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, 1996
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[ ] 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
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(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
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(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 July 31, 1996, was
5,323,170 shares.
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V BAND CORPORATION
FORM 10-Q QUARTERLY REPORT
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 1996
TABLE OF CONTENTS
PART I. Financial Information
Item 1. Financial Statements
Consolidated balance sheets at July 31, 1996 (unaudited) and
October 31, 1995
Consolidated statements of operations for the three and nine
months ended July 31, 1996 and 1995 (unaudited)
Consolidated statements of cash flows for the nine months ended
July 31, 1996 and 1995 (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>
Item 1. Financial Statments
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V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1996 AND OCTOBER 31, 1995
(in 000's, except share data)
July 31, October 31,
1996 1995
----------- -----------
ASSETS (unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 705 $ 2,740
Marketable securities, at cost
(approximates market) - 187
Accounts receivable, less allowance for
doubtful accounts of $399 in 1996 and $456 in 1995 6,911 4,783
Inventories, net 7,963 7,596
Deferred tax asset 700 700
Prepaid expenses and other current assets 404 430
----------- -----------
Total current assets 16,683 16,436
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Fixed Assets:
Furniture, fixtures, equipment and leasehold improvements 9,434 9,392
Less: Accumulated depreciation and amortization (8,334) (7,821)
----------- -----------
Total fixed assets 1,100 1,571
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Other Assets 2,806 3,205
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TOTAL ASSETS $ 20,589 $ 21,212
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,128 $ 1,538
Accrued wages 633 1,097
Customer deposits 856 1,846
Other accrued expenses 1,848 2,333
-----------
-----------
Total current liabilities 6,465 6,814
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<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1996 AND OCTOBER 31, 1995
(in 000's, except share data)
(continued)
July 31, October 31,
1996 1995
----------- -----------
(unaudited)
<S> <C> <C>
Shareholders' Equity:
Common stock, $.01 par value; authorized 20,000,000 shares;
issued 7,042,492 shares 70 70
Capital in excess of par value 19,776 19,776
Retained earnings 5,977 6,215
Cumulative translation adjustment 69 105
---------- -----------
25,892 26,166
Less - Treasury stock, at cost; 1,719,322 shares (11,768) (11,768)
----------- -----------
Total shareholders' equity 14,124 14,398
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 20,589 $ 21,212
=========== ===========
See notes to consolidated financial statements
</TABLE>
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<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED
JULY 31, 1996 AND 1995 (unaudited)
(in 000's, except per share data)
Three Months Ended Nine Months Ended
July 31, July 31,
-------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales
Equipment ............................ $6,725 $ 6,853 $19,872 $17,744
Service .............................. 1,228 1,335 3,836 4,037
-------- -------- -------- --------
Total sales ....................... 7,953 8,188 23,708 21,781
-------- -------- -------- --------
Cost of
Sales
Equipment ............................ 3,846 5,029 11,768 12,987
Service .............................. 758 558 2,404 1,656
-------- -------- -------- --------
Total cost of sales ............... 4,604 5,587 14,172 14,643
-------- -------- -------- --------
Gross profit ...................... 3,349 2,601 9,536 7,138
-------- -------- -------- --------
Operating Expenses
Selling, general and administrative .. 2,583 2,443 7,514 8,926
Research and development ............. 759 1,083 2,251 3,002
-------- -------- -------- --------
Total operating expenses .......... 3,342 3,526 9,765 11,928
-------- -------- -------- --------
Operating income (loss) ........... 7 (925) (229) (4,790)
Net Investment Income ..................... 9 (42) 41 108
Other Income (Expense) .................... 25 (4) (47) 89
-------- -------- -------- --------
Net income (loss) ................. $ 41 $ (971) $ (235) $ (4,593)
======== ======== ======== ========
Per share data
Net income (loss) .................... $ .01 $ (.18) $ (.04) $ (.86)
======== ======== ======== ========
Weighted average number of shares of common
stock and common stock equivalents .... 5,328 5,323 5,327 5,322
======== ======== ======== ========
See notes to consolidated financial statements
</TABLE>
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<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1996 AND 1995 (unaudited)
(in 000's)
1996 1995
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<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) ........................................ $ (235) $(4,593)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation ......................................... 570 551
Amortization of other assets ......................... 337 700
Provision (Benefit) for doubtful accounts ............ (34) 30
Provision for inventory reserves ..................... 75 556
Gain on disposal of fixed assets .................... -- (184)
Changes in assets and liabilities
(Increase) decrease in accounts receivable ...... (2,094) 4,405
