-----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, JUhfM3CRGHDj1DmUUQBcHLze2B2ofYXdtXqrF6CNRh7qe3PNhwjgMBSkE+yf5R7G hvr6uWmymQ8IHZTcRer8bg== 0000950135-98-003103.txt : 19980513 0000950135-98-003103.hdr.sgml : 19980513 ACCESSION NUMBER: 0000950135-98-003103 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980512 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROOKTROUT TECHNOLOGY INC CENTRAL INDEX KEY: 0000754516 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 042814792 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20698 FILM NUMBER: 98616221 BUSINESS ADDRESS: STREET 1: 410 FIRST AVE CITY: NEEDHAM STATE: MA ZIP: 02194 BUSINESS PHONE: 6174494100 MAIL ADDRESS: STREET 1: 410 FIRST 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 March 31, 1998 [ ] 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: (781) 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 May 1, 1998, 10,763,552 shares of Common Stock, $.01 par value per share, were outstanding. Page 1 of 12 pages 2 BROOKTROUT TECHNOLOGY, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 TABLE OF CONTENTS Page ---- PART I FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 3 Condensed Consolidated Statements of Income for the Three Months Ended March 31, 1998 and March 31, 1997 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and March 31, 1997 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 March 31, 1998 and 1997 9 Liquidity and Capital Resources 10 PART II OTHER INFORMATION Item 1. Legal Proceedings 11 Item 6. Exhibits 11 Signatures 12 2 3 BROOKTROUT TECHNOLOGY, INC. Condensed Consolidated Balance Sheets (In thousands, except share data)
March 31, December 31, 1998 1997 --------- ------------ ASSETS Current assets: Cash and equivalents ................................................. $30,555 $27,916 Marketable securities ................................................ 8,709 8,462 Accounts receivable (less allowance for doubtful accounts of $1,106 in 1998 and $1,164 in 1997) ..................... 9,447 9,804 Inventory ............................................................ 8,424 7,801 Deferred tax assets .................................................. 2,073 1,861 Prepaid expenses ..................................................... 567 613 ------- ------- TOTAL CURRENT ASSETS ........................................ 59,775 56,457 ------- ------- Equipment and furniture: Computer equipment ................................................... 6,707 6,182 Furniture and office equipment ....................................... 4,015 3,696 ------- ------- Total .............................................................. 10,722 9,878 Less accumulated depreciation and amortization ..................... (3,926) (3,253) ------- ------- EQUIPMENT AND FURNITURE - NET ...................................... 6,796 6,625 Deferred tax assets .................................................... 1,224 1,234 Investment and other assets ............................................ 1,080 1,099 ------- ------- TOTAL ....................................................... $68,875 $65,415 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and other accruals .................................. $11,569 $10,510 Accrued compensation and commission .................................. 2,809 2,321 Customer deposits .................................................... 393 325 Accrued warranty costs ............................................... 865 850 Accrued income taxes ................................................. 795 710 ------- ------- TOTAL CURRENT LIABILITIES ................................... 16,431 14,716 ------- ------- Deferred rent .......................................................... 290 255 Stockholders' equity: Common stock, $.01 par value; authorized, 25,000,000 shares; issued and outstanding 10,753,752 shares in 1998 and 10,741,195 in 1997 ........................................ 107 107 Additional paid-in capital ........................................... 31,994 31,978 Unrealized losses on marketable securities ........................... (19) -- Retained earnings .................................................... 20,072 18,359 ------- ------- STOCKHOLDERS' EQUITY ................................................. 52,154 50,444 ------- ------- TOTAL ....................................................... $68,875 $65,415 ======= =======
See notes to condensed consolidated financial statements. 3 4 BROOKTROUT TECHNOLOGY, INC. Condensed Consolidated Statements of Income (In thousands, except per share data) Three Months Ended March 31, ---------------------------- 1998 1997 ------- ------- REVENUE ...................................... $24,176 $15,070 Cost and expenses: Cost of product sold ....................... 9,985 6,522 Research and development ................... 5,290 2,366 Selling, general and administrative ........ 6,632 4,065 ------- Total cost and expenses ................ 21,907 12,953 ------- ------- INCOME FROM OPERATIONS ....................... 2,269 2,117 Interest income, net ......................... 450 441 ------- ------- Income before income tax provision ........... 2,719 2,558 Income tax provision ......................... 1,006 998 ------- ------- NET INCOME ................................... $ 1,713 $ 1,560 ======= ======= BASIC INCOME PER COMMON SHARE ................ $ 0.16 $ 0.15 ======= ======= SHARES FOR BASIC ............................. 10,746 10,686 ======= ======= DILUTED INCOME PER COMMON SHARE .............. $ 0.15 $ 0.14 ======= ======= SHARES FOR DILUTED ........................... 11,417 11,400 ======= ======= See notes to condensed consolidated financial statements. 4 5 BROOKTROUT TECHNOLOGY, INC. Condensed Consolidated Statements of Cash Flows (In thousands)
