<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1996
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ________ to ________
Commission file number 0-25992
NetVantage, Inc.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 95-4324525
- ---------------------------- ---------------------------------
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation)
201 Continental Boulevard, El Segundo, California 90245
-------------------------------------------------------
(Address of Principal Executive Offices)
(310) 726-4130
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: July 31, 1996 - 3,029,418
Class A Common Shares
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
NetVantage, Inc. hereby amends Items 1 and 2 of Part I of its statement on Form
10-QSB for its second quarter ended June 30, 1996 as follows:
<PAGE> 2
ITEM 1. FINANCIAL STATEMENTS
With the exception of historical information, the matters discussed or
incorporated by reference in this Quarterly Report on Form 10-Q are
forward-looking statements that involve risks and uncertainties including, but
not limited to, economic conditions, product demand and industry capacity,
competitive products and pricing, manufacturing efficiencies, new product
development, ability to enforce patents, availability of raw materials and
critical manufacturing equipment, new plant startups, the regulatory and trade
environment, and other risks indicated in filings with the Securities and
Exchange Commission.
1
<PAGE> 3
NETVANTAGE, INC.
(A Development Stage Enterprise)
BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ --------------
ASSETS (unaudited
restated)
<S> <C> <C>
Current assets:
Cash $ 105,866 $ 482,535
Accounts receivable, net of allowance of $3,117 and $12,010 4,363,183 84,835
Inventory 2,583,766 1,010,563
Prepaid expenses and other assets 84,811 24,426
------------ ------------
Total current assets 7,137,626 1,602,359
Property, plant and equipment 1,246,888 337,705
Other assets 408,904
------------ ------------
Total assets $ 8,793,418 $ 1,940,064
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 5,441,963 $ 510,780
Accrued expenses 156,527 108,791
Due to related parties 468,479 18,479
------------ ------------
Total current liabilities 6,066,969 638,050
------------ ------------
Commitments and contingencies
Stockholders' equity (deficit)
Preferred stock, par value $0.01 per share,
5,000,000 shares authorized, none issued
Class A Common Stock, par value $0.001 per share,
17,000,000 shares authorized, 2,798,328 and 1,890,000
issued and outstanding, respectively 2,798 1,890
Class B Common Stock, convertible into class A common
stock, par value $0.001 per share, 1,800,000 shares
authorized, 541,029 issued 541 541
Class E Common Stock, convertible into Class B common
stock, par value $0.001 per share, 1,200,000 shares
authorized, 1,082,057 issued; all shares are held in escrow 1,082 1,082
Additional paid-in-capital - Other 17,046,836 11,647,739
Additional paid-in capital - Issuance of warrants 1,152,185 1,152,185
Deficit accumulated during the development stage (15,476,993) (11,501,423)
------------ ------------
Total stockholders' equity 2,726,449 1,302,014
------------ ------------
Total liabilities and stockholders' equity $ 8,793,418 $ 1,940,064
============ ============
</TABLE>
See accompanying notes to the financial statements
2
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NETVANTAGE, INC.
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Period from
March 12, 1991
Three Months Ended June 30, (inception) to
----------------------------------- June 30,
1995 1996 1996
------------- ------------- --------------
(Restated) (Restated)
<S> <C> <C> <C>
Revenues:
Sales of product $ 566,309 $ 4,784,527 $ 7,305,671
Services 85,293
------------- ------------- --------------
566,309 4,784,527 7,390,964
Costs and expenses:
Cost of revenue 383,223 5,513,479 8,147,040
Research and development 342,826 778,443 6,080,708
Marketing and selling 375,662 444,335 2,612,859
General and administrative 458,201 663,469 4,805,830
Licensee fee to CircuitPath Networks
Systems Corporation 580,000 580,000
------------- ------------- --------------
2,139,912 7,399,726 22,226,438
------------- ------------- --------------
Loss from operations (1,573,603) (2,615,199) (14,835,473)
Interest income 24,485 30,362 181,131
Interest expense (99,216) (348,420)
------------- ------------- --------------
Loss before extraordinary item (1,648,334) (2,584,837) (15,002,762)
Extraordinary item: Extinguishment
of debt (474,231) (474,231)
------------- ------------- --------------
Net Loss $ (2,122,565) $ (2,584,837) $ (15,476,993)
============= ============= ==============
Net Loss Per Share:
Loss before extraordinary item $ (1.06) $ (0.76)
============= =============
Extraordinary item: Extinguishment of debt $ (0.30)
=============
Net Loss $ (1.36) $ (0.76)
============= =============
Weighted average number of shares outstanding 1,558,886 3,407,619
============= =============
</TABLE>
See accompanying notes to the financial statements
3
<PAGE> 5
NETVANTAGE, INC.
