The 20-F consolidated financial statement that Alvarion Ltd. (Nasdaq: ALVR; TASE: ALVR) filed two weeks late with US Securities and Exchange Commission (SEC) mentions many problems reflecting the company's difficulties. Other data in the filing, however, may indicate expectations of improvement in its business.
Alvarion, a provider of wireless broadband solutions is traded on the Nasdaq Capital Market with an all-time low market cap of just $17 million. The company, now run by acting CEO Assaf Katan, used to focus on WiMAX technology, in the hope that it would become the next-generation technology for mobile networks. But WiMAX lost out to LTE and ended up as a niche technology. Alvarion recently sold its WiMAX business to Telrad Networks Ltd. for $12 million, and now provides enterprise network communications systems, using Wi-Fi technology, which it acquired through its $30 million acquisition of Wavion in 2011.
However, the 20-F statement reveals problems with Alvarion's Wi-Fi business. "Our sales of our Wi-Fi products decreased significantly in the second half of 2012 as the world was migrating to the new 802.11n standard and our WBSn product that had been developed based on that standard was not market ready," it states.
Alvarion's accumulated losses through the end of 2012 are $389 million. It lost $55.1 million in 2012 and had a negative cash flow from operations of $48 million. The company adds that its results continued to deteriorate in the period after the reporting period. However, the company has a $283 million tax asset, which it can use as an offset, which is good news for any potential buyer of the company.
Alvarion's workforce fell by 34% during 2012, after it fired 186 employees during the year, about the same number it fired in 2011. It had 356 employees at the end of 2012, and the current figure, following the sale of the WiMAX business to Telrad, is even lower.
Alvarion paid $4.1 million in 2012 to 23 managers, some of whom had left the company. This expense was 5% higher than in 2011. These managers were also allotted options at strike prices of $3.80-12.40, which are now out of the money. In 2012, Alvarion allotted 306,000 options at an average strike price of $6, more than double Friday's closing share price of $2.72 on Nasdaq. The fall in the share price resulted in the write-off of 581,000 options, which had a strike higher than the market price.
Alvarion's outstanding debt to Silicon Valley Bank, which lent it the $30 million to acquire Wavion, totaled $5.4 million at the end of 2012. Alvarion did not meet the loan's financial covenants and was forced to return most of the loan last year. A few days ago, the parties agreed to amend the loan terms, which are now called a credit line, against which Alvarion can borrow up to $6 million at an annual interest rate of 7%.
The new financial covenants which Alvarion signed may indicate that it believes that its business will improve quickly. Under the covenants, Alvarion's net loss will not exceed $4.3 million for the first quarter of 2013, $2.1 million for the second quarter, and $350,000 for the third quarter, and it will swing to a net profit in the fourth quarter. Alvarion will publish its financial report for the first quarter later this week.
The profit is calculated on the basis of the earnings before interest, taxes, depreciation and amortization (EBITDA), excluding certain capital expenses, and if Alvarion does not meet the covenants, it will have to return the loan immediately. By signing the covenants, the company believes that it will improve its bottom line this year.
Published by Globes [online], Israel business news - www.globes-online.com - on May 19, 2013
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