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, 1997
[ ] 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, 1997, was
5,412,591 shares.
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V BAND CORPORATION
FORM 10-Q QUARTERLY REPORT
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 1997
TABLE OF CONTENTS
PART I. Financial Information
Item 1. Financial Statements
Consolidated balance sheets at April 30, 1997 (unaudited) and
October 31, 1996
Consolidated statements of operations for the three and six months
ended April 30, 1997 and 1996 (unaudited)
Consolidated statements of cash flows for the six months
ended April 30, 1997 and 1996 (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
Item 6. Reports on Form 8-K
SIGNATURES
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V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1997 AND OCTOBER 31, 1996
(in 000's, except share data)
April 30, October 31,
1997 1996
--------- -----------
(unaudited)
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ASSETS
Current Assets:
Cash and cash equivalents ................................. $ 388 $ 2,258
Accounts receivable, less allowance for doubtful
accounts of $381 in 1997 and 1996 ....................... 8,345 6,737
Inventories, net .......................................... 8,066 7,798
Deferred tax asset ........................................ 700 700
Prepaid expenses and other current assets ................. 333 680
-------- --------
Total current assets .............. 17,832 18,173
-------- --------
Fixed Assets:
Furniture, fixtures, equipment and leasehold improvements . 9,676 9,701
Less: Accumulated depreciation and amortization ........... (8,813) (8,591)
-------- --------
Total fixed assets ................ 863 1,110
-------- --------
Other Assets .............................................. 2,543 2,759
-------- --------
TOTAL ASSETS .................................. $ 21,238 $ 22,042
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt ........................................... $ 200 $ --
Accounts payable .......................................... 2,961 3,196
Accrued wages ............................................. 843 973
Customer deposits ......................................... 1,028 1,773
Other accrued expenses .................................... 1,600 1,612
-------- --------
Total current liabilities ........ 6,632 7,554
-------- --------
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<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1997 AND OCTOBER 31, 1996
(in 000's, except share data)
April 30, October 31,
1997 1996
--------- -----------
(unaudited)
<S> <C> <C>
Commitments and Contingencies (see notes)
Shareholders' Equity:
Common stock, $.01 par value; authorized 20,000,000 shares;
issued 7,131,913 in 1997 and 7,042,492 in 1996 ......... 71 70
Capital in excess of par value ............................ 19,872 19,776
Retained earnings ......................................... 6,275 6,242
Cumulative translation adjustment ......................... 156 168
-------- --------
26,374 26,256
Less - Treasury stock, at cost; 1,719,322 shares .......... (11,768) (11,768)
-------- --------
Total shareholders' equity ........ 14,606 14,488
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .... $ 21,238 $ 22,042
======== ========
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See notes to consolidated financial statements
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V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED APRIL 30,
1997 AND 1996 (unaudited) (in 000's, except
per share data)
Three Months Ended Six Months Ended
April 30, April 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
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Sales
Equipment .......................... $ 8,104 $ 5,835 $ 14,210 $ 13,147
Service ............................ 1,352 1,370 2,748 2,608
-------- -------- -------- --------
Total sales ................... 9,456 7,205 16,958 15,755
-------- -------- -------- --------
Cost of Sales
Equipment .......................... 5,053 3,534 8,822 7,922
Service ............................ 938 862 1,884 1,696
-------- -------- -------- --------
Total cost of sales ........... 5,991 4,396 10,706 9,618
-------- -------- -------- --------
Gross profit .................. 3,465 2,809 6,252 6,137
-------- -------- -------- --------
Operating Expenses
Selling, general and administrative 2,360 2,435 4,520 4,797
Research and development ........... 896 739 1,691 1,576
-------- -------- -------- --------
Total operating expenses ...... 3,256 3,174 6,211 6,373
-------- -------- -------- --------
Operating income (loss) ....... 209 (365) 41 (236)
Interest Income (Expense) ................. (10) 13 (7) 32
Other Income (Expense) .................... 8 8 (1) (72)
======== ======== ======== ========
Net income (loss) ............. $ 207 $ (344) $ 33 $ (276)
======== ======== ======== ========
Per share data
Net income (loss) .................. $ .04 $ (.06) $ .01 $ (.05)
======== ======== ======== ========
Weighted average number of shares of common
stock and common stock equivalents .... 5,413 5,328 5,371 5,328
======== ======== ======== ========
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See notes to consolidated financial statements
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V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 1997 AND 1996 (unaudited)
(in 000's)
1997 1996
------- -------
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Cash Flows from Operating Activities
Net income (loss) ............................................... $ 33 $ (276)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation ................................................ 295 388
Amortization of other assets ................................ 208 225
Provision for doubtful accounts ............................. 6 6
Provision for inventory reserves ............................ -- 50
Changes in assets and liabilities:
Accounts receivable ..................................... (1,614) (1,112)
Inventories ............................................. (268) 431
Prepaid expenses and other current assets ............... 347 5
Other assets ............................................ 8 119
Accounts payable and other current liabilities .......... (1,122) (796)
Foreign currency translation adjustment ................. (12) (102)
------- -------
Net cash used in operating activities ............. (2,119) (1,062)
------- -------
Cash Flows from Investing Activities
Sales of marketable securities .................................. -- 109
Capital expenditures ............................................ (48) (58)
------- -------
Net cash (used in) provided by investing activities (48) 51
------- -------
Cash Flows from Financing Activities
Proceeds from short-term debt ................................... 200 --
Proceeds from issuance of common stock .......................... 97 --
------- -------
Net cash provided by financing activities ......... 297 --
------- -------
Net decrease in cash and cash equivalents ............................. (1,870) (1,011)
Cash and cash equivalents, at beginning of period ..................... 2,258 2,740
======= =======
Cash and cash equivalents, at end of period ........................... $ 388 $ 1,729
======= =======
Supplementary Disclosures
Income taxes paid ............................................... $ 156 $ 65
======= =======
Interest paid ................................................... $ 162 $ --
======= =======
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See notes to consolidated financial statements
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V BAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 1996 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, 1997 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, which includes maintenance contract revenue and repairs, is
recognized when the service has been completed.
