VUANCE Ltd. Announces Third Quarter Operating Results

VUANCE Ltd. Announces Third Quarter Operating Results

Revenues Increase 31% from Prior-Year Period

MCLEAN, Va., Nov. 29 /PRNewswire-FirstCall/ -- VUANCE, Ltd. (Nasdaq: VUNC; Euronext: VUNC), a provider of innovative Radio Frequency Verification Solutions, including active RFID, electronic access control, credentialing, accountability and incident management, today announced its operating results for the third quarter of 2007.

   Recent Business Highlights     -- Third quarter revenues increased 31% to $3.4 million, when compared       with the prior-year period.    -- Third quarter gross margin increased 17% to $2.1 million, when       compared with the prior-year period.    -- The acquisition of the Milwaukee based Security Holding Corp ("SHC")       was completed in August.    -- Second 2007 acquisition completed: Credential Division of Disaster       Management Solutions.    -- New $13.8 million European airport perimeter security and border       control agreement announced.    -- Corporate Headquarters relocated to the U.S. to support new sales and       marketing structure.    -- Company showcases superior access control solutions at ASIS       International 2007.    Third Quarter and Nine Month Operating Results  

Revenues for the quarter ended September 30, 2007 increased 31% to approximately $3.4 million, when compared with revenues of approximately $2.6 million in the third quarter of 2006. For the nine months ended September 30, 2007, revenues increased 39% to approximately $8.9 million, versus approximately $6.4 million in the prior year period.

Gross profit increased 17% to $2,082,000 in the most recent quarter, versus $1,785,000 in the three months ended September 30, 2006. For the nine months ended September 30, 2007, gross profit increased 28% to $5,221,000, compared with $4,065,000 in the year-earlier period.

The Company reported a net loss of $2,801,000, or $0.63 per share, in the three months ended September 30, 2007, compared with a net loss of $791,000, or $0.20 per share, in the third quarter of 2006. A net loss of $5,212,000, or $1.26 per share, was recorded during the first nine months of 2007, versus a net loss of $2,509,000, or $0.63 per share, in the nine months ended September 30, 2006.

On a non-GAAP basis (see reconciliation between GAAP and non-GAAP results at the end of this press release), excluding non-cash stock-based compensation and onetime expenses of $428,000, the Company's net loss totaled $2,373,000, or $0.54 per share, in the third quarter of 2007, versus a non-GAAP net loss of $742,000, or $0.19 per share, in the three months ended September 30, 2006. Non-cash stock-based compensation of $49,000 was recorded in the third quarter of 2006. Excluding non-cash stock-based compensation expenses and onetime expenses of $1,121,000, the Company's non-GAAP net loss totaled $4,091,000, or $0.99 per share, in the nine months ended September 30, 2007, compared with a non-GAAP net loss of $2,302,000, or $0.58 per share, in the first nine months of the previous year. Non-cash stock-based compensation of $207,000 was recorded in the nine months ended September 30, 2006.

Management Comments

"We are pleased to report that revenue and gross profits increased 31% and 17%, respectively, in the most recent quarter, when compared with the prior- year period, a demonstration that re-positioning the Company to increase sales within more stable markets creates a solid business model," stated Eyal Tuchman, Chief Executive Officer of VUANCE Ltd. "Indeed, the numbers were in line with management's expectations. The third quarter net loss was higher than a year earlier, reflecting (1) substantial additional costs related to the quarter's two completed acquisitions, (2) higher selling and marketing expenses related to our new projects and our focus on providing Real-time Location, Electronic Access Control, and Incident Response Management Solutions within select vertical markets within the United States and (3) higher financial expenses resulting from the price decrease of OTI shares."

"This was a significant quarter for VUANCE, as we began executing management's plan to grow both organically and through acquisitions. We closed an important multi-year contract with a European nation to provide airport perimeter security and border control solutions. Revenues from this contract are expected to be recognized over the next two years, and once the system has been implemented, there is likely to be an additional ten-year maintenance agreement that should generate recurring annual revenues."