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------
1995 1996
----------- -----------
(Restated)
<S> <C> <C>
Revenues:
Sales of product $ 1,079,293 $ 5,790,429
Services 30,000
----------- -----------
1,109,293 5,790,429
Costs and expenses:
Cost of revenue 733,079 6,411,828
Research and development 530,810 1,629,598
Marketing and selling 492,926 688,590
General and administrative 823,252 1,098,577
Licensee fee to CircuitPath Networks
Systems Corporation 580,000
----------- -----------
3,160,067 9,828,594
----------- -----------
Loss from operations (2,050,774) (4,038,164)
Interest income 25,131 62,594
Interest expense (253,611)
----------- -----------
Loss before extraordinary item (2,279,254) (3,975,570)
Extraordinary item: Extinguishment
of debt (474,231)
----------- -----------
Net Loss $(2,753,485) $(3,975,570)
=========== ===========
Net Loss Per Share:
Loss before extraordinary item $ (2.17) $ (1.32)
=========== ===========
Extraordinary item: Extinguishment of debt $ (0.45)
=========== ===========
Net Loss $ (2.62) $ (1.32)
=========== ===========
Weighted average number of shares outstanding 1,052,769 3,018,430
=========== ===========
</TABLE>
See accompanying notes to the financial statements
4
<PAGE> 6
NETVANTAGE, INC.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Period from
Six Months Ended March 12, 1991
June 30, (Inception) to
-------------------------------- June 30,
1995 1996 1996
------------ --------------- --------------
(Restated) (Restated)
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $ (2,753,485) $ (3,975,570) $ (15,476,993)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 35,681 120,603 334,538
Amortization and write off of deferred rent 40,993 273,900
Amortization of debt discount and deferred
debt issue costs including write off
upon extingishment 691,639 718,034
Accrued interest, long term 66,346
Allowance for returns and doubtful accounts 62,926 20,904
Compensation recorded upon issuance of options 27,000
Common stock and warrants issued for goods
and services 155,513
Changes in current assets and liabilities:
Accounts receivable (381,002) (4,278,348) (4,384,087)
Inventory (449,778) (1,573,203) (2,583,766)
Prepaid expenses and other assets 22,738 (60,385) (84,811)
Accounts payable (193,567) (4,931,183) (5,441,963)
Accrued expenses 21,965 47,736 156,527
Due to related parties (218,894) 450,000 940,593
------------ --------------- --------------
Net cash used in operating activities (3,120,784) (4,337,985) (14,394,340)
------------ --------------- --------------
Investing activities:
Purchase of property, plant and equipment (139,811) (1,029,785) (1,581,425)
Cash expended in acquisition of MultiMedia, LANs (8,904) (8,904)
------------ --------------- --------------
(139,811) (1,038,684) (1,590,324)
------------ --------------- --------------
Financing activities:
Proceeds from issuance of bridge notes payable
and related warrants, net of debt issue costs 340,500 862,500
Proceeds from issuance of convertible notes payable 1,523,000
Proceeds from issuance of common stock 7,503,900 5,000,000 14,705,030
Payment of bridge notes (1,000,000) (1,000,000)
Deferred offering costs (390,168) -
------------ --------------- --------------
Net cash provided by financing activities 6,454,232 5,000,000 16,090,530
------------ --------------- --------------
Increase (decrease) in cash 3,193,637 (376,669) 105,866
Cash at beginning of period 199,630 482,535
------------ --------------- --------------
Cash at end of period $ 3,393,267 $ 105,866 $ 105,866
============ =============== ==============
</TABLE>
See accompanying notes to the financial statements
5
<PAGE> 7
NETVANTAGE, INC.
(A Development Stage Enterprise)
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - THE COMPANY
NetVantage, Inc. ("NetVantage" or the "Company") is engaged in the
development, manufacture and sale of Ethernet switching devices designed to
increase the information handling capacity of Local Area Networks.
