<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1996
REGISTRATION STATEMENT NO. 333-06885
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BROOKTROUT TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2814792
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
410 FIRST AVENUE
NEEDHAM, MA 02194
(617) 449-4100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ERIC R. GILER
PRESIDENT
BROOKTROUT TECHNOLOGY, INC.
410 FIRST AVENUE
NEEDHAM, MA 02194
(617) 449-4100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
THOMAS P. STORER, P.C. KENNETH R. LAMB, ESQ.
GOODWIN, PROCTER & HOAR LLP GIBSON, DUNN & CRUTCHER LLP
EXCHANGE PLACE ONE MONTGOMERY STREET, TELESIS TOWER
BOSTON, MA 02109-2881 SAN FRANCISCO, CA 94104-4505
(617) 570-1000 (415) 393-8200
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED AUGUST 2, 1996
PROSPECTUS
- --------------------------------------------------------------------------------
900,000 Shares
[BROOKTROUT TECHNOLOGY LOGO]
Common Stock
- --------------------------------------------------------------------------------
Of the 900,000 shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby, 514,632 shares are being sold by Brooktrout Technology,
Inc. ("Brooktrout" or the "Company") and 385,368 shares are being sold by
certain selling stockholders of the Company (the "Selling Stockholders"). The
Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders. See "Principal and Selling Stockholders."
The Common Stock is included in the Nasdaq Stock Market's National Market (the
"Nasdaq National Market") under the symbol "BRKT." On July 31, 1996, the last
reported sales price of the Common Stock on the Nasdaq National Market was
$18.00 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" ON PAGES 6 TO 10 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
=================================================================================================
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
- -------------------------------------------------------------------------------------------------
Total(3)................... $ $ $ $
=================================================================================================
<FN>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $400,000.
(3) The Company has granted the several Underwriters a 30-day over-allotment
option to purchase up to 135,000 additional shares of Common Stock on the
same terms and conditions as set forth above. If all such additional shares
are purchased by the Underwriters, the total Price to Public will be
$ , the total Underwriting Discounts and Commissions will be
$ , the total Proceeds to Company will be $ , and the
total Proceeds to Selling Stockholders will be $ . See
"Underwriting."
</TABLE>
- --------------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and the Selling Stockholders and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is expected
to be made at the office of Prudential Securities Incorporated, One New York
Plaza, New York, New York, on or about , 1996.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
TUCKER ANTHONY
INCORPORATED
August , 1996
<PAGE> 3
BROOKTROUT TECHNOLOGY TARGET MARKETS
Brooktrout Technology provides reliable software and hardware products for
service providers and systems vendors in the electronic messaging market.
[Picture of a person [LOGO]
holding a circuitboard] BROOKTROUT[Trademark]
TECHNOLOGY
Brooktrout has succeeded in the high-end
service provider market by offering
SERVICE highly reliable products and superior
PROVIDERS engineering-level technical support to
meet service providers' demanding
performance specifications.
ENTERPRISE and Brooktrout has become a leading
WORKGROUP supplier to the enterprise and
SYSTEMS workgroup systems market by
providing open, scalable high
performance software and hardware
products.
[Two pictures of people with telephone headsets working
at computer terminals]
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
2
<PAGE> 4
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Supplemental Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus or in the documents incorporated in this
Prospectus by reference, including information under "Risk Factors." Unless
otherwise specified, all information contained in this Prospectus assumes that
the Underwriters' over-allotment option will not be exercised, and all share and
per share data have been adjusted to reflect two three-for-two stock splits
effected through 50% stock dividends paid by the Company on February 27, 1996
and on June 20, 1996. In addition, as a result of the Company's acquisition of
Technically Speaking, Inc. on May 29, 1996, which was accounted for as a
pooling-of-interests, all financial information contained herein has been
restated to include the accounts of Technically Speaking, Inc. for all periods
presented. See "Supplemental Consolidated Financial Statements."
THE COMPANY
Brooktrout Technology, Inc. ("Brooktrout" or the "Company") is a leading
supplier of advanced software and hardware products for system vendors and
service providers in the electronic messaging market. The Company's innovative
products enable its customers to deliver a wide range of solutions for the
integration and cost effective management of image (fax), voice and data
communications in telecommunications and networking environments. Uses of the
Company's products range from established markets such as voice mail to newly
evolving applications including the integration of computers and telephones
(computer telephony integration, or "CTI"), integrated management of voice, fax
and data messages (unified messaging), and communication of fax and voice
messages on local area networks ("LANs"), wide area networks and the Internet.
In recent years, Brooktrout's products have played an important role in the
development of the market for advanced computer-based fax applications,
including the transmission and routing of fax messages on LANs ("LAN fax") and
enhanced fax services such as fax broadcasting, fax-on-demand and
store-and-forward fax. The Company sells its products to telecommunications
service providers such as Hong Kong Telecommunications Limited and MCI
Communications Corporation; to original equipment manufacturers ("OEMs") such as
Lucent Technologies, Inc. ("Lucent"), Northern Telecom Limited (Nortel) and
Centigram Communications Corporation; and to value added resellers ("VARs") such
as Computer Sciences Corp. and Entex Information Services, Inc.
The Company believes three major trends are driving the market for
electronic messaging:
- the growing integration of computer and telecommunications networks;
- the emergence of new network-based communications applications; and
- the expansion of the Internet and development of new Internet-based
applications.
Brooktrout has focused since its inception in 1984 on developing and
enhancing enabling technology for electronic messaging, and has been for many
years a recognized technology leader in this area. As an integral element of its
marketing strategy, the Company has emphasized support to its customers in
developing and implementing applications based on the Company's products.
Brooktrout facilitates its customers' development of applications by offering
software products which permit the developer to make full use of product
features with a minimum of programming effort. The Brooktrout applications
programming interface ("API") offers full applications portability across major
computer operating systems, including Windows NT, UNIX, OS/2, Windows 95 and
MS-DOS, among others. The Company has significantly broadened and strengthened
its role as a supplier of enabling technology for the electronic messaging
market by its recent acquisition of Technically Speaking, Inc. ("TSI"), a
supplier of graphical, object-oriented software application development tools
for this market.
The Company's products include its TR Series[Trademark] fax and voice
processing boards and software development tools for electronic messaging
including the Brooktrout Fax and Voice API and Show N Tel [Trademark], a
graphical, object-oriented voice, fax and computer telephony development
environment. Additionally, the
- --------------------------------------------------------------------------------
3
<PAGE> 5
- --------------------------------------------------------------------------------
Company offers QuadraFax[Trademark], an embedded fax and voice processing
platform targeted at work groups and small businesses. The Company recently
introduced the IP/FaxRouter[Trademark], a product that reduces fax
transmission costs by routing faxes over public and private data networks
including the Internet. The Company also supplies complete voice messaging
systems for Lucent's Merlin and Partner small business telephone systems using
the TR Series software and hardware products and applications developed by
Brooktrout for Lucent.
Brooktrout's objective is to strengthen its position as a leading supplier
of software and hardware products to electronic messaging system vendors and
service providers worldwide through technological innovation, focus on products
supporting high-value applications, and an emphasis on product development and
customer support. The Company is implementing this strategy by:
- focusing on market segments where it has established or can develop a
leadership position, such as enhanced fax services, unified messaging,
computer telephony integration, network communications, fax
store-and-forward and Internet fax routing;
- delivering innovative, high-value software and hardware products that
enable new applications, particularly in these targeted market segments;
- continuing to emphasize the development of international markets for its
products, building on its base of product regulatory approvals in the
U.S. and 17 other countries and expanding its international sales and
marketing efforts; and
- continuing to develop complementary distribution channels, including
service providers, OEMs and VARs, and building relationships with
independent software vendors ("ISVs") who develop electronic messaging
applications that use the Company's products.
The Company's principal executive offices are located at 410 First Avenue,
Needham, Massachusetts 02194; its telephone number is (617) 449-4100.
------------------------
"Brooktrout Technology[Trademark]," "Technically Speaking[Trademark]," "TR
Series[Trademark]," "TR114[Trademark]," "Universal Port[Trademark],"
"QuadraFax[Trademark]," "IP/FaxRouter[Trademark]," "Show N Tel [Trademark]" and
"PowerBlock[Trademark]" are trademarks and "TrueFax[Trademark]" is a registered
trademark of the Company. All other trademarks are the property of their
respective owners.
- --------------------------------------------------------------------------------
4
<PAGE> 6
- -------------------------------------------------------------------------------
<TABLE>
THE OFFERING
<S> <C>
Common Stock Offered by the Company................. 514,632 shares
Common Stock Offered by the Selling Stockholders.... 385,368 shares
Common Stock to be Outstanding after the
Offering(1)....................................... 10,299,051 shares
Use of Proceeds by the Company...................... For general corporate purposes,
including working capital, inventory
expansion and the development and
marketing of new products, and for
possible future acquisitions of
complementary technologies, businesses
or products.
Nasdaq National Market Symbol....................... BRKT
</TABLE>
<TABLE>
SUMMARY SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................... $8,040 $12,365 $18,060 $24,888 $38,673 $7,167 $11,300
Gross profit.......................... 4,015 6,565 9,326 12,833 20,914 3,673 6,203
Income from operations................ 835 1,909 2,448 3,624 6,948 866 1,663
Net income............................ 906 1,673 2,278 2,629 5,203 632 1,166
Income per common share:
Before extraordinary and other
items(2).......................... $ 0.07 $ 0.19 $ 0.20 $ 0.27 $ 0.52 $ 0.06 $ 0.11
Net income.......................... 0.13 0.26 0.23 0.27 0.52 0.06 0.11
Pro forma income per common share(3):
Before extraordinary and other
items(2).......................... 0.07 0.19 0.19 0.26 0.47 0.07 0.11
Net income.......................... $ 0.13 $ 0.26 $ 0.23 $ 0.26 $ 0.47 $ 0.07 $ 0.11
Weighted average number of common and
common equivalent shares
outstanding......................... 6,723 6,530 9,783 9,843 10,077 9,870 10,554
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.............................................................. $24,519 $32,896
Total assets................................................................. 36,739 45,116
Long-term debt, less current portion......................................... -- --
Stockholders' equity......................................................... $27,802 $36,179
<FN>
- ------------------------
(1) Does not include 1,719,209 shares of Common Stock issuable upon exercise of
stock options outstanding as of June 20, 1996, with a weighted average
exercise price of $8.185.
(2) Before extraordinary items representing a gain on extinguishment of debt and
reductions in income taxes due to application of operating loss
carryforwards, and before effect of change in accounting for income taxes.
See Note (1) to "Selected Supplemental Consolidated Financial Data."
(3) Pro forma income per common share is based upon reported net income,
adjusted for pro forma tax charges (benefits) of $42,000, $34,000, $424,000,
($31,000) and $5,000 for the years ended December 31, 1993, 1994 and 1995
and the three month periods ended March 31, 1995 and 1996, respectively, on
TSI income. TSI had elected to be taxed as a Subchapter S corporation for
income tax purposes. Under this election, income was taxed directly to TSI
stockholders. Accordingly, TSI's historical financial statements did not
include a charge for income taxes.
(4) As adjusted to reflect the sale of 514,632 shares of Common Stock offered by
the Company hereby, assuming a public offering price of $18.00 per share
(the last reported sales price of the Common Stock on the Nasdaq National
Market on July 31, 1996) and after deduction of the assumed underwriting
discounts and commissions and estimated offering expenses payable by the
Company and the application of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."
(5) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Recent Operating Results" for a discussion of the Company's
unaudited results for the quarter and six months ended June 30, 1996.
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE> 7
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements include, among others,
statements regarding trends, opportunities and growth projections in the
electronic messaging industry (see "Business -- The Electronic Messaging
Industry -- Opportunities in Electronic Messaging"), statements regarding the
Company's prospects and growth opportunities in certain segments within the
electronic messaging industry (see "Prospectus Summary -- The Company" and
"Business -- Strategy"), statements regarding future allocations for research
and development (see "Business -- Product Development"), statements regarding
future competition (see "Business -- Competition"), statements regarding certain
legal proceedings (see "Business -- Proprietary Technologies" and "-- Legal
Proceedings"), statements regarding shipments of backlog (see
"Business -- Backlog"), and statements regarding existing facilities (see
"Business -- Properties"). Actual results could differ materially from those
projected in the forward-looking statements as a result of certain uncertainties
set forth below and elsewhere in this Prospectus. Investors should carefully
consider the following factors, in addition to the other information contained
in this Prospectus, in connection with investments in the shares of Common Stock
offered hereby.
RELIANCE ON LUCENT TECHNOLOGIES, INC. Since 1990, AT&T has been the
Company's largest customer. Revenue from sales to AT&T accounted for 58%, 53%,
36% and 26% of the Company's total revenue in 1993, 1994, 1995 and the first
quarter of 1996, respectively. The Company has sold a variety of products to a
number of separate business units within AT&T, although sales of voice mail
systems accounted for more than 80% of the Company's revenue from AT&T in the
last three years. On April 3, 1996, AT&T completed an initial public offering of
Lucent and announced its intent to spin off to its shareholders the remaining
interest in the company by December 1996. The divisions which represented the
Company's principal customers within AT&T were transferred to Lucent, although
the Company retained some business with AT&T. Lucent is the Company's sole
customer for its voice mail system products. The Company does not anticipate
that the spin-off will have any substantial effect on its sales to the divisions
of AT&T that were transferred to Lucent. No assurance can be given, however,
that Lucent will continue to generate the same quantity or quality of business
for the Company as was generated prior to the spin-off from AT&T. Moreover, no
assurance can be given that Lucent will continue to use the Company as its
principal supplier of voice messaging/automated attendant systems for small
business use or that the Company will be able to maintain its current level of
profit margins in its sales to Lucent. Any material loss of the revenue
currently derived from sales to Lucent and its former parent AT&T would have a
material adverse effect on the Company's business. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations" and "Business -- Customers."
RAPIDLY CHANGING MARKETS. The Company provides products that enable its
customers to develop new services and systems for electronic messaging
applications in telecommunications and networking environments. The
telecommunications and networking industries are subject to rapid evolution
driven by the availability of new technologies, the emergence of new
applications and the initiatives of industry participants. The Company's success
depends on its ability to identify emerging applications of its technologies,
understand the role of competing technologies and develop innovative, high-value
products to meet the needs of service providers and system vendors delivering
solutions to end users. The Company works closely with its present and
prospective customers and relies on various sources of information, including
market research provided by research firms, in order to identify emerging
applications. There can be no assurance that the information collected by the
Company will be accurate or that the market developments that are anticipated to
create demand for the Company's products will occur. For example, the Company
plans to market various products for use in conjunction with the Internet. The
Internet, however, may not prove to be a viable commercial network for numerous
reasons, including, without limitation, inadequate development of the necessary
infrastructure, reluctance of corporations to deploy new applications on the
Internet or availability of more attractive, substitute networks. Failure of
such a marketplace to develop, or if developed to offer commercially viable
opportunities, could have an adverse effect on the Company's business, financial
condition and results of operations.
6
<PAGE> 8
TECHNOLOGICAL CHANGE. The Company's success depends upon its ability to
enhance its existing products and to develop and introduce on a timely basis new
products that accommodate advances in technology and changing customer
requirements. There can be no assurance that the Company's enhanced or new
products will be technologically successful or achieve market acceptance. The
Company would be materially and adversely affected if one of its competitors
were able to market a technologically superior product or a less expensive
comparable product and the Company were unable to respond with a competitive
product within a reasonable time. In addition, products in this market may
contain undetected errors or bugs that are discovered only after the product has
been installed and used in customer environments. Although the Company has not
experienced material adverse effects resulting from such errors to date, there
can be no assurance that errors will not be discovered in the future, causing
unexpected expenses to correct such errors and delays in product introduction
and shipments, or requiring design modifications that could adversely affect the
Company's competitive position and operating results. Furthermore, in order to
continue the enhancement of existing products and the introduction of new
products in response to technological changes, the Company is required to make
significant continuing expenditures on research and development. If the
Company's revenue should fail to achieve forecasted levels, the Company may not
be able to reduce expenditures on research and development without impairing its
competitive position, so that profitability may be disproportionately affected
in such event.
DEPENDENCE ON KEY PERSONNEL. The Company depends heavily on personnel
involved in engineering, research and development, marketing, sales, finance and
administration. The Company's success depends upon its ability to attract and
retain skilled employees to continue successful development of new products and
enhancements to existing products, to manage growth successfully, to implement
appropriate management information systems and controls and to assure timely
manufacture of the Company's products. It is becoming increasingly difficult for
the Company to hire and retain a sufficient number of qualified staff to meet
its goals. The market for qualified personnel is particularly competitive in the
Boston area where there is a great demand and limited supply of qualified
individuals with the advanced technological experience and knowledge and other
skills that the Company requires. The inability of the Company to attract and
retain qualified employees in any functional area could have a material adverse
effect on the Company's current operations, on new product development efforts
and on the Company's ability to meet its business plans. Currently, the Company
has a $1 million key-person life insurance policy on its President, Eric R.
Giler, but does not otherwise have key-person life insurance for, or employment
or noncompetition agreements with, its key personnel, other than certain
personnel who recently joined the Company in connection with the acquisition of
TSI and who entered into noncompetition agreements with the Company. See
"Management" and "Business -- Employees."
COMPETITION. The electronic messaging industry is highly competitive, and
the Company expects that additional competitors will enter the market and that
competition will intensify. Certain of the Company's current and potential
competitors have significantly greater development, marketing and capital
resources and name recognition than the Company, and new or enhanced products
can be expected from current and potential competitors, including large domestic
and international software, telecommunications, computer and semiconductor
companies. The Company has only limited patent protection for its products and
believes that patents generally do not present a barrier to new companies
desiring entry to its industry. No assurance can be given that the Company will
be able to compete successfully or that competition will not have an adverse
effect on the Company's operating results. Moreover, there can be no assurance
that one or more of the Company's customers or suppliers will not develop
competitive technology internally, thereby eliminating either the need to obtain
products and services from the Company or the willingness to provide products
and services to the Company. The Company expects that it will face increasing
pricing pressures from its current competitors and new market entrants. The
Company's competitors may engage in pricing practices that cause the Company to
reduce the average selling prices of its products. To offset declining average
selling prices, the Company believes that it must successfully develop and
introduce on a timely basis new products or products that incorporate new
features that can be sold at gross margins comparable to those on existing
products. To the extent that such new products are not developed in a timely
manner, do not achieve customer acceptance or do not generate comparable gross
margins, the Company's profitability may decline. See "Business -- Competition."
