SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 September 30, 1999
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)
(480) 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 November 11, 1999 was 4,342,238.
<PAGE>
VODAVI TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 1999
and December 31, 1998. 3
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1999 and 1998. 4
Condensed Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1999 and 1998. 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION 12
SIGNATURES 13
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VODAVI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands
September 30, December 31,
1999 1998
(Unaudited)
------------- ------------
CURRENT ASSETS:
Cash $ 2,382 $ 796
Accounts Receivable, net 12,814 8,888
Inventory, net 5,386 6,385
Prepaids and other current assets 1,077 697
-------- --------
21,659 16,766
PROPERTY AND EQUIPMENT, net 2,462 2,663
GOODWILL, net 1,939 2,244
OTHER LONG-TERM ASSETS, net 1,321 1,169
-------- --------
$ 27,381 $ 22,842
======== ========
CURRENT LIABILITIES:
Accounts Payable 3,821 2,355
Accrued Liabilities 2,140 1,854
Current Portion of Long-Term Debt -- 124
-------- --------
5,961 4,333
-------- --------
LONG-TERM DEBT 9,741 7,910
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock 4 4
Additional Paid-In Capital 12,308 12,308
Accumulated Deficit (633) (1,713)
-------- --------
11,679 10,599
-------- --------
$ 27,381 $ 22,842
======== ========
The accompanying notes are an integral part of
these condensed consolidated balance sheets.
3
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VODAVI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except share and per share amounts
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE, net $ 14,033 $ 13,073 $ 37,981 $ 37,402
COST OF GOODS SOLD 8,986 8,599 24,615 24,853
---------- ---------- ---------- ----------
GROSS MARGIN 5,047 4,474 13,366 12,549
OPERATING EXPENSES
Engineering and product development 347 337 983 1,304
Selling, general and administrative 3,537 3,219 10,178 9,599
---------- ---------- ---------- ----------
OPERATING INCOME 1,163 918 2,205 1,646
INTEREST EXPENSE 189 204 478 616
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 974 714 1,727 1,030
PROVISION FOR INCOME TAXES 365 250 647 367
---------- ---------- ---------- ----------
NET INCOME $ 609 $ 464 $ 1,080 $ 663
========== ========== ========== ==========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.14 $ 0.11 $ 0.25 $ 0.15
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC AND DILUTED 4,342,238 4,342,238 4,342,238 4,342,238
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated statements.
4
<PAGE>
VODAVI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
(Unaudited)
Nine months ended
September 30,
1999 1998
------- -------
OPERATING ACTIVITIES:
Net income $ 1,080 $ 663
Adjustments:
Depreciation and amortization 486 558
Loss on sale of repair center division 86 --
Rent levelization (7) 14
Changes in working capital:
Accounts receivable (3,764) (26)
Inventory 757 612
Prepaids and other current assets (382) 448
Other long-term assets 335 24
Accounts payable 1,466 (706)
Accrued liabilities (43) (317)
Income taxes payable 329 346
------- -------
NET CASH FLOWS - OPERATING ACTIVITES 343 1,616
------- -------
INVESTING ACTIVITIES:
Cash paid for License Agreement (500) --
Purchase of property and equipment (254) (583)
Proceeds from sale of repair center division 282 --
------- -------
NET CASH FLOWS - INVESTING ACTIVITIES (472) (583)
------- -------
FINANCING ACTIVITIES:
Payments on capital leases (124) (284)
Net borrowings (payments) on line of credit 1,839 (1,057)
------- -------
NET CASH FLOWS - FINANCING ACTIVITIES 1,715 (1,341)
------- -------
INCREASE (DECREASE) IN CASH 1,586 (308)
CASH, beginning of period 796 634
------- -------
CASH, end of period $ 2,382 $ 326
======= =======
Supplemental schedule of non-cash investing and financing activities:
The Company sold substantially all of the assets of the repair
center division during the second quarter of 1999. As of
September 30, 1999:
Carrying amount of net assets sold $ 531
Notes receivable from buyer (163)
Loss on sale (86)
-------
Cash proceeds from disposition of repair center division $ 282
=======
The accompanying notes are an integral part of
these condensed consolidated statements.
