<PAGE> 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, 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 May 1, 1996, 6,058,904 shares of Common Stock, $.01 par value per
share, were outstanding.
Page 1 of 13 pages
Exhibit Index Appears on Page 12
<PAGE> 2
BROOKTROUT TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Income for
the Three Months Ended March 31, 1996 and
March 31, 1995 4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1996
and March 31, 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 5. Other 10
Item 6. Exhibits 10
Signatures 11
Exhibit Index 12
<PAGE> 3
BROOKTROUT TECHNOLOGY, INC.
<TABLE>
Condensed Consolidated Balance Sheets
(In thousands, except share data)
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................ $14,515 $14,230
Marketable securities............................... 7,585 7,924
Accounts receivable (less allowance for doubtful
accounts of $435 in 1996 and $377 in 1995)........ 4,839 4,499
Inventory........................................... 4,310 3,807
Deferred tax assets................................. 577 454
Prepaid expenses.................................... 389 366
------- -------
TOTAL CURRENT ASSETS.............................. 32,215 31,280
------- -------
Equipment and furniture:
Computer equipment.................................. 1,499 1,346
Furniture and office equipment...................... 1,916 327
------- -------
Total ............................................ 3,415 1,673
Less accumulated depreciation and amortization.... (914) (824)
------- -------
EQUIPMENT AND FURNITURE - NET..................... 2,501 849
Investment and other assets........................... 574 585
------- -------
TOTAL............................................. $35,290 $32,714
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................... $ 6
Accounts payable.................................... $ 3,466 2,293
Customer deposits................................... 364 376
Accrued warranty costs.............................. 384 336
Accrued compensation and commission................. 1,160 1,185
Other accrued expenses.............................. 3,204 2,224
Accrued income taxes................................ 105 1,063
------- -------
TOTAL CURRENT LIABILITIES......................... 8,683 7,483
------- -------
Deferred rent......................................... 35 10
Stockholders' equity:
Common stock, $.01 par value; authorized, 7,500,000
shares; issued and outstanding 6,016,803 shares in
1996 and 5,989,586 in 1995........................ 60 60
Additional paid-in capital.......................... 17,153 16,921
Unrealized gains on marketable securities........... 14 49
Retained earnings................................... 9,345 8,191
------- -------
STOCKHOLDERS' EQUITY................................ 26,572 25,221
------- -------
TOTAL............................................... $35,290 $32,714
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 4
BROOKTROUT TECHNOLOGY, INC.
<TABLE>
Condensed Consolidated Statements of Income
(In thousands, except per share data)
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
REVENUE ......................................... $10,183 $6,694
Cost and expenses:
Cost of product sold .......................... 4,752 3,266
Research and development ...................... 1,380 916
Selling, general and administrative ........... 2,400 1,565
------- ------
Total cost and expenses ................... 8,532 5,747
------- ------
INCOME FROM OPERATIONS .......................... 1,651 947
------- ------
Interest income, net ............................ 263 212
Income before income tax provision .............. 1,914 1,159
Income tax provision ............................ 760 449
------- ------
NET INCOME ...................................... $ 1,154 $ 710
======= ======
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.18 $ 0.12
======= ======
Weighted average number of common and
common equivalent shares outstanding .......... 6,569 6,104
======= ======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 5
BROOKTROUT TECHNOLOGY, INC.
<TABLE>
Condensed Consolidated Statements of Cash Flows
(In thousands)
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 1,154 $ 710
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization ................ 97 73
Amortization of net premium (discount) on
marketable securities ....................... 9 (4)
Deferred income taxes ........................ (123) (30)
Increase (decrease) in cash from:
Accounts receivable ................. (340) (457)
Inventory ........................... (503) (107)
Other prepaid expenses .............. (23) 66
Accounts payable and accrued expenses 1,231 411
------- -------
Cash provided by
operating activities ...... 1,502 662
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for equipment and furniture .............. (1,738) (87)
Purchases of marketable securities .................... (296) (500)
Maturities and sales of marketable securities ......... 591 3,900
------- -------
Cash provided by
investing activities ...... (1,443) 3,313
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock ................ 232 25
Repayment of long-term debt ........................... (6) (6)
------- -------
Cash provided by
financing activities ...... 226 19
------- -------
INCREASE IN CASH AND EQUIVALENTS ................................ 285 3,994
CASH AND EQUIVALENTS, BEGINNING OF PERIOD ....................... 14,230 10,407
------- -------
CASH AND EQUIVALENTS, END OF PERIOD ............................. $14,515 $14,401
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 6
BROOKTROUT TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements -
Unaudited
1. Basis of presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared by Brooktrout Technology, Inc.(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 the Company's 1995 Annual Report on Form
10K and 10K/A.
