ViryaNet: An Under The Radar Technology Gem's Cloud Transition Could Yield Significant Upside Potential

| About: ViryaNet Ltd. (VRYAF)
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Business Overview:

Viryanet (OTCQB:VRYAF) is a micro-cap, web-based software application provider for mobile workforces, with high margins, a clean balance sheet, and a surprisingly blue chip roster of global customers for a company of its size. Unfortunately, Viryanet has also been plagued by choppy results over the last several years, although 2013 marks a significant improvement - a trend I believe will continue for reasons I detail below.

With important new distribution partnerships, and a shift to a cloud-based business model, I anticipate ongoing revenue growth and further gross margin expansion from the current 63.3% level. I believe ViryaNet should earn $0.40-$0.45 in EPS in 2014, based on 5-10% top line growth and further gross margin expansion, which at a 11-12x multiple (well below the earnings growth rate), vs. current 11x 2013, would imply 100%-200% upside. If I am wrong, and revenues are flat or slightly down, I'd still anticipate a structural improvement to gross margins, resulting in flattish EPS, and limited downside to shares.

Investment Thesis:

  1. The choppy results of recent years should be over, and growth should be sustainable, due to significant new partnerships. Bookings growth is also helping provide for stronger financials moving forward.
  2. The mix toward cloud-based solutions from on premises should result in ongoing, structural gross margin expansion. In addition, the distribution model should result in limited need to increase op-ex relative to growth in top-line.
  3. Significant room for growth, with industry with relatively limited penetration.
  4. Potential eventual up-listing (i.e. in 1-2 years) to larger exchange, this would be catalyst for higher valuation.
  5. Anticipate increased efforts by management to interact with investment community.
  6. Shares appear cheap relative to prospective $0.40-$0.45 in 2014 - largely due to positive structural shift in margin structure - with limited downside, given margins should improve even if top-line growth fails to materialize.
  7. ViryaNet's management team is aligned with shareholder concerns and the principal-agent problem is thwarted through insider ownership.
  8. Risks.
  9. Conclusion
  10. Appendix: An interview with ViryaNet's President and CEO.

Background:

ViryaNet offers solutions to make businesses' mobile workforces more effective to provide better services and a higher level of satisfaction for customers. The company offers a wide array of solutions including the company's flagship G4 platform. This comprehensive mobile workforce management platform is an integrated solution to help meet a business's current and future objectives in the most cost efficient way. ViryaNet's products are an excellent choice for businesses that require strong scheduling and performance management within their organizations. The company offers a platform with strong mobile features and a low price tag in comparison to its industry peers who are not even profitable such as Jacada (OTCQB:JCDAF) and Astea International (NASDAQ:ATEA) - both of which offer optimization solutions as well.

ViryaNet's platform offers a fully integrated approach that allows for a business to define its goals, measure and analyze performance and apply corrective actions to enable augmented change. The company's G4 product allows for the three main areas, which encompass a business to be augmented and analyzed. I have also had the opportunity to speak with ViryaNet's President and CEO Memy Ish-Shalom to gain insight on several tough questions surrounding the company.

Thesis:

(1) Choppy Financial Results Are Over, Sustainable Growth Is On The Horizon:

ViryaNet has had impressive growth on an y/y basis in 2013. For the nine months ended September 30, 2013 ViryaNet reported revenues of $8.2 million that represents a 5.8% increase compared to $7.8 million reported for the same period in 2012. For the same period, license revenues increased 15.7% to $751,000 compared to $649,000 in 2012. Maintenance and service revenues also increased 4.9% to $7.5 million compared to $7.1 million in the year ago nine-month period. The company's operating income also rose to $686,000 from $659,000 during the period while total operating expenses increased $500,000 to $4.5 million.

One remarkable factor of ViryaNet's business is the company's high gross margin of 63.3% in the first 3 quarters of 2013, versus 60% for the first 3 quarters of 2012.