Decrease (increase) in inventories .............. (442) (622)
Decrease (increase) in prepaid expenses and other
current assets .................................. 26 (326)
Decrease (increase) in other assets ............. 72 (78)
Decrease in accounts payable and other .......... (349) (4,198)
current liabilities
Foreign currency translation adjustment ......... (36) (33)
------- -------
Net cash used in operating activities ...... (2,110) (3,792)
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Cash Flows from Investing Activities
Purchases of marketable securities ....................... -- (3,225)
Sales of marketable securities ........................... 187 6,226
Capital expenditures .................................... (112) (202)
Proceeds from the sale of fixed assets ................... -- 177
------- -------
Net cash provided by investing
activities ................................. 75 2,976
<PAGE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1996 AND 1995 (unaudited)
(in 000's)
(continued)
1996 1995
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Cash Flows from Financing
Activities
Proceeds from issuance of common stock ................... 20
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Net cash provided by financing
activities.................................. 20
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Net decrease in cash and cash
equivalents ................................ (2,035) (796)
Cash and Cash Equivalents, at ................................. 2,740 3,122
beginning of period
------- -------
Cash and Cash Equivalents, at end
of period ..................................................... $ 705 $ 2,326
======= =======
Supplementary Disclosures
Income taxes paid ........................................ $ 65 $ 181
======= =======
See notes to consolidated financial statements
</TABLE>
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V BAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in 000's)
Note A -- Basis of Presentation
The accompanying consolidated financial statements include the accounts of V
Band Corporation and its wholly-owned 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, 1995 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, 1996 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 and modifications to existing systems at customer
locations, is recognized as the product is shipped. For long-term contracts,
equipment revenue is recognized under the percentage of completion method.
Service revenue is recognized when the service has been completed.
Reclassifications - Certain reclassifications have been made to the prior year
information to conform to the current year presentation.
Note C -- Inventories
Inventories are summarized as follows:
July 31, October 31,
1996 1995
Finished goods ............................. $ 6,540 $ 6,270
Parts and components ....................... 5,849 5,761
-------- --------
12,389 12,031
Less: Inventory reserves .................. (4,426) (4,435)
-------- --------
$ 7,963 $ 7,596
======== ========
Note D -- Income Taxes
The deferred tax asset valued at $700 is net of a valuation allowance of $5,026.
As of October 31, 1995, the Company had available net operating loss
carryfowards for tax return purposes of approximately $6,800 which begin to
expire in 2009.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (in 000's, except per share data)
Results of Operations
Sales for the third quarter of fiscal 1996, ended July 31, 1996, of $7,953 were
$235, or 3%, lower than the $8,188 reported in the third quarter of 1995. For
the nine months ended July 31, 1996, sales of $23,708 were $1,927, or 9%, higher
than the $21,781 reported in 1995. Equipment sales of $6,725 in the third
quarter of 1996 declined $128, or 2%, from the equipment sales of $6,853 in
third quarter of 1995. For the nine months ended July 31, 1996, equipment sales
of $19,872, were $2,128, or 12%, higher than the $17,744 reported in the same
period for 1995. The increase for the nine months ended July 31, 1996 was due in
part to an increase in first quarter sales of the Company's eXchange Phone,
Power Deck and DXi products. Sales from the Company's service business were
$1,228 for the third quarter of 1996, a decrease of 8%, compared to $1,335 for
the third quarter of 1995. Service sales for the nine months ended July 31,
1996, of $3,836 were $201, or 5%, lower than the $4,037 reported in 1995.
Gross profit margins for the third quarter and nine months ended July 31, 1996
were 42% and 40%, respectively, as compared to 32% and 33%, respectively, for
the same periods in 1995. The gross profit margin for the equipment sales for
the third quarter and nine months ended July 31, 1996 were 43% and 41%,
respectively, as compared to 27% respectively, for the same periods in 1995. The
increase in equipment gross profit margin was attributable to several factors --
a changing mix of equipment sold in favor of products with higher gross margins
and reduced production costs as result of the manufacturing restructuring
initiative completed in fiscal 1995. In addition, in the fourth quarter of 1995,
the Company wrote-off certain intangible assets and increased inventory
reserves. As a result, the gross margins for the three and nine months ended
July 31, 1996 reflect a lower level of amortization expense and reserves for
inventory than the level of such items in the third quarter and nine months of
1995. The gross profit margin for service sales for the third quarter and nine
months ended July 31, 1996 were 38% and 37%, respectively, as compared to 58%
and 59%, respectively, for the same periods in 1995.