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. Earnings per share
Earnings per common and 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.
3. Inventory
<TABLE>
Inventory is valued at the lower of cost (first-in, first-out basis) or
market and consisted of the following:
<CAPTION>
March 31, December 31,
--------- ------------
1996 1995
---- ----
<S> <C> <C>
Raw materials $3,486,000 $2,979,000
Work in process 495,000 605,000
Finished goods 329,000 223,000
---------- ----------
Total $4,310,000 $3,807,000
========== ==========
</TABLE>
4. Major Customers
One customer accounted for approximately 29% and 52% of net revenue for
the three months ended March 31, 1996 and 1995, respectively.
<PAGE> 7
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 March 31, 1996 was
$7,571,000. Net unrealized holding gains of $14,000 were comprised of unrealized
gains of $20,000 and unrealized losses of $6,000 at March 31, 1996.
6. Income Taxes
<TABLE>
The provision for income taxes is approximately as follows:
<CAPTION>
Three Months Ended
March 31,
---------
1996 1995
---- ----
<S> <C> <C>
Federal $570,000 $340,000
State 190,000 109,000
-------- --------
Income tax provision $760,000 $449,000
======== ========
</TABLE>
<TABLE>
A reconciliation of the statutory federal rate to the effective rate is as
follows:
<CAPTION>
Three Months Ended
March 31,
---------
1996 1995
---- ----
<S> <C> <C>
Statutory tax rate 34% 34%
State taxes,
net of federal benefit 7 6
Other (1) (1)
-- --
Effective tax rate 40% 39%
== ==
</TABLE>
7. International Sales
International sales, principally exported from the United States,
accounted for approximately 20% and 12% of net revenue for the three months
ended March 31, 1996 and 1995, respectively.
8. Merger with Technically Speaking, Inc.
On March 8, 1996, the Company entered into an agreement to merge with
Technically Speaking, Inc. (TSI), a company which develops and markets software
products for the computer telephony marketplace. To consummate the transaction,
the Company expects to issue approximately 475,000 shares of common stock in
exchange for all of the outstanding common stock of TSI. The transaction is
expected to be accounted as a pooling-of-interests, and consummated at the close
of the Company's annual meeting of stockholders on May 29, 1996.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
Revenue during the first three months of 1996 increased by
approximately 52% to $10,183,000, up from $6,694,000 during the first three
months of 1995. This growth was primarily attributable to increased shipments of
TR Series products. Increased sales reflect the growth of the principal market
segments served by the Company's products, especially manufacturers of fax
applications for use on local area networks and manufacturers of fax and voice
systems for sale to end users.
Cost of product sold was $4,752,000, or 47% of revenue, during the
three months ended March 31, 1996, compared to $3,266,000, or 49% of revenue,
for the same period in 1995. Gross profit percentage was approximately 53% and
51% for the three months ended March 31, 1996 and 1995, respectively. This
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 voice systems, coupled with decreases in product costs on OEM voice
systems.
Research and development expense was $1,380,000, or 14% of revenue,
compared with $916,000, or 14% of revenue, for the three months ended March 31,
1996 and 1995, respectively. The dollar increase in 1996 reflects the Company's
continuing development efforts for its TR Series product family as well as OEM
systems development in both voice and fax. The Company intends to continue to
commit significant resources to product development and expects that research
and development expenditures will be approximately 12% to 14% of revenue for the
foreseeable future.
Selling, general and administrative expense was $2,400,000 during the
first three months of 1996, compared with $1,565,000 during the first three
months in 1995. This higher expense level resulted from increased staffing,
promotional activities and facility expenses. As a percentage of revenue,
selling, general and administrative expense for the first quarter of 1996 was
24% of revenue, compared with 23% for the first quarter of 1995.