7
<PAGE> 9
DEPENDENCE ON OEMS, VARS AND TELECOMMUNICATIONS SERVICE PROVIDERS. The
Company markets its products primarily through OEMs, VARs and telecommunications
service providers. A considerable investment in marketing and technical support
is required in connection with many sales. To receive a return on this
investment, the Company must make substantial sales to its customers over an
extended period of time. The Company's customers may determine not to purchase a
product in sufficient volume as a result of changes in end users' preferences or
such customers' internal decisions regarding product continuation, further
development and marketing. In many instances, the Company may not have the
opportunity or ability to influence any such determination by its customers. In
such circumstances, the Company may not achieve a profit on a product and may
not recover its initial investment in developing and introducing a new product.
See "Business -- The Electronic Messaging Industry," "-- Sales and Marketing"
and "-- Technical Support."
VARIATIONS IN OPERATING RESULTS/SEASONALITY. The Company's quarterly
operating results are subject to significant fluctuations. The Company operates
with a relatively short-term backlog with most of its sales in each quarter
resulting from orders received in that quarter. Accordingly, if demand for the
Company's products weakened in a given quarter, sales and operating results for
that quarter would be adversely affected. As a result, sales in any given
quarter may depend on the volume and timing of bookings received during that
quarter, which are often difficult to predict. Brooktrout has historically
experienced significant seasonality in quarterly sales, with sales levels
tending to be relatively lower in the first and third quarters. Moreover,
announcements by the Company or its competitors of new products and technologies
could cause customers to defer or cancel purchases of the Company's systems,
which would materially adversely affect the Company's volume of bookings,
financial condition and results of operations. In addition, due to different
margins on its various products, changes in the Company's sales mix from quarter
to quarter may also affect its overall results. Finally, because a large portion
of the Company's expenses are fixed and are difficult to adjust should revenue
not meet the Company's expectations, any failure to achieve forecasted sales
levels or a margin reduction resulting from a change in sales mix or other
factors would have a disproportionately large effect on profitability. For these
reasons, the Company's operating results for any quarter are not necessarily
indicative of results for any future period. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Backlog."
LIMITED INTELLECTUAL PROPERTY PROTECTION; LICENSES. The Company holds
certain patents relating to its computer fax technology, but most of the
Company's products are not protected by patents. The Company does not receive or
expect to seek substantial revenue from the licensing of its patents. While the
Company believes that patents are of less significance in its industry than such
factors as innovation and technological expertise, there can be no assurance
that the Company's intellectual property protection will be sufficient to
prevent competitors from developing similar technology. In addition, the rapidly
evolving nature of the Company's business often necessitates that the Company
obtain licenses from third parties to use proprietary rights owned by those
parties. No assurance can be given that the Company will be able to obtain any
such licenses, or that any such third party will offer such a license on terms
that are acceptable to the Company. See "Business -- Proprietary Technologies"
and "-- Legal Proceedings."
LIMITED SOURCES OF SUPPLY. Although the Company generally uses standard
parts and components in manufacturing its products, certain components,
primarily digital signal processors, are available from only a single
manufacturer through a number of distributors. To date, the Company has been
able to obtain adequate supplies of these components in a timely manner from
existing sources. In addition, the Company relies primarily on Lucent's
manufacturing division to perform final manufacture of its printed circuit board
products, although the Company has established relationships with other sources
for manufacturing. Delay or lack of supply from existing sources of components
or finished product or the inability to develop alternative sources if and as
required in the future could adversely affect the Company's operating results.
See "Business -- Manufacturing."
MERGERS AND ACQUISITIONS. On May 29, 1996, the Company acquired TSI, a
developer and marketer of development tools and application software for
computer telephony. TSI generated revenue of $4.5 million and pre-tax income of
$1.1 million in 1995. See Note (2) to "Supplemental Consolidated Financial
Statements." There can be no assurance that TSI's operations will continue to be
profitable after the acquisition. Moreover, there can be no assurance that the
anticipated benefits of the TSI merger will be
8
<PAGE> 10
realized. The process of integrating TSI's business into the Company's
operations may result in unforeseen operating difficulties and could absorb
significant management attention and expenditures that would otherwise be
available for the ongoing development of the Company's business.
The Company may in the future pursue other acquisitions of complementary
product lines, technologies or businesses. Future acquisitions by the Company
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses related
to goodwill and other intangible assets, which could materially adversely affect
the Company's financial condition. In addition, mergers and acquisitions, such
as TSI, involve numerous risks, including difficulties in the assimilation of
the operations, technologies and products of the companies, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no or limited direct prior experience, seasonality of
sales, operating companies in different geographical locations with different
corporate cultures, and the potential loss of key employees of the acquired
company. There are currently no binding agreements or understandings with
respect to any future acquisitions. See "Use of Proceeds."
INTERNATIONAL SALES. In 1995, the Company's net revenue from international
sales, principally export sales from the United States, was $4.3 million,
accounting for approximately 11% of the Company's net revenue. In addition to
direct international sales, significant additional revenue is derived from
international sales by Brooktrout's customers of systems which incorporate
Brooktrout's products. The Company anticipates that international sales will
continue to account for a significant portion of sales. The Company intends to
continue to expand its operations outside the United States and to enter
additional international markets, which will require significant management
attention and financial resources. The Company's operating results are subject
to the risks inherent in international sales, including, but not limited to,
regulatory requirements, political and economic changes and disruptions,
transportation delays, difficulties in staffing and managing foreign sales
operations, and potentially adverse tax consequences. In addition, fluctuations
in exchange rates may render the Company's products less competitive relative to
local product offerings, or could result in foreign exchange losses, depending
upon the currency in which the Company sells its products. There can be no
assurance that these factors will not have a material adverse effect on the
Company's future operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
VOLATILITY OF STOCK PRICE. Since the completion of the Company's initial
public offering in October 1992, the market price of the Common Stock has
fluctuated significantly. The Company believes that factors such as
announcements of developments related to the Company's business, announcements
of technological innovations or new products or enhancements by the Company or
its competitors, sales by competitors, including sales to the Company's
customers, sales of the Common Stock into the public market, including by
members of management, developments in the Company's relationship with its
customers, partners, distributors and suppliers, shortfalls or changes in
revenue, gross margins, earnings or losses or other financial results from
analysts' expectations, regulatory developments, fluctuations in results of
operations, seasonality and general conditions in the Company's market or the
markets served by the Company's customers or the economy could cause the price
of the Common Stock to fluctuate, perhaps substantially. In addition, in recent
years the stock market in general, and the market for shares of technology
stocks in particular, have experienced extreme price fluctuations, which have
often been unrelated to the operating performance of affected companies. Many
companies, including the Company, have recently experienced historic highs in
the market price of their common stock. There can be no assurance that the
market price of the Common Stock will not decline substantially from its
historic highs, or otherwise continue to experience significant fluctuations in
the future, including fluctuations that are unrelated to the Company's operating
performance. See "Price Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the offering, the
Company will have 10,299,051 shares of Common Stock outstanding (10,434,051
shares if the Underwriters' over-allotment option is exercised in full),
9,835,427 of which will be freely tradeable without substantial restriction or
the requirement of future registration under the Securities Act of 1933, as
amended (the "Securities Act"), except for shares held or purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act ("Rule 144"), and 463,624 shares which will be "restricted
securities" under Rule 144. Of the 9,784,419 shares of Common Stock outstanding
as of June 20, 1996, 8,154,074 shares are freely tradeable,
9
<PAGE> 11
712,992 shares (of which 249,368 shares are being offered hereby) are restricted
securities under Rule 144, and 917,353 additional shares (of which 136,000
shares are being offered hereby) are held by directors and executive officers
who may be deemed affiliates of the Company pursuant to Rule 144, which shares
may be sold subject to the provisions of Rule 144 and the contractual
restrictions described below. The outstanding restricted securities which are
not sold in this offering will be eligible for sale under Rule 144 commencing
May 29, 1998 (two years after their issuance), subject to applicable volume and
manner-of-sale limitations, and a portion of such shares are entitled to certain
registration rights. The Company and the Selling Stockholders have agreed that
they will not, for a period of 180 days from the date of this Prospectus, and
the executive officers and directors of the Company that are not also Selling
Stockholders have agreed that they will not, for a period of 90 days from the
date of this Prospectus, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, pledge, contract of sale,
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock or other capital stock of the Company or any securities convertible
into, or exercisable or exchangeable for, any shares of Common Stock or other
capital stock of the Company without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters, except that such
agreement does not prevent the Company from granting additional options under
its 1992 Stock Incentive Plan (the "1992 Plan"). Upon the expiration of these
lockup agreements, all 1,244,977 shares held by such executive officers,
directors and Selling Stockholders which are not sold in this offering will
become eligible for sale in the public market, subject to the applicable volume
and manner-of-sale limitations of Rule 144, and 1,719,209 shares of Common Stock
issuable upon exercise of currently outstanding options will become eligible for
sale as such options become vested. Sales of substantial amounts of Common Stock
in the public market could adversely affect the prevailing market price of the
Common Stock. See "Shares Eligible for Future Sale" and "Underwriting."
CERTAIN ANTI-TAKEOVER PROVISIONS OF ARTICLES AND BY-LAWS. Certain
provisions of the Company's Restated Articles of Organization (the "Articles")
and Amended and Restated By-laws (the "By-laws") and Massachusetts law could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Common Stock. The Company may issue
preferred stock with rights senior to, and that may adversely affect, the Common
Stock without stockholder approval and upon such terms and conditions, and
having such rights, privileges and preferences, as the Board of Directors may
determine. The Company has no present plans to issue any shares of preferred
stock. The Articles and the By-laws provide for a classified Board of Directors,
divided into three classes, with directors in each class elected for three-year
terms. The By-laws impose various procedural and other requirements that could
make it more difficult for stockholders to effect certain corporate actions.
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 514,632 shares of
Common Stock offered by the Company hereby are estimated to be $8,377,000 (or
approximately $10,679,000 assuming the Underwriters' over-allotment option is
exercised in full), at an assumed public offering price of $18.00 per share (the
last reported sales price of the Common Stock on the Nasdaq National Market on
July 31, 1996) and after deducting the assumed underwriting discounts and
commissions and estimated offering expenses payable by the Company.
The Company plans to use the net proceeds of this offering for general
corporate purposes, including working capital, inventory expansion and the
development and marketing of new products; however, no specific allocations have
been made for such net proceeds. In addition, the Company considers, on a
continuing basis, potential acquisitions of technologies, businesses or products
complementary to the Company's business and may use a portion of the net
proceeds for such acquisitions. The Company is not engaged in any negotiations
and has no present understandings, agreements or commitments with respect to any
such acquisitions. Pending such uses as described above, the Company intends to
invest the net proceeds from this offering in interest-bearing, investment-grade
securities.
PRICE RANGE OF COMMON STOCK
<TABLE>
The Common Stock is included in the Nasdaq National Market under the symbol
"BRKT." The following table sets forth for the periods indicated the high and
low sales prices per share of the Common Stock as reported by the Nasdaq
National Market. All prices have been adjusted to reflect two three-for-two
stock splits effected through 50% stock dividends paid by the Company on
February 27, 1996 and on June 20, 1996.
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1994
First Quarter.................................................... $ 6.67 $ 6.00
Second Quarter................................................... 4.89 4.55
Third Quarter.................................................... 4.55 4.33
Fourth Quarter................................................... 5.11 4.78
FISCAL 1995
First Quarter.................................................... $ 7.78 $ 7.22
Second Quarter................................................... 6.67 6.45
Third Quarter.................................................... 9.00 8.67
Fourth Quarter................................................... 12.89 12.33
FISCAL 1996
First Quarter.................................................... $24.80 $11.11
Second Quarter................................................... 32.67 20.83
Third Quarter (through July 31, 1996)............................ 28.50 14.00
</TABLE>
On July 31, 1996, the last reported sales price of the Common Stock on the
Nasdaq National Market was $18.00 per share. As of June 1, 1996, there were
approximately 354 holders of record of the Company's Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on shares of its
Common Stock and does not expect to declare or pay cash dividends on its Common
Stock in the foreseeable future. The Company intends to retain all of its
available funds for the operation and expansion of its business. Any future
declaration and payment of dividends will be subject to the discretion of the
Board of Directors, will be subject to applicable law and will depend upon the
Company's results of operations, earnings, financial condition, contractual
limitations, cash requirements, future prospects and other factors deemed
relevant by the Company's Board of Directors.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, and as adjusted to give effect to the sale of 514,632 shares of Common
Stock offered by the Company hereby at an assumed public offering price of
$18.00 per share (the last reported sales price of the Common Stock on the
Nasdaq National Market on July 31, 1996) and after deducting the assumed
underwriting discounts and commissions and estimated offering expenses payable
by the Company and the application of the estimated net proceeds therefrom. See
"Use of Proceeds." This table should be read in conjunction with the Company's
Supplemental Consolidated Financial Statements and related Notes appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred stock, $1.00 par value; authorized, 100,000 shares; none
issued............................................................ -- --
Common stock, $.01 par value; authorized, 25,000,000 shares; issued
and outstanding, 9,738,196 shares(1), 10,252,828 shares as
adjusted(1)....................................................... $ 97 $ 103
Additional paid-in capital........................................... 17,122 25,493
Unrealized gains on marketable securities............................ 14 14
Retained earnings.................................................... 10,569 10,569
------- -------
Total stockholders' equity........................................ 27,802 36,179
------- -------
Total capitalization............................................ $27,802 $36,179
======= =======
</TABLE>
- ------------------------
(1) Excludes 1,719,209 shares of Common Stock reserved for issuance upon the
exercise of outstanding options issued under the Company's stock option
plans as of June 20, 1996, and an additional 678,113 shares of Common Stock
available for issuance under such plans and under the Company's Employee
Stock Purchase Plan. See Note (6) to "Supplemental Consolidated Financial
Statements."
12
<PAGE> 14
SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
<TABLE>
The following selected supplemental consolidated financial data should be
read in conjunction with the Company's Supplemental Consolidated Financial
Statements, the financial statements of TSI and the Notes thereto included
elsewhere or incorporated by reference herein, and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in this
Prospectus and the consolidated financial statements and related notes included
in the Company's Annual Report on Form 10-K/A for the year ended December 31,
1995, the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, the Company's Form 8-K dated July 18, 1996, and the Company's Proxy
Statement for the 1996 Annual Meeting of Stockholders, which are incorporated by
reference in this Prospectus.
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................... $8,040 $12,365 $18,060 $24,888 $38,673 $ 7,167 $11,300
Cost and expenses:
Cost of product sold................................ 4,025 5,800 8,734 12,055 17,759 3,494 5,097
Research and development............................ 1,182 1,852 2,584 3,523 4,822 1,000 1,556
Selling, general and administrative................. 1,998 2,804 4,294 5,686 9,144 1,807 2,984
------ ------- ------- ------- ------- ------- -------
Income from operations................................ 835 1,909 2,448 3,624 6,948 866 1,663
Other income (expense):
Interest/other income............................... 45 140 494 604 967 216 263
Interest expense.................................... (36) (22) (15) (10) (7) (1) --
------ ------- ------- ------- ------- ------- -------
Total other income............................ 9 118 479 594 960 215 263
------ ------- ------- ------- ------- ------- -------
Income before income tax provision and extraordinary
and other items..................................... 844 2,027 2,927 4,218 7,908 1,081 1,926
Income tax provision.................................. 340 810 986 1,589 2,705 449 760
------ ------- ------- ------- ------- ------- -------
Income before extraordinary and other items........... 504 1,217 1,941 2,629 5,203 632 1,166
Extraordinary and other items (1)..................... 402 456 337 -- -- -- --
------ ------- ------- ------- ------- ------- -------
Net income............................................ $ 906 $ 1,673 $ 2,278 $ 2,629 $ 5,203 $ 632 $ 1,166
====== ======= ======= ======= ======= ======= =======
Income per common share:
Before extraordinary and other items................ $ 0.07 $ 0.19 $ 0.20 $ 0.27 $ 0.52 $ 0.06 $ 0.11
Net income.......................................... 0.13 0.26 0.23 0.27 0.52 0.06 0.11
Pro forma income per common share (2):
Before extraordinary and other items................ 0.07 0.19 0.19 0.26 0.47 0.07 0.11
Net income.......................................... $ 0.13 $ 0.26 $ 0.23 $ 0.26 $ 0.47 $ 0.07 $ 0.11
Weighted average number of common and common
equivalent shares outstanding....................... 6,723 6,530 9,783 9,843 10,077 9,870 10,554
<CAPTION>
DECEMBER 31,
---------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
------ ------- ------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $1,507 $15,384 $17,217 $19,825 $24,823 $24,519
Total assets.......................................... 3,693 18,322 20,903 25,461 34,581 36,739
Long-term debt, less current portion.................. -- 50 30 6 -- --
Redeemable, convertible preferred stock............... 1,841 -- -- -- -- --
Stockholders' equity (deficiency)..................... $ (334) $15,616 $18,241 $20,898 $26,445 $27,802
<FN>
- ------------------------
(1) Includes extraordinary items representing a gain on extinguishment of debt
(net of income taxes) of $79,000 in 1991. Includes extraordinary items
representing a reduction of income taxes (due to carryforward of prior
years' operating losses) of $323,000 and $456,000 for 1991 and 1992,
respectively. Includes effect of change in accounting for income taxes of
$337,000 for 1993.
(2) Pro forma income per common share is based upon reported net income adjusted
for pro forma tax charges (benefits) of $42,000, $34,000, $424,000,
($31,000) and $5,000 for the years ended December 31, 1993, 1994 and 1995
and the three month periods ended March 31, 1995 and 1996, respectively, on
TSI income. TSI had elected to be taxed as a Subchapter S corporation for
income tax purposes. Under this election, income was taxed directly to TSI
stockholders. Accordingly, TSI's historical financial statements did not
include a charge for income taxes.
</TABLE>
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company's revenue has increased 114% between 1993 and 1995. During this
period, the Company's growth has primarily resulted from the general expansion
in the electronic messaging industry, the resulting introduction of new products
and increased sales of existing products by service providers, OEMs and VARs in
that industry, and the Company's ability to establish and maintain a leadership
position in supplying certain components and technologies to such customers.
During this same period, the Company's gross margins have increased from
51.6% of revenue to 54.1% of revenue, primarily as a result of a change in sales
mix toward an increased proportion of higher margin products. Research and
development expenses and selling, general and administrative expenses have
remained relatively steady as a percentage of revenue, in the range of 12 to 14%
and 23 to 24%, respectively, reflecting the Company's historical operating
strategy of maintaining these expenses in those percentage ranges. The reduced
percentage of revenue devoted to research and development expenditures in 1995
reflects primarily a lag in the Company's ability to augment staff commensurate
with its recent growth.