Operating expenses for the third quarter of 1996 were $3,342, or $184 lower than
the $3,526 reported for the third quarter of 1995. For the nine months ended
July 31, 1996, operating expenses were $9,765, or $2,163 lower than $11,928 for
the same period in 1995. These decreases in operating costs were attributable
primarily to reduced payroll and related expenses as a result of the
Company-wide restructuring initiative undertaken in fiscal 1995, which included
out-sourcing of the Company's manufacturing process and the reorganization of
the Company's management.
Net investment income of $9 and $41 for the third quarter and nine months ended
July 31, 1996 as compared to a loss of $42 and income of $108 for the same
periods of 1995. The increase in investment income for the three months ended
July 31, 1996 was due to an improvement in portfolio performance over the same
period in 1995. The decrease for the nine months ended July 31, 1996 was
attributable primarily to a decrease in marketable securities. Other income or
expense is primarily related to foreign currency transaction gains or losses
between the Company and the Company's subsidiary in the United Kingdom.
The net income reported for the third quarter ended July 31, 1996 was $41, or
$.01 per share as compared to a net loss of $971, or $.18 per share, for the
third quarter of 1995. The net loss reported for the nine months ended July 31,
1996 was $235, or $.04 per share, as compared to a net loss of $4,593, or $.86
per share, for the same period in 1995.
<PAGE>
The average shares outstanding for the quarter ended July 31, 1996 increased to
5,328 versus 5,323 for the same period in 1995.
Financial Condition
The Company's aggregate of cash, cash equivalents and marketable securities was
$705 at July 31, 1996, a decrease of $2,222 from the October 31, 1995 balances
of $2,927. The decline was attributable primarily to an increase in accounts
receivable for unbilled amounts related to a contract for which revenue is
recognized under the percentage of completion method.
The Company's cash management practice has been to invest mainly in United
States Treasury and United States Government Agency securities and medium to
high-grade municipal 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 1996 annual meeting of shareholders of the Company was held on
May 22, 1996.
The name of each director elected at the 1996 annual meeting of
shareholders, and the number of votes cast for, against or withheld
as to each such nominee is set forth below:
NAME FOR WITHHELD
---- --- --------
Thomas E. Feil ........................... 4,079,049 301,929
Luke P. LaValle, Jr ...................... 4,078,134 302,844
Thomas H. Lenagh ......................... 4,079,174 301,804
Brian S. North ........................... 4,079,374 301,604
Joseph M. O'Donnell ...................... 4,079,374 301,604
A. Eugene Sapp, Jr ....................... 4,078,874 302,104
J. Stephen Vanderwoude ................... 4,079,324 301,654
At the annual meeting, the shareholders voted to approve and adopt
proposed amendments to the Company's Amended and Restated 1982
Incentive Stock Option Plan. The number of votes cast for, against
or abstaining with respect to the plan were:
FOR AGAINST ABSTAIN
--- ------- -------
3,353,700* 1,013,449 13,829
* includes 1,150,303 broker non-votes
At the annual meeting, the shareholders voted to ratify the
retention of Deloitte & Touche LLP as independent accountants for
the 1996 fiscal year. The number of votes cast for, against or
abstaining with respect to the retention of Deloitte & Touche LLP
were:
FOR AGAINST ABSTAIN
--- ------- -------
4,343,569 34,442 2,967
<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: Aug 27, 1996
/s/ Thomas E. Feil
Thomas E. Feil
Chairman & Chief Executive Officer
(Duly Authorized Officer)
Date: Aug 27, 1996
/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-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 705
<SECURITIES> 0
<RECEIVABLES> 6,911
<ALLOWANCES> 399
<INVENTORY> 7,963
<CURRENT-ASSETS> 16,683
<PP&E> 9,434
<DEPRECIATION> 8,334
<TOTAL-ASSETS> 20,589
<CURRENT-LIABILITIES> 6,465
<BONDS> 0
0
0
<COMMON> 19,846
<OTHER-SE> (5,722)
<TOTAL-LIABILITY-AND-EQUITY> 20,589
<SALES> 23,708
<TOTAL-REVENUES> 23,708
<CGS> 14,172
<TOTAL-COSTS> 7,514
<OTHER-EXPENSES> 2,251
<LOSS-PROVISION> (34)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (235)
<INCOME-TAX> 0
<INCOME-CONTINUING> (235)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (235)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
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