Avistar Communications Reports Financial Results for the First Quarter of 2008

April 17, 2008 7:00 AM ET

Progress in cost alignment, and go-to-market and product strategies for 2008 growth offsetting patent challenge

SAN MATEO, Calif., April 17 /PRNewswire-FirstCall/ -- Avistar Communications Corporation AVSR [1], a video collaboration platform provider, today announced its financial results for the three months ended March 31, 2008.

Financial highlights for the quarter included:

-- Total revenue, prepared in accordance with GAAP, was $1.2 million, as compared to $1.9 million for the quarter ended December 31, 2007. -- Income from settlement and licensing activity, which management sees as a key component of the company's "top line" performance, was $1.1 million in both the first quarter of 2008 and the fourth quarter of 2007. -- Net income represented a loss of $3.8 million, or $0.11 per basic and diluted share. The fourth quarter of 2007 posted a similar result of a loss of $3.7 million, or $0.11 per basic and diluted share. -- The cash and cash equivalent balance at the end of the first quarter was $6.0 million.

"The first quarter of 2008 has been both formative and challenging for Avistar," said Simon Moss, Avistar's President and CEO. "Our first quarter financial results did not reflect the significant progress that has been achieved in our turn-around initiatives. A primary cause for this is simple to identify -- a reduction in revenue and licensing proceeds versus our expectations was caused by an external party's submittal of our entire U.S. patent portfolio into re-examination in the U.S. Patent and Trademark Office, as has been previously communicated. This single, but dramatic, action resulted in delays in our licensing activity, and caused disruption in our product sales channel. We've responded decisively with a set of cost management programs which will provide considerable relief beginning in the second quarter."

Mr. Moss continued, "This development happened at an especially critical time for the company, and as previously disclosed, has impacted a number of strategic and growth initiatives that we were enthusiastically pursuing. As we've previously and frequently stated, our business is "lumpy" and will continue to be as long as technology and licensing proceeds constitute a large portion of our "top line" mix. The process of patent re-examination will make our stated objective of achieving profitable growth in 2008 more challenging. However, Avistar has adapted quickly, and intends to maintain its key strategic goals-- including the delivery of world class product, and the establishment of effective partnerships with large technology companies, in addition to the achievement of positive revenue and licensing growth and profit trends."

Examples of our progress include:

-- Projected operating expense for 2008 will represent a 40% reduction relative to 2007, while delivery on client commitments and product innovations continue. -- We have recently signed important services and funded development agreements, including a project for the development of a potentially market-changing video-enabled supply chain community, linking buy-side and sell-side firms and corporate treasury departments. -- Continuing progress on technology licensing discussions with a large, global IT provider, as one avenue for Avistar to participate in the dynamic growth of the Unified Communications (UC) market, a market that is estimated by Wainhouse Research to reach $16.6 billion by 2012. -- And despite a significant downturn during the first quarter in Avistar's traditional and dominant vertical - that being Financial Services - we maintained historical levels of sales bookings, actually reflecting a modest increase relative to the fourth quarter of 2007, and added multiple new clients.

"We are clear, though, that the action against us represents a significant challenge," Mr. Moss continued, "Our team has acted decisively and quickly, and the company has shown itself to be impressively adaptive as we have set the stage for improvement in the second quarter. Beyond that, we are in a strong position to exploit opportunities that the first quarter identified, progressed or signed."

About Avistar Communications Corporation

Avistar creates technology that provides the missing critical element in unified communications: bringing people in organizations face-to-face through enhanced communications, for true collaboration anytime, anyplace. Its latest product, C3, draws on over a decade of market experience to deliver a single- click desktop or room-based videoconferencing and collaboration experience, that moves business communications into a new era. Available as a stand-alone solution, or integrated with existing unified communications software from other vendors, Avistar's C3 users gain instant messaging-style ability to initiate video communications and collaborate across and outside the enterprise. Patented bandwidth management enables thousands of users to access desktop videoconferencing, Voice over IP (VoIP), collaboration services, and streaming media without requiring substantial new network investment or impairing network performance.

Avistar's desktop videoconferencing and collaboration installations are among the world's largest, including more than 18,000 seats in more than 40 countries. Clients report as much as a 20 percent reduction in travel expense and carbon emissions, 3 percent increase in productivity, and immeasurably improved relationship building within their organizations, as well as with suppliers and customers. Avistar holds a portfolio of 80 patents for inventions in video and network technology and licenses IP to videoconferencing, rich-media services, public networking and related industries. Current licensees include Sony Corporation, Sony Computer Entertainment Inc., Polycom, Inc., Tandberg ASA, Radvision Ltd. and Emblaze-VCON.

For more information, visit www.avistar.com

Forward Looking Statements

Statements made in this news release that are not purely historical, including but not limited to statements regarding Avistar's projected operating expense for 2008, delivery on client commitments and product innovations, the project for the development of a video-enabled supply chain community, progress on technology licensing discussions, sales bookings and new clients, and an improvement in the second quarter of 2008 are forward- looking statements within the meaning of Section 21E of the Securities Exchange Act. Such statements are subject to risks and uncertainties that could cause actual results to differ materially, including such factors, among others, as Avistar's lengthy sales cycle, volatility associated with Avistar's sales and licensing activities, market acceptance of Avistar's products, increased competition in the market for unified communications, technical challenges associated with product development, ongoing technological developments and changing industry standards, and challenges associated with protecting and licensing Avistar's intellectual property.. As a result of these and other factors, Avistar expects to experience significant fluctuations in revenue and operating results, and there can be no assurance that Avistar will become or remain profitable in the future, or that its future results will meet expectations. These and other risk factors are discussed in Avistar's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission from time to time. Avistar disclaims any intent or obligation to update these forward-looking statements.