Through active efforts to obtain telecommunications regulatory approvals in
various jurisdictions, the Company has developed and is seeking to expand the
international market for its products. Sales outside the U.S. accounted for 13%,
11%, and 18% of revenue in 1993, 1995 and for the three months ended March 31,
1996, respectively, and accounted for less than 10% of revenue in 1994. These
amounts do not include international sales of systems incorporating the
Company's products by OEM and VAR customers of the Company, which the Company
believes are substantial.
There is quarterly seasonality to the Company's business. Historically, the
Company's revenue and profitability have fluctuated from quarter to quarter,
although each quarter's revenue has consistently reflected significant growth
over the same quarter of the prior year. Typically, revenue in the second and
fourth quarters is relatively high and revenue in the first and third quarters
is relatively low. The Company believes that this seasonality results from a
variety of factors, including the product planning and ordering cycles of its
customers.
On May 29, 1996, the Company completed the acquisition of TSI, which was
accounted for as a pooling-of-interests. Accordingly, all financial information
included in the discussion which follows has been restated to include the
results of TSI for all periods presented. See "Supplemental Consolidated
Financial Statements."
RECENT OPERATING RESULTS
On July 18, 1996, the Company announced unaudited results for the quarter
and six months ended June 30, 1996. The Company reported that revenues for the
second quarter of 1996 increased 50% to $13,445,000 from $8,963,000 for the
second quarter of 1995. Net income in the second quarter (excluding a one time
charge associated with the acquisition of TSI) increased 84% to $1,822,000 or
$0.18 per share from pro forma net income of $988,000 or $0.10 per share (after
a pro forma tax benefit of ($21,000)) for the same period in 1995. In connection
with the completion of the acquisition of TSI, the Company recorded a one time
charge for merger and integration costs of $1,236,000, or $0.11 per share after
tax. Net income, after the one time charge, was $694,000 or $0.07 per share,
compared to $967,000 or $0.10 per share for the same period in 1995. Revenues
for the six months ended June 30, 1996 were $24,745,000 compared to $16,130,000
for the same period in 1995. Net income, excluding the one time charge, was
$2,988,000 or $0.29 per share compared to $1,651,000 (after a pro forma tax
benefit of ($52,000)) or $0.17 per share for the comparable six-month period in
1995. Net income, after the one time charge, was $1,860,000 or $0.18 per share
compared to $1,599,000 or $0.16 per share for the same period in 1995.
14
<PAGE> 16
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth certain financial data as a percentage of
revenue for the periods indicated:
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost and expenses:
Cost of product sold............................. 48.4 48.4 45.9 48.8 45.1
Research and development......................... 14.2 14.2 12.5 14.0 13.8
Selling, general and administrative.............. 23.8 22.8 23.6 25.1 26.4
----- ----- ----- ----- -----
Income from operations............................. 13.6 14.6 18.0 12.1 14.7
Total other income................................. 2.6 2.3 2.4 3.0 2.3
----- ----- ----- ----- -----
Income before income tax provision and
extraordinary and other items.................... 16.2 16.9 20.4 15.1 17.0
Income tax provision............................... 5.5 6.3 6.9 6.3 6.7
----- ----- ----- ----- -----
Income before extraordinary and other items........ 10.7% 10.6% 13.5% 8.8% 10.3%
===== ===== ===== ===== =====
</TABLE>
THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1995
Revenue during the first three months of 1996 increased by approximately
58% to $11.3 million, up from $7.2 million during the first three months of
1995. This growth was primarily attributable to increased shipments of TR Series
products combined with increased revenues from TSI software licensing. 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 $5.1 million, or 45% of revenue, during the three
months ended March 31, 1996, compared to $3.5 million, or 49% of revenue, for
the same period in 1995. Gross profit percentage was approximately 55% and 51%
for the three months ended March 31, 1996 and 1995, respectively. The increase
in gross profit percentage was the result of a 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. In addition,
there was a higher proportion of software revenue relating to Show N Tel
products which has a relatively low cost of product sold.
Research and development expense was $1.6 million, or 14% of revenue,
compared with $1.0 million, 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 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 $3.0 million during the
first three months of 1996, compared with $1.8 million during the first three
months of 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
26% of revenue compared with 25% for the first quarter of 1995.
Interest and other income was $263,000 for the three months ended March 31,
1996, compared with $216,000 for the same period in 1995.
The Company's effective tax rate was 39% for the first quarter of 1996,
based on the Company's estimated effective tax rate for the full year, and 42%
for the first quarter of 1995.
15
<PAGE> 17
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenue during the year ended December 31, 1995 increased by approximately
55%, to $38.7 million, up from $24.9 million in 1994. The increase in 1995
revenue was attributable to increased shipments of TR Series products, OEM
systems and fax systems, and increased consulting activity at TSI. Increased
sales in 1995 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 voice systems for
sale to OEMs, telephone companies and other service companies, together with
steps taken by the Company in 1994 and 1995 to develop a reseller sales channel
and to implement Windows NT capability for its TR Series products. TSI's revenue
during the year ended December 31, 1995 increased by approximately 210%, to $4.5
million, up from $1.5 million in 1994. The increase in revenue was primarily
attributable to increased revenue from software licensing (a $1.7 million
increase), consulting service activity (a $760,000 increase) and hardware sales
(a $572,000 increase).
Cost of product sold was $17.8 million, or 46% of revenue in 1995, compared
to $12.1 million, or 48% of revenue, in 1994. Gross profit percentage was 54%
for 1995 and 52% for 1994. This increase in gross profit percentage is the
result of a higher proportion of TR Series product shipments coupled with
decreases in product costs on OEM systems. In addition, there was a higher
proportion of software revenue related to source code licenses and consulting,
both of which have a relatively low incremental cost of product sold.
Research and development expense was $4.8 million, or 13% of revenue in
1995, compared with $3.5 million, or 14% of revenue in 1994. The dollar increase
in 1995 reflects the Company's continuing development efforts for its TR Series
product family, its fax and OEM systems development, as well as its computer
telephony development tools. As a result of a higher percentage increase in the
Company's revenue, however, the percentage decreased.
Selling, general and administrative expense was $9.1 million in 1995,
compared with $5.7 million in 1994. This higher expense level resulted from
increased staffing, promotional activities and travel. Selling, general and
administrative staff levels increased from 26 employees at December 31, 1994 to
35 employees at December 31, 1995. The Company's promotional activities in 1995
were directed primarily at increased levels of advertising in industry
publications and participation in trade shows. As a percentage of revenue,
selling, general and administrative expense was 24% of revenue for 1995 and 23%
of revenue in 1994.
Interest and other income was $967,000 in 1995, compared with $604,000 in
1994, reflecting higher interest rates coupled with higher investable cash
balances. Interest expense for 1995 decreased to $7,000 from the 1994 expense of
$10,000 because of lower levels of debt outstanding.
The Company's effective tax rate was 34% for the year ended December 31,
1995 and 38% for the year ended December 31, 1994. The effective rate for 1995
decreased primarily due to a significant increase in TSI income, which was not
subject to tax due to TSI's status as a Subchapter S corporation, offset
slightly by shifts in the Company's state tax position and reduced availability
of credits at the federal and state level.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Revenue during the year ended December 31, 1994 increased by approximately
38%, to $24.9 million, up from $18.1 million in 1993. The increase in 1994
revenue was attributable in part to increased shipments of TR Series and OEM
system products and was partially offset by lower shipments of fax systems.
Increased sales in 1994 reflect the growth of the principal market segments
served by the Company's products and the Company's efforts to maintain the
competitive position of its products through regular enhancements.
Cost of product sold was $12.1 million, or 48% of revenue, in 1994,
compared to $8.7 million, or 48% of revenue, in 1993. Gross profit percentage
was 52% for both 1994 and 1993.
Research and development expense was $3.5 million, or 14% of revenue, in
1994, compared with $2.6 million, or 14% of revenue, in 1993. The dollar
increase in 1994 reflects the Company's continuing development efforts for its
TR Series product family, as well as fax and OEM systems development. As a
result of the increase in the Company's revenue, however, the percentage
remained the same.
16
<PAGE> 18
Selling, general and administrative expense was $5.7 million in 1994,
compared with $4.3 million in 1993. This higher expense level resulted from
increased staffing, legal fees and promotional activity. As a percentage of
revenue, selling, general and administrative expense in 1994 was 23% of revenue,
compared with 24% in 1993.
Interest and other income was $604,000 in 1994, compared with $494,000 in
1993, reflecting higher investable cash balances coupled with higher interest
rates. Interest expense for 1994 decreased to $10,000 from the 1993 expense of
$14,000 because of lower levels of debt outstanding.
The Company's effective tax rate was 38% for the year ended December 31,
1994 and 34% for the year ended December 31, 1993. The effective rate for 1994
increased as a result of shifts in the Company's state tax position, as well as
reduced availability of credits at the federal and state level.
QUARTERLY RESULTS
The Company's quarterly results may be subject to fluctuations resulting
from a variety of factors, including purchasing patterns of its customers, the
timing of product introductions and enhancements by the Company and its
competitors, the Company's relatively small backlog and changes in product mix
from quarter to quarter. As a result, the Company believes that its operating
results for any one quarter are not necessarily indicative of results for any
future interim period. In particular, relatively higher levels of revenue for
the second and fourth quarters, as reflected in the following table, and
correspondingly increased profitability in those quarters, resulted primarily
from customer purchasing patterns. Revenue for the third quarter of 1995 did not
fully reflect this trend because of substantial non-recurring revenue received
under a software license agreement. See "Risk Factors -- Variations in Operating
Results/Seasonality."
<TABLE>
The following table presents unaudited statements of operations for each of
the Company's last nine quarters through March 31, 1996. This quarterly
information has been prepared on the same basis as the Supplemental Consolidated
Financial Statements and related Notes included elsewhere in this Prospectus and
in the opinion of the Company's management reflects all adjustments, consisting
only of normal, recurring adjustments, necessary for a fair presentation in
accordance with generally accepted accounting principles for the periods
presented.
QUARTERLY STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
1994 1995 1996
------------------------------------- ------------------------------------- -------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............................. $5,301 $6,598 $6,025 $6,964 $7,167 $8,963 $9,751 $12,792 $11,300
Cost and expenses:
Cost of product sold............... 2,522 3,302 2,976 3,255 3,494 4,258 4,177 5,830 5,097
Research and development........... 725 884 993 921 1,000 1,150 1,181 1,491 1,556
Selling, general and
administrative................... 1,326 1,424 1,427 1,509 1,807 2,139 2,219 2,979 2,984
------ ------ ------ ------ ------ ------ ------ ------- -------
Income from operations............... 728 988 629 1,279 866 1,416 2,174 2,492 1,663
Income before income tax provision... 846 1,111 791 1,470 1,081 1,620 2,449 2,758 1,926
Net income........................... $ 516 $ 683 $ 506 $ 924 $ 632 $ 967 $1,830 $ 1,774 $ 1,166
====== ====== ====== ====== ====== ====== ====== ======= =======
Net income per common share.......... $ 0.05 $ 0.07 $ 0.05 $ 0.10 $ 0.06 $ 0.10 $ 0.19 $ 0.17 $ 0.11
====== ====== ====== ====== ====== ====== ====== ======= =======
Pro forma income per common share.... $ 0.05 $ 0.06 $ 0.05 $ 0.10 $ 0.07 $ 0.10 $ 0.14 $ 0.16 $ 0.11
====== ====== ====== ====== ====== ====== ====== ======= =======
Weighted average number of common
and common equivalent shares
outstanding........................ 9,863 9,849 9,845 9,839 9,870 9,984 10,169 10,290 10,554
</TABLE>
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<PAGE> 19
RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Long-Lived Assets. In 1994, the FASB issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," which was effective for fiscal 1996. Adoption did not have a
material impact on the Company's financial position or results of operations.
Accounting for Stock Compensation. In 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which was effective in fiscal 1996.
SFAS No. 123 prescribes a fair value approach to measuring the compensation
element of grants or awards of equity instruments to employees and outsiders.
SFAS No. 123 allows companies to continue to use the intrinsic value methodology
provisions of APB No. 25 for measuring compensation with respect to grants or
awards to employees; however, companies are required to use the fair value
method to measure compensation on grants or awards to outsiders. The Company
expects to continue to use the intrinsic value method for grants to employees
and, since there were no equity awards made to outsiders in the three months
ended March 31, 1996, adoption of SFAS No. 123 did not have a material impact on
the Company's financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1996, and the twelve month periods
ended December 31, 1995, 1994 and 1993, the Company funded its operations
primarily 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 $5.0 million 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 March 31, 1996, commitments
outstanding on letters of credit totaled $69,800 which are to be used for future
inventory purchases; no other borrowings have been made during any period
presented.
The Company's working capital decreased from $24.8 million at December 31,
1995 to $24.5 million at March 31, 1996. The decrease was attributable, in part,
to higher accounts payable and accrued warranty costs combined with lower
accounts receivable balances which were partially offset by higher cash and
investment balances, inventory and deferred tax assets and lower accrued income
tax balances. In addition, the Company made a $1.8 million 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
increased primarily as a result of decreases in accounts receivable and
increases in accounts payable, which were partially offset by increases in
inventory and capital expenditures.
During the three months ended March 31, 1996, and the twelve months ended
December 31, 1995, 1994 and 1993, the Company purchased approximately
$1,800,000, $646,000, $269,000, and $359,000, respectively, of capital
equipment. The Company currently has no material commitments for additional
capital expenditures.
The Company anticipates that cash flows from operations, together with the
net proceeds from this offering, 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.
18
<PAGE> 20
BUSINESS
Brooktrout is a leading supplier of advanced software and hardware products
for system vendors and service providers in the electronic messaging market. The
Company's innovative products enable its customers to deliver a wide range of
solutions for the integration and cost effective management of image (fax),
voice and data communications in telecommunications and networking environments.
Uses of the Company's products range from established markets such as voice mail
to newly evolving applications including CTI, integrated management of voice,
fax and data messages (unified messaging), and communication of fax and voice
messages on LANs, wide area networks and the Internet. In recent years,
Brooktrout's products have played an important role in the development of the
market for advanced computer-based fax applications, including LAN fax and
enhanced fax services such as fax broadcasting, fax-on-demand and
store-and-forward fax. The Company sells its products to telecommunications
service providers, such as Hong Kong Telecommunications Limited and MCI
Communications Corporation; through OEMs, such as Lucent, Northern Telecom
Limited (Nortel) and Centigram Communications Corporation; and through VARs,
such as Computer Sciences Corp. and Entex Information Services, Inc..
THE ELECTRONIC MESSAGING INDUSTRY
Two ongoing technological revolutions are shaping the global business
environment: the computer revolution and the communications revolution. Business
organizations use computers not only to perform traditional computing functions,
but also to link workers together through networks which enable the convenient
sharing and transfer of information. At the same time, the commercialization of
communications technologies like facsimile, the emergence of new communications
networks such as the Internet, the deregulation of the telecommunications
industry, and other advances have made it less costly and easier than ever
before to communicate information.
Emergence of Electronic Messaging
The electronic messaging industry has grown from these parallel
revolutions. Applications of electronic messaging -- including voice messaging,
fax and electronic mail ("e-mail") -- are pervasive today. These applications
have evolved continuously as the industry has responded to technological
limitations and cost issues arising from the introduction of each new generation
of electronic messaging technology. With advances in telephone switching and
digital signal processing ("DSP"), voice processing applications such as voice
mail, voice response and call center systems became available. These
applications have become the backbone of many businesses and have become
indispensable tools for efficiently communicating information, despite sometimes
being costly, difficult to integrate into business computing networks and
limited in their ability to be modified to support new applications. In
facsimile, the establishment of the internationally accepted "Group 3" fax
standard in the 1980's led to the introduction of fax machines from many
different manufacturers that were reliable, easy-to-use and less expensive than
alternatives such as overnight courier services. The popularity of fax in
business resulted in high telephone bills, costly methods of delivering incoming
faxes and inefficiencies from sharing stand-alone fax machines among many
workers. The advent of e-mail in the 1970's proved useful for quick, paperless
communications within organizations but initially encountered obstacles in
moving beyond the bounds of a single organization because of the lack of network
connections and incompatibilities among different systems. Despite these
limitations, voice processing, fax and e-mail have all become staples of
business worldwide and their usage continues to grow rapidly.
The ongoing revolution in computers and communications fostered the
development of new technologies and tools to address the limitations in earlier
electronic messaging applications in each segment of the market:
Voice. In voice processing, open system technologies (including voice
processing boards for use in Industry Standard Architecture ("ISA")-bus
personal computers) and easy to use application development tools (such as
the C programming language and higher-level scripting languages based on
commercially available operating systems such as variants of the UNIX
operating system and Microsoft Corporation's Windows NT) have emerged to
enable lower-cost and more flexible systems. Systems based on open system
technologies now support virtually all popular voice processing
applications
19
<PAGE> 21
including voice mail, audiotext, interactive voice response, call center
and operator services, and are supplanting "closed" systems based on
proprietary technologies.
Fax. The development of computer-based facsimile technology made it
possible to apply the powerful message handling and image manipulation
capabilities of the computer to the universal communication facilities of
facsimile. This computer-based facsimile technology has led to a wide range
of applications that address some of the problems associated with fax
machine usage. These applications include:
- Network fax: providing fax transmission, reception and routing
services through enterprise and local area networks;
- Broadcast fax: providing simultaneous transmission of a fax to
many different recipients;
- Fax-on-demand: providing electronic retrieval of documents by
allowing callers to select, using a touch-tone telephone,
documents for transmission to a fax machine specified by the
caller;
- Fax store-and-forward/fax routing: providing lower-cost fax
transmission by routing faxes over lower cost networks or by
deferring fax delivery until times when telephone charges are
lowest;
- "Guaranteed" or "never busy" fax delivery: providing delivery of
faxes to destinations which are temporarily unavailable; and
- Fax mail: providing an electronic "mailbox" for facsimiles,
similar to a voice mailbox.
Data. Since the introduction of e-mail, standards have emerged that
offer connectivity among networks worldwide and many approaches to offering
compatibility among mail systems have been established. For example, the
Internet, based on the Internet Protocol ("IP") for data communication and
the Simple Mail Transport Protocol ("SMTP") standard for e-mail addressing,
has emerged to provide a worldwide network for e-mail communication.