Three Months Ended March 31, ------------------------------ 1998 1997 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ...................................................... $ 1,713 $ 1,560 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization ............................. 673 243 Amortization of net premium (discount) on marketable securities ................................... (17) (20) Deferred income taxes ..................................... (202) -- Increase (decrease) in cash from: Accounts receivable ................................. 357 (506) Inventory ........................................... (623) (369) Other prepaid expenses .............................. 100 285 Accounts payable and other accruals ................. 1,715 290 ------- ------- Cash provided by operating activities ........................ 3,716 1,483 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for equipment and furniture ........................ (844) (885) Purchases of marketable securities .............................. (1,755) (804) Maturities and sales of marketable securities ................... 1,506 2,010 ------- ------- Cash provided by (used for) investing activities ........................ (1,093) 321 ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the sale of common stock .......................... 16 7 Distributions to stockholders ................................... -- -- Repayment of long-term debt ..................................... -- -- ------- ------- Cash provided by financing activities ........................ 16 7 ------- ------- INCREASE IN CASH AND EQUIVALENTS ...................................... 2,639 1,811 CASH AND EQUIVALENTS, BEGINNING OF PERIOD ............................. 27,916 30,738 ------- ------- CASH AND EQUIVALENTS, END OF PERIOD ................................... $30,555 $32,549 ======= =======
See notes to condensed consolidated financial statements. 5 6 BROOKTROUT TECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements 1. Basis of Presentation 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. They should be read in conjunction with the audited consolidated financial statements incorporated by reference in or included in the Company's 1997 Annual Report on Form 10K. 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 operating results for the interim periods presented are not necessarily indicative of the results which could be expected for the full year. 2. Acquisition On June 30, 1997, the Company acquired the assets and assumed certain liabilities of Netaccess, Inc., a worldwide supplier of Primary Rate ISDN network interface products and multiport modem products for open, standards-based remote access and computer telephony systems. The purchase price was $9.9 million, paid in cash, and the Company agreed to assume certain liabilities aggregating $2.0 million. The acquisition has been accounted for as a purchase, and accordingly, the results of operations of Netaccess, Inc. have been included in the Company's consolidated financial statements from the date of acquisition. The purchase price has been allocated to the assets acquired based upon their fair values using independent appraisals. 6 7 3. Income Per Share Basic income per common share is computed using the weighted average number of common shares outstanding during each year. Diluted income per common share reflects the effect of the Company's outstanding options (using the treasury stock method), except where such options would be antidilutive. A reconciliation of shares for basic and shares for diluted is as follows: Three Months Ended March 31, March 31, 1998 1997 ---------- ---------- Shares for basic ......................... 10,746,000 10,686,000 Dilutive effect of stock options ......... 671,000 714,000 ---------- ---------- Shares for diluted ....................... 11,417,000 11,400,000 ========== ========== 4. Comprehensive Income Effective January 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." Currently, in addition to net income, the only items which would be includable as other components of comprehensive income are unrealized gains or losses on marketable securities classified as available for sale. For the three months ended March 31, 1998 and 1997, comprehensive income totaled $1,694,000 and $1,549,000, respectively. 5. Inventory Inventory is carried at the lower of cost (first-in, first-out basis) or market and consisted of the following: March 31, December 31, 1998 1997 ---------- ------------ Raw materials ............................ $3,790,000 $3,268,000 Work in process .......................... 1,385,000 1,606,000 Finished goods ........................... 3,249,000 2,927,000 ---------- ---------- Total .................................. $8,424,000 $7,801,000 ========== ========== 7 8 6. Major Customers One customer accounted for approximately 20% and 35% of net revenue for the three months ended March 31, 1998 and 1997, respectively. 7. 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 March 31, 1998 was $8,728,000. Net unrealized holding losses of $18,900 were comprised of unrealized gains of $8,000 and unrealized losses of $26,900 at March 31, 1998. 8. Income Taxes A reconciliation of the statutory federal rate to the effective rate is as follows: Three Months Ended March 31, ------------------- 1998 1997 ---- ---- Statutory tax rate........................... 29% 35% State taxes, net of federal benefit.......... 