- financial statements follow - AVISTAR COMMUNICATIONS CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS for the three months ended March 31, 2008 and 2007 (in thousands, except per share data) Three Months Ended March 31, 2008 2007 (unaudited) Revenue: Product $249 $1,258 Licensing 154 232 Services, maintenance and support 748 902 Total revenue 1,151 2,392 Costs and expenses: Cost of product revenue* 359 729 Cost of services, maintenance and support revenue* 519 676 Income from settlement and patent licensing (1,057) (13,057) Research and development* 1,851 1,657 Sales and marketing* 1,329 1,489 General and administrative* 1,878 6,463 Total costs and expenses (income) 4,879 (2,043) (Loss) income from operations (3,728) 4,435 Other (expense) income: Interest income 46 113 Other expense, net (85) (55) Total other (expense) income, net (39) 58 Net (loss) income $(3,767) $4,493

Net (loss) income per share $(0.11) $0.13 Weighted average shares used in calculating Basic net (loss) income per share 34,532 34,101 Diluted net (loss) income per share 34,532 35,146

*Including stock based compensation of: Cost of products, services, maintenance and support revenue $7 $60 Research and development 63 204 Sales and marketing (36) 185 General and administrative 113 233 $147 $682 AVISTAR COMMUNICATIONS CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS as of March 31, 2008 and December 31, 2007 (in thousands, except share and per share data)

March 31, December 31, 2008 2007 (unaudited) Assets: Current assets: Cash and cash equivalents $5,975 $4,077 Marketable securities - 799 Total cash, cash equivalents and marketable securities 5,975 4,876 Accounts receivable, net of allowance for doubtful accounts of $34 and $24 at March 31, 2008 and December 31, 2007, respectively 1,570 1,385 Inventories 492 428 Deferred settlement and patent licensing costs 1,256 1,256 Prepaid expenses and other current assets 451 462 Total current assets 9,744 8,407 Property and equipment, net 671 767 Long-term deferred settlement and patent licensing costs 799 1,117 Other assets 288 286 Total assets $11,502 $10,577

Liabilities and Stockholders' Equity (Deficit): Current liabilities: Line of credit $4,000 $5,100 Accounts payable 962 1,287 Deferred income from settlement and patent licensing 5,520 5,520 Deferred services revenue and customer deposits 2,071 2,231 Accrued liabilities and other 1,901 1,451 Total current liabilities 14,454 15,589 Long-term liabilities: Long-term convertible debt 7,000 - Long-term deferred income from settlement and patent licensing and other 3,438 4,814 Total liabilities 24,892 20,403 Stockholders' equity (deficit): Common stock, $0.001 par value; 250,000,000 shares authorized at March 31, 2008 and December 31, 2007; 35,733,179 and 35,678,807 shares issued including treasury shares at March 31, 2008 and December 31, 2007, respectively 36 36 Less: treasury common stock, 1,182,875 shares at March 31, 2008 and December 31, 2007, respectively, at cost (53) (53) Additional paid-in-capital 96,128 95,925 Accumulated deficit (109,501) (105,734) Total stockholders' equity (deficit) (13,390) (9,826) Total liabilities and stockholders' equity (deficit) $11,502 $10,577

AVISTAR COMMUNICATIONS CORPORATION AND SUBSIDIARY

THREE MONTHS ENDED MARCH 31, 2008 FINANCIAL RESULTS RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES (in thousands) Reconciliation of Net (Loss) Income to Adjusted EBITDA Three Months Ended March 31, 2008 2007 (unaudited) Net (loss) income $(3,767) $4,493 Interest income (46) (113) Other (expense) income, net 85 55 Depreciation 131 50 EBITDA (3,597) 4,485 Stock-based compensation expense 147 682 Adjusted EBITDA $(3,450) $5,167

AVISTAR COMMUNICATIONS CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the three months ended March 31, 2008 and 2007 (in thousands) Three Months Ended March 31, 2008 2007 (unaudited) Cash Flows from Operating Activities: Net (loss) income $(3,767) $4,493 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation 131 50 Stock based compensation for options issued to consultants and employees 147 682 Provision for doubtful accounts 10 (3) Changes in assets and liabilities: Accounts receivable (195) 62 Inventories (64) 78 Prepaid expenses and other current assets 11 65 Deferred settlement and patent licensing costs 318 318 Other assets (2) (2) Accounts payable (325) (373) Deferred income from settlement and patent licensing and other (1,376) (1,375) Deferred services revenue and customer deposits (160) (574) Accrued liabilities and other 450 1,249 Net cash (used in) provided by operating activities (4,822) 4,670

Cash Flows from Investing Activities: Maturities of short-term marketable securities 799 - Purchase of property and equipment (35) (314) Net cash provided by (used in) investing activities 764 (314)

Cash Flows from Financing Activities: Line of credit payments (1,100) - Proceeds of debt issuance 7,000 - Net proceeds from stock option and stock purchase plans 56 129 Net cash provided by financing activities 5,956 129 Net increase in cash and cash equivalents 1,898 4,485 Cash and cash equivalents, beginning of year 4,077 7,854 Cash and cash equivalents, end of period $5,975 $12,339