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 April 30, 1996
----------------
- ----- 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
----------------------------------------------------
(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 April 30, 1996, was
5,323,170 shares.
<PAGE>
V BAND CORPORATION
FORM 10-Q QUARTERLY REPORT
FOR THE THREE MONTHS ENDED APRIL 30, 1996
TABLE OF CONTENTS
PART I. Financial Information
Item 1. Financial Statements
Consolidated balance sheets at April 30, 1996 (unaudited) and
October 31, 1995
Consolidated statements of operations for the three and
six months ended April 30, 1996 and 1995 (unaudited)
Consolidated statements of cash flows for the three and
six months ended April 30, 1996 and 1995 (unaudited)
Notes to consolidated financial statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
SIGNATURES
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996 AND OCTOBER 31, 1995
(in 000's, except share data)
April 30, October 31,
1996 1995
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................. $ 1,729 $ 2,740
Marketable securities, at cost (approximates market) ...... 78 187
Accounts receivable, less allowance for doubtful
accounts of $445 in 1996 and $456 in 1995 ........... 5,889 4,783
Inventories, net .......................................... 7,115 7,596
Deferred tax asset ........................................ 700 700
Prepaid expenses and other current assets ................. 425 430
-------- --------
Total current assets ........................... 15,936 16,436
-------- --------
Fixed Assets:
Furniture, fixtures, equipment and leasehold improvements . 9,333 9,392
Less: Accumulated depreciation and amortization ........... (8,100) (7,821)
-------- --------
Total fixed assets ............................. 1,233 1,571
-------- --------
Other Assets .............................................. 2,869 3,205
-------- --------
TOTAL ASSETS ........................................ $ 20,038 $ 21,212
======== ========
(Continued)
<PAGE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- Continued
APRIL 30, 1996 AND OCTOBER 31, 1995
(in 000's, except share data)
April 30, October 31,
1996 1995
-------- --------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .......................................... $ 2,362 $ 1,538
Accrued wages ............................................. 782 1,097
Customer deposits ......................................... 918 1,846
Other accrued expenses .................................... 1,956 2,333
-------- --------
Total current liabilities ..................... 6,018 6,814
-------- --------
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 ......................................... 5,939 6,215
Cumulative translation adjustment ......................... 3 105
-------- --------
25,788 26,166
Less -- Treasury stock, at cost; 1,719,322 shares (11,768) (11,768)
-------- --------
Total shareholders' equity ..................... 14,020 14,398
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .......... $ 20,038 $ 21,212
======== ========
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED APRIL 30, 1996 AND 1995 (unaudited)
(in 000's, except per share data)
Three Months Ended Six Months Ended
April 30, April 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales
Equipment .......................... $ 5,835 $ 5,988 $ 13,147 $ 10,891
Service ............................ 1,370 1,305 2,608 2,702
-------- -------- -------- --------
Total sales ................... 7,205 7,293 15,755 13,593
-------- -------- -------- --------
Cost of Sales
Equipment .......................... 3,534 3,943 7,922 7,522
Service ............................ 862 732 1,646 1,534
-------- -------- -------- --------
Total cost of sales ........... 4,396 4,675 9,568 9,056
-------- -------- -------- --------
Gross profit .................. 2,809 2,618 6,187 4,537
-------- -------- -------- --------
Operating Expenses
Selling, general and administrative 2,476 3,057 4,931 6,483
Research and development ........... 698 964 1,492 1,920
-------- -------- -------- --------
Total operating expenses ...... 3,174 4,021 6,423 8,403
-------- -------- -------- --------
Operating income (loss) ....... (365) (1,403) (236) (3,866)
Net Investment Income ..................... 13 76 32 150
Other Income (Expense) .................... 8 55 (72) 94
-------- -------- -------- --------
Net income (loss) ............. $ (344) $ (1,272) $ (276) $ (3,622)
======== ======== ======== ========
Per share data
Net income (loss) .................. $ (.06) $ (.24) $ (.05) $ (.68)
======== ======== ======== ========
Weighted average number of shares of common
stock and common stock equivalents .... 5,328 5,323 5,328 5,322
======== ======== ======== ========
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995 (unaudited)
(in 000's)
1996 1995
------- -------
Cash Flows from Operating Activities
<S> <C> <C>
Net income (loss) ......................................................... $ (276) $(3,622)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation ......................................................... 388 391
Amortization of other assets ......................................... 225 545
Provision for doubtful accounts ...................................... 6 70
Provision for inventory reserves ..................................... 50 378
Gain on disposal of fixed assets ..................................... -- (59)
Changes in assets and liabilities(net of business acquisitions):
(Increase) decrease in accounts receivable ..................... (1,112) 2,669
Decrease (increase) in inventories ............................. 431 (1,613)
Decrease (increase) in prepaid expenses and other current assets 5 (78)
Decrease (increase) in other assets ............................ 119 (78)
Decrease in accounts payable and accrued expenses .............. (796) (1,861)
Foreign currency translation adjustment ........................ (102) (19)
------- -------
Net cash used in operating activities ................... (1,062) (3,277)
------- -------
Cash Flows from Investing Activities
Purchases of marketable securities ........................................ -- (1,147)
Sales of marketable securities ............................................ 109 2,044
Capital expenditures ...................................................... (58) (32)
------- -------
Net cash provided by investing activities ............... 51 865
------- -------
Net decrease in cash and cash equivalents ............... (1,011) (2,412)
Cash and Cash Equivalents, at beginning of period ............................... 2,740 3,122
------- -------
Cash and Cash Equivalents, at end of period ..................................... $ 1,729 $ 710
======= =======
Supplementary Disclosures
Income taxes paid ......................................................... $ 65 $ 78
======= =======
See notes to consolidated financial statements
</TABLE>
<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 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 April 30, 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
quarters' information to conform to the current year quarters' presentation.