On the bottom line ViryaNet's net income was $651,000, which includes a gain on forgiveness of debt of $210,000. This amounts to an EPS of $0.16 per basic share or $0.15 diluted EPS. Notably, $0.07 of the earnings occurred in 3Q. This is a noticeable gain over the prior year's net income of $541,000 or $0.14 per basic and $0.13 diluted earnings per share for the same nine -month period of 2012. While this is healthy improvement, recent significant bookings growth - in 3Q booking were up 59% from 2Q, and 155% y/y - gives me confidence that positive trends are likely to continue, which management stated in its 3Q press release. Bookings growth will be described in more detail later in this discussion, although it is a key item that can provide for a more stable financial picture moving forward.

The maturity of ViryaNet's partnerships is a key element that will provide for more sustainable growth moving forward. These partnerships will be described in more detail as to where they fit into the business model, although they are significant. Through shifting the services side of the business to companies that re-brand and offer ViryaNet's products as their own, such as GE Energy (NYSE:GE), ViryaNet is able to enjoy higher margins. Since the company obtains licensing revenue at higher margins than providing the services themselves. Moreover partnerships with large companies such as GE provide for more sales and market exposure. ViryaNet is also able to keep future operating expenses low by shifting the burden of expenses to partners who provide the actual services, such as InfoTech.

Better results are also driving improvements in the company's balance sheet.

(Source For All Slides)

As of September 30, 2013 ViryaNet increased Shareholders' equity over the prior past three years. Even more important is the fact that the data from 2010, 2011 and 2012 includes the fourth quarter. On the other hand ViryaNet's September 30, 2013 data does not include the end of the year quarter.

Even excluding the last quarter, ViryaNet has been able to increase shareholders' equity over the past three reported years. Current liabilities have declined since 2010 while long-term liabilities have decreased since 2011. On the bottom line, ViryaNet is increasing total shareholders' equity over the past two years since 2011.

ViryaNet is improving from a company that has had a rocky start. In the second quarter of 2013, the company reported a net income of $101,000 or $0.02 basic and diluted share earnings, which included a gain on forgiveness of debt of $210,000. This is in comparison to net income of $207,000 or $0.05 per basic and diluted share for the same period in 2012. Without the gain on this one time event, ViryaNet would have reported a net loss for the quarter of $109,000. This choppy quarter is a rough patch, which ViryaNet has since been recovering from.

ViryaNet's recovery from this quarter can be seen in the company's third quarter results for 2013 - the following quarter. ViryaNet reported a net income of $306,000, representing a basic EPS of $0.07. On an y/y basis this is a large performance gain from a net income of $83,000 or $0.02 per share in the same period last year. Moreover, it is a noticeable gain over last quarter's net loss of $109,000 when not including the one time gain on forgiveness of debt. Keep in mind that this gain on forgiveness of debt did not help the company's 3Q net income of $306,000 which beat the second quarter even when accounting for the inclusion of the gain. This marks ViryaNet's recovery from a rocky financial picture - a recovery that is noticeable in the third quarter over the one before it.

(2) The Move To The Cloud From An On-Premises Structure:

ViryaNet is undergoing a unique growth situation that is not currently known in the marketplace. As ViryaNet is moving towards the cloud to offer its products, this cuts down on various operating expenses. For example, instead of running a full premises as the company has done in the past and hiring employees and providing upkeep for the physical location, ViryaNet can enjoy higher gross margins by offering its products through the cloud and through its various partners, such as GE Energy. This has largely occurred only during the last few months, and should start flowing through to financials in the next few quarters. In doing a large amount of due diligence on ViryaNet, my research has provided me insight into the company's growth and margins that has helped me create a more accurate model of the company's future.

ViryaNet's move to the cloud to offer its products and services and through licensing revenue enjoyed through the sale of products by ViryaNet's partners, such as GE Energy, offers high margins of roughly 90% to 95%. This is much higher than ViryaNet providing the services themselves at gross margins of roughly 60% to 65%.

