HyperSpace Communications, Inc. Reports Unaudited Third-Quarter 2005 Financial Results

Acquisition of MPC Computers Completed, Quarterly Revenue Exceeds $100 Million and Revenue Up 4.7% Compared to Year-Ago Quarter on a Pro-Forma Basis 


DENVER, Nov. 15  /PRNewswire-FirstCall/ -- HyperSpace Communications, Inc. (AMEX:HCO), a provider of PC products and IT solutions directly and through its subsidiary MPC Computers, today announced results for the third quarter of fiscal year 2005 which include the operations of MPC Computers since July 25, 2005 (the date MPC was acquired).  Revenues rose from $119,000 in the third quarter of 2004 to more than $100 million in the third quarter of 2005, primarily as a result of the merger.  For the three months ended September 30, 2005 the company had $122,000 in operating income compared to a $744,000 operating loss for the same period in 2004.  The company had a net loss of $4.8 million in 2005 compared to a $1 million net loss in 2004.  The net loss for the three months ended September 30, 2005 included interest expense of $802,000 and a $4.2 million non-cash charge for stock issued to MPC management in conjunction with the merger.

"During Q3, HyperSpace completed the acquisition of MPC Computers," said John P. Yeros, Chairman and CEO of HyperSpace Communications, Inc.  "This accomplishment represents a major strategic milestone for HyperSpace and positions the company for success in the professional IT markets of government, business and education."

  During the quarter, the company also:
  *  Converted over $700,000 in convertible debt to equity,
  *  Retained an investment banker to seek additional financing,
  *  Secured its initial contract manufacturing engagement, which will
     utilize excess manufacturing capacity at MPC's Nampa, Idaho facility,
  *  Continued to expand its focus on expansion of MPC business in the
     higher margin server, storage and Mid-sized business markets to reduce
     MPC's traditional dependence on PCs, and
  *  Launched efficiency initiatives that are expected to reduce annual
     costs by approximately $5 million.



"We are pleased with the progress we are making as a combined company," said Mike Adkins, President of HyperSpace Communications, Inc. and CEO of its MPC Computers subsidiary.  "In particular, we achieved Q3 2004-2005 quarter-over-quarter revenue growth based on the strength of our servers/storage, mobile and third party product lines."

Pro-Forma Financial Results

On a pro-forma consolidated basis (assuming the two companies were merged for all periods, total) consolidated revenue for the third quarter was $122.3 million, an increase of 4.7% compared to $116.8 million in the third quarter of 2004.  The operating loss for the quarter was $2.4 million, compared to an operating profit of  $0.2 million for the third quarter of 2004.  The company's net loss for the quarter was $7.6 million (including the $4.2 million non-cash charge for employee stock compensation described above). The revenue increase in the quarter was driven by higher sales of notebooks, servers, storage products and third party products manufactured by others, offset by a decline in sales of desktops.  The company had higher sales to the U.S. federal government and mid-sized business segments offset by lower sales to the state/local government and education segments.

Gross margin for the quarter ended September 30, 2005 was 11.0% compared to 14.3% in the third quarter a year ago.  The decline in gross margin was due to a higher proportion of sales of third-party products, such as printers, monitors, and software, which carry lower gross margins than products manufactured by the company.  The gross margin on MPC manufactured products was 13.6%.  MPC resells third-party products to provide a single source of supply for IT solutions for its customers.

Operating expenses for the quarter were $15.9 million, or 13.0% of sales, compared to $16.5 million, or 14.1% of sales, in the third quarter a year ago. The lower operating expenses reflect the company's success in reducing overhead costs.

The pro forma consolidated revenue increase in the third quarter of 2005 is due to several factors, including:

  -  A 47% increase in the sales of servers and storage products,
  -  A 30% increase in the sales of notebook products,
  -  A 32% increase in the sales of third party products, such as printers,
     monitors and software, that MPC resells as part of complete IT
     solutions,
  -  A 10% increase in sales to mid-size enterprise customers, and
  -  An 8% increase in sales to the U.S. federal government



These increases were partially offset by several factors, including a 20% decline in desktop sales.

About HyperSpace Communications:

HyperSpace Communications, Inc. (AMEX:HCO), through its subsidiary MPC Computers, provides PC products and IT solutions to mid-sized businesses, government agencies and education organizations.  MPC's products include desktops, notebooks, servers and storage, all of which are backed by an industry-leading level of service and support.  HyperSpace also offers software for network acceleration and secure data transmission.  For more information, visit HyperSpace online at http://www.ehyperspace.com/.

