-----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, LgY0rLgWT5eMGwxZYF9CHsfr2R1QlZrNzOo946qBTKNwxgHa7FdpVr7XTShXbiA+ Ay2QQvFwVP54xZaZ+kQonA== 0000950135-96-004793.txt : 19961113 0000950135-96-004793.hdr.sgml : 19961113 ACCESSION NUMBER: 0000950135-96-004793 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROOKTROUT TECHNOLOGY INC CENTRAL INDEX KEY: 0000754516 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 042184792 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20698 FILM NUMBER: 96659037 BUSINESS ADDRESS: STREET 1: 410 FIRST AVE CITY: NEEDHAM STATE: MA ZIP: 02194 BUSINESS PHONE: 6174494100 MAIL ADDRESS: STREET 2: 410 FIRST CITY: NEEDHAM STATE: MA ZIP: 02194 10-Q 1 BROOKTROUT TECHNOLOGY, INC 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 10-Q (Mark One) /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 / / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------ ------ Commission File No. 0-20698 BROOKTROUT TECHNOLOGY, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Massachusetts 04-2814792 ------------- ---------- (State or other (I.R.S. employer jurisdiction of identification incorporation or number) organization) 410 First Avenue Needham, Massachusetts 02194 ---------------------- ---------- (Address of principal executive offices) (Zip code) Registrant's telephone number including area code: (617) 449-4100 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 --- --- As of November 1, 1996, 10,504,891 shares of Common Stock, $.01 par value per share, were outstanding. Page 1 of 17 pages Exhibit Index Appears on Page 15 2 BROOKTROUT TECHNOLOGY, INC. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 TABLE OF CONTENTS Page ---- PART I FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 3 Condensed Consolidated Statements of Income for the Three Months Ended September 30, 1996 and September 30, 1995, and the Nine Months ended September 30, 1996 and September 30, 1995 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1996 and September 30, 1995 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended September 30, 1996 and 1995 9 Nine Months Ended September 30, 1996 and 1995 10 Liquidity and Capital Resources 12 PART II OTHER INFORMATION Item 1. Legal Proceedings 13 Item 6. Exhibits 13 Signatures 14 Exhibit Index 15 3 BROOKTROUT TECHNOLOGY, INC. Condensed Consolidated Balance Sheets (In thousands, except share data)
September 30, December 31, 1996 1995 ---- ---- ASSETS Current assets: Cash and equivalents ....................................... $28,060 $14,230 Marketable securities ...................................... 7,261 7,924 Accounts receivable (less allowance for doubtful accounts of $497 in 1996 and $449 in 1995) ............... 6,877 6,097 Inventory .................................................. 5,272 3,878 Deferred tax assets ........................................ 713 454 Prepaid expenses ........................................... 440 366 ------- ------- TOTAL CURRENT ASSETS ..................................... 48,623 32,949 ------- ------- Equipment and furniture: Computer equipment ......................................... 2,436 1,346 Furniture and office equipment ............................. 2,101 539 ------- ------- Total .................................................... 4,537 1,885 Less accumulated depreciation and amortization ........... (1,239) (852) ------- ------- EQUIPMENT AND FURNITURE - NET ............................ 3,298 1,033 Investment and other assets ................................ 561 599 ------- ------- TOTAL .................................................. $52,482 $34,581 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Line of credit ............................................. $ 50 Current portion of long-term debt .......................... 6 Accounts payable and other accruals ........................ $ 7,903 5,110 Customer deposits .......................................... 395 376 Accrued warranty costs ..................................... 431 336 Accrued compensation and commission ........................ 1,654 1,185 Accrued income taxes ....................................... 331 1,063 ------- ------- TOTAL CURRENT LIABILITIES ................................ 10,714 8,126 ------- ------- Deferred rent ................................................ 200 10 Stockholders' equity: Common stock, $.01 par value; authorized, 25,000,000 shares; issued and outstanding 10,504,497 shares in 1996 and 9,683,116 in 1995 ............................... 105 97 Additional paid-in capital ................................. 27,984 16,884 Unrealized gains (losses) on marketable securities ......... (2) 49 Retained earnings .......................................... 13,481 9,415 ------- ------- STOCKHOLDERS' EQUITY ....................................... 41,568 26,445 ------- ------- TOTAL ...................................................... $52,482 $34,581 ======= =======
