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 January 31, 1998
[ ] 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 January 31, 1998, was
5,412,591 shares.
<PAGE>
V BAND CORPORATION
FORM 10-Q QUARTERLY REPORT
FOR THE THREE MONTHS ENDED JANUARY 31, 1998
TABLE OF CONTENTS
PART I. Financial Information
Item 1. Financial Statements
Consolidated balance sheets at January 31, 1998 (unaudited) and
October 31, 1997
Consolidated statements of operations for the three months ended
January 31, 1998 and 1997 (unaudited)
Consolidated statements of cash flows for the three months ended
January 31, 1998 and 1997 (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
JANUARY 31, 1998 AND OCTOBER 31, 1997
(in 000's, except share data)
January 31, October 31,
1998 1997
-------- --------
ASSETS (unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................................. $ 332 $ 336
Accounts receivable, less allowance for doubtful
accounts of $498 in 1998 and 1997 .................... 4,239 8,079
Inventories, net .......................................... 5,707 4,733
Prepaid expenses and other current assets ................. 441 458
-------- --------
Total current assets ............. 10,719 13,606
-------- --------
Fixed Assets:
Furniture, fixtures, equipment and leasehold improvements . 9,527 9,539
Less: Accumulated depreciation and amortization ........... (8,867) (8,786)
-------- --------
Total fixed assets ............... 660 753
-------- --------
Other Assets .............................................. 185 193
-------- --------
TOTAL ASSETS ......................................... $ 11,564 $ 14,552
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt ........................................... $ 1,339 $ 2,943
Accounts payable .......................................... 2,612 2,557
Accrued wages ............................................. 951 894
Customer deposits ......................................... 1,114 959
Other accrued expenses .................................... 1,716 1,102
-------- --------
Total current liabilities ....... 7,732 8,455
-------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1998 AND OCTOBER 31, 1997
(in 000's, except share data)
January 31, October 31,
1998 1997
-------- --------
(unaudited)
<S> <C> <C>
Shareholders' Equity:
Common stock, $.01 par value; authorized 20,000,000 shares;
issued 7,131,913 ..................................... 71 71
Capital in excess of par value ............................ 19,922 19,872
Accumulated deficit ....................................... (4,592) (2,270)
Cumulative translation adjustment ......................... 199 192
-------- --------
15,600 17,865
Less - Treasury stock, at cost; 1,719,322 shares........... (11,768) (11,768)
-------- --------
Total shareholders' equity... 3,832 6,097
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,564 $ 14,552
======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1998 AND 1997 (unaudited)
(in 000's, except per share data)
1998 1997
-------- -------
<S> <C> <C>
Sales
Equipment ................................. $ 3,228 $ 6,106
Service ................................... 1,496 1,396
-------- -------
Total sales .......................... 4,724 7,502
------- -------
Cost of Sales
Equipment ................................. 2,423 3,769
Service ................................... 986 946
------- -------
Total cost of sales .................. 3,409 4,715
Gross profit ......................... 1,315 2,787
------- -------
Operating Expenses
Selling, general and administrative ....... 2,964 2,160
Research and development .................. 602 795
------- -------
Total operating expenses ............. 3,566 2,955
------- -------
Operating income (loss) .............. (2,251) (168)
Interest (Expense) Income ........................ (50) 3
Other Expense .................................... (21) (9)
------- -------
Net loss ............................. $(2,322) $ (174)
======= =======
Net loss per share ............................... $ (.43) $ (.03)
======= =======
Weighted average number of shares of common
stock and common stock equivalents ........... 5,413 5,328
======= =======
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 1998 AND 1997 (unaudited)
(in 000's, except per share data)
1998 1997
------- -------
<S> <C> <C>
Cash Flows from operating activities:
Net loss ...................................................... $(2,322) $ (174)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation .............................................. 126 137
Amortization of other assets .............................. 8 106
Provision for doubtful accounts ........................... 3 3
Waiver of Chairman's salary ............................... 50
Changes in assets and liabilities:
Accounts receivable ................................... 3,837 253
Inventories ........................................... (974) (536)
Prepaid expenses and other current assets ............. 17 261
Other assets .......................................... 52
Accounts payable and other current liabilities ........ 881 (1,548)
Foreign currency translation adjustment ............... 7 (40)
------- -------
Net cash provided by (used in) operating activities 1,633 (1,486)
------- -------
Cash Flows from Investing Activities:
Capital expenditures .......................................... (33) (12)
------- -------
Net cash used in investing activities ............. (33) (12)
------- -------
Cash Flows from Financing Activities:
Proceeds from short-term debt ................................. 5,800 200
Payments of short-tem debt .................................... (7,404)
Proceeds from issuance of common stock ........................ 7
------- -------
Net cash (used in) provided by financing activities (1,604) 207
------- -------
Net decrease in cash and cash equivalents...................... (4) (1,291)
Cash and cash equivalents, at beginning of period.............. 336 2,258
------- -------
Cash and cash equivalents, at end of period.................... $ 332 $ 967
======= =======
Supplementary Disclosures:
Income taxes paid ............................................. $ 4 $ 156
======= =======
Interest paid ................................................. $ 52 $ 162
======= =======
</TABLE>
See notes to consolidated financial statements
<PAGE>
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, 1997 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 January 31, 1998 and all periods
presented have been made.
