<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 0-17920
BRITE VOICE SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
KANSAS 48-0986248
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
250 INTERNATIONAL PARKWAY
HEATHROW, FLORIDA 32746
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (407) 357-1000
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 May 8, 1998, 12,159,627 shares of the registrant's common stock were
outstanding.
TOTAL NUMBER OF PAGES: 16
<PAGE>
BRITE VOICE SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
-------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998 and
December 31, 1997 . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income - Three Months
Ended March 31, 1998 and 1997 . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1998 and 1997 . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 15
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRITE VOICE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C>
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 24,184 $26,979
Accounts receivable, less allowance for doubtful accounts:
1998--$1,382; 1997--$1,366. . . . . . . . . . . . . . . . . 37,692 36,457
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 16,613 13,788
Prepaid expenses and other . . . . . . . . . . . . . . . . . . 5,974 8,738
----------- ------------
Total Current Assets. . . . . . . . . . . . . . . . . . . . 84,463 85,962
----------- ------------
PROPERTY AND EQUIPMENT
Land, building and improvements. . . . . . . . . . . . . . . . 3,074 3,074
Furniture and equipment. . . . . . . . . . . . . . . . . . . . 18,780 17,319
----------- ------------
21,854 20,393
Less accumulated depreciation. . . . . . . . . . . . . . . . . (8,124) (7,163)
----------- ------------
Total Property and Equipment. . . . . . . . . . . . . . . . 13,730 13,230
----------- ------------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 6,095 5,838
----------- ------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $ 104,288 $105,030
----------- ------------
----------- ------------
</TABLE>
See Notes to Financial Statements
-3-
<PAGE>
BRITE VOICE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 8,990 $ 10,552
Accrued salaries and wages . . . . . . . . . . . . . . . . . . 3,274 2,975
Other accrued expenses . . . . . . . . . . . . . . . . . . . . 4,160 3,578
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . 5,093 5,022
Customer deposits. . . . . . . . . . . . . . . . . . . . . . . 9,742 11,530
Income taxes payable . . . . . . . . . . . . . . . . . . . . . 1,606 1,259
----------- ------------
Total Current Liabilities . . . . . . . . . . . . . . . . . 32,865 34,916
----------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, no par value; authorized 10,000,000 shares;
none issued and outstanding . . . . . . . . . . . . . . . . -- --
Common stock, no par value; authorized 30,000,000 shares;
issued 12,113,705 shares - 1998; 12,032,280 shares - 1997 . 44,200 43,714
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 27,324 26,620
Accumulated other comprehensive income . . . . . . . . . . . . (101) (220)
----------- ------------
Total Stockholders' Equity. . . . . . . . . . . . . . . . . 71,423 70,114
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . . . $104,288 $ 105,030
----------- ------------
----------- ------------
</TABLE>
See Notes to Financial Statements
-4-
<PAGE>
BRITE VOICE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
--------- ----------
(Unaudited)
<S> <C> <C>
REVENUES
Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,948 $ 19,106
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,807 11,884
--------- ----------
29,755 30,990
--------- ----------
COSTS AND EXPENSES
Cost of Sales:
Systems . . . . . . . . . . . . . . . . . . . . . . . . . . 8,436 8,693
Services. . . . . . . . . . . . . . . . . . . . . . . . . . 6,723 6,833
Research and engineering . . . . . . . . . . . . . . . . . . . 3,507 3,075
Selling, general and administrative. . . . . . . . . . . . . . 10,196 10,384
--------- ----------
28,862 28,985
--------- ----------
INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . 893 2,005
OTHER INCOME, NET. . . . . . . . . . . . . . . . . . . . . . . . 363 76
--------- ----------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . 1,256 2,081
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . . . 560 790
--------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 696 $ 1,291
--------- ----------
--------- ----------
BASIC EARNINGS PER SHARE (Note 6). . . . . . . . . . . . . . . . $ .06 $ .11
--------- ----------