Cautionary Statement

Certain statements in this press release are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  These statements involve a number of risks, uncertainties and other factors that could cause actual results, performance or achievements of HyperSpace Communications or MPC Computers to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.  Other risk factors that could materially affect such forward-looking statements, including liquidity constraints, can be found in HyperSpace Communications' filings with the Securities and Exchange Commission at http://www.sec.gov/.  Investors, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.  Factors that could materially affect the results, performance or achievements of the company include competition in the PC industry, the company's liquidity and available borrowing under its credit facility, rapid changes in technology, intellectual property disputes, reliance on federal, state and local government for a significant portion of its revenue, and fluctuations operating results.  The forward-looking statements made herein are only made as of the date of this press release and HyperSpace Communications undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

  HYPERSPACE COMMUNICATIONS, INC.
  Unaudited Consolidated Statements of Operations for the Three and Nine
  Months Ended September 30, 2005 and 2004.

                                           September 30,
                          Three months ended          Nine months ended
                           2005         2004          2005          2004

  Net Sales          $100,924,297     $119,221   $101,089,575     $325,605

  Cost of Good Sold   $88,165,039      $82,622    $88,252,326     $211,743

  Gross Margin        $12,759,258      $36,599    $12,837,249     $113,862

  Operating Expenses
    Research &
     Development       $1,099,302     $227,441     $1,279,809     $451,138
    Selling,
     General &
     Administrative    10,266,567      538,428     11,712,752    1,364,642
    Depreciation &
     Amortization       1,270,541       15,293      1,301,128       53,857
  Total Operating
   Expenses           $12,636,410     $781,162    $14,293,689   $1,869,637

  Operating Income
   (Loss)                $122,848    $(744,563)   $(1,456,440) $(1,755,775)

  Other (Income)/
   Expense
    Interest Expense,
     net                 $802,356     $265,934       $804,170     $802,843
    Merger Related
     Stock
     Compensation       4,183,070           --      4,183,070           --
    Other Expense              --       (1,056)           194     (433,767)
  Total Other
   (Income)/
   Expense             $4,985,426     $264,878     $4,987,434     $369,076

  Net Loss            $(4,862,578) $(1,009,441)   $(6,443,874) $(2,124,851)

  Preferred Dividends         $--      $24,449            $--      $72,489

  Net Loss
   attributable
   to Common
   Shareholders       $(4,862,578) $(1,033,890)   $(6,443,874) $(2,197,340)

  Basic and diluted
   weighted average
   Common Shares
   outstanding          6,485,728   $1,501,026      4,661,011   $1,445,534

  Basic and diluted
   loss per
   Common Share            $(0.75)      $(0.69)        $(1.38)      $(1.52)



The results of GTG PC Holdings, LLC, the parent holding company of MPC Computers, LLC have been consolidated effective from July 25, 2005, the date the merger with HyperSpace Communications, Inc. became effective.  The column reflecting the nine months ended September 30, 2005 includes results for HyperSpace only from January 1, 2005 through July 24, 2005.  HyperSpace's results are consolidated with MPC's results for the remainder of the nine-month period.  The 2004 information is for HyperSpace only.

  HYPERSPACE COMMUNICATIONS, INC.
  Consolidated Balance Sheet

                                              September 30,    December 31,
                                                  2005             2004
                                               (Unaudited)
  ASSETS
    Current Assets
      Cash and Cash Equivalents                  $6,267,222     $5,875,481
      Accounts Receivable, net                   62,242,613        158,998
      Inventories, net                           36,952,982             --
      Prepaid Maintenance & Warranty Costs       20,056,671             --
      Other Current Assets                        1,477,479        106,182
    Total Current Assets                       $126,996,967     $6,140,661

    Non-Current Assets
      Property & Equipment, net                   8,466,356        110,782
      Capitalized Software, net                          --        298,570
      Goodwill                                   24,818,982             --
      Acquired Intangibles, Net                  33,799,128             --
      Long-Term Portion of Prepaid
       Maintenance & Warranty Costs               1,466,989             --
      Other Assets                                1,101,958             --
    Total Non-Current Assets                    $69,653,413       $409,352

  TOTAL ASSETS                                 $196,650,380     $6,550,013

  LIABILITIES AND SHAREHOLDERS' EQUITY

    Current Liabilities
      Accounts Payable & Accrued Expenses       $75,557,665       $314,006
      Accrued Licenses & Royalties                2,907,289             --
      Current Portion of Accrued Warranties       2,709,516             --
      Current Portion of Deferred Revenue        26,201,696        122,016
      Current Portion of Notes Payable & Debt    45,049,365        721,965
    Total Current Liabilities                  $152,425,531     $1,157,987

    Long Term Liabilities
      Long term Portion of Notes Payable            $60,606       $425,000
      Non-Current Portion of Accrued Warranties   2,405,444             --
      Non-Current Portion of Deferred Revenue    17,671,840             --
    Total Long Term Liabilities                 $20,137,890       $425,000

  TOTAL LIABILITIES                            $172,563,421     $1,582,987

    Shareholders' Equity
      Preferred Stock, no par value;
       1,000,000 shares authorized;
       no shares issued and outstanding
       at 2005 and 2004                                 $--            $--

