<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------------------------
Date of Report (Date of earliest event reported): MAY 29, 1996
------------
BROOKTROUT TECHNOLOGY, INC.
(Exact name of Registrant as specified in charter)
MASSACHUSETTS 0-20698 04-2814792
- ---------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
410 FIRST AVENUE, NEEDHAM, MA 02194
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 449-4100
----------------------------------------------------
(Registrant's telephone number, including area code)
There are __ pages in this Report, including exhibits.
Page 1 of __
Exhibit Index Begins on Page __
<PAGE> 2
ITEM 2. ACQUISITION OF ASSETS
On May 29, 1996, Brooktrout Technology, Inc. (the "Registrant")
consummated the acquisition of all of the outstanding equity interests of
Technically Speaking, Inc., a Massachusetts corporation ("TSI"), for 475,328
shares of the Registrant's newly issued common stock. The amount of the
consideration was determined on the basis of the Registrant's valuation of TSI.
The Registrant acquired TSI from Andrew Fox, Beverly Fox, Robert Friedman,
Raymond Phillips, Michael Tinglof, Joe Finegold, Diamentino Fidalgo and Michael
Healy, none of whom was affiliated with the Registrant, any director or officer
of the Registrant or any associate of any such director or officer. The
acquisition was structured as a tax-free reorganization to be accounted for as a
pooling of interests. The terms of this transaction are described more fully in
a press release issued on March 8, 1996, a copy of which is included as an
exhibit hereto and incorporated herein by reference.
The Registrant has agreed to register approximately 50% of the shares
of its common stock issued to the equity holders of TSI for resale under the
Securities Act of 1933.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
Balance sheet of TSI as of December 31, 1995, and related
statements of income, shareholders' equity and cash flows for the
year then ended, audited by Deloitte & Touche, LLP and unaudited
financial statements of TSI as of December 31, 1994 and 1993
and unaudited condensed balance sheet as of March 31, 1996 and
related statements of income and cash flows for the three month
periods ended March 31, 1996 and 1995.
(b) Pro Forma Condensed Combining Balance Sheet at March 31, 1996
and Pro Forma Condensed Combining Income Statements for the
three months ended March 31, 1996 and the years ended December
31, 1995, 1994 and 1993.
(c) Exhibits
23.1 Consent of Deloitte & Touche LLP
3
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Technically Speaking, Inc.:
We have audited the accompanying balance sheet of Technically Speaking,
Inc. (the "Company") as of December 31, 1995, and the related statements of
income, shareholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1995, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
As described in Note 1 to the financial statements, on March 8, 1996, the
Company and its shareholders entered into an Agreement and Plan of Merger with
Brooktrout Technology, Inc.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 8, 1996
4
<PAGE> 5
TECHNICALLY SPEAKING, INC.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1995
1994 -----------
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash......................................................... $ 28,274 $ --
Accounts receivable (net of allowance for doubtful accounts
of $33,026 in 1994 and $71,913 in 1995)..................... 220,086 1,639,537
Inventory.................................................... 37,759 71,000
----------- -----------
Total current assets.................................... 286,119 1,710,537
PROPERTY AND EQUIPMENT, Net....................................... 46,085 184,402
OTHER ASSETS...................................................... 1,720 13,676
----------- -----------
TOTAL............................................................. $ 333,924 $ 1,908,615
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit borrowings.................................... $ -- $ 50,000
Accounts payable and accrued expenses........................ 144,637 446,194
Due to shareholders.......................................... 1,928 --
Deferred revenue............................................. -- 188,000
----------- -----------
Total current liabilities............................... 146,565 684,194
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, no par value:
Series A; 200,000 shares authorized, 100,000 shares issued
and outstanding; at issuance price........................ 100 100
Series B; 200,000 shares authorized, none issued or
outstanding;.............................................. -- --
Retained earnings............................................ 187,259 1,224,321
----------- -----------
Total shareholders' equity.............................. 187,359 1,224,421
----------- -----------
TOTAL............................................................. $ 333,924 $ 1,908,615
=========== =========
</TABLE>
See notes to financial statements.
5
<PAGE> 6
TECHNICALLY SPEAKING, INC.