--------- ----------
DILUTED EARNINGS PER SHARE (Note 6). . . . . . . . . . . . . . . $ .06 $ .11
--------- ----------
--------- ----------
</TABLE>
See Notes to Financial Statements
-5-
<PAGE>
BRITE VOICE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------- -------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 696 $ 1,291
Items not requiring (providing) cash:
Depreciation and amortization . . . . . . . . . . . . . . . 918 1,154
Gain on disposition of assets . . . . . . . . . . . . . . . -- (15)
Changes in:
Accounts receivable . . . . . . . . . . . . . . . . . . . . (2,673) (3,735)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . (2,722) (2,356)
Accounts payable and accrued expenses . . . . . . . . . . . (626) 3,847
Other current assets and liabilities. . . . . . . . . . . . 1,265 975
------- -------
Net cash provided by (used in) operating activities . . . (3,142) 1,161
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment, net. . . . . . . . . . . . (1,361) (1,547)
Decrease (increase) in other assets. . . . . . . . . . . . . . 1,356 (982)
Proceeds from sale of property . . . . . . . . . . . . . . . . -- 16
------- -------
Net cash used in investing activities . . . . . . . . . . (5) (2,513)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock . . . . . . . . . . . . . . . . . . . 486 2
------- -------
Net cash provided by financing activities . . . . . . . . 486 2
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH. . . . . . . . . . . . . (134) (308)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . (2,795) (1,658)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . . . . . . . . 26,979 8,084
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . $ 24,184 $ 6,426
------- -------
</TABLE>
See Notes to Financial Statements
-6-
<PAGE>
BRITE VOICE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The 1998 and 1997 financial statements (except for the December 31, 1997
Balance Sheet) included herein have been prepared by the Company, without audit,
and reflect all adjustments (consisting only of those of a normal recurring
nature) which are, in the opinion of management, necessary to fairly present the
financial position, results of operations and cash flows for the interim
periods. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, although the Company believes that
the disclosures are adequate to make the information presented not misleading.
It is suggested that these condensed financial statements be read in conjunction
with the financial statements and the notes thereto for the year ended December
31, 1997, contained in the Company's Annual Report to Stockholders and Form 10-K
filed with the Securities and Exchange Commission.
2. Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Purchased parts $ 7,719 $ 5,417
Work in progress 6,664 5,401
Finished goods 2,230 2,970
---------- ------------
$ 16,613 $ 13,788
---------- ------------
---------- ------------
</TABLE>
3. On October 30, 1997, the Company consummated the sale of certain assets
used in its electronic publishing business for $35,000,000 in cash. The
business sold included: i) the management of audiotex systems installed on
customers' premises; ii) the creation and transmission by satellite of
information for access by telephone callers; iii) the creation and provision of
a variety of information for yellow pages publishers over the Internet; iv) the
sale of advertising sponsorships to various categories of audiotex information
made available through yellow pages publishers' audiotex systems; and v)
advertiser management services provided on behalf of yellow pages publishers
whereby advertising entities are contacted from an outbound call center for
periodic updating of their audiotex sponsorships and advertisements. Revenues
related to the business sold were $2,953,000 for the three months ended March
31, 1997 and are included in "Services Revenues" in the accompanying financial
statements.
4. Income taxes paid (refunded) during the three months ended March 31, 1998
and 1997 were ($2,294,800) and $157,000, respectively.
Interest paid during the three months ended March 31, 1998 and 1997 was
$18,000 and $4,000, respectively.
5. The Company has adopted Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting
and display of comprehensive income and its components. Other comprehensive
income (expense), consists of foreign currency translation of $119,000 and
($1,048,000) for the three months ended March 31, 1998 and 1997,
respectively. Total comprehensive income was $815,000 and $243,000 for the
three months ended March 31, 1998 and 1997, respectively.