ViryaNet's move to the cloud and doing business through the company's partners not only provides for higher margins, it offers more growth potential moving forward. These two items are growth catalysts due to the very nature of how they operate. First they have platform sales through the cloud that offers a faster buy-to-use turnaround time than having to travel to premises or deal with a sales team to obtain ViryaNet's platform. Prospective clients do not have to leave their climate-controlled offices to obtain ViryaNet's cutting edge solutions; they just need access to a computer. Moving forward this also allows companies who were unable to obtain ViryaNet's products to obtain it with relative ease as a one size fits all solution available through the cloud or Internet. The move to the cloud happened just a short time ago in November, which was explained earlier in this discussion.

Having large international partners such as GE Energy are a key driver for higher overall margins and sales that are also seen in ViryaNet's cloud offerings. For reasons already discussed, GE Energy rebrands ViryaNet's products and offers them as their own products to their customers. This in turn yields licensing revenue to ViryaNet that has 90% to 95% margins in place of doing the service themselves at 60% to 65% margin outcomes. GE Energy, and the companies other large partners displayed earlier have a wide expanse of customers and connections that will allow ViryaNet's licensing revenue to grow as these companies offer ViryaNet's product in the marketplace.

(3) Significant Room For Growth, With Limited Industry Penetration:

Gartner has reported that only 25% of the addressable market is currently penetrated. This presents a unique opportunity for ViryaNet as software sales in the Field Service Management market are approximated at $329M in 2013 according to Gartner as well. The small amount of market penetration, coupled with a large target market represents a two-prong medium for ViryaNet to expand within the marketplace. ViryaNet will be able to address more of the only 25% market that is currently penetrated through its new cloud based offerings that are easier to use and obtain than in the past - expanding market penetration. All the while the target market is huge, so ViryaNet has a golden opportunity to target this market with its key technology platforms.

ViryaNet's President and CEO Memy Ish-Shalom has stated that the numbers coming out of Gartner indicate that there is plenty of opportunity to provide value for customers that are currently not using the type of business solutions that ViryaNet offers. Mr. Ish-Shalom went on to state that these solutions have grown to be more affordable with cloud offerings that businesses can obtain more easily. In closing, Mr. Ish-Shalom stated the growth through the cloud will occur as markets and businesses that are not currently using the company's products, although have access to the cloud, will now be able to obtain them with ease.

(4) Potential Uplisting To A Larger Exchange:

ViryaNet currently trades on the OTC market. An improving business model coupled with growth could lead ViryaNet to up-list to a larger exchange. The company is inevitably going to want to allow larger entities such as hedge funds to invest in the company's bright prospective future. Up-listing to a larger exchange could be a major catalyst for a higher valuation. This is due to the inflows of investment through entities that are not allowed to purchase securities on over the counter markets.

In speaking with ViryaNet's President and CEO, he stated that the company has to meet certain criteria to up list onto a larger exchange, although in the future they will be able to accomplish these criteria. Mr. Ish-Shalom went on to state that the company couldn't announce any plans as of right now, although that they are always exploring all options and will continue to look into this concept in the future.

(5) Management's Increased Efforts To Interact With The Investment Community:

As a tiny micro-cap company, ViryaNet has flown under the radar. Recently they attended the LD Micro Conference and my impression is they will attempt to be more visible.

In commenting on this topic, Mr. Ish-Shalom stated his drive to place ViryaNet on investors' radar screens. He stated that the company started with the LD Micro Conference and are looking to attend more conferences moving forward. Furthermore the company has completed two earnings conference calls and he personally has done several face-to-face meetings with investors and numerous conference calls as well. Mr. Ish-Shalom voiced his drive to place ViryaNet on investors' radar screens and this fact can be seen through the recent rising share volume and share price over the past few years.

(6) Shares Are Cheap Relative to $0.40-$0.45 EPS In 2014 - Largely Due To A Positive Structural Shift In Margin Structure

In computing Q4's estimated numbers, I have used the growth metrics enjoyed from 3Q 2012 to 3Q 2013 in my computation of 3Q 2013 to 4Q 2014. In this estimate, 4Q 2013's licensing revenue is estimated to grow 15.7% and maintenance and service revenue grows 4.9%. Licensing grows faster due to the maturity of ViryaNet's partnerships and the company's cloud offerings. In the 4Q of 2013 I have estimated that the cost of revenues will decline 4% as it is cheaper to earn licensing revenue than to incur costs involved with offering services and hiring sales teams that the company's partners already have.

