FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File No. 0-26912
Vodavi Technology, Inc.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0789350
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8300 E. Raintree Drive, Scottsdale, Arizona 85260
------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(602) 443-6000
--------------
(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 outstanding of registrant's Common Stock, $.001 par value
per share, as of October 31, 1996 was 4,342,238.
1
<PAGE>
VODAVI TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
Page #
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996
and December 31, 1995. 3
Consolidated Statements of Operations - Three and Nine
Month Periods Ended September 30, 1996 and 1995. 4
Consolidated Statements of Cash Flows - Nine Month Periods
Ended September 30, 1996 and 1995. 5
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION 11
SIGNATURES 12
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
VODAVI TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
In thousands
September 30, December 31,
1996 1995
---- ----
(Unaudited)
CURRENT ASSETS:
Cash $ 1,180 $ 1,944
Accounts Receivable, net 7,541 6,427
Inventory, net 5,456 8,546
Prepaids 837 802
------- -------
15,014 17,719
PROPERTY AND EQUIPMENT, net 2,245 1,731
GOODWILL, net 6,739 7,089
OTHER LONG-TERM ASSETS, net 967 931
------- -------
$24,965 $27,470
======= =======
CURRENT LIABILITIES:
Notes Payable $ 5,014 $ 0
Accounts Payable 3,268 3,625
Accrued Liabilities 2,356 2,151
------- -------
10,638 5,776
------- -------
LONG-TERM OBLIGATIONS 394 7,884
STOCKHOLDERS' EQUITY:
Preferred Stock - -
Common Stock 4 4
Additional Paid-In Capital 12,308 12,308
Retained Earnings 1,621 1,498
------- -------
13,933 13,810
------- -------
$24,965 $27,470
======= =======
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
VODAVI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except share amounts
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE, net $ 11,706 $ 10,309 $ 33,961 $ 31,202
COST OF GOODS SOLD 7,824 7,115 22,659 21,779
---------- ---------- ---------- ----------
GROSS MARGIN 3,882 3,194 11,302 9,423
OPERATING EXPENSES
Engineering and product development 578 447 1,613 1,285
Selling, general and administrative 2,919 2,116 8,586 5,956
---------- ---------- ---------- ----------
OPERATING INCOME 385 631 1,103 2,182
INTEREST EXPENSE 213 304 655 823
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 172 327 448 1,359
PROVISION FOR INCOME TAXES 119 132 325 550
---------- ---------- ---------- ----------
NET INCOME $ 53 $ 195 $ 123 $ 809
========== ========== ========== ----------
NET INCOME PER SHARE $ 0.01 $ 0.09 $ 0.03 $ 0.36
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,410,849 2,266,660 4,410,849 2,266,660
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
VODAVI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
(Unaudited)
Nine months ended September 30,
-------------------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
Net Income $ 123 $ 809
Adjustments:
Depreciation and amortization 768 322
Rent levelization 50 47
Changes in working capital:
Accounts receivable (1,114) (1,530)
Inventory 3,090 (1,048)
Prepaid expenses (35) (682)
Other long term assets (109) (40)
Accounts payable (356) 2,760
Accrued liabilities 120 454
-------- --------
NET CASH FLOWS - OPERATING ACTIVITIES 2,537 1,092
-------- --------
INVESTING ACTIVITIES:
Purchase of fixed assets (416) (579)
-------- --------
NET CASH FLOWS - INVESTING ACTIVITIES (416) (579)
-------- --------
FINANCING ACTIVITIES:
Capital lease payments (36) -
Borrowings from GE Capital 29,505 31,383
Payments to GE Capital (32,354) (31,128)
Payment of notes payable - (1,200)
-------- --------
NET CASH FLOWS - FINANCING ACTIVITIES (2,885) (945)
-------- --------
INCREASE (DECREASE) IN CASH (764) (432)
CASH, beginning of period 1,944 1,454
-------- --------
CASH, end of period $ 1,180 $ 1,022
======== ========
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
VODAVI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
SEPTEMBER 30, 1996
(a) Vodavi Technology, Inc. (the Company) is a Delaware corporation formed in
1994. In April 1994, the Company, through its wholly owned subsidiary, Vodavi
Communications Systems, Inc. (VCS), acquired the operating assets of the Vodavi
Communications Systems Division (the Vodavi Division) of Executone Information
Systems, Inc. VCS designs, develops, produces and distributes business
communications systems and related telecommunications products. In July 1995,
the Company, through its wholly owned subsidiary Arizona Repair Services, Inc.