-7-
<PAGE>
6. Following is a reconciliation of the weighted average shares used to
compute basic and diluted earnings per share (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
March 31, March 31,
1998 1997
-------- ---------
<S> <C> <C>
Basic weighted average shares outstanding 12,058 11,785
Options 142 358
-------- ---------
Diluted weighted average shares outstanding 12,200 12,143
-------- ---------
-------- ---------
</TABLE>
-8-
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission, including this Form 10-Q report, may contain certain
"forward-looking" information, as that term is defined by the Private Securities
Litigation Reform Act of 1995 (the "Act"). The words "expects," "anticipates,"
"believes" and similar words generally signify a "forward-looking" statement.
These forward-looking statements are made pursuant to the safe harbor provisions
of the Act. The reader is cautioned that all forward-looking statements are
necessarily speculative and that there are certain risks and uncertainties that
could cause actual events or results to differ materially from those referred to
in such forward-looking statements. Such risks and uncertainties include those
inherent in the voice processing, call processing and telecommunications
consulting industries, such as product demand, pricing, market acceptance,
reliance on significant customers, intellectual property rights, risks in
product and technology developments, and other risk factors detailed in the
section below entitled "Certain Factors to be Considered". The Company
undertakes no obligation to publicly revise any forward-looking statement due to
changes in circumstances after the date of this report, or to reflect the
occurrence of unanticipated events.
RESULTS OF OPERATIONS
The Company derives revenue from the sale of voice processing and call
processing systems to domestic and international customers and the provision of
services related to the operation of these systems, as well as the provision of
telecommunications management services. The Company's systems products can be
divided into two categories: those that increase its customers' revenues through
increased subscription or user fees ("network systems"), and those that reduce
customers' costs or improve the efficiency of services provided to end user
customers ("business systems").
Total revenues decreased $1,235,000, or 4.0%, for the three months ended
March 31, 1998, compared to the three months ended March 31, 1997. The three
months ended March 31, 1997 included $2,953,000 in revenues attributed to the
Company's electronic publishing division, which was sold in October 1997. With
revenues from this division excluded from 1997 results, total revenues would
have increased $1,718,000, or 6.1%. This increase was due primarily to
increases in managed services and telecommunications services revenues.
Systems revenues decreased $1,158,000, or 6.1%, for the three months
ended March 31, 1998. Business systems revenues increased while network
systems revenues decreased, as shown in the following table:
SYSTEMS REVENUES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31, % Increase
-----------------------
1998 1997 (Decrease)
-------- -------- ----------
<S> <C> <C> <C>
Business systems $ 5,910 $ 5,156 14.6 %
Network systems 12,038 13,950 (13.7)%
-------- --------
Total $ 17,948 $ 19,106 (6.1)%
-------- --------
-------- --------
</TABLE>
-9-
<PAGE>
The increase in business systems revenues of $754,000, or 14.6%, for the
three months ended March 31, 1998, was primarily due to the sale of several
large systems to new and existing customers. Network systems revenues
decreased $1,912,000, or 13.7%, for the three months ended March 31, 1998.
This decrease was due primarily to the presence of several large expansion
systems sold by the Company's European subsidiary during the three months
ended March 31, 1997, for which there were no comparable sales in 1998.
Services revenues decreased $77,000, or 0.6%, for the three months ended
March 31, 1998, principally due to the presence in 1997 of $2,953,000 in
revenues from the electronic publishing division. The electronic publishing
division was sold in October 1997 and no revenues were recorded in 1998. With
revenues from this division excluded from the 1997 results, services revenues
would have increased $2,876,000, or 32.2%. The breakdown of services revenues
is shown in the following table:
<TABLE>
<CAPTION>
SERVICES REVENUES
(IN THOUSANDS)
Three Months ended
March 31, % Increase
--------------------
1998 1997 (Decrease)
-------- ------ ----------
<S> <C> <C> <C>
Managed services $ 3,911 $3,272 19.5 %
Service contract and repair 3,516 3,761 (6.5)%
Information services -- 1,491 --
Telecommunications management
services 4,380 3,360 30.4 %
-------- ------
Total $ 11,807 $11,884 (0.6)%
-------- ------
-------- ------
</TABLE>
Managed services revenues increased $639,000, or 19.5%, for the three
months ended March 31, 1998. The 1997 results included $1,462,000 in revenues
attributed to the electronic publishing division. Excluding the revenues from
these products for 1997, managed services revenues would have increased
$2,101,000, or 116.0%, for the three months ended March 31, 1998. This increase
was primarily due to the commencement of contracts to provide prepaid calling
services to North American and European telecommunications providers.
