Arel Reports Results for the Third Quarter of 2003.Business Editors/High-Tech Writers YAVNE Yavne (Hebrew: יבנה, Arabic: يبنة Yibnah, Latin: Iamnia , Israel--(BUSINESS WIRE)--Nov. 6, 2003 Arel Communications and Software Limited (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : ARLC ARLC Automatic Revolving Letter of Credit ): -- Revenues increased 15 percent sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen and 219 percent year over year to $2.65M -- Gross margin improved to 70 percent -- Net profit of $361,000, or $0.03 per share Arel Communications and Software Limited (NASDAQ: ARLC) (Arel), the world's leading provider of integrated web, voice and video conferencing See videoconferencing. (communications) video conferencing - A discussion between two or more groups of people who are in different places but can see and hear each other using electronic communications. and distance training solutions, announced today the results for the third quarter of 2003. Third quarter revenues reached $2,646,000, a 15 percent sequential One after the other in some consecutive order such as by name or number. increase and the fourth consecutive quarter of growth in revenues. Revenues for the third quarter of 2003 increased 219 percent from the $829,000 reported in the third quarter of 2002. Third quarter 2003 net profit was $361,000, or $0.03 per share, compared to a net profit of $71,000, or $0.01 per share in the second quarter of 2003. For the third quarter of 2002, the company reported a net loss of $8,043,000, which included an impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of goodwill of $4,575,000, an impairment of $279,000 due to a decrease in the value of Arel's investment in ArelNet, and a one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. 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). expense and impairment of property and equipment of $1,671,000, or $0.63 per share. Philippe Szwarc, Arel chief executive officer, said, "The third quarter performance is a result of improving our market reach, which has allowed us to win significant customers such as Countrywide coun·try·wide adv. & adj. Throughout a whole country; nationwide: launched a fundraising campaign countrywide; a countrywide search. Adj. 1. Home Loans and The Kroger The Kroger Co. (NYSE: KR) is an American retail supermarket chain and parent company, founded by Bernard Henry Kroger in 1883 in Cincinnati, Ohio. It reported over US$60 billion in sales during its most recent fiscal year and is the top grocery retailer in the country and Co. Our advanced Integrated Conferencing See teleconferencing. Platform is drawing excellent feedback and acceptance in the market." Gross margin in the third quarter of 2003 improved to 70 percent, compared with 62 percent in the second quarter of 2003, due to a particularly favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. product mix. Gross margin in the third quarter of 2002 was 13 percent. Research and development expenses this quarter totaled $576,000 excluding Chief Scientist participation, and $457,000 including the $119,000 Chief Scientist participation in the quarter, compared to R&D expenses in the second quarter of $497,000 excluding Chief Scientist participation, and $236,000 including the $261,000 Chief Scientist participation, which pertained to the first six months of 2003. The main increase in net R&D expenses relates to the difference in the Chief Scientist participation recognized in the second quarter (for six months) and in the third quarter (for three months only). Selling, general and administrative expenses increased 19 percent sequentially to 42 percent of revenue due to a further investment in sales and marketing efforts, but decreased 4 percent from the same period a year ago. Operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. for the third quarter was $271,000, similar to the operating profit generated in the second quarter of 2003. Cash, and cash equivalents plus short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. investments at September September: see month. 30, 2003, totaled $8,485,000, compared with $9,245,000 at the end of the second quarter. The change in the cash position versus the previous quarter relates primarily to working capital requirements Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. to support growing revenues. Arel management will hold a teleconference today, at 8:00 a.m. EST EST electroshock therapy. EST abbr. electroshock therapy . to discuss the quarterly results. To participate in the call please dial 800-553-5275 (in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. ) or 612-332-0634 (internationally), approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. five minutes prior to the scheduled call start time. The call will also be available live as a webcast on www.arelcom.com, where it will be archived and available for replay. A digital replay of the conference call may also be accessed by dialing the following numbers: 800-475-6701 (in the United States) or 320-365-3844 (internationally) and entering the following access code: 702186. About Arel Communications and Software Arel Communications and Software Ltd (www.arelcom.com) offers effective fully integrated video, voice and data interactive conferencing solutions by optimizing the use of existing network resources available to distributed enterprises. Our integrated networking A network that supports both data and voice and/or different networking protocols. See converged network and new public network. and software platform is winning us loyalty from major Fortune 500 customers, using our system for various needs such as web collaboration Working together on a project. See collaborative software. , video conferencing and distance learning applications. 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 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. . 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.
AREL COMMUNICATIONS AND SOFTWARE LTD.