Note B -- Significant accounting policies
Revenue recognition - Equipment revenue, 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.
Note C -- Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
January 31, October 31,
1998 1997
------- -------
<S> <C> <C>
Finished goods ......... $ 3,601 $ 3,374
Parts and components ... 4,650 3,935
------- -------
8,251 7,309
Less: Inventory reserves (2,544) (2,576)
------- -------
$ 5,707 $ 4,733
------- -------
</TABLE>
Note D -- Short-term debt
In May 1997, the Company entered into a Credit Agreement with National Bank of
Canada, (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 a security
interest in all of the assets of V Band Corporation and its domestic
subsidiaries. The prime rate was 8.5% at January 31, 1998. As a result of the
<PAGE>
Company's results of operations for 1997, the Company failed to satisfy the
financial covenants set forth in the Credit Facility. On February 9, 1998,
National Bank of Canada waived the Company's failure to satisfy those covenants
at October 31, 1997 and has amended them for fiscal year 1998. In addition, the
interest rate on the outstanding borrowings has been modified to prime plus 2
percent effective February 1, 1998.
Note E -- Restructuring plan
On January 31, 1998, the Company established a plan to restructure its
operations. The restructuring plan, involves consolidation of the Company's
office space in New York and London, the restructuring of its operations, the
establishment of a centralized customer service center and the reassignment of
various marketing and administrative personnel to field sales support functions
to open new sales and distribution channels. As a result of this plan, the
Company has reduced its headcount from its October 31, 1997 level of 186
employees to 170 employees at January 31, 1998. Therefore, the Company recorded
a $1,023 charge during the quarter ended January 31, 1998 relating to the
restructuring plan.
Note F - Related party transaction
In the first quarter of 1998, the Chairman of the Company waived substantially
all of his compensation accrued to him during the quarter. The Company has
recorded such amount as compensation expense and a capital contribution.
<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 first quarter of 1998, ended January 31, 1998, of $4,724 were
$2,778, or 37%, lower than the $7,502 reported in the first quarter of 1997.
Equipment sales of $3,228 in the first quarter of 1998 decreased by $2,878, or
47%, from the equipment sales of $6,106 in the first quarter of 1997. Sales for
the Company's core product decreased 6% from $3,542 in 1997 to $3,328 in 1998.
The remaining decrease in equipment sales was primarily due to the decrease in
sales of $2,564 for the Company's eXchange phone for which the Company had three
large non-recurring contracts during the first quarter of 1997. Sales from the
Company's service business increased to $1,496, or 7%, for the first quarter of
1998 from $1,396 for the first quarter of 1997. This increase was primarily due
to a $203, or 18%, increase in the Company's maintenance sales due to an
increase of customers serviced by the Company offset by a $104, or 38%, decrease
in the Company's repair business primarily due to lower amount of repairs of the
Company's older ViaX product line.
Gross profit margin for the first quarter of 1998 was 28% compared to 37% for
the first quarter of 1997. The gross profit margin for the equipment sales was
25% in the first quarter of 1998 compared to 38% for the same period in 1997.
The decrease in the gross profit margin for equipment sales was primarily
attributable to the lower sales achieved in the first quarter not effectively
absorbing the fixed manufacturing costs coupled with higher manufacturing
variances which were attributable to lower production volumes and additional
spare equipment required for several larger contracts. The gross profit margin
for service sales was 34% for the first quarter of 1998 as compared to 32% for
the same period in 1997. The increase was attributable to the increase in
maintenance sales for the first quarter.