See notes to condensed consolidated financial statements. 4 BROOKTROUT TECHNOLOGY, INC. Condensed Consolidated Statements of Income (In thousands, except per share data)
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1996 1995 1995 1996 ---- ---- ---- ---- REVENUE ........................................................ $15,874 $ 9,751 $40,619 $25,881 Cost and expenses: Cost of product sold ......................................... 7,148 4,177 17,953 11,929 Research and development ..................................... 1,799 1,181 5,047 3,331 Selling, general and administrative .......................... 3,558 2,219 9,796 6,166 Acquisition related charges .................................. 0 0 1,236 0 ------- ------- ------- ------- Total cost and expenses .................................. 12,505 7,577 34,032 21,426 ------- ------- ------- ------- INCOME FROM OPERATIONS ......................................... 3,369 2,174 6,587 4,455 ------- Interest income, net ........................................... 328 275 837 695 ------- ------- ------- ------- Income before income tax provision ............................. 3,697 2,449 7,424 5,150 Income tax provision ........................................... 1,479 619 3,346 1,721 ------- ------- ------- ------- NET INCOME ..................................................... $ 2,218 $ 1,830 $ 4,078 $ 3,429 ======= ======= ======= ======= NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE .............. $ 0.20 $ 0.19 $ 0.38 $ 0.34 ======= ======= ======= ======= Weighted average number of common and common equivalent shares outstanding ......................... 11,135 10,169 10,684 10,008 ======= ======= ======= =======
See notes to condensed consolidated financial statements. 5 BROOKTROUT TECHNOLOGY, INC. Condensed Consolidated Statements of Cash Flows (In thousands)
Nine Months Ended September 30, --------------------- 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................ $ 4,078 $ 3,429 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization ................. 387 412 Amortization of net premium (discount) on marketable securities ........................ 27 4 Deferred income taxes ......................... (259) (11) Increase (decrease) in cash from: Accounts receivable ........................ (780) (1,041) Inventory .................................. (1,394) (2,092) Other prepaid expenses ..................... (36) (121) Accounts payable and accrued expenses ...... 2,784 1,846 ------- ------- Cash provided by operating activities .................. 4,807 2,426 CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for equipment and furniture .......... (2,652) (392) Purchases of marketable securities ................ (1,801) (5,471) Maturities and sales of marketable securities ..... 2,386 9,366 ------- ------- Cash provided by investing activities .................. (2,067) 3,503 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the sale of common stock ............ 11,108 69 Distributions to stockholders ..................... (12) (2) Repayment of long-term debt ....................... (6) (18) ------- ------- Cash provided by financing activities .................. 11,090 49 ------- ------- INCREASE IN CASH AND EQUIVALENTS ........................ 13,830 5,978 CASH AND EQUIVALENTS, BEGINNING OF PERIOD ............... 14,230 10,435 ------- ------- CASH AND EQUIVALENTS, END OF PERIOD ..................... $28,060 $16,413 ======= =======
See notes to condensed consolidated financial statements. 6 BROOKTROUT TECHNOLOGY, INC. Notes to Condensed Consolidated Financial Statements - Unaudited 1. Basis of presentation On May 29, 1996, Brooktrout Technology, Inc. (the "Company") acquired Technically Speaking, Inc. ("TSI") in a transaction which was accounted for as a pooling-of-interests. All financial data of the Company, including the Company's previously issued financial statements for the periods presented in this Form 10-Q, have been restated to include the historical financial information of TSI. In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the interim periods presented. The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles and should be read in conjunction with the audited consolidated financial statements incorporated by reference in or included in the Company's 1995 Annual Reports on Form 10K and 10K/A and to the audited supplemental consolidated financial statements included in the Company's registration statement on Form S-3 dated August 6, 1996. The operating results for the interim periods presented are not necessarily indicative of the results which could be expected for the full year. 2. Net income per share Net income per common and per common equivalent share are computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares represent shares issuable upon exercise of stock options, calculated using the treasury stock method. 7 3. Inventory Inventory is carried at the lower of cost (first-in, first-out basis) or market and consisted of the following:
