciation and amortization ("EBITDA") increased 278% to $1.6 million from the $927,000 loss for the quarter ended March 31, 2001. EBITDA per share were $0.02 in 2002 versus ($0.01) in 2001.

Tony Shahbaz, president and CEO of I/OMagic, stated: "Clearly, we are successfully building on the momentum we achieved by seamlessly integrating and bringing to profitability each of our distinct brands -- I/OMagic, Hi-Val and Digital Research Technologies. Strong sales for each of our brand names continued to drive profitable growth in the first quarter, where net sales rose 166%.

"Strength across all four business units contributed to profitability. Our optical storage unit, our largest revenue driver, grew 283% from the first quarter in 2001 to the first quarter 2002. Reflecting our leadership position in this market, NPD Intellect retail market tracking data again ranked I/OMagic Corporation as the number one market share player in CD-RW, CD-ROM & DVD drive categories in North America for the 2002 first quarter. Our digital entertainment unit also performed well.

"We are excited about the possibilities in digital entertainment and anticipate strong growth this year. The company is on target to roll out new entertainment products later this year, following the immediate success of our MyMP3 portable digital music player that was released in November 2001.

"Given our continued financial performance, we remain confident in our outlook for the remainder of 2002."

Net sales include reductions to gross sales for returns, price protection and marketing promotions, per the Emerging Issues Task Force ("EITF") issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products"). This issue concluded that certain consumer and trade sales promotion expenses are presumed to be a reduction of the selling prices of the vendor's products and, therefore, should be characterized as a reduction of revenue recognized as net sales.

The provisions of this pronouncement are required to be applied with fiscal years beginning after Dec. 15, 2001. The company has adopted this pronouncement with its March 31, 2002 statement and has restated its March 31, 2001 statement. The adoption of this pronouncement has resulted in adjustments to net sales and selling and marketing expenses. There is no impact on operating income, net income or earnings per share.

The company's management has selected and standardized its selection of EBITDA as a measure of company financial performance for several reasons. The company believes that a discussion of EBITDA is relevant because it can provide the reader and company management with a more accurate and understandable picture of period-to-period changes in the company's operating performance by eliminating the effects of the company's unusually heavy amortization and non-cash expense burdens, some of which are described below.

The company's management believes these burdens generally have little contemporaneous relevance to financial reporting periods. The company's management also selected EBITDA as a measure of company financial performance because EBITDA is a common and widely recognized measure used by financial institutions to evaluate a company's financial performance under various circumstances. Each of the elements of the company used in determining EBITDA have been taken from financial statement information prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP").

Notice of Conference Call

I/OMagic management will discuss the company's first quarter 2002 financial results in a conference call on May 14, 2002 at 11 a.m., EST. Those who wish to listen to the call may dial 877/375-2162. A digital replay of the call, which will be available for one week beginning approximately one hour after the completion of the live call, may be accessed by dialing 877/519-4471 (domestic) or 973/341-3080 (international), PIN # 3260613.

There will also be a simultaneous webcast on www.iomagic.com with a 1-week playback.

About I/OMagic

I/OMagic develops and markets optical storage, digital entertainment, multimedia and I/O peripheral PC products. Business units include: Optical Storage (CD-ROM, CD-RW drives & media, DVD drives) Digital Entertainment (MP3 Jukebox, MP3 portable players, Digital Web Cameras & LCD Flat Panel TV Monitors), Multimedia (audio cards, video display cards & personal video recorder cards) and Input/Output Devices (modems, keyboards, mice, floppy drives, floppy diskettes and other peripheral accessories).