<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- -- THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- -- THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 0-20698
BROOKTROUT TECHNOLOGY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2814792
------------- ----------
(State or other (I.R.S. employer
jurisdiction of identification
incorporation or number)
organization)
410 First Avenue
Needham, Massachusetts 02494-2722
---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number
including area code: (781) 449-4100
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
As of November 1, 1998, 10,812,830 shares of Common Stock, $.01 par value
per share, were outstanding.
Page 1 of 16 pages
<PAGE> 2
BROOKTROUT TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income for
the Three Months Ended September 30, 1998 and
September 30, 1997, and the Nine Months Ended
September 30, 1998 and September 30, 1997 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1998
and September 30, 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended September 30, 1998 and 1997 9
Nine Months Ended September 30, 1998 and 1997 10
Liquidity and Capital Resources 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits 15
Signatures 16
<PAGE> 3
BROOKTROUT TECHNOLOGY, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ................................ $ 27,952 $ 27,916
Marketable securities ............................... 12,431 8,462
Accounts receivable (less allowance for doubtful
accounts of $1,338 in 1998 and $1,164 in 1997) .... 12,869 9,804
Inventory ........................................... 8,311 7,801
Deferred tax assets ................................. 2,649 1,861
Prepaid expenses .................................... 726 613
-------- --------
TOTAL CURRENT ASSETS .............................. 64,938 56,457
-------- --------
Equipment and furniture:
Computer equipment .................................. 7,557 6,182
Furniture and office equipment ...................... 5,879 3,696
-------- --------
Total ............................................. 13,436 9,878
Less accumulated depreciation and amortization .... (5,454) (3,253)
-------- --------
EQUIPMENT AND FURNITURE - NET ..................... 7,982 6,625
Deferred tax assets ................................... 1,178 1,234
Investment and other assets ........................... 796 1,099
-------- --------
TOTAL ............................................. $ 74,894 $ 65,415
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accruals ................. $ 13,174 $ 10,510
Accrued compensation and commissions ................ 3,296 2,321
Customer deposits ................................... 379 325
Accrued warranty costs .............................. 1,052 850
Accrued income taxes ................................ 621 710
-------- --------
TOTAL CURRENT LIABILITIES ......................... 18,522 14,716
-------- --------
Deferred rent ......................................... 347 255
Stockholders' equity:
Common stock, $.01 par value; authorized, 25,000,000
shares; issued and outstanding 10,812,830 shares in
1998 and 10,741,195 in 1997 ....................... 108 107
Additional paid-in capital .......................... 32,337 31,978
Unrealized losses on marketable securities .......... (244) --
Retained earnings ................................... 23,824 18,359
-------- --------
STOCKHOLDERS' EQUITY ................................ 56,025 50,444
-------- --------
$ 74,894 $ 65,415
TOTAL ............................................. ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 4
BROOKTROUT TECHNOLOGY, INC.
Unaudited Condensed Consolidated Statements of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE ................................................. $25,246 $19,493 $75,526 $49,288
Cost and expenses:
Cost of product sold .................................. 10,504 8,804 31,404 21,869
Research and development .............................. 5,074 3,990 15,744 9,280
Selling, general and administrative ................... 7,348 5,679 21,201 14,192
Acquired research and development ..................... -- -- -- 3,746
------- ------- ------- -------
Total cost and expenses ........................... 22,926 18,473 68,349 49,087
------- ------- ------- -------
INCOME FROM OPERATIONS .................................. 2,320 1,020 7,177 201
------- ------- ------- -------
Interest income, net .................................... 480 327 1,498 1,249
------- ------- ------- -------
Income before income tax provision ...................... 2,800 1,347 8,675 1,450
Income tax provision .................................... 1,036 531 3,210 548
------- ------- ------- -------
NET INCOME .............................................. $ 1,764 $ 816 $ 5,465 $ 902
======= ======= ======= =======
BASIC INCOME PER COMMON SHARE ........................... $ 0.16 $ 0.08 $ 0.51 $ 0.08
======= ======= ======= =======
SHARES FOR BASIC ........................................ 10,805 10,709 10,774 10,698
======= ======= ======= =======
DILUTED INCOME PER COMMON SHARE ......................... $ 0.15 $ 0.07 $ 0.48 $ 0.08
======= ======= ======= =======
SHARES FOR DILUTED ...................................... 11,468 11,230 11,482 11,110
======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements
<PAGE> 5
BROOKTROUT TECHNOLOGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 5,465 $ 902
Adjustments to reconcile net income to cash
provided by operating activities:
Deferred income taxes ............................ (732) (2,157)
Depreciation and amortization .................... 2,201 1,115
Acquired research and development ................ -- 3,746
Amortization of net premium (discount) on
Marketable securities ............................ (45) (37)
Increase (decrease) in cash, excluding the effects
of an acquisition, from:
Accounts receivable ......................... (3,065) 214
Inventory ................................... (510) 68
Other current assets ........................ 282 (514)
Accounts payable and accrued expenses ....... 3,806 349
-------- --------
Cash provided by
operating activities ..................... 7,402 3,686
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for equipment and furniture .............. (3,558) (2,029)
Acquisition of Netaccess (net of cash acquired) ....... -- (9,909)
Purchases of marketable securities .................... (9,924) (6,808)
Maturities and sales of marketable securities ......... 5,756 7,572
-------- --------
Cash used in
investing activities ..................... (7,726) (11,174)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock ................ 360 63
-------- --------
Cash provided by
financing activities ..................... 360 63
-------- --------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS ............. 36 (7,425)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD ............... 27,916 30,738
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD ..................... $ 27,952 $ 23,313
======== ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 6
BROOKTROUT TECHNOLOGY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting. They
should be read in conjunction with the audited consolidated financial statements
incorporated by reference in or included in the Company's 1997 Annual Report on
Form 10K.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the interim periods presented.