5
<PAGE>
VODAVI TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
SEPTEMBER 30, 1999
(a) Vodavi Technology, Inc. (the Company), a Delaware corporation, designs,
develops, markets, and supports a broad range of business telecommunication
solutions. Vodavi products include digital telecommunications systems, computer
telephony products, and voice-processing systems including voice mail, fax mail,
Internet messaging, and IVR (interactive voice response) 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 September 30, 1999 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, 1998 financial statements and accompanying notes thereto.
(c) Diluted earnings per share for the periods ended September 30, 1999 and 1998
were determined by dividing net income by the weighted average number of common
and common equivalent shares outstanding, as outlined in Financial Accounting
Standard (SFAS) No. 128, Earnings Per Share.
(d) During June 1999, the Company sold its repair center division's net
inventory, property, and other assets with a net book value of approximately
$531,000. The buyer paid to the Company consideration of $100,000 cash, a note
receivable of $200,000 due July 31, 1999, and a note receivable of approximately
$195,000 with monthly payments of approximately $16,000 for twelve months
commencing August 1, 1999. The Company also incurred liabilities of
approximately $59,000 in connection with this transaction.
During the third quarter of 1999, the Company collected the principal of
$200,000 on the note receivable due July 31, 1999, and two monthly installments
on the $195,000 note receivable. At September 30, 1999, the remaining note
receivable balance was approximately $163,000. Additionally, the Company settled
the liabilities of $59,000 for $50,000.
(e) The Company has determined that it has one reportable operating segment. The
Company has three operating segments, which it manages based on the Company's
product categories of key telephone systems, voice processing systems, and
computer-telephony products. The Company's voice processing systems and
computer-telephony products categories do not meet the reportable thresholds of
SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. As a result of the foregoing, the Company has determined that it is
appropriate to present one reportable segment consistent with the guidance in
SFAS No. 131. Accordingly, the Company has not presented separate financial
information for each of its operating segments, as the Company's consolidated
financial statements present its one reportable segment.
(f) Effective September 30, 1999, the Company negotiated an increase in its
credit facility with General Electric Capital Corporation ("GE Capital") from
$12.0 million to $15.0 million. The line expires in April 2003. The line of
credit bears interest at 2.5% over the 30-day commercial paper rate, or 7.82% at
September 30, 1999. Advances under the line of credit are based upon eligible
accounts receivable and inventory of Vodavi Communications Systems, Inc.
("VCS"), a wholly owned subsidiary of the Company, and are secured by
substantially all of the assets of the Company. The 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.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998:
The following table summarizes the operating results of the Company as a
percentage of revenue for the periods indicated.
Three Months Ended
September 30,
------------------
1999 1998
------ ------
Revenue 100.0% 100.0%
Cost of goods sold 64.0% 65.8%
------ ------
Gross margin 36.0% 34.2%
Operating expenses:
Engineering and product development 2.5% 2.6%
Selling, general and administrative 25.2% 24.6%
------ ------
Operating income 8.3% 7.0%
Interest expense 1.4% 1.6%
------ ------
Income before income taxes 6.9% 5.4%
Provision for income taxes 2.6% 1.9%
------ ------
Net income 4.3% 3.5%
====== ======
REVENUE
Revenue was approximately $14.0 million in the third quarter of 1999, an
increase of approximately $960,000, or 7.3%, over the third quarter of 1998. The
increase in net revenue is primarily due to an increase of approximately
$760,000, or 41%, in dealer-direct revenue from sales to the Company's INFINITE
dealers. Approximately $520,000 of this increase was in sales of voice
processing products. The Company also experienced a decrease in repair revenue
due to the sale of the repair center division during the second quarter of 1999.
Repair revenue for the three-month period ended September 30, 1999, was
approximately $90,000, compared with repair revenue of approximately $345,000
during the comparable period in 1998.
GROSS MARGIN
Gross margins increased to approximately 36.0% of revenue in the third quarter
of 1999 as compared with 34.2% in the third quarter of 1998. The improvement in
gross margin in the third quarter of 1999 is attributable to a number of factors
including an increase in sales of higher-margined voice processing products, an
improvement in negotiated vendor discounts as compared to 1998, elimination of
expenses related to the Company's repair center division which was sold during
the second quarter of 1999, and a decrease in import duties.