(ARSI), acquired the operating assets of GoldStar Products Company, Ltd., which
provides repair services on telecommunications products, from LG Electronics
USA. In October 1995, the Company completed an initial public offering of its
common stock. Concurrently with the completion of its initial public offering,
the Company acquired Enhanced Systems, Inc. (Enhanced), a Georgia-based provider
of voice processing software.
(b) The accompanying unaudited consolidated financial statements have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. These financial statements reflect all
adjustments (consisting of normal recurring accruals and adjustments) which are,
in the opinion of management, necessary to fairly state the financial position
as of September 30, 1996 and the operating results and cash flows for the
periods presented. Operating results for the interim periods presented are not
necessarily indicative of the operating results that may be expected for the
entire year. These financial statements should be read in conjunction with the
Company's December 31, 1995 financial statements and accompanying notes thereto.
(c) Net income per share for the periods ended September 30, 1995 and 1996 was
determined by dividing net income by the weighted average number of common and
common equivalent shares outstanding. The weighted average number of common
equivalent shares outstanding assumes the exercise of all outstanding options
and the corresponding repurchase of shares using the treasury stock method as of
the beginning of each period presented.
(d) Effective January 1, 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting For Impairment Of
Long-Lived Assets And For Long-Lived Assets To Be Disposed Of. SFAS No. 121
requires the Company to review long-lived assets for impairment whenever events
or circumstances indicate that the carrying amount of such assets may not be
recoverable. At September 30, 1996, the Company believes that its long-lived
assets are recoverable. The company's judgment of the recoverability of its
long-lived assets is based on its estimates of future cash flows.
Included in the Company's estimated future cash flows is revenue from the sale
of the Company's Voice Activated Dialing (VAD) systems under the terms of a
contract with GTE Mobilnet. The Company has recently installed its first VAD
system for GTE Mobilnet. GTE Mobilnet has informed the Company that this first
system will be evaluated as to its market acceptance and that the results of
this evaluation will influence the timing of any additional installations. If
the Company's estimates of future revenue under the terms of this contract are
adversely affected by events related to this testing period, the Company may be
required to recognize an impairment loss related to the goodwill recorded in
connection with its acquisition of Enhanced (approximately $4.1 million at
September 30, 1996).
The Company has chosen the disclosure method of accounting under SFAS No. 123,
Accounting for Stock Based Compensation. This standard will require the Company
to make additional pro forma disclosures in its annual report for fiscal 1996.
6
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Basis of Presentation
In July 1995, the Company acquired the operating assets of ARSI and in October
1995 the Company acquired Enhanced. The operating results for the three month
and nine month periods ended September 30, 1996 include the operations of the
acquired companies for the full periods. The operating results for the three
month period ended September 30, 1995 includes the operations of ARSI for the
full three month period, but does not include any operating results of Enhanced.
The operating results for the nine month period ended September 30, 1995
includes the operating results of ARSI for three months, but does not include
any operating results of Enhanced.
Results of Operations
Three Months Ended September 30, 1996 and 1995
The following table summarizes the operating results of the Company as a
percentage of revenue for the periods indicated.
Three Months Ended
September 30
------------
1996 1995
---------- -----------
Revenue 100% 100%
Cost of goods sold 67% 69%
--- ---
Gross margin 33% 31%
Operating expenses:
Engineering and product development 5% 4%
Selling, general and administrative 25% 21%
--- ---
Operating income 3% 6%
Interest expense 2% 3%
--- ---
Pre-tax income 1% 3%
Income taxes 1% 1%
--- ---
Net income 0% 2%
=== ===
Revenue
Revenue was approximately $11.7 million in the third quarter of 1996, an
increase of $1.4 million, or 13.6%, over the third quarter of 1995.
