SAN DIEGO, Oct. 17 /PRNewswire-FirstCall/ -- BAKBONE SOFTWARE (TSX: BKB; PK: BKBO) publishes an open letter to shareholders, customers and strategic partners from president and CEO, Jim Johnson. Dear Fellow Stakeholders: While the past several months have been a period of uncertainty for our shareholders, customers and strategic partners, it has also been a time of growth and development with BakBone continuing to outpace industry growth trends. Notwithstanding the challenges we have endured over the past year including the change in our independent auditors, as well as our review of and change in a number of our financial and accounting processes, I continue to have the utmost confidence in the Board of Directors, executive management and employees of BakBone Software as we work through this process. In reviewing the past two quarters for fiscal year 2006, many of the metrics we have been carefully tracking show positive trends. As stated in previous open communications, the fundamentals of the business remain strong and we are taking advantage of many growth opportunities to move this organization to the next level. Following are some of the highlights we are seeing as we move into the second half of our fiscal year. Adding to our existing worldwide customer base of 12,000, our global client list continues to expand. During the first two quarters of fiscal year 2006, 2300 new customers became BakBone end users including NTT (Japan), Bank of Taiwan, Oil and Gas Corporation of India, the Korean Navy and Serena Rosso (Australia) in the Pacific Rim; DDB Worldwide Communications Group-Chicago, Macy's, Wireless Services Corporation, Georgetown National Biomedical Research Center and North Carolina Central University in North America; and BBC (British Broadcasting Corp.) and Muller Dairy in our EMEA (Europe, Middle East and Africa) region. While this is not an inclusive list of new customers, it is an excellent representation of the quality of customer we are adding to our global customer roster. -- During Q1 and Q2 FY06, approximately 60 percent of new bookings in North America were derived from new customers with approximately 40 percent coming from repeat customers. This compares with the metric reported in January 2005 of 75 percent of total new bookings derived from new customers and 25 percent from repeat customers signaling a strong trend that current end users continue to buy and believe in BakBone products. -- The competitive landscape is crowded, but the majority of all transactions in North America continue to be Veritas replacements -- a solid indicator of BakBone's competitive strengths in the marketplace. -- Our maintenance attach rate remains high in North America at 100 percent with our retention rate at approximately 90 percent. While our maintenance retention rate on a global basis is good, this is a revenue opportunity that has not been fully leveraged. We have set in place additional processes to capture the data required to improve maintenance renewals and expect a significant increase over the next few quarters on a worldwide basis. -- Our backup server operating system breakdown in North America and the EMEA region reflect Microsoft at approximately 50 percent, Linux at 35 percent, and Unix at 10 percent with the balance representing other operating systems. While this metric is remaining fairly consistent, we are witnessing a slight increase in NetVault purchases for Linux operating systems. -- The upcoming release of NetVault 7.4 offers several enhancements of scalability, security and performance, including: -- Media allocation improvements to increase scalability -- Fault tolerance resulting in improved product performance -- New command line interface tools to enable script-based job definitions and improve operational efficiency -- Enhanced filter capabilities resulting in a reduction of GUI clutter -- As a result of recent quality assurance testing, NetVault 7.4 has proven to perform in some of the world's most challenging IT environments. The newest version of NetVault offers unprecedented performance in environments of more than 80 filers connecting to 60 drives while remaining easy to use. NetVault 7.4 is able to manage more clients and tape drives than ever before making it a true enterprise-class product. -- To meet increasing product demand from the marketplace, the Company increased the size of its research and development team during the first two quarters. By establishing offshore development and quality assurance labs to compliment our existing engineering resources, BakBone has nearly doubled the size of its R&D team while capturing the associated cost savings. The Company is reaping the benefits of an increased quality focus through improved customer satisfaction and a reduction in support costs. -- We added Ken Horner as senior vice president for corporate development and strategy in September. In his new role, Ken will be responsible for strategic business development, as well as the worldwide rollout of BakBone's corporate strategy and vision. With 20 years of storage, networking, and enterprise software management experience, most recently Horner has been involved in defining BakBone's ongoing market positioning and strategic vision, serving as a corporate development consultant to the Company since February 2005. Horner's previous experience includes executive management positions at DataCore Software, Seagate Technology, Sterling Software, Tech Data Corporation, and Rexon/Wang Tek. As DataCore's vice president of worldwide marketing and channel operations, Horner spent four years successfully leading corporate partnering, worldwide market and multi-tiered channel definition, technology acquisition and strategic alliance efforts on a global basis. As part of Seagate