Restatement
The Company has restated its second quarter results. The restatement
was necessitated by the failure to accrue the cost of purchased components of
approximately $1 million. The error was discovered during the process of
closing the accounts for September 30, 1996; the Company believes that its
newly implemented Manufacturing Requirements Planning system assisted in
discovering the error. As a consequence, the Company has restated the second
quarter ended June 30, 1996 as follows. The cost of revenue for the three
months increased $1,023,150 from $4,490,329 to $5,513,479 and accounts payable
at June 30, 1996 increased from $4,418,813 to $5,541,963. The previously
reported net loss for the three months ended June 30, 1996 has been restated
from $(1,561,686) or $(0.46) per share to $(2,584,837) or $(0.76) per share.
The net loss for the six months ended June 30, 1996 has also been restated from
$(2,952,420) or $(0.98) per share to $(3,975,570) or $(1.32) per share.
Interim Financial Data
The interim financial information is unaudited; however in the opinion
of the Company, the interim data includes all material adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement of the
results of the interim periods. The interim financial information should be
read in conjunction with the financial statements and notes thereto for the
year ended December 31, 1995, included in the Company's Annual Report on Form
10-KSB and the quarterly report on Form 10-QSB for the three months ended March
31, 1996.
Revenue Recognition and Sales to Major Customers
Revenue from shipments to OEMs is recognized upon shipment to OEMs.
Revenue from shipments to distribution channels is recognized when the Company
is able to determine that successful sellthrough to end users will occur.
Sales to two major customers amounted to 69% and 18%, respectively, of
net sales for the three month period ended June 30, 1996.
6
<PAGE> 8
NOTE 2 - NET LOSS PER SHARE
The Company's net loss per share was computed based on the weighted
average number of shares of common stock outstanding during the six months
ended June 30, 1996, and excludes all shares of Class E Common Stock
outstanding, or subject to option, because all such shares of stock are subject
to escrow and the conditions for the release from escrow have not been
satisfied.
Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, all options and warrants granted and common shares issued
since September 30, 1993 through the date of the public offering, and not
included in the escrow arrangement have been included as outstanding for all
periods prior to the public offering using the treasury stock method and the
public offering price per share.
NOTE 3 - PUBLIC OFFERING
On May 3, 1995, the Company completed an initial public offering of
1,500,000 units and on June 5, 1995, the Company completed an offering of the
underwriter's overallotment of 225,000 units. The offering price was $5.00 per
unit for total gross proceeds of $8,825,000 or $7,503,750 after Underwriters
commission. Each unit comprises one share of the Company's Class A Common
Stock, one Class A warrant and one Class B warrant (the "Units"). Upon
exercise, the Class A warrants entitle the holder to purchase one share
(adjusted to 1.05 shares as of January 10, 1996) of Class A Common Stock for
$6.50 (adjusted to $6.21 as of January 10, 1996) and receive one Class B
warrant. Class B warrants entitle the holder to purchase one share (adjusted
to 1.05 shares as of January 10, 1996) of Class A Common Stock for $7.75
(adjusted to $7.41 as of January 10, 1996).
In addition, the Underwriter purchased for nominal consideration a
Unit Purchase Option to purchase up to 150,000 units at an exercise price of
$6.75 per Option Unit.
In anticipation of the public offering the Company completed, in
January 1995, a private placement of $1,000,000 in promissory notes. These
notes were repaid from the proceeds of the public offering in May 1995. As a
part of the issuance of the promissory notes the Company issued 500,000 Class A
warrants to the note holders which are identical in all respects to the
warrants issued in the public offering.
As a condition of the initial public offering, all shares of the
Company's Class B and E Common Stock and all shares of Class B and E Common
Stock issuable upon exercise of outstanding options are subject to an escrow
agreement. With respect to the Class B Common Stock and related options, the
shares were released from escrow on June 3, 1996. With respect to the Class E
Common Stock and related options, the shares are released from escrow upon the
attainment of certain earnings levels or market price targets (Note 6).
NOTE 4 - PRIVATE PLACEMENTS AND OTHER EQUITY TRANSACTIONS
On July 25, 1995, the Company completed a private sale of 165,000
shares of its Class A Common Stock to UB Networks for $5.25 per share, the fair
market price, for total proceeds of $866,250. At the same time UB Networks and
the Company signed an OEM agreement for certain products under development by
the Company.