Approximately $475,000 of the increased revenue can be attributed to the
acquisition of Enhanced.
Gross Margin
Gross margins increased to approximately 33.2% of revenue in the third quarter
of 1996 as compared with 31% in the third quarter of 1995. The increased gross
margin percentage reflects improvements resulting from the acquisition of
Enhanced. The acquisition of Enhanced internalizes margins previously paid to
Enhanced as a separate company for products purchased and sold by VCS. In
addition, given the nature of the products sold by Enhanced, the gross margins
earned by Enhanced on sales of its products to third parties have traditionally
been significantly higher than those earned on sales by VCS.
Engineering and Product Development
Expenditures related to engineering and product development during the third
quarter of 1996 increased approximately $131,000 over the third quarter of 1995,
primarily as a result of the acquisition of Enhanced and increased efforts at
VCS related to its new wireless key system and digital product lines.
7
<PAGE>
Selling, General and Administrative
Selling, general and administrative expenses were approximately $2.9 million for
the third quarter of 1996, an increase of approximately $800,000, or 37.9%, over
the third quarter of 1995. The increase can be attributed primarily to the
acquisition of Enhanced. Included in this increase is approximately $116,000 of
additional goodwill amortization related to this acquisition.
Interest Expense
Interest expense was approximately $213,000 in the third quarter of 1996, a
decrease of $91,000, or 29.9%, over the third quarter of 1995. The decrease is
attributable to a decrease in borrowings as a result of reduced inventories.
Income Taxes
The provision for income taxes in the third quarter of 1996 reflects the impact
of certain non-deductible expenses (primarily goodwill related to the Enhanced
acquisition) which did not impact the third quarter of 1995. Such non-deductible
expenses will be approximately $125,000 per quarter.
Nine Months Ended September 30, 1996 and 1995
The following table summarizes the operating results of the Company as a
percentage of sales for the periods indicated.
Nine Months Ended
September 30
------------
1996 1995
---------- ----------
Revenue 100% 100%
Cost of goods sold 67% 70%
--- ---
Gross margin 33% 30%
Operating Expenses:
Engineering and product development 5% 4%
Selling, general and administrative 25% 19%
--- ---
Operating income 3% 7%
Interest expense 2% 3%
--- ---
Pre-tax income 1% 4%
Income taxes 1% 2%
--- ---
Net income 0% 2%
=== ===
Revenue
Revenue was approximately $34.0 million for the first nine months of 1996, an
increase of $2.8 million, or 8.8%, over the first nine months of 1995.
Approximately $1.7 million of the increased revenue can be attributed to the
acquisitions of ARSI and Enhanced.
Gross Margin
Gross margins increased to approximately 33.3% of revenue for the first nine
months of 1996 as compared with 30.2% in the first nine months of 1995. The
increased gross margin percentage reflects improvements resulting from the
acquisitions of ARSI and Enhanced. The acquisition of ARSI has internalized
amounts previously paid to third parties for the costs associated with repairing
equipment sold by the Company and the acquisition of Enhanced internalizes
margins previously paid to Enhanced as a separate company for products purchased
and sold by VCS. In addition, given the nature of the products sold by Enhanced,
the gross margins earned by Enhanced on sales of its products to third parties
have traditionally been significantly higher than those earned on sales by VCS.
8
<PAGE>
Engineering and Product Development
Expenditures related to engineering and product development during the first
nine months of 1996 increased approximately $328,000 over the first nine months
of 1995, primarily as a result of the acquisition of Enhanced.
Selling, General and Administrative
Selling, general and administrative expenses were approximately $8.6 million for
the first nine months of 1996, an increase of approximately $2.6 million, or 44%
over the first nine months of 1995. The increase can be attributed primarily to
the acquisitions of ARSI and Enhanced. Included in this increase is
approximately $375,000 of additional goodwill amortization related to these
acquisitions.
Interest Expense
Interest expense was approximately $655,000 in the first nine months of 1996, a
decrease of $168,000, or 20%, over the first nine months of 1995. The decrease
is attributable to a decrease in borrowings as a result of reduced inventories.