Opportunities in Electronic Messaging
The emergence of these new electronic messaging applications and systems
for supporting them has been a direct result of the continuing evolution of the
underlying computer and communications technology. Integrated messaging combines
previously separate electronic messaging systems such as voice-, fax- and e-mail
systems to improve the effectiveness and efficiency of communications.
Interactive response systems, once limited to voice messaging, now incorporate
fax messaging to communicate complex or graphical information easily and,
recently, interfaces to browsers to permit access from the Worldwide Web. LAN
messaging systems, once limited to e-mail, now incorporate fax for off-network
connectivity. For example, Microsoft Corporation's Exchange software, which is
included in every copy of its Windows 95 desktop operating system, provides
e-mail, fax and even voice mail management capabilities. Technologies are now
available to use the Internet, originally used principally for e-mail and other
text messaging technologies, for fax and voice communications. These evolutions
of electronic messaging are creating opportunities for new applications that
improve the effectiveness and efficiency of business communications.
The development of these new applications has been facilitated by the
ongoing evolution of open system standards which enable developers and
integrators to combine hardware and software products from different vendors,
reducing the cost and development time of these new electronic messaging
applications. These standards range from general personal computer, networking
and telecommunication standards to specialized standards for computer telephony
systems such as MVIP and SCbus (standards for interoperability and switching
among computer telephony resources including voice, facsimile, data, telephone
line interfaces, etc.), the Enterprise Computer Telephony Forum's S.100 standard
for computer telephony application programming interfaces and Microsoft
Corporation's Messaging and Telephony APIs (MAPI and TAPI). The Company
participates in the development of several of these standards and implements
those which it expects will have significant market acceptance.
20
<PAGE> 22
The Company believes three major trends are driving the market for
electronic messaging: (i) the growing integration of computer and
telecommunications networks; (ii) the emergence of new network-based
communications applications; and (iii) the expansion of the Internet and the
development of new Internet-based applications. While certain portions of the
market (such as voice mail) have reached a stage of relative maturity, these
trends are stimulating the development of a number of market segments that are
based on more advanced electronic messaging technology. These potential growth
segments include the following, which are targeted by Brooktrout:
- Enhanced fax services: including applications such as fax broadcast,
fax-on-demand and fax mail. GIGA Information Services (formerly BIS
Strategic Decisions) has estimated that service revenue in this market in
the U.S. will grow at an average annual rate of 38% to $1.6 billion in
1999 from $313 million in 1994.
- Network communication: including applications such as LAN and enterprise
fax servers and integrated messaging servers. IDC estimates that system
revenue (fax boards and application software) in the U.S. fax server
market alone will grow at an average annual rate of 28% to $517 million
in 1999 from $190 million in 1995.
- Voice messaging, enhanced messaging and unified messaging: including
applications such as voice mail, fax mail and integration with LAN-based
e-mail systems (not including e-mail applications per se). Dataquest
estimates that system revenue in this market in the U.S. will grow at an
average annual rate of 18% to $3.3 billion in 1999 from approximately
$1.7 billion in 1995.
- Computer telephony integration (CTI): including applications such as
interactive voice and fax response and complex integrations of computer
networks and telephone switching systems (including ACDs and PBXs) in
call centers. Dataquest estimates that system and software revenue in
this market in the U.S. will grow at an average annual rate of 31% to
$7.3 billion in 1998 from $1.8 billion in 1995.
- Fax store-and-forward and Internet fax routing: including service
providers offering conventional store-and-forward services, typically
based on X.25 communications networks, and an emerging market of service
providers and system vendors developing products that use the Internet
for fax transmission.
The preceding information with respect to opportunities, future industry
trends and estimated market growth contains forward-looking statements. Actual
developments could differ materially from these estimates as a result of, among
other things, uncertainties relating to technological change and development,
customer demands and preferences and changing economic conditions. See "Risk
Factors."
STRATEGY
Brooktrout's objective is to strengthen its position as a leading supplier
of software and hardware products to electronic messaging system vendors and
service providers worldwide through technological innovation, focus on products
supporting high-value applications, and an emphasis on product development and
customer support. The Company intends to focus on those areas within the
industry where it has established or can develop a leadership position, deliver
products that enable application developers to create innovative systems and
services, continue to emphasize the development of international markets for its
products, and establish multiple complementary distribution channels.
Selective Market Focus
Within the electronic messaging industry, the Company has identified
several specific application segments which it believes are growing rapidly and
in which it holds, or can assume, a leadership position as a provider of
enabling software and hardware to OEMs, VARs and telecommunications service
providers. These segments include enhanced fax services, unified messaging,
computer telephony integration, network communication services, fax
store-and-forward and Internet fax routing. See "Business -- The Electronic
Messaging Industry."
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<PAGE> 23
High-Value Products and Services
To establish itself as a leader in the markets it targets, Brooktrout
delivers innovative, high-value software and hardware products that enable the
applications which these markets require. These products include advanced
application development software, DSP software and hardware for PC-based
systems, and embedded systems platforms. Brooktrout targets its products to the
demanding standards of these service providers and system vendors, which
typically exceed the standards for retail, "desktop" users. By offering its
customers products that conform to key open system standards, the Company
enables its customers to decrease the time to market for new systems, reduce
system cost and develop new applications.
International Market Development
As telecommunications access grows at a rapid pace globally, Brooktrout
believes that international sales represent a major source of potential growth
in the electronic messaging market. Brooktrout has focused intensively on laying
the groundwork for international sales of its products and systems incorporating
its products by pursuing and obtaining requisite approvals from local
telecommunications authorities in many jurisdictions. With its established
domestic market positioning, its foundation of international approvals and its
ongoing program of approval and development of products for international
market, Brooktrout is building a substantial international presence, and
believes that it is well positioned to participate in growth in this segment of
the market.
Complementary Distribution Channels
Many electronic messaging applications are delivered both as services by
network service providers and in systems sold to end-user organizations. To
maximize its coverage of opportunities in the market segments it targets,
Brooktrout focuses on sales to service providers and through OEMs and VARs.
Brooktrout does not market its products through the retail channel. In addition
to its direct customers, the Company also identifies important independent
software vendors ("ISVs") who develop electronic messaging applications that use
the Company's products to provide key functions, but are sold through VARs who
integrate the ISVs' applications with the Company's products and install the
complete solution for their customers. While these ISVs are not significant
customers themselves, the products they sell create demand for the Company's
products among VARs. Therefore the Company actively promotes the support of its
products by selected ISVs, provides development assistance to them and seeks to
establish the same close working relationship it does with direct customers.
Alternatively, the Company incorporates interfaces promulgated by ISVs as a
standard interface to its applications. ISVs with which the Company has worked
include Cheyenne Software, Inc., Equisys Ltd., Global Village Communication
Inc., Lotus Development Corp., Microsoft Corporation, Optus Software, Inc and
Symantec Corp.
TECHNOLOGY
Brooktrout provides innovative software and hardware products for enhanced
fax, voice and integrated messaging applications. A pioneer in fax and voice
processing, Brooktrout was awarded patents for the integration of fax and voice,
for fax-on-demand and for the use of Direct Inward Dialing ("DID") telephone
service with fax messaging systems. Brooktrout was also the first company to
offer multichannel fax boards, the first to integrate fax and voice on one
board, and, with the introduction of its Universal Port(TM) board, the first to
achieve this integration by software control of the digital signal processor.
Brooktrout's technological strength is founded on three basic areas of
expertise: DSP, computer-based facsimile and software development tools. These
strengths have been integrated in PC-based and system products.
Digital signal processing encompasses speech and image compression, fax and
data modem modulation, tone generation and detection, and other signal analysis.
It is the key enabling technology behind the Company's Universal Port (fax and
voice on a single board) products. At the heart of each Universal Port board are
software-controlled digital signal processors which provide fax and voice
processing on each channel
22
<PAGE> 24
independently and support board-level functions through downloadable firmware.
Future additional functions and features may be added through software upgrades
rather than through hardware replacement.
Brooktrout's strength in facsimile technology is based on nearly 10 years
of work with the modem, T.30 protocol and image handling functions of the Group
3 fax standard. This expertise is manifested in the Company's proprietary
enhancements to fax modem software to achieve faster transmission and reception;
its robust T.30 protocol software which ensures the interoperability of the
Company's products with fax devices worldwide; and its advanced image handling
capabilities which offer unique time and cost saving features. The Company has
also developed proprietary modifications of its T.30 protocol software to
support real-time fax transmission on data networks such as the Internet.
Brooktrout has developed powerful tools for rapid development of electronic
messaging applications, including its API and Show N Tel. Brooktrout's API is a
complete "C" language library of fax, voice, tone signaling and call processing
function calls that also includes time-saving sample applications, fax utilities
and debugging tools. Show N Tel is a graphical development platform for
enterprise-wide client/server voice, fax, and CTI applications. It provides
graphical icons that represent common operations in computer telephony.
Developers create complex applications by connecting these icons on a
drag-and-drop template.
Brooktrout believes that these areas of distinctive expertise, in
conjunction with its close working relationships with innovative service
providers and system vendors, will allow it to continue developing high value
products for the electronic messaging market.
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<PAGE> 25
PRODUCTS
<TABLE>
The Company has four major product lines, all of which serve the electronic
messaging market: fax and voice processing boards, application development
tools, fax systems and OEM systems. The following table describes Brooktrout's
principal products and the markets which they serve:
<CAPTION>
- -----------------------------------------------------------------------------------------------------
PRODUCTS DESCRIPTION TARGET CUSTOMERS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
FAX AND VOICE PROCESSING BOARDS
- -----------------------------------------------------------------------------------------------------
TR114 Series Universal Port Multichannel boards with Service providers, OEMs and
Fax & Voice boards advanced fax and voice VARs implementing medium to
processing capabilities high density fax and voice
available with 2, 4 or 8 systems
channels/board
- -----------------------------------------------------------------------------------------------------
TruFax Series Fax boards Two channel fax boards with OEMs and VARs implementing
general purpose features low density, general purpose
fax systems
- -----------------------------------------------------------------------------------------------------
APPLICATION DEVELOPMENT TOOLS
- -----------------------------------------------------------------------------------------------------
TR Series Fax & Voice API C-language application Service providers, OEMs and
development software for the VARs developing high
TR Series and TruFax boards performance fax and voice
applications with specific
custom requirements
- -----------------------------------------------------------------------------------------------------
Show N Tel A graphical, object-oriented Service providers, OEMs and
development environment for VARs developing enterprise
enterprise-wide voice, fax computer telephony systems
and computer telephony seeking an easy-to-use
applications application development and
prototyping tool
- -----------------------------------------------------------------------------------------------------
FAX SYSTEMS
- -----------------------------------------------------------------------------------------------------
QuadraFax An embedded system platform OEMs and VARs providing
for enhanced fax solutions for workgroups in
applications. QuadraFax is large organizations and small
available with fax broadcast businesses
and fax-on-demand
applications
- -----------------------------------------------------------------------------------------------------
IP/FaxRouter An embedded system platform OEMs and VARs providing
for routing faxes over the solutions for businesses with
Internet and other IP high fax transmission
networks expenses that have access to
the Internet or other IP
network services
- -----------------------------------------------------------------------------------------------------
OEM SYSTEMS
- -----------------------------------------------------------------------------------------------------
Lucent's Voice messaging systems Provided to Lucent on a
MerlinMail and designed for Lucent's Merlin private label basis for sale
PartnerMail systems Partner and Merlin Legend to purchasers of Merlin
telephone switches Partner and Merlin Legend
telephone systems
- -----------------------------------------------------------------------------------------------------
</TABLE>
Fax & Voice Processing Boards
TR114 Series. Introduced in 1992 and periodically enhanced since then, the
TR114 Series Universal Port boards are designed for high performance fax and fax
and voice messaging systems, such as those used by telecommunications service
providers, messaging system vendors and network communication server vendors.
The TR114 Series Universal Port boards offer full fax and voice processing on
each channel of a single multi-channel board. Advanced fax and voice features,
such as file conversions and file transfer protocols, are supported on the TR114
Series. Boards are available in a range of configurations, with two, four or
eight
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<PAGE> 26
channels per board. The TR114 Series boards are designed to be approved by
telecommunications regulatory agencies worldwide and have been approved for use
in 18 countries including the United States, Japan, England, France and Germany.
The range of the TR114 Series configurations allows developers flexibility
in designing systems from small corporate systems to large telephone company
service systems cost effectively. The TR114 Series two and four channel analog
boards support loop start and DID telephone service. The TR114 Series boards are
designed to be used in ISA-bus computers including PCs, which may be used as
platforms for smaller systems, and special purpose computers providing expansion
slots for up to 20 boards to serve the needs of large service providers. TR114
Series four and eight channel digital boards with interfaces for popular Pulse
Code Modulation ("PCM") highways, such as MVIP and PCM Expansion Bus ("PEB"),
offer developers options in designing systems for digital network services (such
as T1, E1 and ISDN) or with other resources, such as voice recognition, from
other vendors.
TruFax Series. Released in January 1995, the TruFax Series fax boards are
fax processing boards designed for small to medium scale, general purpose fax
servers and systems. TruFax Series products incorporate many of the functions
that contribute to the high reliability of TR114 Series products but do not
support many of their advanced fax features, or voice processing. TruFax Series
products are lower-priced than TR Series products. The first TruFax Series
product, the TruFax 200, is a two channel fax board. At the core of each channel
is a fax modem controlled by a microprocessor. The TruFax 200 is available with
analog telephone system interfaces.
Application Development Tools
TR Series Fax & Voice API. The TR Series API, originally introduced in
1991 and periodically enhanced since then, enables developers to quickly develop
sophisticated fax and voice applications. The API is a complete C language
library of fax, voice, tone signaling and call processing function calls. It
also includes time-saving sample applications, fax utilities and debugging
tools. The API is operating-system independent and supports most operating
systems, including Windows NT, UNIX, UnixWare, AIX, Solaris, QNX, OS/2, Windows
95 and MS DOS. Applications developed with the API run on all of the Company's
TR Series and TruFax Series products.
Show N Tel. Show N Tel is a graphical, object-oriented development and
prototyping environment for enterprise-wide, client/server voice, fax, and
computer telephony applications. It is designed to simplify and reduce the time
to develop complex applications. Show N Tel provides a library of over 200
PowerBlocks(TM), graphical icons that represent common operations in
computer-telephony applications. Developers create applications by connecting
these icons on a drag-and-drop template. In addition to the core voice, fax and
computer telephony functions, optional components are available to support
functions such as database access, speech recognition, speech synthesis
(text-to-speech) and fax document creation. Show N Tel has been supplied under
OS/2; recently the Company announced its availability under Windows NT.
Fax Systems
QuadraFax. QuadraFax is a platform designed to support small to medium
scale enhanced fax applications, such as fax-on-demand and fax broadcast, for
departments of large corporations, small businesses and small office/home office
users. It offers simple installation, easy administration and a low price.
QuadraFax has two major components: a fax and voice processing system unit and a
Windows-based administration program that runs on a personal computer. The
system unit includes DSPs for fax and voice processing, a CPU and a hard disk.
Application software can be embedded on the system unit's hard disk to provide
complete solutions. The PC-based Windows software provides an easy to use
graphical interface for configuring and administering the applications. The
Windows administration software runs on a PC that is connected to the system
unit by a serial port link.
IP/FaxRouter. Brooktrout has recently introduced the IP/FaxRouter, an
Ethernet peripheral which allows facsimile traffic to be sent via IP wide area
networks including the Internet. The IP/FaxRouter was developed to address the
escalating costs associated with facsimile transmission. By routing fax traffic
over IP
25
<PAGE> 27
data networks like the Internet, it can reduce or eliminate fax transmission
charges normally incurred from the telephone company. In organizations with
significant international fax traffic, the IP/FaxRouter can significantly reduce
telephone charges by routing faxes over an existing data network. Configuration
Network Management System (CNMS) software and Account Data Management System
(ADMS) software are also available with the IP/FaxRouter for centralized and
remote system management as well as tracking account activity in service
organizations.
OEM Systems
Merlin Mail, Partner Mail and Merlin Mail Multi-Lingual Version. Since
1990, Brooktrout has been the supplier of the Merlin Mail voice
messaging/automated attendant system for the AT&T Merlin small business
telephone system. In 1991, the Company introduced a second generation of Merlin
Mail designed for AT&T's Merlin Legend system, a new, small business telephone
system. In 1992, the Company introduced the Partner Mail voice
messaging/automated attendant system for AT&T's Partner small business telephone
system. In 1993, the Company introduced the third generation of Merlin Mail:
Merlin Mail Multi-Lingual Version. This newest Merlin Mail system incorporates
English, Spanish and French languages in one system and is integrated with
AT&T's Merlin Legend system. The Merlin Mail, Partner Mail and Merlin Mail
Multi-Lingual Version products are based on the voice boards developed and
manufactured by the Company. The Company continues to develop enhancements and
new features for these products.
SALES AND MARKETING
The Company markets its products primarily to service providers, OEMs and
VARs. The TR Series, TruFax Series, Show N Tel, QuadraFax and IP/Fax Router
products provide fax and voice processing, computer telephony or fax routing
functionality for systems sold by these customers. The Company's OEM systems
encompassing a complete solution are sold to Lucent as part of that customer's
products sold to end users.
Service Providers and OEMs
Providers of enhanced telecommunications services develop, or purchase from
developers, large, complex systems incorporating the Company's products to
deliver electronic messaging applications. These systems typically require long
development times and result in periodic deployments of large systems. OEMs
design, manufacture and market electronic messaging systems that include the
Company's products. OEMs generally have long product design and development
processes that precede the release of products.
Making sales to both of these types of customers can be a complex and
time-consuming process which is often focused on technical requirements. To
serve these customers in North America, the Company sells its products through a
direct sales force located in Massachusetts and California.
VARs
VARs typically purchase the Company's products for resale to an end-user
customer together with application software purchased from an ISV. The Company
has established a network of over 150 Brooktrout Authorized Resellers. The
Company employs direct sales people and manufacturers' representatives to
recruit, train and assist VARs.
International
The Company sells its products to service providers, OEMs and VARs
internationally through a direct sales force organized by region. The Company
has established a sales office in Diegem-Brussels, Belgium and expects to open
an office in Asia.
The Company's international sales efforts are primarily initiated from
corporate headquarters in the United States, although the Company maintains a
European sales office. International sales, principally exports from the United
States, accounted for approximately $2.0 million or 18% of revenue for the three
26
<PAGE> 28
months ended March 31, 1996, $4.3 million or 11% of revenue for the year ended
December 31, 1995, and approximately $2.3 million or 13% of revenue for the year
ended December 31, 1993. International sales were less than 10% of revenue for
the same period in 1994. In addition to direct international sales, significant
additional revenue is derived from international sales by Brooktrout's customers
of systems which incorporate Brooktrout's products.
