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 March 31, 1997
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
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(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 April 30, 1997 was 4,342,238.
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VODAVI TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
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TABLE OF CONTENTS
Page #
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1997
and December 31, 1996. 3
Consolidated Statements of Operations - Three Months
Ended March 31, 1997 and 1996. 4
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1997 and 1996. 5
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION 9
SIGNATURES 10
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
VODAVI TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
In thousands
March 31, December 31,
1997 1996
-------- --------
(Unaudited)
CURRENT ASSETS:
Cash $ 1,008 $ 1,152
Accounts Receivable, net 7,095 7,790
Inventory, net 6,915 7,229
Prepaids 407 420
-------- --------
15,425 16,591
PROPERTY AND EQUIPMENT, net 2,641 2,465
GOODWILL, net 2,509 2,547
OTHER LONG-TERM ASSETS, net 827 815
-------- --------
$ 21,402 $ 22,418
======== ========
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 313 $ 258
Accounts Payable 3,421 4,464
Accrued Liabilities 2,488 2,518
-------- --------
6,222 7,240
-------- --------
LONG-TERM DEBT 5,517 5,777
-------- --------
STOCKHOLDERS' EQUITY:
Common Stock 4 4
Additional Paid-In Capital 12,308 12,308
Accumulated Deficit (2,649) (2,911)
-------- --------
9,663 9,401
-------- --------
$ 21,402 $ 22,418
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
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VODAVI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except share amounts
(Unaudited)
Three Months Ended
March 31,
---------
1997 1996
----------- -----------
REVENUE, net $ 11,528 $ 10,355
COST OF GOODS SOLD 7,628 6,922
----------- -----------
GROSS MARGIN 3,900 3,433
OPERATING EXPENSES
Engineering and product development 483 501
Selling, general and administrative 2,803 2,775
----------- -----------
OPERATING INCOME 614 157
INTEREST EXPENSE 178 235
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 436 (78)
PROVISION FOR INCOME TAXES 174 21
----------- -----------
NET INCOME (LOSS) $ 262 $ (99)
=========== ===========
NET INCOME (LOSS) PER SHARE $ .06 $ (.02)
=========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,342,238 4,342,238
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
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VODAVI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
(Unaudited)
Three months ended
March 31,
---------
1997 1996
-------- --------
OPERATING ACTIVITIES:
Net Income (Loss) $ 262 $ (99)
Adjustments:
Depreciation and amortization 184 242
Changes in working capital:
Accounts receivable 695 (1,151)
Inventory 314 1,428
Prepaid expenses 14 224
Other long term assets (37) (14)
Accounts payable (1,043) (31)
Accrued liabilities (30) (225)
-------- --------
NET CASH FLOWS - OPERATING ACTIVITIES 359 374
-------- --------
INVESTING ACTIVITIES:
Purchase of fixed assets (95) (236)
-------- --------
NET CASH FLOWS - INVESTING ACTIVITIES (95) (236)
-------- --------
FINANCING ACTIVITIES:
Payments on Capital Leases (84) --
Borrowings from GE Capital 11,800 8,110
Payments to GE Capital (12,124) (8,876)
-------- --------
NET CASH FLOWS - FINANCING ACTIVITIES (408) (766)
-------- --------
DECREASE IN CASH (144) (628)
CASH, beginning of period 1,152 1,944
-------- --------
CASH, end of period $ 1,008 $ 1,316
======== ========
The accompanying notes are an integral part of these consolidated statements.
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VODAVI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
MARCH 31, 1997
a) Vodavi Technology, Inc. (the Company), a Delaware corporation, designs,
develops, markets, and supports a broad range of telecommunications systems,
commercial grade telephones, computer-telephony products, and voice processing
products, including voice mail, fax mail, Internet messaging, and interactive
voice response systems for a wide variety of commercial applications.
(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 March 31, 1997 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, 1996 financial statements and accompanying notes thereto.
(c) In the fourth quarter of 1996, certain events ocurred which resulted in the
Company recording an impairment loss related to the goodwill associated with
Enhanced Systems, Inc. (Enhanced). See footnotes 1 and 4 to the Company's
financial statements for the year ended December 31, 1996.
(d) Net income per share for the quarter ended March 31, 1997 was determined by
dividing net income by the weighted average number of common and common
equivalent shares outstanding.
Net loss per share for the quarter ended March 31, 1996 was determined by
dividing net loss by the weighted average number of common shares outstanding.
The weighted average number of common shares outstanding did not consider common
equivalent shares such as options and warrants as the effect would have been
anti-dilutive.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Three Months Ended March 31, 1997 and 1996:
The following table summarizes the operating results of the Company as a
percentage of revenue for the periods indicated.
Three Months Ended
March 31,
---------
1997 1996
------ ------
Revenue 100.0% 100.0%
Cost of goods sold 66.2% 66.8%
------ ------
Gross margin 33.8% 33.2%
Operating expenses:
Engineering and product development 4.2% 4.8%
Selling, general and administrative 24.3% 26.8%
------ ------
Operating income 5.3% 1.5%
Interest expense 1.5% 2.3%
------ ------
Pre-tax income (Loss) 3.8% (0.8%)
Income taxes 1.5% 0.2%
------ ------
Net income (Loss) 2.3% (1.0%)
====== ======
Revenue
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Revenue was approximately $11.5 million in the first quarter of 1997, an
increase of $1.1 million, or 11.3%, over the first quarter of 1996. The
increased revenue is attributed to the core consumer premise equipment (CPE)
business (consisting primarily of key telephone systems and commercial grade
telephones).