ENGINEERING AND PRODUCT DEVELOPMENT
For the quarter ended September 30, 1999, expenditures related to engineering
and product development remained consistent with expenditures in the third
quarter of 1998.
7
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses ("SG&A") increased 9.9% from
$3,219,000 in the third quarter of 1998 to $3,537,000 for the third quarter of
1999. For this same period, as a percentage of sales, SG&A expenditures
increased by 0.6%. The addition of several new sales personnel and the
completion of the executive management team accounted for a significant portion
of this increase.
INTEREST EXPENSE
Interest expense was approximately $189,000 in the third quarter of 1999, a
decrease of $15,000, or 7.4%, over the third quarter of 1998. The decrease is
attributable to a decrease in average borrowings during the third quarter of
1999 as a result of reduced inventory levels. Net inventory at September 30,
1999, was approximately $5.4 million as compared to approximately $7.7 million
at September 30, 1998.
INCOME TAXES
The Company has provided for income taxes using an effective rate of 37.5% in
the third quarter of 1999, as compared with 35.0% in the third quarter of 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998:
The following table summarizes the operating results of the Company as a
percentage of sales for the periods indicated.
Nine Months Ended
September 30,
-----------------
1999 1998
---- ----
Revenue 100.0% 100.0%
Cost of goods sold 64.8% 66.4%
----- -----
Gross margin 35.2% 33.6%
Operating Expenses:
Engineering and product development 2.6% 3.5%
Selling, general and administrative 26.8% 25.7%
----- -----
Operating income 5.8% 4.4%
Interest expense 1.3% 1.6%
----- -----
Income before income taxes 4.5% 2.8%
Provision for income taxes 1.7% 1.0%
----- -----
Net income 2.8% 1.8%
===== =====
REVENUE
Revenue was approximately $38.0 million for the first nine months of 1999, an
increase of approximately $579,000, or 1.5%, over the first nine months of 1998.
The increase in net revenue is primarily due to an increase in dealer direct
revenue from sales to the Company's INFINITE dealers of approximately $1.2
million, or 21%. Approximately $1.0 million of this increase was in sales of
voice processing products. Voice processing revenue for other distribution
channels increased approximately $275,000 for 1999 as compared to 1998. These
increases were partially offset by an approximately $550,000 decrease in
distribution revenue, net of discounts, primarily due to a decrease of $700,000
in sales of single line systems as the Company discontinued sales of the 2600
model and replaced it with the 2700 model. Additionally, repair revenue for the
nine months ended September 30, 1999, was approximately $505,000 lower than
repair revenue for the comparable prior year period, primarily due to the sale
of the repair center division in June 1999.
8
<PAGE>
GROSS MARGIN
Gross margin increased to 35.2% of revenue for the first nine months of 1999 as
compared with 33.6% for the first nine months of 1998. The improvement in gross
margin is primarily attributable to an increase in sales of higher-margined
voice processing products, decreased discounts provided to wholesale
distributors, an improvement in negotiated vendor discounts as compared to 1998,
elimination of expenses related to the Company's repair center division which
was sold during the second quarter of 1999, and a decrease in import duties.
ENGINEERING AND PRODUCT DEVELOPMENT
Expenses related to engineering and product development decreased to
approximately $983,000 in the first nine months of 1999 as compared with
approximately $1.3 million the first nine months of 1998. The decrease was due
to the elimination of several engineering and product development positions in
July 1998.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $579,000, or 6.0%, in the
first nine months of 1999 as compared with the first nine months of 1998. This
increase is primarily a result of the addition of several new sales personnel
and the completion of the executive management team.
INTEREST EXPENSE
Interest expense was approximately $478,000 in the first nine months of 1999, a
$138,000, or 22%, decrease over the first nine months of 1998. The decrease is
attributable to a decrease in borrowings as a result of reduced levels of
inventory.