"We also completed two strategic acquisitions during the most recent quarter. Security Holding Corp., a U.S.-based manufacturer and distributor of RFID, security management and forward-thinking access control systems and equipment represents an important acquisition. Its synergistic active RFID and electronic access control product lines complement VUANCE's existing technologies in these areas, and SHC works with leading system integrators and distributors through which we now can offer more comprehensive solutions. Indeed, the 'new' VUANCE, with over 2500 installations throughout the United States, now offers these system integrators the only source for comprehensive end-to-end Active RFID, Electronic Access Control and IRMS solutions. SHC's management team also has extensive industry and M&A experience that should support VUANCE's strategic growth initiatives."

"The second acquisition, of the Credential Division of Disaster Management Solutions, represents a strategic purchase. Its unique RAPTOR technology is an advanced, secure and scalable First Responders system that retrieves trusted identity, training, skills and licensure data for appropriate credentials issuance. Therefore, it enhances our IRMS product line and provides another competitive advantage when we are bidding on first responder-related projects."

"During the third quarter, we also implemented key organizational changes that will enable us to capitalize on U.S. sales and investment opportunities. First, we moved our Corporate Headquarters to the U.S. to be closer to our customers and the system integrators that are critical to our success. Second, we restructured our sales team to focus on four primary market segments that represent ideal candidates for our Active RFID, Electronic Access Control, and Incident Response Management Solutions. Finally, we enhanced our investor relations efforts to communicate our focused and synergistic business model to investors, and listed our common stock on The NASDAQ Capital Market, thereby allowing a larger universe of institutional and other investors to consider ownership of our shares."

Mr. Tuchman concluded, "Overall, management is pleased with VUANCE's progress in re-positioning the Company to increase Active RFID, Electronic Access Control, and IRMS sales revenues in coming months. We are focused on a solid, steady business model, primarily driven by the sale of synergistic products into key commercial, institutional and local government markets, and complemented by our IRMS capabilities to win first responder-related projects. This provides management with improved visibility for future quarters. We anticipate closing 2007 with over $12 million in revenues. As we complete the organizational transition, we are optimistic about 2008 in terms of sales and profitability. We anticipate sales revenues of over $20 million next year. We will remain alert for organic growth and acquisition opportunities that can contribute to our forward momentum within target markets. With increasing sales and added cost controls, VUANCE can achieve operational profitability by the end of 2008 and net profitability in future years."

Investor Conference Call

VUANCE will host an investor conference call to discuss its second quarter 2007 operating results today, Thursday, November 29, 2007 at 10:00 AM EST (17:00 Israel Time). During the call, Mr. Eyal Tuchman, CEO, and Mr. Lior Maza, CFO, will discuss the Company's second quarter results.

To participate in the conference call, please call one of the following numbers five minutes before 10:00 AM EST (17:00 Israel Time):

    In Israel: 03-9180691    In the US (toll free): 1-888-281-1167    In the UK (toll free): 0-8000-32-3367    

A replay of the teleconference will be available for a one-week period from 14:00 Eastern Time (21:00 Israel Time) on November 29, 2007 until midnight (EST) on December 5, 2007. To access the replay, please call one of the following numbers:

    In Israel: 03- 9255953    In the US (toll free): 1-888-782-4291    In the UK (toll free): 0-800-028-6837     Use of Non-GAAP Financial Information  

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, VUANCE uses non-GAAP measures of operational profit, net income and earnings per share, which are adjustments from results based on GAAP to exclude non-cash equity-based compensation charges in accordance with SFAS 123(R), onetime expenses and beneficial conversion feature and amortization of discount on convertible bonds and related expenses. VUANCE management believes the non-GAAP financial information provided in this release provides meaningful supplemental information regarding our performance and enhances the understanding of the Company's on-going economic performance. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Management uses both GAAP and non-GAAP information in evaluating and operating the business and as such deemed it important to provide all this information to investors.

About VUANCE Ltd.

VUANCE Ltd. provides innovative incident management, active RFID, access control and credentialing solutions to public safety, commercial, institutional and government sectors. The Company offers complete, cost- effective Active RFID and electronic access control solutions for the continuous tracking of assets and individuals. VUANCE's Incident Response Management System (IRMS) is the industry's most comprehensive mobile credentialing and access control system, designed to meet the needs of Homeland Security and other public initiatives. For more information, visit the Company's website at www.vuance.com.

VUANCE Ltd. is headquartered in McLean, Virginia. VUANCE common stock is listed on the NASDAQ Capital Market and on the Euronext Exchange under the symbol "VUNC". For more information, visit www.vuance.com.

