VocalTec confirms drastic workforce cuts

The VoIP company has received a bridge loan from Deutsche Telekom, and is in merger talks.

In an announcement, Israeli voice over Internet protocol pioneer VocalTec Communications (Nasdaq: VOCL) has confirmed reports that it will make drastic cuts in its workforce. VocalTec will be left with 35 employees. The company also reports that it has received a $1 million bridge loan from Deutsche Telekom, its largest shareholder. The announcement mentions a possible merger, but makes no mention of the future of CEO Elon Ganor. Earlier reports suggested that he would leave his post.

"Effective today, we are implementing a substantial reduction in headcount to around 35 employees in order to drastically reduce our cash use and prepare the company for potential business combinations currently explored by us. We are retaining highly skilled employees and preserving our technology, and will continue to support our key customers. We have recently completed an investment in R&D that has provided us with a market ready product," said Hugo Goldman, VocalTec's Chief Financial Officer. "To afford us sufficient time to pursue potential M&A transactions, we have obtained a bridge loan of $1 million from our largest shareholder, Deutsche Telekom."

VocalTec CEO Elon Ganor said, "We are involved in discussions regarding several potential M&A transactions and are simultaneously in the preliminary due diligence stage of a potential business combination with another company. In addition, we are also considering a bidding process.

"We continue to gain traction with our Essentra product family," continued Ganor. "In Q2 of 2005 we sold our Essentra BAX Voice over Broadband Access platform to two customers and we are encouraged by the feedback we are receiving. The Essentra product family includes, among others, an application server providing a broad range of residential and centrex services, supporting most of the available VoIP telephony sets."

VocalTec also reported its second quarter results. Revenue was $1.4 million, an increase of 31% from the first quarter of 2005 and a decrease of 25% from the second quarter of 2004. According to US GAAP, the net loss in the second quarter of 2005 was $2.4 million, or $0.16 per share, compared with a net loss of $2.2 million, or $0.15 per share in the first quarter of 2005, and a net loss of $3.0 million, or $0.20 per share, in the second quarter of 2004.

Operating expenses for the second quarter of 2005 increased slightly to $3.2 million, compared with $3.1 million in the first quarter of 2005, but declined 16% from $3.8 million in the second quarter of 2004. The operating loss in the second quarter of 2005 declined slightly to $2.5 million, compared with $2.6 million in the first quarter of 2005, and $3.0 million in the second quarter of 2004.

At the end of the second quarter of 2005, cash, cash equivalents and short-term investments totaled $1.7 million, compared with $5.0 million at the end of the first quarter of 2005, reflecting a cash use of $3.3 million in the second quarter of 2005, an increase from the cash use of $2.9 million in the first quarter of 2005.

So far today, VocalTec shares have dropped 5.6%, to $0.72.

Published by Globes [online], Israel business news - www.globes.co.il - on July 27, 2005

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