INCOME TAXES
The Company has provided for income taxes using an effective rate of 37.5% in
the first nine months of 1999 as compared with 35.6% in the first nine months of
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash of approximately $2.4 million at September 30, 1999. The
Company's cash accounts are swept regularly and applied against the Company's
line of credit, as described below. The Company's borrowings against its
available operating line of credit at September 30, 1999, were approximately
$9.5 million, which represents an increase of $1.8 million from its borrowings
of $7.7 million at December 31, 1998. This increase was primarily due to the
timing of payments received on accounts receivable balances from customers. At
September 30, 1999, net eligible availability was approximately $1.7 million.
Effective September 30, 1999, the Company negotiated an increase in its credit
facility with General Electric Capital Corporation ("GE Capital") from $12.0
million to $15.0 million. The line expires in April 2003. The line of credit
bears interest at 2.5% over the 30-day commercial paper rate, or 7.82% at
September 30, 1999. Advances under the line of credit are based upon eligible
accounts receivable and inventory of Vodavi Communications Systems, Inc.
("VCS"), a wholly owned subsidiary of the Company, and are secured by
substantially all of the assets of the Company. The 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. At September 30, 1999, the Company
was in compliance with all of the covenants.
Working capital, reduced by outstanding borrowings on the credit facility
(reported as long term debt on the balance sheet), increased to approximately
$6.2 million at September 30, 1999 from approximately $4.8 million at December
31, 1998. This increase is attributable to increases in accounts receivables
(primarily due to timing of receipts), and prepaids and other current assets,
partially offset by a decrease in inventory and increases in accounts payable
and the line of credit.
9
<PAGE>
During May 1999, the Company entered into a perpetual, non-exclusive licensing
agreement with Santa Barbara Connected Systems Corporation ("Connected Systems")
to acquire the licensing and manufacturing rights to the Company's "Talkpath"
and "Dispatch" product lines. Since 1997, the Company had purchased these
products from Connected Systems for private-labeled sales to distribution
partners and customers. According to the terms of the agreement, the Company
paid Connected Systems $300,000 during the second quarter of 1999 and $200,000
during the third quarter of 1999. No additional payments are due under this
agreement.
In October 1999, the Board of Directors approved a buy-back of up to 400,000
shares of the Company's outstanding common stock over the next six months.
Financing for the buy-back will be provided through the Company's line of
credit.
The Company believes that its working capital and credit facilities are
sufficient to finance its internal growth in the near term. 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.
INTERNATIONAL MANUFACTURING SOURCES
The Company currently obtains certain of its products under various
manufacturing arrangements with third-party manufacturers in Asia. As of the
date of this report, the Company does not believe that the current economic
situations in Asia will have any adverse impact on the Company's operations.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries to represent years in the date code field.
Computer systems and products that do not accept four-digit year entries will
need to be upgraded or replaced to accept four-digit entries to distinguish
years beginning with 2000 from prior years.
During the third quarter of 1999, the Company completed upgrades to its
financial and accounting systems, including software related to order entry,
inventory management, materials planning, and accounts payable and receivable.
These upgrades improved the content, quality, and flow of information within the
Company, as well as addressing Year 2000 issues. Also during the third quarter
of 1999, the Company completed Year 2000 compliance upgrades for computer
processing platforms, networks, and software systems used in connection with its
operations, other than the financial and accounting systems described above.
A significant portion of the Company's business communications systems products
is manufactured by third parties in Asia. The Company has completed an
assessment of the Year 2000 risks associated with the inability of those
manufacturers to bring their production processes and other computer-based
systems into Year 2000 compliance. Because the manufacturing processes utilized
do not rely upon date-related information, the Company currently believes that a
failure on the part of its overseas manufacturers to bring their processes and
equipment into Year 2000 compliance does not represent a material risk to the
Company's ability to obtain its products on a timely basis. As part of this
assessment, all of the manufacturers have advised the Company that their
processes and systems are Year 2000 compliant. The Company's overseas
manufacturers may be at risk with respect to suppliers of necessary resources,
particularly suppliers of power, water, and telecommunications, if those
suppliers are not Year 2000 compliant. Because of the nature of the ordering and
manufacturing cycles for the Company's products, the Company believes that
disruptions in its manufacturers' operations of up to two weeks would not have a
material adverse effect on the Company's business. Extended disruptions in the
overseas manufacturers' operations would, however, materially and adversely
impact the Company's ability to obtain its products on a timely basis.