Income Taxes
The provision for income taxes in the first nine months of 1996 reflects the
impact of certain non-deductible expenses (primarily goodwill related to the
Enhanced acquisition) which did not impact the first nine months of 1995. Such
non-deductible expenses will be approximately $125,000 per quarter.
Liquidity and Capital Resources
The Company, through its wholly owned subsidiary, VCS, acquired the operating
assets of the Vodavi Division in April 1994 for approximately $12.0 million. The
Company financed the acquisition with (i) $7.8 million in cash provided through
borrowings under a revolving credit facility; (ii) $3.0 million of proceeds from
the sale of common stock; and (iii) a promissory note to the seller in the
amount of $1.2 million, which was repaid in full in September 1995.
In connection with the acquisition of the Vodavi Division, General Electric
Capital Corporation (GE Capital) provided debt financing in the form of a $12.0
million revolving line of credit. The line of credit extends through April 1997
and bears interest, payable monthly, at 4.5% over the 30-day commercial paper
rate (9.9% at September 30, 1996). Advances under the line of credit are based
upon the accounts receivable and inventories of VCS and are secured by
substantially all of the assets and all of the capital stock of VCS. At
September 30, 1996, the Company had outstanding borrowings of approximately $5.0
million under this facility and had approximately $3.2 million available for
additional borrowing based on its existing collateral.
The revolving line of credit contains certain financial covenants and also
prohibits VCS from paying dividends to the Company without the consent of GE
Capital. At September 30, 1996, the Company was in violation of two financial
covenants related to (i) net worth (by approximately $22,000), and (ii) rolling
twelve months Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) (by approximately $39,000). At October 31, 1996, the Company was in
compliance with the covenant related to net worth, but remained in violation of
the covenant related to rolling twelve months EBITDA. The Company expects that
it will remain in violation of this covenant through the remainder of the loan
term.
9
<PAGE>
The Company has been working with GE Capital, as well as other lenders, to
secure a new credit facility. The Company has received a commitment from a
commercial lender, as well as renewal terms from GE Capital. The Company
believes it will be able to either renew or replace its credit facility on terms
no less favorable than those currently in place.
In April 1996, the Company entered into a leasing facility with a third-party
lender for capital expenditures. The facility provides the Company with access
to up to $400,000 at rates tied to Treasury notes (approximately 9.0% at
September 30, 1996). As of September 30, 1996, the Company has financed
approximately $200,000 of capital assets under this facility and has commitments
outstanding for the remaining balance. In October 1996, the Company entered into
a second leasing facility with this lender, which will provide an additional
$400,000.
In June 1995, the Company acquired from an affiliate of LG Electronics, Inc.
(LGE), a major stockholder of the Company, certain of the assets and liabilities
of a telecommunications equipment repair business located in Scottsdale,
Arizona. The purchase price was $250,000. The terms of the acquisition were
determined by negotiations between representatives of the Company and
representatives of LGE and its affiliates. The Company utilized a portion of the
proceeds from its initial public offering to fund the acquisition.
On October 6, 1995, the Company sold 1,488,083 shares of its common stock in an
initial public offering at $6.00 per share. The offering provided the Company
with approximately $7.8 million in net proceeds after deducting the
underwriter's discounts and other offering expenses. The proceeds were utilized
(i) to provide the $3.0 million cash portion of the purchase price to complete
the acquisition of Enhanced; (ii) to retire outstanding indebtedness of
approximately $3.1 million to LGE incurred in connection with inventory
purchases and the acquisition of the Company's telecommunications equipment
repair facility; and (iii) to reduce, by approximately $1.3 million, its
borrowings on its revolving credit facility.
In October 1995, Enhanced merged with a wholly owned subsidiary of the Company
in exchange for 666,662 shares of the Company's Common Stock and cash in the
amount of $3.0 million. The Company will issue to the former stockholders of
Enhanced up to an additional 250,000 shares of Common Stock in the event that
Enhanced meets certain sales criteria during the period beginning April 1, 1995
and ending April 12, 1997 As of September 30, 1996, the Company believes it is
unlikely that such sales targets will be met.