Reclassifications - Certain prior year amounts have been reclassified to conform
with the current period presentation.
Note C -- Inventories
Inventories are summarized as follows:
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<CAPTION>
April 30, October 31,
1997 1996
-------- --------
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Finished goods ......................... $ 5,706 $ 4,757
Parts and components ................... 4,461 5,144
-------- --------
10,167 9,901
Less: Inventory reserves (2,101) (2,103)
-------- --------
$ 8,066 $ 7,798
======== ========
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Note D -- Short-Term Debt
In January 1997, the Company borrowed $200,000 from the Company's Chairman and
Chief Executive Officer, payable on demand and bearing 9% interest. The note was
secured by the Company's accounts receivable.
Subsequent to the quarter ended April 30, 1997, the Company entered into a
Credit Agreement dated May 28, 1997 by and between the Company and National Bank
of Canada, New York Branch, and associated loan documentation (collectively, the
"Credit Agreement"). The Credit Agreement provides a revolving loan and letter
of credit facility of up to $4 million with interest rates (at the Company's
option) of prime plus 1/4 percent or libor plus 2 1/4 percent. The Company's
obligations under the Credit Agreement are secured by security interests in all
of the assets of V Band Corporation and its domestic subsidiaries. Additionally,
on May 29, 1997, the Company repaid the amount borrowed from its Chairman and
Chief Executive Officer in full, including interest.
Note E -- Income Taxes
The Company's deferred tax asset of $700 is net of a valuation allowance of
$4,818 and the Company has available net operating loss carryforwards for tax
return purposes of approximately $8,900 which begin to expire in 2009.
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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 second quarter of 1997, ended April 30, 1997, of $9,456 were
$2,251, or 31%, higher than the $7,205 reported in the second quarter of 1996.
For the six months ended April 30, 1997, sales of $16,958 were $1,203, or 8%,
higher than the $15,755 reported in 1996. Equipment sales of $8,104 in the
second quarter of 1997 increased by $2,269, or 39%, from the equipment sales of
$5,835 in second quarter of 1996. For the six months ended April 30, 1997,
equipment sales of $14,210, were $1,063, or 8%, higher than the $13,147 reported
in the same period for 1996. This increase was due in part to an increase in
sales of the Company's eXchange Phone, Power Deck and DXi products and was
partially offset by a decrease in the sales for the Company's wholly-owned
subsidiary, Licom, Incorporated. Equipment sales for Licom were $111 for the
second quarter of 1997 compared to $589 for the second quarter of 1996, a
decrease of $478, or 81%. Equipment sales for Licom for the six months ended
April 30, 1997 were $271 compared to $1,412 reported in the same period for
1996, a decrease of $1,141, or 81%. The decrease in Licom sales was attributable
to reduced demand and increased competition for the Licom products. During the
second quarter the Company relocated Licom's operations to the Company's
corporate headquarters. Equipment sales, excluding Licom sales, were $7,993 and
$5,246 for the quarters ended April 30, 1997 and 1996, respectively, for an
increase of $2,747, or 52%. Equipment sales, excluding Licom sales, were $13,939
and $11,735 for the six months ended April 30, 1997 and 1996, respectively, for
an increase of $2,204, or 19%. Sales from the Company's service business of
$1,352 for the second quarter of 1997 were comparable to the $1,370 of sales for
the second quarter of 1996. Service sales for the six months ended April 30,
1997, of $2,748 were $140, or 5%, higher than the $2,608 reported in 1996 due to
an increase in the Company's maintenance sales.