Certain of the Company's products contain software and hardware that perform
functions based upon date-related information. The Company has identified its
existing products that are not Year 2000 compliant and has completed development
of upgrades or modifications to those products that will enable them to process
Year 2000 dates without malfunctioning. The Company will be able to pass costs
10
<PAGE>
related to upgrading installed products that are no longer covered by the
Company's product warranties along to its customers. The Company also believes
that the costs related to upgrading installed products that remain under the
Company's product warranties would be relatively insignificant. The inability of
the Company to develop and provide on a timely basis product modifications that
may be required could result in a material adverse effect on the Company,
including increased warranty costs, customer satisfaction issues, and potential
litigation.
The failure of the Company's computer system or the systems of third parties to
timely achieve Year 2000 compliance could have a material adverse effect on the
Company's business, financial condition, and operating results. The Company is
substantially completed with the development of a contingency plan under which
it would use a manual system for order processing, shipping and receiving
functions, and accounting systems on a short-term basis in the event the Company
or third parties experience computer system failures as a result of Year 2000
issues.
- --------------------------------------------------------------------------------
This report contains forward-looking statements, including statements regarding
the Company's business, strategies, 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 for the year ended December 31, 1998,
as filed with the Securities and Exchange Commission.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 20, 1996, the Company and Vodavi-CT, Inc. (formerly
Enhanced Systems, Inc.) ("Vodavi-CT") filed a lawsuit against Michael Mittel and
Fereydoun Taslimi, former officers and directors of Vodavi-CT, in the United
States District Court for the District of Arizona. The lawsuit subsequently was
transferred to the Northern District of Georgia, Atlanta Division (No.
1-98-CV-18-CAM). 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 Vodavi-CT
in 1995; breached certain terms of their respective employment contracts with
Vodavi-CT; and converted certain corporate opportunities for their own benefit.
The Company and Vodavi-CT 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-2563), against the Company and Vodavi-CT.
That lawsuit alleged that Vodavi-CT breached Messrs. Mittel's and Taslimi's
respective employment agreements by terminating their employment. In January
1999, the parties filed motions for summary judgment with respect to portions of
their respective claims. In February 1999, the parties filed a stipulation
dismissing the claims of the Company and Vodavi-CT that alleged violations of
federal and Arizona securities laws and constructive fraud under Georgia law.
On September 27, 1999, the court entered an order granting the motion of
the Company and Vodavi-CT for summary judgment as to the claims of Messrs.
Mittel and Taslimi for breach of their respective employment agreements. In
addition, the court denied Messrs. Mittel's and Taslimi's motions for summary
judgment as to the claims of the Company and Vodavi-CT with respect to
fraudulent misrepresentation and/or nondisclosure, negligent misrepresentation,
conversion or misappropriation of corporate assets, breach of contract, breach
of implied covenant of good faith and fair dealing, breach of fiduciary duty,
constructive fraud, and misappropriation of corporate assets. The court granted
the motion of Messrs. Mittel and Taslimi for summary judgment as to the claims
of the Company and Vodavi-CT with respect to unjust enrichment and constructive
trust. The Company and Vodavi-CT intend to proceed with the lawsuit against
Messrs. Mittel and Taslimi.
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 10.38. Fourth Amendment to Credit Agreement with General
Electric Capital Corporation.
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
Not applicable
12
<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 12, 1999 /s/ Gregory K. Roeper
-------------------------------------------------
Gregory K. Roeper
President, Chief Operating Officer, and Secretary
(Principal Executive Officer)
Dated: November 12, 1999 /s/ Tammy M. Powers
-------------------------------------------------
Tammy M. Powers
Chief Financial Officer, Vice President - Finance,
and Treasurer (Principal Financial and
Accounting Officer)
13
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") made and
entered into as of September 30, 1999, between VODAVI COMMUNICATIONS SYSTEMS,
INC. ("BORROWER") and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation ("LENDER").