Service contract and repair revenues decreased $245,000, or 6.5%, for the
three months ended March 31, 1998. The decrease was due primarily to a decrease
in installation revenues. These revenues are recognized as systems are
physically installed, and may fluctuate due to customers' timing requirements.
No information services revenue was recorded in 1998 due to the sale of the
electronic publishing division in October 1997.
Telecommunications management services consists of three principal
products: software and managed services, professional services and billing
verification services. Revenues increased $1,020,000, or 30.4%, for the three
months ended March 31, 1998. Software and managed services revenues increased by
$721,000, or 60.5%, for the three months ended March 31, 1998. Professional
services revenues increased $68,000, or 5.3%, for the three months ended March
31, 1998, These services revenues increased primarily due to an increase in the
number of customers utilizing the Company's professional and software services.
Billing verification revenues increased $231,000, or 25.8%, for the three months
ended March 31, 1998 due to an increase in the average size of refunds during
the quarter.
-10-
<PAGE>
Cost of systems sales decreased $257,000, or 3.0%, for the three months
ended March 31, 1998. As a percentage of systems sales, actual costs increased
to 47.0% in 1998, compared to 45.5% for 1997. Actual costs decreased due
primarily to a decrease in the number of systems shipped by the Company. The
increase as a percentage of revenues was due primarily to an increase in costs
associated with the Company's European operations. Systems sales for the
quarter ended March 31, 1998 included a larger number of customized sales, which
have a higher cost of sales and, therefore, lower margins.
Cost of services decreased $110,000, or 1.6%, for the three months ended
March 31, 1998. As a percentage of services revenues, these costs were 56.9% in
1998. If the costs associated with the electronic publishing division were
removed from the 1997 results, on a comparative basis costs would have increased
$1,317,000, or 24.4%, and as a percentage of revenues would have declined from
60.5% in 1997 to 56.9% in 1998. The increase in actual costs was due primarily
to the commencement during the fourth quarter of 1997 of contracts under which
the Company provided prepaid calling services on a managed services basis. The
improvement in margins was due to the receipt of a set-up fee from a new
customer, which had no costs associated with the revenues.
Research and engineering expenses increased $432,000, or 14.0%, for the
three months ended March 31, 1998. The increase in actual expenditures was due
to an increase in staff dedicated to designing new products and enhancing
existing products. As a percentage of revenues, these expenses increased to
11.8% in 1998, compared to 9.9% in 1997. The Company believes that it must
continue to increase spending on research and engineering activities in absolute
terms in order to remain competitive in the voice and call processing market.
Such expenses could continue to increase as a percentage of revenues as well.
Selling, general and administrative expenses decreased $188,000, or 1.8%,
for the three months ended March 31, 1998. As a percentage of revenues, these
expenses increased to 34.3% in 1998, compared to 33.5% in 1997. The decline in
actual costs was due to a reduction in the number of employees performing these
functions resulting from the restructuring of the Company in June 1997. The
increase as a percentage of revenues was due to the absence of electronic
publishing revenues during the first quarter of 1998, which had low selling,
general and administrative costs in relation to the remainder of the Company's
products and services.