Safe Harbor

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements preceded or followed by or that otherwise include the words "believes", "expects", "anticipates", "intends", "projects", "estimates", "plans", and similar expressions or future or conditional verbs such as "will", "should", "would", "may" and "could" are generally forward-looking in nature and not historical facts. Forward-looking statements in this release also include statements about business and economic trends. Investors should also consider the areas of risk described under the heading "Forward Looking Statements" and those factors captioned as "Risk Factors" in the Company's periodic reports under the Securities Exchange Act of 1934, as amended, or in connection with any forward-looking statements that may be made by the Company.

The Company also disclaims any duty to comment upon or correct information that may be contained in reports published by the investment community.

    Investor/Media Contacts    North America    Jerry Cahn, Ph.D., J.D.        R. Jerry Falkner, CFA    Target 3 Communications        RJ Falkner & Company    Tel: 646-827-0009              Tel: 800-377-9893    Fax: 646-827-9009              Fax: 830-693-6600    Jerry@target3.com              info@rjfalkner.com      CONDENSED CONSOLIDATED BALANCE SHEETS                                                    U.S. dollars in thousands                                                   September 30,    December 31,                                                    2007            2006                                                 Unaudited        Audited     ASSETS    CURRENT ASSETS:     Cash and cash equivalents                $    3,437       $  2,444     Restricted cash deposit                       3,132            859     Marketable securities:       Municipal bond                                350            -       Other company                               7,969         11,077     Trade receivables, net of doubtful      accounts                                     2,816          2,625     Other accounts receivable and prepaid      expenses                                     1,991            717     Inventories                                     630            270    Total current assets                           20,325         17,992    INVESTMENTS AND LONG-TERM RECEIVABLES:     Investment in restricted marketable      securities of other company                     -           4,431     Long term trade receivables                      -              79     Severance pay fund                             334             239    Total investments and long-term receivables      334           4,749    PROPERTY AND EQUIPMENT, NET                      235             160    OTHER ASSETS   Goodwill                                       3,178              -   Intangibles assets and deferred charges        2,196             197   Total Other Assets                             5,374             197    TOTAL ASSETS                                $ 26,268        $ 23,098     CONDENSED CONSOLIDATED BALANCE SHEETS                                                   U.S. dollars in thousands                                                 September 30,    December 31,                                                    2007            2006                                                  Unaudited        Audited      LIABILITIES AND SHAREHOLDERS' EQUITY    CURRENT LIABILITIES:    Short-term bank credit and current     maturities of long-term loan               $    503        $    668   Trade payables                                  1,359             823   Employees and payroll accruals                    263             533   Accrued expenses and other liabilities          8,709           3,428    Total current liabilities                      10,834           5,452    LONG-TERM LIABILITIES:      Convertible bonds                             2,438           2,255     Long-term loan, net of current maturities        -               67     Accrued severance pay                           405             323    Total long-term liabilities                     2,843           2,645    COMMITMENTS AND CONTINGENT LIABILITIES      SHAREHOLDER'S EQUITY                         12,591          15,001    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 26,268        $ 23,098     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                U.S. dollars in thousands (except share data)                                       Nine months ended   Three months ended                                        September 30,       September 30,                                        2007      2006      2007      2006                                                    Unaudited     Revenues                         $  8,887   $  6,412  $   3,364  $  2,577   Cost of revenues                    3,666      2,347      1,282       792    Gross profit                        5,221      4,065      2,082     1,785    Operating expenses:     Research and development            904      1,006        516       364     Selling and marketing             6,094      3,589      2,637     1,490     General and administrative        2,291      1,835        907       669    Total operating expenses            9,289      6,430      4,060     2,523    Operating loss                     (4,068)    (2,365)    (1,978)     (738)   Financial expenses, net            (1,144)       (84)      (823)      (53)   Other expenses, net                    -         (60)        -         -    Net loss                         $ (5,212)  $ (2,509) $  (2,801) $   (791)    Basic and diluted net loss per    share (1)                       $  (1.26)  $  (0.63) $   (0.63) $  (0.20)    Weighted average number of    Ordinary shares used in    computing basic and diluted    net loss per share (1)         4,145,039  3,961,157  4,416,745 3,965,971     (1) A 1 for 5.88235 reverse split of our common stock became effective        for trading purposes on May 14, 2007. All earnings per share and        weighted-average share amounts are presented on a post-split basis.     