<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 0-15578
DAVOX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware No. 02-0364368
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
6 Technology Park Drive
Westford, Masschusetts 01886
(Address of principal executive offices) (Zip Code)
Telephone: (508) 952-0200
(Registrant's telephone number, including area code)
__________________________
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock: Common Stock, par value $.10 per share, outstanding as of July
26, 1995: 6,745,304 shares.
<PAGE>
DAVOX CORPORATION & SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: Page No.
-------
<S> <C>
Consolidated Balance Sheets as of
June 30, 1995 (unaudited) and December 31, 1994 3
Unaudited Consolidated Statements of Operations
for the three months and six months ended
June 30, 1995 and 1994 4
Unaudited Consolidated Statements of Cash Flows
for the six months ended June 30, 1995
and 1994 5
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
(unaudited) (audited)
------------------- -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,026,861 $ 5,277,780
Accounts receivable, net of reserves of
$526,654 in 1995 and $637,672 in 1994 4,298,333 4,699,719
Inventories 691,611 767,794
Prepaid expenses and other current assets 108,618 209,020
------------------- -------------------
Total current assets 15,125,423 10,954,313
Property and equipment, net 2,282,543 2,536,759
Capitalized software development costs, net 674,804 958,910
Other assets, net 243,150 327,135
------------------- -------------------
$ 18,325,920 $14,777,117
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 105,508 $ 108,459
Accounts payable 2,099,026 2,530,656
Accrued expenses 3,460,684 3,819,782
Customer deposits 1,653,627 830,295
Deferred revenue 3,171,026 1,858,241
------------------- -------------------
Total current liabilities 10,489,871 9,147,433
------------------- -------------------
Long-term debt, net of current maturities 86,001 137,788
------------------- -------------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value -
Authorized - 10,000,000 shares
Issued - 6,738,718 shares in 1995
and 6,580,295 shares in 1994 673,872 658,030
Capital in excess of par value 42,170,853 41,922,005
Accumulated deficit (35,070,531) (37,063,993)
------------------- -------------------
7,774,194 5,516,042
Less - treasury stock, 2,807 shares at cost (24,146) (24,146)
------------------- -------------------
Total stockholders' equity 7,750,048 5,491,896
------------------- -------------------
$ 18,325,920 $14,777,117
=================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------------------- ---------------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Product revenue $5,424,073 $2,953,436 $10,567,500 $7,233,026
Service revenue 3,592,011 3,143,910 6,989,685 6,335,304
---------------- -------------- -------------- ----------------
Total revenues 9,016,084 6,097,346 17,557,185 13,568,330
Cost of product revenue 1,617,464 1,475,334 3,336,901 3,572,965
Cost of service revenue 2,380,160 2,432,418 4,587,385 4,725,890
---------------- -------------- -------------- ----------------
Total cost of revenues 3,997,624 3,907,752 7,924,286 8,298,855
Gross profit 5,018,460 2,189,594 9,632,899 5,269,475
Research, development and
engineering expenses 1,027,974 867,317 1,963,710 1,815,411
Selling, general and administrative
expenses 2,894,686 3,491,517 5,625,077 6,917,484
Restructuring costs - - - - 3,379,031 - - - - 3,379,031
---------------- -------------- -------------- ----------------
Total operating expenses 3,922,660 7,737,865 7,588,787 12,111,926
Income (loss) from operations 1,095,800 (5,548,271) 2,044,112 (6,842,451)
Interest income 110,395 12,021 181,832 20,651
Interest expense 5,109 6,744 10,901 15,808
---------------- -------------- -------------- ----------------
Income (loss) before provision
for income taxes 1,201,086 (5,542,994) 2,215,043 (6,837,608)
Provision for income taxes 120,185 - - - - 221,581 - - - -
---------------- -------------- -------------- ----------------
Net income (loss) $ 1,080,901 ($5,542,994) $ 1,993,462 ($6,837,608)
================ ============== ============== ================
Net income (loss) per common and $0.14 ($1.03) $0.26 ($1.27)
common equivalent share ================ ============== ============== ================
Weighted average number of common and
common equivalent shares outstanding 7,659,518 5,366,961 7,554,671 5,366,961
================ ============== ============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the six months
ended June 30,
------------------------------------
Cash flows from operating activities: 1995 1994
--------------- ----------------
<S> <C> <C>
Net income (loss) $1,993,462 ($6,837,608)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities -
Depreciation and amortization 1,259,232 1,838,850
Provision for losses on accounts receivable 151,744 194,453
Changes in assets and liabilities -
Accounts receivable 249,642 2,167,341
Inventories 76,183 794,533
Prepaid expenses and other current assets 100,402 (68,995)
Accounts payable (431,630) 230,641
Accrued expenses (1,125) (588,867)
Restructuring costs (357,973) 1,554,460
Customer deposits 823,332 574,105
Deferred revenue 1,312,785 1,170,085
--------------- ----------------
Net cash provided by operating activities 5,176,054 1,028,998
--------------- ----------------
Cash flows from investing activities:
Purchase of property and equipment (635,349) (823,342)
Increase in other assets (1,576) (81,034)
Capitalized software development costs - - - - (309,961)
--------------- ----------------
Net cash used in investing activities (636,925) (1,214,337)
--------------- ----------------
Cash flows from financing activities:
Principal payments for long-term debt (54,738) (68,388)
Proceeds from exercise of stock options 252,990 76,255
Proceeds from exercise of employee stock purchase plan 11,700 5,511
--------------- ----------------
Net cash provided by financing activities 209,952 13,378
--------------- ----------------
Net increase (decrease) in cash and cash equivalents 4,749,081 (171,961)
Cash and cash equivalents at beginning of period 5,277,780 2,718,249
--------------- ----------------
Cash and cash equivalents at end of period $10,026,861 $2,546,288
=============== ================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 10,901 $ 15,808
=============== ================
Acquisition of equipment under
capital lease obligation $ - $190,812
=============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
PART 1. FINANCIAL INFORMATION (CONTINUED)
DAVOX CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Preparation
The unaudited consolidated financial statements presented herein have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. The statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Form 10-K, Commission File No. 0-15578 which was filed with the
Securities and Exchange Commission on February 17, 1995. In the opinion of
management, the accompanying consolidated financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary to
summarize fairly the Company's financial position and results of operations.