Software's executive management team, Horner was instrumental in building and managing the Storage Management Group, including the development of the Backup Exec product line, from its inception (as Arcada Software) through its sale to VERITAS. -- For the six months ended September 30, 2005, total worldwide bookings(*) were $20.7 million from the sale of software license and maintenance contracts representing a 27 percent increase over $16.2 million for the same period of fiscal year 2005. Comparing the first two quarters FY06 with the same period in FY04, the Company's total worldwide bookings increased 55 percent from $13.3 million. -- We continue to be debt free and the cash balance as of the end of September, 2005 was $14.7 million. This represents a reduction in cash of $3.3 million from the $18.0 million reported at the end of May 2005. During the first half of FY06 we continued to re-invest in the infrastructure of the Company including marketing, capital equipment, research and development, and business development. Significant expenses specific to SOX and audit-related fees continued to hit the bottom line during fiscal Q1 and Q2, however, these costs are more in line with expectations as we move through fiscal Q3 FY06. *Bookings represent the total dollar value of contracts signed during the period. The revenue associated with bookings will be recognized in accordance with our revenue recognition policies. Strategic Growth Opportunities Many questions from our shareholders revolve around the growth opportunity model for the Company. As evidenced by the positive feedback received by numerous BakBone employees, our stakeholders continue to believe in the future of this organization and the expanding business prospects for BakBone Software as demonstrated below. Apple Early trend analysis indicates that NetVault for Apple's Mac OS X Server to be a strong growth opportunity for the Company. With Mac OS X, as we have done with Linux, we continue to create areas of expertise that put us ahead of the competition. NetVault 7.3.1 for Mac OS X Server version 10.4 "Tiger" with a native Mac user interface was released for general availability (GA) on September 20 and is the first enterprise-class backup and recovery solution modeled after Apple's Server Manager user interface and combines enhanced data protection with unique networked storage functionality. This was, by far, one of the most successful announcements in BakBone's history. While released close to the end of our second quarter FY06, we are already seeing impressive sales traction. Product reviews are strong and product quality excellent. In addition, the following touch points are important to note: -- BakBone's NetVault for Apple's Mac OS X Server is slated to be on the shelves of Apple stores shortly. -- Leveraging Apple's leadership in the education market, this is BakBone's strongest market vertical to date for NetVault on Apple. Some early wins include the University of Utah, Hollins University and Rush Henrietta Schools. -- BakBone's knowledge base of the global storage market is proving well suited to Apple's expansion plans for its storage business. This works well for BakBone's future strategic partnership opportunities with Apple. NCR/Teradata BakBone's OEM relationship with Teradata continues to expand. Working closely with Teradata's backup and recovery (BAR) engineering team as well as storage hardware partners SUN/StorageTek, EMC, and Engenio, Teradata is scheduled to release a disk-to-disk/disk-to-disk-to-tape option in late fiscal Q3 based on NetVault's virtual tape library (VDL) and shared virtual tape library (SVDL) features. This provides Teradata customers higher reliability for backups and faster restores. In parallel, Teradata will offer a Linux version of NetVault in late fiscal Q3 in support of end users incorporating a Linux enterprise computing strategy. Working together with representatives from Teradata and SUN/StorageTeK, BakBone met with numerous Teradata customers and prospects to discuss BAR design and implementation options at the most recent Teradata Partners annual users' group meeting and trade show held earlier this month. Network Appliance Network Appliance continues to be a strong supporter and strategic partner for BakBone. Both BakBone and Network Appliance (NTAP) agree that together we can mutually help customers maximize data protection and make available industry-leading data protection solutions at the lowest total cost of ownership. Some encouraging data points for growth include: -- BakBone shares with NTAP the largest worldwide distributor of NTAP products, Arrow Electronics, and continues to see increased bookings grow through this mutually strategic product distributor quarter-over-quarter. -- Through the NTAP partnership, BakBone is able to leverage its worldwide presence and scale in large enterprise accounts beyond a single region, i.e. Yahoo!, Shell Oil. Integrated Data Protection (IDP) As announced last week, BakBone's Integrated Data Protection (IDP) strategy is officially off the ground. This new corporate vision allows IT organizations to centrally manage and control access and availability of data in order to more effectively meet business, operating and financial objectives. BakBone will use its IDP building-block approach to integrate and automate different data storage and protection products and functionality. Unlike competitive offerings that consist of separate point products that lack coordination and require manual administration, IDP will provide a holistic view and centralized management of a range of data storage and protection technologies such as replication, archiving and continuous data protection, as well as the Company's award-winning NetVault backup and recovery software. As progress