VRYA Viryanet Ltd. (MM)

ViryaNet Limited (Nasdaq: VRYA), a leading provider of software applications that automate business processes for mobile workforce management and field service delivery, today announced financial results of its second fiscal quarter of 2006. Total revenues for the second quarter, ended June 30, 2006, were $3.9M, a 14% increase from $3.4M recorded for the second quarter of 2005, and a 2.5% decrease from $4.0M recorded for the first quarter of 2006. For the first six months of 2006, total revenues were $7.8M, an increase of 10% from the $7.1M of revenue recorded for the comparable period in 2005. Net income for the second quarter of 2006 was $0.4M or $0.05 per basic and diluted share, compared to a net loss of $1.4M or $0.23 per basic and diluted share for the second quarter of 2005, and compared to a net loss of $0.7M or $0.09 per basic and diluted share for the first quarter of 2006. The net loss for the first six months of 2006 was $0.3M or $0.03 per basic and diluted share, compared to a net loss of $2.5M or $0.41 per basic and diluted share for the comparable period in 2005. The net income for the second quarter of 2006 and the first six months of 2006 includes a one-time financial income of $0.7M related to the conversion of $2.0M of long-term convertible debt to Preferred A Shares during the quarter. The Company accounted for this transaction as an early extinguishment of the convertible debt, and accordingly, the income is the difference in the net carrying amount of the debt before the conversion ($2.4M) compared to the fair value of the Preferred A Shares issued in the conversion ($1.7M). This one-time income was recorded as financial income in the statements of operations. Operating results for the second quarter of 2006 were essentially break-even with an operating loss of $15,000, compared to an operating loss of $1.3M for the second quarter of 2005, and compared to an operating loss of $0.4M for the first quarter of 2006. The operating results for the second quarter of 2006 reflect the full benefit of the organization realignment and cost reduction actions taken during the first quarter of 2006 that resulted in substantial savings in operating expenses and cost of services. "We are pleased with the improvement we have made in our operating results for this quarter compared to prior periods. We are committed to achieving sustained profitability and it is reassuring to see the progress we have made and the benefits from the actions taken reflected in the results for the quarter," stated Memy Ish-Shalom, President and CEO, ViryaNet. "We have made significant improvements in ViryaNet during the quarter and expect continued benefit from these efforts, including initiatives to better serve our customers and streamline our operations which resulted in four new customer wins including significant channel deals that opened up two new markets for us. We also continued our focus on quality and customer satisfaction, and brought three customers live with our products." Software license revenues were $365,000 in the second quarter of 2006, compared to $27,000 for the second quarter of 2005, and compared to $460,000 in the first quarter of 2006. Professional services revenues grew 4% to $3.5M for the second quarter of 2006 compared to $3.4M for the second quarter of 2005, and was similar to the $3.5M for the first quarter of 2006. The Company reported a gross profit of $1.9M for the second quarter of 2006 or a gross margin of 50.2%, compared to a gross profit of $1.4M or a gross margin of 40.8% in the second quarter of 2005, and compared to a gross profit of $1.9M or a gross margin of 49.1% in the first quarter of 2006. Operating expenses for the second quarter of 2006 were $2.0M compared to $2.7M for the second quarter of 2005, and compared to $2.4M for the first quarter of 2006. The Company's cash position on June 30, 2006 was approximately $1.2M compared to $0.7M on March 31, 2006. The Company's short-term and long-term bank debt position on June 30, 2006 was $2.3M compared to $3.4M on March 31, 2006. During the second quarter of 2006, the Company closed $1.3M of private equity financing and converted $2.0M of its long-term convertible debt into equity. The Days of Sales Outstanding (DSO) for the Company in the second quarter of 2006 was 49 days, compared to 52 days in the first quarter of 2006. New Sales In the second quarter, the Company closed four new accounts: two with new channel partners -- Mitchell International, and Asplundh Tree Expert Co. through the Company's business alliance with Enporion and CNUC, and two with new customers -- City of Lubbock, through GE, and the Building Commission in Australia. New Vertical Markets The channel deals mentioned above establish the Company's presence in two new vertical markets. Asplundh, the leader in utility vegetation management, has signed a distribution agreement to bring the Electronic Vegetation Management System (eVMS) product to its customers in North America, United Kingdom, Australia, and New Zealand. Mitchell International, the leading supplier of information products, software, and e-business solutions for the insurance, property and casualty, medical claims, automotive collision repair, and glass replacement industries, will market the ViryaNet solution with its existing offering into its growing installed base of customers and new prospects in the insurance industry. 