September 30, December 31, ------------- ------------ 1996 1995 ---- ---- Raw materials $3,400,000 $2,979,000 Work in process 1,172,000 605,000 Finished goods 700,000 294,000 ------- ------- Total $5,272,000 $3,878,000 ========= =========
4. Major Customers One customer accounted for approximately 38% and 32% of net revenue for the three months ended September 30, 1996 and 1995, respectively, and 31% and 41% for the nine months ended September 30, 1996 and 1995, respectively. 5. Marketable Securities Marketable securities consist mainly of U.S. government securities purchased with remaining maturities in excess of three months. The amortized cost of these securities at September 30, 1996 was $7,262,000. Net unrealized holding losses of $1,700 were comprised of unrealized gains of $7,800 and unrealized losses of $9,500 at September 30, 1996. 6. Income Taxes A reconciliation of the statutory federal rate to the effective rate is as follows:
Quarter Ended Nine Months Ended September 30, September 30, ------------- ------------- 1996 1995 1996 1995 ---- ---- ---- ---- Statutory tax rate 34% 34% 34% 34% State taxes, net of federal benefit 6 7 6 6 Permanent item TSI income not subject to tax (15) (6) Other - (1) 5 (1) -- -- -- -- Effective tax rate 40% 25% 45% 33% == == == ==
8 7. International Sales International sales, principally exported from the United States, accounted for approximately 16% for the three months ended September 30, 1996 and less than 10% for the three months ended September 30, 1995. International sales were approximately 18% and 10% for the nine months ended September 30, 1996 and 1995, respectively. 8. Business Combinations On May 29, 1996, the Company acquired TSI by issuing approximately 713,000 shares of its common stock in exchange for all the outstanding stock of TSI. TSI is the developer of Show N Tel, a leading application development tool for enterprise computer telephony applications. The acquisition was accounted for as a pooling-of-interests. All financial data of the Company has been restated to include the historical financial information of TSI. No significant adjustments were required to conform the accounting policies of the Company and TSI. In connection with the acquisition, the Company recorded charges related to the merger with TSI totaling $1.2 million in the second quarter of fiscal 1996. 9. Equity Issuance In August 1996, the Company sold 649,632 shares of common stock generating proceeds to the Company of approximately $11.1 million. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS Three Months Ended September 30, 1996 and 1995 Revenue during the three months ended September 30, 1996 increased by approximately 63% to $15,874,000, up from $9,751,000 during the three months ended September 30, 1995. This growth was primarily attributable to increased shipments of TR Series products combined with increased shipments of OEM voice systems. Increased sales reflect the growth of the principal market segments served by the Company's products, especially the manufacture and sale of fax products for use on local area networks and the manufacture and sale of fax and OEM systems. Cost of product sold was $7,148,000, or 45% of revenue, during the three months ended September 30, 1996, compared to $4,177,000, or 43% of revenue, for the same period in 1995. Gross profit percentage was approximately 55% and 57% for the three months ended September 30, 1996 and 1995, respectively. The decrease in gross profit percentage is the result of a lower proportion of software relating to Show N Tel products which has a relatively low cost of product sold. Research and development expense was $1,799,000, or 11% of revenue, compared with $1,181,000, or 12% of revenue, for the three months ended September 30, 1996 and 1995, respectively. The dollar increase in 1996 reflects the Company's continuing development efforts for its TR Series product family and computer telephony development tools, as well as fax and OEM systems development. The Company intends to continue to commit significant resources to product development and expects that research and development expenditures will be approximately 13% to 15% of revenue for the foreseeable future. Selling, general and administrative expense was $3,558,000 during the three months ended September 30, 1996, compared with $2,219,000 during the same period in 1995. This higher expense level resulted from increased staffing, promotional activities and travel expenses. As a percentage of revenue, selling, general and administrative expense for the third quarter of 1996 was 22% of revenue, compared with 23% for the third quarter of 1995. 