The operating results for the interim periods presented are not necessarily
indicative of the results which could be expected for the full year.
2. Acquisition
On June 30, 1997, the Company acquired the assets and assumed certain
liabilities of Netaccess, Inc., a worldwide supplier of Primary Rate ISDN
network interface products and multiport modem products for open,
standards-based remote access and computer telephony systems. The purchase price
was $9.9 million, paid in cash, and the Company agreed to assume certain
liabilities aggregating $2 million. The acquisition was accounted for as a
purchase, and accordingly, the results of operations of Netaccess, Inc. were
included in the Company's consolidated financial statements from the date of
acquisition. The purchase price was allocated to the assets acquired based upon
their fair values using independent appraisals.
<PAGE> 7
3. Income Per Share
Basic income per share is computed using the weighted average number of
common shares outstanding during each period. Diluted income per common share
reflects the effect of the Company's outstanding options (using the treasury
stock method), except where such options would be antidilutive. A reconciliation
of shares for basic and shares for diluted is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares for basic ................. 10,805,000 10,709,000 10,774,000 10,698,000
Dilutive effect of stock options.. 663,000 521,000 708,000 412,000
---------- ---------- ---------- ----------
Shares for diluted ............... 11,468,000 11,230,000 11,482,000 11,110,000
========== ========== ========== ==========
</TABLE>
4. Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
Currently, in addition to net income, the only items which would be includable
as other components of comprehensive income are unrealized gains or losses on
marketable securities classified as available for sale. For the three months
ended September 30, 1998 and 1997, comprehensive income totaled $1,520,000 and
$828,000, respectively. For the nine months ended September 30, 1998 and 1997,
comprehensive income totaled $5,172,000 and $911,000, respectively.
5. Inventory
Inventory is carried at the lower of cost (first-in, first-out basis) or
market and consisted of the following: September 30, December 31,
September 30, December 30,
1998 1997
---- ----
Raw materials .................... $3,583,000 $3,268,000
Work in process .................. 962,000 1,606,000
Finished goods ................... 3,766,000 2,927,000
---------- ----------
Total .............................. $8,311,000 $7,801,000
========== ==========
<PAGE> 8
6. Major Customers
One customer accounted for approximately 22% and 31% of net revenue for the
three months ended September 30, 1998 and 1997, respectively, and 21% and 32%
for the nine months ended September 30, 1998 and 1997, respectively.
7. Marketable Securities
Marketable securities consist of U.S. government securities purchased with
remaining maturities in excess of three months and publicly-traded corporate
equity securities. The amortized cost of the U.S. government securities at
September 30, 1998 was $8,208,000. Net unrealized holding gains of $13,000 on
the U.S. government securities were comprised of unrealized gains of $65,000 and
unrealized losses of $52,000 at September 30, 1998. Unrealized holding losses on
the publicly-traded corporate equity securities totaled $257,000 at September
30, 1998.
8. Income Taxes
A reconciliation of the statutory federal rate to the effective rate is as
follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Statutory tax rate 35% 34% 35% 34%
State taxes, net of
federal benefit 8 5 8 4
Other (6) -- (6) --
--- --- --- ---
Effective tax rate 37% 39% 37% 38%
=== === === ===
9. International Sales
International sales, principally exports from the United States, accounted
for approximately 20% and 17% of revenue for the three months ended September
30, 1998 and 1997, respectively, and 21% and 19% for the nine months ended
September 30, 1998 and 1997, respectively.