The effective income tax rate for the three months ended March 31, 1998 was
45%, compared to 38% in 1997. The variances from the United States statutory
rate for 1998, and the increase from 1997, were due primarily to losses by
certain of the Company's foreign subsidiaries for which the benefit received was
less than the United States effective rate.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had a current ratio of 2.6 to 1 and
working capital of $51,598,000, compared to a current ratio of 2.5 to 1 and
working capital of $51,046,000 at December 31, 1997.
Cash flows from operating activities utilized net cash of $3,142,000 for
the three months ended March 31, 1998, principally due to increases in accounts
receivable and inventory. The increase in accounts receivable is due to the
longer payment cycles associated with international customers. The increase in
inventory is primarily due to the purchase of parts needed to fulfill a large
contract to be delivered beginning in the second quarter.
The Company regularly invests excess funds in short-term securities, such
as bankers' acceptances, government obligations and variable rate demand notes,
having maturities up to one year.
-11-
<PAGE>
Management believes that restricting investments to these types of securities
maximizes financial flexibility and minimizes exposure to interest rate and
market risks. The Company utilizes these investments as a source of
liquidity, to the extent that cash requirements exceed short-term cash
receipts.
The Company maintains a $10,000,000 line of credit that is used from time
to time to fund short-term cash requirements. There were no borrowings
outstanding under the line as of March 31, 1998.
INFLATION
Inflation has not had a material impact on the Company's results of
operations. Because of the competitive nature of the computer industry, the
costs of parts used in the Company's products have remained relatively stable.
However, should inflation rise to higher levels, the Company believes that such
inflationary costs would be passed on to customers by both the Company and its
competition.
CERTAIN FACTORS TO BE CONSIDERED
The Company has historically operated with very little backlog. There are
no long-term supply agreements with customers and, as a result, revenues in any
quarter are dependent upon orders that are received and shipped during the
quarter. Further, a large percentage of any quarter's system shipments are
recorded in the last month of the quarter. Consequently, quarterly revenues and
operating results will depend on the volume and timing of new orders received
during a quarter, which are difficult to predict. Failure to receive adequate
amounts of new orders could adversely affect revenues and operating results, and
such shortfalls may not be known until very late in any quarter.
The Company faces a number of risks in conducting its international
business that do not affect its domestic business, including greater
concentration of business with fewer customers, longer payment cycles, greater
difficulty in accounts receivable collection and difficulty in staffing and
managing foreign subsidiary operations. Installation of the Company's products
outside the United States requires that the Company conform to local telephone
and electrical regulations. The Company has traditionally relied on its
suppliers to obtain the necessary registrations in order for the Company to
install products within specific countries. There can be no assurance that
these factors will not have an adverse impact on the Company's future
international sales or operating results.
The voice processing industry is subject to rapid technological change,
including continuing improvements in hardware and software performance. In
order to maintain its competitive position, the Company must continually release
new products and develop enhancements and new features for its existing products
on a timely basis. There can be no assurance that the Company will be
successful in developing and marketing, on a timely basis, product modifications
or enhancements, or new products that respond to technological advances by
others, or that such new or enhanced products or features will adequately and
competitively address the needs of the marketplace. Because of the increasing
complexity of the Company's products, these efforts can be expected to continue
to increase in technical difficulty. Moreover, the Company must manage product
transitions successfully, since announcements or introductions, or the
perception that such events are likely to occur, by either the Company or its
competitors, could adversely affect sales of existing products.
The Company's telecommunications managed services revenues have fluctuated
significantly since this division was acquired in August 1995. In addition,
gross margins have fluctuated due to a shift in revenues away from high margin
billing verification revenues to lower margin software and professional services
revenues. Although the Company believes that the prospects for this business
remain promising on a long-term basis, it is currently evaluating the strategic
significance of this business
-12-
<PAGE>
unit, and because of its inconsistent operating results, may choose to sell
or otherwise dispose of this business unit.
The Company's success is largely dependent upon its ability to attract and
retain qualified employees, especially technical employees and executives.
There exists substantial competition for highly qualified personnel and there
can be no assurance that the Company will be successful in hiring and retaining
the required personnel. The Company has experienced some attrition in its work
force as a result of the relocation of its headquarters to Orlando.