The results of operations for the six month period ended June 30, 1995 may
not be indicative of the results that may be expected for the full fiscal
year.
2. Principles of Consolidation
The accompanying consolidated financial statements at June 30, 1995
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
3. Inventories
Inventories are stated at the lower of the first-in, first-out (FIFO)
cost or market and consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
(unaudited) (audited)
----------- ---------
<S> <C> <C>
Raw materials and
subassemblies..... $ 45,079 $ 59,916
Work-in-process.... 164,217 503,505
Finished goods..... 482,315 204,373
----------- ----------
$ 691,611 $ 767,794
=========== ==========
</TABLE>
6
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
DAVOX CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. Inventories (continued)
Subassemblies, work-in-process and finished goods inventories include
material and sub-contract labor. Internal labor and overhead are not
significant.
4. Capitalization of Software Development Costs
A change has occurred in the Company's current development cycle, such
that the period between the attainment of technological feasibility and the
first commercial shipment of a software enhancement has shortened, and the
level of capitalizable costs incurred are no longer material. Accordingly,
during the three months and six months ended June 30, 1995, there were no
software development costs capitalized. Approximately $142,000 and $284,000
of capitalized software development costs were amortized to expense during
the three months and six months ended June 30, 1995, respectively.
5. Provision for Income Taxes
The Company has significant available net operating loss
carryforwards. However, the Company provided for federal alternative minimum
tax and certain income taxes in states which do not allow for net operating
loss carryforwards for the three months and six months ended June 30,1995.
6. Net Income (loss) Per Share
Net income per share for the three months and six months ended June
30, 1995 was computed based on the weighted average number of common and
common equivalent shares (stock options and warrants) outstanding during the
period. Common stock equivalents were not considered in computing the net
loss per share in 1994 as the effect was antidilutive.
7
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenues for the second quarter of 1995 increased approximately
$2,919,000, or 47.9% compared to the same period in 1994, while total revenues
increased approximately $3,989,000, or 29.4% for the first six months of 1995
compared to the same period in 1994.
Product revenue for the second quarter of 1995 increased by 83.7% compared
to the second quarter of 1994, while product revenue for the first six months of
1995 increased 46.1% compared to the same period in 1994. These increases were
caused by continued increasing demand for the Unison call center management
system in all markets.
Cost of product revenue as a percentage of product revenue for the second
quarter of 1995 decreased 20.1% compared to the same period of 1994. Cost of
product revenue as a percentage of product revenue for the first six months of
1995 decreased 17.8% compared to the same period in 1994. These decreases are
due to the increased volume relative to fixed costs, a higher margin product
mix, and a decrease in overhead costs which is mostly related to the decrease in
headcount resulting from the June 1994 restructuring.
Service revenue for the second quarter of 1995 increased 14.3% compared to
the second quarter of 1994, while service revenue for the first six months of
1995 increased 10.3% compared to the same period in 1994. These increases are
due to increased maintenance revenues due to the growth in the number of the
Company's customers and increased installation revenue related to the higher
product revenues.
Cost of service revenue as a percentage of service revenue for the second
quarter of 1995 decreased 11.1% compared to the same period of 1994. Cost of
service revenue as a percentage of service revenue for the first six months of
1995 decreased 9.0% compared to the same period in 1994. These decreases were
mostly attributable to the higher service revenues.
Research, development and engineering expenses increased 18.5% and 8.2%
during the second quarter and first six months, respectively, of 1995 compared
to the same periods in 1994. These increases were primarily due to the absence
of capitalized software development costs in both periods of 1995. As a
percentage of total revenues, research, development and engineering expenses
decreased by 2.8% from 14.2% for the second quarter of 1994 to 11.4% for the
second quarter of 1995. Research, development and engineering expenses as a
percentage of total revenues decreased by 2.2% from 13.4% for the first six
months of 1994 to 11.2% for the first six months of 1995.