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 utility, telecommunications, retail, insurance, and general service sectors to manage and optimize mission critical business processes. ViryaNet helps companies improve the full spectrum of workforce management processes, including customer interactions, managing work through more efficient scheduling and dispatching and right time field communication. By focusing on managing the exceptions, ViryaNet is able to provide its customers with a greater degree of value than other providers. The results are improved operational performance, a better customer experience and a higher degree of regulatory compliance. 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 Form 20-F, dated June 30, 2006, and the other 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 VIRYANET LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands December June 31, 30, ----------- ----------- 2005 2006 ----------- ----------- Unaudited ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,040 $ 1,153 Trade and unbilled receivables, net 1,322 2,086 Other accounts receivable and prepaid expenses 785 754 ---------- ---------- Total current assets 4,147 3,993 ----- ---------- ---------- SEVERANCE PAY FUND 795 784 ---------- ---------- PROPERTY AND EQUIPMENT, NET 295 239 ---------- ---------- CUSTOMER RELATIONSHIP, NET 1,099 981 ---------- ---------- OTHER INTANGIBLE ASSETS AND DEBT ISSUANCE COST, NET 1,072 832 ---------- ---------- GOODWILL 7,048 7,054 ---------- ---------- Total assets ----- $ 14,456 $ 13,883 ========== ========== VIRYANET LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands December 31, June 30, ------------- ----------- 2005 2006 ------------- ----------- Unaudited ----------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term bank credit and loan $ 253 $ 749 Current maturities of long-term bank loans 698 573 Trade payables 1,074 711 Deferred revenues 3,193 2,692 Other accounts payable and accrued expenses 2,241 2,095 Loan from related party 285 173 Short-term Convertible note 407 465 ------------ ---------- Total current liabilities 8,151 7,458 ----- ------------ ---------- LONG-TERM LIABILITIES: Long-term bank loan, net of current maturities 1,293 1,004 Long-term Convertible note 3,592 1,170 Accrued severance pay 1,237 1,206 ------------ ---------- Total long-term liabilities 6,122 3,380 ----- ------------ ---------- SHAREHOLDERS' EQUITY: Share capital 1,769 2,448 Additional paid-in capital 112,789 115,088 Deferred stock compensation (135) - Accumulated other comprehensive loss (435) (423) Accumulated deficit (113,805) (114,068) ------------ ---------- Total shareholders' equity 183 3,045 ----- ------------ ---------- Total liabilities and shareholders' equity $ 14,456 $ 13,883 ----- ============ ========== VIRYANET LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS U.S. dollars in thousands, except share and per share data Three months ended Six months ended June 30, June 30, ----------------------- ----------------------- 2006 2005 2006 2005 ----------------------------------------------- Unaudited ----------------------------------------------- Revenues: Software licenses $ 365 $ 27 $ 825 $ 1,442 Maintenance and services 3,497 3,375 6,997 5,692 ---------- ---------- ---------- ---------- Total revenues 3,862 3,402 7,822 7,134 ----- ---------- ---------- ---------- ---------- Cost of revenues: Software licenses 110 57 196 165 Maintenance and services (1) 1,814 1,958 3,742 3,702 ---------- ---------- ---------- ---------- Total cost of revenues 1,924 2,015 3,938 3,867 ----- ---------- ---------- ---------- ---------- Gross profit 1,938 1,387 3,884 3,267 ---------- ---------- ---------- ---------- Operating expenses: Research and development (1) 500 600 1,030 1,380 Selling and marketing (1) 758 1,409 1,926 2,812 General and administrative (1) 695 674 1,392 1,304 ---------- ---------- ---------- ---------- Total operating ----- expenses 1,953 2,683 4,348 5,496 Operating loss (15) (1,296) (464) (2,229) Financial income (expenses), net (1) 423 (82) 201 (224) ---------- ---------- ---------- ---------- Net income (loss) 408 $ (1,378) (263) $ (2,453) ========== ========== ========== ========== Basic and diluted earnings (losses) per share $ 0.05 $ (0.23) $ (0.03) $ (0.41) ========== ========== ========== ========== Weighted average number of shares used in computing basic earnings (losses) per share 8,545,365 6,096,626 7,963,962 5,917,068 ========== ========== ========== ========== Weighted average number of shares used in computing diluted earnings (losses) per share 9,641,253 6,096,626 7,963,962 5,917,068 ========== ========== ========== ========== (1) Stock-based compensation expense is included in the following line items: Cost of revenues $ 2 $ - $ 2 $ - Research and development 1 - 1 - Selling and marketing 9 13 19 24 General and administrative 42 16 81 31 ---------- ---------- ---------- ---------- Total $ 61 $ 29 $ 117 $ 55 ----- ========== ========== ========== ========== *T