-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IBeJYB8np9+zSaRSSRkeoU0mhg/2Fqtb4phMC14Tw9d5de9aPnhH/uYBraj1Kaw6 weKPxls1c7ZUvc5BJd/VeA== 0000895755-97-000051.txt : 19970520 0000895755-97-000051.hdr.sgml : 19970520 ACCESSION NUMBER: 0000895755-97-000051 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARI L CO INC CENTRAL INDEX KEY: 0000917173 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 060678347 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-23866 FILM NUMBER: 97609066 BUSINESS ADDRESS: STREET 1: 11101 E 51ST AVE CITY: DENVER STATE: CO ZIP: 80239 BUSINESS PHONE: 3033711560 MAIL ADDRESS: STREET 1: 11101 EAST 51ST AVENUE CITY: DENVER STATE: CO ZIP: 80239 10QSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended Commission File No. 0-23866 March 31, 1997 VARI-L COMPANY, INC. (Exact name of Registrant as specified in its charter.) Colorado 06-0679347 (State of Incorporation) (I.R.S. Employer identification No.) 11101 E. 51st Avenue Denver, Colorado 80239 (Address of principal executive offices) (303) 371-1560 (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 each of the issuer's classes of common stock, as of March 31, 1997: Class of Securities Outstanding Securities -------------------- ---------------------- $0.01 par value 3,826,840 shares Common shares PART 1-FINANCIAL INFORMATION Item 1. Financial Statements VARI-L COMPANY, INC. BALANCE SHEETS MARCH 31, 1997 AND DECEMBER 31, 1996
3/31/97 12/31/96 ASSETS (UNAUDITED) (AUDITED) ---------- --------- Current Assets: Cash and cash equivalents $ 3,547,007 $ 1,224,727 Receivables: Trade, less $4,000 allowance for doubtful accounts 3,084,731 2,744,180 Lease acquisition costs 641,486 641,486 Inventories 8,427,855 7,740,976 Prepaid expenses and other 1,320,922 990,130 ----------- ----------- Total Current Assets 17,022,001 13,341,499 ----------- ----------- Property and Equipment: Machinery and equipment 12,291,004 11,772,250 Furniture and fixtures 997,041 993,822 Leasehold improvements 3,094,914 2,993,081 ----------- ----------- 16,382,959 15,759,153 Less accumulated depreciation and amortization (2,812,771) (2,654,405) ----------- ----------- Net Property and Equipment 13,570,188 13,104,748 ----------- ----------- Other Assets: Long-term inventories 332,000 332,000 Covenant not to compete 91,283 99,581 Patents, net of accumulated amortization of $43,510 and $31,010 355,464 337,963 Other 1,438,906 899,572 ----------- ----------- Total Other Assets 2,217,653 1,669,116 ----------- ----------- TOTAL ASSETS $32,809,842 $28,115,363 =========== ===========
See Accompanying Notes to Financial Statements VARI-L COMPANY, INC. BALANCE SHEETS, CONTINUED MARCH 31, 1997 AND DECEMBER 31, 1996
3/31/97 12/31/96 LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) (AUDITED) ---------- -------- Current Liabilities: Bank line of credit $1,878,409 $2,125,409 Current installments of: Long-term debt 588,934 588,934 Obligations under capital leases 10,135 10,135 Financed insurance premiums 87,582 33,652 Trade accounts payable 1,438,535 1,499,992 Accrued expenses and other 188,523 584,938 Due to related party 52,227 77,774 Income taxes payable 176,548 0 ----------- ----------- Total Current Liabilities 4,420,893 4,920,834 Long-term debt 4,012,994 4,155,121 Obligations under capital leases 5,164 6,131 Subordinated debentures 5,000,000 0 Deferred income taxes 1,036,865 1,036,865 ----------- ----------- Total Liabilities 14,475,916 10,118,951 ----------- ----------- Stockholders' Equity: Common stock, $.01 par value, 50,000,000 shares authorized; 3,826,840 and 3,806,138 shares outstanding, respectively 40,498 40,291 Paid-in capital 12,513,505 12,420,002 Retained earnings 5,798,623 5,554,819 Less: Loans for purchase of stock (18,700) (18,700) ----------- ----------- Total Stockholders' Equity 18,333,926 17,996,412 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $32,809,842 $28,115,363 =========== ===========
See Accompanying Notes to Financial Statements VARI-L COMPANY, INC. STATEMENTS OF INCOME FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND MARCH 31, 1996
Three Months Three Months Ended Ended 3/31/97 3/31/96 (UNAUDITED) (UNAUDITED) ---------- ---------- Net sales $ 3,299,733 $ 2,618,096 Cost of products sold 1,667,785 1,282,577 ----------- ----------- Gross profit 1,631,948 1,335,519 ----------- ----------- Other costs and expenses: General and administrative 372,601 294,000 Engineering 209,184 163,310 Selling 450,222 367,742 Interest expense 174,610 99,533 Interest income (24,123) (62,908) Other 29,102 56,469 ----------- ----------- 1,211,596 918,146 ----------- ----------- Income before taxes 420,352 417,373 Income taxes 176,548 175,297 ----------- ----------- NET INCOME $ 243,804 $ 242,076 =========== =========== Primary and fully-diluted earnings per common share and common share equivalents $ 0.06 $ 0.06 =========== =========== Weighted average shares outstanding 3,934,127 3,920,883 =========== ===========
