Arel Announces Second Quarter of 2002 Results; Arel Forecasts Financial Improvement for the Third Quarter of 2002.Business Editors/High-Tech Writers YAVNE Yavne (Hebrew: יבנה, Arabic: يبنة Yibnah, Latin: Iamnia , Israel--(BUSINESS WIRE)--Aug. 22, 2002 Arel Communications and Software Limited (Nasdaq:ARLC ARLC Automatic Revolving Letter of Credit ) announced today the consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: results for the second quarter of 2002 as well as the first 6 months of 2002. Consolidated revenues from sales and services reached $1,071,000, a decrease of 61% compared to $2,746,000 of revenues in the first quarter of 2002, and a decrease of 31% compared to $1,560,000 of revenues in the second quarter of 2001. Revenues for the first 6 months of 2002 were $3,817,000, a decrease of 16% compared to revenues of $4,566,000 for the first 6 months of 2001. Second quarter 2002 consolidated net loss was $2,323,000 (excluding the amortization of goodwill of $141,500) compared to a net loss of $2,430,000 (excluding the amortization of goodwill of $548,000 and restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). costs of $448,000) during the second quarter of 2001. Basic and fully diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. loss per share for the second quarter of 2002 was $0.18 (excluding the amortization of goodwill) and $0.19 (including the amortization of goodwill), compared to a loss per share of $0.19 (excluding the amortization of goodwill and restructuring cost) and $0.27 (including the amortization of goodwill and restructuring cost) during the second quarter of 2001. Basic and fully diluted loss per share for the first 6 months was $0.26 (excluding the amortization of goodwill) and $0.28 (including the amortization of goodwill), compared to $0.26 (excluding the amortization of goodwill and restructuring costs) and $0.38 (including the amortization of goodwill and restructuring costs) for the first 6 months of 2001. Consolidated gross profit for the second quarter of 2002 was $476,000, a decrease of 26% compared to $641,000 in the second quarter of 2001, and a decrease of 57% compared to the consolidated gross profit of $1,100,000 in the first quarter of 2002. These changes were primarily due to a difference in the mix of products sold. R&D expenses in the second quarter of 2002 were $606,000 excluding a one time charge of $264,000 from the Chief Scientist of Israel Israel, in the Bible Israel (ĭz`rēəl, ĭz`rāəl) [as understood by Hebrews,=he strives with God], according to the book of Genesis, name given to Jacob as eponymous ancestor of the Hebrews, the chosen people of God. , compared to $523,000 of R&D expenses in the second quarter of 2001. R&D Expenses for the second quarter of 2002, including the one time charge of Chief Scientist were $869,000. Marketing, sales, general and administrative expenses in the second quarter of 2002 were $1,972,000, a decrease of 27% compared to $2,718,000 in the second quarter of 2001. Outlook Arel is currently negotiating for the sale of its IDEAL e-learning (Electronic-LEARNING) An umbrella term for providing computer instruction (courseware) online over the public Internet, private distance learning networks or inhouse via an intranet. See CBT. solution to several Fortune 500 customers. If any of these transactions are completed, Arel expects that the revenues generated from these contracts will have a substantial favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. impact on third quarter results. Arel also announces that it has substantially reduced its expense structure. The Company is in the process of cutting its SG&A expenses in the third quarter by approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. one third, compared to the first quarter of 2002. This is has resulted primarily from a decrease in headcount head count or head·count n. 1. The act of counting people in a particular group. 2. The number of people counted in this way. Noun 1. , as well as reductions in office space utilization utilization, n 1. the extent to which a given group uses a particular service in a specified period. Although usually expressed as the number of services used per year per 100 or per 1000 persons eligible for the service, utilization rates may be and lease terminations. The Company expects to operate at this reduced level of SG&A expenses in the fourth quarter of 2002 as well. Arel is maintaining a strong and stable level of R&D investment in order to continuously enhance its existing offerings and introduce new products, in line with the Company's overall strategy to dominate the e-learning market that requires sophisticated infrastructure-based solutions and services. Arel is also experiencing an improvement in its cash resources, which, as of August 14, 2002, were $11,240,000. Philippe Szwarc, the recently appointed ap·point tr.v. ap·point·ed, ap·point·ing, ap·points 1. To select or designate to fill an office or a position: appointed her the chief operating officer of the company. 