For the three months ended March 31, 1996, interest income was
$263,000, compared with $212,000 for the same period in 1995.
The Company's effective tax rate was 40% for the first quarter of 1996,
based on the Company's estimated effective tax rate for the full year, and 39%
for the first quarter of 1995.
<PAGE> 9
Liquidity and Capital Resources
For the three months ended March 31, 1996, the Company funded its
operations principally through operating revenue.
In July 1995, the Company renewed its working capital line of credit. Under the
renewed line of credit, the Company may borrow up to $5,000,000 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 1996
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, 1996 commitments outstanding on letters of
credit totaled $69,800 which are to be used for future inventory purchases; no
borrowings have been made during any period presented.
The Company's working capital decreased from $23.8 million at December
31, 1995 to $23.5 million at March 31, 1996. The decrease was attributable, in
part, to higher accounts payable, accrued warranty costs, other accrued expenses
and lower cash and investment balances which were partially offset by higher
accounts receivable, inventory, deferred tax assets and lower accrued income tax
balances. In addition, the Company made a large investment in capital assets
during the period following the Company's move to a new facility. The Company's
aggregate cash, cash equivalents and marketable securities position decreased
primarily as a result of increases in accounts receivable, inventory and capital
equipment expenditures which were partially offset by higher accounts payable
balances and maturities of marketable securities.
During the first three months of 1996, the Company invested
approximately $1.7 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.
<PAGE> 10
Part II. OTHER INFORMATION
Items 1. through 5.
None
Item 6. Exhibits
(a) Exhibits
11. Computation of earnings per share
<PAGE> 11
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 08, 1996 By:
-----------------------------
Eric R. Giler
President
(Principal Executive Officer)
Date: May 08, 1996 By:
-------------------------
Robert C. Leahy
Vice President of Finance and
Operations and Treasurer
(Principal Financial and
Accounting Officer)
<PAGE> 12
EXHIBIT INDEX
Sequentially
Exhibit Number Exhibit Numbered Page
11 Computation of Earnings 13
Per Share
<PAGE> 1
Exhibit 11
BROOKTROUT TECHNOLOGY, INC.
<TABLE>
COMPUTATION OF INCOME PER COMMON SHARE
(In thousands, except per share data, unaudited)
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Primary Income Per Share:
Weighted average number of common and
common equivalent shares outstanding:
Common stock ...................... 6,002 5,945
Common equivalent shares resulting
from options .................... 567 159
------ ------
Total ......................... 6,569 6,104
====== ======
Net income .............................. $1,154 $ 710
====== ======
Net income per common share ............. $ 0.18 $ 0.12
====== ======
Fully Diluted Income Per Share:
Weighted average number of common and
common equivalent shares outstanding:
Common stock ...................... 6,002 5,945
Common equivalent shares resulting
from options .................... 644 273
------ ------
Total ......................... 6,646 6,218
====== ======
Net income .............................. $1,154 $ 710
====== ======
Net income per common shares ............ $ 0.17 $ 0.11
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
BROOKTROUT TECHNOLOGY INC.'S CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENTS
OF INCOME FOR THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH (B) BROOKTROUT TECHNOLOGY INC.'S 10-Q FOR THE PERIOD ENDED
MARCH 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 14,515
<SECURITIES> 7,585
<RECEIVABLES> 5,274
<ALLOWANCES> 435
<INVENTORY> 4,310
<CURRENT-ASSETS> 32,215
<PP&E> 3,415
<DEPRECIATION> 914
<TOTAL-ASSETS> 35,290
<CURRENT-LIABILITIES> 8,683
<BONDS> 0
<COMMON> 60
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 35,290
<SALES> 10,183
<TOTAL-REVENUES> 10,183
<CGS> 4,752
<TOTAL-COSTS> 4,752
<OTHER-EXPENSES> 3,780
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,914
<INCOME-TAX> 760
<INCOME-CONTINUING> 1,154
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,154
<EPS-PRIMARY> .18
<EPS-DILUTED> .17
</TABLE>