See Accompanying Notes to Financial Statements VARI-L COMPANY, INC. STATEMENTS OF CASH FLOWS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND MARCH 31, 1996
Three Months Three Months Ended Ended 3/31/97 3/31/96 (UNAUDITED) (UNAUDITED) ---------- ---------- Net cash (used in) operating activities (Note 7) $(1,373,960) $ (852,504) ----------- ----------- Cash flows from investing activities: Purchases of property and equipment (623,806) (1,572,991) ----------- ----------- Net cash used in investing activities (623,806) (1,572,991) ----------- ----------- Cash flows from financing activities: Lease acquisition costs advanced 0 (569,254) Net (decrease) in long-term debt (142,127) (114,101) Repayments of capital lease obligations (967) (6,202) Redemptions of subordinated debentures 0 (112,500) Net repayments under bank line of credit (247,000) 0 Net borrowings for insurance financing activities 53,930 44,870 Net proceeds from debenture offering 4,562,500 0 Proceeds from stock issuances 93,710 459,880 ----------- ----------- Net cash provided by (used in) financing activities 4,320,046 (297,307) ----------- ----------- Net increase (decrease) in cash 2,322,280 (2,722,802) Beginning cash 1,224,727 5,868,210 ----------- ----------- Ending cash $ 3,547,007 $ 3,145,408 =========== =========== Supplemental disclosure of cash flows information: Cash paid for interest $ 151,610 $ 103,706 =========== =========== Cash paid for income taxes $ 0 $ 0 =========== ===========
See Accompanying Notes to Financial Statements VARI-L COMPANY, INC. NOTES TO FINANCIAL STATEMENTS Vari-L Company, Inc. (the Company) was founded in 1953 and is a manufacturer of electronic components. The Company's products are used in commercial and military communications systems where electrical processing of radio frequency signals is required. NOTE 1 - Financial presentation These financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 1996 and notes thereto. In the opinion of management, the accompanying interim, unaudited financial statements contain all the adjustments necessary to present fairly the financial position of the Company as of March 31, 1997, and the results of its operations, and its cash flows for the three months ended March 31, 1997 and March 31, 1996. All adjustments made are of a normal recurring nature. NOTE 2 - Inventories
Inventories consist of the following: 3/31/97 12/31/96 (UNAUDITED) (AUDITED) ---------- -------- Finished goods $ 1,389,081 $ 1,353,584 Work in process 3,832,686 3,189,200 Raw materials 3,003,034 2,995,138 Gold bullion 203,054 203,054 ----------- ----------- $ 8,427,855 $ 7,740,976 =========== =========== Long-term inventories $ 332,000 $ 332,000 =========== ===========
NOTE 3 - Income taxes Income tax expense reflects effective tax rates of 42%. NOTE 4 - Credit facility The Company's credit facility consists of a line of credit and a term loan. The line of credit provides for borrowings of up to of $3.5 million. Interest is payable monthly, calculated at prime. The line matures April 30, 1997 and the Company is in the process of renewing this line. At March 31, 1997, the outstanding balance due to the Bank under the line of credit was $1,878,409. Interest accrues on the outstanding principal balance of the term loan at 8.75% and monthly principal and interest payments of $79,812 are required. The term loan matures May 17, 1999. At March 31, 1997, the balance due to the Bank under the term loan was $4,556,792. NOTE 5 - Securities purchase agreement On March 4, 1997, the Company entered into an agreement to sell up to 75 units of debentures and warrants. The units consist of an aggregate of $7,500,000 in 4-year, 7%, subordinated, convertible debentures and 750,000 non-redeemable warrants to purchase common stock at a price of $9.50 per share, exercisable for a period of three years. Under the agreement, the unpaid principal balance of the debentures plus accrued interest may be converted into common stock at the election of the holder thereof at 84% of the 10-day average closing bid price prior to receipt of written request for conversion, or at $9.50, whichever is less. (Continued) VARI-L COMPANY, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED NOTE 5 - Securities purchase agreement, continued As of March 31, 1997, the Company had sold 50 units for $5,000,000 and received proceeds of $4,562,500, net of commissions and fees. As of that date, proceeds had been used to pay down the line of credit ($1,242,000), invest in marketable securities ($3,020,000), and as additional working capital ($300,500). As required by the agreement, the common stock