I have estimated all operating expenses to decreases by a modest 10% in 4Q 2013 over 3Q 2013. I held financial expenses constant in 4Q 2013 that brings down to a net income of $366.6 thousand after taxes. Keeping the share count constant brings us to a basic EPS of $0.09 and a diluted EPS of $0.08 for 4Q 2013. These are higher than the past quarter's $0.07 and $0.07 EPS results respectively.

When adding the 4Q of 2013's estimates to the nine months of reported data for 2013, we arrive at a diluted EPS of $0.21. This number is close with current data as the company's TTM EPS is currently at $0.23, the close to my diluted estimates for the company.

With 2013's annual data in place, estimates for 2014 and 2015 can be computed. Keeping to the past's growth metrics, licensing revenue increase 15.7% y/y and maintenance and service expands by the same 4.9% y/y. On a y/y basis the cost of revenues decreases 10% to account for licensing revenue having less costs than those involved with maintenance and services as the company moves in this direction. Becoming a more established company in the marketplace with cloud offerings and business being conducted primarily through partners lessens the need for expensive facility, employee and general expenses. This can be seen through the company's partnership with Infotech, which handles a portion of business expansion at no cost to the company, so increasing expenses is not a concern as other companies that ViryaNet partners with bears these costs. As such on a y/y basis I have estimated operating expenses to decrease 5%.

Moving down, I have estimated financial expenses decreasing 10% on a y/y basis as the company is profitable so financial expenses should decrease moving forward. Balancing this item out in 2013 was a large gain on forgiveness in debt that was a one-time event that will not occur again in 2014 and 2015; as such it is not included in 2014 and 2015. So overall, total other income expenses are higher in 2014 and 2015 than 2013 lacking the one time gain on forgiveness of debt.

For the estimated fourth quarter and on y/y basis for 2014 and 2015 I have estimated a tax rate of 3%. I have estimated a low single digit tax rate based upon the company's large net loss carryforwards of $61.8 million in the United States that can be carried forward and offset taxable income for 20 years as per the company's 20-f filing. The company also has a net loss carryforward of $34.8 million that can offset taxable income in Israel for an indefinite time period. My estimated tax rate is also in line with the company's reported effective tax rate of 3% for 2012.

Keeping the basic and diluted share count constant yields a diluted EPS of $0.35 in 2014 and a diluted EPS of $0.59 in 2015. It would be safe to assume that as EPS grows and accelerates into the future, the company's P/E ratio will expand. If the company grows as I anticipate, I think modest multiple expansion to ~15x is entirely reasonable. In such a case, at 15x my estimate of $0.35 EPS would have 100%-150% upside potential, and obviously far more should momentum continue into 2015.

Based on my discussion of the opportunity set for ViryaNet and the anticipated margin improvement, I believe my estimates are realistic. Adding to the company's growth that will drive earnings is the bookings growth that the company realized in 2013. Total bookings growth in 2013 3Q of 2013 was 155% higher than in the same period in 2012 and up 59% from the prior quarter. This will help feed growth in the future as the increase in the size of opportunities in the company's pipeline directly and through partners with existing and new customers has given the company confidence that bookings growth momentum will continue.

A very important key item moving forward is ViryaNet's increasing overall gross margin that is anticipated. This is due to the company's move to the cloud and away from services. As such the company's gross margin will increase from the current 63.3% overall level upwards closer to the 90% to 95% level enjoyed in licensing revenue. An increasing gross margin coupled with a decreasing need for operating expenses through ViryaNet's partners such as Infotech bearing forward expenses coupled with service revenue will lead ViryaNet to experience positive bottom line growth.