      Common Stock, no par value,
       50,000,000 shares authorized;
       7,675,637 and 3,732,429 shares issued
       and outstanding at 2005 and 2004,
       respectively                              37,650,941     12,087,134
      Accumulated Deficit                       (13,563,982)    (7,120,108)
    Total Shareholders' Equity                  $24,086,959     $4,967,026

  TOTAL LIABILITIES AND EQUITY                 $196,650,380     $6,550,013



The results of GTG PC Holdings, LLC, the parent holding company of MPC Computers, LLC, have been consolidated effective from July 25, 2005, the date the merger with HyperSpace Communications, Inc. became effective. Accordingly, the Balance Sheet at December 31, 2004 contains the information without MPC Computers.

  HYPERSPACE COMMUNICATIONS, INC.
  Pro-Forma Comparison of the Three and Nine Months ended September 30, 2005
  to 2004 (Unaudited) (Assuming the Merger Took Place on January 1, 2004)

                                          September 30,
                         Three months ended          Nine months ended
                          2005         2004          2005          2004
  Net Sales          $122,310,985  $116,786,851  $280,196,595  $324,759,051

  Cost of Goods
   Sold              $108,876,433  $100,133,764  $247,928,780  $283,004,536

  Gross Margin        $13,434,552   $16,653,087   $32,267,815   $41,754,515
  Gross Margin %             11.0%         14.3%         11.5%         12.9%

  Operating Expenses
    Research &
     Development       $1,362,611    $1,584,767    $3,896,521    $4,465,232
    Selling,
     General &
     Administrative    13,121,709    14,322,115    37,804,702    42,795,033
    Depreciation &
     Amortization       1,376,160       593,666     2,493,423     1,861,045
  Total Operating
   Expenses           $15,860,480   $16,500,548   $44,194,646   $49,121,311
  Operating expenses
   as a % of Revenue         13.0%         14.1%         15.8%         15.1%
  Operating Income
   (Loss)             $(2,425,928)     $152,539  $(11,926,831)  $(7,366,796)

  Non-Operating
   (Income)/Expense
    Interest
     (Income)/Expense  $1,023,172      $861,747    $2,091,372    $2,455,423
    Merger Related
     Stock Comp Exp     4,183,070            --     4,183,070            --
    Other
     (Income)/Expense          --        (1,056)          194      (433,767)

  Total Non-Operating
   (Income)/Expense    $5,206,242      $860,691    $6,274,636    $2,021,656

  Net Income (Loss)   $(7,632,170)    $(708,152) $(18,201,467)  $(9,388,452)

  Preferred Dividends         $--       $24,449           $--       $72,489

  Net Income (Loss)
   before taxes       $(7,632,170)    $(732,601) $(18,201,467)  $(9,460,941)

  Income Tax Benefit          $--           $--           $--           $--

  Net Income (Loss)   $(7,632,170)    $(732,601) $(18,201,467)  $(9,460,941)

  EBITDA              $(1,049,768)     $746,205   $(9,433,409)  $(5,505,751)
  EBITDA %                   -0.9%          0.6%         -3.4%         -1.7%

  Reconciliation of Net Income (Loss) to EBITDA:

  Net Income (Loss)   $(7,632,170)    $(732,601) $(18,201,467)  $(9,460,941)

  Interest
   (Income)/Expense    $1,023,172      $861,747    $2,091,372    $2,455,423
  Merger Related
   Stock Comp Exp      $4,183,070           $--    $4,183,070           $--
  Other
   (Income)/Expense           $--       $(1,056)         $194     $(433,767)
  Depreciation &
   Amortization        $1,376,160      $593,666    $2,493,423    $1,861,045
  Preferred Dividends         $--       $24,449           $--       $72,489

  EBITDA              $(1,049,768)     $746,205   $(9,433,409)  $(5,505,751)



The Company uses "EBITDA", earnings before interest, taxes, depreciation and amortization, after adjusting for non-cash stock awards issued pursuant to the merger, as a financial measurement.  This is not a GAAP measurement. EBITDA after adjusting for non-cash stock awards issued pursuant to the merger is derived by adding back the following to GAAP net loss: Net Interest expenses, Depreciation and Amortization, Impairment of Intangibles and the non-cash expense of stock awards issued pursuant to the merger.  This non-GAAP measurement is provided as supplementary information and is not an alternative to GAAP.  Some investors may use EBITDA to supplement their analysis of our results of operations. 

DATASOURCE: HyperSpace Communications, Inc.



CONTACT:  Barbara Coy of HyperSpace Communications, Inc.,

[phone], ; or Media, Elissa Reid,

[phone], , for HyperSpace Communications, Inc.



Web site:  http://www.ehyperspace.com/ 

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