issuable upon conversion and/or exercise of the Debenture and Warrants have been registered with the Securities and Exchange Commission. NOTE 6 - Stock compensation plans The Company has three stock-based compensations plans: a stock option plan, an employee stock purchase plan and a stock grant plan. STOCK OPTION PLAN The Company has reserved 3,000,000 shares of its common stock for issuance upon exercise of rights and options under the stock option plan. Typically, rights and options have been granted subject to a vesting schedule, vesting at the rate of 20 percent per year, becoming fully vested upon the change of control of the Company, and expiring 10 years from the date of issuance. Certain options granted to senior management are fully vested upon issuance. In January 1997, the Company granted 314,524 options pursuant to the plan. During January and February, 12,935 options were exercised at prices ranging from $2.21 to $8.25 per share. EMPLOYEE STOCK PURCHASE PLAN Under the Company's employee stock purchase plan, eligible employees may contribute up to 10 percent of their earnings, through payroll deductions, to purchase shares of the Company's common stock. The purchase price is equal to 85 percent of the fair value of the stock on specified dates. A total of 800,000 shares were reserved under the plan and the maximum number of shares to be issued is 200,000 per year. For the plan year 1996, a total of 7,467 shares were issued in January 1997 at $6.91 per share. STOCK GRANT PLAN During 1996, the Company adopted a stock grant plan under which stock grants can be made to the Company's officers, directors, employees, consultants, and advisors. The Company reserved 100,000 shares of its common stock for issuance under the stock grant plan. The plan provides for automatic grants of 50 shares per month to nonmanagement members of the Compensation Committee of the Company's Board of Directors. During the first quarter of 1997, those members received grants for 300 shares. Compensation cost charged to operations was measured by the fair market value of the stock on the date of the grants. (Continued) VARI-L COMPANY, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED NOTE 7 - Reconciliation of net income to net cash (used in) operating activities The reconciliation of net income to net cash (used in) operating activities for the three months ended March 31, 1997 and March 31, 1996 is as follows:
Three Months Three Months Ended Ended 3/31/97 3/31/96 (UNAUDITED) (UNAUDITED) ---------- ---------- Net Income $ 243,804 $ 242,076 ----------- ----------- Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 158,366 83,872 Amortization of covenant not to compete 8,298 25,460 Changes in assets and liabilities: (Increase) in accounts receivable (340,551) (25,832) (Increase) in inventories (686,879) (734,848) (Increase) in prepaid expenses and other (330,792) (354,019) (Increase) in patents and other assets (119,335) (97,979) (Decrease) increase in accounts payable (61,457) 26,005 (Decrease) in accrued expenses (396,415) (192,536) (Decrease) in amount due to related party (25,547) 0 Increase in income taxes payable 176,548 175,297 ----------- ----------- Total adjustments (1,617,764) (1,094,580) ----------- ----------- Net cash (used in) operating activities $(1,373,960) $ (852,504) =========== ===========
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with the Company's financial statements and notes thereto included herein. During the first quarter of 1997, the Company continued to expand its revenue and customer base, both domestically and abroad. The Company currently believes that its best long-term business prospects are in three areas--North America, Europe/Scandinavia and the Pacific Rim, which are three distinctly different market environments, governed by diverse technology requirements, evolving economies, and varied political and regulatory systems. In Scandinavia, the Company is working closely with a large, key customer on a variety of wireless projects. In China, while the Company is awaiting issuance of Chinese patents covering its technology for its planned joint venture, work has already begun on the redesign and build out of its facility in China with plant startup now expected in the second half of 1997. And in the United States, the Company continues to serve its existing customers in the wireless industry and to position itself to take advantage of anticipated business opportunities arising from the eventual rollout of the personal communications services (PCS) industry. The Company closed on a $5 million private placement of convertible debentures and warrants during the first quarter of 1997, the proceeds of which are being deployed to enhance technology, strengthen infrastructure and support its