ELSA AG—Financial Report First Quarter 1999

• Internet access products drive European expansion

• First quarter characterized by product innovations and expansion of sales infrastructure

Aachen, May 27, 1999 — ELSA AG of Aachen, Germany, one of the world’s leading suppliers of computer graphics and data communications products, increased its market share in both business segments during the first quarter of 1999 continuing its past trend of increased market share. The Company’s focus during the first three months was international expansion. With the establishment of three separate sales and marketing organizations in France, Great Britain and Italy, the expansion of the distribution network, in particular for the Internet access growth market, made significant progress. At CeBit ELSA successfully presented many product innovations, including a set of 3D glasses for computer games and a new generation of Internet access modems with the reliable ELSA quality at an aggressive price/performance level.

In the first quarter, ELSA achieved revenues of DM 76.8 million (Q1 1998: DM 84.9 million). Of these, DM 51.5 million were generated by the Computer Graphics division and DM 25.3 million by Data Communications. The Data Communications division thus increased its revenue share from 28.7% to 33.0% compared to fiscal year 1998. More than one of four DM in sales was generated abroad. The foreign portion of the total revenues in the first quarter was 27%.

The first quarter was marked by the increase in unit sales and growth in market share. These positive developments should continue as a result of the innovative products introduced at CeBit as well as the new European sales organizations which, in accordance with the Company’s business plan, have not yet contributed to operations. Year to date, the trends in the Compnay’s sales figures are already showing a clear change for the better. By late May 1999, ELSA has already generated revenues equal to those of the entire first half of 1998. By June 30, the company expects an increase in revenues of at least 15% in comparison to the same period in the year before (1st  half-year 1998: DM 137.7 million) .

Slightly negative earnings for the first quarter of 1999 result from several factors, including the costs incurred to achieve the gain in market share which is strategically vital at a time when concentration processes are prevalent, the costs incurred in the expansion of our international sales structures and the continuing pressure on prices in the consumer graphics segment. According to US-GAAP, the consolidated results for the first quarter 1999 were DM -2.3 million (Q1 1998: +1.6 million ), according to DVFA/SG results were DM - 2.7 million (Q1 1998: +1.5 million).

"We are grateful that, despite a continually difficult market place, our sales dynamics are firmly established for the foreseeable future. The first success can already be seen from our recently introduced international sales and marketing activities. The excellent market acceptance which our new Internet access products are receiving as well as the continued cooperation with our OEM partners in the graphics segment, provide confidence for the remainder of this year", explained Theo Beisch, President and CEO of ELSA. "The significant improvement in demand for ELSA products and the associated increase in revenues enable scales of economy which will positively influence our earnings. Four of our five business units are once again operating with good gross margins. In the second half of the year we will strive to escape the predatory competition of the consumer graphics segment based on innovation and differentiated products."

The expansion of our international presence, the optimization of organizational structures and the material flow, especially in the Company’s new logistics center, are further steps which will improve ELSA's economics and contribute to establish the brand name ELSA as a synonym for leadership in innovation, highest quality standards, and a competitive price/performance ratio.

Aachen, May 27, 1999

The Board