Avistar Communications Reports Financial Results for the Third Quarter 2009

http://www.businesswire.com/news/home/20091026005239/en

Year to Date Revenues Increase 23% and Year to Date Loss Reduced by 60% Compared
to 2008
SAN MATEO, Calif.--(Business Wire)--
Avistar Communications Corporation (www.avistar.com), a leader in unified visual
communications solutions, today announced its financial results for the three
and nine months ended September 30, 2009.

Financial highlights included:

* Total revenue for the nine months ended September 30, 2009, was $6.9 million;
as compared to $5.6 million for the nine months ended September 30, 2008, an
increase of 23%. Total revenue for the third quarter of 2009, was $1.4 million,
as compared to $2.7 million for same quarter in 2008, a decrease of 47%.
* Operating expense (research and development, sales and marketing, and general
and administrative) for the nine months ended September 30, 2009 was $8.9
million, as compared to $11.4 million for the nine months ended September 30,
2008, representing a substantial reduction of 22%. Operating expense was $3.2
million for the third quarter of 2009, as compared to $3.1 million for the third
quarter of 2008, demonstrating the stabilization of Avistar`s cost structure.
* Net loss was $2.5 million for the nine months ended September 30, 2009, or
$0.07 per basic and diluted share, as compared to a net loss of $6.2 million, or
$0.18 per basic and diluted share, for the nine months ended September 30, 2008,
a 60% decrease. Net loss in the third quarter of 2009 was $1.9 million, or $0.05
per basic and diluted share, as compared to a net loss of $774,000, or $0.02 per
basic and diluted share, in the third quarter of 2008, a 144% increase.
* Third quarter 2009 expenses included $473,000 for severance paid to former
executives and $311,000 of legal services related to Avistar`s intellectual
property. These expenses are not expected to recur on a regular basis.
* Cash and cash equivalents balance as of September 30, 2009 was $382,000 and
the company had $3.3 million available through its line of credit. Cash used in
operations during the nine months ended September 30, 2009 was $4.3 million,
compared to $9.3 million for the nine months ended September 30, 2008, a $5.0
million improvement.
* Adjusted EBITDA loss (as described below) for the nine months ended September
30, 2009 was $541,000, compared to an Adjusted EBITDA loss of $4.6 million for
the same period in 2008, a reduction in adjusted EBITDA loss of $4.0 million, or
88%, for the first three quarters of 2009. Adjusted EBITDA loss for the third
quarter of 2009 was $1.3 million, compared to an Adjusted EBITDA profit of
$53,000 in the same quarter of 2008.

Bob Kirk, CEO of Avistar, said, "When comparing our results thus far in 2009
against 2008, our corporate performance continues to improve on many fronts, as
we overcome remaining challenges. Avistar`s strategy and focus, implemented
earlier this year, are beginning to show results, although we expect to see the
full financial impact in future quarters. The state of the global economy this
year, coupled with our sales channel model only just coming up to speed, led to
lower than expected revenue. With that said, we have taken steps to consolidate
a number of our channel partners under master distributors. This action alone
will make our channel model more productive by focusing the teams` effort on our
distributors, who in turn will focus their efforts on making our resellers more
productive. In addition, we have implemented a pricing model that we believe is
the most compelling desktop visual communications product bundle in the industry
today. Both of these changes are starting to have a beneficial effect on our
channel strategy.

"Additionally, the combination of Cisco`s System`s recently-announced
acquisition of Tandberg, continued analyst data from renowned research firms
demonstrating strong market growth, our refinement of our channel strategy, and
growing momentum within our technology licensing business, in addition to
focusing on a productive method to monetize our patent portfolio, leads us to
believe that Avistar is well positioned to capture more significant market share
in the videoconferencing industry."

Kirk continued, "With the industry growing at an exceptional rate and our
solutions and products continuing to evolve in ways that directly provide value
to our distributors and partners alike, we believe that Avistar is very well
positioned to emerge as the industry`s dominant desktop visual communications
provider."

Other significant recent developments included:

* Avistar continues to invest heavily in its Microsoft OCS and Citrix strategies
and is focused on closing business with early adopters of many of these
technologies. The Avistar Technology Licensing business continues to grow with
successful third quarter product deliveries to LifeSize, IBM, Logitech and
Zultys. Royalties from LifeSize, Logitech and Zultys have commenced and are
expected to contribute to Avistar`s revenue momentum for many years.
* On June 17, 2009, LifeSize announced the LifeSize Desktop, developed by
Avistar using the Avistar C3 Media Engine solution and has started shipping this
product.
* On September 23, 2009, Avistar released the Avistar C3 Desktop software
v10.2.6, which includes support for H.239 data sharing in addition to Tandberg
Codian certification.
* Also in September, Avistar announced the consolidation of its sales, account
management, and marketing functions under Stephen Epstein, the company`s chief
marketing officer.