STATEMENTS OF INCOME
PERIOD FROM SEPTEMBER 1, 1993 (DATE OF INCEPTION) TO
DECEMBER 31, 1993 AND YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Software licenses................................. $ 208,926 $ 584,032 $ 2,316,453
Hardware.......................................... 122,470 869,492 1,441,550
Consulting........................................ -- 10,000 769,693
Maintenance....................................... -- -- 13,000
----------- ----------- -----------
Total revenues............................... 331,396 1,463,524 4,540,696
----------- ----------- -----------
COST AND EXPENSES:
Cost of sales -- licenses......................... 11,585 44,885 111,488
Cost of sales -- hardware......................... 85,607 625,534 1,108,038
Cost of sales -- consulting....................... -- 39,858 166,387
Selling and marketing............................. 27,769 266,588 969,416
Research and development.......................... 82,714 235,181 622,286
General and administrative........................ 21,030 170,178 516,465
----------- ----------- -----------
Total costs and expenses..................... 228,705 1,382,224 3,494,080
----------- ----------- -----------
OPERATING INCOME....................................... 102,691 81,300 1,046,616
OTHER INCOME, Net...................................... -- 3,268 12,745
----------- ----------- -----------
NET INCOME............................................. $ 102,691 $ 84,568 $ 1,059,361
=========== ========= =========
HISTORICAL INCOME PER COMMON SHARE..................... $ 1.03 $ 0.85 $ 10.39
=========== ========= =========
PRO FORMA DATA:
Historical net income............................. $ 102,691 $ 84,568 $ 1,059,361
Provision for income taxes........................ 42,000 34,000 424,000
----------- ----------- -----------
PRO FORMA NET INCOME................................... $ 60,691 $ 50,568 $ 635,361
=========== ========= =========
PRO FORMA INCOME PER COMMON SHARE...................... $ 0.61 $ 0.51 $ 6.23
=========== ========= =========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES... 100,000 100,000 101,953
=========== ========= =========
</TABLE>
See notes to financial statements.
6
<PAGE> 7
TECHNICALLY SPEAKING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
PERIOD FROM SEPTEMBER 1, 1993 (DATE OF INCEPTION) TO
DECEMBER 31, 1993 AND YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- RETAINED
SERIES A SERIES B EARNINGS TOTAL
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
INITIAL CAPITALIZATION OF THE COMPANY
(Unaudited)................................... $100 $-- $ -- $ 100
Net income (Unaudited) .................... -- -- 102,691 102,691
-------- -------- ---------- ----------
BALANCE, DECEMBER 31, 1993 (Unaudited).......... 100 -- 102,691 102,791
Net income (Unaudited) .................... -- -- 84,568 84,568
-------- -------- ---------- ----------
BALANCE, DECEMBER 31, 1994 (Unaudited).......... 100 -- 187,259 187,359
Net income ................................ -- -- 1,059,361 1,059,361
Distributions to shareholders.............. -- -- (22,299) (22,299)
-------- -------- ---------- ----------
BALANCE, DECEMBER 31, 1995...................... $100 $-- $1,224,321 $1,224,421
======== ======= ========= =========
</TABLE>
See notes to financial statements.
7
<PAGE> 8
TECHNICALLY SPEAKING, INC.
STATEMENTS OF CASH FLOWS
PERIOD FROM SEPTEMBER 1, 1993 (DATE OF INCEPTION) TO
DECEMBER 31, 1993 AND YEARS ENDED DECEMBER 31, 1994 AND 195
<TABLE>
<CAPTION>
1994
------------ 1995
1993 (UNAUDITED) ------------
------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 102,691 $ 84,568 $ 1,059,361
Adjustments to reconcile net income to cash used
in operating activities:
Depreciation............................... 388 4,382 22,896
Changes in assets and liabilities:
Account receivable.................... (127,771) (92,315) (1,419,451 )
Inventory............................. -- (37,759) (33,241 )
Due to (from) shareholders............ 1,828 100 (1,928 )
Other assets.......................... (280) (1,440) (11,956 )
Accounts payable and accrued
expenses............................ 29,373 115,264 301,557
Deferred revenue...................... -- -- 188,000
------------ ------------ ------------
Cash provided by operating
activities..................... 6,229 72,800 105,238
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchase of property and equipment................. (5,825) (45,030) (161,213 )
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders...................... -- -- (22,299 )
Proceeds from issuance of common stock............. 100 -- --
Net proceeds from line of credit................... -- -- 50,000
------------ ------------ ------------
Cash provided by financing
activities..................... 100 -- 27,701
------------ ------------ ------------
INCREASE (DECREASE) IN CASH.......................... 504 27,770 (28,274 )
CASH AT BEGINNING OF PERIOD.......................... -- 504 28,274
------------ ------------ ------------
CASH AT END OF PERIOD................................ $ 504 $ 28,274 $ --
============ ============ ============
</TABLE>
See notes to financial statements.