Most countries require technical approvals from their telecommunications
regulatory agencies for products which operate in conjunction with the telephone
system. Obtaining these approvals is generally a prerequisite for sales in a
given jurisdiction. Obtaining requisite approvals may require from two months to
a year or more depending on the product and the jurisdiction. Approval of the
Company's fax products in Germany, France and Japan has taken up to twelve
months or more. The Company does not believe that these delays have had a
material impact on the Company's operations. The Company has not yet encountered
any situation in which it has proved impossible to obtain approval in a foreign
jurisdiction. The Company, its distributors or its customers have received
product approvals for Brooktrout products from agencies in Argentina, Australia,
Canada, France, Germany, Hong Kong, Italy, Japan, Korea, Malaysia, Netherlands,
New Zealand, Singapore, Sweden, Switzerland, Thailand, the United Kingdom, and
the United States.
TECHNICAL SUPPORT
Brooktrout seeks to deliver unmatched support and service to customers. By
listening to customers and thoroughly understanding their requirements, the
Company believes it can provide innovative high-value products which meet or
exceed customer expectations. Beyond delivery, Brooktrout backs its products
with responsive, engineering level support. Generally, the Company's technical
support staff members hold bachelor's degrees in electrical engineering or
computer science. Staff members place the highest priority on providing timely,
accurate information as well as advice on how to take advantage of Brooktrout's
sophisticated product line. Brooktrout's technical support personnel have been a
source of product improvements and new features and functions due to close
working relationships with customers. Brooktrout's technical support department
reports directly to the Company's President as further evidence of Brooktrout's
commitment to provide partnership-level support to customers. The Company's
technical support activities represent an integral element of its marketing
strategy. The Company believes that its technical support capability represents
a significant competitive advantage.
The Company warrants its hardware products against defects in materials and
workmanship generally for one year. Extended warranties of up to three years
have been provided to some customers for additional consideration.
27
<PAGE> 29
CUSTOMERS
<TABLE>
The Company sells its products to three principal categories of customers:
telecommunications service providers, messaging system OEMs and network
communications system OEMs and VARs. The following table lists some of the
Company's principal customers:
<CAPTION>
- -----------------------------------------------------------------------------------------------
TELECOMMUNICATIONS NETWORK COMMUNICATIONS
SERVICE PROVIDERS MESSAGING SYSTEM OEMS SYSTEM OEMS AND VARS
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Network operators, Telecommunications OEM OEM and VAR providers of LAN
independent service providers providers of systems for and enterprise network
and providers of systems electronic messaging electronic messaging systems
primarily for network applications
services
- -----------------------------------------------------------------------------------------------
AlphaNet Telecom, Inc. Applied Voice Technology Inc. American International
Facsimile Products Inc.
- -----------------------------------------------------------------------------------------------
Beijing Jiya Telecom Brite Voice Systems, Inc. Bit-by-Bit Computers, Inc.
- -----------------------------------------------------------------------------------------------
Deutsche Telekom AG Centigram Communications Computer Sciences Corp.
Corporation
- -----------------------------------------------------------------------------------------------
Fax International, Inc. Glenayre Technologies, Inc. Entex Information Services,
Inc.
- -----------------------------------------------------------------------------------------------
Hong Kong Telecommunications Inter-Tel, Incorporated Fontware Limited
Limited
- -----------------------------------------------------------------------------------------------
MCI Communications Lucent Technologies, Inc. Omtool Ltd.
Corporation
- -----------------------------------------------------------------------------------------------
PR Newswire Association, Inc. Northern Telecom Limited Open Port Technology, Inc.
(Nortel)
- -----------------------------------------------------------------------------------------------
Tele-Publishing, Inc. Octel Communications Corp. RightFAX Inc.
- -----------------------------------------------------------------------------------------------
Xpedite Systems, Inc. Voicetek Corporation Techland Group Limited
- -----------------------------------------------------------------------------------------------
</TABLE>
The Company typically sells its products on the basis of purchase orders
received from customers. The Company has entered into agreements with many of
its customers which establish terms and conditions for sales made under these
agreements from time to time. These agreements generally do not establish any
long-term fixed purchase or supply commitments for either party.
In 1993, 1994, 1995 and the first quarter of 1996, sales to AT&T, the
Company's largest customer, accounted for 58%, 53%, 36% and 26%, respectively,
of the Company's total revenue. No other single customer accounted for more than
10% of the Company's total revenue in 1993, 1994, 1995 or the first quarter of
1996. On April 3, 1996, AT&T completed an initial public offering of Lucent and
announced its intent to spin off to its shareholders the remaining interest in
the company by December 1996. Prior to Lucent's initial public offering, the
Company sold essentially all of its major products to a number of separate
business units within AT&T, although sales of the Merlin Mail, Merlin Mail
Multi-Lingual Version and Partner Mail systems have accounted for more than 80%
of the Company's revenue from AT&T in the last three years. The divisions which
represented the Company's principal customers within AT&T were transferred to
Lucent, although the Company has continuing business with AT&T.
PRODUCT DEVELOPMENT
The market for electronic messaging products is characterized by rapid
technological change, changes in customer requirements, frequent new product
introductions and enhancements and emerging industry standards. The Company
focuses significant resources on improving its products in response to changes
in operating systems, application software, computer and telephony hardware,
networking software, programming tools and computer language technology. In
1993, 1994, 1995 and the first quarter of 1996, the Company spent approximately
$2.6 million, $3.5 million, $4.8 million and $1.6 million, or approximately 14%,
14%, 13%
28
<PAGE> 30
and 14% of revenue, respectively, on research and development. The Company is
continuing its development efforts for its current products, as well as
developing next generation versions of its current products, in particular the
TR114 Series family and its OEM systems. In addition, the Company is developing
or has acquired technology for the development of data modem and ISDN products.
Research and development expenses have generally been charged to operations as
incurred. The Company believes significant investments in product development
are required to remain competitive. As a consequence, the Company intends to
increase the dollar amount of its product development expenditures in the
future, maintaining the level of such expenditures in the range of 13% to 15% of
revenue.
The Company believes that its software and hardware development team
provides a significant competitive advantage for the Company. The team is
comprised of members with experience in computer-based fax, voice processing,
telephony, device driver development, object-oriented software development,
graphical user interface ("GUI") development, and computer networking. The
Company believes this assembly of diverse technical expertise contributes to the
highly integrated functionality of its products. The Company's ability to
attract and retain highly qualified employees will be one of the principal
determinants of its success in maintaining technological leadership.
MANUFACTURING
Brooktrout's manufacturing operations consist primarily of final assembly
and testing of components, subsystems and systems. The Company tests its
products at various stages in the manufacturing process. Each product undergoes
a final load and functional test at the Company's Needham, Massachusetts or
Southborough, Massachusetts facility prior to shipment.
The Company uses independent manufacturers, one of which is Lucent, to
perform printed circuit board assembly and testing. The Company believes it has
good relationships with its subcontractors and has generally experienced timely
delivery of products and satisfactory quality with respect to products
manufactured by subcontractors. In December 1995, the Company's Needham,
Massachusetts facility achieved ISO 9002 certification.
COMPETITION
The Company is in direct competition with companies offering similar
products or products responsive to similar applications in each of its four
major product lines. In addition, there is always the potential for new entrants
into the Company's markets by other companies in related computer and
communications companies including the Company's customers and suppliers. The
Company believes that the principal competitive factors affecting the market for
the Company's products and services include product functionality and features,
product quality, performance and price, ease of product integration, and quality
of customer support services. The relative importance of each of these factors
depends upon the specific customer environment. Although the Company believes
that its products and services currently compete favorably with respect to such
factors, there can be no assurance that the Company can maintain its competitive
position against current and potential competitors.
Many of the Company's current and potential competitors have longer
operating histories, significantly greater financial, technical, product
development and marketing resources, greater name recognition and larger
customer bases than the Company. The Company's present or future competitors may
be able to develop products comparable or superior to those developed by the
Company, adapt more quickly than the Company to new technologies, evolving
industry trends or customer requirements, or devote greater resources to the
development, promotion and license of their products than the Company.
Accordingly, there can be no assurance that competition will not intensify or
that the Company will be able to compete effectively in its market.
The Company expects that it will face increasing pricing pressures from its
current competitors and new market entrants. The Company's competitors may
engage in pricing practices that cause the Company to reduce the average selling
prices of its products. To offset declining average selling prices, the Company
believes that it must successfully develop and introduce on a timely basis new
products or products that
29
<PAGE> 31
incorporate new features that can be sold at gross margins comparable to those
on existing products. To the extent that such new products are not developed in
a timely manner, do not achieve customer acceptance or do not generate
comparable gross margins, the Company's profitability may decline.
PROPRIETARY TECHNOLOGIES
The Company does not hold patents on a large part of its product line. The
Company's software and firmware are protected by copyright laws. Because
on-board and downloadable firmware represent an important element of the value
of the Company's hardware products, the Company believes that it obtains
significant protection for its proprietary interest in its hardware products, as
well as its software products, from copyright laws. Certain design features,
including ASICs (application specific integrated circuits), software and
firmware, receive some protection under trade secret laws. Each employee of the
Company has executed a proprietary information agreement designed to protect the
trade secrets of the Company, inventions created in the course of employment
with the Company and other proprietary information of the Company. There can be
no assurance, however, that copyright and trade secret protection will be
sufficient to prevent competitors from developing software and other technology
similar to the software and other technology upon which the Company relies for a
significant portion of its revenue.
The Company has acquired licenses under certain patents covering aspects of
voice processing technology, and licenses from third parties of software for its
voice and fax products. The Company pays royalties under these licenses with
respect to its sales of certain products. The licenses generally extend for the
life of the patent in question (in the case of patents) or in perpetuity (in the
case of software), and are subject to termination only in the event of a breach.
Royalties constitute a percentage of sales of particular products or product
elements, or a fixed amount per unit of hardware or software distributed, and do
not account for a material part of the Company's cost of product sold.
The Company has periodically received, and may receive in the future,
communications from third parties asserting patent rights with respect to
certain of the Company's products and features. The Company is a defendant in
one patent infringement case which it believes will not have a material effect
on the Company. See "Business -- Legal Proceedings." Otherwise, there is no
pending litigation against the Company regarding any of these claims, nor has
the Company to date believed it necessary to license any patent rights referred
to in such communications, except as described above and except for certain
other minor cases involving no payment of ongoing royalties.
BACKLOG
At December 31, 1995, the Company's backlog of orders for products and
services was approximately $7.5 million, compared with approximately $4.7
million at December 31, 1994. All of the backlog is expected to be shipped or
provided before the end of 1996. All orders believed to be firm for products or
services to be shipped or provided in the future are included in the backlog.
The Company regards all orders received in the normal course of business without
specifically negotiated return rights as firm orders and has not experienced any
material order cancellation rate in the past, although no assurance can be given
that adverse effects may not result from order cancellations in the future.
Because of the possibility of customer changes in delivery schedules or
cancellation of orders, the Company's backlog as of any particular date may not
be indicative of actual sales for any particular future period. The period of
time between placement of an order and delivery of the product varies from one
day for certain TR Series products to ten months for certain OEM systems
products.
EMPLOYEES
As of May 31, 1996, the Company had 139 full-time employees, of which 50
were engaged in engineering and product development, 23 in administration, 23 in
manufacturing and 43 in sales, marketing and technical support. None of the
Company's employees are represented by a labor union and the Company believes
its relations with its employees are good.
30
<PAGE> 32
PROPERTIES
During 1995 and until March 1996, the Company occupied a facility of
approximately 20,550 square feet in Needham, Massachusetts for research and
development, engineering, manufacturing and administration under a lease which
expired on December 31, 1995 and was extended on a month to month basis.
In 1995, the Company signed a new lease for a stand-alone 37,615 square
foot facility in Needham, Massachusetts. The new lease commenced March 1, 1996
and expires October 31, 2006. The new facility accommodates research and
development, engineering, manufacturing, sales, marketing and administration.
This office is now the Company's principal facility.
The Company also occupies approximately 16,515 square feet in Southborough,
Massachusetts, which it took over as lessee in connection with its acquisition
of TSI. This facility accommodates research and development, engineering and
packaging. The lease for this facility commenced on May 1, 1995 and expires on
April 30, 2001.
The Company occupies approximately 4,800 square feet in Richardson, Texas
for research and development and administrative facilities. The lease for this
facility commenced on March 1, 1995 and expires on February 28, 1998.
The Company also occupies shared office space in Diegem-Brussels, Belgium
under a lease which by its terms automatically renews every three months unless
either party gives notice prior to the commencement of the new term of its
intent to terminate. This space is used primarily for sales and marketing
activity in Europe.
The Company believes that its present facilities are adequate for its
current needs and that suitable additional space will be available as needed.
LEGAL PROCEEDINGS
Since September 1992, the Company has been involved in a series of
litigated cases with or involving Dialogic Corporation ("Dialogic"), a
competitor of the Company, and Dialogic's subsidiary GammaLink. In the first
case, two manufacturers of fax-on-demand systems, acting with support from
Dialogic, brought a claim seeking to invalidate the Company's patent covering
fax-on-demand technology. The Company subsequently brought claims against
Dialogic and GammaLink claiming that they were infringing the Company's patent
covering DID fax routing technology and seeking to invalidate a fax-on-demand
related patent controlled by Dialogic. In June 1995, all parties in the cases
signed a Settlement Agreement which the Company believed would resolve all
disputes between the Company and Dialogic. The Settlement Agreement involved the
dismissal of outstanding litigation, cross-licenses under existing and future
patents of the parties involving computer-based fax technology, and an agreement
by the Company to treat purchasers of Dialogic and GammaLink fax boards no less
favorably than purchasers of Brooktrout fax boards with respect to the Company's
fax-on-demand technology for the same use. The Company subsequently learned,
however, that a second Dialogic subsidiary had filed an infringement claim
against the Company relating to two different patents, which was not disclosed
to the Company at the time of the settlement negotiations and was not dismissed.
Shortly after the signing of the Settlement Agreement, Dialogic also made
certain filings with the U.S. Patent Office directed at a possible challenge to
the Company's fax-on-demand patent. On the basis of these and other actions
taken by Dialogic, the Company believes that Dialogic entered into the
Settlement Agreement in bad faith and with fraudulent intent. In November 1995,
the Company filed a lawsuit against Dialogic and certain affiliated parties in
the Federal District Court for the District of Massachusetts seeking rescission
of the Settlement Agreement and other relief. Dialogic has counterclaimed for
damages and special damages. If the Company prevails in its claim for rescission
of the Settlement Agreement, any or all of the cases described above may be
re-instituted. During the pendency of this case, the second Dialogic
subsidiary's patent infringement case against the Company has remained
outstanding. The Company believes that neither the currently pending litigated
cases or the cases that may be reinstituted as a result of the rescission
proceeding, nor an adverse decision in any of such cases, will have a material
adverse effect on the Company's business, financial condition or results of
operations.
31
<PAGE> 33
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
Certain information is set forth below concerning the executive officers
and directors of the Company:
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Eric R. Giler(1).............. 40 President and Director
David W. Duehren.............. 38 Vice President of Research and Development, Clerk and
Director
Patrick T. Hynes.............. 37 Vice President of Advanced Product Engineering and
Director
Stephen A. Ide................ 53 Senior Vice President of Sales and Marketing
Robert C. Leahy............... 43 Vice President of Finance and Operations and Treasurer
David B. Lowe................. 39 Vice President of Sales
R. Andrew O'Brien............. 38 Vice President of Marketing and Business Development
Jonathan J. Sirota............ 54 Vice President of Engineering
Robert G. Barrett(1)(2)(3).... 51 Director
David L. Chapman(1)(2)(3)..... 61 Director
W. Brooke Tunstall(2)......... 74 Director
<FN>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Stock Option Committee
</TABLE>
Eric R. Giler is a Company founder and has been President and a Director of
Brooktrout since the Company's inception in 1984. Prior to founding the Company,
Mr. Giler worked primarily in the area of technical marketing and sales as a
product manager with Teradyne, Inc. and an applications engineer manager for
Intec Corp. Mr. Giler is a board member of the MIT Enterprise Forum, the
Massachusetts Telecommunications Council and the New England-Israel Chamber of
Commerce. Mr. Giler also is a member of the American Electronics Association and
the Massachusetts Computer Software Council. Mr. Giler received a Bachelor of
Science degree in Management Science from Carnegie-Mellon University and a
Master of Business Administration degree from Harvard Business School.
David W. Duehren is a Company founder and has been Vice President of
Research and Development and a Director of Brooktrout since the Company's
inception in 1984. Mr. Duehren is the chairman of the Telecommunications
Industry Association Committee TR29.1, the subcommittee responsible for Group 3
fax enhancements, and also contributes to worldwide International
Telecommunications Union -- Telephony (ITU-T) facsimile standards. Mr. Duehren
is also a member of the Institute of Electrical Electronic Engineers (IEEE) and
has been a member of the SCSA work group on facsimile API standards. Mr. Duehren
received a Bachelor of Science degree and Master of Science degree in Electrical
Engineering from the Massachusetts Institute of Technology.
Patrick T. Hynes is a Company founder and has been Vice President of
Advanced Product Engineering since January 1994 and a Director of Brooktrout
from the Company's inception in 1984. Mr. Hynes was Vice President of
Engineering from the Company's inception to December 1993. Mr. Hynes is a member
of the Institute of Electrical Electronic Engineers (IEEE). Mr. Hynes received a
Bachelor of Science degree in Electrical Engineering from the Massachusetts
Institute of Technology and a Master of Science degree in Electrical Engineering
from Columbia University.
Stephen A. Ide has been Senior Vice President of Sales and Marketing of
Brooktrout since January 1993 and was Vice President of Sales and Marketing of
Brooktrout from July 1987 to December 1992. Prior to joining the Company, Mr.
Ide was co-founder and president of Computer Telephone Corporation. Mr. Ide also
served as vice president of operations for Rolm of New England Corporation.
Robert C. Leahy has been Vice President of Finance and Operations and
Treasurer of Brooktrout since March 1988. Prior to joining Brooktrout, Mr. Leahy
held the position of corporate controller and treasurer for
32
<PAGE> 34
Cambridge Robotics. Mr. Leahy is an active member in the Financial Executive
Institute. Mr. Leahy received a Bachelor of Science degree in accounting and a
Master of Business Administration degree from Bentley College.