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender entered into a certain Credit
Agreement, dated as of April 11, 1994, as amended (the "CREDIT AGREEMENT";
capitalized terms used herein and not otherwise defined herein shall have the
meanings given such terms in the Credit Agreement), whereby the Lender agreed to
make certain loans to the Borrower, subject to the terms, covenants and
conditions contained in the Credit Agreement; and
WHEREAS, the Borrower has requested that the Lender modify the Credit
Agreement to extend the maturity date of the Revolving Credit Facility, increase
the Commitment, increase the percentage of Eligible Inventory used in
calculating the Borrowing Base, to reduce the Non-use Fee, and to change the
address of the Borrower for communications under the Credit Agreement, and the
Lender is willing to make such modifications, subject to the terms and
conditions of this Amendment;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. AMENDMENTS. (a) The definition of "BORROWING BASE" in Section 1.1 of the
Credit Agreement is hereby deleted in its entirety and replaced by the
following:
"BORROWING BASE" shall mean at any time an amount not to exceed
the sum of: (i) 85% of Eligible Accounts, and (ii) up to the lesser
of: (A) $6,000,000 and (B) not more than 65% of Eligible Inventory in
each case (Eligible Accounts and Eligible Inventory) as shown on the
most recently delivered Borrowing Base Certificate delivered by the
Borrower, less such additional reserves as Lender shall deem
reasonably necessary.
(b) The definition of "MATURITY DATE" in Section 1.1 of the
Credit Agreement is hereby deleted in its entirety and replaced by the
following:
<PAGE>
"MATURITY DATE" shall mean the date that is the later of: (i)
April 11, 2003, and (ii) the date to which, upon prior mutual written
agreement of the Borrower and Lender, the expiration of the Revolving
Credit Facility has been extended.
(c) Section 2.1(a) of the Credit Agreement is hereby deleted in its
entirety and replaced by the following:
(a) CREDIT. Upon and subject to the terms and conditions hereof,
Lender agrees from time to time to make available by deposit to the
Disbursement Account on any Business Day until the Commitment
Termination Date, upon the request of Borrower therefor, advances
(each, a "REVOLVING CREDIT ADVANCE") in an aggregate amount
outstanding that, when added to the aggregate balance of Letter of
Credit Obligations then outstanding, shall not at any given time
exceed the lesser of (the "REVOLVING CREDIT ADVANCE AVAILABILITY"):
(i) $15,000,000, as such amount may be terminated pursuant to the
terms of SECTION 2.5 OR 8.2 (the "COMMITMENT"), and (ii) the Borrowing
Base.
(d) Section 2.3(b) of the Credit Agreement is hereby deleted in its
entirety and replaced by the following:
(b) NON-USE FEE. As additional compensation for Lender's costs
and risks in making the Commitment available to Borrower, Borrower
agrees to pay to Lender, in arrears for the preceding month, on the
first Business Day of each month prior to the Commitment Termination
Date and on the Commitment Termination Date, a fee for Borrower's
non-use of the Commitment (the "NON-USE FEE") in an amount equal to
one eighth of one percent (0.125%) per annum on the average daily
Revolving Credit Commitment Availability.
(e) The address of the Borrower contained in Section 9.10 of the
Credit Agreement is hereby deleted in its entirety and replaced by the
following:
Vodavi Communications Systems, Inc.
8300 East Raintree Drive
Scottsdale, Arizona 85260
Attention: Tammy Powers, Chief Financial Officer
Telecopy No.: (480) 483-0144
2. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants to the Lender that (a) this Amendment has been duly authorized,
executed and delivered by the Borrower, (b) no Default has occurred and is
continuing as of this date, and (c) each of the representations and warranties
of the Borrower made in or pursuant to this Amendment and the other Financing
Documents is true and correct, except to the extent that any such representation
-2-
<PAGE>
or warranty expressly relates to an earlier date and except for changes therein
expressly permitted or expressly contemplated by the Credit Agreement, both
before and after giving effect to this Amendment. Any breach by the Borrower of
its representations and warranties contained in this Section 2 shall be an Event
of Default for all purposes of the Credit Agreement.
3. RATIFICATION. The Borrower hereby ratifies and reaffirms each and every
term and condition set forth in the Credit Agreement and all other documents
delivered by the Borrower in connection therewith (including without limitation
the other Loan Documents to which the Borrower is a party), effective as of the
date hereof.