2. Chief Executive Officer of Arel, comments: "The new management team is diligently dil·i·gent adj. Marked by persevering, painstaking effort. See Synonyms at busy. [Middle English, from Old French, from Latin d working to finalize fi·nal·ize tr.v. fi·nal·ized, fi·nal·iz·ing, fi·nal·iz·es To put into final form; complete or conclude: "They have jointly agreed ... substantial deals with key-customers, while aggressively reducing our overall expense structure, and adapting it to our revenue levels. Consequently, we expect that Q3 will constitute a turning point in our strategy, towards re-establishing Arel as a dominant player in the e-learning and corporate communication arenas." About Arel Communications and Software Arel Communications and Software, Ltd., Yavne, Israel and its U.S. subsidiaries, Arel Communications and Software, Inc., and Arel Learning Solutions Inc., (www.arel.net) market the IDEAL family of products, including its innovative Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the Protocol-based Spotlight Spotlight can refer to at least three types of lighting:
(jargon) off-line - (Or "offline") 1. Not directly connected to the computer (e.g., an off-line tape drive), or with connection suspended ("take the printer off-line"). Contrast background, on-line. 2. Not now or not here. (asynchronous Refers to events that are not synchronized, or coordinated, in time. The following are considered asynchronous operations. The interval between transmitting A and B is not the same as between B and C. The ability to initiate a transmission at either end. ) content on a single platform. Powered by Arel's IDEAL engine, Spotlight integrates authoring and management tools, interactive delivery, evaluation, analysis, tracking and reporting. Arel IDEAL(TM), Arel Spotlight(TM), Arel Spotlight On-Demand On-Demand refers to a service or feature which addresses the user's need for instant gratification and immediacy of use. In most cases the value proposition for an on-demand service is wrapped up in the fact that the user or consumer of the service avoids a significant up-front (TM) and Arel Campus(TM) are trademarks of Arel Communications and Software Ltd. All other trade names are the properties of their respective owners. Certain statements made herein that are not historical are forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. The words "estimate", "project", "intend", "expect", "believe", "hopeful" and similar expressions are intended to identify forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . These forward-looking statements involve known and unknown risks and uncertainties. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. by such forward-looking statements, including, among others, changes in general economic and business conditions, inability to maintain market acceptance to the Company's products, inability to timely develop and introduce new technologies, products and applications, rapid changes in the market for the Company's products, loss of market share and pressure on prices resulting from competition, introduction of competing products by other companies, inability to manage growth and expansion, loss of key partners, inability to attract and retain qualified personnel, inability to protect the Company's proprietary technology and risks associated with the Company's international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. and its location in Israel. For additional information regarding these and other risks and uncertainties associated with the Company's business, reference is made to the Company's reports filed from time to time with the Securities and Exchange Commission. (Tables to Follow)
AREL COMMUNICATIONS AND SOFTWARE LTD.
(An Israeli Corporation)
CONDENSED CONSOLIDATED BALANCE SHEET
AT June 30th, 2002
(Unaudited)
June 30 December 31,
-------------
2002 2001 2001
---- ---- ----
U.S. dollars in thousands
-------------------------
A s s e t s
CURRENT ASSETS:
Cash and cash equivalents 3,109 8,986 5,382
Short-term investments 7,772 6,535 8,340
Accounts receivable:
Trade 3,429 4,043 3,505
Other 841 1,097 716
Inventories 1,271 2,500 2,265
------ ------ ------
T o t a l current assets 16,422 23,161 20,208
------ ------ ------
INVESTMENTS AND LONG-TERM RECEIVABLE:
Investment in Arelnet Ltd. 404 2,383 404
Loans to employees, net of current
maturity 37 67 41
------ ------ ------
441 2,450 445
------ ------ ------
PROPERTY, PLANT AND EQUIPMENT:
Cost 3,761 3,494 3,906
L e s s - accumulated depreciation 2,089 1,152 1,862
------ ------ ------
1,672 2,342 2,044
------ ------ ------
GOODWILL, net of accumulated amortization 4,575 20,133 4,858
------ ------ ------
23,110 48,086 27,555
