VRYA Viryanet Ltd. (MM)

ViryaNet (Nasdaq: VRYA), a leading provider of solutions that automate business processes for mobile workforce management and field service delivery, today announced financial results for its first quarter of 2006. Total revenues for the first quarter, ended March 31, 2006, were $4.0M, an increase of 27% from $3.1M of revenue recorded for the fourth quarter of 2005, and a 6% increase from $3.7M of revenue recorded for the first quarter of 2005. The Company reported a net loss of $0.7M, or $0.09 per basic and diluted share for the first quarter, ended March 31, 2006, compared to a net loss of $1.6M, or $0.22 per basic and diluted share for the fourth quarter of 2005, and compared to a net loss of $1.1M, or $0.19 per basic and diluted share for the first quarter of 2005. "In Q1, we saw growth in the sale of software licenses, improved gross margin performance, and a reduction in operating losses," stated Memy Ish-Shalom, president and CEO, ViryaNet. "The organizational realignment that we undertook earlier has provided to us focus and highlighted to the marketplace ViryaNet's superior product, domain expertise, and value proposition. This focus has resulted in new license revenue and success in cross selling our product into existing customers. We signed two new end-user deals during the quarter, and gained another end-user customer through our channel network. We've also seen a strengthening of our sales pipeline, which is being supported by marketing campaigns. Our results for Q1 indicate that we are on the track to profitability." Software license revenues were $0.5M for the first quarter of 2006, compared to $0.2M for the fourth quarter of 2005, and compared to $1.4M in the first quarter of 2005. Professional services revenues grew by 22% to $3.5M for the first quarter of 2006, compared to $2.9M for the fourth quarter of 2005, and grew by 51% from $2.3M for the first quarter of 2005. The Company reported a gross profit of $2.0M for the first quarter of 2006, or a gross margin of 49%, compared to a gross profit of $1.2M, or a gross margin of 37% in the fourth quarter of 2005, and compared to a gross profit of $1.9M, or a gross margin of 50% in the first quarter of 2005. Operating expenses for the first quarter of 2006 were $2.4M, compared to $2.5M for the fourth quarter of 2005, and compared to $2.8M for the first quarter of 2005. During the first quarter, the Company completed its organization realignment and cost reduction actions, which have both contributed to the improved financial results. The Company expects to achieve the full benefit of these cost reduction actions in the second quarter of 2006. The Company's cash position on March 31, 2006 was $0.7M, compared to $2.0M on December 31, 2005. The Company's short-term and long-term bank debt position on March 31, 2006 was $3.4M, compared to $2.2M on December 31, 2005. The Days of Sales Outstanding (DSO) for the Company in the first quarter of 2006 was 52 days, compared to 39 days in the fourth quarter of 2005. The Company also announced that it had closed $1.1 million of equity financing, which was previously announced in its press release dated May 5, 2006. In addition, the Company announced that the shareholders of the Company voted in favor of all the items in the proxy statement for the special meeting of shareholders held on June 2, 2006. As a result, the Company has increased its authorized share capital to 25,000,000 Ordinary Shares, completed the conversion of $2.0 million of its 7.5% convertible note with LibertyView to Preferred A Shares of the Company at a conversion price of $1.53 per Preferred A Share, and closed $250,000 of the $650,000 of additional equity financing approved by the shareholders on the same terms as the $1.1 million of equity financing closed previously. These recent financing activities, in combination with the financial results for the first quarter of 2006, resulted in an increase in the Company's shareholders' equity to more than $2.5 million. As a result, the Company believes it now satisfies all requirements for continued listing on The Nasdaq Capital Market, including the $2.5 million shareholders' equity requirement. However, unless and until NASDAQ renders a final determination that the Company complies with all requirements for continued listing, there can be no assurances that the Company's securities will continue to be listed on NASDAQ. About ViryaNet ViryaNet is a provider of software applications that improve the quality and efficiency of an organization's service operations. ViryaNet's products enable companies in the utilities, telecommunications, retail, insurance, and general service sectors to manage and optimize mission critical business processes, resulting in increased service revenues, decreased service costs, and maximized customer satisfaction. The robust set of applications help companies improve workforce scheduling, dispatching, and activity reporting; customer contract and entitlement automation; and asset, logistics, and depot repair management. Visit ViryaNet at www.viryanet.com. Safe Harbor Statement Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: The statements contained in this press release that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, including statements regarding ViryaNet's expectations, beliefs, intentions, or strategies regarding the capabilities of its products, its relationships with its