7
<PAGE> 9
On January 10, 1996, the Company completed a private sale of 854,993
previously unissued shares of its Class A Common Stock to two individuals for
$5.848 per share, the fair market price based on the average closing bid and
ask prices preceding the transaction date, for net proceeds of $5,000,000.
On April 30, 1996, the Company acquired all of the outstanding capital
stock of MultiMedia LANs, Inc., a North Carolina corporation, in exchange for
53,334 shares of the Company's previously authorized but unissued Class A
Common Stock. The closing price of the Company's Class A Common Stock at April
30, 1996 was $7.50 per share, for accounting purposes the acquisition has been
treated as a purchase. At the date of the closing MultiMedia LANs merged into
the Company.
On June 3, 1996, the Company's Class B Common Stock was released from
Escrow (See Note 3). At the option of the holder Class B Common shares can be
exchanged for Class A Common shares on a one share for one share basis. As of
July 31, 1996 approximately 83,542 shares of Class B Common had been exchanged
for Class A Common.
NOTE 5 - INVENTORY
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ -----------
<S> <C> <C>
Finished goods $ 22,100 $ 178,800
Work in process 1,597,021
Parts and materials 964,645 831,763
------------ -----------
$ 2,583,766 $ 1,010,563
============ ===========
</TABLE>
NOTE 6 - CLASS E COMMON STOCK ESCROW ARRANGEMENT
In connection with the initial public offering of Units of the Company
securities, all outstanding shares of Class E Common Stock were placed into
escrow by existing stockholders. All shares of Class E Common Stock placed in
escrow, including those shares which may be issued upon exercise of options
("Escrowed Contingent Shares") are not transferable (but may be voted) and will
be released from escrow in the event net income before provision for income
taxes, and exclusive of any extraordinary earnings or charges and the
compensation charges discussed in the next paragraph, reaches certain targets
during the next three years (the first 600,000 shares will be released if
pretax income exceeds $4.3 million, $5.8 million, or $7.2 million in fiscal
years 1996, 1997 or 1998, respectively and the remaining 600,000 will be
released if pretax income exceeds $5.3 million, $7.1 million, or $8.9 million
in fiscal year 1996, 1997 or 1998, respectively); or the market price of the
common stock reaches specified levels over the next three years (the first
600,000 shares will be released if commencing at the effective date and ending
18 months thereafter, the bid price of the Company's common stock averages in
excess of $13.33 per share for 30 consecutive business days, or commencing 18
months after the effective date and ending 36 months after the effective date,
the bid price averages $16.67 per share for 30 consecutive business days and
the remaining 600,000 shares will be released if commencing at the effective
date and ending 18 months thereafter, the bid price of the Company's common
stock averages in excess of $18.50 per share for 30 consecutive business days
or commencing 18 months after the effective date and ending 36 months after the
effective date, the bid price averages in excess of $23.50 for 30 consecutive
business days). Any options
8
<PAGE> 10
to purchase common stock shall be deemed converted into similar options to
acquire Class B and E Common Stock in the same proportion that outstanding
Class E common is converted upon attaining the specified earnings or market
price levels.
The release of the Escrowed Contingent Shares held by employees,
officers, directors, consultants and their relatives will be deemed
compensatory and, accordingly, will result in charges to earnings equal to the
fair market value of the Escrowed Contingent Shares recorded ratably over the
period beginning on the date when management determines that any of the
specified events are likely to occur and ending on the date on which the
securities are released. At the time a goal is attained, compensation expense
will be recorded in a one-time charge to reflect the then fair market value of
the shares released from escrow. Such shares could substantially reduce the
Company's net income or increase the Company's loss for financial reporting
purposes in the periods such charges are recorded.
All Escrowed Contingent Shares that have not been released from escrow
by March 31, 1999 will be redeemed by the Company at a redemption price of $.01
per share. Any dividends or other distributions made with respect to Escrowed
Contingent Shares not released from escrow will be forfeited and contributed to
the capital of the Company.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NETVANTAGE, INC.
