METHUEN, Mass.--(BUSINESS WIRE)--July 27, 1998--MicroTouch Systems, Inc. (NASDAQ:MTSI - news) today announced that revenues for the second quarter of 1998 increased by 15% to $37.1 million compared to $32.3 million for the second quarter of 1997. MicroTouch's net income for the second quarter of 1998 amounted to $2.3 million ($0.28 per share), a 15% increase compared to earnings for the second quarter of 1997 of $2.0 million ($0.24 per share). Excluding a foreign exchange loss of $.03 per share, earnings for the second quarter would have been $.31 per share. During the second quarter in 1997, MicroTouch recorded a one-time, non-recurring pretax charge of $595,000 ($381,000 after taxes) to account for the final settlement of the Nissha arbitration matter. Excluding this charge, net income last year would have been $2.3 million, or $0.28 per share.

For the six months ended June 30, 1998, MicroTouch's revenue increased 17% to $72.9 million, compared with $62.4 million for the same period of fiscal 1997. Net income for the first half of 1998 totaled $4.5 million ($0.56 per share) as compared to earnings of $4.0 million ($0.49 per share) for the same period in 1997. Excluding the one-time 1997 arbitration charge, MicroTouch's six-month net income for last year would have been $4.4 million, or $0.53 per share.

``Our record sales for the second quarter were fueled primarily by strong European sales as well as growth in the domestic touchscreen market and in Australia. Second quarter revenues represented the company's eleventh consecutive quarter of sequentially increasing sales,'' said Geoff Clear, vice president - finance and administration. ``Gross margins increased from 37.1% in last year's second quarter, to 38.2% in the current quarter as recent investments in our manufacturing process began to yield positive results. This represents the best quarterly percentage gross margin we have seen in the past three years.''

``Our primary emphasis during 1998 continues to be investing in the future,'' said Wes Davis, president and chief executive officer. ``This investment is multifaceted, including improved manufacturing processes, new products, and investing in people. During the first half of 1998 we have substantially upgraded our production processes for both capacitive and resistive products. This has resulted in increased capacity and improved yields, which have translated into improved gross margins.

``Our new product efforts most recently resulted in the launch of our new line of touchscreen flat panel display products. Leading industry research firms are predicting annual growth rates in excess of 20% for touchscreen FPD's over the next three years, and our new product line should put us in the forefront of this trend.

``Finally, we have strengthened our management team recently through the hiring of Robert Becker as our vice president of engineering and the addition of Peter Brumme to our Board of Directors. Becker brings sixteen years of engineering experience in the computer and telecommunications industries. Most recently, he was vice president of engineering for PictureTel. Brumme adds extensive experience in sales, marketing, distribution management and customer support to our Board of Directors. He currently serves as chief operating officer for SilverStream Software, Inc., a developer of next-generation Web application platforms,'' said Davis.

MicroTouch Systems, Inc. is the world's leading provider of computer touch-input solutions, offering an array of innovative products based on capacitive, resistive, and other touch technologies. Founded in 1982, MicroTouch reported sales of $128.5 million in 1997. With its headquarters and ISO 9001-certified manufacturing plant in Methuen, Mass., MicroTouch also maintains manufacturing facilities in New York, the United Kingdom, Japan, Taiwan, and Australia along with sales offices and distributors in numerous other countries. Factura Kiosks, a MicroTouch division in Rochester, N.Y., is the leading U.S. supplier of kiosk housing, specializing in creative design, engineering, and manufacturing. The MicroTouch Business Products Division, formed in 1996, manufactures and markets Ibid, a touch-sensitive electronic whiteboard and PC peripheral which has won product innovation awards from such prestigious trade magazines as PC Computing and Windows.

MicroTouch Web site:

This press release contains forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements, including, without limitation, changes in competitive market positions, the potential for delays in the completion of design and engineering programs, and the pace of development of emerging markets. The forward-looking statements should be considered in light of these risks and uncertainties.

                  Consolidated Sales/Earnings Summary

(in thousands)

                           Three Months Ended      Six Months Ended
                                 June 30,             June 30,
                             1998        1997     1998      1997

Net sales                   $37,125     $32,275    $72,852  $62,351

Cost of sales                22,939      20,288     45,773   39,016
Gross profit                 14,186      11,987     27,079   23,335
Operating expenses:
  Research and development    2,252       1,946      4,566    3,773
  Sales and marketing         5,845       4,568     10,987    9,258
  General and
   administrative             2,560       2,041      4,833    3,917
  Amortization of
   intangible assets            126         119        260      238
Total operating expenses     10,783       8,674     20,646   17,186
Operating income              3,403       3,313      6,433    6,149

Other income/(expense)          (81)        355        227      733
Arbitration costs               --          595        --       595
Income before provision
 for income taxes             3,322       3,073(1)   6,660    6,287(1)
Provision for income taxes    1,063       1,106      2,131    2,263
Net income                   $2,259      $1,967(1)  $4,529   $4,024(1)

Diluted earnings per share:
  Net income per share        $0.28       $0.24(1)   $0.56    $0.49(1)
  Weighted average common
   and common equivalent
   shares outstanding         8,044       8,279      8,037    8,273

(1)Excluding non-recurring charge:
Income before provision
 for taxes                               $3,668              $6,882
Net income                               $2,348              $4,405

Fully diluted net income                  $0.28               $0.53

                      Consolidated Condensed Balance Sheets

(in thousands)

                                             June 30,    December 31,
                                               1998         1997

  Cash and marketable securities              $36,344     $34,751
  Accounts receivable, net                     19,370      17,348
  Inventories                                  17,519      19,075
  Other current assets                          8,206       7,980
  Property and equipment, net                  15,304      13,308
  Other assets                                  2,431       2,375
Total Assets                                  $99,174     $94,837

Liabilities and Stockholders' Equity
  Current liabilities                         $18,411     $15,889
  Stockholders' equity                         80,763      78,948
Total Liabilities and Stockholders' Equity    $99,174     $94,837

     MicroTouch Systems, Inc.
     Geoffrey P. Clear, 978/659-9000

Newsbit furnished by:

A: NetShift Software Ltd.
A: Hughenden Yard, Marlborough, Wilts,SN8 1LT, UK
T: +44 (0)1672 511 094
F: +44 (0)1672 511 078
E: [email protected]

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