8
<PAGE> 9
TECHNICALLY SPEAKING, INC.
NOTES TO FINANCIAL STATEMENTS
(Information for 1993 and 1994 is Unaudited)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -- Technically Speaking, Inc. (the "Company") was incorporated in
Massachusetts to engage in the business of computer software and hardware
development in the area of telecommunications and other related technical
fields. The Company's operating facility is located in Massachusetts, although
the Company does business throughout the United States.
Agreement and Plan of Merger -- On March 8, 1996, the shareholders entered
into an Agreement and Plan of Merger with Brooktrout Technology, Inc. ("BTI")
whereby the shareholders agreed to exchange their shares of common stock for
shares of common stock of BTI. The transaction is expected to close in May 1996.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Financial Statements -- The 1993 and 1994 financial statements
are unaudited, but include all adjustments necessary for the fair presentation
of the information provided, in the opinion of management.
Revenue Recognition -- The Company recognizes revenue from software license
sales upon delivery of the software. Revenue from maintenance and support
contracts is deferred and recognized as the services are performed. Maintenance
and support revenues included with an initial license fee are unbundled and
recognized as the services are performed.
Concentration of Credit Risk -- The majority of the Company's revenues are
from customers in high technology industries, who are not required to provide
collateral for amounts owed to the Company. The Company's customers are
dispersed over a wide geographic area and are subject to periodic review under
the Company's credit policies.
Inventory -- Inventory, which consists of finished goods, is carried at the
lower of cost or market, determined on a first-in, first-out basis.
Property and Equipment -- Property and equipment are recorded at cost and
depreciated using the straight-line method over their estimated useful lives.
Research and Development and Software Costs -- Research and development
costs are expensed as incurred. Costs associated with the development of
software are expensed prior to establishing technological feasibility. To date,
no development costs have qualified for capitalization.
Income Taxes -- The Company and its shareholders have elected to be treated
as a Subchapter S corporation under the Internal Revenue Code. As a result, the
Company's income is taxed at the shareholder level and no provision is made for
income taxes by the Company. Concurrent with the change in ownership described
above, this election will terminate and the Company will be subject to income
taxes on a prospective basis.
Although not subject to income taxes since the Company's income is taxed at
the shareholder level, 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. At December 31, 1994
and 1995, these differences are approximately as follows:
<TABLE>
<CAPTION>
1994 1995
-------- -----------
<S> <C> <C>
(UNAUDITED)
Accounts receivable......................................... $220,000 $ 1,640,000
Accounts payable and accrued expenses....................... (145,000) (446,000)
Deferred revenue............................................ -- (188,000)
-------- -----------
Gross temporary differences................................. $ 75,000 $ 1,006,000
======== =========
</TABLE>
9
<PAGE> 10
TECHNICALLY SPEAKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Had the Company been subject to income taxes, these temporary differences
would have resulted in the recording of deferred tax liabilities of
approximately $30,000 and $402,000 at December 31, 1994 and 1995, respectively.
Cash Flow Information -- Supplemental disclosure of cash flow information
is as follows:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
--------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Cash paid for interest expense............................ $ -- $ -- $3,216
</TABLE>
Income Per Common Share -- Income per common share is computed using the
weighted average number of common and common equivalent shares outstanding
during each period. Common equivalent shares consist of stock options using the
treasury stock method. Pro forma income per common share is based upon reported
net income adjusted for a pro forma tax charge.
