SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1995
-------------
----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-13284
V BAND CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-2990015
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
565 Taxter Road, Elmsford, New York 10523
----------------------------------------------------
(Address and zip code of principal executive office)
(914) 789-5000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares of Common Stock outstanding, as of August 31, 1995, was
5,323,170 shares.
<PAGE>
V BAND CORPORATION
FORM 10-Q QUARTERLY REPORT
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 1995
TABLE OF CONTENTS
PART I. Financial Information
-----------------------------
Item 1. Financial Statements
Consolidated Balance Sheets at July 31, 1995 (unaudited) and October
31, 1994
Consolidated Statements of Operations for the three and nine months
ended July 31, 1995 and 1994 (unaudited)
Consolidated Statements of Cash Flows for the nine months ended July
31, 1995 and 1994 (unaudited)
Notes to consolidated financial statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. Other Information
--------------------------
Item 4. Submission of Matters to a Vote of Security Holders
SIGNATURES
----------
<PAGE>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1995 AND OCTOBER 31, 1994
(in 000's, except share data)
<TABLE>
<CAPTION>
July 31, October 31,
1995 1994
---------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ................................. $ 2,326 $ 3,122
Marketable securities, at cost (approximates market) ...... 1,602 4,603
Accounts receivable, less allowance for doubtful
accounts of $198 in 1995 and $263 in 1994 .............. 3,234 7,669
Inventories, net .......................................... 11,839 11,773
Deferred tax asset ........................................ 1,251 1,251
Prepaid expenses and other current assets ................. 831 505
-------- --------
Total current assets .................. 21,083 28,923
-------- --------
Fixed Assets
Furniture, fixtures, equipment and leasehold improvements . 8,822 10,019
Less: Accumulated depreciation and amortization ........... (7,681) (8,536)
-------- --------
Total fixed assets .................... 1,141 1,483
-------- --------
Other Assets .............................................. 4,999 5,621
-------- --------
TOTAL ASSETS ........................................... $ 27,223 $ 36,027
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable .......................................... $ 1,701 $ 3,710
Accrued wages ............................................. 832 872
Customer deposits ......................................... 721 2,842
Other accrued expenses .................................... 2,536 2,564
-------- --------
Total current liabilities ............. 5,790 9,988
-------- --------
Shareholders' Equity
Common stock, $.01 par value; authorized 20,000,000 shares;
issued 7,042,492 in 1995 and 7,035,770 in 1994 ......... 70 70
Capital in excess of par value ............................ 19,776 19,756
Retained earnings ......................................... 13,216 17,809
Cumulative translation adjustment ......................... 139 172
-------- --------
33,201 37,807
Less - Treasury stock, at cost; 1,719,322 shares ........ (11,768) (11,768)
-------- --------
Total shareholders' equity ............ 21,433 26,039
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............. $ 27,223 $ 36,027
======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 1995 AND 1994
(in 000's, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
----------------------- ------------------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales
Equipment .............................. $ 5,543 $ 6,440 $13,696 $18,674
Service ................................ 2,645 1,035 8,085 2,542
------- ------- ------- -------
Total sales .................... 8,188 7,475 21,781 21,216
------- ------- ------- -------
Cost of Sales
Equipment .............................. 3,961 3,509 10,117 9,789
Service ................................ 1,626 728 4,526 1,705
------- ------- ------- -------
Total cost of sales ............ 5,587 4,237 14,463 11,494
------- ------- ------- -------
Gross profit ................... 2,601 3,238 7,183 9,722
------- ------- ------- -------
Operating Expenses
Selling, general and administrative .... 2,443 2,333 8,926 7,080
Research and development ............... 1,083 858 3,022 2,429
------- ------- ------- -------
Total operating expenses ....... 3,526 3,191 11,928 9,509
------- ------- ------- -------
Operating income (loss) ........ (925) 47 (4,790) 213
------- ------- ------- -------
Net Investment Income (Loss) .............. (42) 149 108 388
Other Income (Expense) .................... (4) 0 89 (2)
------- ------- ------- -------
Net income (loss) .............. $ (971) $ 196 $(4,593) 599
======= ======= ======= =======
Per share data
Net income (loss) ...................... $ (.18) $ .04 $ (.86) $ .11
======= ======= ======= =======
Weighted average number of shares of common
stock and common stock equivalents .... 5,323 5,322 5,322 5,306
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements
<PAGE>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE NINE MONTHS ENDED JULY 31, 1995 AND 1994
(in 000's)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) ................................................. $ (4,593) $ 599
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation ................................................... 551 601
Amortization of other assets ................................... 700 545
Provision for doubtful accounts ................................ 30 57
Provision for inventories ...................................... 556 419
Gain on disposal of fixed assets ............................... (184) 0
Changes in assets and liabilities(net of business acquisitions):
Decrease (increase) in accounts receivable .................. 4,405 (1,516)