10 For the three months ended September 30, 1996, interest and other income was $328,000, compared with $275,000 for the same period in 1995. The Company's effective tax rate, adjusted for significant permanent or other differences occurring within a quarter, was 40% for the third quarter of 1996, based on the Company's estimated effective tax rate for the full year, and 25% for the third quarter of 1995. In 1995, TSI amounts included in income were not subject to tax at the corporate level and accordingly, the effective tax rate in 1995 was reduced. Nine Months Ended September 30, 1996 and 1995 Revenue during the nine months ended September 30, 1996 increased by approximately 57% to $40,619,000, up from $25,881,000 during the nine months ended September 30, 1995. This revenue increase was attributable to increased TR Series products coupled with increased shipments of OEM voice systems. Increased sales reflect the growth of the principal market segments served by the Company's products, especially the manufacture and sale of fax products for use on local area networks and the manufacture and sale of fax and OEM systems. Cost of product sold was $17,953,000, or 44% of revenue, during the nine months ended September 30, 1996, compared to $11,929,000, or 46% of revenue in 1995. Gross profit percentage was 56% and 54% for the nine months ended September 30, 1996 and 1995, respectively. The increase in gross profit percentage is the result of a much higher proportion of TR Series product shipments, which carry a comparatively higher gross margin than OEM systems, coupled with decreases in product costs on OEM systems. Research and development expense was $5,047,000, or 12% of revenue, compared with $3,331,000, or 13% of revenue, for the nine months ended September 30, 1996 and 1995, respectively. The dollar increase in 1996 reflects the Company's continuing development efforts for its TR Series product family and computer telephony development tools, as well as fax and OEM systems development. As a result of the increase in the Company's revenue base, however, the percentage remained comparable. Selling, general and administrative expense was $9,796,000 during the nine months ended September 30, 1996, compared with $6,166,000 during the same period in 1995. This higher expense level resulted from increased staffing, travel expenses and promotional activities. As a percentage, selling, general and administrative expense was 24% of revenue in 1996 and 1995. 11 During the nine months ended September 30, 1996, the Company incurred approximately $1.2 million in costs related to the acquisition of and merger with Technically Speaking, Inc. These costs related to professional fees for legal and accounting advice, investment banking fees, and certain costs related to the integration of the operations of the two companies. For the nine months ended September 30, 1996, interest and other income was $837,000, compared with $695,000 for the same period in 1995. The Company's effective tax rate was 45% and 33% for the nine months ended September 30, 1996 and 1995, respectively. In 1995, TSI amounts included in income were not subject to tax at the corporate level and accordingly, the effective tax rate in 1995 was reduced. 12 Liquidity and Capital Resources For the nine months ended September 30, 1996, the Company funded its operations principally through operating revenue. In July 1996, the Company renewed its working capital line of credit. Under the renewed line of credit, the Company may borrow up to $7,500,000 on an unsecured basis, all of which may be used for issuance of letters of credit, subject to compliance with certain covenants. The line of credit will expire in July 1997 and at that time any outstanding balances would be payable in full. Any amounts borrowed under the line would be subject to interest at the bank's prime rate. At September 30, 1996 there were no commitments outstanding on letters of credit; no borrowings have been made during any period presented. The Company's working capital increased from $24.8 million at December 31, 1995 to $37.9 million at September 30, 1996. The increase was attributable, in part, to higher cash balances and investments, accounts