Chinese and Pacific Rim initiatives. RESULTS OF OPERATIONS Three Months Ended March 31, 1997 and March 31, 1996 TOTAL REVENUES Sales revenues increased approximately $682,000 (26%) in the three months ended March 31, 1997 as compared with the three months ended March 31, 1996, from $2,618,096 to $3,299,733. The increase reflects the continued success of the Company in marketing its commercial lines of products and increased military product shipments. In the first three months of 1997, sales revenues were comprised of 10% Discrete Signal Processing Components, 40% wide-band VCOs, 44% narrow-band VCOs, 6% PLL, and less than 1% sales of "combination" VCO and Discrete products. In the first three months of 1996, the sales revenues were comprised of 14% Discrete Signal Processing Components, 33% wide-band VCOs, 47% narrow-band VCOs, 5% PLL, and 1% sales of "combination" VCO and Discrete products. COST OF GOODS SOLD Cost of goods sold, as a percent of sales revenues, was 51% in the three months ended March 31, 1997 and 49% in the three months ended March 31, 1996. The increase in the percent of cost of goods sold in the first quarter of 1997 primarily reflects the increase in depreciation expense on the significant capital improvements which were begun in 1995 and are ongoing to improve production processes and facilities. SELLING AND ENGINEERING EXPENSES Selling expenses increased approximately $82,000, or 14%, for the three months ended March 31, 1997 as compared to the three months ended March 31, 1996. This increase primarily reflects increased commissions expense for sales outside of the United States, which are paid at a higher rate than domestic sales, on a higher level of sales ($3.3 million for the first three months of 1997 as compared to $2.6 million for the first three months of 1996), plus increased travel domestically and internationally. Engineering expenses increased approximately $46,000, or 28%, for the three months ended March 31, 1997 as compared to the three months ended March 31, 1996. This increase reflects added staffing and equipment costs, such as depreciation, to support new product development and expansion of existing product lines, particularly in the commercial area. GENERAL AND ADMINISTRATIVE AND OTHER EXPENSES General and administrative expenses ("G&A") increased approximately $79,000 (27%) in the three months ended March 31, 1997 as compared with the three months ended March 31, 1996. Increases to G&A primarily reflect increased staffing in Personnel and Accounting in line with the growth of the Company. Other expenses decreased approximately $27,000 (-48%) in the three months ended March 31, 1997 as compared with the same period in 1996, due primarily to the full amortization in 1996 of costs related to a 1991 covenant not to compete with a former officer, which decrease was partially offset by the amortization of a new, 1996 covenant not to complete with a former officer. INTEREST INCOME AND EXPENSE The Company manages its credit facility and interest bearing investments in tandem. Interest expense increased approximately $75,000, or 4%, in the three months ended March 31, 1997 as compared with the same period in 1996. Interest income decreased approximately $39,000, or 2%, in the three months ended March 31, 1997 as compared with the same period in 1996. Changes in the amounts of interest income and expense reflect the underlying amounts of the mutual fund investment and debt outstanding under the credit facility. The increase in borrowings under the credit facility and the decrease in the mutual fund investment were due principally to the Company's ongoing capital improvement projects. DEPRECIATION AND AMORTIZATION Depreciation and amortization increased approximately $74,000 (89%) for the three months ended March 31, 1997 as compared with the three months ended March 31, 1996. The increase reflects depreciation on increased investments in property, equipment and leasehold improvements. Depreciation and amortization expense is expected to continue to increase as a result of these and future capital investments. FINANCIAL CONDITION LIQUIDITY At March 31, 1997, the Company's working capital was $12.6 million compared to $8.4 million at December 31, 1996. The Company's current ratio was 3.85 to 1 as of March 31, 1997 and 2.7 to 1 at December 31, 1996. The increase in working capital reflects the Company's sale, in March 1997, of $5,000,000 in 7%, subordinated, convertible debentures and warrants, partially offset by investments in equipment and facilities. Such ongoing investments are expected to decrease working capital. CAPITAL RESOURCES The Company has a Term Loan and Credit Agreement (the "Credit Agreement") with a bank (the Bank) consisting of a line of credit and a term loan. The line