<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 March 31, 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
April 25, 1995: 6,620,420 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 March 31, 1995
(unaudited) and December 31, 1994 3
Unaudited Consolidated Statements of Operations
for the three months ended March 31, 1995 and
1994 4
Unaudited Consolidated Statements of Cash Flows
for the three months ended March 31, 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
<CAPTION>
PART II. OTHER INFORMATION
<S> <C>
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
(unaudited) (audited)
--------------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,833,872 $ 5,277,780
Accounts receivable, net of reserves of
$582,397 in 1995 and $637,672 in 1994 4,173,986 4,699,719
Inventories 752,084 767,794
Prepaid expenses and other current assets 159,750 209,020
--------------- ---------------
Total current assets 12,919,692 10,954,313
Property and equipment, net 2,373,143 2,536,759
Capitalized software development costs, net 816,857 958,910
Other assets, net 274,648 327,135
--------------- ---------------
$16,384,340 $14,777,117
=============== ===============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S>
Current liabilities: <C> <C>
Current maturities of long-term debt $ 104,486 $ 108,459
Accounts payable 2,227,316 2,530,656
Accrued expenses 3,547,251 3,819,782
Customer deposits 583,687 830,295
Deferred revenue 3,304,880 1,858,241
--------------- ---------------
Total current liabilities 9,767,620 9,147,433
--------------- ---------------
Long-term debt, net of current maturities 112,216 137,788
--------------- ---------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value -
Authorized - 10,000,000 shares
Issued - 6,621,030 shares in 1995
and 6,580,295 shares in 1994 662,103 658,030
Capital in excess of par value 42,017,979 41,922,005
Accumulated deficit (36,151,432) (37,063,993)
--------------- ---------------
6,528,650 5,516,042
Less - treasury stock, 2,807 shares at cost (24,146) (24,146)
--------------- ---------------
Total stockholders' equity 6,504,504 5,491,896
--------------- ---------------
$16,384,340 $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
ended March 31,
-----------------------------
1995 1994
---- ----
<S> <C> <C>
Product revenue $5,143,427 $4,279,590
Service revenue 3,397,674 3,191,394
------------- ------------
Total revenues 8,541,101 7,470,984
------------- ------------
Cost of product revenue 1,719,437 2,097,631
Cost of service revenue 2,207,225 2,293,472
------------- ------------
Total cost of revenues 3,926,662 4,391,103
------------- ------------
Gross profit 4,614,439 3,079,881
------------- ------------
Research, development and engineering expenses 935,736 948,094
Selling, general and administrative expenses 2,730,391 3,425,968
------------- ------------
Total operating expenses 3,666,127 4,374,062
------------- ------------
Income (loss) from operations 948,312 (1,294,181)
Interest income 71,437 8,630
Interest expense 5,792 9,064
------------- ------------
Income (loss) before provision
for income taxes 1,013,957 (1,294,615)
Provision for income taxes 101,396 - - - -
------------- ------------
Net income (loss) $ 912,561 ($1,294,615)
============= ============
Net income (loss) per common and $0.12 ($0.24)
common equivalent share ============= ============
Weighted average number of common and
common equivalent shares outstanding 7,449,435 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 three months
ended March 31,
---------------------------------
Cash flows from operating activities: 1995 1994
------------- ------------
<S> <C> <C>
Net income (loss) $912,561 ($1,294,615)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities -
Depreciation and amortization 561,525 774,213
Provision for losses on accounts receivable 74,456 152,071
Changes in assets and liabilities -
Accounts receivable 451,277 (68,772)
Inventories 15,710 130,371
Prepaid expenses 49,270 (95,748)
Accounts payable (303,340) (323,360)
Accrued expenses (134,777) (506,887)
Restructuring costs (137,754) - - - -
Customer deposits (246,608) 472,122
Deferred revenue 1,446,639 1,653,396
------------- ------------
Net cash provided by operating activities 2,688,959 892,791
------------- ------------
Cash flows from investing activities:
Purchase of property and equipment (201,311) (586,149)
Increase in other assets (2,058) (86,759)
Capitalized software development costs - - - - (132,840)
------------- ------------
Net cash used in investing activities (203,369) (805,748)
------------- ------------
Cash flows from financing activities:
Principal payments for long-term debt (29,545) (39,434)
Proceeds from exercise of stock options 88,347 76,255
Proceeds from exercise of employee stock purchase plan 11,700 5,511
------------- ------------
Net cash provided by financing activities 70,502 42,332
------------- ------------
Net increase in cash and cash equivalents 2,556,092 129,375
Cash and cash equivalents at beginning of period 5,277,780 2,718,249
------------- ------------
Cash and cash equivalents at end of period $7,833,872 $2,847,624
============= ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 5,792 $ 9,064
============= ============
Other transactions not affecting cash:
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 three month period ended March 31, 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 March 31, 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>
March 31, December 31,
1995 1994
(unaudited) (audited)
----------- -------------
<S> <C> <C>
Raw materials and
subassemblies.... $ 36,068 $ 59,916
Work-in-process.... 468,518 503,505
Finished goods..... 247,498 204,373
-------- --------
$752,084 $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 ended March 31, 1995, there were no software
development costs capitalized. Approximately $142,000 of capitalized software
development costs were amortized to expense during the three months ended March
31, 1995.