8 4 -- --- Effective tax rate........................... 37% 39% === === 9. International Sales International sales, principally exported from the United States, accounted for approximately 20% of revenue for the three months ended March 31, 1998 and 1997, respectively. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS Three Months Ended March 31, 1998 and 1997 Revenue during the three months ended March 31, 1998 increased by approximately 60% to $24,176,000, up from $15,070,000 during the three months ended March 31, 1997. This growth was attributable to an increase in Primary Rate ISDN telephone network interface products sold together with increased shipments of TR Series products. Increased sales from the TR Series products reflect the growth in the enhanced fax system market segment and the local area network/fax market segment served by the Company. Cost of product sold was $9,985,000, or 41% of revenue, during the three months ended March 31, 1998, compared to $6,522,000, or 43% of revenue, for the same period in 1997. Gross profit percentage was approximately 59% and 57% for the three months ended March 31, 1998 and 1997, respectively. The increase in gross profit percentage is the result of cost reduction efforts on the TR Series products partially offset by product mix caused by an increased proportion of lower margin network interface cards. Research and development expense was $5,290,000, or 22% of revenue, compared with $2,366,000, or 16% of revenue, for the three months ended March 31, 1998 and 1997, respectively. The increase reflects the Company's development efforts for the next generation of Netaccess products and for continued development of the TR Series product family, computer telephony software development tools, Brooktrout Open Systems Telephony Architecture (BOSTON), Interspeed, Inc., as well as fax and OEM systems development. The Company intends to continue to commit significant resources to product development. Selling, general and administrative expense was $6,632,000 during the three months ended March 31, 1998, compared with $4,065,000 during the same period in 1997. This higher expense level resulted from increased staffing, promotional activities and depreciation expense. As a percentage of revenue, selling, general and administrative expense for the first quarter of 1998 and 1997 was 27% of revenue, respectively. For the three months ended March 31, 1998, interest and other income was $450,000, compared with $441,000 for the same period in 1997. The Company's effective tax rate, adjusted for significant permanent or other differences occurring within a quarter, was 37% in 1998 and 39% in 1997, respectively, based on the Company's estimated effective tax rate for the full year. 9 10 Liquidity and Capital Resources For the three months ended March 31, 1998, the Company funded its operations principally through operating revenue. The Company's working capital increased from $41.7 million at December 31, 1997 to $43.3 million at March 31, 1998. The increase was attributable primarily to higher cash balances and investments due to continued profitable operations and were partially offset by higher accounts payable and other accrual balances. In July 1997, the Company renewed its working capital line of credit. Under the renewed line of credit, the Company may borrow up to $10,000,000 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 1998 and at that time any outstanding balances would be payable in full. The Company expects to renew the line of credit on similar terms as those in place at present. Any amounts borrowed under the line would be subject to interest at the bank's prime rate. At March 31, 1998 there were no commitments outstanding on letters of credit; no borrowings have been made during any period presented. During the first three months of 1998, the Company invested approximately $844,000 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. Recent Accounting Pronouncements Effective January 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" and AICPA Statement of Position No. 97-2, "Software Revenue Recognition." Adoption of these pronouncements did not have a material effect on reported results of operations or financial position. Effective January 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." As followed by that pronouncement, the Company will provide information about its operating segments in the annual financial statements, and will begin providing such information on an interim basis for the first quarter of 1999. 10 11 Part II. OTHER INFORMATION Item 1. Legal Proceedings None Items 2. through 5. None Item 6. Exhibits (a) Exhibits None 11 12 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: May 12, 1998 By: /s/ Eric R. Giler ------------------------------------ Eric R. Giler President (Principal Executive Officer) Date: May 12, 1998 By: /s/ Robert C. Leahy ------------------------------------ Robert C. Leahy Vice President of Finance and Operations and Treasurer (Principal Financial and Accounting Officer) 12 EX-27 2 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 MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH BROOKTROUT TECHNOLOGY, INC'S, 10-Q FOR THE PERIOD ENDED MARCH 31, 1998. 1,000 U.S. DOLLARS 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1 30,555 8,709 9,447 1,106 8,424 59,775 10,722 3,926 68,875 16,431 0 0 0 107 0 68,875 24,176 24,176 9,985 9,985 11,922 0 0 2,719 1,006 1,713 0 0 0 1,713 0.16 0.15
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