Gross Margin
Gross margins increased to approximately 33.8% of revenue in the first quarter
of 1997 as compared with 33.2% in the first quarter of 1996. The gross margin
for the first quarter of 1996 was negatively impacted by the issuance of
approximately $225,000 in price protection credits which did not recur in 1997.
Engineering and Product Development
Expenditures related to engineering and product development remained relatively
flat during the first quarter of 1997 as compared with the first quarter of
1996.
Selling, General and Administrative
Selling, general and administrative expenses remained relatively flat during the
first quarter of 1997 as compared with the first quarter of 1996. As a
percentage of revenue, however, selling, general and administrative expenses
declined to 24.3% of revenue in the first quarter of 1997 as compared with 26.8%
in the first quarter of 1996. The recognition of the impairment loss related to
Enhanced in the fourth quarter of 1996 has eliminated ongoing goodwill
amortization of approximately $115,000 per quarter.
Interest Expense
Interest expense was approximately $178,000 in the first quarter of 1997, a
decrease of $57,000, or 24.3%, over the first quarter of 1996. The decrease is
attributable to a decrease in borrowings as a result of positive operating cash
flows and improved asset management.
Income Taxes
The Company has provided for income taxes using an effective rate of 39.9% in
the first quarter of 1997. The provision for income taxes for the first quarter
of 1996 reflects the impact of the non-tax deductible goodwill amortization
related to Enhanced.
Liquidity and Capital Resources
The Company's cash and cash equivalents were approximately $1.0 million at March
31, 1997. The Company's cash accounts are swept regularly and applied against
the Company's line of credit. The Company's borrowings against its available
operating line of credit (as described below) at March 31, 1997 were
approximately $5.1 million, which represents a $300,000 reduction from its
borrowings of $5.4 million at December 31, 1996. The reduction is attributed to
several factors, including cash generated from operations and utilization of
capital leases to finance capital expenditures, as described below. At March 31,
1997, the Company had approximately $3.9 million available to it under its
operating line of credit.
The Company maintains a $12.0 million line of credit with General Electric
Capital Corporation (GE Capital). During the first quarter of 1997, the line of
credit bore interest, payable monthly, at 4.5% over the 30-day commercial paper
rate, or a total of 10.2% at March 31, 1997. The Company has recently reached an
agreement in principal to extend the facility, which expired April 12, 1997,
through April 2000. The terms of the extension will lower the interest rate to
2.5% over the 30-day commercial paper rate, or a total of 8.2% at March 31,
1997. The Company has received a two month extension of its existing facility,
adjusted to reflect the new interest rates, while the new agreement is being
finalized.
Advances under the line of credit are based upon the accounts receivable and
inventories of Vodavi Communications Systems (VCS), a wholly owned subsidiary of
the Company, and are secured by substantially all of the assets of the Company.
The
7
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revolving line of credit contains covenants that are customary for similar
credit facilities and also prohibits the Company's operating subsidiaries from
paying dividends to the Company without the consent of GE Capital.
In 1996, the Company entered into leasing facilities in order to finance capital
expenditures. The facilities provide the Company with up to $800,000 at rates
ranging from 9% to 13%. As of March 31, 1997, the Company had utilized
approximately $700,000 of these facilities and had commitments outstanding for
the remaining balance.
As of March 31, 1997, the Company had commitments in connection with its new
product developments. Such commitments aggregate approximately $300,000 and are
payable through December 31, 1997. The commitments include payments in
connection with the development of the Company's wireless product and payments
to develop new tooling for its existing and future digital products.
The Company believes that its working capital and credit facilities will be
sufficient to finance its internal growth for the foreseeable future. Although
the Company currently has no acquisition targets, it 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.
--------------------------------------
This report contains forward-looking statements, including statements regarding
the Company's business strategies, the Company's business, and the industry in
which the Company operates. These forward-looking statements are based primarily
on the Company's expectations and are subject to a number of risks and
uncertainties, some of which are beyond the Company's control. Actual results
could differ materially from the forward-looking statements as a result of
numerous factors, including those set forth in the Company's Form 10-K on file
with the SEC.
8
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
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 24, 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-2463),
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 parties have agreed to attempt to settle these matters at a non-binding
mediation tentatively scheduled for May 15, 1997. In the event that the
mediation is unsuccessful, 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
Exhibit 27. Financial Data Schedule.
b) Reports on Form 8-K
Not applicable.
9
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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: May 12, 1997 /s/Glenn R. Fitchet
-------------------
Glenn R. Fitchet
President and Chief Executive Officer
(Principal Executive Officer)
Dated: May 12, 1997 /s/Gregory K. Roeper
--------------------
Gregory K. Roeper
Vice President Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
10
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<ARTICLE> 5
<LEGEND>
This Exhibit contains summary financial
information extracted from the Registrant's
unaudited consolidated financial statements for
the period ended March 31, 1997 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>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,008
<SECURITIES> 0
<RECEIVABLES> 7,318
<ALLOWANCES> 223
<INVENTORY> 6,915
<CURRENT-ASSETS> 15,425
<PP&E> 3,312
<DEPRECIATION> 671
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<CURRENT-LIABILITIES> 6,222
<BONDS> 5,517
0
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<SALES> 11,528
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</TABLE>