is made on this strategic vision on multiple fronts, we will be in a position to bring to market comprehensive, heterogeneous data protection to meet the changing environments and requirements of our customers, strategic partners and the overall market. Stay tuned on this one! Financial Audit Update So, where do we stand today with the publishing of the Company's financial reports? The good news is that we are confident there is an end in sight. We are working through the iterative audit process with our former auditors. We have made available all supporting documentation for revenue transactions from fiscal years 2003 and 2004 in order that they can complete their audits for these periods. Let me again state that revenues previously recognized in prior years will all be recognized, but we must ensure the appropriate accounting treatment of revenues to assure that they are recognized in the proper period. We are making progress, but it is slower than anticipated. We are working diligently to get the Company through this stage of its financial audits. When a public company changes its revenue recognition policy, it is an exhaustive process which requires the detailed review of transactions which have transpired over many years. At such time as our financial reports are finalized, we will be in a position to file the delayed financials with the U.S. Securities and Exchange Commission and the Canadian Securities Commissioners. Simultaneously, we will file the appropriate applications to resume trading on the Toronto Stock Exchange, as well as the Over-the-Counter Bulletin Board. As much as we would like to predict the date when this work will be completed, there are important parts of the process we do not control. When it becomes possible for us to determine a completion date for the audit work and filing of our financial statements, we will immediately make the appropriate disclosures. Coming up next month, we will meet with institutional investors to talk about our IDP vision during the American Electronics Association (AEA) Classic to be held in San Diego November 7-9. While not a presenter this year, we have set aside time during the conference to meet with investors to discuss the growth of the Company, its current operational progress and future business and development opportunities. We trust the above information specific to our operational progress provides a strong indicator that our primary objective is to grow this organization and be a major player in the data protection market. As I have said before in my communications, we are committed to our shareholders, customers and strategic partners. I can assure you the goal of maximizing shareholder value continues to be the primary focus of all of our activities. Sincerely, Jim Johnson President and CEO Safe Harbor This communication contains forward-looking statements that involve risks, uncertainties, assumptions and other factors, which, if they do not materialize or prove correct, could cause BakBone's results to differ materially from those expressed or implied by such forward-looking statements. These statements include, among others, any statements, express or implied, regarding BakBone's anticipated timing for the completion of its financial statements and internal controls evaluation, the prospects for continued liquidity in the Company's stock and anticipated growth in the market for the Company's products. The potential risks and uncertainties may include, but are not limited to, risks that the review of our financial statements and internal controls evaluation will result in adjustments, which may be material, that the Company does not currently anticipate; risks that accounting issues other than those we have identified may cause additional delays or adverse consequences; risks that the review and filing of our financial statements may not be completed in accordance with our expectations as to timing; and risks that our stock will not be relisted on the TSX or the OTCBB; competition in our target markets, potential capital needs, management of future growth and expansion, risk of third-party claims of infringement, protection of proprietary information, customer acceptance of the Company's products and fee structures, and the success of BakBone's brand development efforts; risks associated with strategic alliances, reliance on distribution channels, product concentration, need to develop new and enhanced products, potential product defects, our ability to hire and retain qualified employees and key management personnel, and risks associated with changes in domestic and international market conditions and the entry into and development of international markets for the Company's products. Our forward-looking statements should be considered in the context of these and other risk factors disclosed in our most recent report filed with the Securities and Exchange Commission, which may be found at http://www.sec.gov/, as well as those risk factors disclosed in the current report filed with the Canadian Securities Administrators, which is available on SEDAR at http://www.sedar.com/. All future written and oral forward-looking statements made by us or on our behalf are also subject to these factors. BakBone assumes no obligation to update any forward-looking statement to reflect events or circumstances arising after the date on which it was made. Contact: BakBone Corporate/Investor Relations Karen Fisher 858-795-7525 BakBone Media Contact Dani Kenison 858-795-7584 DATASOURCE: BAKBONE SOFTWARE CONTACT: Karen Fisher of BakBone Corporate/Investor Relations, +1-858- 795-7525, or , or Dani Kenison, BakBone Media Contact +1-858-795-7584, or , both for BAKBONE SOFTWARE Web site: http://www.bakbone.com/

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