My projections include an increasing overall gross margin of 5% y/y for ViryaNet in 2014 and 2015. This is due to the increasing revenue from licensing over maintenance and services that has a higher individual gross margin of 90% to 95% versus 60% to 65% for the latter segment. The increased margin in the licensing segment is attributable to lower costs for the segment coming from ViryaNet's partners incurring the cost of providing the services - as they bear the costs involved.

(7) ViryaNet's Management Team Is Aligned With Shareholders:

As of March 31, 2013, ViryaNet's directors and executive officers held 43.5% of the company as a whole. This amounts to the number of share that may be issued upon exercise of options and warrants and the conversion of all convertible notes and warrants that would become exercisable or would have vested by March 31, 2013. Management having a large stake in the company is a solid medium in tackling the principal agent problem. Moreover, this fact translates to management's drive to do everything possible to further the company as they have their own money in the game. Even better is the fact that shares held by ViryaNet's directors and executive officers do not offer different voting rights from shares held by any other shareholders. This presents an even playing ground for all investors to influence changes at the company through voting, if they have enough of an ownership.

(8) Potential Risks:

ViryaNet is not without several key risks that investors should be aware of before executing an investment in the company. As discussed with ViryaNet's CEO, there is a lack of clear cut visibility into whether or not the company's large deals will close. Although there is nothing directly blocking the closing of these deals, whether or not they will close and which quarter the sales will fall in could impact the company's financials on a quarter-to-quarter basis.

ViryaNet is a micro-cap company and this provides for the added risk of the company being small and subject to price swings. Moreover, the company's low volume can make it somewhat illiquid as well. These both can be solved with a potential up listing to a larger exchange in the future.

ViryaNet's past choppy results can be a cause for concern, although I believe that is going to change to moving forward. Although sales can vary quarter-to-quarter, I expect sustainable growth on an annual basis.

(9) Conclusion:

ViryaNet's move to a cloud sales dynamic coupled with sales through the company's large partners, such as GE Energy and Infotech, provides for higher gross margins in the area of 90% to 95% while providing for lower operating expenses. This is in contrast to the past where 60% to 65% margins were enjoyed as the company had to perform the services side of the business themselves. Growth will also be seen moving forward as these large multi-billion dollar and global companies such as General Electric and Oracle (NYSE:ORCL) offer ViryaNet's products to its own customers and through its product offerings. The move to the cloud will also feed future growth as businesses can easily go online and obtain ViryaNet's platforms with relative ease in a one size fits all solution with a faster buy-to-use turnaround time.

ViryaNet is the beneficiary of an improving business as y/y profitability improvements across the board are visible. On the other side, ViryaNet's balance sheet is also improving as shareholders' equity has increased on a y/y basis. ViryaNet's flagship G4 platform offers a unique technology aimed at increasing business performance management and efficiency.

ViryaNet's President and CEO Memy Ish-Shalom articulates his company's vision well. This is a positive since he will be speaking with investors more in the future. ViryaNet's management owns a substantial portion of the company, aligning their interests with those of the shareholders.

While understanding the drive to the higher margin-licensing model over services model moving forward, accurate estimates are obtained that yield large shareholder gains for long-term investors. If ViryaNet continues to grow as I anticipate, a modest multiple expansion of ~15x is possible. With this being the case, my estimate of $0.35 EPS yields 100% -150% upside potential. These gains can be greater if momentum continues into 2015.

The company's lack of visibility into the closing of deals is a key risk that could place large revenue in one quarter over another that has the potential to impact revenue on a q/q basis.

(10) Appendix:

The Compelling Questions - An Interview With ViryaNet's President and CEO Memy Ish-Shalom:

(Tom Shaughnessy)

Hello Memy Ish-Shalom, thank you for meeting with me on such short notice to discuss ViryaNet.

(Memy Ish-Shalom)

Good morning Tom, I am happy to be here and have been looking forward to our discussion.

(Tom Shaughnessy)

It seems you've had a good year and then a not so good year and then a good year - there's been some inconsistency. Why is that going to change in the future?