The Company believes that its working capital and credit facilities will be
sufficient to finance its internal growth for the foreseeable future. The
Company also intends to continue to explore acquisition opportunities as they
arise and may be required to seek additional financing in the future to meet
such opportunities.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On March 11, 1996, Syntellect Technology Corp. ("Syntellect") filed suit against
the Company, Enhanced, and Sharon Dominguez d/b/a Crosstalk Communications,
alleging infringement of six United States patents held by Syntellect.
Syntellect is suing for an unspecified amount of damages and injunctive relief.
The Company has conducted a preliminary investigation of the claimed
infringements and has filed an answer to the complaint. The Company and
Syntellect have initiated settlement discussions.
On September 20, 1996, the Company and Enhanced filed a lawsuit in the United
States District Court for the District of Arizona (No. CIV 96-2184 PHX SMM)
against Michael Mittel and Fereydoun Taslimi, former officers and directors of
Enhanced. The lawsuit alleges, among other things, that Messrs. Mittel and
Taslimi violated federal and Arizona securities laws and engaged in fraudulent
activities in connection with the Company's acquisition of Enhanced in 1995;
breached certain terms of their respective employment contracts with Enhanced;
and converted certain corporate assets of Enhanced, breached their fiduciary
duties to Enhanced, and misappropriated certain corporate opportunities for
their own benefit. The Company and Enhanced are seeking compensatory and
punitive damages against Messrs. Mittel and Taslimi.
On September 23, 1996, Messrs. Mittel and Taslimi filed a lawsuit in the United
States District Court for the Northern District of Georgia, Atlanta Division
(No. 196-CV-2453), against the Company and Enhanced. The lawsuit alleges that
Enhanced breached Messrs. Mittel's and Taslimi's respective employment
agreements by terminating their employment. The Company intends to proceed with
its lawsuit against Messrs. Mittel and Taslimi and to vigorously defend the
lawsuit filed by them against the Company and Enhanced.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.22 Equipment Schedule No. 2 dated October 7, 1996, to Master
Lease Agreement between Matrix Funding Corporation and Vodavi
Communications Systems, Inc.
27.1 Financial Data Schedule.
b) Reports on Form 8-K
Not applicable.
11
<PAGE>
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.
Vodavi Technology, Inc.
Dated: November 13, 1996 /s/ Glenn R. Fitchet
---------------------------------------
Glenn R. Fitchet
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 13, 1996 /s/ Gregory K. Roeper
---------------------------------------
Gregory K. Roeper
Vice President Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
12
EQUIPMENT SCHEDULE
MATRIX FUNDING CORPORATION
6925 Union Park Center, Suite 250
Midvale, Utah 84047
LEASE NO. R0551
EQUIPMENT SCHEDULE NO. 2
SCHEDULE DATE: October 7, 1996
To Master Lease Agreement dated May 13, 1996 between MATRIX FUNDING CORPORATION,
as Lessor and VODAVI COMMUNICATIONS SYSTEMS, INC., as Lessee. This Equipment
Schedule incorporates by reference the terms and conditions of the Master Lease
and constitutes a separate lease between Lessor and Lessee.
1. Equipment: Computer equipment to be more fully described on an attached
Schedule A, together with all other equipment and property hereafter
purchased by Matrix Funding Corporation pursuant to that Master
Progress Funding Agreement dated May 13, 1996, between Matrix Funding
Corporation and Vodavi Communications Systems, Inc. (including without
limitation, all authorizations signed in connection with said Master
Progress Funding Agreement), and any and all additions, enhancements
and replacements thereto.
The equipment and property subject to this Equipment Schedule shall be
more fully and completely described in an Acceptance Certificate which
shall later be executed by Lessee in connection with this Equipment
Schedule. Upon Lessee's execution thereof, this Equipment Schedule
shall be automatically amended to include herein as property leased
hereunder all equipment and property described in said Acceptance
Certificate.