Gross profit margins for both the second quarter and six months ended April 30,
1997 were 37% as compared to 39% for both periods in 1996. Gross profit margins
for equipment sales for both the second quarter and six months ended April 30,
1997 were 38% as compared to 40% for both periods in 1996. The decrease in the
gross profit margin for equipment sales was attributable to the decline of Licom
sales, which historically generate higher gross profit margins. The gross profit
margin for service sales for both the second quarter and six months ended April
30, 1997 was 31% as compared to 37% and 35%, respectively, for the same periods
in 1996. This is primarily attributable to lower repair sales, which typically
generate higher margins.
Operating expenses for the second quarter of 1997 were $3,256, or $82 higher
than the $3,174 reported for the second quarter of 1996. This increase was
attributable to higher research and development costs related to product
development for specific customer contracts. For the six months ended April 30,
1997, operating expenses were $6,211, or $162 lower than $6,373 for the same
period in 1996. The aforementioned increase in research and development expenses
was more than offset by a reduction in Licom's operating expenses as achieved by
downsizing and relocating Licom's operations to the Company's corporate
headquarters.
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The net income reported in the second quarter ended April 30, 1997 was $207 or
$.04 per share compared to a net loss of $344 or $.06 per share, for the second
quarter of 1996. The net income reported for the six months ended April 30, 1997
was $33, or $.01 per share, as compared to a net loss of $276, or $.05 per
share, for the same period in 1996. The Company's Licom subsidiary recorded
operating losses of $225 in the second quarter of 1997 and $421 for the six
months ended April 30, 1997, respectively, as compared to operating losses of
$44 and $91 for the same periods in 1996. Excluding Licom's operating losses,
the Company's net income was $432 for the second quarter of 1997 as compared to
a net loss of $300 for the second quarter of 1996 and net income of $454 for the
six months ended April 30, 1997 as compared to a net loss of $185 for the same
period in 1996.
The average shares outstanding for the quarter ended April 30, 1997 increased to
5,413 versus 5,328 for the same period in 1996, due to employee purchases of
stock through the Company's Employee Stock Purchase Plan.
Financial Condition
The Company's aggregate of cash and cash equivalents was $388 at April 30, 1997,
a decrease of $1,870 from the October 31, 1996 balance of $2,258. The decline
was attributable primarily to an increase in accounts receivable and inventory
and a decrease in accounts payable and other current liabilities.
Subsequent to the quarter ended April 30, 1997, the Company obtained a $4
million secured credit facility from the National Bank of Canada, New York
Branch.
<PAGE>
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
o The 1997 annual meeting of shareholders of the Company was
held on May 14, 1997.
o The Name of each director elected at the 1997 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 4,644,005 51,314
Luke P. La Valle, Jr. 4,644,758 50,561
Thomas H. Lenagh 4,644,758 50,561
Brian S. North 4,642,758 52,561
Joseph M. O'Donnell 4,644,758 50,561
A. Eugene Sapp, Jr. 4,644,308 51,011
J. Stephen Vanderwoude 4,644,758 50,561
o At the annual meeting, the shareholders voted to ratify the
retention of Deloitte & Touche LLP as independent auditors
for the 1997 fiscal year. The number of votes cast for,
against or abstaining with respect to the retention of
Deloitte & Touche LLP were:
FOR AGAINST ABSTAIN
--- ------- -------
4,644,606 18,350 32,363
o At the annual meeting, the shareholders voted to approve the
adoption of the Company's Amended and Restated Stock
Compensation Plan for Non-Employee Directors. The number of
votes cast for, against or abstaining with respect to the
plan were:
FOR AGAINST ABSTAIN
--- ------- -------
4,392,026* 243,106 60,187
* includes 365,365 broker non-votes
Item 6. Reports on Form 8-K
On June 11, 1997, the Company filed a Current Report, on Form
8-K, reporting, under Item 5, that the Company entered into a
$4 million secured credit facility with the National Bank of
Canada, New York Branch.
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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 13, 1997 /s/ Thomas E. Feil
------------- ----------------------------------
Thomas E. Feil
Chairman & Chief Executive Officer
(Duly Authorized Officer)
Date: June 13, 1997 /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-31-1997
<PERIOD-END> APR-30-1997
<CASH> 388
<SECURITIES> 0
<RECEIVABLES> 8,345
<ALLOWANCES> 381
<INVENTORY> 8,066
<CURRENT-ASSETS> 17,832
<PP&E> 9,676
<DEPRECIATION> (8,813)
<TOTAL-ASSETS> 21,238
<CURRENT-LIABILITIES> 6,632
<BONDS> 0
19,943
0
<COMMON> 0
<OTHER-SE> (5,337)
<TOTAL-LIABILITY-AND-EQUITY> 21,238
<SALES> 16,958
<TOTAL-REVENUES> 10,706
<CGS> 4,520
<TOTAL-COSTS> 1,691
<OTHER-EXPENSES> 6
<LOSS-PROVISION> (7)
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<INCOME-PRETAX> 33
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