(A Development Stage Enterprise)
General
In mid 1994, the Company introduced its 8 port NV7500 Ethernet Switch
and began commercial shipments of this product in late 1994. In 1995, the
Company attempted to market this product through both distribution channels and
to Original Equipment Manufacturers ("OEMs"). Late in the third quarter of
1995, the Company changed its strategic marketing emphasis to OEM customers and
discontinued its efforts to market through distribution channels. In the first
quarter of 1996 the Company completed its second product, a 16 port Ethernet
switch with uplink capability. Substantially all of the revenue in the six
months ended June 30, 1996, is from the 16 port Ethernet products including 100
Base T and 100 VG uplinks. Also during this period the production and sale of
the 8 port NV7500 product was discontinued. Same quarter comparisons with 1995
are not generally meaningful due to the strategic shift in the Company's sales
and marketing activities and the introduction in 1996 of the 16 port Ethernet
switch products. Therefore the analysis provided below will generally compare
the second quarter ended June 30, 1996 with the first quarter ended March 31,
1996 unless a prior year comparison is considered helpful to the reader. This
Management Discussion and Analysis of Financial Condition and Results of
Operations contains certain forward-looking statements. Actual results could
differ materially.
Restatement
The Company has restated its second quarter results. The restatement was
necessitated by the failure to accrue the cost of purchased components of
approximately $1 million. The error was discovered during the process of
closing the accounts for September 30, 1996; the Company believes that its
newly implemented Manufacturing Requirements Planning system assisted in
discovering the error. As a consequence, the Company has restated the second
quarter ended June 30, 1996 as follows. The cost of revenue for the three
months increased $1,023,150 from $4,490,329 to $5,513,479 and accounts payable
at June 30, 1996 increased from $4,418,813 to $5,541,963. The previously
reported net loss for the three months ended June 30, 1996 has been restated
from $(1,561,686) or $(0.46) per share to $(2,584,837) or $(0.76) per share.
The net loss for the six months ended June 30, 1996 has also been restated from
$(2,952,420) or $(0.98) per share to $(3,975,570) or $(1.32) per share. The
discussion that follows includes the effects of that restatement.
Results of Operations
Sales of the Company's 16 port Ethernet switch products for the three
months ended June 30, 1996, were $4,784,527 compared to sales for the three
months ended March 13, 1996 of $1,005,902 an increase of 376%. Sales to a major
customer represented 49% and 69%, respectively, in the first and second quarter
of 1996. Sales in the three months ended June 30, 1995, were $566,309 all of
which were sales of the Company's 8 port NV7500 Ethernet Switch. The increase
of $4,218,218 or 745%, reflects a greater demand for the Company's 16 port
10
<PAGE> 12
Ethernet switch compared to the 8 port switch. The Company began the third
quarter of 1996 with confirmed backlog of $8.9 million.
Cost of revenue in the three months ended June 30, 1996, was
$4,490,329 or 116% of revenue. Cost of revenue in the three months ended March
31, 1996 was $898,348 or 90% of revenue. Cost of revenue in the three months
ended June 30, 1995 was $383,223 or 68% of revenue. The increase in the cost of
revenue as a percentage of revenue in the three months ended June 30, 1996, was
due to a large concentration of sales to one customer of a particular product
which had negative profit margin. In the third quarter the manufacturing cost
of this product is expected to be lower and the concentration in sales of this
product is expected to decline dramatically as sales of higher margin products
to a greater number of customers increase. Manufacturing costs in the quarter
were also impacted, but to a lesser extent, by increased staffing and costs
associated therewith, such as recruitment costs and moving allowances, as the
Company increased its support staff to manage the increasing manufacturing
demands on the Company's contract manufacturers.
Research and development in the three months ended June 30, 1996, was
$778,443 compared to $851,156 in the three months ended March 31, 1996 and
$342,826 in the three months ended June 30, 1995. The decrease over the first
quarter of $72,713 or 9% is the result of a decline in consulting costs as
products reached the production stage and the need for concentrated help from
consultants diminished. The increase in research and development expense over
the second quarter of 1995 of $435,617 or 128% was the due to increased
staffing to support the Company's OEM strategy. At June 30, 1995 the
engineering department consisted of 13 persons and at June 30, 1996 the
staffing had increased to 19 of which a larger portion of the staff was more
experienced and therefore higher paid.
Marketing and selling expense was $444,335 for the three months ended
June 30, 1996, compared with $244,255 for the three months ended March 31,
1996 and $375,262 for the three months ended June 30, 1995. The increase of
$200,080 or 82% over the first quarter of 1996 was due to commissions on higher
sales and increased staff to support the Company's OEM marketing activities.