8
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Selling, general and administrative (SG&A) expenses for the second quarter
and first six months of 1995 decreased 17.1% and 18.7%, respectively, as
compared to the same periods in 1994. As a percentage of total revenues, SG&A
expenses decreased by 25.2% from 57.3% for the second quarter of 1994 to 32.1%
for the second quarter of 1995. These decreases are primarily attributable to
the increase in total revenues as well as lower indirect selling expenses and
personnel costs including benefits, and a decrease in legal fees resulting from
the settlement of a patent dispute with Digital Systems International in 1994.
SG&A expenses as a percentage of total revenues decreased by 19.0% from 51.0%
for the first six months of 1994 to 32.0% for the first six months of 1995. This
decrease was primarily attributable to the increase in total revenues as well as
lower personnel costs including benefits and indirect selling expenses, and a
decrease in legal fees related to the settlement of a patent dispute with
Digital Systems International in 1994.
Interest income in 1995 was derived primarily from money market
investments. Interest income increased 818.4% and 780.5% in the second quarter
and first six months of 1995, respectively, compared to the same periods in
1994. The increases reflect the significantly higher average cash balances in
1995 compared to 1994.
Interest expense in 1995 was attributable to capital lease obligations.
Interest expense for the second quarter and first six months of 1995 decreased
by 24.2% and 31.0%, respectively, as compared to the same periods in 1994. These
decreases reflect an overall decrease in outstanding lease obligations.
RESTRUCTURING
- -------------
In response to the lower revenues, the Company implemented a restructuring
program in the second quarter of 1994. The restructuring was intended to refocus
the strategic direction of the Company to exploit the full potential of the
Unison product line and maintain the Company's operating expenses in line with
the revised revenue plan. As a result of this program, the Company hired a new
Chief Executive Officer and a new Chief Financial Officer. This restructuring
resulted in a 21% reduction in the Company's work force world wide.
The Company offered or was contractually committed to severance packages of
up to fifteen months' salary. Additionally the Company accelerated the phase out
of certain older product lines, necessitating the write down of certain assets.
In total, the restructuring cost was approximately $3,379,000, of which $243,000
of severance payments and other costs have yet to be paid as of June 30, 1995.
The restructuring charge reflects approximately $1,487,000 of severance related
costs and $1,892,000 related to the phase out of certain older product lines.
There have been no non-cash adjustments to the accrual during the quarter ended
June 30, 1995.
9
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of June 30, 1995 the Company's principal sources of liquidity were its
cash and cash equivalents of approximately $10,027,000. As of the end of fiscal
1994 the Company's cash and cash equivalents were approximately $5,278,000. The
increase in cash was due to the collection of deferred annual maintenance
contracts, increased customer deposits, as well as the favorable operating
results. In addition the company has an agreement for a secured working capital
line of credit with a bank for up to $2 million based on eligible receivables.
There were no outstanding balances as of June 30, 1995.
At June 30, 1995, the working capital of the Company increased to
approximately $4,636,000 from approximately $1,807,000 as of December 31, 1994.
The increase was primarily attributable to the favorable operating results for
the first six months of 1995. Total assets increased to approximately
$18,326,000 at June 30, 1995 from approximately $14,777,000 from December 31,
1994. The increase was primarily due to the cash generated by operations.
Management believes, based on the current operating plan, that the
Company's existing cash and cash equivalents, cash generated from operations,
and amounts available under its secured working capital line of credit will be
sufficient to meet the Company's cash requirements for the foreseeable future.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no material changes since the Company's Annual Report on
Form 10-K for the period ended December 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
27 Article 5 - Summary Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June
30, 1995.
11
<PAGE>
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.
DAVOX CORPORATION
Date: August 3, 1995 By: /s/ Alphonse M. Lucchese
------------------------
Alphonse M. Lucchese
President, Chief
Executive Officer and
Chairman (Principal
Executive Officer)
Date: August 3, 1995 By: /s/ John J. Connolly
-------------------
John J. Connolly
Vice President of Finance
and Chief Financial Officer
(Principal Financial Officer)
12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit Page
- -------------- ---------------------- ----
<S> <C> <C>
27 Article 5 - Summary Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 10,026,861
<SECURITIES> 0
<RECEIVABLES> 4,824,987
<ALLOWANCES> 526,654
<INVENTORY> 691,611
<CURRENT-ASSETS> 15,125,423
<PP&E> 2,282,543
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,325,920
<CURRENT-LIABILITIES> 10,489,871
<BONDS> 86,001
<COMMON> 673,872
0
0
<OTHER-SE> 7,100,322
<TOTAL-LIABILITY-AND-EQUITY> 18,325,920
<SALES> 10,567,500
<TOTAL-REVENUES> 17,557,185
<CGS> 3,336,901
<TOTAL-COSTS> 7,924,286
<OTHER-EXPENSES> 1,963,710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170,931
<INCOME-PRETAX> 2,215,043
<INCOME-TAX> 221,581
<INCOME-CONTINUING> 1,993,462
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,993,462
<EPS-PRIMARY> $.26
<EPS-DILUTED> $.26
</TABLE>
