Aladdin sees break-even in Q3, after red ink this quarter

Aladdin Knowledge Systems (Nasdaq:ALDN) couldn't repeat its record performance of the last quarter, but did show growth against the same quarter of last year.

Second-quarter revenues were $11.7 million, the company said, against $10.53 million in the same quarter of 2001, an increase of 11%. Its result is 6.5% less than made in the previous quarter.

Aladdin CEO Yanki Margalit commented that European demand for new products had been weak, but United States demand for new Internet security products climbed, while demand for traditional products remained stable.

The company lost a net $2.2 million, or 20 cents per basic and diluted share, versus losing a net $1.9 million or 17 cents per share in the parallel quarter of 2001.

In the previous quarter, Aladdin scraped up a positive operating profit of $170,000, but for the second quarter it admitted to a $2.6 million operating loss, greater than the $1.9 million operating loss suffered in the corresponding quarter of 2001.

The company's operating costs climbed 18% in the second quarter from the parallel to $12 million.

Second quarter 2002 results include a $1.3 million reorganization charge to reflect a series of cost-saving measures that were announced in June, Aladdin said.

Margalit added that despite the continued difficulties within the global IT market, and that the second is typically a weak quarter for the company, sales "were only modestly behind the record-setting sales levels of the first quarter of this year".

"From a partnership perspective, we have grown our solutions partners from 27 to 41- a 50% increase - during the first half of 2002," Margalit added.

During the first half of 2002, Aladdin carried out far-reaching reorganization, including a merger of its administrative and sales offices in Europe, and cutting manpower and salaries.

During the conference call following release of the second-quarter statement, Margalit said he expects the cost-cutting measures to be felt in the third-quarter report, in the form of lower operating costs and a smaller operating loss.

He declined to predict exactly when Aladdin would break even, but estimates that if sales continue to grow versus last year, it might break even in the third quarter the current one, and rise to a black bottom line by year-end.

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