Distributions to Stockholders -- The Company's policy is to distribute
annually to its shareholders an amount sufficient to pay the income taxes on the
Subchapter S income reported on their personal returns. In 1995 and 1996,
distributions of $22,299 and $12,000 were made based on 1994 and 1995 Subchapter
S income, respectively. No significant tax liability was incurred for 1993
income, therefore, no distribution was required.
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. Actual results could differ from these
estimates.
Fair Value of Financial Instruments -- Financial instruments held or used
by the Company consist of cash, accounts receivable, accounts payable, and the
line of credit. The fair value of these instruments is based on management's
estimates as of December 31, 1994 and 1995, which could change if market
conditions change. Given the nature of the items considered financial
instruments and the variable rate borne by the line of credit, management
believes that carrying value approximates fair value for all financial
instruments.
NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Long-Lived Assets -- In 1994, the FASB issued SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets and for Assets Held for Sale,"
which will be effective for fiscal 1996. Adoption is not expected to have a
material impact on the Company's financial position.
Accounting for Stock Compensation -- In 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which is 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 or outsiders.
SFAS No. 123 will allow companies to continue to use the intrinsic value
methodology provisions of APB 25 for measuring compensation to employees;
however, companies are required to use the fair value method to measure
compensation to outsiders. The Company has not yet determined the impact of
adoption of this accounting pronouncement.
10
<PAGE> 11
TECHNICALLY SPEAKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment and estimated useful lives consist of the following
at September 30:
<TABLE>
<CAPTION>
1995
1994 --------
------------
(UNAUDITED)
<S> <C> <C>
Computer and office equipment (5 years).......... $ 5,825 $150,196
Other equipment (7 years)........................ 44,403 42,403
Furniture (7 years).............................. 627 19,469
------------ --------
Total............................................ 50,855 212,068
Less accumulated depreciation.................... 4,770 27,666
------------ --------
Property and equipment, net...................... $ 46,085 $184,402
============ ========
</TABLE>
3. COMMON STOCK
Stock Option Plan -- The Company's 1995 Stock Plan (the "Plan"), adopted in
January 1995, provides for grants of options to purchase up to 200,000 shares of
the Company's class B common stock. Grants may be in the form of incentive stock
options or nonstatutory options. Exercise prices and vesting periods are
determined by the Compensation Committee of the Board of Directors on the date
of grant. All grants made under the Plan have been at estimated fair market
value, as determined by the Board of Directors. Options generally vest ratably
over a four-year period, although all option grants contain acceleration
provisions in the event of a change in control of the Company. A summary of
activity in the plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE
---------- ---------
<S> <C> <C>
Granted in January 1995 and outstanding at
December 31, 1995............................... 2,040 $5.00
=========== ========
Exercisable at December 31, 1995.................. 488
===========
</TABLE>
4. COMMITMENTS
The Company leases its office facilities under noncancellable operating
leases. The lease contains rent holiday and escalation clauses. Rent expense
under the lease is recognized on a straight-line basis. Total rent expense was
approximately $4,900, $19,900 and $87,100 for the period from September 1, 1993
to December 31, 1993 and for the years ended December 31, 1994 and 1995,
respectively.
Future minimum payments under noncancellable leases for years ending
December 31 are as follows:
<TABLE>
<S> <C>
1996........................................................... $145,144
1997........................................................... 214,700
1998........................................................... 233,968
1999........................................................... 235,344
2000........................................................... 238,096
Thereafter..................................................... 79,824
</TABLE>
11
<PAGE> 12
TECHNICALLY SPEAKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SIGNIFICANT CUSTOMERS
During the year ended December 31, 1994, one customer represented
approximately 33% of the Company's total revenue. During the year ended December
31, 1995, two customers represented 35% and 15% of the Company's total revenue.
6. LINE OF CREDIT
On March 16, 1995, a working capital line of credit in the amount of
$100,000, collateralized by the assets of the Company, was made available for
use by the Company 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, the Company must meet certain covenants contained in the
agreement. Borrowings under the line are collateralized by substantially all of
the Company's assets and repayment is guaranteed by the shareholders.