General and administrative expense for the three months ended June 30,
1996 was $663,469 compared with $435,108 for the three months ended March 31,
1996 and $458,201 for the three months ended June 30, 1995. The increase of
$228,361 or 53% in the second quarter compared to the first quarter of 1996 was
due to Delaware tax on capital, increase insurance costs due to higher limits,
moving expenses on relocation to new quarters, non recurring security costs
during construction of leasehold improvements while the Company occupied the
new premises, and costs of investors relations including annual report
preparation, Company newsletter, travel and expense of investor meetings.
Liquidity and Capital Resources
The Company has incurred losses for the period from March 12, 1991
(inception) through June 30, 1996 of $15,476,993. The Company may to continue
to incur losses until such time as sufficient sales volume at adequate gross
margins is achieved to cover indirect operating costs.
11
<PAGE> 13
Cash at June 30, 1996, was $105,866, representing an decrease of
$376,669, compared to December 31, 1995. Working capital at June 30, 1996,
increased $1,129,499 or 118%, compared to December 31, 1995 due to increased
investment in receivables and inventory which was financed by increased
payables and the private sale of 854,993 shares of the Company's Class A Common
Stock for net proceeds of $5,000,000 in January 1996. In July 1996, the Company
received initial funding against a $2,000,000 working capital line of credit.
As of August 9, 1996, the Company had received $1,520,650 representing the
proceeds from the issuance of 244,871 shares of Class A Common Stock upon the
voluntary exercise of Class A Warrants.
Accounts receivable at June 30, 1996, were $4,363,183, an increase of
$4,278,348 compared to December 31, 1995. The increase is due to increased
sales.
Inventory increased by $1,573,203 to $2,583,766 at June 30, 1996,
compared with December 31, 1995. The inventory increase was in support of
orders received for third quarter shipments.
The Company believes that its existing cash and the existing bank line
of credit are sufficient to meet the liquidity requirements of the Company
through the end of the third quarter. However, because of the rapid growth in
the Company's revenues and the associated increase in inventory the Company did
not meet one of the measurement ratios required by the Company's bank at June
30, 1996 and at July 31, 1996 the Company also failed to meet the required
ratio. The Company believes the bank is well collateralized on its loan and has
requested an amendment to the required ratio and an increase in the line of
credit to $5 million. After a preliminary conversation the bank has informally
indicated a willingness to adjust the ratio and to increase the line of credit
to $5 million. There can be no assurance that the bank will formally grant the
Company's requests or that the Company can generate sufficient revenues from
product sales to satisfy its working capital needs in the future. Therefore the
Company may need to seek additional credit, alternative financing and/or
further equity investment. The sources of such credit or equity investment may
include increased lines of credit, factoring of receivables, extended credit
terms by vendors and/or additional exercise of outstanding warrants; however,
there can be no assurances that these sources will be available. The Company
may also seek additional public offerings and/or private placements of its
securities. There can be no assurance, however, that additional funds will be
available from any of the foregoing or other sources on favorable terms, if at
all. The Company's working capital requirements will depend upon numerous
factors, including the progress of the Company's cost reductions efforts for
its existing products and its research and development program for the
development of new products and applications, the level of resources devoted by
the Company to the development of manufacturing and marketing capabilities,
technological advances, the status of competitors and the success or lack
thereof of the Company's marketing activities.
12
<PAGE> 14
NETVANTAGE, INC.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
For the quarter ended June 30, 1996 the Registrant filed two
reports on Form 8-K. The first was dated, May 7, 1996, and described the
acquisition of Multimedia LANs, Inc. for 53,334 shares of the Registrant's
previously authorized but unissued Class A Common Stock. The second was dated
June 27, 1996 and concerned a notification of all warrantholders of the
Registrant's Class A and Class B Warrants of an adjustment to the conversion
price and the number of Class A Common shares to be issued for each warrant.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NetVantage, Inc.
Date: November 12, 1996 /s/ Stephen R. Rizzone
----------------------- ----------------------------------------------
Stephen R. Rizzone, President & CEO
Date: November 12, 1996 /s/ Thomas V. Baker
----------------------- ----------------------------------------------
Thomas V. Baker, Vice President & CFO
(Principal Financial and Accounting Officer)
13
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