====== ====== ======
Liabilities and shareholders' equity
CURRENT LIABILITIES:
Short-term bank credit 38 114 16
Accounts payable and accruals:
Trade 650 700 890
Other 4,016 4,520 4,594
------ ------ ------
T o t a l current liabilities 4,704 5,334 5,500
------ ------ ------
LONG-TERM LIABILITIES:
Liability for employee rights upon
retirement, net of amount funded 304 350 311
Bank loan, net of current maturities
Other 29 144 69
------ ------ ------
T o t a l long-term liabilities 333 494 380
------ ------ ------
T o t a l liabilities 5,037 5,828 5,880
------ ------ ------
SHAREHOLDERS' EQUITY:
Share capital 4 4 4
Capital surplus 52,740 52,740 52,740
Warrants and options 1,395 1,395 1,395
Accumulated deficit (36,066) (11,881) (32,464)
------ ------ ------
18,073 42,258 21,675
------ ------ ------
23,110 48,086 27,555
====== ====== ======
AREL COMMUNICATIONS AND SOFTWARE LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX AND THREE MONTH PERIODS ENDED JUNE 30, 2002
Six months Three months Year
ended ended ended
June 30 June 30 December
------------ ------------ 31,
2002 2001 2002 2001 2001
---- ---- ---- ---- ---------
(Unaudited) (Unaudited) (Audited)
------------ ------------ ---------
U.S. dollars in thousands, except
loss per share
REVENUES FROM SALES AND
SERVICES 3,817 4,566 1,071 1,560 9,412
COST OF SALES AND SERVICES 2,241 2,167 595 919 4,321
----- ----- ----- ----- -----
GROSS PROFIT 1,576 2,399 476 641 5,091
RESEARCH AND DEVELOPMENT
EXPENSES - net 1,199 923 869 523 1,943
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,908 5,331 1,972 2,718 9,323
AMORTIZATION OF GOODWILL 283 1,096 142 548 1,795
IMPAIRMENT OF GOODWILL 14,576
RESTRUCTURING EXPENSES 448 448 961
----- ----- ----- ----- -----
OPERATING LOSS (3,814) (5,399) (2,507) (3,596) (23,507)
FINANCIAL INCOME - net 212 468 42 170 883
IMPAIRMENT OF INVESTMENT IN
ARELNET LTD. (2,890)
----- ----- ----- ----- -----
NET LOSS FOR THE PERIOD (3,602) (4,931) (2,465) (3,426) (25,514)
===== ===== ===== ===== ======
BASIC AND DILUTED LOSS PER
SHARE (0.28) (0.38) (0.19) (0.27) (1.98)
===== ===== ===== ===== ======
Net loss for the period as
reported (3,602) (4,931) (2,465) (3,426) (25,514)
Adjustments to reconcile net
loss for the period to net
loss excluding unusual items:
Amortization of goodwill 283 1,096 142 548 1,795
Impairment of goodwill 14,576
Restructuring expenses 448 448 961
Impairment of investment
in Arel Net Ltd. 2,890
----- ----- ----- ----- -----
Net loss excluding unusual
items: (3,319) (3,387) (2,323) (2,430) (5,292)
===== ===== ===== ===== ======
Basic and diluted loss per
share excluding unusual
items: (0.26) (0.26) (0.18) (0.19) (0.42)
===== ===== ===== ===== ======
AREL COMMUNICATIONS AND SOFTWARE LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX AND THREE MONTH PERIODS ENDED JUNE 30, 2002
Share capital
-----------------
Number of Capital Accumulated
Shares Amount surplus Warrants deficit Total
--------- ------ ------- -------- ----------- -----
U.S. dollars in thousands
--------------------------------------------------------
BALANCE AT
JANUARY 1,
2002
(audited) 12,855,739 4 52,740 1,395 (32,464) 21,675
CHANGES DURING
THE 6 MONTHS
ENDED JUNE
30, 2002
(unaudited)
Loss (3,602) (3,602)
---------- ------ ------ ----- -------- -------
BALANCE AT
JUNE 30,
2002
(unaudited) 12,855,739 4 52,740 1,395 (36,066) 18,073
========== ====== ====== ===== ======== ======
BALANCE AT
JANUARY 1,
2001
(audited) 12,853,739 4 52,738 1,395 (6,950) 47,187
CHANGES DURING
THE 6 MONTHS
ENDED JUNE
30, 2001
(unaudited):
Loss (4,931) (4,931)
Exercise of
options 2,000 (a) 2 2
---------- ------ ------ ----- -------- ------
BALANCE AT
JUNE 30,
2001
(unaudited) 12,855,739 4 52,740 1,395 (11,881) 42,258
========== ====== ====== ===== ======== ======
BALANCE AT
APRIL 1,
2002
(unaudited) 12,855,739 4 52,740 1,395 (33,601) 20,538
CHANGES DURING
THE 3 MONTHS
ENDED JUNE
30, 2002
(unaudited)
Loss (2,465) (2,465)
---------- ------ ------ ----- -------- ------
BALANCE AT
JUNE 30,
2002
(unaudited) 12,855,739 4 52,740 1,395 (36,066) 18,073
========== ====== ====== ===== ======== ======
BALANCE AT
APRIL 1,
2001
(unaudited) 12,855,739 4 52,740 1,395 (8,455) 45,684
CHANGES DURING
THE 3 MONTHS
ENDED JUNE
30, 2001
(unaudited)
Loss (3,426) (3,426)
---------- ------ ------ ----- -------- ------
BALANCE AT
JUNE 30,
2001
(unaudited) 12,855,739 4 52,740 1,395 (11,881) 42,258
========== ====== ====== ===== ======== ======
BALANCE AT
JANUARY 1,
2001
(audited) 12,853,739 4 52,738 1,395 (6,950) 47,187
CHANGES DURING
THE YEAR
ENDED
DECEMBER 31,
2001
(unaudited):
Loss (25,514) (25,514)
Exercise of
options 2,000 (a) 2 2
---------- ------ ------ ----- -------- ------
BALANCE AT
DECEMBER 31,
2001
(unaudited) 12,855,739 4 52,740 1,395 (32,464) 21,675
========== ====== ====== ===== ======== ======
(a) Represents an amount less than $1,000.
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