On December 18, 1997, the Company announced that it had signed an agreement
with AT&T Corp. to provide enhanced telecommunications products. The initial
order under this contract was for approximately $25 million, and represents the
largest single contract in the Company's history. Fulfillment of this contract,
which is expected to begin during the second quarter of 1998, has required and
will continue to require extensive software development, integration and
testing. The contract provides for substantial financial penalties in the event
that the product is not timely delivered, causes a network outage or fails to
meet service availability requirements. Therefore, the failure of the Company
to fulfill its obligations under this contract would be expected to materially
and adversely affect the Company's operating results and financial condition.
Further, the magnitude of the development required may preclude the Company from
completing other development activities that may be planned.
For quality control, ease of development and purchasing efficiencies, the
Company has elected to purchase components from one supplier. Although the
Company has been able to obtain supplies of these components in a timely manner,
the interruption in supply of any of these components could have an adverse
impact on the Company's revenues and operating results. While the Company
believes that other suppliers could provide required components in the event of
an interruption in supply, a change in suppliers could cause a delay in
manufacturing and a possible loss of sales, which would adversely affect
operating results.
The Company has periodically received, and may receive in the future,
communications from third parties asserting patent rights or copyrights on
certain of the Company's products and product features. The Company believes
that its products and other proprietary rights do not infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not assert infringement claims against the Company in the future, or that
any such claims will not require the Company to enter into license arrangements
or result in protracted and costly litigation, regardless of the merits of such
claims. There also can be no assurance that the Company will be able to obtain
licenses to disputed third party technology or that such licenses, if available,
would be available on commercially reasonable terms.
The market for the Company's stock is highly volatile. Any variance in
operating results from analysts' expectations or changes in estimated results by
industry analysts could have an adverse affect on the trading price of the
Company's common stock in a given period. Furthermore, in recent years the
market prices of securities of many high technology companies have experienced
extreme fluctuations, in many cases for reasons unrelated to the operating
performance of the specific companies. These broad market fluctuations may
adversely affect the market price of the Company's common stock.
The Company is in the process of developing a plan to identify and resolve
all of the Company's issues relating to the "Millennium Bug". This issue arises
because of the date sensitive software programs which use two digits to define
the applicable year, resulting in interpretation of a date using "00" as the
year 1900 rather than 2000. This could result in miscalculations or a major
system failure. This issue affects the Company's internal information systems
and could impact software systems sold and delivered to customers. During 1997,
the Company began the conversion of its accounting,
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<PAGE>
inventory, manufacturing control and human resources systems to a "Year 2000"
compliant system. The Company anticipates that this process will be
completed during 1998. Concurrently, the Company will conduct a review of all
of its software systems and products provided to customers to determine what
impact this issue will have on products currently being produced, as well as
those systems that have been sold during the last several years. The Company
believes that the products it sells will not require significant modification
in order to become Year 2000 compliant and that the costs to do so will not
be material. However, if such modifications and conversions are not made, or
not completed in a timely manner, this issue could materially and adversely
affect the Company's operating results and financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 10.1 - Employment Agreement dated October 12, 1997 between the
Company and Garrett H. Digman.
Exhibit 27 - Financial Data Schedule.
(b) On January 13, 1998, the Company filed a report on Form 8-K in which
it reported the appointment of David S. Gergacz as Chairman of the
Board of Directors, and the resignation of former Chairman Stanley G.
Brannan and former Executive Vice President Alan C. Maltz.
-15-
<PAGE>
SIGNATURE
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.
Dated: May 14, 1998
BRITE VOICE SYSTEMS, INC.
/s/ Glenn A. Etherington
--------------------------------------------------
Glenn A. Etherington
Chief Financial Officer
Duly Authorized Officer on behalf of the Registrant
-16-
<PAGE>
INDEX TO EXHIBITS
Exhibit 10.1 Employment Agreement dated October 12, 1997 between the Company
and Garrett H. Digman.