David B. Lowe has been Vice President of Sales of Brooktrout since January
1993. Mr. Lowe was National Sales Manager of Brooktrout from October 1987 to
December 1992, and Eastern Regional Sales Manager of Brooktrout from November
1986 to September 1987. Prior to joining Brooktrout, Mr. Lowe was the National
Accounts Manager at ITT Business Communications Corporation. Mr. Lowe received a
Bachelor of Arts degree from Bates College and a Master of Business
Administration degree from Northeastern University.
R. Andrew O'Brien has been Vice President of Marketing and Business
Development of Brooktrout since July 1993, and Director of Marketing and
Business Development from January 1993 to June 1993. Prior to joining the
Company, Mr. O'Brien was an Associate at McKinsey & Company from September 1986
to January 1993. Mr. O'Brien is a member of the executive committee of GO-MVIP
and on the board of directors of the Enterprise Computer Telephony Forum. Mr.
O'Brien received a Bachelor of Arts degree from Yale University and a Master of
Business Administration degree from Harvard Business School.
Jonathan J. Sirota has been Vice President of Engineering of Brooktrout
since January 1994. Prior to joining the Company, Mr. Sirota was Senior Vice
President of Engineering and Operations for ERGO Computing, Inc. from March 1989
to January 1994. Mr. Sirota received a Bachelor of Science degree in Electrical
Engineering from Rensselaer Polytechnic Institute and a Master of Science degree
in Electrical Engineering from Massachusetts Institute of Technology.
Robert G. Barrett has been a Director of Brooktrout since February 1990. He
was one of the founders of Battery Ventures, a venture capital firm specializing
in communications and software investments. Mr. Barrett is on the board of
Marcam Corporation, a publicly held company, as well as various privately held
high technology companies.
David L. Chapman has been a Director of Brooktrout since August 24, 1992.
Since February 1992, he has been President and Chief Executive Officer of
NorthPoint Software Ventures, Inc., a privately held firm providing professional
and financial services for the software industry. From March 1990 to February
1992 he was General Partner and Executive Vice President of Landmark Ventures,
Inc., a company focused on technology evaluation and direct investment. From
March 1988 to March 1990, Mr. Chapman served as President and Chief Executive
Officer of Computer Power Group, Americas, a publicly held Australian company
engaged in professional services, consulting and education for businesses and
from March 1986 to March 1988 he was Chairman, Vice Chairman, President and
Chief Executive Officer of Cullinet Software, Inc. Prior to holding such
positions, Mr. Chapman was a Senior Vice President of Data General Corporation
and spent 23 years in various capacities at IBM. Mr. Chapman is on the board of
IPL Systems, Inc., a publicly held company, as well as various privately held
high technology companies.
W. Brooke Tunstall has been a Director of Brooktrout since April 1990. He
has been President of Brooke Tunstall Associated, a sole proprietorship engaged
in deregulation consulting, since January 1, 1985, and has been a Senior Advisor
to Mercer Management Consulting, a subsidiary of Marsh and McLennan, Inc., since
1987. Prior to his current consulting career, Mr. Tunstall was Corporate Vice
President -- Organization and Management Systems for AT&T. He retired from AT&T
in 1985 after a career of over thirty years that included a variety of
operational and staff assignments in the Bell Operating Companies, Bell
Laboratories, and AT&T Headquarters. Mr. Tunstall is the author of Disconnecting
Parties: Managing the Bell Break-Up, which chronicles his experiences planning
and implementing the divestiture of the Bell Operating Companies from their
parent.
33
<PAGE> 35
PRINCIPAL AND SELLING STOCKHOLDERS
<TABLE>
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of June
20, 1996 and as adjusted to reflect the sale of 900,000 shares of Common Stock
being offered by the Company and the Selling Stockholders hereby, by (i) each
person (or group of affiliated persons) who is known by the Company to
beneficially own more than five percent of the Company's Common Stock, (ii) the
Selling Stockholders, (iii) each of the Company's directors and each of the
Company's executive officers who beneficially own shares of the Company's Common
Stock as of such date, and (iv) the Company's directors and executive officers
as a group.
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING SHARES TO OWNED AFTER OFFERING
----------------------- BE SOLD IN ----------------------
BENEFICIAL OWNER NUMBER(1) PERCENT(2) OFFERING NUMBER(1) PERCENT(3)
---------------- --------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Robert G. Barrett(4)....................... 17,250 * -- 17,250 *
David L. Chapman(5)........................ 40,385 * 5,000 35,385 *
David W. Duehren(6)........................ 478,460 4.8% 40,000 438,460 4.2%
Murphy Duehren 1996 Charitable Remainder
Trust(7)................................. 18,000 * 18,000 -- *
Beverly Fox(8)............................. 244,558 2.5 72,279 172,279 1.7
Andrew Fox(9).............................. 244,558 2.5 72,279 172,279 1.7
Robert U. Friedman(10)..................... 209,620 2.1 104,810 104,810 1.0
Eric R. Giler(11).......................... 373,085 3.8 -- 373,085 3.6
Patrick T. Hynes(12)....................... 259,984 2.6 50,000 209,984 2.0
Stephen A. Ide(13)......................... 69,853 * -- 69,853 *
Robert C. Leahy(14)........................ 139,912 1.4 -- 139,912 1.3
David B. Lowe(15).......................... 26,373 * 3,000 23,373 *
R. Andrew O'Brien(16)...................... 111,738 1.1 10,000 101,738 *
Jonathan J. Sirota(17)..................... 102,306 1.0 -- 102,306 *
W. Brooke Tunstall(18)..................... 43,500 * 10,000 33,500 *
All current directors and executive
officers as a group (11 persons)(19)..... 1,680,846 15.9% 136,000 1,544,846 14.0%
<FN>
- ------------------------
* Less than 1%
(1) Except as indicated in the other footnotes to this table, based on
information provided by such persons and subject to applicable community
property laws, the persons named in the table above have sole voting and
investment power with respect to all of the shares of Common Stock shown as
beneficially owned by them.
(2) Percentage of ownership is based on 9,784,419 shares of Common Stock
outstanding on June 20, 1996. Shares of Common Stock subject to stock
options that are exercisable within 60 days of June 1, 1996 are deemed
outstanding for computing the percentage of the person or group holding
such options, but are not deemed outstanding for computing the percentage
of any other person or group.
(3) Percentage of ownership is based on the 10,299,051 shares of Common Stock
to be outstanding after giving effect to the sale of the shares of Common
Stock to the public offered by the Company hereby and assuming no exercise
of outstanding options or other issuance of shares after June 20, 1996.
(4) Includes 7,500 shares subject to options exercisable within 60 days. Does
not include 9,375 shares subject to options not exercisable within 60 days.
(5) Includes 1,406 shares subject to options exercisable within 60 days, 11,304
shares held jointly with Mr. Chapman's wife, 4,500 shares held jointly with
Mr. Chapman's mother and Mr. Chapman's wife, and 675 shares held by Mr.
Chapman's wife, as to which 675 shares he disclaims beneficial ownership.
Does not include 15,469 shares subject to options not exercisable within 60
days.
</TABLE>
34
<PAGE> 36
(6) Includes 99,379 shares subject to options exercisable within 60 days and
225 shares held by Mr. Duehren's wife, as to which shares he disclaims
beneficial ownership. Does not include 112,500 shares subject to options
not exercisable within 60 days. Does not include 18,000 shares held by
Murphy Duehren 1996 Charitable Remainder Trust, which may be deemed to be
beneficially owned by Mr. Duehren.
(7) Mr. Duehren, as co-trustee with his wife, may be deemed to share voting and
investment power with respect to all shares listed in the above table as
held by the Murphy Duehren 1996 Charitable Remainder Trust.
(8) Does not include shares held by Andrew Fox, Ms. Fox's husband, reflected
elsewhere in this table. Ms. Fox is Treasurer of TSI, a subsidiary of the
Company.
(9) Does not include shares held by Beverly Fox, Mr. Fox's wife, reflected
elsewhere in this table.
(10) Mr. Friedman is Clerk of TSI, a subsidiary of the Company.
(11) Includes 159,379 shares subject to options exercisable within 60 days,
213,256 shares held jointly with Mr. Giler's wife and 450 shares held by
Mr. Giler's minor sons, as to which 450 shares he disclaims beneficial
ownership. Does not include 168,750 shares subject to options not
exercisable within 60 days.
(12) Includes 46,878 shares subject to options exercisable within 60 days.
(13) Includes 69,853 shares subject to options exercisable within 60 days. Does
not include 112,500 shares subject to options not exercisable within 60
days.
(14) Includes 120,000 shares subject to options exercisable within 60 days. Does
not include 112,500 shares subject to options not exercisable within 60
days.
(15) Includes 26,373 shares subject to options exercisable within 60 days. Does
not include 30,100 shares subject to options not exercisable within 60
days.
(16) Includes 110,850 shares subject to options exercisable within 60 days and
888 shares held jointly with Mr. O'Brien's wife. Does not include 112,500
shares subject to options not exercisable within 60 days.
(17) Includes 97,500 shares subject to options exercisable within 60 days and
450 shares held by Mr. Sirota's wife, as to which shares he disclaims
beneficial ownership. Does not include 90,000 shares subject to options not
exercisable within 60 days.
(18) Includes 24,375 shares subject to options exercisable within 60 days and
1,125 shares held by Mr. Tunstall's wife, as to which he disclaims
beneficial ownership. Does not include 3,750 shares subject to options not
exercisable within 60 days.
(19) See Notes 5-7 and 11-18 above. Neither Ms. Fox, Mr. Fox nor Mr. Friedman is
a director or executive officer of the Company.
35
<PAGE> 37
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have 10,299,051 shares of
Common Stock outstanding (10,434,051 shares if the Underwriters' over-allotment
option is exercised in full), 9,835,427 of which will be freely tradeable
without substantial restriction or the requirement of future registration under
the Securities Act except for shares held or purchased by "affiliates" of the
Company as that term is defined in Rule 144, and 463,624 shares which will be
"restricted securities" under Rule 144. Of the 9,784,419 shares of Common Stock
outstanding as of June 20, 1996, 8,154,074 shares are freely tradeable, 712,992
shares (of which 249,368 shares are being offered hereby) are restricted
securities under Rule 144, and 917,353 additional shares (of which 136,000
shares are being offered hereby) are held by directors and executive officers
who may be deemed affiliates of the Company pursuant to Rule 144, and which
shares may be sold subject to the provisions of Rule 144 and the contractual
restrictions described below.
The Company and the Selling Stockholders have agreed that they will not,
for a period of 180 days from the date of this Prospectus, and the executive
officers and directors of the Company that are not also Selling Stockholders
have agreed that they will not, for a period of 90 days from the date of this
Prospectus, directly or indirectly, offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, pledge, contract of sale, grant of any
option to purchase or other sale or disposition) of any shares of Common Stock
or other capital stock of the Company or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, except that such agreement does not
prevent the Company from granting additional options under the Company's 1992
Plan. Upon the expiration of these lockup agreements all 1,244,977 shares held
by such executive officers, directors and Selling Stockholders which are not
sold in this offering will become eligible for sale in the public market,
subject to the applicable volume and manner-of-sale limitations of Rule 144, and
1,719,209 shares of Common Stock issuable upon exercise of currently outstanding
options will become eligible for sale as such options become vested. Under Rule
144, the volume limitations permit the sale of a number of shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately 102,990 shares immediately after the offering) or the average
weekly trading volume of the Common Stock on the Nasdaq National Market during
the four calendar weeks preceding the sale, subject to the filing of a Form 144
with respect to such sale and certain other limitations and restrictions. The
Company has filed registration statements under the Securities Act to register
shares of Common Stock reserved for issuance under its employee stock plans,
thus permitting the resale of such shares of Common Stock by non-affiliates in
the public market without restriction under the Securities Act. A total of
2,397,322 shares (including shares subject to outstanding options) are reserved
for issuance under the 1992 Plan and the Company's Employee Stock Purchase Plan.
The outstanding restricted securities which are not sold in this offering
will be eligible for sale under Rule 144 commencing May 29, 1998 (two years
after their issuance), subject to applicable volume and manner-of-sale
limitations, and a portion of such shares are entitled to certain registration
rights.
The Common Stock has been traded on the Nasdaq Stock Market's National
Market since October 1992. Nevertheless, sales of substantial amounts of Common
Stock in the public market could adversely affect the prevailing market price
and could impair the Company's future ability to raise capital through an
offering of its equity securities. See "Risk Factors -- Volatility of Stock
Price" and "-- Shares Eligible for Future Sale."
36
<PAGE> 38
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, Smith Barney Inc. and Tucker Anthony Incorporated are
acting as representatives (the "Representatives"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company and the Selling Stockholders the number of shares of Common
Stock set forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------ ---------
<S> <C>
Prudential Securities Incorporated................................
Smith Barney Inc. ................................................
Tucker Anthony Incorporated.......................................
---------
Total................................................... 900,000
=========
</TABLE>
The Company and the Selling Stockholders are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock
offered hereby if any are purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholders that they propose to offer the shares of Common
Stock initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow to selected dealers a concession of
$ per share; and that such dealers may reallow a concession of
$ per share to certain other dealers. After the initial public
offering, the offering price and the concessions may be changed by the
Representatives.
The Company has granted to the Underwriters an over-allotment option,
exercisable for 30 days from the date of this Prospectus, to purchase, in the
aggregate, up to 135,000 additional shares of Common Stock at the initial public
offering price, less underwriting discounts and commissions, as set forth on the
cover page of this Prospectus. The Underwriters may exercise such option solely
for the purpose of covering over-allotments incurred in the sale of the shares
of Common Stock offered hereby. To the extent such option to purchase is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such Underwriter's name in the preceding
table bears to 900,000 shares.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
The Company and the Selling Stockholders have agreed that they will not,
for a period of 180 days from the date of this Prospectus, and the executive
officers and directors of the Company that are not also Selling Stockholders
have agreed that they will not, for a period of 90 days from the date of this
Prospectus, directly or indirectly, offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, pledge, grant of any
option to purchase or other disposition) of any shares of Common Stock or other
capital stock of the Company, or any securities
37
<PAGE> 39
convertible into, or exercisable or exchangeable for, any shares of Common Stock
or other capital stock of the Company without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, except that
such agreement does not prevent the Company from granting additional options
under its 1992 Plan.
In connection with this offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market, may engage in passive market making
transactions in the Common Stock of the Company on the Nasdaq National Market in
accordance with Rule 10b-6A under the Securities Exchange Age of 1934, as
amended (the "Exchange Act"), during the two business day period before
commencement of offers or sales of the Common Stock. Passive market making
transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for such security; if all
independent bids are lowered below the passive market maker's bid, however, such
bid must then be lowered when certain purchase limits are exceeded.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been passed
upon for the Company and the Selling Stockholders by Goodwin, Procter & Hoar
LLP, Boston, Massachusetts. Thomas P. Storer, a partner in the firm of Goodwin,
Procter & Hoar LLP, is Assistant Clerk of the Company. Certain legal matters
relating to the offering will be passed upon for the Underwriters by Gibson,
Dunn & Crutcher LLP, San Francisco, California.
EXPERTS
The supplemental and historical consolidated financial statements of the
Company as of December 31, 1994 and 1995 and for each of the three years in the
period ended December 31, 1995 and the historical financial statements of TSI as
of December 31, 1995 and for the year then ended included in or incorporated by
reference in this Prospectus have been audited by Deloitte & Touche LLP as
stated in their report with respect to the Supplemental Consolidated Financial
Statements dated June 20, 1996 (which report expresses an unqualified opinion
and includes an explanatory paragraph relating to the restatement of the
consolidated financial statements for a pooling-of-interests) included herein
and as stated in their reports with respect to (1) the Company's historical
financial statements dated February 2, 1996 (except for Note (1), "Stock Split,"
as to which the date is February 27, 1996) and (2) the historical financial
statements of Technically Speaking, Inc. dated March 8, 1996 (which includes an
explanatory paragraph related to the acquisition of TSI by the Company)
incorporated by reference herein and which have been so included and
incorporated in reliance upon such reports given upon their authority as experts
in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
Registration Statement (as defined below), as well as such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can also be obtained from the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
West Fifth Street, N.W., Washington, D.C. 20549, and at its public reference
facilities at New York, New York and Chicago, Illinois at prescribed rates. In
addition, the Common Stock is listed on the Nasdaq National Market, and the
aforementioned materials may also be inspected at the offices of The Nasdaq
Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
38
<PAGE> 40
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder, covering the
Common Stock being offered hereby. For further information with respect to the
Company and the shares of Common Stock being offered by this Prospectus,
reference is hereby made to such Registration Statement, including the exhibits
filed as part thereof. Statements contained in this Prospectus concerning the
provisions of certain documents filed with, or incorporated by reference in, the
Registration Statement are not necessarily complete, each such statement being
qualified in all respects by such reference. Copies of all or any part of the
Registration Statement, including the documents incorporated by reference
therein or exhibits thereto, may be obtained upon payment of the prescribed fees
at the offices of the Commission set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1995, the Company's Form 10-C, dated March 4, 1996, the Company's
Current Report on Form 8-K dated March 8, 1996 (reporting the agreement to
acquire TSI), the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996, the Company's Current Report on Form 8-K and amendment on
Form 8-K/A dated June 13, 1996 and further amendment on Form 8-K/A dated June
21, 1996 (reporting the Company's acquisition of TSI), the Company's Form 10-C
Report dated June 5, 1996, the Company's Form 10-C Report dated June 24, 1996,
the Company's Proxy Statement for the Annual Meeting of Stockholders held on May
29, 1996, the Company's Form 8-K dated July 18, 1996 (reporting the Company's
second quarter earnings) and the Company's Registration Statement on Form 8-A
filed October 1, 1992 registering the Common Stock under Section 12(g) of the
Exchange Act are hereby incorporated by reference in this Prospectus.
Additionally, any document filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of this offering shall be deemed to be incorporated by reference in this
Prospectus.
Any statements contained in a document incorporated by reference herein
shall be deemed to be modified, replaced or superseded for all purposes of this
Prospectus to the extent that a statement contained herein modifies, replaces or
supersedes such statement. Any such statement so modified, replaced or
superseded shall not be deemed, except as so modified, replaced or superseded,
to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the request of such person, a copy of any or
all of the documents incorporated herein by reference (other than exhibits
thereto, unless such exhibits are specifically incorporated by reference into
such documents). Written requests for such copies should be directed to Robert
C. Leahy, Vice President of Finance and Operations, and Treasurer, Brooktrout
Technology, Inc., 410 First Avenue, Needham, Massachusetts 02194. Telephone
inquiries may be directed to (617) 449-4100.
