Mentergy Announces First Quarter Results and Additional Funding Agreement with Shareholders and Major Creditors

Mentergy(TM), Ltd. (Nasdaq:MNTE), a leading global provider of corporate learning solutions, today announced financial results for the first quarter ended March 31, 2002, and the receipt of additional credit from its principal shareholders and bank creditors.

Revenues for the first quarter ended March 31, 2002 were $11.5 million compared to $20.1 million for the same period last year. Net loss in the first quarter narrowed to $3.5 million from $8.9 million in the first quarter of 2001. EBITDA excluding one-time charges of restructure and impairment charges for the first quarter was negative $1.2 million compared to negative $2.8 million in the same period last year, a significant decrease in losses despite a decrease in revenue. The reduction in loss was accomplished by implementation of a detailed cost reduction plan, which started in early 2001, and which was aimed at reducing operational expenses and increasing productivity and profitability. As a result, selling, general and administrative expenses were reduced to $5.5 million compared to $9.3 million in the first quarter of 2001, a decrease of 42 percent. Gross margin increased from 28.4 percent in the first quarter of 2001 to 31.6 percent in the first quarter of 2002.

The Company has elected to change the basis upon which it prepares its financial statements from Israeli GAAP to U.S. GAAP, as of the first quarter of 2002. Accordingly, the Company's financial statements for the first quarter of 2002 reflect the application of Financial Accounting Standards ("FAS") 142, which revises the accounting treatment for goodwill and other intangible assets. According to FAS 142 the Company reviewed its assets for impairment. The Company does not believe any goodwill impairment charges are required under FAS 142 despite its previous announcement that it expected to incur such charges. Separately, the Company wrote down an investment of $880 thousand in the first quarter of 2002.

Eran Lasser, Co-CEO of Mentergy commented: "Our results reflect the continuous slowdown in the training industry, as evidenced by the results of other companies. We continue to take measures to adjust our cost base to the current revenues. During the past year we executed a turn-around plan targeted to reduce costs and reach profitability while maintaining and improving the quality of our services and products. We are confident in our ability to reach these goals."

Further to the announcement of the first quarter results, Mentergy announced it has reached an additional funding agreement with its principal shareholders and its major creditors. According to this agreement, the Company's principal shareholders and creditors will grant loans of $1.4 million, and will postpone repayment of existing loans by one year.

Eytan Mucznik, CFO of Mentergy, explained: "This additional funding agreement follows our refinancing agreement of December 2001, where $43 million of our debt was converted into capital, and an additional $2.9 million was invested. We believe the new agreement, together with other initiatives planned by the Company, will assist us in executing our restructuring plans and to reach profitability. We are encouraged by our shareholders' and banking partners' show of confidence in the Company."