About Avistar Communications Corporation

Avistar (AVSR.PK) is an innovation leader in the unified visual communications
industry, providing proven business-class desktop videoconferencing technology.
Avistar's installations include more than 100,000 committed desktop seats
worldwide, bringing together business users anytime and anyplace. Companies such
as IBM, LifeSize, Logitech, Polycom and Sony use Avistar technology to power
their unified communications solutions. Avistar also works with leading channel
partners and resellers including AVI-SPL, CityIS, ESCO, Fontel, and Jenne in
more than 40 countries. For more information, please visit www.avistar.com.

Cautionary Note Regarding Forward-Looking Statements

The statements made in this press release that are not historical facts are
"forward-looking statements." These forward-looking statements, include, but are
not necessarily limited to, statements regarding the future performance of our
sales and distribution channels, the impact of changes in our pricing model,
growth in our business and the video conferencing industry, our ability to
capture market share in the video conferencing industry, future royalties and
revenue associated with our business, and our positioning to emerge as a leader
in the desktop visual communications industry. Forward-looking statements are
based on current expectations and assumptions that are subject to risks and
uncertainties. The company cautions readers of this release that a number of
important factors could cause actual future events and results to differ
materially from those expressed in any such forward-looking statements. Such
factors include, without limitation, 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 and
completion of our deliverables to customers, ongoing technological developments
and changing industry standards, the ability of Avistar`s distributors to sell
our products to end users, the capital markets for both debt and equity, and
challenges associated with protecting and licensing Avistar`s intellectual
property. These important factors and other factors that potentially could cause
actual future results to differ materially from current expectations are
described in our filings with the SEC, including the company's most recent
annual report on Form 10-K, quarterly reports on Form 10-Q and current reports
on Form 8-K. Readers of this release are referred to such filings. The
forward-looking statements in this release are based upon information available
to the company as of the date of the release, and the company assumes no
obligations to update any such forward-looking statements.

Non-GAAP Financial Measures

This press release and the accompanying tables include a discussion of adjusted
EBITDA, excluding stock-based compensation expense, which is a non-GAAP
financial measure provided as a complement to results provided in accordance
with accounting principles generally accepted in the United States of America
("GAAP"). The term "adjusted EBITDA" refers to a financial measure that we
define as earnings before net interest, income taxes, depreciation, and
amortization, as further adjusted for stock-based compensation. This non-GAAP
measure should be considered in addition to results prepared in accordance with
GAAP, but should not be considered a substitute for, or superior to, GAAP
results. In addition, our definition of adjusted EBITDA may not be comparable to
the definitions as reported by other companies. We believe adjusted EBITDA is
relevant and useful information to our investors as this measure is an integral
part of our internal management reporting and planning process and is a primary
measure used by our management to evaluate the operating performance of our
business. The components of adjusted EBITDA include the key revenue and expense
items and income from settlement and patent licensing for which our operating
managers are responsible and upon which we evaluate their performance.
Furthermore, we intend to provide this non-GAAP financial measure as part of our
future earnings releases and, therefore, the inclusion of this non-GAAP
financial measure will provide consistency in our financial reporting. A
reconciliation of this non-GAAP measure to GAAP is provided in the accompanying
tables.

AVISTAR COMMUNICATIONS CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and nine months ended September 30, 2009 and 2008
(in thousands, except per share data)

Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
(unaudited) (unaudited)

Revenue:
Product $ 289 $ 1,313 $ 3,235 $ 2,115
Licensing 350 367 572 674
Services, maintenance and support 790 1,025 3,130 2,857
Total revenue 1,429 2,705 6,937 5,646
Costs and expenses:
Cost of product revenue* 263 720 926 1,644
Cost of services, maintenance and support revenue* 737 584 2,400 1,706
Income from settlement and patent licensing (1,057 ) (1,057 ) (3,171 ) (3,171 )
Research and development* 891 1,122 2,777 3,932
Sales and marketing* 629 634 1,992 2,752
General and administrative* 1,709 1,369 4,143 4,683
Total costs and expenses 3,172 3,372 9,067 11,546
Loss from operations (1,743 ) (667 ) (2,130 ) (5,900 )
Other (expense) income:
Interest income - 15 8 82
Other expense, net (142 ) (122 ) (329 ) (335 )
Total other expense, net (142 ) (107 ) (321 ) (253 )
Net loss $ (1,885 ) $ (774 ) $ (2,451 ) $ (6,153 )

Net loss per share - basic and diluted $ (0.05 ) $ (0.02 ) $ (0.07 ) $ (0.18 )
Weighted average shares used in calculating basic and diluted net loss per share 38,970 34,561 36,759 34,546