customers, its customer purchases, its future operational plans and objectives including integration of other businesses, its future business prospects, its future financial performance, its future cash position, and its future prospects for profitability. All forward-looking statements included in this document are based upon information available to ViryaNet Ltd. as of the date hereof, and ViryaNet Ltd. assumes no obligation to update any such forward-looking statements. Forward-looking statements involve risks and uncertainties, which could cause actual results to differ materially from those projected. These and other risks relating to ViryaNet's business include market acceptance of and demand for the Company's products, risks associated with a slow-down in the economy, risks associated with the financial condition of the company's customers, risks associated with competition and competitive pricing pressures, risks associated with increases in costs and operating expenses, risks in technology development and commercialization, the risk of operating losses, risks in product development, risks associated with international sales, and other risks that are set forth in ViryaNet's reports filed from time to time with the Securities and Exchange Commission. Reported results should not be considered an indication of future performance. You should not place undue reliance on these forward-looking statements, which speak only as the date hereof. ViryaNet disclaims any obligation to publicly update or revise any such forward-looking statements to reflect any change in our expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. -0- *T CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands December March 31 31 ------------------ 2005 2006 -------- --------- Unaudited --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $2,040 $659 Trade receivables, net 1,322 2,290 Other accounts receivable and prepaid expenses 785 896 -------- --------- Total current assets 4,147 3,845 --------------------------------------------------- -------- --------- SEVERANCE PAY FUND 795 722 -------- --------- PROPERTY AND EQUIPMENT, NET 295 274 -------- --------- CUSTOMER RELATIONSHIP, NET 1,099 1,030 -------- --------- OTHER INTANGIBLE ASSETS AND DEBT ISSUANCE COST, NET 1,072 953 -------- --------- GOODWILL 7,048 7,035 -------- --------- Total assets $14,456 $13,859 --------------------------------------------------- ======== ========= VIRYANET LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands, except share and per share data December March 31 31 ------------------- 2005 2006 --------- --------- Unaudited --------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term bank credit $253 $1,659 Current maturities of long-term bank loan 698 573 Trade payables 1,074 910 Deferred revenues 3,193 2,302 Other accounts payable and accrued expenses 2,241 2,306 Loan from related party 285 230 Short-term Convertible note 407 435 --------- --------- Total current liabilities 8,151 8,415 -------------------------------------------------- --------- --------- LONG-TERM LIABILITIES: Long-term bank loan, net of current maturities 1,293 1,147 Long-term Convertible note 3,592 3,575 Accrued severance pay 1,237 1,136 --------- --------- Total long-term liabilities 6,122 5,858 -------------------------------------------------- --------- --------- COMMITMENTS AND CONTINGENT LIABILITIES SHAREHOLDERS' EQUITY: Share capital 1,769 1,780 Additional paid-in capital 112,789 112,856 Deferred stock compensation (135) (116) Accumulated other comprehensive loss (435) (459) Accumulated deficit (113,805) (114,475) --------- --------- Total shareholders' equity 183 (414) -------------------------------------------------- --------- --------- Total liabilities and shareholders' equity $14,456 $13,859 -------------------------------------------------- ========= ========= VIRYANET LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS U.S. dollars in thousands, except share and per share data Three months ended March 31 ---------------------- 2005 2006 ---------------------- Unaudited Unaudited ---------- ---------- Revenues Software licenses $1,415 $460 Maintenance and services 2,317 3,500 ---------- ---------- Total revenues 3,732 3,960 ------------------------------------------------ ---------- ---------- Cost of revenues: Software licenses 108 86 Maintenance and services 1,744 1,928 ---------- ---------- Total cost of revenues 1,852 2,014 ------------------------------------------------ ---------- ---------- Gross profit 1,880 1,946 ---------- ---------- Operating expenses: Research and development, net 780 530 Selling and marketing (1) 1402 1,168 General and administrative (1) 631 696 ---------- ---------- Total operating expenses 2,813 2,394 ------------------------------------------------ ---------- ---------- Operating loss (933) (448) Financial expenses, net (1) (142) (222) ---------- ---------- Net loss $(1,075) $(670) ========== ========== Basic and diluted net loss per share $(0.19) $(0.09) ========== ========== Weighted average number of shares used in computing basic and diluted net loss per Ordinary share 5,737,511 7,360,324 ========== ========== (1) The breakdown of stock-based compensation over expenses is as follows: Selling and marketing 10 10 General and administrative 28 38 Financial expenses 9 7 ---------- ---------- Total $47 $55 ------------------------------------------------ ========== ========== *T