HDS Network Systems Inc. (Nasdaq: HDSX), a leading international supplier of network computers and related software, Wednesday reported that net income for the second quarter of its year ending June 30, 1997 rose 53% on a sales increase of 52% when compared with the second fiscal quarter of the prior year.

Revenues for the second quarter ended Dec. 31, 1996 totaled $8,924,802 compared to $5,888,739 for the same period last year, an increase of 52% and a record for the company. The company's revenues for the current quarter represent shipments of its new line of network computers and related Windows NT application server software and integration services.

Revenues for the comparative quarter in the prior year represent shipments of the company's X terminal product line, which the company marketed and manufactured prior to the introduction of its network computers.

Network computers provide an alternative to personal computers in business enterprises, and are characterized by significantly lower cost of ownership and administration. HDS's network computer, the @workStation(TM), offers companies a new computing model which combines integrated Internet access, Java and the ability to run Windows(TM), Unix and mainframe applications in a low-cost desktop.

HDS's gross margin for the second quarter ended Dec. 31, 1996 was $2,539,932 or 28% of revenues, an increase from $1,418,947 or 24% for the second quarter a year ago. The improvement in gross margin was a result of achieving higher gross margins on the network computer product line, which has higher margins than the company's older products even with comparatively lower selling prices.

The company anticipates that gross margins will vary from quarter to quarter depending on the mix of business, including the mix of hardware and software revenues.

Net income for the three months ended Dec. 31, 1996, increased to $543,979, from $355,134 in the same period a year ago, an increase of 53%. Earnings were 7 cents per share for the second quarter of fiscal 1997 on 10,937,536 shares outstanding, compared to earnings of 6 cents on 5,640,136 shares in the comparable period last year.

Compared to the prior year's quarter, HDS has more than doubled its investment in research and development and doubled its investment in sales and marketing, reflecting the company's investment to establish a leadership position in the network computer market.

"Our sales performance in the second quarter was driven by strong growth in HDS's shipment of its network computer," Arthur Spector, chairman, president and chief executive officer of HDS Network Systems, stated. "In particular, HDS received an order for 1,000 @workStation Network Computers from AARP's Retired Persons Services.

"We believe this market acceptance by prestigious end-users provides HDS momentum to build on in the coming quarters. In addition, the acceptance of the @workStation is testimony to the benefits and cost savings the network computer brings to our customers. As a result HDS is well positioned to capitalize on its leadership position in this emerging market," Spector added.

For the six month period ended Dec. 31, 1996, net revenues increased to $12,380,422 from $12,005,083 in the comparable period a year ago. The company reported gross margins of 31% of revenue as compared to 23% in the prior year period.

Net income for the six months ended Dec. 31, 1996 was $556,266 as compared to $753,602 in the six month period ended Dec. 31, 1995, reflecting significant increases in the company's investments in both sales and marketing and research and development related to the June 1996 introduction of the network computer.

Earnings were 9 cents per share for the six month period ended Dec. 31, 1996, on 10,935,925 shares outstanding, compared to earnings of 13 cents on 5,640,136 shares in the comparable period ended Dec. 31, 1995.

HDS Network Systems Inc. is a leading international supplier of network computers and related software which are cost-effective solutions for the integration and delivery of information and applications to the desktop.

The company's network computers are based on an open architecture, incorporating industry standards to enable seamless access to multiple forms of information, including text, graphics, audio and video data, on any type of network.