Operating expenses for the first quarter of 1998 were $3,566 or $611 higher than
the $2,955 reported for the first quarter of 1997. The increase was primarily
attributable to a $1,023 charge related to the Company's plan to restructure its
operations. The plan includes consolidation of office space in New York and
London and the centralization of administrative functions of the Company's
United States service operation into its New York operation. In addition, the
Company has reassigned several marketing and administrative staff to field sales
support functions as a further effort to enhance revenues. As a result of this
plan, the Company reduced the number of its employees from the October 31, 1997
level of 186 to 170 at January 31, 1998. Excluding this charge, operating
expenses decreased by $412. This decrease was partially attributable to a
decrease in research and development expenses as 1997 expenses included
development of the second generation of the Company's eXchange phone. In
addition, operating expenses for the Company's Licom subsidiary decreased by
$232, which was attributable to the downsizing and relocation of its operations
into the Company's corporate facility.
The net loss reported in the first quarter ended January 31, 1998 was $2,322, or
$.43 per share, compared to a net loss of $174, or $.03 per share, for the first
quarter of 1997. The loss was primarily attributable to the $1,023 non-recurring
charge related to a restructuring plan coupled with the aforementioned decrease
in sales for the first quarter of 1998. The average shares outstanding for the
quarter ended January 31, 1998 increased to 5,413 versus 5,328 for the same
period in 1997.
<PAGE>
Financial Condition
The Company's aggregate of cash and cash equivalents was $332 at January 31,
1998, a decrease of $4 from the October 31, 1997 balance of $336. Accounts
receivable decreased $3,837 primarily due to liquidation of various retainage
balances on large customer contracts as well as a decrease in sales for the
first quarter of 1998 as compared to fourth quarter of 1997. Short-term debt
decreased $1,604 as a result of the liquidation of accounts receivable.
Inventory increased $974 as a result of the aforementioned lower sales in the
first quarter of 1998. Accrued expenses increased $614 primarily due to the
Company's restructuring accrual of a $1,023.
The Company's loss for 1997 and the first quarter of 1998 had a substantial
impact on its working capital and liquidity. On May 28, 1997 the Company entered
into a Credit Agreement (the "Credit Agreement") with National Bank of Canada,
New York Branch (the "Bank"). The Credit Agreement provided a $4 million credit
facility to the Company secured by substantially all of the assets of the
Company and its domestic subsidiaries. As a result of the Company's results of
operations for 1997, the Company failed to satisfy the financial covenants set
forth in the Credit Facility. The Bank has waived the Company's failure to
satisfy the financial covenants set forth in the Credit Agreement and has
amended those covenants for fiscal year 1998. The Company's operations are
dependant upon the continued availability of funding under the Credit Agreement.
The continued availability of funding under the Credit Agreement is dependent,
in turn, upon the Company's ability to satisfy the amended financial covenants
set forth in the Credit Agreement which require an improvement in the results of
the Company's operations for the remainder of 1998.
In the first quarter of 1998, the Chairman of the Company waived substantially
all of his compensation accrued to him during the quarter. The Company has
recorded such amount as compensation expense and a capital contribution.
<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: March 16, 1998
/s/ Thomas E. Feil
------------------
Thomas E. Feil
Chairman & Chief Executive Officer
(Duly Authorized Officer)
Date: March 16, 1998
/s/ Mark R. Hahn
----------------
Mark R. Hahn
Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 332
<SECURITIES> 0
<RECEIVABLES> 4,239
<ALLOWANCES> 498
<INVENTORY> 5,707
<CURRENT-ASSETS> 10,719
<PP&E> 9,527
<DEPRECIATION> 8,867
<TOTAL-ASSETS> 11,564
<CURRENT-LIABILITIES> 7,732
<BONDS> 0
0
0
<COMMON> 19,993
<OTHER-SE> (16,161)
<TOTAL-LIABILITY-AND-EQUITY> 11,564
<SALES> 4,724
<TOTAL-REVENUES> 4,724
<CGS> 3,409
<TOTAL-COSTS> 2,964
<OTHER-EXPENSES> 623
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> (50)
<INCOME-PRETAX> (2,322)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,322)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> (.43)
</TABLE>