Increase in inventories ..................................... (622) (3,634)
Increase in prepaid expenses and other current assets ....... (326) (433)
(Increase) decrease in other assets ........................ (78) 111
Decrease in accounts payable and accrued expenses ........... (4,198) (352)
Foreign currency translation adjustment ..................... (33) 0
-------- --------
Net cash used in operating activities ................... (3,792) (3,603)
-------- --------
Cash Flows from Investing Activities
Purchases of marketable securities ................................ (3,225) (5,117)
Sales of marketable securities .................................... 6,226 10,883
Proceeds from the sale of fixed assets ............................ 177 0
Capital expenditures .............................................. (202) (292)
Payments for business acquisitions ................................ 0 (4,365)
-------- --------
Net cash provided by investing activities ............... 2,976 1,109
-------- --------
Cash Flows from Financing Activities
Proceeds from issuance of common stock ............................ 20 120
-------- --------
Net cash provided by financing activities ............... 20 120
-------- --------
Net decrease in cash and cash equivalents ............... (796) (2,374)
Cash and Cash Equivalents, at beginning of period ................... 3,122 3,003
-------- --------
Cash and Cash Equivalents, at end of period ......................... $ 2,326 $ 629
======== ========
Supplementary Disclosures
Income taxes paid ................................................. $ 181 $ 77
Interest paid ..................................................... $ -- $ --
</TABLE>
See notes to consolidated financial statements
<PAGE>
V BAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A -- Basis of presentation
The accompanying consolidated financial statements include the accounts of V
Band Corporation and its subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. These consolidated financial statements should be read in conjunction
with the Company's audited financial statements for the fiscal year ended
October 31, 1994 as set forth in the Company's annual report on Form 10-K. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at July 31, 1995 and all periods presented have been
made.
Note B -- Significant accounting policies
Revenue recognition - Equipment revenue, which includes equipment and labor for
new system installations, for long-term contracts is recognized under the
percentage of completion method. Other equipment revenue is recognized as the
product is shipped. Service revenue is recognized when the service or
installation has been completed.
Reclassifications - Certain reclassifications have been made to the year-to-date
information to conform to the current quarter's presentation.
Note C -- Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
July 31, October 31,
1995 1994
------------ ------------
<S> <C> <C>
Finished goods ....................... $ 7,434,000 $ 5,920,000
Parts and components ................. 6,808,000 8,607,000
------------ ------------
14,242,000 14,527,000
Less: Inventory reserves ............. (2,403,000) (2,754,000)
------------ ------------
$ 11,839,000 $ 11,773,000
============ ============
</TABLE>
Note D -- Income taxes
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" during 1994. The deferred tax asset valued at
$1,251,000 is net of a valuation allowance of $150,000. There was no benefit for
income taxes recorded in the nine months ended July 31, 1995 as the loss
incurred cannot be carried back to prior years. Management has not recorded an
incremental tax asset related to the loss incurred in the nine months ended July
31, 1995.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Sales for the third quarter ended July 31, 1995, of $8,188,000 were 10% higher
than the $7,475,000 reported in the third quarter of 1994. For the nine months
ended July 31, 1995, sales were $21,781,000, which were 3% higher than the
$21,216,000 reported in 1994. Equipment sales of $5,543,000 in the third quarter
of 1995, declined $897,000, or 14%, from the $6,440,000 reported for the third
quarter of 1994. For the nine months ended July 31, 1995, equipment sales of
$13,696,000 declined $4,978,000, or 27%, from the $18,674,000 reported in the
same period for 1994. This decrease was due in part to a generally weaker demand
for the Company's product and competitive pressures in certain segments of the
financial services market. Sales from the service business increased 156% to
$2,645,000 for the third quarter of 1995 as compared to $1,035,000 for the third
quarter of 1994. Service sales for the nine month period of $8,085,000 were
$5,543,000 or 218% higher than the $2,542,000 reported in 1994. This increase
was attributable to the Company's sales and service operations acquired during
1994.
Gross profit margins for the third quarter and nine months ended July 31, 1995
were 32% and 33%, respectively, as compared to 43% and 46%, respectively, for
the same periods in 1994. The gross profit margins for the equipment sales
declined to 29% and 26%, respectively, in the third quarter and nine months
ended July 31, 1995 as compared to 46% and 48%, respectively, for the same
periods in 1994. The decline in equipment gross profit margin was due primarily
to lower volume of equipment sales, lower pricing for the Company's products and
a lower portion of sales of the Company's Viax Analog product, for which gross
margins are typically higher. The gross profit margins for service sales were
39% and 44%, respectively, for the third quarter and nine months of 1995 as
compared to 30% and 33%, respectively, for the same periods in 1994. These
increases in service sales gross profit margins were primarily attributable to
increased revenues from contract maintenance, moves, adds, and changes to
existing customer systems and repair sales with a less than proportionate
increase in costs to support these revenues.