4. ESTOPPEL. To induce the Lender to enter into this Amendment, the
Borrower hereby acknowledges and agrees that, as of the date hereof, there
exists no right of offset, defense or counterclaim in favor of the Borrower as
against the Lender with respect to the obligations of the Borrower under the
Credit Agreement or the other Loan Documents, either with or without giving
effect to this Amendment.
5. CONDITIONS TO EFFECTIVENESS. The Amendments contained in Section 1 shall
become effective upon the date of this Amendment, subject to the satisfaction of
the following conditions on or prior to such date:
(a) the receipt by the Lender of this Amendment, together with the Consent
attached hereto, duly executed, completed and delivered by the Lender, the
Borrower, and the other Credit Parties;
(b) the receipt by the Lender of a certificate signed by the chief
financial officer or treasurer of the Borrower to the effect that, as of the
date of this Amendment, (i) no Default shall have occurred and be continuing and
(ii) each of the representations and warranties of the Credit Parties made in or
pursuant to this Amendment and the other Financing Documents executed by such
Person is true, except to the extent that any such representation or warranty
expressly relates to an earlier date and except for changes therein expressly
permitted or expressly contemplated by the Credit Agreement, both before and
after giving effect to this Amendment;
(c) the receipt by the Lender of such other documents as the Lender may
reasonably request.
6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK FOR CONTRACTS TO BE PERFORMED
ENTIRELY WITHIN SAID STATE.
7. SEVERABILITY OF PROVISIONS. Any provision of this Amendment which is
prohibited by, or invalid under the Applicable Law of any jurisdiction shall be
ineffective to the extent of such prohibition or invalidity in such jurisdiction
-3-
<PAGE>
without invalidating the remaining provisions hereof or affecting the validity
or enforceability of such provision in any other jurisdiction. To the extent
permitted by Applicable Law, Borrower hereby waives any provision of law that
renders any provision hereof unenforceable in any respect.
8. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, all of which shall be deemed to constitute but one original and
shall be binding upon all parties, their successors and permitted assigns.
9. ENTIRE AGREEMENT. The Credit Agreement as amended by this Amendment
embodies the entire agreement between the parties hereto relating to the subject
matter hereof and supersede all prior agreements, representations and
understandings, if any, relating to the subject matter hereof.
[Remainder of Page Intentionally Left Blank]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective duly authorized officers, as of the date first
above written.
VODAVI COMMUNICATIONS
SYSTEMS, INC.
By: /s/ Tammy M. Powers
Name: Tammy M. Powers
Title: Chief Financial Officer
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Timothy J. Rafanello
Name: Timothy J. Rafanello
Title: Duly Authorized Signatory
-5-
<PAGE>
CONSENT
The undersigned Credit Party hereby acknowledges and consents to, and
agrees to the terms of, the foregoing Fourth Amendment to Credit Agreement, and
ratifies and confirms its obligations under the Loan Documents, as of the date
of the foregoing Amendment.
ENHANCED SYSTEMS, INC.
By: /s/ Tammy M. Powers
Name: Tammy M. Powers
Title: Chief Financial Officer
-6-
<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, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,382
<SECURITIES> 0
<RECEIVABLES> 13,867
<ALLOWANCES> 1,053
<INVENTORY> 5,386
<CURRENT-ASSETS> 21,659
<PP&E> 4,455
<DEPRECIATION> 1,993
<TOTAL-ASSETS> 27,381
<CURRENT-LIABILITIES> 5,961
<BONDS> 9,741
0
0
<COMMON> 4
<OTHER-SE> 11,675
<TOTAL-LIABILITY-AND-EQUITY> 27,381
<SALES> 37,981
<TOTAL-REVENUES> 37,981
<CGS> 24,615
<TOTAL-COSTS> 24,615
<OTHER-EXPENSES> 11,161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 478
<INCOME-PRETAX> 1,727
<INCOME-TAX> 647
<INCOME-CONTINUING> 1,080
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,080
<EPS-BASIC> .25
<EPS-DILUTED> .25
</TABLE>