7. EMPLOYEE RETIREMENT PLAN
The Company has a 401(k) employee savings plan, established in 1995, which
allows employees to defer specified amounts of their compensation on a pretax
basis. The Company will contribute $.50 for every $1 contributed by an eligible
employee up to a maximum of 6% of that employee's compensation. Company
contributions to the plan were $19,900 in 1995.
* * * * * *
12
<PAGE> 13
TECHNICALLY SPEAKING, INC.
UNAUDITED CONDENSED BALANCE SHEET
MARCH 31, 1996
(dollars in thousands)
<TABLE>
<S> <C>
Assets:
Cash $ 279
Accounts receivable 879
Inventory 36
Prepaid expenses 12
------
Total current assets 1,206
------
Property and equipment, net 243
------
Total assets $1,449
======
Liabilities and Stockholders' Equity:
Line of credit borrowings $ 50
Accounts payable and accrued expenses 169
------
Total current liabilities 219
------
Common stock, no par value
Retained earnings 1,230
------
Total stockholders' equity 1,230
------
Total liabilities and stockholders' equity $1,449
======
</TABLE>
13
<PAGE> 14
TECHNICALLY SPEAKING, INC.
UNAUDITED CONDENSED INCOME STATEMENTS
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Revenue $ 523 $1,130
Cost and expenses:
Cost of product sold 278 358
Research and development 84 176
Selling, general and administrative 239 584
------ ------
Total cost and expenses 601 1,118
------ ------
Net income (loss) $ (78) $ 12
====== ======
Net income (loss) per share $(0.78) $ 0.12
====== ======
Weighted average common and
common equivalent shares outstanding 100 102
====== ======
</TABLE>
14
<PAGE> 15
TECHNICALLY SPEAKING, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOW
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(dollars in thousands)
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Net income (loss) $ (78) $ 12
Adjustments to reconcile to
cash provided by (used in) operations:
Depreciation and amortization 2 9
Working capital changes 195 332
----- -----
Cash provided by (used in) operations 119 353
----- -----
Purchase of property and equipment (16) (62)
----- -----
Distributions to stockholders (22) (12)
----- -----
Increase (decrease) in cash 81 279
Cash, beginning of period 28 -
----- -----
Cash, end of period $ 109 $ 279
===== =====
</TABLE>
15
<PAGE> 16
TECHNICALLY SPEAKING, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
1. In the opinion of management, the accompanying interim unaudited financial
statements as of March 31, 1996 and the three month periods ended March 31,
1995 and 1996 have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position
and results of operations of the Company for such periods.
2. Inventory is comprised primarily of finished goods, available for delivery
to customers, carried at the lower of cost or market.
16
<PAGE> 17
PRO FORMA CONDENSED COMBINING BALANCE SHEET AT MARCH 31, 1996 AND PRO FORMA
CONDENSED COMBINING INCOME STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31,
1996, AND THE YEARS ENDED DECEMBER 31, 1995,
1994 AND 1993.
PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Combining Balance Sheet at
March 31, 1996 and Pro Forma Condensed Combining Income Statements for the three
months ended March 31, 1996 and years ended December 1995, 1994 and 1993 (the
"Pro Forma Condensed Combining Financial Statements") illustrate the effect of
the Merger as if the Merger had occurred as of the beginning of the earliest
period presented. Pursuant to the terms of the Merger, each holder of TSI Common
Stock will be entitled to receive shares of Brooktrout Common Stock based on an
exchange ratio of 4.6681 shares of Brooktrout Common Stock for each share of TSI
Common Stock. The Pro Forma Condensed Combining Balance Sheet combines
Brooktrout's March 31, 1996 consolidated balance sheet with TSI's March 31, 1996
balance sheet appearing elsewhere herein. The Pro Forma Condensed Combining
Income Statements combine Brooktrout's historical results for the three months
ended March 31, 1996 and each of the three fiscal years ended December 31, 1995,
1994 and 1993 with the corresponding TSI results for the three months ended
March 31, 1996 and three fiscal years ended December 31, 1995, 1994 and 1993,
respectively. The Pro Forma Condensed Combining Income Statements do not give
effect to any transaction charges associated with the consummation of the
Merger; such costs are reflected in the March 31, 1996 pro forma balance sheet.