RECONCILIATION BETWEEN GAAP TO NON-GAAP STATEMENTS OF OPERATIONS   U.S. dollars in thousands (except share data)                              Nine months ended         Nine months ended                             September 30, 2007       September 30, 2006                      GAAP   Adjustment  Non-GAAP  GAAP  Adjustment  Non-GAAP                             Unaudited                   Unaudited     Revenues       $  8,887      -       $  8,887   $ 6,412      -    $  6,412   Cost of    revenues         3,666    (2)( a )     3,664     2,347      -       2,347    Gross profit      5,221     2           5,223     4,065      -       4,065    Operating expenses:      Research and      development      904  (142)( a )       762     1,006    (31)( a )   975     Selling and      marketing      6,094  (135)( a )     5,959     3,589    (34)( a ) 3,555     General and      administrative 2,291 (583)( a )( b ) 1,708     1,835   (142)( a ) 1,693    Total operating    expenses         9,289     (860)( a )  8,429     6,430   (207)( a ) 6,223    Operating loss   (4,068)     862       (3,206)   (2,365)   207     (2,158)   Financial income   (expenses), net  (1,144)  259( a )( c )  (885)      (84)    -         (84)   Other income    (expenses), net     -         -          -         (60)    -         (60)    Net Income    (loss)        $ (5,212)   $1,121    $ (4,091) $ (2,509) $ 207   $ (2,302)    Basic and diluted    net loss per    share (c)     $  (1.26)   $ 0.27    $  (0.99) $  (0.63) $0.05   $  (0.58)    Weighted average    number of    Ordinary    shares used in    computing basic    and diluted    net loss per    share ( c )  4,145,039 4,145,039  4,145,039 3,961,157 3,961,157 3,961,157     ( a ) The effect of stock-based compensation.    ( b ) The effect of provision for litigation-related expenses    ( c ) Beneficial conversion feature and amortization of discount on          convertible bonds and other related expenses.    ( d ) A 1 for 5.88235 reverse split of our common stock became effective          for trading purposes on May 14, 2007. All earnings per share and          weighted-average share amounts are presented on a post-split basis.     RECONCILIATION BETWEEN GAAP TO NON-GAAP STATEMENTS OF OPERATIONS   U.S. dollars in thousands (except share data)                          Three months ended           Three months ended                         September 30, 2007           September 30, 2006                    GAAP   Adjustment  Non-GAAP   GAAP   Adjustment  Non-GAAP                          Unaudited                      Unaudited     Revenues      $3,364      -        $3,364    $2,577       -      $2,577    Cost of     revenues      1,282    (2)( a )    1,280       792       -         792     Gross profit   2,082     2          2,084     1,785       -       1,785     Operating    expenses:      Research and       development   516    (77)( a )     439       364      (2)( a )   362      Selling and       marketing   2,637    (16)( a )   2,621     1,490      (7)( a ) 1,483      General and       administra-       tive          907  (196)( a )( b ) 711       669     (40)( a )   629     Total operating     expenses      4,060   (289)( a )   3,771     2,523     (49)( a ) 2,474     Operating     loss         (1,978)      291     (1,687)     (738)      49       (689)    Financial     income     (expenses),     net            (823) 137( a )( c )  (686)      (53)      -         (53)    Other income     (expenses),     net              -        -          -         -         -         -     Net Income     (loss)      $(2,801)     $428    $(2,373)    $(791)     $ 49     $(742)     Basic and     diluted net     loss per     share ( c )  $(0.63)    $0.09     $(0.54)   $(0.20)    $0.01    $(0.19)     Weighted average     number of Ordinary     shares used in     computing basic     and diluted net     loss per     share ( c ) 4,416,745 4,416,745 4,416,745 3,965,971 3,965,971 3,965,971     ( a ) The effect of stock-based compensation.    ( b ) The effect of provision for litigation-related expenses    ( c ) Beneficial conversion feature and amortization of discount on          convertible bonds and other related expenses.    ( d ) A 1 for 5.88235 reverse split of our common stock became effective          for trading purposes on May 14, 2007. All earnings per share and          weighted-average share amounts are presented on a post-split basis.     