receivable, inventory, deferred tax asset, and prepaid expense balances which were partially offset by higher accounts payable and accrued compensation and commission balances. The Company's aggregate cash, cash equivalents and marketable securities position increased as a result of cash flows from operations and the proceeds from the sale of stock offset by an increase in working capital and expenditures for equipment and furniture. During the first nine months of 1996, the Company invested approximately $2.7 million in capital equipment. The Company currently has no material commitments for additional capital expenditures. The Company anticipates that cash flows from operations, together with current cash and marketable securities balances and funds available under the Company's line of credit, will be sufficient to meet the Company's working capital and capital equipment expenditure requirements for the foreseeable future. 13 Part II. OTHER INFORMATION Item 1. Legal Proceedings On October 4, 1996, Syntellect Technology Corp. ("Syntellect") filed a Complaint against the Company in the United States District Court for the Northern District of Texas, alleging infringement of certain patents held by Syntellect relating to certain aspects of "automated attendant" technology. Syntellect's Complaint does not identify the products of the Company which allegedly infringe Syntellect's patents. The Complaint seeks injunctive relief, damages in an unspecified amount, and multiple damages on account of alleged willful infringement. The Company is reviewing the patents at issue, and intends to defend the case vigorously. Items 2. through 5. None Item 6. Exhibits (a) Exhibits 11. Computation of earnings per share 14 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. BROOKTROUT TECHNOLOGY, INC. Date: November 11, 1996 By:/s/ Eric R. Giler --------------------------------- Eric R. Giler President (Principal Executive Officer) Date: November 11, 1996 By:/s/ Robert C. Leahy --------------------------------- Robert C. Leahy Vice President of Finance and Operations and Treasurer (Principal Financial and Accounting Officer) 15 EXHIBIT INDEX Sequentially Exhibit Number Exhibit Numbered Page 11 Computation of Earnings Per Share -For the three months ended 16 September 30, 1996 and 1995 -For the nine months ended 17 September 30, 1996 and 1995 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11 ---------- BROOKTROUT TECHNOLOGY, INC. COMPUTATION OF INCOME PER COMMON SHARE (In thousands, except per share data, unaudited)
Three Months Ended September 30, ------------- 1996 1995 ---- ---- Primary Income Per Share: Weighted average number of common and common equivalent shares outstanding: Common Stock 10,180 9,671 Common equivalent shares resulting from options 955 498 ------- ------- Total 11,135 10,169 ======= ======= Net income $ 2,218 $ 1,830 ======= ======= Net income per common share $ 0.20 $ 0.19 ======= ======= Fully Diluted Income Per Share: Weighted average number of common and common equivalent shares outstanding Common stock 10,180 9,671 Common equivalent shares resulting from options 1,174 525 ------- ------- Total 11,354 10,196 ======= ======= Net income $ 2,218 $ 1,830 ======= ======= Net income per common share $ 0.20 $ 0.19 ======= =======
2 Exhibit 11 BROOKTROUT TECHNOLOGY, INC. COMPUTATION OF INCOME PER COMMON SHARE (In thousands, except per share data, unaudited)
Nine Months Ended September 30, ------------- 1996 1995 ---- ---- Primary Income Per Share: Weighted average number of common and common equivalent shares outstanding: Common Stock 9,733 9,652 Common equivalent shares resulting from options 951 356 ------- ------- Total 10,684 10,008 ======= ======= Net income $ 4,078 $ 3,429 ======= ======= Net income per common share $ 0.38 $ 0.34 ======= ======= Fully Diluted Income Per Share: Weighted average number of common and common equivalent shares outstanding Common stock 9,733 9,652 Common equivalent shares resulting from options 1,065 408 ------- ------- Total 10,798 10,060 ======= ======= Net income $ 4,078 $ 3,429 ======= ======= Net income per common share $ 0.38 $ 0.34 ======= =======
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BROOKTROUT TECHNOLOGY, INC.'S CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENTS OF INCOME FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH BROOKTROUT TECHNOLOGY, INC.'S 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1996. 1,000 U.S. DOLLARS 3-MOS DEC-31-1996 JUL-01-1996 SEP-30-1996 1 28,060 7,261 7,374 497 5,272 48,623 4,537 1,239 52,482 10,714 0 105 0 0 0 52,482 15,874 15,874 7,148 7,148 5,357 0 0 3,697 1,479 2,218 0 0 0 2,218 .20 .20
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