All such costs are estimated to approximate $1.2 million ($1.0 million,
net of related tax effects). The Pro Forma Combining Condensed Financial
Statements have been prepared on the basis that the Merger will be accounted for
as a pooling of interests.
The accompanying pro forma condensed combined financial statements do not
purport to be indicative of the results of operations or financial condition
that would have been achieved if the Company and TSI had operated as a combined
company during the period presented. In addition, the accompanying pro forma
condensed combined financial statements do not purport to be indicative of the
results of operations or financial condition which may be achieved in the
future.
The accompanying pro forma condensed combined financial statements have
been prepared using the principles and assumptions set forth in the accompanying
Notes to Pro Forma Condensed Combining Financial Statements and should be read
in conjunction with the consolidated financial statements and notes thereto of
the Company incorporated herein by reference and the financial statements and
notes thereto of TSI included in Appendix B to this Proxy Statement.
17
<PAGE> 18
PRO FORMA CONDENSED COMBINING BALANCE SHEET
AS OF MARCH 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------
BROOKTROUT TSI ADJUSTMENTS COMBINED
---------- ------ ----------- --------
<S> <C> <C> <C> <C>
Assets:
Cash and equivalents $ 14,515 $ 279 $ 14,794
Marketable securities 7,585 7,585
Accounts receivable 4,839 879 5,718
Inventory 4,310 36 4,346
Prepaid expenses and other 966 12 978
-------- -------- --------
Total current assets 32,215 1,206 33,421
-------- -------- --------
Property and equipment, net 2,501 243 2,744
-------- -------- --------
Other assets 574 -- 574
-------- --------- --------
Total assets $ 35,290 $ 1,449 $ 36,739
======== ======== ========
Liabilities and Stockholders' Equity:
Line of credit borrowings $ 50 $ 50
Accounts payable and accrued exp $ 8,683 169 $ 1,200 10,052
-------- -------- --------
Total current liabilities 8,683 219 10,102
-------- -------- --------
Deferred rent 35 35
Common stock 60 5 65
Additional paid in capital 17,153 (5) 17,148
Unrealized gain on marketable
securities 14 14
Retained earnings 9,345 1,230 (1,200) 9,375
-------- -------- --------
Total stockholders' equity 26,572 1,230 (1,200) 26,602
-------- -------- --------
Total liabilities and stockholders' equity $ 35,290 $ 1,449 $ 36,739
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
Pro Forma Condensed Combining Financial Statements.
18
<PAGE> 19
BROOKTROUT TECHNOLOGY, INC.
PRO FORMA CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------
BROOKTROUT TSI ADJUSTMENTS COMBINED
---------- ------ ----------- --------
<S> <C> <C> <C> <C>
INCOME STATEMENT:
Revenues $10,183 $ 1,130 $ (13)(3) $11,300
Cost and expenses:
Cost of product sold 4,752 358 (13)(3) 5,097
Research and development 1,380 176 1,556
Selling, general and administrative 2,400 584 2,984
------- ------- -------
Income from operations 1,651 12 1,663
Other income (expense) 263 -- 263
------- ------- -------
Income before income taxes 1,914 12 1,926
Income tax provision 760 -- 760
------- ------- -------
Net income $ 1,154 $ 12 $ 1,166
======= ======= =======
Net income per share $ 0.18 $ 0.07 $ 0.17
======= ======= =======
Weighted average number of common
and common equivalent shares 6,569 102 7,036
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
Pro Forma Condensed Combining Financial Statements.