(Memy Ish-Shalom)

Absolutely, we will reach consistency in the future due to the recent changes we have made to the company. One such item that we did not have in the past is the maturity of growth through large partnership channels that we have been the beneficiary of. This maturity is an excellent development since ViryaNet has been under the radar for a long time - approximately ten years. Now that ViryaNet is becoming noticed in the marketplace and our business partnerships are maturing we are seeing increased growth in our overall business.

There are two key changes that have also taken place in the last 18 months that have positioned ViryaNet as a better company now than in the past. The first item is how ViryaNet is investing on a global level in search of large partners who are industry leaders. An example of this can be seen with ViryaNet's partnership with GE Energy. It has taken a long time to establish our partnership with GE Energy, although it has been successful and is very beneficial for the company.

GE Energy sells its own products and offers its own services to the energy market. Although the only product GE Energy does not own is ViryaNet's G4 product that GE Energy offers re-branded as Field Force Automation. GE Energy sells the re-branded product through their own exclusive channels. Many companies buy the GE product and this is very important to ViryaNet as an industry player offers ViryaNet's flagship product to their customers.

(Tom Shaughnessy)

Thank you Mr. Ish-Shalom. The maturity of ViryaNet's partners seems to be a key driver of the company's success, which was not seen in the past since these relationships were still rather new. What sets ViryaNet's products apart in the marketplace and does this play a role in platform sales?

(Memy Ish-Shalom)

Thanks Tom. Changes to our company's position through new product offerings provide a clear differentiator setting ViryaNet apart from our competitors. Our products help businesses meet their goals by providing them with intergraded performance management platforms they can utilize to meet their goals.

Viryanet is very different from our competitors since we offer a fully integrated solution. This key element plays a very important role in boosting sales as businesses choose ViryaNet as a provider for the fully integrated solution that we offer. Another key element that drives businesses to choose ViryaNet's products is the ability for customers to have a clear focus on their goals in an efficient and dedicated manner.

(Tom Shaughnessy)

ViryaNet has a history of innovation and leadership. What recent innovation is adding to the company's technology moat to drive platform sales?

(Memy Ish-Shalom)

Excellent question Tom. In 2013, ViryaNet offered the first voice-enabled native field application for use within our platform. This follows in line with ViryaNet being the first to bring many technologies to the marketplace, such as the online/offline mobile solution we brought to the market in 2002 and our web-based solution in 2000. With our native field application technicians can interact directly with their headquarters for directions, alerts and other information in real time through an easy to use user interface. Our technology advantages coupled with our performance management platform help us to improve our competitive situation.

(Tom Shaughnessy)

That is a very interesting company development. As a whole, does ViryaNet have plans to move to the cloud to keep up with technology trends? If so, what are the advantages to the company that come along with moving to the cloud?

(Memy Ish-Shalom)

ViryaNet had a very recent development in regard to a move to the cloud. Previously, ViryaNet's G4 was offered either in an on-premise deployment model or a cloud deployment model through several business partners. Now that we have launched ViryaNet Cloud, ViryaNet's direct customers and prospective customers will have this deployment option as well.

The market is shifting to the cloud and ViryaNet is keeping up with trends in lock step. Keep in mind that ViryaNet's business is 70% based on utilities and telecom so these traditional companies will take some time to move to the cloud. Although this provides ViryaNet an extended footprint and allows for more business as these traditional companies move to the cloud. A lot of our competitors do not serve the cloud and this acts as another differentiator for ViryaNet from our competitors.

With our new cloud offerings, companies get a faster ROI or time-to-value experience. This is due to the fact that businesses can go online, pay for the platform and utilize the service faster with ViryaNet's cloud offerings than on traditional means.

(Tom Shaughnessy)

Looking forward with regard to the company's financials, what is the appropriate long-term way I should model gross margins?

(Memy Ish-Shalom)

That is a very good question Tom, although as a company we are not yet offering guidance. I can instead offer insight as to where our growth will come from in the future.

We have perpetual licenses through our partnerships that have very high gross margins, in the area of 90% to 95%. In addition we provide services and support, which add to our licensing income. Overall this amounts to our gross margin being around 65%. Since we are moving to the cloud, we can approach more companies with our platform. This will, in turn, decreases services and increase our cloud revenue that will further improve our gross margins. This is due to the fact that our gross margins on cloud services are higher than traditional premises sales.