2. Equipment Location: 8300 E. Raintree Drive, Scottsdale, AZ 85260
3. Acceptance Date: As specified in the Acceptance Certificate
4. Initial Period: 24 months from Commencement Date
5. Monthly Rental: $18,158.76 (plus applicable sales tax)
6. Deposit: $3,340.49 applied to the last Monthly Rental (plus applicable
sales tax)
7. Total Cost not to Exceed: $400,000.00
8. Floating Lease Rate Factor: The Lease Rate Factor of .0453969 shall
increase .0003990 for every five (05) basis point increase in
thirty-six (36) month U.S. Treasury Notes, until all items of equipment
have installed, at which point the Acceptance Date of the lease shall
have occurred. The thirty-six (36) month U.S. Treasury Note yield used
as the basis for the derivation of the Lease Rate Factor contained
herein is 5.05%.
<PAGE>
9. For this Equipment Schedule No. 1, the fourth and fifth lines of
Section 19(k) of the Master Lease will be amended by deleting the
phrase "a mutually agreeable price" and substituting in place thereof
"$1.00".
10. Representation of Lessee: Lessor and Lessee agree that this Equipment
Schedule constitutes a "finance lease" under the Utah Uniform
Commercial Code - Leases, in that (a) Lessee has selected the Equipment
in its sole discretion, (b) Lessor has acquired the Equipment solely
for purposes of leasing such Equipment under this Equipment Schedule,
or (c) Lessee has received a copy of the contract evidencing Lessor's
purchase of the Equipment.
LESSOR: LESSEE:
MATRIX FUNDING CORPORATION VODAVI COMMUNICATIONS SYSTEMS,
INC.
BY: _________________________________ BY: ________________________________
TITLE: ______________________________ TITLE: _____________________________
<PAGE>
ACCEPTANCE CERTIFICATE
TO
EQUIPMENT SCHEDULE NO. 2
TO
Master Lease Agreement No. RO551 dated May 13, 1996, (the "Lease") between
MATRIX FUNDING CORPORATION, (the "Lessor"), and VODAVI COMMUNICATIONS SYSTEMS,
INC., (the "Lessee").
1. Condition of the Equipment:
The Lessee certifies that all items of Equipment described in Paragraph
4 have been delivered to the location indicated in Paragraph 2, and are
hereby accepted as items of Equipment under the Lease, all on the date
indicated in Paragraph 3.
2. Location of Equipment: 8300 E. Raintree Drive, Scottsdale, AZ 85260
3. Acceptance Date: _________________________________________
4. Description of Equipment: Computer as more fully described on an
attached Schedule A.
LESSEE:
VODAVI COMMUNICATIONS SYSTEMS, INC.
BY: _____________________________________
TITLE: __________________________________
<PAGE>
SCHEDULE A
Equipment as more fully described on an attached Schedule, which by reference to
becomes a part hereof, together with all other equipment and property hereafter
purchased by Matrix Funding Corporation pursuant to that Master Progress Funding
Agreement dated May 13, 1996, between Matrix Funding Corporation and Vodavi
Communications Systems, Inc. (including without limitation, all authorizations
signed in connection with said Master Progress Funding Agreement), and any and
all additions, enhancements and replacements thereto and all proceeds thereform.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Exhibit contains summary financial
information extracted from the Registrant's
unaudited consolidated financial statements for
the period ended September 30, 1996 and is
qualified in its entirety by reference to such
financial statements. This Exhibit shall not be
deemed filed for purposes of Section 11 of the
Securities Act of 1933 and Section 18 of the
Securities Exchange Act of 1934, or otherwise
subject to the liability of such Sections, nor
shall it be deemed a part of any other filing
which incorporates this report by reference,
unless such other filing expressly incorporates
this Exhibit by reference.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,180
<SECURITIES> 0
<RECEIVABLES> 7,735
<ALLOWANCES> 194
<INVENTORY> 5,456
<CURRENT-ASSETS> 15,014
<PP&E> 2,792
<DEPRECIATION> 547
<TOTAL-ASSETS> 24,965
<CURRENT-LIABILITIES> 10,638
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 13,929
<TOTAL-LIABILITY-AND-EQUITY> 24,965
<SALES> 33,961
<TOTAL-REVENUES> 33,961
<CGS> 22,659
<TOTAL-COSTS> 22,659
<OTHER-EXPENSES> 10,199
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 655
<INCOME-PRETAX> 448
<INCOME-TAX> 325
<INCOME-CONTINUING> 123
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