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 and 1997
Revenue during the three months ended September 30, 1998 increased by
approximately 30% to $25,246,000, up from $19,493,000 during the three months
ended September 30, 1998. This growth was attributable to increased shipments of
TR Series products. Increased sales from the TR Series products reflect the
growth in the local area network/fax market segment served by the Company.
Cost of product sold was $10,504,000, or 42% of revenue, during the three
months ended September 30, 1998, compared to $8,804,000, or 45% of revenue, for
the same period in 1997. Gross profit percentage was approximately 58% and 55%
for the three months ended September 30, 1998 and 1997, respectively. The
increase in gross profit percentage is directly related to the substantial
increase in higher margin TR Series product sold for the three months ended
September 30, 1998. In addition to the higher margin related to increased
volume, there were cost reduction efforts implemented on the TR Series products.
Research and development expense was $5,074,000, or 20% of revenue,
compared with $3,990,000, or 20% of revenue, for the three months ended
September 30, 1998 and 1997, respectively. The increase reflects the Company's
development efforts for Interspeed, Inc., the next generation of Netaccess
products and computer telephony software development tools. It also includes
continued development of the TR Series product family and Brooktrout Open
Systems Telephony Architecture (BOSTon), as well as fax and OEM systems
development. The Company intends to continue to commit significant resources to
product development.
Selling, general and administrative expense was $7,348,000 during the three
months ended September 30, 1998, compared with $5,679,000 during the same period
in 1997. This higher expense level resulted from increased staffing, promotional
activities and legal expenses. As a percentage of revenue, selling, general and
administrative expense for the third quarter of 1998 and 1997 was 29% of
revenue.
For the three months ended September 30, 1998, interest and other income
was $480,000, compared with $327,000 for the same period in 1997.
The Company's effective tax rate was 37% in 1998 and 39% in 1997, based on
the Company's estimated effective tax rate for the full year.
<PAGE> 10
Nine Months Ended September 30, 1998 and 1997
Revenue during the nine months ended September 30, 1998 increased by
approximately 53% to $75,526,000, up from $49,288,000 during the nine months
ended September 30, 1997. This growth was partially attributable to increased
shipments of TR Series products. Increased sales from the TR Series products
reflect the growth in the local area network/fax market segment served by the
Company. In 1998, revenue increased due to the inclusion of sales of Primary
Rate ISDN telephone network interface products acquired through the acquisition
of Netaccess, Inc. on June 30, 1997.
Cost of product sold was $31,404,000, or 42% of revenue, during the nine
months ended September 30, 1998, compared to $21,869,000, or 44% of revenue, for
the same period in 1997. Gross profit percentage was approximately 58% and 56%
for the nine months ended September 30, 1998 and 1997, respectively. The
increase in gross profit percentage is the result of the increased volume of TR
Series and Primary Rate ISDN telephone network interface products sold. In
addition, the TR Series product family benefited from cost reduction efforts
initiated by the Company.
Research and development expense was $15,744,000, or 21% of revenue,
compared with $9,280,000, or 19% of revenue, for the nine months ended September
30, 1998 and 1997, respectively. The increase reflects the Company's development
efforts for Interspeed, Inc., the next generation of Netaccess products, and for
continued development of the TR Series product family, Brooktrout Open Systems
Telephony Architecture (BOSTon), fax and OEM systems development as well as
computer telephony software development tools.
Selling, general and administrative expense was $21,201,000 during the nine
months ended September 30, 1998, compared with $14,192,000 during the same
period in 1997. This higher expense level resulted from increased staffing,
promotional activities and depreciation expense. As a percentage of revenue,
selling, general and administrative expense for the first nine months of 1998
was 28% of revenue, compared with 29% for the first nine months of 1997.
During the nine months ended September 30, 1997, the Company recorded a
charge of $3,746,000 reflecting the portion of the purchase price for Netaccess,
Inc. allocated to research efforts in-process.
For the nine months ended September 30, 1998, interest and other income was
$1,498,000, compared with $1,249,000 for the same period in 1997.
The Company's effective tax rate, adjusted for significant permanent or
other differences, was 37% and 38% for the nine months ended September 30, 1998
and 1997, respectively.