19
<PAGE> 20
PRO FORMA CONDENSED COMBINING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------
BROOKTROUT TSI ADJUSTMENTS COMBINED
---------- ------ ----------- --------
<S> <C> <C> <C> <C>
Revenue........................................ $ 34,392 $4,541 $(260)(7) $38,673
Cost and expenses:
Cost of product sold...................... 16,633 1,386 (260)(7) 17,759
Research and development.................. 4,200 622 4,822
Selling, general and administrative....... 7,658 1,486 9,144
---------- ------ ----------- --------
Total cost and expenses.............. 28,491 3,494 (260) 31,725
---------- ------ ----------- --------
Income from operations......................... 5,901 1,047 -- 6,948
---------- ------ ----------- --------
Other income:
Interest/other income..................... 952 15 -- 967
Interest expense.......................... (4) (3) (7 )
---------- ------ --------
Total other income................... 948 12 960
---------- ------ --------
Income before income tax provision............. 6,849 1,059 7,908
Income tax provision(6)........................ 2,705 -- 2,705
---------- ------ ----------- --------
Net income..................................... $ 4,144 $1,059 $-- $ 5,203
========= ====== =========== =========
Net income..................................... $ 4,144 $1,059 $ 5,203
Pro forma tax charge........................... -- 424 424
---------- ------ --------
Pro forma net income........................... $ 4,144 $ 635 $ 4,779
========= ====== =========
Pro forma income per common share:............. $ 0.66 $ 6.23 $ 0.71
========= ====== =========
Weighted average number of common and common
equivalent shares outstanding................ 6,243 102 6,718
========= ====== =========
</TABLE>
The accompanying notes are an integral part of these
Pro Forma Condensed Combining Financial Statements.
20
<PAGE> 21
PRO FORMA CONDENSED COMBINING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
------------------------
BROOKTROUT TSI ADJUSTMENTS COMBINED
----------- ------ ------------ ---------
<S> <C> <C> <C> <C>
Revenue........................................ $23,462 $1,464 $ (38)(7) $24,888
Cost and expenses:
Cost of product sold......................... 11,383 710 (38)(7) 12,055
Research and development..................... 3,288 235 3,523
Selling, general and administrative.......... 5,248 438 5,686
----------- ------ ------------ ---------
Total cost and expenses................... 19,919 1,383 (38) 21,264
----------- ------ ------------ ---------
Income from operations......................... 3,543 81 -- 3,624
----------- ------ ------------ ---------
Other income:
Interest/other income........................ 600 4 604
Interest expense............................. (10) -- (10)
----------- ------ ---------
Total other income........................ 590 4 594
----------- ------ ---------
Income before income tax provision............. 4,133 85 4,218
Income tax provision(6)........................ 1,589 -- 1,589
----------- ------ ------------ ---------
Net income..................................... $ 2,544 $ 85 $ -- $ 2,629
========== ====== ============ ==========
Net income..................................... $ 2,544 $ 85 $ 2,629
Pro forma tax charge........................... -- 34 34
----------- ------ ---------
Pro forma net income........................... $ 2,544 $ 51 $ 2,595
========== ====== ==========
Pro forma income per common share:............. $ 0.42 $ 0.51 $ 0.40
========== ====== ==========
Weighted average number of common and common
equivalent shares outstanding................ 6,087 100 6,562
========== ====== ==========
</TABLE>
The accompanying notes are an integral part of these
Pro Forma Condensed Combining Financial Statements.
21
<PAGE> 22
PRO FORMA CONDENSED COMBINING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
BROOKTROUT TSI COMBINED
----------- ---- ----------
<S> <C> <C> <C>
Revenue......................................................... $17,729 $331 $ 18,060
Cost and expenses:
Cost of product sold.......................................... 8,637 97 8,734
Research and development...................................... 2,501 83 2,584
Selling, general and administrative........................... 4,246 48 4,294
----------- ---- ----------
Total cost and expenses.................................... 15,384 228 15,612
----------- ---- ----------
Income from operations.......................................... 2,345 103 2,448
----------- ---- ----------
Other income:
Interest/other income......................................... 494 494
Interest expense.............................................. (14) (14)
----------- ---- ----------
Total other income......................................... 480 -- 480
----------- ---- ----------
Income before income tax provision and change in accounting
principle..................................................... 2,825 103 2,928
Income tax provision(6)......................................... 986 -- 986
----------- ---- ----------
Income before change in accounting principle.................... 1,839 103 1,942
Change in accounting principle.................................. 337 337
----------- ---- ----------
Net income...................................................... $ 2,176 $103 $ 2,279
========== ===== ==========
Net income...................................................... $ 2,176 $103 $ 2,279
Pro forma tax charge............................................ -- 42 42
----------- ---- ----------
Pro forma net income............................................ $ 2,176 $61 $ 2,237
========== ===== ==========
Pro forma income per common share:
Before change in accounting principle......................... $0.30 $.61 $0.29
------- --- ------
------- --- ------
Net income.................................................... $0.36 $.61 $0.34
------- --- ------
------- --- ------
Weighted average number of common and common equivalent shares
outstanding................................................... 6,047 100 6,522
========== ===== ==========
</TABLE>
The accompanying notes are an integral part of these
Pro Forma Condensed Combining Financial Statements.