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   U.S. dollars in thousands                                  Nine months ended       Three months ended                                   September 30,           September 30,                                  2007      2006         2007         2006                                                Unaudited    Cash flows from operating    activities:   Net loss                    $(5,212)    $(2,509)     $(2,801)      $(791)   Adjustments to reconcile    net loss to net cash    used in operating    activities:   Depreciation and    amortization                    92         267           73          87   Accrued severance pay, net      (61)         16           (7)         30   Deferred stock compensation     751         207          181          52   Amortization of deferred    charges                         68          -            21          -   Amortization of discount on    convertible bonds              183          -            61          -   Decrease (increase) in trade    receivables                    607      (1,792)         140        (643)   Decrease (increase) in other    accounts receivable    and prepaid expenses        (1,453)        164       (1,409)        (12)   Decrease (increase) in    inventories                     48          84           23         (89)   Increase (decrease) in trade    payables                        (5)        182          (48)        332   Increase (decrease) in    employees and payroll    accruals                      (270)         91           44          46   Increase (decrease) in    accrued expenses and    other liabilities            4,632       1,181        4,778         610   Capital (gain) loss from    sale of marketable securities  480          -           555          -   Exchange differences on    principle of long-term loan      7           9           (6)          6   Others                            9          -             9          -   Net cash used in operating    activities                    (124)     (2,100)       1,614        (372)    Cash flows from investing    activities:     Purchase of property and      equipment                    (81)        (92)          (9)        (29)     Purchase of subsidiary      that was consolidated for      the first time.*            (153)         -          (153)         -     Capitalization of software      and intangible assets       (509)         -          (227)         -     Amounts carried to deferred      charges                      (52)         -            -           -     Proceeds from short-term      deposits, net             (2,273)        162       (1,498)        (58)     Investment in marketable     Securities of municipal      bond, net                   (350)        650        1,075         250     Proceeds from sale of      marketable securities of      other company              4,723          -         3,642          -   Net cash provided by    (used in) investing    activities                   1,305         720        2,830         163    Cash flows from financing    activities:     Short-term bank      credit, net                 (381)       (310)         (8)          21     Proceeds from long-term      loan                       2,850         204         350           -     Principal payment of      long-term loan            (2,709)       (157)     (2,571)         (66)     Proceeds from exercise      of options, net               52          38         -             38     Expenses related to      issuance of shares      in a private placement        -         (180)        -            (10)   Net cash provided by    (used in) financing    activities                    (188)       (405)     (2,229)         (17)    Increase (decrease) in cash    and cash equivalents           993      (1,785)       2,215        (226)   Cash and cash equivalents    at the beginning of    the period                   2,444       2,294        1,222         735    Cash and cash equivalents    at the end of the period    $3,437        $509       $3,437        $509    Supplemental disclosure of    cash flows information:     Cash paid during the      period for:     Interest                    $126          $59          $34         $20   Supplemental disclosure of    non-cash activities:     Trade payable and Employees      and payroll accruals      related to capitalization      of software                $-             -          $(65)        -   Issuing shares capital    against redemption of    note payable                 $432           -          $432         -   Accrued expenses related to    issuance of shares            -            $19           -          -   * Purchase of subsidiary that was consolidated for the first time     U.S. dollars in thousands                                     Nine months ended     Nine months ended                                     September 30,         September 30,                                                  Unaudited    Assets and Liabilities of the    subsidiary for the purchase day.    Operating capital (excluding cash    and cash equivalents)                 723                  723      Property and equipment, net          (32)                 (32)      Other assets                      (1,569)              (1,569)      Goodwill that was formed at the      purchase                         (3,178)              (3,178)      Share capital                         14                   14      Additional paid-in capital         3,889                3,889                                          (153)                (153)  

Source: VUANCE, Ltd.

CONTACT: Investors and Media, North America, Jerry Cahn, Ph.D., J.D. of
Target 3 Communications, +1-646-827-0009, or fax, +1-646-827-9009,
Jerry@target3.com; or R. Jerry Falkner, CFA of RJ Falkner & Company,
+1-800-377-9893, or fax, +1-830-693-6600, info@rjfalkner.com, both for VUANCE,
Ltd.

Web site: http://www.vuance.com/

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