VocalTec Reports Third Quarter 1999 Results - Company Financial Information

Cambridge Telcom Report, Nov 1, 1999

VocalTec Communications Ltd. (Nasdaq:VOCL), the Internet protocol (IP) communications company, Wednesday announced revenues of $6.8 million for the third quarter ended September 30, 1999, an increase of 10 percent over the second quarter of 1999 and a slight increase over the year-ago period. The loss for the third quarter of 1999 was $5.7 million, or $0.49 per share, compared to a loss of $6.9 million or $0.60 per share which excludes a one-time restructuring charge in the second quarter of 1999, and a net loss of $3.9 million, or $0.34 per share, for the year-ago period.

Commenting on the quarter, Dr. Elon Ganor, chairman of VocalTec Communications, said, "This spring we began to refocus by making a decision to further concentrate our efforts on the service provider segment. Since then, we have been engaged in an extensive assessment of the industry, various market segments, future opportunities within those segments, valuations of various business models, and many other issues. We are refining management's focus with particular attention to our sales and marketing capabilities. We are about to take an important step toward ensuring the success of these efforts beginning at the very top. Tomorrow we will have a board meeting, primarily for the purpose of formalizing the process of recruiting outside directors to our board. We have already identified a number of excellent candidates and have preliminary indications of interest from each of them. We are moving as quickly as possible to complete the recruitment process and, with the guidance and assistance of these highly qualified individuals, we will complete our plans."

Notable developments during the quarter included the signing with Cisco Systems, Inc. of a joint development, marketing and sales agreement to bring hybrid IP telephony solutions to Internet service providers (ISPs), Internet telephony service providers (ITSPs) and carriers. As a result of the Cisco relationship, VocalTec announced a contract with Bell Atlantic to take part in the development and implementation of a widescale IP telephony network. Bell Atlantic, one of the premier carriers in North America, will use the network to provide wholesale Voice Over IP (VoIP) services to ITSPs.

"The Cisco and Bell Atlantic announcements have significantly moved this industry forward," continued Dr. Ganor. "Due to our agreement and interoperability with Cisco, both organizations can uniquely offer hybrid solutions to the market, starting with the largest installed base of IP telephony equipment worldwide. As for Bell Atlantic, the project is a breakthrough, marking the first time a North Amercan carrier of this stature has embraced IP telephony."

In related news, ITXC Corp., an Internet telephony exchange carrier based in Princeton, NJ, announced the consummation of its initial public offering on October 1, 1999. VocalTec owns 5,567,908 million shares of common stock of the company. According to Jeff Dykan, chief financial officer of VocalTec, "Based on yesterday's closing price our investment in ITXC has a market value of more than $200 million. While we have certain restrictions on the sale of these shares, our stake in ITXC clearly is a valuable asset which affords us added financial flexibility."

VocalTec develops and markets award-winning systems enabling voice, fax and multimedia communications over packetized networks, including both private networks and the public Internet. VocalTec pioneered the commercial IP (Internet protocol) telephony industry in 1995 with the first commercial IP telephony solution. Since then, VocalTec has built one of the largest research and development teams dedicated solely to IP telephony, has one of the largest footprints of users in the carrier and consumer markets, and has played a leading role in the development of industry standards. VocalTec's technical expertise is a driver in moving the industry forward with its end-to-end, standards-compliant solutions for global multi-service deployments for all classes of carriers. For the latest company information, visit VocalTec on the World Wide Web at http://www.vocaltec.com.

                     VOCALTEC COMMUNICATIONS LTD.
                        RESULTS OF OPERATIONS

(All data in thousands of U.S. dollars except per-share and share
 data)

                Three months  Three months Nine months Nine months
                    ended        ended        ended       ended
                   Sept. 30,    Sept. 30,   Sept. 30,   Sept. 30,
                     1999        1998         1999        1998
                     U.S. $     U.S. $       U.S. $      U.S. $
                     ------     ------       ------      ------

Net Sales            6,761        6,525       18,942       17,400
Cost of Sales        2,061        1,657        5,875        4,296
                 ---------  -----------  -----------  -----------
   Gross Profit      4,700        4,868       13,067       13,104
                 ---------  -----------  -----------  -----------

Operating Expenses
  Research &
   Development
   Costs, net        3,096        2,949       10,516        7,821
  Marketing &
   Selling, net      6,138        4,787       21,015       12,799
  General &
   Administrative    1,359        1,638        4,741        3,696
                 ---------  -----------  -----------  -----------
Total Operating
 Expenses           10,593        9,374       36,272       24,316
                 ---------  -----------  -----------  -----------

Loss before one
 time charges       (5,893)      (4,506)     (23,205)     (11,212)

Restructuring Costs   --           --            827         --

One time charge in
 respect of acquired
in-process research
 & development
                      --           --           --          9,656
                 ---------  -----------  -----------  -----------

Operating Loss      (5,893)      (4,506)     (24,032)     (20,868)

Finance Income, net    240          611          790        2,014

 Net loss           (5,653)      (3,895)     (23,242)     (18,854)
                 ---------  -----------  -----------  -----------

Net loss per share
 (in US Dollars)     (0.49)       (0.34)       (2.03)       (1.71)


Weighted average
 number of shares11,472,000   11,384,000   11,444,000   11,041,000
 outstanding

                 VOCALTEC COMMUNICATIONS LTD.
                  CONSOLIDATED BALANCE SHEET
                (In thousands of U.S. dollars)


                                      September 30 December 31

                                         1999         1998
Current Assets
  Cash and cash equivalents             6,677        4,990
  Short term investments                8,346       31,374
  Trade receivables (net of allowances) 7,219        9,012
  Other receivables and deferred assets 3,309        3,322
  Inventories                           1,542        1,653
                                        -----        -----
Total Current Assets                   27,093       50,351
                                       ------       ------

Investment in a company                 3,374        2,373
                                        -----        -----
Equipment
  Cost                                 11,795        9,126
  Less accumulated depreciation         5,371        3,000
                                        -----        -----
                                        6,424        6,126
                                        -----        -----


Deposit with Insurance Companies        1,290        1,095
                                        -----        -----


   Total Assets                        38,181       59,945
                                       ------       ------


Consolidated Balance Sheet Continued
(In thousands of U.S. dollars)

                                     September 30    December 31

                                         1999         1998
Current Liabilities

  Accounts payable and                  8,484        7,850
  accrued expenses                     ------       ------

Long Term Liabilities
Accrued Severance Pay                   1,632        1,224
                                        -----        -----

Total Liabilities                      10,116        9,074
                                       ------        -----

Shareholders' Equity
  Share capital
     Ordinary shares of NIS 0.01
     par value: Authorized - 30,000,000
     shares; Issued and outstanding -
     11,518,345 shares as of
     September 30, 1999 and 11,413,420
 as of December 31, 1998                   35           35

  Share premium                        93,108       92,696
  Deferred compensation                  (267)        (291)
  Accumulated deficit                 (64,811)     (41,569)
                                     --------     --------
   Total Shareholders' Equity          28,065       50,871
                                       ------       ------

   Total Liabilities and
     Shareholders' Equity
                                       38,181       59,945
                                       ------       ------