(An Israeli Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 2003
September 30 December 31,
2003 2002 2002
(Unaudited) (Audited)
U.S. $ in thousands
Assets
CURRENT ASSETS:
Cash and cash equivalents 2,369 6,107 10,354
Short-term investments 6,116 4,606 129
Accounts receivable:
Trade 2,929 1,902 2,455
Other 714 439 488
Inventories 931 1,142 1,168
Total current assets 13,059 14,196 14,594
INVESTMENTS AND LONG-TERM RECEIVABLE:
Investment in Arel Net Ltd. 125 125 125
Loans to employees, net of current
maturity 27 32 31
152 157 156
PROPERTY, PLANT AND EQUIPMENT:
Cost 2,191 2,333 2,183
Less - accumulated depreciation 1,697 1,530 1,493
494 803 690
OTHER ASSETS 152
13,857 15,156 15,440
Liabilities and shareholders' equity
CURRENT LIABILITIES:
Short-term bank credit and current
maturities of long-term loan 24 13 27
Accounts payable and accruals:
Trade 615 884 801
Accrued restructuring costs 92 607 852
Deferred revenues 935 524 2,165
Other 3,593 2,829 3,157
Total current liabilities 5,259 4,857 7,002
LONG-TERM LIABILITIES:
Liability for employee rights upon
retirement, net of amount funded 362 261 371
Other 35 8 48
Total long-term liabilities 397 269 419
Total liabilities 5,656 5,126 7,421
SHAREHOLDERS' EQUITY:
Share capital 4 4 4
Capital surplus 52,752 52,740 52,740
Warrants and options 1,395 1,395 1,395
Accumulated deficit (45,950)(44,109) (46,120)
8,201 10,030 8,019
13,857 15,156 15,440
AREL COMMUNICATIONS AND SOFTWARE LTD.
(An Israeli Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 2003
Nine months Three months Year
ended ended ended
September 30 September 30 December 31,
2003 2002 2003 2002 2002
(Unaudited) (Unaudited) (Audited)
U.S. $ in thousands (except per share data)
REVENUES FROM SALES AND
SERVICES 7,063 4,646 2,646 829 5,941
COST OF SALES AND
SERVICES 2,619 2,965 802 724 3,604
GROSS PROFIT 4,444 1,681 1,844 105 2,337
RESEARCH AND DEVELOPMENT
EXPENSES - net 1,166 1,691 457 492 2,218
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,958 5,069 1,116 1,161 6,439
AMORTIZATION OF GOODWILL 283 283
IMPAIRMENT OF GOODWILL 4,575 4,575 4,575
RESTRUCTURING EXPENSES
AND IMPAIRMENT OF
PROPERTY AND EQUIPMENT 1,671 1,671 2,301
OPERATING INCOME (LOSS) 320 (11,608) 271 (7,794) (13,479)
FINANCIAL INCOME
(EXPENSES) - net (150) 242 90 30 102
IMPAIRMENT OF INVESTMENT
IN ARELNET LTD. (279) (279) (279)
INCOME (LOSS) FOR THE
PERIOD 170 (11,645) 361 (8,043) (13,656)
BASIC AND DILUTED INCOME
(LOSS) PER SHARE 0.01 (0.90) 0.03 (0.63) (1.06)
AREL COMMUNICATIONS AND SOFTWARE LTD.
(An Israeli Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30
2003 2002
U.S. $ in thousands
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) for the period 170 (11,645)
Adjustments required to reconcile income
(loss) to net cash used in operating
activities:
Depreciation 254 500
Impairment of property and equipment 750
Employee stock-based compensation 12
Amortization of goodwill 283
Impairment of goodwill 4,575
Decline in value of investment in Arel
Net Ltd. 279
Allowance for doubtful accounts (28) 101
Accrued employee rights up on
retirement - net (9) (50)
Exchange differences on long-term loan 4
Capital loss on disposal equipment 45
Loss on realization and decrease in value
of marketable securities (8) 17
Erosion of long-term loan to an employee 4
Changes in operating asset and liability
items:
Decrease (increase) in accounts receivable (672) 1779
Increase (decrease) in accounts
payable and accruals (1,751) (701)
Decrease in inventories 237 1,123
Increase in other assets (152)
Net cash used in operating activities (1,943) (2,940)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (58) (138)
Proceeds from disposal of property and
equipment 84
Collection of long-term loan to an employee 4 5
Short-term bank deposits - net (5,983) 3,696
Acquisition of marketable securities (2) (4)
Proceeds from sale of marketable securities 6 25
Net cash provided by (used in) investing
activities (6,033) 3,668
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term bank credit - net 3 (3)
Discharge of long-term loan (12)
Net cash used in financing activities (9) (3)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (7,985) 725
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 10,354 5,382
BALANCE OF CASH AND CASH EQUIVALENTS AT
END OF PERIOD 2,369 6,107
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