On the cloud more companies will use the product out of the box as is. The emotions of customers buying cloud are expecting faster production time from buying to use. So they are more akin to buy and use our products from the cloud, and that is better for ViryaNet cloud sales have higher overall margins than sales on our premises. As such the move to the cloud will increase gross margins, as cloud sales margins are higher than traditional premises sales.

Selling through partners also helps us to improve our gross margins, as these partners will deliver the services themselves. So for ViryaNet the revenue will come from licensing and maintenance that has higher margins than our services division. An example of this is when we announced deals through GE partners in Europe, GE partners is the entity delivering the services so the gross margin are higher for ViryaNet through licensing and maintenance in comparison to offering the services ourselves.

(Tom Shaughnessy)

As the company sees increasing revenues, are operational expenses going to rise? Does the company have a plan to keep expenses low as revenues rise in the future?

(Memy Ish-Shalom)

As discussed in the earlier question, the move to the cloud is less cost intensive than normal premises sales. These decreased costs are what accounts for the higher gross margin for cloud sales. So as our cloud division grows, expenses will be less for that growth than historically seen in expense growth in our services division.

Another key item is that we did sign a partnership agreement with several System Integrators such as Infotech. The relationship expands Infotech's offerings to include the ability to deliver purpose-built mobile workforce management applications for strategic planning, optimized scheduling, exception based dispatch and online/offline mobile work execution by integrating the best-of-breed mobile workforce management solutions from ViryaNet. This partnership allows us to grow ViryaNet without the need to recruit more sales people - since our partnership allows for increased growth.

(Tom Shaughnessy)

Does the company have any plans to up list to a larger exchange in the future?

(Memy Ish-Shalom)

As you can see we are improving our balance sheet and have to meet certain criteria to up list onto a larger exchange. In the future will be able to accomplish the criteria required for up listing. Although we cannot announce any plans, we are always exploring all of our options and continue to look into this idea for the future.

(Tom Shaughnessy)

I see that you recently attended the LD Micro conference. Does ViryaNet have more plans to take an active role in the investor relations area in the future?

(Memy Ish-Shalom)

Absolutely, we plan to attend more conferences moving forward. So far we have started with the LD Micro Conference. ViryaNet was a very under the radar company and now that we are moving into the radar we are becoming more widely known as a company. So far we have completed two earnings calls and I personally have done several meetings with investors and a many conference calls as well. Our move into the radar can be seen in the rising volume of our shares traded over the past few years and our increase in share value.

(Tom Shaughnessy)

Is there a level where you'd sell the company, or is that something you wouldn't even consider?

(Memy Ish-Shalom)

We are not releasing information on this, although looking into the market there is a lot of consolidation. There a lot of activities in market with respect to mergers and acquisitions although there is nothing specific that I can discuss.

(Tom Shaughnessy)

What is your biggest concern for ViryaNet?

(Memy Ish-Shalom)

I wouldn't say it's a large concern, although with enterprise business sales we are depending on a relatively small number of large deals. The nature of these deals does not provide for a lot of visibility so the numbers can be choppy. In other words, sales can change from one quarter to another.

(Tom Shaughnessy)

As stated in the company's investor presentation, only 25% of the addressable market is currently penetrated. How is ViryaNet going to address more of the market moving forward, and how will that drive business performance moving forward?

(Memy Ish-Shalom)

The numbers from Gartner are saying that there is a lot of opportunity to provide value for customers that are currently not using the type of business solutions that we offer. These solutions have grown to be much more affordable with our cloud offerings making it easier for businesses to obtain them. ViryaNet is going to grow through the cloud and this market can be more easily addressed. As such we can grow our business through markets and businesses that are not currently using our products, although that have access to the cloud.

Disclosure: I am long VRYAF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is informational and in my own personal opinion. Always do your own research and contact a financial professional before executing any trades. Always understand all of the risks involved with investing in micro-cap stocks before initiating a position.