<PAGE> 11
Liquidity and Capital Resources
For the nine months ended September 30, 1998, the Company funded its
operations principally through operating revenue. The Company's working capital
increased from $41.7 million at December 31, 1997 to $46.4 million at September
30, 1998. The increase was attributable primarily to higher cash balances and
investments due to continued profitable operations combined with a higher
accounts receivable balance and were partially offset by higher accounts payable
and other accrual balances.
In August 1998, the Company renewed its working capital line of credit.
Under the renewed line of credit, the Company may borrow up to $10,000,000 on an
unsecured basis, all of which may be used for issuance of letters of credit,
subject to compliance with certain covenants. The line of credit will expire in
July 1999 and at that time any outstanding balances would be payable in full.
Any amounts borrowed under the line would be subject to interest at the bank's
prime rate. At September 30, 1998 there were no commitments outstanding on
letters of credit; no borrowings have been made during any period presented.
During the third quarter, the Company purchased $6.4 million of marketable
securities, including U.S. government securities and publicly-traded corporate
equity securities, which have been classified as available-for-sale.
During the first nine months of 1998, the Company invested approximately
$3.6 million in capital equipment. The Company currently has no material
commitments for additional capital expenditures.
The Company anticipates that cash flows from operations, together with
current cash and marketable securities balances and funds available under the
Company's line of credit, will be sufficient to meet the Company's working
capital and capital equipment expenditure requirements for the foreseeable
future.
<PAGE> 12
Recent Accounting Pronouncements
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" and
AICPA Statement of Position No. 97-2, "Software Revenue Recognition." Adoption
of these pronouncements did not have a material effect on reported results of
operations or financial position.
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." As allowed by that pronouncement, the
Company will provide information about its operating segments in the annual
financial statements, and will begin providing such information on an interim
basis for the first quarter of 1999.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities, effective for fiscal years
beginning after June 15, 1999. The new standard requires that all companies
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. Management is currently assessing the
impact of SFAS No. 133 on the financial statements of the Company. The Company
will adopt this accounting standard on January 1, 2000, as required.
<PAGE> 13
"THE STATEMENTS IN THE FOLLOWING SECTION INCLUDE "YEAR 2000 READINESS
DISCLOSURE" WITHIN THE MEANING OF THE YEAR 2000 INFORMATION AND READINESS
DISCLOSURE ACT."
Year 2000 Readiness Disclosure
"This section contains certain statements that are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
The Company's Year 2000 compliance, and the eventual affects of the Year 2000
on the Company may be materially different than currently projected. This may
be due to, among other things, delays in the implementation of the Company's
Year 2000 Plan and the failure of key third parties with whom the Company has a
significant business relationship to achieve Year 2000 compliance."
The Year 2000 issue relates to a complex of potential problems arising from
the ways in which computer software can handle dates. Many older systems use a
two digit date format which may create ambiguities in passing into a new
century.
The Year 2000 is a special case in the Gregorian calendar which can create
problems with certain leap-year calculation routines. In addition, various
contemporary computer operating systems, including systems on which many of the
Company's and its suppliers' products are dependent, employ binary dating
conventions which cannot currently manage dates falling after certain times
after the year 2000 (e.g., the year 2038 in the case of most 32-bit Windows
software.)
The Company has a Year 2000 Plan which it is actively pursuing to address
the Company's Year 2000 issues. The Company's Year 2000 Plan focuses on each of
the Company's internal systems, the Company's products, and third parties with
which the Company has a significant business relationship.
The Company's Year 2000 Plan relating to its internal systems consists of
three phases - assessment, testing and implementation. The Company is currently
in the testing phase and anticipates commencing the implementation phase during
the fourth quarter of 1998. The Company believes that all material systems will
be compliant by the Year 2000 and that the cost to address this issue is not
material. The Company does not have any contingency plans in the event that its
material systems are not Year 2000 compliant, however, if the Company
determines that its systems may not be compliant prior to 2000, it shall
create and implement contingency plans as necessary.
The Company is in the process of gathering, testing, and producing
information about the Company's products impacted by the Year 2000 transition.
Although the Company believes that most of its products are in or will be
(through maintenance releases or patches) in Year 2000 compliance, the Company
has determined that certain of its older products are not and will not be
compliant, although customers generally will have upgrade paths available to
move to the company's newer compliant products, generally requiring some change
in the operating environment. The Company is taking steps to inform such
affected users of this issue.