39
<PAGE> 41
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 42
INDEX TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Supplemental Consolidated Balance Sheets at December 31, 1994 and 1995 and (unaudited)
March 31, 1996...................................................................... F-3
Supplemental Consolidated Statements of Income for the years ended December 31, 1993,
1994 and 1995 and (unaudited) for the three months ended March 31, 1995 and 1996.... F-4
Supplemental Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and (unaudited) for the three months ended March
31, 1996............................................................................ F-5
Supplemental Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 and (unaudited) for the three months ended March 31, 1995 and
1996................................................................................ F-6
Notes to Supplemental Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Brooktrout Technology, Inc.:
We have audited the accompanying supplemental consolidated balance sheets
of Brooktrout Technology, Inc. and its subsidiaries as of December 31, 1994 and
1995, and the related supplemental consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect
to the acquisition of Technically Speaking, Inc. as of May 29, 1996, which has
been accounted for as a pooling of interests as described in Note 1 to the
supplemental consolidated financial statements. Generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling of interests method in financial statements that do
not cover the date of consummation. These supplemental consolidated financial
statements do not extend through the date of consummation; however, they will
become the historical consolidated financial statements of the Company after
financial statements covering the date of consummation of the business
combination are issued.
In our opinion, such supplemental consolidated financial statements present
fairly, in all material respects, the financial position of the Company and its
subsidiaries at December 31, 1994 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles applicable
after financial statements are issued for a period which includes the date of
consummation of the business combination.
As discussed in Note 1 to the supplemental consolidated financial
statements, in 1993 the Company changed its method of accounting for income
taxes to conform with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
Deloitte & Touche LLP
Boston, Massachusetts
June 20, 1996
F-2
<PAGE> 44
BROOKTROUT TECHNOLOGY, INC.
<TABLE>
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
NOTES 1994 1995 1996
----- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.............................. 1 $10,435 $14,230 $14,794
Marketable securities............................. 1 8,544 7,924 7,585
Accounts receivable (less allowance for doubtful
accounts of $364, $449 and $504 in 1994, 1995
and 1996, respectively)........................ 1 3,071 6,097 5,718
Inventory......................................... 1 1,641 3,878 4,346
Deferred tax assets............................... 1,5 404 454 577
Prepaid expenses.................................. 255 366 401
------- ------- -------
Total current assets........................... 24,350 32,949 33,421
------- ------- -------
Equipment and furniture: 1,4
Computer equipment................................ 963 1,346 1,752
Furniture and office equipment.................... 330 539 1,943
------- ------- -------
Total.......................................... 1,293 1,885 3,695
Less accumulated depreciation and
amortization................................. (644) (852) (951)
------- ------- -------
Equipment and furniture -- net................. 649 1,033 2,744
Investment and other assets......................... 1 462 599 574
------- ------- -------
Total..................................... $25,461 $34,581 $36,739
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit.................................... $ -- $ 50 $ 50
Current portion of long-term debt................. 4 24 6 --
Accounts payable and other accruals............... 2,846 5,110 6,839
Customer deposits................................. 208 376 364
Accrued warranty costs............................ 1 364 336 384
Accrued compensation and commissions.............. 524 1,185 1,160
Accrued income taxes.............................. 5 559 1,063 105
------- ------- -------
Total current liabilities...................... 4,525 8,126 8,902
------- ------- -------
Deferred rent....................................... 8 32 10 35
Long-term debt...................................... 4 6 -- --
Commitments and contingencies....................... 8,10 -- -- --
Stockholders' equity: 1,6
Preferred stock, $1.00 par value; authorized
100,000 shares; issued and outstanding, none... -- -- --
Common stock, $.01 par value; authorized
25,000,000 shares; issued and outstanding,
9,606,122, 9,683,116 and 9,738,196 shares in
1994, 1995 and 1996, respectively.............. 96 97 97
Additional paid-in capital........................ 16,663 16,884 17,122
Unrealized gains (losses) on marketable
securities..................................... (95) 49 14
Retained earnings................................. 4,234 9,415 10,569
------- ------- -------
Total stockholders' equity........................ 20,898 26,445 27,802
------- ------- -------
Total..................................... $25,461 $34,581 $36,739
======= ======= =======
</TABLE>
See notes to supplemental consolidated financial statements.
F-3
<PAGE> 45
BROOKTROUT TECHNOLOGY, INC.
<TABLE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------- ------------------
NOTES 1993 1994 1995 1995 1996
----- ------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue................................... 1,7,9 $18,060 $24,888 $38,673 $7,167 $11,300
Cost and expenses:
Cost of product sold.................... 8,734 12,055 17,759 3,494 5,097
Research and development................ 1 2,584 3,523 4,822 1,000 1,556
Selling, general and administrative..... 4,294 5,686 9,144 1,807 2,984
------- ------- ------- ------ -------
Total cost and expenses......... 15,612 21,264 31,725 6,301 9,637
------- ------- ------- ------ -------
Income from operations.................... 2,448 3,624 6,948 866 1,663
Other income (expense):
Interest/other income................... 494 604 967 216 263
Interest expense........................ (15) (10) (7) (1) --
------- ------- ------- ------ -------
Total other income.............. 479 594 960 215 263
------- ------- ------- ------ -------
Income before income tax provision and
change in accounting principle.......... 2,927 4,218 7,908 1,081 1,926
Income tax provision...................... 1,4 986 1,589 2,705 449 760
------- ------- ------- ------ -------
Income before change in accounting
principle............................... 1,941 2,629 5,203 632 1,166
Change in accounting principle............ 1 337 -- -- -- --
------- ------- ------- ------ -------
Net income................................ $ 2,278 $ 2,629 $ 5,203 $ 632 $ 1,166
======= ======= ======= ====== =======
Income per common share: 1
Before change in accounting principle... $ 0.20 $ 0.27 $ 0.52 $ 0.06 $ 0.11
Change in accounting principle.......... .03 -- -- -- --
------- ------- ------- ------ -------
Net income.............................. $ 0.23 $ 0.27 $ 0.52 0.06 $ 0.11
======= ======= ======= ====== =======
Pro forma income per common share:
Before change in accounting principle... $ 0.19 $ 0.26 $ 0.47 $ 0.07 $ 0.11
Change in accounting principle.......... 0.03 -- -- -- --
------- ------- ------- ------ -------
Net income.............................. $ 0.23 $ 0.26 $ 0.47 $ 0.07 $ 0.11
======= ======= ======= ====== =======
Weighted average number of common and
common equivalent shares outstanding.... 1 9,783 9,843 10,077 9,870 10,554
</TABLE>
See notes to supplemental consolidated financial statements.
F-4
<PAGE> 46
BROOKTROUT TECHNOLOGY, INC.
<TABLE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
UNREALIZED
GAINS
COMMON STOCK ADDITIONAL (LOSSES) ON
------------------ PAID-IN MARKETABLE RETAINED
SHARES AMOUNT CAPITAL SECURITIES EARNINGS TOTAL
--------- ------ ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993................... 8,681,525 $87 $16,202 -- $ (673) $15,616
Issuance of common stock for cash.......... 869,385 9 129 -- -- 138
Tax benefit of stock options............... -- -- 230 -- -- 230
Unrealized losses on marketable
securities............................... -- -- -- $(21) -- (21)
Net income................................. -- -- -- -- 2,278 2,278
--------- --- ------- ---- ------- -------
Balance, December 31, 1993................. 9,550,910 96 16,561 (21) 1,605 18,241
Issuance of common stock for cash.......... 55,212 -- 78 -- -- 78
Tax benefit of stock options............... -- -- 24 -- -- 24
Unrealized losses on marketable
securities............................... -- -- -- (74) -- (74)
Net income................................. -- -- -- -- 2,629 2,629
--------- --- ------- ---- ------- -------
Balance, December 31, 1994................. 9,606,122 96 16,663 (95) 4,234 20,898
Issuance of common stock for cash.......... 76,994 1 114 -- -- 115
Tax benefit of stock options............... -- -- 107 -- -- 107
Unrealized gains on marketable
securities............................... -- -- -- 144 -- 144
Distributions to stockholders.............. -- -- -- -- (22) (22)
Net income................................. -- -- -- -- 5,203 5,203
--------- --- ------- ---- ------- -------
Balance, December 31, 1995................. 9,683,116 97 16,884 49 9,415 26,445
Unaudited:
Issuance of common stock for cash.......... 55,080 -- 238 -- -- 238
Unrealized losses on marketable
securities............................... -- -- -- (35) -- (35)
Distributions to stockholders.............. -- -- -- -- (12) (12)
Net income................................. -- -- -- -- 1,166 1,166
--------- --- ------- ---- ------- -------
Balance, March 31, 1996 (unaudited)........ 9,738,196 $97 $17,122 $ 14 $10,569 $27,802
========= === ======= ==== ======= =======
</TABLE>
See notes to supplemental consolidated financial statements.
F-5
<PAGE> 47
BROOKTROUT TECHNOLOGY, INC.
<TABLE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 2,278 $ 2,629 $ 5,203 $ 632 $ 1,166
Adjustments to reconcile net income to cash
provided by (used for) operating
activities:
Cumulative effect of change in accounting
principle.............................. (337) -- -- -- --
Depreciation and amortization............. 178 260 648 75 106
Amortization of discount (premium) on
marketable securities.................. (16) 9 21 (4) 9
Deferred income taxes..................... 90 (157) (50) (30) (123)
Increase (decrease) in cash from:
Accounts receivable.................... (1,642) (187) (3,026) (246) 421
Due to (from) stockholders............. 2 -- -- -- --
Inventory.............................. (1,082) 263 (2,237) (154) (468)
Other prepaid expenses................. (231) (9) (123) 66 (23)
Accounts payable and other accruals.... 278 1,987 3,547 422 770
-------- ------- -------- ------- -------
Cash provided by (used for) operating
activities........................ (482) 4,795 3,983 761 1,858
-------- ------- -------- ------- -------
Cash flows from investing activities:
Expenditures for equipment and
furniture.............................. (359) (269) (646) (103) (1,805)
Other assets.............................. (571) 10 (11) -- 2
Investment................................ -- -- (500) -- --
Purchases of marketable securities........ (17,769) (617) (10,801) (500) (296)
Maturities and sales of marketable
securities............................. 8,054 1,700 11,544 3,900 591
-------- ------- -------- ------- -------
Cash provided by (used for) investing
activities........................ (10,645) 824 (414) 3,297 (1,508)
-------- ------- -------- ------- -------
Cash flows from financing activities:
Proceeds from the sale of common stock.... 138 78 222 25 232
Distributions to stockholders............. -- -- (22) (2) (12)
Net proceeds from line of credit.......... -- -- 50 -- --
Repayment of long-term debt............... (19) (20) (24) (6) (6)
-------- ------- -------- ------- -------
Cash provided by financing
activities........................ 119 58 226 17 214
-------- ------- -------- ------- -------
Increase (decrease) in cash and
equivalents............................... (11,008) 5,677 3,795 4,075 564
Cash and equivalents, beginning of period... 15,766 4,758 10,435 10,435 14,230
-------- ------- -------- ------- -------
Cash and equivalents, end of period......... $ 4,758 $10,435 $ 14,230 $14,510 $14,794
======== ======= ======== ======= =======
</TABLE>
See notes to supplemental consolidated financial statements.
F-6
<PAGE> 48
BROOKTROUT TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -- Brooktrout Technology, Inc. (the Company) supplies computer
software and hardware products to system vendors and service providers in the
electronic messaging market. The Company's products enable its customers to
deliver a wide range of solutions for the integration and cost effective
management of image (fax), voice and data communications. The Company conducts
business principally in the United States, with manufacturing, research and
sales operations centered in Massachusetts and Texas. The Company sells its
products to service providers, original equipment manufacturers, and value-added
resellers.
Basis of Presentation -- The supplemental consolidated financial statements
of the Company and its subsidiaries have been prepared to give retroactive
effect to the acquisition of Technically Speaking, Inc. (TSI) on May 29, 1996
(see Note 2) which has been accounted for as a pooling-of-interests (pooling).
Generally accepted accounting principles proscribe giving effect to a merger or
business combination accounted for as a pooling in financial statements that do
not include the date of consummation. These financial statements do not extend
through the date of consummation; however, they will become the Company's
historical consolidated financial statements after financial statements
including the consummation date are issued.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, TSI,
Brooktrout Securities Corporation, Brooktrout Technology (Europe) Limited
(U.K.), Brooktrout Technology Europe, Ltd. (U.S.) and Brooktrout Networks Group,
Inc. All significant intercompany balances and transactions have been
eliminated.
Interim Results (Unaudited) -- In the opinion of management, the
accompanying interim unaudited consolidated financial statements as of March 31,
1996 and for the three-month periods ended March 31, 1995 and 1996 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 financial position and operating
results of the Company for such periods.
Stock Splits -- All share and per share data have been restated to
retroactively reflect the impact of two three-for-two stock splits effected by
50% stock dividends paid on February 27, 1996 and June 20, 1996.
<TABLE>
Inventory -- Inventory is carried at the lower of cost (first-in, first-out
basis) or market and consisted of the following:
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Raw materials.................................. $ 997,000 $2,979,000 $3,486,000
Work in process................................ 477,000 605,000 495,000
Finished goods................................. 167,000 294,000 365,000
---------- ---------- ----------
Total................................ $1,641,000 $3,878,000 $4,346,000
========== ========== ==========
</TABLE>
Equipment and Furniture -- Purchased equipment and furniture is recorded at
cost. Leased equipment is recorded at the lesser of cost or the present value of
the minimum lease payments required during the lease period. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the related assets (five years) or, in the case of leased
property, over the life of the lease, if shorter.
Investment -- During 1995, the Company made an investment in the common
stock of a company operating in the computer telephony industry. The Company's
investment aggregated $500,000 at December 31, 1995 and represents less than 20%
of the voting interest. Because the common stock is not readily marketable, the
investment is carried at cost and periodically assessed for potential impairment
in value.
F-7
<PAGE> 49
BROOKTROUT TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition -- Revenue from product or software sales is recognized
upon the shipment or delivery of product when no significant obligations remain.
Revenue from maintenance and support contracts is deferred and recognized as the
services are performed. Maintenance and support revenue included with an initial
license fee is unbundled and recognized as the services are performed.
Concentration of Credit Risk -- The Company sells its products to various
customers in several industries. The Company generally requires no collateral;
however, to control credit risk the Company performs ongoing credit evaluations
of its customers and maintains allowances for potential credit losses. At
December 31, 1995, 32% of the Company's accounts receivable were from one
customer (see Note 7).
Software Development Costs -- Certain software costs were capitalized prior
to 1995 following attainment of technological feasibility. These costs
aggregated $401,000 and are fully amortized at December 31, 1995. All other
development costs of this nature were immaterial and charged to expense as
incurred.
Research and Development Costs -- Research and development costs, other
than software development costs, are expensed as incurred.
Warranty Costs -- Estimated costs of warranty repairs are provided at the
time of sale of the related product.
Income Taxes -- Deferred tax assets and liabilities are provided to
recognize temporary differences between the book and tax bases of the Company's
assets and liabilities. These assets and liabilities are measured using
currently enacted rates. The Company adopted SFAS No. 109, "Accounting for
Income Taxes," in 1993 and recognized a credit of $337,000, representing the
effect of this accounting change.
Cash Flow Information -- Cash equivalents include highly liquid securities
with remaining maturities of three months or less at the time of purchase.
<TABLE>
Supplemental disclosure of cash flow information:
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995
-------- ---------- ----------
<S> <C> <C> <C>
Cash paid for interest.......................... $ 14,000 $ 10,000 $ 7,000
Cash paid for income taxes...................... 599,000 1,217,000 2,219,000
</TABLE>
Marketable Securities -- Marketable securities are classified as
available-for-sale and are carried at fair market value using current market
quotes. Unrealized gains or losses are recorded as a separate component of
stockholders' equity.
Marketable securities consist primarily of U.S. Treasury securities, with
some funds held in investment grade corporate notes. At December 31, 1994 and
1995, the amortized cost of these securities was $8,639,000 and $7,874,000,
respectively. Gross unrealized losses at December 31, 1994 were $95,000; there
were no significant gross unrealized gains. Gross unrealized gains at December
31, 1995 were $49,000; there were no significant gross unrealized losses. Since
the Company generally holds these securities to maturity, during the three years
ended December 31, 1995, there were no significant realized gains or losses from
sales of these securities.
Income per Common Share -- Income per common share is computed using the
weighted average number of common and common equivalent shares outstanding
during each year. The weighted average number of shares outstanding during each
period has been adjusted to reflect the three-for-two stock splits referred to
above. Common equivalent shares consist of stock options using the treasury
stock method.
Pro Forma Income Per Common Share -- Pro forma income per common share is
based upon reported net income, adjusted for pro forma tax charges (benefits) of
$42,000, $34,000, $424,000, ($31,000) and $5,000 for the years ended December
31, 1993, 1994 and 1995 and the three month periods ended March 31,
F-8
<PAGE> 50
BROOKTROUT TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995 and 1996, respectively, on TSI income. TSI had elected to be taxed as a
Subchapter S corporation for income tax purposes. Under this election, income
was taxed directly to TSI stockholders. Accordingly, TSI's historical financial
statements did not include a charge for income taxes. The pro forma tax charge
was based upon TSI reported income using an estimated effective rate of 40%.
Use of Estimates -- The preparation of financial statements requires, of
necessity, the use of estimates to determine the appropriate carrying value of
certain assets and liabilities. Each of these estimates requires the Company to
carefully assess past history and to attempt to estimate probable outcomes in
the future. While uncertainties are always present in the estimation process and
changes in underlying assumptions could occur, the Company believes that the
assumptions used to develop these estimates are reasonable.
Fair Value of Financial Instruments -- Financial instruments held or used
by the Company consist of cash, marketable securities, accounts receivable,
accounts payable and letters of credit issued under the Company's line of credit
(Note 3). With the exception of marketable securities, the fair values of these
instruments are based on management's estimates, which could change if market
conditions change, as of December 31, 1994 and 1995. Marketable securities are
carried at fair value at each balance sheet date. Management believes that
carrying value approximates fair value for all other financial instruments.
Accounting for Long-Lived Assets -- In 1994, the FASB issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," which was effective for fiscal 1996. Adoption did not have a
material impact on the Company's financial position or results of operations.
Accounting for Stock Compensation -- In 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which was effective in fiscal 1996.
SFAS No. 123 prescribes a fair value approach to measuring the compensation
element of grants or awards of equity instruments to employees and outsiders.