of credit provides for borrowings of up to $3.5 million. Interest is payable monthly, calculated at prime. The line of credit matures on April 30, 1997 and is in the process of being renewed. At March 31, 1997, the outstanding balance of the line of credit was $1,878,409. Interest accrues on the outstanding principal balance of the term loan at 8.75 percent and monthly principal and interest payments of $79,812 are required. Unpaid principal and accrued interest are due May 17, 1999. The balance on the term loan at March 31, 1997 was $4,556,792. During 1993, the Company financed the acquisition of capital equipment through capital leases having maturity dates through 1998. At March 31, 1997, the balance due under these leases was $15,300. The lease payments are calculated using interest rates with an average of approximately 11%. The Company finances certain of its annual insurance premiums through a financing company. The amounts due under these loans totaled $87,582 as of March 31, 1997 and is paid in monthly installments of $8,051 at the interest rate of 7.24%. The Company has financed the purchase of vehicles with promissory notes bearing interest rates ranging from 7.20 percent to 9.25 percent. Monthly principal and interest payments totaling $1,879 are required. The notes mature from 1998 through 2000. The outstanding balance of these notes at March 31, 1997 was $45,136. On March 4, 1997, the Company agreed to sell up to an aggregate of $7.5 million in four year, 7% convertible debentures together with 750,000 non- redeemable common stock purchase warrants exercisable at $9.50 per share for a period of three years. The unpaid principal balance and accrued interest of the debentures may be converted into shares of the Company's common stock at the election of the holder thereof at $9.50 per share or 84% of the 10-day average closing bid price prior to the date of receipt by the Company of the holder's written request, whichever is less. As of March 31, 1997 the Company had sold $5,000,000 of these debentures and 500,000 in related warrants. The Company believes that it has sufficient financial resources available to meet its short-term working capital needs through cash flows generated by operating activities and through the management of its sources of financing. By virtue of the March 4, 1997 sale of convertible debentures and warrants, the Company also has the capital resources to continue its growth plans. BACKLOG The Company's total backlog of unfilled firm customer orders ("Backlog") at March 31, 1997 was $14.2 million compared with $13.8 million at March 31, 1996. Backlog at December 31, 1995 was $14.4 million. FORWARD LOOKING STATEMENTS Some of the statements contained in this document are forward-looking statements. The accuracy of these statements cannot be guaranteed as they are subject to a variety of risks including, but not limited to, future economic conditions, competitive products and pricing, new product development, the delivery of products under existing contracts and other factors. VARI-L COMPANY, INC. PART II--OTHER INFORMATION Item 1 LEGAL PROCEEDINGS None Item 2 CHANGES IN SECURITIES On March 4, 1997, the Company agreed to sell up to an aggregate of $7.5 million in four year, 7% convertible debentures together with 750,000 non-redeemable common stock purchase warrants exercisable at $9.50 per share for a period of three years. As of March 31, 1997, the Company had sold $5,000,000 of these debentures and 500,000 in related warrants. The offering was made to a small group of accredited investors only, pursuant to S.E.C. Regulation D. Neidiger, Tucker, Bruner, Inc., a registered broker dealer, received a commission of 5% of the principal amount of the debentures sold and a 3% finders fee was paid to an unregistered person. Item 3 DEFAULTS UPON SENIOR SECURITIES None Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None Item 5 OTHER INFORMATION None Item 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VARI-L COMPANY, INC. Date: May 14, 1997 By:/s/ Jon L. Clark Jon L. Clark, V.P. Finance and Principal Accounting Officer EXHIBIT INDEX EXHIBIT METHOD OF FILING - ------- ---------------- 27 Financial Data Schedule Filed herewith electronically EX-27 2
5 This schedule contains summary financial information extracted from Vari-L's unaudited financial statements prepared as of March 31, 1997 and for the three-month period then ended, included with its 1st quarter 1997 10QSB filing with the Securities and Exchange Commission, and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1997 MAR-31-1997 3,547 0 3,730 4 8,428 17,022 16,383 2,813 32,810 4,421 5,000 0 0 40 18,294 32,810 3,300 3,324 1,668 1,668 1,061 0 175 420 177 243 0 0 0 243 .06 .06
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