Exhibit 27 Financial Data Schedule.
-17-
<PAGE>
EXHIBIT 10.1
BRITE VOICE SYSTEMS, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
THIS Employment Agreement ("Agreement") is made and entered into
this 12th day of October, 1997, by and between Garrett Digman ("Employee")
and Brite Voice Systems, Inc. ("Brite").
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and in consideration of the covenants
and obligations herein contained, the parties hereto agree as follows:
1. EMPLOYMENT AND DUTIES. From and after October 12, 1997,
("Commencement Date") Brite shall employ Employee as Vice President of
Marketing. Employee shall report to Brite's President or as the President may
otherwise direct. Employee shall use his best and most diligent efforts on a
full time, exclusive basis to promote the best interests of Brite.
2. COMPENSATION AND BENEFITS.
A. SALARY. Employee's initial annual salary shall be $130,000 ("Base
Salary") payable pursuant to Brite's customary payroll policies in force
at the time of payment.
B. BONUS. For each year of employment commencing with calendar year
1997, Employee will be entitled to participate in an incentive compensation
program which shall be based on the performance of Employee measured
against performance targets established for Employee. For calendar year
1997, such bonus program shall provide for aggregate bonus compensation of
50% of base compensation, prorated for the last quarter of the year, if
targeted performance is attained. The bonus will be based on personal
objectives determined by the CEO. For years subsequent to calendar year
1997, Employee will be entitled to participate in such incentive
compensation programs as shall be established for other employees of Brite
holding positions of similar responsibility. In these future years 50% of
this bonus will be based on overall financial results of the company.
C. BENEFITS. Employee will be entitled to participate in Brite's standard
benefits provided to other employees having similar responsibilities with
Brite, as established and/or modified by Brite from time to time,
including, but not limited to, paid vacation time, life insurance, health
insurance and dental insurance. Employee will receive four weeks of
vacation.
D. BUSINESS EXPENSES. Pursuant to Brite's customary policies in force at
the time of payment, employee shall be promptly reimbursed against
presentation of
1
<PAGE>
vouchers or receipts, for all authorized expenses properly incurred
by him in the performance of his duties hereunder.
C. OPTIONS TO PURCHASE COMMON STOCK. Subject to approval of the Board of
Directors, Brite shall grant Employee an option to purchase 10,000 shares
of Brite's common stock. The terms of such option grant shall be set forth
in a stock option agreement, with the stock price being established at the
close of business on the grant date. The stock option agreement shall
provide that the options granted thereunder shall vest ratably over a four
year period, subject to the terms of the Company's 1994 Stock Option Plan.
3. TERM AND TERMINATION.
A. TERM. Employee's employment with Brite pursuant to this
Agreement shall begin on the Commencement Date and shall extend to notice
by the company of termination of this agreement.
B. TERMINATION FOR CAUSE. If Employee's employment is terminated during
the Employment Period and such termination is a termination for Cause,
Employee shall be entitled to payment of his Base Salary to the date of
termination, accrued bonus (if any) and benefits existing at the time of
termination of his employment. Termination for Cause means one or more of:
(I) voluntary termination of employment by Employee for any reason; (ii)
the death of Employee; (iii) Employee having been unable to render services
required of him hereunder for a consecutive period of six months in any
twelve month period because of a serious and continuing health impairment,
which impairment will most likely result in Employee's continued inability
to render the services required of him hereunder; (iv) Employee's
misappropriation of corporate funds; (v) Employee's conviction of a felony;
(vi) Employee's conviction of any crime involving theft, dishonesty, or
moral turpitude; (vii) Employee's failure to devote substantially his full
business time to Brite as provided in Section 1 hereof; (viii)
falsification of any material representation made by Employee to Brite; or
(ix) the commission by Employee of a material breach of the terms of this
Agreement.