SFAS No. 123 allows companies to continue to use the intrinsic value methodology
provisions of APB No. 25 for measuring compensation with respect to grants or
awards to employees; however, companies are required to use the fair value
method to measure compensation on grants or awards to outsiders. The Company
expects to continue to use the intrinsic value method for grants to employees
and, since there were no equity awards made to outsiders in the three months
ended March 31, 1996, adoption of SFAS No. 123 did not have a material impact on
the Company's financial position or results of operations.
2. ACQUISITION OF TECHNICALLY SPEAKING, INC.
On May 29, 1996, the Company acquired TSI. In connection with the
acquisition, the Company issued approximately 713,000 shares of common stock to
TSI stockholders in exchange for all of their interest in TSI. The acquisition
qualified for pooling treatment and, as described in Note 1, the Company's
consolidated financial statements have been restated to include the accounts of
TSI for all periods presented.
Information regarding the separate revenue and net income of the combined
companies before effect of a change in accounting for income taxes is presented
below. There were no adjustments required to conform
F-9
<PAGE> 51
BROOKTROUT TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounting policies of the two companies. Information for the year ended
December 31, 1993 is not presented as the impact on the consolidated financial
statements was not material.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------- ------------------
1994 1995 1995 1996
------- ------- ------ -------
<S> <C> <C> <C> <C>
Revenues:
Brooktrout................................. $23,462 $34,392 $6,694 $10,183
TSI........................................ 1,464 4,541 523 1,130
Elimination................................ (38) (260) (50) (13)
------- ------- ------ -------
Combined................................ $24,888 $38,673 $7,167 $11,300
======= ======= ====== =======
Net income:
Brooktrout................................. $ 2,544 $ 4,144 $ 710 $ 1,154
TSI........................................ 85 1,059 (78) 12
------- ------- ------ -------
Combined................................ $ 2,629 $ 5,203 $ 632 $ 1,166
======= ======= ====== =======
</TABLE>
3. BANK LINE OF CREDIT
The Company has a line of credit with a bank. 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 and foreign exchange contracts, subject to compliance with
certain covenants. At December 31, 1995, commitments outstanding on letters of
credit totaled $233,000 to be used for future inventory purchases; no borrowings
have been made during any period presented. Any amounts outstanding under the
line of credit would bear interest at the bank's prime rate. The line is subject
to annual renewal and expires in July 1996.
In addition, on March 16, 1995, a working capital line of credit in the
amount of $100,000, collateralized by the assets of TSI, was made available for
use by TSI by a bank. At December 31, 1995, there were $50,000 of borrowings
outstanding under this facility. Borrowings bear interest at the bank's prime
rate plus 1.25% (9.75% at December 31, 1995). In connection with this facility,
TSI must meet certain covenants contained in the agreement. Borrowings under the
line are collateralized by substantially all of TSI's assets and repayment was
guaranteed by the TSI stockholders.
4. LONG-TERM DEBT
<TABLE>
Long-term debt consisted of the following:
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
-------- -------
<S> <C> <C>
Capital lease obligations....................................... $ 30,000 $ 6,000
Less current portion............................................ (24,000) (6,000)
-------- -------
Long-term debt.................................................. $ 6,000 $ 0
======== =======
</TABLE>
At December 31, 1994 and 1995, the capitalized cost of leased equipment was
approximately $133,000 and related accumulated amortization was approximately
$92,000 and $113,000, respectively.
F-10
<PAGE> 52
BROOKTROUT TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
<TABLE>
The provision for income taxes is approximately as follows:
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995
-------- ---------- ----------
<S> <C> <C> <C>
Federal -- current.............................. $872,000 $1,262,000 $2,013,000
State -- current................................ 226,000 484,000 742,000
Federal -- deferred............................. (90,000) (112,000) (37,000)
State -- deferred............................... (22,000) (45,000) (13,000)
-------- ---------- ----------
Income tax provision............................ $986,000 $1,589,000 $2,705,000
======== ========== ==========
</TABLE>
<TABLE>
A reconciliation of the statutory federal rate to the effective tax rate is as follows:
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate............................................ 34% 34% 34%
TSI income not subject to taxation at corporate level......... (1) -- (5)
State taxes, net of federal benefit........................... 5 7 7
Other......................................................... (4) (3) (2)
-- -- --
Effective tax rate............................................ 34% 38% 34%
== == ==
</TABLE>
In addition, the Company recorded $230,000, $24,000 and $107,000 in 1993,
1994 and 1995, respectively, as an increase in additional paid-in capital,
reflecting the tax savings associated with the early disposition of incentive
stock options by employees.
<TABLE>
The tax effects of significant items comprising the Company's net deferred tax asset
as of December 31, 1994 and 1995 are as follows:
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for doubtful accounts................................ $127,000 $154,000
Inventory allowances........................................... 115,000 125,000
Warranty accrual............................................... 140,000 138,000
Other, principally vacation accrual and deferred rent.......... 42,000 82,000
-------- --------
Deferred tax assets............................................ 424,000 499,000
Deferred tax liabilities -- equipment and furniture,
principally depreciation methods............................. (20,000) (45,000)
-------- --------
Net deferred tax asset......................................... $404,000 $454,000
======== ========
</TABLE>
Tax Attributes of TSI -- TSI and its stockholders had elected to be treated
as a Subchapter S corporation under the Internal Revenue Code. As a result,
TSI's income was taxed at the stockholder level and no provision for income
taxes was made. This election terminated effective on the date of consummation
of the merger, and TSI will be subject to corporate income taxes on a
prospective basis.
F-11
<PAGE> 53
BROOKTROUT TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
Although not subject to corporate income tax, differences have arisen
between the reported amounts of assets and liabilities and the related tax bases
of these items due to the use of the cash method of accounting for income tax
purposes by TSI. At December 31, 1994 and 1995, these differences were
approximately as follows:
<CAPTION>
1994 1995
--------- ----------
<S> <C> <C>
Accounts receivable......................................... $ 220,000 $1,640,000
Accounts payable and other accruals......................... (145,000) (634,000)
--------- ----------
Gross temporary differences................................. $ 75,000 $1,006,000
========= ==========
</TABLE>
Effective for tax year 1995, TSI and its stockholders elected to change
their tax accounting method to the accrual basis. The effect of this change will
flow through to the stockholders of TSI in tax years 1995 and 1996. As a result,
the tax attributes of TSI on the date of consummation are not expected to have a
material impact on the combined Company's deferred or current tax positions.
6. STOCKHOLDERS' EQUITY
Stock Option Plans -- The Company has three stock option plans in place,
providing for the granting of options to purchase up to 1,989,000 shares of
common stock: the 1984 Plan, the Executive Plan and the 1992 Plan. No further
options are being granted under the 1984 Plan and the Executive Plan. Options to
purchase a total of 1,267,260 shares are outstanding under those Plans. In May
1996, the stockholders approved an increase in the number of shares available
under the 1992 Plan by 975,000 shares to 2,325,000 shares. Currently, there are
2,964,000 shares of Common Stock reserved for issuance under all three Plans.
Exercise prices are at fair value at the date of grant, in the case of incentive
stock options, or at the discretion of the Board of Directors in the case of
nonqualified options. Options generally vest over five years; in some instances,
vesting can accelerate upon the completion of certain defined milestones set by
the Compensation Committee at the date of grant. There have been no option
grants at exercise prices different from fair value.
<TABLE>
The following is a summary of stock option activity under all plans (including TSI's):
<CAPTION>
PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Balance, January 1, 1993................................... 500,918 $ .18 - $6.45
Granted.................................................... 193,500 4.95 - 6.55
Exercised.................................................. (158,615) .21 - .89
Canceled................................................... (3,374) .21
---------
Balance, December 31, 1993................................. 532,429 .18 - 6.55
Granted.................................................... 704,813 4.11 - 6.78
Exercised.................................................. (42,065) .18 - .89
Canceled................................................... (5,738) .18 - 6.45
---------
Balance, December 31, 1994................................. 1,189,439 .18 - 6.78
Granted.................................................... 184,430 .72 - 9.11
Exercised.................................................. (61,280) .18 - .89
Canceled................................................... (336) .21
---------
Balance, December 31, 1995................................. 1,312,253 .18 - 9.11
=========
Exercisable at December 31, 1995........................... 390,474 $ .18 - $9.11
=========
</TABLE>
Stock Purchase Plan -- In August 1992, the Board of Directors adopted and
the stockholders approved the Company's 1992 Employee Stock Purchase Plan (the
Purchase Plan). The Purchase Plan provides for
F-12
<PAGE> 54
BROOKTROUT TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sales to participating employees of up to 112,500 shares of common stock, at
prices of not less than 85% of fair market value on the beginning or ending date
of the six-month offering period provided for purchase, whichever is lower.
Through December 31, 1995, 44,176 shares had been issued.
Reserved Shares -- The Company has reserved 1,608,011 shares of common
stock for issuance upon the exercise of stock options and purchase of stock
under the Purchase Plan.
Distributions to Stockholders -- TSI's policy prior to the acquisition was
to distribute annually to its stockholders an amount sufficient to pay the
income taxes on the Subchapter S income reported on their personal income tax
returns. In 1995 and 1996, distributions of $22,299 and $12,000 were made based
upon 1994 and 1995 taxable income, respectively. No significant tax liability
was incurred for 1993; therefore, no distribution was required.
7. MAJOR CUSTOMER
One customer accounted for 58%, 53%, 36%, 49% and 26% of net revenue for
the years ended December 31, 1993, 1994 and 1995, and the three month periods
ended March 31, 1995 and 1996, respectively.
8. LEASE COMMITMENTS
The Company had an operating lease commitment for its principal office and
manufacturing facility which expired in December 1995. The Company has signed an
operating lease commitment for a new office and manufacturing facility. The new
lease agreement expires in October 2006 and the Company has the option to extend
the lease for up to 10 years. The lease agreement requires the Company to pay
all taxes, insurance and maintenance costs. In addition, the Company leases
other office facilities under noncancellable operating leases. These leases
contain rent holiday and escalation clauses. Rent expense under these leases is
recognized on a straight-line basis. Rent expense under all operating leases
aggregated $351,000, $412,000, $511,000, $78,000 and $187,000 for each of the
years ended December 31, 1993, 1994, 1995 and the three month periods ended
March 31, 1995 and 1996, respectively.
<TABLE>
Minimum Lease Payments Under Non-Cancellable Operating Leases
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1996................................................................... $ 190,000
1997................................................................... 482,000
1998................................................................... 501,000
1999................................................................... 508,000
2000................................................................... 539,000
Thereafter............................................................. 2,040,000
----------
Total........................................................ $4,260,000
==========
</TABLE>
9. INTERNATIONAL SALES
International sales, principally exports from the United States, accounted
for approximately 13% of revenue for the year ended December 31, 1993 and 11%
for the year ended December 31, 1995. International sales were less than 10% of
revenue in 1994. International sales were approximately 11% and 18% of revenue
for the three month periods ended March 31, 1995 and 1996, respectively.
F-13
<PAGE> 55
BROOKTROUT TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. CONTINGENCIES
The Company is a party to a number of legal actions which arise in the
normal course of business. The Company, taking into account advice of counsel,
does not believe the eventual outcome of these matters will have a material
effect on the Company's consolidated financial condition or results of
operations.
<TABLE>
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
1995
Revenue.......................... $7,167,000 $8,963,000 $9,751,000 $12,792,000
Gross profit..................... 3,673,000 4,705,000 5,574,000 6,962,000
Income from operations........... 866,000 1,416,000 2,174,000 2,492,000
Net income....................... 632,000 967,000 1,830,000 1,774,000
Net income per common share...... 0.06 0.10 0.19 0.17
Pro forma net income per common
share.......................... $0.07 $0.10 $0.14 $0.16
1994
Revenue.......................... $5,301,000 $6,598,000 $6,025,000 $ 6,964,000
Gross profit..................... 2,779,000 3,296,000 3,049,000 3,709,000
Income from operations........... 728,000 988,000 629,000 1,279,000
Net income....................... 516,000 683,000 506,000 924,000
Net income per common share...... 0.05 0.07 0.05 0.10
Pro forma net income per common
share.......................... $0.05 $0.06 $0.05 $0.10
</TABLE>
F-14
<PAGE> 56
===============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING STOCKHOLDERS OR ANY OF
THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 6
Use of Proceeds............................ 11
Price Range of Common Stock................ 11
Dividend Policy............................ 11
Capitalization............................. 12
Selected Supplemental Consolidated
Financial Data........................... 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 14
Business................................... 19
Management................................. 32
Principal and Selling Stockholders......... 34
Shares Eligible for Future Sale............ 36
Underwriting............................... 37
Legal Matters.............................. 38
Experts.................................... 38
Additional Information..................... 38
Incorporation of Certain Documents by
Reference................................ 39
Index to Supplemental Consolidated
Financial Statements..................... F-1
</TABLE>
================================================================================
================================================================================
900,000 Shares
[BROOKTROUT TECHNOLOGY LOGO]
Common Stock
------------------------
P R O S P E C T U S
------------------------
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
TUCKER ANTHONY
INCORPORATED
August , 1996
================================================================================
<PAGE> 57
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
The following table sets forth an itemized statement of all expenses
expected to be incurred in connection with the issuance and distribution of the
securities being registered (all of which are estimated, other than the filing
fee of the Securities and Exchange Commission):
<S> <C>
Securities and Exchange Commission filing fee............................. $ 19,852
NASD Fee.................................................................. 6,257
NASDAQ Listing Fee........................................................ 17,500
Legal fees and expenses................................................... 175,000
Accounting fees and expenses.............................................. 60,000
Printing expenses......................................................... 75,000
Blue sky fees and expenses................................................ 10,000
Miscellaneous............................................................. 36,391
--------
$400,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Massachusetts corporation. Reference is made to Chapter
156B, Section 13 of the Massachusetts Business Corporation Law (the "MBCL"),
which enables a corporation in its original articles of organization or an
amendment thereto to eliminate or limit the personal liability of a director for
monetary damages for violations of the director's fiduciary duty, except (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Sections
61 and 62 of the MBCL (providing for liability of directors for authorizing
unauthorized distributions and for making loans to directors, officers and
certain shareholders) or (iv) for any transaction from which a director derived
an improper personal benefit.
Reference also is made to Chapter 156B, Section 67 of the MBCL, which
provides that a corporation may indemnify directors, officers, employees and
other agents and persons who serve at its request as directors, officers,
employees or other agents of another organization or who serve at its request in
any capacity with respect to any employee benefit plan, to the extent specified
or authorized by the articles of organization, a by-law adopted by the
stockholders or a vote adopted by the holders of a majority of the shares of
stock entitled to vote on the election of directors. Such indemnification may
include payment by the corporation of expenses incurred in defending a civil or
criminal action or proceeding in advance of the final disposition of such action
or proceeding, upon receipt of an undertaking by the person indemnified to repay
such payment if he shall be adjudicated to be not entitled to indemnification
under Section 67 which undertaking may be accepted without reference to the
financial ability of such person to make repayment. Any such indemnification may
be provided although the person to be indemnified is no longer an officer,
director, employee or agent of the corporation or of such other organization or
no longer serves with respect to any such employee benefit plan. No
indemnification shall be provided, however, for any person with respect to any
matter as to which he shall have been adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his action was in the best
interest of the corporation or to the extent that such matter relates to service
with respect to an employee benefit plan, in the best interest of the
participants or beneficiaries of such employee benefit plan.
Article VI.D of the Restated Articles of Organization of the Company
provides that, except under certain circumstances, directors of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duties as a director.
II-1
<PAGE> 58
Article IV of the By-laws of the Company provides for indemnification of
the officers and directors of the Company to the full extent provided by
applicable law.
<TABLE>
ITEM 16. EXHIBITS.
Unless otherwise indicated, all exhibits were filed with the Registration
Statements on Form S-3 on either June 26, 1996 or July 9, 1996.
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.
5.1 Opinion of Goodwin, Procter & Hoar LLP regarding the legality of the securities being
registered.
11.1 Statement regarding computation of per share earnings
23.1 Consent of Goodwin, Procter & Hoar LLP (included in its opinion filed as Exhibit 5).
*23.2 Independent Auditors' Consent -- Deloitte & Touche LLP.
24.1 Power of Attorney (included in signature page of Registration Statement filed on June
26, 1996).
27 Financial Data Schedule.
<FN>
- ---------------
* Filed herewith.
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 59
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston, Commonwealth of Massachusetts,
on August 2, 1996.
BROOKTROUT TECHNOLOGY, INC.
By: /s/ ROBERT C. LEAHY
------------------------------------
Robert C. Leahy
Vice President of Finance and
Operations, and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to this Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President, Chief Executive August 2, 1996
- ---------------------------------------- Officer and Director (Principal
Eric R. Giler Executive Officer)
* Vice President of Research and August 2, 1996
- ---------------------------------------- Development, Clerk and Director
David W. Duehren
/s/ ROBERT C. LEAHY Vice President of Finance and August 2, 1996
- ---------------------------------------- Operations, and Treasurer
Robert C. Leahy (Principal Financial and
Accounting Officer)
* Vice President of Advanced August 2, 1996
- ---------------------------------------- Product Engineering and Director
Patrick T. Hynes
* Director August 2, 1996
- ----------------------------------------
Robert G. Barrett
* Director August 2, 1996
- ----------------------------------------
David L. Chapman
* Director August 2, 1996
- ----------------------------------------
W. Brooke Tunstall
*By /s/ ROBERT C. LEAHY
-----------------------------
Robert C. Leahy
Attorney-in-fact
</TABLE>
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-06885 of Brooktrout Technology, Inc. on Form S-3 of our report dated June
20, 1996 on the supplemental consolidated financial statements of Brooktrout
Technology, Inc. as of December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1995 (which includes explanatory
paragraphs relating to the restatement of the consolidated financial statements
for a pooling-of-interests and a change in accounting for income taxes),
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the incorporation by reference in this Amendment No. 2
to Registration Statement No. 333-06885 of our report dated February 2, 1996
(except for Note 1, Stock Split, as to which the date is February 27, 1996)
(which includes an explanatory paragraph relating to a change in accounting for
income taxes) appearing in the Annual Report on Form 10-K/A of Brooktrout
Technology, Inc. for the year ended December 31, 1995, relating to the
historical financial statements of Brooktrout Technology, Inc., and of our
report dated March 8, 1996 (which includes an explanatory paragraph relating to
the acquisition of TSI by Brooktrout Technology, Inc.), appearing in the Proxy
Statement for the Annual Meeting of Stockholders held on May 29, 1996 of
Brooktrout Technology, Inc., related to the historical financial statements of
Technically Speaking, Inc.
We also consent to the references to our firm under the heading "Experts"
in the Prospectus, which is part of such Registration Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 1, 1996