Operating expenses for the third quarter of 1995 were $3,526,000, or $335,000
higher than the $3,191,000 reported for the third quarter of 1994. For the nine
months ended July 31, 1995, operating expenses were $11,928,000, or $2,519,000
higher than the $9,509,000 for the same period in 1994. This increase in
operating expenses, for both the quarter and year-to-date periods, was
attributable primarily to expenses associated with the Company's service
businesses, acquired in 1994, and higher research and development expenses
related to new products which were introduced during the third quarter. In
addition, the Company recorded, in the first quarter, a $400,000 non-recurring
manufacturing restructuring charge related to expenses incurred during the
transition of the Company's reorganized manufacturing process. This amount was
partially offset in the third quarter by a $125,000 gain recorded on the sale of
manufacturing fixed assets. Management believes the reorganized production
plans, which will rely to a greater extent on out-sourced contract manufacturing
of its product sub-assemblies, will enable the Company to improve its plant
utilization.
Net investment activity declined to a loss of $42,000 and income of $108,000 for
the third quarter and nine months ended July 31, 1995 as compared to income of
$149,000 and $388,000 for the same periods of 1994. This decrease was
attributable primarily to a decrease in marketable securities over the
comparable periods, of which $4.4 million was used for the Company's 1994
business acquisitions, and realization of losses incurred on securities sold.
The net loss reported for the third quarter ended July 31, 1995 was $971,000, or
$.18 per share, as compared to a net income of $196,000, or $.04 per share, for
the third quarter of 1994. The net loss reported for the nine months ended July
31, 1995 was $4,593,000, or $.86 per share, as compared to a net income of
$599,000, or $.11 per share, for the same period in 1994. The average shares
outstanding for the nine months ended July 31, 1995 increased to 5,322,000
versus 5,306,000 for the same period in 1994.
Financial Condition
The Company's aggregate of cash, cash equivalents and marketable securities was
$3,928,000 at July 31, 1995, a decrease of $3,797,000 from the October 31, 1994
balances of $7,725,000. The net decrease reflects the use of cash to fund the
year-to-date operating loss and costs incurred in fulfilling existing larger
sales orders, for which the Company had received deposits in the fourth quarter
of 1994. Offsetting these reductions to cash was a decrease in accounts
receivables which was attributable to receipts of payments of prior period
receivables, followed by lower sales for the third quarter of 1995 as compared
to the fourth quarter of 1994.
The Company's cash management practice has been to invest mainly in medium to
high-grade municipal securities and United States Treasury and United States
Government Agency securities, with maturities ranging from 90 days to three
years.
<PAGE>
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
-- The 1995 annual meeting of shareholders of the Company was held on May 19,
1995.
-- The name of each director elected at the 1995 annual meeting of shareholders,
and the number of votes cast for, against or withheld as to each such nominee
is set forth below:
<TABLE>
<CAPTION>
NAME FOR AGAINST
---- --- -------
<S> <C> <C> <C>
Thomas E. Feil 4,490,716 75,335
Luke P. LaValle, Jr. 4,502,374 63,677
Thomas H. Lenagh 4,502,374 63,677
Brian S. North 4,502,374 63,677
Joseph M. O'Donnell 4,502,174 63,877
A. Eugene Sapp, Jr. 4,497,844 68,207
Paul B. Twomey 4,502,374 63,677
J. Stephen Vanderwoude 4,502,274 63,777
</TABLE>
-- At the annual meeting the shareholders voted to ratify the retention of
Deloitte & Touche LLP as independent accountants for the 1995 fiscal year.
The number of votes cast for, against or abstaining with respect to the
retention of Deloitte & Touche LLP were:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--------- ------- -------
<S> <C> <C> <C>
4,518,242 34,314 13,495
</TABLE>
<PAGE>
V BAND CORPORATION
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
V BAND CORPORATION
------------------
(Registrant)
Date: September 12, 1995 /s/ Thomas E. Feil
----------------------------------
Thomas E. Feil
Chairman & Chief Executive Officer
(Duly Authorized Officer)
Date: September 12, 1995 /s/ Mark R. Hahn
----------------------------------
Mark R. Hahn
Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> JUL-31-1995
<CASH> 2,326
<SECURITIES> 1,602
<RECEIVABLES> 3,234
<ALLOWANCES> 198
<INVENTORY> 11,839
<CURRENT-ASSETS> 21,083
<PP&E> 8,822
<DEPRECIATION> 7,681
<TOTAL-ASSETS> 27,223
<CURRENT-LIABILITIES> 5,790
<BONDS> 0
<COMMON> 19,846
0
0
<OTHER-SE> 1,587
<TOTAL-LIABILITY-AND-EQUITY> 27,223
<SALES> 21,781
<TOTAL-REVENUES> 21,781
<CGS> 14,643
<TOTAL-COSTS> 8,926
<OTHER-EXPENSES> 3,002
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,593)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,593)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,593)
<EPS-PRIMARY> (0.86)
<EPS-DILUTED> (0.86)
</TABLE>