C. TERMINATION OTHER THAN FOR CAUSE. If Employee's employment with Brite
is terminated and such termination is not a Termination for Cause, Employee
shall be entitled to severance pay according to Brite's severance policy
then in effect, plus that portion of Employee's Base Salary, bonus and
benefits that had accrued as of the termination date. The foregoing
payments and benefits shall constitute full satisfaction of any and all
payments or benefits that might otherwise be due Employee hereunder.
4. RELOCATION EXPENSES. Employee shall receive relocation expenses in
the form of a lump sum payment of $20,000.
2
<PAGE>
5. NOTICES. Any notice permitted or required to be given under this
Agreement shall be sufficient if in writing and delivered personally or by
registered mail return receipt requested, if to Employee, at his residence
address as reflected in Brite's records, and if to Brite, to the attention of
President, Brite Voice Systems, Inc., 250 International Parkway, Suite 300,
Heathrow, Florida 32746. A party may change its address for receipt of
notices by complying with this section.
6. NON-DISCLOSURE OF TERMS. The terms of this Agreement are to be
kept confidential by Employee and shall not be disclosed by Employee to any
third party without the express written consent of Brite. Any breach of the
preceding sentence shall terminate Employee's right, if any, to receive
payment under Section 3(C)(i).
7. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties in respect of its subject matter and supersedes
all prior agreements and understandings between the parties with respect to
such subject matter; provided, however, that the terms of any Confidentiality
and Non-compete Agreement heretofore entered into between the Employee and
Brite shall remain in effect unless expressly amended by the terms of a
written agreement between the Employee and Brite.
8. AMENDMENT: WAIVER. This Agreement may not be amended,
supplemented, canceled or discharged except by written instrument executed by
the party affected thereby. No failure to exercise, and no delay in
exercising, any right, power or privilege hereunder shall operate as a waiver
thereof. No waiver of any provision of this agreement shall be deemed to be
a waiver of any preceding or succeeding breach of the same or any other
provision.
9. BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind an inure to the benefit of successor of Brite by
reorganization, merger or consolidation or any assignee of all or
substantially all of Brite's business and properties. Employee's rights or
obligations under this agreement may not be assigned by Employee, except that
upon Employee's death, all right to compensation hereunder shall pass to
Employee's executor or administrator.
10. HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
11. GOVERNING LAW; INTERPRETATION. This Agreement shall be construed
in accordance with, and governed for all purposes by, the laws and public
policy of the State of Florida applicable to contracts executed and to be
wholly performed within such State.
3
<PAGE>
12. FURTHER ASSURANCES. Each of the parties agrees to execute,
acknowledge, deliver and perform, and/or cause to be executed, acknowledged,
delivered and performed, at any time and/or from time to time, as the case
may be, all such further acts, documents, transfers, conveyances, and/or
assurances as may be necessary and/or proper to carry out the provisions
and/or intent of this Agreement.
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement effective the date first above written.
BRITE VOICE SYSTEMS, INC.
By /s/ D. S. Gergacz
--------------------------
Name D.S. Gergacz
------------------------
Title CEO
------------------------
EMPLOYEE
/s/ G.H. Digman
------------------------
Name G.H. Digman
--------------------
10-12-97
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 24,184
<SECURITIES> 0
<RECEIVABLES> 37,692
<ALLOWANCES> 1,382
<INVENTORY> 16,613
<CURRENT-ASSETS> 84,463
<PP&E> 21,854
<DEPRECIATION> 8,124
<TOTAL-ASSETS> 104,288
<CURRENT-LIABILITIES> 32,865
<BONDS> 0
44,200
0
<COMMON> 0
<OTHER-SE> 27,223
<TOTAL-LIABILITY-AND-EQUITY> 104,288
<SALES> 17,948
<TOTAL-REVENUES> 29,755
<CGS> 8,436
<TOTAL-COSTS> 28,862
<OTHER-EXPENSES> (363)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,256
<INCOME-TAX> 560
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 696
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