22
<PAGE> 23
BROOKTROUT TECHNOLOGY, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
1. See notes to pro forma condensed combining financial statements as of
December 31, 1995 and for each of the three years then ended.
2. The pro forma balance sheet at March 31, 1996 includes the effect of
approximately $1.2 million in nonrecurring costs expected to be incurred
in connection with the Merger.
3. To eliminate intercompany sales and costs of revenue.
23
<PAGE> 24
BROOKTROUT TECHNOLOGY, INC. AND TECHNICALLY SPEAKING, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINING FINANCIAL STATEMENTS
1. The Pro Forma Condensed Combining Financial Statements are presented
for illustrative purposes only and do not give effect to any synergies which
could be expected to occur due to the integration of Brooktrout's and TSI's
operations. Additionally, the Pro Forma Condensed Combining Income Statements
exclude (1) the transaction costs related to the Merger and (2) nonrecurring
costs and expenses associated with integrating the operations of the businesses.
The Pro Forma Condensed Combining Balance Sheet at March 31, 1996 reflects
these costs. The nonrecurring cost estimate is preliminary and is therefore
subject to change. The transaction costs and other nonrecurring expenses will
be charged to operations upon consummation of the merger. The Pro Forma
Condensed Combining Financial Statements assume that the Merger qualifies as a
"tax-free" reorganization for federal income tax purposes and a "pooling of
interests" for accounting purposes.
2. Stockholders' equity as of March 31, 1996 has been adjusted to
reflect the issuance of 475,328 shares of Brooktrout Common Stock in exchange
for all of the issued and outstanding shares of TSI common stock and options.
3. Pro forma combined net income per share is based on the combined
weighted average number of common and common equivalent shares, after adjusting
TSI's historical weighted average common shares for the conversion into
Brooktrout shares at a ratio of 4.6681. Common equivalent shares consist of
common stock issuable upon the exercise of outstanding options and warrants.
4. All intercompany transactions or balances included in the Pro Forma
Condensed Combining Financial Statements have been eliminated and no adjustments
are required to conform the accounting policies of Brooktrout and TSI.
5. Total costs associated with the Merger are estimated to be
approximately $1.2 million. Transaction costs incurred by Brooktrout and TSI
include fees to financial advisors, legal, accounting and other related
expenses. Nonrecurring costs and expenses associated with integrating the
operations of the two companies will be charged against income of the combined
company at the consummation of the Merger which is anticipated to occur in May
1996. The Pro Forma Condensed Combining Balance Sheet includes the effect of
recording these costs.
6. Brooktrout adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("FAS No.109"), effective in 1993. TSI has elected
to be treated as a Subchapter S corporation for income tax purposes. Under this
election, income is taxed directly to the shareholders. Accordingly, TSI's
historical financial statements do not reflect a provision for income taxes. Pro
forma income per share reflects tax charges of $452, $34, and $42 in 1995, 1994
and 1993 respectively, to provide taxes on TSI's income for those periods at a
40% effective tax rate.
7. To eliminate intercompany sales and purchases.
24
<PAGE> 25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized
BROOKTROUT TECHNOLOGY, INC.
Dated: June 21, 1996 By: /s/ Robert C. Leahy
-----------------------
Robert C. Leahy
Vice President
25
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-55708 on Form S-8, and in Registration Statement No. 33-55900 on Form S-8,
both of Brooktrout Technology, Inc., of our report dated March 8, 1996 (which
expresses an unqualified opinion and includes an explanatory paragraph relating
to the merger with Brooktrout Technology, Inc.) on the financial statements of
Technically Speaking, Inc. as of December 31, 1995 and for the year then ended,
appearing in the Current Report on Form 8-K of Brooktrout Technology, Inc.
filed on June 21, 1996.
Deloitte & Touche, LLP
Boston, Massachusetts
June 21, 1996