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.
6. Net Income (loss) Per Share
Net income per share for the three months ended March 31, 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
the three months ended March 31, 1994, as the effect would have been
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 first quarter of 1995 increased 14.3% compared to the
same period in 1994.
Product revenue for the first quarter of 1995 increased by 20.2% compared to
the same period in 1994. The increase was caused by heightened demand for the
Unison call center management system in all markets.
Product cost of revenue as a percentage of product revenue for the first
quarter of 1995 decreased 15.6% compared to the first quarter of 1994. This
decrease was attributable to a continued shift to higher margin software
products associated with the Unison product, and significantly lower overhead
costs resulting from the June 1994 restructuring. These decreases were
partially offset by an inventory provision relative to the phaseout of certain
older product lines.
Service revenue for the first quarter of 1995 increased by 6.5% compared to
the first quarter of 1994 due to increased maintenance revenue related to growth
in the number of the Company's customers.
Service cost of revenue as a percentage of service revenue for the first
quarter of 1995 decreased 6.9% compared to the same period in 1994. This
decrease was attributable to lower third party maintenance costs and associated
third party repair costs.
Research, development and engineering expenses decreased 1.3% for the first
quarter of 1995 compared to the same period in 1994. As a percentage of total
revenues, research, development and engineering expenses decreased by 1.7%, from
12.7% to 11.0% for the first quarter of 1994 and 1995, respectively. These
decreases were mostly attributable to the increase in total revenues, and to
reduced utilization of consultants.
Selling, general and administrative (SG&A) expenses for the first quarter of
1995 compared to the same period in 1994 decreased 20.3%. As a percentage of
total revenues, SG&A expenses decreased 13.9% from 45.9% to 32.0% for the first
quarter of 1994 and 1995, respectively. These decreases were attributable to
the increase in total revenues, as well as lower personnel costs and decreased
rent expense resulting from the June 1994 restructuring.
Interest income in 1995 was derived primarily from money market investments.
Interest income increased 727.8% in the first quarter of 1995 compared to the
same period in 1994. The increase reflects the significantly higher average
cash balances in 1995 compared to 1994.
8
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Interest expense in 1995 was attributable to capital lease obligations.
Interest expense decreased 36.1% in the first quarter of 1995 compared to the
same period in 1994. This decrease reflects an overall decrease in outstanding
debt.
The Company's net income of $912,561 in the first quarter of 1995 compares to
net loss of $1,294,615 for the same period in 1994.
RESTRUCTURING
In response to lower revenue, 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 worldwide.
The company offered or was contractually committed to severance packages of up
to fifteen months' salary. Additionally, the Company accelerated the phaseout
of certain older product lines, necessitating the write-down of certain assets.
In total, the restructuring cost was approximately $3,379,000, of which
approximately $463,000 of severance payments and other costs have yet to be paid
as of March 31, 1995. The restructuring charge reflects approximately
$1,487,000 of severance related costs and $1,892,000 related to the phaseout of
certain older product lines. There have been no non-cash adjustments to the
accrual during the quarter ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1995, the Company's principal sources of liquidity were its
cash and cash equivalent balances of approximately $7,834,000. As of the end of
fiscal year 1994, the Company's cash and cash equivalent balances were
approximately $5,278,000. This increase was due to the collection of deferred
annual maintenance contracts as well as the favorable operating results. In
addition the company has an agreement for a secured, demand working capital line
of credit with a bank for up to $2 million based on eligible receivables. There
were no outstanding balances as of March 31, 1995.
9
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
At March 31, 1995, the working capital of the Company increased to
approximately $3,152,000 from approximately $1,807,000 as of December 31, 1994.
The increase was primarily attributable to the net profit of $912,561 for the
first three months of 1995. Total assets during the same period of time
increased to approximately $16,384,000 from approximately $14,777,000. 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
March 31, 1995.
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: May 4, 1995 By: /s/ Alphonse M. Lucchese
-------------------------
Alphonse M. Lucchese
President, Chief
Executive Officer and
Chairman (Principal
Executive Officer)
Date: May 4, 1995 By: /s/ John J. Connolly
---------------------
John J. Connolly
Vice President of Finance
and Chief Financial Officer
(Principal Financial Officer)
11
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 7,833,872
<SECURITIES> 0
<RECEIVABLES> 4,756,383
<ALLOWANCES> 582,397
<INVENTORY> 752,084
<CURRENT-ASSETS> 12,919,692
<PP&E> 2,373,143
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,384,340
<CURRENT-LIABILITIES> 9,767,620
<BONDS> 112,216
<COMMON> 662,103
0
0
<OTHER-SE> 5,866,547
<TOTAL-LIABILITY-AND-EQUITY> 16,384,340
<SALES> 5,143,427
<TOTAL-REVENUES> 8,541,101
<CGS> 1,719,437
<TOTAL-COSTS> 3,926,662
<OTHER-EXPENSES> 935,736
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,645
<INCOME-PRETAX> 1,013,957
<INCOME-TAX> 101,396
<INCOME-CONTINUING> 912,561
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 912,561
<EPS-PRIMARY> $.12
<EPS-DILUTED> $.12
</TABLE>