All organizations dealing with the Year 2000 must address the effect this
issue will have on their significant business relationships with key third
parties. The Company's significant business relationships which may be adversely
impacted by the Year 2000 issue include certain contractual relationships with
key suppliers of components for the Company's products, service providers for
the Company's internal systems and major customers for the Company's products
(including one such customer which accounts for more than 20% of the Company's
revenue). The Company is undertaking steps to work with such key third parties
to understand their ability to continue providing services, products and demand
for the Company's products through the change to the Year 2000. If any
significant Year 2000 problems are identified with key third parties,
contingency plans will be developed.
The Company anticipates that substantial litigation may be brought against
vendors of all component products of systems that are unable to properly manage
data related to the Year 2000. The Company has not received any threats of such
litigation against it, but no assurance can be given that such litigation may
not be threatened or brought in the future. The Company's agreements with
customers typically contain provisions designed to limit the Company's liability
for such claims. It is
<PAGE> 14
possible, however, that these measures will not provide protection from
liability claims, as a result of existing or future federal, state or local laws
or ordinances or unfavorable judicial decisions. Furthermore, the failure of the
Company or the Company's key suppliers and/or customers to be Year 2000
compliant may also result in litigation being brought against the Company in
addition to making it more difficult and/or costly for the Company to
manufacture and sell its products. Any such claims, with or without merit, or
the failure of the Company, its suppliers or customers to be Year 2000 compliant
could result in a material adverse affect on the Company's business, financial
condition and results of operations, including increased warranty costs,
customer satisfaction issues and potential lawsuits.
Euro Issue
Some of the countries in which the Company sells its products are Member
States of the Economic and Monetary Union ("EMU"). Beginning January 1, 1999
Member States of the EMU may begin trading in either their local currencies or
the euro, the official currency of EMU participating Member States. Parties are
free to choose the unit they prefer in contractual relationships during the
transitional period, beginning January 1999 and ending June 2002. The new
accounting system that the Company implemented can be upgraded to support the
euro and process transactions in either a country's local currency or the euro.
The Company does not anticipate a large demand from its customers to transact in
euros, so this upgrade is not planned for implementation until the fourth
quarter of 1999.
<PAGE> 15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Dismissal of Patent Infringement Lawsuit against the Company
On October 4, 1996, Syntellect Technology Corp. ("Syntellect") filed a
Complaint against the Company in the United States District Court for the
Northern District of Texas (the "Texas Court"), alleging infringement of certain
patents then owned by Syntellect relating to certain aspects of "automated
attendant" technology (the "Syntellect Complaint"). The Syntellect Complaint
sought injunctive relief, damages in an unspecified amount, and multiple damages
on account of alleged willful infringement. In December 1996, the Company filed
a Motion to Dismiss the Syntellect Complaint, which was denied in July 1997. In
October 1997, the Company filed a Motion for Summary Judgement which was granted
by the Texas Court on May 10, 1998. On June 10, 1998, the period for Syntellect
to appeal the summary judgment decision expired.
Initiation of Arbitration Proceedings against the Company
On September 22, 1998, Syntellect served the Company with notice that it
intended to pursue arbitration of a claim based on an alleged breach of a patent
license agreement. On October 5, 1998, the Company filed a Complaint against
Syntellect (the "Complaint") in the United States District Court for the
District of Massachusetts (the "Massachusetts Court") seeking a declaratory
judgement that Syntellect does not have the right to pursue its claim in
arbitration. On October 7, 1998, the Company filed a motion to stay Syntellect's
arbitration claim, which the Massachusetts Court denied on November 2, 1998. On
October 22, 1998, Syntellect filed a demand for arbitration, with the American
Arbitration Association in Dallas, Texas, in which Syntellect asserts that
Brooktrout failed to pay certain royalties under a patent license agreement. On
October 26, 1998, Syntellect filed a motion to dismiss the Complaint filed in
the Massachusetts Court. On November 9, 1998, the Company filed an opposition to
the motion to dismiss, a motion to amend the complaint and a renewed motion to
stay arbitration. The Company intends to vigorously defend against Syntellect's
claims.
Items 2 through 5.
None
Item 6. Exhibits
(a) Exhibits
Exhibit 27 - Financial Data Schedule
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROOKTROUT TECHNOLOGY, INC.
Date: November 10, 1998 By: /s/ Eric R. Giler
-----------------------------
Eric R. Giler
President
(Principal Executive Officer)
Date: November 10, 1998 By: /s/ Robert C. Leahy
------------------------------
Robert C. Leahy
Vice President of Finance and
Operations and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BROOKTROUT
TECHNOLOGY, INC.'S CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENTS OF INCOME
FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH BROOKTROUT TECHNOLOGY, INC'S 10-Q FOR THE PERIOD ENDED
SEPTEMBER 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
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