Note C -- Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
April 30, October 31,
1996 1995
------------ ------------
<S> <C> <C>
Finished goods ......................... $ 5,804,000 $ 6,270,000
Parts and components ................... 5,647,000 5,761,000
------------ ------------
11,451,000 12,031,000
Less: Inventory reserves .............. (4,336,000) (4,435,000)
------------ ------------
$ 7,115,000 $ 7,596,000
============ ============
</TABLE>
Note D -- Income Taxes
The deferred tax asset valued at $700,000 is net of a valuation allowance of
$5,026,000. As of October 31, 1995, the Company had available net operating loss
carryfowards for tax return purposes of approximately $6,800,000 which begin to
expire in 2009.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Sales for the second quarter of fiscal 1996, ended April 30, 1996, of $7,205,000
were $88,000, or 1%, lower than the $7,293,000 reported in the second quarter of
1995. For the six months ended April 30, 1996, sales of $15,755,000 were
$2,162,000, or 16%, higher than the $13,593,000 reported in 1995. Equipment
sales of $5,835,000 in the second quarter of 1996 declined $153,000, or 3%, from
the equipment sales of $5,988,000 in second quarter of 1995. For the six months
ended April 30, 1996, equipment sales of $13,147,000, were $2,256,000, or 21%,
higher than the $10,891,000 reported in the same period for 1995. This increase
was due in part to an increase in sales of the Company's eXchange Phone, Power
Deck and DXi products. Sales from the Company's service business were $1,370,000
for the second quarter of 1996, an increase of 5%, compared to $1,305,000 for
the second quarter of 1995. Service sales for the six months ended April 30,
1996, of $2,608,000 were $94,000, or 3%, lower than the $2,702,000 reported in
1995.
Gross profit margins for both the second quarter and six months ended April 30,
1996 were 39% as compared to 36% and 33%, respectively, for the same periods in
1995. The gross profit margin for the equipment sales for the second quarter and
six months ended April 30, 1996 were 39% and 40%, respectively, as compared to
34% and 31%, 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 assets and increased certain inventory reserves. As a
result, the gross margins for the three and six months ended April 30, 1996
reflects a lower level of amortization expense and reserves for inventory than
the level of such items in the second quarter and six months of 1995. The gross
profit margin for service sales for both the second quarter and six months ended
April 30, 1996 were 37% as compared to 44% and 43%, respectively, for the same
periods in 1995.
Operating expenses for the second quarter of 1996 were $3,174,000, or $847,000
lower than the $4,021,000 reported for the second quarter of 1995. For the six
months ended April 30, 1996, operating expenses were $6,423,000, or $1,980,000
lower than $8,403,000 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.
Net investment income declined to $13,000 and $32,000 for the second quarter and
six months ended April 30, 1996 as compared to $76,000 and $150,000 for the same
periods of 1995. This decrease 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 loss reported for the second quarter ended April 30, 1996 was $344,000,
or $.06 per share as compared to a net loss of $1,272,000, or $.24 per share,
for the second quarter of 1995. The net loss reported for the six months ended
April 30, 1996 was $276,000, or $.05 per share, as compared to a net loss of
$3,622,000, or $.68 per share, for the same period in 1995.
The average shares outstanding for the quarter ended April 30, 1996 increased to
5,328,000 versus 5,323,000 for the same period in 1995.
Financial Condition
The Company's aggregate of cash, cash equivalents and marketable securities was
$1,807,000 at April 30, 1996, a decrease of $1,120,000 from the October 31, 1995
balances of $2,927,000. The decline was attributable primarily to the net of an
increase in accounts receivable for unbilled costs related to a contract for
which revenue is recognized under the percentage of completion method; a
decrease in customer deposits for several large orders the Company shipped
during fiscal year 1996 for which, at October 31, 1995, the Company held partial
deposits; an increase in accounts payable for inventory received in the latter
part of the second quarter of 1996; and a decrease in inventory due to shipments
exceeding purchases for the current fiscal year-to-date period.
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>
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: June 5, 1996
/s/ Thomas E. Feil
------------------------------------
Thomas E. Feil
Chairman & Chief Executive Officer
(Duly Authorized Officer)
Date: June 5, 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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-30-1996
<CASH> 1,729
<SECURITIES> 78
<RECEIVABLES> 5,889
<ALLOWANCES> 445
<INVENTORY> 7,115
<CURRENT-ASSETS> 15,936
<PP&E> 9,333
<DEPRECIATION> 8,100
<TOTAL-ASSETS> 20,038
<CURRENT-LIABILITIES> 6,018
<BONDS> 0
0
0
<COMMON> 19,846
<OTHER-SE> (5,826)
<TOTAL-LIABILITY-AND-EQUITY> 20,038
<SALES> 15,755
<TOTAL-REVENUES> 15,755
<CGS> 9,568
<TOTAL-COSTS> 4,931
<OTHER-EXPENSES> 1,492
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (276)
<INCOME-TAX> 0
<INCOME-CONTINUING> (276)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (276)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