*Including stock based compensation of:
Cost of products, services, maintenance and support revenue $ 53 $ 54 $ 175 $ 80
Research and development 110 160 435 311
Sales and marketing 48 72 155 (24 )
General and administrative 218 298 642 567
$ 429 $ 584 $ 1,407 $ 934

AVISTAR COMMUNICATIONS CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS
as of September 30, 2009 and December 31, 2008
(in thousands, except share and per share data)

September 30, December 31,
2009 2008
(unaudited)
Assets:
Current assets:
Cash and cash equivalents $ 382 $ 4,898
Accounts receivable, net of allowance for doubtful accounts of $13 and $20 at September 30, 2009 and December 31, 2008, respectively 1,161 2,701
Inventories 136 307
Deferred settlement and patent licensing costs 145 1,100
Prepaid expenses and other current assets 252 320
Total current assets 2,076 9,326
Property and equipment, net 175 310
Other assets 157 157
Total assets $ 2,408 $ 9,793

Liabilities and Stockholders' Equity (Deficit):
Current liabilities:
Line of credit $ 6,651 $ 7,000
Convertible debt 4,060 -
Accounts payable 677 579
Deferred income from settlement and patent licensing 626 4,751
Deferred services revenue and customer deposits 1,228 3,687
Accrued liabilities and other 1,654 1,382
Total current liabilities 14,896 17,399
Long-term liabilities:
Long-term convertible debt - 7,000
Other liabilities 72 23
Total liabilities 14,968 24,422
Stockholders' equity (deficit):
Common stock, $0.001 par value; 250,000,000 shares authorized at September 30, 2009 and December 31, 2008; 40,159,466 and 35,750,680 shares issued including treasury shares at September 30, 2009 and December 31, 2008, respectively 40 36
Less: treasury common stock, 1,182,875 shares at September 30, 2009 and December 31, 2008, at cost (53 ) (53 )
Additional paid-in-capital 102,022 97,506
Accumulated deficit (114,569 ) (112,118 )
Total stockholders' equity (deficit) (12,560 ) (14,629 )
Total liabilities and stockholders' equity (deficit) $ 2,408 $ 9,793

AVISTAR COMMUNICATIONS CORPORATION AND SUBSIDIARY

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 and 2008
FINANCIAL RESULTS: RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(in thousands)

Reconciliation of Net Loss to Adjusted EBITDA

Three Months Ended September 30,
2009 2008
(unaudited)

Net loss $ (1,885 ) $ (774 )
Interest income - (15 )
Other expenses, net 142 122
Depreciation 62 136
EBITDA (1,681 ) (531 )
Stock-based compensation expense 429 584
Adjusted EBITDA $ (1,252 ) $ 53

Nine Months Ended September 30,
2009 2008
(unaudited)

Net loss $ (2,451 ) $ (6,153 )
Interest income (8 ) (82 )
Other expenses, net 329 335
Depreciation 182 404
EBITDA (1,948 ) (5,496 )
Stock-based compensation expense 1,407 934
Adjusted EBITDA $ (541 ) $ (4,562 )

AVISTAR COMMUNICATIONS CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 2009 and 2008
(in thousands)

Nine Months Ended September 30,
2009 2008
(unaudited)

Cash Flows from Operating Activities:
Net loss $ (2,451 ) $ (6,153 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 182 404
Stock based compensation for options issued to consultants and employees 1,407 934
Provision for doubtful accounts (7 ) 19
Changes in assets and liabilities:
Accounts receivable 1,547 (2,704 )
Inventories 171 (6 )
Prepaid expenses and other current assets 68 229
Deferred settlement and patent licensing costs 955 955
Other assets - 81
Accounts payable 98 (395 )
Deferred income from settlement and patent licensing and other (4,076 ) (4,202 )
Deferred services revenue and customer deposits (2,459 ) 1,494
Accrued liabilities and other 272 17
Net cash used in operating activities (4,293 ) (9,327 )

Cash Flows from Investing Activities:
Maturities of short-term marketable securities - 799
Sale of property and equipment - 8
Purchase of property and equipment (47 ) (87 )
Net cash (used in) provided by investing activities (47 ) 720

Cash Flows from Financing Activities:
Line of credit payments (5,049 ) (5,100 )
Proceeds from line of credit 4,700 7,000
Proceeds from debt issuance - 7,000
Net proceeds from issuance of common stock 173 74
Net cash (used in) provided by financing activities (176 ) 8,974
Net (decrease) increase in cash and cash equivalents (4,516 ) 367
Cash and cash equivalents, beginning of year 4,898 4,077
Cash and cash equivalents, end of period $ 382 $ 4,444

Avistar Communications Corporation
Elias MurrayMetzger, +1-650-525-3300
Chief Financial Officer
emurraymetzger@avistar.com
or
Conway Communications
Investor Relations, +1-617-244-9682
mtconway@att.net

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